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 June 30, 2006

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 (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 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 15.3 million common shares outstanding, no par value, at July 31, 2006.

 

 

THE ANDERSONS, INC.

INDEX

		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets — June 30, 2006 December 31, 2005 and June 30, 2005			3
Condensed Consolidated Statements of Income — Three months and six months ended June 30, 2006 and 2005			5
Condensed Consolidated Statements of Cash Flows — Six months ended June 30, 2006 and 2005			6
Condensed Consolidated Statements of Shareholders’ Equity Six months ended June 30, 2006 and year ended December 31, 2005			7
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures about Market Risk			32
Item 4. Controls and Procedures			33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			34
Item 1A. Risk Factors			34
Item 4. Submission of Matters to a Vote of Security Holders			50
Item 6. Exhibits			50
Signatures			51
Exhibit Index			52
Exhibit 31.1
Exhibit 31.2
Exhibit 31.3
Exhibit 32.1

Part I. Financial Information

Item 1. Financial Statements

The Andersons, Inc.

		June 30				December 31				June 30
		2006				2005				2005
Current assets:
Cash and cash equivalents		$	15,474			$	13,876			$	7,864
Restricted cash			3,836				3,936				1,435
Accounts and notes receivable:
Trade receivables, net			87,152				74,436				77,397
Margin deposits			8,775				8,855				13,628
			95,927				83,291				91,025
Inventories:
Grain			83,400				143,442				103,970
Agricultural fertilizer and supplies			30,572				35,442				22,407
Lawn and garden fertilizer and corncob products			18,514				31,280				22,067
Railcar repair parts			3,932				3,177				2,216
Retail merchandise			32,247				27,189				31,477
Other			253				276				268
			168,918				240,806				182,405
Railcars available for sale			6,224				5,375				4,870
Deferred income taxes			1,250				2,087				2,096
Prepaid expenses and other current assets			17,149				23,170				9,211
Total current assets			308,778				372,541				298,906
Other assets:
Pension asset			9,311				10,130				4,254
Other assets and notes receivable, net			9,026				8,393				9,582
Investments in and advances to affiliates			46,007				20,485				5,092
			64,344				39,008				18,928
Railcar assets leased to others, net			136,271				131,097				134,450
Property, plant and equipment:
Land			12,102				12,154				11,986
Land improvements and leasehold improvements			32,928				32,265				31,822
Buildings and storage facilities			105,183				104,656				103,154
Machinery and equipment			128,165				128,276				128,237
Software			7,024				6,652				6,612
Construction in progress			2,146				1,183				1,034
			287,548				285,186				282,845
Less allowances for depreciation and amortization			196,193				193,688				191,167
			91,355				91,498				91,678
		$	600,748			$	634,144			$	543,962

See notes to condensed consolidated financial statements

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

		June 30				December 31				June 30
		2006				2005				2005
Current liabilities:
Short-term borrowings		$	51,600			$	12,400			$	69,900
Accounts payable for grain			26,742				80,945				27,590
Other accounts payable			69,323				72,240				58,169
Customer prepayments and deferred revenue			23,809				53,502				27,258
Accrued expenses			24,026				27,684				23,067
Current maturities of long-term debt – non-recourse			13,664				19,641				10,780
Current maturities of long-term debt			12,159				9,910				5,020
Total current liabilities			221,323				276,322				221,784
Deferred income and other long-term liabilities			1,699				1,131				1,240
Employee benefit plan obligations			15,179				14,290				14,181
Long-term debt – non-recourse, less current maturities			82,529				88,714				59,333
Long-term debt, less current maturities			88,862				79,329				89,105
Deferred income taxes			16,805				15,475				13,812
Total liabilities			426,397				475,261				399,455
Shareholders’ equity:
Common shares (25,000 shares authorized; no par value; 16,860 shares issued and outstanding)			84				84				84
Additional paid-in capital			74,979				70,121				69,039
Treasury shares (1,581, 1,819 and 1,967 shares at 6/30/06, 12/31/05 and 6/30/05, respectively; at cost)			(15,497	)			(13,195	)			(12,651	)
Accumulated other comprehensive loss			(611	)			(455	)			(675	)
Unearned compensation			—				(259	)			(453	)
Retained earnings			115,396				102,587				89,163
			174,351				158,883				144,507
		$	600,748			$	634,144			$	543,962

See notes to condensed consolidated financial statements

The Andersons, Inc.

		Three Months ended June 30								Six Months ended June 30
		2006				2005				2006				2005
Sales and merchandising revenues		$	378,109			$	365,117			$	658,767			$	623,773
Cost of sales and merchandising revenues			323,342				312,099				563,729				530,796
Gross profit			54,767				53,018				95,038				92,977
Operating, administrative and general expenses			38,581				35,855				75,273				72,756
Interest expense			4,501				3,191				8,695				6,141
Other income / gains:
Other income, net			2,352				1,430				5,411				2,509
Equity in earnings of affiliates			2,209				14				5,762				460
Income before income taxes			16,246				15,416				22,243				17,049
Income tax expense			5,899				5,063				8,061				5,662
Net income		$	10,347			$	10,353			$	14,182			$	11,387
Per common share:
Basic earnings		$	0.68			$	0.70			$	0.94			$	0.77
Diluted earnings		$	0.66			$	0.67			$	0.90			$	0.74
Dividends paid		$	0.045			$	0.040			$	0.0875			$	0.08
Weighted average shares outstanding-basic			15,220				14,798				15,155				14,772
Weighted average shares outstanding-diluted			15,776				15,392				15,728				15,340

See notes to condensed consolidated financial statements

The Andersons, Inc.

		Six Months ended
		June 30
		2006				2005
Operating Activities
Net income		$	14,182			$	11,387
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization			12,092				11,238
Unremitted earnings of unconsolidated affiliates			(2,670	)			840
Realized gains on sales of railcars and related leases			(4,434	)			(519	)
Gain on sale of property, plant and equipment			(927	)			(29	)
Excess tax benefit from share-based payment arrangement			(3,983	)			—
Deferred income taxes			2,356				249
Stock based compensation expense			1,277				116
Other			33				65
Changes in operating assets and liabilities:
Accounts and notes receivable			(12,593	)			(24,790	)
Inventories			71,888				69,023
Prepaid expenses and other assets			6,632				14,560
Accounts payable for grain			(54,203	)			(59,732	)
Other accounts payable and accrued expenses			(36,789	)			(29,297	)
Net cash used in operating activities			(7,139	)			(6,889	)
Investing Activities
Purchases of railcars			(29,512	)			(54,741	)
Proceeds from sale or financing of railcars and related leases			21,434				19,749
Purchases of property, plant and equipment			(5,866	)			(5,114	)
Proceeds from sale of property, plant and equipment			1,046				113
Investment in affiliates, net			(22,852	)			(1,895	)
Change in restricted cash			100				97
Net cash used in investing activities			(35,650	)			(41,791	)
Financing Activities
Net increase in short-term borrowings			39,200				57,800
Proceeds from issuance of long-term debt			14,697				2,274
Payments on long-term debt			(2,915	)			(3,957	)
Proceeds from issuance of non-recourse long-term debt			2,001				1,547
Payments of non-recourse long-term debt			(14,163	)			(5,840	)
Change in overdrafts			1,752				(3,135	)
Proceeds from sale of treasury shares to employees and directors			1,211				632
Excess tax benefit from share-based payment arrangement			3,983				—
Payments of debt issuance costs			(52	)			(32	)
Dividends paid			(1,327	)			(1,184	)
Net cash provided by financing activities			44,387				48,105
Increase (decrease) in cash and cash equivalents			1,598				(575	)
Cash and cash equivalents at beginning of period			13,876				8,439
Cash and cash equivalents at end of period		$	15,474			$	7,864

See notes to condensed consolidated financial statements

The Andersons, Inc.

														Accumulated
						Additional								Other
		Common				Paid-in				Treasury				Comprehensive				Unearned				Retained
		Shares				Capital				Shares				Loss				Compensation				Earnings				Total
Balance at January 1, 2005		$	84			$	67,960			$	(12,654	)		$	(397	)		$	(119	)		$	79,002			$	133,876
Net income																							26,087				26,087
Other comprehensive income:
Minimum pension liability (net of $61 income tax)															(106	)											(106	)
Cash flow hedge activity															48												48
Comprehensive income																											26,029
Stock awards, stock option exercises, and other shares issued to employees and directors, net of income tax of $2,569 (336 shares)							2,161				(541	)							(421	)							1,199
Amortization of unearned compensation																			281								281
Dividends declared ($0.1675 per common share)																							(2,502	)			(2,502	)
Balance at December 31, 2005			84				70,121				(13,195	)			(455	)			(259	)			102,587				158,883
Net income																							14,182				14,182
Other comprehensive income:
Minimum pension liability (net of $98 income tax)															(168	)											(168	)
Cash flow hedge activity															12												12
Comprehensive income																											14,026
Stock awards, stock option exercises, and other shares issued to employees and directors, net of income tax of $4,193 (238 shares)							4,858				(2,302	)							259								2,815
Dividends declared ($0.09 per common share)																							(1,373	)			(1,373	)
Balance at June 30, 2006		$	84			$	74,979			$	(15,497	)		$	(611	)		$	—			$	115,396			$	174,351

See notes to condensed consolidated financial statements

The Andersons, Inc.

Note A: Basis of Presentation

In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the periods indicated, have been made. Other than the adjustment noted in the following paragraph, such adjustments consist only of normal recurring adjustments.

Certain expenses for the Company and Rail Group were erroneously included in operating, administrative and general expenses, rather than cost of sales for the three month period ended March 31, 2006. The year-to-date results for the six month period ending June 30, 2006 have been revised to correct this error. There was no impact on revenues, operating income, net income or earnings per share. This revision is not considered material for restatement of prior periods’ results of operations.

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 June 30, 2005 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, 2005.

Note B: Common Stock Split

On June 28, 2006, the Company effected a two-for-one stock split to shareholders of record as of June 1, 2006. All share and per share information has been retroactively adjusted to reflect the stock split.

Note C: Stock-Based Compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), using the modified prospective transition method. Under this transition method, stock-based compensation expense for the first six months of 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123. Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 are based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award. Prior to the adoption of

SFAS 123(R), the Company recognized stock-based compensation expense in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations.

Total compensation expense recognized in the Consolidated Statement of Income for all stock compensation programs was $1.3 million in the first six months of 2006. The result of adopting SFAS 123(R), was an additional charge to income before income taxes and net income for the six months ended June 30, 2006 of $1.1 million and $0.7 million, respectively, than if we had continued to account for stock-based compensation under APB No. 25. The impact of adoption on both basic and diluted earnings per share for the six months ended June 30, 2006 was $0.05 and $0.04 per share respectively. In addition, prior to the adoption of SFAS 123(R), the Company presented the tax benefit of stock option exercises as a component of operating cash flows. Upon the adoption of SFAS 123(R), tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options are classified as financing cash flows.

The pro forma table below reflects net earnings and basic and diluted net earnings per share for the three and six months ended June 30, 2005 assuming that the Company had accounted for its stock based compensation programs using the fair value method promulgated by SFAS 123 at that time.

		Three months				Six months
		ended June 30,				ended June 30,
		2005				2005
(in thousands, except per share data)
Net income reported		$	10,353			$	11,387
Add: Stock-based compensation included in reported net income, net of related tax effects			125				143
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(571	)			(607	)
Pro forma net income		$	9,907			$	10,923
Earnings per share:
Basic – as reported		$	0.70			$	0.77
Basic – pro forma		$	0.67			$	0.74
Diluted – as reported		$	0.68			$	0.74
Diluted – pro forma		$	0.65			$	0.72

The Company’s 2005 Long-Term Performance Compensation Plan dated May 6, 2005 (the “LT Plan”) authorizes the Board of Directors to grant options, stock appreciation rights, performance shares and share awards to employees and outside directors for up to 400,000 of the Company’s common shares. Additionally, options and share awards (totaling 420,000 common shares) that remained available under The Andersons, Inc. Amended and Restated Long-Term Performance Plan (the “Prior Plan”) upon termination

of that plan on May 7, 2005 have been transferred to the LT Plan. Options granted under the LT Plan and Prior Plan have a maximum term of 10 years. Prior to 2006, options granted to managers had a fixed term of five years and vested 40% immediately, 30% after one year and 30% after two years. Options granted to outside directors had a fixed term of five years and vested after one year.

Stock Only Stock Appreciation Rights (“SOSAR’s”) and Stock Options

Beginning in 2006, the Company discontinued granting options to directors and management and instead began granting SOSAR’s. SOSAR’s granted to directors and management personnel under the LT Plan have a term of five-years and vest after three years. SOSAR’s granted under the LT Plan are structured as fixed grants with exercise price equal to the market value of the underlying stock on the date of the grant. On April 1, 2006 307,220 SOSAR’s were granted to directors and management personnel.

The fair value for SOSAR’s was estimated at the date of grant, using a Black-Scholes option pricing model, which requires management to make certain assumptions. Expected volatility was estimated based on the historical volatility of the Company’s common shares over the past five years. The average expected life was based on the contractual term of the stock option and expected employee exercise and post-vesting employment termination trends. The risk-free rate is based on U.S. Treasury issues with a term equal to the expected life assumed at the date of grant. Forfeitures are estimated at the date of grant based on historical experience. Prior to the adoption of SFAS 123(R), the Company recorded forfeitures as they occurred for purposes of estimating pro forma compensation expense under SFAS 123. The impact of forfeitures is not material.

		2006				2005
Long Term Performance Compensation Plan
Risk free interest rate			4.82	%			4.18	%
Dividend yield			0.50	%			1.10	%
Volatility factor of the expected market price of the Company’s common shares			.290				.228
Expected life for the options (in years)			4.50				5.00

Restricted Stock Awards

The LT Plan permits awards of restricted stock. These shares carry voting and dividend rights; however, sale of the shares is restricted prior to vesting. Restricted shares granted after January 1, 2006 have a three year vesting period. Total restricted stock expense is equal to the market value of the Company’s common shares on the date of the award and is recognized over the service period. On April 1, 2006, 22,006 shares were issued to members of management.

Performance Share Units (“PSU’s”)

The LT Plan also allows for the award of PSU’s. Each PSU gives the participant the right to receive one common share dependent on achievement of specified performance results over a three calendar year performance period. At the end of the performance period, the number of shares of stock issued will be determined by adjusting the award upward or downward from a target award. Fair value of performance share units issued is based on the market value of the Company’s common shares on the date of the award. The related compensation expense is recognized over the performance period and adjusted for changes in the number of shares expected to be issued if changes in performance are expected. Currently, the Company is accounting for the awards granted in 2005 at the maximum amount available for issuance at December 31, 2007. On April 1, 2006, 25,280 PSU’s were granted and are being expensed based on the assumption that the Company will reach the targeted 7% earnings per share growth rate in which 50% of the maximum award will be granted.

Employee Share Purchase Plan (the “ESP Plan”)

The Company’s 2004 ESP Plan allows employees to purchase common shares through payroll withholdings. The Company has registered 517,218 common shares remaining available for issuance to and purchase by employees under this plan. The ESP Plan also contains an option component. The purchase price per share under the ESP Plan is the lower of the market price at the beginning or end of the year. The Company records a liability for withholdings not yet applied towards the purchase of common stock.

The fair value of the option component of the ESP Plan is estimated at the date of grant under the Black-Scholes option pricing model with the following assumptions for the appropriate year. Expected volatility was estimated based on the historical volatility of the Company’s common shares over the past year. The average expected life was based on the contractual term of the plan. The risk-free rate is based on the U.S. Treasury issues with a one year term. Forfeitures are estimated at the date of grant based on historical experience. Prior to the adoption of SFAS 123(R), the Company recorded forfeitures as they occurred for purposes of estimating pro forma compensation expense under SFAS 123. The impact of forfeitures is not material.

		2006				2005
Employee Share Purchase Plan
Risk free interest rate			4.38	%			2.75	%
Dividend yield			0.84	%			1.10	%
Volatility factor of the expected market price of the Company’s common shares			.419				.228
Expected life for the options (in years)			1.00				1.00

Stock Option and SOSAR Activity

A reconciliation of the number of SOSAR’s and stock options outstanding and exercisable under the Long-Term Performance Compensation Plan as of June 30, 2006, and changes during the period then ended is as follows:

										Weighted-
						Weighted-				Average				Aggregate
						Average				Remaining				Intrinsic
		Shares				Exercise				Contractual				Value
		(000)				Price				Term				($000)
Options outstanding at January 1, 2006			1,395			$	8.88
SOSAR’s granted			307				39.12
Options exercised			(328	)			6.71
Options cancelled / forfeited			(1	)			15.50
Options and SOSAR’s outstanding at June 30, 2006			1,373			$	16.16				2.60			$	34,930
Vested and expected to vest at June 30, 2006			1,368			$	16.11				2.60			$	34,898
Options exercisable at June 30, 2006			971			$	8.95				2.44			$	31,707

		June 30,				June 30,
		2006				2005

Total intrinsic value of options exercised during the six months ended June 30 (000’s)		$	10,336			$	2,526
Total fair value of shares vested during the six months ended June 30 (000’s)		$	574			$	1,221
Weighted average fair value of options granted during year		$	24.25			$	7.76

As of June 30, 2006, there was $3.2 million of total unrecognized compensation cost related to stock options and SOSAR’s granted under the LT Plan. That cost is expected to be recognized over the next 1.75 years.

A summary of the status of the Company’s nonvested restricted shares as of June 30, 2006, and changes during the period then ended, is presented below:

						Weighted-Average Grant-
Nonvested Shares		Shares (000)				Date Fair Value
Nonvested at January 1, 2006			40			$	12.96
Granted			22				39.12
Vested			(28	)			11.83
Forfeited			—				—
Nonvested at June 30, 2006			34			$	30.60

As of June 30, 2006, there was $0.9 million of total unrecognized compensation cost related to nonvested restricted shares granted under the LT Plan. That cost is expected to be recognized over the next 2.75 years.

A summary of the status of the Company’s performance share units as of June 30, 2006, and changes during the period then ended, is presented below:

						Weighted-Average Grant-
Nonvested Shares		Shares (000)				Date Fair Value
Nonvested at January 1, 2006			34			$	15.50
Granted			25				39.12
Vested			—				—
Forfeited			—				—
Nonvested at June 30, 2006			59			$	25.65

As of June 30, 2006, there was $0.7 million of total unrecognized compensation cost related to nonvested performance share units granted under the LT Plan. That cost is expected to be recognized over the next 2.75 years.

Note D: 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								Six months Ended
(in thousands)		June 30								June 30
		2006				2005				2006				2005
Weighted average shares outstanding – basic			15,220				14,798				15,155				14,772
Restricted shares and shares contingently issuable upon exercise of options			556				594				573				568
Weighted average shares outstanding – diluted			15,776				15,392				15,728				15,340

Diluted earnings per share in the first half of 2006 and 2005 excludes the impact of approximately 14,000 and 192,000 employee stock options, respectively, as such options were anti-dilutive.

Note E: Employee Benefit Plans

In the first quarter of 2006, the Company’s Board of Directors approved changes to its defined benefit plans effective January 1, 2007. These changes include 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.

Expense for the first half of 2005 included a correction of prior errors for the years 2001 through 2004 on the basis that it was not material to the current or prior periods. Additional employee benefits expense for pension and postretirement benefits of $0.6 million ($0.4 million, net of tax or $0.03 per diluted share) was included as a component of operating, administrative and general expenses. This additional expense represented the cumulative impact of the errors and, through adjustment in the first quarter of 2005, correctly stated assets and liabilities with respect to our pension and postretirement benefit plans. This adjustment is not included in the table below which reflects only 2006 and 2005 pension and postretirement benefit expense actually recorded in that period.

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								Six months ended
(in thousands)		June 30								June 30
		2006				2005				2006				2005
Service cost		$	891			$	903			$	1,884			$	1,806
Interest cost			740				737				1,544				1,474
Expected return on plan assets			(1,009	)			(822	)			(1,996	)			(1,644	)
Amortization of prior service cost			(158	)			2				(210	)			5
Recognized net actuarial loss			440				347				918				693
Benefit cost		$	904			$	1,167			$	2,140			$	2,334

						Postretirement Benefits
		Three months ended								Six months ended
(in thousands)		June 30								June 30
		2006				2005				2006				2005
Service cost		$	136			$	150			$	271			$	300
Interest cost			311				333				621				666
Amortization of prior service cost			(110	)			(118	)			(220	)			(236	)
Recognized net actuarial loss			228				225				457				451
Benefit cost		$	565			$	590			$	1,129			$	1,181

The Company made contributions to its defined benefit pension plan of $1.3 million and $1.4 million in the first half of 2006 and 2005 respectively. The Company currently expects to make a total contribution of approximately $5.0 million for 2006, which

exceeds the required minimum contribution. The Company contributed $9.5 million in 2005.

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 half of 2006 and 2005, payments of $0.6 million and $0.9 million, respectively were made by the Company.

Note F: Segment Information

In the first quarter of 2006, the Company re-aligned its business segments by separating the Agriculture Group into two distinct segments, the Grain & Ethanol Group and the Plant Nutrient Group. The decision to change the Company’s Agriculture segment was made in order to provide more meaningful information as the Grain & Ethanol Group is redeploying certain of its assets and investing new assets into supporting the ethanol market. All prior periods have been revised for this change in reporting and the updated presentation is consistent with the reporting to management during the first half of 2006.

Results of Operations – Segment Disclosures
(in thousands)
		Grain &								Plant				Turf &
Second Quarter 2006		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	148,763			$	27,836			$	113,308			$	33,428			$	54,774			$	—			$	378,109
Inter-segment sales			20				117				1,982				395				—				—				2,514
Other income			157				195				329				155				268				1,248				2,352
Equity in earnings of affiliates			2,206				—				3				—				—				—				2,209
Interest expense (income)(a)			1,278				1,733				698				416				286				90				4,501
Operating income (loss)			1,923				4,999				5,041				1,344				4,155				(1,216	)			16,246
Identifiable assets			185,013				184,579				90,544				49,482				55,256				35,874				600,748

		Grain &								Plant				Turf &
Second Quarter 2005		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	132,648			$	17,673			$	119,914			$	40,464			$	54,418			$	—			$	365,117
Inter-segment sales			—				119				1,175				370				—				—				1,664
Other income			132				356				283				139				245				275				1,430
Equity in earnings of affiliates			12				—				2				—				—				—				14
Interest expense (income)(a)			1,025				1,149				492				445				268				(188	)			3,191
Operating income (loss)			(1,381	)			3,799				10,295				412				3,843				(1,552	)			15,416
Identifiable assets			163,568				165,744				75,792				58,232				55,633				24,993				543,962

		Grain &								Plant				Turf &
Six months ended June 30, 2006		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	277,388			$	62,219			$	159,341			$	72,933			$	86,886			$	—			$	658,767
Inter-segment sales			354				252				4,269				924				—				—				5,799
Other income			2,245				315				430				518				432				1,471				5,411
Equity in earnings of affiliates			5,759				—				3				—				—				—				5,762
Interest expense (income)(a)			2,946				3,327				1,358				956				601				(493	)			8,695
Operating income (loss)			3,703				11,217				3,806				3,493				1,714				(1,690	)			22,243

		Grain &								Plant				Turf &
Six months ended June 30, 2005		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	253,585			$	35,378			$	163,985			$	81,355			$	89,470			$	—			$	623,773
Inter-segment sales			1				232				2,642				873				—				—				3,748
Other income			370				541				507				307				377				407				2,509
Equity in earnings of affiliates			456				—				4				—				—				—				460
Interest expense (income)(a)			2,179				2,385				919				951				565				(858	)			6,141
Operating income (loss)			358				7,439				9,507				1,489				1,745				(3,489	)			17,049

Note G: Equity Method Investees

The Company 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 / loss less any distributions it has received. The Company’s share of income/loss on its investment in these entities for the three and six months ended June 30, 2006 aggregated to $2.2 million and $5.8 million respectively. In 2005, the Company’s share of income for the three and six months ended June 30, 2006 aggregated to $0 and $0.5 million respectively.

In the first quarter of 2006, the Company invested an additional $2.4 million in Lansing Trade Group LLC (formerly Lansing Grain Company LLC), and now holds an ownership interest of 36.1%. The following table presents summarized financial information of this investment as it qualifies as a significant subsidiary. Income before income taxes is presented as the subsidiary is structured as a limited liability company.

		Three Months Ended								Six Months Ended
		June 30								June 30
(in thousands)		2006				2005				2006				2006
Sales		$	556,029			$	275,198			$	899,697			$	564,293
Gross profit			21,546				3,394				38,349				7,520
Income from continuing operations			7,920				41				18,090				1,553
Net Income			7,920				41				18,090				1,553

Lansing Trade Group LLC focuses on trading commodity contracts and has made an additional investment into Lansing Ethanol Services LLC, a joint venture formed to focus on trading related to the energy industry. The Company has the option to increase its investment in Lansing Trade Group in each of 2007 and 2008.

In February 2006, the Company invested $21.0 million for a 37% interest in The Andersons Clymers Ethanol LLC (“TACE”), a development stage company in the process of constructing a 110 million gallon-per-year ethanol production facility adjacent to the Company’s Clymers, Indiana grain facility. The Company plans on leasing this grain facility to TACE upon completion of the ethanol production facility. As part of the formation of TACE, the Company provided services to the LLC relating primarily to debt issuance and raising of outside capital for which it was compensated. The Company recognized other income of $1.9 million in the first half of 2006 relating to these services.

The Company also has a 44% interest in The Andersons Albion Ethanol LLC, a development stage company in the process of constructing a 55 million gallon per year ethanol production facility. The Company plans to lease its Albion, Michigan grain facility to the LLC upon completion of the ethanol production facility. This facility is expected to begin ethanol production in the third quarter of 2006.

The Company has management contracts to operate each of the ethanol facilities and has already begun to provide origination, marketing and risk management services also under separate contracts with each LLC. In the second quarter and first half of 2006, the Company recognized revenue of $0.6 and $1.0 million, respectively, relating to the management contracts noted above.

The Company has a $2.0 million investment for a 7.9% interest in Iroquois Bio-Energy Company LLC located in Rensselaer, Indiana, also a development stage company in the process of constructing a 40 million gallon per year ethanol production facility. The Company holds a contract for the origination of grain into the facility for which it will be separately compensated.

In the ordinary course of business, the Company will enter into related party transactions with its equity method investees. Sales to related parties amounted to $5.1 million and $11.1 million in the second quarter of 2006 and 2005 respectively. The Company also recognized lease income on railcars leased to Lansing Trade Group of $0.2 million in the second quarter of 2006 and 2005. Revenues for service contracts with related parties were $0.6 million and $0 in the second quarter of 2006 and 2005 respectively. At June

30, 2006 and 2005, open accounts receivable totaled $1.7 million and $1.4 million respectively.

Note H: 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. The Company is in the process of repairing the facility. The Company anticipates insurance claims for property damage, business interruption and extra expenses incurred. As of June 30, 2006 the Company has incurred costs of $4.4 million relating to the clean-up and repair of the facility and $1.1 in inventory losses (after deductible) which have been funded by the insurance company with a $6 million advance.

Note I: New Accounting Standards

On July 13, 2006 the Financial Accounting Standards Board released FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose, in its financial statements, uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48 is effective for the Company’s annual period beginning January 1, 2007. The Company is currently assessing the impact on the financial statements of the application of FIN 48.

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

Forward Looking Statements

The following Management’s Discussion and Analysis contains various “forward-looking statements” which reflect the Company’s current views with respect to future events and financial performance. These forward-looking statements involve known and unknown risks and uncertainties, including but not limited to those identified below, which could cause actual results, levels of activity, performance or achievements to differ materially from historical results or those anticipated. The words “believe,” “expect,” “anticipate,” “will” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. 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. The following factors could cause actual results to differ materially from historical results or those anticipated: weather; supply of and demand for commodities including grains, fertilizer and other basic raw materials; market prices for grains and the potential for increased margin requirements; movements in energy prices, environmental and governmental policies; competition; economic conditions; risks associated with acquisitions; actions of insurers in regard to the Company’s insurance claims, interest rates; and income taxes. You are urged to carefully consider these risks and factors, including those listed under “Risk Factors” and elsewhere in this filing.

Critical Accounting Policies and Estimates

Our critical accounting policies are described in our 2005 Form 10-K filed with the Commission on March 14, 2006. Additionally, the Company accounts for stock-based compensation in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 123 (revised 2004), “Share–Based Payment” (“SFAS 123(R)”). Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating expected dividends and the amount of awards to be issued under the performance share units. In addition, judgment is also required in estimating the amount of share-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

Comparison of the three months ended June 30, 2006 with the three months ended June 30, 2005:

Sales and merchandising revenues		2006				2005
Grain & Ethanol		$	148,763			$	132,648
Rail			27,836				17,673
Plant Nutrient			113,308				119,914
Turf & Specialty			33,428				40,464
Retail			54,774				54,418
Total		$	378,109			$	365,117

Sales and merchandising revenues for the quarter ended June 30, 2006 totaled $378.1 million, an increase of $13.0 million, or 4%, from the quarter ended June 30, 2005.

Grain & Ethanol Group

Sales in the Grain & Ethanol Group were up $17.1 million, or 13% over 2005. Corn sales increased $14.1 million or 22% due to a 12% increase in bushels sold accompanied by a 9% increase in the average price per bushel sold. Wheat sales also increased $11.9 million or 98% over 2005 due to a 107% increase in bushels sold partially offset by a 5% decrease in the average price per bushel sold. Soybean sales decreased $10 million or

23% over 2005 due to a 14% decrease in volume along with a 10% decrease in the average price per bushel sold. Merchandising revenues were down $1.0 million, or 23%, due to a $3.0 million decrease in grain space income, which is income earned on grain held for our account or for our customers and includes storage fees earned and appreciation in the value of grain owned, partially offset by management fees earned of $0.6 million from contracts with two of the Company’s ethanol equity method investees as well as $1.4 million increase in other merchandising revenues. We anticipate that some of the space income decrease will be recovered in the third quarter of 2006.

A majority of this space income decrease has resulted from inventory of wheat that we hold in our Toledo area grain elevators. Toledo is one of a limited number of designated delivery locations for the fulfillment of Chicago Board of Trade futures contracts for soft red wheat and physical demand for this specific commodity has been soft for some time. Our decline in space income results from the economics of soft demand for and high supply of the physical commodity – all impacting the basis component of grain price. Grain inventories on hand at June 30, 2006 were 43.1 million bushels, of which 14.3 million bushels were stored for others. This compares to 44.8 million bushels on hand at June 30, 2005, of which 6.4 million bushels were stored for others.

Temperatures and soil moisture reserves remained generally favorable for corn and soybean crops in the four states where the Company has facilities. As of this filing, the percentage of corn rated good to excellent in those four states ranging from 67% in Indiana to 72% in Michigan. For the same week in 2005, the percentage of corn rated good to excellent in the same four states area ranged from 13% to 75%. Soybean quality ranged from a low of 62% in Ohio, rated good or excellent, to a high of 69% in Michigan. For the same week in 2005, the percentage of soybeans rated good to excellent in the same four states area ranged from 23% to 75%.

The winter wheat harvest, which is virtually complete, resulted in good yields and crop quality as delivered to the Company’s facilities; however, 8% fewer acres of winter wheat were harvested in 2006 compared to the 2005 wheat crop. Wheat makes up less than 20% of the total grain bushels handled by the Company.

The Company is continuing repair of the grain storage and loading facility located on the Maumee River in Toledo, Ohio that was damaged on July 1, 2005. The facility, although leased, was insured by the Company for full replacement cost under the terms of the lease agreement. Until this facility is fully operational, the Company anticipates some logistical challenges due to the reduction in capacity, the inability to segregate grains to facilities and the loss of the use of a grain dryer and boat-loading facility. Claims for business interruption, including inventory loss, are in process and are expected to be fully covered. The repair is expected to be completed in October of 2006 in time for the fall harvest.

With the Company’s significant investments in ethanol production facilities and the commitment to convert two of the existing grain elevator locations to service ethanol plants under construction, the Company’s Grain & Ethanol segment is expected to

continue to grow. Ethanol industry growth could impact the Company in a variety of ways. In certain situations, construction of unrelated ethanol production facilities could negatively impact existing grain elevators buying corn for more traditional uses. However, growth of ethanol is expected to increase demand for corn as well. Opportunities exist for the Company to leverage its grain origination services, distillers dried grain and ethanol marketing services and commodity risk management services to its own and other ethanol production facilities. The Company continues to evaluate additional opportunities to move into the ethanol industry through investments in stand-alone facilities or contracts to provide services to new or existing facilities. Four of the LLC’s that the Company holds investments in also participate and/or are expected to participate in the ethanol industry either through commodity trading or production. In June of 2006, the Company announced that it had signed a letter of intent with Marathon Oil Corporation to explore the formation of a 50/50 joint venture that would construct and operate a number of ethanol plants. Increased demand for corn could be positive for the Company’s Plant Nutrient Group as well as corn requires more nutrients (as compared to other crops) that are supplied by this segment. Finally, ethanol transportation requirements could benefit the Company’s Rail Group.

Rail Group

The Rail Group had a $10.2 million, or 58%, increase in revenues. The increase is due to a $5.5 million increase in car sales, a $3.4 million increase in leasing revenue in the Company’s lease fleet as well as a $1.3 million increase in revenue from the Company’s railcar repair and fabrication shops. A significant component of the railcar repair shop increase related to activity in the repair shop opened in Mississippi in the second quarter of 2005 and relates primarily to repairing cars damaged by Hurricane Katrina. Finally, the Company’s purchase of additional product lines in the third quarter of 2005 added additional revenues in the fabrication shops. The average lease term for new leases continues to increase with a 17% increase over second quarter of 2005 lease terms.

Railcars under management (owned, leased or managed for financial institutions in non-recourse arrangements) at June 30, 2006 were 19,480 compared to 17,957 at June 30, 2005. The railcar utilization rate (railcars under management in lease service, exclusive of railcars managed for third party investors) was 95% at both June 30, 2006 and 2005.

Plant Nutrient Group

Sales of fertilizer in the Plant Nutrient Group were down $6.5 million, or 5%, due to a 14% decrease in volume partially offset by a 10% increase in the average price per ton sold. Much of the price increase relates to escalation in prices of the basic raw materials, primarily nitrogen. Generally these increases can be passed through to customers although price increases may have resulted in the reduced demand. Merchandising revenues decreased $0.1 million, or 6% from the second quarter of 2005 due to decreases in storage income.

Turf & Specialty Group

The Turf & Specialty Group had a $7.0 million, or 17%, decrease in sales and merchandising revenues resulting from decreased sales of $7.0 million in the Group’s consumer and industrial lawn business, a $0.6 million or 3% decrease in sales in the Group’s professional lawn business and a $0.6 million or 17% increase in the Groups cob business. The decrease in the consumer and industrial lawn business was a direct result of a 34% decrease in volume which is a result of the restructuring plan that was announced in the third quarter of 2005. The slight decrease in the professional lawn business was the result of a 5% decrease in volume partially offset by a 2% increase in the average price per ton sold. The increased sales in the cob-based business was due to a 24% increase in the average price per ton sold partially offset by a 6% decrease in volume.

Retail Group

The Retail Group had a $0.3 million, or 1%, increase in same-store sales in the second quarter of 2006 when compared to the second quarter of 2005 primarily in the Group’s Columbus, Ohio market area. The average sale per customer increased approximately 2% with a 1% decrease in customer counts.

Gross profit		2006				2005
Grain & Ethanol		$	10,304			$	7,339
Rail			11,883				8,589
Plant Nutrient			10,110				15,598
Turf & Specialty			5,628				4,823
Retail			16,842				16,669
Total		$	54,767			$	53,018

Gross profit for the second quarter of 2006 totaled $54.8 million for the Company, an increase of $1.7 million, or 3%, from the second quarter of 2005.

Grain & Ethanol Group

Gross profit in the Grain & Ethanol Group was up $2.9 million, resulting from a 57% increase in gross profit on grain sales combined with a $1.5 million or 122% decrease in drying & mixing cost of sales due to reduced quality discounts for damaged corn and wheat and lower inventory write-offs.

Rail Group

Gross profit in the Rail Group increased $3.3 million, or 38%. Lease fleet income decreased by $0.1 million due to a significant increase in maintenance costs per car partially offset by a larger fleet. Income generated from outright car sales and non-recourse financings increased $1.7 million. The railcar repair and fabrication shops realized an increase in gross profit of $1.7 million, primarily due to the additional work in

the Mississippi railcar repair shop as a result of hurricane Katrina and the product lines added in the third quarter of 2005.

Plant Nutrient Group

Gross profit in the Plant Nutrient Group decreased $5.5 million or 35% resulting primarily from the decreased volumes mentioned previously as well as a 16% increase in the cost per ton that could not be entirely passed on to the customer. In the second quarter of 2006, the Group also had a lower of cost or market inventory write-down relative to high nitrogen prices and the Group’s inventory positions.

Turf & Specialty Group

Gross profit for the Turf & Specialty Group increased $0.8 million, or 17% over the second quarter of 2005. A large portion of this increase, $0.7 million, was due to vendor rebates earned earlier in the year as compared to last. Within the individual business, the consumer and industrial line of business had a $0.3 million decrease in gross profit due to the decreased volumes mentioned previously. The professional lawn business had a $0.2 million increase in gross profit despite lower volumes due to a 2% increase in the average price per ton sold coupled with a negligible increase in the cost per ton. The cob based business had a $0.2 million increase in gross profit due to both an improved product mix and an increase in the average price per ton sold.

Retail Group

Gross profit in the Retail Group increased $0.2 million, or 1%, over the second quarter of 2005 as a result of increased sales and relatively unchanged cost of sales.

Operating, administrative and general expenses for the second quarter of 2006 totaled $38.6 million, a $2.7 million, or 8%, increase from the second quarter of 2005. Employee costs were up $1.1 million and include a $0.7 million increase for stock compensation recognized in accordance with SFAS 123 (R), a $0.1 million increase in cash incentive plan accrual due to increased earnings and a $0.1 million increase in benefits expense. Insurance was up $0.2 million and the remaining increases were spread across a variety of lines and generally reflect business growth.

Interest expense for the second quarter of 2006 was $4.5 million, a $1.3 million, or 41%, increase from 2005. The majority of the increase was due to increased short term interest expense. Average 2006 daily short-term borrowings were significantly higher in the second quarter of 2006 compared to the second quarter of 2005 going from $76.8 million to $111.8 million. The average daily short-term interest rate increased 1.91% to 5.39%. Long term interest increased slightly.

The Company’s share of earnings in its equity investees increased from less than $0.1 million in the second quarter of 2005 to $2.2 million in the second quarter of 2006.

Nearly all of this income was recognized on the Company’s investment in Lansing Trade Group LLC. All of this income is included in the Grain & Ethanol Group.

Income (loss) before income taxes		2006				2005
Grain & Ethanol		$	1,923			$	(1,381	)
Rail			4,999				3,799
Plant Nutrient			5,041				10,295
Turf & Specialty			1,344				412
Retail			4,155				3,843
Other			(1,216	)			(1,552	)
Total		$	16,246			$	15,416

As a result, the pretax income of $16.2 million for the second quarter of 2006 was $0.8 million higher than pretax income of $15.4 million recognized in the second quarter of 2005. Income tax expense of $5.9 million was provided at 36.3%. The Company anticipates that its 2006 effective annual tax rate will be 36.2%. In the second quarter of 2005, income tax expense of $5.1 million was provided at 32.8%. The Company’s actual 2005 effective tax rate was 33.6% after a one-time adjustment of $0.6 million for a change in legislation relating to the State of Ohio franchise tax law.

Comparison of the six months ended June 30, 2006 with the six months ended June 30, 2005:

Sales and merchandising revenues		2006				2005
Grain & Ethanol		$	277,388			$	253,585
Rail			62,219				35,378
Plant Nutrient			159,341				163,985
Turf & Specialty			72,933				81,355
Retail			86,886				89,470
Total		$	658,767			$	623,773

Sales and merchandising revenues for the first half of 2006 totaled $658.8 million, an increase of $35.0 million, or 6%, from the first half of 2005.

Grain & Ethanol

Sales of grain increased $28.9 million or 12% from 2005. Most of this increase was driven by a 19% increase in the volume of corn sold coupled with a 7% increase in the average price per bushel sold. Merchandising revenues decreased $5.1 million, or 47%, due to a decrease in space income of $8.3 million or 82% partially offset by a $1.0 million increase in management fees earned from the Group’s service contracts with two of its ethanol equity investees, a $1.1 million increase in customer service fees for forward contracting and a $1.1 increase in other merchandising revenue.

Rail Group

The Rail Group had a $26.8 million, or 76%, increase in sales. This increase included a $7.6 million increase in lease fleet revenue, a $15.0 million increase in sales of railcars to customers or financial institutions and a $4.2 million increase in revenue in the Group’s railcar repair and fabrication shops. The lease fleet revenue increase is a direct result of increases in the number of cars managed.

Plant Nutrient Group

Sales of fertilizer were down $4.4 million, or 3%, due to a 12% decrease in volume partially offset by an 11% increase in the average price per ton sold. Much of the price increase relates to escalation in prices of the basic raw materials, primarily nitrogen. Generally, these increases can be passed through to customers, although price increases have also resulted in decreased demand causing the decrease in volume. Merchandising revenues were down $0.2 million or 8% due to an 18% decrease in storage income.

Turf & Specialty

The Turf & Specialty Group had an $8.4 million, or 10% decrease in sales resulting from a $14.8 million or 36% decrease in the Group’s consumer and industrial business partially offset by a $5.7 or 17% increase in the Group’s professional lawn business and a $0.7 million or 11% increase in the Group’s cob business. The decrease in the consumer and industrial business was due to a 34% decrease in volume accompanied by a 3% decrease in the average price per ton sold. The decrease in volume is a result of the restructuring plan that was announced in the third quarter of 2005. In the professional lawn business, volume increased 16% with an increase in the average price per ton sold of 1%. In the cob business volume decreased 11% however the average price per ton sold increased 24%.

Retail Group

The Retail Group had a $2.6 million or 3% decrease in same-store sales in the first half of 2006 when compared to the first half of 2005. The Columbus market showed an increase while the Lima and Toledo stores showed decreases.

Gross profit		2006				2005
Grain & Ethanol		$	17,249			$	17,538
Rail			24,761				17,104
Plant Nutrient			14,243				21,180
Turf & Specialty			12,263				10,681
Retail			26,522				26,474
Total		$	95,038			$	92,977

Gross profit for the first half of 2006 totaled $95.0 million for the Company, an increase of $2.1 million, or 2%, from the first half of 2005.

Grain & Ethanol Group

Gross profit in the Grain & Ethanol Group decreased $0.3 million, or 2%, resulting from a combination of an increase in gross profit on grain sales and a decrease in merchandising revenues, primarily space income and more specifically, falling wheat basis levels.

Rail Group

Gross profit in the Rail Group increased $7.6 million, or 45% over 2005. This increase included a $4.2 million increase in gross profit on car sales, a $0.1 million increase in lease fleet income and a $3.3 million increase in gross profit in the repair and fabrication shops. Although our rail fleet has grown from prior year, lease rates have been holding steady and with the increase in railcar maintenance costs, lease fleet income has remained relatively flat. The increase in gross profit from our repair and fabrication shops is attributed to the additional work as a result of hurricane Katrina as well as the additional product lines added in the third quarter of last year.

Plant Nutrient Group

Gross profit in the Plant Nutrient Group decreased $6.9 million or 33% from 2005. The decrease is due to the 12% decrease in volume mentioned previously as well as a 16% increase in the cost per ton that could not entirely be passed on to the customer.

Turf & Specialty Group

Gross profit for the Turf & Specialty Group increased $1.6 million, or 15%. About half of the gross profit increase was due to vendor rebates being earned earlier in the year as compared to last year. Gross profit in the Group’s professional lawn business increased $0.8 million or 18% and gross profit in the Group’s cob business increased $0.6 million or 47%. The increase in the professional lawn business was driven by increased volumes, product mix and carry-over raw material costs. The Group’s consumer and industrial lawn business experienced a $0.7 million decrease in gross profit due mainly to decreased volumes. The increase in the cob business was driven by a 24% increase in the average price per ton sold and only a 14% increase in the cost per ton.

Retail Group

Gross profit in the Retail Group increased less than $0.1 million, or less than 1%, from the first half of 2005. Although sales were down, gross margin improvement (including the favorable first quarter 2006 inventory results) contributed to the increase.

Operating, administrative and general expenses for the first half of 2006 totaled $75.3 million, an increase of $2.5 million from the first half of 2005. Employee costs were up $1.6 million and include a $1.1 million increase for stock compensation recognized in accordance with SFAS 123(R), a $0.9 million increase in cash incentive plan accrual due

to increased earnings and a $0.8 million reduction of benefits expense which includes the $0.6 million reduction for the one time 2005 correction described in footnote E. Insurance expense increased $0.4 million and the remaining increases were spread across a variety of lines and generally reflect business growth.

Interest expense for the first half of 2006 was $8.7 million, a $2.6 million, or 42%, increase from 2005. The majority of the increase was in short-term interest expense. Average 2006 daily short-term borrowings were 45% higher than the first half of 2005 and the average daily short-term interest rate increased from 3.26% to 5.22%. Long-term interest for the first half of 2006 increased 16%, primarily due to a significant amount of additional borrowings made in the second half of 2005.

Income (loss) before income taxes		2006				2005
Grain & Ethanol		$	3,703			$	358
Rail			11,217				7,439
Plant Nutrient			3,806				9,507
Turf & Specialty			3,493				1,489
Retail			1,714				1,745
Other			(1,690	)			(3,489	)
Total		$	22,243			$	17,049

As a result, the pretax income of $22.2 million for the first half of 2006 was 30% higher than the pretax income of $17.0 million recognized in the first half of 2005. Income taxes of $8.1 million were provided at an expected 2006 effective annual rate of 36.2%. In the first half of 2005, income tax expense was provided at 33.2% due to a one-time reduction of $0.6 million related to state deferred tax liabilities associated with the State of Ohio. The Company’s actual 2005 full-year effective tax rate was 33.6%.

Liquidity and Capital Resources

Operating Activities and Liquidity

The Company’s operations used cash of $7.1 million in the first half of 2006, as compared to a use of cash in operating activities of $6.9 million in the first half of 2005. Short-term borrowings used to fund these operations decreased $18.3 million from June 30, 2005 to June 30, 2006. Net working capital at June 30, 2006 was $87.4 million, an $8.8 million decrease from December 31, 2005 and a $10.3 million increase from June 30, 2005. The Company has significant short-term lines of credit available to finance working capital, primarily inventories and accounts receivable.

Cash dividends of $0.04 per common share were paid for the first three quarters of 2005 and a dividend of $0.0425 was paid for the fourth quarter of 2005 and first quarter of 2006. A cash dividend of $0.045 per common share was paid in the second quarter of 2006. On May 12, 2006 the Company declared a cash dividend of $0.045 payable July 24, 2006 to shareholders of record on July 3, 2006. The Company made income tax payments of $3.3 million in the first half of 2006 and expects to make payments totaling

approximately $10.4 million for the remainder of 2006. During the first half of 2006, the Company issued approximately 238 thousand shares to employees under its share compensation plans.

On June 28, 2006, the Company effected a two-for-one stock split to shareholders of record as of June 1, 2006. All share and per share information has been retroactively adjusted to reflect the stock split.

On June 30, 2006, the Company filed a registration statement on Form S-3 (the “Registration Statement”) the Securities and Exchange Commission to register a total of up to 2,599,000 shares of the Company’s common stock in connection with a proposed public offering. The Company will offer 2.0 million shares of its common stock, certain selling shareholders will offer 260,000 shares and the underwriters will have the option to purchase up to 339,000 additional shares from the Company. The offering price is yet to be determined. The net proceeds from the offering will be used for investments in the ethanol industry, including additional plants, investments in additional railcar assets and for general corporate purposes.

Capital Expenditures

Total capital spending for 2006 on property, plant and equipment within our base businesses is expected to approximate $26.1 million and may include $2.5 million in the Retail Group for information technology and store improvements, $2.9 million for expansion and improvements in the Plant Nutrient Group, $1.8 million for additional grain storage and drainage systems in the Grain & Ethanol Group and $0.8 million for manufacturing improvements in the Turf & Specialty Group. The remaining amount of $18.1 million will be spent on numerous assets and projects; no single such project expecting to cost more than $0.5 million. This forecasted spending does not include any expected repairs to the Toledo grain facility damaged in the events of July 1, 2005 as the Company expects to receive insurance proceeds to cover such repairs.

The Company invested $21.0 million in The Andersons Clymers Ethanol LLC in the first quarter of 2006 to acquire an equity interest of 37% of the business. The Company increased its equity investment in Lansing Trade Group LLC in March 2006 by investing an additional $2.4 million and is considering other opportunities for investment in the grain and ethanol industry. The Company is also considering potential investments in non-Ethanol opportunities that have not yet been approved.

In July of 2006, the Company signed a letter of intent with a subsidiary of Marathon Oil Corporation for the creation of a 50/50 joint venture to construct and operate new ethanol plants. The Company would provide day-to-day management of these plants, as well as corn origination, risk management, and distillers dried grain solubles (“DDGS”) and ethanol marketing services. Upon execution of the final documentation, the Company plans to finalize site selection for the joint venture’s first two plants.

In addition, the Company is expecting continued significant investment in railcars and related leases and anticipates that spending for the purchase of additional railcars and capitalized modifications to railcars that may then be sold, financed off-balance sheet or owned by the Company for lease to customers will continue for the remainder of the year.

Financing Arrangements

The Company is party to a borrowing arrangement with a syndicate of banks, which provides the Company with $100 million in short-term lines of credit and an additional $100 million in a three-year line of credit. In addition, the amended agreements include a flex line allowing the company to increase the available short-term line by $50 million. Peak short-term borrowing for the Company to date is $152.5 million on March 2, 2006. Typically, the Company’s highest borrowing occurs in the spring due to seasonal inventory requirements in the fertilizer and retail businesses, credit sales of fertilizer and a customary reduction in grain payables due to the cash needs and market strategies of grain customers.

Certain of the Company’s long-term borrowings include provisions that impose minimum levels of working capital and equity, impose limitations on additional debt and require that grain inventory positions be substantially hedged. The Company was in compliance with all provisions at June 30, 2006. In addition, certain of the long-term borrowings are secured by first mortgages on various facilities or are collateralized by railcar assets. The non-recourse long-term debt is collateralized by railcar and locomotive assets. Because the Company is a significant consumer of short-term debt in peak seasons and the majority of this is variable rate debt, increases in interest rates could have a significant impact on the profitability of the Company. In addition, periods of high grain prices and/or unfavorable market conditions could require the Company to make additional margin deposits on its CBOT futures contracts. The marketability of the Company’s grain inventories and the availability of short-term lines of credit enhance the Company’s liquidity. In the opinion of management, the Company’s liquidity is adequate to meet short-term and long-term needs.

The Company utilizes interest rate contracts to manage a portion of its interest rate risk on both its short and long-term debt and lease commitments. At June 30, 2006, the net fair value of these derivative financial instruments (primarily interest rate swaps and interest rate caps) was $0.2 million and was recorded in the consolidated balance sheet.

Contractual Obligations

Future payments due under debt and lease obligations as of June 30, 2006 are as follows:

		Payments Due by Period
Contractual Obligations		Less than												After 5
(in thousands)		1 year				1-3 years				4-5 years				years				Total
Long-term debt		$	12,088			$	22,290			$	24,617			$	41,746			$	100,741
Long-term debt, securitized, non-recourse			13,664				26,271				26,509				29,749				96,193
Capital lease obligations			71				209				—				—				280
Operating leases			17,931				33,129				24,559				12,571				88,190
Purchase commitments (a)			339,509				160,679				—				—				500,188
Other long-term liabilities (b)			5,504				3,457				3,728				6,985				19,674
Total contractual cash obligations		$	388,767			$	246,035			$	79,413			$	91,051			$	805,266

The Company had standby letters of credit outstanding of $14.2 million at June 30, 2006, of which $8.3 million is a credit enhancement for industrial revenue bonds included in the contractual obligations table above.

The Company’s grain inventories include the value of forward purchase contracts to buy grain. These contracts are marked to the market price and require performance in future periods. The terms of these contracts are consistent with industry standards.

Approximately 83% of the operating lease commitments above relate to 6,630 railcars and 30 locomotives that the Company leases from financial intermediaries. See the following section on Off-Balance Sheet Transactions.

The Company is subject to various loan covenants highlighted previously. The Company is and has been in compliance with its covenants; noncompliance could result in default

and acceleration of long-term debt payments. The Company does not anticipate noncompliance with its covenants.

Off-Balance Sheet Transactions

The Company’s Rail Group utilizes leasing arrangements that provide off-balance sheet financing for its activities. The Company leases railcars from financial intermediaries through sale-leaseback transactions, the majority of which involve operating leasebacks. Railcars owned by the Company, or leased by the Company from a financial intermediary, are generally leased to a customer under an operating lease. The Company also arranges non-recourse lease transactions under which it sells railcars or locomotives to a financial intermediary, and assigns the related operating lease to the financial intermediary on a non-recourse basis. In such arrangements, the Company generally provides ongoing railcar maintenance and management services for the financial intermediary, and receives a fee for such services. On most of the railcars and locomotives that are not on its balance sheet, the Company holds an option to purchase at the end of the lease.

The following table describes the railcar and locomotive positions at June 30, 2006:

Method of Control		Financial Statement				Number
Owned-railcars available for sale		On balance sheet – current					253
Owned-railcar assets leased to others		On balance sheet – non-current					10,837
Railcars leased from financial intermediaries		Off balance sheet					6,630
Railcars – non-recourse arrangements		Off balance sheet					1,760
Total Railcars							19,480
Locomotive assets leased to others		On balance sheet – non-current					20
Locomotives – leased from financial intermediaries under limited recourse arrangements		Off balance sheet					30
Locomotives – non-recourse arrangements		Off balance sheet					39
Total Locomotives							89

In addition, the Company manages 726 railcars for third-party customers or owners for which it receives a fee.

The Company has future lease payment commitments aggregating $72.9 million for the railcars leased by the Company from financial intermediaries under various operating leases. Remaining lease terms vary with none exceeding 9 years. As of June 30, 2006, the majority of these railcars have been leased to customers over similar terms. The segment manages risk on leased assets by match funding (which means matching terms between the lease to the customer and the funding arrangement with the financial intermediary), where possible, and ongoing evaluation of lessee credit worthiness. In addition, the Company prefers non-recourse lease transactions, whenever possible, in order to minimize its credit risk.

Included in the above car counts are 5,923 railcars and 15 locomotives owned outright by subsidiaries of TOP CAT Holding Company LLC, a wholly-owned subsidiary of The Andersons, Inc., and included in the balance sheet. These assets are included in bankruptcy-remote entities whose debt is non-recourse to the Company and looks solely to the railcar and locomotive assets for collateral. Lease terms with customers utilizing these assets are generally less than the remaining term of the non-recourse debt. Also included in the above car counts are 2,376 railcars and 1 locomotive owned by TARO-I, another wholly-owned subsidiary of the Company and bankruptcy remote entity.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The market risk inherent in the Company’s market risk-sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices and interest rates as discussed below.

Commodity Prices

The availability and price of agricultural commodities are subject to wide fluctuations due to unpredictable factors such as weather, plantings, government (domestic and foreign) farm programs and policies, changes in global demand created by population growth and higher standards of living, and global production of similar and competitive crops. To reduce price risk caused by market fluctuations, the Company follows a policy of hedging its inventories and related purchase and sale contracts. The instruments used are exchange-traded futures and options contracts that function as hedges. The market value of exchange-traded futures and options used for hedging has a high, but not perfect correlation, to the underlying market value of grain inventories and related purchase and sale contracts. The less correlated portion of inventory and purchase and sale contract market value (known as basis) is much less volatile than the overall market value of exchange-traded futures and tends to follow historical patterns. The Company manages this less volatile risk using its daily grain position report to constantly monitor its position relative to the price changes in the market. The Company’s accounting policy for its futures and options hedges, as well as the underlying inventory positions and purchase and sale contracts, is to mark them to the market price daily and include gains and losses in the statement of income in sales and merchandising revenues.

A sensitivity analysis has been prepared to estimate the Company’s exposure to market risk of its commodity position (exclusive of basis risk). The Company’s daily net commodity position consists of inventories, related purchase and sale contracts and exchange-traded contracts. The fair value of the position is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures market prices. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in such prices. The result of this analysis, which may differ from actual results, is as follows:

		June 30				December 31
(in thousands)		2006				2005
Net long (short) position		$	(126	)		$	478
Market risk			(13	)			48

Interest Rates

The fair value of the Company’s long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. In addition, the Company has derivative interest rate contracts recorded in its balance sheet at their fair values. The fair value of these contracts is estimated based on quoted market termination values. Market risk, which is estimated as the potential increase in fair value resulting from a hypothetical one-half percent decrease in interest rates, is summarized below:

		June 30				December 31
(in thousands)		2006				2005
Fair value of long-term debt and interest rate contracts		$	191,807			$	192,844
Fair value in excess of (less than) carrying value			(5,225	)			(4,570	)
Market risk			5,821				4,659

Item 4. Controls and Procedures

The Company is not organized with one Chief Financial Officer. Our Vice President, Controller and CIO is responsible for all accounting and information technology decisions while our Vice President, Finance and Treasurer is responsible for all treasury functions and financing decisions. Each of them, along with the President and Chief Executive Officer (“Certifying Officers”), are responsible for evaluating our disclosure controls and procedures. These named Certifying Officers have evaluated our disclosure controls and procedures as defined in the rules of the Securities and Exchange Commission, as of June 30, 2006 and have determined that such controls and procedures were effective.

Our Certifying Officers are primarily responsible for the accuracy of the financial information that is presented in this report. To meet their responsibility for financial reporting, they have established internal controls and procedures which they believe are adequate to provide reasonable assurance that the Company’s assets are protected from loss. These procedures are reviewed by the Company’s internal auditors in order to monitor compliance. In addition, our Board of Director’s Audit Committee, which is composed entirely of independent directors, meets regularly with each of management and internal audit to review accounting, auditing and financial matters.

There were no changes in internal controls over financial reporting or in other factors that could significantly affect internal controls over financial reporting during the second quarter of 2006.

Part II. Other Information

Item 1: Legal Proceedings

The Company previously disclosed its receipt of a notice of alleged violation of certain City of Toledo Municipal code environmental regulations in connection with stormwater drainage from potentially contaminated soil at the Company’s Toledo, Ohio port facility, and its submission of a surface water drainage plan to address the concerns raised in the notice. The Company has been advised by regulatory authorities that its proposed surface water drainage plan has been approved, and the City of Toledo, Department of Public Utilities, Division of Environmental Services has advised the Company that no orders or findings will be issued in connection with its notice of alleged violation. The Company is keeping local authorities apprised of its implementation schedule, and has secured consent from needed landowners. Management has no reason to believe that implementation of the approved surface water drainage plan should materially affect the Company’s operations.

Item 1A: Risk Factors

Our operations are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this Form 10-Q and could have a material adverse impact on our financial results. These risks can be impacted by factors beyond our control as well as by errors and omissions on our part. The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Form 10-Q.

We face increasing competition and pricing pressure from other companies in our industries. If we are unable to compete effectively with these companies, our sales and profit margins would decrease, and our earnings and cash flows would be adversely affected.