SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended March 31, 2005

For the transition period from                      to                     

Commission file number 000-20557

THE ANDERSONS, INC.

(419) 893-5050
(Telephone Number)

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

Indicate by check ü 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 ü No ___

Indicate by check ü whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ü No ___

The registrant had 7.4 million common shares outstanding, no par value, at April 29, 2005.

THE ANDERSONS, INC.

INDEX

Page No.

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Part I. Financial Information

Item 1. Financial Statements

The Andersons, Inc.

See notes to condensed consolidated financial statements

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

See notes to condensed consolidated financial statements

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The Andersons, Inc.

See notes to condensed consolidated financial statements

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The Andersons, Inc.

      See notes to condensed consolidated financial statements

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The Andersons, Inc.

      See notes to condensed consolidated financial statements

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The Andersons, Inc.

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Results of Operations — Segment Disclosures
(in thousands)

(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 on which interest is allocated to the operating segments and the actual rate at which borrowings are made.

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 are subject to certain risks and uncertainties, including but not limited to those identified below, which could cause actual results to differ materially from historical results or those anticipated. The words

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“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 to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following factors could cause actual results to differ materially from historical results or those anticipated: weather; supply and demand of commodities including grains, fertilizer and other basic raw materials; market prices for grains and the potential for increased margin requirements; environmental and governmental policies; competition; economic conditions; risks associated with acquisitions; interest rates; and income taxes.

Critical Accounting Policies and Estimates

Our critical accounting estimates, as described in our 2004 Form 10-K, have not materially changed during the first quarter of 2005.

Comparison of the three months ended March 31, 2005 with the three months ended March 31, 2004:

Sales and merchandising revenues for the three months ended March 31, 2005 totaled $259.0 million, a decrease of $16.1 million, or 6%, from the first quarter of 2004. Sales in the Agriculture Group were down $20.1 million, or 11%. Grain sales were down $28.8 million, or 20%, due to a 20% decrease in the average price per bushel sold along with a 1% decrease in volume. The Company shipped a large quantity of grain in the fourth quarter of 2004 that it expected to ship in 2005, however, bushel receipts in 2005 are above expectations to date and demand for grain continues to be strong in the Company’s customer base. Last year’s excellent crop has increased grain stocks over that of the prior year and this has resulted in a reduction in commodity prices. Sales of fertilizer in the plant nutrient division were up $8.7 million, or 25%, due to a 27% increase in the average price per ton sold slightly offset by a 1% decrease in volume. Much of the price increase relates to escalation in prices of the basic raw materials, primarily nitrogen, phosphates and potassium. Generally these increases can be passed through to customers although price increases may also reduce demand at the producer level. Revenues in both the grain and fertilizer businesses are significantly impacted by the market price of the commodities being sold.

Merchandising revenues in the Agriculture Group were up $1.3 million, or 19%, due primarily to a significant increase in space income during the first quarter of 2005 as compared to the first quarter of 2004. Space income is income earned on grain held for

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our account or for our customers and includes storage fees earned and appreciation in the value of grain owned. Grain inventories on hand at March 31, 2005 were 63.1 million bushels, of which 10.4 million bushels were stored for others. This compares to 53.5 million bushels on hand at March 31, 2004, of which 14.9 million bushels were stored for others.

Good March and April weather in 2005 has favorably impacted the pace of planting in our region (Indiana, Illinois, Ohio and Michigan). As of May 1, 2005, the region’s corn planting is ahead the average percentage planted in the last five years and comparable to last year. Soybean planting has just recently begun. The Company cautions, however, that poor weather in this same region from now through August can significantly affect yields and negatively impact the quantity and quality of grain stored and handled. Winter wheat, harvested in July, is currently rated good or excellent for more than 64% of the crop planted in our region; however, there was a significant reduction in the amount of acres of winter wheat planted when compared to the 2004 wheat crop. Wheat makes up less than 20% of the total bushels handled by the Company.

The Company previously announced that it is considering construction of a 55 million gallon-per-year ethanol production facility. One of the possible sites is adjacent to its Albion, Michigan grain facility. Aggregate costs to construct this facility could approximate $90 million and, if the Company elects to proceed, it would expect investment by one or more investors. In the first quarter of 2005, the Company completed its $1 million investment in Iroquois Bio-Energy LLC, which expects to begin construction on an ethanol production facility in the Spring of 2005 in Rensselaer, Indiana. The Company also holds a contract for corn origination and risk management services for this proposed facility.

The Company is continuing its investigation into other possible opportunities in the ethanol industry and may increase its involvement in 2005 through additional investments in stand-alone facilities, investments in holding companies or contracts to provide services to new or existing facilities.

If the projected growth of the ethanol industry occurs, it could impact the Company’s grain business in potentially significant ways. It is expected to increase demand for corn, with resulting higher prices and increased competition for corn. In certain situations, our grain business could be negatively impacted if there are new ethanol plants constructed in our region and near our existing facilities that would compete for locally available corn. Conversely, providing grain origination services and distillers dried grain marketing services to the ethanol industry is a potential growth opportunity for our grain trading operations.

The Rail Group had a $6.6 million, or 60%, increase in sales. Of the increase, $2.4 million was generated from increased leasing income in the Company’s base lease fleet and $3.4 million of the increase represents a full quarter of leasing income on the railcar and locomotive fleet acquired February 12, 2004. Revenue on car sales was down $0.3 million and the revenue for the railcar repair and fabrication shops was up $1.1 million. Railcars under management (owned, leased or managed for financial institutions in non-

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recourse arrangements) at March 31, 2005 were 16,106 compared to 12,872 under management at March 31, 2004. The railcar utilization rate (railcars under management in lease service, exclusive of railcars managed for third party investors) increased from 90% to 93% from March 31, 2004 to March 31, 2005.

Lease renewals have continued at a high level due to car shortages. The high steel prices that were limiting new car construction have begun to drop which could result in future reductions in lease rates. The Company plans to continue its investment in railcars and fleet management services throughout 2005. In April, the Company began offering railcar repair services in Mississippi (previously repair services were conducted in Maumee, Ohio and Darlington, South Carolina, as well as by some mobile units). The railcar repair business is also an opportunity for future growth.

The Processing Group had a $4.3 million, or 10%, decrease in sales resulting primarily from a 17% volume decrease in the lawn business, partially offset by a 7% increase in the average price per ton sold. In the consumer and industrial lawn businesses, where we serve as contract manufacturer for several large “brand” companies, a private label manufacturer and also manufacture our own brands, volume was down 20% and sales down 17%.

The professional lawn business had a 1% increase in sales, resulting from a 12% increase in the average price per ton sold, partially offset by a 10% decrease in volume. The volume decrease was in the lower margin lawn care operator segment. Tons sold in the professional market include higher margin tons sold for golf course application and lower margin tons sold to lawn care operators. The first quarter of the year is typically the biggest for the lawn business as retailers, golf courses and other lawn care organizations prepare for the spring lawn and garden season. The cob-based business, a much smaller component of the Processing Group, had a 16% increase in sales, primarily due to an 8% increase in volume along with an 8% increase in the average price per ton sold.

The Company constantly evaluates the near and long-term prospects of its businesses, and the most efficient use of its assets. In that context, it continues to evaluate its strategic position within the consumer and industrial lawn business.

The Retail Group had a $0.5 million, or over 1%, increase in same-store sales in the first quarter of 2005 when compared to the first quarter of 2004. All stores showed sales increases with the average sale per customer also increasing. April has seen some slippage in retail sales as compared to the prior year.

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Gross profit for the first quarter of 2005 totaled $40.0 million for the Company, an increase of $3.9 million, or 11%, from the first quarter of 2004. Gross profit in the Agriculture Group was up $2.1 million, resulting primarily from the $1.3 million increase in merchandising revenues mentioned previously, a $0.4 million increase in gross profit on grain sales and a $0.4 million increase in gross profit on sales in our Plant Nutrient Division. The increase in gross profit on grain sales represents approximately a $0.01 per bushel sold. In the fertilizer businesses, the increase results from the ability to pass raw material cost increases on to the consumer along with a small increase in the margin.

Gross profit in the Rail Group increased $3.4 million, or 68%. Lease fleet income increased by $3.3 million, of which $2.2 million was due to the fleet of cars purchased in mid-February of 2004 and the remainder due to new and renewal lease activity on the base fleet at slightly higher rates. The remainder of the increase was from the railcar repair and fabrication shops.

Gross profit for the Processing Group decreased $2.0 million, or 25%, primarily from the lawn businesses. $1.5 million of the decrease occurred in the consumer / industrial segment and was related to lost volume coupled with increased costs of raw materials. Similarly, gross profit in the professional business was reduced both due to a 10% decrease in volume and a 15% increase in cost. Costs have risen due primarily to the increased cost of urea (nitrogen) and other raw materials. Cob business gross profit also decreased slightly on higher inventory costs.

Gross profit in the Retail Group increased $0.4 million, or 4%, from the first quarter of 2004. This was due to the slight sales increase along with favorable results from the stores’ annual physical inventory.

Operating, administrative and general expenses for the first quarter of 2005 totaled $36.9 million, a $2.2 million, or 6%, increase from the first quarter of 2004. As described in Note D, an adjustment for $0.6 million was made in the first quarter of 2005 to correct errors in measuring the Company’s pension and postretirement benefit expense that occurred from 2001 through 2004. A variety of expenses made up the remainder of the difference, the most significant being $0.5 million from increased health care costs for active employees. Other areas of increase were professional and contract services, utilities and maintenance. Areas of decrease included labor, performance incentives, advertising and supplies.

Interest expense for the first quarter of 2005 was $3.0 million, a $0.3 million, or 11%, increase from 2004. Average 2005 daily short-term borrowings were 50% lower than the first quarter of 2004 and the average daily short-term interest rate increased from 1.8% for the first quarter of 2004 to 3.1% for the first quarter of 2005. The Company reduced its non-recourse debt by $14.5 million from March 31, 2004 to March 31, 2005. Since the $86.4 million of non-recourse, securitized debt was issued on February 12, 2004, it accrued interest for only half of the first quarter of 2004. Long-term interest increased 16% due to this new issuance.

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As a result of the above, the pretax income of $1.6 million for the first quarter of 2005 was $2.0 million better than the pretax loss of $0.4 million recognized in the first quarter of 2004. Income taxes of $0.6 million were provided at an expected 2005 effective annual rate of 36.7%. In the first quarter of 2004, an income tax benefit of $0.1 million was provided at 37.7%. The Company’s actual 2004 effective tax rate was 36.4%.

Liquidity and Capital Resources

The Company’s operations used cash of $81.3 million in the first three months of 2005, a reduction of $33.0 million from the $114.3 million used in operating activities in the first quarter of 2004. Net working capital at March 31, 2005 was $92.5 million, a $13.2 million decrease from December 31, 2004 and a $9.7 million increase from the March 31, 2004 working capital.

The Company has significant short-term lines of credit available to finance working capital, primarily inventories and accounts receivable. 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. The Company had drawn $114.4 million on its short-term line of credit at March 31, 2005. Peak short-term borrowing for the Company to date is $119.8 million on March 30, 2005. 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.

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 March 31, 2005, 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.

Cash dividends of $0.075 per common share were paid for the first three quarters of 2004 and a dividend of $0.08 was paid for the fourth quarter of 2004. A cash dividend of $0.08 per common share was declared on April 1, 2005 and was paid on April 22, 2005. The Company made income tax payments of $2.1 million in the first quarter of 2005 and expects to make payments totaling approximately $8.7 million for the remainder of 2005.

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During the first quarter of 2005, the Company issued approximately 47 thousand shares to employees under its share compensation plans.

Total conventional capital spending for 2005 on property, plant and equipment is expected to approximate $23.1 million and is expected to include $3.5 million for expansion and improvements in Agriculture Group facilities, $2.0 million for an upgraded point-of-sale system for our retail stores and $1.7 million for expansion of operations in the Rail Group. The remaining amount of $15.9 million will be spent on numerous assets and projects; no single such project expecting to cost more than $0.5 million. In addition to the above spending, the Company also expects to spend up to $60.0 million in 2005 for the purchase of additional railcars and capitalized modifications on railcars that may then be sold, financed off-balance sheet or owned by the Company for lease to customers. If the Company elects to move forward with building an ethanol plant in Albion, Michigan or another site, some portion of the approximate $90 million cost will also likely be spent in 2005. It is anticipated that investment in any ethanol production facility would include minority investors.

Additional first quarter investments were made in 2005. The Company increased its equity investment in Lansing Grain Company, LLC in February 2005 by investing an additional $0.9 million. Also in the first quarter the Company invested $1.0 million in Iroquois Bio-Energy LLC.

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 of these provisions at March 31, 2005. 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 issued in February 2004 is collateralized by railcar and locomotive assets held by three wholly-owned bankruptcy-remote entities.

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.

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Contractual Obligations

Future payments due under debt and lease obligations as of March 31, 2005 are as follows:

(a)	Includes the value of purchase obligations in the Company’s operating units, including $183 million for the purchase of grain from producers. There are also forward grain sales contracts to consumers and traders and the net of these forward contracts are offset by exchange-traded futures and options contracts.
(b)	Other long-term liabilities include estimated obligations under our retiree healthcare programs and estimated contributions to our defined benefit pension plan for the next five years and other small commitments. The obligations under retiree healthcare programs and defined benefit pension plans vary depending on various factors and are only estimates made based on information available today. Changes in assumptions, participant utilization and other factors could significantly impact these amounts.

The Company had standby letters of credit outstanding of $23.9 million at March 31, 2005, 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 75% of the operating lease commitments above relate to 4,836 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 as 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.

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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 these assets at the end of the lease.

The following table describes the railcar and locomotive positions at March 31, 2005.

In addition, the Company manages 841 railcars for third-party customers or owners for which it receives a fee.

The Company has future lease payment commitments aggregating $55.2 million for the railcars leased by the Company from financial intermediaries under various operating leases. Remaining lease terms vary with none exceeding 7 years. The majority of these railcars have been leased to customers at March 31, 2005 over similar terms. The segment manages risk 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.

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Included in the above car counts are 6,355 railcars and 44 locomotives that are 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.

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:

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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:

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 March 31, 2005 and have determined that such controls and procedures were effective in ensuring that material information required to be disclosed by the Company in the reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

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 significant changes in internal controls over financial reporting or in other factors that could significantly affect internal controls over financial reporting during the first quarter of 2005.

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Part II. Other Information

Item 1: Legal Proceedings

The Company previously disclosed that investigators from the U.S. and Ohio Environmental Protection Agencies and the U.S. Attorney’s office were investigating a purported unauthorized discharge and/or a purported incident of failure to keep a record in connection with the purported discharge at the Company’s Maumee, Ohio fertilizer plant. The Company has been notified that the U.S. Attorney’s office has closed its investigation of this matter with no action taken. While civil actions by environmental authorities are not precluded by the U.S. Attorney’s actions, none has been indicated to date. If a civil action were to be commenced, management has no reason to believe that any outcome should materially affect the Company’s operations.

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 will keep local authorities apprised of its implementation schedule, and is in the process of securing 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 6. Exhibits

(a)

Exhibits

	31.1	Certification of the President and Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a)
	31.2	Certification of the Vice President, Controller and CIO under Rule 13(a)-14(a)/15d-14(a)
	31.3	Certification of the Vice President, Finance and Treasurer under Rule 13(a)-14(a)/15d-14(a)
	32.1	Section 1350 Certifications

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE ANDERSONS, INC. (Registrant)
Date: May 10, 2005	By	/s/Michael J. Anderson
	Michael J. Anderson
	President and Chief Executive Officer
Date: May 10, 2005	By	/s/Richard R. George
	Richard R. George
	Vice President, Controller and CIO      (Principal Accounting Officer)
Date: May 10, 2005	By	/s/Gary L. Smith
	Gary L. Smith
	Vice President, Finance and Treasurer      (Principal Financial Officer)

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Exhibit Index

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