Related Party Transactions | 3 Months Ended |
Mar. 31, 2014 |
Related Party Transactions [Abstract] | ' |
Related Party Transactions | ' |
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. |
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. The redemption reduced the Company's interest in LTG 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). This gain was recorded in Other income, net for the three months ended March 31, 2014. |
In July 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 the 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 accounts for these investments under the equity method of accounting. |
The following table presents the Company’s investment balance in each of its equity method investees by entity: |
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(in thousands) | March 31, 2014 | | December 31, 2013 | | March 31, 2013 |
The Andersons Albion Ethanol LLC (a) | $ | 31,867 | | | $ | 40,194 | | | $ | 31,169 | |
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The Andersons Clymers Ethanol LLC (a) | 40,412 | | | 44,418 | | | 32,900 | |
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The Andersons Marathon Ethanol LLC (a) | 45,946 | | | 46,811 | | | 32,164 | |
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Lansing Trade Group, LLC (b) | 60,837 | | | 106,028 | | | 91,752 | |
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Thompsons Limited (c) | 49,520 | | | 49,833 | | | — | |
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Other | 3,814 | | | 3,825 | | | 2,392 | |
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Total | $ | 232,396 | | | $ | 291,109 | | | $ | 190,377 | |
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(a) Decrease in LLCs investment balance is due to cash distributions made during the first quarter of 2014, partially offset by strong earnings |
(b) Decrease in LTG investment balance is driven by the sale of a portion of the Company's interest in LTG during the first quarter of 2014 |
(c) Thompsons Limited and related U.S. operating company held by joint ventures |
The Company holds a majority interest (66%) in The Andersons Ethanol Investment LLC (“TAEI”). This consolidated entity holds a 50% interest in The Andersons Marathon Ethanol LLC (“TAME”). The noncontrolling interest in TAEI is attributed 34% of the gains and losses of TAME recorded by the Company. |
The following table summarizes income (losses) earned from the Company’s equity method investments by entity: |
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| % ownership at | | Three months ended | | |
31-Mar-14 | March 31, | | |
(in thousands) | | | 2014 | | 2013 | | |
The Andersons Albion Ethanol LLC | 53% | | $ | 4,943 | | | $ | 944 | | | |
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The Andersons Clymers Ethanol LLC | 38% | | 5,539 | | | (219 | ) | | |
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The Andersons Marathon Ethanol LLC | 50% | | 8,135 | | | (832 | ) | | |
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Lansing Trade Group, LLC | 41% (a) | | 2,221 | | | 7,991 | | | |
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Thompsons Limited (b) | 50% | | (313 | ) | | — | | | |
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Other | 5%-23% | | (24 | ) | | (80 | ) | | |
Total | | | $ | 20,501 | | | $ | 7,804 | | | |
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(a) This does not consider restricted management units which once vested will reduce the ownership percentage by approximately 2% |
(b) Thompsons Limited and related U.S. operating company held by joint ventures |
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Total distributions received from unconsolidated affiliates, excluding proceeds on sale of investments of affiliates, were $65.6 million for the three months ended March 31, 2014. |
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In the first quarter of 2013, LTG qualified as a significant subsidiary of the Company under the income test. The following table presents the required summarized unaudited financial information of this investment for the three months ended March 31, 2014 and 2013: |
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(in thousands) | Three months ended | | | | |
March 31, | | | | |
2014 | | 2013 | | | | |
Sales | $ | 2,222,994 | | | $ | 2,553,145 | | | | | |
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Gross profit | 31,056 | | | 44,107 | | | | | |
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Income before income taxes | 8,002 | | | 17,117 | | | | | |
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Net income | 5,573 | | | 16,892 | | | | | |
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Net income attributable to LTG | 5,320 | | | 16,798 | | | | | |
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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 Condensed Consolidated Balance Sheet. The estimated fair value of the Company’s investment in IANR as of March 31, 2014 was $20.5 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 $26.5 million, which represents the Company’s investment at fair value plus unpaid accrued dividends to date of $6.0 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: |
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| Three months ended | | | | |
March 31, | | | | |
(in thousands) | 2014 | | 2013 | | | | |
Sales revenues | $ | 221,994 | | | $ | 309,705 | | | | | |
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Service fee revenues (a) | 5,638 | | | 5,801 | | | | | |
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Purchases of product | 155,015 | | | 161,955 | | | | | |
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Lease income (b) | 1,664 | | | 1,552 | | | | | |
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Labor and benefits reimbursement (c) | 2,868 | | | 2,643 | | | | | |
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Other expenses (d) | 486 | | | 358 | | | | | |
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Accounts receivable at March 31 (e) | 30,609 | | | 12,550 | | | | | |
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Accounts payable at March 31 (f) | 24,454 | | | 24,967 | | | | | |
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(a) | Service fee revenues include management fee, corn origination fee, ethanol and DDG marketing fees, and other commissions. | | | | | | | | | | |
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(b) | Lease income includes the lease of the Company’s Albion, Michigan and Clymers, Indiana grain facilities as well as certain railcars to the various ethanol LLCs and IANR. | | | | | | | | | | |
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(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. | | | | | | | | | | |
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(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. | | | | | | | | | | |
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(e) | Accounts receivable represents amounts due from related parties for sales of corn, leasing revenue and service fees. | | | | | | | | | | |
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(f) | Accounts payable represents amounts due to related parties for purchases of ethanol and other various items. | | | | | | | | | | |
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For the quarters ended March 31, 2014 and 2013, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $144.3 million and $145.8 million, respectively. For the quarters ended March 31, 2014 and 2013, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $117.2 million and $204.9 million, respectively. |
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From time to time, the Company enters into derivative contracts with certain of its related parties for the purchase and sale of corn 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 contract assets with related parties for the periods ended March 31, 2014, December 31, 2013 and March 31, 2013 was $24.0 million, $8.9 million, and $5.0 million, respectively. The fair value of derivative contract liabilities with related parties for the periods ended March 31, 2014, December 31, 2013 and March 31, 2013 was $10.3 million, $1.2 million, and $0.8 million, respectively. |