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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

for the quarterly period ended March 31, 2009

OR

for the transition period from            to           .

COMMISSION FILE NUMBER 001-32922

AVENTINE RENEWABLE ENERGY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

(309) 347-9200

(Registrant’s Telephone Number, including Area Code)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x  NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  YES o  NO o

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

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

Indicate the number of shares outstanding of each class of Common Stock, as of the latest practicable date

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FORM 10-Q

QUARTERLY REPORT

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PART I.                 FINANCIAL INFORMATION

Item 1.                    Financial Statements

Aventine Renewable Energy Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Aventine Renewable Energy Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Aventine Renewable Energy Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Aventine Renewable Energy Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(1)           Basis of Reporting for Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements include the accounts 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 in consolidation.

We have prepared the unaudited condensed consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading.  These financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008.

The accompanying unaudited condensed consolidated financial statements presented herewith reflect all adjustments (consisting of only normal and recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the results of operations for the three month periods ended March 31, 2009 and 2008.  The results of operations for interim periods are not necessarily indicative of results to be expected for an entire year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ materially from those estimates.

As of March 31, 2009, the Company’s Summary of Critical Accounting Policies for the year ended December 31, 2008, which are detailed in the Company’s Annual Report on Form 10-K, have not changed.

On January 1, 2009, we adopted the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 141 (revised 2007) (“SFAS 141R”), Business Combinations.  SFAS 141R requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction whether full or partial acquisition, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, requires expensing of most transaction and restructuring costs, and requires the acquirer to disclose all information needed to evaluate and understand the nature and financial effect of the business combination.  SFAS 141R applies to all transactions or other events in which an entity obtains control of one or more businesses, including combinations achieved without the transfer of consideration, for example, by contract alone or through the lapse of minority veto rights.  The adoption of these provisions did not impact our unaudited condensed consolidated financial statements, but will have an impact on the accounting for future business combinations.

On January 1, 2009, we adopted the provisions of SFAS No. 160 (“SFAS 160”), Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51.  SFAS 160 requires reporting entities to present noncontrolling (minority) interests as equity instead of as a liability or

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mezzanine equity and income attributable to noncontrolling interest separate from net income, and provides guidance on the accounting for transactions between an entity and noncontrolling interests.  SFAS 160 applies prospectively as of the beginning of the fiscal year SFAS 160 is initially applied, except for the presentation and disclosure requirements which are applied retrospectively for all periods presented subsequent to adoption.  See Note 12 - Noncontrolling Interest for further disclosure.

On January 1, 2009, we adopted the provisions of SFAS No. 161 (“SFAS 161”), Disclosures about Derivative Instruments and Hedging Activities — An Amendment of FASB Statement No. 133 (“SFAS 133”).  SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting.  Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  See Note 13 - Derivative Instruments and Hedging for our disclosures required under SFAS 161.

On April 7, 2009 (the “Petition Date”), we and all of our direct and indirect subsidiaries, filed voluntary petitions for relief (collectively, the “Bankruptcy Filing”) under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).  We intend to continue operating our business as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.  See Note 18 - Subsequent Events for details regarding the Bankruptcy Filing and the Chapter 11 cases.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which assumes continuity of operations and realization of assets and satisfaction of liabilities in the ordinary course of business.  Our ability to continue as a going concern is dependent upon, among other things, (i) our ability to comply with the terms and conditions of our debtor-in-possession financing; (ii) our ability to maintain adequate cash on hand; (iii) our ability to generate cash from operations; (iv) our ability to obtain confirmation of and to consummate a plan of reorganization under the Bankruptcy Code; (v) the cost and outcome of the reorganization process; and (vi) our ability to achieve profitability.  Uncertainty as to the outcome of these factors raises substantial doubt about the Company’s ability to continue as a going concern.  We are currently evaluating various courses of action to address the operational and liquidity issues the Company is facing, and formulating plans for improving operations.  There can be no assurance that any of these efforts will be successful.  The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result should we be unable to continue as a going concern.

American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code (“SOP 90-7”), which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared.  However, SOP 90-7 does require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.  Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the consolidated statements of operations beginning in the quarter ending June 30, 2009.  The consolidated balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities.  Liabilities that may be affected by the plan must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts.  In addition, cash provided by reorganization items must be disclosed

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separately in the condensed consolidated statement of cash flows.  SOP 90-7 became effective for Aventine on April 7, 2009 and Aventine will segregate those items as outlined above for all reporting periods subsequent to such date.

The accompanying consolidated financial statements for the prior period contain certain reclassifications to conform to the presentation used in the current period.  The reclassifications had no impact on stockholders’ equity, working capital, gross profit or net income.

(2)           Recent Accounting Pronouncements

In April 2009, the FASB issued FASB Staff Position (“FSP”) No. FAS 107-1 and APB 28-1 (“FSP No. 107-1 and APB 28-1”), Interim Disclosures about Fair Value of Financial Instruments, which requires disclosures about fair value of financial instruments for interim reporting periods.  This guidance is effective for interim reporting periods ending after June 15, 2009 and will apply to our disclosures beginning with our second fiscal quarter of 2009.  We are in the process of determining the effect that the adoption of this guidance will have on our condensed consolidated financial statements and disclosures.

In April 2009, the FASB also issued FSP No. FAS 157-4 (“FSP No. 157-4”), Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased.  This guidance is effective for interim reporting periods ending after June 15, 2009 and will apply to our disclosures beginning with our second fiscal quarter of 2009.  We are in the process of determining the effect that the adoption of this guidance will have on our condensed consolidated financial statements and disclosures.

In December 2008, the FASB issued FSP No. FAS 132(R)-1 (“FSP No. 132(R)-1”), Employers’ Disclosures about Postretirement Benefit Plan Assets, which requires enhanced disclosures about plan assets in an employer’s defined benefit pension or other postretirement plan.  These disclosures are intended to provide users of financial statements with a greater understanding of how investment allocation decisions are made, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets and significant concentrations of risk within plan assets.  FSP No. 132(R)-1 will apply to our plan asset disclosures beginning with our fiscal year ending December 31, 2009.  We are in the process of determining the effect that the adoption of this guidance will have on our condensed consolidated financial statements and disclosures.

(3)           Inventories

Inventories are as follows:

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(4)           Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets are as follows:

(5)           Debt

The following table summarizes the Company’s long-term debt:

Secured Revolving Credit Facility

On March 10, 2009, we amended our existing secured revolving credit facility.  The amended liquidity facility consists of a secured revolving credit facility with JPMorgan Chase Bank, N.A., as administrative agent and a lender.  The revolving commitment under the amended facility was initially $75 million, and reduced to $60 million on April 1, 2009 and $50 million on May 1, 2009 and thereafter (subject to collateral availability).  The amended liquidity facility included a $25 million sub-limit for letters of credit.  The facility is secured by substantially all of the Company’s assets.

On March 30, 2009, the Company notified the administrative agent for its amended secured revolving credit facility that the Company would not have entered into, by March 31, 2009, formal written agreements with the holders of at least 80% in principal amount of its 10% senior unsecured notes due 2017 committing to binding terms of an exchange offer, as required under the amended secured revolving credit facility.  Failure by the Company to receive such formal written commitments by March 31, 2009 would have constituted an event of default under our amended secured revolving credit facility.  In addition, on March 30, 2009, the Company notified the administrative agent that the Company did not intend to make a scheduled payment of interest on the Company’s 10% senior unsecured notes due 2017 which was due on April 1, 2009.  Failure to make the interest payment would also have constituted an event of default under our amended secured revolving credit facility.  On March 30, 2009, the Company and the lenders under its amended secured revolving credit facility executed a letter agreement to waive certain events of default until April 8, 2009, including the potential effects of default discussed in the preceding sentences.

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As of March 31, 2009, $22.0 million in letters of credit and $14.4 million in revolving loans were outstanding under the amended secured revolving credit facility.  As a result of the Bankruptcy Filing, all the commitments under the Company’s amended secured revolving credit facility with JP Morgan Chase Bank, N.A., as administrative agent and a lender, automatically terminated, and the principal of the loans and the reimbursement obligations then outstanding, together with accrued interest thereon and any unpaid fees and all other obligations of the borrowers accrued under the applicable loans documents, became immediately due and payable, subject to the automatic stay provision of Section 362 of the Bankruptcy Code.  As a result, there is no longer any liquidity available to us under this facility.

Senior Notes

At March 31, 2009, the Company had outstanding $300 million aggregate principal amount of 10% senior unsecured fixed-rate notes due April 2017 (“Notes”).  The Notes were issued pursuant to an indenture between us and Wells Fargo Bank, N.A., as trustee, and were subsequently exchanged for registered notes with the same terms.  The Notes are general unsecured obligations of the Company and certain of its guarantor subsidiaries.  As a result of the Bankruptcy Filing, the outstanding principal amount of, and accrued interest thereon, under the Company’s indenture governing the Notes became immediately due and payable, subject to the automatic stay provision of Section 362 of the Bankruptcy Code.

Deferred Debt Issuance Costs

Deferred debt issuance costs are subject to amortization.  Original deferred debt issuance costs totaling $7.2 million relating to our Notes are being amortized utilizing a method which approximates the effective interest method over the life of the notes of 10 years, resulting in amortization expense of $0.7 million in 2009 and each year thereafter.  As a result of the amendment of our secured revolving credit facility completed in March 2009, we expensed the remaining original unamortized debt issuance costs related to our secured revolving credit facility totaling $0.6 million during the first quarter of 2009.  In connection with amending our secured revolving credit facility in March 2009, we paid debt issuance costs totaling $0.9 million, which will be amortized through February 28, 2010, which is the remaining life of the amended secured revolving credit facility.

(6)           Other Current Liabilities

Other current liabilities are as follows:

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(7)                                 Other Long-Term Liabilities

Other long-term liabilities are as follows:

(8)                                 Fair Value Measurements

SFAS 157

SFAS 157 establishes a framework for measuring fair value and expands disclosure about fair value measurements.  The statement requires that fair value measurements be classified and disclosed in one of the following three categories:

·                  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).

The following table summarizes the valuation of our financial instruments which are carried at fair value by the above SFAS 157 pricing levels as of March 31, 2009:

The Company did not hold any financial assets requiring the use of Level 2 or Level 3 inputs at March 31, 2009.

Although the Company held no outstanding derivative positions as of March 31, 2009, it recorded net gains of $1.2 million and $1.9 million, respectively, for the three month periods ended March 31, 2009 and 2008, under “other non-operating income” in the unaudited Condensed Consolidated Statements of Operations for the changes in the fair value of its derivative financial instrument positions it held during the respective three-month periods.

The Company recorded gains of $451 thousand for the three month period ended March 31, 2009 under other accumulated comprehensive loss in the unaudited Condensed Consolidated Balance Sheet for

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the changes in the fair value of its available for sale securities.  The Company did not hold any available for sale securities in the first quarter of 2008.

The carrying value of other financial instruments, including cash, accounts receivable and accounts payable and accrued liabilities approximate fair value due to their short maturities or variable-rate nature of the respective balances.  The following table presents the other financial instruments that are not carried at fair value but which require fair value disclosure as of March 31, 2009 and December 31, 2008.

The Company’s investments at December 31, 2008 accounted for under the cost method consisted of minority positions in equity securities of other ethanol operating companies.  These equity investments were recorded at cost, and it was not practical to estimate a fair value for these non-publicly traded companies.  The Company had redeemed all of its cost investments in the three months ended March 31, 2009.

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

(9)                                 Stock-Based Compensation Plans

The Company values its share-based payment awards using a form of the Black-Scholes option-pricing model (the “option pricing model”).  The determination of fair value of share-based payment awards on the date of grant using the option pricing model is affected by our stock price as well as the input of other subjective assumptions.  The option-pricing model requires a number of assumptions, of which the most significant are expected stock price volatility, the expected pre-vesting forfeiture rate and the expected option term (the amount of time from the grant date until the options are exercised or expire).  Expected volatility is normally calculated based upon actual historical stock price movements over the expected option term.  Since we have a short-term history of stock price volatility as a public company, we calculate volatility by considering, among other things, the expected volatilities of public companies engaged in similar industries.  Pre-vesting forfeitures had previously been estimated using a 3% forfeiture rate.  However, beginning in the quarter ended September 30, 2008, we revised our estimated forfeiture rate to 6.4%, reflecting a higher actual experience rate since becoming a public company in 2006.  The expected option term is calculated using the “simplified” method permitted by SAB 107.  Our options have characteristics significantly different from those of traded options, and changes in the assumptions can materially affect the fair value estimates.

Pre-tax stock-based compensation expense for the three month periods ended March 31, 2009 and 2008 was approximately $1.3 million and $1.9 million, respectively.  For the three month period ended March 31, 2009, the $1.3 million expense was charged to selling, general and administrative (SG&A) expense.  For the three month period ended March 31, 2008, $1.8 million was charged to SG&A expense and $0.1 million was charged to cost of goods sold.  Stock-based compensation expense reduced earnings per share by $0.02 per basic and fully diluted share for the three month period ended March 31, 2009 and by $0.03 per basic and diluted share for the three month period ended March 31, 2008.  The Company recognized a tax benefit on its condensed consolidated statement of operations from stock-based

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compensation expense in the amount of $0.3 million and $0.7 million for the three month periods ended March 31, 2009 and 2008, respectively.  The Company recorded pre-tax stock-based compensation expense for the three month periods ended March 31, 2009 and 2008 as follows:

As of March 31, 2009 and 2008, the Company had not yet recognized compensation expense on the following non-vested awards:

The Company granted stock options during the quarters ended March 31, 2009 and 2008.  The determination of the fair value of the stock option awards, using the option pricing model, incorporated the assumptions in the following table for stock options granted during the quarters ended March 31, 2009 and 2008.  The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant over the expected term.  Expected volatility is calculated by considering, among other things, the expected volatilities of public companies engaged in similar industries.  The expected option term is calculated using the “simplified” method permitted by SAB 107.  Assumptions for options granted in the quarters ended March 31, 2009 and 2008 are as follows:

The following table summarizes stock options outstanding and changes during the three month period ended March 31, 2009:

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The range of exercise prices of the exercisable options and outstanding options at March 31, 2009 are as follows:

Restricted stock award activity for the three months ended March 31, 2009 is summarized below:

Restricted stock unit award activity for the three months ended March 31, 2009 is summarized below:

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(10)                          Interest Expense

The following table summarizes interest expense:

(11)                          Retirement and Pension Expense

Defined Contribution Plans

We have 401(k) plans covering substantially all of our employees.  We recognized expense with respect to these plans of $0.3 million for the three month periods ended March 31, 2009 and 2008.  Contributions made under our defined contribution plans include a match, at the Company’s discretion, of an employee’s contribution to the plans.  On March 13, 2009, we terminated 25 employees a part of a planned reduction in force.  As a result of these terminations, we accelerated the vesting of the Company’s matching portion of these employee’s previously unvested contributions.  As a result of this accelerated vesting, there was no additional expense to the Company.

Qualified Retirement Plan

The Company provides a non-contributory qualified defined benefit pension plan for its unionized employees at our Pekin, Illinois production facilities.  The following table summarizes the components of net periodic pension cost for the qualified pension plan:

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Postretirement Benefit Obligation

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

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

(12)                          Noncontrolling Interest

As discussed in Note 1, we adopted SFAS 160 on January 1, 2009.  Prior to October 2008, we owned 78.42% of Nebraska Energy, LLC (“NELLC”), a 50 million gallon dry mill ethanol plant.  In October 2008, we purchased the remaining 21.58% of NELLC we did not previously own.  As a result of purchasing the remaining interest in NELLC, we did not have any noncontrolling interest on our consolidated balance sheets as of March 31, 2009 and December 31, 2008.  In accordance with SFAS 160, we classified noncontrolling interests separately on our condensed consolidated statements of operations for the quarter ended March 31, 2008.  Prior year amounts were previously included in our consolidated balance sheets as a separate line item called “minority interest” under long-term liabilities and in our consolidated statement of operations as a separate line item called “Minority interest” under other income (expense).

Net loss attributable to Aventine during the quarter ended March 31, 2008 was as follows:

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(13)                          Derivative Instruments and Hedging

On January 1, 2009, we adopted the provisions of SFAS No. 161, which requires entities to provide greater transparency in interim and annual financial statements about how and why the entity uses derivative instruments, how the instruments and related hedged items are accounted for under SFAS No. 133, and how the instruments and related hedged items affect the financial position, results of operations, and cash flows of the entity.

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

We are subject to market risk with respect to the price and availability of corn, the principal raw material we use to produce ethanol and ethanol by-products.  In general, rising corn prices result in lower profit margins and, therefore, represent unfavorable market conditions.  This is especially true when market conditions do not allow us to pass along increased corn costs to our customers.  The availability and price of corn is subject to wide fluctuations due to unpredictable factors such as weather conditions, farmer planting decisions, governmental policies with respect to agriculture and international trade and global demand and supply.

We have firm-price purchase commitments with some of our corn suppliers under which we agree to buy corn at a price set in advance of the actual delivery of that corn to us.  Under these arrangements, we assume the risk of a price decrease in the market price of corn between the time this price is fixed and the time the corn is delivered.  At March 31, 2009, we had commitments to purchase 1.5 million bushels of corn through December 2009 at an average fixed price of $5.23 per bushel.  We have elected to account for these transactions as normal purchases under SFAS 133, and accordingly, have not marked these transactions to market.

We sometimes enter into firm-price purchase commitments with some of our natural gas suppliers under which we agree to buy natural gas at a price set in advance of the actual delivery of that natural gas to us.  Under these arrangements, we assume the risk of a price decrease in the market price of natural gas between the time this price is fixed and the time the natural gas is delivered.  At March 31, 2009, we did not have any commitments to purchase natural gas in advance at prices other than at market.  We account for these transactions as normal purchases under SFAS 133, and accordingly, do not mark these transactions to market.

In order to reduce our market exposure to price decreases in corn, we have in the past, at the time we enter into a firm-price purchase commitment, often entered into commodity forward contracts to sell a like amount of corn at the then-current price for delivery to the counterparty at a later date.  Such forward contracts are not designated as hedges and, therefore, are marked to market each period.

We have also, in the past, entered into commodity futures contracts in connection with the purchase of corn to reduce our risk of future price increases.  These futures contracts were not designated as hedges and, therefore, were marked to market each period.

We are also subject to market risk with respect to ethanol pricing.  Our ethanol sales are priced using contracts that can either be fixed; based upon the price of wholesale gasoline plus or minus a fixed amount; or based upon a market price at the time of shipment.  We sometimes fix the price at which we sell ethanol using fixed price physical delivery contracts.  We have elected to account for these transactions as normal sales transactions under SFAS 133, and accordingly, have not marked these transactions to market.

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We also sell forward ethanol using contracts where the price is determined at a point in the future based upon an index plus or minus a fixed amount.  Under these arrangements, we assume the risk of a price decrease in the market price of gasoline.  In order to reduce our market exposure to price decreases, at the time we enter into a firm sales commitment, we may also enter into commodity forward contracts to sell a like amount of gasoline at the then-current price for delivery to the counterparty at a later date.  These forward contracts are not designated as hedges and, therefore, are marked to market each period.

We did not have any derivative instruments outstanding at March 31, 2009.  Derivatives not designated as hedging instruments under SFAS 133 at March 31, 2009 and December 31, 2008 were as follows:

The realized and unrealized effect on our condensed consolidated statement of operations for derivatives not designated as hedging instruments under SFAS 133 at March 31, 2009 and 2008 are as follows:

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

(14)                          Income Taxes

The Company’s income tax benefit for the first quarter of 2009 was 13.3% of pre-tax income.  The difference between the benefit rate accrued and the statutory benefit rate is principally due to the establishment of a valuation allowance because we expect to be unable to recognize net operating loss carryforward amounts and certain other deferred tax assets.

As of March 31, 2009, we had $2.4 million of uncertain tax benefits.  All of our unrecognized tax benefits, if recognized in future periods, would impact the Company’s effective tax rate.  During the three month period ended March 31, 2009, our liability for unrecognized tax benefits increased by $1.5 million as a result of the examination of our federal income tax returns for the tax years 2006 and 2007.  At March 31, 2009 our liability for unrecognized tax benefits is included in other current liabilities on the condensed consolidated balance sheet.

We include interest expense or income, as well as potential penalties on unrecognized tax benefits, as a component of income tax expense in the condensed consolidated statement of operations. 

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The total amount of accrued interest related to uncertain tax positions at March 31, 2009 was $0.1 million, net of the deferred tax benefit, and is included in other current liabilities.  We increased our accrual for interest related to uncertain tax positions by $0.1 million, net of the deferred tax benefit, for the three month period ended March 31, 2009.  It is reasonably possible that the total amount of unrecognized tax benefit will decrease by $2.4 million with the settlement of the Company’s federal income tax audits for the tax years 2006 and 2007.

Our federal income tax returns for 2006 and 2007 are open for examination under the federal statute of limitations.  We file in numerous state and foreign jurisdictions with varying statutes of limitations open from 2004 to 2007.

(15)                          Earnings (Loss) Per Share

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

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

We had additional potentially dilutive securities outstanding representing options on 3.6 million and 4.1 million common shares at March 31, 2009 and 2008 respectively, that were not included in the computation of potentially dilutive securities because the options exercise prices were greater than the average market price of the common shares or because the options were anti-dilutive, and were excluded from the calculation of diluted earnings per share in accordance with SFAS 128.

(16)                          Industry Segment

The Company operates in one reportable business segment, the manufacture and marketing of fuel-grade ethanol.

(17)                          Litigation

On April 7, 2009, the Company and all of its direct and indirect subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court.  The Bankruptcy Cases are being jointly administered under Case Number 09-11214 (KG).  Aventine intends to continue to operate its business as a debtor-in-possession under the jurisdiction of the Bankruptcy Court

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and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.  As a result of the commencement of the Bankruptcy Cases, attempts to collect, secure, or enforce remedies with respect to pre-petition claims against Aventine are subject to the automatic stay provisions of Section 362 of the Bankruptcy Code.  The Bankruptcy Cases are discussed in greater detail in Note 18 – Subsequent Events.

On November 6, 2008, the Company commenced an action against JP Morgan Securities, Inc. and JP Morgan Chase Bank, N.A. (hereinafter collectively referred to as “JP Morgan”) in the Tenth Judicial Circuit in Tazewell County, Illinois.  The Company’s complaint relates to losses incurred in excess of $31 million as a result of investments in Student Loan Auction Rate Securities purchased through JP Morgan.  At this time, we cannot be certain as to the outcome of this litigation.

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

(18)                          Subsequent Events

On April 7, 2009, the Company and all of its direct and indirect subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court.  The Company intends to continue operating its business as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.  Aventine’s Chapter 11 cases are being jointly administered by the Bankruptcy Court as Case No. 09-11214 (KG) (collectively, the “Bankruptcy Cases”).  In general, as debtors-in-possession, Aventine and its subsidiaries that are part of the Bankruptcy Filing (collectively, the “Debtors”) are authorized under the Bankruptcy Code to continue to operate as an ongoing business, but may not engage in transactions outside of the ordinary course of business without the approval of the Bankruptcy Court.  The Debtors specifically are (i) Aventine Renewable Energy Holdings, Inc.; (ii) Aventine Renewable Energy, LLC, a Delaware limited liability company; (iii) Aventine Renewable Energy, Inc. a Delaware corporation; (iv) Aventine Renewable Energy — Mt. Vernon, LLC, a Delaware limited liability company; (v) Aventine Renewable Energy — Aurora West, LLC, a Delaware limited liability company; (vi) Aventine Power, LLC, a Delaware limited liability company, and (vii) Nebraska Energy, LLC, a Kansas limited liability company.

No assurance can be provided as to what values, if any, will be ascribed in the Debtors’ bankruptcy proceedings to the Debtors’ pre-petition liabilities, common stock and other securities. Accordingly, caution should be exercised with respect to existing and future investments in any of these liabilities or securities.

At a hearing held on April 9, 2009, the Bankruptcy Court granted the Debtors’ “First Day Motions”.  The relief granted by the Bankruptcy Court through the First Day Motions was designed to stabilize the Company’s operations and business relationships with vendors, lenders, employees and others, minimize the effects of the commencement of the Bankruptcy Cases and preserve the value of the Debtors’ assets.

On or about April 29, 2009, the Debtors caused notice of the commencement of the Bankruptcy Cases to be served on all known or potential creditors and other parties in interest.  The Bankruptcy Filing constituted an event of default under both the Company’s secured revolving credit facility and its 10% senior unsecured notes due 2017 (see Note 5).  Subject to certain exceptions under the Bankruptcy Code, the Bankruptcy Filing automatically enjoined, or stayed, the continuation of any judicial or

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administrative proceedings or other actions against the Debtors or their property to recover on, collect or secure a claim arising prior to the Petition Date.  Thus, for example, creditor actions to obtain possession of property from Aventine, or to create, perfect or enforce any lien against the property of Aventine, or to collect on or otherwise exercise rights or remedies with respect to a pre-petition claim are enjoined unless and until the Bankruptcy Court lifts the automatic stay.

In order to successfully exit Chapter 11, Aventine will need to propose, and obtain confirmation by the Bankruptcy Court of, a plan of reorganization that satisfies the requirements of the Bankruptcy Code.  A plan of reorganization could, among other things, resolve the Debtors’ pre-petition obligations, set forth the revised capital structure of the newly reorganized entity and provide for corporate governance subsequent to exit from bankruptcy.  Aventine has the exclusive right for 120 days after the Petition Date to file a plan of reorganization and 60 additional days to solicit and obtain necessary acceptances.  Such periods may be extended by the Bankruptcy Court for cause to up to 18 months and 20 months, respectively, after the Petition Date.  If Aventine’s exclusivity period lapses, any party in interest may file a plan of reorganization for Aventine. In addition to the need for Bankruptcy Court confirmation and satisfaction of Bankruptcy Code requirements, a plan of reorganization must be accepted as described below by holders of impaired claims and equity interests in order to become effective.  An Aventine Chapter 11 plan of reorganization will have been accepted by holders of claims against and equity interests in Aventine if (i) at least one-half in number and two-thirds in dollar amount of claims actually voting in each impaired class of claims have voted to accept the plan and (ii) at least two-thirds in amount of equity interests actually voting in each impaired class of equity interests has voted to accept the plan. Under circumstances specified in the so-called “cramdown” provisions of Section 1129(b) of the Bankruptcy Code, the Bankruptcy Court may confirm a plan even if such plan has not been accepted by all impaired classes of claims and equity interests.  A class of claims or equity  interests that does not receive or retain any property under the plan on account of such claims or interests is deemed to have voted to reject the plan.  The precise requirements and evidentiary showing for confirming a Chapter 11 plan notwithstanding its rejection by one or more impaired classes of claims or equity interests depends upon a number of factors, including the status and seniority of the claims or equity interests in the rejecting class — i.e., secured claims or unsecured claims, subordinated or senior claims, preferred or common stock.

Under Section 365 of the Bankruptcy Code, Aventine may assume, assume and assign, or reject executory contracts and unexpired leases, including real property, railcars and equipment leases, subject to the approval of the Bankruptcy Court and certain other conditions.  Rejection constitutes a court-authorized breach of the lease or contract in question and, subject to certain exceptions, relieves Aventine of its future obligations under such lease or contract but creates a pre-petition claim for damages caused by such breach or rejection, subject to Aventine’s right to review and contest such claim.  Parties whose contracts or leases are rejected may file claims against Aventine for damages.  Generally, the assumption of an executory contract or unexpired lease requires Aventine to cure all prior defaults under such executory contract or unexpired lease, including all pre-petition arrearages, and to provide adequate assurance of future performance.  In this regard, the Company expects that liabilities subject to compromise and resolution in the Bankruptcy Cases will arise in the future as a result of damage claims created by Aventine’s rejection of various executory contracts and unexpired leases.  Conversely, the Company would expect that the assumption of certain executory contracts and unexpired leases may convert liabilities shown in future financial statements as subject to compromise to post-petition liabilities.  Due to the uncertain nature of many of the potential claims, the Company is unable to project the magnitude of such claims with any degree of certainty.

The Bankruptcy Court will establish a deadline for the filing of proofs of claim and thereby require Aventine’s creditors to submit claims for alleged liabilities not paid and/or damages incurred arising from or related to periods prior to the Petition Date.  There may be differences between the

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amounts at which any such liabilities are recorded in the Company’s financial statements and the amount claimed by Aventine’s creditors.  Significant litigation may be required to resolve any such disputes or discrepancies.

Although Aventine expects to file a Chapter 11 plan that provides for emergence from Chapter 11 some time in the future, there can be no assurance that a Chapter 11 plan will be proposed by Aventine or confirmed by the Bankruptcy Court, or that any such plan will be consummated.

The Company has incurred and will continue to incur significant costs associated with the reorganization.  The amount of these costs, which are being expensed as incurred, are expected to significantly affect the Company’s results of operations.

As of the Petition Date, Aventine had approximately $2.7 million in cash and cash equivalents.  On April 7, 2009, prior to the commencement of the Bankruptcy Cases, Aventine obtained agreements from certain holders of the notes, subject to specified conditions, for debtor-in-possession (“DIP”) financing of up to $30 million (as described in the Debtor in Possession Credit Facility Term Sheet filed as Exhibit 10.1 to our Form 8-K filed on April 13, 2009 and incorporated herein by reference) to provide liquidity during the reorganization process.  At a hearing held before the Bankruptcy Court on May 5, 2009, the Bankruptcy Court overruled objections from the Debtors’ pre-petition secured lenders and approved DIP financing on a final basis.  The ability of the Company to continue as a going concern is dependent upon, among other things, (i) the Company’s ability to comply with the terms and conditions of any DIP financing; (ii) the ability of the Company to maintain adequate cash on hand; (iii) the ability of the Company to generate cash from operations; (iv) the ability of the Company to obtain confirmation of and to consummate a plan of reorganization under the Bankruptcy Code; (v) the cost and outcome of the reorganization process; and (vi) the Company’s ability to achieve profitability.  Uncertainty as to the outcome of these factors raises substantial doubt about the Company’s ability to continue as a going concern.  We are currently evaluating various courses of action to address the operational and liquidity issues the Company is facing and formulating plans for improving operations.  There can be no assurance that any of these efforts will be successful.  The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.  Preparing the accompanying unaudited condensed consolidated financial statements on a going concern basis contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

As a result of the Bankruptcy Filing, realization of assets and liquidation of liabilities are subject to uncertainty.  While operating as a debtor-in-possession under the protection of Chapter 11, and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business, Aventine may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the condensed consolidated financial statements.  Further, a plan of reorganization could materially change the amounts and classifications reported in our consolidated financial statements.  Our historical consolidated financial statements do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.

The potential adverse publicity associated with the Bankruptcy Filing and the resulting uncertainty regarding the Company’s future prospects may hinder the Company’s ongoing business activities and its ability to operate, fund and execute its business plan by impairing relations with existing and potential customers; negatively impacting the ability of the Company to attract, retain and compensate key executives and employees and to retain employees generally; limiting the Company’s ability to obtain trade credit; and impairing present and future relationships with vendors and service providers.

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Under the priority scheme established by the Bankruptcy Code, unless creditors agree otherwise, post-petition liabilities and pre-petition liabilities must be satisfied in full before stockholders of Aventine are entitled to receive any distribution or retain any property under a plan of reorganization.  The ultimate recovery, if any, to creditors and stockholders of Aventine will not be determined until confirmation and consummation of a plan of reorganization.  No assurance can be given as to what values, if any, will be ascribed in the Bankruptcy Cases to each of these constituencies or what types or amounts of distributions, if any, they would receive.  Accordingly, the Company urges that appropriate caution be exercised with respect to existing and future investments in any of the Company’s common stock or any of the Company’s liabilities.

Notice and Sell-Down Procedures for Trading Equity Securities

The Bankruptcy Court entered an interim order on April 9, 2009 and a final order (the “Final Trading Restriction Order”) on May 4, 2009 granting the motion of the Debtors to require beneficial owners of substantial amounts of the Company’s common stock to provide notice of their holdings and restrict, in specified circumstances and subject to specified terms and conditions, acquisitions or dispositions of the Company’s common stock by Substantial Equityholders (as defined below) (the “Common Stock Notice and Transfer Requirements”).

Under the Common Stock Notice and Transfer Requirements, all “Substantial Equityholders” must provide the Debtors, the Debtors’ counsel and the Bankruptcy Court advance notice of their intent to buy or sell the Company’s common stock (including options to acquire common stock, as further specified in the Final Trading Restriction Order) prior to effectuating any such purchase or sale. A “Substantial Equityholder” under the Final Trading Restriction Order is a person or entity that beneficially owns or, as a result of a transaction, would beneficially own, at least 2.04 million shares (including options to acquire shares, as further specified in the Final Trading Restriction Order) of the Company’s common stock, representing approximately 4.75% of all issued and outstanding shares of the Company’s common stock.  The Common Stock Notice and Transfer Requirements were requested by the Debtors to identify and, where necessary, restrict potential trades of the Company’s common stock that could negatively impact the Debtors’ ability to preserve maximum availability of their accrued net operating losses and other tax attributes under Section 382 of the Code.  Pursuant to the Final Trading Restriction Order, the Debtors have 15 calendar days after notification of a transfer by a Substantial Equityholder to file any objections with the Bankruptcy Court and serve notice on such Substantial Equityholder.  If the Debtors file any objections, the transfer would not become effective unless approved by a final and non-appealable order of the Bankruptcy Court.  In addition, a person or entity that is or becomes a Substantial Equityholder must file with the Bankruptcy Court, and provide the Debtors and their counsel with, notification of such status on or before the later of (a) 15 days after the effective date of the notice of entry of the Final Trading Restriction Order or (b) ten days after becoming a Substantial Equityholder.

Debtor-In-Possession Financing

On April 7, 2009, certain of the Company’s bondholders (the “DIP Lenders”) entered into a term sheet (the “DIP Term Sheet”) for a $30 million Debtor-in-Possession Credit Facility with the Debtors.  The DIP Term Sheet provides, subject to certain conditions as described in the Debtor in Possession Credit Facility Term Sheet filed as Exhibit 10.1 to our Form 8-K filed on April 13, 2009 and incorporated herein by reference, for a first priority debtor-in-possession financing (the “DIP Facility”) composed of a term loan facility made available to certain of Aventine’s subsidiaries in a maximum aggregate principal amount of up to $30 million.  Proceeds of the DIP Facility will be used, among other things, to (i) fund the working capital and general corporate needs of the Debtors and the costs of the Bankruptcy Cases in accordance with an approved budget, and (ii) provide adequate protection, in

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accordance with the terms of the DIP Facility, to the pre-petition agent and pre-petition lenders under the Company’s existing credit facilities.

On April 14, 2009, the Bankruptcy Court entered an interim order approving the DIP Facility and on May 5, 2009, entered an order approving the DIP Facility on a final basis.

In addition to the DIP Facility final order, the Bankruptcy Court on April 9, 2009 entered an order authorizing the Company to use the cash collateral of its creditors to fund specified operations and pay specified expenses of the Bankruptcy Cases to allow the Debtors to operate pending the Bankruptcy Court’s consideration of the approval of the DIP Facility.  These cash collateral orders include authorization of the use of cash collateral of the lenders under the Company’s pre-petition secured revolving credit facility with the lenders therein.

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

This report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include all statements that do not relate solely to current or historical fact, but address events or developments that we anticipate will occur in the future.  Forward-looking statements include statements regarding our goals, beliefs, plans or current expectations, taking into account the information currently available to our management.  When we use words such as “anticipate,” “intend,” “expect,” “believe,” “plan,” “may,” “should” or “would” or other words that convey uncertainty of future events or outcome, we are making forward-looking statements.  Statements relating to future sales, earnings, operating performance, restructuring strategies, plant expansions, capital expenditures and sources and uses of cash, for example, are forward-looking statements.

These forward-looking statements are subject to various risks and uncertainties which could cause actual results to differ materially from those stated or implied by such forward-looking statements.  We undertake no obligation to publicly release any revision of any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof, or to reflect the occurrence of unanticipated events.  Information concerning risk factors is contained under Item “1A - Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and under Part II, Item 1A of this Quarterly Report on Form 10-Q.  You should carefully consider all of the risks and all other information contained in or incorporated by reference in this report and in our filings with the SEC.  These risks are not the only ones we face.   Additional risks and uncertainties not presently known to us, or which we currently consider immaterial, also may adversely affect us.  If any of these risks actually occur, our business, financial condition and results of operations could be materially and adversely affected.

Company Overview

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

Results of Operations

The following discussion summarizes the significant factors affecting the consolidated operating results of the Company for the three month periods ended March 31, 2009 and 2008.  This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes to the unaudited condensed consolidated financial statements contained in Item 1 above, and the consolidated financial statements and related notes for the year ended December 31, 2008 included in the Company’s Annual Report on Form 10-K.