Critical Accounting Policies and Estimates Our critical accounting policies and critical accounting estimates, as described in our 2011 Form 10-K, have not materially changed during the first nine months of 2012.
New Regulatory Rule
On August 22, 2012, the SEC approved a final rule requiring certain issuers to publicly disclose their use of conflict minerals [tantalum, tin, tungsten, and gold] and whether those minerals originated in the Democratic Republic of Congo or adjoining countries. Issuers will be required to provide annual disclosures on a new Form SD to be filed with the SEC by May 31, 2014 for the 2013 calendar year. Based on initial review, management does not believe there are any conflict minerals necessary to the functionality or production of products manufactured or contracted to be manufactured by the Company, and therefore has no impact.
Executive Overview
The agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices. Therefore, increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit. As a result, changes in sales for the period may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes to merchandising revenues and service income. Grain Business
Our Grain business operates grain elevators in various states in the U.S. Corn Belt. In addition to storage, merchandising and grain trading, Grain performs marketing, risk management, and corn origination services to its customers and affiliated ethanol production facilities. Grain is a significant investor in Lansing Trade Group, LLC ("LTG"), an established commodity trading, grain handling and merchandising business with operations throughout the country and with global trading/merchandising offices.
Grain inventories on hand at September 30, 2012 were 55.0 million bushels, of which 0.9 million bushels were stored for

others. This compares to 42.8 million bushels on hand at September 30, 2011, of which 50 thousand bushels were stored for others.
During the third quarter, the Grain Group opened a 3.7 million bushel elevator in Anselmo, Nebraska that primarily handles corn and soybeans. With the addition of this new elevator, total storage capacity is now approximately 113 million bushels as of September 30, 2012.
Early planting and drought conditions accelerated harvest. According to the U.S. Department of Agriculture's Crop Progress Report, an average of 87% of corn has been harvested in states where we have grain facilities, which is ahead of both prior year and the five year average. Corn yields and qualities didn't meet expectations. Yields are reported to be down to 122 bushels per acre from 147.2 bushels per acre in 2011. Soybeans are 93% harvested in states where we have grain facilities, which is ahead of both prior year and the five year average. Next year's winter wheat crop is approximately 95% planted in our primary region. As we look to the fourth quarter, post-harvest inventories are expected to be at levels which are anticipated to have an unfavorable impact on space income into 2013.

On October 26, 2012, the Company signed an agreement to purchase various grain facilities in Iowa and Tennessee for a purchase price of $95.5 million plus working capital. The facilities will increase the storage capacity of our Grain Group by nearly 30 percent. The transaction, which remains subject to certain conditions, is anticipated to close in the fourth quarter. Ethanol Business
Our Ethanol business holds investments in four ethanol production facilities organized as separate limited liability companies, three of which are accounted for under the equity method (the "ethanol LLCs") and one that is consolidated ("The Andersons Denison Ethanol LLC"). The business purchases and sells ethanol, offers facility operations, risk management, and ethanol, corn oil and distillers dried grains ("DDG") marketing to the ethanol plants in which it invests in and operates, as well as third parties. The Company holds a majority interest (85%) in The Andersons Denison Ethanol LLC ("TADE") which is a consolidated entity. The noncontrolling interest in TADE is attributed 15% of the gains and losses of TADE recorded by the Company.
Drought conditions resulted in a poor corn crop, which has a negative impact on the Ethanol business. Equity in earnings of the three ethanol LLCs that are accounted for under the equity method had significantly lower results for the third quarter of 2012 compared to the same period in 2011 due to the decline in ethanol margins resulting from increased corn costs and lower ethanol demand. With the addition of TADE during the second quarter, gallons sold increased significantly, however, the higher volume was more than offset by a larger decline in the average price per gallon of ethanol. With the current price volatility of various inputs and lack of available corn we are anticipating adverse impacts on gross profit in future periods.
Ethanol volumes shipped for the three and nine months ended September 30, 2012 and 2011 were as follows:

(in millions)                    Three months ended September 30,  Nine months ended September 30,
                                       2012              2011            2012              2011
Ethanol (gallons shipped)                   70.4            60.5             195.8          179.4
E-85 (gallons shipped)                       4.6             2.4              13.8            9.4
Corn Oil (pounds shipped)                   16.5             2.9              40.0            7.0
DDG (tons shipped)                           0.2             0.2               0.7            0.7

Plant Nutrient Business
Our Plant Nutrient business is a leading manufacturer, distributor and retailer of agricultural and related plant nutrients and pelleted lime and gypsum products in the U.S. Corn Belt and Florida. It operates facilities in the Midwest, Florida and Puerto Rico. The Plant Nutrient Group provides warehousing, packaging and manufacturing services to basic manufacturers and other distributors. The business also manufactures and distributes a variety of industrial products in the U.S. including nitrogen reagents for air pollution control systems used in coal-fired power plants, water treatment products, and de-icers and anti-icers for airport runways, roadways, and other commercial applications. The major nutrient products sold by the business principally contain nitrogen, phosphate, potassium and sulfur.

Storage capacity at our wholesale nutrient and farm center facilities was approximately 443,000 tons for dry nutrients and approximately 390,000 tons for liquid nutrients at September 30, 2012.

Fertilizer tons (including sales and service tons) for the three and nine months ended September 30, 2012 were 0.4 million tons and 1.6 million tons, respectively, compared to the three and nine months ended September 30, 2011 of 0.4 million tons and 1.4 million tons.
The drought conditions that have impacted much of the Midwest are slowing plant nutrient activity due to lack of grower demand. Looking ahead, the reductions in crop volume and quality may cause continued rises in grain prices into 2013 which should support good nutrient demand moving into the next crop cycle. Rail Business
Our Rail business buys, sells, leases, rebuilds and repairs various types of used railcars and rail equipment. The business also provides fleet management services to fleet owners. Rail has a diversified fleet of car types (boxcars, gondolas, covered and open top hoppers, tank cars and pressure differential cars) and locomotives.
In the third quarter, Rail had gains on sales of railcars and related leases in the amount of $13.5 million compared to $0.7 million in the prior year. Railcars and locomotives under management (owned, leased or managed for financial institutions in non-recourse arrangements) at September 30, 2012 were 23,384 compared to 22,268 at September 30, 2011. The average utilization rate (railcars and locomotives under management that are in lease services, exclusive of railcars managed for third party investors) has decreased slightly from 85.1% to 84.3% for the quarters ended September 30, 2011 and 2012.

The Rail Group's operating results are overstated in the third quarter as a result of an error in the retained risk calculation related to certain non-recourse financing transactions that were recognized as sales. While this error does not impact income for the nine months ended September 30, 2012, it resulted in sales proceeds of $1.8 million and operating income of $1.1 million in the third quarter instead of the second quarter of 2012. This error is not considered to be material to pre-tax income for the Rail operating segment, nor the total Company for the current or previously reported results or the amount forecasted for the year. Also see Item 4 Controls and Procedures for more information in this regard.

Rail recently announced the construction of a 27,300 square-foot railcar blast and paint facility in Maumee, Ohio, which should be completed in the spring of 2013.
Turf & Specialty Business
Turf & Specialty is one of a limited number of processors of corncob-based products in the United States. Corncob-based products are manufactured for a variety of uses including laboratory animal bedding, private-label cat litter, as well as absorbents, blast cleaners, carriers and polishers. Corncob-based products are sold throughout the year. Turf & Specialty also produces granular fertilizer products for the professional lawn care and golf course markets. It also sells consumer fertilizer and weed and turf pest control products for "do-it-yourself" application to mass merchandisers, small independent retailers and other lawn fertilizer manufacturers and performs contract manufacturing of fertilizer and weed and turf pest control products. These products are distributed throughout the United States and Canada and into Europe and Asia. The turf products industry is highly seasonal, with the majority of sales occurring from early spring to early summer.

During the third quarter of 2012, the Turf & Specialty Group announced a minor restructuring and incurred pre-tax charges to expense for one-time termination benefits of $0.4 million or $0.01 per share on an after-tax basis for the 2012 calendar year. Cash payments will be made over the next six to twelve months.

On October 30, 2012, the Company completed the purchase of substantially all of the assets of Mt. Pulaski Products, LLC for $7.0 million plus working capital. The operations consist of several corncob processing facilities in central Illinois. This acquisition is anticipated to double our raw cob supply which will enable us to enhance the service to our existing customers and expand our presence in the higher value segments of this business. Retail Business
Our Retail business includes large retail stores operated as "The Andersons" and a specialty food market operated as "The Andersons Market". It also operates a sales and service facility for outdoor power equipment. The retail concept is More for Your Home ® and the conventional retail stores focus on providing significant product breadth with offerings in home improvement and other mass merchandise categories, as well as specialty foods, wine and indoor and outdoor garden centers.
The retail business is highly competitive. Our stores compete with a variety of retail merchandisers, including home centers, department and hardware stores, as well as local and national grocers. The Retail Group continues to work on new departments and products to maximize the profitability.

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

Operating Results
The following discussion focuses on the operating results as shown in the
Condensed Consolidated Statements of Income with a separate discussion by
segment. Additional segment information is included in the Notes to the
Condensed Consolidated Financial Statements herein in Note 7. Segment
Information.

                                            Three months ended              Nine months ended
                                               September 30,                  September 30,
(in thousands)                              2012           2011           2012            2011
Sales and merchandising revenues        $ 1,138,402     $ 938,660     $ 3,591,369     $ 3,278,501
Cost of sales and merchandising
revenues                                  1,060,086       873,696       3,324,533       3,012,080
Gross profit                                 78,316        64,964         266,836         266,421
Operating, administrative and general
expenses                                     58,029        54,486         177,339         165,923
Interest expense                              5,482         5,711          16,192          20,609
Equity in earnings of affiliates              6,027         9,731          15,406          29,489
Other income, net                             3,492         1,217           9,409           5,541
Income before income taxes                   24,324        15,715          98,120         114,919
Income (loss) attributable to
noncontrolling interests                     (1,693 )         306          (3,100 )         1,245
Operating income                        $    26,017     $  15,409     $   101,220     $   113,674

Comparison of the three months ended September 30, 2012 with the three months ended September 30, 2011:

Grain Group

                                                  Three months ended
                                                    September 30,
(in thousands)                                    2012          2011
Sales and merchandising revenues               $  677,484    $ 538,723
Cost of sales and merchandising revenues          656,318      517,966
Gross profit                                       21,166       20,757
Operating, administrative and general expenses     16,669       16,881
Interest expense                                    3,465        2,674
Equity in earnings of affiliates                    9,249        6,459
Other income, net                                     526          652
Operating income                               $   10,807    $   8,313

Operating results for the Grain Group increased $2.5 million from the results of the same period last year. Sales and merchandising revenues increased $138.8 million and is the primarily the result of an increase in both the volume of bushels shipped for corn, soybeans and wheat as well as the average price per bushel sold for soybeans and oats. Cost of sales and merchandising revenues increased $138.4 million compared to the third quarter of 2011 and is primarily driven by the rising cost of grain. Gross profit is comparable to the third quarter of 2011 despite the increase in sales volume noted above and is primarily a result of lower wheat basis appreciation, a component of space income. Basis is defined as the difference between the cash price of a commodity in one of the Company's facilities and the nearest exchange traded futures price.

Operating expenses decreased slightly compared to the same period in 2011 due to lower bad debt expense and maintenance expense, partially offset by an increase in labor related to organizational growth. Interest expense increased $0.8 million from prior year due primarily to higher levels of working capital. Equity in earnings of affiliates increased $2.8 million over the same period in 2011, primarily due to the performance of the investment in LTG. Other income did not change significantly quarter over quarter.

Ethanol Group

                                                          Three months ended
                                                            September 30,
(in thousands)                                            2012          2011
Sales and merchandising and service fee revenues       $ 209,634     $ 179,331
Cost of sales and merchandising revenues                 205,788       176,252
Gross profit                                               3,846         3,079
Operating, administrative and general expenses             2,968         1,444
Interest expense                                             284           194
Equity in earnings (loss) of affiliates                   (3,224 )       3,270
Other income, net                                              1            38
Income (loss) before income taxes                         (2,629 )       4,749
Income (loss) attributable to noncontrolling interests    (1,693 )         306
Operating income                                       $    (936 )   $   4,443

Operating results for the Ethanol Group decreased $5.4 million from the results of the same period last year to a $0.9 million loss. Sales and merchandising and service fee revenues increased $30.3 million and is primarily due to an increase in volume, as the average price per gallon of ethanol sold was down compared to the same quarter last year. Corn oil sales also contributed to the significant increase over the third quarter of 2011, as there were no corn oil sales for the Ethanol Group until 2012. The acquisition of TADE in the second quarter of 2012 added $35.2 million of ethanol sales, $10.0 million of DDG sales, $1.1 million of corn oil and $0.6 million of syrup sales. The increase in cost of sales primarily relates to an increase in volume as a result of the acquisition of TADE and to a lesser extent, corn costs. The increase in gross profit quarter over quarter is attributed to mark to market gains on certain hedges.

Operating expenses increased $1.5 million over the three months ended September 30, 2011 primarily due to added labor, benefits and depreciation for TADE. There were no significant changes in interest expense and other income. Equity in earnings of affiliates decreased $6.5 million compared to the same period in 2011 and relates to losses from the investment in three ethanol LLCs. The LLC's continue to be negatively impacted by lower ethanol margins resulting from increased corn costs and lower demand for ethanol in both the U.S. and export markets.

Plant Nutrient Group
                                                  Three months ended
                                                    September 30,
(in thousands)                                    2012          2011
Sales and merchandising revenues               $  135,144    $ 137,637
Cost of sales and merchandising revenues          119,847      116,660
Gross profit                                       15,297       20,977
Operating, administrative and general expenses     14,338       13,699
Interest expense                                      725          940
Equity in earnings of affiliates                        2            2
Other income, net                                     523          282
Operating income                               $      759    $   6,622

Operating results for the Plant Nutrient Group decreased $5.9 million from the same period last year. Sales and merchandising revenues decreased $2.5 million due primarily to a decrease in the average price per ton sold compared to the same quarter last year although volume was up quarter over quarter. Cost of sales and merchandising revenues increased $3.2 million driven primarily by higher volume. Gross profit decreased $5.7 million as a result of the lower margins per ton.

Operating expenses were higher for the three month period ending September 30, 2012 compared to the same period in 2011 and can be attributed to an increase in labor and benefit expense related to business acquisitions completed in the fourth quarter of 2011 and the first quarter of 2012. There were no significant changes in interest expense, equity in earnings of affiliates and other income compared to the same period last year.

Rail Group

                                                  Three months ended
                                                    September 30,
(in thousands)                                     2012         2011
Sales and merchandising revenues               $    59,703    $ 24,067
Cost of sales and merchandising revenues            36,811      18,887
Gross profit                                        22,892       5,180
Operating, administrative and general expenses       4,287       3,047
Interest expense                                     1,229       1,614
Other income, net                                    1,695         604
Operating income                               $    19,071    $  1,123

Operating results for the Rail Group improved by $17.9 million compared to the results from the same period last year. As noted in the executive overview for the Rail Business, the Rail Group's operating results are overstated in the third quarter as a result of a prior period error which resulted in sales proceeds of $1.8 million and operating income of $1.1 million recorded in the third quarter instead of the second quarter of 2012. See the previous section of this Form 10-Q for more information in this regard.

Leasing revenues increased $2.8 million, sales in the repair and fabrication shops increased $2.2 million and car sales increased $30.7 million. The increase in revenues is primarily attributed to more railcars in service, higher volume of transactions and favorable lease rates. Cost of sales and merchandising revenues increased $17.9 million compared to the same period last year primarily as a result of higher volume of car sales.

Rail gross profit increased by $17.7 million compared to the third quarter of 2011. Gross profit in the leasing business increased $3.9 million and is attributed to improved lease rates and a decrease in lease expense driven by a lower average number of cars in leases compared to the same period last year. Gross profit on car sales increased $12.9 million primarily as a result of higher volume of nonrecourse transactions. Gross profit in the repair and fabrication shops increased $0.9 million due to higher volume of activity, as margins are remain fairly consistent from period to period.

Operating expenses increased $1.2 million compared to the third quarter of 2011 due to higher labor and benefits related to growth and higher performance incentives. There were no significant changes in interest expense compared to the same period last year. Other income was higher in the third quarter of 2012 due to settlements received from customers for railcars returned at the end of a lease that were not in the required operating condition, as well as higher dividend income.

Turf & Specialty Group

                                                  Three months ended
                                                    September 30,
(in thousands)                                    2012          2011
Sales and merchandising revenues               $  21,509     $ 23,051
Cost of sales and merchandising revenues          16,213       18,337
Gross profit                                       5,296        4,714
Operating, administrative and general expenses     6,810        5,853
Interest expense                                     238          273
Other income, net                                    181          167
Operating income (loss)                        $  (1,571 )   $ (1,245 )

The operating loss for the Turf & Specialty Group increased $0.3 million for the third quarter of 2012 compared to results from the same period last year. Sales and merchandising revenues decreased $1.5 million primarily due to lower volume as the average price per ton sold was up quarter over quarter. Consistent with revenues, cost of sales and merchandising revenues decreased $2.1 million compared to the same period last year due to lower volume, as the average cost per ton increased slightly compared to the prior year quarter. Gross profit increased $0.6 million due to improved margin per ton.

Operating expenses increased significantly over the same period last year primarily as a result of $0.4 million in severance charges incurred in the third quarter of 2012. There were no significant fluctuations in interest expense and other income quarter over quarter.

Retail Group
                                                  Three months ended
                                                    September 30,
(in thousands)                                    2012          2011
Sales and merchandising revenues               $  34,928     $ 35,851
Cost of sales and merchandising revenues          25,109       25,594
Gross profit                                       9,819       10,257
Operating, administrative and general expenses    11,488       11,382
Interest expense                                     217          238
Other income, net                                    117          130
Operating loss                                 $  (1,769 )   $ (1,233 )

Operating results for the Retail Group decreased $0.5 million compared to the same period last year. Sales and merchandising revenues decreased $0.9 million. . . .