The Andersons, Inc. (ANDE) 10-Q 2001 Q1 Quarterly report

TABLE OF CONTENTS

FORM 10-Q
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure of Market Risk
PART II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT 27

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2000

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                

Commission file number 000-20557

THE ANDERSONS, INC.

(Exact name of registrant as specified in its charter)

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

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

(419) 893-5050

(Telephone Number)

(Former name, former address and former fiscal year,

if changed since last report.)

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YesX No     

      The registrant had 7,421,096 Common shares outstanding, no par value, at November 1, 2000.

THE ANDERSONS, INC.

INDEX

				Page No.
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		Condensed Consolidated Balance Sheets — September 30, 2000,
			December 31, 1999 and September 30, 1999		3
		Condensed Consolidated Statements of Operations —
			Three months and nine months ended September 30, 2000 and 1999		5
		Condensed Consolidated Statements of Cash Flows —
			Nine months ended September 30, 2000 and 1999		6
			Notes to Condensed Consolidated Financial Statements		7
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				10
	Item 3. Quantitative and Qualitative Disclosures About Market Risk				15
PART II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K				16
	Signatures				16

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE ANDERSONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

				September 30		December 31		September 30
				2000		1999		1999
Current assets   Cash and cash equivalents				$	5,900	$	25,614	$	5,026
	Accounts and notes receivable
		Trade accounts (net)			52,351		51,812		44,409
		Margin deposits			2,170		1,339		5,062
					54,521		53,151		49,471
	Inventories   Grain				72,807		83,796		112,647
		Agricultural fertilizer and supplies			26,105		17,766		24,478
			Agriculture		98,912		101,562		137,125
		Retail			32,836		29,540		35,434
		Processing			32,325		28,386		17,777
		Rail			24,291		17,365		20,398
		Other			549		1,470		1,331
					188,913		178,323		212,065
	Deferred income taxes				4,057		5,641		2,629
	Prepaid expenses				3,109		5,796		2,996
Total current assets
		256,500		268,525		272,187
Other assets   Notes receivable (net) and other assets					9,903		4,640		4,628
	Investments in and advances to affiliates				982		954		1,004
					10,885		5,594		5,632
Property, plant and equipment   Land					11,885		12,237		12,153
	Land improvements and leasehold improvements				26,711		27,266		26,454
	Buildings and storage facilities				91,569		91,374		89,712
	Machinery and equipment				123,572		118,872		117,075
	Software				3,736		3,555		3,141
	Construction in progress				8,602		8,895		7,653
					266,075		262,199		256,188
	Less allowances for depreciation and amortization				160,737		159,542		160,282
					105,338		102,657		95,906
				$	372,723	$	376,776	$	373,725

      See notes to condensed consolidated financial statements.

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THE ANDERSONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS — (continued)

(UNAUDITED)(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

		September 30			December 31			September 30
		2000			1999			1999
Current liabilities Notes payable		$	88,600		$	45,000		$	95,000
	Accounts payable for grain		25,906			68,883			33,308
	Other accounts payable		65,613			65,079			62,846
	Accrued expenses		12,690			17,465			12,012
	Current maturities of long-term debt		8,074			4,159			5,407
Total current liabilities			200,883			200,586			208,573
Deferred income			524			4,026			—
Pension and postretirement benefits			3,749			3,255			2,705
Long-term debt			72,420			74,127			70,027
Deferred income taxes			8,436			8,742			7,333
Minority interest			202			1,235			1,205
Shareholders’ equity Common stock (25,000 shares authorized; stated value of $.01 per share; 7,455, 7,707 and 7,939 outstanding at 9/30/00, 12/31/99 and 9/30/99, respectively			84			84			84
	Additional paid-in capital		66,489			67,227			67,228
	Treasury stock (975, 723 and 491 shares at 9/30/00, 12/31/99, and 9/30/99, respectively; at cost)		(9,087	)		(7,158	)		(5,233	)
	Accumulated other comprehensive income		(144	)		(144	)		(29	)
	Unearned compensation		(136	)		(158	)		(200	)
	Retained earnings		29,303			24,954			22,032
			86,509			84,805			83,882
		$	372,723		$	376,776		$	373,725

      See notes to condensed consolidated financial statements.

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THE ANDERSONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)(IN THOUSANDS, EXCEPT PER SHARE DATA)

		Three Months						Nine Months
		Ended September 30						Ended September 30
		2000			1999			2000		1999
Sales and merchandising revenues		$	168,630		$	173,911		$	623,679	$	633,123
Other income			918			763			3,947		2,631
			169,548			174,674			627,626		635,754
Cost of sales and merchandising revenues			132,233			139,984			494,161		510,417
Gross profit			37,315			34,690			133,465		125,337
Operating, administrative and general expenses			37,709			35,866			116,644		111,202
Interest expense			2,969			2,567			8,239		6,685
			40,678			38,433			124,883		117,887
Income (loss) before income taxes			(3,363	)		(3,743	)		8,582		7,450
Income taxes (credit)			(1,128	)		(1,231	)		2,877		2,458
Net income (loss)		$	(2,235	)	$	(2,512	)	$	5,705	$	4,992
Per common share:
	Basic earnings (loss)	$	(0.30	)	$	(0.32	)	$	0.76	$	0.62
	Diluted earnings (loss)	$	(0.30	)	$	(0.32	)	$	0.75	$	0.61
	Dividends paid	$	0.06		$	0.05		$	0.18	$	0.15
Weighted average shares outstanding
	Basic		7,463			7,968			7,552		8,066
	Diluted		7,463			7,968			7,564		8,205

      See notes to condensed consolidated financial statements.

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THE ANDERSONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)(IN THOUSANDS)

			Nine Months Ended
			September 30
			2000			1999
Operating activities Net income			$	5,705		$	4,992
Adjustments to reconcile net income to net cash used in operating activities:
	Depreciation and amortization			9,480			8,334
	Provision for losses on accounts and notes receivable			184			769
	Deferred income tax			1,278			2,382
	Gain on sale of business and property, plant & equipment			(959	)		(61	)
	Other			65			198
	Cash provided by operations before changes in operating assets and liabilities			15,753			16,614
	Changes in operating assets and liabilities:
		Accounts receivable		(1,704	)		12,603
		Inventories		3,659			(27,075	)
		Prepaid expenses and other assets		1,622			3,622
		Accounts payable for grain		(42,976	)		(55,670	)
		Other accounts payable and accrued expenses		(6,690	)		(17,917	)
Net cash used in operating activities				(30,336	)		(67,823	)
Investing activities Purchases of property, plant and equipment				(13,737	)		(11,458	)
Purchase of working capital and intangibles of business				(15,861	)		—
Proceeds from sale of business and property, plant and equipment				2,298			178
Net cash used in investing activities				(27,300	)		(11,280	)
Financing activities
Net increase in short-term borrowings				43,600			87,300
Proceeds from issuance of long-term debt				179,074			82,272
Payments of long-term debt				(180,560	)		(84,721	)
Purchase of common stock for the treasury				(3,182	)		(3,184	)
Proceeds from sale of treasury stock				362			429
Dividends paid				(1,372	)		(1,220	)
Net cash provided by financing activities				37,922			80,876
Increase (decrease) in cash and cash equivalents				(19,714	)		1,773
Cash and cash equivalents at beginning of period				25,614			3,253
Cash and cash equivalents at end of period			$	5,900		$	5,026

See notes to condensed consolidated financial statements

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THE ANDERSONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A —	In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the periods indicated, have been made.
	The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles.
	The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 1999.
Note B —	Total comprehensive income was $5.7 million for the nine months ended September 30, 2000 and $5.0 million for the nine months ended September 30, 1999. Total comprehensive income (loss) for the quarters ended September 30, 2000 and 1999 was ($2.2) million and ($2.5) million, respectively.
Note C —	The Company’s software assets in the September 30, 1999 balance sheet have been reclassified to property, plant and equipment. These intangible assets were previously included with notes receivable and other assets.
Note D —	The Retail segment was restated for the addition of a retail store selling lawn and garden equipment (the “Mower Center”). The results of this operation were previously reported in Other. The Manufacturing segment was renamed the Rail segment on October 13, 2000. There were no changes to the operations in this segment.
Note E —	In December 1999, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB No.  101). SAB No. 101 summarizes the SEC staff’s views in applying generally accepted accounting principles to revenue recognition in financial statements. We do not anticipate that adoption of SAB No. 101 will have a material impact on previously reported or future results of operations, financial position or cash flow.
	In September 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a final consensus on the classification of shipping and handling fees and costs. We will adopt this consensus opinion in the fourth quarter of 2000. While this opinion has no impact on the financial position, cash flow or net income of the Company, it will require reclassifications between revenues and cost of sales as certain of the Company’s segments have followed a practice of reducing revenues for shipping and handling costs.
	In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging

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	Activities (SFAS No. 133). SFAS No. 133, as amended, is effective for our financial statements beginning in 2001. We are currently studying the future effects of adopting this statement and have not yet determined the impact that this statement will have on the Company.
Note F —	On May 31, 2000, the Company acquired inventory and intangible assets of the Pro Turf division of The Scott’s Company. The purchase method of accounting for business combinations was used. Operating results of the acquired product lines have been included in the Company’s results of operations from June 1, 2000.
	This transaction was completed through a combination of cash paid and liabilities assumed with a total purchase price of approximately $19.8 million. Of this amount, $15 million was for inventory. Goodwill is being amortized on a straight-line basis over 12 years.
	The pro forma revenues below (unaudited, in thousands) assume the acquisition occurred at the January 31, 1999. The business is being integrated into the Company’s existing operating divisions and is expected to experience significantly different cost and expense structures. Therefore, pro forma operating income, net earnings and earnings per share are not presented as they are not meaningful.

	Nine months ended
	September 30
	2000		1999
Pro forma net sales	$	650,365	$	697,540

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Note G Results of Operations – Segment Disclosures

(in thousands)

	Agriculture			Rail		Processing			Retail			Other			Total
Third Quarter, 2000
Revenues from external customers	$	99,345		$	6,525	$	21,625		$	41,135		$	—		$	168,630
Inter-segment sales		1,210			262		108			—			—			1,580
Other income		244			67		101			144			362			918
Interest expense (credit) (a)		1,505			487		966			436			(425	)		2,969
Operating income (loss)		(1,196	)		331		(2,256	)		(349	)		107			(3,363	)
Identifiable assets at September 30, 2000		173,757			40,002		75,390			63,881			19,693			372,723
Third Quarter, 1999
Revenues from external customers	$	105,263		$	12,879	$	13,061		$	39,811		$	2,897		$	173,911
Inter-segment sales		644			233		100			—			—			977
Other income		8			37		176			93			449			763
Interest expense (credit) (a)		1,833			293		376			463			(398	)		2,567
Operating income (loss)		(2,329	)		1,397		(2,084	)		(608	)		(119	)		(3,743	)
Identifiable assets at September 30, 1999		217,547			30,010		42,045			66,895			17,228			373,725
First Nine Months, 2000
Revenues from external customers	$	382,956		$	22,077	$	86,197		$	129,960		$	2,489		$	623,679
Inter-segment sales		3,893			764		1,081			—			—			5,738
Other income		818			220		293			461			2,155			3,947
Interest expense (credit) (a)		4,345			1,216		2,336			1,293			(951	)		8,239
Operating income (loss)		6,429			1,170		(476	)		1,346			113			8,582
First Nine Months, 1999
Revenues from external customers	$	396,387		$	27,738	$	70,574		$	130,050		$	8,374		$	633,123
Inter-segment sales		3,114			723		1,195			—			—			5,032
Other income		520			108		388			302			1,313			2,631
Interest expense (credit) (a)		4,229			853		1,244			1,274			(915	)		6,685
Operating income (loss)		2,514			3,280		1,506			1,150			(1,000	)		7,450

(a)  The other category of interest expense includes net interest income at the company level, representing rate differential between the interest rate on which interest is allocated to the operating segments and the actual rate at which borrowings were made.

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

Comparison of the three months ended September 30, 2000 with the three months ended September 30, 1999:

     Sales and merchandising revenuesfor the three months ended September 30, 2000 totaled $169.5 million, a decrease of $5.1 million, or 3%, from 1999.Salesin the Agriculture Segment were down $6.8 million, or 7%. Grain sales were down $12.9 million on a 4% increase in volume offset by a 19% decrease in the average price per bushel sold. Fertilizer sales were up $6.1 million with a $5.6 million, or 45%, increase in the wholesale division and a $.5 million, or 11%, increase in the farm center division. Fertilizer tons sold increased significantly, however, the average price per fertilizer ton sold was down 6%.Merchandising revenuesfor the Agriculture Group were up $.9 million, or 15%, due primarily to increases in income from storing grain and fertilizer for others, increased service income in the farm centers and favorable basis movement in the grain business. Structural changes are in process in the Agriculture Segment to better utilize the farm center assets by more closely tying them in with either the grain or wholesale fertilizer businesses. These changes have resulted in the elimination of the Vice President and General Manager, Farm Center Division.

      The Rail Segment had a sales decrease of $6.4 million, or 49%. Total revenues in the railcar repair and fabrication shops were up, while railcar sales and financings completed during the third quarter of 2000 were down $7.6 million, or 95%. Gross lease fleet income was up $1.0 million or 26%. This fleet income growth was due to additional railcars and locomotives controlled and in service as compared to 1999. A cyclical downturn in railcars, primarily grain covered hopper cars, reduced the Group’s long-term lease placements and outright sales during 2000.

      The Processing Segment had a $8.6 million, or 66%, increase in sales. Most of this increase was attributable to increased volumes and average price per ton sold in the professional lawn fertilizer business. These significant increases in professional lawn result from the purchased Pro Turf inventory and intangible assets from The Scotts Company, which was closed on May 31, 2000. The cob-based businesses experienced flat volume along with a 6% increase in the average price per ton sold. There is one additional lawn fertilizer blending facility, located in Montgomery, Alabama, being operated in 2000 when compared to 1999.

      The Retail Segment experienced a $1.3 million, or 3%, increase in sales, with five of the six stores showing increases. A portion of this increase is due to delayed sales from the unusually wet weather in the second quarter.

     Gross profitfor the third quarter of 2000 totaled $37.3 million, an increase of $2.6 million, or 8%, over the third quarter of 1999. The Agriculture Segment had a gross profit increase of $.8 million, or 6%, due to the increase in merchandising revenues described previously and additional wholesale fertilizer volume and margin per ton, partially offset by decreases in gross profit on sales in grain and the farm centers.

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      Gross profit in the Rail Segment increased $.4 million, or 16%, from the prior year. This was due to the increase in fleet income and better performance in the railcar and fabrication shops.

      Gross profit for the Processing Segment increased $2.5 million, or 58%, from the third quarter of 1999. This increase resulted from the additional professional tons and increased margin per ton generated from the ProTurf fertilizer businesses discussed previously. The remaining lawn fertilizer and cob-based businesses experienced flat or decreased gross profit when compared to the third quarter of 1999.

      Gross profit in the Retail Segment increased by $.5 million, or 4%, from the third quarter of 1999. This was due primarily to the increased sales noted previously, and a slight increase in the gross margin percentage.

     Operating, administrative and general expensesfor the third quarter of 2000 totaled $37.7 million, a $1.8 million, or 5%, increase from the third quarter of 1999. Full time employees increased 4% from the third quarter of 1999 due to acquisitions and added capacity in the Processing Segment. The majority of the increase reflects planned growth in the Processing Segment, offset by the reduction of expenses related to the sale of the investment in the Andersons-Tireman joint venture at the end of the first quarter.

     Interest expensefor the third quarter of 2000 was $3 million, a $.4 million, or 16%, increase from the third quarter of 1999. Average quarterly short-term borrowings were flat when comparing 2000 to 1999, while the effective short-term interest rate increased by nearly one and one half percentage points.

      Thepretax lossof $3.4 million was $.3 million, or 10%, better than the 1999 third quarter pretax loss of $3.7 million. An income tax credit has been provided at 33.5%, the Company’s expected effective tax rate for 2000.

      Thenet lossof $2.2 million was $.3 million, or 11%, better than the 1999 third quarter net loss of $2.5 million. The basic and diluted loss per share was $.30, a $.02 improvement, from the 1999 third quarter loss per share.

Comparison of the nine months ended September 30, 2000 with the nine months ended September 30, 1999:

     Sales and merchandising revenuesfor the nine months ended September 30, 2000 totaled $623.7 million, a decrease of $9.4 million, or 1%, from 1999.Salesin the Agriculture Segment were down $18.2 million, or 5%. Grain sales were down $22.3 million with a 5% decrease in volume and a 4% decrease in the average price per bushel sold. Fertilizer sales were up $4.1 million with a $5 million increase in the wholesale division and a $.9 million decrease in the farm center division. Average price per fertilizer ton sold was down in both divisions while the wholesale division had a 19% increase in volume and the farm centers experienced a 2% volume increase.Merchandising revenuesfor the Agriculture Group were up $4.8 million, or 22%, due primarily to increases in income from storing grain and fertilizer for others and

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favorable basis movement in the grain business. This was offset by a decrease in drying and mixing income due to the generally good quality of grain received from the last harvest.

      The Rail Segment had a sales decrease of $5.7 million, or 20%. Total revenues in the railcar repair and fabrication shops were flat. Railcar sales and financings completed during 2000 were down $9.7 million, or 73%, however lease fleet income was up $4 million or 35%. This fleet income growth was due to additional railcars and locomotives controlled and in service as compared to 1999. A cyclical downturn in railcars, primarily grain covered hopper cars, reduced the Group’s long-term lease placements and outright sales during 2000.

      The Processing Segment had a $15.6 million, or 22%, increase in sales. All of this increase was attributable to increased volumes and price per ton sold in the lawn fertilizer division. The cob-based businesses experienced a reduction of volume partially offset by a 5% increase in the average price per ton sold. The increased sales reflect four months of activity of the ProTurf product line, formerly owned by The Scotts Company.

      The Retail Segment experienced flat sales, with mixed results — some stores showing increases and other stores decreases. The lack of revenue growth is partially attributable to increased competition and heavy road construction in certain markets.

     Gross profitfor the first nine months of 2000 totaled $133.5 million, an increase of $8.1 million, or 6%, from 1999. Included in Other Income is a $.9 million gain on the sale of the Company’s investment in The Andersons-Tireman joint venture. The Agriculture Segment had a gross profit increase of $4.6 million, or 9%, due primarily to the increase in merchandising revenues described previously and additional wholesale fertilizer volume and margin per ton, offset by decreases in gross profit on sales in grain and the farm centers.

      Gross profit in the Rail Segment was unchanged from the prior year. This was due to reduced railcar sales and a soft lease market for the segment’s primary car type — the covered hopper was mostly offset by the increased fleet income.

      Gross profit for the Processing Segment increased $5.3 million, or 24%, from 1999. This increase resulted from a 21% increase in gross profit per ton and an 11% increase in lawn fertilizer volume, again resulting primarily from the purchase of the ProTurf product line.

      Gross profit in the Retail Segment for the first nine months of 2000 increased $.5 million, or 1%, when compared to 1999. This was due primarily a slightly improved gross margin percentage.

     Operating, administrative and general expensesfor the first nine months of 2000 totaled $116.6 million, a $5.4 million, or 5%, increase from 1999. Full time employees increased 4% from 1999 due to acquisitions and added capacity in the Processing Segment. The increase includes a $1.7 million increase in labor and benefits and a $3.5 million increase in occupancy expenses. The Processing Segment accounted for the majority of this increase.

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     Interest expensefor the first nine months of 2000 was $8.2 million, a $1.6 million, or 23%, increase from 1999. Average short-term borrowings increased 9% when comparing 2000 to 1999 and the effective short-term interest rate increased by more than a full percentage point.

     Income before income taxesof $8.6 million increased 15% from the 1999 pretax income of $7.5 million. Income tax expense has been provided at 33.5%, the Company’s expected effective tax rate for 2000.

     Net incomeof $5.7 million increased $.7 million from the 1999 net income of $5 million. Basic and diluted earnings per share were $.76 and $.75, respectively. This represents $.14 increases from the 1999 basic and diluted earnings per share.

Liquidity and Capital Resources

      The Company’s operations (before changes in working capital) provided cash of $15.8 million in the first nine months of 2000, a decrease of $.9 million from the first nine months of 1999. Working capital at September 30, 2000 was $55.6 million, a $12.3 million and $8 million decrease from December 31, 1999 and September 30, 1999, respectively.

      The Company utilizes its short-term lines of credit to finance working capital, primarily inventories and accounts receivable. Lines of credit available on September 30, 2000 were $155 million. The Company had drawn $88.6 million on its short-term lines of credit at September 30, 2000, an increase of $43.6 million and a decrease of $6.4 million from December 31, 1999 and September 30, 1999, respectively. The Company’s peak short-term borrowing occurred on March 23, 2000 and amounted to $113.8 million. Typically, the Company’s highest borrowing occurs in the spring due to seasonal inventory requirements in the fertilizer and retail businesses, credit sales of fertilizer and a customary reduction in grain payables due to cash needs and market strategies of grain customers.

      A quarterly cash dividend of $0.06 per common share was paid in each of the first three quarters of 2000. A cash dividend of $0.06 per common share was declared on October 2, 2000 and was paid on October 23, 2000. Cash dividends of $0.05 per common share were paid quarterly in 1999. The Company made income tax payments of $3.3 million in the first nine months of 2000 and expects to make payments totaling approximately $.1 million for the remainder of the year. Also, in the first nine months, the Company issued 62,740 shares to its employees and directors under stock compensation plans and purchased 390,100 of its common shares on the open market at an average of $8.16 per share. The Company also issued 68,934 common shares to complete its 1998 acquisition of Crop and Soil, Inc.

      Total capital expenditures for 2000 are expected to approximate $24 million and include $6.2 million for additional facilities and businesses in the Processing Segment, $2.8 million for the replacement of wholesale fertilizer and grain storage assets, $5.2 million for the acquisition of additional railcars, and $1.2 million for information systems hardware and software. Funding for these expenditures is expected to come from cash generated from operations and additional debt. Capital expenditures may be curtailed if cash generated from operations is less than expected.

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      Certain of the Company’s long-term debt is secured by first mortgages on various facilities and/or collateralized by railcars owned by the Company. Some of the long-term borrowings include provisions that impose minimum levels of working capital and equity, limitations on additional debt and require the Company to be substantially hedged in its grain transactions.

      The Company’s liquidity is enhanced by the fact that grain inventories are readily marketable. In the opinion of management, the Company’s liquidity is adequate to meet short-term and long-term needs.

Impact of Year 2000

      In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.

Forward Looking Statements

      The preceding 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” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

      The following factors could cause actual results to differ materially from historical results or those anticipated; weather, supply and demand of commodities including grains, fertilizer and other basic raw materials, market prices for grains and the potential for increased margin requirements, competition, economic conditions, risks associated with acquisitions, interest rates and income taxes.

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Item 3. Quantitative and Qualitative Disclosure of Market Risk

Market Risk Sensitive Instruments and Positions

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

Commodities

      The availability and price of agricultural commodities are subject to wide fluctuations due to unpredictable factors such as weather, plantings, government (domestic and foreign) farm programs and policies, changes in global demand created by population growth and higher standards of living, and global production of similar and competitive crops. To reduce price risk caused by market fluctuations, the Company follows a policy of hedging its inventories and related purchase and sale contracts. The instruments used are readily marketable exchange-traded futures contracts that are designated as hedges. To a lesser degree, the Company uses exchange-traded option contracts, also designated as hedges. The changes in market value of such contracts have a high correlation to the price changes of the hedged commodity. The Company’s accounting policy for these hedges, as well as the underlying inventory positions and purchase and sale contracts, is to mark them to the market daily and include gains and losses in the statement of income in sales and merchandising revenues.

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

(in thousands)	September 30, 2000			December 31, 1999
Net long (short) position	$	(3,348	)	$	(153	)
Market risk		335			15

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Interest

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

(in thousands)	September 30, 2000		December 31, 1999
Fair value of long-term debt and interest rate contracts	$	80,603	$	77,964
Fair value greater than carrying value		345		322
Market risk		939		595

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

      (b)  Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended September 30, 2000.

SIGNATURES

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

	THE ANDERSONS, INC. (Registrant)
Date: November 13, 2000	By /s/ Michael J. Anderson Michael J. Anderson President and Chief Executive Officer
Date: November 13, 2000	By /s/ Richard R. George Richard R. George Vice President and Controller (Principal Accounting Officer)

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