Andersons Inc (ANDE) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter Andersons, Inc. Conference Call. At this time all participants are in listen-in only mode. We will be facilitating a question-and-answer session towards this end of this conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr. Nick Conrad, Vice President of Finance and Treasurer. Please proceed, sir.

Good morning everyone and thank you for joining us on the Andersons Third Quarter 2009 Conference Call.

As you know, certain information that will be discussed today constitutes forward-looking statements. Actual results could differ materially from those presented in the forward-looking statements as a result of many factors, including general economic conditions, weather and competitive conditions, conditions in the company's industries both in the US and internationally, and additional factors that are described in the Company's publicly filed documents, including its '34 Act filings and the prospectuses prepared in connection with the Company's offerings.

It also includes financial information of which, as of date of the call, the Company's independent auditors have not completed their review. Although the company believes the assumption upon which the financial information and its forward-looking statements are based on reasonable, it can give no assurance that these assumptions will prove to be. This conference call is being recorded and can be accessed on our website.

Before Mike details our results, I wanted to remind you that we implemented FAS 160 this year, which relates to the presentation of non-controlling interest, formerly classified as minority interest, in the consolidated financial statements. Under FAS 160, non-controlling interest is now included in the income statement captioned net income, net income attributable to the Andersons and earnings per share are comparable to the previously recorded net income.

In addition, in the equity section of the balance sheet, non-controlling interest is now presented as a component of stockholder equity. As we refer to net income during this conference call, we will be referring to net income attributable to the Andersons as defined by FAS 160.

Mike Anderson, Chairman and Chief Executive Officer and I will be available for questions at the end of the call. Mike?

Thanks, Nick, and good morning, everyone. As noted in our press release, we generated net income of $1.3 million or $0.07 per diluted share on revenues of $601 million. In 2008, we reported a record net income of $12.8 million or $0.70 per diluted share, on $906 million of revenue.

For the first nine months, our total net income stands at $22.1 million, or $1.20 per share. In the same period of 2008, we reported a net income of $66.3 million, or $3.59 per share. Total revenues of $2.1 billion for the first nine months of the year were down $600 million from last year. The main cause of this revenue decline is lower grain and plant nutrient prices.

Looking at either quarter or year-to-date results, it is important to remember that the earnings from the prior year included unprecedented margins in our Plant Nutrient Group. The 2009 year-to-date Plant Nutrient Group earnings, however, did not prove to be sustainable through the end of the year as nutrient prices declined significantly at the end of 2008.

Before I talk about each Group, I would also like to mention that during the quarter, the Company recognized a $4.1 million gain rising from the freezing of the Company's defined benefit pension plan effect July 1st, 2010. Now I'll talk about each Group.

The Grain and Ethanol Group had an operating income of $8.9 million in the third quarter versus $9.4 million a year ago. The grain business income was down significantly for two reasons. First, both space income and margin on grain sales returned to more traditional levels, whereas last year they were higher than normal. Second, bad debt reserves were increased within the grain business.

The ethanol business was profitable for the second consecutive quarter as margins in the ethanol industry have greatly improved. Additionally, the Andersons Albion Ethanol LLC business interruption claim was finalized in the quarter, resulting in a $1.3 million gain.

The third quarter results from the Group's investment in Lansing Trade Group were down slightly from the prior year. However, Lansing Trade Group has returned to profitability. Total third quarter revenues for the Grain and Ethanol Group were $451 million. This includes $176 million of grain and ethanol sales made by the Group in accordance with origination and marketing agreements between the Company and its ethanol joint ventures for which it receives a fee.

In the third quarter of 2008, the Group's total revenues were $651 million, and included $232 million in ethanol joint venture sales. While revenues for the Group are lower due to substantially lower commodity prices, such amounts do not serve as good indicators of income or economic performance for the Group as it is a commodity-based business.

The Grain and Ethanol Group's operating income for the first nine months of 2009 was $23.5 million in comparison to $31.7 million in the prior year. Year-to-date, the grain business is significantly ahead of the prior year's performance, as in early 2008 they had sizeable space income losses.

The decreased year-to-date results for the Group are attributable to the performance of our equity investments, the Ethanol LLC's and Lancing Trade Group. The ethanol business results through September were impacted by the results for the first half of the year before significant improvement was seen in the ethanol market. Additionally, Lansing Trade Group had a loss in the first half, which has made the results through September significantly lower than the prior year.

Total revenues for the Grain and Ethanol Group for the first nine months were $1.4 billion in comparison to the $1.8 billion reported in 2008. The results through September include $571 million of grain and ethanol sales, which compares to $644 million that was reported in the prior year.

The ethanol trading environment, which allowed the third quarter results for the ethanol business to be so markedly improved has allowed us to again enter into profitable forward sales contracts. As market opportunities that present themselves, we have pre-sold a significant portion of ethanol for the fourth quarter and also recorded some profitable sales through the first half of 2010.

I want to mention that crop yields continue to look good. However, due to a combination of initial delays in planning and recent wet weather, the harvest has been delayed. Currently, the fall harvest in our area is about three to four weeks behind schedule.

The Rail Group continues to be impacted by the significant decline in North American rail traffic. The Group reported an operating loss of $1.1 million this quarter, whereas last year the Group reported $5.2 million of income. The Group recognized $400,000 in gross margin from the sale of rail cars and related leases during the quarter, whereas last year the Group realized $700,000 on similar transactions.

Operating income from leasing was down considerably, primarily due to lower utilization rates. The average utilization rate, which is the percentage of the fleet in service for the quarter, was 74.4% in comparison to 93.3% for the same period last year, and the trend in utilization continues to trend lower.

Gross profit from the leasing business was also impacted by decreasing per diem income and the increase in storage expense associated with lower utilization rates. The Group has approximately 24,000 rail cars and locomotives which is comparable to the prior year total. The gross profit of the rail car repair and manufacturing business continues to be down significantly in the third quarter due to reduced activity resulting from the overall slowdown in the economy. Revenue for the quarter was $21 million, which is down from the $28 million reported for the same period in 2008.

Through the first nine months, the Rail Group had revenues of $72 million and operating income of $400,000. In the same period of 2008, total revenues were $106 million and operating income amounted to $16.5 million. Part of this income decrease was due to gains on sales of rail cars, being $2.4 million higher during the first nine months of 2008. The remaining year-to-year decrease is due to the same reasons I previously mentioned in regards to the third quarter, the main reason being lower utilization rates.

The impact of the economic decline, coupled with the fact that a significant portion of the US fleet has remained idle during the year suggests that things could remain tough for the Rail Group for awhile. On a positive note, downturns in the leasing market tend to provide us with car acquisition opportunities that could pay dividends in the future. In the third quarter, however, the limited fleet purchases we made were offset with disposals, so our fleet size remained constant.

The Plant Nutrient Group had an operating loss of $2.8 million during the third quarter on revenues of $70 million. In the same three month period in 2008, the Group reported a $7.2 million operating profit on $162 million of revenue. The earnings in the prior year were unprecedented and were due to significantly increased margins that resulted from the quickly escalating basic nutrient prices during that time period. Margins were down considerably this quarter in comparison to last year as significantly lower basic nutrient prices resulted in normal margins returning, whereas last year extraordinary margins were seen.

Sales volume was also down approximately 12% this quarter. This decrease was due primarily to retailers maintaining low nutrient inventory holdings. Third quarter volume was also impacted to some extent by the delays in harvesting the crops, which persists in to the fourth quarter.

This year, the Plant Nutrient Group has earned $9.6 million through the first nine months on $380 million of revenues. Last year, the Group generated likely unrepeatable operating income of $62.1 million on $541 million of revenues. This year-to-year differential was caused by the same items I mentioned earlier in regards to the third quarter performance.

The integration of the Hartung Brothers Fertilizer Division, which was acquired on August 1st, is proceeding very well. This acquisition represents a strategic expansion of the Group's footprint in the Western Corn Belt, with a product line and customer base matching existing markets.

The Turf and Specialty Group had an operating loss of $300,000 on $21 million of revenue. Last year, the Group reported a $500,000 loss on $23 million of revenue in the third quarter. Turf product's tonnage was up over 15% year-to-year. However, gross profit per ton decreased as a result of product mix. Through the first nine months of 2009, the Group's operating income was a record $5.8 million on $106 million of revenues. In comparison, through the first nine months of 2008, the Group's operating income was $3.4 million and revenues were $99 million. Lately, the Group has seen some softness, especially in the professional turf market.

The Retail Group had an operating loss of $2.3 million in the third quarter. This was partially due to the recording of costs associated with the upcoming closing of our Lima store. In the comparable period last year, the Group's operating loss was $200,000. Total revenues of $37 million for the quarter were approximately 10% below the $41 million in revenue reported for the same period in 2008.

The sales decline is primarily due to the overall decline in consumer spending. The Group's year-to-date operating loss was $2.1 million in comparison to a loss of $200,000 through the first nine months of 2008. The Retail business' total revenues of $120 million through the first nine months were $7.2 million less than last year. Both the Group's customer counts and average sale per customer have declined slightly this year. Margins, however, have remained consistent with the prior year.

Now, I will turn the floor over to Nick for his Treasurer comments.

Thank you Mike. Through the third quarter, the Company's 2009 effective tax rate was 37%, unchanged from the same period last year. We are projecting our 2009 tax rate to be 37%. This is up from the 2008 tax rate. For the third quarter, the Company's interest expense totaled more than $5 million compared to approximately $7 million for the same period 2008. Year-to-date interest expense totaled $16 million at the end of the third quarter, an improvement of more than $9 million compared to 2008.

For the third quarter, the Company had no short-term debt outstanding. We were, in fact, investing during the third quarter. Average short-term investments for the third quarter were $132 million. During the same period last year, the Company had average short-term borrowings of $205 million. Year-to-date, through September 30, the Company's average short-term borrowings as compared to 2008 were down approximately $350 million. The interest expense and borrowings were down third quarter in year-to-date 2009, versus 2008, in large part because of reductions in grain and fertilizer prices.

EBITDA for the third quarter 2009 was $16 million versus $35 million for the same period in 2008. Year-to-date, EBITDA totaled $76 million, a decrease of $75 million from the same period last year. In 2008, both third quarter and year-to-date EBITDA included expanded margins for our Plant Nutrient Group. The third quarter's pretax earnings include more than $5 million in equity and earnings of affiliates, up $6 million from 2008 third quarter close. Year-to-date through September 30, equity and earnings of affiliates was down $13 million from 2008. The EBITDA has been adjusted for the non-controlling interest.

Turning to the balance sheet, current assets decreased to $573 million by the end of the third quarter from a year earlier balance of $842 million. The majority of this decrease was in inventories and commodity derivative assets current. Inventories totaled $191 million at the end of the third quarter versus $382 million for the same period last year. Grain and Ethanol inventories decreased $47 million. Plant Nutrient inventories decreased $135 million. Turf and Specialty inventories decreased $6 million and Retail inventory decreased $2 million.

Combining derivative assets current ended the third quarter at $27 million, down $87 million from the same period 2008. Since 2008 third quarter trade receivables have decreased $80 million. Grain and Ethanol receivables were down $23 million, Plant Nutrient down $50 million, Rail down $6 million and Turf and Specialty down $1 million, margin deposits end of the third quarter down $39 million from last year.

The Company's cash and cash equivalents increased $152 million compared to the same period last year, ending the third quarter at $181 million. Net working capital at the end of the third quarter was $299 million, a decrease of $48 million for the third quarter 2008. Total assets September 30, 2009 were $1.1 billion, a decrease of $265 million from the year earlier third quarter balance of $1.3 billion. Investments and other assets end of the third quarter about unchanged from third quarter 2008.

Commodity derivative assets not current were down $17 million as of September 30. Property, plant and equipment, along with rail car assets leased to others, increased by $21 million. Depreciation totaled $25 million through nine months ended September 30. Total capital spending, including investment of affiliates, through 2009 third quarter was $43 million versus $68 million for the same period of 2008, excluding rail cars.

Rail car purchases and sales were $21 million and $6 million, respectively, through the third quarter. Rail car purchases and sales in the same quarter of 2008 were $82 million and $52 million -- I'm sorry, $54 million, respectively. Our long-term debt totals $307 million, $21 million non-recourse and $287 million recourse, a net decrease of $32 million from 2008's third quarter ending level. Our long-term funded debt to equity is 0.7%, exclusive to 1%, exclusive to non-recourse debt.

The Company's 2009 average interest for all long-term debt was 6% through the third quarter. As of September 30, 2009, the Company's total equity was $387 million, down $32 million from the third quarter 2008. On October 22, we paid our fourth quarter 2009 dividend of $0.0875 cents per share.

Back to you, Mike.

Thank you, Nick. Before we take questions, I want to cover a few points. We are clearly disappointed with this quarter's results which were barely above breakeven. There were a few areas that cause continued concern and some positive developments for the quarter. Most significantly, our Rail Group continued to be seriously impacted by the overall weak economy. As I mentioned in the Rail section, the situation within Rail could continue for awhile. To a lesser extent, our Retail Group was impacted by the economic decline.

Inversely, while our Grain and Ethanol Group's results for the quarter were lower than that of the prior year, it was nice to see decent margins return to the Ethanol business and Lansing Trade Group return to profitability. And within the Grain business, while our quarterly results were well below the prior year, our year-to-date results are a record and reflect our solid position in the grain business.

Both our Plant Nutrient and Turf and Specialty Groups had losses for the quarter, which if you go back over time, is pretty typical for these seasonal businesses. Specifically, for our Plant Nutrient Group this quarter, there was a return to more normal margin patterns following the extraordinary margins in the third quarter in year-to-date 2008. As you look at our quarterly results this year, I want to encourage you to remember that it is common for us to have very cyclical quarters, and this relates specifically to the third quarter. The last three years, we have had much higher earnings per share due to a number of unique occurrences.

That concludes my prepared remarks. Nick and I will be happy to answer any questions you may have, so Francine, we will turn it back to you.

Thank you, sir. (Operator Instructions).

Our first question comes from the line of Heather Jones from BB&T Capital Markets.

Good morning.

Good morning, Heather.

I had a few questions, first on the grain business, you mentioned that in your core markets that the harvest is about three to four weeks behind. Is it your view that the farmers are going to have enough time to get the complete harvests out of the -- get the harvest completed?

Yes, it is. Of course, there is a weather dependency on that. If you went back, 20 years, 30 years, it was very common in our area to be harvesting after Thanksgiving, but in the last -- as equipment has improved, the ability to get off and handling is increased to be much less of that. So, we believe that they will be able to get off. Now, if we would turn into an exceeding wet pattern, then I would have to back off that statement.

Okay. And I have noticed at some of your elevators that corn basis has weakened. And I was just wondering, is that a function of quality concerns and is your capacity full, or is there lower demand, just if you could speak to basis trends in your localities?

Yes, I will. As we came out of the summer, August, September, we had quite strong basis, and frankly, we were hoping that the harvest would hit us hard, quicker than it did and that we would see a much greater weakening of basis of than we have seen, frankly, because then that allows us to fill space.

At the end of September, we had substantially fewer bushels in our grain elevators. A lot of that was wheat because basically, the demand for soybeans and corn, given the slow, delayed harvest and the relatively small carryover, that demand was causing a quite strong basis in levels that we would rather prefer to just keep selling it through, as opposed to accumulating.

Now that we are into November, we are finally getting hit hard. And we have seen a bit of a drop in the basis, which frankly is good, and it is reflective of the pace of the harvest picking up more than it is poor demand. But I should add that we would not expect basis to get near as weak as we would have thought. If you just do the math, if you stretch the harvest out an extra month that means you need, in theory, one-twelfth less storage because over that period of time, consumption is taking place. At least, fortunately, right now we are getting a good slug of grain, and just a bit on the volume yields appear reasonably good.

Our blending income here this fourth quarter will be quite drying with the wet crop, more drying than normal. There will be some more quality concerns, especially in corn as its test weight is not as good as normal and the moisture is higher, so when it dries it tends to fracture and create some challenges for holding the grain. And those quality issues, I would say, create both opportunity and risk with them. But right now we are getting a good slug of volume coming at us, much later than normal.

Okay, so is it a fair point that this quarter you may make a lot more on the drying, blending side, but maybe not make as much on the basis, the space income side?

Yes, that's a fair conclusion.

Okay.

And the -- space income, as you know, is one of those big, dominant things and it moves big, but we will have decent space income, but it's -- last year in that fourth quarter we had two dynamics going on. We were filling up with exceeding cheap basis, and we had what I'll call the rebounding effect still of the poor first half in basis income, especially in wheat, that gave us a nice kick in the third and fourth quarters last year. And we will have good space income and we just won't have near as much as we had last year.

These quality issues, when you take ownership of this grain, do you bear the risk of quality, or is there some kind of adjustment later if you have a lot of the fracturing, et cetera?

Yes, we take all the risk and opportunity that comes with that. And that is one of the services that anyone in our position would take and the risk goes with the one who takes it on. And it is our job to appropriately charge for that risk, and to appropriately accrue what we call quality discounts for our inventory to recognize that on a period basis.

And so, I would say that a situation like this has got as much, for someone in our position, as much or more opportunity in it than it does risk. But there is risk. Often that does not show up until the following year when -- and I am not talking about ourselves, also with farmers who are storing grain on their farm, there is a higher risk of damage showing up in storage.

Okay, moving on to ethanol, so you have locked in a good amount of your Q4 and some of your first half of '10, wondering, because current slot margins are in the -- on the cash basis, in the $0.40 to $0.50 range. So, I was wondering how close to the current market is what you have locked on Q4, did you move to lock in as soon as it became positive, and then the same question for the 2010 volumes you have locked in.

Yes, one, granted that current -- it is not that close to that current margin which is hard, even if you stay current, we're all spot, it would be hard to literally lock that kind of volume in at those numbers, but it is -- we are comfortably above breakeven as we -- in both what we have done in this quarter and for next year.

So, next year it sounds like you still have for the whole year a fairly substantial amount unhedged.

Correct, yes, yes. The margin structure out past quarter one, especially if you go back in the last half, provides no incentive to lock anything in at all.

Okay and my final question is on the fertilizer side.

Yes.

I understand the whole difficult comparison issue, but if you look at your revenue it was below even Q3 '07 and you have since completed like three acquisitions, and so just wondering what happened in your markets? Is this something that is continuing into Q4? And also, you mentioned that Q3 margins were back to normal, but this loss is worse than any Q3 we have seen for Plant Nutrient.

Yes, it's --

And so I was wondering was there something else going on in the quarter and just, mainly, as it relates to Q4, what should we expect as poor quarter?

Well, you should not -- I would say right now that you should expect a positive quarter, although we go back in time, third and fourth, if we get out of these wild margin swings and inventory swings, those were never our big quarters. But we would expect a positive quarter.

Now we are right, dealing with the reality here in the fourth quarter of delays in getting harvest which is causing delays in putting fertilizer down, so we are expecting to see volume off from what we would have hoped. And when I say hope, I am basing that on the fact that we are expecting a more normal nutrient application in this season. When I say season, I am talking from now through spring. And that is based on where grain prices are and where nutrient prices are.

As to your third quarter point, I have not really invested the time and do not have the '07 revenue data in front of me, but I do know that we had started to see an escalation in price. We also have added in, as far as an income, we did an acquisition in this quarter which we knew would not be accretive in this quarter or this year of a combination of closing costs and when you are hovering right around breakeven, any of the costs associated with that show up in somewhat of a material way around that breakeven point.

Our volume is down, interesting, last year's volume in the third quarter -- in the first part of the third quarter, we had reasonably good sales last year, had high prices, and I just cannot extract '07 from memory. And it started shutting off in September, late August and September. We are down roughly 12% year-over-year in volume from third quarter numbers last year that were not that good.

And I would -- and we have got a lower price per ton, but I would attribute that much more to, not to a reaction of not putting fertilizer down, but more a caution on our wholesale customers taking on inventory and building inventory until they actually can sell it, since all of us in the chain have been burned here in the last year. So there is -- the pipeline is not very full right now with owned inventory from our point on, and so we would expect, if the application rates are there through this season, between now and spring, we would expect some nice volume upticks.

So, your revenues went from $162 million to $70 million and you are saying volumes were only down 12%, and even though it may -- it was diluted on the bottom line, it should have -- Hartung should have added to sales --

Yes, well, right --

-- so how much was the pricing down for you?

Price per ton, roughly 50%.

Okay, okay.

Yes, and Hartung's volume was insignificant, frankly, in this quarter.

Okay, all right, thank you very much.

It tends to be a low volume quarter across the board, but see, it's roughly 50%, maybe slightly more lower price per ton in this quarter, year-over-year. That is a big change.

Very big. Okay, well thank you very much.

Yes.

We have a question from the line of Michael Cox from Piper Jaffray.

Thanks guys. My first question is on the rail side of the business. In the last of quarters you were able to pull out a profit on a similar run rate of revenue. I would be curious what has changed now and your comments around maintaining profitability seemed pretty strong in the last couple quarters, so I would just be curious what has changed and what sort of level of revenue would you need to see to get back to a profitable state in that segment?

Mike, I will answer that, but I probably will not tie it in specifically to revenue, but I am going to -- the major, major driver of pushing us from slightly profitable into the negative range is in the utilization numbers. And, I just want to make sure I have them for you. We were, third quarter '08, average utilization 93.3% versus 74% for our third quarter this year.

And a March average utilization for that quarter is 84.2%, end of June, 77.8%, so now we are down to 74.4%. At the end of September, we are at 72.8% utilization. So it is -- that is one driver. The other driver is what I'll call the dark side of having empty cars, not only are you not earning revenue, but what you pay to store them goes up. So our storage costs for -- has gone up -- I am going to have someone here write this down for the quarter. I will come back to that because I do not want to give it off the top of my head.

But let's just go, say, from early in the year having minimal storage because we ended the year still over 90% utilization, and if you needed to store cars, there was plenty of track. At times we were paying up, maybe you paid $1.00 a day to store a car, could be a little more, could be a little less. Now I would say it is in the $5.00 a car range.

And so, our storage costs have gone up significantly to the point where for the quarter it was roughly about $1.3 million in storage costs. And frankly, that has grown at a rate that has been faster than we would have expected because it is not just being drive by empty cars, it is also being driven by a major escalation in the daily storage rate. And I would expect that we will have a similar situation in the fourth quarter.

There is no question that the rate of decline on utilization has slowed way down and we are starting to place a few cars, but we are not really showing that we want to bounce from the bottom yet. I don't -- I wouldn't sit here and say I know that we are at a bottom, but I know that it is leveling off right now.

So, I would expect -- as you look out for the next several quarters, to me it would be expect more of the same. We do see a modest uptick in our manufacturing rail shops that should give us, should help lessen the drop as we go forward, but in the whole scheme of things, it is that leasing income that is a factor. We also have seen a drop in the average rate for cars that we are re-leasing, and understandably, if somebody is facing a high cost of storage, there is a lot of incentive to be very, quite competitive on getting the cars leased. So it looks like it is going to be a rough road here for several quarters.

The one thing that will occur is one of the things we are doing, scrap values have increased a little bit. I cannot speak for other companies, but we are taking a look at kind of the bottom end of our fleet on where should we just say why pay storage, let's just scrap a few. It's not -- this is not something that is bullish to the business long-term, but it is more kind of stopping the pain on some of the low end.

And I suspect if we are doing stuff like that, others are doing it, that will take a few of the cars off storage, and with so many cars in the fleet being parked, at least 400,000, maybe 500,000, we do not have exact data, it would suggest to me that when we come out of this downturn, it will be a little slower coming back. Now, new car manufacturing is just shut down unless stuff was preordered before and they cannot get out of it, and we do wreck cars every year, so we will -- it feels like it is settling in here, but I am not going to sit here and say that I have a sense of when the bounce will come.

Okay, that's helpful. And I guess what you see today in the business, and you said that the utilization was 72.8% at the end of September, is that where you would expect the fourth quarter to end up? Or do you think that that will have further to slide?

I tell you, I cannot -- I would love to sit here and say I have a crystal ball. So far, the trend has shown that utilization has dropped, as we see by the quarter end number being different than the average. I cannot sit here and say that I know which way it is going to go. I only know the pace of the drop has slowed way, way down. We are able to place a few more cars, so I just am going to beg off on that and say I just do not know.

Okay, shifting to the plant nutrient of the business, your comments said that the volumes would be less than you had originally hoped for, but I believe you are up against, if my notes are correct, a 50% drop in volume in last year's fourth quarter. So should we expect on a volume basis that that will be up year-over-year, and then also, secondarily, on a pricing perspective could you talk about where you are, maybe, just at quarter end on pricing versus last year on a quarter end basis?

Mike Anderson; On the first one on volume, about two or three weeks ago when we were not getting any grain off, literally it was just really not getting stuff off, I was worried. We know weed acres are going to be down this year, cannot tell exactly how much because there is still some planning, but it would not surprise me if they are 10% to 20% lower in our region.

But the volume fourth quarter, as you pointed out, was so bad and that was less because of -- the soil conditions were such that they could take it. The weather was good and it was all primarily price related. We should beat last year's volume number, but if we would turn around into a terrible weather pattern again, and we are just off to a slow start.

As far as pricing, I am not 100% sure what you mean by that. Are you talking about --?

Just at what point do we normalize the price decline?

Oh, I think on nitrogen and phosphate that it feels that -- it feels pretty comfortable at the levels that we are at. Now potash has come down considerably, but on a relative basis not as much. I am not going to suggest that it will necessarily come down or not from here, but nitrogen and phosphate feel like there is a little bit of lift in them, frankly.

On a year-over-year basis as we look just at the fourth quarter, pricing and plant nutrient should be flat, is that a fair assumption?

Again, I am not sure what -- I am struggling with exactly what you mean by pricing. Are --?

The price per ton. Potash is down since the beginning of '09 --

Yes.

-- but the pricing began to fall in phosphate last year.

Yes, our price per ton, we took big mark-to-market hits in the fourth quarter, but we took some additional ones after the first of the year. So I would say that we are not going to be down, and where all the commodities are right now is below where we had them in fourth quarter last year.

So I would expect still on a price per ton basis, if I am answering you correct, our fourth quarter price per ton will be lower than fourth quarter price per ton a year ago. Sometime, assuming that we feel is a bottom has set in on N and P, and I am not going to comment about K, sometime in the first half, then we should see, in my opinion, year-over-year increases.

Okay, that's very helpful. That answered my question exactly. And I guess combining these two factors, does the volume lift? Do you expect to see -- will that be enough to offset the price declines that you expect?

I have got to tell you, I cannot -- I would say I cannot answer that all that well, and part of it is trying to understand exactly what the impact of our mark-to-market losses were in the fourth quarter last year and how that affects revenue, but I will say this. We feel the inventory position we have is a good inventory position right now.

The mark-to-markets are behind us. I really am just -- I wish I could be more helpful on the revenue that you are looking for, but I feel good about our position on the ownership of our inventory at the present time. So from a margin perspective, which is, frankly, in these commodity businesses, something we do focus on more, we are back to much more normalized, healthy, positive margins.

Okay, that's helpful. One, on the grain and ethanol side, you provided some color around directionally space income down, drying and service income or revenue up, but again, in the same light as my question on the plant nutrients, I wonder if you could combine these and give us some directionally where you think the grain and ethanol business shakes out in the fourth quarter relative to Q3 or relative to last year's fourth quarter, whatever would be the most, the best comparison and by the way you look at it.

Sure. We made roughly $9 million pretax, or rather, I'm sorry, $2 million pretax, $9 million pretax in the third quarter. Fourth quarter is usually our big, big quarter. And we would expect that to be substantially above the third quarter in the fourth quarter. On the plus side, we have good comparables for ethanol in the fourth quarter versus a year ago. We have got good comparables in Lansing. We had write-downs that occurred in Lansing last year, the reserves that we took, so we see nice uptick there.

We had an unbelievable fourth quarter in grain last year that was helped by a number of things. We expect a good fourth quarter, a real good fourth quarter, just, it's not -- odds of it being like last year are pretty slim, but it should be quite solid. As I mentioned, we tend to look at this, the grain business, over a 12-month cycle, and we have been demonstrating a good solid position that we have in here and feel quite good about we are sitting.

Okay, that's very helpful. And my last question is on the balance sheet. You now have carried a pretty sizeable cash position for a couple of consecutive quarters. Could you talk about what your plans are from a capital structure perspective and use of cash?

Sure Mike. We ended the quarter with $181 in cash, which is I think what you are speaking to. At this time, we expect to draw down the cash, as we would in any fall, and purchase grain and fertilizer. While, of course, things could change, we think that by late January, early February, we will be drawing on our short-term line of credit, as we usually do during that period of time. So we do not see anything extraordinarily different than in the past.

Okay, thanks.

Our next question comes from the line of Eric Larson from Soleil Securities.

Good morning everyone.

Hey, Eric.

A couple of questions, first, what is the probability, Mike, that you actually push some of the basis opportunities into Q1 2010, given the four week delay? It seems to me that -- I know we can get this stuff off the fields pretty quickly if we can get on them, but is there a possibility that some of this gets deferred into next year?

Let me address that, and you hit on a good point. Often, on corn and soybeans, as opposed to wheat, we have kind of -- we have got the position we have. It's a good position. We should earn ratably through the quarters and there would not be any pushing back. Odds are there will not be any pushing back and forth between quarters or years.

Soybeans, the dynamic there has been there has been really good demand in a way that says push the beans that you take in out and sell them. So we would not anticipate holding a lot of soybeans, unless what you are saying occurs to some degree which would be, for whatever reason, the final tale pushes the basis down. Then we would accumulate. I would think most -- if that occurs and we do take on some bean ownership, I would expect most of the pop to happen yet this quarter.

Now corn is an interesting one. Often, that is one where we are sitting about this time of the year or Thanksgiving, we have accumulated a substantial amount corn. It is now that we are full, and we tend then to get the strong basis pop that occurs from Thanksgiving to Christmas because the harvest is stopped. The pressure is relieved on the inbound side, and somebody says if you want this corn you are going to have to pay up for it.

You bring up a really interesting point. We are hopeful that we will have the weather pattern that allows a surge to corn to come at us at levels that allow us not only to fill up, but fill up at good basis levels, and in fact, would encourage us to pile corn with our covered piles that we have, which we only want to do if we can accumulate it at good levels.

Now, if we are harvesting post-Thanksgiving and into Christmas, then it is likely the dynamic, let's just say post-Thanksgiving, it's likely the dynamic you are talking about occurs, that we do not get quite the pop in December and it possibly moves over into the first quarter. Right now I do not know. I just do not know, but every year we deal with that, when does that big pop show up?

And this year, there is more likely a pushes back, and then we typically have a fair amount of tax selling after the first of the year. So, if it pushes into next year, I -- it could push late, into late in the first quarter as opposed to early. Right now, if the weather holds, we are going to harvest a lot of corn between now and Thanksgiving. And then we might get the more traditional pop. On the other hand, if it stretches out, what you say could occur.

Okay, I think that's reasonable. A couple just sort of accounting issues, and maybe Nick can answer this, in your pension, your onetime pension gain in the quarter, did that get recognized as a one lump sum from the income statement, or did you spread it out across the respective divisions?

Actually, I'll answer it because I know it pretty well. And that, what that -- because of some prior service cost issues, we were recognizing this $4 million over time and would have recognized it in the future with the change in our pension plan. It all came in now and we did spread it in to the units based on basically their headcounts and whatnot.

So it did have impact on a number of the units. I would say in Grain and Ethanol there are enough other dynamics going in there that it kind of gets lost in the averages. It did help Plant Nutrient a little bit. Turf and Specialty, I would say would be one where it showed up maybe the most if you try and do some comparables, that they would have had a little bit lower income number than we reported. But a good question. We did spread it back.

Okay. Wouldn't Retail benefit quite a bit with that as well because isn't that a more labor intensive --

Well, no. Yes, that is a good point. I'm glad you mentioned it. Actually, no because of the changes -- we made changes in the Retail pension plan several years ago --

Okay.

-- that these current changes had no effect on retail.

Okay, all right. And then, in your -- you did not disclose -- your retailing loss, obviously, was quite a bit more than I had expected and it included closing costs for Lima, or Lima. Are you willing to share what that, what those onetime closing costs penalized Q3 earnings?

Yes, it's in the vicinity of $750,000 to $1 million between accrued severance and some other additional things we took in that quarter. We are liquidating inventory and there could be some additional costs this quarter from the final liquidation. The third quarter inventory we were liquidating was still at profitable levels and I do not, I really do not have a good handle on exactly where it is going to shake out. But that is that range, $750,000 to $1 million is roughly the range of the onetime hit.

Okay, and one just final question, and I guess I don't recall seeing this in some of your -- it must be the last three or four press releases, and maybe it is just that I have missed it. You took some bad, additional bad debt expense in the grain ethanol area in the quarter. Is that something you have been doing for the last two or three or four quarters, or is something new that we, what -- can you give us a little more flavor as to what that bad debt number is?

Yes, I will, and we periodically will accrue kind of average stuff or when we have unusual things show up. And with Grain and Ethanol, in Grain, this was in Grain. we had not had anything unusual really show up in the last several quarters, so there was nothing material.

This was related to an individual circumstance of a slow paying thing that has risen to the level where we feel that we needed to take a reserve that was sizeable enough that it needed to be noted in this release. And I am not going to disclose the exact dollar amounts of it. We think we are adequately reserved, and we believe it is an isolated situation and not reflective of other things that should, that might be coming.

Okay, and so -- but you are assuming that is now pretty conservatively funded and so you are --

Yes.

-- you think this might be the last. We should not be looking for this for future quarters?

That is correct on this issue.

Okay, all right, fine. Thank you.

Okay, thanks, Eric.

Thanks, Eric.

Our next question comes from the line of Farha Aslam from Stephens, Inc.

Yes, this is Eric Gottlieb before Farha. Most of my --

I thought you sounded different.

Thanks. Most of my questions have been answered. My one question has to do with utilization rates. It seems that loan car originations for the industry were at their trough in April, May and have since been improving, but your utilization rates have been going down, and I am just wanting some clarification on why that is.

Yes, and what I think you are talking about, the weekly and monthly reports of railcar loadings year-over-year that the trough, I think, was in that 25% range in that period. It maybe lasted a little longer and now we have been having months that have been 15% or weeks 15% year-over-year.

A couple -- a little bit of color on that and I hope I am -- I am not going to suggest that I am an absolute expert at this, but some of my perspective. About a year ago, or through last year, we did not see big drop-offs year-over-year, but we had started to see 1% and 3% declines starting in January, if I go back to January of '08. So, where I am going is, where each month went by, you are going against the lower number in the year-over-year calculations. For example, in December, it would not surprise me that we show increases. I think December was the month we showed huge drop-off, so one, it is kind of what are you comparing year-over-year?

But two, a lot of this has to do with as, I would say, the unique characteristics of every Company's fleet and when their leases come due. And it just so happened that this year was a -- this calendar year we are in, was a year when we had, if our average lease term is five years, you could say, well, a fifth, on the average a fifth of your fleet comes due every year.

This year we had little more over than a fifth coming due. And often, when the lease came due, especially earlier in the year when the utilization was dropping rapidly, it was much more of a, you know, I leased 400 cars from you, I have got 100 coming due. I do not need those 100 cars. So we have that dynamic of just of that occurring and at this rate. So, and then, not everybody measures utilization the exact same way. I don't want to attribute it to that, but we are pretty conservative on the way we measure it.

If a car is out of service, we take it out the numerator just very quickly. But I understand the point that you are making. At the same time, as those monthly reports comes out, it is still reflective of the fact that there is substantially lower railcars.

There is one other dynamic that has occurred, and it is pretty understandable. And it is the fact that as we have relieved the railroads of all these railcars, their turnaround is improved noticeably, which is a factor that impacts utilization that is in a negative way for us that maybe is not as apparent when you are looking at just the statistics that you mentioned.

Okay, that makes more sense. My other comment is some of the potash producers around the industry seem to very constructive on the industry and I want to know if you just agree with them.

Well, I would say this. I am not going to speak to their particular businesses, but I mentioned that our base green business feels quite solid. I would say we are coming off still the aftereffects of on the nutrient side of dealing with this major reduction in volume that occurred last year and the pricing that occurred.

But if you get right down to fundamentals of producing food, it is a friendly and bullish situation. Now our viewing point is, for the most part, Eastern United States and some other states, not just world. Some of the major fertilizer producers, their footprint is certainly a lot bigger than ours, but we would expect continued, good economic situation in the state that we are, and we would expect nutrients to be put down to support the need for growing increasing amounts of food.

Next year, in particular in the US, the way things are setting up with a combination of where corn price is, where nutrient prices are, with a little lower wheat planting, right now, understanding this can change later, we would expect an increase in corn acres next year, possibly anywhere from 1 million to 4 million acres. That is an early read. Again, we will change that.

So, the underlying dynamics are reasonably strong and China, the whole -- if we go back pre-inflation and prices, there is the reality that that China, India factor is still there, especially in China. There appears to be a continued desire to have more protein and meat protein in the diet and that is friendly to world agriculture and friendly to nutrients.

Okay, very good. I'll pass it on. Thank you.

Thank you, Eric.

(Operator Instructions).

We have a question from the line of Ian Horowitz from Rafferty Capital Markets.

Hi, Ian.

Good morning everyone.

Hey, Ian.

Mike, can you just go back. You talked about, I think, it was 400,000 to 500,000 railcars across the industry. Are -- I don't, at this point -- what is that, can you just give us an understanding railcar number from your viewpoint?

Yes, a number around 1.6 million railcars plus or minus, so we are in that 25% maybe, or more that are not being utilized and prior to this year, this downtown, we might expect to take out of service because of age or collisions or being demolished 35,000 to 50,000 railcars a year, I suspect that number will go down a little. Maybe scrapping will go up a little bit. And new car production will be way off, but that gives you a sense of the overhang on the market that is sitting out there.

So your basic, your utilization rates are basically in line with macro rates?

I think so. I think they are generally in line from everything we can tell.

And then, again --

We are very diverse in the car types and industries we serve, so we are not too concentrated with any one customer or industry to where that is logical to me, that we would be more industry-like.

Right. And then from your viewpoint again, are your scrapping rates kind of, do they appear to be in line with what the industry is going through right now?

Yes, I'm glad you asked that. I want to be clear. We are in the process -- we really are not scrapping many yet. We are in the process of looking at that based on a little bit of a bounce in scrap steel prices. I cannot speak to anyone else.

I would say that up until now most of the industry -- because steel prices have plummeted so much, probably there was not a lot of incentive to take anything offline, but the combination of the cost of parking them and the little pop in steel prices is causing us to take a look at that. And we have really not acted on that look at this point in time and I do not want to speak to anyone else.

Okay, and then could you just explain one more time -- you answered Eric's question about as capacity to come out of the rail system, to turnaround as it's done more quickly, and I didn't quite follow that. Could you just kind of go through that one more time?

Sure, for example, I will just give you an example. Let's just say you have loaded 100 cars full of corn and you want to ship them from here to the Southeast and an average turnaround time is x. Well it comes in -- when we add substantially more cars on the road, you would end up with congestion, both in yards and having power to pull the train.

So a train might sit loaded somewhere, or when it is unloaded take time to get back, just as you free up the traffic, much like cars on a freeway, and you have got fewer cars on there, you are able to move the cars that are on there more quickly. So you get this efficiency gain that occurs, which basically means you don't need as many cars.

Okay. That I understood.

Yes.

And then, you talked about Turf and Specialty weakness in the professional market. Does that include the golf course market as well? And are you seeing the weakness that some of your competitors have seen in that group?

Yes, it is. We are -- that is the primary, when we see a professional for us, golf would be the primary professional group. And we are seeing weakness there. We are, in tonnage, especially of conventional nutrients, is down quite a bit and we have talked in prior calls about our investment in new product technology including some patented products, which frankly have a different positive margin profile.

Tonnage is not as much. That is holding in there for us, thank goodness. But that is definitely a rough industry and it is affecting most of the folks. And we are just pleased with our continuing investment, as I said, in the area of technology and propriety and patented products and that is allowing us, frankly, to be in a position that will likely have a record year in that particular business, despite terrible external conditions.

Okay, and then one last question. With Retail, it kind of continues to be either a slight positive or somewhat of a negative drag on earnings. You are closing the Lima store. Can you just give us your thoughts on Retail going forward? Are there plans for -- what were the metrics you used to determine to make the decision to close Lima? Are there other opportunities to kind of streamline the business and kind of what are you hopes and goals for this division?

Well that has got a lot. That has got some near term stuff and some long term, and I am not going to get into a longwinded answer on it, but I will say that in times past, we have said if we get signals, market signals that we need to address, in our opinion, the closing, which -- and it is our assessment based on how we look at the business and how it fits with our heritage and our overall footprint, we will step up and that is what we did in the case of Lima, Ohio.

And that is certainly a circumstance that could potentially affect other stores. Now, having said that, we have got three of five remaining large stores, are good revenue producers and gross profit producers. And our expectation is to do some things that we believe will help drive additional sales in those particular stores.

And we will continue to evaluate as we try to make our Retail concept work, whether we should continue to do that or not. We also have this market store, food market store concept that we opened. Results are less than we expected and I would say that is still in the -- that one, as opposed to our bigger stores, is what I would call in an R&D stage as to whether or not we feel we should expand the concept or not. But clearly, the results having drifted lower here, put more urgency around the points that you make. And we need to be cognizant of that.

I actually do have one last question. You talk a lot about the ethanol business and what -- are there any opportunities or any desire for the Andersons to move into a larger footprint either with your traditional partnership arrangements or outright acquisitions of some of these idle or very constrained assets right now?

Yes, great question and some of the Verasun assets came for sale and we took a look at some and actually had some interest that we turned into a bid and we have looked at that individually and with partners. And we are looking at a couple things right now.

But we are, I would say, we want to -- this industry, it is nice to have this margin pop right now, but we are right in real time adding more capacity that is coming on stream, literally, right now, and more coming. So we are not basing our decisions about potential entry on the current spot margin structure that was mentioned earlier, but more, with a little more caution as we look forward. But we have got a couple things in the hopper. I don't know if we will develop or that they won't, but if they do, we will be pleased with it.

I think that with your balance sheet, some of these assets that are idle, primarily due to the margin environment and working capital constraint, it would seem like you would be someone who could come in, again, individually or as in your traditional partnership arrangement.

I would say I would agree with you. At the same time, there are some others who take a look at. You've seen Valero come into the space and a few of these other ones have, in fact, come back on stream, but your point is not only well taken. It is consistent with our thinking and then it's just a question of whether or not the opportunity is there, what the offering level is and what our buying interest is.

Are offering prices still significantly discounted or has the recent profitability --

Yes, they -- there has definitely been a bounce that has occurred, so but there's -- anybody who wants to sell is willing to take a lot less than new construction.

All right, great. Thanks, Mike.

Okay, thanks. I think we are past our time here, so I am going to close this off. Thanks for joining us. Next conference call is scheduled for Tuesday, February 9. We will review our yearend results and we hope you are able to join us at that time and have a good day. Thank you.

Thank you.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation.