Table of Contents

 

 

 

**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 
| **x** | **Quarterly report pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|--------------------------------------------------------------------------------------------------------|

 

**for the quarterly period ended June 30, 2010**

 

**OR**

 
| **o** | **Transition report pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**for the transition periodfrom              to             .**

 

**COMMISSION FILE NUMBER 001-32922**

 

**AVENTINERENEWABLE ENERGY HOLDINGS, INC.**

(Exact name of registrant as specified in its charter)

 

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

 

**(309) 347-9200**

(Registrant’s Telephone Number, including Area Code)

 

Indicateby checkmark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  YES x  NO o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T(§ 232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post suchfiles.)  YES o NO o

 

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

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

 

Indicateby checkmark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). YES o NO x

 

Indicateby checkmark whether the registrant has filed all documents and reportsrequired to be filed by Sections 12, 13 or 15(d) of the SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a planconfirmed by the court. YES x NO o

 

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

 

| **Class**                      | ** ** | **Outstanding as of  August 4, 2010** |
|--------------------------------|------------|------------------------------------------------------|
| Common Stock, $0.001 Par Value |       | 7,364,393 Shares                                     |

 

 

 

----

Table of Contents

 

**FORM 10-Q**

 

**QUARTERLY REPORT**

 

**TABLE OF CONTENTS**

 
| ** ** | ** **                                                                                                                                                                                                                                                                                                                          | **Page No.** |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------|
|       | PART I                                                                                                                                                                                                                                                                                                                         | ** **        |
| ** ** | ** **                                                                                                                                                                                                                                                                                                                          | ** **        |
| Item 1.    | Financial Statements                                                                                                                                                                                                                                                                                                                |              |
|       | Condensed Consolidated Statements of Operations  (Unaudited) - Three-month periods ended June 30, 2010 (Successor) and  2009 (Predecessor), Four-month period ended June 30, 2010 (Successor),  two-month period ended February 28, 2010 (Predecessor), and six-month  period ended June 30, 2009 (Predecessor) | 1                 |
|       | Condensed Consolidated Balance Sheets — June 30,  2010 (Successor -Unaudited) and December 31, 2009 (Predecessor)                                                                                                                                                                                                    | 2                 |
|       | Condensed Consolidated Statements of Cash Flows  (Unaudited) - Four-month period ended June 30, 2010 (Successor),  two-month period ended February 28, 2010 (Predecessor), and six-month  period ended June 30, 2009 (Predecessor)                                                                                   | 3                 |
|       | Notes to Unaudited Condensed Consolidated Financial  Statements                                                                                                                                                                                                                                                                     | 4                 |
|       |                                                                                                                                                                                                                                                                                                                                |              |
| Item 2.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                                                                                         | 27                |
|       |                                                                                                                                                                                                                                                                                                                                |              |
| Item 3.    | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                                                                                                                                                         | 40                |
|       |                                                                                                                                                                                                                                                                                                                                |              |
| Item 4T.   | Controls and  Procedures                                                                                                                                                                                                                                                                                                            | 42                |
|       |                                                                                                                                                                                                                                                                                                                                |              |
|       | PART II                                                                                                                                                                                                                                                                                                                        | ** **        |
| ** ** | ** **                                                                                                                                                                                                                                                                                                                          | ** **        |
| Item 1.    | Legal Proceedings                                                                                                                                                                                                                                                                                                                   | 42                |
|       |                                                                                                                                                                                                                                                                                                                                |              |
| Item 1A.   | Risk Factors                                                                                                                                                                                                                                                                                                                        | 43                |
|       |                                                                                                                                                                                                                                                                                                                                |              |
| Item 2.    | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                                                                                        | 43                |
|       |                                                                                                                                                                                                                                                                                                                                |              |
| Item 3.    | Defaults Upon  Senior Securities                                                                                                                                                                                                                                                                                                    | 43                |
|       |                                                                                                                                                                                                                                                                                                                                |              |
| Item 4.    | Removed and Reserved                                                                                                                                                                                                                                                                                                                | 43                |
|       |                                                                                                                                                                                                                                                                                                                                |              |
| Item 5.    | Other Information                                                                                                                                                                                                                                                                                                                   | 43                |
|       |                                                                                                                                                                                                                                                                                                                                |              |
| Item 6.    | Exhibits                                                                                                                                                                                                                                                                                                                            | 44                |

 

----

Table of Contents

 

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

 

**Item 1.                    Financial Statements**

 

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

**ConsolidatedStatements of Operations (Unaudited)**

 
| ** **                                                              | ** ** | **Successor**                    | ** ** | **Predecessor**                   | ** ** | **Successor**                  | ** ** | **Predecessor**                          | ** ** | **Predecessor**                 | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------|------------|-----------------------------------|------------|--------------------------------|------------|------------------------------------------|------------|---------------------------------|------------|
| ** **                                                              | ** ** | **Three Months Ended June  30,** | ** ** | **Three Months Ended June   30,** | ** ** | **Four Months Ended June 30,** | ** ** | **Two Months  Ended February  28,** | ** ** | **Six Months  Ended June  30,** | ** ** |
| **(In  thousands except per share amounts)**                            | ** ** | **2010**                         | ** ** | **2009**                          | ** ** | **2010**                       | ** ** | **2010**                                 | ** ** | **2009**                        | ** ** |
| Net Sales                                                               |       | $                                | 96,904     |                              | $          | 118,121                        |       | $                                        | 133,878    |                            | $          | 77,675 |   | $ | 354,657 |   |
| Cost of goods sold                                                      |       | (95,451                          | )          | (118,016                          | )          | (132,766                       | )          | (66,686                                  | )          | (375,980                        | )          |
| Gross Profit                                                            |       | 1,453                            |       | 105                               |       | 1,112                          |       | 10,989                                   |       | (21,323                         | )          |
| Selling, general and administrative expenses                            |       | (9,128                           | )          | (6,950                            | )          | (14,286                        | )          | (4,608                                   | )          | (16,691                         | )          |
| Other income (expense)                                                  |       | (595                             | )          | 3                                 |       | (1,659                         | )          | (515                                     | )          | 173                             |       |
| Operating income (loss)                                                 |       | (8,270                           | )          | (6,842                            | )          | (14,833                        | )          | 5,866                                    |       | (37,841                         | )          |
| Other income (expense)                                                  |       |                             |       |                              |       |                           |       |                                     |       |                            |       |
| Income from termination of marketing agreements                         |       | —                           |       | —                            |       | —                         |       | —                                   |       | 10,176                          |       |
| Interest income                                                         |       | 14                               |       | —                            |       | 15                             |       | —                                   |       | 11                              |       |
| Interest expense                                                        |       | (2,386                           | )          | (2,281                            | )          | (3,100                         | )          | (1,422                                   | )          | (11,002                         | )          |
| Gain (loss) on derivative transactions                                  |       | 263                              |       | 30                                |       | 439                            |       | —                                   |       | 1,218                           |       |
| Other non-operating income                                              |       | 210                              |       | —                            |       | 210                            |       | —                                   |       | —                          |       |
| Income (loss) before reorganization items and  income taxes             |       | (10,169                          | )          | (9,093                            | )          | (17,269                        | )          | 4,444                                    |       | (37,438                         | )          |
| Reorganization items                                                    |       | —                           |       | (42,749                           | )          | —                         |       | (20,282                                  | )          | (42,749                         | )          |
| Gain due to plan effects                                                |       | —                           |       | —                            |       | —                         |       | 136,574                                  |       | —                          |       |
| Loss due to fresh start accounting adjustments                          |       | —                           |       | —                            |       | —                         |       | (387,655                                 | )          | —                          |       |
| Loss before income taxes                                                |       | (10,169                          | )          | (51,842                           | )          | (17,269                        | )          | (266,919                                 | )          | (80,187                         | )          |
| Income tax expense (benefit)                                            |       | (910                             | )          | (2,907                            | )          | (910                           | )          | (626                                     | )          | (6,685                          | )          |
| Net loss                                                                |       | $                                | (9,259     | )                                 | $          | (48,935                        | )          | $                                        | (16,359    | )                               | $          | (266,293 | ) | $ | (73,502 | ) |
|                                                                    |       |                             |       |                              |       |                           |       |                                     |       |                            |       |
| Loss per common share — basic                                      |       | $                                | (1.06      | )                                 | $          | (1.14                          | )          | $                                        | (1.87      | )                               | $          | (6.14 | ) | $ | (1.71 | ) |
| Basic weighted-average number of shares                                 |       | 8,585                            |       | 42,966                            |       | 8,581                          |       | 43,401                                   |       | 42,968                          |       |
|                                                                    |       |                             |       |                              |       |                           |       |                                     |       |                            |       |
| Loss per common share — diluted                                    |       | $                                | (1.06      | )                                 | $          | (1.14                          | )          | $                                        | (1.87      | )                               | $          | (6.14 | ) | $ | (1.71 | ) |
| Diluted weighted-average number of common and  common equivalent shares |       | 8,585                            |       | 42,966                            |       | 8,581                          |       | 43,401                                   |       | 42,968                          |       |

 

*The accompanying notes are an integral part of theconsolidated financial statements.*

 

1

----

Table of Contents

 

A**ventine Renewable Energy Holdings, Inc.and Subsidiaries**

**ConsolidatedBalance Sheets**

 
| ** **                                                                                                                                                                                                                                                                                                                                          | ** ** | **Successor**     | ** **  | **Predecessor**       | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                          | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
| **(In  thousands except share and per share amounts)**                                                                                                                                                                                                                                                                                              | ** ** | **2010**          | ** **  | **2009**              | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                                          | ** ** | **(Unaudited)**   | ** **  | ** **            | ** ** |
| **Assets**                                                                                                                                                                                                                                                                                                                                          | ** ** | ** **        | ** **  | ** **            | ** ** |
| Current assets:                                                                                                                                                                                                                                                                                                                                     | ** ** | ** **        | ** **  | ** **            | ** ** |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                                                           | ** ** | **$**             | **50,177**  |                  | $          | 52,585 |   |
| Accounts receivable                                                                                                                                                                                                                                                                                                                                 | ** ** | **4,027**         |        | 10,947                |       |
| Inventories                                                                                                                                                                                                                                                                                                                                         | ** ** | **19,983**        |        | 24,237                |       |
| Income taxes receivable                                                                                                                                                                                                                                                                                                                             | ** ** | **5,918**         |        | 5,796                 |       |
| Prepaid expenses and other current assets                                                                                                                                                                                                                                                                                                           | ** ** | **6,599**         |        | 7,323                 |       |
| Total current assets                                                                                                                                                                                                                                                                                                                                | ** ** | **86,704**        |        | 100,888               |       |
|                                                                                                                                                                                                                                                                                                                                                | ** ** | ** **        |        |                  |       |
| Property, plant and equipment, net                                                                                                                                                                                                                                                                                                                  | ** ** | **227,043**       |        | 589,049               |       |
| Restricted cash                                                                                                                                                                                                                                                                                                                                     | ** ** | **12,772**        |        | 7,451                 |       |
| Available for sale securities                                                                                                                                                                                                                                                                                                                       | ** ** | **3,740**         |        | 5,442                 |       |
| Other assets                                                                                                                                                                                                                                                                                                                                        | ** ** | **11,556**        |        | 9,866                 |       |
| Total assets                                                                                                                                                                                                                                                                                                                                        | ** ** | **$**             | **341,815** |                  | $          | 712,696 |   |
| ** **                                                                                                                                                                                                                                                                                                                                          | ** ** | ** **        |        |                  |       |
| **Liabilities and Stockholders’  Equity**                                                                                                                                                                                                                                                                                                      | ** ** | ** **        |        |                  |       |
| Current liabilities:                                                                                                                                                                                                                                                                                                                                | ** ** | ** **        |        |                  |       |
| Short-term borrowings                                                                                                                                                                                                                                                                                                                               | ** ** | **$**             | **—**  |                  | $          | 42,765 |   |
| Accounts payable                                                                                                                                                                                                                                                                                                                                    | ** ** | **18,709**        |        | 11,164                |       |
| Accrued payroll and benefits                                                                                                                                                                                                                                                                                                                        | ** ** | **3,644**         |        | 2,242                 |       |
| Accrued interest                                                                                                                                                                                                                                                                                                                                    | ** ** | **607**           |        | 302                   |       |
| Other current liabilities                                                                                                                                                                                                                                                                                                                           | ** ** | **6,301**         |        | 6,279                 |       |
| Total current liabilities                                                                                                                                                                                                                                                                                                                           | ** ** | **29,261**        |        | 62,752                |       |
|                                                                                                                                                                                                                                                                                                                                                |       |              |        |                  |       |
| Pre-petition liabilities subject to compromise                                                                                                                                                                                                                                                                                                      | ** ** | **—**        |        | 365,549               |       |
| Long-term debt                                                                                                                                                                                                                                                                                                                                      | ** ** | **105,000**       |        | —                |       |
| Deferred tax liabilities                                                                                                                                                                                                                                                                                                                            | ** ** | **1,425**         |        | 2,936                 |       |
| Other long-term liabilities                                                                                                                                                                                                                                                                                                                         | ** ** | **2,499**         |        | 13,927                |       |
| Total liabilities                                                                                                                                                                                                                                                                                                                                   | ** ** | **138,185**       |        | 445,164               |       |
| Stockholders’ equity:                                                                                                                                                                                                                                                                                                                          | ** ** | ** **        |        |                  |       |
| Common stock, par value $0.001 per share;  15,000,000 and 185,000,000 shares authorized as of June 30, 2010 and  December 31, 2009, respectively; 6,845,202 and 43,048,158 shares outstanding  as of June 30, 2010 and December 31, 2009, respectively, net of  21,548,640 shares held in treasury as of December 31, 2009 | ** ** | **7**             |        | 44                    |       |
| Preferred stock, 5,000,000 and 50,000,000 shares  authorized as of June 30, 2010 and December 31, 2009, respectively;  no shares issued or outstanding                                                                                                                                                                                    | ** ** | **—**        |        | —                |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                                          | ** ** | **222,449**       |        | 294,297               |       |
| Retained deficit                                                                                                                                                                                                                                                                                                                                    | ** ** | **(16,359**       | **)**       | (28,421               | )          |
| Accumulated other comprehensive income (loss), net                                                                                                                                                                                                                                                                                                  | ** ** | **(2,467**        | **)**       | 1,612                 |       |
| Total stockholders’ equity                                                                                                                                                                                                                                                                                                                     | ** ** | **203,630**       |        | 267,532               |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                                                                                                                     | ** ** | **$**             | **341,815** |                  | $          | 712,696 |   |

 

*The accompanying notes are an integral part of theconsolidated financial statements.*

 

2

----

Table ofContents

 

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

**Condensed ConsolidatedStatements of Cash Flows**

(Unaudited)

 
| ** **                                                                                  | ** ** | **Successor**                        | ** **  | **Predecessor**                         | ** ** | **Predecessor**                     | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------------------|-------------|-----------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                  | ** ** | **Four months ended  June 30,** | ** **  | **Two months ended  February 28,** | ** ** | **Six months  ended June 30,** | ** ** |
| **(In thousands)**                                                                     | ** ** | **2010**                             | ** **  | **2010**                                | ** ** | **2009**                            | ** ** |
|                                                                                        |       |                                 |        |                                    |       |                                |       |
| **Operating Activities**                                                                    |       |                                 | ** **  | ** **                              |       |                                |       |
| Net loss                                                                                    | ** ** | **$**                                | **(16,359** | **)**                                   | **$**      | **(266,293**                        | **)**      | $ | (73,502 | ) |
| Adjustments to reconcile net loss to net cash  provided by (used for) operating activities: | ** ** | ** **                           | ** **  | ** **                              |       |                                |       |
| Provision for rejected executory contracts and  leases                                      | ** ** | **—**                           | ** **  | **9,590**                               |       | 39,684                              |       |
| Pre-petition accounts payable                                                               | ** ** | **—**                           | ** **  | **—**                              |       | 40,793                              |       |
| Pre-petition accrued interest                                                               | ** ** | **—**                           | ** **  | **—**                              |       | 8,083                               |       |
| Non-cash gain due to Plan effects                                                           | ** ** | **—**                           | ** **  | **(136,574**                            | **)**      | —                              |       |
| Non-cash loss due to fresh start accounting  adjustments                                    | ** ** | **—**                           | ** **  | **387,655**                             |       | —                              |       |
| Depreciation and amortization                                                               | ** ** | **3,675**                            | ** **  | **2,795**                               |       | 8,348                               |       |
| Stock-based compensation expense                                                            | ** ** | **2,881**                            | ** **  | **277**                                 |       | 1,589                               |       |
| Deferred income tax                                                                         | ** ** | **(910**                             | **)**       | —                                  |       | 651                                 |       |
| Gain on the sale of marketing alliance investments                                          |       | —                               |        | —                                  |       | (1,000                              | )          |
| Changes in operating assets and liabilities:                                                |       |                                 |        |                                    |       |                                |       |
| Accounts receivable, net                                                                    | ** ** | **3,137**                            | ** **  | **2,560**                               |       | 41,271                              |       |
| Inventories                                                                                 | ** ** | **5,236**                            | ** **  | **1,543**                               |       | 58,143                              |       |
| Other current assets                                                                        | ** ** | **(2,386**                           | **)**       | **1,339**                               |       | —                              |       |
| Restricted cash                                                                             | ** ** | **2,512**                            | ** **  | **(7,833**                              | **)**      | —                              |       |
| Other assets                                                                                | ** ** | **(715**                             | **)**       | **—**                              |       | —                              |       |
| Accounts payable                                                                            | ** ** | **(797**                             | **)**       | **7,061**                               |       | (100,205                            | )          |
| Other current liabilities                                                                   | ** ** | **787**                              | ** **  | **341**                                 |       | (9,744                              | )          |
| Other long-term liabilities                                                                 | ** ** | **(24**                              | **)**       | **(21,981**                             | **)**      | —                              |       |
| Net cash provided by (used for) operating  activities                                       | ** ** | **(2,963**                           | **)**       | **(19,520**                             | **)**      | 14,111                              |       |
|                                                                                        |       |                                 |        |                                    |       |                                |       |
| **Investing Activities**                                                                    | ** ** | ** **                           | ** **  | ** **                              |       |                                |       |
| Additions to property, plant and equipment, net                                             | ** ** | **(21,498**                          | **)**       | **(2,086**                              | **)**      | (901                                | )          |
| Deposit on asset acquisition                                                                | ** ** | **(5,000**                           | **)**       | **—**                              |       | —                              |       |
| Proceeds from the sale of marketing alliance  investments                                   | ** ** | **—**                           | ** **  | **—**                              |       | 2,000                               |       |
| Net cash provided by (used for) investing  activities                                       | ** ** | **(26,498**                          | **)**       | **(2,086**                              | **)**      | 1,099                               |       |
|                                                                                        |       |                                 |        |                                    |       |                                |       |
| **Financing Activities**                                                                    | ** ** | ** **                           | ** **  | ** **                              |       |                                |       |
| Net repayments on revolving credit facilities                                               | ** ** | **—**                           | ** **  | **(27,765**                             | **)**      | (24,435                             | )          |
| Borrowing on debtor-in-possession debt facility                                             | ** ** | **—**                           | ** **  | **—**                              |       | 15,000                              |       |
| Repayment of debtor-in-possession debt facility                                             | ** ** | **—**                           | ** **  | **(15,000**                             | **)**      | —                              |       |
| Proceeds from issuance of senior secured notes                                              | ** ** | **—**                           | ** **  | **98,119**                              |       | —                              |       |
| Repayment of short-term note payable                                                        | ** ** | **(5,252**                           | **)**       | **—**                              |       | —                              |       |
| Repurchase of treasury shares                                                               | ** ** | **(355**                             | **)**       | **—**                              |       | —                              |       |
| Proceeds from warrants exercised                                                            | ** ** | **6**                                | ** **  | **—**                              |       | —                              |       |
| Debt issuance costs                                                                         | ** ** | **—**                           | ** **  | **(1,190**                              | **)**      | (1,876                              | )          |
| Proceeds from stock option exercises                                                        | ** ** | **—**                           | ** **  | **96**                                  |       | —                              |       |
| Net cash provided by (used for) financing  activities                                       | ** ** | **(5,601**                           | **)**       | **54,260**                              |       | (11,311                             | )          |
|                                                                                        |       |                                 |        |                                    |       |                                |       |
| Net increase (decrease) in cash and cash  equivalents                                       | ** ** | **(35,062**                          | **)**       | **32,654**                              |       | 3,899                               |       |
| Cash and cash equivalents at beginning of period                                            | ** ** | **85,239**                           | ** **  | **52,585**                              |       | 23,339                              |       |
| Cash and cash equivalents at end of period                                                  | ** ** | **$**                                | **50,177**  | ** **                              | **$**      | **85,239**                          |       | $ | 27,238 |   |

 

*The accompanying notes are an integral part of these condensedconsolidated financial statements.*

 

3

----

 

 

Table of Contents

 

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

**Notes to UnauditedCondensed Consolidated Financial Statements**

 

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

 

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

 

We have prepared theunaudited condensed consolidated financial statements included herein pursuantto the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosuresnormally included in statements prepared in accordance with accountingprinciples generally accepted in the United States (“GAAP”) have been omittedpursuant to such rules and regulations, although we believe that thedisclosures are adequate to make the information presented not misleading.  These financial statements should be read inconjunction with the financial statements and notes thereto included in our AnnualReport on Form 10-K for the year ended December 31, 2009.  As of June 30, 2010, the Company’sSummary of Critical Accounting Policies for the year ended December 31,2009, which are detailed in the Company’s Annual Report on Form 10-K, havenot changed except for the application of fresh start accounting as describedin the following paragraph.

 

On February 28, 2010,the Company applied fresh start accounting which requires assets andliabilities to be reflected at fair value. The financial information set forthin this report, unless otherwise expressly set forth or as the contextotherwise indicates, reflects the consolidated results of operations andfinancial condition of Aventine and its subsidiaries on a fresh start basis forthe period following February 28, 2010 (“Successor”), and of Aventine andits subsidiaries on a historical basis for the periods through February 28,2010 (“Predecessor”).

 

The preparation of financialstatements in conformity with GAAP 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.  Areas involving significant judgments andestimates include depreciation, income taxes, and fresh startaccounting.  Actual results could differ from those estimates.

 

The accompanying consolidatedfinancial statements for the prior period contain certain reclassifications toconform to the presentation used in the current period.  The reclassifications had no impact onstockholders’ equity, working capital, gross profit or net income.

 

Theaccompanying unaudited condensed consolidated financial statements presented herewithreflect all adjustments (consisting of only normal and recurring adjustmentsunless otherwise disclosed) which, in the opinion of management, are necessaryfor a fair presentation of the results of operations for the three-monthperiods ended June 30, 2010 and 2009, four-month period ended June 30,2010, two-month period ended February 28, 2010, and the six-month periodended June 30, 2009.  The results ofoperations for interim periods are not necessarily indicative of results to beexpected for an entire year.

 

**(2)****          ****Emergence from Reorganization Proceedings and Related Events**

 

OnApril 7, 2009 (the “Petition Date”), Aventine Renewable EnergyHoldings, Inc. and all of its direct and indirect subsidiaries(collectively, the “Debtors”), filed voluntary petitions with the United StatesBankruptcy Court for the District of Delaware (the “Bankruptcy Court”) toreorganize under Chapter 11 of the United States Code (the “Bankruptcy Code”).  On January 13, 2010, the Debtors filedthe First Amended Joint Plan of Reorganization under Chapter 11 of theBankruptcy Code dated as of January 13, 2010 (as modified, the “Plan”).  The Plan was confirmed by order entered bythe Bankruptcy Court on February 24, 2010 (the “Confirmation Date”) andbecame effective on March 15, 2010 (the “Effective Date”), the date onwhich the Company emerged from protection under Chapter 11 of the BankruptcyCode.

 

AccountingStandards Codification (“ASC”) Section 852, *Reorganizations,*which is applicable to companies in Chapter 11, generally does not change themanner in which financial statements are prepared while the 

 

4

----

Table of Contents

 

companyremains in Chapter 11.  However, ASC 852does require that the financial statements for periods subsequent to the filingof a Chapter 11 petition and prior to the Effective Date distinguishtransactions and events that are directly associated with the reorganizationfrom the ongoing operations of the business. Revenues, expenses (including professional fees), realized gains andlosses, and provisions for losses that can be directly associated with thereorganization and restructuring of the business must be reported separately asreorganization items in the consolidated statements of operations.  The consolidated balance sheet mustdistinguish pre-petition liabilities subject to compromise from both thosepre-petition liabilities that are not subject to compromise and frompost-petition liabilities.  Liabilitiesthat may be affected by the Plan must be reported at the amounts expected to beallowed, even if they may be settled for lesser amounts.  In addition, cash provided by reorganizationitems must be disclosed separately in the condensed consolidated statement ofcash flows.  ASC 852 became effective forAventine on April 7, 2009, and Aventine segregated those items as outlinedabove for all applicable reporting periods subsequent to such date through theEffective Date.

 

*Fresh Start Accounting and Selection of Convenience Date*

 

TheCompany emerged from bankruptcy on March 15, 2010. In accordance with ASC852, *Reorganizations*, the Company adoptedfresh start accounting and adjusted the historical carrying value of its assetsand liabilities to their respective fair values at the Effective Date.Simultaneously, the Company determined the fair value of its equity at theEffective Date. The Company selected an accounting convenience date proximateto the Effective Date for purposes of making the aforementioned adjustments tohistorical carrying values (the “Convenience Date”), because the activitybetween the Effective Date and the Convenience Date does not result in amaterial difference in the results. The Company selected a Convenience Date of February 28,2010. As a result, the Company recorded fresh start accounting adjustments tohistorical carrying values of assets and liabilities as of February 28,2010 using market prices, discounted cash flow methodologies based primarily onobservable market information and, to a lesser extent, on unobservable marketinformation, and other techniques. The fresh start accounting adjustments arereflected in the balance sheet at February 28, 2010 and in the statementof operations for the two months ended February 28, 2010.  The Statements of Operations for thethree-month and four-month periods ended June 30, 2010 reflect the resultsof successor operations.

 

TheCompany’s adoption of fresh start accounting results in the Company becoming anew entity as of the Effective Date, with a new capital structure, a newaccounting basis in the identifiable assets and liabilities assumed and noretained earnings or accumulated losses. The consolidated financial statementson or after March 1, 2010 are not comparable to the consolidated financialstatements prior to that date. The financial statements for the periods endedprior to February 28, 2010 do not include the effect of any changes in ourcapital structure or changes in the fair value of assets and liabilities as aresult of fresh start accounting.

 

Freshstart accounting provides, among other things, for a determination of the valueto be assigned to the equity of the emerging company as of the Effective Date.Reorganization equity value represents the Company’s estimate of the amount awilling buyer would pay for the Company’s net assets immediately after thereorganization.  This amount(approximately $219.9 million) was determined by Company management withassistance from an independent financial advisor, who developed the enterprisevalue using a combination of the following three measurement methodologies: 1)comparable public company analysis, 2) discounted cash flow analysis, and 3)precedent transactions analysis.  Thisamount was determined based, in part, on economic, competitive, and generalbusiness conditions prevailing at the time. Descriptions of the different valuation methodologies are as providedbelow.

 

Comparable Public CompanyAnalysis

 

A comparable public companyanalysis estimates value based on a comparison of the target company’sfinancial statistics with the financial statistics of public companies that aresimilar to the target company. It establishes a benchmark for asset valuationby deriving the value of “comparable” assets, standardized using a commonvariable such as revenues, earnings, cash flows and operating capacity.  The analysis includes a detailed multi-yearfinancial comparison of each company’s income statement, balance sheet, cashflow statement and operating capacity. In addition, each company’s performance, profitability, margins,leverage and business trends are also examined. Based on these analyses, a number of financial multiples and ratios arecalculated to gauge each company’s relative performance and valuation.

 

5

----

Table of Contents

 

Precedent TransactionsAnalysis

 

Precedent transactionsanalysis estimates value by examining publicly announced merger and acquisitiontransactions. An analysis of the disclosed purchase price as a multiple ofvarious operating statistics (particularly total annual production capacity inthe case of the ethanol industry) reveals industry acquisition multiples forcompanies in similar lines of businesses to the Company. These transactionmultiples are calculated based on the purchase price (including any debtassumed) paid to acquire companies that are comparable to the Debtors. Thesemultiples are then applied to the Debtors’ annual production capacity todetermine the total enterprise value or value to a potential buyer.

 

Discounted Cash FlowApproach

 

The discounted cash flow (“DCF”)valuation methodology relates the value of an asset or business to the presentvalue of expected future cash flows to be generated by that asset or business.The DCF methodology is a “forward looking” approach that discounts the expectedfuture cash flows by a theoretical or observed discount rate determined by calculatingthe weighted average cost of debt and equity capital (“WACC”) for publiclytraded companies that are similar to the Debtors. The expected future cashflows have two components: the present value of the projected unleveredafter-tax free cash flows for a determined period and the present value of theterminal value of cash flows (representing firm value beyond the time horizonof the financial projections).  Theprojected cash flows were discounted from the financial projections using theDebtors’ estimated WACC, and the terminal value of the Debtors was calculatedusing a per gallon multiple of operating capacity as is consistent withindustry practice.

 

In performing the ComparablePublic Company Analysis, it was determined that only one publicly availableethanol company is generally comparable to the Company.  Several ethanol producers were deemed notcomparable or not usable for the purposes of the valuation because (i) theirequity is privately held; (ii) ethanol production makes up less than 10%of sales and/or (iii) the companies are distressed.  For this reason, it was determined that thediscounted cash flow analysis and precedent transactions analysis were the mostpertinent valuation methodologies for the purpose of valuing the Company.  Accordingly, the discounted cash flowanalysis and the precedent transactions analysis were each weighted at 40% andthe comparable companies’ analysis was weighted at 20% in estimating theCompany’s enterprise value.

 

6

----

Table of Contents

 

Thebalance sheet reorganization adjustments presented below summarize the impactof the Plan and the adoption of fresh start accounting as of February 28,2010.

 

**AVENTINE RENEWABLE ENERGY HOLDINGS, INC. ANDSUBSIDIARIES**

**REORGANIZED CONDENSED CONSOLIDATED BALANCE SHEET**

 
| ** **                                      | ** ** | **February 28, 2010** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | ** **            | ** ** | **Reorganization** | ** ** | **Fresh Start** | ** ** | ** ** | ** ** |
| **(In  thousands)**                             | ** ** | **Predecessor**       | ** ** | **Adjustments****(1)** | ** ** | **Adjustments** | ** ** | **Successor** | ** ** |
| **ASSETS**                                      |       |                  |       |   |   |   |   |   |   |
| Current assets:                                 |       |                  |       |   |   |   |   |   |   |
| Cash and cash equivalents                       |       | $                     | 66,866     |   | $ | 18,373 | (2) | $ | — |   | $ | 85,239 |   |
| Accounts receivable                             |       | 8,163                 |       | (1,000 | )(3) | — |   | 7,163 |   |
| Inventories                                     |       | 22,694                |       | — |   | 2,526 | (12) | 25,220 |   |
| Income taxes receivable                         |       | 5,975                 |       | — |   | — |   | 5,975 |   |
| Prepaid expenses and other current assets       |       | 5,423                 |       | (1,210 | )(4) | — |   | 4,213 |   |
| Total current assets                            |       | 109,121               |       | 16,163 |   | 2,526 |   | 127,810 |   |
|                                            |       |                  |       |   |   |   |   |   |   |
| Property, plant and equipment, net              |       | 587,103               |       | 1,700 | (2) | (379,970 | )(12) | 208,833 |   |
| Restricted cash                                 |       | 7,452                 |       | 7,832 | (2) | — |   | 15,284 |   |
| Available for sale securities                   |       | 6,207                 |       | — |   | — |   | 6,207 |   |
| Other assets                                    |       | 9,860                 |       | 734 | (5) | (4,423 | )(12) | 6,171 |   |
|                                            |       |                  |       |   |   |   |   |   |   |
| Total assets                                    |       | $                     | 719,743    |   | $ | 26,429 |   | $ | (381,867 | ) | $ | 364,305 |   |
|                                            |       |                  |       |   |   |   |   |   |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**  |       |                  |       |   |   |   |   |   |   |
| CURRENT LIABILITIES:                            |       |                  |       |   |   |   |   |   |   |
| Short-term borrowings                           |       | $                     | 42,765     |   | $ | (37,513 | )(2),(6) | $ | — |   | $ | 5,252 |   |
| Accounts payable                                |       | 16,588                |       | 1,637 | (7) | 1,281 | (12) | 19,506 |   |
| Accrued liabilities                             |       | 2,327                 |       | — |   | — |   | 2,327 |   |
| Other current liabilities                       |       | 6,837                 |       | — |   | — |   | 6,837 |   |
| Total current liabilities                       |       | 68,517                |       | (35,876 | ) | 1,281 |   | 33,922 |   |
|                                            |       |                  |       |   |   |   |   |   |   |
| Pre-petition liabilities subject to compromise  |       | 358,790               |       | (358,790 | )(9) | — |   | — |   |
| Long-term debt                                  |       | —                |       | 98,119 | (2) | 6,881 | (12) | 105,000 |   |
| Deferred tax liabilities                        |       | 2,936                 |       | — |   | — |   | 2,936 |   |
| Other long-term liabilities                     |       | 31,069                |       | (28,545 | )(10) | — |   | 2,524 |   |
| Total liabilities                               |       | 461,312               |       | (325,092 | ) | 8,162 |   | 144,382 |   |
|                                            |       |                  |       |   |   |   |   |   |   |
| STOCKHOLDERS’ EQUITY                       |       |                  |       |   |   |   |   |   |   |
| Common stock                                    |       | 44                    |       | (37 | )(11) | — |   | 7 |   |
| Additional paid-in capital                      |       | 294,670               |       | (74,754 | )(11) | — |   | 219,916 |   |
| Retained earnings (deficit)                     |       | (38,657               | )          | 426,312 | (11) | (387,655 | )(13) | — |   |
| Accumulated other comprehensive income          |       | 2,374                 |       | — |   | (2,374 | )(13) | — |   |
| Total shareholders’ equity (deficit)       |       | 258,431               |       | 351,521 |   | (390,029 | ) | 219,923 |   |
|                                            |       |                  |       |   |   |   |   |   |   |
| Total liabilities and stockholders’ equity |       | $                     | 719,743    |   | $ | 26,429 |   | $ | (381,867 | ) | $ | 364,305 |   |

 

7

----

Table of Contents

 

----

ExplanatoryNotes

 

(1) Represents amounts recorded on the Effective Date for the implementation of thePlan, including the settlement of liabilities subject to compromise and relatedpayments, the issuance of new debt and repayment of old debt, distributions ofcash and new shares of common stock, and the cancellation of Predecessor’scommon stock.

 

(2) Cash effects of the Plan:

 
| Proceeds from Issuance of senior secured notes                                                                                                                                                                                                                            |   | $       | 98,119 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|
| Payment of principal on secured revolving credit  facility                                                                                                                                                                                                                |   | (27,765 | )      |
| Payment of interest and fees on secured revolving  credit facility                                                                                                                                                                                                        |   | (206    | )      |
| Payment of principal on debtor-in-possession debt  facility                                                                                                                                                                                                               |   | (15,000 | )      |
| Payment of interest on debtor-in-possession debt  facility                                                                                                                                                                                                                |   | (96     | )      |
| Payment of secured claims to Kiewit Energy Company  on expansion projects at Aurora, NE and Mt. Vernon, IN                                                                                                                                                           |   | (17,931 | )      |
| Represents payment to Applied Process Technology  International LLC for license agreements which provide the Company with all  of the rights to the Delta-T Technology necessary to construct and operate  the ethanol expansion facilities at Aurora West and Mt. Vernon |   | (1,700  | )      |
| Fund additional restricted cash                                                                                                                                                                                                                                           |   | (7,832  | )      |
| Payments of priority and other secured claims and  cure amounts                                                                                                                                                                                                           |   | (4,876  | )      |
| Payment of professional fees                                                                                                                                                                                                                                              |   | (4,340  | )      |
|                                                                                                                                                                                                                                                                      |   |    |   |
| Net change in cash and cash equivalents                                                                                                                                                                                                                                   |   | $       | 18,373 |   |

 

Thisentry records the proceeds from the issuance of senior secured notes and thepayment of certain bankruptcy obligations in accordance with thePlan.  Cash of $7.8 million reclassified to restricted cashrepresents amounts held in escrow accounts pending final resolution from the BankruptcyCourt.

 

(3) The Company set-off $1.0 million of receivables from a certain customer against$1.7 million of payables due to the same counterparty, resulting in a netpayout of $0.7 million to the customer/vendor, as discussed further in footnote(7) below.

 

(4) Represents the write-off of the prepaid directors and officers insurancebalance for the predecessor company of $1.6 million, plus $0.3 millionreclassification of debt issuance costs related to the issuance of the seniorsecured notes and the new secured revolving credit facility to Other Assets,offset by the addition of a deposit on title insurance pertaining to the AuroraWest expansion facility of $0.7 million

 

(5) Represents the $0.7 million of debt issuance costs pertaining to the seniorsecured notes and the new secured revolving credit facility, of which $0.3million was reclassified from Prepaid Expenses and Other Current Assets.

 

(6) As noted above in explanatory note (2), the Company paid in full the $27.8million pre-petition secured revolving credit facility and the $15.0 milliondebtor-in-possession loan, along with $0.3 million representing all respectiveaccrued interest on said loans, in accordance with the Plan. Offsetting thesereductions in debt, the Company issued a $5.3 million note payable due toKiewit Energy as partial satisfaction of Kiewit Energy’s secured claim on theAurora West ethanol expansion facility.

 

(7) The increase consisted of $1.6 million of accrued priority, secured, and cureamounts not yet paid to claimants, $0.7 million of accrued Class 7convenience claims also not yet paid to claimants, the $1.0 million accruedprofessional fee payable to a court-appointed financial advisor, all of whichwas offset by a $1.7 million reduction in payable due to a certain vendor/customeras discussed more thoroughly in footnote (3) above.

 

8

----

Table of Contents

 

(8) Reconciliation of enterprise value to determination of equity:

 
| Total enterprise value                                      |   | $        | 240,000 |   |
|-------------------------------------------------------------|--------|----------|---------|--------|
| Successor company cash balance at  February 28, 2010   |   | 85,239   |    |
| Accrued plan effects payments                               |   | (5,348   | )       |
| Kiewit note                                                 |   | (5,252   | )       |
| Restricted cash available upon emergence                    |   | 10,284   |    |
| Fair value of senior secured notes due  March 15, 2015 |   | (105,000 | )       |
|                                                        |   |     |    |
| Total shareholder’s equity                             |   | $        | 219,923 |   |

 

(9) Representsthe disposition of liabilities subject to compromise:

 
| Liabilities subject to compromise discharged at  emergence:                              |   |    |    |
|------------------------------------------------------------------------------------------|--------|---------|---------|
| Accrued interest                                                                         |   | $       | 6,134   |   |
| 10% senior unsecured notes due 2017                                                      |   | 117,897 |    |
| Class 6 General Unsecured Claims                                                    |   | 18,637  |    |
| Class 7 Convenience Claims                                                          |   | 1,302   |    |
|                                                                                     |   | $       | 143,970 |   |
|                                                                                     |   |    |    |
| Liabilities subject to compromise paid in cash or  settled via equity share distribution |   |    |    |
| Accrued interest on Notes (equity shares)                                                |   | $       | 9,366   |   |
| 10% senior unsecured notes due 2017 (equity  shares)                                     |   | 182,103 |    |
| Class 6 General Unsecured Claims (equity  shares)                                   |   | 28,454  |    |
| Class 7 Convenience Claims (paid or accrued  for payment)                           |   | 701     |    |
|                                                                                     |   | $       | 220,624 |   |
|                                                                                     |   |    |    |
| Unamortized issuance costs of 10% senior unsecured  note                                 |   | $       | (5,804  | ) |
|                                                                                     |   |    |    |
| Total Disposition of Liabilities Subject to  Compromise                                  |   | $       | 358,790 |   |

 

(10) Due to the payment of priority and secured claims and cure amounts inaccordance with the Plan, the Company recorded a $28.5 million reduction inother long-term liabilities under Plan Effects as follows:

 
| Changes in Other Long-Term Liabilities                                                              |   |   |   |
|-----------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                                                |   |   |   |
| Partial settlement of the Kiewit Aurora West  Secured Claim                                         |   | $      | 10,000 |   |
| Payment in full of Kiewit Mt. Vernon Secured Claim                                                  |   | 7,931  |   |
| Issuance of a short-term Kiewit Note as partial  settlement of the Kiewit Aurora West Secured Claim |   | 5,252  |   |
| Payment of Collateral for Public Utility Mt.  Vernon Lien                                           |   | 1,894  |   |
| Reclassification of Unpaid Priority, Secured, and  Cure Amounts to Accounts Payable                 |   | 1,582  |   |
| Payment of Employee-related Priority  Administrative Claims                                         |   | 937    |   |
| Payment of Cure Amounts for Assumed Contracts                                                       |   | 420    |   |
| Payments of Other Secured Claims                                                                    |   | 333    |   |
| Payment of Other Priority Administrative Claims  Payments                                           |   | 196    |   |
| Total                                                                                               |   | $      | 28,545 |   |

 

9

----

 

 

 

Table of Contents

 

(11)  PlanEffects adjustments to Stockholder’s Equity include the following:

 

·      Gain due toplan effects in the first quarter of 2010 of $136.6 million related toimplementation of the Plan consisted of $144.0 million of liabilities subjectto compromise which were discharged upon emergence less $5.8 million ofunamortized debt issuance costs on the 10% senior unsecured notes and $1.6million related to the write-off of Predecessor prepaid directors and officerinsurance.

 

·      Elimination ofpredecessor equity balances comprised of:

 

·      common stock of$44 thousand,

·      additionalpaid-in capital of $294.7 million

 

·      Issuance ofsuccessor common stock comprised of:

 

·      common stock of$7 thousand

·      additionalpaid-in capital of $219.9 million

 

·      Adjustments to retainedearnings of $426.3 million resulting from the net impact of all other planeffects.

 

(12)  Thesignificant assumptions related to adjusting our assets and liabilities to fairvalue in connection with fresh start accounting include the following:

 

*Cash, Accounts Receivable,Prepaid Assets and Other Current Assets, Accrued Liabilities, and Other CurrentLiabilities* - Weevaluated the fair value of financial instruments represented in current assetsand current liabilities, including cash, accounts receivable, prepaid assetsand other current assets, accrued liabilities, and other currentliabilities.  Based upon our evaluations,we concluded that the carrying value approximates fair value of these financialinstruments due to their short maturities or variable-rate nature of therespective balances.

 

*Restricted Cash, and OtherLong-Term Liabilities* -We evaluated the fair value of restricted cash and other long-termliabilities.  The restricted cashbalances are held in interest-bearing accounts and we therefore concluded thatthe carrying value approximates fair value. The other long-term liabilities principally represent companyobligations related to pension and retiree medical costs.  Such liabilities are calculated using variousassumptions including an assumed discount rate which we believe is reasonable,and we therefore concluded that carrying value of such long-term liabilitiesapproximates fair value.

 

*Inventories* — Inventories consist primarily of agricultural andenergy-related commodities including corn, ethanol, and coal.  The fair value of these commodities wasdetermined through reference to prices that were publicly available at thetime, as adjusted for physical location.

 

*Property, plant and equipment*— Property,plant and equipment was valued at fair value of approximately $208.8 million asof February 28, 2010.  The Company determined fair value withthe assistance of an independent valuation firm.  In establishing fair value for the vastmajority of the Company’s property, plant and equipment, the cost approach wasutilized. The cost approach considers the amount required to replace an assetby constructing or purchasing a new asset with similar utility, then adjuststhe value in consideration of all forms of depreciation as of the appraisaldate as described below:

 

·      Physical depreciation — theloss in value or usefulness attributable solely to use of the asset andphysical causes such as wear and tear and exposure to the elements.

·      Functional obsolescence — aloss in value is due to factors inherent in the asset itself and due to changesin technology, design or process resulting in inadequacy, overcapacity, lack offunctional utility or excess operating costs.

·      Economic obsolescence — lossin value by unfavorable external conditions such as economics of the industryor geographic area, or change in ordinances.

 

10

----

Table of Contents

 

Thecost approach relies on management’s assumptions regarding current material andlabor costs required to rebuild and repurchase significant components of ourproperty, plant and equipment along with assumptions regarding the age andestimated useful lives of our property, plant and equipment.

 

*Other Assets* — Other assets include a long-term deposit forutilities against which the Company may apply certain future natural gastransportation charges.  The fair valueof this deposit was determined based upon a discounted cash flow model forwhich the significant inputs include the Company’s estimated purchase timingand amount of natural gas, and the discount rate estimated to be 13%.  If the Company had applied a discount rate of1% higher or lower, the fair value of the asset would have decreased orincreased by $168 thousand or $177 thousand, respectively.

 

*Accounts Payable* — Accounts payable include an estimated liabilityassociated with an off-market coal purchase contract which continues throughout2010.  The fair value of this contractwas determined through reference to coal prices that were publicly available atthe time, as adjusted for physical location. This liability will be amortized to income as the related coal purchasesaffect the cost of production.  For otheraccounts payable items, we evaluated such liabilities to determine fair valueand concluded that the carrying value approximates fair value of thesefinancial instruments due to their short maturities or variable-rate nature ofthe respective balances.

 

*Long-Term Debt* — Long-term debt was valuedat fair value with the assistance of an independent valuation firm based on ananalysis of market interest rates for guideline companies with similar debt andterms, interest rates for companies recently emerged from bankruptcy, andinterest rates based on a synthetic debt rating.  Based on this analysis, we determined that arange of market interest rate for our $105 million of senior secured notes wouldbe from 11.5% to 14.5%.  Based on thestated rate of the senior secured notes of 13% combined with the option to paya portion of the interest in kind, we deemed the fair value to be the facevalue of the notes of $105 million.  Ifthe interest rate was 1% higher or lower, the fair value of the debt would haveincreased or decreased by $1.2 million respectively.

 

Allfresh start adjustments noted above represent non-recurring fair valuemeasurements and have been treated as non-cash adjustments in the consolidatedstatement of cash flows.

 

(13)  Adjustments required in order to reportassets and liabilities at fair value under fresh start accounting resulted in apre-tax charge of $387.7 million, which we reported as a loss due to freshstart accounting adjustments in the consolidated statement of operations forthe two months ending February 28, 2010.

 

Inaddition, we eliminated the balance of accumulated other comprehensive gains(net of losses) totaling $2.4 million, which we classified as a loss withinreorganization items in the consolidated statement of operations for the twomonths ending February 28, 2010.

 

**(3)****          ****RecentAccounting Pronouncements**

 

InJanuary 2010, the Financial Accounting Standards Board (“FASB”) issuedAccounting Standards Update (“ASU”) 2010-06, *FairValue Measurements and Disclosures*, which adds new disclosurerequirements for transfers into and out of Levels 1 and 2 in the fair valuehierarchy and additional disclosures about purchases, sales, issuances, andsettlements relating to Level 3 fair value measurements.  This ASU also clarifies existing fair valuedisclosures about the level of disaggregation about inputs and valuationtechniques used to measure fair value. The ASU is effective for the Company asof January 1, 2010, except for the requirement to provide the Level 3activity on a gross basis, which is effective as of January 1, 2011. Asthe new guidance only pertained to disclosures, it had no impact on ourconsolidated financial position, results of operations or cash flows uponadoption.  See Notes 2 and 10 for furtherdiscussion of fair value measurements.

 

InFebruary 2010, the FASB issued authoritative guidance to define SEC filerwithin the FASB Accounting Standards Codification and eliminate the requirementfor a SEC filer to disclose the date through which subsequent events have beenevaluated in order to remove potential conflicts with current SECguidance.  We adopted the FASB guidanceon the date of issuance, February 24, 2010. As the new guidance onlypertained to disclosures, it 

 

11

----

Table of Contents

 

hadno impact on our consolidated financial position, results of operations or cashflows upon adoption.   See Note 24 forfurther discussion.

** **

**(4)****          ****Inventories**

 

Inventoriesare as follows:

 
| ** **              | ** ** | **Successor**           | ** ** | **Predecessor**             | ** ** |
|-------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **(In thousands)** | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
| ** **              | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Finished products       | ** ** | **$**                   | **14,419** |                        | $          | 16,409 |   |
| Work-in-process         | ** ** | **1,911**               |       | 2,430                       |       |
| Raw materials           | ** ** | **2,308**               |       | 2,938                       |       |
| Supplies                | ** ** | **1,345**               |       | 2,460                       |       |
| Totals                  | ** ** | **$**                   | **19,983** |                        | $          | 24,237 |   |

 

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

 

Prepaidexpenses and other current assets are as follows:

 
| ** **               | ** ** | **Successor**           | ** ** | **Predecessor**             | ** ** |
|--------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **(In thousands)**  | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
| * *                 | * *   | * *                | * *   | * *                    | * *   |
| Prepaid insurance        | ** ** | **$**                   | **1,988**  |                        | $          | 3,257 |   |
| Prepaid inventory        | ** ** | **1,225**               |       | 1,197                       |       |
| Prepaid benefits         | ** ** | **615**                 |       | 279                         |       |
| Prepaid utility deposits | ** ** | **926**                 |       | 926                         |       |
| Other prepaid expenses   | ** ** | **697**                 |       | 778                         |       |
| Other current assets     | ** ** | **1,148**               |       | 886                         |       |
| Totals                   | ** ** | **$**                   | **6,599**  |                        | $          | 7,323 |   |

 

**(6)****          ****Short-termborrowings**

 

Thefollowing table summarizes the Company’s short-term borrowings:

 
| ** **                                                  | ** ** | **Successor**           | ** ** | **Predecessor**             | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **(In thousands)**                                     | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|                                                        |       |                    |       |                        |       |
| Secured revolving credit facility with JPMorgan  Chase Bank | ** ** | **$**                   | —     |                        | $          | 27,765 |   |
| Debtor-in-possession debt facility                          |       | —                  |       | 15,000                      |       |
| Senior secured revolving credit facility with PNC  Bank     |       | —                  |       | —                      |       |
| Note payable — Kiewit                                  |       | —                  |       | —                      |       |
| Total short-term borrowings                                 | ** ** | **$**                   | —     |                        | $          | 42,765 |   |

 

*Secured Revolving Credit Facility with JPMorgan Chase Bank*

 

Asof December 31, 2009, $9.6 million in letters of credit and $27.8 millionin revolving loans were outstanding under our pre-petition amended securedrevolving credit facility with JPMorgan Chase Bank, N.A., as administrativeagent and a lender.  As a result of the bankruptcy proceedings, all thecommitments under the Company’s pre-petition amended secured revolving creditfacility automatically terminated, and the principal of the loans and thereimbursement obligations then outstanding, together with accrued interestthereon and any unpaid fees and all other obligations of the borrowers accruedunder the applicable loan documents, became immediately due and payable,subject to the automatic stay provisions of Section 362 of the BankruptcyCode.  As a result, there was no longer any liquidity available to usunder the pre-petition amended secured revolving credit facility.  

 

12

----

Table of Contents

 

Amountsowed at December 31, 2009 under the Company’s pre-petition amended securedrevolving credit facility were not included in “pre-petition liabilitiessubject to compromise” as the secured debt was adequately collateralized. The pre-petition amended secured revolving credit facility was collateralizedby a first security lien on essentially all of the Company’s assets, except forassets of the Mt. Vernon facility.  The Company continued to accrue andpay interest on this credit facility in accordance with the Bankruptcy Court’sfinal debtor-in-possession (“DIP”) financing order.  As ofDecember 31, 2009, the Company held a restricted cash account totaling$7.0 million providing collateral protection to the pre-petition lenders forcertain outstanding letters of credit issued under this facility as providedfor in a stipulation agreement among the Company, its pre-petition securedlenders, and the lenders under the Debtors’ post-petition debtor in possessioncredit facility (the “DIP Lenders”).

 

Priorto the Petition Date, borrowings on the pre-petition amended secured revolvingcredit facility generally bore interest, at our option, at the following rates(i) the Eurodollar rate or the LIBO rate plus a margin of 4.5%, with aLIBO rate minimum of 3%, or (ii) the greater of the prime rate or thefederal funds rate plus 0.50% (with a minimum rate of LIBOR plus 2.25%), plus amargin of 3.25%.  In addition, the following fees were also applicable: anunused commitment fee of 0.50% on unused borrowing availability, an outstandingletters of credit fee of 4.625%, and administrative and legal costs.

 

Effectivewith the Petition Date, the interest rate on the pre-petition amended securedrevolving credit facility reverted to a default rate of 10.5% per annum, whilefees for outstanding letters of credit reverted to a default rate of 6.625% perannum.  Accrued interest and other fees were paid monthly.

 

Thebalances owed on this credit facility were paid in full on the EffectiveDate.  At June 30, 2010, the Companyhad $6.3 million in letters of credit outstanding as issued by the pre-petitionlenders.  The $6.3 million outstandingletters of credit were collateralized by $7.8 million in a restricted cashaccount.

 

*Debtor-in-possession Credit Facility*

 

OnApril 7, 2009, the DIP Lenders entered into a DIP term sheet for a $30million Debtor-in-Possession Credit Facility (the “DIP Facility”) with theDebtors.

 

Asof December 31, 2009, the Company had drawn $15 million of its $30 millionDIP Facility.  The DIP Facility and the Final DIP Order provided for afirst priority term loan in a maximum aggregate principal amount of up to $30million.  Proceeds of the DIP Facility could be used, among other things,to (i) fund the working capital and general corporate needs of the Companyand the costs of the bankruptcy proceedings in accordance with an approvedbudget, and (ii) provide adequate protection, in accordance with the termsof the DIP Facility, to the pre-petition agent and pre-petition lenders underthe Company’s existing pre-petition amended secured revolving creditfacility.  The DIP Facility bore interest at 16.5%.  The maturitydate of the DIP Facility was April 6, 2010, or upon the occurrence ofcertain pre-defined events including emergence from bankruptcy.  The DIPFacility was secured by a super-priority administrative expense claim on ourassets.  As of December 31, 2009, the Company was in compliance withthe terms of the DIP Facility.  The Company accrued and paid interestexpense on this DIP Facility in accordance with the Bankruptcy Court’s FinalDIP Order.

 

Inaccordance with the terms of the Plan, the balances owed on the DIP Facilitywere paid in full on the Effective Date.

 

*Senior Secured Revolving Credit Facility with PNC Bank*

 

Pursuantto the Plan, on the Effective Date, the Company and its subsidiaries, asborrowers, entered into a Revolving Credit and Security Agreement (the “RevolvingCredit Agreement”) with PNC Bank, National Association, as lender and as agent(“PNC”), providing for a $20 million revolving credit facility (the “RevolvingFacility”).  Amounts under the RevolvingFacility may be borrowed, repaid and reborrowed with all amounts outstandingdue and payable on March 14, 2013. The maximum amount outstanding under the Revolving Facility is limitedby the amount of eligible receivables and eligible inventory of theborrowers.  The Revolving CreditAgreement contains mandatory prepayment requirements in certain circumstancesupon the sale of certain collateral, 

 

13

----

Table of Contents

 

subjectto the ability to reborrow revolving advances. Termination of the Revolving Facility is subject to a prepayment premiumif terminated more than 90 days prior to the third anniversary of the RevolvingFacility.

 

Amountsoutstanding under the Revolving Facility bear interest at a floating rate equalto, at the option of the Company, the alternate base rate (approximates FedFunds Open Rate plus 0.5%) plus 3.00% or the Eurodollar rate plus 6.00%.  The Company will pay a commitment fee of1.00% per annum for unused committed amounts under the Revolving Facility.  Interest is due monthly in arrears withrespect to alternate base rate loans and at the end of each interest periodwith respect to Eurodollar rate loans. For Eurodollar rate loans with interest periods greater than threemonths, interest is payable every three months from the first day of suchinterest period and on the last day of such interest period.

 

Upto $12 million of the Revolving Facility may be applied to letters ofcredit.  Issued letters of credit reduceavailability under the Revolving Facility. If issued and outstanding letters of credit under the Revolving Facilityexceed the borrowing base of eligible receivables and inventory, the Companywould be required to provide additional cash collateral to cover any borrowingbase shortfall.  The Company will pay afee for issued and undrawn letters of credit at 6.00% per annum of the averagedaily face amount of each outstanding letter of credit and a per annum frontingfee of 0.25% payable quarterly.

 

TheRevolving Credit Agreement contains, and the Company and its subsidiaries willbe required to comply with, customary covenants for facilities of this type, suchas (i) affirmative covenants as to maintenance of existence, compliancewith laws, preservation of collateral, environmental matters, insurance,payment of taxes, access to books and records, use of proceeds, maintenance ofcash management systems, priority of liens in favor of the lenders, maintenanceof assets and monthly, quarterly, annual and other reporting obligations, and(ii) negative covenants, including limitations on liens, additionalindebtedness, loans, guarantees, dividends, nature of business, transactionswith affiliates, investments, asset dispositions, capital expenditures, mergersand consolidations, formation of subsidiaries, accounting changes andamendments to constituent documents.

 

TheRevolving Credit Agreement includes customary events of default for facilitiesof this type, including (i) failure to pay principal, interest or otheramounts when due, (ii) breach of representations and warranties, (iii) breachof covenants, (iv) bankruptcy, (v) occurrence of a material adverseeffect, (vi) cross-default to other indebtedness, (vii) judgmentdefault, (viii) invalidity of any loan document, (ix) failure ofliens to be perfected, (x)  the occurrence of a change of ownership, (xi) lossof material licenses or permits, cessation of operations and the incurrence ofcertain ERISA liabilities.  Upon theoccurrence and continuance of an event of default, the lenders may (i) terminatetheir commitments under the Revolving Facility, (ii) accelerate therepayment of all of the Company’s obligations under the Revolving Facility, and(iii) foreclose on the collateral granted to them.

 

TheRevolving Credit Agreement grants a first priority lien (subject to certainexclusions) to PNC on the Company’s and its subsidiaries’ (i) accountsreceivable, (ii) general intangibles related to accounts receivable andinventory, (iii) intellectual property, (iv) inventory, (v) investmentproperty, (vi) instruments related to the foregoing, (vii) depositaccounts, (viii) letters of credit, (ix) money, (x) letter-of-creditrights, (xi) books and records, and (xii) all proceeds of theforegoing.

 

Inaddition to a borrowing base collateralization consisting primarily of accountsreceivable and inventories, the Revolving Facility is also collateralized by a$5.0 million restricted cash account. The Company cannot count the $5.0 million restricted cash account in itsborrowing base.

 

Totalliquidity at June 30, 2010 was $56.1 million, comprised of $50.2 millionin cash and cash equivalents and $5.9 million availability under our RevolvingFacility.  As of June 30, 2010,there were no amounts drawn against the Revolving Facility, and no outstandingletters of credit issued under our Revolving Facility.

 

*Note payable - Kiewit*

 

Pursuantto the Plan, on the Effective Date, the Company issued a note payable to KiewitEnergy Company for the principal amount of $5.3 million (the “Kiewit Note”).  The Kiewit Note bore interest at the rate of5.00% per annum, compounded semi-annually, and matured on the earlier of (a) March 17,2014 or (b) 120 days after the date 

 

14

----

Table of Contents

 

onwhich the Company’s Aurora West ethanol facility was completed and operating at90% of nameplate capacity.  Nameplatecapacity was defined as production capacity of 108 million gallons per year ofun-denatured ethanol.

 

OnApril 30, 2010 the Company paid the Kiewit Note payable to Kiewit EnergyCompany for $5.3 million.

 

**(7)****          ****Long-termdebt**

 

Thefollowing table summarizes the Company’s long-term debt:

 
| ** **                                                                | ** ** | **Successor**           | ** ** | **Predecessor**             | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **(In thousands)**                                                   | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|                                                                      |       |                    |       |                        |       |
| Senior unsecured 10% notes due April 2017                            | ** ** | **$**                   | —     |                        | $          | 300,000 |   |
| Senior secured 13% notes due March 2015                              |       | 105,000                 |       | —                      |       |
| ** **                                                                |       | 105,000                 |       | 300,000                     |       |
| Less: reclassification to pre-petition liabilities  subject to compromise |       | —                  |       | (300,000                    | )          |
| Long-term debt, net                                                       | ** ** | **$**                   | 105,000    |                        | $          | — |   |

 

*Senior Unsecured Notes*

 

Asof December 31, 2009, the Company had outstanding $300 million aggregateprincipal amount of senior unsecured notes.  The senior unsecured noteswere issued pursuant to an indenture dated as of March 27, 2007, betweenthe Company and Wells Fargo Bank, N.A., as trustee and were exchanged forregistered notes with the same terms on August 10, 2007.  The seniorunsecured notes are general unsecured obligations of the Company and itssubsidiaries.  In April 2009, Deutsche Bank National Trust Companyreplaced Wells Fargo Bank as Successor Indenture Trustee.  As a result ofthe bankruptcy proceedings, the outstanding principal amount of the seniorunsecured notes and accrued interest thereon became immediately due andpayable, and such notes were reclassified to “pre-petition liabilities subjectto compromise” (see Note 12).  The Company discontinued the accrual ofinterest on the senior unsecured notes beyond the Petition Date.  Contractual interest expense not recordedfrom April 8, 2009 through December 31, 2009 would have totaled $21.9million.  Contractual interest expensenot recorded from January 1, 2010 through March 15, 2010 would havetotaled $6.3 million.

 

*Senior Secured Notes*

 

Pursuantto the Plan, on the Effective Date, the Company issued and sold an aggregate of$105 million principal amount of 13% senior secured notes due 2015 (the “Notes”).  The Notes were issued under an indenture (the“Indenture”) dated as of the Effective Date among the Company, each of theCompany’s direct and indirect wholly-owned subsidiaries, as guarantors (the “Guarantors”),and Wilmington Trust FSB, as trustee (in such capacity, the “Trustee”) andcollateral agent (in such capacity, the “Collateral Agent”), in a privatetransaction that was not subject to the registration requirements of theSecurities Act of 1933, as amended (the “Securities Act”).  The Notes accrue interest at a rate of 13%for cash interest payments and 15% if the Company elects paid-in-kind (“PIK”)interest payments.  The Company mayelect, prior to each interest payment date, to make each interest payment onthe Notes (i) entirely in cash or (ii) 8/15 in cash and 7/15 in PIKinterest.  The Notes are fully andunconditionally guaranteed by the Guarantors. The Company will pay interest on the Notes quarterly in arrears on March 15,June 15, September 15 and December 15 of each year, starting on June 15,2010. The Notes mature on March 15, 2015. The Indenture permits the Company to issue additional Notes from time totime up to an aggregate principal amount of $50 million.  The Company will use the net proceeds from theissuance of the Notes to fund payments required to be made pursuant to thePlan, and for working capital and general corporate purposes.

 

TheNotes and the guarantees of the Guarantors are secured by a first-priority lienon substantially all of the Company’s and the Guarantors’ assets (with certainexceptions) and by a second-priority lien on the Company’s and the Guarantors’assets that are subject to the first-priority lien granted under the RevolvingFacility, as described in Note 6.

 

15

----

Table of Contents

 

TheIndenture contains various covenants that, subject to certain exceptions, amongother things, limit or restrict the Company’s (and, in certain cases, theGuarantors’ or the Company’s restricted subsidiaries’) ability to (i) incuror assume additional debt or provide guarantees in respect of obligations ofother persons, (ii) issue convertible stock and  preferred stock, (iii) pay dividends ordistributions or redeem or repurchase capital stock, (iv) prepay, redeemor repurchase debt, (v) make loans and investments, (vi) incurcertain liens, (vii) impose limitations on dividends, loans or assettransfers from its subsidiaries, (viii) sell or otherwise dispose ofassets, including capital stock of its subsidiaries, (ix) consolidate ormerge with or into, or sell substantially all of its assets to, another person,(x) enter into transactions with affiliates, and (xi) impair the securityinterest in the collateral securing the Notes.

 

Ifa change of control of the Company occurs, each holder of Notes will have theright to require the Company to repurchase all or any part (equal to $2thousand or an integral multiple of $1 thousand in excess of $2 thousand) ofthat holder’s Notes for an amount in cash equal to 101% of the aggregateprincipal amount of Notes repurchased plus accrued and unpaid interest on theNotes repurchased to the date of repurchase.

 

TheCompany must offer to repurchase the Notes at 100% of the principal amount ofthe Notes repurchased plus accrued and unpaid interest on the Notes repurchasedto the date of repurchase if the aggregate sum of proceeds received by theCompany from certain assets sales and events of loss and that are not usedpursuant to the terms of the Indenture exceeds $5 million.

 

TheCompany may redeem the Notes in whole or in part prior to their maturity datefor a premium to the outstanding principal amount, as provided in theIndenture.

 

TheIndenture also provides for customary events of default, such as (i) failureto make payments when due, (ii) noncompliance with covenants, and (iii) occurrenceof certain bankruptcy proceedings.   Ifan event of default occurs and is continuing, the Trustee or the holders of 25%in aggregate principal amount of the outstanding Notes may accelerate paymentof the principal of, and any accrued interest on, the Notes.   If an event of default occurs and iscontinuing or if the Company or the Guarantors do not comply with certain oftheir obligations under the registration rights agreement, interest on theNotes will accrue at an additional 2% per annum.

 

TheNotes and the guarantees rank equally in right of payment with all of theCompany’s and the Guarantors’ existing and future senior indebtedness,including indebtedness incurred under the Revolving Credit Agreement (see Note6), and senior to all of the Company’s and the Guarantors’ existing and futuresubordinated indebtedness.

 

Thefollowing is a schedule of required debt payments due during each of the nextfive years and thereafter, as of June 30, 2010:

 
| **(In thousands)**       | ** ** | **June 30** | ** **  |
|-------------------------------|------------|------------------|-------------|
| * *                      | * *   | * *         | * *    |
| 2011                          | ** ** | **$**            | **—**  | ** ** |
| 2012                          | ** ** | **—**       | ** **  |
| 2013                          | ** ** | **—**       | ** **  |
| 2014                          | ** ** | **—**       | ** **  |
| 2015                          | ** ** | **105,000**      | ** **  |
| Total long-term debt payments | ** ** | **$**            | **105,000** | ** ** |

 

16

----

Table ofContents

 

**(8)****          ****OtherCurrent Liabilities**

 

Othercurrent liabilities are as follows:

 
| ** **                                                 | ** ** | **Successor**           | ** ** | **Predecessor**             | ** ** |
|------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **(In thousands)**                                    | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
| * *                                                   | * *   | * *                | * *   | * *                    | * *   |
| Deferred revenue                                           | ** ** | **$**                   | **4,647**  |                        | $          | 4,513 |   |
| Accrued sales tax                                          | ** ** | **10**                  |       | 10                          |       |
| Current portion of deferred income taxes                   | ** ** | **601**                 |       | —                      |       |
| Accrued property taxes                                     | ** ** | **980**                 |       | 817                         |       |
| Other accrued operating expenses                           | ** ** | **63**                  |       | 65                          |       |
| Reserve for uncertain tax positions (see Note 18)          | ** ** | **—**              |       | 855                         |       |
| Accrued interest on uncertain tax positions (see  Note 18) | ** ** | **—**              |       | 19                          |       |
| Totals                                                     | ** ** | **$**                   | **6,301**  |                        | $          | 6,279 |   |

 

**(9)****          ****OtherLong-Term Liabilities**

 

Otherlong-term liabilities are as follows:

 
| ** **                                                 | ** ** | **Successor**           | ** ** | **Predecessor**             | ** ** |
|------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **(In thousands)**                                    | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
| * *                                                   | * *   | * *                | * *   | * *                    | * *   |
| Unfunded postretirement benefit obligations                | ** ** | **$**                   | **1,957**  |                        | 1,984      |   |
| Unfunded pension liability                                 | ** ** | **441**                 |       | 442                         |       |
| Pre-petition liabilities not compromised                   | ** ** | **—**              |       | 11,501                      |       |
| Reserve for uncertain tax positions (see Note 18)          | ** ** | **82**                  |       | —                      |       |
| Accrued interest on uncertain tax positions (see  Note 18) | ** ** | **19**                  |       | —                      |       |
| Totals                                                     | ** ** | **$**                   | **2,499**  |                        | $          | 13,927 |   |
|                                                            |            |                         |            |                             |            |  |  |

 

**(10)****        ****FairValue Measurements**

 

ASC 820 establishes a framework formeasuring fair value and expands disclosure about fair value measurements.  The statement requires that fair valuemeasurements be classified and disclosed in one of the following threecategories:

 
| · | Level 1: Unadjusted quoted prices  in active markets that are accessible at the measurement date for identical,  unrestricted assets or liabilities;                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Level 2: Quoted prices in markets  that are not active, or inputs which are observable, either directly or  indirectly, for substantially the full term of the asset or liability;         |
| · | Level 3: Prices or valuation  techniques that require inputs that are both significant to the fair value  measurement and unobservable (i.e., supported by little or no market  activity). |

 

17

----

 

 

Table of Contents

 

The following table summarizes thevaluation of our financial instruments which are carried at fair value by theabove ASC 820 pricing levels as of June 30, 2010:

 
| ** **                    | ** ** | **Fair Value Measurements at the Reporting Date Using** | ** ** |
|-------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| **(in thousands)**       | ** ** | **Fair Value  at  June 30,  2010**                                               | ** ** | **Quoted Prices in  Active Markets  Using Identical  Assets  (Level 1)** | ** ** | **Significant Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
|                          |       |                                                                                       |       |   |   |   |   |   |   |
| Cash and cash equivalents     |       | $                                                                                          | 50,177     |   | $ | 50,177 |   | $ | — |   | $ | — |   |
| Available for sale securities |       | $                                                                                          | 3,740      |   | $ | 3,740 |   | $ | — |   | $ | — |   |
| Derivative contracts          |       | $                                                                                          | 707        |   | $ | 707 |   | $ | — |   | $ | — |   |

 

The following table summarizes thevaluation of our financial instruments which were carried at fair value by theabove ASC 820 pricing levels as of December 31, 2009:

 
| ** **                    | ** ** | **Fair Value Measurements at the Reporting Date Using** | ** ** |
|-------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| **(in thousands)**       | ** ** | **Fair Value  at  December 31,  2009**                                           | ** ** | **Quoted Prices in  Active Markets  Using Identical  Assets  (Level 1)** | ** ** | **Significant Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
|                          |       |                                                                                       |       |   |   |   |   |   |   |
| Cash and cash equivalents     |       | $                                                                                          | 52,585     |   | $ | 52,585 |   | $ | — |   | $ | — |   |
| Available for sale securities |       | $                                                                                          | 5,442      |   | $ | 5,442 |   | $ | — |   | $ | — |   |

 

TheCompany did not hold any financial assets requiring the use of Level 2 or Level3 inputs at June 30, 2010 or December 31, 2009.

 

The Company recorded net gains of$0.3 million, $0.0 million, $0.4 million, $0.0 million, and $1.2 million,respectively, for the three-month periods ended June 30, 2010 and 2009,the four-month period ended June 30, 2010, the two-month period endedFebruary 28, 2010, and the six-month period ended June 30, 2009, under “Gain(loss) on derivative transactions” in the unaudited Condensed Consolidated Statementsof Operations for the changes in the fair value of its derivative financialinstrument positions it held during the respective periods.

 

The Company recorded a loss of $1.5million, a gain of $1.3 million, a loss of $2.5 million, a gain of $0.8 million,and a gain of $1.7 million for the three-month periods ended June 30, 2010 and2009, the four-month period ended June 30, 2010, the two-month period endedFebruary 28, 2010, and the six-month period ended June 30, 2009, respectively, under otheraccumulated comprehensive loss in the Consolidated Balance Sheet for thechanges in the fair value of its available for sale securities. At eachreporting date, the Company performs an evaluation of impaired equitysecurities to determine if the unrealized loss is other-than-temporary. Thisevaluation considers a number of factors including, but not limited to, thelength of time and extent to which the fair value has been less than cost, thefinancial condition and near term prospects of the issuer and management’sability and intent to hold the securities until fair value recovers. Theassessment of the ability and intent to hold these securities to recoveryfocuses on liquidity needs, asset / liability management objectives andsecurities portfolio objectives. Based on the results of this evaluation,management concluded that as of June 30, 2010, the unrealized lossesrelated to equity securities are temporary. 

 

The carrying value of otherfinancial instruments, including cash, accounts receivable and accounts payableand accrued liabilities approximate fair value due to their short maturities orvariable-rate nature of the respective balances.  The following table presents the otherfinancial instruments that are not carried at fair value but which require fairvalue disclosure as of June 30, 2010 and December 31, 2009.

 
| ** **                     | ** ** | **Successor**                               | ** ** | **Predecessor**                                 | ** ** |
|--------------------------------|------------|---------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                     | ** ** | **As of June 30, 2010** | ** ** | **As of December 31, 2009** | ** ** |
| ** **                     | ** ** | **Carrying Value**                     | ** ** | **Fair Value**                             | ** ** | **Carrying Value** | ** ** | **Fair Value** | ** ** |
| Senior unsecured notes payable |       | $                                           | —     |                                            | —     |   | $ | (300,000 | )) | (267,000 | ) |
| Senior secured notes payable   |       | $                                           | (105,000   | )                                               | (105,000   | ) | $ | — |   | — |   |

 

The fair values of our seniorunsecured and senior secured fixed rate notes are based upon quoted closingmarket prices at the end of the period.

 

18

----

Table of Contents

 

(**11)****        ****ReorganizationItems**

 

ASC 852, *Reorganizations,*requires separate disclosure of reorganization items such asrealized gains and losses from the settlement of pre-petition liabilities,provisions for losses resulting from the reorganization and restructuring ofthe business, as well as professional fees directly related to the process ofreorganizing the Company under Chapter 11.  The Company’s reorganizationitems for the three months ended June 30, 2009, two months ended February 28,2010, and six months ended June 30, 2009 consisted of the following:

 
| ** **                                             | ** ** | **Predecessor**                             | ** ** | **Predecessor**                               | ** ** | **Predecessor**                           | ** ** |
|--------------------------------------------------------|------------|---------------------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------|------------|
| **(in thousands)**                                     | ** ** | **Three months  ended June 30,  2009** | ** ** | **Two months  ended  February 28, 2010** | ** ** | **Six months  ended  June 30, 2009** | ** ** |
| Provision  for rejected executory contracts and leases |       | $                                           | 39,684     |                                          | $          | 9,590                                     |       | $ | 39,684 |   |
| Professional  fees directly related to reorganization  |       | 3,118                                       |       | 8,776                                         |       | 3,118                                     |       |
| Other  (a)                                             |       | (53                                         | )          | 1,916                                         |       | (53                                       | )          |
| Total  reorganization items                            |       | $                                           | 42,749     |                                          | $          | 20,282                                    |       | $ | 42,749 |   |

 

----

| (a) | Other includes new claims allowed  as cure settlements and priority claims and secured claims and other  adjustments. |
|-----|-----------------------------------------------------------------------------------------------------------------------|

 

No additional reorganizationexpense will be recognized after February 28, 2010.

 

**(12)****        ****Pre-Petition Liabilities Subjectto Compromise**

 

Pre-petition liabilities subject tocompromise refers to unsecured obligations that were accounted for under thePlan.  Generally, actions to enforce or otherwise effect payment of pre-Chapter11 liabilities were stayed.  ASC 852, *Reorganizations*,requires pre-petition liabilities that are subject to compromise to be reportedat the amounts expected to be allowed, even if they may be settled for lesseramounts.  These liabilities represent the estimated amount expected to beallowed on known or potential claims to be resolved through the Chapter 11process, and remain subject to future adjustments arising from negotiatedsettlements, actions of the Bankruptcy Court, rejection of executory contractsand unexpired leases, the determination as to the value of any potentialcollateral securing the claims, proofs of claim, or other events. Pre-petition liabilities subject to compromise also includes certain items thatmay be assumed under the Plan, and as such, may be subsequently reclassified toliabilities not subject to compromise.  At hearings held inApril 2009, the Bankruptcy Court granted final approval of many of thedebtors first day motions covering, among other things, employee obligations,supplier relations, insurance, customer relations, business operations, certaintax matters, cash management, utilities, case management and retention ofprofessionals.  Obligations associated with these matters were notclassified as pre-petition liabilities subject to compromise.

 

The Company has rejected certainpre-petition executory contracts and unexpired leases with respect to theCompany’s operations with the approval of the Bankruptcy Court.  Damagesresulting from rejection of executory contracts and unexpired leases aregenerally treated as general unsecured claims and were classified as “pre-petitionliabilities subject to compromise”.  With certain specific exceptions,holders of pre-petition claims (excluding governmental entities holdinggovernmental claims) were required to file proofs of claims by the “general bardate”, which was September 8, 2009.  A bar date is the date by whichcertain claims against the Company must be filed if the claimants wish toreceive any distribution in the Chapter 11 cases on account of suchclaims.  Creditors were notified of the general bar date and therequirement to file a proof of claim with the Bankruptcy Court. Differences 

 

19

----

Table of Contents

 

between liability amounts estimatedby the Company and claims filed by creditors are being investigated and, ifnecessary, the Bankruptcy Court will make a final determination of the allowedamount and priority of the claim.  The determination of how liabilitieswould ultimately be treated could not be made until the Bankruptcy Courtapproved the Plan.  Accordingly, the ultimate amount or treatment of suchliabilities was not determinable at December 31, 2009.  Amountsrecorded at December 31, 2009 were the Company’s best estimate of theamounts the Bankruptcy Court would allow.

 

Pre-petition liabilities subject tocompromise consisted of the following as of December 31, 2009:

 
| **(In thousands)**                                             | ** ** | **December 31,  2009** | ** ** |
|----------------------------------------------------------------|------------|-----------------------------|------------|
|                                                           |       |                        |       |
| 10%  senior unsecured notes due 2017                           |       | $                           | 300,000    |   |
| Provision  for rejected executory contracts and other accruals |       | 26,403                      |       |
| Pre-petition  accounts payable                                 |       | 29,451                      |       |
| Accrued  interest on senior unsecured notes                    |       | 15,500                      |       |
| Unamortized  issuance costs of 10% senior unsecured notes      |       | (5,805                      | )          |
| Total  pre-petition liabilities subject to compromise          |       | $                           | 365,549    |   |

 

Pre-petition liabilities subject tocompromise include trade accounts payable related to pre-petitionpurchases.  Accrued interest representsamounts due on the senior unsecured notes as of the Petition Date.  Nointerest was accrued on the senior unsecured notes subsequent to the PetitionDate because such amounts were not expected to become part of an allowed claim.

 

All pre-petition liabilitiessubject to compromise have been paid, discharged, settled, or reclassified toaccounts payable as of the Effective Date.

 

**(13)****        ****Warrants**

 

Inconnection with the Plan, holders of allowed Class 9(a) EquityInterests received warrants to purchase up to an aggregate amount of 450,000shares of common stock of the successor company at an exercise price initiallyset at $40.94 subject to adjustment exercisable through the earlier of March 15,2015, or upon the occurrence of an acceleration event.  Each warrant entitles the registered ownerthereof to purchase one share of common stock of the successor company.  During the second quarter of 2010, holders ofthe warrants exercised 144 of the warrants.

 

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

 

Pre-taxstock-based compensation expense for the Successor Company for the quarterended June 30, 2010 was $1.2 million, all of which was charged to selling,general and administrative expense.  ThePredecessor recognized $0.3 million of pre-tax stock-based compensation expense,all charged to selling, general and administrative expense for the quarterending June 30, 2009.  Stock-basedcompensation reduced earnings per share by $0.00 per basic and fully dilutedshare for the quarter ended June 30, 2009 and by $0.08 per basic and $0.08per fully diluted share for the Successor for the quarter ended June 30, 2010.

 

TheCompany granted 50 thousand stock options during the quarter ended June 30,2010 with an exercise  price of $43.75.

 

**(15)****        ****InterestExpense**

 

Thefollowing table summarizes interest expense:

 

20

----

Table of Contents

 
| ** **                                                  | ** ** | **Successor**                         | ** ** | **Predecessor**                       | ** ** | **Successor**                        | ** ** | **Predecessor**                              | ** ** | **Predecessor**                     | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|----------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                  | ** ** | **Three Months  Ended June 30,** | ** ** | **Three Months  Ended June 30,** | ** ** | **Four Months  Ended June 30,** | ** ** | **Two Months Ended  February 28,** | ** ** | **Six Months  Ended June 30,** | ** ** |
| **(in  thousands)**                                         | ** ** | **2010**                              | ** ** | **2009**                              | ** ** | **2010**                             | ** ** | **2010**                                     | ** ** | **2009**                            | ** ** |
| Interest expense — senior unsecured notes              |       | $                                     | —     |                                  | $          | 583                                  |       | $                                            | —     |                                | $          | — |   | $ | 8,083 |   |
| Interest expense — senior secured notes                |       | 3,374                                 |       | —                                |       | 4,019                                |       | —                                       |       | —                              |       |
| Interest expense — revolving credit facility           |       | —                                |       | 695                                   |       | —                               |       | 600                                          |       | 979                                 |       |
| Interest expense — debtor in possession debt  facility |       | —                                |       | 520                                   |       | —                               |       | 502                                          |       | 520                                 |       |
| Interest expense — note payable to Kiewit              |       | 34                                    |       | —                                |       | 34                                   |       | —                                       |       | —                              |       |
| Amortization of deferred debt issuance costs                |       | —                                |       | 483                                   |       | —                               |       | 313                                          |       | 1,405                               |       |
| Other                                                       |       | —                                |       | —                                |       | 69                                   |       | 7                                            |       | 15                                  |       |
| Capitalized interest                                        |       | (1,022                                | )          | —                                |       | (1,022                               | )          | —                                       |       | —                              |       |
| Interest Expense, net                                       |       | $                                     | 2,386      |                                  | $          | 2,281                                |       | $                                            | 3,100      |                                | $          | 1,422 |   | $ | 11,002 |   |

 

**(16)****        ****Retirementand Pension Expense**

 

*DefinedContribution Plans*

 

Wehave 401(k) plans covering substantially all of our employees.  We recognized expense with respect to theseplans of $0.2 million for each of the three-month periods ended June 30,2010 and 2009, $0.2 million for the four-month period ended June 30,2010,  $0.1million for the two-monthperiod ended February 28, 2010, and $0.5 million for the six month periodended June 30, 2009.  Contributionsmade under our defined contribution plans include a match, at the Company’sdiscretion, of an employee’s contribution to the plans.  On March 13, 2009, we terminated 25employees as part of a planned reduction in force.  As a result of these terminations, weaccelerated the vesting of the Company’s matching portion of these employee’spreviously unvested contributions.  As aresult of this accelerated vesting, there was no additional expense to theCompany.

 

*Qualified Retirement Plan*

 

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

 
| ** **                           | ** ** | **Successor**                         | ** ** | **Predecessor**                      | ** ** | **Successor**                          | ** ** | **Predecessor**                         | ** ** | **Predecessor**                     | ** ** |
|--------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|----------------------------------------|------------|-----------------------------------------|------------|-------------------------------------|------------|
| ** **                           | ** ** | **Three Months  Ended June 30,** | ** ** | **Three Months  Ended June 30** | ** ** | **Fourth Months  Ended June 30,** | ** ** | **Two Months  Ended February 28,** | ** ** | **Six Months  Ended June 30,** | ** ** |
| **(In thousands)**                   | ** ** | **2010**                              | ** ** | **2009**                             | ** ** | **2010**                               | ** ** | **2010**                                | ** ** | **2009**                            | ** ** |
| Service cost                         |       | $                                     | 84         |                                 | $          | 98                                     |       | $                                       | 112        |                                | $          | 56 |   | $ | 170 |   |
| Interest cost                        |       | 135                                   |       | 130                                  |       | 180                                    |       | 87                                      |       | 254                                 |       |
| Expected return on plan  assets      |       | (173                                  | )          | (102                                 | )          | (231                                   | )          | (115                                    | )          | (281                                | )          |
| Amortization of prior  service costs |       | —                                |       | 10                                   |       | —                                 |       | 7                                       |       | 21                                  |       |
| Amortization of net  actuarial loss  |       | —                                |       | 89                                   |       | —                                 |       | 14                                      |       | 89                                  |       |
| Net periodic pension cost            |       | $                                     | 46         |                                 | $          | 225                                    |       | $                                       | 61         |                                | $          | 49 |   | $ | 253 |   |

 

21

----

Table of Contents

 

*Postretirement Benefit Obligation*

 

Wesponsor a healthcare plan that provides postretirement medical benefits tocertain “grandfathered” unionized employees. The plan is contributory, with contributions required at the same rateas active employees.  Benefit eligibilityunder the plan terminates at age 65.

 

Thefollowing table summarizes the components of the net periodic costs for postretirementbenefits:

 
| ** **                           | ** ** | **Successor**                         | ** ** | **Predecessor**                       | ** ** | **Successor**                       | ** ** | **Predecessor**                         | ** ** | **Predecessor**                    | ** ** |
|--------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|-----------------------------------------|------------|------------------------------------|------------|
| ** **                           | ** ** | **Three Months Ended  June 30,** | ** ** | **Three Months Ended  June 30,** | ** ** | **Four Months Ended June 30,** | ** ** | **Two Months Ended  February 28,** | ** ** | **Six Months Ended June 30,** | ** ** |
| **(In thousands)**                   | ** ** | **2010**                              | ** ** | **2009**                              | ** ** | **2010**                            | ** ** | **2010**                                | ** ** | **2009**                           | ** ** |
| Service cost                         |       | $                                     | 17         |                                  | $          | 19                                  |       | $                                       | 22         |                               | $          | 12 |   | $ | 38 |   |
| Interest cost                        |       | 28                                    |       | 29                                    |       | 38                                  |       | 20                                      |       | 55                                 |       |
| Amortization of prior  service costs |       | —                                |       | (9                                    | )          | —                              |       | (4                                      | )          | (18                                | )          |
| Net periodic pension cost            |       | $                                     | 45         |                                  | $          | 39                                  |       | $                                       | 60         |                               | $          | 28 |   | $ | 75 |   |

 

**Patient Protection and Affordable Care Act**

 

InMarch 2010, the Patient Protection and Affordable Care Act (“PPACA”) wasenacted, potentially impacting the Company’s cost to provide healthcarebenefits to its eligible active and retired employees.  The PPACA has bothshort-term and long-term implications on benefit plan standards. Implementation of this legislation is planned to occur in phases, beginning in2010, but to a greater extent with the 2011 benefit plan year and extendingthrough 2018.

 

TheCompany is currently analyzing this legislation to determine the full extent ofthe impact of the required plan standard changes on its employee healthcareplans and the resulting costs.  While the Company anticipates that coststo provide healthcare to eligible active employees and certain retiredemployees will increase in future years, it is uncertain at this time, howsignificant the increase will be.

 

**(17)****        ****DerivativeInstruments and Hedging**

 

Our operations and cash flows aresubject to fluctuations due to changes in commodity prices.  Historically,we have used derivative financial instruments to manage commodity prices. Derivatives used are primarily commodity futures contracts, swaps and optioncontracts.

 

We apply the provisions of ASC 815,*Derivatives and Hedging*, for theCompany’s derivatives.  The Company’s futures contracts are not designatedas hedges and, therefore, are marked to market each period, with correspondinggains and losses recorded in other non-operating income.  The fair valueof these derivative instruments is recognized in other current assets orliabilities in the Consolidated Balance Sheet, net of any cash received fromthe brokers.

 

ASC 815 requires a company toevaluate contracts to determine whether the contracts are derivatives. Certain contracts that meet the literal definition of a derivative under ASC815 may be exempted from the accounting and reporting requirements of ASC 815as normal purchases or normal sales.  Normal purchases and normal salesare contracts that provide for the purchase or sale of something other than afinancial instrument or derivative instrument that will be delivered inquantities expected to be used or sold over a reasonable period in the normalcourse of business.** TheCompany elects to designate its forward purchases of corn and natural gas andforward sales of ethanol as normal purchases and normal sales under ASC815.  Accordingly, these contracts are not reflected in the consolidatedfinancial statements until execution.

 

Weare exposed to certain risks related to our ongoing business operations.  The primary risks that we manage by usingforward or derivative instruments are price risk on anticipated purchases ofcorn, natural gas and the sale of ethanol.

 

22

----

Table of Contents

 

Weare subject to market risk with respect to the price and availability of corn,the principal raw material we use to produce ethanol and ethanolby-products.  In general, rising cornprices result in lower profit margins and, therefore, represent unfavorablemarket conditions.  This is especiallytrue when market conditions do not allow us to pass along increased corn coststo our customers.  The availability andprice of corn is subject to wide fluctuations due to unpredictable factors suchas weather conditions, farmer planting decisions, governmental policies withrespect to agriculture and international trade and global demand and supply.

 

Wehave firm-price purchase commitments with some of our corn suppliers underwhich we agree to buy corn at a price set in advance of the actual delivery ofthat corn to us.  Under thesearrangements, we assume the risk of a price decrease in the market price ofcorn between the time this price is fixed and the time the corn is delivered.

 

Wesometimes enter into firm-price purchase commitments with some of our naturalgas suppliers under which we agree to buy natural gas at a price set in advanceof the actual delivery of that natural gas to us.  Under these arrangements, we assume the riskof a price decrease in the market price of natural gas between the time thisprice is fixed and the time the natural gas is delivered.  At December 31, 2009 and June 30,2010, we did not have any commitments to purchase natural gas in advance atprices other than at market.  We accountfor these transactions as normal purchases under ASC 815, and accordingly, donot mark these transactions to market.

 

Weare also subject to market risk with respect to ethanol pricing.  Our ethanol sales are priced using contractsthat can either be fixed; based upon the price of wholesale gasoline plus orminus a fixed amount; or based upon a market price at the time of shipment.  We sometimes fix the price at which we sellethanol using fixed price physical delivery contracts.  We have elected to account for thesetransactions as normal sales transactions under ASC 815, and accordingly, havenot marked these transactions to market.

 

Derivativeinstruments not designated as hedging instruments under ASC 815 at June 30,2010 and December 31, 2009 were as follows:

 
| ** **                        | ** ** | ** **                                 | ** ** | **Fair Value  (in thousands)** | ** ** |
|-----------------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|
| ** **                        | ** ** | ** **                                 | ** ** | **June 30,  2010**                  | ** ** | **December  31, 2009** | ** ** |
| **Type**                          | ** ** | **Balance Sheet Classification** | ** ** | **Successor**                            | ** ** | **Predecessor** | ** ** |
|                              |       |                                       |       |                                     |       |   |   |
| Corn and ethanol future positions |       | Other  current assets                      |       | $                                        | 707        |   | $ | — |   |
|                                   |            |                                            |            |                                          |            |  |  |  |  |

 

Therealized and unrealized effect on our condensed consolidated statement ofoperations for derivatives not designated as hedging instruments under ASC 815for the three-month periods ended June 30, 2010 and 2009, the four-monthperiod ended June 30, 2010, the two-month period ended February 28, 2010,and six-month period ended June 30, 2009 are as follows:

 
| ** **                        | ** ** | ** **                                   | ** ** | **Fair Value  (in thousands)**            | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                        | ** ** | **Statement of Operations**                  | ** ** | **Three   Months   Ended June  30, 2010** | ** ** | **Three   Months   Ended June  30, 2009** | ** ** | **Four   Months   Ended   June 30,  2010** | ** ** | **Two   Months   Ended  February  28, 2010** | ** ** | **Six Months  Ended June  30, 2009** | ** ** |
| **Type**                          | ** ** | **Classification**                           | ** ** | **Successor**                             | ** ** | **Predecessor** | ** ** | **Successor** | ** ** | **Predecessor** | ** ** | **Predecessor** | ** ** |
|                              |       |                                         |       |                                      |       |   |   |   |   |   |   |   |   |
| Corn and ethanol future positions |       | Gain  (loss) on derivative transactions |       | $                                         | 263        |   | $ | 30 |   | $ | 439 |   | $ | — |   | $ | 1,218 |   |
|                                   |            |                                              |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Anyoutstanding derivative position requires cash settlement on a daily basis.  Without such cash settlement on derivativecontracts, cash flows from operations would have been lower.

 

**(18)****        ****Income Taxes**

 

The Company recorded an income tax benefit of $0.9 million for thethree months and four months ended June 30, 2010, an income tax benefit of$2.9 million for the three months ended June 30, 

 

23

----

Table of Contents

 

2009,an income tax benefit of $0.6 million for the two months ended February 28,2010, and an income tax benefit of $6.7 million for the six months ended June 30,2009.  The difference between the taxbenefit rate accrued and the statutory benefit rate is principally due to theimpact of state taxes (net of federal benefit), non-includable reorganizationincome, non-deductible reorganization expenses, tax deductible goodwill,increases in valuation allowances, and other permanent differences between bookand tax.

 

The Company records a valuation allowance on its deferred tax assets toreduce the deferred tax assets to the amount that management believes is morelikely than not to be realized. In assessing the realizability of deferred taxassets, management considers whether it is more likely than not that someportion or all of the deferred tax assets will be realized. Managementconsidered the scheduled reversal of deferred tax liabilities and tax planningstrategies in making this assessment.  Due to the Company’s history oflosses, allowances have been established for all deferred benefits except fordeferred benefits available to offset certain deferred tax liabilities thatwill reverse over time.

 

The Company expects to recognize taxable income of approximately $52million for cancellation of debt resulting from the Plan related to the Company’sbankruptcy reorganization that will reduce available current year tax losses,capital loss carryforwards, and the tax basis in other assets.

 

Further, the consummation of the Plan generated an “ownership change”as defined in Section 382 of the Internal Revenue Code, which limits theCompany’s ability to utilize certain carryover tax attributes. The Company’snet unrealized built in losses may be limited by Section 382 which couldpotentially result in the significant acceleration of tax payments. The Company’sstate net operating loss carryforwards are also subject to similar, butvarying, restrictions on their future use.

 

As of June 30, 2010, we had $0.1 million of uncertain taxbenefits.  All of our unrecognized taxbenefits, if recognized in future periods, would impact the Company’s effectivetax rate.  At June 30, 2010, ourliability for unrecognized tax benefits is included in other long-termliabilities on the condensed consolidated balance sheet.

 

Currently,no federal income tax returns are open for examination.  We file in numerous states and one foreignjurisdiction with varying statutes of limitations open from 2005 to 2008.

 

**(19)****        ****Earnings (Loss) Per Share**

 

Basicearnings (loss) per share are computed by dividing net income (loss) by theweighted average number of common shares outstanding during each period.  Diluted earnings (loss) per share arecalculated using the treasury stock method in accordance with ASC 260, andincludes the effect of all dilutive securities, including non-qualified stockoptions and restricted stock units awards (“RSU’s”).  In accordance with ASC 260, shares issuableupon the satisfaction of certain conditions pursuant to a contingent stockagreement, such as those contemplated by the Plan, are considered outstandingcommon shares and included in the computation of basic earnings per share.  Accordingly, 1.9 million sharescontemplated by the Plan to be distributed to holders of allowed general,unsecured claims are included in the calculation of basic earnings per sharefor the three and four months ended June 30, 2010.

 

Thefollowing table sets forth the computation of basic and diluted earnings (loss)per share:

 

24

----

Table of Contents

 
| ** **                                                      | ** ** | **Successor**                         | ** ** | **Predecessor**                       | ** ** | **Successor**                        | ** ** | **Predecessor**                         | ** ** | **Predecessor**                     | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|-----------------------------------------|------------|-------------------------------------|------------|
| ** **                                                      | ** ** | **Three Months  Ended June 30,** | ** ** | **Three Months  Ended June 30,** | ** ** | **Four Months  Ended June 30,** | ** ** | **Two Months Ended  February 28,** | ** ** | **Six Months  Ended June 30,** | ** ** |
| **(In  thousands, except per share data)**                      | ** ** | **2010**                              | ** ** | **2009**                              | ** ** | **2010**                             | ** ** | **2010**                                | ** ** | **2009**                            | ** ** |
| Net income (loss)                                               |       | $                                     | (9,259     | )                                     | $          | (48,935                              | )          | $                                       | (16,359    | )                                   | $          | (266,293 | ) | $ | (73,502 | ) |
| Less net earnings (loss) allocated to participating  securities |       | (179                                  | )          | —                                |       | (278                                 | )          | —                                  |       | —                              |       |
| Net earnings (loss) attributable to common  shareholders        |       | $                                     | (9,080     | )                                     | $          | (48,935                              | )          | $                                       | (16,081    | )                                   | $          | (266,293 | ) | $ | (73,502 | ) |
|                                                            |       |                                  |       |                                  |       |                                 |       |                                    |       |                                |       |
| Weighted average shares and share equivalents  outstanding:     |       |                                  |       |                                  |       |                                 |       |                                    |       |                                |       |
| Basic shares                                                    |       | 8,585                                 |       | 42,966                                |       | 8,581                                |       | 43,401                                  |       | 42,968                              |       |
| Dilutive non-qualified stock options and RSUs                   |       | —                                |       | —                                |       | —                               |       | —                                  |       | —                              |       |
| Diluted weighted average shares and share  equivalents          |       | 8,585                                 |       | 42,966                                |       | 8,581                                |       | 43,401                                  |       | 42,968                              |       |
|                                                            |       |                                  |       |                                  |       |                                 |       |                                    |       |                                |       |
| Income (loss) per common share — basic                     |       | $                                     | (1.06      | )                                     | $          | (1.14                                | )          | $                                       | (1.87      | )                                   | $          | (6.14 | ) | $ | (1.71 | ) |
| Income (loss) per common share - Diluted                        |       | $                                     | (1.06      | )                                     | $          | (1.14                                | )          | $                                       | (1.87      | )                                   | $          | (6.14 | ) | $ | (1.71 | ) |

 

Wehad additional potentially dilutive securities outstanding representing optionsof 180 thousand common shares at June 30, 2010 (Successor) and 3.3 millioncommon shares at June 30, 2009 (Predecessor) that were not included in thecomputation of potentially dilutive securities because the options exerciseprices were greater than the average market price of the common shares orbecause the options were anti-dilutive, and were excluded from the calculationof diluted earnings per share in accordance with ASC 260.

 

**(20)****        ****Comprehensive Income (Loss)**

 

Thefollowing table summarizes comprehensive income (loss):

 
| ** **                                                        | ** ** | **Successor**                         | ** ** | **Predecessor**                       | ** ** | **Successor**                        | ** ** | **Predecessor**                         | ** ** | **Predecessor**                     | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|-----------------------------------------|------------|-------------------------------------|------------|
| ** **                                                        | ** ** | **Three Months  Ended June 30,** | ** ** | **Three Months  Ended June 30,** | ** ** | **Four Months  Ended June 30,** | ** ** | **Two Months Ended  February 28,** | ** ** | **Six Months  Ended June 30,** | ** ** |
| **(In  thousands)**                                               | ** ** | **2010**                              | ** ** | **2009**                              | ** ** | **2010**                             | ** ** | **2010**                                | ** ** | **2009**                            | ** ** |
| Net income (loss) attributable to controlling  interest           |       | $                                     | (9,259     | )                                     | $          | (48,935                              | )          | $                                       | (16,359    | )                                   | $          | (266,293 | ) | $ | (73,502 | ) |
| Unrealized gain (loss) on available for sale  securities          |       | (1,482                                | )          | 1,274                                 |       | (2,467                               | )          | 765                                     |       | 1,724                               |       |
| Unrecognized pension and post retirement  liabilities, net of tax |       | —                                |       | 56                                    |       | —                               |       | (3                                      | )          | 56                                  |       |
| Comprehensive income (loss)                                       |       | $                                     | (10,741    | )                                     | $          | (47,605                              | )          | $                                       | (18,826    | )                                   | $          | (265,531 | ) | $ | (71,722 | ) |

 

**(21)****        ****IndustrySegment**

 

TheCompany operates in one reportable business segment, the manufacture andmarketing of fuel-grade ethanol.

 

25

----

Table of Contents

 

**(22)****        ****Litigation**

 

On November 6,2008, the Company commenced an action against JP MorganSecurities, Inc. and JP Morgan Chase Bank, N.A. (hereinafter collectivelyreferred to as “JP Morgan”) in the Tenth Judicial Circuit in Tazewell County, Illinois.  The Company’s complaint relates to lossesincurred of approximately $31.6 million as a result of investments in StudentLoan Auction Rate Securities purchased through JP Morgan.  At this time, we cannot be certain as to theoutcome of this litigation.

 

Weare from time to time involved in various legal proceedings, including legalproceedings relating to the extensive environmental laws and regulations thatapply to our facilities and operations. We are not involved in any legal proceedings, other than those describedherein, that we believe could have a material adverse effect upon our business,operating results or financial condition.

 

**(23)****      ****PotentialAsset Acquisition**

 

On June 10,2010, the Company sent a preliminary letter of intent to enter into an assetpurchase agreement with New CIE Energy Opco, LLC d/b/a/ Riverland Biofuels toacquire all or substantially all of Riverland’s assets comprising the ethanolproduction facility located in Canton, IL. The Canton facility consists of an approximate 30 acre site on which a37 mgpy nameplate ethanol plant and associated CHP power plant is situated andan associated 259 acre parcel of land.

 

Aventine has made a$5 million  non-refundable deposit on theletter of intent as of June 30, 2010. The deposit is reflected in other assets on the June 30, 2010consolidated balance sheet.

 

**(24)****        ****SubsequentEvents**

 

TheCompany evaluated subsequent events through the time of filing this documentwith the SEC, identifying no subsequent events which have accounting ordisclosure impacts, except as follows:

 

OnAugust 2, 2010, Brigade Capital Management, LLC and Senator InvestmentGroup LP, (the “Backstop Purchasers”) entered into a commitment letteragreement with the Company and its subsidiaries pursuant to which, subject tocertain conditions,  the BackstopPurchasers have agreed to purchase up to an aggregate principal amount of $50million of our Notes not purchased by other investors in a private placement offeringon or after August 15, 2010 until September 15, 2010, at which timethe Backstop Purchasers will have the right to terminate the agreement if theoffering has not been consummated on or before such date.

 

26

----

Table of Contents

 

**Item 2.    Management’s Discussionand 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.  Statementsrelating to future sales, earnings, operating performance, restructuringstrategies, plant expansions, capital expenditures and sources and uses ofcash, for example, are forward-looking statements.*

 

*These forward-looking statements are subject to variousrisks and uncertainties which could cause actual results to differ materiallyfrom those stated or implied by such forward-looking statements.  We undertake no obligation to publiclyrelease any revision of any forward-looking statements contained herein toreflect events and circumstances occurring after the date hereof, or to reflectthe occurrence of unanticipated events. Information concerning risk factors is contained under Part II, Item1A of  the Quarterly Report onForm 10-Q for the quarter ended March 31, 2010.   You should carefully consider all of therisks and all other information contained in or incorporated by reference inthis report and in our filings with the SEC. These risks are not the only ones we face.   Additional risks and uncertainties notpresently known to us, or which we currently consider immaterial, also may adverselyaffect us.  If any of these risksactually occur, our business, financial condition and results of operationscould be materially and adversely affected.*

 

**CompanyOverview**

 

Aventineis a leading producer of ethanol. Through our production facilities, we market and distribute ethanol tomany of the leading energy companies in the U.S.  In addition to producing ethanol, ourfacilities also produce several co-products including: corn gluten feed andmeal, corn germ, condensed corn distillers solubles, dried distillers grainwith solubles (“DDGS”), wet distillers grain with solubles (“WDGS”), carbondioxide and brewers’ yeast.

 

**Resultsof Operations**

 

The following discussionsummarizes the significant factors affecting the consolidated operating resultsof the Company for the three and six month periods ended June 30, 2010 and 2009.  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, 2009 included in the Company’s Annual Report onForm 10-K.

 

The Company emerged frombankruptcy on March 15, 2010.   On February 28,2010, the Company implemented fresh-start reporting in accordance with U.S.GAAP.  Thus, the consolidated financialstatements prior to March 1, 2010 reflect results based upon thehistorical cost basis of the Company while the post-emergence consolidatedfinancial statements reflect the new basis of accounting incorporating the fairvalue adjustments made in recording the effects of fresh-start reporting.  Therefore, the post-emergence periods are notcomparable to the pre-emergence periods. However, for discussions on the results of operations, the Company hascombined the results for the two months ended February 28, 2010 and thefour months ended June 30, 2010. The combined period has been compared to the six months ended June 30,2009.  The Company believes that thecombined financial results provide management and investors a betterperspective of the Company’s core business and on-going operational financialperformance and trends for comparative purposes.

 

Ourrevenues are principally derived from the sale of ethanol and from the sale ofco-products (corn gluten feed and meal, corn germ, condensed corn distillerssolubles, DDGS, WDGS, carbon dioxide, and brewers’ yeast) that we produce asby-products during the production of ethanol at our plants, which we refer toas co-product revenues.

 

27

----

Table of Contents

 

*Recent Events*

 

*Emergence from Bankruptcy.*   On April 7, 2009, the Company filedvoluntary petitions for relief under Chapter 11 of Title 11 of the BankruptcyCode  in the U. S. Bankruptcy Court forthe District of Delaware.   On January 13,2010, the Company filed its Plan.  On February 24,2010, the Bankruptcy Court entered an order approving and confirming thePlan.  On March 15, 2010, theCompany consummated its reorganization through a series of transactionscontemplated by its Plan and the Plan became effective.  The transactions consummated pursuant to thePlan included the following:

 

·                  the Company appointed a new management teamand six new directors to our Board of Directors;

·                  the Company issued and sold an aggregate of$105 million principal amount of the Notes and 1,710,000 shares of common stockto holders of our pre-petition notes that subscribed to the sale of the Notes;

·                  the Company began a pro rata distribution ofshares of common stock to holders of our pre-petition notes and to holders ofallowed general unsecured claims, with an initial distribution of 4,904,980shares to holders of pre-petition notes and 71,118 shares to holders of allowedgeneral unsecured claims, out of a total of 6,840,000 shares available;

·                  the Company entered into the Revolving CreditAgreement with PNC, providing for a $20 million Revolving Facility;

·                  the Company entered into a warrant agreement(the “Warrant Agreeement”) with American Stock Transfer & TrustCompany, LLC, pursuant to which we issued warrants to purchase an aggregate of450,000 shares of common stock to holders of equity interests prior to ouremergence from bankruptcy;

·                  the Company amended and restated itsorganizational documents and those of its subsidiaries; and

·                  the Company adopted a 2010 equity incentiveplan providing for the issuance of up to 855,000 shares of common stock, subjectto adjustment.

 

*Letter of Intent*.  On June 10, 2010, the Company enteredinto a non-binding letter of intent (the “LOI”) with New CIE Energy Opco, LLCd/b/a Riverland Biofuels and affiliates of certain holders of the Company’sdebt and equity securities to acquire an ethanol production facility situatedin Canton, Illinois (the “Facility”). As required by the LOI, the Company deposited $5,000,000 as anon-refundable deposit The transactions contemplated by the LOI are subject tothe execution of a definitive agreement by the Company and the seller.  The Company cannot assure you whether or whenany definitive agreement with respect to the acquisition of the Facility willbe entered into or whether any such transaction will be consummated.

 

*Plant Shutdown. *On June 29,2010, Aventine temporarily shut down its dry mill plant in Aurora, NE (NELLC)to make some mechanical improvements to the facility.  The shutdown wasextended during this period of depressed margins to accelerate a required poweroutage at both facilities to complete some necessary electrical work for theAurora West facility which is currently under construction.  We expect thework to be completed the first week of August 2010 and the plant to becomeoperational if margins have improved.

 

*Second Distribution*.  On June 30, 2010, the Company commenceda second pro rata distribution, consisting of 643,372 shares of common stock,to holders of the Company’s pre-petition notes and to holders of allowedgeneral unsecured claims, with 599,947 shares distributed to holders ofpre-petition notes and 43,425 shares to holders of allowed general unsecuredclaims.  Approximately 1.2 million sharesof common stock are reserved for future distributions to these holders.

 

*Backstop Commitment Agreement. *On August 2, 2010, theBackstop Purchasers entered into a commitment letter agreement with the Companyand its subsidiaries pursuant to which, subject to certain conditions,  the Backstop Purchasers have agreed topurchase up to an aggregate principal amount of $50 million of the Notes thatare not purchased by other investors in a private placement offering on orafter August 15, 2010 until September 15, 2010, at which time theBackstop Purchasers will have the right to terminate the agreement if the offeringhas not been consummated on or before such date.

 

28

----

Table of Contents

 

*Debt Commitment Letter. *Concurrently, on August 2, 2010, the Company entered into the DebtCommitment Letter with Citi, under which Citi has agreed, at a subsequenttime,  to use its best efforts to arrangea syndicate of lenders that will provide the Company with the New Term LoanFacility, and to act as lead arranger, bookrunner, administrative agent andcollateral agent for the New Term Loan Facility, on the terms and subject tothe conditions set forth in the Debt Commitment Letter.  Consummation of the debt financing is subjectto various conditions set forth in the Debt Commitment Letter, including theabsence of certain “material adverse effects” with respect to the company andits subsidiaries, taken as a whole. We are under no obligation to enter intoany such debt financing and cannot assure you that we will enter into any suchfinancing transaction on terms acceptable to us, if at all.

 

*Executive Summary of FinancialResults*

 

Thenet loss for the second quarter of 2010 was $9.3 million as compared to a netloss of $48.9 million in the second quarter of 2009.  The primary difference between the resultsfor the two quarters was the $42.7 million in expense recorded in 2009 forreorganization items pertaining to our bankruptcy proceedings.  This expense consisted of $3.1 million inprofessional fees and $39.6 million in provisions for rejected executorycontracts and leases.  There were noreorganization items recorded in the second quarter of 2010.

 

Commodityspread, defined as gross ethanol selling price per gallon less net corn costper gallon, increased to $0.75 per gallon in the second quarter of 2010 from$0.72 per gallon in the second quarter of 2009. The average sales price per gallon of ethanol decreased in the secondquarter of 2010 to $1.62 per gallon from the $1.70 average received in thesecond quarter of 2009.  Corn costsduring the second quarter of 2010 averaged $3.53 per bushel, as compared to$4.10 per bushel in the second quarter of 2009. Conversion cost in the second quarter of 2010 was $0.52 per gallon ascompared to $0.42 per gallon in the second quarter of 2009.

 

Gallonsof ethanol sold in the second quarter of 2010 decreased to 46.5 milliongallons, as compared to 52.8 million gallons in the second quarter of2009.  Gallons produced during the secondquarter of 2010 decreased to 45.9 million gallons from 52.7 million gallons inthe second  quarter of 2009.

 

Our inventory isvalued based upon a weighted average of our cost to produce ethanol and theprice we pay for ethanol that we purchase from other producers.  Wecontinue to engage in purchase/resale transactions, as needed, to fulfill oursales commitments.  Changes, eitherupward or downward, in our own production costs or our purchased cost ofethanol will cause the inventory value to fluctuate from period to period,perhaps significantly.  These changes in value flow through our statementof operations as the inventory is sold and can significantly increase ordecrease our profitability.

 

Selling, general & administrative (“SG&A”) expenses were$9.1 million in the second quarter of 2010 as compared to $7.0 million in thesecond quarter of 2009.  Major variancesbetween 2010 and 2009 are a $0.8 million increase in salaries and wages, a $1.0million increase in salaried stock compensation, and a $1.5 million increase inoutside services, partially offset by a $1.0 million decrease in other SG&Aexpenses.

 

Interest expense in the second quarter of 2010 was $2.4 million, ascompared to $2.3 million in the second quarter of 2009.  Interest expense in the second quarter of2010 includes $3.4 million in interest on our Notes, reduced by capitalizedinterest of $1.0 million applicable to our expansion facilities in Mt. Vernon, INand Aurora, NE.  We resumed constructionof these facilities in May 2010. Interest expense in the second quarter of 2009 included $0.6 million ininterest on our senior unsecured notes issued March 27, 2007, $0.7 millionin interest on our secured revolving credit facility, $0.5 million in intereston our DIP Facility, and $0.5 million of amortization of deferred financingfees.  We ceased the accrual of intereston our senior unsecured notes as of the Petition Date.

 

*For theThree Months Ended June 30, 2010 Compared to the Three Months Ended June 30,2009*

 

Totalgallons of ethanol sold in the second quarter of 2010 decreased to 46.5 milliongallons, versus 52.8 million gallons sold in the second quarter of 2009.  Gallons of ethanol were sourced as follows:

 

29

----

Table of Contents

 

Forthe Three Months Ended June 30,

 
| **(In thousands, except for percentages)** | ** ** | **2010**   | ** ** | **2009** | ** ** | **Increase/  (Decrease)** | ** ** | **% Increase/  (Decrease)** | ** ** |
|----------------------------------------------------------------|------------|------------|------------|----------|------------|---------------------------|------------|----------------------------------|------------|
| Equity production                                              | ** ** | **45,943** |       | 52,658   |       | (6,715                    | )          | (12.8                            | )%         |
| Purchase/resale                                                | ** ** | **285**    |       | 247      |       | 38                        |       | 15.4                             | %          |
| Decrease (increase) in inventory                               | ** ** | **299**    |       | (104     | )          | 403                       |       |                             | *          |
| Total                                                          | ** ** | **46,527** |       | 52,801   |       | (6,274                    | )          | (11.9                            | )%         |

 

----

*  Not meaningful

 

Netsales in the second quarter of 2010 decreased 18.0% from the second quarter of2009.  Net sales were $96.9 million inthe second quarter of 2010 versus $118.1 million in the second quarter of2009.  Overall, the decrease in net saleswas primarily the result of less supply available.  The reduction in equity production between2010 and 2009 is primarily attributable to timing differences and the length ofplant maintenance shutdowns.   A decreasein the average sales price of ethanol also contributed to the decrease in netsales for the second quarter of 2010 as compared to the second quarter of2009.  Ethanol prices averaged $1.62 pergallon in the second quarter of 2010 versus $1.70 in the second quarter of2009.

 

Co-productrevenues for the second quarter of 2010 totaled $21.5 million, a decrease of$5.1 million, or 19.0%, from the second quarter 2009 total of $26.6million.  Co-product revenues decreasedduring the second quarter of 2010 as a result of significantly lower salesvolumes.  In the second quarter of 2010,we sold 235.4 thousand tons, versus 290.9 thousand tons in the second quarterof 2009.  Co-product revenues, as a percentageof corn costs, increased to 35.0% during the second quarter of 2010, versus34.2% in the second quarter of 2009.

 

Costof goods sold for the quarter ended June 30, 2010 was $95.4 million,compared to $118.0 million for the quarter ended June 30, 2009, a decreaseof $22.6 million, or 19.2%.  As apercentage of net sales, cost of goods sold decreased to 98.4% of sales from99.9% of sales in the second quarter of 2009. Cost of goods sold consists of the cost to produce ethanol at our ownfacilities, the cost of purchasing ethanol from other producers and marketers,freight and logistics costs to ship ethanol and co-products, the cost of motorfuel taxes which have been billed to customers, and depreciation.  The decrease in cost of goods sold is principallythe result of lower volumes of ethanol purchased as a result of the terminationof our marketing alliance and lower corn costs.

 

Productioncosts include corn costs, conversion costs (defined as the cost of convertingthe corn into ethanol, and includes production salaries, wages and stock-basedcompensation costs, fringe benefits, utilities (including coal and naturalgas), maintenance, denaturant, insurance, materials and supplies and othermiscellaneous production costs) and depreciation.  Corn costs in the second quarter of 2010totaled $61.5 million, or $3.53 per bushel, versus $77.9 million, or $4.10 perbushel, in the second quarter of 2009. Our average corn costs in the second quarter of 2010 were slightly lowerthan the Chicago Board of Trade (“CBOT”) average price of $3.55 during the sameperiod.

 

Conversioncosts for the second quarter of 2010 increased to $23.7 million from $21.9million for the second quarter of 2009. The increase in conversion costs is primarily attributable to increasesin outside services of $1.1 million and utilities of $0.7 million.  The conversion cost per gallon increased yearover year to $0.52 per gallon in the second quarter of 2010 versus $0.42 pergallon in the second quarter of 2009.

 

Depreciationtotaled $2.4 million in the second quarter of 2010 compared to $3.5 million for2009.  No motor fuel taxes were incurredin the second quarter of 2010 versus $1.2 million in the second quarter of2009.  The cost of motor fuel taxes isrecovered through billings to customers and was $0 in the second quarter of2010 because we did not do business in states requiring us to pay motor fueltaxes.

 

Freight/logisticscosts were significantly lower on a per gallon basis in the second quarter of2010 from the second quarter of 2009. Freight/logistics costs in the second quarter of 2010 were $0.13 pergallon as compared to $0.16 per gallon in the second quarter of 2009.  Freight/logistics dollars spent decreased inthe second quarter of 2010 to $6.0 million from $8.5 million in the secondquarter of 2009 as a result of lower volumes shipped, a reduction in the numberof terminals we sell from and a reduction in our railcar fleet.  Freight/logistics cost per 

 

30

----

Table of Contents

 

gallonis calculated by taking total freight/logistics costs incurred (including coststo ship co-products) and dividing by the total ethanol gallons sold.

 

SG&A expenses were $9.1 million in the second quarter of 2010 ascompared to $7.0 million in the second quarter of 2009.  Major variances between 2010 and 2009 are a$0.8 million increase in salaries and wages, a $1.0 million increase in salariedstock compensation, and a $1.5 million increase in outside services, partiallyoffset by a $1.0 million decrease in other SG&A expenses. During the threemonths ended June 30, 2010, outside services include professional fees that wecontinue to incur related to bankruptcy activities, which would previously havebeen included in reorganization expense.

 

Other income (loss) was a loss of $0.6 million in the second quarter of2010.  The loss in the quarter consistedof  $0.4 million of expense related topenalties owed for failure to complete the Aurora West expansion facility by July 1,2009 and $0.2 million of expense related to utility demand charges at our Mt.Vernon ethanol expansion facility.

 

Interest expense in the second quarter of 2010 was $2.4 million, ascompared to $2.3 million in the second quarter of 2009.  Interest expense in the second quarter of2010 includes $3.4 million in interest on our Notes, reduced by capitalizedinterest of $1.0 million applicable to our expansion facilities in Mt. Vernon, INand Aurora, NE.  We resumed constructionof these facilities in May 2010. Interest expense in the second quarter of 2009 included $0.6 million ininterest on our senior unsecured notes issued March 27, 2007, $0.7 millionin interest on our secured revolving credit facility, $0.5 million in intereston our DIP Facility, and $0.5 million of amortization of deferred financingfees.  We ceased the accrual of intereston our senior unsecured notes as of the Petition Date.

 

We recorded $42.7 million in reorganization items in the second quarterof 2009 related to our bankruptcy proceedings. This expense consisted of $3.1 million in professional fees incurred and$39.6 million in recorded provisions for rejected executory contracts andleases.  There were no reorganizationitems in the second  quarter of 2010.

 

The Company’s effective tax rate differs from the statutory U.S.federal income tax rate for the quarters ended June 30, 2010 and 2009principally due to the impact of state taxes (net of federal benefit),non-includable reorganization income, non-deductible reorganization expenses,tax deductible goodwill,  increases invaluation allowances, and other permanent differences between book and tax.

 

*For theSix Months Ended June 30, 2010 Compared to the Six Months Ended June 30,2009*

 

Totalgallons of ethanol sold in the first half of 2010 decreased to 95.6 milliongallons, versus 173.6 million gallons sold in the first half of 2009.  Gallons of ethanol were sourced as follows:

 

For the Six Months Ended June 30,

 
| **(In  thousands of gallons, except for percentages)** | ** ** | **2010**   | ** ** | **2009** | ** ** | **Increase/  (Decrease)** | ** ** | **% Increase/  (Decrease)** | ** ** |
|--------------------------------------------------------|------------|------------|------------|----------|------------|---------------------------|------------|-----------------------------|------------|
| Equity production                                      | ** ** | **94,014** |       | 99,152   |       | (5,138                    | )          | (5.2                        | )%         |
| Marketing alliance purchases                           | ** ** | **—** |       | 12,898   |       | (12,898                   | )          | (100.0                      | )%         |
| Purchase/resale                                        | ** ** | **705**    |       | 29,780   |       | (29,075                   | )          | (97.6                       | )%         |
| Decrease (increase) in inventory                       | ** ** | **857**    |       | 31,793   |       | (30,936                   | )          |                        | *          |
| Total                                                  | ** ** | **95,576** |       | 173,623  |       | (78,047                   | )          | (45.0                       | )%         |

 

----

*   Not meaningful

 

Netsales in the first half of 2010 decreased 40.3% from the first half of2009.  Net sales were $211.6 million inthe first six months of 2010 versus $354.7 million in the first six months of2009.  Overall, the decrease in net saleswas primarily the result of less supply available as we terminated ourmarketing alliance and significantly reduced purchase/resale supply operations,partially offset by an increase in the average sales price of ethanolsold.  The reduction in equity productionbetween 2010 and 2009 is primarily attributable to timing differences and thelength of plant maintenance shutdowns.    Ethanol prices averaged $1.72 per gallon in the first half of 2010versus $1.69 in the first half of 2009.

 

31

----

Table of Contents

 

Co-productrevenues for the first half of 2010 totaled $46.9 million, a decrease of $2.1million or 4.3%, from the first half 2009 total of $49.0 million.  Co-product revenues decreased during thefirst half of 2010 as a result of lower sales volumes.  In the first half of 2010, we sold 478.7thousand tons, versus 555.1 thousand tons in the first half of 2009.  Co-product revenues, as a percentage of corncosts, rose to 36.6% during the first half of 2010, versus 31.9% in the firsthalf of 2009.

 

Costof goods sold for the first six months ended June 30, 2010 was $199.5million, compared to $376.0 million for the six months ended June 30,2009, a decrease of $176.5 million, or 46.9%. As a percentage of net sales, cost of goods sold decreased to 94.3% ofsales from 106.0% of sales in the first half of 2009.  Cost of goods sold consists of the cost toproduce ethanol at our own facilities, the cost of freight and logistics toship ethanol and co-products, the cost of ethanol sold from inventory, the costof motor fuel taxes which have been billed to customers and, prior to thesecond quarter of 2009, the cost of purchased ethanol.  The decrease in total cost of goods sold isprincipally the result of lower volumes of ethanol purchased as a result of thetermination of our marketing alliance and significantly reduced purchase/resaleprogram, and lower corn costs, freight costs, depreciation, and motor fueltaxes.

 

Purchasedethanol in the first half of 2010 totaled $1.2 million, versus $78.3 million inthe first half of 2009.  The decrease inpurchased ethanol resulted from the termination of our marketing alliance andscaled-back purchase/resale programs along with a decrease in the cost pergallon of ethanol purchased.

 

Productioncosts include corn costs, conversion costs (defined as the cost of convertingthe corn into ethanol, and includes production salaries, wages and stock-basedcompensation costs, fringe benefits, utilities (including coal and naturalgas), maintenance, denaturant, insurance, materials and supplies and othermiscellaneous production costs) and depreciation.  Corn costs in the first six months of 2010totaled $128.0 million, or $3.60 per bushel, versus $153.8 million, or $4.17per bushel, in the first six months of 2009. Our average corn costs in the first half of 2010 were lower than theCBOT average price of $3.62 during the same period.  The decrease in corn costs is principally dueto lower corn prices.

 

Conversioncosts for the first half of 2010 decreased to $48.6 million from $49.0 millionfor the first half of 2009.  The totaldollars spent on conversion costs decreased year over year principally as aresult of lower costs for utilities, chemicals and other supplies which havedecreased as a result of  lower petroleumprices.  The conversion cost per gallonincreased year over year to $0.52 per gallon in the first half of 2010 versus$0.50 per gallon in the first half of 2009. Conversion cost per gallon is affected by both dollars spent onconversion of corn to ethanol and also on the number of gallons of ethanolproduced.

 

Freight/logisticscosts were down significantly on a per gallon basis in the first half of 2010from the first half of 2009. Freight/logistics costs in the first half of 2010 were $0.12 per gallonas compared to $0.19 per gallon in the first half of 2009.  Freight/logistics dollars spent decreased inthe first six months of 2010 to $11.1 million from $33.3 million in the firstsix months of 2009 as a result of lower volumes shipped, the termination of fixedprice terminal obligations, and lower costs for leased railcars

 

Depreciationin the first half of 2010 totaled $5.6 million, versus $6.9 million in thefirst half of 2009.  No motor fuel taxeswere incurred in the first half of 2010 versus $5.6 million in the first halfof 2009.  The cost of motor fuel taxes isrecovered through billings to customers and, was $0 in the first half of 2010because we did not do business in states requiring us to pay motor fuel taxes.

 

SG&A expenses were $18.9 million in the first six months of 2010 ascompared to $16.7 million in the first six months of 2009.  The higher expense in the first half of 2010primarily relates to increases in salaries and wages of $0.9 million andsalaried stock-based compensation of $1.7 million.

 

32

----

Table of Contents

 

Duringthe first six months of 2009, we recognized income from the termination ofmarketing agreements with our former alliance partners totaling $10.2 million.

 

Interest expense in the first half of 2010 was $4.5 million, ascompared to $11.0 million in the first half of 2009.  Interest expense in the first half of 2010included $4.0 million of interest expense related to our Notes, pre-petition securedrevolving credit facility interest expense of $0.6 million, interest expense onour DIP Facility of $0.5 million, and $0.4 million for amortization of deferredfinancing fees, reduced by capitalized interest of $1.0 million.  Interest expense in the first half of 2009included $8.1 million of interest expense related to our pre-petition seniorunsecured notes (compared to contractual interest of $15 million), pre-petitionamended secured revolving credit facility interest expense of $1.0 million, interestexpense on our DIP Facility of $0.5 million, and $1.4 million for amortizationof deferred financing fees.

 

Gain (loss) on derivative transactions for the first half of 2010includes $0.4 million of realized net gains on corn and ethanol derivative contractsversus net realized and unrealized gains in the first half of 2009 of $1.2million.  We did not have any openderivative positions at the end of June 2009.  We do not mark to market forward physicalcontracts to purchase corn or sell ethanol.

 

The Company’s effective tax rate differs from the statutory U.S.federal income tax rate for the four months ended June 30, 2010, twomonths ended February 28, 2010, and the six months ended June 30,2009 principally due to the impact of state taxes (net of federal benefit),non-includable reorganization income, non-deductible reorganization expenses,tax deductible goodwill,  increases invaluation allowances, and other permanent differences between book and tax.

 

**Trendsand Factors that May Affect Future Operating Results**

 

*Ethanol Pricing*

 

Ethanolprices continued to be at or near the spot cost to produce ethanol during thesecond quarter of 2009 and 2010, making the cash spot margins nearbreak-even.  As the supply of ethanolfrom plants which are currently under construction begins to make its way intothe marketplace or plants that are currently shut-in begin to produce ethanolagain, ethanol pricing may remain soft, and gross margins may remain nearbreak-even.

 

As of June 30, 2010, we had contracts for delivery of ethanoltotaling 29.8 million gallons through May 2011 at spot prices (usingvarious Platt, OPIS and AXXIS indices).

 

For the third quarter of 2010, we have contracts for delivery ofethanol totaling 26.6 million gallon at spot prices (using various Platt, OPISand AXXIS indices).

 

*Corn*

 

Cornprices rose significantly from 2006 to 2008 and reached record levels during2008.  Since 2008, corn prices havedeclined with the economic conditions in general, along with most othercommodities.  We believe that this is duein part to lower than expected consumption, including for ethanol and forexport as a result of concerns of global recession and reductions in globaldemand.  However, we continue to believethat corn prices are likely to remain above historical levels for theforeseeable future.

 

Wecontinuously purchase corn for physical delivery from suppliers using forwardpurchase contracts in order to assure supply. As we do this, we have in the past often shorted a like amount of CBOTcorn futures with similar dates to lock in the basis differential.  We have also occasionally used CBOT futurescontracts to lock in the price of corn by taking long positions in CBOTcontracts in order to reduce our risk of price increases.  Exchange traded forward contracts forcommodities are marked to market each period. Our forward physical purchases of corn are not marked to market.

 

33

----

Table of Contents

 

AtJune 30, 2010, we had fixed the price of 4.7 million bushels of cornthrough January 2011 at an average cost of $3.49 per bushel, representingapproximately 12.5% of our corn requirements for the remainder of 2010,excluding our expansion facilities under construction.

 

*Supply and Demand*

 

Accordingto the Renewable Fuels Association (the “RFA”), the annual ethanol productioncapacity in the U.S. of plants currently in operation and those underconstruction is almost 14.0 billion gallons annually.  This volume of ethanol production exceeds themandate for renewable biofuel consumption required in 2013 of 13.8 billiongallons.  Ethanol produced in the U.S.competes with sugar-based ethanol produced in Brazil.  This domestic production capacity, along withimports, may cause supply to exceed demand. If additional demand for ethanol is not created, either throughadditions to discretionary blending (through increased penetration rates inareas that blend ethanol today or through the establishment of new marketswhere little or no ethanol is blended today), or through additional state levelmandates, the excess supply may cause ethanol gross margins to decrease,perhaps substantially.

 

*PlantShutdown*

 

OnJune 29, 2010, Aventine temporarily shut down its dry mill plant inAurora, NE (NELLC) to make some mechanical improvements to the facility. The shutdown was extended during this period of depressed margins to acceleratea required power outage at both facilities to complete some necessary electricalwork for the Aurora West facility which is currently under construction. We expect the work to be completed the first week of August 2010 and theplant to become operational if margins have improved.

 

**Liquidityand Capital Resources**

 

*Overviewand Outlook*

 

Thefollowing table sets forth selected information concerning our financialcondition:

 
| **(In thousands)**   | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|---------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                | ** ** | **(Unaudited)**         | ** ** | ** **                  | ** ** |
| Cash and cash equivalents | ** ** | **$**                   | **50,177** |                        | $          | 52,585 |   |
| Working capital           | ** ** | **57,443**              |       | 38,136                      |       |
| Total debt (1)            | ** ** | **105,000**             |       | 42,765                      |       |
| Current ratio             | ** ** | **2.96**                |       | 1.60                        |       |
|                           |            |                         |            |                             |            |  |  |

 

----

(1)  As of December 31, 2009, total debt excluded our seniorunsecured notes due in 2017 which were recorded in pre-petition liabilitiessubject to compromise.

 

Asa result of the bankruptcy proceedings and the circumstances leading to thebankruptcy proceedings as described elsewhere in this report, we faceduncertainty regarding the adequacy of our liquidity and capital resources andhad limited access to financing.  Thebankruptcy filing constituted an event of default under our secured revolvingcredit facility and the indenture governing our 10% senior unsecured notes due2017, and the debt obligations under those agreements became automatically andimmediately due and payable, subject to the automatic stay provisions ofSection 362 of the Bankruptcy Code. As of the Petition Date, the amount of outstanding borrowings andletters of credit under the secured revolving credit facility totaledapproximately $18.4 million and $22.0 million, respectively, and the aggregateprincipal amount outstanding on our 10% senior unsecured notes due 2017 was$300 million.

 

34

----

Table of Contents

 

Atemergence from bankruptcy on March 15, 2010, we obtained approximately $98million of proceeds through the issuance of the Notes and 1,710,000 shares ofcommon stock.  Upon emergence we usedthese proceeds to pay $27.8 million to retire our secured revolving creditfacility, $15.0 million to retire our DIP Facility, $17.9 million to KiewitEnergy Company to repay secured claims related to our expansion projects atAurora, NE and Mt. Vernon, IN and $4.9 million to pay other secured andpriority claims.  Our senior unsecurednotes of $300.0 million along with $15.5 million of accrued interest weredischarged upon emergence from bankruptcy.

 

*Sourcesof Liquidity*

 

Ourprincipal sources of liquidity are cash and cash equivalents, cash provided byour borrowing facilities, and cash provided by operations.

 

*Cash and cash equivalents.*  For the first six months of 2010, cash andcash equivalents decreased by $2.4 million. Cash and cash equivalents as of June 30, 2010 and December 31,2009 were $50.2 million and $52.6 million, respectively.

 

C*ash provided by operations.* Net cash used in operating activities in the first six months of 2010was $22.5****million, as compared to cash providedby operating activities of $14.1 million for the first six months of 2009.  Cash used by operations in 2010 wasnegatively impacted by significant operating losses incurred in the first halfof 2010 and payments of secured and priority claims as we emerged frombankruptcy.  In the first half of 2009,we offset an operating loss by generating significant amounts of cash from theliquidation of receivables and inventory, along with the receipt of alliancetermination payments, offset partially by reductions in accounts payable.  As a result of our bankruptcy filing, we didnot pay pre-petition accounts payable as they came due, which provided cashfrom operations.

 

*Cashavailable under our liquidity facility*

 

Asdescribed further below, pursuant to the Plan, on the Effective Date, theCompany and its subsidiaries, as borrowers, entered into the Revolving CreditAgreement with PNC Bank, as lender and as agent, providing for a$20 million Revolving Facility. Amounts under the Revolving Facility may be borrowed, repaid andreborrowed with all amounts outstanding due and payable on March 15, 2013.  The maximum amount outstanding under theRevolving Facility is limited by the amount of eligible receivables andeligible inventory of the borrowers.  TheRevolving Credit Agreement contains mandatory prepayment requirements incertain circumstances upon the sale of certain collateral, subject to theability to reborrow revolving advances. Termination of the Revolving Facility is subject to a prepayment premiumif terminated more than 90 days prior to the third anniversary of the RevolvingFacility.

 

Totalliquidity at June 30, 2010 was $56.1 million, comprised of $50.2 millionin cash and cash equivalents and $5.9 million availability under our RevolvingFacility .   As of June 30, 2010,there were no amounts drawn against the Revolving Facility and no outstandingletters of credit issued under the Revolving Facility.

 

*Uses ofLiquidity*

 

Our principal uses of liquidity are payments relatedto our outstanding debt and liquidity facility, working capital, funding ofoperations, and capital expenditures.

 

*Payments related to our predecessor debt and liquidity facility.*  During the first quarter of 2010, we used$42.8 million of cash to make required reductions in borrowings on our securedrevolving credit facility with JP Morgan Chase and our DIP Facility.   At June 30, 2010, the Company had $6.3million in letters of credit outstanding as issued by the pre-petitionlenders.  The $6.3 million outstandingletters of credit were collateralized by $7.8 million in a restricted cash account.

 

*Working capital.*  Our networking capital position increased by $24.3 million during the first half of2010.

 

*Capital expenditures.*  During the first six months of 2010, we spentapproximately $23.6 million on capital projects.  Of this amount, $1.5 million was spent on maintenanceand environmental projects, while $22.1 million 

 

35

----

Table of Contents

 

(includingcapitalized interest) was spent on our capacity expansion projects in Mt.Vernon, IN and Aurora, NE.  Weexpect to incur capital expenditures of approximately $58.9 million related tocompleting those facilities (excluding capitalized interest).  In addition, we made a $5 millionnon-refundable deposit on an ethanol production facility located in Canton, IL.

 

**Debtor-In-Possession Financing**

 

On April 7, 2009, theDIP Lenders entered into the DIP Term Sheet for a $30 million DIP Facility withthe Debtors.  The DIP Term Sheet providedfor a first priority DIP financing composed of a term loan facility madeavailable to certain of Aventine’s subsidiaries in a maximum aggregateprincipal amount of up to $30 million.

 

Inaccordance with the terms of the Plan, the balances owed on the DIP Facilitywere paid in full on the Effective Date.

 

**13% Senior Secured Notes due 2015**

 

Pursuant to the Plan andConfirmation Order, on the Effective Date, the Company issued and sold anaggregate of $105 million principal amount of the Notes.  The Notes were issued under the Indenture ina private transaction that was not subject to the registration requirements ofthe Securities Act.  The Notes accrueinterest at a rate of 13% for cash interest payments and 15% if the Companyelects PIK interest payments.  TheCompany may elect, prior to each interest payment date, whether to make eachinterest payment on the Notes (i) entirely in cash or (ii) 8/15 incash and 7/15 in PIK interest.  The Notesare fully and unconditionally guaranteed by the Guarantors.  The Company will pay interest on the Notesquarterly in arrears on March 15, June 15, September 15 and December 15of each year, starting on June 15, 2010. The Notes mature on March 15, 2015. The Indenture permits the Company to issue additional Notes from time totime up to an aggregate principal amount of $50 million.

 

TheCompany may redeem the Notes in whole or in part prior to their maturity datefor a premium to the outstanding principal amount, as provided in theIndenture.  In connection with the NewTerm Loan Facility, the Company intends to redeem the entire outstandingprincipal amount of the Notes at a redemption price of 105% of the principalamount, plus accrued and unpaid interest. See “—Debt Commitment Letter” below.

 

**SecuredRevolving Credit Facility**

 

Pursuantto the Plan, on the Effective Date, the Company and its subsidiaries, asborrowers, entered into the Revolving Credit Agreement with PNC Bank, as lenderand as agent, providing for a $20 million Revolving Facility.  Amounts under the Revolving Facility may beborrowed, repaid and reborrowed with all amounts outstanding due and payable onMarch 15, 2013.  The maximum amountoutstanding under the Revolving Facility is limited by the amount of eligiblereceivables and eligible inventory of the borrowers.  The Revolving Credit Agreement containsmandatory prepayment requirements in certain circumstances upon the sale ofcertain collateral, subject to the ability to reborrow revolving advances.  Termination of the Revolving Facility issubject to a prepayment premium if terminated more than 90 days prior to thethird anniversary of the Revolving Facility.

 

**WarrantAgreement**

 

Pursuantto the Plan and Confirmation Order, on the Effective Date, the Company enteredinto a Warrant Agreement with American Stock Transfer & Trust Company,LLC, as warrant agent .  Pursuant to theWarrant Agreement, the Company issued warrants to purchase an aggregate of450,000 shares of common stock of the Company , subject to adjustment for,among other things, the matters described below (the “Warrants”).  The Warrants will expire on the fifthanniversary of the Effective Date or, if earlier, in connection with theconsummation of a change of control of the Company (the “Expiration Date”);provided that the Company may accelerate the Expiration Date in certaincircumstances as set forth in the Warrant Agreement.

 

36

----

Table of Contents

 

**Debt Commitment Letter**

 

OnAugust 2, 2010, the Company entered into the Debt Commitment Letter withCiti under which Citi has agreed, at a subsequent time, to use its best effortsto arrange a syndicate of lenders that will provide the Compoany with the NewTerm Loan Facility, and to act as lead arranger, bookrunner, administrativeagent and collateral agent for the New Term Loan Facility, on the terms andsubject to the conditions set forth in the Debt Commitment Letter.  Consummation of the debt financing is subjectto various conditions set forth in the Debt Commitment Letter, including theabsence of certain “material adverse effects” with respect to the company andits subsidiaries, taken as a whole.

 

TheNew Term Loan Facility will mature on the fifth anniversary of the closing dateof the New Term Loan Facility. The New Term Loan Facility will require Aventineto maintain a specified minimum liquidity and a specified maximum debt tocapitalization ratio.  Additionally, theNew Term Loan Facility will contain other customary affirmative and negativecovenants concerning the conduct of the Company’s business operations. The NewTerm Loan Facility will also contain customary events of default.  Upon the occurrence of an event of default,the Company’s obligations under the New Term Loan Facility may be acceleratedand all indebtedness thereunder would become immediately due and payable.

 

Inconnection with the New Term Loan Facility, the Company intends to redeem theentire outstanding principal amount of the Notes at a redemption price of 105%of the principal amount, plus accrued and unpaid interest. However, we areunder no obligation to enter into any such debt financing and cannot assure youthat we will enter into any such financing transaction on terms acceptable tous, if at all.

 

**CriticalAccounting Estimates**

 

Asrequired by GAAP, in connection with emergence from Chapter 11 reorganizationproceedings, we adopted the fresh-start accounting provisions of ASC 852effective February 28, 2010.  UnderASC 852, the reorganization value represents the fair value of the entitybefore considering liabilities and approximates the amount a willing buyerwould pay for our assets immediately after restructuring.  The reorganization value is allocated to therespective assets.  Liabilities, otherthan deferred taxes and severance benefits, are stated at present values ofamounts expected to be paid.

 

Fairvalues of assets and liabilities represent our best estimates based on ourappraisals and valuations which incorporated industry data and trends andrelevant market rates and transactions available to us at the time.  The estimate of reorganization equity valuewas determined by Company management with assistance from an independentfinancial advisor, who developed the reorganization equity value using acombination of the following three measurement methodologies: 1) comparablepublic company analysis, 2) discounted cash flow analysis, and 3) precedenttransactions analysis.  This amount wasdetermined based, in part, on economic, competitive, and general businessconditions prevailing at the time.  Theseestimates and assumptions are inherently subject to significant uncertaintiesand contingencies beyond our reasonable control.

 

Thesignificant assumptions related to adjusting our assets and liabilities to fairvalue in connection with fresh start accounting include the following:

 

*Cash, Accounts Receivable,Prepaid Assets and Other Current Assets, Accrued Liabilities, and Other CurrentLiabilities* - Weevaluated the fair value of financial instruments represented in current assetsand current liabilities, including cash, accounts receivable, prepaid assetsand other current assets, accrued liabilities, and other current liabilities.  Based upon our evaluations, we concluded thatthe carrying value approximates fair value of these financial instruments dueto their short maturities or variable-rate nature of the respective balances.

 

*Restricted Cash, and OtherLong-Term Liabilities* -We evaluated the fair value of restricted cash and other long-termliabilities.  The restricted cashbalances are held in interest-bearing accounts and we therefore concluded thatthe carrying value approximates fair value. The other long-term liabilities principally represent companyobligations related to pension and retiree medical costs.  Such liabilities are calculated using variousassumptions including an assumed discount rate which we believe is reasonable,and we therefore concluded that carrying value of such long-term liabilitiesapproximates fair value.

 

37

----

 

Table of Contents

 

*Inventories* — Inventories consist primarily of agricultural andenergy-related commodities including corn, ethanol, and coal.  The fair value of these commodities wasdetermined through reference to prices that were publicly available at thetime, as adjusted for physical location.

 

*Property, plant and equipment*— Property,plant and equipment was valued at fair value of approximately $208.8 million asof February 28, 2010.  The Company determined fair value with theassistance of an independent valuation firm. In establishing fair value for the vast majority of the Company’sproperty, plant and equipment, the cost approach was utilized. The costapproach considers the amount required to replace an asset by constructing orpurchasing a new asset with similar utility, then adjusts the value inconsideration of all forms of depreciation as of the appraisal date asdescribed below:

 

·                  Physical depreciation — the loss in value orusefulness attributable solely to use of the asset and physical causes such aswear and tear and exposure to the elements.

·                  Functional obsolescence — a loss in value isdue to factors inherent in the asset itself and due to changes in technology,design or process resulting in inadequacy, overcapacity, lack of functionalutility or excess operating costs.

·                  Economic obsolescence — loss in value byunfavorable external conditions such as economics of the industry or geographicarea, or change in ordinances.

 

The cost approach relies on management’s assumptions regarding currentmaterial and labor costs required to rebuild and repurchase significantcomponents of our property, plant and equipment along with assumptionsregarding the age and estimated useful lives of our property, plant andequipment.

 

*Other Assets* — Other assets include a long-term deposit forutilities against which the Company may apply certain future natural gastransportation charges.  The fair valueof this deposit was determined based upon a discounted cash flow model forwhich the significant inputs include the Company’s estimated purchase timingand amount of natural gas, and the discount rate estimated to be 13%.  If the Company had applied a discount rate of1% higher or lower, the fair value of the asset would have decreased orincreased by $168 thousand or $177 thousand, respectively.

 

*Accounts Payable* — Accounts payable include an estimatedliability associated with an off-market coal purchase contract which continuesthroughout 2010.  The fair value of thiscontract was determined through reference to coal prices that were publiclyavailable at the time, as adjusted for physical location.  This liability will be amortized to income asthe related coal purchases affect the cost of production.  For other accounts payable items, weevaluated such liabilities to determine fair value and concluded that thecarrying value approximates fair value of these financial instruments due totheir short maturities or variable-rate nature of the respective balances.

 

*Long-Term Debt* — Long-term debt was valuedat fair value with the assistance of an independent valuation firm based on ananalysis of market interest rates for guideline companies with similar debt andterms, interest rates for companies recently emerged from bankruptcy, andinterest rates based on a synthetic debt rating.  Based on this analysis, we determined that arange of market interest rate for our $105 million of senior secured notes wouldbe from 11.5% to 14.5%.  Based on thestated rate of our Notes of 13% combined with the option to pay a portion ofthe interest in kind, we deemed the fair value to be the face value of thenotes of $105 million.  If the interestrate was 1% higher or lower, the fair value of the debt would have increased ordecreased by $1.2 million respectively.

 

**EnvironmentalMatters**

 

Weare subject to extensive federal, state and local environmental, health andsafety laws, regulations and permit conditions (and interpretations thereof),including, among other things, those relating to the discharge of hazardous andother waste materials into the air, water and ground, the generation, storage,handling, use, transportation and/or disposal of hazardous materials, and thehealth and safety of our employees. Compliance with these laws, regulations, and permits require us to incursignificant capital and other costs, including costs to obtain and maintainexpensive pollution control equipment. They may also require us to make operational changes to limit actual orpotential impacts to the environment.  Aviolation of these laws, regulations or permit conditions can result 

 

38

----

Table of Contents

 

insubstantial administrative and civil fines and penalties, criminal sanctions,imposition of clean-up and site restoration costs and liens, suspension orrevocation of necessary permits, licenses and authorizations and/or theissuance of orders enjoining or limiting our current or future operations.  In addition, environmental laws andregulations (and interpretations thereof) change over time, and any such changes,more vigorous enforcement policies or the discovery of currently unknownconditions may require substantial additional environmental expenditures.

 

Weare also subject to potential liability for the investigation and cleanup ofenvironmental contamination at each of the properties that we own or operateand at off-site locations where we arranged for the disposal of hazardouswastes.  For instance, soil andgroundwater contamination has been identified in the past at our Illinoiscampus.  If any of these sites aresubject to investigation and/or remediation requirements, we may incur strictand/or joint and several liability under the Comprehensive EnvironmentalResponse, Compensation and Liability Act or other environmental laws whichimpose strict liability for all or part of the costs of such investigation,remediation, or removal costs and for damages to natural resources whether thecontamination resulted from the conduct of other or from consequences of ourown actions that were or were not in compliance with all applicable laws at thetime those actions were taken.  We mayalso be subject to related claims by private parties alleging property damageor personal injury due to exposure to hazardous or other materials at or fromsuch properties or other impacts of our operations.  While costs to address contamination orrelated third-party claims could be significant, based upon currently availableinformation, we are not aware of any material liability relating tocontamination or such third party claims. We have not accrued any amounts for environmental matters as of March31, 2010.  The ultimate costs of anyliabilities that may be identified or the discovery of additional contaminantscould adversely impact our results of operation or financial condition.

 

Inaddition, the hazards and risks associated with producing and transporting ourproducts (such as fires, natural disasters, explosions, abnormal pressures andspills) may result in releases of hazardous substances and other wastematerials, and may result in claims from governmental authorities or thirdparties relating to actual or alleged personal injury, property damage, ordamages to natural resources.  Wemaintain insurance coverage against some, but not all, potential lossesassociated with our operations. Our coverage includes, but is not limited to,physical damage to assets, employer’s liability, comprehensive generalliability, automobile liability and workers’ compensation.  We do not carry environmental insurance.  We believe that our insurance is adequate forour industry, but losses could occur for uninsurable or uninsured risks or inamounts 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 covered by insurance could have a material adverseimpact on our results of operations and financial condition.

 

Ourair emissions are subject to the federal Clean Air Act, as amended, and similarstate laws which generally require us to obtain and maintain air emissionpermits for our ongoing operations, as well as pre-approval for any expansionor construction of existing facilities or new facilities or modification ofcertain projects or facilities. Obtaining and maintaining those permits requires us to incur costs, andany future more stringent standards may result in increased costs and may limitor interfere with our operations.  Inaddition, the permits ultimately issued may impose conditions which are morecostly to implement than we had anticipated. These costs could have a material adverse effect on our financialcondition and results of operations. Because other ethanol manufacturers in the U.S. are and will continue tobe subject to similar laws and restrictions, we do not currently believe thatour costs to comply with current or future environmental laws and regulationswill adversely affect our competitive position among domestic producers.  However, because ethanol is produced andtraded internationally, these costs could adversely affect us in our efforts tocompete with foreign producers not subject to such stringent requirements.  Our failure to comply with air emissions lawsand regulations could subject us to monetary penalties, injunctions, conditionsor restrictions on operations and, potentially, criminal enforcement actions.

 

Federaland state environmental authorities have been investigating alleged excess VOCemissions and other air emissions from many U.S. ethanol plants, including ourIllinois facilities.  The investigationrelating to our Illinois wet mill facility is still pending, and we could berequired to install additional air pollution control equipment or take othermeasures to control air pollutant emissions at that facility.  If authorities require us to install controls,we would anticipate that costs would be higher than the approximately $3.4million we incurred in connection with a similar matter at our Nebraskafacility due to the larger size of the Illinois wet mill facility.  In addition, if the authorities determine ouremissions were in violation of applicable law, we would likely be required topay fines that could be material.

 

39

----

Table of Contents

 

Wehave made, and expect to continue making, significant capital expenditures onan ongoing basis to comply with increasingly stringent environmental laws,regulations and permits, including compliance with the NESHAP for industrial,commercial and institutional boilers and process heaters.  This NESHAP was issued in 2004 butsubsequently vacated in 2007.  Thevacated version of the rule required us to implement maximum achievable controltechnology at our Illinois wet mill facility to reduce hazardous air pollutantemissions from our boilers.  The EPA iscurrently rewriting the NESHAP, which is expected to be more stringent than thevacated version.  In the absence of a finalNESHAP for industrial, commercial and institutional boilers and process heaters,we are working with state authorities to determine what technology will berequired at our Illinois wet mill facility and when such technology must beinstalled.  We currently cannot estimatethe amount that will be needed to comply with any future federal or statetechnology requirement regarding air emissions from our boilers.

 

Wecurrently generate revenue from the sale of carbon dioxide, a greenhouse gas,which is a co-product of the ethanol production process at each of our Illinoisand Nebraska facilities.  Nationalgreenhouse gas legislation is in the early states of development in the U.S.,and we are currently unable to determine the impact of potential greenhouse gasreduction requirements.  Mandatorygreenhouse gas emissions reductions may impose increased costs on our businessand could adversely impact our operations, including our ability to continuegenerating revenue from carbon dioxide sales.

 

OnFebruary 3, 2010 the EPA announced final revisions to the National RFS program(commonly known as the RFS program or RFS-2). This Rule makes changes to theRFS program as required by the EISA.  Therevised statutory requirements establish new specific annual volume standardsfor cellulosic biofuel, biomass-based diesel, advanced biofuel, and totalrenewable fuel that must be used in transportation fuel. The revised statutoryrequirements also include new definitions and criteria for both renewable fuelsand the feedstock used to produce them, including new greenhouse gas emissionthresholds as determined by lifecycle analysis. The regulatory requirements for RFS-2 will apply to domestic and foreignproducers and importers of renewable fuel used in the U.S.

 

Thisfinal action is intended to lay the foundation for achieving significantreductions of greenhouse gas emissions from the use and creation of renewablefuels, reductions of imported petroleum and further development and expansionof our nation’s renewable fuels sector.

 

OnMay 10, 2010, the EPA published a Direct Final Rule to “amend certain of theRFS program regulations” to correct “some technical errors and areas within thefinal RFS-2 regulations that could benefit from clarification or modification.”  As part of this Direct Final Rule, the EPArevised the RFS-2 “to require that construction of grandfathered renewable fuelproduction facility for which construction commenced prior to December 19,2007, be completed by December 19, 2010, rather than 36 months from the date ofcommencement of construction.”  TheDirect Final Rule is effective as of July 1, 2010, except for sections uponwhich the EPA received adverse comment or request for a hearing.  We are unaware of adverse comment or requestfor a hearing on the construction deadlines described above.

 

RFS-2sets the 2010 RFS volume standard at 12.95 billion gallons (bg). Further, forthe first time, the EPA is setting volume standards for specific categories ofrenewable fuels including cellulosic, biomass-based diesel, and total advancedrenewable fuels.  For 2010, thecellulosic standard is set at 6.5 million gallons (mg); and the biomass baseddiesel standard is set at 1.15 bg (combining the 2009 and 2010 standards asproposed).

 

Inorder to qualify for these new volume categories, fuels must demonstrate thatthey meet certain minimum greenhouse gas reduction standards, based on alifecycle assessment, in comparison to the petroleum fuels they displace.  Generally, ethanol plants either must meetthe 20% reduction test or are grandfathered under special provisions.  For plants under construction on whichconstruction commenced prior to December 19, 2007 (including our Mt. Vernon andAurora West plants under construction) the plants must be completed within 36months in order to meet the requirements to be grandfathered or comply with thegreenhouse gas reduction standards which require the use of AdvancedTechnologies defined by the regulations.

 

**Item 3.                    Quantitative and Qualitative Disclosures AboutMarket Risk**

 

Weare exposed to various market risks, including changes in commodity prices.  Market risk is the potential loss arisingfrom 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 

 

40

----

Table of Contents

 

commodityprices, including price risk on anticipated purchases of corn, natural gas andthe sale of ethanol.  We do not enterinto derivatives or other financial instruments for trading or speculativepurposes.

 

***Commodity Price Risks***

 

Weare subject to market risk with respect to the price and availability of corn,the principal raw material we use to produce ethanol and ethanolby-products.  In general, rising cornprices result in lower profit margins and, therefore, represent unfavorablemarket conditions.  This is especiallytrue when market conditions do not allow us to pass along increased corn coststo our customers.  The availability andprice of corn is subject to wide fluctuations due to unpredictable factors suchas weather conditions, farmer planting decisions, governmental policies withrespect to agriculture and international trade and global demand andsupply.  Our weighted average gross corncost for the three months ended June 30, 2010 and 2009 was $3.53 and $4.10 perbushel, respectively.  For the six monthsended June 30, 2010 and 2009, our weighted average gross corn cost was $3.60and $4.17 per bushel, respectively.

 

Wehave firm-price purchase commitments with some of our corn suppliers underwhich we agree to buy corn at a price set in advance of the actual delivery ofthat corn to us.  At June 30, 2010, wehad commitments to purchase approximately 4.7 million bushels of corn throughJanuary 2011 at an average price of $3.49 per bushel from these cornsuppliers.  Under these arrangements, weassume the risk of a price decrease in the market price of corn between thetime this price is fixed and the time the corn is delivered.   We have elected to account for thesetransactions as normal purchases under ASC 815, and accordingly, have notmarked these transactions to market.

 

Inorder to reduce our market exposure to price decreases, we have in the past, atthe time we enter into a firm-price purchase commitment, entered into commodityfutures contracts to sell a certain amount of corn at the then-current pricefor delivery to the counterparty at a later date.  When we have these types of commodity futurescontracts, we account for them under ASC 815, *Accountingfor Derivative Instruments and Hedging Activities*.  Such futures 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, ifany, is recognized in other current assets in the Condensed ConsolidatedBalance Sheet, net of any cash received from the brokers.

 

Wehave also, in the past, entered into commodity futures contracts in connectionwith the purchase of corn to reduce our risk of future price increases.  We accounted for these transactions under ASC815.  These futures contracts were notdesignated as hedges and, therefore, were marked to market each period, withcorresponding gains and losses recorded in other non-operating income.  The fair value of these derivative contractswould be recognized in other current assets in the Condensed Consolidated BalanceSheet, net of any cash received from the brokers.

 

Wesometimes enter into firm-price purchase commitments with some of our naturalgas suppliers under which we agree to buy natural gas at a price set in advanceof the actual delivery of that natural gas to us.  Under these arrangements, we assume the riskof a price decrease in the market price of natural gas between the time thisprice is fixed and the time the natural gas is delivered.  At June 30, 2010, we did not have anycommitments to purchase natural gas in advance at prices other than atmarket.  We account for thesetransactions as normal purchases under ASC 815, and accordingly, do not markthese transactions to market.

 

Weare also subject to market risk with respect to ethanol pricing.  Our ethanol sales are priced using contractsthat can either be fixed, based upon the price of wholesale gasoline plus orminus a fixed amount, or based upon a market price at the time ofshipment.  We sometimes fix the price atwhich we sell ethanol using fixed price physical delivery contracts.  At June 30, 2010, we had no outstandingcontracts to sell ethanol at fixed prices. These normal sale transactions would not be marked to market.

 

Wemay also sell forward ethanol using contracts where the price is determined ata point in the future based upon an index plus or minus a fixed amount.  At June 30, 2010, we had no contracts for thesale of ethanol using wholesale gasoline as an index plus a fixed spread.  Under these arrangements, we assume the riskof a price decrease in the market price of gasoline.  In order to reduce our market exposure toprice decreases, at the time we enter into a firm sales commitment, we may alsoenter into commodity forward contracts to sell a like amount of 

 

41

----

Table of Contents

 

gasolineat the then-current price for delivery to the counterparty at a laterdate.  We account for these transactionsunder ASC 815.  These forward contractsare not designated as hedges and, therefore, are marked to market each period,with corresponding gains and losses recorded in other non-operatingincome.  The fair value of thesederivative liabilities is recognized in other current liabilities in theCondensed Consolidated Balance Sheet, net of any cash paid to brokers.  We did not have any of this type ofderivative positions at June 30, 2010.

 

***Material Limitations***

 

Thedisclosures with respect to the above noted risks do not take into account theunderlying commitments or anticipated transactions.  If the underlying items were included in theanalysis, the gains or losses on the futures contracts may be offset.  Actual results will be determined by a numberof factors that are not generally under our control and could varysignificantly from those factors disclosed.

 

Weare exposed to credit losses in the event of nonperformance by counterpartieson the above instruments, as well as credit or performance risk with respect toour hedged commitments. Although nonperformance is possible, we do notanticipate nonperformance by any of these parties.

 

**Item 4T.                 Controls and Procedures**

 

**Evaluationof Disclosure Controls and Procedures**

 

Underthe supervision of and with the participation of management, including ourChief Executive Officer, Thomas Manuel, and our Chief Financial Officer, JohnCastle, 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. Manuel and Castle have concluded that, as of the end of the periodcovered by this report, the Company’s disclosure controls and procedures havebeen properly 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 the timeperiods specified in the rules and forms of the SEC.  These disclosure controls and proceduresinclude, without limitation, controls and procedures designed to providereasonable assurance that information required to be disclosed in such reportsis accumulated and communicated to our management, includingMessrs. Manuel and Castle, 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.

 

**Changesin Internal Control over Financial Reporting**

 

Basedupon evaluation by our management, which was conducted with the participationof Messrs. Manuel and Castle, 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 1.                    Legal Proceedings**

 

On November 6,2008, the Company commenced an action against JPMorgan in the TenthJudicial Circuit in Tazewell County, Illinois. The Company’s complaint relates to losses incurred of approximately$31.6 million as a result of investments in Student Loan Auction RateSecurities purchased through JPMorgan. At this time, we cannot be certain as to the outcome of this litigation.

 

We are from time totime involved in various legal proceedings, including legal proceedingsrelating to the extensive environmental laws and regulations that apply to ourfacilities and operations.  We are notinvolved in any 

 

42

----

Tableof Contents

 

legal proceedingsthat we believe could have a material adverse effect upon our business,operating results or financial condition.

 

**Item 1A. Risk Factors**

 

None

 

**Item 2.                    Unregistered Sales of Equity Securities and Useof Proceeds**

 

Wewithheld the following shares of common stock from employee stock distributionsto satisfy tax withholding obligations related to restricted stock which vestedduring the second quarter of 2010.  These shares may be deemed to be “issuerpurchases” of shares that are required to be disclosed pursuant to this item.

 
| **Period**       | ** ** | **Total Number of  Shares  Purchased (1)** | ** ** | **Average price  Paid Per Share** | ** ** | **Total Number of  Shares  Purchased as  Part of Publicly  Announced Plans  or Programs (1)** | ** ** | **Maximum Number  (or Approximate  Dollar Value) of  Shares That May Be  Purchased Under  the Plan or  Programs** | ** ** |
|------------------|------------|--------------------------------------------|------------|-----------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|
| April 1-30, 2010 |       | —                                     |       | —                            |       | —                                                                                        |       |                                                                                                              | (1)        |
| May 1-31, 2010   |       | 7,791                                      |       | $                                 | 45.60      |                                                                                          | 7,791      |                                                                                                              |       | (1) |
| June 1-30, 2010  |       | —                                     |       | —                            |       | —                                                                                        |       |                                                                                                              | (1)        |
| Total            |       | 7,791                                      |       |                              |       | 7.791                                                                                         |       |                                                                                                              |       |
|                  |            |                                            |            |                                   |            |                                                                                               |            |                                                                                                                   |            |  |

 

----

(1)  Shareswere withheld from employees to satisfy certain tax withholding obligations duein connection with grants of stock under our 2010 Equity IncentivePlan.  The 2010 Equity Incentive Plan provides for the withholding ofshares to satisfy tax obligations.

 

**Item 3.                    DefaultsUpon Senior Securities**

 

None

 

**Item 4.                    Removedand Reserved**

 

None

 

**Item 5.   **                **OtherInformation**

 

None

 

43

----

Table of Contents

 

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

 

(a)          Exhibits

 
| 10.1   | Employment  Agreement, dated May 5, 2010, between Aventine Renewable Energy Holdings,  Inc. and John Castle*                                                                                      |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                              |
| 10.2   | Reserved                                                                                                                                                                                          |
|   |                                                                                                                                                                                              |
| 10.3   | Form  of Stock Option Agreement between Aventine Renewable Energy Holdings, Inc.  and John Castle*                                                                                                |
|   |                                                                                                                                                                                              |
| 10.4   | Form  of Restricted Stock Award Agreement between Aventine Renewable Energy  Holdings, Inc. and John Castle*                                                                                      |
|   |                                                                                                                                                                                              |
| 10.5   | Reserved                                                                                                                                                                                          |
|   |                                                                                                                                                                                              |
| 10.6   | Letter  of Intent, dated June 10, 2010, among Aventine Renewable Energy Holdings,  Inc., New CIE Energy Opco, LLC Whitebox Credit Arbitrage Fund, L.P. and  Whitebox Credit Arbitrage Fund, LTD.* |
|   |                                                                                                                                                                                              |
| 10.7   | Short  Form Contract, dated April 23, 2010, between Fagen, Inc. and Aventine  Renewable Energy — Aurora West, L.L.C. ††                                                            |
|   |                                                                                                                                                                                              |
| 10.8   | Short  Form Contract, dated May 4, 2010, between Fagen, Inc. and Aventine Renewable  Energy — Mt. Vernon, L.L.C. ††                                                                |
|   |                                                                                                                                                                                              |
| 10.9   | Construction  Agreement, dated May 14, 2010, between Aventine Renewable Energy — Aurora  West, L.L.C. and Fagen, Inc. ††                                                           |
|   |                                                                                                                                                                                              |
| 10.10  | Construction  Agreement, dated May 17, 2010, between Aventine Renewable Energy — Mt. Vernon,  L.L.C. and Fagen, Inc. ††                                                            |
|   |                                                                                                                                                                                              |
| 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.†                          |
|   |                                                                                                                                                                                              |
| 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.†                          |

 

----

| *            | Filed  herewith                                                                                                                                                                 |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                                            |
| †       | Furnished  herewith                                                                                                                                                             |
|         |                                                                                                                                                                            |
| †† | Filed  herewith. Portions of the exhibit have been omitted and filed seperately with  the Securities and Exchange Commission pursuant to a request for confidential  treatment. |

 

44

----

Table of Contents

 

**SIGNATURE**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned theretoduly authorized.

 
|                   | AVENTINE  RENEWABLE ENERGY HOLDINGS, INC. |
|------------------------|-------------------------------------------|
|                   |                                      |   |
|                   |                                      |   |
| Dated:  August 4, 2010 | By:                                       | /s/  William J. Brennan |
|                   | Name:                                     | William  J. Brennan |
|                   | Title:                                    | Chief  Accounting and Compliance Officer (duly authorized officer and principal  accounting officer) |

 

45

----