** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

# ** **

# **FORM 10-Q**

 

**x****        Quarterlyreport pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934****for thequarterly period ended March 31, 2008**

**OR**

 

**o****        Transitionreport pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934****for thetransition period from               to               .**

 

**COMMISSION FILE NUMBER 001-32922**

 

**AVENTINE RENEWABLE ENERGY HOLDINGS, INC.**

(Exact name of registrant asspecified in its charter)

 

| **Delaware**                              | ** ** | **05-0569368**                     |
|-------------------------------------------|------------|------------------------------------|
| (State of Incorporation)                  |       | (IRS Employer  Identification No.) |
|                                      |       |                               |
| **120 North Parkway**                     |       |                               |
| **Pekin, Illinois**                       | ** ** | **61554**                          |
| (Address of Principal  Executive Offices) |       | (Zip Code)                         |

 

**(309) 347-9200**

(Registrant’s TelephoneNumber, including Area Code)

 

Indicate by checkmark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

YES x  NO o

 

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

 

| Large  accelerated filer o                     |   | Accelerated  filer x         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company o |
| (Do  not check if a smaller reporting company) |   |                              |

 

Indicate by checkmark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).  YES o  NO x

 

Indicate the number ofshares outstanding of each class of Common Stock, as of the latest practicabledate

 
| **Class**                      | ** ** | **Outstanding as of May 7, 2008** | ** ** |
|--------------------------------|------------|------------------------------------------------------------|------------|
| Common Stock, $0.001 Par Value |       | 41,971,330 Shares                                          |       |

# ** **

 

----

 

# **FORM 10-Q**

 

**QUARTERLY REPORT**

** **

**TABLE OF CONTENTS**

 
| ** ** | ** **                                                                                                             | ** ** | **Page No.** |
|------------|------------------------------------------------------------------------------------------------------------------------|------------|-------------------|
|       | PART I                                                                                                            |       |              |
|       |                                                                                                                   |       |              |
| Item 1.    | Financial  Statements                                                                                                  |       |              |
|       | Condensed  Consolidated Statements of Operations (Unaudited) - Three-month periods ended  March 31, 2008 and 2007 |       | 1                 |
|       | Condensed  Consolidated Balance Sheets – March 31, 2008 (Unaudited) and  December 31, 2007              |       | 2                 |
|       | Condensed  Consolidated Statements of Cash Flows (Unaudited) - Three-months ended  March 31, 2008 and 2007        |       | 3                 |
|       | Notes to  Unaudited Condensed Consolidated Financial Statements                                                        |       | 4                 |
|       |                                                                                                                   |       |              |
| Item 2.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                            |       | 20                |
|       |                                                                                                                   |       |              |
| Item 3.    | Quantitative  and Qualitative Disclosures About Market Risk                                                            |       | 33                |
|       |                                                                                                                   |       |              |
| Item 4.    | Controls and  Procedures                                                                                               |       | 35                |
| ** ** | ** **                                                                                                             | ** ** | ** **        |
| ** ** | **PART II**                                                                                                       | ** ** | ** **        |
| ** ** | ** **                                                                                                             | ** ** | ** **        |
| Item 1.    | Legal Proceedings                                                                                                      |       | 36                |
|       |                                                                                                                   |       |              |
| Item 1A.   | Risk Factors                                                                                                           |       | 36                |
|       |                                                                                                                   |       |              |
| Item 2.    | Unregistered  Sales of Equity Securities and Use of Proceeds                                                           |       | 36                |
|       |                                                                                                                   |       |              |
| Item 3.    | Defaults  Upon Senior Securities                                                                                       |       | 36                |
|       |                                                                                                                   |       |              |
| Item 4.    | Submission  of Matters to a Vote of Security Holders                                                                   |       | 36                |
|       |                                                                                                                   |       |              |
| Item 5.    | Other Information                                                                                                      |       | 36                |
|       |                                                                                                                   |       |              |
| Item 6.    | Exhibits                                                                                                               |       | 36                |

 

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**PART I.****                     ****FINANCIAL INFORMATION**

** **

**Item 1.****                            ****Financial Statements**

 

**Aventine Renewable Energy Holdings, Inc. andSubsidiaries**

**Condensed Consolidated Statementsof Operations**

(Unaudited)

 
| ** **                                                              | ** ** | **Three Months Ended  March 31,** | ** **  |
|-------------------------------------------------------------------------|------------|--------------------------------------------------|-------------|
| **(In thousands except per share amounts)**    | ** ** | **2008**                                         | ** **  | **2007** | ** ** |
|                                                                    |       |                                             |        |   |   |
| Net sales                                                               | ** ** | **$**                                            | **509,948** |   | $ | 436,662 |   |
| Cost of goods sold                                                      | ** ** | **485,865**                                      |        | 408,247 |   |
| Gross profit                                                            | ** ** | **24,083**                                       |        | 28,415 |   |
| Selling, general and administrative expenses                            | ** ** | **8,869**                                        |        | 9,598 |   |
| Non-cash loss on available for sale securities                          | ** ** | **21,625**                                       |        | — |   |
| Realized loss on sales of securities                                    | ** ** | **1,500**                                        |        | — |   |
| Other income                                                            | ** ** | **(777**                                         | **)**       | (164 | ) |
| Operating income (loss)                                                 | ** ** | **(7,134**                                       | **)**       | 18,981 |   |
| Other income (expense)                                                  |       |                                             | ** **  |   |   |
| Interest income                                                         | ** ** | **2,239**                                        | ** **  | 1,368 |   |
| Interest expense                                                        | ** ** | **(2,391**                                       | **)**       | (336 | ) |
| Other non-operating income                                              | ** ** | **1,868**                                        | ** **  | 3,869 |   |
| Minority interest                                                       | ** ** | **191**                                          | ** **  | (518 | ) |
| Income (loss) before income taxes                                       | ** ** | **(5,227**                                       | **)**       | 23,364 |   |
| Income tax expense                                                      | ** ** | **5,568**                                        | ** **  | 8,424 |   |
| Net income (loss)                                                       | ** ** | **$**                                            | **(10,795** | **)** | $ | 14,940 |   |
|                                                                    |       |                                             |        |   |   |
| *Per share data:*                                                       |       |                                             | ** **  |   |   |
| Income (loss) per common share – basic:                            | ** ** | **$**                                            | **(0.26**   | **)** | $ | 0.36 |   |
| Basic weighted average number of common shares                          | ** ** | **41,838**                                       | ** **  | 41,811 |   |
|                                                                    |       |                                             | ** **  |   |   |
| Income (loss) per common share – diluted:                          | ** ** | **$**                                            | **(0.26**   | **)** | $ | 0.35 |   |
| Diluted weighted average number of common and common  equivalent shares | ** ** | **41,866**                                       | ** **  | 42,458 |   |

 

*The accompanying notes are an integral part ofthese condensed consolidated financial statements.*

 

1

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**Aventine Renewable Energy Holdings, Inc. andSubsidiaries**

**CondensedConsolidated Balance Sheets**

 
| **(In thousands except share amounts)**                                                                                                                                                                                                                                             | ** ** | **March 31,  2008** |        | **December 31,  2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                              | ** ** | **(Unaudited)**          |        | ** **                  | ** ** |
| **Assets**                                                                                                                                                                                                                                                                                              | ** ** | ** **               |        | ** **                  | ** ** |
| Current assets                                                                                                                                                                                                                                                                                          |       |                     | ** **  |                        |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                                               | ** ** | **$**                    | **73,954**  | ** **                  | $          | 17,171 |   |
| Short-term investments                                                                                                                                                                                                                                                                                  | ** ** | **—**               | ** **  | 211,500                     |       |
| Accounts receivable                                                                                                                                                                                                                                                                                     | ** ** | **67,342**               | ** **  | 73,058                      |       |
| Inventories                                                                                                                                                                                                                                                                                             | ** ** | **100,409**              | ** **  | 81,488                      |       |
| Income tax receivable                                                                                                                                                                                                                                                                                   | ** ** | **9,871**                | ** **  | 11,962                      |       |
| Prepaid expenses and other current assets                                                                                                                                                                                                                                                               | ** ** | **10,522**               | ** **  | 12,816                      |       |
| Total current assets                                                                                                                                                                                                                                                                                    | ** ** | **262,098**              | ** **  | 407,995                     |       |
| Property, plant and equipment, net                                                                                                                                                                                                                                                                      | ** ** | **106,450**              | ** **  | 111,867                     |       |
| Construction in process                                                                                                                                                                                                                                                                                 | ** ** | **285,891**              | ** **  | 226,410                     |       |
| Long-term investments                                                                                                                                                                                                                                                                                   | ** ** | **105,575**              | ** **  | —                      |       |
| Net deferred tax assets                                                                                                                                                                                                                                                                                 | ** ** | **—**               | ** **  | 1,196                       |       |
| Other assets                                                                                                                                                                                                                                                                                            | ** ** | **15,375**               | ** **  | 14,717                      |       |
| Total assets                                                                                                                                                                                                                                                                                            | ** ** | **$**                    | **775,389** | ** **                  | $          | 762,185 |   |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                                                                                                                           |       |                     | ** **  |                        |       |
| Current liabilities                                                                                                                                                                                                                                                                                     |       |                     | ** **  |                        |       |
| Accounts payable                                                                                                                                                                                                                                                                                        | ** ** | **$**                    | **103,565** | ** **                  | $          | 91,871 |   |
| Accrued interest                                                                                                                                                                                                                                                                                        | ** ** | **15,000**               | ** **  | 7,500                       |       |
| Accrued liabilities                                                                                                                                                                                                                                                                                     | ** ** | **2,765**                | ** **  | 3,625                       |       |
| Other current liabilities                                                                                                                                                                                                                                                                               | ** ** | **1,614**                | ** **  | 1,622                       |       |
| Total current liabilities                                                                                                                                                                                                                                                                               | ** ** | **122,944**              | ** **  | 104,618                     |       |
| Senior unsecured 10% notes due April 2017                                                                                                                                                                                                                                                          | ** ** | **300,000**              | ** **  | 300,000                     |       |
| Minority interest                                                                                                                                                                                                                                                                                       | ** ** | **9,640**                | ** **  | 9,832                       |       |
| Net deferred tax liabilities                                                                                                                                                                                                                                                                            | ** ** | **2,513**                | ** **  | —                      |       |
| Other long-term liabilities                                                                                                                                                                                                                                                                             | ** ** | **3,905**                | ** **  | 3,864                       |       |
| Total liabilities                                                                                                                                                                                                                                                                                       | ** ** | **439,002**              | ** **  | 418,314                     |       |
| Stockholders’ equity                                                                                                                                                                                                                                                                               |       |                     | ** **  |                        |       |
| Common stock, par value $0.001 per share;  185,000,000 shares authorized; 41,971,330 and 41,734,223 shares issued and  outstanding as of March 31, 2008 and December 31, 2007,  respectively, net of 21,548,640 shares held in treasury as of March 31,  2008 and December 31, 2007 | ** ** | **42**                   | ** **  | 42                          |       |
| Preferred stock, 50,000,000 shares authorized, no  shares issued or outstanding                                                                                                                                                                                                                         | ** ** | **—**               | ** **  | —                      |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                              | ** ** | **282,538**              | ** **  | 279,218                     |       |
| Retained earnings                                                                                                                                                                                                                                                                                       | ** ** | **54,140**               | ** **  | 64,935                      |       |
| Accumulated other comprehensive loss                                                                                                                                                                                                                                                                    | ** ** | **(333**                 | **)**       | (324                        | )          |
| Total stockholders’ equity                                                                                                                                                                                                                                                                         | ** ** | **336,387**              | ** **  | 343,871                     |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                                                                         | ** ** | **$**                    | **775,389** | ** **                  | $          | 762,185 |   |

 

*The accompanying notes are anintegral part of these condensed consolidated financial statements.*

 

2

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**Aventine Renewable Energy Holdings, Inc. andSubsidiaries**

**CondensedConsolidated Statements of Cash Flows**

(Unaudited)

 
| ** **                                                                                | ** ** | **Three Months Ended March 31,** | ** **  |
|-------------------------------------------------------------------------------------------|------------|------------------------------------------------------|-------------|
| **(In thousands)**                                                                   | ** ** | **2008**                                             | ** **  | **2007** | ** ** |
|                                                                                      |       |                                                 |        |   |   |
| **Operating Activities**                                                                  |       |                                                 | ** **  |   |   |
| Net income (loss)                                                                         | ** ** | **$**                                                | **(10,795** | **)** | $ | 14,940 |   |
| Adjustments to reconcile net income (loss) to net cash  provided by operating activities: |       |                                                 | ** **  |   |   |
| Non-cash loss on available for sale securities                                            | ** ** | **21,625**                                           | ** **  | — |   |
| Depreciation and amortization                                                             | ** ** | **3,573**                                            | ** **  | 2,950 |   |
| Minority interest                                                                         | ** ** | **(191**                                             | **)**       | 518 |   |
| Stock-based compensation expense                                                          | ** ** | **1,873**                                            | ** **  | 1,594 |   |
| Deferred income tax                                                                       | ** ** | **3,709**                                            | ** **  | 645 |   |
| Loss on the sale of securities                                                            | ** ** | **1,500**                                            | ** **  | — |   |
| Other                                                                                     | ** ** | **(542**                                             | **)**       | 194 |   |
| Changes in operating assets and liabilities:                                              |       |                                                 | ** **  |   |   |
| Accounts receivable, net                                                                  | ** ** | **5,716**                                            | ** **  | 21,554 |   |
| Inventories                                                                               | ** ** | **(18,921**                                          | **)**       | (26,608 | ) |
| Accounts payable and other liabilities                                                    | ** ** | **18,326**                                           | ** **  | (277 | ) |
| Other changes in operating assets and liabilities                                         | ** ** | **3,517**                                            | ** **  | 2,391 |   |
| Net cash provided by operating activities                                                 | ** ** | **29,390**                                           | ** **  | 17,901 |   |
|                                                                                      | ** ** | ** **                                           | ** **  |   |   |
| **Investing Activities**                                                                  |       |                                                 | ** **  |   |   |
| Additions to property, plant and equipment, net                                           | ** ** | **(59,946**                                          | **)**       | (12,418 | ) |
| Investment in short-term securities                                                       | ** ** | **—**                                           | ** **  | (45,825 | ) |
| Sale of short-term securities                                                             | ** ** | **82,800**                                           | ** **  | — |   |
| Indemnification proceeds                                                                  | ** ** | **3,039**                                            | ** **  | — |   |
| Net cash provided by (used for) investing activities                                      | ** ** | **25,893**                                           | ** **  | (58,243 | ) |
|                                                                                      | ** ** | ** **                                           | ** **  |   |   |
| **Financing Activities**                                                                  |       |                                                 | ** **  |   |   |
| Proceeds from issuance of senior unsecured notes                                          | ** ** | **—**                                           | ** **  | 300,000 |   |
| Payment of debt issuance costs                                                            | ** ** | **—**                                           | ** **  | (8,070 | ) |
| Proceeds from stock option exercises                                                      | ** ** | **—**                                           | ** **  | 173 |   |
| Proceeds from the issuance of common stock                                                | ** ** | **1,500**                                            | ** **  | — |   |
| Distributions to minority shareholders                                                    | ** ** | **—**                                           | ** **  | (432 | ) |
| Net cash provided by financing activities                                                 | ** ** | **1,500**                                            | ** **  | 291,671 |   |
| Net increase in cash and cash equivalents                                                 | ** ** | **56,783**                                           | ** **  | 251,329 |   |
| Cash and cash equivalents at beginning of period                                          | ** ** | **17,171**                                           | ** **  | 29,791 |   |
| Cash and cash equivalents at end of period                                                | ** ** | **$**                                                | **73,954**  | ** ** | $ | 281,120 |   |

 

*Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.*

 

3

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**Aventine Renewable EnergyHoldings, Inc. and Subsidiaries**

**Notes to Unaudited Condensed Consolidated Financial Statements**

 

**(1)****                               ****Basisof Reporting for Interim Financial Statements**

 

Theaccompanying unaudited condensed consolidated financial statements include theaccounts of Aventine Renewable Energy Holdings, Inc. and its subsidiaries,which are collectively referred to as “Aventine”,  the “Company”, “we”, “our” or “us”, unlessthe context otherwise requires.  Allsignificant intercompany transactions have been eliminated in consolidation.

 

We have prepared theunaudited condensed consolidated financial statements included herein pursuantto the rules and regulations of the Securities and ExchangeCommission.  Certain information andfootnote disclosures normally included in statements prepared in accordancewith generally accepted accounting principles have been omitted pursuant tosuch rules and regulations, although we believe that the disclosures areadequate to make the information presented not misleading.  These financial statements should be read inconjunction with the financial statements and notes thereto included in ourAnnual Report on Form 10-K for the year ended December 31, 2007.

 

Theaccompanying unaudited condensed consolidated financial statements presentedherewith reflect all adjustments (consisting of only normal and recurringadjustments) which, in the opinion of management, are necessary for a fairpresentation of the results of operations for the three month periods ended March 31,2008 and 2007.  The results of operationsfor interim periods are not necessarily indicative of results to be expectedfor an entire year.

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer materially from those estimates.

 

As of March 31, 2008,the Company’s Summary of Critical Accounting Policies for the year ended December 31,2007, which are detailed in the Company’s Annual Report on Form 10-K, havenot changed.

 

The Company adoptedFinancial Accounting Standards Board (“FASB”) Statement of Financial AccountingStandards No. 157 (“SFAS 157”), *Fair Value Measurements,*andFASB Statement of Financial Accounting Standards No. 159 (“SFAS 159”), *The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115,* effective on January 1,2008.  See Note 8 for additionalinformation regarding the adoption of SFAS 157 and SFAS 159 by the Company.

 

**(2)****                               ****RecentAccounting Pronouncements**

 

In March 2008,the FASB issued Statement of Financial Accounting Standards No. 161 (“SFAS161”), *Disclosures about Derivative Instruments andHedging Activities – An Amendment of FASB Statement No. 133*.  SFAS 161 requiresentities to provide greater transparency in derivative disclosures by requiringqualitative disclosure about objectives and strategies for using derivativesand quantitative disclosures about fair value amounts of and gains and losseson derivative instruments. SFAS 161 is effective for financial statementsissued for fiscal years and interim periods beginning 

 

4

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after November 15,2008.  The Company is currently evaluating SFAS 161, but doesnot expect it will have a material impact on the Company’s financial positionor results of operations.

 

**(3)****                               ****Inventories**

 

Inventoriesare as follows:

 
| **(In thousands)** | ** **   | **March 31,  2008** | ** **   | **December 31,  2007** | ** **   |
|-------------------------|--------------|--------------------------|--------------|-----------------------------|--------------|
| *** ***            | *** *** | *** ***             | *** *** | *** ***                | *** *** |
| Finished products       | ** **   | **$**                    | **92,585**   |                        | $            | 73,530 |   |
| Work-in-process         | ** **   | **2,495**                |         | 2,035                       |         |
| Raw materials           | ** **   | **3,423**                |         | 2,757                       |         |
| Supplies                | ** **   | **1,906**                |         | 3,166                       |         |
| Totals                  | ** **   | **$**                    | **100,409**  |                        | $            | 81,488 |   |

 

**(4)****                               ****PrepaidExpenses and Other Current Assets**

 

Prepaidexpenses and other current assets are as follows:

 
| **(In thousands)**                   | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| * *                                  | * *   | * *                 | * *   | * *                    | * *   |
| Prepaid motor fuel taxes                  | ** ** | **$**                    | **4,612**  |                        | $          | 5,061 |   |
| Margin deposits on derivative instruments | ** ** | **3,338**                |       | 4,013                       |       |
| Prepaid insurance                         | ** ** | **862**                  |       | 1,107                       |       |
| Prepaid ethanol                           | ** ** | **—**               |       | 1,050                       |       |
| Deferred income taxes current             | ** ** | **957**                  |       | 854                         |       |
| Other prepaid expenses                    | ** ** | **753**                  |       | 731                         |       |
| Totals                                    | ** ** | **$**                    | **10,522** |                        | $          | 12,816 |   |

 

**(5)****                               ****OtherAssets**

 

Otherassets are as follows:

 
| **(In thousands)**           | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| * *                          | * *   | * *                 | * *   | * *                    | * *   |
| Deferred debt issuance costs      | ** ** | **$**                    | **7,369**  |                        | $          | 7,533 |   |
| Investment in marketing alliances | ** ** | **6,000**                |       | 6,000                       |       |
| Funded status of pension plan     | ** ** | **2,006**                |       | 1,184                       |       |
| Totals                            | ** ** | **$**                    | **15,375** |                        | $          | 14,717 |   |

 

Deferreddebt issuance costs are subject to amortization.  Original deferred debt issuance coststotaling $7.2 million relating to our 10% senior unsecured notes are beingamortized utilizing a method which approximates the effective interest methodover the life of the notes of 10 years, resulting in amortization expense of$0.7 million in 2008 and each year thereafter. Original deferred debt issuance costs totaling $0.9 million relating toour secured revolving credit facility are being amortized utilizing a methodwhich approximates the effective interest method over the five year life of thefacility, resulting in amortization expense of $0.2 million in 2008 and eachyear thereafter.

 

5

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**(6)****                               ****Debt**

 

The following tablesummarizes the Company’s long-term debt:

 
| **(In thousands)**                        | ** ** | **March 31,  2008** | ** **  | **December 31,  2007** | ** ** |
|------------------------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| Senior unsecured 10% notes due April 2017 | ** ** | **$**                    | **300,000** |                        | $          | 300,000 |   |
| Secured revolving credit facility              | ** ** | **—**               |        | —                      |       |
| ** **                                     |       | **300,000**              |        | 300,000                     |       |
| Less short-term borrowings                     | ** ** | **—**               |        | —                      |       |
| Total long-term debt                           | ** ** | **$**                    | **300,000** |                        | $          | 300,000 |   |

 

*Senior Revolving CreditFacility*

 

Ourliquidity facility consists of a five year secured revolving credit facilitywith JPMorgan Chase Bank, N.A., as administrative agent and a lender, of up to$200 million, subject to collateral availability, which, under certaincircumstances, can be increased up to $300 million.  Our secured revolving credit facilityincludes a $25 million sub-limit for letters of credit.  The credit facility expires in March 2012,and is secured by substantially all of the Company’s assets, with the exceptionof the assets of Nebraska Energy, LLC.

 

Collateralavailability is determined via a borrowing base, which includes a percentage ofeligible receivables and inventory, and no more than $50 million of property,plant and equipment.  The amount ofproperty, plant and equipment which can be included in the borrowing base reducesat a rate of $1.8 million each quarter beginning with the quarter ending December 31,2007.  At March 31, 2008, the amountof property, plant and equipment which was eligible for inclusion in thecalculation of the borrowing base was $46.4 million.

 

Borrowingsgenerally bear interest, at our option, at the following rates (i) theEurodollar rate plus a margin between 1.25% to 1.75%, depending on the averageavailability, or (ii) the greater of the prime rate or the federal fundsrate plus 0.50%, plus a margin between 0.00% to 0.50%, depending on the averageavailability.  Accrued interest ispayable monthly on outstanding principal amounts, provided that accruedinterest on Eurodollar loans is payable at the end of each interest period, butin no event less frequently than quarterly. In addition, fees and expenses are payable based on unused borrowingavailability (0.25% to 0.375% per annum, depending on the averageavailability), outstanding letters of credit (1.375% to 1.875% fee, dependingon the average availability) and administrative and legal costs.

 

Availabilityunder our secured revolving credit facility is subject to customary conditions,including the accuracy of representations and warranties, the absence of anymaterial adverse change and compliance with certain covenants, which, amongother things, may limit our ability to incur additional indebtedness and liens;enter into transactions with affiliates; make acquisitions; pay dividends;redeem or repurchase capital stock or senior notes; make investments or loans;consolidate, merge or effect asset sales; or change the nature of ourbusiness.  In addition, if availabilityunder the facility falls below $50 million, we must maintain a fixed chargecoverage ratio of EBITDA (as defined under the agreement) less non-financedcapital expenditures and taxes to fixed charges (scheduled investments ofprincipal, interest expense, and dividend and certain other payments) of 1.1 to1.

 

Thesecured revolving credit facility contains customary events of default forcredit facilities of this size and type, and includes, without limitation,payment defaults; defaults in performance of covenants or other agreementscontained in the transaction documents; inaccuracies in representations andwarranties; certain defaults, termination events or similar events; certaindefaults with respect to any 

 

6

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other Company indebtednessin excess of $5.0 million; certain bankruptcy or insolvency events; therendering of certain judgments in excess of $5.0 million; certain ERISAevents; certain change in control events and the defectiveness of any liensunder the secured revolving credit facility. Obligations under the secured revolving credit facility may beaccelerated upon the occurrence of an event of default.

 

Wehad no borrowings outstanding under our secured revolving credit facility at March 31,2008, and $16.9 million of standby letters of credit outstanding, therebyleaving approximately $132.1 million in borrowing availability under oursecured revolving credit facility as of that date.  We were in compliance with the covenantscontained in the secured revolving credit facility as of March 31, 2008.

 

*Senior Notes*

 

InMarch 2007, we issued $300 million aggregate principal amount of seniorunsecured 10% fixed-rate notes due April 2017 (“Notes”).  Our Notes were issued pursuant to anindenture, dated as of March 27, 2007, between us and Wells Fargo Bank,N.A., as trustee.  The Notes are generalunsecured obligations of the Company and certain of its guarantor subsidiaries,initially limited to $300 million aggregate principal amount.  We may, subject to the covenants andapplicable law, issue additional notes under the indenture.  Any additional notes would be treated as asingle class with the previously issued Notes for all purposes under theindenture.

 

TheNotes have interest payments due semi-annually on April 1 and October 1of each year, and are redeemable after the dates and at prices (expressed inpercentages of principal amount on the redemption date), as set forth below:

 
| **Year**                          | ** ** | **Percentage** | ** ** |
|-----------------------------------|------------|----------------|------------|
| April 1, 2012           |       | 105.000        | %          |
| April 1, 2013                |       | 103.330        | %          |
| April 1, 2014                |       | 101.667        | %          |
| April 1, 2015 and thereafter |       | 100.000        | %          |

 

Inaddition, at any time prior to April 1, 2010, we may redeem up to 35% ofthe principal amount of the Notes from time to time originally issued with thenet cash proceeds of one or more sales of qualifying capital stock of theCompany at a redemption price of 100% of the principal amount, together withaccrued and unpaid interest to the redemption date, provided that at least 65%of the aggregate principal amount of the Notes originally issued remainsoutstanding immediately after such redemption and notice of any such redemptionis mailed within 60 days of each such sale of capital stock.  The terms of the Notes also containrestrictive covenants that limit our ability to, among other things, incuradditional debt, sell or transfer assets, make certain investments or guarantees,enter into transactions with shareholders and affiliates, and pay futuredividends.

 

OnAugust 10, 2007, we exchanged all of the outstanding Notes for an issue ofregistered unsecured senior notes, with terms identical to the Notes.

 

7

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**(7)****                                OtherLong-Term Liabilities**

 

Other long-term liabilities are as follows:

 
| **(In thousands)** | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                    |       |                     |       |                        |       |
| Accrued postretirement  | ** ** | **$**                    | **2,382**  |                        | 2,310      |   |
| Unearned commissions    | ** ** | **1,523**                |       | 1,554                       |       |
| Totals                  | ** ** | **$**                    | **3,905**  |                        | $          | 3,864 |   |
|                         |            |                          |            |                             |            |  |  |

 

**(8)****                               ****Fair Value Measurements**

 

*SFAS 157*

 

The Company adopted SFAS 157 effective January 1,2008 for financial assets and liabilities measured at fair value on a recurringbasis.  SFAS 157 applies to all financialassets and financial liabilities that are being measured and reported on a fairvalue basis.  There was no impact foradoption of SFAS 157 to the consolidated financial statements.  SFAS 157 establishes a framework for measuringfair value and expands disclosure about fair value measurements.  The statement requires that fair valuemeasurements be classified and disclosed in one of the following threecategories:

 

·                 Level1: Unadjusted quoted prices in active markets that are accessible at themeasurement date for identical, unrestricted assets or liabilities;

·                 Level2: Quoted prices in markets that are not active, or inputs which areobservable, either directly or indirectly, for substantially the full term ofthe asset or liability;

·                 Level3: Prices or valuation techniques that require inputs that are both significantto the fair value measurement and unobservable (i.e., supported by little or nomarket activity).

 

The following table summarizes thevaluation of our financial instruments which are carried at fair value by theabove SFAS 157 pricing levels as of March 31, 2008:

 
| ** **                                                          | ** ** | ** **                                    | ** ** | **Fair Value Measurements at the Reporting Date Using**            | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **Fair Value  at  March 31,  2008** | ** ** | **Quoted Prices in  Active Markets  Using Identical  Assets  (Level 1****)** | ** ** | **Significant Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
|                                                                |       |                                          |       |                                                                                                  |       |   |   |   |   |
| Cash and cash equivalents                                           |       | $                                             | 73,954     |                                                                                                  | $          | 73,954 |   | — |   | — |   |
| Available for sale securities                                       |       | $                                             | 105,575    |                                                                                                  | —     |   | — |   | $ | 105,575 |   |
| Commodity futures contracts recorded in prepaid  expenses and other |       | $                                             | (5,446     | )                                                                                                     | $          | (5,446 | ) | — |   | — |   |
|                                                                     |            |                                               |            |                                                                                                       |            |  |  |  |  |  |  |  |

 

At March 31, 2008, we have investmentstotaling $127.2 million par value in taxable student loan auction rate securities(“ARS”).  The ARS held by the Company areprivate placement securities with long-term stated maturities for which theinterest rates are reset through a Dutch auction every 28 days.  The auctions historically provided a liquidmarket for these securities as investors previously could readily sell theirinvestments at auction at par value, providing a consistent fair valuemeasurement.  With the liquidity issuesexperienced in global credit and capital markets, however, the ARS held by the

 

8

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Company have experienced multiple failed auctions, beginning on February 8,2008, as the amount of securities submitted for sale has exceeded the amount ofpurchase orders.

 

In conjunction with the liquidity issues surroundingthese securities, the Company reduced thecarrying value of the ARS on its balance sheet by $21.6 million as of March 31,2008.  We have included our investmentsrelated to available for sale auction rate securities, of which$105.6 million are classified as non-current, in the Level 3category.  Given the highly illiquidmarket for these securities, bids for the full amount of our ARS were notavailable.  Therefore, we reduced thecarrying value of our ARS by using an internally prepared valuation model basedupon discounted cash flows using the best available, comparable external datapoints and other judgmental adjustments where considered appropriate.  The model’s assumptions include a discountfactor and estimated weighted average life of the securities.

 

The following table represents areconciliation of the change in assets measured at fair value on a recurringbasis using significant unobservable inputs (Level 3) during the three monthsended March 31, 2008.

 
| ** **                                                 | ** ** | **Fair Value Measurements  Using  Significant Unobservable  Inputs  (Level 3)** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| Balance at December 31, 2007                          |       | $                                                                                                   | —     |   |
| Net transfers into Level 3 category from Level 1  category |       | 127,200                                                                                             |       |
| Total unrealized losses recognized in net income           |       | (21,625                                                                                             | )          |
| Balance at March 31, 2008                             |       | $                                                                                                   | 105,575    |   |

 

The non-cash loss of $21.6 million isincluded in “non-cash loss on available for sale securities” in the unauditedCondensed Consolidated Statement of Operations and are related to ARS held at March 31,2008.

 

We have no reason to believe that any of theunderlying issuers of our ARS are presently at risk of default, and we continueto receive interest payments on these securities in accordance with theirstated terms.  Interest rates on most ofour ARS for the current 28 day period have been reset to zero, as the ARStrusts are designed to make sure that they do not pay out more in interest thanthey collect from students.  We expectrates to reset whereby we will again be receiving interest income on thesesecurities in the future.  However, rateswe receive on these securities may remain volatile.  The credit ratings for all of our ARS areAAA.  The underlying collateral of theARS consist of student loans, which are supported by the federal government aspart of the Federal Family Education Loan Program (“FFELP”).  We do not believe we will be able to accessfunds as needed from these securities until future auctions for these ARS aresuccessful, or until we sell the securities in a secondary market which iscurrently limited.  We currently are unable to liquidate our investment inthese ARS without realizing significant losses. The Company may have to hold these securities until final maturity inorder to redeem them without incurring any losses.  For these reasons, we believe the recoveryperiod for these investments is likely to be longer than 12 months and as aresult, we have classified these investments as long-term as of March 31,2008.  All of the ARS which we hold had, prior to March 31, 2008, beenclassified as short-term investments.

 

The Company is currently pursuing allavailable alternatives to monetize the remaining ARS it holds and to increaseits liquidity position, including discussions with banks on a new or amendedcredit facility.  We are also evaluatingseveral scenarios with respect to our capacity expansion projects.  We expectto make progress towards resolution of this issue during the second quarter of2008.  After

 

9

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utilization of our current available resources, should we not besuccessful in our current efforts to increase liquidity on a timely basis andon acceptable terms, we will have to either attempt to raise additional fundsor slow down the construction of our new facilities, or both.  Inaddition, delays in the construction of our new facilities could expose us tomaterial penalties.

 

The fair value of our derivativecontracts are primarily measured based on closing market prices for commoditiesas quoted on the Chicago Board of Option Trading (“CBOT”) or the New York MercantileExchange (“NYMEX”).

 

The Company recorded net gains of $1.9million and $3.9 million for the three months ended March 31, 2008 and2007, respectively, under “other non-operating income” in the unaudited CondensedConsolidated Statements of Operations for the changes in the fair value of itsderivative financial instrument positions.

 

*SFAS 159*

 

The Company adopted SFAS 159 effective January 1,2008.  We have not elected the fair valueoption for any of our financial assets or liabilities.

 

The carrying value of other financialinstruments, including cash, accounts receivable and accounts payable andaccrued liabilities approximate fair value due to their short maturities orvariable-rate nature of the respective balances.

 

The following table presents the otherfinancial instruments that are not carried at fair value but which require fairvalue disclosure as of March 31, 2008 and December 31, 2007:

 
| ** **       | ** ** | **As of March 31, 2008** | ** ** | **As of December 31, 2007** | ** ** |
|------------------|------------|----------------------------------------------|------------|-------------------------------------------------|------------|
| ** **       | ** ** | **Carrying Value**                      | ** ** | **Fair Value**                             | ** ** | **Carrying Value** | ** ** | **Fair Value** | ** ** |
| Cost investments |       | 6,000                                        |       | n/a                                             |       | 6,000 |   | n/a |   |
| Long-term debt   |       | 300,000                                      |       | 192,000                                         |       | 300,000 |   | 274,500 |   |

 

The Company’s investments accounted forunder the cost method consist of minority positions in equity securities ofother ethanol operating companies.  Thefair value of these equity investments is based on cost, as it is not practicalto estimate a fair value for these non-publicly traded companies.  The Company monitors its investments forimpairment by considering current factors, including the economic environment,market conditions, operational performance and other specific factors relatingto the business underlying the investment, and records reductions in carryingvalues when necessary.  Any impairmentloss is reported under “Other income (expense)” in the consolidated statementof operations.

 

The fair value of our senior securedfloating rate notes are based upon quoted closing market prices at the end ofthe period.

 

**(9)****                               ****Stock-Based Compensation Plans**

 

The Company values its share-based payment awardsusing a form of the Black-Scholes option-pricing model (the “option pricingmodel”).  The determination of fair valueof share-based payment awards on the date of grant using the option pricingmodel is affected by our stock price as well as the input of other subjectiveassumptions.  The option-pricing modelrequires a number of assumptions, of which the most significant are expectedstock price volatility, the expected pre-vesting forfeiture rate and theexpected option term (the amount of time from the grant date until the optionsare exercised or expire).  Expectedvolatility is normally calculated based upon actual historical stock pricemovements 

 

10

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over the expected option term. Since we have a very short-term history of stock price volatility as apublic company, we calculate volatility by considering, among other things, theexpected volatilities of public companies engaged in similar industries.  Pre-vesting forfeitures are estimated using a3% forfeiture rate.  The expected optionterm is calculated using the “simplified” method permitted by SAB 107.  Our options have characteristicssignificantly different from those of traded options, and changes in theassumptions can materially affect the fair value estimates.

 

Pre-tax stock-based compensation expense forthe three month periods ended March 31, 2008 and 2007 was approximately$1.9 million and $1.6 million, respectively. For the three month period ended March 31, 2008, $1.8 million wascharged to SG&A expense and $0.1 million was charged to cost of goodssold.  For the three month period ended March 31,2007, $1.6 million was charged to selling, general and administrativeexpense.  Stock-based compensationexpense reduced earnings per share by $0.03 per basic and fully diluted shareand $0.02 per basic and fully diluted share for the three month periods ended March 31,2008 and 2007, respectively.  The Companyrecognized a tax benefit on its condensed consolidated statement of income fromstock-based compensation expense in the amount of $0.7 million and $0.6 millionfor the three month periods ended March 31, 2008 and 2007,respectively.  The Company recordedpre-tax stock-based compensation expense for the three month periods ended March 31,2008 and 2007 as follows:

 
| ** **                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------|------------|--------------------------------------------------|------------|
| **(in millions)**            | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
|                              |       |                                             |       |   |   |
| Stock-based compensation expense: |       |                                             |       |   |   |
| Non-qualified stock options       |       | $                                                | 1.6        |   | $ | 1.5 |   |
| Restricted stock                  |       | 0.1                                              |       | 0.1 |   |
| Restricted stock units            |       | 0.1                                              |       | — |   |
| Long-term incentive plan          |       | 0.1                                              |       | — |   |
| Total                             |       | $                                                | 1.9        |   | $ | 1.6 |   |

 

As of March 31, 2008, the Company hadnot yet recognized compensation expense on the following non-vested awards:

 
| **(in millions)**      | ** ** | **Non-recognized  Compensation** | ** ** | **Weighted Average  Remaining  Recognition Period  (years)** | ** ** |
|-----------------------------|------------|----------------------------------|------------|------------------------------------------------------------------------|------------|
|                        |       |                             |       |                                                                   |       |
| Non-qualified stock options |       | $                                | 18.6       |                                                                   | 3.2        |   |
| Restricted stock            |       | 0.9                              |       | 1.7                                                                    |       |
| Restricted stock units      |       | 0.2                              |       | 0.5                                                                    |       |
| Long-term incentive plan    |       | 2.1                              |       | 2.1                                                                    |       |
| Total                       |       | $                                | 21.8       |                                                                   | 3.0        |   |

 

The Company granted stock options during the quartersended March 31, 2008 and 2007.  Thedetermination of the fair value of the stock option awards, using the optionpricing model, incorporated the assumptions in the following table for stockoptions granted during the three month periods ended March 31, 2008 and2007.  The risk-free rate is based on theU.S. Treasury yield curve in effect at the time of grant over the expectedterm.  Expected volatility is calculatedby considering, among other things, the expected volatilities of publiccompanies engaged in similar industries. The expected option term is calculated using the “simplified” methodpermitted by SAB 107.  Assumptions foroptions granted in the three month periods ending March 31, 2008 and 2007are as follows:

 

11

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| ** **                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Expected stock price volatility |       | 58.0     | %          | 58.0     | %          |
| Expected life (in years)        |       | 6.5      |       | 6.5      |       |
| Risk-free interest rate         |       | 4.5      | %          | 4.6      | %          |
| Expected dividend yield         |       | 0.0      | %          | 0.0      | %          |
| Weighted average fair value     |       | $        | 6.85       |     | $          | 9.27 |   |
|                                 |            |          |            |          |            |  |  |

 

The following table summarizes stock optionsoutstanding and changes during the three month period ended March 31,2008:

 
| ** **                                      | ** ** | **Shares**              | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Life** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|-------------------------------------|------------|
| ** **                                      | ** ** | **(in thousands)** | ** ** | ** **                             | ** ** | **(years)**                            | ** ** | **(in thousands)**             | ** ** |
|                                            |       |                    |       |                                   |       |                                   |       |                                |       |
| Options outstanding – January 1, 2008 |       | 3,516                   |       | $                                      | 8.10       |                                   | 7.4        |                                | $          | — |   |
| Granted                                         |       | 568                     |       | 6.85                                   |       | 9.9                                    |       | —                              |       |
| Exercised                                       |       | —                  |       | —                                 |       | —                                 |       | —                              |       |
| Cancelled or expired                            |       | —                  |       | —                                 |       | —                                 |       | —                              |       |
| Options outstanding – March 31, 2008  |       | 4,084                   |       | $                                      | 7.93       |                                   | 7.5        |                                | $          | — |   |
| Options exercisable – March 31, 2008  |       | 1,396                   |       | $                                      | 4.11       |                                   | 6.4        |                                | $          | 1,522 |   |

 

The range of exercise prices of theexercisable options and outstanding options at March 31, 2008 are asfollows:

 
| **Weighted Average Exercise Price** | ** ** | **Number of  Exercisable  Options** | ** ** | **Number of  Outstanding  Options** | ** ** | **Weighted  Average  Remaining  Life** | ** ** |
|----------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|----------------------------------------|------------|
| ** **                                         | ** ** | **(in thousands)**                  | ** ** | **(in thousands)**                  | ** ** | **(years)**                            | ** ** |
| $0.23                                              |       | 680                                      |       | 1,006                                    |       | 5.3                                    |       |
| $2.36 - $4.80                                      |       | 542                                      |       | 1,410                                    |       | 7.4                                    |       |
| $7.05                                              |       | —                                   |       | 518                                      |       | 9.9                                    |       |
| $15.26 - $17.29                                    |       | 40                                       |       | 480                                      |       | 9.1                                    |       |
| $22.15 - $22.50                                    |       | 126                                      |       | 630                                      |       | 8.0                                    |       |
| $43.00                                             |       | 8                                        |       | 40                                       |       | 8.3                                    |       |
| Totals                                             |       | 1,396                                    |       | 4,084                                    |       | 7.5                                    |       |

 

Restricted stock award activity for the threemonths ended March 31, 2008 is summarized below:

 
| ** **                                                    | ** ** | **Shares**              | ** ** | **Weighted  Average Grant  Date Fair  Value per  Award** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                                    | ** ** | **(in thousands)** | ** ** | ** **                                                              | ** ** |
|                                                          |       |                    |       |                                                                    |       |
| Unvested restricted stock awards – January 1,  2008 |       | 75.9                    |       | $                                                                       | 16.29      |   |
| Granted                                                       |       | —                  |       | —                                                                  |       |
| Vested                                                        |       | 13.1                    |       | 15.26                                                                   |       |
| Cancelled or expired                                          |       | —                  |       | —                                                                  |       |
| Unvested restricted stock awards – March 31,  2008  |       | 62.8                    |       | $                                                                       | 16.50      |   |

 

12

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Restricted stock unit award activity for thethree months ended March 31, 2008 is summarized below:

 
| ** **                                                         | ** ** | **Shares**              | ** ** | **Weighted  Average Grant  Date Fair  Value per  Award** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **(in thousands)** | ** ** | ** **                                                              | ** ** |
|                                                               |       |                    |       |                                                                    |       |
| Unvested Restricted stock unit awards –  January 1, 2008 |       | 18.0                    |       | $                                                                       | 15.85      |   |
| Granted                                                            |       | 9.3                     |       | 13.08                                                                   |       |
| Vested                                                             |       | 7.8                     |       | 16.58                                                                   |       |
| Cancelled or expired                                               |       | —                  |       | —                                                                  |       |
| Unvested restricted stock unit awards –  March 31, 2008  |       | 19.5                    |       | $                                                                       | 14.22      |   |

 

**(10)****                        ****Interest Expense**

 

The following table summarizes interestexpense:

 
| ** **                                   | ** **   | **Three Months Ended  March 31,** | ** **   |
|----------------------------------------------|--------------|--------------------------------------------------|--------------|
| **(in thousands)**                      | ** **   | **2008**                                         | ** **   | **2007** | ** ** |
| *** ***                                 | *** *** | *** ***                                     | *** *** | *** *** | *** *** |
| Interest expense                             | ** **   | **$**                                            | **7,508**    |   | $ | 336 |   |
| Amortization of deferred debt issuance costs | ** **   | **242**                                          |         | — |   |
| Capitalized interest                         | ** **   | **(5,359**                                       | )            | — |   |
| Interest expense, net                        | ** **   | **$**                                            | **2,391**    |   | $ | 336 |   |

 

**(11)****                        ****Pension Expense**

 

*Defined Contribution Plans*

 

We have 401(k) plans coveringsubstantially all of our employees.  Werecorded expense with respect to these plans for the three month periods ended March 31,2008 and 2007 of $0.3 million and $0.4 million, respectively.  Contributions made under our definedcontribution plans include a match, at the Company’s discretion, of employeesalaries contributed to the plans.

 

### *Qualified Retirement Plan*

 

The Company provides a non-contributory qualifieddefined benefit pension plan for its unionized employees at our Pekin, ILproduction facilities.  The followingtable summarizes the components of net periodic pension cost for the qualifiedpension plan:

 
| ** **                          | ** **   | **Three Months Ended  March 31,** | ** **   |
|-------------------------------------|--------------|--------------------------------------------------|--------------|
| **(In thousands)**             | ** **   | **2008**                                         | ** **   | **2007** | ** ** |
| *** ***                        | *** *** | *** ***                                     | *** *** | *** *** | *** *** |
| Service cost                        | ** **   | **$**                                            | **88**       |   | $ | 88 |   |
| Interest cost                       | ** **   | **124**                                          |         | 124 |   |
| Expected return on plan assets      | ** **   | **(180**                                         | )            | (180 | ) |
| Amortization of prior service costs | ** **   | **11**                                           |         | 11 |   |
| Amortization of net actuarial loss  | ** **   | **6**                                            |         | 6 |   |
| Net periodic pension cost           | ** **   | **$**                                            | **49**       |   | $ | 49 |   |

 

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### *PostretirementBenefit Obligation*

 

We sponsor a healthcare plan that providespostretirement medical benefits to certain “grandfathered” unionizedemployees.  The plan is contributory,with contributions required at the same rate as active employees.  Benefit eligibility under the plan terminatesat age 65.

 

The following table summarizes the componentsof the net periodic costs for postretirement benefits:

 
| ** **                       | ** **   | **Three Months Ended  March 31,** | ** **   |
|----------------------------------|--------------|--------------------------------------------------|--------------|
| **(In thousands)**          | ** **   | **2008**                                         | ** **   | **2007** | ** ** |
| *** ***                     | *** *** | *** ***                                     | *** *** | *** *** | *** *** |
| Service cost                     | ** **   | **$**                                            | **38**       |   | $ | 38 |   |
| Interest cost                    | ** **   | **34**                                           |         | 34 |   |
| Net periodic postretirement cost | ** **   | **$**                                            | **72**       |   | $ | 72 |   |

 

**(12)****                        ****Income Taxes**

 

As of March 31, 2008, the Company has nouncertain tax positions outstanding.  Weinclude the interest expense or income, as well as potential penalties onunrecognized tax benefits, as components of income tax expense in the CondensedConsolidated Statement of Operations.  Asof March 31, 2008, because we had no uncertain tax positions outstanding,we also had no liability for accrued interest on unrecognized tax benefits.

 

Our federal income tax return for 2006 and2007 is open for examination under the federal statute of limitations.  We file in numerous state and foreignjurisdictions with varying statues of limitations open from 2003 to 2006.

 

In the first quarter of 2008, we accrued adeferred income tax benefit of $8.4 million related to the $21.6 millionnon-cash loss on available for sale securities we hold.  Because we do not expect to have sufficientcapital gains to offset the $21.6 million capital loss, should it becomerealized, we also recorded in the first quarter of 2008 a valuation allowancefor the full amount of the income tax benefit accrued.

 

**(13)****                        ****Earnings (Loss) Per Share**

 

                                                Basic earnings(loss) per share are computed by dividing net income by the weighted averagenumber of common shares outstanding during each period.  Diluted earnings (loss) per share arecalculated using the treasury stock method in accordance with SFAS 128, andincludes the effect of all dilutive securities, including non-qualified stockoptions and restricted stock units (“RSU’s”).

 

The following table sets forth thecomputation of basic and diluted earnings (loss) per share:

 

14

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| ** **                                                         | ** ** | **Three Months Ended** | ** **  |
|--------------------------------------------------------------------|------------|----------------------------------|-------------|
| ** **                                                         | ** ** | **March 31,**               | ** **  |
| **(In thousands, except per share data)** | ** ** | **2008**                         | ** **  | **2007** | ** ** |
|                                                               |       |                             |        |   |   |
| Net income (loss)                                                  | ** ** | **$**                            | **(10,795** | **)** | $ | 14,940 |   |
|                                                               |       |                             | ** **  |   |   |
| Weighted average shares and share equivalents  outstanding:        |       |                             | ** **  |   |   |
| Basic shares                                                       | ** ** | **41,838**                       | ** **  | 41,811 |   |
| Dilutive non-qualified stock options and RSU’s                | ** ** | **28**                           | ** **  | 647 |   |
| Diluted weighted average shares and share  equivalents             | ** ** | **41,866**                       | ** **  | 42,458 |   |
|                                                               |       |                             | ** **  |   |   |
| Income (loss) per common share - basic:                            | ** ** | **$**                            | **(0.26**   | **)** | $ | 0.36 |   |
| Income (loss) per common share - diluted:                          | ** ** | **$**                            | **(0.26**   | **)** | $ | 0.35 |   |

 

## ***We had additional potentiallydilutive securities outstanding representing options on 4.1 million commonshares at March 31, 2008 that were not included in the computation ofpotentially dilutive securities because the options exercise prices weregreater than the average market price of the common shares or because theoptions were anti-dilutive, and were excluded from the calculation of dilutedearnings per share in accordance with SFAS 128.***

 

**(14)****                        ****Industry Segment**

 

                                                The Company operates in one reportablebusiness segment, the manufacture and marketing of fuel-grade biofuels.

 

**(15)****                        ****Litigation**

 

We are from time to time involved in variouslegal proceedings, including legal proceedings relating to the extensiveenvironmental laws and regulations that apply to our facilities andoperations.  We are not involved in anylegal proceedings that we believe could have a material adverse effect upon ourbusiness, operating results or financial condition.

 

**(16)****                        ****Unaudited Condensed ConsolidatingFinancial Information**

 

The following tables present unauditedcondensed consolidating financial information for: (a) Aventine RenewableEnergy Holdings, Inc. (the “Parent”) on a stand-alone basis; (b) on acombined basis, the guarantors of the 10% senior unsecured Notes (“SubsidiaryGuarantors”), which include Aventine Renewable Energy, LLC; Aventine RenewableEnergy, Inc.; Aventine Power, LLC; Aventine Renewable Energy – AuroraWest, LLC; and Aventine Renewable Energy – Mt. Vernon, LLC; and (c) theNon-Guarantor Subsidiary, Nebraska Energy, LLC. Each Subsidiary Guarantor is wholly-owned by Aventine Renewable EnergyHoldings, Inc.  The guarantees ofeach of the Subsidiary Guarantors are full, unconditional, joint andseveral.  Accordingly, separate financialstatements of the wholly-owned Subsidiary Guarantors are not presented becausethe Subsidiary Guarantors are jointly, severally and unconditionally liableunder the guarantees, and the Company believes that separate financialstatements and other disclosures regarding the Subsidiary Guarantors are notmaterial to investors.  Furthermore,there are no significant legal restrictions on the Parent’s ability to obtainfunds from its subsidiaries by dividend or loan.

 

15

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**Aventine Renewable Energy Holdings, Inc. and Subsidiaries**

**Condensed ConsolidatingStatements of Operations**

**For the Three Months Ended March 31, 2008**

(Unaudited)

 
| **(In  thousands)**                              | ** ** | **Parent** | ** **  | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------|------------|------------|-------------|----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| Net sales                                        | ** ** | **$**      | **—**  | ** **                 | **$**      | **518,906**                     | ** ** | **$**            | **25,311** | ** **       | **$**      | **(34,269** | **)** | **$** | **509,948** | ** ** |
| Cost of goods sold                               | ** ** | **—** | ** **  | **494,616**                | ** ** | **25,280**                      | ** ** | **(34,031**      | **)**      | **485,865**      | ** ** |
| Gross profit                                     | ** ** | **—** | ** **  | **24,290**                 | ** ** | **31**                          | ** ** | **(238**         | **)**      | **24,083**       | ** ** |
| Selling, general and administrative expenses     | ** ** | **33**     | ** **  | **8,375**                  | ** ** | **699**                         | ** ** | **(238**         | **)**      | **8,869**        | ** ** |
| Non-cash loss on available for sale securities   | ** ** | **—** | ** **  | **21,625**                 | ** ** | **—**                      | ** ** | **—**       | ** ** | **21,625**       | ** ** |
| Realized loss on the sale of securities          | ** ** | **—** | ** **  | **1,500**                  | ** ** | **—**                      | ** ** | **—**       | ** ** | **1,500**        | ** ** |
| Other income                                     | ** ** | **—** | ** **  | **(776**                   | **)**      | **(1**                          | **)**      | **—**       | ** ** | **(777**         | **)**      |
| Operating loss                                   | ** ** | **(33**    | **)**       | **(6,434**                 | **)**      | **(667**                        | **)**      | **—**       | ** ** | **(7,134**       | **)**      |
| Other income (expense):                          | ** ** | ** ** | ** **  | ** **                 | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Interest income                                  | ** ** | **—** | ** **  | **2,227**                  | ** ** | **12**                          | ** ** | **—**       | ** ** | **2,239**        | ** ** |
| Interest expense                                 | ** ** | **(2,323** | **)**       | **(68**                    | **)**      | **—**                      | ** ** | **—**       | ** ** | **(2,391**       | **)**      |
| Equity in undistributed earnings of subsidiaries | ** ** | **(2,871** | **)**       | **(464**                   | **)**      | **—**                      | ** ** | **3,335**        | ** ** | **—**       | ** ** |
| Other non-operating income (expense)             | ** ** | **—** | ** **  | **1,868**                  | ** ** | **—**                      | ** ** | **—**       | ** ** | **1,868**        | ** ** |
| Minority interest                                | ** ** | **—** | ** **  | **—**                 | ** ** | **—**                      | ** ** | **191**          | ** ** | **191**          | ** ** |
| Income (loss) before income taxes                | ** ** | **(5,227** | **)**       | **(2,871**                 | **)**      | **(655**                        | **)**      | **3,526**        | ** ** | **(5,227**       | **)**      |
| Income tax expense                               | ** ** | **5,568**  | ** **  | **(1,120**                 | **)**      | **—**                      | ** ** | **1,120**        | ** ** | **5,568**        | ** ** |
| Net income (loss)                                | ** ** | **$**      | **(10,795** | **)**                      | **$**      | **(1,751**                      | **)**      | **$**            | **(655**   | **)**            | **$**      | **2,406** | ** ** | **$** | **(10,795** | **)** |

 

**Aventine Renewable Energy Holdings, Inc. and Subsidiaries**

**Condensed Consolidating Statements of Operations**

**For the Three Months Ended March 31, 2007**

(Unaudited)
|                                             | ** ** | ** ** | ** ** | ** **                 | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** ** | ** **  | ** ** |
|--------------------------------------------------|------------|------------|------------|----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|-------------|------------|------------|-------------|------------|
| **(In  thousands)**                              | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                        | ** ** | **$**      | **—** | ** **                 | **$**      | **439,376**                     | ** ** | **$**            | **21,923** | ** **       | **$**      | **(24,637** | **)**      | **$**      | **436,662** | ** ** |
| Cost of goods sold                               | ** ** | **—** | ** ** | **413,936**                | ** ** | **18,698**                      | ** ** | **(24,387**      | **)**      | **408,247**      | ** ** |
| Gross profit                                     | ** ** | **—** | ** ** | **25,440**                 | ** ** | **3,225**                       | ** ** | **(250**         | **)**      | **28,415**       | ** ** |
| Selling, general and administrative expenses     | ** ** | **163**    | ** ** | **8,919**                  | ** ** | **766**                         | ** ** | **(250**         | **)**      | **9,598**        | ** ** |
| Other income                                     | ** ** | **—** | ** ** | **(164**                   | **)**      | **—**                      | ** ** | **—**       | ** ** | **(164**         | **)**      |
| Operating income (loss)                          | ** ** | **(163**   | **)**      | **16,685**                 | ** ** | **2,459**                       | ** ** | **—**       | ** ** | **18,981**       | ** ** |
| Other income (expense):                          | ** ** | ** ** | ** ** | ** **                 | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Interest income                                  | ** ** | **—** | ** ** | **1,342**                  | ** ** | **26**                          | ** ** | **—**       | ** ** | **1,368**        | ** ** |
| Interest expense                                 | ** ** | **(336**   | **)**      | **—**                 | ** ** | **—**                      | ** ** | **—**       | ** ** | **(336**         | **)**      |
| Equity in undistributed earnings of subsidiaries | ** ** | **23,647** | ** ** | **2,447**                  | ** ** | **—**                      | ** ** | **(26,094**      | **)**      | **—**       | ** ** |
| Other non-operating income                       | ** ** | **—** | ** ** | **3,389**                  | ** ** | **480**                         | ** ** | **—**       | ** ** | **3,869**        | ** ** |
| Minority interest                                | ** ** | **—** | ** ** | **—**                 | ** ** | **—**                      | ** ** | **(518**         | **)**      | **(518**         | **)**      |
| Income before income taxes                       | ** ** | **23,148** | ** ** | **23,863**                 | ** ** | **2,965**                       | ** ** | **(26,612**      | **)**      | **23,364**       | ** ** |
| Income tax expense                               | ** ** | **8,208**  | ** ** | **9,675**                  | ** ** | **—**                      | ** ** | **(9,459**       | **)**      | **8,424**        | ** ** |
| Net income                                       | ** ** | **$**      | **14,940** | ** **                 | **$**      | **14,188**                      | ** ** | **$**            | **2,965**  | ** **       | **$**      | **(17,153** | **)**      | **$**      | **14,940**  | ** ** |

 

16

----

 

**Aventine Renewable Energy Holdings, Inc. and Subsidiaries**

**Condensed Consolidating Balance Sheets**

**March 31, 2008**

(Unaudited)

 
| **(In thousands)**                         | ** ** | **Parent**  | ** **  | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------|------------|-------------|-------------|----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| * *                                        | * *   | * *    | * *    | * *                   | * *   | * *                        | * *   | * *         | * *   | * *         | * *   |
| **Assets**                                      |       |        |        |                       |       |                            |       |             |       |             |       |
| Current assets                                  |       |        |        |                       |       |                            |       |             |       |             |       |
| Cash and cash equivalents                       | ** ** | **$**       | **—**  | ** **                 | **$**      | **71,773**                      | ** ** | **$**            | **2,181**  | ** **       | **$**      | **—** | ** ** | **$** | **73,954** | ** ** |
| Accounts receivable, net                        | ** ** | **—**  | ** **  | **66,987**                 | ** ** | **355**                         | ** ** | **—**       | ** ** | **67,342**       | ** ** |
| Inventories                                     | ** ** | **—**  | ** **  | **99,098**                 | ** ** | **2,568**                       | ** ** | **(1,257**       | **)**      | **100,409**      | ** ** |
| Intercompany receivable                         | ** ** | **321,341** | ** **  | **—**                 | ** ** | **454**                         | ** ** | **(321,795**     | **)**      | **—**       | ** ** |
| Income tax receivable                           | ** ** | **—**  | ** **  | **9,871**                  | ** ** | **—**                      | ** ** | **—**       | ** ** | **9,871**        | ** ** |
| Prepaid expenses and other assets               | ** ** | **6**       | ** **  | **10,371**                 | ** ** | **145**                         | ** ** | **—**       | ** ** | **10,522**       | ** ** |
| Total current assets                            | ** ** | **321,347** | ** **  | **258,100**                | ** ** | **5,703**                       | ** ** | **(323,052**     | **)**      | **262,098**      | ** ** |
|                                            | ** ** | ** **  | ** **  | ** **                 | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Property, plant and equipment, net              | ** ** | **—**  | ** **  | **90,336**                 | ** ** | **16,114**                      | ** ** | **—**       | ** ** | **106,450**      | ** ** |
| Construction in process                         | ** ** | **—**  | ** **  | **283,336**                | ** ** | **2,555**                       | ** ** | **—**       | ** ** | **285,891**      | ** ** |
| Investment in subsidiaries                      | ** ** | **323,494** | ** **  | **43,883**                 | ** ** | **—**                      | ** ** | **(367,377**     | **)**      | **—**       | ** ** |
| Long-term investments                           | ** ** | ** **  | ** **  | **105,575**                | ** ** | **—**                      | ** ** | **—**       | ** ** | **105,575**      | ** ** |
| Other assets                                    | ** ** | **6,546**   | ** **  | **8,829**                  | ** ** | **—**                      | ** ** | **—**       | ** ** | **15,375**       | ** ** |
| Total assets                                    | ** ** | **$**       | **651,387** | ** **                 | **$**      | **790,059**                     | ** ** | **$**            | **24,372** | ** **       | **$**      | **(690,429** | **)** | **$** | **775,389** | ** ** |
|                                            | ** ** | ** **  | ** **  | ** **                 | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Liabilities and Stockholders’ Equity**   |       |        |        |                       |       |                            |       |             |       |             |       |
| Current liabilities                             |       |        |        |                       |       |                            |       |             |       |             |       |
| Accounts payable                                | ** ** | **$**       | **—**  | ** **                 | **$**      | **100,571**                     | ** ** | **$**            | **4,251**  | ** **       | **$**      | **(1,257** | **)** | **$** | **103,565** | ** ** |
| Accrued interest                                | ** ** | **15,000**  | ** **  | **—**                 | ** ** | **—**                      | ** ** | **—**       | ** ** | **15,000**       | ** ** |
| Accrued liabilities                             | ** ** | **—**  | ** **  | **2,551**                  | ** ** | **214**                         | ** ** | **—**       | ** ** | **2,765**        | ** ** |
| Other current liabilities                       | ** ** | **—**  | ** **  | **1,254**                  | ** ** | **360**                         | ** ** | **—**       | ** ** | **1,614**        | ** ** |
| Intercompany payable                            | ** ** | **—**  | ** **  | **321,875**                | ** ** | **—**                      | ** ** | **(321,875**     | **)**      | **—**       | ** ** |
| Total current liabilities                       | ** ** | **15,000**  | ** **  | **426,251**                | ** ** | **4,825**                       | ** ** | **(323,132**     | **)**      | **122,944**      | ** ** |
|                                            | ** ** | ** **  | ** **  | ** **                 | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Long-term debt                                  | ** ** | **300,000** | ** **  | **—**                 | ** ** | **—**                      | ** ** | **—**       | ** ** | **300,000**      | ** ** |
| Net deferred tax liabilities                    | ** ** | **—**  | ** **  | **2,513**                  | ** ** | **—**                      | ** ** | **—**       | ** ** | **2,513**        | ** ** |
| Minority interest                               | ** ** | **—**  | ** **  | **—**                 | ** ** | **—**                      | ** ** | **9,640**        | ** ** | **9,640**        | ** ** |
| Other long-term liabilities                     | ** ** | **—**  | ** **  | **3,905**                  | ** ** | **—**                      | ** ** | **—**       | ** ** | **3,905**        | ** ** |
| Total liabilities                               | ** ** | **315,000** | ** **  | **432,669**                | ** ** | **4,825**                       | ** ** | **(313,492**     | **)**      | **439,002**      | ** ** |
| Stockholders’ equity                       | ** ** | **336,387** | ** **  | **357,390**                | ** ** | **19,547**                      | ** ** | **(376,937**     | **)**      | **336,387**      | ** ** |
| Total liabilities and stockholders’ equity | ** ** | **$**       | **651,387** | ** **                 | **$**      | **790,059**                     | ** ** | **$**            | **24,372** | ** **       | **$**      | **(690,429** | **)** | **$** | **775,389** | ** ** |
|                                                 |            |             |             |                            |            |                                 |            |                  |            |                  |            |  |  |  |  |  |  |

 

17

----

 

**Aventine Renewable EnergyHoldings, Inc. and SubsidiariesCondensed Consolidating Balance Sheet****December 31,2007**

 
| **(In thousands)**                         | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------|------------|------------|------------|----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| **Assets**                                      |       |       |       |                       |       |                            |       |             |       |             |       |
| Current assets                                  |       |       |       |                       |       |                            |       |             |       |             |       |
| Cash and cash equivalents                       |       | $          | —     |                       | $          | 13,640                          |       | $                | 3,531      |             | $          |   | $ | 17,171 |   |
| Short-term investments                          |       | —     |       | 211,500                    |       | —                          |       |             |       | 211,500          |       |
| Accounts receivable, net                        |       | —     |       | 72,695                     |       | 363                             |       |             |       | 73,058           |       |
| Inventories                                     |       | —     |       | 80,909                     |       | 1,705                           |       | (1,126           | )          | 81,488           |       |
| Income tax receivable                           |       | —     |       | 11,962                     |       | —                          |       |             |       | 11,962           |       |
| Intercompany receivable                         |       | 318,272    |       | —                     |       | 1,361                           |       | (319,633         | )          | —           |       |
| Prepaid expenses and other assets               |       | 6          |       | 12,642                     |       | 168                             |       |             |       | 12,816           |       |
| Total current assets                            |       | 318,278    |       | 403,348                    |       | 7,128                           |       | (320,759         | )          | 407,995          |       |
|                                            |       |       |       |                       |       |                            |       |             |       |             |       |
| Property, plant and equipment, net              |       | —     |       | 93,001                     |       | 18,866                          |       |             |       | 111,867          |       |
| Construction in process                         |       |       |       | 225,122                    |       | 1,288                           |       |             |       | 226,410          |       |
| Investment in subsidiaries                      |       | 326,365    |       | 44,347                     |       | —                          |       | (370,712         | )          | —           |       |
| Net deferred tax assets                         |       | —     |       | 1,196                      |       | —                          |       |             |       | 1,196            |       |
| Other assets                                    |       | 6,728      |       | 7,989                      |       | —                          |       |             |       | 14,717           |       |
| Total assets                                    |       | $          | 651,371    |                       | $          | 775,003                         |       | $                | 27,282     |             | $          | (691,471 | ) | $ | 762,185 |   |
|                                            |       |       |       |                       |       |                            |       |             |       |             |       |
| **Liabilities and Stockholders’ Equity**   |       |       |       |                       |       |                            |       |             |       |             |       |
| Current liabilities                             |       |       |       |                       |       |                            |       |             |       |             |       |
| Accounts payable                                |       | $          | —     |                       | $          | 88,675                          |       | $                | 4,322      |             | $          | (1,126 | ) | $ | 91,871 |   |
| Accrued interest                                |       | 7,500      |       |                       |       |                            |       |             |       | 7,500            |       |
| Accrued liabilities                             |       | —     |       | 3,361                      |       | 264                             |       | —           |       | 3,625            |       |
| Other current liabilities                       |       | —     |       | 1,317                      |       | 305                             |       | —           |       | 1,622            |       |
| Intercompany payable                            |       | —     |       | 319,633                    |       | —                          |       | (319,633         | )          | —           |       |
| Total current liabilities                       |       | 7,500      |       | 412,986                    |       | 4,891                           |       | (320,759         | )          | 104,618          |       |
|                                            |       |       |       |                       |       |                            |       |             |       |             |       |
| Long-term debt                                  |       | 300,000    |       | —                     |       | —                          |       |             |       | 300,000          |       |
| Minority interest                               |       | —     |       | —                     |       | —                          |       | 9,832            |       | 9,832            |       |
| Other long-term liabilities                     |       | —     |       | 3,864                      |       | —                          |       |             |       | 3,864            |       |
| Total liabilities                               |       | 307,500    |       | 416,850                    |       | 4,891                           |       | (310,927         | )          | 418,314          |       |
| Stockholders’ equity                       |       | 343,871    |       | 358,153                    |       | 22,391                          |       | (380,544         | )          | 343,871          |       |
| Total liabilities and stockholders’ equity |       | $          | 651,371    |                       | $          | 775,003                         |       | $                | 27,282     |             | $          | (691,471 | ) | $ | 762,185 |   |

 

18

----

 

**Aventine Renewable Energy Holdings, Inc. and Subsidiaries**

**Condensed Consolidating Statement of Cash Flows**

**For the Three Months Ended March 31, 2008**

(Unaudited)

 
| **(In thousands)**                              | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|------------|------------|----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| * *                                             | * *   | * *   | * *   | * *                   | * *   | * *                        | * *   | * *         | * *   | * *         | * *   |
| **Operating Activities**                             |       |       |       |                       |       |                            |       |             |       |             |       |
| Net cash provided by (used for) operating activities | ** ** | **$**      | **(1,500** | **)**                      | **$**      | **30,741**                      | ** ** | **$**            | **149**    | ** **       | **$**      | **—** | ** ** | **$** | **29,390** | ** ** |
| ** **                                           | ** ** | ** ** | ** ** | ** **                 | ** ** | ** **                      | ** ** | **—**       | ** ** | ** **       | ** ** |
| **Investing Activities**                             | ** ** | ** ** | ** ** | ** **                 | ** ** | ** **                      | ** ** | **—**       | ** ** | ** **       | ** ** |
| Additions to property, plant and equipment           | ** ** | **—** | ** ** | **(58,447**                | **)**      | **(1,499**                      | **)**      | **—**       | ** ** | **(59,946**      | **)**      |
| Sale of investment securities                        | ** ** | ** ** | ** ** | **82,800**                 | ** ** | **—**                      | ** ** | ** **       | ** ** | **82,800**       | ** ** |
| Indemnification proceeds                             | ** ** | ** ** | ** ** | **3,039**                  | ** ** | **—**                      | ** ** | ** **       | ** ** | **3,039**        | ** ** |
| Net cash provided by (used for) investing activities | ** ** | **—** | ** ** | **27,392**                 | ** ** | **(1,499**                      | **)**      | **—**       | ** ** | **25,893**       | ** ** |
| ** **                                           | ** ** | ** ** | ** ** | ** **                 | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Financing Activities**                             | ** ** | ** ** | ** ** | ** **                 | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Proceeds from issuance of common stock               | ** ** | **1,500**  | ** ** | **—**                 | ** ** | **—**                      | ** ** | **—**       | ** ** | **1,500**        | ** ** |
| Net cash provided by financing activities            | ** ** | **1,500**  | ** ** | **—**                 | ** ** | **—**                      | ** ** | **—**       | ** ** | **1,500**        | ** ** |
| Net increase (decrease) in cash and cash equivalents | ** ** | **—** | ** ** | **58,133**                 | ** ** | **(1,350**                      | **)**      | **—**       | ** ** | **56,783**       | ** ** |
| Cash and cash equivalents at beginning of period     | ** ** | **—** | ** ** | **13,640**                 | ** ** | **3,531**                       | ** ** | **—**       | ** ** | **17,171**       | ** ** |
| Cash and cash equivalents at end of period           | ** ** | **$**      | **—** | ** **                 | **$**      | **71,773**                      | ** ** | **$**            | **2,181**  | ** **       | **$**      | **—** | ** ** | **$** | **73,954** | ** ** |

 

**Aventine Renewable Energy Holdings, Inc. and Subsidiaries**

**Condensed Consolidating Statement of Cash Flows**

**For the Three Months Ended March 31, 2007**

(Unaudited)
|                                                 | ** ** | ** **  | ** **   | ** **                 | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** **  | ** ** |
|------------------------------------------------------|------------|-------------|--------------|----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|------------|------------|------------|-------------|------------|
| **(In thousands)**                              | ** ** | **Parent**  | ** **   | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| * *                                             | * *   | * *    | * *     | * *                   | * *   | * *                        | * *   | * *         | * *   | * *         | * *   |
| **Operating Activities**                             |       |        |         |                       |       |                            |       |             |       |             |       |
| Net cash provided by (used for) operating activities | ** ** | **$**       | **(292,103** | **)**                      | **$**      | **307,790**                     | ** ** | **$**            | **2,214**  | ** **       | **$**      | **—** | ** ** | **$**      | **17.901**  | ** ** |
|                                                 | ** ** | ** **  | ** **   | ** **                 | ** ** | ** **                      | ** ** | **—**       | ** ** | ** **       | ** ** |
| **Investing Activities**                             | ** ** | ** **  | ** **   | ** **                 | ** ** | ** **                      | ** ** | **—**       | ** ** | ** **       | ** ** |
| Additions to property, plant and equipment           | ** ** | **—**  | ** **   | **(12,340**                | **)**      | **(78**                         | **)**      | **—**       | ** ** | **(12,418**      | **)**      |
| Investment in short-term securities                  | ** ** | **—**  | ** **   | **(45,825**                | **)**      | **—**                      | ** ** | **—**       | ** ** | **(45,825**      | **)**      |
| Net cash used for investing activities               | ** ** | **—**  | ** **   | **(58,165**                | **)**      | **(78**                         | **)**      | **—**       | ** ** | **(58,243**      | **)**      |
|                                                 | ** ** | ** **  | ** **   | ** **                 | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Financing Activities**                             | ** ** | ** **  | ** **   | ** **                 | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Proceeds from issuance of senior unsecured notes     | ** ** | **300,000** | ** **   | **—**                 | ** ** | **—**                      | ** ** | **—**       | ** ** | **300,000**      | ** ** |
| Payment of debt issuance costs                       | ** ** | **(8,070**  | **)**        | **—**                 | ** ** | **—**                      | ** ** | **—**       | ** ** | **(8,070**       | **)**      |
| Proceeds from stock option exercises                 | ** ** | **173**     | ** **   | **—**                 | ** ** | **—**                      | ** ** | **—**       | ** ** | **173**          | ** ** |
| Distribution to minority stockholders                | ** ** | **—**  | ** **   | **1,568**                  | ** ** | **(2,000**                      | **)**      | **—**       | ** ** | **(432**         | **)**      |
| Net cash provided by (used for) financing activities | ** ** | **292,103** | ** **   | **1,568**                  | ** ** | **(2,000**                      | **)**      | **—**       | ** ** | **291,671**      | ** ** |
| Net increase in cash and cash equivalents            | ** ** | **—**  | ** **   | **251,193**                | ** ** | **136**                         | ** ** | **—**       | ** ** | **251,329**      | ** ** |
| Cash and cash equivalents at beginning of period     | ** ** | **—**  | ** **   | **26,413**                 | ** ** | **3,378**                       | ** ** | **—**       | ** ** | **29,791**       | ** ** |
| Cash and cash equivalents at end of period           | ** ** | **$**       | **—**   | ** **                 | **$**      | **277,606**                     | ** ** | **$**            | **3,514**  | ** **       | **$**      | **—** | ** ** | **$**      | **281,120** | ** ** |

 

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

 

*Thisreport contains forward-looking statements made pursuant to the safe harborprovisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include allstatements that do not relate solely to current or historical fact, but addressevents or developments that we anticipate will occur in the future.  Forward-looking statements include statementsregarding our goals, beliefs, plans or current expectations, taking intoaccount the information currently available to our management.  When we use words such as “anticipate,” “intend,”“expect,” “believe,” “plan,” “may,” “should” or “would” or other words thatconvey uncertainty of future events or outcome, we are making forward-lookingstatements.  Statements relating tofuture sales, earnings, operating performance, restructuring strategies, plantexpansions, capital expenditures and sources and uses of cash, for example, areforward-looking statements.*

 

*Theseforward-looking statements are subject to various risks and uncertainties whichcould cause actual results to differ materially from those stated or implied bysuch forward-looking statements.  Weundertake no obligation to publicly release any revision of any forward-lookingstatements contained herein to reflect events and circumstances occurring afterthe date hereof, or to reflect the occurrence of unanticipated events.  Information concerning risk factors iscontained under Item “1A - Risk Factors” in our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2007.  You should carefully consider all of therisks and all other information contained in or incorporated by reference inthis report and in our filings with the SEC. These risks are not the only ones we face.   Additional risks and uncertainties notpresently known to us, or which we currently consider immaterial, also mayadversely affect us.  If any of theserisks actually occur, our business, financial condition and results ofoperations could be materially and adversely affected.*

 

**Company Overview**

 

Aventine is a leading producer and marketerof ethanol.  Through our own productionfacilities, marketing alliances with other ethanol producers and our purchase/resaleoperations, we market and distribute ethanol to many of the leading energycompanies in the U.S.  We have acomprehensive national distribution network utilizing trucks, a leased railcarand barge fleet and a terminal network at critical points on the nation’stransportation grid where our ethanol is blended with our customers’gasoline.  Aventine is also a marketerand distributor of biodiesel.  Inaddition to producing ethanol, our facilities also produce several co-productsincluding: corn gluten feed and meal, corn germ, condensed corn distillerssolubles, dried distillers grain with solubles (“DDGS”), wet distillers grainwith solubles (“WDGS”), carbon dioxide and brewers’ yeast.

 

**Results of Operations**

 

The following discussion summarizes the significant factors affectingthe consolidated operating results of the Company for the three month periodsended March 31, 2008 and 2007.  Thisdiscussion should be read in conjunction with the unaudited condensedconsolidated financial statements and notes to the unaudited condensedconsolidated financial statements contained in Item 1 above, and theconsolidated financial statements and related notes for the year ended December 31,2007 included in the Company’s Annual Report on Form 10-K.

 

Our revenues are principally derived from the sale of ethanol and fromthe sale of co-products (corn gluten feed and meal, corn germ, condensed corndistillers solubles, DDGS, WDGS, carbon dioxide, and brewers’ yeast) that weproduce as by-products during the production of ethanol at our plants, which werefer to as co-product revenues.  We sellethanol obtained from the following sources:

 

 

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·                  Ethanol which we manufacture at our plants;

·                  Ethanol which we purchase from our marketingalliance partners; and

·                  Ethanol that we purchase from other producersand marketers.

 

We market and sell ethanol without regard to whetherwe produced it, are marketing it for our marketing alliance partners orpurchased it for resale from other producers or marketers.  In addition to ethanol, we also purchase andmarket biodiesel.

 

*ExecutiveSummary*

 

We incurred a net loss of $10.8 million, or$0.26 per diluted share, in the first quarter of 2008, as compared to netincome of $14.9 million, or $0.35 per diluted share, in the first quarter of2007.  The net loss in the first quarterof 2008 includes $21.6 million in non-cash losses related to available for salesecurities.  Excluding this non-cashloss, net income and diluted earnings per share would have been $10.8 millionand $0.26, respectively.  Net income inthis quarter over quarter period was also affected by significantly higher corncosts, higher freight costs and lower gains on hedging transactions, offsetsomewhat by lower SG&A spending, higher ethanol pricing, and higher volumesof ethanol sold.  Revenue in the firstquarter of 2008 was $509.9 million, an increase of $73.2 million, or 16.8%,from first quarter 2007 revenue of $436.7 million.  Commodity spread, defined as gross ethanolselling price per gallon less net corn cost per gallon, declined in Q1’08 to$1.21 per gallon, from $1.25 per gallon in Q1’07.  The average sales price per gallon of ethanolincreased in Q1’08 to $2.21 per gallon from the $2.10 average received in Q1’07.  However, corn costs during the first quarterof 2008 averaged $4.50 per bushel, significantly higher than our first quarter2007 cost of $3.58 per bushel.

 

**Gallonsof ethanol sold in the first quarter of 2008 increased 9.3%, to 211.2 milliongallons from 193.2 million gallons in the first quarter of 2007.  Higher purchase/resale gallons were offset bydeclines in equity production and lower volumes available from marketingalliance partners.  Ethanol production inthe quarter totaled 47.7 million gallons, down slightly from 48.9 milliongallons in the first quarter of 2007.**

 

Gross profit was $24.1 million in the firstquarter of 2008, a decrease of $4.3 million from the first quarter of2007.  The decline in gross profit wasprincipally the result of a lower commodity spread caused principally bysignificantly higher corn costs. Although ethanol prices increased, they did not increase at a ratesufficient to offset the higher corn prices. Every 4 cent rise in corn costs requires a 1 cent rise in ethanol pricesto maintain the same spread.

 

The average inventory cost of $1.95 pergallon at the end of the first quarter of 2008 versus $1.80 at the end of thefourth quarter of 2007 reflects the increase in ethanol prices during thequarter using our weighted average FIFO approach to calculatinginventory.  The economic impact of selling gallons that were previouslyheld in inventory at the end of the fourth quarter of 2007 during a period ofrising prices, was $5.5 million.  Therewas no economic impact of this same issue in the first quarter of 2007, as thevalue of ethanol in inventory was $1.91 at the end of both Q4’06 and Q1’07.  Ourinventory is valued based upon a weighted average price we pay for ethanol thatwe purchase from our marketing alliance partners and our purchase/resaletransactions, along with our own cost to produce ethanol.  Changes, eitherupward or downward, in our purchased cost of ethanol or our own productioncosts, will cause the inventory value to fluctuate from period to period,perhaps significantly.  These changes in value flow through our statementof operations as the inventory is sold and can significantly increase ordecrease our profitability.

 

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Other non-operating income forthe first quarter of 2008 includes $1.9 million of realized and unrealized netgains on derivative contracts, including the effect of marking to marketderivative contracts, versus net gains in the first quarter of 2007 of $3.9million.  The gains recorded in the firstquarter of 2008 reflect mark to market net gains on CBOT corn positionstotaling $1.9 million and net gains on short gasoline future positions thatwere immaterial.  All of our derivativehedge positions have been marked to market, and we have already recorded incomeor loss with respect to these positions as of March 31, 2008.  Changes in prices for open derivativecontracts may result in additional mark to market gains or losses on thesepositions in future periods.

 

*For the Three Months Ended March 31, 2008 Compared to the ThreeMonths Ended March 31, 2007*

 

Total gallons of ethanol sold in the firstquarter of 2008 increased to 211.2 million gallons, versus 193.2 milliongallons sold in the first quarter of 2007. Gallons of ethanol were sourced as follows:

 

| **For the Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------------|------------|
| **(In thousands, except for percentages)**         | ** ** | **2008** | ** ** | **2007** | ** ** | **Increase/  (Decrease)** | ** ** | **% Increase/  (Decrease)** | ** ** |
| Equity production                                                      | ** ** | **47,735** |   | 48,907 |   | (1,172 | ) | (2.4 | )% |
| Marketing alliance purchases                                           | ** ** | **129,889** |   | 134,709 |   | (4,820 | ) | (3.6 | )% |
| Purchase/resale                                                        | ** ** | **38,964** |   | 21,528 |   | 17,436 |   | 81.0 | %  |
| Decrease (increase) in inventory                                       | ** ** | **(5,346** | **)** | (11,956 | ) | 6,610 |   | N.M. | * |
| Total                                                                  | ** ** | **211,242** |   | 193,188 |   | 18,054 |   | 9.3 | % |

 

----

*  Not meaningful

 

Net sales in the first quarter of 2008 increased16.8% from the first quarter of 2007. Net sales were $509.9 million in the first quarter of 2008 versus $436.7million in the first quarter of 2007. Overall, the increase in net sales was the result of the increase in theaverage sales price of ethanol sold and higher volumes of ethanol sold.  Ethanol prices averaged $2.21 per gallon inthe first quarter of 2008 versus $2.10 in the first quarter of 2007.

 

Co-product revenues for the first quarter of2008 totaled $33.3 million, an increase of $10.2 million or 44.2%, from thefirst quarter 2007 total of $23.1 million. Co-product revenues increased during the first quarter of 2008 as aresult of a combination of higher co-product pricing for germ, meal and DDGS causedby increasing corn prices, and from higher volumes sold.  In the first quarter of 2008, we sold 272.4thousand tons, versus 267.1 thousand tons in the first quarter of 2007.  Co-product revenues, as a percentage of corncosts, were 41.2% during the first quarter of 2008, versus 35.7% in the firstquarter of 2007.  Co-product revenues, asa percentage of corn costs, increased in the first quarter of 2008 as comparedto 2007 as the result of increases in co-product pricing rising at a fasterrate in 2008 versus 2007 as compared to corn.

 

Cost of goods sold for the quarter ended March 31,2008 was $485.9 million, compared to $408.2 million for the quarter ended March 31,2007, an increase of $77.7 million or 19.0%. Cost of goods sold consists of the cost to produce ethanol at our ownfacilities, the cost of purchasing ethanol from our marketing alliance partnersand the cost of purchasing ethanol and biodiesel from other producers andmarketers, freight and logistics costs to ship ethanol, biodiesel andco-products, and the cost of motor fuel taxes which have been billed tocustomers.  The increase in cost of goodssold is principally the result of increased corn costs, increased freightcosts, and higher prices paid for purchased biofuels.

 

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Purchased ethanol in the first quarter of2008 totaled $341.9 million, versus $300.9 million in the first quarter of2007.  The increase in purchased ethanolresults from both the increase in the cost per gallon of ethanol purchased, andfrom the increase in the number of gallons of ethanol purchased.  In the first quarter of 2008, we purchased168.9 million gallons of ethanol at an average cost of $2.02 per gallon ascompared to 156.2 million gallons of ethanol at an average cost of $1.93 in thefirst quarter of 2007.

 

Production costs include corn costs,conversion costs (defined as the cost of converting the corn into ethanol, andincludes production salaries, wages and stock compensation costs, fringebenefits, utilities (including coal and natural gas), maintenance, denaturant,insurance, materials and supplies and other miscellaneous production costs) anddepreciation.  Corn costs in the firstquarter of 2008 totaled $80.8 million or $4.50 per bushel, versus $64.7 million,or $3.58 per bushel in the first quarter of 2007.  The increase in corn costs is due to highercorn prices as a result of expected new ethanol production facilities beingbuilt and increased demand for grains on a global basis, along with lower plantingexpectations for 2008.

 

Conversion costs for the first quarter of2008 increased to $29.8 million from $27.0 million for the first quarter of2007.  The total dollars spent onconversion costs increased year over year as a result of higher denaturantcosts, higher utility expenses and higher outside service costs.  The conversion cost per gallon increased yearover year to $0.62 per gallon in the first quarter of 2008 versus $0.55 pergallon in the first quarter of 2007. Conversion costs per gallon in the first quarter of 2008 were also negativelyaffected by the lower number of gallons produced as a result of lowering thedenaturant blending levels to 1.96% from 4.76%.

 

Depreciation in the first quarter of 2008totaled $3.3 million, versus $2.9 million in the first quarter of 2007.  The increase in depreciation expense is theresult of the new Pekin dry mill beginning production.  Motor fuel taxes were $3.4 million in thefirst quarter of 2008 versus $6.2 million in the first quarter of 2007.  The cost of motor fuel taxes are recoveredthrough billings to customers.

 

Freight/logistics costs in the first quarterof 2008 increased to $42.2 million, or approximately $0.20 per gallon, from$30.2 million, or $0.16 per gallon in the first quarter of 2007.  Freight/logistics cost per gallon is calculatedby taking total freight/logistics costs incurred (including costs to shipco-products) and dividing by the total ethanol gallons sold.  The increase in freight costs was primarily due to increasing fuel surcharges resultingfrom record high oil prices, which continue to negatively impact generalfreight rates, and from general freight increases associated with movingproduct along longer supply lines to emerging new markets in the Southeast.These additional expenses have been made to support higher netbacks on theincreased volumes.

 

The average inventory cost of $1.95 pergallon at the end of the first quarter of 2008 versus $1.80 at the end of thefourth quarter of 2007 reflects the increase in ethanol prices during thequarter using our weighted average FIFO approach to calculatinginventory.  The economic impact of selling gallons that were previouslyheld in inventory at the end of the fourth quarter of 2007 during a period ofrising prices was $5.5 million.  Therewas no economic impact of this same issue in the first quarter of 2007 as theinventory value of $1.91 was the same at the end of both the first quarter of2007 and the fourth quarter of 2006.

 

Selling, general andadministrative (“SG&A”) expenses were $8.9 million in the first quarter of2008, compared to $9.6 million in the first quarter of 2007.  The year over year decrease primarilyreflects lower expenditures for legal and other professional fees, offsetsomewhat by increased personnel costs.

 

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In the first quarter of 2008, the Companyrecorded losses related to its portfolio of auction rate securities consistingof a $21.6 million non-cash impairment loss and a $1.5 million realizedloss.  The $1.5 million realized lossrelates to the sale of $6.8 million of these securities to a private equityfirm.  Given the highly illiquid marketfor the remaining ARS securities, bids for the full amount were notavailable.  Therefore, we reduced thecarrying value of our ARS by $21.6 million using an internally preparedvaluation model based upon discounted cash flows using the best available,comparable external data points and other judgmental adjustments whereconsidered appropriate.  The model’sassumptions include a discount factor and estimated weighted average life ofthe securities.

 

Interest income in the first quarter of 2008was $2.2 million, versus $1.4 million in the first quarter of 2007.  The increase in interest income is due to ahigher average level of funds available to invest over the entire quarter of2008, versus 2007, offset somewhat by lower interest rates received on ouroverall investment portfolio.  We expectinterest income to continue declining as a result of a lower overall rate ofreturn on our portfolio of investment assets, including the remaining auctionrate securities we hold.

 

Interest expense in thefirst quarter of 2008 was $2.4 million, as compared to $0.3 million in thefirst quarter of 2007.  Interest expensein the first quarter of 2008 includes $7.5 million in interest on $300 millionaggregate principal amount of our 10.0% senior unsecured notes issued March 27,2007 and $0.3 million of amortization of deferred financing fees, reduced bycapitalized interest of $5.4 million.

 

Other non-operating incomefor the first quarter of 2008 includes $1.9 million of realized and unrealizedgains on corn derivative contracts. These include the effect of marking to market these contracts at quarterend.  Other non-operating income isimpacted by the CBOT prices for derivative contracts.  The change in market value during the quarteron our short forward gasoline contracts was immaterial.

 

The minority interest for the quarter ended March 31,2008 was a reduction of expense of $0.2 million, compared to a charge to incomeof $0.5 million for the quarter ended March 31, 2007.  This change reflects the reduced operatingperformance of our Nebraska subsidiary caused primarily by the year over yearsignificant increase in corn costs, and the lower average price received fromselling wet distillers grains.

 

Income tax expense in Q1’08totaled $5.6 million.  The Company maynot receive an income tax benefit related to the impairment charge from theauction rate securities as it does not expect to have sufficient capital gainsto offset the $21.6 million capital loss, should it become realized.  Therefore, a valuation allowance for the fullamount of the benefit was recorded during the quarter.  Excluding the effects of the non-cashimpairment charge related to auction rate securities, the income tax rate in Q1’08was approximately 34% of pre-tax income, versus an income tax rate of 36.1% inthe first quarter of 2007.

 

**Trends and Factors that May Affect Future Operating Results**

 

*Ethanol Pricing*

 

Ethanol prices increasedthroughout the first quarter of 2008. The positive effect of higher ethanol prices significantly affected ourgross profit during the first quarter of 2008. The rise in ethanol prices is the result of a combination of a newrenewable fuel mandate passed by Congress in December 2007 which requires9 billion gallons of ethanol consumption in 2009 and favorable economics ofblending ethanol due to the current price of ethanol being lower than the priceof gasoline.  Ethanol was

 

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sold during the first quarter of 2008 at a significantdiscount to wholesale gasoline.  This,combined with the $0.51 per gallon tax credit available to blenders, providedsignificant arbitrage opportunities to blenders to increase the amount of ethanol they are blending.  However, we are unable to predict whetherethanol prices will remain strong, or whether new supply projected to comeonline will cause ethanol prices to fall.

 

As of March 31, 2008,we had contracts for delivery of ethanol totaling 276.6 million gallons throughDecember 2008.  These contracts areshared for the benefit of the marketing alliance pool as a whole, of whichAventine is a part, and are not solely applicable to Aventine.  These commitments were for 47.9 million gallonsat an average fixed price of $1.94 per gallon, 57.6 million gallons at anaverage spread to wholesale gasoline of a negative 41 cents per gallon (basedupon the NYMEX, Chicago and NY harbor indices), and 171.1 million gallons atspot prices (using various Platt, OPIS and AXXIS indices).

 

For the second quarter of2008, we had contracts for delivery of ethanol totaling 136.2 milliongallons.  These commitments were for 32.5million gallons at an average fixed price of $1.92, 31.5 million gallons at anaverage spread to wholesale gasoline of a negative 42 cents (based upon theNYMEX, Chicago and NY harbor indices), and 72.2 million gallons at spot prices(using various Platt, OPIS and AXXIS indices).

 

At the end of the firstquarter of 2008, we also had short gasoline positions outstanding using swapagreements where we sold 18.2 million gallons of gasoline at an average fixedprice of $2.28 per gallon for delivery through December 2008.  We did this to hedge some of our gas pluscontracts from potentially falling gasoline prices.  The fair value of these positions at March 31,2008 was a loss of approximately $5.2 million.

 

*Corn*

 

Corn prices have risensignificantly since the second quarter of 2006 and have reached recordlevels.  We believe that corn prices arelikely to remain above historical levels for the foreseeable future.

 

We continuously purchasecorn for physical delivery from suppliers using forward purchase contracts inorder to assure supply.  As we do this,we also typically short a like amount of CBOT corn futures with similar datesto lock in the basis differential.  Wealso occasionally use CBOT futures contracts to lock in the price of corn bytaking long positions in CBOT contracts in order to reduce our risk of priceincreases.  Exchange traded forwardcontracts for commodities are marked to market each period.  Our forward physical purchases of corn arenot marked to market.

 

At March 31, 2008, wehad fixed the price of 21.9 million bushels of corn through December 2008at an average of $5.11 per bushel, representing approximately 39% percent ofour corn requirements for the remainder of 2008.

 

*Marketing Alliance*

 

Our marketing allianceannualized volume at the end of Q1’08 was 517 million gallons. With our ownequity production, our marketing alliance partner volumes, and purchase/resalevolumes, we distributed approximately 845 million gallons of ethanol on anannualized basis in the first quarter of 2008. Our expectation for 2008 is that another 416 million gallons ofmarketing alliance partner production will come online, bringing our totalethanol marketing capacity to greater than 1.2 billion gallons annually by theend of this year.  Going forward, we maysee changes to our marketing alliance

 

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volumes as a result ofeconomic pressures which may affect marketing alliance volumes available fordistribution.

 

*Supply and Demand*

 

According to the Renewable Fuels Association,it is expected that annual ethanol production capacity in the U.S. will totalin excess of 13.5 billion gallons annually. This volume of ethanol includes plants currently in operation and thoseunder construction.  This volume ofethanol production exceeds the mandate for ethanol consumption required in2012.  Ethanol produced in the UnitedStates competes with sugar-based ethanol produced in Brazil.  This domestic production capacity, along withimports, may cause supply to exceed demand. If additional demand for ethanol is not created, either throughadditions to discretionary blending (through increased penetration rates inareas that blend ethanol today or through the establishment of new marketswhere little or no ethanol is blended today), or through additional state levelmandates, the excess supply may cause ethanol prices to decrease, perhapssubstantially.

 

*Expansion*

 

We have identified opportunities to increase ourequity production capacity through the development of new productionfacilities.  We are currently building113 million gallon annualized capacity ethanol production facilities at bothMt. Vernon, Indiana and Aurora, Nebraska, where we expect to begin ramping upethanol production in the first quarter of 2009.  In addition, we are obligated to add an additional 113million gallons of capacity through a phase II expansion in Mt. Vernon,Indiana, and would be subject to material penalties if we do not.  We also intend to add an additional 113million gallons of capacity through a phase II expansion at Aurora, Nebraska,along with potentially expanding our existing Pekin, Illinois campus.  The timing of these expansions will be basedupon, among other factors, market conditions and the availability of financingon attractive terms.  We anticipate thatthe aggregate capital expenditures to build our phase I expansion at each ofMt. Vernon and Aurora, excluding capitalized interest, will be approximately$250 million per plant, which includes approximately $15 million of additionalinfrastructure at each plant to facilitate the construction of the phase II expansions.  We have not yet entered into agreements forany of our additional expansions.  Thecost to build these additional expansions will depend on market conditions atthe time construction is commenced and may be higher or lower than the cost ofthe phase I expansions.** **There can be no assurance that wecan raise additional funds to complete these projects.

 

We may be subject to material penalties if wedo not timely complete phase I of the Aurora Expansion or either phase of theMt. Vernon expansion.  If phase I of theAurora plant is not completed and fully operational by July 1, 2009 wewill be responsible for liquidated damages of $138,889 per month (up to amaximum of $5 million) until the plant is fully operational.  If we do not pay these damages, thecounterparty has the right to repurchase the property at cost (subject toadjustment for any expenses which we have paid with respect to infrastructureconstruction).  We recently amended ourlease with the Indiana Port Commission to provide additional flexibility as tothe timing of the phase II expansion at Mt. Vernon.  This lease, as amended, requires substantialcompletion of phase I (an initial 110 million gallons of capacity) by March 1,2009 and substantial completion of phase II (an additional 110 million gallonsof capacity) by January 1, 2011, subject in the case of the phase II tospecified extension rights.  If we do notachieve these milestones, the State may, subject to specified cure rights, takeover construction and complete the facility at our expense.  In addition, if we fail to achieve thesemilestones we will, subject to specified cure rights or our ability tonegotiate an extension, be in default under our lease and the State may also,at its election, (i) without terminating the lease re-let the premises toa third party and charge us for any necessary repairs and alterations, (ii) withoutterminating the lease, require us to pay all amounts we are obligated to payunder the lease as they become payable, less any

 

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amount received from any re-letting of the premises or (iii) terminatethe lease.  If the State of Indianaterminates the lease it can require that we pay liquidated damages in theamount by which the lease payments we are obligated to make under the leaseexceed the fair and reasonable rental value of the premises, each discounted topresent value (but in no event being less than two years of basic rent andminimum guaranteed wharfage under the lease). In addition, upon any termination or expiration of the lease, the Statedoes not have to pay us for the value of the plant or any other improvementsthat we made to the premises and can require us to restore the leased premisesto their original condition at our cost and expense.  In addition, under the design buildagreements for the initial 113 million gallon capacity expansion at each of MtVernon and Aurora, we have the ability to delay construction by up to 180 days.  If we do so, we will be responsible forcertain increased costs and foregone profit of the contractor (potentiallyincluding an early completion bonus).  Ifwe were to delay construction beyond 180 days the contractor would be entitledto treat the delay as a termination by us for convenience and we would beresponsible for certain costs and expenses of the contractor in connection withsuch termination.

 

*Biodiesel*

 

During the first quarter of2008, we sold 1.6 million gallons of biodiesel.

 

**Liquidity and Capital Resources**

 

*Overview and Outlook*

 

The following table sets forth selectedinformation concerning our financial condition:

 
| **(In thousands)**   | ** **   | **March 31,  2008** | ** **   | **December 31,  2007** | ** **   |
|---------------------------|--------------|--------------------------|--------------|-----------------------------|--------------|
| ** **                | ** **   | **(Unaudited)**          | ** **   | ** **                  | ** **   |
| *** ***              | *** *** | *** ***             | *** *** | *** ***                | *** *** |
| Cash and cash equivalents | ** **   | **$**                    | **73,954**   |                        | $            | 17,171 |   |
| Short-term investments    | ** **   | **—**               |         | 211,500                     |         |
| Working capital           | ** **   | **139,154**              |         | 303,377                     |         |
| Total debt                | ** **   | **300,000**              |         | 300,000                     |         |
| Current ratio             | ** **   | **2.13**                 |         | 3.90                        |         |
|                           |              |                          |              |                             |              |  |  |

 

As of March 31, 2008, the Companycontinues to carry on its balance sheet $127.2 million par value of studentloan based auction rate securities (“ARS”). We have no reason to believe that any of theunderlying issuers of our ARS are presently at risk of default.  Although we continue to receive interestpayments on these securities in accordance with their stated terms, we expectthe interest payments to significantly decrease in accordance with the terms ofthese securities.  In addition, webelieve that we will not be able to access funds as needed from thesesecurities until future auctions for these ARS are successful, or until we sellthe securities in a secondary market which is currently limited.  As a result, we currently areunable to liquidate our investment in these ARS without incurring significantlosses.  The Company may have to holdthese securities until final maturity in order to redeem them without incurringany losses.  For these reasons, webelieve the recovery period for these investments is likely to be longer than12 months and as a result, we have classified these investments as long-term asof March 31, 2008.

 

In conjunction with the liquidity issues surroundingthese securities, the Company recorded anon-cash $21.6 million charge to income in Q1’08 to reduce the carrying valueof the ARS on its balance sheet as of March 31, 2008.  Given the highly illiquid market for thesesecurities, bids for the full amount of our ARS were not available.  Therefore, we reduced the carrying value ofour ARS by using an

 

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internally prepared valuation model based upondiscounted cash flows using the best available, comparable external data pointsand other judgmental adjustments where considered appropriate.  The model’s assumptions include a discountfactor and estimated weighted average life of the securities.  During Q1’08, the Company also recognized arealized loss of $1.5 million on the sale of $6.8 million of auction ratesecurities.

 

As discussed above, the Company is currentlypursuing all available alternatives to monetize the remaining ARS it holds andto increase its liquidity position, including discussions with banks on a newor amended credit facility.  We are also evaluating several scenarios withrespect to our capacity expansion projects.  We expect to make progresstowards resolution of this issue during the second quarter of 2008.  Afterutilization of our current available resources, should we not be successful inour current efforts to increase liquidity on a timely basis and on acceptableterms, we will have to either attempt to raise additional funds or slow downthe construction of our new facilities, or both.  In addition, delays inthe construction of our new facilities could expose us to material penalties asdescribed under the heading “Trends and Factors that May Affect FutureOperating****Results – Expansion.”

 

The Company has made commitments for theconstruction of new ethanol facilities. The initial phase I expansions in Mt. Vernon, Indiana and Aurora,Nebraska began construction in 2007.  Itis expected that each phase I project will cost approximately $250million.  Through March 31, 2008,approximately $250 million has been spent on these two projects.  We expect to spend an additional $250 millionover the remaining months in 2008 to complete these projects, excludingcapitalized interest. However, some of the expenditures on capital expansionprojects may spill over into the first quarter of 2009.  Total liquidity available to us at the end ofQ1’08 was $206.1 million, comprised of $74.0 million in cash and cashequivalents and $132.1 million available under our existing secured revolvingcredit facility.

 

The Company is currently pursuing allavailable alternatives to monetize the remaining ARS it holds and to increaseits liquidity position, including discussions with banks on a new or amendedliquidity facility or raising additional capital.  We expect to need additional liquidity inaddition to our current cash balances, amounts available under our securedrevolving credit facility and anticipated cash flow from operations, in orderto be able to satisfy existing anticipated working capital needs, debt serviceobligations, non-expansion related capital expenditures and other anticipatedcash requirements for 2008.

 

OnOctober 26, 2006, Aventine’s Board of Directors approved a common stockshare buyback program of up to $50 million. Under the repurchase program, the Company may buy back shares from timeto time on the open market.  The programhas no minimum share repurchase amounts, and there is no fixed time periodunder which any share repurchases must take place.  This share repurchase program is not expectedto impact the Company’s previously announced expansion plans.  From program inception through the end of thefirst quarter of 2008, the Company has repurchased a total of 369,615

 

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sharesof its common stock.  The amountremaining under the authorization to repurchase stock is approximately $45.9million.  The amounts the Company mayrepurchase under this program in the future may be affected by cash required tocomplete current facility expansion, as well as cash provided by operations.

 

*Sources of Liquidity*

 

Our principal sources of liquidity are cash,cash equivalents, cash provided by operations, and cash available under oursecured revolving credit facility.

 

*Cash and cash equivalents.*  Forthe first three months of 2008, cash and cash equivalents increased by $56.8million.  Cash and cash equivalents as ofMarch 31, 2008 and December 31, 2007 were $74.0 million and $17.2million, respectively.  The increase incash and cash equivalents is principally the result of liquidations of auctionrate securities, along with cash provided by operations, offset by expendituresrelated to our plant expansions.

 

C*ash provided byoperations.*  Net cash providedby operating activities in the first three months of 2008 was $29.4****million, as compared to cash provided by operatingactivities of $17.9 million for the first three months of 2007.  The increase in cash provided by operationsin 2008 versus 2007 is primarily the result of an increase in accrued interestresulting from our 10% senior unsecured bonds. There was no interest payment scheduled on our bonds in the firstquarter of 2008.  We made a $15 millioninterest payment, as scheduled, on April 1, 2008.

 

*Cash available under our liquidity facility*.  In March 2007,we established a new five year secured revolving credit facility with JPMorganChase Bank, N.A., as administrative agent and a lender, of up to $200 million,subject to collateral availability, which, under certain circumstances, can beincreased to $300 million.  See “Item 2 –Management’s Discussion and Analysis of Financial Condition and Results ofOperation - Secured Revolving Credit Facility” below for more information aboutour secured revolving credit facility.

 

Wehad no borrowings outstanding under our secured revolving credit facility at March 31,2008, and $16.9 million of standby letters of credit outstanding, therebyleaving approximately $132.1 million in borrowing availability under oursecured revolving credit facility as of that date.  We were in compliance with all covenantscontained in the secured revolving credit facility as of March 31, 2008.

 

*Uses of Liquidity*

 

Our principal uses of liquidity are capitalexpenditures, payments related to our outstanding debt and liquidity facility,and the repurchase of shares of our common stock.

 

*Capital expenditures.* During the first quarter of 2008, we spent approximately $60.0 million,exclusive of capitalized interest of $5.4 million, on capital projects.  Of this amount, $3.1 million was spent onmaintenance and environmental projects, while $51.5 million was spent oncapacity expansion projects.  The amountwe expect to spend for the remaining three quarters of 2008 for expansionrelated capital projects is approximately $250 million, exclusive ofcapitalized interest.  However, some ofthe expenditures on capital expansion projects may spill over into the firstquarter of 2009.  Expected capitalexpenditures on non-expansion related maintenance and environmental itemsshould total between $10 and $15 million over the remaining three quarters of2008.

 

*Payments related to our outstanding debt and liquidity facility.*  Inthe first quarter of 2008, we did not make any interest payments on our debt orour liquidity facility as no payment was due. Interest payments of $15 million on our 10% senior unsecured notes aredue on April 1 and October 1.

 

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*Repurchase of shares ofcommon stock.*In thefirst quarter of 2008, we did not repurchase any shares of our common stock onthe open market. The share repurchase program allows the repurchase of up to$50 million of our outstanding common stock, although there are no minimumshare purchase requirements. There is approximately $45.9 million available tobe repurchased under this program.

 

**Secured Revolving Credit Facility**

 

Our liquidity facilityconsists of a five year secured revolving credit facility with JPMorgan ChaseBank, N.A., as administrative agent and a lender, of up to $200 million,subject to collateral availability, which, under certain circumstances, can beincreased up to $300 million. Our secured revolving credit facility includes a$25 million sub-limit for letters of credit. The credit facility expires in March 2012,and is secured by substantially all of the Company’s assets, with the exceptionof the assets of Nebraska Energy, LLC.

 

Collateral availability isdetermined via a borrowing base, which includes a percentage of eligiblereceivables and inventory, and no more than $50 million of property, plant andequipment. The amount of property, plant and equipment which can be included inthe borrowing base reduces at a rate of $1.8 million each quarter beginningwith the quarter ended December 31, 2007. At March 31, 2008, theamount of property, plant and equipment which was eligible for inclusion in thecalculation of the borrowing base was $46.4 million.

 

Borrowings generally bearinterest, at our option, at the following rates (i) the Eurodollar rateplus a margin between 1.25% to 1.75%, depending on the average availability, or(ii) the greater of the prime rate or the federal funds rate plus 0.50%,plus a margin between 0.00% to 0.50%, depending on the average availability. Accruedinterest is payable monthly on outstanding principal amounts, provided thataccrued interest on Eurodollar loans is payable at the end of each interestperiod, but in no event less frequently than quarterly. In addition, fees andexpenses are payable based on unused borrowing availability (0.25% to 0.375%per annum, depending on the average availability), outstanding letters ofcredit (1.375% to 1.875% fee, depending on the average availability) andadministrative and legal costs.

 

Availability under oursecured revolving credit facility is subject to customary conditions, includingthe accuracy of representations and warranties, the absence of any materialadverse change and compliance with certain covenants, which, among otherthings, may limit our ability to incur additional indebtedness and liens; enterinto transactions with affiliates; make acquisitions; pay dividends; redeem orrepurchase capital stock or senior notes; make investments or loans;consolidate, merge or effect asset sales; or change the nature of our business.In addition, if availability under the facility falls below $50 million, wemust maintain a fixed charge coverage ratio of EBITDA (as defined under theagreement) less non-financed capital expenditures and taxes to fixed charges(scheduled investments of principal, interest expense, and dividend and certainother payments) of 1.1 to 1.

 

The secured revolving creditfacility contains customary events of default for credit facilities of this sizeand type, and includes, without limitation, payment defaults; defaults inperformance of covenants or other agreements contained in the transactiondocuments; inaccuracies in representations and warranties; certain defaults,termination events or similar events; certain defaults with respect to anyother Company indebtedness in excess of $5.0 million; certain bankruptcyor insolvency events; the rendering of certain judgments in excess of$5.0 million; certain ERISA events; certain change in control events andthe defectiveness of any liens under the secured revolving credit facility. Obligationsunder the secured revolving credit facility may be accelerated upon theoccurrence of an event of default.

 

 

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We had no borrowings outstanding under our secured revolving creditfacility at March 31, 2008, and $16.9 million of standby letters of creditoutstanding, thereby leaving approximately $132.1 million in borrowingavailability under our secured revolving credit facility as of that date.

 

**Environmental Matters**

 

We are subject to extensivefederal, state and local environmental laws, regulations and permit conditions(and interpretations thereof), including those relating to the discharge ofmaterials into the air, water and ground, the generation, storage, handling,use, transportation and disposal of hazardous materials, and the health andsafety of our employees. These laws, regulations, and permits require us toincur significant capital and other costs, including costs to obtain andmaintain expensive pollution control equipment. They may also require us tomake operational changes to limit actual or potential impacts to theenvironment. A violation of these laws, regulations or permit conditions canresult in substantial fines, natural resource damages, criminal sanctions,permit revocations and/or facility shutdowns. In addition, environmental lawsand regulations (and interpretations thereof) change over time, and any suchchanges, more vigorous enforcement policies or the discovery of currentlyunknown conditions may require substantial additional environmentalexpenditures.

 

Weare also subject to potential liability for the investigation and cleanup ofenvironmental contamination at each of the properties that we own or operateand at off-site locations where we arranged for the disposal of hazardouswastes. For instance, soil and groundwater contamination has been identified inthe past at our Illinois campus. If any of these sites are subject toinvestigation and/or remediation requirements, we may be responsible underCERCLA or other environmental laws for all or part of the costs of suchinvestigation and/or remediation, and for damages to natural resources. We mayalso be subject to related claims by private parties alleging property damageor personal injury due to exposure to hazardous or other materials at or fromsuch properties. While costs to address contamination or related third-partyclaims could be significant, based upon currently available information, we arenot aware of any material contamination or such third party claims. We have notaccrued any amounts for environmental matters as of March 31, 2008. Theultimate costs of any liabilities that may be identified or the discovery ofadditional contaminants could adversely impact our results of operation orfinancial condition.

 

In addition, the hazards and risks associated withproducing and transporting our products (such as fires, natural disasters,explosions, abnormal pressures and spills) may result in spills or releases ofhazardous substances, and may result in claims from governmental authorities orthird parties relating to actual or alleged personal injury, property damage,or damages to natural resources. We maintain insurance coverage against some,but not all, potential losses caused by our operations. Our coverage includes,but is not limited to, physical damage to assets, employer’s liability,comprehensive general liability, automobile liability and workers’ compensation.We do not carry environmental insurance. We believe that our insurance isadequate for our industry, but losses could occur for uninsurable or uninsuredrisks or in amounts in excess of existing insurance coverage. The occurrence ofevents which result in significant personal injury or damage to our property,natural resources or third parties that is not covered by insurance could havea material adverse impact on our results of operations and financial condition.

 

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Our air emissions aresubject to the federal Clean Air Act, the federal Clean Air Act Amendments of1990 and similar state laws which generally require us to obtain and maintainair emission permits for our ongoing operations as well as for any expansion ofexisting facilities or any new facilities. Obtaining and maintaining thosepermits requires us to incur costs, and any future more stringent standards mayresult in increased costs and may limit or interfere with our operatingflexibility. In addition, the permits ultimately issued may impose conditionswhich are more costly to implement than we had anticipated. These costs couldhave a material adverse affect on our financial condition and results ofoperations. Because other ethanol manufacturers in the U.S. are and willcontinue to be subject to similar laws and restrictions, we do not currentlybelieve that our costs to comply with current or future environmental laws andregulations will adversely affect our competitive position. However, becauseethanol is produced and traded internationally, these costs could adverselyaffect us in our efforts to compete with foreign producers not subject to suchstringent requirements.

 

Federal and stateenvironmental authorities have been investigating alleged excess VOC emissionsand other air emissions from many U.S. ethanol plants, including our Illinoisand Nebraska facilities. The matter relating to our Illinois wet mill facilityis still pending, and we could be required to install additional air pollutioncontrol equipment or take other measures to control air pollutant emissions atthat facility. If authorities require us to install controls, we wouldanticipate that costs would be higher than the costs we incurred for thismatter at our Nebraska facility due to the larger size of the Illinois wet millfacility. In addition, if the authorities determine our emissions were inviolation of applicable law, we would likely be required to pay fines thatcould be material. We recently received an indemnification payment from theformer owner of our Nebraska facility relating to the cost of installingenvironmental controls at that facility related to an April 2005 consentdecree with state authorities.

 

Wehave made, and expect to continue making, significant capital expenditures onan ongoing basis to comply with increasingly stringent environmental laws,regulations and permits, including compliance with the EPA’s National EmissionsStandard for Hazardous Air Pollutants, or NESHAP, for industrial, commercialand institutional boilers and process heaters. This NESHAP was issued butsubsequently vacated. The vacated version of the rule required us toimplement maximum achievable control technology at our Illinois wet millfacility to reduce hazardous air pollutant emissions from our boilers. Weexpect the EPA will revise the rule to impose more stringent requirementsthan were contained in the vacated version. In the absence of a final EPANESHAP for industrial, commercial and institutional boilers and processheaters, we are working with state authorities to determine what technologywill be required at our Illinois wet mill facility and when such technologymust be installed. We currently cannot estimate the amount that will be neededto comply with any future federal or state technology requirement regarding airemissions from our boilers.

 

We currently generate revenue from the sale ofcarbon dioxide, which is a co-product of the ethanol production process at eachof our Illinois and Nebraska facilities. New laws or regulations relating tothe production, disposal or emissions of carbon dioxide may require us to incursignificant additional costs and may also adversely affect our ability tocontinue generating revenue from carbon dioxide sales. In particular, in 2007,Illinois and four other Midwestern States entered into the MidwesternGreenhouse Gas Reduction Accord, a program which directs participating statesto develop a multi-sector cap-and-trade mechanism to help achieve reductions ingreenhouse gases, including carbon dioxide. It is possible this program couldrequire carbon dioxide emissions reductions from our Pekin, Illinois plants,which could result in significant costs. In addition, it is possible that otherstates in which we conduct or plan to conduct business, including Nebraska andIndiana, could join this accord or require other costly carbon dioxideemissions reductions.

 

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**Item 3.****                            ****Quantitative and QualitativeDisclosures About Market Risk**

 

We are exposed to variousmarket risks, including changes in commodity prices. Market risk is thepotential loss arising from adverse changes in market rates and prices. In theordinary course of business, we enter into various types of transactions involvingfinancial instruments to manage and reduce the impact of changes in commodityprices. We do not enter into derivatives or other financial instruments fortrading or speculative purposes.

 

***Commodity Price Risks***

 

We are subject to marketrisk with respect to the price and availability of corn, the principal rawmaterial we use to produce ethanol and ethanol by-products. In general, risingcorn prices result in lower profit margins and, therefore, representunfavorable market conditions. This is especially true when market conditionsdo not allow us to pass along increased corn costs to our customers. Theavailability and price of corn is subject to wide fluctuations due tounpredictable factors such as weather conditions, farmer planting decisions,governmental policies with respect to agriculture and international trade andglobal demand and supply. Our weighted average gross corn costs for the threemonths ended March 31, 2008 and 2007 was $4.50 and $3.58 per bushel,respectively.

 

We have firm-price purchasecommitments with some of our corn suppliers under which we agree to buy corn ata price set in advance of the actual delivery of that corn to us. At March 31,2008, we had commitments to purchase approximately 18.8 million bushels of cornthrough December 2009 at an average price of $5.18 per bushel from thesecorn suppliers. Under these arrangements, we assume the risk of a pricedecrease in the market price of corn between the time this price is fixed andthe time the corn is delivered. In order to reduce our market exposure to pricedecreases, at the time we enter into a firm-price purchase commitment, we alsooften enter into commodity forward contracts to sell a like amount of corn atthe then-current price for delivery to the counterparty at a later date. Weaccount for these transactions under Statement of Financial Accounting StandardNo. 133, *Accounting for Derivative Instruments andHedging Activities*, as amended by Statement of Financial AccountingStandard No. 138, *Accounting for Certain DerivativeInstruments and Certain Hedging Activities*, and by Statement ofFinancial Accounting Standard No. 149, *Amendment of Statement 133on Derivative Instruments and Hedging Activities*, (hereinaftercollectively referred to as “SFAS 133”). These forward contracts are notdesignated as hedges and, therefore, are marked to market each period, withcorresponding gains and losses recorded in other non-operating income. The fairvalue of these derivative assets is recognized in other current assets in theCondensed Consolidated Balance Sheet, net of any cash received from the brokers.Information on this type of derivative transaction is as follows:

 
| **(In millions)**                                       | ** ** | **March 31,  2008** | ** ** |
|--------------------------------------------------------------|------------|--------------------------|------------|
|                                                         |       |                     |       |
| Realized and unrealized losses included in earnings  in 2008 |       | $                        | 3.9        |   |
|                                                              |            |                          |            |  |

 
| **(In millions)**                                                                                        | ** ** | **March 31, 2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
|                                                                                                          |       |                         |       |
| Net bushels sold                                                                                              |       | 5.0                          |       |
| Aggregate notional value of derivatives outstanding                                                           |       | $                            | 26.6       |   |
| Period through which derivative positions currently  exist                                                    |       | December 2009           |       |
| Unrealized loss on the fair value of outstanding  derivative positions                                        |       | $                            | (2.3       | ) |
| The change in fair value due to the effect of a 10%  adverse change in commodity prices to current fair value |       | $                            | (2.9       | ) |

 

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We have also entered intocommodity futures contracts in connection with the purchase of corn to reduceour risk of future price increases. We account for these transactions underSFAS 133. These futures contracts are not designated as hedges and, therefore,are marked to market each period, with corresponding gains and losses recordedin other non-operating income. The fair value of these derivative contracts arerecognized in other current assets in the Condensed Consolidated Balance Sheet,net of any cash received from the brokers. Information on this type of derivativetransaction is as follows:

 
| ** **                                                     | ** ** | **March 31,** | ** ** |
|----------------------------------------------------------------|------------|--------------------|------------|
| **(In millions)**                                         | ** ** | **2008**           | ** ** |
|                                                           |       |               |       |
| Realized and unrealized net gain included in  earnings in 2008 |       | $                  | 5.8        |   |
|                                                                |            |                    |            |  |

 
| ** **                                                                                                    | ** ** | **March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|
| **(In millions)**                                                                                        | ** ** | **2008**           | ** ** |
|                                                                                                          |       |               |       |
| Net bushels bought                                                                                            |       | 3.7                |       |
| Aggregate notional value of derivatives outstanding                                                           |       | $                  | 19.2       |   |
| Period through which derivative positions currently  exist                                                    |       | December 2008 |       |
| Unrealized gain on fair value of derivatives                                                                  |       | $                  | 2.0        |   |
| The change in fair value due to the effect of a 10%  adverse change in commodity prices to current fair value |       | $                  | (2.1       | ) |

 

We are also subject tomarket risk with respect to ethanol pricing. Our ethanol sales are priced usingcontracts that can either be fixed; based upon the price of wholesale gasolineplus or minus a fixed amount; or based upon a market price at the time ofshipment. We sometimes fix the price at which we sell ethanol using fixed pricephysical delivery contracts. At March 31, 2008, we had fixed contracts tosell approximately 47.9 million gallons of ethanol at an average fixed price of$1.94 per gallon through December 2008. These normal purchase/saletransactions are not marked to market.

 

We also sell forward ethanolusing contracts where the price is determined at a point in the future basedupon an index plus or minus a fixed amount. At March 31, 2008, we had soldforward approximately 57.6 million gallons of ethanol using wholesale gasolineas an index plus a fixed spread that averaged a negative $0.41 per gallon. Underthese arrangements, we assume the risk of a price decrease in the market priceof gasoline. In order to reduce our market exposure to price decreases, at thetime we enter into a firm sales commitment, we may also enter into commodityforward contracts to sell a like amount of gasoline at the then-current pricefor delivery to the counterparty at a later date. We account for thesetransactions under SFAS 133. These forward contracts are not designated ashedges and, therefore, are marked to market each period, with correspondinggains and losses recorded in other non-operating income. The fair value ofthese derivative liabilities is recognized in other current liabilities in theCondensed Consolidated Balance Sheet, net of any cash paid to brokers. Informationon this type of derivative transaction is as follows:

 
| **(In millions)**                            | ** ** | **March 31,  2008** | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|
| ** **                                        | ** ** | ** **               | ** ** |
| Realized and unrealized loss included in earnings |       | $                        | —     |   |
|                                                   |            |                          |            |  |

 

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| **(In millions)**                                                                                        | ** ** | **March 31,  2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                                                    | ** ** | ** **               | ** ** |
| Gallons sold                                                                                                  | ** ** | **18.2**                 | ** ** |
| Aggregate notional value of derivatives outstanding                                                           | ** ** | **$**                    | **41.5**   | ** ** |
| Period through which derivative positions currently  exist                                                    | ** ** | **December 2008**   | ** ** |
| Unrealized loss on the fair value of outstanding  derivative positions                                        | ** ** | **$**                    | **(5.2**   | **)** |
| The change in fair value due to the effect of a 10%  adverse change in commodity prices to current fair value | ** ** | **$**                    | **(4.7**   | **)** |

 

***MaterialLimitations***

 

The disclosures with respectto the above noted risks do not take into account the underlying commitments oranticipated transactions. If the underlying items were included in theanalysis, the gains or losses on the futures contracts may be offset. Actualresults will be determined by a number of factors that are not generally underour control and could vary significantly from those factors disclosed.

 

We are exposed to creditlosses in the event of nonperformance by counterparties on the aboveinstruments, as well as credit or performance risk with respect to our hedgedcommitments. Although nonperformance is possible, we do not anticipatenonperformance by any of these parties.

 

**Item 4.****                            ****Controls and Procedures**

 

**Evaluation of Disclosure Controlsand Procedures**

 

Under the supervision of andwith the participation of management, including our Chief Executive Officer,Ronald H. Miller, and our Chief Financial Officer, Ajay Sabherwal, the Companycarried out an evaluation of the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of theend of the period covered by this report. Based upon that evaluation, Messrs. Millerand Sabherwal have concluded that, as of the end of the period covered by thisreport, the Company’s disclosure controls and procedures have been designed andare effective to provide reasonable assurance that information required to bedisclosed in the reports filed or submitted under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in the rules andforms of the Securities and Exchange Commission. These disclosure controls andprocedures include, without limitation, controls and procedures designed toprovide reasonable assurance that information required to be disclosed in suchreports is accumulated and communicated to our management, including Messrs. Millerand Sabherwal, as appropriate to allow timely decisions regarding the requireddisclosure. The design of any system of controls is based in part upon certainassumptions about the likelihood of future events. There can be no assurancethat any design will succeed in achieving its stated goal under all potentialfuture conditions, regardless of how remote.

 

**Changes in Internal Control overFinancial Reporting**

 

Based upon evaluation by ourmanagement, which was conducted with the participation of Messrs. Millerand Sabherwal, there has been no change in our internal control over financialreporting during the period covered by this report that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

 

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**PART II.****                ****OTHER INFORMATION**

 

**Item 1.****                            ****Legal Proceedings**

 

We are from time to time involved in various legalproceedings, including legal proceedings relating to the extensiveenvironmental laws and regulations that apply to our facilities and operations.We are not involved in any legal proceedings that we believe could have amaterial adverse effect upon our business, operating results or financialcondition.

 

**Item 1A.****                  ****Risk Factors**

 

The Company included in its AnnualReport on Form 10-K as of December 31, 2007 a description of certainrisks and uncertainties that could affect the Company’s business, futureperformance or financial condition (“Risk Factors”). There have been nomaterial changes to the risk factors previously disclosed.

 

**Item 2.****                            ****Unregistered Sales of EquitySecurities and Use of Proceeds**

 

On February 21, 2008, the Company issued237,107 shares of common stock for $1.5 million in cash to a private investmentfund. No underwriters were used for the placement of these shares. There wereno fees or commissions paid to underwriters for the placement of these shares. Theproceeds will be used for general corporate purposes.

 

**Item 3.****                            ****Defaults Upon Senior Securities**

 

**None**

 

**Item 4.****                            ****Submission of Matters to a Voteof Security Holders**

 

**None**

 

**Item 5.****                            ****Other Information**

 

**None**

 

**Item 6.**                             **Exhibits**

 

(a)  Exhibits

 

31.1           Certification of the Chief Executive Officerpursuant to Section 302 of the Sarbanes- Oxley Act of 2002.

 

31.2           Certification of the Chief Financial Officerpursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

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32.1           Certification of the Chief Executive Officerpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002.

 

32.2            Certification of the Chief Financial Officerpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002.

 

# **SIGNATURE**

# ** **

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereto duly authorized.

 
|                            | AVENTINE RENEWABLE ENERGY  HOLDINGS, INC. |
|---------------------------------|-------------------------------------------|
|                            |                                      |
|                            |                                      |
| Dated:  May 12,  2008 | By:                                       |   /s/ William J.  Brennan |
|                            | Name:                                     | William J. Brennan |
|                            | Title:                                    | Chief Accounting and  Compliance  Officer (duly authorized officer and  principal accounting officer) |
|                                 |                                           |  |  |

 

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