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 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 December 4, 2015, 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 is 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.

In 2005, the Company became an investor in The Andersons Albion Ethanol LLC. TAAE is a producer of ethanol and its coproducts DDG and corn oil at its 110 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 55% 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 is also a producer of ethanol and its coproducts 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 is also a producer of ethanol and its coproducts 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, a consolidated subsidiary of the Company, of which a third party owned 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. On January 1, 2017, TAEI was merged with and into TAME. The Company had owned (66%) of TAEI. 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.

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. The Company has entered into marketing agreements with each of the ethanol LLCs. Under the ethanol marketing agreements, the Company purchases most, if not all, of the ethanol produced by the LLCs at the same price it will resell the ethanol to external customers. 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, 2017, 2016 and 2015, revenues recognized for the sale of ethanol purchased from related parties were $590.9 million, $427.8 million and $428.2 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. See discussion of the impact that ASC 606 will have on these origination transactions in Note 1. For the years ended December 31, 2017, 2016 and 2015, revenues recognized for the sale of corn under these agreements were $498.8 million, $426.8 million and $443.9 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, 2017 and 2016, the three unconsolidated ethanol entities had a combined receivable balance for DDG of $5.9 million and $4.1 million, respectively, of which $132.3 thousand and $9.4 thousand, respectively, was more than thirty days past due. 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 a related U.S. operating company. 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 individual equity investments qualified as significant for the years ended December 31, 2017, 2016 and 2015.



	December 31,
(in thousands)	2017		2016		2015
Sales	$	6,080,795	$	6,579,413	$	6,868,257
Gross profit	217,629		188,350		250,847
Income from continuing operations	50,937		12,288		85,220
Net income	42,970		6,445		81,368

Current assets	1,045,124		898,081		1,236,171
Non-current assets	538,671		565,416		500,637
Current liabilities	802,161		665,387		796,816
Non-current liabilities	309,649		359,816		342,075
Noncontrolling interests	—		3,628		11,716

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



	December 31,
(in thousands)	2017		2016
The Andersons Albion Ethanol LLC	$	45,024	$	38,972
The Andersons Clymers Ethanol LLC	19,830		19,739
The Andersons Marathon Ethanol LLC	12,660		22,069
Lansing Trade Group, LLC	93,088		89,050
Thompsons Limited (a)	50,198		46,184
Other	2,439		917
Total	$	223,239	$	216,931


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

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



	% ownership at December 31, 2017	December 31,
(in thousands)	% ownership at December 31, 2017	2017			2016			2015
The Andersons Albion Ethanol LLC	55%	$	6,052		$	6,167		$	5,636
The Andersons Clymers Ethanol LLC	39%	4,591			6,486			6,866
The Andersons Marathon Ethanol LLC	33%	1,571			5,814			4,718
Lansing Trade Group, LLC	33% (a)	4,038			(9,935		)	11,880
Thompsons Limited (b)	50%	696			1,189			2,735
Other	5% - 50%	(225		)	—			89
Total		$	16,723		$	9,721		$	31,924


(a)	This does not consider restricted management units which, once vested, will reduce the ownership percentage by approximately 0.7%.


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

Total distributions received from unconsolidated affiliates were $7.1 million for the year ended December 31, 2017. The balance at December 31, 2017 that represents the undistributed earnings of the Company's equity method investments is $83.2 million.

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.

Related Party Transactions

In the ordinary course of business and on an arms-length basis, 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)	2017		2016		2015
Sales revenues	$	893,950	$	749,746	$	825,220
Service fee revenues (a)	24,357		17,957		20,393
Purchases of product	615,739		463,832		—
Lease income (b)	6,175		5,966		6,664
Labor and benefits reimbursement (c)	13,894		12,809		11,567
Other expenses (d)	—		149		1,059


(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 expense.



	December 31,
(in thousands)	2017	2016
Accounts receivable (e)	30,252	26,254
Accounts payable (f)	27,866	23,961


(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 in a gross asset position as of December 31, 2017 and 2016 was $0.2 million and $4.1 million, respectively. The fair value of derivative contracts with related parties in a gross liability position as of December 31, 2017 and 2016 was $2.5 million and $0.1 million, respectively.