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

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 registrant as specified in its charter)

OHIO		34-1562374
(State of incorporation		(I.R.S. Employer
or organization)		Identification No.)

480 W. Dussel Drive, Maumee, Ohio		43537
(Address of principal executive offices)		(Zip Code)

(419) 893-5050
(Telephone Number)

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

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

Large accelerated filer o     Accelerated Filer þ     Non-accelerated filer o

Indicate by check þ 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 17.9 million common shares outstanding, no par value, at October 31, 2007.

 

 

THE ANDERSONS, INC.

INDEX

		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets — September 30, 2007 December 31, 2006 and September 30, 2006			3
Condensed Consolidated Statements of Income — Three months and nine months ended September 30, 2007 and 2006			5
Condensed Consolidated Statements of Cash Flows — Nine months ended September 30, 2007 and 2006			6
Condensed Consolidated Statements of Shareholders’ Equity Nine months ended September 30, 2007 and year ended December 31, 2006			7
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures about Market Risk			35
Item 4. Controls and Procedures			36
PART II. OTHER INFORMATION
Item 1A. Risk Factors			37
Item 6. Exhibits			37
Signatures			38
Exhibit Index			39
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,
		2007				2006				2006
Current assets:
Cash and cash equivalents		$	22,357			$	23,398			$	47,773
Restricted cash			3,737				3,801				3,815
Accounts and notes receivable, net			127,382				87,698				79,552
Margin deposits, net			28,970				15,273				10,540
Inventories:
Grain & Ethanol			179,560				195,496				66,802
Agricultural fertilizer and supplies			65,792				42,604				49,119
Lawn and garden fertilizer and corncob products			24,063				26,379				19,669
Railcar repair parts			3,259				3,230				3,621
Retail merchandise			33,923				28,466				32,565
Other			311				282				280
			306,908				296,457				172,056
Commodity derivative assets — current			108,039				85,338				9,914
Railcars available for sale			4,042				5,576				7,154
Deferred income taxes			—				967				—
Prepaid expenses and other current assets			40,158				26,782				17,181
Total current assets			641,593				545,290				347,985
Other assets:
Pension asset			3,500				445				9,683
Commodity derivative asset — non-current			29,999				20,862				5,718
Other assets and notes receivable, net			7,040				12,810				8,670
Investments in and advances to affiliates			105,057				59,080				45,620
			145,596				93,197				69,691
Railcar assets leased to others, net			143,251				145,059				148,936
Property, plant and equipment:
Land			12,125				12,111				12,090
Land improvements and leasehold improvements			35,451				33,817				33,442
Buildings and storage facilities			108,612				106,391				105,787
Machinery and equipment			136,064				131,152				128,844
Software			7,382				7,164				7,034
Construction in progress			8,075				5,934				4,312
			307,709				296,569				291,509
Less allowances for depreciation and amortization			(206,880	)			(201,067	)			(198,444	)
			100,829				95,502				93,065
Total assets		$	1,031,269			$	879,048			$	659,677

See notes to condensed consolidated financial statements

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

		September 30,				December 31,				September 30,
		2007				2006				2006
Current liabilities:
Short-term borrowings		$	163,400			$	75,000			$	—
Accounts payable for grain			52,016				95,915				21,819
Other accounts payable			109,421				81,610				77,376
Customer prepayments and deferred revenue			30,177				32,919				21,420
Commodity derivative liabilities — current			77,617				43,173				12,785
Accrued expenses			28,517				31,065				23,366
Deferred income taxes — current			275				—				576
Current maturities of long-term debt — non-recourse			13,889				13,371				14,464
Current maturities of long-term debt			10,329				10,160				12,617
Total current liabilities			485,641				383,213				184,423
Deferred income and other long-term liabilities			3,923				3,940				2,215
Commodity derivative liabilities — non-current			26,285				26,531				9,007
Employee benefit plan obligations			21,690				21,200				15,413
Long-term debt — non-recourse, less current maturities			60,107				71,624				77,222
Long-term debt, less current maturities			85,302				86,238				87,076
Deferred income taxes			19,702				16,127				20,204
Total liabilities			702,650				608,873				395,560
Minority interest			12,607				—				—
Shareholders’ equity:
Common shares, without par value (25,000 shares authorized; 19,198 shares issued)			96				96				96
Additional paid-in capital			166,270				159,941				157,730
Treasury shares (1,258, 1,492 and 1,567 shares at 9/30/07, 12/31/06 and 9/30/06, respectively; at cost)			(16,534	)			(16,053	)			(15,650	)
Accumulated other comprehensive loss			(11,638	)			(9,735	)			(1,049	)
Retained earnings			177,818				135,926				122,990
			316,012				270,175				264,117
Total liabilities and shareholders’ equity		$	1,031,269			$	879,048			$	659,677

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,
		2007				2006				2007				2006
Sales and merchandising revenues		$	553,708			$	335,871			$	1,594,425			$	994,638
Cost of sales and merchandising revenues			502,962				284,327				1,423,952				848,056
Gross profit			50,746				51,544				170,473				146,582
Operating, administrative and general expenses			41,430				40,310				123,527				115,583
Interest expense			4,174				3,818				13,386				12,513
Other income / gains:
Other income, net			2,144				6,352				19,085				11,763
Equity in earnings (loss) of affiliates			9,574				(483	)			17,229				5,279
Minority interest in loss of subsidiaries			549				—				1,065				—
Income before income taxes			17,409				13,285				70,939				35,528
Income tax expense			6,844				4,898				25,647				12,959
Net income		$	10,565			$	8,387			$	45,292			$	22,569
Per common share:
Basic earnings		$	0.59			$	0.52			$	2.54			$	1.46
Diluted earnings		$	0.58			$	0.51			$	2.48			$	1.41
Dividends paid		$	0.0475			$	0.045			$	0.1425			$	0.1325
Weighted average shares outstanding-basic			17,878				16,080				17,800				15,467
Weighted average shares outstanding-diluted			18,311				16,591				18,282				16,021

See notes to condensed consolidated financial statements

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

		Nine months ended
		September 30,
		2007				2006
Operating Activities
Net income		$	45,292			$	22,569
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization			19,457				18,263
Minority interest in loss of subsidiaries			(1,065	)			—
Unremitted earnings of unconsolidated affiliates			(8,893	)			(1,429	)
Realized gains on sales of railcars and related leases			(7,856	)			(5,887	)
Excess tax benefit from share-based payment arrangement			(3,853	)			(4,168	)
Deferred income taxes			6,003				7,581
Stock based compensation expense			3,225				2,079
Gain on donation of equity securities			(4,773	)			—
Other			29				(1,233	)
Changes in operating assets and liabilities:
Accounts and notes receivable			(39,684	)			(5,098	)
Inventories			(10,451	)			83,095
Commodity derivatives and margin deposits			(11,337	)			(9,869	)
Prepaid expenses and other assets			(10,173	)			6,204
Accounts payable for grain			(43,899	)			(59,126	)
Other accounts payable and accrued expenses			4,549				(33,150	)
Net cash provided by (used in) operating activities			(63,429	)			19,831
Investing Activities
Purchases of railcars			(42,888	)			(61,065	)
Proceeds from sale or financing of railcars and related leases			44,909				38,078
Purchases of property, plant and equipment			(15,637	)			(10,508	)
Proceeds from sale of property, plant and equipment and other			1,271				1,554
Investment in affiliates			(37,084	)			(23,706	)
Net cash used in investing activities			(49,429	)			(55,647	)
Financing Activities
Proceeds from offering of common shares			—				81,633
Net increase (decrease) in short-term borrowings			88,400				(12,400	)
Proceeds received from minority interest			13,672				—
Proceeds from issuance of long-term debt			6,216				15,108
Payments on long-term debt			(6,983	)			(4,654	)
Proceeds from issuance of non-recourse long-term debt			—				2,001
Payments of non-recourse long-term debt			(10,999	)			(18,670	)
Change in overdrafts			17,574				3,207
Proceeds from sale of treasury shares to employees and directors			2,622				1,386
Payments of debt issuance costs			—				(52	)
Dividends paid			(2,538	)			(2,014	)
Excess tax benefit from share-based payment arrangement			3,853				4,168
Net cash provided by financing activities			111,817				69,713
Increase (decrease) in cash and cash equivalents			(1,041	)			33,897
Cash and cash equivalents at beginning of period			23,398				13,876
Cash and cash equivalents at end of period		$	22,357			$	47,773

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				Unearned				Retained
		Shares				Capital				Shares				Loss				Compensation				Earnings				Total
Balance at January 1, 2006		$	84			$	70,121			$	(13,195	)		$	(455	)		$	(259	)		$	102,587			$	158,883
Net income																							36,347				36,347
Other comprehensive income:
Minimum pension liability (net of income tax of $8)															13												13
Cash flow hedge activity (net of income tax of $185)															(60	)											(60	)
Unrealized gains on investment (net of income tax of $1,461)															2,488												2,488
Comprehensive income																											38,788
Equity offering (2,238 shares)			12				81,595																				81,607
Unrecognized actuarial loss and prior service costs (net of income tax of $6,886)															(11,721	)											(11,721	)
Stock awards, stock option exercises, and other shares issued to employees and directors, net of income tax of $6,307 (208 shares)							8,225				(2,858	)							259								5,626
Dividends declared ($.01825 per common share)																							(3,008	)			(3,008	)
Balance at December 31, 2006			96				159,941				(16,053	)			(9,735	)			—				135,926				270,175
Net income																							45,292				45,292
Other comprehensive income:
Unrecognized actuarial loss and prior service costs (net of income tax of $338)															575												575
Cash flow hedge activity (net of income tax of $7)															11												11
Unrealized gain 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																											43,389
Impact of adoption of FIN 48																							(320	)			(320	)
Stock awards, stock option exercises, and other shares issued to employees and directors, net of income tax of $4,186 (234 shares)							6,329				(481	)															5,848
Dividends declared ($0.1725 per common share)																							(3,080	)			(3,080	)
Balance at September 30, 2007		$	96			$	166,270			$	(16,534	)		$	(11,638	)		$	—			$	177,818			$	316,012

See notes to condensed consolidated financial statements

The Andersons, Inc.
Notes to Condensed Consolidated Financial Statements

Note A: Basis of Presentation and Consolidation

These 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 unincorporated joint ventures in which the Company has significant influence, but not control, are accounted for using the equity method of accounting and are recorded at cost plus the Company’s accumulated proportional share of income or loss, less any distributions it has received. Differences in the basis of the investment and the separate net asset value of the investee, if any, are amortized into income over the remaining life of the underlying assets, with the exception of certain permanent basis differences related to entity formation.

In the opinion of management, all adjustments, consisting of normal recurring items and the effects of the adoption of the provisions of Financial Accounting Standards Board Interpretation 48, “Accounting for Uncertainty in Income Taxes,” considered necessary for a fair presentation of the results of operations for the periods indicated, have been made. Operating results for the fiscal quarter and nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2007.

The year-end condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles. A condensed consolidated balance sheet as of September 30, 2006 was 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, 2006.

Certain amounts in the prior period financial statements have been reclassified to conform to the current presentation. These reclassifications are not considered material and had no effect on net income or shareholders’ equity as previously presented.

Newly Adopted Accounting Standards

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 the right to reclaim cash collateral or obligation to return cash collateral against the fair value amounts recognized for derivative instruments that have been offset under the same

master netting arrangement. FSP FIN 39-1 would be required to be adopted by the Company beginning in 2008; however, the Company elected to adopt this presentation in the second quarter of 2007 as permitted by FSP FIN 39-1. The Company has a master netting arrangement for its futures contracts. When the Company enters into a futures contract, an initial margin deposit must be sent to the counterparty. The amount of the margin deposit varies by commodity. If the market price of a futures 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 FIN 39-1 and consistent with the balance sheets presented herein, the Company nets its futures position with its margin deposits and has included the required disclosures. At September 30, 2007, December 31, 2006 and September 30, 2006, the Company offset $63.3 million, $33.8 million and $2.8 million, respectively, of margin deposits against its net futures position.

Financial Statement Revision

In the second quarter of 2007, the Company determined that it should revise its classification of all forward purchase and sale contracts for commodities. Historically, the Company had recorded its net position in these commodity contracts on the balance sheet within inventory. Although this presentation had been disclosed in the Company’s significant accounting policies, the Company has revised its presentation to show the commodity contracts in separate line items on the consolidated balance sheet and display a gross position rather than a net position. As the Company’s forward and futures contracts are considered economic hedges of inventory, the cash flows from these derivatives will remain as a part of cash flows from operating activities, although for disclosure purposes the gross, rather than net, effects of cash flows from these contracts will be reflected in the Company’s consolidated statements of cash flows. The Company has concluded that the effect of historically reflecting these contracts on a net, rather than gross, basis did not materially mistate any previously issued consolidated balance sheets or consolidated statement of cash flows. However, the Company has elected to revise prior period comparative information presented herein in order to present such information on a basis consistent with the separate line item disclosure described above. A summary of the effects of these revisions are in the following table. The revisions have no effect on net income or shareholders’ equity as previously reported.

		Consolidated Balance Sheet								Consolidated Balance Sheet
(in thousands)		At December 31, 2006								At September 30, 2006
		As Reported				As Revised				As Reported				As Revised
Margin deposits		$	49,121			$	15,273			$	13,315			$	10,540
Inventory			299,105				296,457				163,121				172,056
Commodity derivative assets — current			—				85,338				—				9,914
Total current assets			496,448				545,290				331,911				347,985
Commodity derivative assets — non-current			—				20,862				—				5,718
Total assets			809,344				879,048				637,885				659,677
Commodity derivative liabilities — current			—				43,173				—				12,785
Total current liabilities			340,040				383,213				171,638				184,423
Commodity derivative liability — non-current			—				26,531				—				9,007
Total liabilities			539,169				608,873				373,768				395,560

Note B: Earnings Per Share

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

		Three months ended								Nine months ended
(in thousands)		September 30,								September 30,
		2007				2006				2007				2006
Weighted average shares outstanding — basic			17,878				16,080				17,800				15,467
Restricted shares and shares contingently issuable upon exercise of options			433				511				482				554
Weighted average shares outstanding — diluted			18,311				16,591				18,282				16,021

Diluted earnings per share in the third quarter of 2007 and 2006 excludes the impact of approximately 8,000 and 51,000 employee stock options, respectively, as such options were anti-dilute. In the first nine months of 2007 and 2006, diluted earnings per share excludes the impact of approximately 2,000 and 5,000 employee stock options, respectively, as such options were anti-dilutive.

Note C: Employee Benefit Plans

In the first quarter of 2006, the Company’s Board of Directors approved changes to its defined benefit plans that became effective on January 1, 2007. These changes included freezing benefits for certain employee groups and adjusting the formula for employees who continue to earn benefits after January 1, 2007. This plan amendment triggered a new valuation at February 28, 2006 resulting in an actuarial gain of $1.8 million.

Included as charges against income for the quarter and year-to-date period are the following amounts for pension and postretirement benefit plans maintained by the Company:

		Pension Benefits
		Three months ended								Nine months ended
(in thousands)		September 30,								September 30,
		2007				2006				2007				2006
Service cost		$	664			$	891			$	1,994			$	2,775
Interest cost			785				740				2,353				2,284
Expected return on plan assets			(1,141	)			(1,009	)			(3,424	)			(3,005	)
Amortization of prior service cost			(159	)			(158	)			(476	)			(368	)
Recognized net actuarial loss			268				440				804				1,358
Benefit cost		$	417			$	904			$	1,251			$	3,044

						Postretirement Benefits
		Three months ended								Nine months ended
		September 30,								September 30,
(in thousands)		2007				2006				2007				2006
Service cost		$	109			$	136			$	327			$	407
Interest cost			291				311				872				932
Amortization of prior service cost			(128	)			(110	)			(383	)			(330	)
Recognized net actuarial loss			198				228				595				685
Benefit cost		$	470			$	565			$	1,411			$	1,694

The Company made contributions to its defined benefit pension plan of $3.5 million and $2.5 million in the first nine months of 2007 and 2006, respectively. The Company currently expects to make a total contribution of approximately $7.0 million in fiscal 2007, which exceeds the required minimum contribution. The Company contributed $5.0 million in fiscal 2006.

The postretirement benefit plan is not funded. Company contributions in the quarter represent actual claim payments and insurance premiums for covered retirees. In the first nine months of 2007 and 2006, payments of $1.2 million and $1.0 million, respectively, were made by the Company.

Note D: Segment Information

Results of Operations — Segment Disclosures
(unaudited)(in thousands)

		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
Other income			709				188				348				185				149				565				2,144
Equity in earnings of affiliates			9,517				55				2				—				—				—				9,574
Interest expense			1,470				1,429				657				265				274				79				4,174
Operating income (loss)			13,706				5,792				815				(1,626	)			(554	)			(724	)			17,409
Identifiable assets			533,599				184,073				154,314				51,884				60,407				46,992				1,031,269

		Grain &								Plant				Turf &
Third Quarter 2006		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	208,540			$	27,339			$	38,580			$	20,396			$	41,016			$	—			$	335,871
Inter-segment sales			—				124				55				120				—				—				299
Other income			4,549				127				346				569				265				496				6,352
Equity in earnings of affiliates			(485	)			—				2				—				—				—				(483	)
Interest expense (income)(a)			1,158				1,781				705				271				327				(424	)			3,818
Operating income (loss)			11,950				4,898				(1,868	)			(420	)			(418	)			(857	)			13,285
Identifiable assets			190,449				194,283				106,239				44,344				56,191				68,171				659,677

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
Other income			10,232				710				801				380				467				6,495				19,085
Equity in earnings of affiliates			17,169				55				5				—				—				—				17,229
Interest expense (income)(a)			5,682				4,503				1,535				1,202				742				(278	)			13,386
Operating income			35,857				15,702				18,363				880				775				(638	)			70,939

Nine months ended		Grain &								Plant				Turf &
September 30, 2006		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	485,928			$	89,558			$	197,921			$	93,329			$	127,902			$	—			$	994,638
Inter-segment sales			—				376				4,323				1,045				—				—				5,744
Other income			6,794				442				776				1,087				697				1,967				11,763
Equity in earnings of affiliates			5,274				—				5				—				—				—				5,279
Interest expense (income)(a)			4,103				5,108				2,062				1,227				928				(915	)			12,513
Operating income (loss)			15,653				16,115				1,938				3,073				1,296				(2,547	)			35,528

(a)		The interest income reported in Other includes net interest income at the corporate level. These amounts result from a rate differential between the interest rate at which interest is allocated to the operating segments and the actual rate at which borrowings are made.

Note E: Equity Method Investments and Related Party Transactions

The Company, directly or indirectly, holds investments in six limited liability 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.

Each of the operating ethanol LLCs has a marketing agreement with the Company under which the Company buys ethanol produced and markets it to external customers. Substantially all of the Company’s ethanol purchases from the LLCs and sales to external parties are done through forward contracts on matching terms and, therefore, the Company does not recognize any gross profit on the sales transactions. As compensation for these marketing services, the Company earns a fee on each gallon of ethanol sold. For the quarter and year to date periods, sales made by the Company under these arrangements are as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
(in thousands)		2007				2006				2007				2006
Sales of ethanol (a)		$	85,319			$	—			$	170,887			$	—

(a)		The Company’s ethanol sales include direct ship sales made on behalf of the Company’s ethanol joint ventures. These are sales of ethanol purchased from unaffiliated third party producers and traded.

Prior to 2007, sales of ethanol were made directly from The Andersons Albion Ethanol LLC to third parties.

The following table presents summarized financial information of Lansing Trade Group LLC as this investment qualified as a significant subsidiary for the quarter ended September 30, 2007. Income from continuing operations is presented as the subsidiary is structured as a limited liability company.

		Three months ended								Nine months ended
		September 30,								September 30,
(in thousands)		2007				2006				2007				2006
Sales		$	1,320,921			$	803,579			$	3,817,974			$	1,703,276
Gross profit (loss)			20,036				(1,507	)			43,048				36,842
Income from continuing operations			8,497				(3,513	)			14,580				14,577
Net income (loss)			8,497				(3,513	)			14,580				14,577

The following table presents summarized financial information of The Andersons Clymers Ethanol LLC (“TACE”) as this investment also qualified as a significant subsidiary for the quarter ended September 30, 2007. Income from continuing operations is presented as the subsidiary is structured as a limited liability company. Sales include sales of ethanol made to the Company as well as sales of distillers dried grain made directly to third parties.

		Three months ended								Nine months ended
		September 30,								September 30,
(in thousands)		2007				2006				2007				2006
Sales		$	60,152			$	—			$	92,553			$	—
Gross profit (loss)			14,383				(186	)			20,600				(317	)
Income from continuing operations			11,973				(903	)			13,334				(1,355	)
Net income (loss)			11,973				(903	)			13,334	(a)			(1,355	)

(a)		In 2007, TACE restated its operating results for 2006 to correct an error. Because the amount is not considered material to The Andersons, the Company’s share of this adjustment was recorded in the second quarter of 2007.

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

		Three months ended								Nine months ended
		September 30,								September 30,
(in thousands)		2007				2006				2007				2006
The Andersons Albion Ethanol LLC		$	1,941			$	1,114			$	9,231			$	536
The Andersons Clymers Ethanol LLC			4,411				(331	)			3,329				(498	)
The Andersons Marathon Ethanol LLC (a)			(447	)			—				(1,175	)			—
Lansing Trade Group LLC			3,612				(1,268	)			6,194				5,262
Other			57				2				(350	)			(21	)
Total		$	9,574			$	(483	)		$	17,229			$	5,279

(a)		In the second quarter of 2007, certain expenses were erroneously included in earnings (loss) of affiliates rather than cost of sales. The amount was not material and the year-to-date results for the nine month period ending September 30, 2007 have been revised to correct this error.

In the ordinary course of business, the Company enters into related party transactions with its equity method investees. The following table sets forth financial information with respect to the related party transactions entered into for the time periods presented:

		Three months ended								Nine months ended
		September 30,								September 30,
(in thousands)		2007				2006				2007				2006
Sales and revenues from services		$	87,182			$	28,901			$	186,908			$	33,503
Purchases of product			80,563				17,867				163,939				17,872
Lease income			1,197				380				3,377				893
Labor & benefits reimbursement (a)			1,647				729				4,481				1,011
Accounts receivable at September 30											18,377				2,823
Accounts payable at September 30											4,672				—

(a)		The Company provides administrative support to the ethanol LLCs, and charges them an allocation of the Company’s costs of the related services.

Note F: Insurance Recoveries

On July 1, 2005, two explosions and a resulting fire occurred in a grain storage and loading facility operated by the Company and located on the Maumee River in Toledo, Ohio. There were no injuries; however, a portion of the grain at the facility was destroyed along with damage to a portion of the storage capacity and the conveyor systems. The facility, although leased, was insured by the Company for full replacement cost as the Company is responsible for the complete repair of the facility under the terms of the lease agreement. The Company also carried insurance on inventories and business interruption with a total deductible of $0.25 million. As of September 30, 2007, inventory losses have been reimbursed by the insurance company (net of the $0.25 million deductible) in the amount of $1.2 million. Clean-up and repair costs have been reimbursed by the insurance company in the amount of $4.6 million and re-construction

costs have been reimbursed in the amount of $11.9 million. The 2006 business interruption claim was settled in the second quarter of 2007 for $2.9 million. As of September 30, 2007, the Company had a receivable on its balance sheet from the insurance company for reconstruction costs in the amount of $2.4 million compared to a receivable of $5.8 million at September 30, 2006.

Note G: Equity Securities

In June 2007, the Company donated the remaining $1.8 million of available-for-sale equity securities it held on its balance sheet to a charitable foundation. The entire amount was recorded as charitable giving expense. The Company had also donated $3.1 million of available-for-sale securities in the first quarter of 2007. These donations resulted in a realized gain of $4.8 million in the first nine months of 2007, which was recognized in other income.

Note H: Uncertain Tax Positions

The Company adopted FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109, effective January 1, 2007. As a result of the implementation of FIN 48, the Company recognized a $0.4 million decrease to beginning retained earnings during the first quarter of 2007.

The Company has elected to classify interest and penalties, accrued as required by FIN 48, as interest expense and penalty expense, respectively, rather than as income tax expense. The total amount of accrued interest and penalties as of the date of adoption was $0.5 million. $0.1 million of the accrued interest as of the date of adoption was reversed during the third quarter of 2007 as a result of the expiration of the U.S. federal statute of limitations for the 2003 tax year. An additional $0.2 million of interest and penalties was accrued during the first nine months of 2007.

The total amount of unrecognized tax benefits as of the date of adoption is $1.5 million. If recognized, $1.0 million of unrecognized tax benefits would decrease the Company’s effective tax rate. The Company anticipates that the amount of unrecognized tax benefits will decrease by $0.4 million in the fourth quarter of 2007. This decrease relates to unrecognized tax benefits associated with investment tax credits and royalty expense deductions taken on state income tax returns in tax years that will no longer be subject to examination.

U.S. federal income tax and various state and city income tax returns filed by the Company remain subject to examination for the tax years 2003 through 2006. Canadian federal income tax returns remain subject to examination for the tax years 2004 through 2006 and Mexican federal income tax returns remain subject to examination for the tax years 2002 through 2006.

There have been no material changes during the first nine months of 2007 in the amounts of unrecognized tax benefits recorded as a result of tax positions taken during the current period or any prior periods, or in the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate.

Note I: Inventory Commitments

The Company’s inventory commitments include the fair value of forward contracts to buy and sell grain and ethanol, and exchange traded futures and option contracts used as economic hedges of the value of both owned grain and grain and ethanol forward contracts. The forward contracts require performance in future periods. Contracts to purchase grain from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of grain to processors or other grain and ethanol consumers generally do not extend beyond one year. The terms of contracts for the purchase and sale of grain are consistent with industry standards. These grain contracts are considered derivatives under Financial Accounting Standards Board (“FASB”) Statement No. 133, as amended, “Accounting for Derivative Instruments and Hedging Activities,” and are marked to the market price. Forward contracts in a gain position are recorded on the balance sheet as either “Commodity derivative assets — current” or “Commodity derivative assets — non-current” based on their delivery period. Forward contracts in a loss position are recorded on the balance sheet as either “Commodity derivative liabilities — current” or “Commodity derivative liabilities non-current”. Futures contracts are netted against margin deposits as permitted under FSP FIN 39-1. Set forth below is a table outlining the Company’s net position in its grain and ethanol inventory and commodity derivative contracts at September 30, 2007, December 31, 2006 and September 30, 2006.

		September 30,				December 31,				September 30,
(in thousands)		2007				2006				2006
Physical inventory		$	179,560			$	195,496			$	66,802
Commodity derivative assets — current			108,039				85,338				9,914
Commodity derivative assets — non-current			29,999				20,862				5,718
Commodity derivative liabilities — current			(77,617	)			(43,173	)			(12,785	)
Commodity derivative liabilities — non-current			(26,285	)			(26,531	)			(9,007	)
Futures contracts			(63,262	)			(33,848	)			(2,775	)
Net position		$	150,434			$	198,144			$	57,867

Note J: Recently Issued Accounting Pronouncements

In February 2007, the FASB released Statement No. 159 (“SFAS 159”), The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 allows an entity to choose to measure many financial instruments and other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective for the Company’s annual period beginning January 1, 2008. The Company is currently assessing the impact on the financial statements of the application of SFAS 159.

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, 2006 (“2006 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 estimates, as described in our 2006 Form 10-K, have not materially changed during the first nine months of 2007 other than the changes to the Company’s accounting treatment for its commodity contracts as described in Note A: Basis of Presentation and Consolidation to the condensed consolidated financial statements, 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. Two of these facilities are now producing ethanol while the third is expected to begin production in early 2008. In addition to its investment in these ethanol facilities, the Group operates the facilities under management contracts and provides grain origination and marketing and risk management services for which it is separately compensated. The expected surge in demand for corn to be used in ethanol production has caused corn prices to escalate and has resulted in an increase of corn acres planted in 2007 of 19% over last year.

As of this writing, the corn and soybean harvest is ahead of the 2006 harvest in the Company’s primary region (Indiana, Illinois, Michigan and Ohio) due to favorable weather conditions. The extremely dry weather that occurred during the summer has caused corn rated as good to excellent in the Company’s primary region to be an average of only 53% compared to 73% at the same point last year. Michigan was the hardest hit with only 31% of their corn crop rated as good to excellent. Next year’s winter wheat crop is 73% planted as of this writing compared to 52% at the same time last year. Unprecedented volatility in the recent wheat market could have an impact on future earnings and currently, high wheat and soybean prices are expected to cause some producers to switch acres from corn to wheat and soybeans for the 2008 harvest.

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. A portion of the sales increase relates to the Company’s position as the ethanol marketer for its ethanol ventures. In this role the Company buys ethanol from its ventures and then resells the ethanol to ethanol blenders. For this service, it earns a volume-based fee rather than a traditional sales margin.

Grain inventories on hand at September 30, 2007 were 45.2 million bushels, of which 17.3 million bushels were stored for others. This compares to 38.3 million bushels on hand at September 30, 2006, of which 19.1 million bushels were stored for others. The 45% increase in owned bushels has resulted in a 169% increase in value as noted on the balance sheet due to the significantly higher market prices.

Production at the Clymers, Indiana ethanol plant began in early May. The ethanol ventures in which the Company has interests and where production is occurring have the majority of their 2007 and 2008 ethanol margins locked in through the use of forward purchase contracts for corn and natural gas and forward sale contracts of ethanol.

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, 2007 were 22,552 compared to 20,415 at September 30, 2006. With overall U.S. rail traffic decreasing more than 3% over the last year, the Group’s utilization rate (railcars and locomotives under management that are in lease service, exclusive of railcars managed for third party investors) has fallen from 96% at September 30, 2006 to 93% at September 30, 2007. This, along with declining lease rates and increased maintenance costs, has had an adverse impact on the Group’s results for the period.

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.

As stated previously, U.S. corn acreage in 2007 has increased 19% over last year and the Company’s year to date average corn sales price has risen 55%. The significant rise in corn prices, along with expectations for future increased demand to supply ethanol plants, has contributed to the increase in acreage. This has benefited the Plant Nutrient Group significantly, as corn requires more nutrients than other crops. Because of this, volumes have increased 48% for the quarter and 43% year-to-date over the same periods in 2006. Weather, as well as the pricing relationship between corn, wheat and soybeans, will play an important role in the outlook for the remainder of the year as farmers begin to make decisions about the next year’s crop and fall nutrient applications. High wheat and soybean prices are expected to cause some producers to switch acres from corn to wheat and soybeans, which require less nutrients. This could adversely impact the Group for 2008.

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.

As part of the restructuring plan announced in 2005 by the Turf & Specialty Group, many new value-added products were introduced and, in spite of high raw material prices this year, average gross margins in the lawn business have improved when compared to the same period last year. The expansion of the Group’s manufacturing facility, which manufactures a patented fertilizer product primarily for use on golf course greens, is expected to be fully operational before the end of 2007. With this increased capacity, the Group has begun the launch of several new products for the 2008 season.

Through the first nine months of 2007, the cob business has been challenged by a shortage of cobs which have increased raw material costs. This problem has been somewhat alleviated with the fall harvest.

Retail Group

The Retail Group consists of six stores operated as “The Andersons,” which are located in the Columbus, Lima and Toledo, Ohio markets. In the second quarter of 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 grocers.

Company

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

Beginning in 2007, changes were made to the allocation of certain costs and benefits that were previously held at the corporate level. These consist primarily of increased interest expense (credit) and other corporate costs.

Operating Results

		Three months								Nine months
		ended September 30,								ended September 30,
(in thousdands)		2007				2006				2007				2006
Sales and merchandising revenues		$	553,708			$	335,871			$	1,594,425			$	994,638
Cost of sales			502,962				284,327				1,423,952				848,056
Gross profit			50,746				51,544				170,473				146,582
Operating, administrative & general			41,430				40,310				123,527				115,583
Interest expense			4,174				3,818				13,386				12,513
Equity in earnings (loss) of affiliates			9,574				(483	)			17,229				5,279
Other income/gains			2,144				6,352				19,085				11,763
Minority interest in loss of subsidiaries			549				—				1,065				—
Operating income		$	17,409			$	13,285			$	70,939			$	35,528

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 D: Segment Information.

Comparison of the three months ended September 30, 2007 with the three months ended September 30, 2006:

Grain & Ethanol Group

		Three months ended
		September 30,
(in thousands)		2007				2006
Sales and merchandising revenues		$	382,907			$	208,540
Cost of sales			366,613				188,039
Gross profit			16,294				20,501
Operating, administrative & general			11,893				11,457
Interest expense			1,470				1,158
Minority interest in loss of subsidiaries			549				—
Equity in earnings of affiliates			9,517				(485	)
Other income/gains			709				4,549
Operating income		$	13,706			$	11,950

Operating results for the Grain & Ethanol Group improved $1.8 million over its third quarter 2006 results. Sales of grain (corn, soybeans, wheat and oats) increased 61%, the majority of which came from sales of corn. The increased demand for corn from ethanol has driven up the average selling price per bushel over 49% from the same period last year and resulted in an increase in sales volume of 28%. While bushels of corn sold

increased, bushels of other grains (soybeans, wheat and oats) decreased. The Group sold $85.3 million of ethanol during the quarter and earned $3.8 million for services provided to its ethanol joint ventures and other entities. This compares to sales of ethanol of $17.5 million and fees earned of $1.0 million in the third quarter of 2006. Other merchandising revenues for the Group decreased $3.5 million. The largest contributor to the decrease came in space income, which is income earned from storage fees and appreciation in the value of grain owned.

Gross profit for the Group decreased $4.2 million. In the third quarter of 2006, there were a significant amount of wheat sales at very good margins. This was not repeated in the third quarter of 2007. In addition, the Group recorded some physical inventory write-downs and quality adjustments on its owned inventory (primarily corn and wheat) that contributed to the decreased gross profit. Gross profit earned on the $85.3 million of ethanol sales was limited to a small per gallon commission.

Operating expenses increased 4% over the third quarter of 2006 due to a variety of factors, primarily personnel costs, including labor and incentive compensation.

Interest expense increased 27% over the third quarter of 2006 due to increased borrowings to finance higher working capital, primarily inventory and margin deposits.

Other income for the Group decreased $3.8 million over the same period last year primarily due to the third quarter 2006 settlement of the 2005 business interruption claim that resulted from the July 1, 2005 explosion at one of its grain elevators.

Income earned from the Group’s investments in affiliates increased $10.0 million over the third quarter of 2006. The Company now has investments in two ethanol entities that are producing ethanol compared to only one in the third quarter of 2006 that was only in production for the last half of the quarter. This contributed to $5.6 million of the increase. Lansing Trade Group LLC, another entity in which the Company is an investor, had significantly better results than the same period last year. This contributed to $4.9 million of the increase in income earned from investments in affiliates.

Rail Group

		Three months ended
		September 30,
(in thousands)		2007				2006
Sales and merchandising revenues		$	33,890			$	27,339
Cost of sales			21,590				15,711
Gross profit			12,300				11,628
Operating, administrative & general			5,322				5,076
Interest expense			1,429				1,781
Equity in earnings of affiliates			55				—
Other income/gains			188				127
Operating income		$	5,792			$	4,898

Operating results for the Rail Group increased $0.9 million over results from the third quarter of 2006. Leasing revenues increased $2.4 million, car sales for the Group increased $3.2 million and sales from the railcar repair and fabrication shops increased $0.9 million. The increase in leasing revenue is a factor of the increased cars in the Group’s rail fleet and has been partially offset by decreasing lease rates for renewals and new leases.

Gross profit for the Group increased $0.7 million, resulting from a $1.4 million increase in gross profit on car sales partially offset by a $0.4 million decrease in gross profit on leases and $0.3 million decrease in gross profit from railcar repair and fabrication shops. Maintenance costs continue to be higher than expected and are impacting the Group’s gross profit from its leasing business.

Operating expenses for the Group increased 5% from the same period last year which is spread amongst a variety of expense items.

Interest expense decreased 20% as the Group continues to pay off its long-term debt and recognized a reduction in its allocated share of the Company’s interest.

     Plant Nutrient Group

		Three months ended
		September 30,
(in thousands)		2007				2006
Sales and merchandising revenues		$	76,732			$	38,580
Cost of sales			70,274				34,957
Gross profit			6,458				3,623
Operating, administrative & general			5,336				5,134
Interest expense			657				705
Equity in earnings of affiliates			2				2
Other income/gains			348				346
Operating income (loss)		$	815			$	(1,868	)

Operating results for the Plant Nutrient Group improved $2.7 million over results from the third quarter of 2006. Sales increased 101% due to a 48% increase in volume and a 36% increase in the average price per ton sold. The increased demand for nutrients is primarily the result of increased corn acres steming from new ethanol demand and corn requires more nutrients than other crops. Anticipation of rising nutrient prices have also caused some of the Group’s customers to buy earlier for next year’s crop in order to lock in their price. Merchandising revenues increased 19% due to increased application acres and increased storage income.

Gross profit improved 78% over the same period last year due to the increase in sales and merchandising revenues as well as a significant increase in the gross profit per ton.

Operating expenses for the Group only increased 4% over the third quarter of 2006 in spite of the increased sales activity. The biggest increase came in maintenance repairs necessary as a result of the higher activity during the season.

The reduction in interest expense for the Group in the third quarter of 2007 relates primarily to a change in the amount of interest allocated to the Group.

Turf & Specialty Group

		Three months ended
		September 30,
(in thousands)		2007				2006
Sales and merchandising revenues		$	17,911			$	20,396
Cost of sales			14,158				16,258
Gross profit			3,753				4,138
Operating, administrative & general			5,299				4,856
Interest expense			265				271
Other income/gains			185				569
Operating loss		$	(1,626	)		$	(420	)

Operating results for the Turf & Specialty Group decreased $1.2 million over results from the third quarter of 2006. Sales in the lawn fertilizer business decreased $2.7 million due to decreased volume partially offset by a 5% increase in the average price per ton sold. Most of this decrease came in the industrial line of business which has been experiencing soft demand. Sales in the cob business increased $0.2 million due entirely to increased volumes.

Gross profit for the Group decreased 9% over the same period last year. The decrease in gross profit in the lawn fertilizer business is a direct result of the decrease in volume as the actual gross profit per ton increased 13%. The decrease in gross profit in the cob business is a result of increased costs of raw cobs.

Operating expenses for the Group increased 9% due mostly to increased advertising costs incurred for the rollout of a new product line set for the fourth quarter of 2007. The other income recognized in 2006 related to an insurance settlement for a cob tank that was destroyed in a fire.

Retail Group

		Three months ended
		September 30,
(in thousands)		2007				2006
Sales and merchandising revenues		$	42,268			$	41,016
Cost of sales			30,327				29,362
Gross profit			11,941				11,654
Operating, administrative & general			12,370				12,010
Interest expense			274				327
Other income/gains			149				265
Operating loss		$	(554	)		$	(418	)