GPRE

Green Plains Inc. 10-Q Summary: Period Ended June 30, 2009

Business Context and Reporting Period

This Form 10-Q covers the quarterly and six-month periods ended June 30, 2009, for Green Plains Renewable Energy, Inc. (Green Plains). The Company operates in three segments: Ethanol Production, Agribusiness, and Marketing and Distribution. The reporting period reflects the Company's transition from a development-stage entity to a fully operational producer following the October 2008 reverse acquisition of VBV LLC and the January 2009 acquisition of Blendstar LLC. As of July 31, 2009, 24,954,639 shares of common stock were outstanding.

Key Financial Metrics

Note: Comparative data for 2008 is largely nominal ($259k revenue) as the Company was in a development stage prior to the October 2008 merger.

Material Changes vs. Prior Period

• Revenue Surge: Revenues increased from $259,000 in the prior year periods to $284.7 million (Q2) and $505.7 million (YTD) due to the commencement of operations at Bluffton and Obion plants and the consolidation of Green Plains Grain and Blendstar.
• Profitability Shift: The Company reported a net loss of $8.7 million for the six months ended June 30, 2009, compared to a loss of $3.0 million in the prior year. This was driven by higher operating expenses ($19.8 million vs. $3.4 million) and interest expense ($6.3 million vs. $68,000) associated with full-scale operations and debt servicing.
• One-Time Charge: A $4.6 million charge was recorded in Cost of Goods Sold related to the termination of third-party ethanol marketing agreements, allowing the Company to market its own production.
• Inventory Build: Inventories increased to $64.7 million from $47.0 million at year-end 2008, reflecting operational ramp-up.

Outlook, Risks, and Unusual Items

• Subsequent Acquisitions: In July 2009, the Company acquired two additional ethanol plants (Ord, NE and Central City, NE) for $123.5 million, increasing total expected annual capacity to approximately 480 million gallons.
• Liquidity and Covenants: Management noted that certain subsidiaries (Bluffton, Obion, Superior) may fail to meet working capital or net worth covenants without amendments or capital injections. A waiver was obtained for Green Plains Superior as of June 30, 2009. A new $30 million revolving credit facility was secured for Green Plains Trade in July 2009.
• Commodity Risk: Operations are highly sensitive to corn, ethanol, and natural gas prices. A 10% adverse price change could impact pre-tax income by approximately $72.9 million (ethanol) and $44.6 million (corn), though hedging strategies mitigate some exposure.
• Internal Controls: Due to pervasive changes from the 2008 merger, management concluded that disclosure controls and procedures were not effective as of June 30, 2009, though enhancements were implemented during the quarter.

Investor Verification Checklist

• Covenant Compliance: Verify the status of financial covenants for Bluffton, Obion, and Superior subsidiaries and any required capital injections.
• Debt Structure: Review the terms of the $123.5 million debt financing for the July 2009 acquisitions and the impact on leverage ratios.
• Margin Stability: Monitor the "crush spread" (ethanol price vs. corn and natural gas costs) given the volatility in commodity markets.
• Internal Control Remediation: Track progress on remediation of internal control deficiencies identified post-merger.
• Marketing Transition: Assess the realized savings from terminating third-party marketing agreements and the performance of the in-house Green Plains Trade unit.