UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 000-19320
Ag Services of America, Inc.
(Exact name of registrant as specified in its charter)
Iowa 42-1264455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2302 West First Street, Cedar Falls, Iowa 50613
(Address of principal executive offices) (Zip Code)
(319) 277-0261
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark 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.
[X] Yes [ ] No
5,450,614 common shares were outstanding as of May 31, 2001.
AG SERVICES OF AMERICA, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Consolidated condensed balance sheets, May 31, 2001
(unaudited) and February 28, 2001 1
Unaudited consolidated condensed statements of income,
three months ended May 31, 2001 and 2000 2
Unaudited consolidated condensed statements of cash
flows, three months ended May 31, 2001 and 2000 3
Unaudited consolidated statement of stockholders' equity,
three months ended May 31, 2001 4
Notes to consolidated condensed financial statements
(unaudited) 5-7
Item 2. Management's discussion and analysis of
financial condition and results of operations 8-12
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 12
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on form 8-K: 13
(a) Exhibits
(11) Statement re computation of earnings
per common share 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AG SERVICES OF AMERICA, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
May 31, February 28
ASSETS 2001 2001*
(Unaudited)
----------- -----------
CURRENT ASSETS
Cash $441 $61
Customer notes receivable, less allowance
for doubtful notes and reserve for
discounts May 31, 2001 $12,048;
February 28, 2001 $7,960 278,276 167,554
Inventory and other assets 2,857 6,700
Foreclosed assets held for sale 2,538 1,881
Deferred income taxes, net 4,780 2,780
----------- ----------
Total current assets $288,892 $178,976
----------- ----------
LONG-TERM RECEIVABLES AND OTHER ASSETS
Customer notes receivable, less allowance
for doubtful notes May 31, 2001 $4,277;
February 28, 2001 $3,490; $46,380 $37,844
Loan origination fees, less accumulated
amortization May 31, 2001 $840;
February 28, 2001 $754; 832 917
Deferred income taxes, net 1,855 1,290
----------- ----------
$49,067 $40,051
----------- ----------
Property and EQUIPMENT, less accumulated
depreciation May 31, 2001 $1,622;
February 28, 2001 $1,487; $2,253 $2,213
----------- ----------
$340,212 $221,240
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, including current maturities $211,754 $119,604
Outstanding checks in excess of
bank balances 8,432 3,934
Accounts payable 10,471 630
Accrued expenses 2,798 2,457
Income taxes payable 2,814 270
----------- ----------
Total current liabilities $236,269 $126,895
----------- ----------
LONG-TERM LIABILITIES
Notes payable, less current maturities $36,592 $28,167
----------- ----------
STOCKHOLDERS' EQUITY
Capital stock $23,797 $23,173
Accumulated other comprehensive income (1,285) -
Retained earnings 44,839 43,005
----------- ----------
$67,351 $66,178
----------- ----------
$340,212 $221,240
=========== ==========
*Condensed from Audited Financial Statements.
See Notes to Consolidated Condensed Financial Statements.
-1-
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three Months Ended May 31, 20001 and 2000
(Dollars in Thousands, Except Per Share Amounts)
2001 2000
---------- ----------
Net revenues:
Farm inputs $157,901 $149,750
Financing income 6,259 6,052
---------- ----------
$164,160 $155,802
---------- ----------
Cost of revenues:
Farm inputs $151,423 $142,123
Financing expense 3,391 2,838
Provision for doubtful notes 3,027 2,761
---------- ----------
$157,841 $147,722
---------- ----------
Income before operating
expenses and income taxes $6,319 $8,080
Operating expenses 3,351 3,110
---------- ----------
Income before income taxes $2,968 $4,970
Federal and state income taxes 1,134 1,845
---------- ----------
Net income $1,834 $3,125
========== ==========
Earnings per share:
Basic $0.35 $0.59
========== ==========
Diluted $0.34 $0.57
========== ==========
Weighted average shares:
Basic 5,284 5,256
========== ==========
Diluted 5,471 5,531
========== ==========
See Notes to Consolidated Condensed Financial Statements.
-2-
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended May 31, 2001 and 2000
(Dollars in Thousands)
2001 2000
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,834 $3,125
Adjustments to reconcile net income to
net cash (used in) operating activities:
Depreciation 135 92
Amortization 85 81
(Increase) in customer notes receivable (119,258) (128,782)
Changes in assets and liabilities 14,760 14,740
---------- ----------
Net cash (used in) operating activities ($102,444) ($110,744)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment ($175) ($124)
(Increase) in foreclosed assets
held for sale (657) (680)
---------- ----------
Net cash (used in) investing activities ($832) ($804)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable $136,474 $128,479
Principal payments on notes payable (37,940) (18,309)
Increase in excess of outstanding
checks over bank balance 4,498 1,272
Proceeds from issuance of capital stock,
net 624 203
---------- ----------
Net cash provided by financing
activities $103,656 $111,645
---------- ----------
Increase in cash and
cash equivalents $380 $97
CASH
Beginning 61 45
---------- ----------
Ending $441 $142
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $2,721 $2,217
Income taxes $400 $135
See Notes to Consolidated Condensed Financial Statements
-3-
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended May 31, 2001
(Dollars in thousands)
Capital Stock
--------------------------
Accumulated
Other
Shares Comprehensive Retained
Issued Amount Income Earnings Total
------------ ------------ ------------ ------------ ------------
Balance,
February 28, 2001 5,281,064 $23,173 $- $43,005 $66,178
Comprehensive income:
Net income - - - 1,834 1,834
Other comprehensive
income(loss), net
of tax, $755 - - (1,285) - (1,285)
------------ ------------ ------------ ------------ ------------
Comprehensive income - $- ($1,285) $1,834 $549
Issuance of
capital stock
upon the exercise
of options 169,550 624 - - 624
------------ ------------ ------------ ------------ ------------
Balance, May 31, 2001 5,450,614 $23,797 ($1,285) $44,839 $67,351
============ ============ ============ ============ ============
See Notes to Consolidated Condensed Financial Statements
-4-
AG SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements have
been prepared in accordance with the instructions of Form 10-Q and Rule 10-01 of
Regulation S-X. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested these
interim consolidated condensed financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
Annual Report for the year ended February 28, 2001. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented have been made.
Operating results for the three month period ended May 31, 2001 are not
necessarily indicative of the results that may be expected for the year ending
February 28, 2002.
Principles of Consolidation:
The consolidated financial statements include the accounts of Ag Services of
America, Inc. (the Company) and its wholly owned subsidiary, Ag Acceptance
Corporation and Powerfarm, Inc. All material intercompany balances and
transactions have been eliminated in consolidation.
According to the terms related to the asset backed securitized financing
program as described in Note 3 of the consolidated condensed financial
statements, the Company formed Ag Acceptance Corporation, a wholly owned,
special purpose corporation.
In conjunction with the Company's e-commerce initiative, the Company created
Powerfarm, Inc. a wholly owned subsidiary which operates and manages the
Company's e-commerce website Powerfarm.com.
Derivative Instruments and Hedging Activities:
Effective March 1, 2001, the Company adopted FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
FAS 133 requires that all derivative financial instruments that qualify for
hedge accounting, such as interest rate swap contracts, be reconginzed in
the financial statements and measured at fair value regardless of the purpose
or intent for holding them. Changes in fair value of derivative financial
instruments are either recognized periodically in income or stockholder's
equity (as a component of comprehensive income), depending on whether the
derivative is being used to hedge changes in fair value or cash flows.
The adoption of FAS 133 did not have a material effect on the primary
financial statements, but did reduce comprehensive income by $1,285 for
the three months ended May 31, 2001.
Unless otherwise noted, all amounts presented are in thousands except per
share amounts.
-5-
Note 2. Commitments and Contingencies
Commitments:
In the normal course of business, the Company makes various commitments that
are not reflected in the accompanying consolidated condensed financial
statements. These include various commitments to extend credit to
customers. At May 31, 2001 and February 28, 2001 the Company had
approximately $148,000 and $120,000, respectively, in commitments to supply
farm inputs. No material losses or liquidity demands are anticipated as a
result of these commitments.
The Company currently has contracted with a company to construct a building
to replace the Company's corporate headquarters. The new facility will have
approximately 55,000 square feet of office space with adequated land for
future expansion. The construction of the new office facility has started
with an estimated cost of $4.8 million and completion projected for February
of 2002.
Contingencies:
The Company is named in lawsuits in the ordinary course of business. Counsel
for the Company has advised the Company, while the outcome of various legal
proceedings is not certain, it is unlikely that these proceedings will result
in any liability, which will materially affect the financial position or
operating results of the Company.
The availability of lines of credit to finance operations and the existence of
a multi-peril crop insurance program are essential to the Company's operations.
If the federal multi-peril crop insurance program currently in existence were
terminated or negatively modified and no comparable private or government
program were established, this could have a material adverse effect on the
Company's future operations. The government has from time to time evaluated
the federal multi-peril insurance program and is likely to review the program
in the future, and there can be no assurance about the outcome of such
evaluations.
Note 3. Pledged Assets and Related Debt
The Company entered into an asset backed securitized financing
program through Fiscal 2004, with a maximum available borrowing amount of $325
million. Under the terms of the facility, the Company sells and
may continue to sell or contribute certain notes receivable to Ag Acceptance
Corporation ("Ag Acceptance"), a wholly owned, special purpose subsidiary of the
Company. Ag Acceptance pledges its interest in these notes receivable to a
commercial-paper market conduit entity on $255 million of the facility that
incurs interest at variable rates in the commercial paper market (current
effective rates range from 4.05% to 4.84% at May 31, 2001) and the
remaining $70 million is a three-year term note with interest at a variable
cost of LIBOR plus 25 basis points (current effective rate is 4.31% at
May 31, 2001). The agreement contains various restrictive covenants including,
among others, restrictions on mergers, issuance of stock, declaration or
payment of dividends, transactions with affiliates, and requires
the Company to maintain certain levels of equity and pretax earnings. Advances
under the facility are made subject to portfolio performance, financial
covenant restrictions and borrowing base calculations. At May 31, 2001, the
-6-
Company had approximately $214.5 million outstanding under the asset backed
securitized financing program and had a maximum additional amount available
of approximately $4.9 million based on borrowing base computations as
provided by the agreement.
During August of 2000, the Company negotiated a new $30 million term loan.
The term loan will be due in four equal annual installments beginning in July
of 2002 through maturity in July of 2005. Additional terms of the agreement
allow two variable interest rate alternatives based on prime or LIBOR (current
effective rates range from 6.938% to 7.5% at May 31, 2001). The agreement also
contains various restrictive covenants, including, among others, restricions
on mergers, issuance of stock, declaration or payment of dividends, loans to
stockholders, and requires the Company to maintain certain levels of equity
and pretax earnings. The Company was in violation of one of these covenants
at May 31, 2001. The Company has requested and expects to receive a waiver of
this violation from the note holder. At May 31, 2001, the Company had $30
million outstanding under the term loan.
In August of 2000, the Company entered into an interest rate swap agreement to
limit the exposure to increasing interest rates on the above term note. The
interest rate swap agreement matures in July of 2005 and has a principal amount
of $30 million at May 31, 2001 and decreases as the principal amount is repaid.
The agreement has effectively fixed the interest rate on the Company's
$30 million term note at 9.78%. Although the Company is exposed to credit
loss in the event of nonperformance by the counterparty on the interest rate
swap agreement, management does not expect nonperformance.
In conjunction with the securitized financing program and the term loan,
the Company maintains a $15 million revolving bank line of credit
through July 2003. The line of credit is accessible to cover any potential
deficiencies in available funds financed through the securitization program.
The terms of the agreement allow for two variable interest rate alternatives
based on prime or LIBOR (current effective rates range from 6.938% to 7.5%
at May 31, 2001). The agreement also contains various restrictive covenants,
including, among others, restrictions on mergers, issuance of stock,
declaration or payment of dividends, loans to stockholders, and requires the
Company to maintain certain levels of equity and pretax earnings. Advances
under the line of credit agreement are also subject to portfolio performance,
financial covenant restricitions, and borrowing base calculations.
The Company was in violation of one of these covenants at May 31, 2001.
The Company has requested and expects to receive a waiver of this violation
from the note holder. At May 31, 2001 the Company had $1.8 million
outstanding under the agreement and had a maximum additional amount available
of approximately $13.2 million based on borrowing base computations as
provided by the agreement.
Note 4. Earnings Per Share
Basic earnings per share is computed by dividing net income available to
common stockholders by the weighted average number of shares outstanding.
In computing diluted earnings per share, the dilutive effect of stock options
during the periods presented increase the weighted average number of shares.
-7-
AG SERVICES OF AMERICA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth percentages of net revenues represented by the
selected items in the unaudited condensed statements of income of the Company
for the three months ended May 31, 2001 and 2000. In the opinion of
management, all normal and recurring adjustments necessary for a fair
statement of the results for such periods have been included. The operating
results for any period are not necessarily indicative of results for any
future period.
Percentage
of Net Revenues
------------------
Three Months Ended
May 31,
------------------
2001 2000
-------- --------
Net Revenues:
Farm inputs 96.2% 96.1%
Financing income 3.8% 3.9%
-------- --------
100.0% 100.0%
-------- --------
Cost of Revenues:
Farm inputs 92.3% 91.2%
Financing expense 2.1% 1.8%
Provision for doubtful notes 1.8% 1.8%
-------- --------
96.2% 94.8%
-------- --------
Income before operating expenses
and income taxes 3.8% 5.2%
Operating expenses 2.0% 2.0%
-------- --------
Income before income taxes 1.8% 3.2%
Federal and state income taxes 0.7% 1.2%
-------- --------
Net Income 1.1% 2.0%
======== ========
Net Revenues:
Net revenues increased $8.2 million or 5.3% during the three months ended
May 31, 2001, compared with the three months ended May 31, 2000. The
increase in net revenues was primarily the result of greater volume under
the Company's AgriFlex Credit(R) Financing Program and increases in the
Seed and Chemical Financing Program. Revenue increases were mitigated by
wet weather conditions that have delayed chemical and fertilizer sales
throughout much of the Company's primary market area. The Company expects
the first quarter delayed sales to be moved to the second fiscal quarter.
Financing income as a percentage of net revenues decreased to 3.8% of net
-8-
revenues for the three months ended May 31, 2001 from 3.9% for the three
months ended May 31, 2000. This decrease resulted from a decline in the
prime lending rate by approximately 200 basis points, which is the base
rate used by the Company to charge interest on a variable rate basis to
its customers, as compared to a year ago.
Cost of Revenues:
The total cost of revenues increased to 96.2% of net revenues for the three
months ended May 31, 2001 as compared to 94.8% for the three months ended
May 31, 2000. The gross margin on the sale of farm inputs decreased to 4.1%
for the three months ended May 31, 2001 compared to 5.1% for the three
months ended May 31, 2000. The decrease in gross margin on the sale of farm
inputs was the result of sales mix shift into lower margin inputs which was
caused by wet weather conditions described above that reduced chemical and
fertilizer sales for the first quarter. Gross margins on the sale of farm
inputs were also reduced as a result of increasing the reserve for program
discounts as discounts earned by customers have increased due to an improving
customer portfolio and competitive influences. Concerning the gross margin
on financing income alone, the percentages decreased to 45.8% for the three
months ended May 31, 2001 from 53.1% for the three months ended May 31, 2000.
The decrease in financing margin was primarily a result of a decrease in the
prime lending rate by approximately 200 basis points as compared to a year ago.
Attributing to the decrease in financing margin was the impact of the interest
rate swap agreement as discussed in Note 3. The provision for doubtful notes
remained constant at 1.8% of net revenues for the three months ended
May 31, 2001 and May 31, 2000.
Operating Expenses:
Operating expenses remained constant at 2.0% of net revenues for
the three months ended May 31, 2001 and May 31, 2000. The increase in
the dollar amount of operating expenses is attributed to the Company's growth.
Payroll and payroll related expenses increased to $2,272 for the three months
ended May 31, 2001 from $2,047 for the three months ended May 31, 2000.
Net Income:
Net income decreased to $1,834 for the three months ended May 31, 2001
from $3,125 for the three months ended May 31, 2000. The decrease in
net income for the three months is primarily attributable to the wet weather
conditions throughout the Company's primary market area which has delayed
the current crop growing season approximately two to three weeks compared
to a normal planting season and roughly four to five weeks behind last year's
early crop season. These conditions have caused a delay in chemical and
fertilizer sales, which the Company expects to be moved into the second fiscal
quarter. Also attributing to the decline in net income is the decrease in
financing income as discussed above.
Powerfarm:
Powerfarm.com, the Company's e-commerce website, has compiled the most
comprehensive assortment of agriculture products, services and credit options
available on the Internet today. Products currently available include seed,
fertilizer and crop protection chemicals, along with headline ag news, market
-9-
quotes and weather. Growers can shop at their convenience day or night for
products and sign up for additional services like crop insurance, grain
marketing programs, crop scouting and soil sampling services. Within the
Powerfarm Community, growers can post questions for the Company's agronomists
and Certified Crop Advisors. The Company continues discussions with
additional suppliers serving the $250 billion agriculture industry.
Inflation:
The Company does not believe the Company's net revenues and net income
were significantly impacted by inflation or changing prices in Fiscal 2001
or the first three months of Fiscal 2002.
Seasonality:
The Company's revenues and income are directly related to the growing cycle
for crops. Accordingly, quarterly revenues and income vary during each fiscal
year. The following table shows the Company's quarterly net revenues and net
income for Fiscal 2001 and the first quarter of Fiscal 2002. This information
is derived from unaudited consolidated financial statements, which include, in
the opinion of management, all normal and recurring adjustments which
management consider necessary for a fair statement of results of those
periods. The operating results for any quarter are not necessarily indicative
of the results for any future period.
Fiscal 2002 Quarter Ended
May 31 August 31 November 30 February 28
----------- ----------- ----------- -----------
(Dollars in thousands)
Net revenues $164,160
Net income $1,834
Fiscal 2001 Quarter Ended
May 31 August 31 November 30 February 28
----------- ----------- ----------- -----------
(Dollars in thousands)
Net revenues $155,802 $103,530 $23,626 $62,696
Net income $3,125 $2,733 $998 $598
Wet weather conditions in much of the Company's primary market area have
caused delayed chemical and fertilizer sales in the first quarter of Fiscal
2002, as well as some switching of crop rotations. The Company anticipates
that delayed chemical and fertilizer sales will be realized in the second
quarter and does not believe that first quarter results will be indicative
of Fiscal 2002 year end results.
Liquidity and Capital Resources:
At May 31, 2001 the Company had working capital of $52,623 an increase of
$1,477 over a year ago and an increase of $542 since February 28, 2001.
The components of this net increase, since February 28, 2001, were (i) $93
resulting from operating activities, consisting of approximately, $1,834 in
net income, $135 in depreciation, $85 in amortization, and the remainder from
-10-
a net change in other working capital items, (ii) capital expenditures of
approximately $175 related to the acquisition of equipment and furniture, and
(iii) net proceeds of $624 from the issuance of common stock upon exercise of
options.
The Company entered into an asset backed securitized financing
program through Fiscal 2004, with a maximum available borrowing amount of $325
million. Under the terms of the five-year facility, the Company sells and
may continue to sell or contribute certain notes receivable to Ag Acceptance
Corporation ("Ag Acceptance"), wholly owned, special purpose subsidiary of the
Company. Ag Acceptance pledges its interest in these notes receivable to a
commercial paper market conduit entity on $255 million of the facility which
incurs interest at variable rates in the commercial paper market(current
effective rates range from 4.05% to 4.84% at May 31, 2001) and the
remaining $70 million is a three-year term note with interest at a variable
cost of LIBOR plus 25 basis points (current effective rates is 4.31% at
May 31, 2001). The agreement contains various restrictive covenants,
including, among others, restrictions on mergers, issuance of stock,
declaration or payment of dividends, transactions with affiliates, and
requires the Company to maintain certain levels of equity and pretax earnings.
Advances under the facility are made subject to portfolio performance,
financial covenant restrictions and borrowing base calculations.
At May 31, 2001, the Company had approximately $214.5 million outstanding
under the asset backed securitized financing program and had a maximum
additional amount available of approximately $4.9 million, based on borrowing
base computations as provided by the agreement.
During August of 2000, the Company negotiated a new $30 million term loan.
The term loan will be due in four equal annual installments beginning in July
of 2002 through maturity in July of 2005. All borrowings are collateralized
by substantially all assets of the Company. Additional terms of the agreement
allow two variable interest rate alternatives based on prime or LIBOR (current
effective rates range from 6.938% to 7.5% at May 31, 2001). The agreement
also contains various restrictive covenants, including, among others,
restricions on mergers, issuance of stock, declaration or payment of
dividends, loans to stockholders, and requires the Company to maintain
certain levels of equity and pretax earnings. At May 31, 2001, the Company
had $30 million outstanding under the term loan.
In August of 2000, the Company entered into an interest rate swap agreement
to limit the exposure to increasing interest rates on the above term note.
The interest rate swap agreement matures in July of 2005 and has a principal
amount of $30 million at May 31, 2001 and decreases as the principal amount
is repaid. The agreement has effectively fixed the interest rate on the
Company's $30 million term note at 9.78%. Although the Company is exposed
to credit loss in the event of nonperformance by the counterparty on the
interest rate swap agreement, management does not expect nonperformance.
In conjunction with the securitized financing program, the Company
maintains a $15 million revolving bank line of credit through
July 2003. The line of credit is accessible to cover any potential
deficiencies in available funds financed through the securitization program.
All borrowings are collateralized by substantially all assets of the Company.
The terms of the agreement allow for two variable interest rate alternatives
based on prime or LIBOR (current effective rates range from 6.938% to 7.5% at
May 31, 2001). The agreement also contains various restrictive covenants,
-11-
including, among others, restrictions on mergers, issuance of stock,
declaration or payment of dividends, loans to stockholders, and requires the
Company to maintain certain levels of equity and pretax earnings. Advances
under the line of credit agreement are also subject to portfolio performance,
financial covenant restricitions, and borrowing base calculations.
At May 31, 2001 the Company had $1.8 million outstanding under the agreement
and had a maximum additional amount available of approximately $13.2 million
based on borrowing base computations as provided by the agreement.
Management believes that the financial resources available to it, including
its bank lines of credit, asset backed securitization program, five-year term
note, trade credit, its equity and internally generated funds, will be
sufficient to finance the Company and its operations in the foreseeable
future.
The Company currently has contracted with a company to construct a building
to replace the Company's corporate headquarters. The new facility will have
approximately 55,000 square feet of office space with adequate land for
future expansion. The construction of the new office facility has started
with an estimated cost of $4.8 million and completion projected for February
of 2002.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
Information contained in this report, other than historical information,
should be considered forward looking which reflect Management's current views
of future events and financial performance that invlove a number of risks and
uncertainties. The factors that could cause actual results to differ
materially include, but are not limited to, the following: general economic
conditions within the agriculture industry; competitive factors and pricing
pressures; changes in product mix; changes in the seasonality of demand
patterns; changes in weather conditions; changes in agricultural regulations;
technological problems; the amount and availability under its asset backed
securitization program; unkown risks; and other risks detailed in the
Company's Securities and Exchange Commission filings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At May 31, 2001 the Company had $246.3 million outstanding in notes payable at
an average variable interet rate of 4.99%. The Company has an interest rate
swap which effectvely converts $30 million of this variable rate debt to a
fixed rate instrument. After considering the effect of this swap, the
Company has floating rate debt of $216.3 million at a variable interest
rate of 4.33%. A 10% increase in the average variable interest rate would
increase interest expense by approximately 50 basis points. Assuming
similar average outstanding borrowings as Fiscal 2001 of $183 million,
this would increase the Company's interest expense by approximately $915,000.
The above sensitivity analysis is to provide information about the Company's
potential market risks as they pertain to an adverse change in interest rates.
The above analysis excludes the positive impact that increased interest rates
would have on financing income as approximately 98% of the Company's notes
receivable are variable rate notes.
-12-
AG SERVICES OF AMERICA, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re computation of earnings per common share is
attached.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AG SERVICES OF AMERICA, INC.
----------------------------
(Registrant)
/s/ Brad D. Schlotfeldt
----------------------------
Brad D. Schlotfeldt
Senior Executive Officer & Treasurer
(Principal Financial & Accounting Officer)
Date: July 16, 2001
-13-
AG SERVICES OF AMERICA, INC.
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
May 31
----------------------
2001 2000
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Computation of weighted average number
of basic shares:
Basic:
Common shares outstanding at
beginning of the period 5,281,064 5,249,039
Weighted average number of shares
issued during the period 2,746 6,583
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Weighted average shares outstanding
(basic) 5,283,810 5,255,622
========== ==========
Net income available to stockholders: $1,834,131 $3,125,303
========== ==========
Basic earnings per share: $0.35 $0.59
========== ==========
Diluted:
Common shares outstanding at
beginning of the period 5,281,064 5,249,039
Weighted average number of shares
issued during the period 2,746 6,583
Weighted average of potential dilutive
shares computed using the treasury
stock method using average market
price during the period:
Options (1) 187,306 275,205
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Weighted average shares outstanding
(diluted) 5,471,116 5,530,827
========== ==========
Net income available to stockholders: $1,834,131 $3,125,303
========== ==========
Diluted earnings per share: $0.34 $0.57
========== ==========
(1) Some of the stock options have been excluded because they are
antidilutive.
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