Related Party Transactions

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 does not hold a majority of the outstanding shares. In addition, 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. 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.

On January 22, 2014, the Company entered into an agreement with LTG for a partial redemption of the Company's investment in LTG for $60 million. At the time of redemption, the Company's interest in LTG reduced from approximately 47.5 percent to approximately 39.2 percent on a fully diluted basis. A portion of the proceeds ($28.5 million) was considered a distribution of earnings and reduced the Company's cost basis in LTG. The difference between the remaining proceeds of $31.5 million and the new cost basis of the shares sold, net of deal costs, resulted in a book gain of $17.1 million ($10.7 million after tax) and was recorded in Other Income.

In 2005, the Company became an investor in The Andersons Albion Ethanol LLC (“TAAE”). TAAE is a producer of ethanol and its co-products DDG and corn oil 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, corn oil and DDG marketing and risk management services. The Company is separately compensated for all such services except corn oil marketing. The Company also leases its Albion, Michigan grain facility to TAAE. While the Company now holds 53% 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-products DDG and corn oil 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, corn oil 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 minority investor in The Andersons Marathon Ethanol LLC (“TAME”). TAME is also a producer of ethanol and its co-products DDG and corn oil 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, corn oil 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 TAAE, TACE, and TAME ("the three unconsolidated 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 all 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, 2014, 2013 and 2012, revenues recognized for the sale of ethanol purchased from related parties were $584.2 million, $613.7 million and $683.1 million, respectively. In addition to the ethanol marketing agreements, the Company holds corn origination agreements, under which the Company originates all of the corn used in production for each unconsolidated 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, 2014, 2013 and 2012, revenues recognized for the sale of corn under these agreements were $480.2 million, $719.5 million and $676.3 million, respectively. As part of the corn origination agreements, the Company also markets the 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 buyer for DDG sales. At December 31, 2014 and 2013, the three unconsolidated ethanol entities had a combined receivable balance for DDG of $7.7 million and $9.2 million, respectively, of which $84.7 thousand and $3.1 thousand, respectively, was more than thirty days past due. In the fourth quarter of 2014, the three unconsolidated ethanol LLCs reached agreement with its owners and were able to write-off the customer's contracts that were in default due to DDG import issues in China. As such the Company was able to reverse its guarantee liability recorded in the third quarter for these contracts. As the Company has not experienced historical losses and the DDG receivable balances greater than thirty days past due is immaterial, the Company has concluded that the fair value of this guarantee is inconsequential.

On July 31, 2013, the Company, along with Lansing Trade Group, LLC established joint ventures that acquired 100% of the stock of Thompsons Limited, including its investment in the related U.S. operating company, for a purchase price of $152 million, which included an adjustment for excess working capital. The purchase price included $48 million cash paid by the Company, $40 million cash paid by LTG, and $64 million of external debt at Thompsons Limited. As part of the purchase LTG also contributed a Canadian branch of its business to Thompsons Limited. Each Company owns 50% of the investment. Thompsons Limited is a grain and food-grade bean handler and agronomy input provider, headquartered in Blenheim, Ontario, and operates 12 locations across Ontario and Minnesota. The Company does not hold a majority of the outstanding shares of Thompsons Limited joint ventures. All major operating decisions of these joint ventures are made by their Board of Directors and the Company does not have a majority of the board seats. Due to these factors, the Company does not have control over these joint ventures and therefore accounts for these investments under the equity method of accounting.

The following table presents aggregate summarized financial information of LTG, TAAE, TACE, TAME, Thompsons Limited, and other various investments as they qualified as significant equity method investees in the aggregate. No equity investments qualified as significant for the year ended December 31, 2014. LTG qualified as a significant equity method investee individually for the years ended December 31, 2013 and 2012.



	December 31,
(in thousands)	2014		2013		2012
Sales	$	8,152,313	$	10,232,395	$	8,080,741
Gross profit	396,774		305,016		130,241
Income from continuing operations	233,831		148,583		34,161
Net income	219,431		144,699		32,451

Current assets	1,482,110		1,406,200
Non-current assets	558,138		508,319
Current liabilities	1,153,101		1,040,762
Non-current liabilities	381,646		244,910
Noncontrolling interests	13,953		20,118

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



	December 31,
(in thousands)	2014		2013
The Andersons Albion Ethanol LLC	$	27,824	$	40,194
The Andersons Clymers Ethanol LLC	37,624		44,418
The Andersons Marathon Ethanol LLC	31,537		46,811
Lansing Trade Group, LLC	78,696		106,028
Thompsons Limited (a)	48,455		49,833
Other	2,721		3,825
Total	$	226,857	$	291,109


(a)	Thompsons Limited and related U.S. operating company held by joint ventures

The Company identified and corrected an error in the valuation of the cumulative translation adjustment for the investment in Thompsons Limited. The impact of this error on annual and interim periods previously reported was determined to be immaterial to the Consolidated Financial Statements. The adjustment decreases other comprehensive income, equity method investments, and deferred income tax liability by $3.2 million, $3.6 million, and $0.4 million respectively. The correction related to the years 2013 and 2014 and was recorded during the fourth quarter of 2014.

The following table summarizes income (losses) earned from the Company’s equity method investments by entity:



	% ownership at December 31, 2014 (direct and indirect)	December 31,
(in thousands)	% ownership at December 31, 2014 (direct and indirect)	2014		2013		2012
The Andersons Albion Ethanol LLC	53%	$	19,814	$	10,469	$	(497	)
The Andersons Clymers Ethanol LLC	38%	21,840		11,299		(3,828		)
The Andersons Marathon Ethanol LLC	50%	27,226		13,815		(8,273		)
Lansing Trade Group, LLC	40% (a)	23,266		31,212		28,559
Thompsons Limited (b)	50%	4,140		1,634		—
Other	5%-34%	237		276		526
Total		$	96,523	$	68,705	$	16,487


(a)	This does not consider the restricted management units which once vested will reduce the ownership percentage by approximately 1.5%.


(b)	Thompsons Limited and related U.S. operating company held by joint ventures

Total distributions received from unconsolidated affiliates were $140.3 million for the year ended December 31, 2014. The balance at December 31, 2014 that represents the undistributed earnings of the Company's equity method investments is $83.4 million.

Investment in Debt Securities

The Company owns 100% of the 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 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 May 2015. 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 Sheet. The estimated fair value of the Company’s investment in IANR as of December 31, 2014 was $13.3 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 $20.9 million, which represents the Company’s investment at fair value plus unpaid accrued dividends to date of $7.6 million. The Company does not have any obligation or commitments to provide additional financial support to IANR.

Related Party Transactions

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)	2014		2013		2012
Sales revenues	$	1,062,377	$	1,315,234	$	1,031,458
Service fee revenues (a)	23,093		23,536		22,165
Purchases of product	604,067		704,948		655,686
Lease income (b)	6,381		6,223		6,995
Labor and benefits reimbursement (c)	11,707		10,613		12,140
Other expenses (d)	1,224		2,349		1,093
Accounts receivable at December 31 (e)	25,049		21,979		28,610
Accounts payable at December 31 (f)	17,687		19,887		17,804


(a)	Service fee revenues include management fee, corn origination fee, ethanol and DDG marketing fees, and other commissions.


(b)	Lease income includes the lease of the Company’s Albion, Michigan and Clymers, Indiana grain facilities as well as certain railcars to the unconsolidated ethanol LLCs and IANR.


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


(d)	Other expenses include payments to IANR for repair facility rent and use of their railroad reporting mark, payment to LTG for the lease of railcars and other various expenses.


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


(f)	Accounts payable represents amounts due to related parties for purchases of ethanol and other various items.

From time to time, the Company enters into derivative contracts with certain of its related parties, including the unconsolidated ethanol LLCs, LTG, and the Thompsons Limited joint ventures, for the purchase and sale of grain and ethanol, for similar price risk mitigation purposes and on similar terms as the purchase and sale derivative contracts it enters into with unrelated parties. The fair value of derivative contracts with related parties was a gross asset for the years ended December 31, 2014 and 2013 of $1.4 million and $8.9 million, respectively. The fair value of derivative contracts with related parties was a gross liability for the years ended December 31, 2014 and 2013 of $3.8 million and $1.2 million, respectively.