Related Party Transactions

9 Months Ended

Sep. 30, 2018

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, 2018		December 31, 2017		September 30, 2017
The Andersons Albion Ethanol LLC	$	49,882	$	45,024	$	42,302
The Andersons Clymers Ethanol LLC	22,589		19,830		17,837
The Andersons Marathon Ethanol LLC	15,373		12,660		12,390
Lansing Trade Group, LLC	99,904		93,088		89,541
Thompsons Limited (a)	50,280		50,198		50,399
Other	2,322		2,439		2,562
Total	$	240,350	$	223,239	$	215,031

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

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, 2018	2018			2017			2018			2017
The Andersons Albion Ethanol LLC	55%	$	2,408		$	1,473		$	4,858		$	3,331
The Andersons Clymers Ethanol LLC	39%	1,376			1,822			3,121			2,597
The Andersons Marathon Ethanol LLC	33%	1,029			985			2,713			1,301
Lansing Trade Group, LLC	33% (a)	2,428			305			8,603			491
Thompsons Limited (b)	50%	35			(940		)	1,345			546
Other	5% - 50%	(51		)	(59		)	(39		)	(173		)
Total		$	7,225		$	3,586		$	20,601		$	8,093

(a) This does not consider restricted management units which once vested will reduce the ownership percentage by approximately 1%

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

Total distributions received from unconsolidated affiliates were $2.2 million and $7.1 million for the nine months ended September 30, 2018 and 2017, respectively.

In the third quarter of 2018, The Andersons Albion Ethanol LLC and Lansing Trade Group ("LTG") qualified as significant equity investees of the Company under the income test. The following table presents unaudited summarized financial information for the investees:



(in thousands)	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2018		2017		2018		2017
Revenues	$	1,504,141	$	1,341,123	$	4,244,385	$	3,797,546
Gross profit	49,497		42,973		147,013		111,468
Income (loss) from continuing operations	12,126		3,265		36,955		7,950
Net income (loss)	11,678		3,121		35,240		6,583
Net income (loss) attributable to Companies	11,678		3,300		35,240		7,486

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.

On March 2, 2018, the Company invested in ELEMENT, LLC. The Company owns 51% of ELEMENT, LLC and ICM, Inc. owns the remaining 49% interest. ELEMENT, LLC is constructing a 70 million-gallon-per-year bio-refinery. As part of the Company’s investment into ELEMENT, LLC, the Company and ICM, Inc. entered into a number of agreements with the entity. Most notably, ICM, Inc. will operate the facility under a management contract and manage the initial construction of the facility, while the Company will provide corn origination, ethanol marketing, and risk management services. The results of operations for ELEMENT, LLC have been included in our consolidated results of operations beginning on March 2, 2018 and are a component of our Ethanol segment. The plant is expected to be operational in 2019.

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)	2018		2017		2018		2017
Sales revenues	$	82,394	$	225,367	$	278,974	$	665,331
Service fee revenues (a)	5,231		14,397		15,539		28,433
Purchases of product and capital assets	177,583		165,084		556,551		467,495
Lease income (b)	1,623		1,850		4,829		4,559
Labor and benefits reimbursement (c)	3,436		3,208		10,603		10,071


(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.


(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.



(in thousands)	September 30, 2018		December 31, 2017		September 30, 2017
Accounts receivable (d)	$	32,584	$	30,252	$	18,694
Accounts payable (e)	32,347		27,866		27,413


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


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

For the three months ended September 30, 2018 and 2017, revenues recognized for the sale of ethanol and other co-products that the Company purchased from the unconsolidated ethanol LLCs were $161.9 million and $160.8 million, respectively. For the nine months ended September 30, 2018 and 2017, revenues recognized for the sale of ethanol and other co-products that the Company purchased from the unconsolidated ethanol LLCs were $480.4 million and $445.4 million, respectively.

For the three and nine months ended September 30, 2017 revenues recognized for the sale of corn to the unconsolidated ethanol LLCs were $119.1 million and $362.2 million. As a result of the new revenue recognition guidance, these transactions are now being recorded on a net basis instead of a gross basis, which is included in service fee revenues above. See Note 7 for further discussion.

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 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, 2018, December 31, 2017 and September 30, 2017 was $6.8 million, $0.2 million and $1.9 million, respectively. The fair value of derivative contract liabilities with related parties as of September 30, 2018, December 31, 2017 and September 30, 2017 was $7.2 million, $2.5 million and $0.1 million, respectively.