**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

# **FORM 10-Q**

**x**                              Quarterlyreport pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934for the quarterly period ended September 30, 2006

**OR**

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

**COMMISSIONFILE NUMBER 001-32922**

**AVENTINE RENEWABLE ENERGYHOLDINGS, INC.**

(Exact name of registrant as specified in its charter)

| **Delaware**                                               |   | **05-0569368**                     |
|------------------------------------------------------------|--------|------------------------------------|
| (State of  Incorporation)                                  |   | (IRS Employer  Identification No.) |
|                                                       |   |                               |
| **1300  South 2****nd Street  Pekin, Illinois**       |   | **61554**                          |
| (Address of  Principal Executive Offices)                  |   | (Zip Code)                         |
|                                                       |   |                               |
| **(309)  347-9200**                                        |
| (Registrant’s  Telephone Number, including Area Code) |

 

Indicate by checkmarkwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

YES  x   NO  o

Indicate by checkmarkwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct.  (Check one): 

|  Large accelerated  filer  o | Accelerated  filer  o | Non-accelerated  filer  x |
|---------------------------------------------|---------------------------------|-------------------------------------|

 

Indicate by checkmarkwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

YES  o    NO  x

Indicatethe number of shares outstanding of each class of Common Stock, as of thelatest practicable date

| Class                           | ** ** | **Outstanding as of November 9, 2006** |
|---------------------------------|------------|----------------------------------------|
| Common Stock,  $0.001 Par Value |       | 41,832,276  Shares                     |

 

 

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# **FORM 10-Q**

**QUARTERLYREPORT**

**TABLE OF CONTENTS**
|            | ** **                                                                                                                     | **Page No.** |
|------------|--------------------------------------------------------------------------------------------------------------------------------|-------------------|
| PART I     |                                                                                                                           |              |
| ** ** |                                                                                                                           |              |
| Item 1.    | Financial Statements                                                                                                           |              |   |
|       | Condensed Consolidated Statements of Operations  (Unaudited) -  Three and nine-month periods ended September 30, 2006 and 2005 |              | 1 |
|       | Condensed Consolidated Balance Sheets – September 30,  2006 (Unaudited) and December 31, 2005                             |              | 2 |
|       | Condensed Consolidated Statements of Cash Flows  (Unaudited) -  Nine-months ended September 30, 2006 and 2005                  |              | 3 |
|       | Notes to Unaudited Condensed Consolidated Financial  Statements                                                                |              | 4 |
|       |                                                                                                                           |              |   |
| Item 2.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                    |              | 14 |
|       |                                                                                                                           |              |   |
| Item 3.    | Quantitative  and Qualitative Disclosures About Market Risk                                                                    |              | 28 |
|       |                                                                                                                           |              |   |
| Item 4.    | Controls and  Procedures                                                                                                       |              | 30 |
|       |                                                                                                                           |              |   |
| PART  II   |                                                                                                                           |              |
|       |                                                                                                                           |              |   |
| Item  1A.  | Risk Factors                                                                                                                   |              | 31 |
|       |                                                                                                                           |              |   |
| Item 2.    | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                   |              | 31 |
|       |                                                                                                                           |              |   |
| Item 4.    | Submission of  Matters to a Vote of Security Holders                                                                           |              | 32 |
|       |                                                                                                                           |              |   |
| Item 5.    | Other Information                                                                                                              |              | 32 |
|       |                                                                                                                           |              |   |
| Item  6.   | Exhibits                                                                                                                       |              | 32 |

 

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**PART I.                 FINANCIAL INFORMATION**

**Item 1.                    FinancialStatements**

**Aventine Renewable Energy Holdings, Inc. andSubsidiariesCondensed Consolidated Statements of Operations**(Unaudited)
| ** **                                                              | ** ** | **Three months ended  September 30,** | ** **  | **Nine months ended  September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------------|-------------|-----------------------------------------------------|------------|
| **(In thousands except per share amounts)**    | ** ** | **2006**                                             | ** **  | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| * *                                                                | ** ** | ** **                                           | ** **  | ** **                                          | ** ** | ** ** |   |   |   |
| Net sales                                                               | ** ** | **$**                                                | **407,053** |                                                | $          | 259,203 | ** ** | **$** | **1,163,478** |   | $ | 647,209 |   |
| Cost of goods sold                                                      | ** ** | **379,708**                                          |        | 223,712                                             | ** ** | **1,055,330** |   | 578,967 |   |
| Gross profit                                                            | ** ** | **27,345**                                           |        | 35,491                                              | ** ** | **108,148** |   | 68,242 |   |
| Selling, general and administrative  expenses                           | ** ** | **7,385**                                            |        | 6,108                                               | ** ** | **21,023** |   | 13,810 |   |
| Other expense/(income)                                                  | ** ** | **(616**                                             | **)**       | (199                                                | )          | **(1,223** | **)** | (713 | ) |
| Operating income                                                        | ** ** | **20,576**                                           |        | 29,582                                              | ** ** | **88,348** |   | 55,145 |   |
| Other  expenses/(income):                                               | ** ** | ** **                                           |        |                                                | ** ** | ** ** |   |   |   |
| Interest income                                                         | ** ** | **(1,449**                                           | **)**       | (644                                                | )          | **(3,333** | **)** | (1,510 | ) |
| Interest expense                                                        | ** ** | **747**                                              |        | 4,206                                               | ** ** | **9,348** |   | 12,169 |   |
| Loss on early  extinguishment of debt                                   | ** ** | **14,448**                                           |        | —                                              | ** ** | **14,448** |   | — |   |
| Other  non-operating expense/(income)                                   | ** ** | **(2,348**                                           | **)**       | (1,731                                              | )          | **(4,802** | **)** | (1,314 | ) |
| Minority  interest                                                      | ** ** | **876**                                              |        | 381                                                 | ** ** | **3,793** |   | 1,698 |   |
| Income before income  taxes                                             | ** ** | **8,302**                                            |        | 27,370                                              | ** ** | **68,894** |   | 44,102 |   |
| Income tax expense                                                      | ** ** | **3,015**                                            |        | 9,710                                               | ** ** | **26,766** |   | 16,414 |   |
| Net income                                                              | ** ** | **$**                                                | **5,287**   |                                                | $          | 17,660 | ** ** | **$** | **42,128** |   | $ | 27,688 |   |
|                                                                    | ** ** | ** **                                           |        |                                                | ** ** | ** ** |   |   |   |
| *Per share data:*                                                       | ** ** | ** **                                           |        |                                                | ** ** | ** ** |   |   |   |
| Income per common share  – basic:                                  | ** ** | **$**                                                | **0.13**    |                                                | $          | 0.51 | ** ** | **$** | **1.13** |   | $ | 0.80 |   |
| Basic weighted average  number of common shares                         | ** ** | **41,541**                                           |        | 34,684                                              | ** ** | **37,279** |   | 34,684 |   |
| * *                                                                | ** ** | ** **                                           |        |                                                | ** ** | ** ** |   |   |   |
| Income per common share  – diluted:                                | ** ** | **$**                                                | **0.12**    |                                                | $          | 0.49 | ** ** | **$** | **1.09** |   | $ | 0.77 |   |
| Diluted weighted average number of common and common equivalent  shares | ** ** | **42,691**                                           |        | 36,038                                              | ** ** | **38,581** |   | 35,906 |   |

 

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

1

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**Aventine Renewable EnergyHoldings, Inc. and SubsidiariesCondensed Consolidated Balance Sheets**
| **(In thousands except share amounts)**                                                                                                                                                                                                                                 | ** ** | **September 30,  2006** | ** **  | **December 31,  2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                  | ** ** | **(Unaudited)**              | ** **  | ** **                  | ** ** |
| **Assets**                                                                                                                                                                                                                                                                                  | ** ** | ** **                   |        |                        |       |
| Current assets                                                                                                                                                                                                                                                                              | ** ** | ** **                   |        |                        |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                                   | ** ** | **$**                        | **40,337**  |                        | $          | 3,750 |   |
| Short-term investments                                                                                                                                                                                                                                                                      | ** ** | **90,925**                   |        | —                      |       |
| Accounts receivable                                                                                                                                                                                                                                                                         | ** ** | **56,707**                   |        | 46,625                      |       |
| Inventories                                                                                                                                                                                                                                                                                 | ** ** | **91,320**                   |        | 54,651                      |       |
| Income tax receivable                                                                                                                                                                                                                                                                       | ** ** | **7,448**                    |        | 2,628                       |       |
| Prepaid expenses and other                                                                                                                                                                                                                                                                  | ** ** | **3,057**                    |        | 2,519                       |       |
| Total current  assets                                                                                                                                                                                                                                                                       | ** ** | **289,794**                  |        | 110,173                     |       |
| Property, plant  and equipment, net                                                                                                                                                                                                                                                         | ** ** | **92,150**                   |        | 42,856                      |       |
| Restricted cash  for plant expansion                                                                                                                                                                                                                                                        | ** ** | **—**                   |        | 60,362                      |       |
| Other assets                                                                                                                                                                                                                                                                                | ** ** | **1,077**                    |        | 8,586                       |       |
| Total assets                                                                                                                                                                                                                                                                                | ** ** | **$**                        | **383,021** |                        | $          | 221,977 |   |
|                                                                                                                                                                                                                                                                                        | ** ** | ** **                   |        |                        |       |
| **Liabilities  and Stockholders’ Equity/(Deficit)**                                                                                                                                                                                                                                    |       |                         |        |                        |       |
| Current  liabilities                                                                                                                                                                                                                                                                        |       |                         |        |                        |       |
| Accounts payable                                                                                                                                                                                                                                                                            | ** ** | **$**                        | **59,597**  |                        | $          | 51,528 |   |
| Accrued liabilities                                                                                                                                                                                                                                                                         | ** ** | **4,425**                    |        | 6,877                       |       |
| Accrued income taxes                                                                                                                                                                                                                                                                        | ** ** | **1,422**                    |        | 376                         |       |
| Short-term borrowings                                                                                                                                                                                                                                                                       | ** ** | **—**                   |        | 1,514                       |       |
| Total current  liabilities                                                                                                                                                                                                                                                                  | ** ** | **65,444**                   |        | 60,295                      |       |
| Senior secured  floating rate notes                                                                                                                                                                                                                                                         | ** ** | **5,000**                    |        | 160,000                     |       |
| Deferred taxes                                                                                                                                                                                                                                                                              | ** ** | **6,344**                    |        | 6,703                       |       |
| Minority  interest                                                                                                                                                                                                                                                                          | ** ** | **9,878**                    |        | 8,675                       |       |
| Other long-term  liabilities                                                                                                                                                                                                                                                                | ** ** | **4,648**                    |        | 6,958                       |       |
| Total  liabilities                                                                                                                                                                                                                                                                          | ** ** | **91,314**                   |        | 242,631                     |       |
| Stockholders’  equity/(deficit)                                                                                                                                                                                                                                                        |       |                         |        |                        |       |
| Common stock, par value $0.001 per share;  185,000,000 shares authorized;  41,832,276 and 35,145,253 shares issued and outstanding as of September 30,  2006 and December 31, 2005, respectively, net of 21,179,025 shares held in  treasury as of December 31, 2005 and September 30, 2006 | ** ** | **42**                       |        | 35                          |       |
| Preferred stock, 50,000,000 shares authorized, no  shares issued or outstanding                                                                                                                                                                                                             | ** ** | **—**                   |        | —                      |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                  | ** ** | **274,417**                  |        | 4,191                       |       |
| Retained earnings/(deficit)                                                                                                                                                                                                                                                                 | ** ** | **18,115**                   |        | (24,013                     | )          |
| Accumulated other comprehensive loss                                                                                                                                                                                                                                                        | ** ** | **(867**                     | **)**       | (867                        | )          |
| Total stockholders’  equity/(deficit)                                                                                                                                                                                                                                                  | ** ** | **291,707**                  |        | (20,654                     | )          |
| Total liabilities and  stockholders’ equity/(deficit)                                                                                                                                                                                                                                  | ** ** | **$**                        | **383,021** |                        | $          | 221,977 |   |

 

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

2

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**Aventine Renewable Energy Holdings,Inc. and SubsidiariesCondensed Consolidated Statements of Cash Flows**(Unaudited)
| ** **                                                                         | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| **(In thousands)**                                                            | ** ** | **2006**                                                | ** ** | **2005** | ** ** |
|                                                                               | ** ** | ** **                                              |       |   |   |
| **Operating  Activities**                                                          | ** ** | ** **                                              |       |   |   |
| Net income                                                                         | ** ** | **$**                                                   | **42,128** |   | $ | 27,688 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: | ** ** | ** **                                              |       |   |   |
| Depreciation and amortization                                                      | ** ** | **3,529**                                               |       | 2,656 |   |
| Loss on early extinguishment of debt                                               | ** ** | **14,448**                                              |       | — |   |
| Minority interest                                                                  | ** ** | **3,793**                                               |       | 1,698 |   |
| Stock-based compensation expense                                                   | ** ** | **5,669**                                               |       | 862 |   |
| Deferred income tax                                                                | ** ** | **(359**                                                | **)**      | 2,885 |   |
| Other                                                                              | ** ** | **838**                                                 |       | (269 | ) |
| Changes in operating assets and liabilities:                                       | ** ** | ** **                                              |       |   |   |
| Accounts receivable, net                                                           | ** ** | **(10,082**                                             | **)**      | (5,451 | ) |
| Inventories                                                                        | ** ** | **(36,669**                                             | **)**      | (14,604 | ) |
| Accounts payable and other liabilities                                             | ** ** | **6,663**                                               |       | 15,258 |   |
| Other                                                                              | ** ** | **(8,275**                                              | **)**      | 1,925 |   |
| Net cash  provided by operating activities                                         | ** ** | **21,683**                                              |       | 32,648 |   |
|                                                                               | ** ** | ** **                                              |       |   |   |
| **Investing  Activities**                                                          | ** ** | ** **                                              |       |   |   |
| Additions to  property, plant and equipment, net                                   | ** ** | **(51,981**                                             | **)**      | (9,651 | ) |
| Investment in  short-term securities                                               | ** ** | **(90,925**                                             | **)**      | — |   |
| Increase in  restricted cash for investing activities                              | ** ** | **(1,257**                                              | **)**      | (1,350 | ) |
| Use of  restricted cash for plant expansion                                        | ** ** | **31,857**                                              |       | — |   |
| Release of  restricted cash                                                        | ** ** | **29,762**                                              |       | — |   |
| Net cash (used  for) investing activities                                          | ** ** | **(82,544**                                             | **)**      | (11,001 | ) |
|                                                                               | ** ** | ** **                                              | ** ** |   |   |
| **Financing  Activities**                                                          | ** ** | ** **                                              |       |   |   |
| Repayment of  senior secured notes, including premiums                             | ** ** | **(163,618**                                            | **)**      | — |   |
| Proceeds from  stock option exercises                                              | ** ** | **221**                                                 |       | — |   |
| Tax benefit of  stock option exercises                                             | ** ** | **4,034**                                               |       | — |   |
| Net proceeds  from the sale of common stock                                        | ** ** | **260,915**                                             |       | — |   |
| Net repayments  on revolving credit facilities                                     | ** ** | **(1,514**                                              | **)**      | (12,791 | ) |
| Distributions to  minority shareholders                                            | ** ** | **(2,590**                                              | **)**      | (1,943 | ) |
| Net cash  provided by/(used for) financing activities                              | ** ** | **97,448**                                              |       | (14,734 | ) |
| Net increase in  cash and cash equivalents                                         | ** ** | **36,587**                                              |       | 6,913 |   |
| Cash and cash  equivalents at beginning of period                                  | ** ** | **3,750**                                               |       | 7,151 |   |
| Cash and cash equivalents  at end of period                                        | ** ** | **$**                                                   | **40,337** |   | $ | 14,064 |   |

 

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

3

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**Aventine Renewable Energy Holdings, Inc. andSubsidiariesNotes to Unaudited Condensed Consolidated Financial Statements**

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

The accompanyingunaudited condensed consolidated financial statements include the accounts ofAventine Renewable Energy Holdings, Inc. and its subsidiaries, which arecollectively referred to as “Aventine”, the “Company”, “we”, “our” or “us”, unless the context otherwiserequires.  All significant intercompanytransactions have been eliminated in consolidation.

We have prepared the unaudited condensed consolidatedfinancial statements included herein pursuant to the rules and regulations ofthe Securities and Exchange Commission. Certain information and footnote disclosures normally included instatements prepared in accordance with generally accepted accounting principleshave been omitted pursuant to such rules and regulations, although we believethat the disclosures are adequate to make the information presented notmisleading.  These financial statementsshould be read in conjunction with the financial statements and notes theretofor the year ended December 31, 2005 included in our Registration Statement onForm S-1, beginning on page F-1 (Registration No. 333-132860), originally filed with the SEC on March30, 2006 and subsequently amended.

The accompanyingcondensed consolidated financial statements presented herewith reflect alladjustments (consisting of only normal and recurring adjustments) which, in theopinion of management, are necessary for a fair presentation of the results ofoperations for the three and nine month periods ended September 30, 2006 and2005.  The results of operations forinterim periods are not necessarily indicative of results to be expected for anentire year.

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions 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 September 30, 2006, the Company’s Summary ofSignificant Accounting Policies for the year ended December 31, 2005, which aredetailed in the Company’s Registration Statement on Form S-1 beginning on pageF-9, have not changed from December 31, 2005, except for the adoption of Statementof Financial Accounting Standards No. 123 (revised 2004) (“SFAS 123(R)”), *Share-Based Payment*and the adoption of Statement ofFinancial Accounting Standards No. 151 (“SFAS 151”), *InventoryCosts, an amendment of ARB No. 43, Chapter 4*.

4

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

In June 2006, theFinancial Accounting Standards Board (“FASB”) issued FASB InterpretationNo. 48 (“FIN 48”), *Accounting for Uncertaintyin Income Taxes – an interpretation of FASB Statement No. 109*.  FIN 48 prescribes a comprehensive model forhow a company should recognize, measure, present, and disclose in its financialstatements uncertain tax positions that the company has taken or expects totake on a tax return.  The interpretationis effective for fiscal years beginning after December 15, 2006.  The Company is currently evaluating theeffect that the adoption of FIN 48 will have on its consolidated results ofoperations, financial position and related disclosures.

In September 2006,the FASB issued Statement of Financial Accounting Standards No. 157 (“SFAS157”), *Fair Value Measurements*.  SFAS 157 defines fair value, establishes aframework for measuring fair value, and expands disclosure about fair valuemeasurements.  The statement is effectivefor financial statements issued for fiscal years beginning afterNovember 15, 2007.  The Company is currentlyevaluating the effect that the adoption of SFAS 157 will have, if any, on itsconsolidated results of operations, financial position and related disclosures.

In September 2006,the FASB also issued Statement of Financial Accounting Standards No. 158 (“SFAS158”), *Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans*. SFAS 158 requires an enterprise to recognize in its statement offinancial position an asset for a defined benefit postretirement plan’soverfunded status or a liability for a defined benefit postretirement plan’sunderfunded status.  In addition, eachentity must recognize changes in the funded status of a defined benefitpostretirement plan in comprehensive income in the year in which the changesoccur.  This statement is effective forfiscal years ending after December 15, 2006.  The Company is currently evaluating theeffect that the adoption of SFAS 158 will have, if any, on its consolidatedresults of operations, financial position and related disclosures.

Also in September2006, the FASB issued FASB Staff Position No. AUG AIR-1 (“FSP No. AUG AIR-1”), *Accounting for Planned Major Maintenance Activities*.  FSP No. AUG AIR-1 prohibits the use of theaccrue-in-advance method of accounting for planned major maintenanceturnarounds because it causes the recognition of a liability in a period priorto the occurrence of the transaction or obligation.  The Company does not account for itsturnarounds utilizing this accounting method, so FSP No. AUG AIR-1 is notexpected to impact the Company’s consolidated results of operations orfinancial position.

The Securities andExchange Commission released Staff Accounting Bulletin (“SAB”) No. 108 inSeptember 2006.  This bulletin providesguidance regarding the methodology of quantifying the dollar amounts of errorsin determining materiality of those errors. These methods should be implemented for annual financial statementscovering the first fiscal year ending after November 15, 2006.

5

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**(3)****                                 InitialPublic Offering**

Effective July 5,2006, we completed an initial public offering of 9,058,450 shares of our commonstock, $0.001 par value, at a gross per share price of $43.00 (the “initialpublic offering”).  The Company sold6,410,256 shares and received approximately $260.9 million in proceeds, net ofdiscounts and commissions to underwriters and IPO related expenses from thisinitial public offering.  Existingshareholders and management also sold 2,648,194 shares of common stock duringthe initial public offering, which includes 268,707 shares issued from theexercise of outstanding options. Immediately following our initial public offering, we had 41,831,651shares of common stock issued and outstanding. There are also approximately 3.2 million potentially dilutive commonstock equivalents (“CSE”) shares outstanding. The actual number of these potentially dilutive CSE’s that would beconsidered as being dilutive on a go-forward basis (and included in dilutiveearnings per share) is dependent upon a number of factors, including the actualaverage quarterly share price and the number of shares considered as beingrepurchased under the treasury method as described in Statement of FinancialAccounting Standards No. 128 (“SFAS 128”), *Earnings per Share*.

In anticipation of ourinitial public offering, on June 6, 2006, our Board gave contingent approval ofthe acceleration of vesting of 71,488 options held by officers and employees tobe effective immediately prior to the consummation of the initial publicoffering.  The Board approved theacceleration of the vesting in order to permit certain members of managementthe ability to sell stock in our initial public offering.  These options had a weighted-average exerciseprice of $4.35 per share.  As a result ofthe accelerated vesting, we recorded a pre-tax charge to earnings of $0.6million for the three and nine month periods ended September 30, 2006.

**(4)****                                 Short-TermSecurities**

We haveinvested cash proceeds received from the initial public offering in tax-freemunicipal auction rate certificates which generally have contractual maturitiesof greater than 20 years.  We considerthese certificates to be held for sale. These certificates are widely traded in the public markets and may besold as needed.  The interest rates onthese certificates reprice every 35 days to the then current market rate.  Generally, the carrying value of thesesecurities approximates the market value, and there is no gain or loss expectedfrom changes in market value.

**(5)****                                 Inventories**

Inventoriesare as follows:

| (In thousands) | ** **   | **September 30,  2006** | ** **   | **December 31,  2005** | ** **   |
|---------------------|--------------|------------------------------|--------------|-----------------------------|--------------|
| * *            | *** *** | *** ***                 | *** *** | *** ***                | *** *** |
| Finished  products  | ** **   | **$**                        | **87,334**   |                        | $            | 50,828 |   |
| Work-in-process     | ** **   | **890**                      |         | 1,100                       |         |
| Raw materials       | ** **   | **1,816**                    |         | 1,343                       |         |
| Supplies            | ** **   | **1,280**                    |         | 1,380                       |         |
| Totals              | ** **   | **$**                        | **91,320**   |                        | $            | 54,651 |   |

 

6

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**(6)****           Earnings Per Share**

Basic earnings per share are computed by dividingnet income by the weighted average number of common shares outstanding duringeach period.  Diluted earnings per shareare calculated using the treasury stock method in accordance with SFAS 128, andincludes the effect of all dilutive securities, including non-qualified stockoptions.

The followingtable sets forth the computation of basic and diluted earnings per share:
| ** **                                                         | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                         | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| **(In thousands, except per share data)** | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                               | ** ** | ** **                       |       |                            |       |   |   |   |   |
| Net income                                                         | ** ** | **$**                            | **5,287**  |                            | $          | 17,660 | ** ** | **$** | **42,128** |   | $ | 27,688 |   |
|                                                               | ** ** | ** **                       |       |                            | ** ** | ** ** |   |   |   |
| Weighted average  shares and share equivalents outstanding:        | ** ** | ** **                       |       |                            | ** ** | ** ** |   |   |   |
| Basic shares                                                       | ** ** | **41,541**                       |       | 34,684                          | ** ** | **37,279** |   | 34,684 |   |
| Dilutive  non-qualified stock options                              | ** ** | **1,150**                        |       | 1,354                           | ** ** | **1,302** |   | 1,222 |   |
| Diluted weighted  average shares and share equivalents             | ** ** | **42,691**                       |       | 36,038                          | ** ** | **38,581** |   | 35,906 |   |
|                                                               | ** ** | ** **                       |       |                            | ** ** | ** ** |   |   |   |
| Income per  common share - basic:                                  | ** ** | **$**                            | **0.13**   |                            | $          | 0.51 | ** ** | **$** | **1.13** |   | $ | 0.80 |   |
| Income per common share  - diluted:                                | ** ** | **$**                            | **0.12**   |                            | $          | 0.49 | ** ** | **$** | **1.09** |   | $ | 0.77 |   |

 

We had additional potential dilutive securities outstanding representing40,000 common shares for the three month and nine month periods ended September30, 2006 that were not included in the computation of potentially dilutivesecurities because the options’ exercise prices were greater than the averagemarket price of the common shares.

**(7)****           Stock-BasedCompensation Plans**

Asof December 31, 2005, we maintained one stock-based compensation plan, theAventine Renewable Energy Holdings, Inc. 2003 Stock Incentive Plan (the “Plan”).  Effective January 1, 2006, the Companyadopted SFAS 123(R) utilizing the modified prospective transition method.  SFAS 123(R) requires the measurement andrecognition of compensation expense for all share-based payment awards made toemployees and directors, including stock options and non-vested stock, based ontheir fair values at the time of grant. The Company’s financial statements for the three and nine month periodsended September 30, 2006 reflect the impact of adopting SFAS 123(R).

The Plan was adopted by the Board of Directors (the “Board”) effectiveMay 30, 2003, and was amended on each of September 6, 2005 and on December 12,2005.  The Plan provides for the grant ofawards in the form of stock options, restricted shares or units, stockappreciation rights and other equity-based awards to directors, officers,employees and consultants at the discretion of the Board or the CompensationCommittee of the Board.  The term ofawards granted under the plan is determined by the Board or by the CompensationCommittee of the Board, and cannot exceed ten years from the date ofgrant.  The maximum number of shares ofcommon stock that may be issued under the Plan is limited to 5,001,172,provided that no more

7

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than750,000 shares may be granted in the form of stock options or stockappreciation rights to any “covered employee” (as defined under Section 162(m)of the Internal Revenue Code) in any calendar year.  Unless terminated sooner, the Plan willcontinue in effect until May 29, 2013.

In conjunction with an equity offering and related stock split of805.47131 to 1 shares completed in December 2005, all then existing optionawards were adjusted to reflect the stock split as permitted by the Plan.  The modification resulted in an increase inthe number of options outstanding in a ratio of 805.47131 to 1.  The exercise price of the options was alsoadjusted downward by this same 805.47131 to 1 ratio.  The fair value of the awards immediately afterthe adjustment did not exceed the fair value of the awards immediately beforethe adjustment.  Therefore, no additionalcompensation expense was recognized as a result of the modification.

Uponadoption of SFAS 123(R), the Company elected to value its share-based paymentawards granted beginning in fiscal year 2006 using the Black-Scholesoption-pricing model (“Black-Scholes model”), which was previously used indetermining stock-based compensation cost using the minimum value method asoutlined in Statement of Financial Accounting Standards No. 123 (“SFAS 123”), *Accounting for Stock-Based Compensation*.  The Black-Scholes model was developed for usein estimating the fair value of traded options that have no vestingrestrictions and are fully transferable. The Black-Scholes model requires the input of certain assumptions.  The determination of fair value ofshare-based payment awards on the date of grant using the Black-Scholes modelis affected by our stock price as well as the input of other subjectiveassumptions.  The option-pricing model requires a number ofassumptions, of which the most significant are, expected stock pricevolatility, the expected pre-vesting forfeiture rate and the expected optionterm (the amount of time from the grant date until the options are exercised orexpire).  Expected volatility isnormally calculated based upon actual historical stock price movements over theexpected option term.  Since we had nohistory of stock price volatility as a public company at the time of thegrants, we calculated volatility by considering, among other things, the expectedvolatilities of public companies engaged in similar industries.  Pre-vesting forfeitures are estimated using a3% per month forfeiture rate.  Theexpected option term is calculated using the “simplified” method permitted bySAB 107.  Our options have characteristics significantly different from those oftraded options, and changes in the assumptions can materially affect the fairvalue estimates.

Pre-taxstock-based compensation expense for the three month period ended September 30,2006 was approximately $2.6 million, of which $0.1 million was charged to costof goods sold and $2.5 million was charged to selling, general andadministrative expense.  For the ninemonth period ended September 30, 2006, pre-tax stock-based compensation expensewas approximately $5.7 million, of which $0.1 million was charged to cost ofgoods sold and $5.6 million was charged to selling, general and administrativeexpense.  This expense reduced earningsper share by $0.04 per basic and diluted share for the quarter ended September30, 2006 and by $0.09 per basic and diluted share for the nine months endedSeptember 30, 2006.  The Companyrecognized a tax benefit on its condensed consolidated statement of income fromstock-based compensation expense in the amount of $1.0 million and $2.3 millionfor the three and nine month periods ended September 30, 2006.  The Company recorded pre-tax stock-basedcompensation expense for the three and nine month periods ended September 30,2006 as follows:

8

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|                                    | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **(in millions)**             | ** ** | **September 30, 2006** | ** ** | **September 30, 2006** | ** ** |
|                               |       |                             |       |                             |       |
| Stock-based  compensation expense: |       |                             |       |                             |       |
| Non-qualified stock options        |       | $                                | 2.6        |                             | $          | 5.6 |   |
| Restricted stock                   |       | $                                | —     |                             | $          | 0.1 |   |

 

EffectiveJanuary 1, 2004, the Company adopted the fair value provisions of Statement ofFinancial Accounting Standards No. 123, *Accounting for Stock-basedCompensation*, using the modified prospective method as permittedunder the provisions of Statement of Accounting Standards No. 148 (“SFAS 148”),*Accounting for Stock-Based Compensation –Transition and Disclosure*, (hereinafter called “SFAS 123”).  The minimum value method as permitted by SFAS123 was utilized in calculating stock-based compensation expense.  The Company recorded pre-tax stock-basedcompensation expense for the three and nine month periods ended September 30,2005 as follows:

|                                    | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **(in millions)**             | ** ** | **September 30, 2005** | ** ** | **September 30, 2005** | ** ** |
|                               |       |                             |       |                             |       |
| Stock-based  compensation expense: |       |                             |       |                             |       |
| Non-qualified stock options        |       | $                                | 0.8        |                             | $          | 0.9 |   |
| Restricted stock                   |       | —                           |       | —                           |       |
|                                    |            |                                  |            |                                  |            |  |  |

 

Prior to theadoption of SFAS 123(R), the Company presented any tax benefits of deductionsresulting from the exercise of stock options within operating cash flows in thecondensed consolidated statements of cash flows.  SFAS 123(R) requires tax benefits resultingfrom tax deductions in excess of the compensation cost recognized for thoseoptions to be classified and reported as both an operating cash outflow and afinancing cash inflow upon adoption of SFAS 123(R).

As of September30, 2006, the Company had not yet recognized compensation expense on thefollowing non-vested awards:

| (in thousands)    | ** ** | **Non-  recognized  Compensation** | ** ** | **Average Remaining  Recognition Period  (years)** | ** ** |
|------------------------|------------|------------------------------------|------------|--------------------------------------------------------------|------------|
|                   |       |                               |       |                                                         |       |
| Non-qualified  options |       | $                                  | 21,681     |                                                         | 3.1        |   |
| Restricted stock       |       | 193                                |       | 2.6                                                          |       |
| Total                  |       | $                                  | 21,874     |                                                         | 3.1        |   |

 

The Companygranted stock options during the quarters ended September 30, 2006 and2005.  The determination of the fair value of the stockoption awards, using the Black-Scholes model, incorporated the assumptions inthe following table for stock options granted during the three month periodended September 30, 2006 and 2005.  Therisk-free rate is based on the U.S. Treasury yield curve in effect at the timeof grant over the expected term.  Expectedvolatility is calculated by considering, among other things, the expectedvolatilities of public companies engaged in similar industries.  The expected option term is calculated usingthe “simplified” method permitted by SAB 107:

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|                                  | ** ** | **Three Months**            | ** ** | **Three Months**            | ** ** |
|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **Ended**                        | ** ** | **Ended**                        | ** ** |
| ** **                       | ** ** | **September 30, 2006** | ** ** | **September 30, 2005** | ** ** |
|                             |       |                             |       |                             |       |
| Expected stock  price volatility |       | 58.0                             | %          | .01                              | %          |
| Expected life  (in years)        |       | 6.5                              |       | 5.0                              |       |
| Risk-free  interest rate         |       | 5.2                              | %          | 4.1                              | %          |
| Expected  dividend yield         |       | 0.0                              | %          | 0.0                              | %          |
| Weighted average fair  value     |       | $                                | 26.47      |                             | $          | 12.52 |   |
|                                  |            |                                  |            |                                  |            |  |  |

 

Thefollowing table summarizes stock options outstanding and changes during thenine month period ended September 30, 2006: 

|                                                | ** ** | **Shares**              | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Life  (years)** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|------------------------------------------------|------------|-------------------------|------------|----------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                     | ** ** | **(in thousands)** | ** ** | ** **                             | ** ** | ** **                                      | ** ** | **(in thousands)**             | ** ** |
|                                           |       |                    |       |                                   |       |                                            |       |                                |       |
| Options  outstanding – December 31, 2005  |       | 2,919                   |       | $                                      | 2.01       |                                            | 7.0        |                                | $          | — |   |
| Granted                                        |       | 630                     |       | 23.80                                  |       | 9.5                                             |       | —                              |       |
| Exercised                                      |       | 269                     |       | 0.82                                   |       | —                                          |       | —                              |       |
| Cancelled or  expired                          |       | 55                      |       | 0.23                                   |       | —                                          |       | —                              |       |
| Options  outstanding – September 30, 2006 |       | 3,225                   |       | $                                      | 6.37       |                                            | 8.3        |                                | $          | 48,440 |   |
| Options exercisable –  September 30, 2006 |       | 599                     |       | $                                      | 1.04       |                                            | 7.4        |                                | $          | 12,190 |   |

 

The range ofexercise prices of the exercisable options and outstanding options at September30, 2006 are as follows:

| Weighted Average Exercise Price | ** ** | **Number of  Exercisable  Options** | ** ** | **Number of  Outstanding  Options** | ** ** | **Weighted  Average  Remaining  Life  (years)** | ** ** |
|------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|-------------------------------------------------|------------|
| $0.23                                          |       | 428,608                                  |       | 1,093,927                                |       | 6.8                                             |       |
| $2.36 - $2.92                                  |       | 135,806                                  |       | 743,669                                  |       | 8.7                                             |       |
| $4.35                                          |       | 34,320                                   |       | 757,026                                  |       | 9.0                                             |       |
| $22.50                                         |       | —                                   |       | 590,000                                  |       | 9.5                                             |       |
| $43.00                                         |       | —                                   |       | 40,000                                   |       | 9.8                                             |       |
| Totals                                         |       | 598,734                                  |       | 3,224,622                                |       | 8.3                                             |       |

 

Restricted stockaward activity for the three months ended September 30, 2006 is summarizedbelow: 

|                                                       | *** *** | **Shares**              | ** ** | **Weighted  Average Grant  Date Fair  Value per  Award** | ** ** |
|-------------------------------------------------------|--------------|-------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                            | *** *** | **(in thousands)** | ** ** | ** **                                                              | ** ** |
|                                                  |         |                    |       |                                                                    |       |
| Unvested  Restricted stock awards - December 31, 2005 |         | —                  |       | $                                                                       | —     |   |
| Granted                                               |         | 8                       |       | 27.92                                                                   |       |
| Vested                                                |         | —                  |       | —                                                                  |       |
| Cancelled or  expired                                 |         | —                  |       | —                                                                  |       |
| Restricted stock awards  – September 30, 2006    |         | 8                       |       | $                                                                       | 27.92      |   |

 

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**(8)****                                 InterestExpense**

The followingtable summarizes interest expense:

|                         | ** **   | **Three months ended  September 30,** | ** **   | **Nine Months Ended  September 30,** | ** **   |
|-------------------------|--------------|------------------------------------------------------|--------------|-----------------------------------------------------|--------------|
| **(in thousands)** | ** **   | **2006**                                             | ** **   | **2005**                                            | ** **   | **2006** | ** ** | **2005** | ** ** |
|                    | *** *** | *** ***                                         | *** *** | *** ***                                        | *** *** | *** *** | *** *** | *** *** | *** *** |
| Interest expense        | ** **   | **$**                                                | **989**      |                                                | $            | 4,206 | ** ** | **$** | **10,351** |   | $ | 12,169 |   |
| Capitalized interest    | ** **   | **(242**                                             | **)**        | —                                              | ** **   | **(1,003** | **)** | — |   |
| Interest expense, net   | ** **   | **$**                                                | **747**      |                                                | $            | 4,206 | ** ** | **$** | **9,348** |   | $ | 12,169 |   |

 

**(9)****                                 Debt**

The following tablesummarizes long-term debt:

| (In thousands)                                    | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                                   | ** ** | ** **                   |       |                        |       |
| Senior secured  floating rate notes, due December 2011 | ** ** | **$**                        | **5,000**  |                        | $          | 160,000 |   |
| Secured  revolving credit facility                     | ** ** | **—**                   |       | 1,514                       |       |
|                                                   | ** ** | **5,000**                    |       | 161,514                     |       |
| Less short-term  borrowings                            | ** ** | **—**                   |       | (1,514                      | )          |
| Total                                                  | ** ** | **$**                        | **5,000**  |                        | $          | 160,000 |   |

 

*Liquidity Facility*

Our liquidity facilityconsists of a secured revolving credit facility with JP MorganChase Bank of upto $30 million.  We amended this facilityon September 15, 2006.  The terms of theamendment to the secured revolving credit facility include:  a reduction in the available amount from $60million to $30 million, the eliminationof a borrowing base formula, the removal of certain restrictive covenantsincluding a capital expenditure limitation, the elimination of certainreporting requirements including the submission of a monthly borrowing basecertificate, and a reduction in annual fees. As a result of amending our liquidity facility, we recorded acharge in the third quarter of 2006 of $0.9 million for the write-off ofunamortized deferred debt costs related to our previous secured revolvingcredit facility.

We had noborrowings outstanding under our secured revolving credit facility at September30, 2006, and $4.0 million of standby letters of credit outstanding, leavingapproximately $26.0 million in additional borrowing availability under oursecured revolving credit facility as of that date.  As of December 31, 2005, we had $1.5 millionoutstanding under our secured revolving credit facility and $6.4 million ofstandby letters of credit outstanding, leaving approximately $52.1 million inadditional borrowing availability under the secured revolving credit facilityas of that date.

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*Senior Secured Floating RateNotes*

In December 2004,we issued $160 million aggregate principal amount of senior secured floatingrate notes due 2011 (“Notes”).  Our Noteswere issued pursuant to an indenture, dated as of December 17, 2004, between usand Wells Fargo Bank, N.A., as trustee. As part of the debt offering, we agreed to the terms of an escrowagreement, whereby $62.5 million of the net proceeds of the debt offering wasto be restricted and used only to fund expansion of the Pekin, IL ethanolfacility.

On June 14, 2006,we commenced a cash tender offer (“Tender Offer”) for all $160 millionaggregate principal amount of our Notes. In connection with this Tender Offer, we solicited consents from theholders of the Notes (the “Consent Solicitation”) to proposed amendments to (i)substantially eliminate most of the restrictive covenants and certain events ofdefault contained in the Note indenture, and (ii) release all of the collateralsecuring the Notes.  Approximately 97% ofthe outstanding aggregate amount of Notes were tendered.  On July 13, 2006, we paid $164.6 million(including premiums and accrued interest) from the funds received in ourinitial public offering to fund the repurchase of $155.0 million aggregateprincipal amount of Notes redeemed in the Tender Offer.  We expect to redeem the remaining outstandingNotes in December 2006 when they become callable.  As a result of the consent solicitation, allcash previously classified as restricted is now classified within cash and cashequivalents or short-term securities.

The remaining $5 millionof Notes outstanding:

·                  have interest payments due quarterlyon March 15, June 15, September 15 and December 15 of each year.

·                  areredeemable after the dates and at prices (expressed in percentages of principalamount on the redemption date), as set forth below:

| Year              | ** ** | **Percentage** | ** ** |
|-------------------|------------|----------------|------------|
| December 16, 2006 |       | 103.0          | %          |
| December 16, 2007 |       | 102.0          | %          |
| December 16, 2008 |       | 101.0          | %          |
| December 16, 2009 |       | 100.0          | %          |

 

As a result of thetender of the Notes, we recorded a pre-tax charge in the third quarter endingSeptember 30, 2006 of approximately $13.6 million which is comprised of (i)$8.7 million for the tender and consent premiums and related fees and expenses,and (ii) $4.9 million related to the write-off of unamortized debt issuancecosts.  Also in conjunction with thetender of our Notes, on July 10, 2006, we terminated an interest rate captransaction on $120 million of our Notes, resulting in a non-income impactingreceipt of cash totaling approximately $0.8 million.

The interest rateapplicable to the floating rate notes at September 30, 2006 was 11.89%.  The interest rate on the notes in effect atDecember 31, 2005 was 10.49%

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**(10)****         Industry Segment**

The Companyoperates in one reportable business segment, the manufacture and marketing offuel-grade ethanol.

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

*Defined Contribution Plans*

We have 401(k)plans covering substantially all of our employees.  We recorded expense with respect to theseplans for the three month periods ended September 30, 2006 and 2005,respectively of $0.3 million and $0.4 million, and expense of $0.9 million and$1.0 million for the nine month periods ended September 30, 2006 and 2005,respectively.  Contributions made underour defined contribution plans include a match, at the Company’s discretion, ofemployee contributions to the plans.

### *QualifiedRetirement Plan*

TheCompany provides a non-contributory qualified defined benefit pension plan forits unionized employees at our Pekin, IL production facility.  The following table summarizes the componentsof net periodic pension cost for the qualified pension plan:

|                                     | ** **   | **Three months ended  September 30,** | ** **   | **Nine months ended  September 30,** | ** **   |
|-------------------------------------|--------------|------------------------------------------------------|--------------|-----------------------------------------------------|--------------|
| **(In thousands)**             | ** **   | **2006**                                             | ** **   | **2005**                                            | ** **   | **2006** | ** ** | **2005** | ** ** |
|                                | *** *** | *** ***                                         | *** *** | *** ***                                        | *** *** | *** *** | *** *** | *** *** | *** *** |
| Service cost                        | ** **   | **$**                                                | **71**       |                                                | $            | 69 | ** ** | **$** | **214** |   | $ | 207 |   |
| Interest cost                       | ** **   | **107**                                              |         | 104                                                 | ** **   | **322** |   | 312 |   |
| Expected return on plan  assets     | ** **   | **(128**                                             | **)**        | (122                                                | )            | **(384** | **)** | (366 | ) |
| Amortization of net  actuarial loss | ** **   | **12**                                               |         | 2                                                   | ** **   | **36** |   | 3 |   |
| Net periodic pension cost           | ** **   | **$**                                                | **62**       |                                                | $            | 53 | ** ** | **$** | **188** |   | $ | 156 |   |

 

### *PostretirementBenefit Obligation*

We sponsor ahealthcare plan that provides postretirement medical benefits to certain “grandfathered”unionized employees.  The plan iscontributory, with contributions required at the same rate as activeemployees.  Benefit eligibility under theplan terminates at age 65.

The followingtable summarizes the components of the net periodic costs for postretirement benefits:

|                                     | ** **   | **Three months ended  September 30,** | ** **   | **Nine months ended  September 30,** | ** **   |
|-------------------------------------|--------------|------------------------------------------------------|--------------|-----------------------------------------------------|--------------|
| **(In thousands)**             | ** **   | **2006**                                             | ** **   | **2005**                                            | ** **   | **2006** | ** ** | **2005** | ** ** |
|                                | *** *** | *** ***                                         | *** *** | *** ***                                        | *** *** | *** *** | *** *** | *** *** | *** *** |
| Service cost                        | ** **   | **$**                                                | **38**       |                                                | $            | 48 | ** ** | **$** | **114** |   | $ | 141 |   |
| Interest cost                       | ** **   | **30**                                               |         | 38                                                  | ** **   | **91** |   | 117 |   |
| Amortization of prior  service cost | ** **   | **3**                                                |         | 13                                                  | ** **   | **8** |   | 39 |   |
| Net periodic pension cost           | ** **   | **$**                                                | **71**       |                                                | $            | 99 | ** ** | **$** | **213** |   | $ | 297 |   |

 

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**(12)****         Litigation**

Our facilities andoperations are subject to extensive environmental laws and regulations, and weare currently involved in various proceedings relating to environmentalmatters.  We are not involved in anylegal proceedings that we believe could have a material adverse effect upon ourbusiness, operating results or financial condition.

**Item 2.****                                                           Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

*This report contains forward-looking statements madepursuant to the safe harbor provisions of the Private Securities LitigationReform Act of 1995.  Forward-lookingstatements include all statements that do not relate solely to current orhistorical fact, but address events or developments that we anticipate willoccur in the future.  Forward-lookingstatements include statements regarding our goals, beliefs, plans or currentexpectations, taking into account the information currently available to ourmanagement.  When we use words such as “anticipate,”“intend,” “expect,” “believe,” “plan,” “may,” “should” or “would” or otherwords that convey uncertainty of future events or outcome, we are makingforward-looking statements.  Statements relatingto future sales, earnings, operating performance, restructuring strategies,capital expenditures and sources and uses of cash, for example, areforward-looking statements.*

*These forward-looking statements are subject tovarious risks and uncertainties which could cause actual results to differmaterially from those stated or implied by such forward-lookingstatements.  We undertake no obligationto publicly release any revision of any forward-looking statements containedherein to reflect events and circumstances occurring after the date hereof, orto reflect the occurrence of unanticipated events.  Information concerning risk factors iscontained under the caption “Risk Factors” in our Registration Statement filedon Form S-1.  You should carefullyconsider all of the risks and all other information contained in orincorporated by reference in this 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 aleading producer and marketer of ethanol. Through our own production facilities, marketing alliances with otherethanol producers and our purchase and resale operations, we market anddistribute ethanol to many of the leading energy companies in the U.S.  We have a comprehensive national distributionnetwork utilizing a leased railcar fleet and a terminal network at criticalpoints on the nation’s transportation grid where our ethanol is blended withour customers’ gasoline.  In addition toproducing ethanol, our facilities also produce several co-products including:corn gluten feed and meal, corn germ, condensed corn

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distillers solubles,dried distillers grain with solubles, wet distillers grain with solubles,carbon dioxide and brewers’ yeast.

**Results of Operations**

The following discussion summarizes the significantfactors affecting the consolidated operating results of the Company for thethree and nine month periods ended September 30, 2006 and 2005.  This discussion should be read in conjunctionwith the unaudited condensed consolidated financial statements and notes to theunaudited condensed consolidated financial statements contained in Item 1above, and the consolidated financial statements and related notes for the yearended December 31, 2005 included in the Company’s Registration Statement onForm S-1.

Our revenues are derivedfrom the sale of ethanol and from the sale of co-products (corn gluten feed andmeal, corn germ, condensed corndistillers solubles, carbon dioxide, DDGS (dry distillers grain with solubles) and WDGS (wet distillers grainswith solubles)) and bio-products (brewers’ yeast) that we produce as by-products during the production ofethanol at our plants, which we refer to as co-product revenues. We sell ethanol obtained from the following sources:

·                  Ethanolwe manufacture at our plants;

·                  Ethanol wepurchase from our marketing alliance partners; and

·                  Ethanolwe purchase on the spot market.

Wemarket and sell ethanol without regard to whether we produced it, are marketingit for our marketing alliance partners or purchased it on the spot market forresale.

*Executive Summary*

We generated netincome****of $5.3 million, or $0.12 per dilutedshare in the third quarter of 2006, as compared to net income of $17.7 million,or $0.49 per diluted share, in the third quarter of 2005.  Third quarter 2006 results include theeffects of non-recurring pre-tax charges totaling $15.1 million related to ourbond tender, our amended secured revolving credit facility and the accelerationof vesting periods of certain stock-based compensation arrangements inconjunction with our IPO.  Thesenon-recurring charges reduced diluted earnings per share for the third quarterof 2006 by $0.21 per share.  Revenue inthe third quarter of 2006 was $407.1 million, an increase of $147.9 million, or57.1%, over third quarter 2005 revenue of $259.2 million.  The increase is mainly the result of pricinggains caused by the significant year over year rise in the price per gallon ofethanol and the number of gallons sold. The average sales price per gallon of ethanol in the third quarter of2006 was $2.37 per gallon, up from $1.77 per gallon in the same quarter in2005.

The increase inthe average price of ethanol quarter over quarter is primarily due to acarryover from the second quarter 2006 high ethanol prices which was caused bya number of factors, including the elimination of methyl tertiary-butyl ether (“MTBE”)as an oxygenate earlier in the year and the then current price ofgasoline.  Although the average price ofethanol sold in

15

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the third quarter of 2006was significantly higher than the third quarter of 2005, the spot price ofethanol declined continuously throughout the third quarter of 2006.

Gallons of ethanolsold in the third quarter of 2006 increased 21.2% to 163.3 million gallons, ascompared to 134.7 million gallons in the third quarter of 2005.  The increase in gallons sold is primarily dueto additional purchases from alliance partners. Purchases from non-affiliated producers decreased quarter over quarterin response to falling ethanol prices throughout the third quarter of 2006which provided less opportunity in the purchase/resale market.  Equity production was flat quarter overquarter.  The import by customers ofsignificant amounts of Brazilian ethanol in the third quarter displaced demandfor domestically produced ethanol.  As aresult, we inventoried an additional 11.5 million gallons in the third quarterof 2006.  For the first nine months of2006 versus 2005, gallons of ethanol sold increased 33.8%, to 504.5 milliongallons.

Gross profittotaled $27.3 million in the third quarter of 2006, a decrease of $8.2 million,or 23.1%, from the third quarter of 2005. The decline in gross profit was the result of a combination of factors,including lower margins obtained in our purchase/resale business, increasingcorn prices and increases in freight and other production expenses.  Gross profit on purchase/resale transactionswas higher in the third quarter of 2005 as spot ethanol prices were beingaffected by hurricanes along the Gulf Coast, which disrupted gasoline suppliesthereby increasing prices for both gasoline and ethanol.  Ourgross corn cost for the quarter ended September 30, 2006 was $2.31 per bushel,as compared to $2.19 per bushel in the same period in 2005.

At September 30,2006, we had approximately 42.4 million gallons of ethanol in inventory at aweighted average price of $1.94 per gallon.  At September 30, 2005, the amount of ethanol we had in inventory wasapproximately 15.3 million gallons, at a weighted average price of $1.67 pergallon.  Although we are required topurchase all of the production from our marketing alliance partners and mayinventory some of these purchased gallons, we do not have price risk withrespect to these gallons and the purchase price we pay our marketing alliancepartners is based on the price at which we resell the ethanol.

For the most recent contract negotiation period, because of thesignificant drop in ethanol prices during the third quarter, we and ourcustomers were hesitant to commit to fixed priced contracts.  Our customers’ believed prices would fallfurther and wanted discounts to protect themselves from further pricedeclines.  We, on the other hand,believed prices would increase, and were unwilling to offer such discounts.  Consequently, contracts signed during thiscontracting period tend to have a greater proportion of gasoline indexed andspot, rather than fixed, prices.  Ourrealized prices in Q4, therefore, should have a closer relationship to spotprices.

*Third Quarter 2006 Non-Recurring Charges*

We recordednon-recurring pre-tax charges in the third quarter of 2006 totaling $15.1million.  These non-recurring chargesresulted from our bond tender offer, our amended credit agreement and from theacceleration of vesting periods of certain stock-based compensation

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arrangements inconjunction with our IPO.  As a result ofthe tender offer for our senior secured floating rate notes, the Companyrecorded a pre-tax charge in the third quarter ending September 30, 2006 ofapproximately $13.6 million comprised of (i) $8.7 million for the tender andconsent premiums and related fees and expenses and (ii) $4.9 million for thewrite-off of unamortized debt issuance costs. Non-recurring pre-tax charges related to the acceleration of vestingperiods of certain stock-based compensation arrangements totaled $0.6million.  We also incurred non-recurringpre-tax charges totaling $0.9 million for the write-off of unamortized deferreddebt costs related to our amended credit agreement.

Non-recurringcharges reduced diluted earnings per share by $0.21 per share in the thirdquarter of 2006.

*Share-based Compensation Expense*

EffectiveJanuary 1, 2006, we adopted, on a modified prospective transition method, SFAS123(R), which requires measurement and recognition of compensation expense forall share-based payment awards made to employees and directors, including stockoptions, based on fair values.  Ourfinancial statements for the three and nine month periods ended September 30,2006 reflect the impact of adopting SFAS 123(R).  In accordance with the modified prospectivetransition method, our financial statements for prior periods have not beenrestated to reflect, and do not include, the impact of SFAS 123(R).  Share-based compensation expense recognizedis based on the value of the portion of share-based payment awards that isultimately expected to vest.  Share-basedcompensation expense recognized in our Condensed Consolidated Statements of Operationsfor the three and nine month periods ended September 30, 2006 includedcompensation expense for unvested share-based payment awards granted prior toDecember 31, 2005, based on the grant date fair value estimated in accordancewith the minimum value method as outlined in SFAS 123, and compensation expensefor the share-based payment awards granted subsequent to December 31, 2005based on the grant date fair value estimated in accordance with the provisionsof SFAS 123(R).  In conjunction with theadoption of SFAS 123(R), we elected to attribute the value of share-basedcompensation to expense over the periods of requisite service using thestraight–line method.

Upon adoption ofSFAS 123(R), we elected to value our share-based payment awards grantedbeginning in fiscal year 2006 using the Black-Scholes model, which waspreviously used to calculate stock-based compensation expense using the minimum value method as outlined in SFAS123.  The determination of fairvalue of share-based payment awards on the date of grant using the Black-Scholesmodel is affected by our stock price as well as the input of other subjectiveassumptions.  The Black-Scholes model requires a number of assumptions, of which themost significant are, expected stock price volatility, the expected pre-vestingforfeiture rate and the expected option term (the amount of time from the grantdate until the options are exercised or expire).  Expected volatility is normally calculatedbased upon actual historical stock price movements over the expected optionterm.  Since we have no history of stockprice volatility as a public company at the time of the grants, we calculatedvolatility by considering, among other things, the expected volatilities ofpublic companies engaged in similar industries. Pre-vesting forfeitures are estimated using a 3% per month forfeiturerate.  The expected option term iscalculated using the “simplified” method permitted by SAB 107.  Our options have

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characteristics significantly different from thoseof traded options, and changes in the assumptions can materially affect thefair value estimates.

Stock-based compensation expense reduced earnings per share by$0.04 per basic and diluted share for the quarter ended September 30, 2006 andby $0.09 per basic share and diluted share for the nine months ended September30, 2006.

*For the Three Months EndedSeptember 30, 2006 Compared to the Three Months Ended September 30, 2005*

Sales in the thirdquarter of 2006 increased 57.1%, to $407.1 million as compared to $259.2million in the third quarter of 2005.  Overall, the increase in sales was primarilythe result of a higher average gross selling price of ethanol and from anincrease in gallons sold.  The averagegross sales price of ethanol in the third quarter of 2006 increased to $2.37per gallon from $1.77 per gallon in the same period last year.

While our realizedprice of ethanol increased in the third quarter of 2006, the spot price pergallon decreased throughout the quarter. The import by customers of significant amounts of Brazilian ethanol inthe third quarter displaced demand for domestically produced ethanol.  This, along with normal seasonal decreases indemand for gasoline due to the end of the summer driving season, negativelyaffected spot prices during the third quarter of 2006.  As a result, we elected to inventory anadditional 11.5 million gallons in the third quarter of 2006.

Gallons sold inthe third quarter of 2006 increased 21.2% to 163.3 million gallons, as comparedto 134.7 million gallons in the third quarter of 2005, primarily due to anincrease in gallons purchased from alliance partners.  In the third quarter of 2006, we produced32.1 million gallons, purchased 124.4 million gallons from our marketingalliance partners, purchased 18.3 million gallons from unaffiliated producersand marketers and increased inventory by 11.5 million gallons.  In the third quarter of 2005, we produced32.2 million gallons, purchased 81.8 million gallons from our marketingalliance partners, purchased 22.7 million gallons from unaffiliated producersand marketers and increased inventory by 2.0 million gallons.

Co-product revenuefor the third quarter of 2006 totaled $13.7 million, as compared to $15.1million in the same period a year ago. Co-product shipments increased in the third quarter of 2006 to 233.1thousand tons, from 219.7 thousand tons in the third quarter of 2005.  The decrease in revenue is principally theresult of lower prices received on germ and meal.  Prices of these products were especially highin the third quarter of 2005.

Gross profittotaled $27.3 million in the third quarter of 2006, a decrease of $8.2 million,or 23.1%, from the third quarter of 2005. The decline in gross profit was the result of a combination of factors,including lower margins obtained in our purchase/resale business, increasingcorn prices and increases in freight and other production expenses.  Gross profit on purchase/resale transactionswas higher in the third quarter of 2005 as spot ethanol prices were affected byhurricanes along the Gulf Coast, which disrupted gasoline supplies therebyincreasing prices for both gasoline and ethanol.

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Gross corn costfor the quarter ended September 30, 2006 was $29.1 million, or $2.31 perbushel, as compared to $26.5 million, or $2.19 per bushel, in the same periodin 2005.  The number of bushels of cornground in the third quarter of 2006 was 12.6 million, versus 12.1 million inthe same period in 2005.  The productionyield achieved during the third quarter of 2006 was 2.6 gallons per bushel ofcorn, as compared to 2.7 gallons per bushel of corn in the third quarter of2005.

Our cost toconvert corn to ethanol, co-products and bio-products increased in the thirdquarter of 2006 to $22.1 million, from $19.1 million in the same period in2005.  The increase in conversion costsmostly reflects a $2.3 million increase in other production costs, mainly dueto additional maintenance required as a result of the production issues at ourAurora, NE facility.  Freight costs alsoincreased in the third quarter of 2006 to $24.5 million, from $14.4 million inthe third quarter of 2005.  The increasein freight costs reflects an increase in shipments, the increase in shipmentsbeing sent to the U.S. coasts, along with higher surcharges as a result ofincreased oil prices.

Selling,general and administrative (“SG&A”) expenses were $7.4 million in the thirdquarter of 2006 versus $6.1 million in the third quarter of 2005, an increaseof $1.3 million.  This increase inSG&A expense includes the effects of non-cash stock-based compensation expense.  Stock-based compensation expense increased$1.8 million in the third quarter of 2006 as compared to the same period in2005, which includes $0.6 million of non-recurring expense related to theacceleration of vesting periods of certain stock-based compensationarrangements.

Otheroperating income increased in the third quarter of 2006 by $0.4 million, to$0.6 million.  The increase in otheroperating income is the result of increased dividends from investments innon-consolidated ethanol producers, as well as an increase in tax creditsrelated to production of E-85 ethanol.

Interestincome in the third quarter of 2006 was $1.4 million, versus $0.6 million inthe same period in 2005.  The increase ininterest income is the result of a combination of a higher level of investablefunds due to cash received from our initial public offering along withincreased short term investment rates due to increases in interest rates ingeneral.

Interestexpense in the third quarter of 2006 was $0.7 million, as compared to $4.2million in the same period in 2005.  Interest expense declined in the currentquarter as a result of the successful tender for our outstanding bonds,along with interest capitalized as a result of our Pekin, IL expansion.  Allbut $5.0 million of our senior secured floating rate notes were tendered as aresult of the tender offer.  We expectthat the remaining $5.0 million of bonds will be repurchased in December 2006as they become callable.

Othernon-operating income increased to $2.3 million in the third quarter of 2006 asa result of gains recorded on marking derivative instruments to market,primarily short positions on corn forward contracts.

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Minorityinterest for the third quarter of 2006 was a charge to income of $0.9 million,as compared to $0.4 in the third quarter of 2005.  The increase reflects the improved operatingresults of our Nebraska subsidiary for the quarter ended September 30, 2006.

Taxexpense for the third quarter of 2006 was $3.0 million, or approximately 36.1%of taxable income, versus $9.7 million or 35.4% of taxable income in the sameperiod in 2005.  Tax expense was reducedin the third quarter of 2005 as a result of the true-up of tax accruals for the2004 tax return which was completed in September 2005.   For 2006, tax expense has been reduced as aresult of proceeds from our initial public offering being invested innon-taxable municipal securities, as well as from a domestic productionactivities deduction enacted under the American Jobs Creation Act of 2004.

*For the Nine Months EndedSeptember 30, 2006 Compared to the Nine Months Ended September 30, 2005*

Sales in the firstnine months of 2006 increased 79.8%, to $1.2 billion as compared to $647.2million in the first nine months of 2005. Overall, the increase in sales is primarily the result of the increasein the average gross selling price of ethanol and an increase in gallonssold.  The average gross sales price ofethanol in the first nine months of 2006 increased to $2.20 per gallon from$1.57 per gallon in the same period a year ago, an increase of 40.1%.  The increase in the average price of ethanolis primarily due to high demand for ethanol, created by a number of factors,including the elimination of MTBE as an oxygenate, and the current price ofgasoline.  While the average sales priceis significantly higher in the first nine months of 2006 versus 2005, the spotprice of ethanol has fallen continuously throughout the three month periodended September 30, 2006.

Gallons sold inthe first nine months of 2006 increased 33.8% to 504.5 million gallons, ascompared to 377.2 million gallons in the first nine months of 2005.  For the first nine months of 2006, weproduced 97.7 million gallons, purchased 365.2 million gallons from ourmarketing alliance partners, purchased 49.4 million gallons from unaffiliatedproducers and marketers and increased inventory by 7.8 million gallons.  For the first nine months of 2005, weproduced 103.6 million gallons, purchased 231.3 million gallons from ourmarketing alliance partners, purchased 49.0 million gallons from unaffiliatedproducers and marketers and increased inventory by 6.7 million gallons.

Co-product revenuefor the first nine months of 2006 totaled $40.2 million, as compared to $45.3million in the same period a year ago. Co-product shipments for the first nine months of 2006 increased to681.9 thousand tons, from 662.9 thousand tons in the first nine months of2005.  The decrease in revenue is theresult of lower co-product production during the second quarter of 2006 due tomaintenance turnarounds and productivity issues encountered during this periodalong with lower prices received on germ and meal in the third quarter of2006.  Prices of germ and meal wereespecially high during the third quarter of 2005.

Production ofethanol decreased in the first nine months of 2006 by 5.7% to 97.7 milliongallons, from 103.6 million gallons in the first nine months of 2005.  Equity production was constrained in thequarter ended June 30, 2006 due to scheduled maintenance turnarounds at both

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of our ethanol productionfacilities.  We also experiencedproduction constraints at our Aurora, NE facility in both the second and thirdquarters of 2006 due to ongoing yield problems which negatively affected output.  Co-product revenue in the first nine monthsof 2006 was negatively affected by decreased production described above.

Gross profittotaled $108.1 million for the first nine months of 2006, an increase of $39.9million, or 58.5%, from the same period in 2005.  The overall increase in gross profit isprimarily attributable to increased sales, and during the first six months of2006, by the widening spread between ethanol prices and corn costs.  However, beginning in the third quarter of2006, gross profit was negatively affected as a result of lower marginsobtained in our purchase/resale business. Increasing corn prices also affected gross margin.

Gross corn costfor the first nine months of 2006 was $83.6 million, or $2.23 per bushel, ascompared to $82.0 million, or $2.11 per bushel, in the same period in2005.  The number of bushels of cornground in the first nine months of 2006 was 37.5 million, versus 38.8 millionin the same period in 2005.  The productionyield achieved during the nine month period ended September 30, 2006 wasapproximately 2.6 gallons per bushel of corn, as compared to 2.7 gallons perbushel of corn in the same nine month period in 2005.

Our cost toconvert corn to ethanol, co-products and bio-products increased in the ninemonth period ended September 30, 2006 to $67.7 million, from $57.0 million inthe same period in 2005.  The increase inconversion costs reflects a $1.2 million increase in labor costs, along with a$9.1 million increase in other production costs, due to higher denaturant andenzyme costs, along with maintenance turnarounds taken in both Pekin and Auroraduring the second quarter of 2006, and with the additional maintenance requiredas a result of the production issues at our Aurora, NE facility during thesecond and third quarters of 2006. Freight costs also increased in the first nine months of 2006 to $70.8million, from $40.3 million in the first nine months of 2005.  The increase in freight costs reflects anincrease in shipments, the increase in shipments being sent to the U.S. coasts,along with higher surcharges as a result of increased oil prices.

SG&A expenseswere $21.0 million in the first nine months of 2006 versus $13.8 million in thefirst nine months of 2005, an increase of $7.2 million.  The increase in SG&A expense in the firstnine months of 2006 as compared to 2005 includes the effects of non-cashstock-based compensation expense, which increased SG&A costs by $4.8million in the first nine months of 2006 over the same period in 2005,including $0.6 million of non-recurring expense related to the acceleration ofvesting periods of certain stock-based compensation arrangements.  The remaining increase in SG&A costs of$2.4 million mainly reflects increased fees associated with systemimprovements, fees associated with the preparation of complying with theinternal control requirements of Section 404 of the Sarbanes-Oxley Act of 2002,increased compensation costs, legal fees and other costs associated with beinga public company, partially offset by reductions in deferred compensationamounts, as well as a reduction in bonus accruals.

Other operatingincome increased in the first nine months of 2006 to $1.2 million from $0.7million in 2005.  The increase in otheroperating income is the result of increased dividends from investments innon-consolidated ethanol producers, as well as increased tax credits related

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to production of E-85ethanol received in 2006, offset by collection of a previously written offreceivable collected in 2005.

Interest income inthe first nine months of 2006 was $3.3 million, versus $1.5 million in the sameperiod in 2005.  The increase in interestincome is the result of a higher level of investable funds due to cash receivedfrom the initial public offering, along with increased short term investmentrates due to increases in interest rates in general.

Interestexpense in the first nine months of 2006 was $9.3 million, as compared to $12.2million in the same period in 2005.  Interest expense declined as a result of thesuccessful tender for our outstanding bonds completed early in the thirdquarter, along with interest capitalized as a result of our Pekin, ILexpansion.  All but $5.0 million of our senior securedfloating rate notes were tendered as a result of the tender offer.  We expect that the remaining $5 million ofbonds will be repurchased in December 2006 as they become callable.  Interest expense in 2006 was also affected bythe impact of year over year increases in variable interest rates.

Othernon-operating income increased to $4.8 million in the first nine months of 2006from $1.3 million in the first nine months of 2005 as a result of gainsrecorded on marking derivative instruments to market.

Taxexpense for the first nine months of 2006 was $26.8 million, or approximately38.9% of taxable income, versus $16.4 million or 37.2% of taxable income in thesame period in 2005.  Tax expense wasreduced year to date in 2005 as a result of the true-up of tax accruals for the2004 tax return which was completed in September 2005.   For 2006, tax expense was lower as a resultof proceeds from our initial public offering being invested in non-taxablemunicipal securities, as well as from a domestic production activitiesdeduction enacted under the American Jobs Creation Act of 2004.

**Liquidity and Capital Resources**

*Overview and Outlook*

Thefollowing table sets forth selected information concerning our financialcondition:

| (In thousands)              | ** **   | **September 30, 2006** | ** **   | **December 31, 2005** | ** **   |
|----------------------------------|--------------|----------------------------------|--------------|---------------------------------|--------------|
| ** **                       | ** **   | **(Unaudited)**                  | ** **   | ** **                      | ** **   |
| * *                         | *** *** | *** ***                     | *** *** | *** ***                    | *** *** |
| Cash and  short-term investments | ** **   | **$**                            | **131,262**  |                            | $            | 3,750 |   |
| Working capital                  | ** **   | **224,350**                      |         | 49,878                          |         |
| Total debt                       | ** **   | **5,000**                        |         | 161,514                         |         |
| Current ratio                    | ** **   | **4.43**                         |         | 1.83                            |         |
|                                  |              |                                  |              |                                 |              |  |  |

 

We completed ourinitial public offering at the beginning of the third quarter of 2006.  This transaction resulted in the issuance of6,410,256 new shares, and raised approximately $260.9 million, net of discountsand commissions to underwriters and IPO related expenses, in new equity for theCompany.  Consequently, our liquidity andcapital position have improved

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significantly from thatat June 30, 2006.  This, together withcash generated from operations during the first nine months of 2006, hassignificantly increased our working capital position.

On June 14, wecommenced a cash tender offer (“Tender Offer”) for all $160 million aggregateprincipal amount of our outstanding senior secured floating rate notes due 2011(“Notes”).  In connection with thisTender Offer, we solicited consents from the holders of the Notes (the “ConsentSolicitation”) to proposed amendments to (i) substantially eliminate most ofthe restrictive covenants and certain events of default contained in the Noteindenture, and (ii) release all of the collateral securing the Notes.  Approximately 97% of the outstanding aggregateamount of Notes was tendered.  On July13, 2006, we paid $164.6 million (including premiums and accrued interest) fromthe funds received in our initial public offering to fund the repurchase of$155.0 million aggregate principal amount of Notes redeemed in the TenderOffer.  We expect to redeem the remainingoutstanding Notes in December 2006 when they become callable.  The remainder of the net proceeds receivedfrom the initial public offering will be used for production expansion, a sharerepurchase program and other general corporate purposes.

As a result of thecompletion of the Tender Offer, cash that was classified as restricted andearmarked for the Pekin, IL plant expansion is no longer subject to therestrictions previously imposed by the indenture under which the Notes wereissued.  While no longer required to besegregated under the amended indenture, the Company intends to continue usingthis cash solely for the completion of its Pekin, IL facility expansion.

On July 24, 2006, Standard and Poor’s Ratings Services (“S&P”)raised its rating on our outstanding debt to B+ from B-, with an outlook ofstable.

On September 18, 2006, Moody’s Investors Service (“Moody’s”)upgraded our corporate family rating from B3 to B2.  The rating on our senior secured floatingrate notes due 2011 was also upgraded to B2. A speculative grade liquidity rating of SGL-1 (excellent liquidity) wasaffirmed for the Company.  Moody’soutlook on the Company remained stable.

On October 26,2006, Aventine’s Board of Directors approved a share buyback program of up to$50 million.  Under the repurchaseprogram, the Company may buy-back shares from time to time on the openmarket.  The program has no minimum sharerepurchase amounts, and there is no fixed time period under which any sharerepurchases must take place.  This sharerepurchase program is not expected to impact the Company’s previously announcedexpansion plans.

With our currentcash balances, amounts available under our secured revolving credit facilityand anticipated cash flow from operations, we believe that we will be able tosatisfy existing anticipated working capital needs, debt service obligations,capital expenditure and other anticipated cash requirements for the balance ofthe year.

The amount of capital expenditures necessaryto build our proposed 220.0 million gallon plant in Mt Vernon, Indiana, ourproposed 220.0 million gallon plant adjacent to our Nebraska facility and ourproposed 110.0 million gallon dry mill expansion in Pekin, Illinois iscurrently estimated to be at least $825.0 million, although we have not enteredinto design and build

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agreements for these proposed facilities and thus the ultimate cost ofsuch projects cannot be definitively ascertained at this time.  We expect to incur substantial indebtednessto fund a substantial portion of these capital expenditures, although there canbe no assurances as to our ability to raise these funds.  We may undertake other or additionalexpansion projects or acquisitions that would involve substantial capitalexpenditures.

*Sources of Liquidity*

Our principalsources of liquidity are cash, short-term investments, cash provided byoperations, and cash available under our secured revolving credit facility.

*Cash andshort-term investments.* For the first nine months of 2006, cash and short-term investmentsincreased by $127.5 million.  Cash andshort-term investments as of September 30, 2006 and December 31, 2005 were$131.3 million and $3.8 million, respectively.  The increase in cash is principally the result of cash received in ourinitial public offering and from the removal of all restrictions surroundingcash previously classified as restricted, and by cash generated fromoperations.

*Restrictedcash*.  Restricted cashat December 31, 2005 was $60.4 million.  Restricted cash had previously been set aside to be used solely for theexpansion of our Pekin, IL facility.  Therestrictions in place relative to these funds in accordance with the bondindenture for our Notes ceased to be applicable after completion of the TenderOffer on July 13, 2006.  As a result, allcash previously classified as restricted is now classified as unrestricted.

C*ash provided by operations.* Net cash provided by operating activities in the first nine months of2006 was $21.7****million, as compared to cashprovided by operating activities of $32.6 million for the first nine months of2005.  The decrease in cash provided byoperations in 2006 versus 2005 is the result of inventory builds and increasesin working capital as a result of business growth and from the increase inethanol prices.  The cash received fromour initial public offering, along with the increase in the price and demandfor ethanol, has significantly helped our working capital position.

*Cash available under our liquidity facility*.  Duringthe third quarter of 2006, we amended and reduced our revolving credit facilityto $30 million from $60 million.  Theprevious facility contained restrictive covenants along with a higher feestructure.  The amended facility alsoremoved restrictive covenants relative to our growth plans, along with certainreporting requirements.

We had noborrowings outstanding under our amended secured revolving credit facility atSeptember 30, 2006 and $4.0 million of standby letters of credit outstanding,leaving approximately $26.0 million in additional borrowing availability underour amended secured revolving credit facility as of that date.  As of December 31, 2005, we had $1.5 millionoutstanding under our secured revolving credit facility and $6.4 million ofstandby letters of credit outstanding, leaving approximately $52.1 million inadditional borrowing availability under the secured revolving credit facilityas of that date.

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*Uses of Liquidity*

Our principal usesof liquidity are capital expenditures, the funding of pension obligations, andpayments related to our outstanding debt and liquidity facility.

*Capitalexpenditures.*  In thefirst nine months of 2006, capital expenditures (excluding the Pekin, ILfacility expansion) totaled $8.8 million versus $9.0 million in the first ninemonths of 2005.  Capital expendituresinclude asset replacement, environmental and safety compliance and costreduction and productivity improvement items. Our capital spending plan for all of 2006, excluding the Pekinexpansion, is forecasted to be between $15 and $20 million.

Capitalexpenditures for the expansion of our Pekin, IL facility in the first ninemonths of 2006 totaled $43.3 million. Capital expenditures for the Pekin IL expansion are forecasted to bebetween $68 and $70 million.

*Funding of pension obligations*.  Forthe nine month period ended September 30, 2006, we made contributions to ourU.S. qualified defined benefit pension plan totaling $1.5 million.  For the nine month period ended September 30,2005, we made contributions to our U.S. qualified defined benefit pension planof $0.3 million.  We anticipate makingpayments to our pension fund totaling $0.5 million during the last quarter of2006.    

*Paymentsrelated to our outstanding debt and liquidity facility.*  In the first nine months of 2006, we madeinterest payments on our debt and our liquidity facility totaling $10.2million, versus payments of $11.1 million in the first nine months of2005.  In addition, we also paid $164.6million (including premiums and accrued interest) from the funds received inour initial public offering to fund the repurchase of $155.0 million aggregateprincipal amount of our Notes.  Thedecrease in interest payments from 2005 to 2006 results primarily from thereduction in the amount of outstanding senior secured floating rate notes,offset somewhat by increases in variable interest rates.  We expect to redeem the remaining outstandingNotes in December 2006 when they become callable.  

**Environmental Matters**

We are subject tovarious stringent federal, state and local environmental laws and regulationsand permit conditions (and interpretations thereof), including those relatingto the discharge of materials into the air, water and ground, the generation,storage, handling, use, transportation and disposal of hazardous materials, andthe health and safety of our employees. These laws, regulations and permits require us to incur significantcapital and other costs, including costs to obtain and maintain expensivepollution control equipment.  They mayalso require us to make operational changes to limit actual or potentialimpacts to the environment.  A violationof these laws and regulations or permit conditions can result in substantialfines, natural resource damages, criminal sanctions, permit revocations and/orfacility shutdowns.  We cannot assure youthat we have been, are or will be at all times, in complete compliance withthese laws, regulations or permits or that we have had or currently have allpermits required for our operations.  Inaddition, environmental laws and regulations (and interpretations thereof)change

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over time, and any suchchanges, more vigorous enforcement policies or the discovery of currentlyunknown conditions may require substantial additional environmentalexpenditures.

We are also subject to potential liability for the investigation andcleanup of environmental contamination at each of the properties that we own oroperate and at off-site locations where we arranged for the disposal ofhazardous wastes.  If any of these sitesare subject to investigation and/or remediation requirements, we may beresponsible under the Comprehensive Environmental Response, Compensation andLiability Act of 1980, or “CERCLA,” or other environmental laws for all or partof the costs of such investigation and/or remediation, and for damages tonatural resources.  We may also besubject to related claims by private parties alleging property damage orpersonal injury due to exposure to hazardous or other materials at or from suchproperties.  While costs to addresscontamination or related third party claims could be significant, based uponcurrently available information, we are not aware of any material contaminationor third party claims.  Therefore, wehave not accrued any amounts for environmental matters as of September 30,2006.

In addition, the hazards and risks associatedwith producing 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 alleged personal injury, property damage, or damagesto natural resources.  We maintaininsurance coverage against some, but not all, potential losses caused by ouroperations. Our coverage includes, but is not limited to, physical damage toassets, employer’s liability, comprehensive general liability, automobileliability and workers’ compensation.  Wedo not carry special environmental insurance, although some environmentalclaims or damages may be covered by our other policies.  We believe that our insurance is adequate andcustomary for our industry, but losses could occur for uninsurable or uninsuredrisks or in amounts in excess of existing insurance coverage.  The occurrence of events which result insignificant personal injury or damage to our property, natural resources orthird parties that is not fully covered by insurance could have a materialadverse impact on our results of operations and financial condition.

Our air emissions are subject to the federal Clean Air Act, the federalClean Air Act Amendments of 1990 and similar state laws which generally requireus to obtain and maintain air emission permits for our ongoing operations aswell as for any expansion of existing facilities or any new facilities.  Obtaining and maintaining those permitsrequires us to incur costs, and any future more stringent standards may resultin increased costs and may limit or interfere with our operating flexibility.  A failure to obtain or maintain appropriatepermits could delay anyexpansion or development of new facilities or delay or interfere with ouroperations.  In addition, the permitsultimately issued may impose conditions which are more costly to implement thanwe had anticipated.  These costs andpotential delays could have a material adverse affect on our financial conditionand results of operation.  Because otherethanol manufacturers in the U.S., which represent our current primarycompetition, are and will continue to be subject to similar laws andrestrictions, we do not currently believe that our costs to comply with currentor future environmental laws and regulations will adversely affect ourcompetitive position.  

In the normalcourse we are updating our National Pollutant Discharge Elimination Systempermit at the Pekin facility to include the cooling water effluent from theexpansion for

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discharge into theIllinois River.  This is well water thatdoes not come in contact with the process. Illinois EPA has issued a proposed updated permit which is now out forpublic comment.  To insure an orderlystart up, the facility has made alternative arrangements with the City of Pekinto handle the effluent, for a fee, should the permit not be issued prior to thescheduled start-up.

From time to time, we have not been in full compliance with thewastewater and air dischargepermits issued to our Illinois and Nebraska facilities, and we havebeen subject to legal actions broughtby regulatory authorities, advocacy groups and other parties for actual oralleged violations of environmental laws and regulations and certain of ourenvironmental permits.  Federal and stateenvironmental authorities have been investigating alleged excess volatileorganic compounds (“VOC’s”) and other air emissions from many United Statesethanol plants, including our Illinois and Nebraska facilities.  In April 2005, we entered into a consentdecree with state authorities settling their investigation of our Nebraska facility, which required us, among otherthings, to secure a new airemissions permit, install additional air pollution control equipment and pay a$0.4 million fine.  The fine was paid in May 2005 and the permitissued in October 2005.  Theinstallation of the new equipment wascompleted in October 2006.  The matterrelating to our Illinoisfacility is still pending, and we could be required to install additional air pollution controlequipment or take other measures to control air pollutant emissions at that facility.  Wecannot, at this time, accurately estimate the costs we will reasonably be expected to incur to implement anyemissions control measures at our Illinois facility.  Ifcontrols are ultimately required, however, we would anticipate that costs would be higher than those we incurred at our Nebraska facility due tothe Illinois facility’s larger size.  In addition to these possible costs, if the authorities determine our emissions were in violation of applicablelaw, we would likely be required to pay fines that could be material.  

The EPA has drafted a final National Emissions Standard for HazardousAir Pollutants(NESHAP)under the federal Clean Air Act for industrial, commercial and institutionalboilers and process heaters.  ThisNESHAP, which became effective on November 12, 2004, is expected to require usto implement maximum achievable control technology to reduce hazardous airpollutant emissions from certain of our boilers and process heaters bySeptember 13, 2007.  We expect to incur capital and operating costs at our Illinois facility tocomply with this regulation with respect to our existing boilers and process heaters.  Basedon engineering conducted to date and currently available information, wecurrently estimate we will incur capitalcosts of between $7.0 million and $9.0 million to comply with the IllinoisNESHAP.  

We currently generate revenue from the saleof carbon dioxide, which is a co-product of the ethanol manufacturing processat both our Illinois and Nebraska facilities. New laws or regulations relating to the production, disposal oremissions of carbon dioxide may require us to incur significant additionalcosts and may also adversely affect our ability to continue generating revenuefrom carbon dioxide sales.  

Recently,Underwriters’ Laboratories (UL) withdrew approval of E-85 dispensers atgasoline stations until consistent and appropriate safety requirements for E-85dispensers and components can be established. Although no instances of E-85 dispenser corrosion have been reported, ULindicated that a prudent course is to conduct corrosion testing beforereinstating

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approval.  Aventine does not market branded E-85 andtotal E-85 sales are less than one half of one percent of Aventine’s totalethanol sales. In the event that E-85 sales are restricted due to UL’s review, theethanol used to produce E-85 can easily be diverted back to the supply ofregular denatured fuel ethanol at minimal cost.

**Item 3.****                    Quantitativeand Qualitative Disclosures About Market Risk**

We are exposed tovarious market risks, including changes in commodity prices and interestrates.  Market risk is the potential lossarising from adverse changes in market rates and prices.  In the ordinary course of business, we enterinto various types of transactions involving financial instruments to manageand reduce the impact of changes in commodity prices and interest rates.  We do not enter into derivatives or otherfinancial instruments for trading or speculative purposes.  

***CommodityPrice Risks***

We are subject tomarket risk with respect to the price and availability of corn, the principalraw material we use to produce ethanol and ethanol by products.  In general, rising corn prices result inlower profit margins and, therefore, represent unfavorable marketconditions.  This is especially true whenmarket conditions do not allow us to pass along increased corn costs to ourcustomers.  The availability and price ofcorn is subject to wide fluctuations due to unpredictable factors such asweather conditions, farmer planting decisions, governmental policies withrespect to agriculture and international trade and global demand andsupply.  Our weighted average gross corncosts for the three months ended September 30, 2006 and 2005 was $2.31 and$2.19 per bushel, respectively.  Ourweighted average gross corn costs for the nine months ended September 30, 2006and 2005 was $2.23 and $2.11 per bushel, respectively.

We have firm-pricepurchase commitments with some of our corn suppliers under which we agree tobuy corn at a price set in advance of the actual delivery of that corn tous.  Under these arrangements, we assumethe risk of a price decrease in the market price of corn between the time thisprice is fixed and the time the corn is delivered.  In order to reduce our market exposure toprice decreases, at the time we enter into a firm-price purchase commitment, wealso often enter into commodity forward contracts to sell a like amount of cornat the then-current price for delivery to the counterparty at a laterdate.  We account for these transactionsunder Statement of Financial Accounting Standard No. 133, *Accountingfor Derivative Instruments and Hedging Activities*, as amended byStatement of Financial Accounting Standard No. 138, *Accountingfor Certain Derivative Instruments and Certain Hedging Activities*,and by Statement of Financial Accounting Standard No. 149, *Amendment ofStatement 133 on Derivative Instruments and Hedging Activities*,(hereinafter collectively referred to as “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 of these derivative assets isrecognized in other current assets in the Condensed Consolidated Balance Sheet,net of any cash received from the brokers. Information on this type of derivative transaction is as follows:

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|                                   | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|-----------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(In millions)**            | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|                              | ** ** | ** **                                           |       |                                                |       |   |   |   |   |
| Gain/(loss) included in  earnings | ** ** | **$**                                                | **1.9**    |                                                | $          | 1.4 | ** ** | **$** | **3.5** |   | $ | 1.3 |   |
|                                   |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

 
| **(In millions)**                                                                                         | ** ** | **September 30,  2006** | ** ** | **September 30,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
|                                                                                                           |       |                         |       |                         |       |
| Aggregate  notional value of derivatives outstanding                                                           | ** ** | **$**                        | **3.8**    |                         | $          | 4.8 |   |
| Period through  which derivative positions currently exist                                                     | ** ** | **December 2009**            |       | March 2006                   |       |
| Gain on fair  value of derivatives                                                                             | ** ** | **$**                        | **0.5**    |                         | $          | 0.2 |   |
| The change in fair  value due to the effect of a 10% adverse change in commodity prices to  current fair value | ** ** | **$**                        | **(1.2**   | **)**                        | $          | (0.5 | ) |

 

Wehave also entered into commodity forward contracts in connection with thepurchase of corn to reduce our risk of future price increases.  We account for these transactions under SFAS133.  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 fair value of these derivative assets isrecognized in other current assets in the Condensed Consolidated Balance Sheet,net of any cash received from the brokers. Information on this type of derivative transaction is as follows:

|                                   | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|-----------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(In millions)**            | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|                              | ** ** | ** **                                           |       |                                                |       |   |   |   |   |
| Gain/(loss) included in  earnings | ** ** | **$**                                                | **0.5**    |                                                | $          | — | ** ** | **$** | **0.5** |   | $ | — |   |
|                                   |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

 
| **(In millions)**                                                                                         | ** ** | **September 30,  2006** | ** ** | **September 30,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
|                                                                                                           |       |                         |       |                         |       |
| Aggregate  notional value of derivatives outstanding                                                           | ** ** | **$**                        | **5.3**    |                         | $          | — |   |
| Period through  which derivative positions currently exist                                                     | ** ** | **March 2007**               |       | —                       |       |
| Gain on fair  value of derivatives                                                                             | ** ** | **$**                        | **0.5**    |                         | $          | — |   |
| The change in fair  value due to the effect of a 10% adverse change in commodity prices to  current fair value | ** ** | **$**                        | **(0.4**   | **)**                        | $          | — |   |

 

***Interest RateRisk***

In December 2004,we entered into an interest rate cap transaction on $120.0 million of oursenior secured floating rate notes.  Weterminated this interest rate cap on July 10, 2006 in conjunction with thetender of all but $5.0 million aggregate principal amount of our outstandingNotes.

The senior securedfloating rate notes bear interest at the three month LIBOR rate plus a marginof 6%.  Prior to the termination of theinterest rate cap, the rate of interest we were obligated to pay on $120.0 millionof our senior secured floating rate notes was limited to 10% (maximum LIBORrate of 4% plus a margin of 6%).  Theinterest rate cap was not designated as hedge and, therefore, was marked tomarket each period, with corresponding gains and losses recorded in othernon-operating income.  The fair value ofthis derivative asset was recognized in

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other currentassets in the Condensed Consolidated Balance Sheet.  Information on this type of derivativetransaction is as follows:

|                                   | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|-----------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(In millions)**            | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|                              | ** ** | ** **                                           |       |                                                |       |   |   |   |   |
| Gain/(loss) included in  earnings | ** ** | **$**                                                | **—** |                                                | $          | 0.4 | ** ** | **$** | **—** |   | $ | 0.3 |   |
|                                   |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

 

***MaterialLimitations*********

The disclosureswith respect to the above noted risks do not take into account the underlyingcommitments or anticipated transactions. If the underlying items were included in the analysis, the gains orlosses on the futures contracts may be offset. Actual results will be determined by a number of factors that are notgenerally under our control and could vary significantly from those factorsdisclosed. 

We are exposed tocredit losses 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.****                    Controlsand Procedures**

**Evaluation of Disclosure Controlsand Procedures**

Under thesupervision of, and with the participation of management, including our ChiefExecutive Officer, Ronald H. Miller, and our Chief Financial Officer, AjaySabherwal, the Company carried out an evaluation of the effectiveness of ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)) as of the end of the period covered by this report.  Based upon that evaluation,Messrs. Miller and Sabherwal have concluded that, as of the end of theperiod covered by this report, the Company’s disclosure controls and procedureshave been designed and are effective to provide reasonable assurance thatinformation required to be disclosed in the reports filed or submitted underthe Exchange Act is recorded, processed, summarized and reported within thetime periods specified in the rules and forms of the Securities and ExchangeCommission.  These disclosure controlsand procedures 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, includingMessrs. Miller and Sabherwal, as appropriate to allow timely decisionsregarding the required disclosure.  Thedesign of any system of controls is based in part upon certain assumptionsabout the likelihood of future events. There can be no assurance that any design will succeed in achieving itsstated goal under all potential future conditions, regardless of how remote.

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**Changes in Internal Control overFinancial Reporting**

Based uponevaluation by our management, which was conducted with the participation ofMessrs. Miller and Sabherwal, there has been no change in our internalcontrol over financial reporting during the period covered by this report thathas materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting. 

**PART II.****                                                OTHERINFORMATION**

**Item 1A.****                                                  RiskFactors**

The Company has included in its Registration Statement on Form S-1 adescription of certain risks and uncertainties that could affect the Company’sbusiness, future performance or financial condition (“Risk Factors”).  Those Risk Factors are hereby incorporated inPart II, Item 1A of this Form 10-Q. 

**Item 2.****                                                           UnregisteredSales of Equity Securities and Use of Proceeds**

Effective July 5, 2006, we completed aninitial public offering of our common stock, $.001 par value, pursuant to ourRegistration Statement on Form S-1, as amended (Reg. No. 333-132860), that wasdeclared effective on June 28, 2006.  Weregistered 9,058,450 shares of our common stock at a maximum offering price of$389,513,350, all of which were sold in the offering at a per share price of$43.00 for an aggregate offering price of $389,513,350.  The Company sold 6,410,256 shares for anaggregate offering price of $275,641,008 and existing shareholders andmanagement also sold 2,648,194 shares for an aggregate offering price of$113,872,342.

Discounts and commissions to underwriterstotaled $19,475,668 (or $2.15 per share sold). Other net expenses incurred for the account of the Company in connectionwith the offering were $917,966 resulting in total expenses for the Company of$20,393,634 and net proceeds to the Company of $255,247,375.  None of the underwriting discounts andcommissions or offering expenses was incurred or paid to associates of ourdirectors or to persons holding 10% or more of our common stock or to ouraffiliates.

The managing underwriters in the offeringwere Banc of America Securities LLC, Friedman Billings Ramsey, and Goldman,Sachs & Co.

We used $164.6 million of the net proceeds tofund the repurchase of $155.0 million aggregate principal amount of our seniorsecured floating rate notes on July 13, 2006 in the tender offer described elsewherein this Quarterly Report**.**** **The remainder of thenet proceeds which totaled $90.6 million will be used to fund capitalexpenditures, to repurchase shares of our common stock and for generalcorporate purposes.

On September 18, 2006, the Company grantedConsolidated Grain and Barge Co. (“CGB”) an option to purchase up to 412,780shares of its common stock at an exercise price of $24.226 per share (the “CGBOption”) in connection with a definitive agreement entered into with CGB on thesame date. The option expired unexercised on September 20, 2006.

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**Item 4.****                                                           Submissionof Matters to a Vote of Security Holders**

In connection with the Tender Offer for theCompany’s Notes that is described elsewhere in this Quarterly Report, on July13, 2006 holders of $155.0 million aggregate principal amount of Notesconsented to (i) an amendment to the indenture dated as of December 17, 2004,between the Company and Wells Fargo Bank, N.A., as trustee, that among otherthings substantially eliminated most of the restrictive covenants and certainevents of default contained in the note indenture, and  (ii) the release of all of the collateralsecuring the Notes. 

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

**None**

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

(a)          Exhibits

| 10.1   |   | First Supplemental Indenture, dated as of July 14,  2006 to Indenture dated December 17, 2004 among Aventine, the guarantors  party thereto and Wells Fargo Bank, N.A., as trustee (incorporated by  reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed  on June 18, 2006).                                                                                                                                                                                     |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.2   |   | Amended and Restated Credit Agreement, dated as of  September 15, 2006, among Aventine Renewable Energy, Inc., an indirect  subsidiary of Aventine Renewable Energy Holdings, Inc., Aventine Renewable  Energy, LLC, a direct subsidiary of Aventine Renewable Energy Holdings, Inc.,  the lenders named therein and JPMorgan, as administrative agent (incorporated  by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K  filed on September 15, 2006).            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.3   |   | Amended and Restated Guaranty and Security  Agreement, dated as of September 15, 2006, among Aventine Renewable Energy,  Inc., an indirect subsidiary of Aventine Renewable Energy Holdings, Inc.,  Aventine Renewable Energy, LLC, a direct subsidiary of Aventine Renewable  Energy Holdings, Inc., the lenders named therein and JPMorgan, as collateral  agent (incorporated by reference to Exhibit 10.2 to the Company’s Current  Report on Form 8-K filed on September 15, 2006). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 31.1   |   | Certification of the Chief Executive Officer  pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 31.2   |   | Certification of the Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 32.1   |   | Certification of the Chief Executive Officer pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                      |

 

 

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#  

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

 

# **SIGNATURE**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereto dulyauthorized.
|                           | AVENTINE RENEWABLE ENERGY  HOLDINGS, INC. |
|---------------------------|-------------------------------------------|
|                      |                                      |
|                      |                                      |
| Dated: November  13, 2006 | By:                                       |   /s/ William  J. Brennan |   |
|                      | Name: William J. Brennan                  |
|                      | Title: Principal Accounting Officer       |

 

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