SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

PART I

Item 1. Business

(a) General development of business

(a)	General development of business

The Andersons, Inc. (the “Company”) is a diversified corporation that began operations as a partnership in 1947. The Company is organized into four operating groups. The Agriculture Group purchases and merchandises grain, operates grain elevator facilities located in Ohio, Michigan, Indiana and Illinois, manufactures and sells dry and liquid agricultural nutrients, distributes agricultural inputs (nutrients, chemicals, seed and supplies) to dealers and farmers and formulates anti-icers for road and runway use. The Rail Group sells, repairs, reconfigures, manages and leases railcars and locomotives. The Processing Group manufactures turf and ornamental plant fertilizer and control products for lawn and garden use, professional golf and landscaping industries and corncob-based products for use in various industries. The Retail Group operates six large retail stores, and a distribution center in Ohio.

(b) Financial information about industry segments

(b)	Financial information about industry segments

See Note 13 to the consolidated financial statements in Item 8 for information regarding business segments.

(c) Narrative description of business

(c)	Narrative description of business

Agriculture Group

The Agriculture Group operates grain elevators, plant nutrient formulation and distribution facilities, and farm centers.

The Company’s grain operations involve merchandising grain and operating terminal grain elevator facilities. This includes purchasing, handling, processing and conditioning grain, storing grain purchased by the Company as well as grain owned by others, and selling grain. The principal grains sold by the Company are yellow corn, yellow soybeans and soft red and white wheat. The Company’s grain storage practical capacity was approximately 81.882.2 million bushels at December 31, 2003.2004.

Grain merchandised by the Company is grown in the Midwestern portion of the United States (the eastern corn belt) and is acquired from country elevators (grain elevators located in a rural area, served primarily by trucks (inbound and outbound) and possibly rail (outbound)), dealers and producers. The Company makes grain purchases at prices referenced to Chicago Board of Trade (“CBOT”) quotations. The Company competes for the purchase of grain with grain processors, regional cooperatives and animal feed operations, as well as with other grain merchandisers. Because the Company generally buys in smaller lots, its competition is generally local or regional in scope, although there

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are some large, national and international companies that maintain regional grain purchase and storage facilities. Some of these competitors are significantly larger than the Company.

In 1998, the Company signed a five-year lease agreement (“Lease Agreement”) and a five-year marketing agreement (“Marketing Agreement”) with Cargill, Incorporated (“Cargill”) for Cargill’s Maumee and Toledo, Ohio grain handling and storage facilities. As part of the agreement, Cargill was given the marketing rights to grain in the Cargill-owned facilities as well as the adjacent Company-owned facilities in Maumee and Toledo. These agreements cover 39%41%, or approximately 32.233.9 million bushels, of the Company’s total storage space and became effective on June 1, 1998. These contractsagreements were renewed with amendments in 2003 for an additional five years. Grain sales to Cargill totaled $197$144 million in 2003,2004, and include grain covered by the Marketing Agreement as well as grain sold to Cargill via normal forward sales from locations not covered by the Marketing Agreement. If the Marketing Agreement were not in place for the Maumee and Toledo locations, it is likely that Cargill would still purchase grain from us at these locations either for consumption in their processing facilities or to market to other end users. There were no sales to any other customer in excess of 10% of consolidated net sales. The 2003 Lease Agreement and Marketing Agreement have been filed as Exhibits 10.6 and 10.7.

Approximately 72%67% of the grain bushels sold by the Company in 20032004 were purchased by U.S. grain processors and feeders, and approximately 28%33% were exported. Exporters purchased most of the exported grain for shipment to foreign markets, while some grain is shipped directly to foreign countries, mainly Canada. Almost all grain shipments are by rail or boat. Rail shipments are made primarily to grain processors and feeders, with some rail shipments made to exporters on the Gulf of Mexico or east coast. Boat shipments are from the Port of Toledo. Grain sales are made on a negotiated basis by the Company’s merchandising staff, except for grain sales subject to the marketing agreementMarketing Agreement with Cargill which are made on a negotiated basis with Cargill’s merchandising staff.

The Company’s grain business may be adversely affected by the grain supply (both crop quality and quantity) in its principal growing area, government regulations and policies, conditions in the shipping and rail industries and commodity price levels. See “Government Regulation” on page 9.11. The grain business is seasonal, coinciding with the harvest of the principal grains purchased and sold by the Company.

Fixed price purchase and sale commitments for grain and grain held in inventory expose the Company to risks related to adverse changes in price. The Company attempts to manage these risks by hedging fixed price purchase and sale contracts and inventory through the use of futures and option contracts with the CBOT. The CBOT is a regulated commodity futures exchange that maintains futures markets for the grains merchandised by the Company. Futures prices are determined by worldwide supply and demand.

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The Company’s hedging program is designed to reduce the risk of changing commodity prices. In that regard, hedging transactions also limit potential gains from further changes in market prices. The Grain division’s profitability is primarily derived from margins on grain sold, and revenues generated from other merchandising activities with its customers (including storage income), not from hedging transactions. The Company has policies that specify the key controls over its hedging program. These policies include description of the hedging programs, mandatory review of positions by key management outside of the trading function on a biweekly basis, daily position limits, daily review and reconciliation, modeling of positions for changes in market conditions and other internal controls.

Purchases of grain can be made the day the grain is delivered to a terminal or via a forward contract made prior to actual delivery. Sales of grain generally are made by contract for delivery in a future period. When the Company purchases grain at a fixed price, the purchase is hedged with the sale of a futures contract on the CBOT. Similarly, when the Company sells grain at a fixed price, the sale is hedged with the purchase of a futures contract on the CBOT. At the close of business each day, the open inventory ownership positions as well as open futures and option positions are marked-to-market. Gains and losses in the value of the Company’s inventory positions due to changing market prices are netted with and generally offset by losses and gains in the value of the Company’s futures positions.

When a futures contract is entered into, an initial margin deposit must be sent to the CBOT. The amount of the margin deposit is set by the CBOT and varies by commodity. If the market price of a futures contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required by the CBOT. Subsequent price changes could require additional maintenance marginsmargin deposits or result in the return of maintenance marginsmargin deposits by the CBOT. Significant increases in market prices, such as those that occur when weather conditions are unfavorable for extended periods, can have an effect on the Company’s liquidity and, as a result, require it to maintain appropriate short-term lines of credit. The Company may utilize CBOT option contracts to limit its exposure to potential required margin deposits in the event of a rapidly rising market.

The Company’s grain operations rely on forward purchase contracts with producers, dealers and country elevators to ensure an adequate supply of grain to the Company’s facilities throughout the year. Bushels contracted for future delivery at January 31, 20042005 approximated 57.050.5 million, the majority of which is scheduled to be delivered to the Company for the 20032004 and 20042005 crop years (i.e., through September 2005)2006). The Company relies heavily on its hedging program as the method for minimizing price risk in its grain inventories and contracts. The Company monitors current market conditions and may expand or reduce the purchasing program in response to changes in those conditions. In addition, the Company reviews its purchase contracts and the parties to those contracts on a regular basis for credit worthiness, defaults and non-delivery. The

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Company’s loan agreements also require it to be substantially hedged in its grain transactions.

The Company has also developed the Crop Revenue Profiler® software program to assist producers in making complex risk management decisions. This software program integrates the variables of crop insurance and government programs with our grain marketing philosophyalternatives to help producers achieve a more predictable result, reducing the impact of volatile crop prices. By helping producers achieve more stable earnings, the Company helps to ensure a consistent supply of grain to its facilities.

In January 2003, the Company became a minority investor in Lansing Grain Company LLC, which was formed in late 2002 with the contribution of substantially all the assets of Lansing Grain Company, a 73-year old grain trading business with offices in Michigan, Minnesota and Kansas. This investment provides the Company a further opportunity to expand outside of its traditional geographic regions. The Company holds an option to increase its investment in each of the next five years2004 through 2008 with the potential of becoming the majority holder in 2008. In February 2004, the Company made an additional investment to increase its ownership from 15.1% to 22.1%21.9% and will make an additional investment in March 2005 to reach an ownership percentage of approximately 29%.

In October 2003, the Company began leasing and managing a grain elevator in Oakville, Indiana with a capacity of 3.5 million bushels. In January 2004, the Company completed the purchase of the inventories and grain contracts and subsequently, the purchase of the facility was completed in late January.January 2004.

The Company competes in the sale of grain with other grain merchants, other elevator operators and farmer cooperatives that operate elevator facilities. Competition is based primarily on price, service and reliability. Some of the Company’s competitors are also its customers and many of its competitors have substantially greater financial resources than the Company.

Recently, the Company announced its consideration of investment opportunities in the ethanol industry. Approximately 70% of the cost of manufacturing ethanol is its primary raw material – corn. The Company believes that it can successfully compete in this industry due to our long history of purchasing grain, managing grain contracts and inventories and ownership of some specific grain elevators that could be incorporated into ethanol production facilities. Several sites are under consideration at this time, including the possibility of constructing a 50 million gallon production facility on land we own adjacent to our Albion, Michigan elevator. We anticipate construction costs for this size facility of approximately $80 million and the Company expects that there would be investments made by one or more minority investors. Any construction project is subject to Board of Director approval.

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The Board of Directors has already approved a 2005 investment of up to $1 million in Iroquois Bio-Energy Company, LLC, an ethanol plant beginning construction in 2005 near Rensselaer, Indiana. The Company will also act as the corn origination and provide risk management information to this facility and is actively pursuing similare opportunities at other facilities.

The Company is continuing its investigation into 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 proposed 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 nearby ethanol plants constructed to compete for locally available corn. Conversely, providing grain origination services and distillers dried grain marketing services to the ethanol industry is a potential growth opportunitiy for our grain trading operations.

Grain sales make up approximately 70-80% of the total sales in the Agriculture Group. Approximately 50% of grain bushels purchased are done so using forward contracts. On the sell-side, approximately 90% of grain bushels sold are done so under forward contracts.

The Company’s plant nutrient operations involve purchasing, storing, formulating and selling dry and liquid fertilizer to dealers and farmers; providing warehousing and services to manufacturers and customers; formulation offormulating liquid anti-icers and deicers for use on roads and runways; and the distribution ofdistributing seeds and various farm supplies. Finally, the division has developed several other products for use in industrial applications within the coal and paper industries. The major fertilizer ingredients sold by the Company are nitrogen, phosphate and potash, all of which are readily available.

The Company’s market area for its plant nutrient wholesale business includes major agricultural states in the Midwest, North Atlantic and South. States with the highest

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concentration of sales are also the states where the Company’s facilities are located -— Illinois, Indiana, Michigan and Ohio. Customers for the Company’s fertilizer products are principally retail dealers. Sales of agricultural fertilizer products are heaviest in the spring and fall. The Plant Nutrient division’s nineseven farm centers, located throughout Michigan, Indiana and Ohio, are located within the same regions as the Company’s other agricultural facilities. These farm centers offer agricultural fertilizer, custom application of fertilizer, and chemicals, seeds and supplies to the farmer.

Storage capacity at the Company’s fertilizer facilities, including its nineseven farm centers, was approximately 13.6 million cubic feet for dry fertilizers and approximately 35.9 35.3

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million gallons for liquid fertilizers at December 31, 2003.2004. The Company reserves 6.16.2 million cubic feet of its dry storage capacity for various fertilizer manufacturers and customers and 12.014.8 million gallons of its liquid fertilizer capacity is reserved for manufacturers and customers. The agreements for reserved space provide the Company storage and handling fees and are generally for an initial term of one year, renewable at the end of each term. The Company also leases 0.8 million gallons of liquid fertilizer capacity under arrangements with various fertilizer dealers and warehouses in locations where the Company does not have facilities.

In its plant nutrient businesses, the Company competes with regional and local cooperatives, fertilizer manufacturers, multi-state retail/wholesale chain store organizations and other independent wholesalers of agricultural products. Many of these competitors have considerably larger resources than the Company. Competition in the agricultural products business of the Company is based principally on price, location and service.

Sales of grain (corn, soybeans, wheat and oats) and merchandising revenues totaled $681.0$672.9 million, $554.1$704.6 million and $434.7$583.9 million in 2004, 2003 2002 and 2001,2002, respectively. Sales of dry and liquid fertilizers (primarily potash, nitrogen, phosphate and phosphate)potash) to dealers and related merchandising revenues totaled $153.7$198.7 million, $135.1$157.8 million and $134.0$138.8 million in 2004, 2003 2002 and 2001,2002, respectively. Sales of fertilizer, chemicals, seeds and supplies to farmers and related merchandising revenues totaled $34.2$37.9 million, $36.7$36.8 million and $42.4$39.6 million in 2004, 2003 2002 and 2001,2002, respectively.

Rail Group

The Company’s 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. A significant portion of the railcar fleet is leased from financial lessors and sub-leased to end-users, generally under operating leases which do not appear on the balance sheet. In addition, 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 transactions, the Company generally provides ongoing

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railcar maintenance and management services for the financial intermediary, receiving a fee for these services. The Company generally holds purchase options on most railcars owned by financial intermediaries.

On February 12, 2004, the Company completed the acquisition of certain railroad rolling stock and leasing assets from Railcar Ltd. and Progress Rail Services Corporation, both of which are part of Progress Energy, Inc. These assets consisted of 6,700 railcars, 48 locomotives and contracts to manage an additional 2,400 railcars for third party investors, all of which are managed by the Company’s Rail Group. The assets are owned primarily by several subsidiaries of TOP CAT Holding Co, a newly formed Limited Liability

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Company (LLC) which is a wholly-owned subsidiary of the Company. Financing for the acquisition was provided by $86.4 million in non-recourse notes.

Of the 6,29114,649 railcars and 118 locomotives that the Company managed at December 31, 2003, 2,668,2004, 9,225 units or 42%62%, were included on the balance sheet, primarily as long-lived assets. The remaining 3,6235,468 railcars and 74 locomotives are either in off-balance sheet operating leases or non-recourse arrangements. The Company also managed 1,264approximately 1,600 railcars for a third party customerinvestors or consumers at December 31, 2003.2004.

The risk management philosophy of the Company includes match-funding of lease commitments and detailed review of lessee credit quality. Match-funding (in relation to rail lease transactions) means matching the terms between the lease with the customer and the funding arrangement with the financial intermediary. The TOP CAT Holding Company investment was not match-funded. Generally, the Company completes non-recourse transactions whenever possible to minimize credit risk. The Company strives to be the Total Rail Solutions^SM provider for its railcar customers. This service mark depicts our willingness to serve the customers’ total railcar needs -— including maintenance, car management, repairs, leasing, and all other railcar needs.

Competition for railcar marketing and fleet maintenance services is based primarily on service ability, and access to both used rail equipment and third party financing. Repair and fabrication shop competition is based primarily on price, quality and location.

Although the Company first managed a fleet of covered hopper cars used in the grain industry, it has diversified into other car types (boxcars, gondolas, open top hoppers and tank cars) and the markets in which they serve. In 2000, the Company added locomotives to the managed fleet. The Company plans to continue to diversify its fleet both in car types and industries.industries and to build its fleet in 2005, which could include both owned and managed railcars and locomotives.

The construction of new railcars has been hampered by the high price of steel. The Company announced on February 12, 2004 that it completedoperates in the acquisitionused car market – purchasing used cars and repairing and refurbishing them for specific markets and customers. The recent increase in demand for railcars has allowed the Company to place new leases or renew existing leases at higher rates and for longer terms. Additionally, the Company’s two railcar repair shops located in Maumee, Ohio and Spartanburg, South Carolina, have been operating at high capacity doing both repair and reconfiguration work. The Company outsources all of certain railroad rolling stockits locomotive and leasing assets from Railcar Ltd. and Progress Rail Services Corporation, both of which area large part of Progress Energy, Inc. These assets consist of 6,700 railcars, 48 locomotivesits railcar maintenance needs.

Lease revenues and contracts to manage an additional 2,600 railcars for third party investors, all of which will be managed byrailcar sales in the Company’s Rail Group. The assets will be owned primarily by several subsidiaries of TOP CAT Holding Co, a newly formed Limited Liability Company (LLC) which is a wholly-owned subsidiary ofrailcar marketing business were $53.9 million, $30.5 million and $14.3 million for 2004, 2003 and 2002, respectively. Sales in the Company. Financingrailcar repair and fabrications shops were $5.4 million, $4.7 million and $4.4 million for the acquisition was provided by $86.4 million in non-recourse notes.2004, 2003 and 2002, respectively.

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Processing Group

The Processing Group produces and markets turf and ornamental plant fertilizer and control products. It also produces and distributes corncob-based products to the chemical carrier, pet and industrial markets.

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The Company sells consumer fertilizer and control products, for “do-it-yourself” application, to mass merchandisers, small independent retailers and other lawn fertilizer manufacturers. The Company also performs contract manufacturing of fertilizer and control products in its industrial line of business. In an industrial arrangement, the Company is not responsible for direct marketing support of the mass merchandiser. Margins on industrial tons are, therefore, lower than margins on consumer tons. Professional lawn products are sold both directly and through distributors to golf courses under theThe Andersons Golf Products^TM label and lawn service applicators.

The turf products industry is highly seasonal, with the majority of sales occurring from early spring to early summer. During the off-season, the Company sells ice melt products to many of the same customers that purchase consumer turf products. Since the acquisition in 2000 of the U.S. ProTurf® product line from The Scotts Company, Inc., the Company holds a significantlarge share of the golf course tees and greens market in the United States.States and hopes to expand this market share through development of high-value proprietary products. Principal raw materials for the turf care products are nitrogen, phosphate and potash, which are purchased primarily from the Company’s Plant Nutrient division. Competition is based principally on merchandising ability, logistics, service and quality. The Company attempts to minimize the amount of finished goods inventory it must maintain for customers, however, because demand is highly seasonal and influenced by local weather conditions, it may be required to carry inventory that it has produced into the next season. Also, because a majority of the consumer and industrial businesses use private label packaging, the Company closely manages production to anticipated orders by product and customer. This is consistent with industry practices.

Sales of turf and ornamental plant fertilizer and control products totaled $123.3$116.9 million, $103.3$123.5 million and $102.2$104.4 million in 2004, 2003 2002 and 2001,2002, respectively.

The Company is one of a limited number of processors of corncob-based products in the United States. These products serve the chemical and feed ingredient carrier, animal litter and industrial markets, and are distributed throughout the United States and Canada and into Europe and Asia. The principal sources for the corncobs are seed corn producers.

Sales of corncob and related products totaled $10.9 million, $10.5 million and $9.9 million in 2004, 2003 and 2002, respectively.

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Retail Group

The Company’s Retail Group consists of six stores operated as “The Andersons”,Andersons,” which are located in the Columbus, Lima and Toledo, Ohio markets and serve urban, suburban and rural customers. The retail concept is “MORE FOR YOUR HOME”® and includes a full line of home center products plus a wide array of other items not available at the more traditional home center stores. In addition to hardware, home remodeling and lawn and garden products, The Andersons stores offer housewares, automotive products, sporting goods, pet products, bath soft goods and food (bakery, deli, produce, wine and specialty groceries). In 2005, the Company will open a meat market in its fifth store. These meat markets are operated by a third party and the Company earns a percentage commission on each sale. Each store carries more than 80,000 different items, has 100,000 square feet or more of in-store display space plus 40,000 or more square feet of outdoor

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garden center space, and features do-it-yourself clinics, special promotions and varying merchandise displays. The majority of the Company’s non-perishable merchandise is received at a distribution center located in Maumee, Ohio.

The retail merchandising business is highly competitive. The Company competes with a variety of retail merchandisers, including home centers, department and hardware stores. Many of these competitors have substantially greater financial resources than the Company. The principal competitive factors are location, quality of product, price, service, reputation and breadth of selection. The Company’s retail business is affected by seasonal factors with significant sales occurring in the spring and during the Christmas season.

The Company also operates a sales and service facility for outdoor power equipment near one of its conventional retail stores.

Sales of retail merchandise including commissions on third party sales totaled $178.7 million, $178.6 million and $181.2 million in 2004, 2003 and $177.9 million in 2003, 2002, and 2001, respectively.

Research and Development

The Company’s research and development program is mainly involved with the development of improved products and processes, primarily for the Processing and Agriculture Groups. The Company expended approximately $650,000, $649,000, $517,000, and $430,000$517,000 on research and development activities during 2004, 2003 2002 and 2001,2002, respectively.

Employees

At December 31, 2003,2004 the Company had 1,2271,224 full-time and 1,6611,619 part-time or seasonal employees. The Company believes its relations with its employees are good.

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Available Information

We make available free of charge on or through our Internet website our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our Company website is http://www.andersonsinc.com. These reports are also available at the SEC’s website http://www.sec.gov.

Government Regulation

Grain sold by the Company must conform to official grade standards imposed under a federal system of grain grading and inspection administered by the United States Department of Agriculture (“USDA”).

The production levels, markets and prices of the grains that the Company merchandises are materially affected by United States government programs, which include acreage control and price support programs of the USDA. Also, under federal law, the President may prohibit the export of any product, the scarcity of which is deemed detrimental to the domestic economy, or under circumstances relating to national security. Because a portion of the Company’s grain sales is to exporters, the imposition of such restrictions could have an adverse effect upon the Company’s operations.

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The Company, like other companies engaged in similar businesses, is subject to a multitude of federal, state and local environmental protection laws and regulations including, but not limited to, laws and regulations relating to air quality, water quality, pesticides and hazardous materials. The provisions of these various regulations could require modifications of certain of the Company’s existing plant and processing facilities and could restrict the expansion of future facilities or significantly increase the cost of their operations. The Company made capital expenditures of approximately $1,508,000, $1,440,000 $690,000 and $880,000$690,000 in order to comply with these regulations in 2004, 2003 and 2002, and 2001, respectively.

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Item 2. Properties

The Company’s principal agriculture, retail and other properties are described below. Except as otherwise indicated, the Company owns all properties.

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Agriculture Facilities

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The grain facilities are mostly concrete and steel tanks, with some flat storage, which is primarily cover-on-first temporary storage. The Company also owns grain inspection buildings and dryers, maintenance buildings and truck scales and dumps.

The Plant Nutrient Division’s wholesale fertilizer and farm center properties consist mainly of fertilizer warehouse and distribution facilities for dry and liquid fertilizers. The Maumee, Ohio; Seymour, Indiana; and Walton, Indiana locations have fertilizer mixing, bagging and bag storage facilities. The Maumee, Ohio; Webberville, Michigan;

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Logansport, Indiana; Walton, Indiana and Poneto, Indiana locations also include liquid manufacturing facilities.

Retail Store Properties

properties and facilities are located and approximately 366345 acres of farmland and land held for sale or future use.

Real properties, machinery and equipment of the Company were subject to aggregate encumbrances of approximately $50$60.1 million at December 31, 2003.2004. Additionally, 6,367 railcars and 44 locomotives, purchased as part of the February 12, 2004 acquisition, are held in bankruptcy-remote entities collateralizing $74.4 million of non-recourse debt at December 31, 2004. Additions to property, including intangible assets but excluding railcar assets, for the years ended December 31, 2004, 2003 2002 and 20012002 amounted to $16.8 million, $11.7 million $9.8 million and $9.2$9.8 million, respectively. Additions to the Company’s railcar assets (including railcars acquired as part of the 2004 business acquisition) totaled $127.7 million, $20.5 million $8.2 million and $21.8$8.2 million for the years ended December 31, 2004, 2003 2002 and 2001,2002, respectively. These additions were offset by sales and financings of railcars of $45.6 million, $16.7 million $16.0 million and $15.4$16.0 million for the same periods. See Note 10 to the Company’s consolidated financial statements in Item 8 for information as to the Company’s leases.

The Company believes that its properties, including its machinery, equipment and vehicles, are adequate for its business, well maintained and utilized, suitable for their intended uses and adequately insured.

Item 3. Legal Proceedings

Investigators from the U.S. and Ohio Environmental Protection Agencies and the U.S. District Attorney’s office are looking into the purported possibility of an 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. Management is cooperating with the investigation and, although the investigation could lead to formal proceedings, has no reason to believe that any outcome should materially affect the Company’s operations.

The Company is also cooperating with the City of Toledo, Ohio, Department of Public Utilities, Division of Environmental Services, which has issued 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. The Company has been named asproposed a defendant in various lawsuits arising in the ordinary course of business. It is not possiblesurface water drainage plan which, at the present timerequest of regulatory authorities, is being reviewed by outside consultants. Although this investigation could lead to estimate the ultimate outcome of these actions; however,additional proceedings, management believeshas no reason to believe that the resultant liability,Company’s proposed surface water drainage plan, if any, will not be material based on previous experience with lawsuits of these types.accepted, should materially affect the Company’s operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were voted upon during the fourth quarter of fiscal 2003.2004.

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Item 4a. Executive Officers of the Registrant

The information under this Item 4A is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K. The executive officers of The Andersons, Inc., their positions and age (as of February 27, 2004)28, 2005) are presented below.

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PART II

PART II

Item 5.	Market for the Registrant’s Common Equity and Related StockholderMatters

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

The Common Shares of The Andersons, Inc. trade on the Nasdaq National Market under the symbol “ANDE.” On February 27, 2004,28, 2005, the closing price for the Company’s Common Shares was $19.49$31.6 per share. The following table sets forth the high and low bid prices for the Company’s Common Shares for its four quarters in each of 20032004 and 2002.

The Company’s transfer agent and registrar is Computershare Investor Services, LLC, 2 North LaSalle Street, Chicago, IL 60602. Telephone 312-588-4991.

Shareholders

At February 27, 2004,28, 2005, there were 7.257.4 million common shares outstanding: 670911 shareholders of record and approximately 2,5002,700 shareholders for whom security firms acted as nominees.

Dividends

The Company has declared and paid 2933 consecutive quarterly dividends since the end of 1996, its first year of trading. The Company paid $0.065 per common share in 2002 and $0.07 per common share in 2003.2003 and $0.075 per common share for the dividends paid in January, April and July, 2004. In October 2004, the Company paid $0.08 per common share. On December 15, 2003,29, 2004, the Company announced a dividend of $0.075$0.08 per common share to be paid on January 22, 200424, 2005 to shareholders of record on January 2,1, 2005.

The Company’s objective is to pay a quarterly cash dividend, however, dividends are subject to Board of Director approval and loan covenant restrictions.

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Equity Plans

The following table gives information as of December 31, 2004 about the Corporation’s Common Shares that may be issued upon the exercise of options under all of our existing equity compensation plans.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

There were no repurchases of common stock during 2004. The Company’s Board of Directors approved the repurchase of 2.8 million shares for use in employee, officer and director stock purchase and stock compensation plans. Since the beginning of this repurchase program in 1996, the Company has purchased 2.1 million shares in the open market.

Item 6. Selected Financial Data

The following table sets forth selected consolidated financial data of the Company. The data for each of the five years in the period ended December 31, 20032004 are derived from the consolidated financial statements of the Company. The data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and notes thereto included in Item 8.

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Note: Prior years have been revised to conform to the 2003 presentation; these changes did not impact net income.

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Does not include non-recourse debt. (e)

Earnings before interest, taxes, depreciation and amortization, or EBITDA, is a non-GAAP measure. We believe that EBITDA provides additional information for investors and others in determining our ability to meet debt service obligations. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations as determined by generally accepted accounting principles, and EBITDA does not necessarily indicate whether cash flow will be sufficient to meet cash requirements. Because EBITDA, as determined by us, excludes some, but not all, items that affect net income, it may not be comparable to EBITDA or similarly titled measures used by other companies.

			The following table sets forth (1) our calculation of EBITDA and (2) a reconciliation of EBITDA to our cash flow provided by operating activities.

Item 7.      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 “believe,” “expect,” “anticipate,” “will” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking

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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

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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

The process of preparing financial statements requires management to make estimates and judgments that affect the carrying values of the Company’s assets and liabilities as well as the recognition of revenues and expenses. These estimates and judgments are based on the Company’s historical experience and management’s knowledge and understanding of current facts and circumstances. Certain of the Company’s accounting policies are considered critical, as these policies are important to the depiction of the Company’s financial statements and/or require significant or complex judgment by management. Note 2 of the consolidated financial statements in Item 8 more fully describes all of our significant accounting policies, however, following are those accounting policies that management considers most critical to the Company’s financial statements.

Grain InventoriesThe Company marks to market all grain inventory, forward purchase and sale contracts for grain, and exchange-traded futures and options contracts. The grain inventories are freely traded, have quoted market prices, and may be sold without significant additional processing. Management estimates market value based on exchange-quoted prices, adjusted for differences in local markets. Changes in market value are recorded as merchandising revenues in the statement of income. If management used different methods or factors to estimate market value, amounts reported as inventories and merchandising revenues could differ. Additionally, if market conditions change subsequent to year-end, amounts reported in future periods as inventories and merchandising revenues could differ.

Because the Company marks to market inventories and sales commitments, to the market, gross profit on a grain sale transaction is recognized when a contract for sale of the grain is executed. The related revenue is recognized upon shipment of the grain, at which time title transfers and customer acceptance occurs.

Grain inventories contain valuation reserves established to recognize the difference in quality and value between contractual grades and actual quality grades of inventory held by the Company. These quality reserves also require management to exercise judgment.

Marketing AgreementThe Company has negotiated a marketing agreement that covers certain of its grain facilities (certain of which are leased from Cargill). Under this five

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year amended and restated agreement (ending in May 2008), the Company sells grain from these facilities to Cargill at market prices. Income earned from operating the

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facilities (including buying, storing and selling grain and providing grain marketing services to its producer customers) over a specified threshold is shared 50/50 with Cargill. Measurement of this threshold is made on a cumulative basis and cash is paid to Cargill (if required) at each contract year end. The Company recognizes its share of income to date at each month-end and accrues for any payment to Cargill in accordance with Emerging Issues Task Force Topic D-96, “Accounting for Management Fees Based on a Formula.” The adoption of this standard, effective for periods beginning after January 1, 2002, resulted in a cumulative effect adjustment increase of $3.5 million after tax in 2002.

Derivatives –— Commodity ContractsThe Company utilizes regulated commodity futures and options contracts to hedge its market price exposure on the grain it owns and related forward purchase and sale contracts. These contracts are included in the balance sheet in inventory at their current market value. Realized and unrealized gains and losses in the market value of these futures and option contracts are included in the income statement as a component of sales and merchandising revenues. While the Company considers all of its commodity contracts to be effective economic hedges, the Company does not designate its commodity futures and options contracts as hedges. Therefore, the Company does not defer gains and losses on these same contracts as would occur for designated hedges under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Both the underlying inventory and forward purchase and sale contracts and the related futures and options contracts are marked to market on a daily basis.

Impairment of Long-Lived AssetsThe Company’s various business segments are each highly capital intensive and require significant investment in facilities and / or rolling stock. In addition, the Company has a limited amount of intangible assets and goodwill (described more fully in Note 24 to the Company’s consolidated financial statements in Item 8) that it acquired in various business combinations. Whenever changing conditions warrant, we review the fair value of the tangible and intangible assets that may be impacted. We also annually review the balance of goodwill for impairment in the fourth quarter. These reviews for impairment take into account estimates of future undiscounted cash flows. Our estimates of future cash flows are based upon a number of assumptions including lease rates, lease term,terms, operating costs, life of the assets, potential disposition proceeds, budgets and long-range plans. While we believe the assumptions we use to estimate future cash flows are reasonable, there can be no assurance that the expected future cash flows will be realized. If management used different estimates and assumptions in its evaluation of these cash flows, the Company could recognize different amounts of expense in future periods.

Employee Benefit PlansThe Company provides substantially all full-time employees with pension benefits and postretirement health care benefits. In order to measure the

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expense and funded status of these employee benefit plans, management makes several estimates and assumptions, including interest rates used to discount certain liabilities,

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rates of return on assets set aside to fund these plans, rates of compensation increases, employee turnover rates, anticipated mortality rates and anticipated future healthcare cost trends. These estimates and assumptions are based on the Company’s historical experience combined with management’s knowledge and understanding of current facts and circumstances. The Company uses third-party specialists to assist management in measuring the expense and funded status of these employee benefit plans. If management used different estimates and assumptions regarding these plans, the funded status of the plans could vary significantly and then the Company could recognize different amounts of expense over future periods.

Certain accounting guidance, including the guidance applicable to pensions and postretirement benefits, does not require immediate recognition of the effects of a deviation between actual and assumed experience or the revision of an estimate. This approach allows the favorable and unfavorable effects that fall within an acceptable range to be netted. Although this netting occurs outside the basic financial statements, the net amount is disclosed as an unrecognized gain or loss in Note 11 to the Company’s consolidated financial statements in Item 8. At December 31, 2003,2004, we had an unrecognized loss related to our pension plans of $14.6$16.7 million compared to an unrecognized loss of $14.7$14.6 million at December 31, 2002.2003. For the postretirement benefit plans, our December 31, 20032004 unrecognized loss was $16.8$17.0 million as compared to an unrecognized loss of $16.1$16.8 million at December 31, 2002.2003. A portion of the December 31, 20032004 unrecognized loss for both pension and postretirement benefits will be amortized into earnings in 2004.2005. The effect on years after 20042005 will depend in large part on the actual experience of the plans in 20042005 and beyond. In 2003,2004, benefits expense included $1.0 million of amortization and $0.9 million of amortization of the unrecognized loss existing at December 31, 20022003 for the pension and postretirement plans, respectively.

Revenue RecognitionThe Company recognizes revenue for the sales of its products at the time of shipment. Gross profit on sales of grain is recognized when sales contracts are entered into as the Company marks its contracts to the market on a daily basis. Revenues from other merchandising activities are recognized as open grain contracts are marked-to-market or as related services are provided. Rental revenues on operating leases are recognized on a straight-line basis over the term of the lease. Sales returns and allowances, if required, are provided for at the time sales are recorded. Shipping and handling costs are included in cost of sales.

The Company sells railcars to financial intermediaries and other customers. Proceeds from railcar sales, including railcars sold in non-recourse transactions, are recognized as revenue at the time of sale if there is no leaseback or the operating lease is assigned to the buyer, non-recourse to the Company. Revenue on operating leases (where the Company is the lessor) and on servicing and maintenance contracts in non-recourse transactions is recognized over the term of the lease or service contract.

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Leasing activitiesThe Company accounts for its leasing activity in accordance with FASB Statement No. 13, as amended, and related pronouncements. The Company’s Rail segment leases and manages railcars for third parties and leases railcars for internal use. Most leases to Rail segment customers are structured as operating leases. Railcars leased by the Company to its customers are either owned by the Company, leased from financial intermediaries under operating leases or leased from financial intermediaries under capital leases. The leases from financial intermediaries are generally structured as sale-leaseback transactions. Lease income and lease expense are recognized on a straight-line basis over the term of the lease.lease for most leases.

As part of its acquisition of railroad rolling stock and leasing assets from Progress Energy and subsidiaries, the Company acquired some existing leases where the monthly lease fee is contingent upon some measure of usage (“per diem” leases). This monthly usage is tracked, billed and collected by third party service providers and funds are generally remitted to the company along with usage data three months after they are earned. The Company records lease revenue for these per diem arrangements based on recent historical usage patterns and records a true up adjustment when the actual data is received. Revenues recognized under per diem arrangements totaled $8.4 million in 2004. There were no per diem arrangements prior to 2004.

The Company has financedperiodically finances some of its railcars through a capital leaseleases with a financial intermediary. Theintermediary, the terms of this lease requiredwhich require the Company to capitalize the assets and record the net present value of the lease obligation on its balance sheet as a long-term borrowing. There wasare no gaingains or losslosses on thisthese financing transaction. Thistransactions. The obligation is included with the Company’s long-term debt as described in Note 7 to the consolidated annual financial statements. The railcarsstatements in Item 8. Railcars under this leasethese leases are being depreciated to their residual value over the term of the lease.

The Company also arranges non-recourse lease transactions under which it sells railcars or locomotives to financial intermediaries and assigns the related operating lease on a non-recourse basis. The Company generally provides ongoing railcar maintenance and management services for the financial intermediaries, and receives a fee for such services when earned. On the date of sale, the Company recognizes the proceeds from sales of railcars in non-recourse lease transactions as revenue. Management and service fees are recognized as revenue as the underlying services are provided, which is generally spread evenly over the lease term.

TaxesOur annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax rate and in evaluating our tax positions. We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and that we may not succeed.prevail. We adjust these reserves in light of changing

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facts and circumstances, such as the progress of a tax audit. An estimated effective tax rate for a year is applied to our quarterly operating results. In the event there is a significant or unusual item recognized in our quarterly operating results, the tax attributable to that item is separately calculated and recorded at the same time as that item.

21New Accounting Standard In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), ''Share-Based Payment.”. This standard requires expensing of stock options and other share-based payments and supersedes SFAS No. 123, which had allowed companies to choose between expensing stock options or showing pro forma disclosure only. The standard is effective for the Company as of July 1, 2005 and will apply to all awards granted, modified, cancelled or repurchased after that date as well as the unvested portion of prior awards. The Company is currently evaluating the provisions of this standard and will begin expensing stock options in the third quarter of 2005. For 2004, pro forma disclosure in Note 2 to the consolidated financial statements in Item 8 showed a decrease in diluted earnings per share of $0.04 which was calculated using the Black-Scholes option valuation model. While this may approximate the full year impact of adoption of this standard, the Company has not finalized its decision on the valuation model and has proposed a new long-term compensation plan to its shareholders which could result in a different annual impact upon adoption.

Operating Results

The following discussion focuses on the operating results as shown in the consolidated statements of income. Following are tables (in thousands) highlighting sales and merchandising revenues, gross profit and operating income by segment. Additional segment information is included in Note 13 to the Company’s consolidated financial statements in Item 8.

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Comparison of 2004 with 2003

Sales and merchandising revenues for 2004 totaled $1.3 billion, an increase of $28.3 million, or 2%, from 2003. Sales in the Agriculture Group were up $1.5 million, or less than 1%. Grain sales decreased $41.0 million resulted from a 7% decrease in the average price of bushels sold partially offset by a 1% volume increase. Corn volume and price per bushel increased but volume in soybeans, wheat and oats declined. In both 2004 and 2003, grain expected to ship in the following calendar year was shipped in the fourth quarter. This occurred because of increased demand and / or market prices favoring sales rather than storage of grain. Fertilizer sales were up $42.5 million, or 23%, due to an 11% increase in the average price per ton sold and an 11% increase in volume. Much of the price increase relates to escalation in prices of the basic raw materials, primarily potassium and nitrogen. Generally, these increases can be passed through to customers although a price increase may also reduce consumer demand at the producer level. Revenues in both grain and fertilizer businesses are significantly impacted by the market price of the commodities being sold.

Merchandising revenues in the Agriculture Group were up $8.8 million, or 29%, due primarily to increased space income (before interest charges) in the Grain division. Space income is income earned on grain held for our account or for our customers and includes storage fees earned and appreciation or depreciation in the value of grain owned. Grain

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on hand at December 31, 2004 was 67.1 million bushels, of which 14.5 million bushels were stored for others. This compares to 56.1 million bushels on hand at December 31, 2003, of which 17.3 million bushels were stored for others.

The 2004 harvest results were strong in the Company’s market area for both corn and soybeans. Corn production in Ohio, Indiana, Illinois and Michigan exceeded the 2003 production by 13% and soybean production in the same states exceeded 2003 production by 33%. Although the wheat production for 2004 was down 10% as compared to 2003, it exceeded the Company’s initial expectations. The Company received more grain in 2004 than 2003 for all grain types. Despite this strong harvest, demand continued and the Company was able to sell grain throughout the fourth quarter, some of which was expected to be sold in the first quarter of 2005. Winter wheat acres planted in 2004 for harvest in 2005 are down 15%. The Company doesn’t expect the 2004 crop volume to be repeated in 2005, however, with good weather during the spring planting season, it could still be a very good year.

The Company has also announced that it is considering construction of a 50 million gallon-per-year ethanol production facility. One of the possible sites is adjacent to its Albion, Michigan grain facility. Cost to construct this facility could approximate $80 million and the Company expects investment by one or more minority investors. Any project is subject to Board approval. The Company is looking at several other possibilities to gain entry into the ethanol industry and has Board of Director approval to invest up to $1 million in Iroquois Bio-Energy LLC, which expects to begin construction on an ethanol production facility in the Spring of 2005. The Company also holds a contract for corn origination and risk management services for this proposed facility.

The Company is continuing its investigation into 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 proposed 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 nearby ethanol plants constructed to compete for locally available corn. Conversely, providing grain origination services and distillers dried grain marketing services to the ethanol industry is a potential growth opportunitiy for our grain trading operations.

The Rail Group had a $24.1 million, or 68% increase in sales. Lease fleet income increased $30.2 million, $21.6 million of which was from the large railcar acquisition completed in February 2004. Sales of railcars and related leases decreased $6.8 million and the remainder of the increase resulted from a $0.7 million increase in revenue in the repair and fabrication shops. Railcars under management at December 31, 2004 were

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14,649 compared to 6,291 under management at December 31, 2003. Locomotives under management were 118 at December 31, 2004 and 74 at December 31, 2003. The railcar utilization (railcars in lease service) rate was 92% at both December 31, 2004 and December 31, 2003 in spite of the significant increase in railcars and locomotives.

Demand for railcars continued to strengthen in 2004 and high steel prices have limited new car construction. Continual lease renewals for higher monthly rates and longer terms position this segment well for continued growth. The Company plans to continue its investment in railcars and fleet management services in 2005.

The Processing Group had a $6.2 million, or 5%, decrease in sales and merchandising revenues resulting primarily from an overall 8% decrease in volume partially offset by a 4% increase in the average price per ton sold. In the professional lawn business, serving the golf course and lawn care operator markets, volume was down 6% and sales were down 5%, primarily due to reduced demand in the golf course market. Pressure on golf course profitability, coupled with some low-price competition has reduced demand for premium golf course fertilizers. In the consumer and industrial lawn businesses, where we serve as contract manufacturer for several large “brand” companies, a manufacturer of private label products and also manufacture our own brands, volume was down 15% and sales down 5%.

This industry continues to operate with excess manufacturing capacity and some of the Company’s customers have struggled with their own programs. Because of this excess capacity, the Company decided in the fourth quarter of 2004 to close-down a small (five employee) manufacturing operation in a leased facility in Pennsylvania. The facility will continue to be used for warehousing and distribution through the current lease term which ends in the fourth quarter of 2005. The cob business, a much smaller component of the Processing Group, had a 3% increase in sales primarily due to an 11% increase in volume.

Same-store sales and revenues in the Retail Group were flat in 2004 as compared to 2003. Individual store results were mixed; however, the Columbus market again showed improvement. As expected, sales in the Toledo market were down due to significant new competition from national “Big Box” retailers. January 2005 results were positive and showed increased sales, however, this business continues to be faced with continued competition in its primary markets by competitors of significant size.

Gross profit for 2004 totaled $189.1 million, an increase of $25.0 million, or 15%, from 2003. The Agriculture Group had a $10.7 million, or 14%, increase in gross profit. Gross profit in the Grain division totaled $52.7 million, an increase of $10.9 million, or 26% resulting primarily from the increased merchandising revenues mentioned previously along with a $1.6 million increase in gross profit on grain sales. The Plant Nutrient division recognized a decrease in gross profit of $0.2 million, primarily due to a

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significant increase in cost per ton that couldn’t be fully recouped through increased prices.

Gross profit in the Rail Group increased $15.2 million, or 111%. This increase included $15.3 million in increased lease fleet income ($12.4 million on the newly acquired fleet), a $0.6 million increase in gross profit on car sales, and a $0.7 million reduction in gross profit in the railcar repair and fabrication shops. Lease fleet income is gross lease (rent) and fleet management income less direct costs of cars leased to customers (rental expense or depreciation, property taxes and maintenance).

Gross profit for the Processing Group in 2004 decreased $1.9 million, or 8%, when compared to 2003. Although there was a slight increase in gross profit per ton, the significant decrease in volume in the lawn businesses resulted in the overall decrease. The majority of the decreased gross profit occurred in the consumer / industrial lawn business. Gross profit in the cob business was flat from 2003 to 2004.

Gross profit in the Retail Group increased $1.0 million, or 2%, from 2003. This was due to a modest increase in margins, as a result of changes in the mix of products sold on flat sales.

In 2004, the Company recognized $1.5 million of equity in earnings of unconsolidated subsidiaries, most notably Lansing Grain LLC. This was a significant increase from the 2003 amount of $0.3 million and resulted both from increased performance of unconsolidated subsidiaries as well as an increase in the percentage owned by the Company from 15.1% to 21.9%.

Operating, administrative and general expenses for 2004 totaled $154.9 million, an $11.8 million increase from 2003. Included in this increase is $4.5 million related to growth in the Rail and Agriculture Groups. The remaining $7.3 million increase is 5% higher than 2003 and represents a variety of cost increases, most notably $1.9 million in increased retirement and health care benefits expense, $1.4 million in professional services costs relating to compliance with the Sarbanes-Oxley Act, and $2.8 million in additional labor and performance incentives. A portion of the additional labor was related to additional staffing to support the ongoing requirements of the Sarbanes-Oxley act.

The Company expects continued increases in retirement and health care benefits expense into 2005 based on known changes in actuarial assumptions and health care claims inflation. The Company is continuing to evaluate its benefit programs and look for opportunities to provide competitive benefits at a reasonable cost.

Interest expense for 2004 was $10.5 million, a $2.5 million, or 31%, increase from 2003. Average daily short-term borrowings for 2004 were down 17.5% when compared to 2003 while the average short-term interest rate decreased from 2.1% for 2003 to 1.9% for 2004.

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Long-term interest expense increased 53% for the same period and relates primarily to the significant increase in long-term debt incurred to complete the railcar acquisition.

As a result of the above, pretax income of $30.1 million for 2004 was 68% higher than the pretax income of $18.0 million in 2003. Income tax expense of $11.0 million was recorded in 2004 at an effective rate of 36.4%. In 2003, income tax expense of $6.3 million was recorded at an effective rate of 34.9%. The increase in effective tax rates between 2003 and 2004 resulted primarily from an increase in state income taxes and a slight reduction in the Extraterritorial Income (“ETI”) exclusion.

In October 2004, the American Jobs Creation Act was enacted. Two provisions of this Act will impact the Company’s 2005 effective tax rate. The Act repealed the Extraterritorial Income regime for transactions entered into after December 31, 2004, subject to a phase-out that allows the Company to claim 80% of the normal ETI benefit in 2005. In addition, the Act provides for a tax deduction for certain domestic production activities. The deduction for 2005 is equal to 3% of the lesser of: (a) taxable income derived from qualified production activities or (b) total taxable income for the year. The impact of these provisions will be reflected in the 2005 first quarter effective tax rate.

The 2004 net income of $19.1 million was $7.4 million higher than the 2003 net income of $11.7 million. Basic earnings per share of $2.64 increased $1.00 from 2003 and diluted earnings per share of $2.55 increased $0.96 from 2003.

Comparison of 2003 with 2002

Sales and merchandising revenues for 2003 totaled $1.2 billion, an increase of $170.4 million, or 16%, from 2002. Sales in the Agriculture Group were up $143.1 million, or 20%. Increased grain sales of $126.9 million included both a 4% volume increase and an 18% increase in the average price of bushels sold. All grains, except oats, showed price per bushel increases and bushel volume was up for all grains except wheat. In both 2003 and 2002, grain expected to ship in the following calendar year was shipped in the fourth quarter. This occurred because of increased demand and / or market prices favoring sales rather than storage of grain. Fertilizer sales were up $16.2 million, or 9%, due to a 9% increase in the average price per ton sold on a less than one percent increase in volume.flat volumes. A portion of the price increase relates to increases in natural gas prices, a basic raw material in the manufacture of nitrogen and urea which are key products used by the Plant Nutrient division. Generally, this increase can be passed through to customers although a

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price increase may also reduce consumer demand at the producer level. Revenues in both grain and fertilizer businesses are significantly impacted by the market price of the commodities being sold.

Merchandising revenues in the Agriculture Group were down $6.2 million, or 21%17%, due to decreases in space income (before interest charges) in the Grain division. Space income is income earned on grain held for our account or for our customers and includes storage fees earned and appreciation or depreciation in the value of grain owned.

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Grain on hand at December 31, 2003 was 56.1 million bushels, of which 17.3 million bushels were stored for others. Total grain bushels on hand throughout 2003 averaged approximately 46.0 million bushels due to the reduced harvest in 2002. This compares to 56.3 million bushels on hand at December 31, 2002, of which 13.4 million bushels were stored for others.

The results of the 2003 harvest were strong in the Company’s market area. Due to the strong demand, however, bushels shipped nearly matched the bushels received and resulted in no net increase in bushels. Because of this, the Company anticipates another period of low space income in the first six months of 2004. Wheat acres planted in 2003 for harvest in 2004 are down slightly from last year due to the wet and delayed 2003 harvest. Corn acres are expected to increase in 2004 due to the current higher corn prices. This increase will come at the expense of bean acres. The higher grain prices may favorably impact the fertilizer demand for the same period. However, poor weather during the spring planting season may unfavorably impact the amount of corn and soybean acreage planted during that time.

The Rail Group had a $16.5 million, or 88% increase in sales. Sales of railcars and related leases made up $15.4 million of this increase and the remainder of the increase resulted from a $0.9 million increase in revenue generated by the leased fleet and a $0.2 million increase from increased activity in the repair and fabrication shops. There were no significant sales of railcars in 2002. Railcars under management at December 31, 2003 were 6,291 compared to 5,699 under management at December 31, 2002. Locomotives under management were 74 at December 31, 2003 and 51 at December 31, 2002. The railcar utilization (railcars in lease service) rate increased from 85% at December 31, 2002 to 92% at the end of December 2003.

The Processing Group had a $19.7 million, or 17%, increase in sales and merchandising revenues resulting primarily from an overall 13% increase in volume plus a 6% increase in the average price per ton sold. In the professional lawn business, serving the golf course and lawn care operator markets, volume was up 15% and sales up 16%, primarily due to increased market share. In the consumer and industrial lawn businesses, where we serve as contract manufacturer for several large “brand” companies, a manufacturer of private label products and also manufacture our own brands, volume was up 13% and sales up 22%. A portion of this increase relates to a new line of products that we began manufacturing for a major marketer in late 2002. The cob business, a much smaller

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component of the Processing Group, had a 7% increase in sales primarily due to a 6% increase in volume.

The Retail Group had a 1.4% decrease in same-store sales and revenues in 2003 as compared to 2002. Individual store results were mixed, however, the Columbus markets showed increases for the third straight year. As expected, sales in the Toledo market were down due to significant new competition as well as disruption in one of the three Toledo-area stores created when the store was completely redesigned. Four of the six stores now have a fresh meat counter. This business is managed by a third party and the

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Company earns commissions on sales of fresh meat; these commissions have been included in merchandising revenues. Expectations for 2004 remain cautiously optimistic given increases seen in January business, however, this business continues to be faced with competition from new stores built and planned for in its primary markets by competitors of significant size.

Gross profit for 2003 totaled $164.1 million, an increase of $1.0 million, or less than 1%, from 2002. The Agriculture Group had a $3.9 million, or 5%, decrease in gross profit, in spite of the significant increase in revenues mentioned previously. Gross profit in the Grain division totaled $41.8 million, a decrease of $5.5 million, or 12%, resulting primarily from the $6.2 million decrease in merchandising revenues mentioned previously, partially offset by a $0.7 million increase in gross profit on grain sales. The Plant Nutrient division recognized an increase in gross profit of $1.6 million, primarily due to the 3% increase in volume and a 3%5% increase in gross profit per ton.

Gross profit in the Rail Group increased $4.9 million, or 56%. A portion of this increase, $2.1 million, was gross profit related to the sale of cars and lease receivables. The railcar and fabrication shops had increased gross profit of $2.9 million related to the manufacture and / or installation of railcar components. The lease fleet income was down $0.1 million in spite of the increased fleet size and utilization percentage. Railcars that are coming off long-term leases are renewing at market rates which may be lower than the previous lease rates. The multi-year low lease rate environment has continued in the rail industry, although certain car types have seen improvements in 2003. In 2002, the Company recorded an impairment charge of $0.3 million on railcars assets leased to others. There was no impairment charge in 2003.

Gross profit for the Processing Group in 2003 increased $0.5 million, or 2%, when compared to 2002. In spite of a 13% increase in volume, increased costs reduced the gross profit per ton by 9%. The consumer and industrial lawn businesses had increased gross profit, but the professional lawn business and cob business both realized decreases. A portion of this increased cost represents the increasing cost of nitrogen and other raw materials that aren’t easily passed on to customers during an annual program.

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Gross profit in the Retail Group decreased $0.5 million, or 1%, from 2002. This was due to the decrease in sales discussed previously, partially offset by a modest increase in margins, as a result of changes in the mix of products sold.

The Company recorded a gain of $0.3 million in 2002 related to an insurance recovery.

Operating, administrative and general expenses for 2003 totaled $143.1 million, a $2.1 million increase from 2002. Full-time employees were approximately equal to 2002, however, labor expense increased $1.0 million, or 1%. Benefit costs rose 3% due to the increased cost of providing pension and health care benefits to current and former employees. Other significant increases were realized in utilities, reflecting the high cost of natural gas, and the need to dry a wet 2003 corn crop and professional and contract services, reflecting additional expense relating to external legal fees, accounting and audit

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services and corporate governance expenses. Some of the professional and contract services increase was related to acquisition activity. With the recently announced 2004 growth in our Agriculture and Rail Groups, we expect incremental increases in the cost to manage these additional assets.

Interest expense for 2003 was $8.0 million, a $1.8 million, or 18%, decrease from 2002. Average daily short-term borrowings for 2003 were up 1% when compared to 2002 while the average short-term interest rate decreased from 3.2% for 2002 to 2.1% for 2003. Long-term interest expense decreased 11% for the same period.

As a result of the above, pretax income of $18.0 million for 2003 was 12% higher than the pretax income of $16.0 million in 2002. Income tax expense of $6.3 million was recorded in 2003 at an effective rate of 34.9%. In 2002, income tax expense of $5.2 million was recorded at an effective rate of 32.7%. The increase in effective tax rates between 2002 and 2003 resulted primarily from an increase in state income taxes. In future years, we anticipate potential increases in state effective tax rates resulting from state tax reform initiatives.

In fiscal 2003, the World Trade Organization determined that the Extraterritorial Income Regime, or ETI, as provided for in the U.S. Internal Revenue Code, is an illegal export subsidy. Accordingly, the Company anticipates that the United States will repeal the ETI during fiscal 2004. Various proposals before the U.S. Congress may replace the ETI, but even if adopted, would likely not result in the same level of income tax benefit to the Company as the ETI. Therefore, it is possible that the Company’s tax rate will increase in fiscal 2004 and beyond, pending the outcome of these potential changes in the law. The ETI benefit reduced the Company’s 2003 tax rate by 4.2 percentage points. The Company is presently unable to determine the effect of the potential tax law changes and there can be no assurance that such changes will not adversely affect its results of operations in future years.

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In 2002, the Company recorded a cumulative effect adjustment upon the adoption of EITF Topic D-96 ($3.5 million after tax). This cumulative effect adjustment reversed the December 31, 2001 balance of $5.4 million of deferred income that, under EITF Topic D-96, the Company earned as of January 1, 2002.

The 2003 net income of $11.7 million was $2.5 million lower than the 2002 net income of $14.2 million. Basic earnings per share of $1.64 decreased $0.32 from 2002 and diluted earnings per share of $1.59 decreased $0.33 from 2002.

Comparison of 2002 with 2001

Sales and merchandising revenues for 2002 totaled $1.08 billion, an increase of $96.2 million, or 10%, from 2001. Sales in the Agriculture Group were up $114.7 million, or 19%. Increased grain sales of $119.4 million included both a 9% volume increase and a 16% increase in the average price of bushels sold. All grains showed price per bushel increases and bushel volume was up for corn and wheat. Fertilizer sales were down $4.6 million, or 3%, due to a 9% decrease in the average price per ton sold, partially offset by a 7% increase in tons sold. Revenues in both grain and fertilizer businesses are significantly impacted by the market price of the commodities being sold.

Merchandising revenues in the Agriculture Group were down $11.0 million, or 23%, due to decreases in space income (before interest charges) in the Grain division. Space income is income earned on grain held for our account or for our customers and includes storage fees earned and appreciation or depreciation in the value of grain owned. Grain on hand at December 31, 2002 was 56.3 million bushels, of which 13.4 million bushels were stored for others. This compares to 65.4 million bushels on hand at December 31, 2001, of which 10.4 million bushels were stored for others.

The Rail Group had a $12.3 million, or 40%, decrease in sales. While lease revenue was up $1.8 million, or 14%, in 2002, sales of railcars were down $15.2 million. Sales in the fabrication and rail repair shops were up $1.1 million. Railcars under management at December 31, 2002 were 5,699 compared to 5,432 under management at December 31, 2001. Locomotives under management were 51 for both 2001 and 2002. The railcar utilization (railcars in lease service) rate increased from 75% at December 31, 2001 to 85% at the end of December 2002.

The Processing Group had a $1.5 million, or 1%, increase in sales and merchandising revenues resulting primarily from an overall 3% increase in lawn division tons sold, partially offset by a 3% decrease in the average price per lawn division ton sold. The industrial lawn business (where the Group is responsible only for the contract manufacturing of product and does no marketing) continues to grow in relative size, due, in part, to the movement of a large consumer customer to an industrial relationship. The Company receives less margin for industrial tons, as compared to consumer tons, because it is acting primarily as a contract manufacturer and not incurring certain sales and

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marketing costs. Further, the Company is no longer required to accept returns from the customer. The reduction of returns and elimination of marketing costs contributed to the sales increase. Sales and merchandising revenues were positively impacted by these reversals in 2002 by $1.4 million. The professional lawn business continues to be impacted by general softness in the golf course market and a reduction in the number of rounds played.

The Retail Group had a 1.8% increase in same-store sales and revenues in 2002 as compared to 2001. Individual store results were mixed, however both the Toledo and Columbus markets showed increases. In addition, three of the six stores have added a fresh meat counter since the third quarter of 2001. This business is managed by a third party and the Company earns commissions on sales of fresh meat; these commissions have been included in merchandising revenues.

Gross profit for 2002 totaled $163.1 million, an increase of $2.3 million, or 1%, from 2001. The Agriculture Group had a $4.8 million, or 6%, decrease in gross profit, in spite of the significant increase in revenues mentioned previously. Gross profit in the Grain division totaled $47.3 million, a decrease of $4.7 million, or 9%. The fertilizer businesses of the Agriculture Group recognized a decrease in gross profit of $0.1 million, primarily due to a decrease in gross profit per ton, nearly offset by increased volume of fertilizer sold.

Gross profit in the Rail Group increased $1.5 million, or 20%. Of this increase, $0.4 million was due to the improved performance of the lease fleet primarily related to the increase in railcars in service. In addition, the Group took a $0.3 million non-cash charge to recognize a permanent impairment in the value of certain railcars in 2002; the Group took a comparable charge of $1.5 million in 2001.

Gross profit for the Processing Group in 2002 increased $2.5 million, or 12%, when compared to 2001. Overall gross profit per ton for the Processing Group was up 11%. Although there was a 3% decrease in average price per lawn ton sold, there was also a 5% decrease in the average cost of a lawn ton. Coupled with the volume increase in the Lawn division and the gross profit impact of the reduction in returns and marketing costs mentioned previously, lawn division gross profit was up $2.8 million, or 16%. The cob-based businesses experienced a decrease of $0.3 million, or 8%, in gross profit, resulting in the overall $2.5 million increase for the Group.

Gross profit in the Retail Group increased $3.0 million, or 6%, from 2001. This was due to both the increase in sales discussed previously and a percentage point increase in margins. This margin increase results primarily from changes in product mix and better management of promotional programs and markdowns.

The Company recorded gains of $0.3 million in each of 2002 and 2001 related to insurance recoveries.

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Operating, administrative and general expenses for 2002 totaled $141.0 million, a $0.1 million decrease from 2001. Full-time employees increased 2% from 2001, however, labor expense decreased $1.0 million, or 1%. The majority of the decrease relates to severance costs of $1.3 million in 2001 compared to $0.4 million in 2002. Benefit costs, however, rose 11% due to the increased cost of providing pension and health care benefits to current and former employees. In addition, the Company’s performance incentive expense increased $1.3 million, which reflects the improved 2002 results when compared to 2001. Significant expense reductions were realized in rent, advertising and professional services. In addition to the benefit and performance incentive expense increases mentioned previously, increases were also realized in insurance expense and maintenance expense.

Interest expense for 2002 was $9.8 million, a $1.8 million, or 15%, decrease from 2001. Average daily short-term borrowings for 2002 were up 2% when compared to 2001 while the average short-term interest rate decreased from 5.1% for 2001 to 3.2% for 2002. Long-term interest expense decreased slightly for the same period.

As a result of the above, pretax income of $16.0 million for 2002 was 34% higher than the pretax income of $11.9 million in 2001. Income tax expense of $5.2 million was recorded in 2002 at an effective rate of 32.7%. In 2001, income tax expense of $2.9 million was recorded at an effective rate of 24.2%. The significant change in the effective tax rates between 2001 and 2002 resulted primarily from a much higher benefit from our foreign sales corporation in 2001 relative to the pretax income.

The Company also recorded a cumulative effect adjustment upon the adoption of EITF Topic D-96 ($3.5 million after tax). This cumulative effect adjustment reversed the December 31, 2001 balance of $5.4 million of deferred income that, under EITF Topic D-96, the Company earned as of January 1, 2002. As a result of the above, the 2002 net income of $14.2 million was $5.3 million better than the 2001 net income of $8.9 million. Basic earnings per share increased $0.74 from 2001 and diluted earnings per share increased $0.71 from 2001.

Liquidity and Capital Resources

The Company’s operations provided cash of $44.1$62.5 million in 2003,2004, an increase of $20.8$18.4 million from 2002.2003. Short-term borrowings used to fund these operations decreased $35.9 million from December 31, 2003. Net working capital at December 31, 20032004 was $89.5$105.7 million, an increase of $7.8$16.2 million from December 31, 2002.2003.

The Company has significant short-term lines of credit available to finance working capital, primarily inventories and accounts receivable. In November 2002, the Company entered into a borrowing arrangement with a syndicate of banks whichbanks. This borrowing arrangement was amended and renewed in the third quarter of 2004. The agreement provides the Company with $150$100 million in short-term lines of credit and an additional $50$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 short-term line was temporarily increased to $240 million in the second quarter in response to business needs. At July 1, 2004, the available credit lines were reduced back to $200 million. Prior to the syndication agreement, the Company managed several separate short-term lines of credit. The Company had drawn $48.0$12.1 million on its short-term line of credit at December 31, 2003.2004. Peak short-term borrowing during 2003

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2004 was $127.2$188.5 million on February 27, 2003. In most years,April 8, 2004. There were also periods in 2004 when the Company had no short-term lines of credit outstanding. Typically, the Company’s highest borrowing occurs in the spring due to seasonal inventory requirements in the fertilizer and

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retail businesses, credit sales of fertilizer and a customary reduction in grain payables due to the cash needs and market strategies of grain customers. Currently, the Company is reviewing its projected cash borrowing needs and may expand its short-term lines of credit.

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 December 31, 2003,2004, the fair value of these derivative financial instruments recorded in the balance sheet (primarily interest rate swaps and interest rate caps) was a net asset of less than $0.1 million.

Quarterly cash dividends of $0.07$0.075 and $0.065$0.07 per common share were paid in 2004 and 2003, and 2002, respectively.respectively except for the fourth quarter of 2004 where a dividend of $0.08 was paid. A cash dividend of $0.075$0.08 per common share was paid on January 22, 2004.24, 2005. The Company made income tax payments of $5.2$7.1 million in 2003.2004. During 2003,2004, the Company issued approximately 129151 thousand shares to employees and directors under its share compensation plans.

Total capital spending for 20032004 on property, plant and equipment was $11.7$13.2 million and included $2.8 million for investments in facilities and expansiononly the acquisition of the Oakville, Indiana grain facility completed in the Agriculture Group, $0.3first quarter of 2004 and an upgrade of information systems exceeded $0.5 million in manufacturing improvements in the Rail Group, $0.4 million in administrative offices and buildings and $0.3 million for retail store improvements and additions.each. The remaining amount of $7.9 million was spent on numerous assets and projects with no single project costing more than $0.3$0.5 million. The

In addition to the spending on conventional property, plant and equipment, the Company also spent $20.5$45.8 million in 20032004 for the purchase of railcars and capitalized modifications on railcars that may then be sold, financed off-balance sheet or owned by the Company for lease to customers. The Companyuse in its Rail Group and sold or financed $16.7$45.6 million of railcars during 2003.

In January 2003,2004. The $45.8 million of railcars purchased is in addition to the significant railcar purchase described in Note 3 to the consolidated financial statements in Item 8 where the Company invested $1.2purchased approximately 6,700 railcars and 48 locomotives in a fleet acquisition completed in February 2004 for $83.7 million plus $1.4 million in Lansing Graintransaction costs. As part of this acquisition, the Company LLCalso acquired management contracts for a 15.1% interest.an additional 2,400 railcars owned by third-party investors. The majority of the acquired railcars are in lease service. To finance the transaction, $86.4 million of securitized debt was issued by the special purpose entities which are subsidiaries. This debt is recourse only to the special purpose entities and is not guaranteed by the Company. Subsequent to its February issuance, the Company repaid $12 million of this non-recourse debt.

The Company increased its investment in Lansing Grain Company, LLC (“LGC”) was formed in late 2002 and includes the majorityFebruary 2004 by $0.7 million. The Company now owns approximately 21.9% of the assets ofequity and accounts for it using the Lansing Grain Company.equity method. The Company also holds an option to increase its investment in each of the next five years2005-2008 with the potential of attaining majority ownership in 2008. In February 2004,early March 2005, the Company acquiredinvested approximately $0.9 million for an additional 7% of the equity of LGC for a total ownership of 22.1%approximately 29.1%.

In February 2004, the Company formed a number of special purpose entities under TOP CAT Holding Company, also a special purpose entity, with the Company as its sole equity investor to finance the purchase of railroad rolling stock and leasing assets from Rail Car Ltd. and Progress Rail, both of which are part of Progress Energy, Inc. The purchase price of $82.4 million includes approximately 6,700 railcars, 48 locomotives and contracts to manage an additional 2,600 railcars for third-party investors. Financing for the acquisition was provided by $86.4 million in non-recourse notes.33

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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 December 31, 2003.2004. In addition, certain of the Company’s long-term borrowings are secured by first mortgages on various facilities or are collateralized by railcar assets. Additional long-term debt financing of $7.5 million was obtained in the second quarter and the Company pledged, as collateral, the grain facility that it acquired in Oakville, Indiana in the first quarter of 2004 along with other grain facilities. The new long-term debt obtained as part of the railcar acquisition described earlier is securitized by the 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. Conversely, in periods of declining prices, the Company receives a return of cash. 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 contractual obligations at December 31, 20032004 are as follows: