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.

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



(in thousands)	September 30, 2017		December 31, 2016		September 30, 2016
The Andersons Albion Ethanol LLC	$	42,302	$	38,972	$	36,661
The Andersons Clymers Ethanol LLC	17,837		19,739		21,340
The Andersons Marathon Ethanol LLC	12,390		22,069		23,812
Lansing Trade Group, LLC	89,541		89,050		91,573
Thompsons Limited (a)	50,399		46,184		47,494
Other	2,562		917		4,234
Total	$	215,031	$	216,931	$	225,114

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

On January 1, 2017, The Andersons Ethanol Investment LLC (“TAEI”) was merged with and into The Andersons Marathon Ethanol LLC (“TAME”). The Company had owned (66%) of TAEI, which, in turn, had owned 50% of TAME. Pursuant to the merger, the Company’s ownership units in TAEI were canceled and converted into ownership units in TAME. As a result, the Company now directly owns 33% of the outstanding ownership units of TAME.

Prior to this transaction, the noncontrolling interest in TAEI was attributed 33% 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, 2017	2017			2016			2017			2016
The Andersons Albion Ethanol LLC	55%	$	1,473		$	2,528		$	3,331		$	3,857
The Andersons Clymers Ethanol LLC	39%	1,822			2,706			2,597			3,516
The Andersons Marathon Ethanol LLC	33%	985			2,655			1,301			2,557
Lansing Trade Group, LLC	33% (a)	305			689			491			(7,412		)
Thompsons Limited (b)	50%	(940		)	(156		)	546			1,271
Other	5% - 50%	(59		)	—			(173		)	—
Total		$	3,586		$	8,422		$	8,093		$	3,789

(a) This does not consider restricted management units which once vested will reduce the ownership percentage by approximately 0.6%

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

Total distributions received from unconsolidated affiliates were $7.1 million and $24.1 million for the nine months ended September 30, 2017 and September 30, 2016, respectively.

In the third quarter of 2016, The Andersons Albion Ethanol LLC, The Andersons Clymers Ethanol LLC, The Andersons Marathon Ethanol LLC, Lansing Trade Group, and Thompsons Limited 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, 2017 and 2016:



(in thousands)	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2017		2016		2017		2016
Revenues	$	1,601,778	$	1,646,697	$	4,603,808	$	4,676,583
Gross profit	58,826		50,141		155,568		127,963
Income from continuing operations	9,501		18,965		15,507		1,428
Net income (loss)	7,918		17,217		14,878		(2,924		)
Net income (loss) attributable to companies	9,545		17,752		15,781		(1,347		)

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 in 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)	2017		2016		2017		2016
Sales revenues	$	225,367	$	177,724	$	665,331	$	549,426
Service fee revenues (a)	14,397		3,800		28,433		13,290
Purchases of product	165,084		128,081		467,495		346,590
Lease income (b)	1,850		1,300		4,559		4,662
Labor and benefits reimbursement (c)	3,208		2,862		10,071		9,702
Other expenses (d)	—		—		—		149


(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, 2017		December 31, 2016		September 30, 2016
Accounts receivable (e)	$	18,694	$	26,254	$	18,028
Accounts payable (f)	27,413		23,961		15,352


(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, 2017 and 2016, revenues recognized for the sale of ethanol and other co-products that the Company purchased from the unconsolidated ethanol LLCs were $160.8 million and $109.3 million, respectively. Additionally, for the nine months ended September 30, 2017 and 2016, revenues recognized for the sale of ethanol and other co-products that the Company purchased from the unconsolidated ethanol LLCs were $445.4 million and $220.6 million, respectively.

For the three months ended September 30, 2017 and 2016, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs were $119.1 million and $90.4 million, respectively. For the nine months ended September 30, 2017 and 2016, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs were $362.2 million and $314.5 million, respectively.

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 of derivative contracts it enters into with unrelated parties. The fair value of derivative contract assets with related parties as of September 30, 2017, December 31, 2016 and September 30, 2016 was $1.9 million, $4.1 million and $5.0 million, respectively. The fair value of derivative contract liabilities with related parties as of September 30, 2017, December 31, 2016 and September 30, 2016 was $0.1 million, $0.1 million and $0.2 million, respectively.