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 December 4, 2015, Lansing Trade Group, LLC ("LTG") agreed to the sale of equity to New Hope Liuhe Investment (USA), Inc., a U.S. subsidiary of the Chinese company, New Hope Liuhe Co. Ltd. New Hope paid cash for a 20 percent equity interest in LTG. The impact of this transaction to the Company was a reduction in total ownership share of LTG from approximately 38.5 percent to 31.0 percent which includes dilution from newly issued shares as well as a redemption of shares that occurred on a pro rata basis between the Company and the other existing owners of LTG. The Company recognized a total gain of $23.1 million on these transactions. Cash of $8.2 million was received of which $1.3 million was a return of capital and $6.7 million was a return on capital. The remainder was a book gain on cash received in excess of basis in the shares redeemed.

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



(in thousands)	September 30, 2016		December 31, 2015		September 30, 2015
The Andersons Albion Ethanol LLC	$	36,661	$	32,871	$	31,409
The Andersons Clymers Ethanol LLC	21,340		29,278		31,151
The Andersons Marathon Ethanol LLC	23,812		31,255		30,066
Lansing Trade Group, LLC	91,573		101,531		84,081
Thompsons Limited (a)	47,494		43,964		43,803
Other	4,234		3,208		2,697
Total	$	225,114	$	242,107	$	223,207

(a) 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 in its equity in earnings of affiliates.

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



		Three months ended September 30,						Nine months ended September 30,
(in thousands)	% Ownership at September 30, 2016	2016			2015			2016			2015
The Andersons Albion Ethanol LLC	55%	$	2,528		$	665		$	3,857		$	4,080
The Andersons Clymers Ethanol LLC	38%	2,706			1,454			3,516			4,922
The Andersons Marathon Ethanol LLC	50%	2,655			385			2,557			3,530
Lansing Trade Group, LLC	33% (a)	689			1,382			(7,412		)	9,290
Thompsons Limited (b)	50%	(156		)	17			1,271			1,385
Other	5% - 34%	—			(58		)	—			88
Total		$	8,422		$	3,845		$	3,789		$	23,295

(a) This does not consider restricted management units which once vested will reduce the ownership percentage by approximately 0.8%

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

Total distributions received from unconsolidated affiliates were $24.1 million and $20.8 million for the nine months ended September 30, 2016 and September 30, 2015.

In the third quarter of 2016, The Andersons Albion Ethanol LLC, The Andersons Clymers Ethanol LLC, The Andersons Marathon LLC, Lansing Trade Group, and Thompsons Ltd. qualified as significant equity investees of the Company under the income test. The following table presents combined summarized unaudited financial information of these investments for the three and nine months ended September 30, 2016 and 2015:



(in thousands)	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2016		2015		2016			2015
Revenues	$	1,646,697	$	2,250,326	$	4,676,583		$	5,129,523
Gross profit	50,141		73,881		127,963			211,470
Income (loss) from continuing operations	18,965		18,008		1,428			65,645
Net income (loss)	17,217		17,310		(2,924		)	59,637
Net income (loss) attributable to companies	17,752		15,990		(1,347		)	57,787

Investment in Debt Securities

The Company previously owned 100% of the cumulative convertible preferred shares of Iowa Northern Railway Company (“IANR”), which operates a short-line railroad in Iowa. In the first quarter of 2016, these shares were redeemed and the Company no longer has an ownership stake with this entity. See Footnote 10 for additional information on the effects of this transaction.

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:



	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2016		2015		2016		2015
Sales revenues	$	177,724	$	230,409	$	549,426	$	577,133
Service fee revenues (a)	3,800		3,610		13,290		14,865
Purchases of product	128,081		123,051		346,590		339,159
Lease income (b)	1,300		1,542		4,662		4,787
Labor and benefits reimbursement (c)	2,862		2,950		9,702		8,761
Other expenses (d)	—		269		149		827


(a)	Service fee revenues include management fees, corn origination fees, ethanol and distillers dried grains (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 various 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.



(in thousands)	September 30, 2016		December 31, 2015		September 30, 2015
Accounts receivable (e)	$	18,028	$	13,362	$	19,799
Accounts payable (f)	15,352		13,784		15,929


(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.

For the three months ended September 30, 2016 and 2015, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $109.3 million and $105.1 million, respectively. Additionally, for the nine months ended September 30, 2016 and 2015, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $220.6 million and $315.9 million, respectively.

For the three months ended September 30, 2016 and 2015, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $90.4 million and $119.4 million, respectively. Additionally, for the nine months ended September 30, 2016 and 2015, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $314.5 million and $323.7 million, respectively.

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 of derivative contracts it enters into with unrelated parties. The fair value of derivative contract assets with related parties as of September 30, 2016, December 31, 2015 and September 30, 2015 was $5.0 million, $2.3 million and $3.4 million, respectively. The fair value of derivative contract liabilities with related parties as of September 30, 2016, December 31, 2015 and September 30, 2015 was $0.2 million, $0.3 million and $0.3 million, respectively.