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)	March 31, 2018		December 31, 2017		March 31, 2017
The Andersons Albion Ethanol LLC	$	46,145	$	45,024	$	38,694
The Andersons Clymers Ethanol LLC	20,339		19,830		19,946
The Andersons Marathon Ethanol LLC	12,615		12,660		13,266
Lansing Trade Group, LLC	94,483		93,088		88,339
Thompsons Limited (a)	48,362		50,198		46,054
Other	2,505		2,439		2,694
Total	$	224,449	$	223,239	$	208,993

(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 March 31,
(in thousands)	% Ownership at March 31, 2018	2018			2017
The Andersons Albion Ethanol LLC	55%	$	1,121		$	(277	)
The Andersons Clymers Ethanol LLC	39%	509			207
The Andersons Marathon Ethanol LLC	33%	(44		)	(463		)
Lansing Trade Group, LLC	33% (a)	2,584			(711		)
Thompsons Limited (b)	50%	(669		)	(595		)
Other	5% - 50%	72			(39		)
Total		$	3,573		$	(1,878	)

(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 $1.2 million for the three months ended March 31, 2018. There were no distributions received from unconsolidated affiliates for the three months ended March 31, 2017.

In the first quarter of 2018, The Andersons Albion Ethanol LLC, The Andersons Clymers 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 months ended March 31, 2018 and 2017:



(in thousands)	Three months ended March 31,
(in thousands)	2018		2017
Revenues	$	1,459,331	$	1,459,557
Gross profit	56,096		38,391
Income (loss) from continuing operations	8,908		(3,765		)
Net income (loss)	9,462		(4,298		)
Net income (loss) attributable to companies	9,462		(3,867		)

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 will construct 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. Consolidation is based on a combination of ownership interest and control of operational decision-making authority. Construction is underway and 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 March 31,
(in thousands)	2018		2017
Sales revenues	$	88,815	$	198,068
Service fee revenues (a)	5,117		4,627
Purchases of product and capital assets	181,524		134,508
Lease income (b)	1,582		1,287
Labor and benefits reimbursement (c)	3,567		3,690


(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)	March 31, 2018		December 31, 2017		March 31, 2017
Accounts receivable (d)	$	27,438	$	30,252	$	19,999
Accounts payable (e)	33,184		27,866		19,888


(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 March 31, 2018 and 2017, revenues recognized for the sale of ethanol and other co-products that the Company purchased from the unconsolidated ethanol LLCs were $146.2 million and $123.3 million, respectively.

For the three months ended March 31, 2017 revenues recognized for the sale of corn to the unconsolidated ethanol LLCs were $117.5 million. As a result of the new revenue 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 March 31, 2018, December 31, 2017 and March 31, 2017 was $0.6 million, $0.2 million and $2.0 million, respectively. The fair value of derivative contract liabilities with related parties as of March 31, 2018, December 31, 2017 and March 31, 2017 was $2.9 million, $2.5 million and $0.5 million, respectively.