8. Related Parties

Equity Method Investments

The Company, directly or indirectly, holds investments in companies that are accounted for under the equity method. The Company's equity in these entities is presented at cost plus its accumulated proportional share of income or loss, less any distributions it has received.

In January 2003, the Company became a minority investor in LTG, which focuses on grain merchandising as well as trading related to the energy and biofuels industry. The Company has increased its investment in LTG over time. As a result of share redemptions by LTG, the Company's ownership percentage in LTG increased to 52% during the second quarter of 2010. Even though the Company holds a majority of the outstanding shares, all major operating decisions of LTG are made by LTG's Board of Directors and the Company does not have a majority of the board seats. In addition, based on the terms of the operating agreement between LTG and its owners, the minority shareholders have substantive participating rights that allow them to effectively participate in the decisions made in the ordinary course of business that are significant to LTG. Due to these factors, the Company does not have control over LTG and therefore accounts for this investment under the equity method. The Company sells and purchases both grain and ethanol with LTG in the ordinary course of business on terms similar to sales and purchases with unrelated customers.

In 2005, the Company became a minority investor in The Andersons Albion Ethanol LLC ("TAAE"). TAAE is a producer of ethanol and its co-product distillers dried grains ("DDG") at its 55 million gallon-per-year ethanol production facility in Albion, Michigan. The Company operates the facility under a management contract and provides corn origination, ethanol and DDG marketing and risk management services for which it is separately compensated. The Company also leases its Albion, Michigan grain facility to TAAE. During the third quarter of 2010, the Company purchased 59 additional units of TAAE from one of its investors. This purchase gives the Company 5,001 units, or a 50.01% ownership interest. While the Company holds a majority of the outstanding units of TAAE, a super-majority vote is required for all major operating decisions of TAAE based on the terms of the Operating Agreement. The Company has concluded that the super-majority vote requirement gives the minority shareholders substantive participating rights and therefore consolidation for book purposes is not appropriate. The Company accounts for its investment in TAAE under the equity method of accounting.

In 2006, the Company became a minority investor in The Andersons Clymers Ethanol LLC ("TACE"). TACE is also a producer of ethanol and its co-product DDG at a 110 million gallon-per-year ethanol production facility in Clymers, Indiana. The Company operates the facility under a management contract and provides corn origination, ethanol and DDG marketing and risk management services for which it is separately compensated. The Company also leases its Clymers, Indiana grain facility to TACE.

In 2006, the Company became a 50% investor in The Andersons Marathon Ethanol LLC ("TAME"). TAME is also a producer of ethanol and its co-product DDG at a 110 million gallon-per-year ethanol production facility in Greenville, Ohio. In January 2007, the Company transferred its 50% share in TAME to The Andersons Ethanol Investment LLC ("TAEI"), a consolidated subsidiary of the Company, of which a third party owns 34% of the shares. The Company operates the facility under a management contract and provides corn origination, ethanol and DDG marketing and risk management services for which it is separately compensated. In 2009 TAEI invested an additional $1.1 million in TAME, retaining a 50% ownership interest.

The Company has marketing agreements with the three ethanol LLCs under which the Company purchases and markets the ethanol produced to external customers. As compensation for these marketing services, the Company earns a fee on each gallon of ethanol sold. For two of the LLCs, the Company purchases 100% of the ethanol produced and then sells it to external parties. For the third LLC, the Company buys only a portion of the ethanol produced. The Company acts as the principal in these ethanol sales transactions to external parties as the Company has ultimate responsibility of performance to the external parties. Substantially all of these purchases and subsequent sales are executed through forward contracts on matching terms and, outside of the fee the Company earns for each gallon sold, the Company does not recognize any gross profit on the sales transactions. For the years ended December 31, 2011, 2010 and 2009, revenues recognized for the sale of ethanol purchased from related parties were $678.8 million, $482.6 million and $402.1 million, respectively. In addition to the ethanol marketing agreements, the Company holds corn origination agreements, under which the Company originates 100% of the corn used in production for each ethanol LLC. For this service, the Company receives a unit based fee. Similar to the ethanol sales described above, the Company acts as a principal in these transactions, and accordingly, records revenues on a gross basis. For the years ended December 31, 2011, 2010 and 2009, revenues recognized for the sale of corn under these agreements were $706.6 million, $445.6 million and $404.2 million, respectively. As part of the corn origination agreements, the Company also markets the ethanol DDG produced by the entities. For this service the Company receives a unit based fee. The Company does not purchase any of the DDG from the ethanol entities; however, as part of the agreement, the Company guarantees payment by the customer for DDG sales where the Company has identified the buyer. At December 31, 2011 and 2010, the three ethanol entities had a combined receivable balance for DDG of $7.8 million and $6.8 million, respectively, of which only $3,000 and $15,000, respectively, was more than thirty days past due. The Company has concluded that the fair value of this guarantee is inconsequential.

From time to time, the Company enters into derivative contracts with certain of its related parties, including the ethanol LLCs and LTG, for the purchase and sale of corn and ethanol, for similar price risk mitigation purposes and on similar terms as the purchase and sale of derivative contracts it enters into with unrelated parties. At December 31, 2011, the fair value of derivative contracts with related parties was a gross asset and liability of $0.6 million and $1.9 million, respectively.

The following table presents aggregate summarized financial information of LTG, TAAE, TACE and TAME as they qualified as significant subsidiaries in the aggregate. LTG was the only equity method investment that qualified as a significant subsidiary individually for the years ended December 31, 2011 and 2010.


	December 31,
(in thousands)	2011		2010		2009
Sales	$	6,938,345	$	4,707,422	$	3,436,192
Gross profit		168,383		133,653		106,755
Income from continuing operations		90,510		59,046		37,439
Net income		87,673		57,691		37,757

Current assets		707,400		697,371
Non-current assets		336,554		352,441
Current liabilities		514,617		550,463
Non-current liabilities		100,315		115,735
Noncontrolling interest		26,799		31,294

The following table summarizes income earned from the Company's equity method investees by entity:


(in thousands)	% ownership at December 31, 2011 (direct and indirect)	2011		December 31, 2010		2009
The Andersons Albion Ethanol LLC	50%	$	5,285	$	3,916	$	5,735
The Andersons Clymers Ethanol LLC	38%		4,341		5,318		2,965
The Andersons Marathon Ethanol LLC	50%		8,089		1,117		2,936
Lansing Trade Group, LLC	52% *		23,558		15,133		5,781
Other	7%-33%		177		523		46

Total		$	41,450	$	26,007	$	17,463

*	This does not consider restricted management units which once vested will reduce the ownership percentage by approximately 2%

Total distributions received from unconsolidated affiliates were $17.8 million for the year ended December 31, 2011. The balance in retained earnings at December 31, 2011 that represents undistributed earnings of the Company's equity method investments is $66.5 million.

The following table presents the Company's investment balance in each of its equity method investees by entity:


	December 31,
(in thousands)	2011		2010
The Andersons Albion Ethanol LLC	$	32,829	$	31,048
The Andersons Clymers Ethanol LLC		40,001		37,496
The Andersons Marathon Ethanol LLC		43,019		34,929
Lansing Trade Group, LLC		81,209		70,143
Other		2,003		1,733

Total	$	199,061	$	175,349

Investment in Debt Securities

During the second quarter of 2010, the Company paid $13.1 million to acquire 100% of newly issued cumulative convertible preferred shares of Iowa Northern Railway Corporation ("IANR"), which operates a short-line railroad in Iowa. As a result of this investment, the Company has a 49.9% voting interest in IANR, with the remaining 50.1% voting interest held by the common shareholders. The preferred shares purchased by the Company have certain rights associated with them, including voting, dividends, liquidation, redemption and conversion. Dividends accrue to the Company at a rate of 14% annually whether or not declared by IANR and are cumulative in nature. The Company can convert its preferred shares into common shares of IANR at any time, but the shares cannot be redeemed until after five years. This investment is accounted for as "available-for-sale" debt securities in accordance with ASC 320 and is carried at estimated fair value in other noncurrent assets on the Company's Consolidated Balance Sheets. The estimated fair value of the Company's investment in IANR as of December 31, 2011 was $20.4 million. Dividends received for the year ended December 31, 2011 were $0.9 million.

Based on the Company's assessment, IANR is considered a variable interest entity (VIE). Since the Company does not possess the power to direct the activities of the VIE that most significantly impact the entity's economic performance, it is not considered to be the primary beneficiary of IANR and therefore does not consolidate IANR. The decisions that most significantly impact the economic performance of IANR are made by IANR's Board of Directors. The Board of Directors has five directors; two directors from the Company, two directors from the common shareholders and one independent director who is elected by unanimous decision of the other four directors. The vote of four of the five directors is required for all key decisions.

The Company's current maximum exposure to loss related to IANR is $22.3 million, which represents the Company's investment at fair value plus unpaid accrued dividends to date of $1.9 million. The Company does not have any obligation or commitments to provide additional financial support to IANR.

In the ordinary course of business, the Company will enter into related party transactions with each of the investments described above, along with other related parties. The following table sets forth the related party transactions entered into for the time periods presented:


	December 31,
(in thousands)	2011		2010		2009
Sales and revenues	$	864,216	$	531,452	$	474,724
Purchases of product		636,144		454,314		411,423
Lease income (a)		6,128		5,431		5,442
Labor and benefits reimbursement (b)		10,784		10,760		10,195
Other expenses (c)		192		—		—
Accounts receivable at December 31 (d)		14,730		14,991		13,641
Accounts payable at December 31 (e)		24,530		13,930		18,069

(a)	Lease income includes the lease of the Company's Albion, Michigan and Clymers, Indiana grain facilities as well as certain railcars to the various LLCs and IANR.

(b)	The Company provides all operational labor to the ethanol LLCs and charges them an amount equal to the Company's costs of the related services.

(c)	Other expenses include payments to IANR for repair shop rent and use of their railroad reporting mark.

(d)	Accounts receivable represents amounts due from related parties for sales of corn, leasing revenue and service fees.

(e)	Accounts payable represents amounts due to related parties for purchases of ethanol.

The Company has a processing agreement with Midwest Renewable Energy, LLC ("MRE") through its acquisition of B4 Grain, Inc. which was completed on December 31, 2010. The agreement stipulates that the Company supplies a sufficient quantity of corn to MRE to allow for ethanol processing at full capacity which the Company will then market on their behalf. The Company has evaluated all of the applicable criteria for an entity subject to consolidation under the provisions of ASC 810-10-15 and has concluded that MRE is considered a VIE. However, as the Company does not have the power to direct the activities that most significantly impact MRE's economic performance, and does not have the obligation to absorb the losses or right to receive the benefits of MRE, it is not the primary beneficiary of MRE. Therefore, consolidation is not required under the variable interest model. There is no significant risk of loss to the Company relating to this VIE as the Company does not have any equity at risk or obligation to provide additional financial support to MRE.