GPRE

Green Plains Renewable Energy, Inc. - 10-K Summary (Fiscal Year Ended Nov 30, 2006)

Business Context and Reporting Period

Company: Green Plains Renewable Energy, Inc. (GPRE)
Reporting Period: Fiscal year ended November 30, 2006
Business Stage: Late-stage development company with no commercial operations.
Core Activity: Construction of two 50-million-gallon-per-year dry-mill ethanol plants in Shenandoah, Iowa, and Superior, Iowa. The company produces no ethanol revenue; its primary activities involve capital raising, site development, and construction management.

Key Financial Metrics

Note: 2006 Net Income was driven by $1.6M in gains on derivative financial instruments (corn futures) and $1.8M in interest income, offsetting operating losses.

Material Changes vs. Prior Period

• Capital Raising: Completed a second public offering in July 2006, raising approximately $48.0 million gross ($46.8 million net) to fund the Superior plant. This followed a 2005 IPO that raised $34.5 million gross.
• Construction Progress: Construction began on the Shenandoah plant in April 2006 and the Superior plant in August 2006. Property and equipment increased from $0.8 million in 2005 to $47.1 million in 2006.
• Debt Financing: Secured a commitment for up to $47 million for Shenandoah and a commitment letter for up to $51.6 million for Superior. As of Nov 30, 2006, no debt had been drawn on these facilities, though draws began in December 2006.
• Acquisition: Acquired Superior Ethanol, LLC in February 2006 for 100,000 shares of restricted stock to secure land options and site development work.

Guidance, Outlook, and Risks

Outlook:

• Shenandoah Plant: Anticipated operational in Q3 2007. Total project cost estimated at $84.7 million.
• Superior Plant: Anticipated operational near the end of 2007. Total project cost estimated at $97.6 million.
• Production Capacity: Each plant designed to process 18 million bushels of corn annually, producing 50 million gallons of ethanol and 160,000 tons of Distillers Dried Grains with Solubles (DDGS).

• Management expects significant losses in future periods until plants are operational due to high operating expenses and declining interest income as cash is deployed for construction.
• Marketing agreements are in place with RPMG for ethanol and Commodity Specialists for DDGS.

• Commodity Price Volatility: Profitability is highly sensitive to the spread between corn prices (feedstock) and ethanol/DDGS prices. Corn prices rose significantly in late 2006, increasing production cost risks.
• Construction Delays: Risks include backorders for parts, weather, and the capacity of design builders (Fagen, Inc. and Agra Industries) who are working on multiple projects simultaneously.
• Leverage: The company is highly leveraged with significant debt service requirements. Loan covenants restrict dividends and require specific financial ratios (e.g., Debt Service Coverage Ratio of 1.5:1).
• Regulatory: Dependence on federal tax incentives (VEETC) and state grants. Changes in environmental regulations could increase costs.

Investor Verification Checklist

• Construction Status: Verify current physical progress against the projected timelines for Shenandoah (Q3 2007) and Superior (End of 2007) to assess risk of delays.
• Debt Drawdowns: Confirm the status of the $47M and $51.6M loan commitments and whether final loan documents have been executed.
• Commodity Hedging: Review the effectiveness of corn futures hedging strategies given the volatility in corn prices (approx. $3.70/bushel at filing time vs. historical $2.20).
• Capital Sufficiency: Assess if the $43M cash on hand plus committed debt is sufficient to cover the estimated $182M total project cost ($84.7M + $97.6M) without further dilution.
• Builder Capacity: Investigate the workload and performance history of Fagen, Inc. and Agra Industries to evaluate the risk of construction bottlenecks.