UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

THE ANDERSONS, INC.

(Exact name of the registrant as specified in its charter

OHIO (State of incorporation or organization)		34-1562374 (I.R.S. Employer Identification No.)
480 W. Dussel Drive, Maumee, Ohio (Address of principal executive offices)		43537 (Zip Code)

(419) 893-5050
(Telephone Number)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The registrant had approximately 18.2 million common shares outstanding, no par value, at October 31, 2008.

 

 

THE ANDERSONS, INC.

INDEX

		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets — September 30, 2008 December 31, 2007 and September 30, 2007			3
Condensed Consolidated Statements of Income — Three and nine months ended September 30, 2008 and 2007			5
Condensed Consolidated Statement of Cash Flows — Nine months ended September 30, 2008 and 2007			6
Condensed Consolidated Statements of Shareholders’ Equity Nine months ended September 30, 2008 and year ended December 31, 2007			7
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosures about Market Risk			29
Item 4. Controls and Procedures			30
PART II. OTHER INFORMATION
Item 1A. Risk Factors			30
Item 6. Exhibits			31
EX-31.1
EX-31.2
EX-31.3
EX-32.1

Part I. Financial Information

Item 1. Financial Statements

The Andersons, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)(In thousands)

		September 30,				December 31,				September 30,
		2008				2007				2007
Current assets:
Cash and cash equivalents		$	28,541			$	22,300			$	22,357
Restricted cash			3,630				3,726				3,737
Accounts and notes receivable, net			184,566				106,257				127,382
Margin deposits, net			58,077				20,467				28,970
Inventories:
Grain			124,228				376,739				179,560
Agricultural fertilizer and supplies			194,567				63,325				65,792
Lawn and garden fertilizer and corncob products			28,798				29,286				24,063
Railcar repair parts			3,688				4,054				3,259
Retail merchandise			30,606				29,182				33,923
Other			381				318				311
			382,268				502,904				306,908
Commodity derivative assets — current			113,427				205,956				108,039
Railcars available for sale			1,971				1,769				4,042
Deferred income taxes			8,122				2,936				—
Prepaid expenses and other current assets			61,676				38,576				40,158
Total current assets			842,278				904,891				641,593
Other assets:
Pension asset			8,209				10,714				3,500
Commodity derivative asset — noncurrent			19,010				29,458				29,999
Other assets and notes receivable, net			12,937				7,892				7,040
Investments in and advances to affiliates			148,654				118,912				105,057
			188,810				166,976				145,596
Railcar assets leased to others, net			175,947				153,235				143,251
Property, plant and equipment:
Land			13,397				11,670				12,125
Land improvements and leasehold improvements			37,617				36,031				35,451
Buildings and storage facilities			116,356				109,301				108,612
Machinery and equipment			149,202				137,639				136,064
Software			8,766				7,450				7,382
Construction in progress			8,094				6,133				8,075
			333,432				308,224				307,709
Less allowances for depreciation and amortization			(215,144	)			(208,338	)			(206,880	)
			118,288				99,886				100,829
Total assets		$	1,325,323			$	1,324,988			$	1,031,269

See notes to condensed consolidated financial statements

The Andersons, Inc.
Condensed Consolidated Balance Sheets (continued)
(Unaudited) (In thousands)

		September 30,				December 31,				September 30,
		2008				2007				2007
Current liabilities:
Short-term borrowings		$	43,600			$	245,500			$	163,400
Accounts payable for grain			72,788				143,479				52,016
Other accounts payable			149,913				115,016				109,421
Customer prepayments and deferred revenue			84,935				38,735				30,177
Commodity derivative liabilities — current			80,874				122,488				77,617
Accrued expenses			35,070				38,176				28,517
Deferred income taxes — current			—				—				275
Current maturities of long-term debt — non-recourse			13,494				13,722				13,889
Current maturities of long-term debt			14,230				10,096				10,329
Total current liabilities			494,904				727,212				485,641
Deferred income and other long-term liabilities			9,988				6,172				3,923
Commodity derivative liabilities — noncurrent			6,825				2,090				26,285
Employee benefit plan obligations			20,124				18,705				21,690
Long-term debt — non-recourse, less current maturities			43,964				56,277				60,107
Long-term debt, less current maturities			295,207				133,195				85,302
Deferred income taxes			34,895				24,754				19,702
Total liabilities			905,907				968,405				702,650
Minority interest			10,936				12,219				12,607
Shareholders’ equity:
Common shares, without par value (25,000 shares authorized; 19,198 shares issued)			96				96				96
Preferred shares, without par value (1,000 shares authorized; none issued)			—				—				—
Additional paid-in-capital			173,228				168,286				166,270
Treasury shares (1,040, 1,195, and 1,258 shares at 9/30/08, 12/31/07 and 9/30/07, respectively; at cost)			(16,459	)			(16,670	)			(16,534	)
Accumulated other comprehensive loss			(10,037	)			(7,197	)			(11,638	)
Retained earnings			261,652				199,849				177,818
			408,480				344,364				316,012
Total liabilities, minority interest and shareholders’ equity		$	1,325,323			$	1,324,988			$	1,031,269

See notes to condensed consolidated financial statements

The Andersons, Inc.
Condensed Consolidated Statements of Income
(Unaudited) (In thousands, except per share data)

		Three months ended								Nine months ended
		September 30,								September 30,
		2008				2007				2008				2007
Sales and merchandising revenues		$	905,712			$	553,708			$	2,719,413			$	1,594,425
Cost of sales and merchandising revenues			832,687				504,894				2,473,810				1,429,390
Gross profit			73,025				48,814				245,603				165,035
Operating, administrative and general expenses			48,239				39,040				136,934				116,987
Allowance for doubtful accounts			333				458				2,902				1,102
Interest expense			7,497				4,174				25,140				13,386
Other income/gains:
Equity in earnings (loss) of affiliates, net			(619	)			9,518				15,801				17,173
Other income, net			1,279				2,200				6,318				19,141
Minority interest in net loss of subsidiary			1,841				549				1,588				1,065
Income before income taxes			19,457				17,409				104,334				70,939
Income tax expense			6,617				6,844				38,045				25,647
Net income		$	12,840			$	10,565			$	66,289			$	45,292
Per common share:
Basic earnings		$	0.71			$	0.59			$	3.67			$	2.54
Diluted earnings		$	0.70			$	0.58			$	3.60			$	2.48
Dividends paid		$	0.085			$	0.0475			$	0.24			$	0.1425
Weighted average shares outstanding — basic			18,085				17,878				18,059				17,800
Weighted average shares outstanding — diluted			18,380				18,311				18,409				18,282

See notes to condensed consolidated financial statements

The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)(In thousands)

		Nine months ended
		September 30,
		2008				2007
Operating Activities
Net income		$	66,289			$	45,292
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization			21,830				19,457
Allowance for doubtful accounts receivable			2,902				1,102
Minority interest in loss of subsidiary			(1,588	)			(1,065	)
Equity earnings of unconsolidated affiliates, net of distributions received			5,957				(8,893	)
Realized gains on sales of railcars and related leases			(4,008	)			(7,856	)
Excess tax benefit from share-based payment arrangement			(2,314	)			(3,853	)
Deferred income taxes			2,438				6,003
Stock based compensation expense			3,822				3,225
Gain on donation of equity securities			—				(4,773	)
Other			(25	)			29
Changes in operating assets and liabilities:
Accounts and notes receivable			(71,758	)			(40,786	)
Inventories			130,199				(10,451	)
Commodity derivatives and margin deposits			30,917				(11,337	)
Prepaid expenses and other assets			(24,451	)			(10,173	)
Accounts payable for grain			(70,870	)			(43,899	)
Other accounts payable and accrued expenses			72,976				22,123
Net cash provided by (used in) operating activities			162,316				(45,855	)
Investing Activities
Acquisitions, net of $0.3 million cash acquired			(18,870	)			—
Purchases of railcars			(82,205	)			(42,888	)
Proceeds from sale or financing of railcars and related leases			54,141				44,909
Purchases of property, plant and equipment			(13,097	)			(15,637	)
Proceeds from sale of property, plant and equipment and other			210				1,271
Proceeds received from minority interest			306				13,672
Investments in affiliates			(35,700	)			(37,084	)
Net cash used in investing activities			(95,215	)			(35,757	)
Financing Activities
Net (decrease) increase in short-term borrowings			(201,900	)			88,400
Proceeds received from issuance of long-term debt			219,677				6,216
Payments on long-term debt			(63,256	)			(6,983	)
Payments of non-recourse long-term debt			(12,541	)			(10,999	)
Proceeds from issuance of treasury shares to employees and directors			1,332				2,622
Payments of debt issuance costs			(2,144	)			—
Dividends paid			(4,342	)			(2,538	)
Excess tax benefit from share-based payment arrangement			2,314				3,853
Net cash (used in) provided by financing activities			(60,860	)			80,571
Increase (decrease) in cash and cash equivalents			6,241				(1,041	)
Cash and cash equivalents at beginning of period			22,300				23,398
Cash and cash equivalents at end of period		$	28,541			$	22,357

See notes to condensed consolidated financial statements

The Andersons, Inc.
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited) (In thousands)

														Accumulated
						Additional								Other
		Common				Paid-in				Treasury				Comprehensive				Retained
		Shares				Capital				Shares				Loss				Earnings				Total
Balance at December 31, 2006		$	96			$	159,941			$	(16,053	)		$	(9,735	)		$	135,926			$	270,175
Net income																			68,784				68,784
Other comprehensive income:
Unrecognized actuarial loss and prior service costs (net of income tax of $3,102)															5,281								5,281
Cash flow hedge activity (net of income tax of $149)															(254	)							(254	)
Unrealized gains on investment (net of income tax of $305)															519								519
Disposal of equity securities (net of income tax of $1,766)															(3,008	)							(3,008	)
Comprehensive income																							71,322
Impact of adoption of FIN 48																			(383	)			(383	)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $5,567 (297 shares)							8,345				(617	)											7,728
Dividends declared ($0.25 per common share)																			(4,478	)			(4,478	)
Balance at December 31, 2007			96				168,286				(16,670	)			(7,197	)			199,849				344,364
Net income																			66,289				66,289
Other comprehensive income:
Unrecognized actuarial loss and prior service costs (net of income tax of $1,676)															(2,854	)							(2,854	)
Cash flow hedge activity (net of income tax of $8)															14								14
Comprehensive income																							63,449
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $2,689 (155 shares)							4,942				211												5,153
Dividends declared ($0.2475 per common share)																			(4,486	)			(4,486	)
Balance at September 30, 2008		$	96			$	173,228			$	(16,459	)		$	(10,037	)		$	261,652			$	408,480

See notes to condensed consolidated financial statements

The Andersons, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note A: Basis of Presentation and Consolidation

These unaudited condensed consolidated financial statements include the accounts of The Andersons, Inc. and its wholly and majority-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions are eliminated in consolidation.

Investments in unconsolidated entities in which the Company has significant influence, but not control, are accounted for using the equity method of accounting.

In the opinion of management, all adjustments consisting of normal recurring items, considered necessary for a fair presentation of the results of operations for the periods indicated, have been made. Operating results for the three and nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2008.

The year-end condensed consolidated balance sheet data at December 31, 2007 was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. A condensed consolidated balance sheet as of September 30, 2007 has been included as the Company operates in several seasonal industries.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 2007.

Certain amounts in the prior period Condensed Consolidated Statement of Cash Flows have been reclassified to conform to the current presentation. These reclassifications are not considered material and had no effect on the balance sheet, net income or shareholder's equity as previously reported.

In the fourth quarter of 2007, the Company discovered that certain costs within the Rail Group were erroneously recorded in cost of sales rather than in operating, administrative and general expense. These amounts have been reclassified to the proper income statement lines and the income statements for the three and nine-months ended September 30, 2007 have been revised to conform to the current presentation. These reclassifications are not considered material and had no effect on the balance sheet, net income, statement of cash flows or shareholders’ equity as previously reported.

Note B: FSP FIN 39-1

In the second quarter of 2007, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. FIN 39-1 (“FSP FIN 39-1”), which permits a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a futures, options or an over-the-counter contract, an initial margin deposit may be required by the counterparty. The amount of the margin deposit varies by commodity. If the market price of a futures, options or an over-the-counter contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required. Under FSP 39-1 and consistent with the balance sheets presented herein, the Company nets, by counterparty, its futures and over-the-counter positions against the cash collateral provided. The net position is recorded within margin deposits or other accounts payable depending on whether the net position is an asset or a liability. At September 30, 2008, December 31, 2007 and September 30, 2007, the margin deposit assets and margin deposit liabilities consisted of the following:

		September 30, 2008								December 31, 2007								September 30, 2007
		Margin				Margin				Margin				Margin				Margin				Margin
		deposit				deposit				deposit				deposit				deposit				deposit
(in thousands)		assets				liabilities				assets				liabilities				assets				liabilities
Collateral posted		$	67,528			$	—			$	114,933			$	11,673			$	89,129			$	—
Collateral received			(101,577	)			(1,197	)			—				—				—				—
Fair value of derivatives			92,126				1,017				(94,466	)			(24,466	)			(60,159	)			—
Balance at end of period		$	58,077			$	(180	)		$	20,467			$	(12,793	)		$	28,970			$	—

Note C: Earnings Per Share

Basic earnings per share is equal to net income divided by the weighted average shares outstanding. Diluted earnings per share is equal to basic earnings per share plus the incremental per share effect of dilutive options, unvested restricted shares, and other stock-based awards.

		Three months ended								Nine months ended
		September 30,								September 30,
(in thousands)		2008				2007				2008				2007
Weighted average shares outstanding — basic			18,085				17,878				18,059				17,800
Restricted shares and shares contingently issuable upon exercise of options			295				433				350				482
Weighted average shares outstanding — diluted			18,380				18,311				18,409				18,282

There were approximately 16,000 and 8,000 anti-dilutive stock-based awards outstanding in the third quarter of 2008 and 2007, respectively. In the first nine months of 2008 and 2007, there were approximately 4,000 and 2,000, respectively, anti-dilutive stock-based awards outstanding.

Note D: Employee Benefit Plans

Included as charges against income for the three and nine months ended September 30, 2008 and 2007 are the following amounts for pension and postretirement benefit plans maintained by the Company:

		Pension Benefits
		Three months ended								Nine months ended
		September 30								September 30,
(in thousands)		2008				2007				2008				2007
Service cost		$	666			$	664			$	1,999			$	1,994
Interest cost			903				785				2,710				2,353
Expected return on plan assets			(1,259	)			(1,141	)			(3,777	)			(3,424	)
Amortization of prior service cost			(154	)			(159	)			(464	)			(476	)
Recognized net actuarial loss			237				268				709				804
Benefit cost		$	393			$	417			$	1,177			$	1,251

		Postretirement Benefits
		Three months ended								Nine months ended
		September 30								September 30,
(in thousands)		2008				2007				2008				2007
Service cost		$	94			$	109			$	281			$	327
Interest cost			281				291				843				872
Amortization of prior service cost			(128	)			(128	)			(383	)			(383	)
Recognized net actuarial loss			153				198				458				595
Benefit cost		$	400			$	470			$	1,199			$	1,411

The Company made contributions to its defined benefit pension plan of $2.5 million and $3.5 million in the first nine months of 2008 and 2007, respectively. Due to current market declines which have impacted the assets held in the Company’s defined benefit pension plan, the Company is going to increase its contribution for the 2008 fiscal year for a total contribution of $10.0 million.

The postretirement benefit plan is not funded. Company contributions in the quarter represent actual claim payments and insurance premiums for covered retirees. The Company made payments of $0.2 million in the third quarter of 2008 and $0.3 million in the third quarter of 2007. For the nine months ended September 30, 2008 and 2007, the Company made payments of $0.6 million and $1.2 million, respectively.

Note E: Segment Information

Results of Operations — Segment Disclosures
(in thousands)

		Grain &								Plant				Turf &
Third Quarter 2008		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	651,045			$	28,394			$	162,018			$	23,164			$	41,091			$	—			$	905,712
Inter-segment sales			3				107				5,743				210				—				—				6,063
Equity in earnings (loss) of affiliates, net			(620	)			—				1				—				—				—				(619	)
Other income, net			1,012				84				404				76				125				(422	)			1,279
Interest expense (income) (a)			4,232				1,041				1,801				341				261				(179	)			7,497
Income (loss) before income taxes			9,443				5,164				7,223				(497	)			(155	)			(1,721	)			19,457
Identifiable assets			579,376				202,746				367,597				59,488				53,600				62,516				1,325,323

		Grain &								Plant				Turf &
Third Quarter 2007		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	382,907			$	33,890			$	76,732			$	17,911			$	42,268			$	—			$	553,708
Inter-segment sales			—				114				3,052				121				—				—				3,287
Equity in earnings of affiliates, net			9,516				—				2				—				—				—				9,518
Other income, net			710				243				348				185				149				565				2,200
Interest expense (a)			1,470				1,429				657				265				274				79				4,174
Income (loss) before income taxes			13,706				5,792				815				(1,626	)			(554	)			(724	)			17,409
Identifiable assets			533,599				184,335				154,314				51,884				60,407				46,730				1,031,269

Nine months ended		Grain &								Plant				Turf &
September 30, 2008		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	1,845,955			$	106,346			$	540,988			$	98,740			$	127,384			$	—			$	2,719,413
Inter-segment sales			13				340				13,172				960				—				—				14,485
Equity in earnings of affiliates, net			15,797				—				4				—				—				—				15,801
Other income (loss), net			4,770				602				728				265				433				(480	)			6,318
Interest expense (income) (a)			17,220				3,103				3,894				1,163				668				(908	)			25,140
Income (loss) before income taxes			31,670				16,464				62,132				3,385				(172	)			(9,145	)			104,334

Nine months ended		Grain &								Plant				Turf &
September 30, 2007		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	950,430			$	102,251			$	326,200			$	84,609			$	130,935			$	—			$	1,594,425
Inter-segment sales			—				588				7,843				957				—				—				9,388
Equity in earnings of affiliates, net			17,169				—				4				—				—				—				17,173
Other income, net			10,232				765				802				380				467				6,495				19,141
Interest expense (income) (a)			5,682				4,503				1,535				1,202				742				(278	)			13,386
Income before income taxes			35,857				15,702				18,363				880				775				(638	)			70,939

Note F: Equity Method Investments and Related Party Transactions

The Company, directly or indirectly, holds investments in limited liability companies that are accounted for under the equity method. The Company’s investment in these entities is presented at cost plus its accumulated proportional share of income or loss, less any distributions it has received.

The Company has marketing agreements with three 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. For two of the LLCs, the Company purchases 100% of the ethanol produced and then sells it to external parties. For the third LLC, the Company buys only a portion of the ethanol produced. The Company acts as the principal in these ethanol sales transactions to external parties. Substantially all of these purchases and subsequent sales are done through forward contracts on matching terms and, therefore, the Company does not recognize any gross profit on the sales transactions. For the three months ended September 30, 2008 and 2007, sales of ethanol were $125.9 million and $85.3 million, respectively. For the nine months ended September 30, 2008 and 2007, sales of ethanol for the Company were $349.2 million and $170.9 million, respectively. In addition to the ethanol marketing agreements, the Company holds corn origination agreements, under which the Company originates 100% of the corn used in production for each ethanol LLC as Well as distillers’ dried grains (‘DDG”) marketing agreements under which the Company markets 100% of the DDG produced. For each of the services, the Company receives a unit based fee.

The following table summarizes income earned from the Company’s equity method investments by entity.

		% ownership
		at
		September 30,				Three months ended								Nine months ended
		2008				September 30,								September 30,
(in thousands)		direct /indirect				2008				2007				2008				2007
The Andersons Albion Ethanol LLC (“TAAE”)			49	%		$	(170	)		$	1,941			$	3,601			$	9,231
The Andersons Clymers Ethanol LLC (“TACE”)			37	%			2,236				4,411				8,203				3,329
The Andersons Marathon Ethanol LLC (“TAME”)			50	%			(5,289	)			(447	)			(10,404	)			(1,175	)
Lansing Trade Group LLC (“LTG”)			50	%			2,603				3,612				14,281				6,193
Other			23%-33	%			1				1				120				(405	)
Total						$	(619	)		$	9,518			$	15,801			$	17,173

The Company, along with another strategic partner, formed The Andersons Ethanol Investment LLC (“TAEI”) in February of 2007. The Company has a 66% ownership in TAEI, which is a consolidated subsidiary. TAEI was formed to hold a 50% investment in TAME as well as carry on risk management activities by the use of derivative instruments, to mitigate some of the price risk that results from the fact that TAME currently does not lock in prices for its inputs and outputs through forward contracting. Because TAEI is a consolidated subsidiary, the losses realized from TAEI’S investment in TAME, as well as the mark-to-market impact of TAEI’s derivatives are shown at the full amounts on the Company’s statements of income with 34% of TAEI’s results reflected as minority interest in net income (loss) of subsidiary. As a result of the risk management activities of TAEI, the Company was able to offset its share of losses from its investment in TAME by $5.7 million for the nine months ended September 30, 2008. The Company invested an additional $4.0 million in TAME in the third quarter of 2008 and retains a 50% interest in the entity.

The Company increased its investment in LTG in the first quarter of 2008 by $20.5 million and again in the third quarter by $11.1 million. The Company now holds a 49.8% interest.

In the ordinary course of business, the Company will enter into related party transactions with its equity method investees. The following table sets forth the related party transactions entered into for the time periods presented.

		Three months ended								Nine months ended
		September 30,								September 30,
(in thousands)		2008				2007				2008				2007
Sales and revenues		$	125,186			$	86,986			$	398,017			$	186,383
Purchases of product			112,800				80,563				319,436				163,939
Lease income			1,459				1,361				4,357				3,540
Labor and benefits reimbursement (a)			2,384				1,647				7,339				4,481
Accounts receivable at September 30, (b)			8,290				18,376
Accounts payable at September 30, (c)			19,156				4,672

Note G: Fair Value Measurements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value as an exit price, establishes a framework for measuring fair value within generally accepted accounting principles and expands the required disclosures about fair value measurements. The Company adopted SFAS 157 as of January 1, 2008 for assets and liabilities measured at fair value on a recurring basis. SFAS 157 is effective for items that are recognized or disclosed at fair value on a non-recurring basis beginning January 1, 2009.

SFAS 157 defines fair value as an exit price, which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering such assumptions, SFAS 157 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

	•		Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
	•		Level 2 inputs: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and
	•		Level 3 inputs: Unobservable inputs (e.g., a reporting entity’s own data).

In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis under SFAS 157 at September 30, 2008.

(in thousands)
Assets (liabilities)		Level 1				Level 2				Level 3				Total
Cash and cash equivalents		$	28,541			$	—			$	—			$	28,541
Commodity derivatives, net			—				43,820				918				44,738
Net margin deposit assets			58,077				—				—				58,077
Net margin deposit liabilities			—				—				—				—
Other assets and liabilities (a)			8,846				—				(1,112	)			7,734
Total		$	95,464			$	43,820			$	(194	)		$	139,090

A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:

		Interest rate and
		foreign currency				Commodity
(in thousands)		derivatives				derivatives, net				Total
Asset (liability) at December 31, 2007		$	(1,167	)		$	5,561			$	4,394
Unrealized gains (losses) included in earnings			(152	)			3,346				3,194
Unrealized gain included in other comprehensive income			(545	)			—				(545	)
Transfers from level 2			—				161				161
Contracts cancelled, transferred to accounts receivable			—				(1,837	)			(1,837	)
Asset (liability) at March 31,2008		$	(1,864	)		$	7,231			$	5,367
Unrealized gains (losses) included in earnings			126				3,705				3,831
Unrealized gain included in other comprehensive income			565				—				565
New contracts entered into			162				—				162
Asset (liability) at June 30, 2008		$	(1,011	)		$	10,936			$	9,925
Unrealized gains (losses) included in earnings			(14	)			(10,018	)			(10,032	)
Unrealized gain included in other comprehensive income			(87	)			—				(87	)
Asset (liability) at September 30, 2008		$	(1,112	)		$	918			$	(194	)

The majority of the Company’s assets and liabilities measured at fair value are based on the market approach valuation technique. With the market approach, fair value is derived using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Our net commodity derivatives primarily consist of contracts that we have with our producers or customers under which the future settlement date and bushels of commodities to be delivered (primarily wheat, corn, soybeans and ethanol) are fixed and under which the price may or may not be fixed. Depending on the specifics of the individual contracts, the fair value is derived from the futures or options prices on the Chicago Board of Trade (“CBOT”) or the New York Mercantile Exchange (“NYMEX”) for similar commodities and delivery dates as well as observable quotes for local basis adjustments (the difference between the futures price and the local cash price). Although counterparty risk is present in each of these commodity contracts and is a component of our estimated fair values, based on our historical experience with our producers and customers and our knowledge of their businesses, we do not view counterparty risk to be a significant input to fair value for the majority of these commodity contracts. However, in situations where we believe that counterparty risk is higher (based on our past or present experience with a customer or our knowledge of the customer’s operations or financial condition), we classify these commodity contracts as “level 3” in the fair value hierarchy and, accordingly, record estimated fair value adjustments based on our internal projections and views of these contracts. The Company has taken significant fair value adjustments on the commodity contracts listed as level 3 as the probability of future performance on these contracts is considered low. Falling commodity prices during the third quarter of 2008 has significantly mitigated our counterparty risk on our remaining commodity contracts as the value of these contracts has decreased.

Net margin deposit assets reflect the fair value of the futures and options contracts that we have through the CBOT, net of the cash collateral that we have in our margin account with them.

Net margin deposit liabilities reflect the fair value of the Company’s over-the-counter, ethanol-related futures and options contracts that we have with various financial institutions, net of the cash collateral that we have in our margin account with them. While these contracts themselves are not exchange-traded, the fair value of these contracts is estimated by reference to similar exchange-traded contracts. We do not view counterparty risk on these contracts to be significant.

Note H: Change in Estimate of Depreciable Lives

In the first quarter of 2008, the Company changed its estimate of the service lives of depreciable railcar assets leased to others. Railcars have statutory lives of either 40 or 50 years (measured from the date built) depending on type and year built. Prior to 2008, the Company’s policy for depreciating railcar assets leased to others was based on the shorter of the railcars’ remaining statutory life or 15 years. This was thought to be the most appropriate method as the Company has historically purchased older cars. Beginning in 2008, the Company has changed its estimation of the useful lives of railcar assets leased to others that have a statutory life of 50 years. These cars will be depreciated based on 80% of the railcars remaining statutory life. This change was driven by an evaluation of our historical disposal data and the fact that the Company has begun to purchase newer cars. The impact of this change in estimate was not material to the Company’s financial results.

Note I: Acquisitions

In May, 2008, the Company acquired 100% of the shares of Douglass Fertilizer & Chemical, Inc. for $8.2 million. With 2007 sales of $47 million, Douglass Fertilizer is primarily a specialty liquid nutrient manufacturer, retailer and wholesaler and operates facilities located in Florida as well as the Caribbean. Douglass Fertilizer is part of the Plant Nutrient Group and diversifies the Group’s product line offering and expands its market outside of the traditional Midwest row crops and into Florida’s specialty crops.

In August 2008, the Company acquired 100% of the shares of two pelleted lime manufacturing facilities in Ohio and Illinois and the assets of another in Nebraska for $5.1 million. The acquisition expands the pelleted lime capabilities of its Plant Nutrient Group and makes the Company the largest producer of pelleted lime in North America.

In September 2008, the Company acquired a grain storage facility in Michigan for $7.1 million and finalized a leasing agreement for another facility also in Michigan. These two facilities provide the Company with 3.6 million bushels of additional storage capacity.

The summarized purchase price allocations for these three acquisitions are as follows:

Cash		$	350
Other current assets			21,533
Intangible assets			4,628
Goodwill			241
Other long term assets			874
Property, plant and equipment			16,034
Current liabilities			(8,680	)
Current maturities of long term debt			(7,569	)
Long term debt			(2,156	)
Other long term liabilities			(4,835	)
Total purchase price (a)		$	20,420

Note J: Debt Agreements

During the first quarter of 2008, the Company borrowed $195 million under a long-term note purchase agreement. The notes were issued in three series. The first series was for $92 million at an interest rate of 4.8%, payable in full in March of 2011. The second series was for $61.5 million at an interest rate of 6.12%, payable in full in March of 2015. The last series was for $41.5 million at an interest rate of 6.78% and is payable in full in March of 2018. In the third quarter, the Company entered into a $16.2 million variable rate note with final maturity date of July 2023. In addition, the Company amended its line of credit arrangement in April 2008 which now provides the Company with $655 million in short-term lines of credit and a temporary flex line, which was amended in October 2008, that allows the Company

$161 million of borrowing capacity. The temporary flex line matures in April 2009 and the line of credit matures in September 2009. At September 30, 2008, the Company had drawn $43.6 million on its line of credit.

Note K: Recently Issued Accounting Pronouncements

In June 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) 03-6-1 “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” Under FSP No. EITF 03-6-1, unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are considered participating securities and should be included in the computation of both basic and diluted earnings per share. FSP No. EITF 03-6-1 is effective for the Company beginning January 1, 2009. The Company is currently evaluating the impact of FSP No. EITF 03-6-1 and will apply the standard prospectively beginning in the first quarter of 2009. The impact on both basic and diluted earnings per share is not expected to be material.

In February 2008, the FASB issued FSP No. 157-2 “Effective Date of FASB Statement No. 157.” FSP No. 157-2 delays for one year the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis. The Company will adopt FSP No. 157-2 beginning January 1, 2009 and is currently evaluating the impact the new standard will have on its results of operations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. You are urged to carefully consider these risks and others, including those risk factors listed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007 (“2007 Form 10-K”). In some cases, you can identify forward-looking statements by terminology such as “may,” “anticipates,” “believes,” “estimates,” “predicts,” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These forward-looking statements relate only to events as of the date on which the statements are made and the Company undertakes no obligation, other than any imposed by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Critical Accounting Policies and Estimates

Our critical accounting policies and critical accounting estimates, as described in our 2007 Form 10-K, have not materially changed during the first nine months of 2008 other than the changes to the Company’s fair value measurements as described in Note G: Fair Value Measurements, included elsewhere herein.

Executive Overview

Grain & Ethanol Group

The Grain & Ethanol Group operates grain elevators in Ohio, Michigan, Indiana and Illinois. In addition to storage and merchandising, the Group performs grain trading, risk management and other services for its customers. The Group is also the developer and significant investor in three ethanol facilities located in Indiana, Michigan and Ohio with a nameplate capacity of 275 million gallons. In addition to its investment in these facilities, the Group operates the facilities under management contracts and provides grain origination, ethanol and distillers dried grains (“DDG”) marketing and risk management services for which it is separately compensated. The Group is also a significant investor in Lansing Trade Group LLC, an

established trading business with offices throughout the country and internationally. See Note F for further discussion with respect to our transactions with these entities.

The agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices. Therefore, increases or decreases in prices of the agricultural commodities that the Company deals in will have a relatively equal impact on sales and cost of sales and a minimal impact on gross profit. As a result, the significant increase in sales for the period is not necessarily indicative of the Group’s overall performance and more focus should be placed on changes to merchandising revenues and service income.

During the third quarter, the Company completed the purchase of a grain storage facility for $7.1 million and finalized leasing agreements for two others. These three facilities provide the Company with 7.6 million bushels of additional storage capacity, bringing the Company’s total capacity to approximately 90 million bushels throughout the Eastern Corn Belt.

Grain inventories on hand at September 30, 2008 were 39.5 million bushels, of which 17.4 million bushels were stored for others. This compares to 45.2 million bushels on hand at September 30, 2007, of which 17.3 million bushels were stored for others.

As of this writing, the corn and soybean harvest is almost complete in the Company’s primary region (Indiana, Illinois, Michigan and Ohio). An average of 57% of planted corn was rated as good to excellent in the Company’s primary region, due to extremely dry weather during the summer months. Ohio was the hardest hit with only 38% rated as good to excellent. Next year’s winter wheat crop is 89% planted as of this writing.

Unprecedented market conditions earlier in the year caused grain prices to rise significantly. When grain prices rise and customers have forward contracts with the Company to sell grain at prices lower than the current market price, there is a greater risk for counterparty nonperformance. The Company closely monitors the nonperformance risk of its counterparties and will adjust the fair value of its open contracts if appropriate. Recent price declines have significantly mitigated the Company’s risk of nonperformance by its counterparties. See Note G for further discussion regarding the fair value of our commodity contracts and associated counterparty risk.

The ethanol industry continues to be impacted by volatility in the commodity markets for both its production inputs and outputs as well as by government policy. For the three and nine months ended September 30, 2008, the pricing relationship between corn and ethanol has had a significant negative impact on the results of the Company’s equity investments in ethanol LLCs. The Company will continue to monitor this volatility and its impact very closely, including any impact on the recoverability of our investments in the ethanol LLCs. As of September 30, 2008, the Company’s investment balance in three ethanol entities totaled approximately $88.0 million.

Rail Group

The Rail Group buys, sells, leases, rebuilds and repairs various types of used railcars and rail equipment. The Group also provides fleet management services to fleet owners and operates a custom steel fabrication business. The Group has a diversified fleet of car types (boxcars, gondolas, covered and open top hoppers, tank cars and pressure differential cars) and locomotives and also serves a diversified customer base.

Railcars and locomotives under management (owned, leased or managed for financial institutions in non-recourse arrangements) at September 30, 2008 were 23,857 compared to 22,552 at September 30, 2007. Lease rates have been declining, however, the average utilization rate (railcars and locomotives under management that are under lease, exclusive of railcars managed for third party investors) has increased slightly from 92.5% for the nine months ended September 30, 2007 to 93.3% for the nine months ended September 30, 2008.

In April 2008, operations began at the Group’s repair shop in Anaconda, Montana and in September 2008, the Group added another in Ogden, Utah. This brings the total number of repair shops to seven. The Group will continue to evaluate opportunities for additional repair shops in the future.

Plant Nutrient Group

The Company’s Plant Nutrient Group purchases, stores, formulates, manufactures and sells dry and liquid fertilizer to dealers and farmers as well as sells reagents for air pollution control technologies used in coal-fired power plants. In addition, they provide warehousing and services to manufacturers and customers, formulate liquid anti-icers and deicers for use on roads and runways and distribute seeds and various farm supplies. The major fertilizer ingredients sold by the Company are nitrogen, phosphate and potash.

The escalation in nutrient prices has played a significant role in the Plant Nutrient Group’s performance for the quarter and year-to-date periods. Supply has now caught up with demand and prices are beginning to weaken significantly. This resulted in a lower-of-cost-or-market adjustment to the Group’s inventory of $8.9 million in the third quarter of 2008. In addition, the Group recorded a $4.2 million charge for purchase commitments at prices above what it estimates it can recover. The Company expects nutrient prices to continue to decline which would further impact the Group’s operating results for the fourth quarter.

On May 1, 2008, the Company acquired 100% of the shares of Douglass Fertilizer & Chemical, Inc. This acquisition diversifies the Group’s product line offering and expands its geographic market outside of the traditional Midwest row crops and into Florida’s rich specialty crops. In addition, on August 5, 2008, the Company acquired three pelleted lime production facilities in Ohio, Illinois, and Nebraska to expand its pelleted lime capabilities.

Turf & Specialty Group

The Turf & Specialty Group produces granular fertilizer products for the professional lawn care and golf course markets. It also produces private label fertilizer and corncob-based animal bedding and cat litter for the consumer markets. The turf products industry is highly seasonal, with the majority of sales occurring from early spring to early summer. Corncob-based products are sold throughout the year.

At the end of the fourth quarter of 2007, a new manufacturing facility, built to manufacture a patented fertilizer product primarily for use on golf course greens, became fully operational. With this increased capacity, the Group has launched several new products for the 2008 season. The price appreciation in nutrients in the first half of 2008 has inhibited demand within the Turf & Specialty Group. Because this Group purchases nitrogen primarily as it is needed, the risk of inventory devaluation is significantly mitigated.

Retail Group

The Retail Group includes six stores operated as “The Andersons,” which are located in the Columbus, Lima and Toledo, Ohio markets. In the second quarter 2007, the Group opened a new specialty food store operated as “The Andersons Market,” located in the Toledo, Ohio market. The Group also operates a sales and service facility for outdoor power equipment near one of its conventional retail stores. The retail concept is More for Your Home ® and the conventional retail stores focus on providing significant product breadth with offerings in home improvement and other mass merchandise categories, as well as specialty foods, wine and indoor and outdoor garden centers.

The retail business is highly competitive. The Company competes with a variety of retail merchandisers, including home centers, department and hardware stores, as well as local and national grocers. The retail industry has been significantly impacted by the weak economy and this will likely continue into the foreseeable future and will have a negative impact on future operating results. The Group has put forth an expense reduction effort in order to offset some of the negative effects of the weak economy.

Other

The “Other” business segment of the Company represents corporate functions that provide support and services to the operating segments. The results contained within this segment include expenses and benefits not allocated back to the operating segments.

Operating Results

		Three months ended								Nine months ended
		September 30,								September 30,
(in thousands)		2008				2007				2008				2007
Sales and merchandising revenues		$	905,712			$	553,708			$	2,719,413			$	1,594,425
Cost of sales			832,687				504,894				2,473,810				1,429,390
Gross profit			73,025				48,814				245,603				165,035
Operating, administrative and general			48,239				39,040				136,934				116,987
Allowance for doubtful accounts			333				458				2,902				1,102
Interest expense			7,497				4,174				25,140				13,386
Equity in earnings (loss) of affiliates			(619	)			9,518				15,801				17,173
Other income, net			1,279				2,200				6,318				19,141
Minority interest in net loss of subsidiaries			1,841				549				1,588				1,065
Income before income taxes		$	19,457			$	17,409			$	104,334			$	70,939

The following discussion focuses on the operating results as shown in the consolidated statements of income with a separate discussion by segment. Additional segment information is included in the notes to the condensed consolidated financial statements herein in Note E: Segment Information.

Comparison of the three months ended September 30, 2008 with the three months ended September 30, 2007:

Grain & Ethanol Group

		Three months ended
		September 30,
(in thousands)		2008				2007
Sales and merchandising revenues		$	651,045			$	382,907
Cost of sales			626,024				366,613
Gross profit			25,021				16,294
Operating, administrative and general			13,337				11,617
Allowance for doubtful accounts			242				276
Interest expense			4,232				1,470
Equity in earnings (loss) of affiliates			(620	)			9,516
Other income, net			1,012				710
Minority interest in net loss of subsidiaries			1,841				549
Income before income taxes		$	9,443			$	13,706

Operating results for the Grain & Ethanol Group decreased $4.3 million over the results from the same period last year. Sales of grain increased $217.7 million, or 77%, and is the result of a 57% increase in the average price per bushel of grain sold and a 14% increase in volume. A majority of the volume increase is the result of corn sales to The Andersons Marathon Ethanol LLC (“TAME”), which became operational in the first quarter of 2008. The increase in the average price per bushel sold is the result of the increased demand for corn which has caused the price of all grains to rise significantly. Sales of ethanol increased $40.6 million, or 48%, and is the result of a 21% increase in volume coupled with a 22% increase in the average price per gallon sold. The increase in volume is the result of sales of ethanol produced by TAME in which the Company purchases a portion of the ethanol produced and sells it to third parties. Gross profit on both corn and ethanol sales to the Company’s ethanol equity method investments is largely limited to the service fees earned from origination and marketing agreements.

Merchandising revenues for the Group increased $8.6 million over the third quarter of 2007 and relates primarily to increased basis levels in corn, soybeans and wheat. Basis is the difference between the local market price of a commodity and the Chicago Board of Trade futures price. During the first quarter of 2008, the futures prices for corn, soybeans and wheat rose at substantially higher rates than the local spot prices. This caused the Group to incur losses on its forward purchase and sale contracts as well as its inventory. During the third quarter, the basis levels for commodities appreciated, recovering most of the

first quarter losses. Revenues from services provided to the Company’s ethanol LLCs were $4.8 million, a $1.3 million increase from the third quarter 2007, and is the result of having three operational plants versus just two in the third quarter of 2007.

Gross profit for the Group increased $8.7 million, or 54%, over the third quarter of 2007 due to the increased merchandising revenues and ethanol service fees mentioned previously partially offset by decreased position income which is income from futures and options positions taken which are not directly related to a purchase or sale commitment.

Operating expenses for the Group increased $1.7 million, or 15%, over the same period in 2007 and are spread amongst several expense items, primarily labor and benefits, and relate to growth within the Group.

Interest expense for the Group increased $2.8 million over the same period in 2007. The significant increase in commodity prices and the need to cover margin calls is the main driver for the increased interest costs for the Group.

Equity in earnings of affiliates decreased $10.1 million over the same period in 2007 and is primarily due to the performance of the Company’s three investments in ethanol LLCs. The current pricing relationship between corn and ethanol has made it difficult for these entities to produce ethanol at a profit.

Rail Group

		Three months ended
		September 30,
(in thousands)		2008				2007
Sales and merchandising revenues		$	28,394			$	33,890
Cost of sales			19,385				23,523
Gross profit			9,009				10,367
Operating, administrative and general			3,059				3,290
Allowance for doubtful accounts			(171	)			99
Interest expense			1,041				1,429
Other income, net			84				243
Income before income taxes		$	5,164			$	5,792

Operating results for the Rail Group decreased $0.6 million, or 11%, over the third quarter of 2007. Leasing revenues increased $1.0 million, car sales decreased $6.2 million and sales in the Group’s repair and fabrication shops decreased $0.3 million. The increase in leasing revenues is attributable to the increase in the number of cars in the Group’s rail fleet and has been partially offset by decreasing lease rates for renewals.

Gross profit for the Group decreased $1.4 million, or 13% over the same period last year. Gross profit in the leasing business increased $0.4 million and can be attributed to the increased cars in the Group’s rail fleet as well as a slight increase in gross profit as a percent of sales. Gross profit on car sales decreased $2.1 million and is the result of the decreased sales for the quarter. Gross profit in the repair and fabrication shops increased $0.4 million.

Operating expenses for the Group decreased $0.2 million, or 7%, over the same period last year and were spread among several expense categories.

Interest expense for the Group decreased $0.4 million as the Group continues to pay down its non-recourse long-term debt.

Plant Nutrient Group

		Three months ended
		September 30,
(in thousands)		2008				2007
Sales and merchandising revenues		$	162,018			$	76,732
Cost of sales			140,287				70,274
Gross profit			21,731				6,458
Operating, administrative and general			12,902				5,309
Allowance for doubtful accounts			210				27
Interest expense			1,801				657
Equity in earnings of affiliates			1				2
Other income, net			404				348
Income before income taxes		$	7,223			$	815

Operating results for the Plant Nutrient Group increased $6.4 million over the third quarter of 2007. Sales and merchandising revenues increased $85.3 million, or 111%, due to a combination of the addition of the two businesses acquired during 2008, which contributed $16.1 million in sales, and a 100% increase in the average price per ton sold. The significant price appreciation in the commodities markets for the fertilizers that the Group sells has caused the significant increase in average selling price per ton. As mentioned previously, the price appreciation has reversed and prices are now beginning to decline sharply. This resulted in a lower-of-cost-or-market adjustment to the Group’s inventory of $8.9 million in the third quarter of 2008. In addition, the Group recorded a liability of $4.2 million related to adverse purchase commitments for inventory at prices higher than the current market value. Both of these charges are within cost of sales. In spite of these two adjustments, gross profit for the Group increased $15.3 million, or 236%, and is primarily related to the increase in selling prices as well as $5.1 million from the newly acquired businesses.

Operating expenses for the Group increased $7.6 million, or 143%, over the same period last year. Approximately two-thirds of this increase came with the addition of the businesses acquired in 2008. The remaining increase is spread across several expense categories.

Interest expense for the Group increased $1.1 million, or 174%, over the third quarter of 2007 and is due to increased borrowings to fund working capital.

Turf & Specialty Group

		Three months ended
		September 30,
(in thousands)		2008				2007
Sales and merchandising revenues		$	23,164			$	17,911
Cost of sales			17,988				14,158
Gross profit			5,176				3,753
Operating, administrative and general			5,372				5,263
Allowance for doubtful accounts			36				36
Interest expense			341				265
Other income, net			76				185
Income before income taxes		$	(497	)		$	(1,626	)

Operating results for the Turf & Specialty Group improved $1.1 million over results from the same period last year. Sales in the lawn fertilizer business increased $4.5 million, or 31%, due to a combination of increased volume and an increase in the average price per ton sold. The new product lines introduced in 2007 have been favorably received and are contributing to the increase in volume. Sales in the cob business increased 21%, due to both an increase in volume and an increase in the average price per ton sold. Gross profit for the Group increased $1.4 million, or 38%, over the same period last year and is attributable to a 40% increase in margin per ton in the lawn fertilizer business due to product mix changes.

Expenses for the Group remained relatively flat compared to the same period last year.

Retail Group

		Three months ended
		September 30,
(in thousands)		2008				2007
Sales and merchandising revenues		$	41,091			$	42,268
Cost of sales			29,002				30,326
Gross profit			12,089				11,942
Operating, administrative and general			12,092				12,351
Allowance for doubtful accounts			16				20
Interest expense			261				274
Other income, net			125				149
Income before income taxes		$	(155	)		$	(554	)

Operating results for the Retail Group improved $0.4 million over results from the same period last year. Sales and merchandising revenues decreased $1.2 million, or 3%, over the third quarter of 2007. Customer counts were down 2% and the average sale per customer was down 6%. Decreased sales were experienced in each of the Group’s market areas. Weak economic conditions and local competition have played a significant role in the decreased sales for the quarter. Gross profit increased slightly in spite of the decreased sales due to a 1% percentage point improvement in margin.

Operating expenses for the Group decreased $0.3 million, or 2%, due to the Group’s continued efforts to reduce costs.

Other

		Three months ended
		September 30,
(in thousands)		2008				2007
Sales and merchandising revenues		$	—			$	—
Cost of sales			—				—
Gross profit			—				—
Operating, administrative and general			1,478				1,210
Interest expense (income)			(179	)			79
Other income (loss), net			(422	)			565
Loss before income taxes		$	(1,721	)		$	(724	)