UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2008

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

For the transition period from                      to                     

Commission file number 000-20557

THE ANDERSONS, INC.

(Exact name of the registrant as specified in its charter

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

(419) 893-5050
(Telephone Number)

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

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

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

Large accelerated filer [X]		Accelerated filer [ ]		Non-accelerated filer [ ]		Smaller reporting company [ ]
				(Do not check if a smaller reporting company)

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

The registrant had approximately 18.1 million common shares outstanding, no par value, at July 31, 2008.

 

 

THE ANDERSONS, INC.

INDEX

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

Part I. Financial Information

Item 1. Financial Statements

The Andersons, Inc.

		June 30,				December 31,				June 30,
		2008				2007				2007
Current assets:
Cash and cash equivalents		$	33,379			$	22,300			$	28,945
Restricted cash			3,664				3,726				3,756
Accounts and notes receivable, net			194,243				106,257				138,451
Margin deposits, net			79,017				20,467				27,139
Inventories:
Grain			230,781				376,739				124,530
Agricultural fertilizer and supplies			119,680				63,325				35,693
Lawn and garden fertilizer and corncob products			22,043				29,286				18,906
Railcar repair parts			3,519				4,054				3,524
Retail merchandise			30,463				29,182				32,963
Other			353				318				309
			406,839				502,904				215,925
Commodity derivative assets – current			493,571				205,956				47,634
Railcars available for sale			1,971				1,769				4,071
Deferred income taxes			4,827				2,936				--
Prepaid expenses and other current assets			33,632				38,576				22,236
Total current assets			1,251,143				904,891				488,157
Other assets:
Pension asset			7,229				10,714				1,531
Commodity derivative asset – noncurrent			84,297				29,458				27,169
Other assets and notes receivable, net			11,655				7,892				8,266
Investments in and advances to affiliates			137,121				118,912				96,680
			240,302				166,976				133,646
Railcar assets leased to others, net			152,879				153,235				146,567
Property, plant and equipment:
Land			13,560				11,670				12,126
Land improvements and leasehold improvements			37,224				36,031				34,772
Buildings and storage facilities			114,786				109,301				107,423
Machinery and equipment			144,767				137,639				134,833
Software			8,631				7,450				7,296
Construction in progress			3,258				6,133				7,202
			322,226				308,224				303,652
Less allowances for depreciation and amortization			(212,080	)			(208,338	)			(204,535	)
			110,146				99,886				99,117
Total assets		$	1,754,470			$	1,324,988			$	867,487

See notes to condensed consolidated financial statements

Condensed Consolidated Balance Sheets (continued)
(Unaudited)(In thousands)

		June 30,				December 31,				June 30,
		2008				2007				2007
Current liabilities:
Short-term borrowings		$	432,500			$	245,500			$	77,000
Accounts payable for grain			76,409				143,479				33,262
Other accounts payable			168,466				115,016				107,858
Customer prepayments and deferred revenue			29,925				38,735				18,417
Commodity derivative liabilities – current			160,611				122,488				39,481
Accrued expenses			51,340				38,176				30,704
Deferred income taxes – current			--				--				402
Current maturities of long-term debt – non-recourse			13,175				13,722				13,357
Current maturities of long-term debt			11,481				10,096				11,196
Total current liabilities			943,907				727,212				331,667
Deferred income and other long-term liabilities			3,910				6,172				3,705
Commodity derivative liabilities – noncurrent			19,923				2,090				26,002
Employee benefit plan obligations			19,880				18,705				21,617
Long-term debt – non-recourse, less current maturities			47,934				56,277				64,382
Long-term debt, less current maturities			281,496				133,195				87,150
Deferred income taxes			29,268				24,754				14,825
Total liabilities			1,346,318				968,405				549,358
Minority interest			12,471				12,219				13,120
Shareholders’ equity:
Common shares, without par value (25,000 shares authorized; 19,198 shares issued)			96				96				96
Preferred shares, without par value (1,000 shares authorized; none issued)			--				--				--
Additional paid-in-capital			171,571				168,286				164,205
Treasury shares (1,074; 1,195, and 1,316 shares at 6/30/08, 12/31/07 and 6/30/07, respectively; at cost)			(16,242	)			(16,670	)			(16,354	)
Accumulated other comprehensive loss			(10,099	)			(7,197	)			(11,518	)
Retained earnings			250,355				199,849				168,580
			395,681				344,364				305,009
Total liabilities, minority interest and shareholders’ equity		$	1,754,470			$	1,324,988			$	867,487

See notes to condensed consolidated financial statements

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

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Sales and merchandising revenues		$	1,100,700			$	634,214			$	1,813,701			$	1,040,717
Cost of sales and merchandising revenues			980,363				562,378				1,641,123				924,496
Gross profit			120,337				71,836				172,578				116,221
Operating, administrative and general expenses			49,109				40,196				88,695				77,947
Allowance for doubtful accounts			864				411				2,569				644
Interest expense			8,521				4,190				17,643				9,212
Other income/gains:
Equity in earnings of affiliates			7,781				4,823				16,420				7,655
Other income, net			2,155				7,068				5,039				16,941
Minority interest in net (income) loss of subsidiaries			682				433				(253	)			516
Income before income taxes			72,461				39,363				84,877				53,530
Income tax expense			26,835				13,875				31,428				18,803
Net income		$	45,626			$	25,488			$	53,449			$	34,727
Per common share:
Basic earnings		$	2.53			$	1.43			$	2.96			$	1.96
Diluted earnings		$	2.48			$	1.40			$	2.91			$	1.90
Dividends paid		$	0.0775			$	0.0475			$	0.155			$	0.095
Weighted average shares outstanding – basic			18,065				17,792				18,046				17,761
Weighted average shares outstanding - diluted			18,380				18,245				18,383				18,260

See notes to condensed consolidated financial statements

The Andersons, Inc.

		Six months ended
		June 30,
		2008				2007
Operating Activities
Net income		$	53,449			$	34,727
Adjustments to reconcile net income to cash (used in) provided by operating activities:
Depreciation and amortization			13,900				12,747
Allowance for doubtful accounts receivable			2,569				644
Minority interest in income (loss) of subsidiaries			253				(516	)
Equity earnings of unconsolidated affiliates, net of distributions received			2,391				(1,351	)
Realized gains on sales of railcars and related leases			(3,317	)			(5,048	)
Excess tax benefit from share-based payment arrangement			(1,502	)			(2,804	)
Deferred income taxes			2,010				1,219
Stock based compensation expense			2,657				2,182
Gain on donation of equity securities			--				(4,773	)
Other			6				(22	)
Changes in operating assets and liabilities:
Accounts and notes receivable			(69,946	)			(51,397	)
Inventories			102,443				80,532
Commodity derivatives and margin deposits			(345,048	)			15,310
Prepaid expenses and other assets			4,586				8,701
Accounts payable for grain			(67,071	)			(62,653	)
Other accounts payable and accrued expenses			46,559				11,506
Net cash (used in) provided by operating activities			(256,061	)			39,004
Investing Activities
Acquisition of business, net of $0.3 million cash acquired			(6,699	)			--
Purchases of railcars			(55,123	)			(37,213	)
Proceeds from sale or financing of railcars and related leases			41,331				36,319
Purchases of property, plant and equipment			(7,833	)			(10,467	)
Proceeds from sale of property, plant and equipment and other			129				892
Investments in affiliates			(20,600	)			(36,249	)
Net cash used in investing activities			(48,795	)			(46,718	)
Financing Activities
Net increase in short-term borrowings			187,000				2,000
Proceeds received from minority interest			--				13,673
Proceeds received from issuance of long-term debt			201,535				6,216
Payments on long-term debt			(61,574	)			(4,268	)
Payments of non-recourse long-term debt			(8,891	)			(7,256	)
Proceeds from issuance of treasury shares to employees and directors			1,057				1,781
Payments of debt issuance costs			(1,893	)			--
Dividends paid			(2,801	)			(1,689	)
Excess tax benefit from share-based payment arrangement			1,502				2,804
Net cash provided by financing activities			315,935				13,261
Increase in cash and cash equivalents			11,079				5,547
Cash and cash equivalents at beginning of period			22,300				23,398
Cash and cash equivalents at end of period		$	33,379			$	28,945

See notes to condensed consolidated financial statements

The Andersons, Inc.

														Accumulated
						Additional								Other
		Common				Paid-in				Treasury				Comprehensive				Retained
		Shares				Capital				Shares				Loss				Earnings				Total
Balance at December 31, 2006			$  96			$	159,941			$	(16,053	)		$	(9,735	)		$	135,926			$	270,175
Net income																			68,784				68,784
Other comprehensive income:
Unrecognized actuarial loss and prior service costs (net of income tax of $3,102)															5,281								5,281
Cash flow hedge activity (net of income tax of $149)															(254	)							(254	)
Unrealized gains on investment (net of income tax of $305)															519								519
Disposal of equity securities (net of income tax of $1,766)															(3,008	)							(3,008	)
Comprehensive income																							71,322
Impact of adoption of FIN 48																			(383	)			(383	)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $5,567 (297 shares)							8,345				(617	)											7,728
Dividends declared ($0.25 per common share)																			(4,478	)			(4,478	)
Balance at December 31, 2007			96				168,286				(16,670	)			(7,197	)			199,849				344,364
Net income																			53,449				53,449
Other comprehensive income:
Unrecognized actuarial loss and prior service costs (net of income tax of $1,716)															(2,921	)							(2,921	)
Cash flow hedge activity (net of income tax of $11)															19								19
Comprehensive income																							50,547
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $1,821 (121 shares)							3,285				428												3,713
Dividends declared ($0.1625 per common share)																			(2,943	)			(2,943	)
Balance at June 30, 2008			$  96			$	171,571			$	(16,242	)		$	(10,099	)		$	250,355			$	395,681

See notes to condensed consolidated financial statements

The Andersons, Inc.

Note A: Basis of Presentation and Consolidation

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

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

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

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

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

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

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

Note B: FSP FIN 39-1

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

		June 30, 2008								December 31, 2007								June 30, 2007
		Margin				Margin				Margin				Margin				Margin				Margin
		deposit				deposit				deposit				deposit				deposit				deposit
		assets				liabilities				assets				liabilities				assets				liabilities
Cash collateral		$	276,285			$	45,884			$	114,933			$	11,673			$	24,239			$	--
Fair value of derivatives			(197,268	)			(70,257	)			(94,466	)			(24,466	)			2,900				--
Balance at end of period		$	79,017			$	(24,373	)		$	20,467			$	(12,793	)		$	27,139				--

Note C: 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, unvested restricted shares, and other stock-based awards.

		Three months ended								Six months ended
(in thousands)		June 30,								June 30,
		2008				2007				2008				2007
Weighted average shares outstanding – basic			18,065				17,792				18,046				17,761
Restricted shares and shares contingently issuable upon exercise of options			315				453				337				499
Weighted average shares outstanding - - diluted			18,380				18,245				18,383				18,260

There were approximately 59,000 and 28,000 anti-dilutive stock-based awards outstanding in the second quarter of 2008 and 2007, respectively. In the first six months of 2008 and 2007, there were approximately 28,000 and 5,000, respectively, anti-dilutive stock-based awards outstanding.

Note D: Employee Benefit Plans

Included as charges against income for the three and six months ended June 30, 2008 and 2007 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,
		2008				2007				2008				2007
Service cost		$	696			$	665			$	1,333			$	1,329
Interest cost			983				784				1,807				1,568
Expected return on plan assets			(1,249	)			(1,141	)			(2,518	)			(2,283	)
Amortization of prior service cost			(155	)			(159	)			(310	)			(317	)
Recognized net actuarial loss			345				232				472				536
Benefit cost		$	620			$	381			$	784			$	833
		Postretirement Benefits
		Three months ended								Six months ended
(in thousands)		June 30								June 30,
		2008				2007				2008				2007
Service cost		$	100			$	109			$	187			$	218
Interest cost			283				290				562				581
Amortization of prior service cost			(127	)			(127	)			(255	)			(255	)
Recognized net actuarial loss			178				198				305				396
Benefit cost		$	434			$	470			$	799			$	940

The Company made contributions to its defined benefit pension plan of $1.3 million in the first six months of 2008 and 2007. The Company currently expects to make a total contribution of approximately $5.0 million in fiscal 2008, which exceeds the required minimum contribution. The Company contributed $7.0 million in fiscal 2007.

The postretirement benefit plan is not funded. Company contributions in the quarter represent actual claim payments and insurance premiums for covered retirees. The Company made payments of $0.2 million in both the second quarters of 2008 and 2007. For the six months ended June 30, 2008 and 2007, the Company made payments of $0.4 million and $0.5 million, respectively.

Note E: Segment Information

		Results of Operations – Segment Disclosures
		(in thousands)
		Grain &								Plant				Turf &
Second Quarter 2008		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	695,787			$	42,941			$	273,501			$	35,915			$	52,556			$	--			$	1,100,700
Inter-segment sales			7				104				1,973				333				--				--				2,417
Equity in earnings of affiliates			7,780				--				1				--				--				--				7,781
Other income, net			1,222				340				180				96				161				156				2,155
Interest expense (income) (a)			6,684				1,082				1,555				397				217				(1,414	)			8,521
Income (loss) before income taxes			19,994				4,874				47,369				1,882				3,360				(5,018	)			72,461
Identifiable assets			1,124,226				205,178				257,003				58,533				54,116				55,414				1,754,470
		Grain &								Plant				Turf &
Second Quarter 2007		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	323,580			$	42,445			$	182,908			$	30,394			$	54,887			$	--			$	634,214
Inter-segment sales			--				272				937				376				--				--				1,585
Equity in earnings of affiliates			4,823				--				--				--				--				--				4,823
Other income, net			3,538				431				300				133				158				2,508				7,068
Interest expense (a)			1,079				1,701				524				454				285				147				4,190
Income (loss) before income taxes			11,981				6,902				17,117				706				3,616				(959	)			39,363
Identifiable assets			394,614				189,270				127,025				50,043				59,443				47,092				867,487
		Grain &								Plant				Turf&
Six months ended 2008		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	1,194,910			$	77,952			$	378,970			$	75,576			$	86,293			$	--			$	1,813,701
Inter-segment sales			10				233				7,429				750				--				--				8,422
Equity in earnigs of affiliates			16,417				--				3				--				--				--				16,420
Other income (loss), net			3,758				518				324				189				308				(58	)			5,039
Interest expense (income) (a)			12,988				2,062				2,093				822				406				(728	)			17,643
Income (loss) before income taxes			22,227				11,300				54,909				3,882				(17	)			(7,424	)			84,877
		Grain &								Plant				Turf &
Six months ended 2007		Ethanol				Rail				Nutrient				Specialty				Retail				Other				Total
Revenues from external customers		$	567,523			$	68,361			$	249,468			$	66,698			$	88,667			$	--			$	1,040,717
Inter-segment sales			--				474				4,791				835				--				--				6,100
Equity in earnings of affiliates			7,652				--				3				--				--				--				7,655
Other income, net			9,523				522				453				195				318				5,930				16,941
Interest expense (income) (a)			4,212				3,074				878				937				467				(356	)			9,212
Income before income taxes			22,151				9,910				17,548				2,506				1,329				86				53,530

(a)

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

Note F: Equity Method Investments and Related Party Transactions

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

The Company has marketing agreements with three ethanol LLCs under which the Company purchases and markets the ethanol produced to external customers. As compensation for these marketing services, the Company earns a fee on each gallon of ethanol sold. For two of the LLCs, the Company purchases 100% of the ethanol produced and then sells it to external parties. For the third LLC, the Company buys only a portion of the ethanol produced. The Company acts as the principal in these ethanol sales transactions to external parties. Substantially all of these purchases and subsequent sales are done through forward contracts on matching terms and, therefore, the Company does not recognize any gross profit on the sales transactions. For the three months ended June 30, 2008 and 2007, sales of ethanol were $120.7 million and $56.9 million, respectively. For the six months ended June 30, 2008 and 2007, sales of ethanol for the Company were $223.3 million and $85.6 million, respectively. In addition to the ethanol marketing agreements, the Company holds corn origination agreements, in which the Company originates 100% of the corn used in production for each ethanol LLCs as well as distillers’ dried grains (“DDG”) marketing agreements in which the Company markets 100% of the DDG produced. For each of the services, the Company receives a unit based fee.

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

		% ownership
		at				Three months ended								Six months ended
(in thousands)		June 30, 2008				June 30,								June 30,
		direct /indirect				2008				2007				2008				2007
The Andersons Albion Ethanol LLC (“TAAE”)			49 %			$	1,740			$	4,135			$	3,771			$	7,290
The Andersons Clymers Ethanol LLC (“TACE”)			37 %				2,245				(123	)			5,968				(1,082	)
The Andersons Marathon Ethanol LLC (“TAME”)			50 %				(2,618	)			(367	)			(5,115	)			(728	)
Lansing Trade Group LLC (“LTG”)			50 %				6,413				1,178				11,677				2,582
Other			23%-33%				1				--				119				(407	)
Total						$	7,781			$	4,823			$	16,420			$	7,655

The Company, along with another strategic partner, formed The Andersons Ethanol Investment LLC (“TAEI”) in February of 2007. The Company has a 66% ownership in TAEI, which is a consolidated subsidiary. TAEI was formed to hold a 50% investment in TAME as well as carry on risk management activities by way of derivative instruments, to mitigate some of the price risk that results from the fact that TAME currently does not lock in prices for its inputs and outputs through forward contracting. Because TAEI is a consolidated subsidiary, the losses realized from TAEI’s investment in TAME, as well as the mark-to-market impact of its derivatives are shown at the full amounts on the Company’s financial statements with the offset to minority interest in net income (loss) of subsidiary. As a result of the risk management activities of TAEI, the Company was able to economically offset its share of losses from its investment in TAME by $0.4 million and $5.6 million for the three and six months ended June 30, 2008, respectively.

The Company increased its investment in Lansing Trade Group LLC in the first quarter of 2008 by $20.5 million. In July, the Company invested an additional $11.1 million and now holds a 49.9% interest.

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

		Three months ended								Six months ended
(in thousands)		June 30,								June 30,
		2008				2007				2008				2007
Sales and revenues		$	157,736			$	71,510			$	272,831			$	99,397
Purchases of product			107,221				55,064				206,636				83,375
Lease income			1,419				1,210				2,898				2,179
Labor and benefits reimbursement (a)			2,463				1,650				4,954				2,833
Accounts receivable at June 30,			12,736				15,883
Accounts payable at June 30,			24,778				6,647

(a)

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

Note G: Fair Value Measurements

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

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

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

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

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

(in thousands)
Assets (liabilities)		Level 1				Level 2				Level 3				Total
Cash and cash equivalents		$	33,379			$	--			$	--			$	33,379
Commodity derivatives, net			--				386,398				10,936				397,334
Net margin deposit assets			79,107				--				--				79,107
Net margin deposit liabilities			--				(24,373	)			--				(24,373	)
Other assets and liabilities (a)			9,923				--				(1,011	)			8,912
Total		$	122,409			$	362,025			$	9,925			$	494,359

(a)

Included in other assets and liabilities is restricted cash, interest rate derivatives, assets held in a VEBA for healthcare benefits and deferred compensation assets.

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

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

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

Our net commodity derivatives primarily consist of contracts that we have with our producers or customers under which the future settlement date and bushels of commodities to be delivered (primarily wheat, corn, soybeans and ethanol) are fixed and under which the price may or may not be fixed. Depending on the specifics of the individual contracts, the fair value is derived from the futures or options prices on the Chicago Board of Trade (“CBOT”) or the New York Merchantile Exchange (“NYMEX”) for similar commodities and delivery dates as well as observable quotes for local basis adjustments (the difference between the futures price and the local cash price). Although counterparty risk is present in each of these commodity contracts, based on our historical experience with our producers and customers and our knowledge of their businesses, we do not view counterparty risk to be a significant input to fair value for the majority of these commodity contracts. However, in situations where we believe that counterparty risk is higher (based on our past or present experience with a customer or our knowledge of the customer’s operations or financial condition), we classify these commodity contracts as “level 3” in the fair value hierarchy and, accordingly, record estimated fair value adjustments based on our internal projections and views of these contracts. At June 30, 2008, the commodity contracts considered “level 3” are limited to a small number of customers. We review our counterparty risk on commodity contracts on a quarterly basis and adjust the fair value of these contracts to reflect our best estimate. The quantitative amount of our counterparty risk has been significantly mitigated subsequent to the end of the second quarter due to falling commodity prices.

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

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

Note H: Change in Estimate of Depreciable Lives

In the first quarter of 2008, the Company changed its estimate of the service lives of depreciable railcar assets leased to others. Railcars have statutory lives of either 40 or 50 years (measured from the date built)

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

Note I: Business Acquisition

On May 1, 2008, the Company acquired 100% of the shares of Douglass Fertilizer & Chemical, Inc. for $8.1 million. With 2007 sales of $47 million Douglass Fertilizer is primarily a specialty liquid nutrient manufacturer, retailer and wholesaler and operates facilities located in Florida as well as the Caribbean. Douglass Fertilizer is part of the Plant Nutrient Group and diversifies the Group’s product line offering and expands its market outside of the traditional Midwest row crops and into Florida’s specialty crops. The final purchase price for Douglass Fertilizer is subject to adjustment based on completion of the closing audit and additional acquisition costs which have not been finalized. Any adjustments are not expected to be significant. The final purchase price allocation for Douglass Fertilizer is expected to be completed in the third quarter of 2008. The preliminary purchase price allocation to assets and liabilities is as follows:

Cash		$	350
Other current assets			15,779
Intangible assets			3,120
Other long term assets			924
Property, plant and equipment			9,264
Current liabilities			(8,403	)
Current maturities of long term debt			(7,570	)
Long term debt			(2,156	)
Other long term liabilities			(3,164	)
		$	8,144	(a)

(a)

Of the $8.1 million purchase price, $1.1 million remained in other accounts payable at June 30, 2008 to be paid upon completion of the audit.

Note J: Debt Agreements

During the first quarter of 2008, the Company borrowed $195 million under a long-term note purchase agreement. The notes were issued in three series. The first series was for $92 million at an interest rate of 4.8%, payable in full in March of 2011. The second series was for $61.5 million at an interest rate of 6.12%, payable in full in March of 2015. The last series was for $41.5 million at an interest rate of 6.78% and is payable in full in March of 2018. In addition, the Company amended its line of credit arrangement in April 2008 which now provides the Company with $655 million in short-term lines of credit and a temporary flex line, maturing in October 2008, which allows the Company an additional $247 million of borrowing capacity. At June 30, 2008, the Company had drawn $432.5 million on its line of credit.

Note K: Recently Issued Accounting Pronouncements

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

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

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

Forward Looking Statements

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

Critical Accounting Policies and Estimates

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

Executive Overview

Grain & Ethanol Group

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

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

Grain inventories on hand at June 30, 2008 were 39.8 million bushels, of which 11.0 million bushels were stored for others. This compares to 43.5 million bushels on hand at June 30, 2007, of which 14.8 million bushels were stored for others.

Despite the recent flooding in the Midwest, the U.S. Department of Agriculture reports that U.S. farmers are expected to harvest nearly 79 million acres of corn and more than 72 million acres of soybeans in 2008.

This is a 9% decrease in corn acres harvested over 2007 but still the second largest area since 1944. The 72 million acres of soybeans expected to be harvested in 2008 is a 15% increase over 2007. Currently, planted corn rated as good to excellent in the four state region in which the company has facilities (Illinois, Ohio, Indiana, Michigan) was 71% compared to 49% at the same time last year. Planted soybeans rated as good to excellent is currently 61%, compared to 48% this time last year. The 2008 wheat harvest is nearly complete and the quality of the wheat being received into our facilities is good.

Unprecedented market conditions have caused grain prices to rise significantly over the past year. Many customers have forward contracts with the Company to sell grain to us at prices lower than the current market price. Because of this, the risk of counterparty nonperformance has risen substantially. The Company will continue to monitor the nonperformance risk of its counterparties and will adjust the fair value of their open contracts if appropriate. See Note G for further discussion regarding the fair value of our commodity contracts and associated counterparty risk.

In May 2008, the Company renewed its marketing agreement with Cargill, that covers certain of its grain facilities.

The ethanol industry continues to be impacted by volatility in the commodity markets for both its production inputs and outputs as well as by government policy. For the 2008 quarter and year-to-date periods, the pricing relationship between corn and ethanol has had a significant impact on the results of the Company’s ethanol LLCs. The Company will continue to monitor this volatility and its impact very closely, including any impact on the recoverability of our investments in the ethanol LLCs.

Rail Group

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

Railcars and locomotives under management (owned, leased or managed for financial institutions in non-recourse arrangements) at June 30, 2008 were 23,840 compared to 22,654 at June 30, 2007. The Group’s average utilization rate (railcars and locomotives under management that are under lease, exclusive of railcars managed for third party investors) has increased slightly from 92.2% for the six months ended June 30, 2007 to 93.3% for the six months ended June 30, 2008. The average lease rate per car for the first six months of 2008 is comparable to those for the first six months of 2007.

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

Plant Nutrient Group

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

The continued escalation in nutrient prices has played a significant role in the Plant Nutrient Group’s performance for the quarter and year-to-date and will continue to play a significant role for the remainder of the year.

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

Turf & Specialty Group

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

At the end of the fourth quarter of 2007, a new manufacturing facility, built to manufacture a patented fertilizer product primarily for use on golf course greens, became fully operational. With this increased capacity, the Group has launched several new products for the 2008 season and sales volume is better than expected. The focus for the remainder of the year will be to keep up with the demand.

Retail Group

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

The retail business is highly competitive. The Company competes with a variety of retail merchandisers, including home centers, department and hardware stores, as well as local and national grocers. The focus for 2008 is to increase sales in all of the Group’s market areas and continue to refine its new concept food market to align with customer needs.

Other

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

Operating Results

		Three months ended								Six months ended
(in thousands)		June 30,								June 30,
		2008				2007				2008				2007
Sales and merchandising revenues		$	1,100,700			$	634,214			$	1,813,701			$	1,040,717
Cost of sales			980,363				562,378				1,641,123				924,496
Gross profit			120,337				71,836				172,578				116,221
Operating, administrative and general			49,109				40,196				88,695				77,947
Allowance for doubtful accounts			864				411				2,569				644
Interest expense			8,521				4,190				17,643				9,212
Equity in earnings of affiliates			7,781				4,823				16,420				7,655
Other income, net			2,155				7,068				5,039				16,941
Minority interest in net (income) loss of subsidiaries			682				433				(253	)			516
Income before income taxes		$	72,461			$	39,363			$	84,877			$	53,530

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

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

Grain & Ethanol Group

		Three months ended
(in thousands)		June 30,
		2008				2007
Sales and merchandising revenues		$	695,787			$	323,580
Cost of sales			666,592				308,326
Gross profit			29,195				15,254
Operating, administrative and general			11,419				10,768
Allowance for doubtful accounts			782				220
Interest expense			6,684				1,079
Equity in earnings of affiliates			7,780				4,823
Other income, net			1,222				3,538
Minority interest in net (income) loss of subsidiaries			682				433
Income before income taxes		$	19,994			$	11,981

Operating results for the Grain & Ethanol Group increased $8.0 million over the results from the same period last year. Sales of grain increased $304.9 million, or 120%, and is the result of a 78% increase in the average price per bushel of grain sold and a 24% increase in volume. A majority of the volume increase is the result of corn sales to one of the ethanol LLCs that the Company has an investment in and which became operational in the first quarter of 2008. The increase in the average price per bushel sold is the result of the increased demand for corn which has caused the price of all grains to rise significantly. Sales of ethanol increased $63.8 million, or 112%, and is the result of an 89% increase in volume coupled with a 12% increase in the average price per gallon sold. The increase in volume is the result of both additional sales from ethanol produced by the ethanol LLC mentioned previously in which the Company purchases a portion of the ethanol produced and sells it to third parties, as well as increases from another ethanol LLC that became operational during the middle of the second quarter of 2007. Gross profit on both corn and ethanol sales related to the Company’s ethanol LLCs is largely limited to the service fees earned from origination and marketing agreements.

Merchandising revenues for the Group increased $1.4 million over the second quarter of 2007 and relates primarily to increased basis levels in soybeans partially offset by decreased basis levels in both corn and wheat. Basis is the difference between the local market price of a commodity and the Chicago Board of

Trade futures price. During the first quarter of 2008, the futures prices for corn, soybeans and wheat rose at substantially higher rates than the local spot prices. This caused the Group to incur losses on its forward purchase and sale contracts as well as its inventory. During the second quarter, the basis levels for soybeans appreciated, recovering some of the first quarter losses, however, for corn and wheat it did not. Revenues from services provided to the Company’s ethanol LLCs were $4.9 million, a $2.1 million increase from the second quarter 2007, and is the result of having three operational plants versus just two in the second quarter of 2007.

Gross profit for the Group increased $13.9 million, or 91%, over the second quarter of 2007 due to a combination of increased merchandising revenues and ethanol service fees mentioned previously as well as increased position income which is income from futures and options positions taken which have not been directly related to a purchase or sale commitment. These increases have been partially offset by fair value adjustments to the Company’s open commodity contracts of $4.7 million due to non-performance risk.

Operating expenses for the Group increased $0.7 million, or 6%, over the same period in 2007 and are spread amongst several expense items, primarily labor and benefits, and relate to growth within the Group. The allowance for doubtful accounts increased $0.6 million due to increases in the accounts receivable balance in total as well as some additional reserves taken for potential losses on grain contract cancellations due to non-delivery.

Interest expense for the Group increased $5.6 million over the same period in 2007. The significant increase in commodity prices and the need to cover margin calls is the main driver for the increased interest costs for the Group.

Equity in earnings of affiliates increased $3.0 million over the same period in 2007. Increases were recognized from the Group’s investments in TACE and LTG. Decreases were recognized from the Group’s investment’s in TAAE and TAME. As a result of the risk management activities of TAEI, a majority owned subsidiary that holds the 50% ownership in TAME, the Company was able to economically offset its share of losses from TAME by $0.4 million.

Other income decreased $2.3 million over the same period last year and relates to a business interruption insurance claim that was settled in the second quarter of 2007.

Rail Group

		Three months ended
(in thousands)		June 30,
		2008				2007
Sales and merchandising revenues		$	42,941			$	42,445
Cost of sales			33,841				31,544
Gross profit			9,100				10,901
Operating, administrative and general			3,541				2,769
Allowance for doubtful accounts			(57	)			(40	)
Interest expense			1,082				1,701
Other income, net			340				431
Income before income taxes		$	4,874			$	6,902

Operating results for the Rail Group decreased $2.0 million, or 29%, over the second quarter of 2007. Leasing revenues increased $2.1 million, car sales decreased $2.2 million and sales in the Group’s repair and fabrication shops increased $0.6 million. The increase in leasing revenues is attributable to the increase in the number of cars in the Group’s rail fleet and has been partially offset by slightly decreasing lease rates for renewals. Car sales are down due to a very large sale that occurred in the second quarter of 2007. The increase in sales in the Group’s repair and fabrication shops is due partially to the addition of a new shop in the second half of 2007.

Gross profit for the Group decreased $1.8 million, or 17% over the same period last year. Gross profit in the leasing business increased $0.9 million and can be attributed to the increased cars in the Group’s rail fleet as well as a slight increase in gross profit as a percent of sales. Gross profit on car sales decreased

$3.0 million and are the result of both decreased car sales in general and the fact that sales made in the second quarter of 2008 were non-recourse financings which typically have lower gross margin percentages. Gross profit in the repair and fabrication shops increased $0.3 million

Operating expenses for the Group increased $0.8 million, or 28%, over the same period last year and were spread among several expense categories.

Interest expense for the Group decreased $0.6 million as the Group continues to pay down its non-recourse long-term debt.

Plant Nutrient Group

		Three months ended
(in thousands)		June 30,
		2008				2007
Sales and merchandising revenues		$	273,501			$	182,908
Cost of sales			215,105				159,517
Gross profit			58,396				23,391
Operating, administrative and general			9,558				5,863
Allowance for doubtful accounts			95				187
Interest expense			1,555				524
Equity in earnings of affiliates			1				--
Other income, net			180				300
Income before income taxes		$	47,369			$	17,117

Operating results for the Plant Nutrient Group increased $30.3 million, or 177%, over the second quarter of 2007. Sales and merchandising revenues increased $90.6 million, or 50%, due to a combination of the addition of Douglass Fertilizer to the Group, which contributed $11.3 million in sales, and a 72% increase in the average price per ton sold. The significant price appreciation in the commodities markets for the fertilizers that the Group sells has caused the significant increase in average selling price per ton. Gross profit for the Group increased $35.0 million, or 150%, and is primarily related to the increase in selling prices and $3.6 million from Douglass Fertilizer. While the cost per ton sold has increased as well, the Group was able to position itself well through purchasing strategies and has recognized a 9% increase in margin as a percent of sales.

Operating expenses for the Group increased $3.7 million, or 63%, over the same period last year. Approximately two-thirds of this increase came with the addition of Douglass Fertilizer. The remaining increase is spread across several expense categories.

Interest expense for the Group increased $1.0 million, or 197%, over the second quarter of 2007 and is due to the increased use of working capital.

Turf & Specialty Group

		Three months ended
(in thousands)		June 30,
		2008				2007
Sales and merchandising revenues		$	35,915			$	30,394
Cost of sales			28,649				25,227
Gross profit			7,266				5,167
Operating, administrative and general			5,047				4,104
Allowance for doubtful accounts			36				36
Interest expense			397				454
Other income, net			96				133
Income before income taxes		$	1,882			$	706

Operating results for the Turf & Specialty Group increased $1.2 million over results from the same period last year. Sales in the lawn fertilizer business increased $5.2 million, or 19%, due to a combination of increased volume and an increase in the average price per ton sold. The new product lines introduced in 2007 have been favorably received and are contributing to the increase in volume. Sales in the cob business increased 9%, and is also due to both an increase in volume and an increase in the average price per ton sold. Gross profit for the Group increased $2.1 million, or 41%, over the same period last year and is attributable to a 32% increase in margin per ton due to product mix changes.

Operating expenses for the Group increased $0.9 million, or 23%, over the same period last year. This increase is spread across several expense categories, primarily labor, benefits and incentive compensation, and relate primarily to the new product lines added last year.

Retail Group

		Three months ended
(in thousands)		June 30,
		2008				2007
Sales and merchandising revenues		$	52,556			$	54,887
Cost of sales			36,176				37,764
Gross profit			16,380				17,123
Operating, administrative and general			12,956				13,372
Allowance for doubtful accounts			8				8
Interest expense			217				285
Other income, net			161				158
Income before income taxes		$	3,360			$	3,616

Operating results for the Retail Group decreased $0.3 million over results from the same period last year. Sales and merchandising revenues decreased $2.3 million, or 4%, over the first three months of 2007. Customer counts were down 5% while the average sale per customer remained relatively flat. Decreased sales were experienced in each of the Group’s market areas. Gross profit decreased $0.7 million, or 4%. Weak economic conditions and local competition have played a significant role in the decreased results for the quarter.

Operating expenses for the Group decreased $0.4 million, or 3%, due to the Group’s continued efforts to reduce costs.

Other

		Three months ended
(in thousands)		June 30,
		2008				2007
Sales and merchandising revenues		$	--			$	--
Cost of sales			--				--
Gross profit			--				--
Operating, administrative and general			6,588				3,320
Interest expense (income)			(1,414	)			147
Other income, net			156				2,508
Loss before income taxes		$	(5,018	)		$	(959	)

Net corporate operating expenses not allocated to business segments increased $3.3 million over the same period last year. This increase is comprised of several items including increased charitable contribution and corporate performance incentives due to Company performance and other corporate expense items not allocated to business segments.

The change in interest is a result of recovery of interest expense passed back to the operating Groups from the first quarter of 2008.

Other income decreased $2.3 million and is primarily due to the realized gain in the second quarter of 2007 on the donation of the Company’s available-for-sale securities.

As a result of the above, pretax income of $72.5 million for the second quarter of 2008 was $33.1 million higher than pretax income of $39.4 million recognized in the second quarter of 2007. Income tax expense of $26.8 million was provided at 37.0%. The Company anticipates that its 2008 effective annual rate will be 36.7%. In the second quarter of 2007, income tax expense of $13.9 million was provided at a rate of 35.2%. The Company’s actual 2007 effective tax rate was 35%. The primary driver behind the change in the effective tax rate for the quarter and the anticipated annual rate as compared to the same period last year relate to 2007 tax benefits received from the charitable donation of certain available-for-sale securities.

Comparison of the six months ended June 30, 2008 with the six months ended June 30, 2007:

Grain & Ethanol Group

		Six months ended
(in thousands)		June 30,
		2008				2007
Sales and merchandising revenues		$	1,194,910			$	567,523
Cost of sales			1,154,336				536,849
Gross profit			40,574				30,674
Operating, administrative and general			23,337				21,706
Allowance for doubtful accounts			1,944				296
Interest expense			12,988				4,212
Equity in earnings of affiliates			16,417				7,652
Other income, net			3,758				9,523
Minority interest in net (income) loss of subsidiaries			(253	)			516
Income before income taxes		$	22,227			$	22,151