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 August 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
5,451,864 common shares were outstanding as of August 31, 2001.
AG SERVICES OF AMERICA, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Consolidated condensed balance sheets, August 31, 2001
(unaudited) and February 28, 2001 1
Unaudited consolidated condensed statements of income,
three months and six months ended August 31, 2001 and 2000 2
Unaudited consolidated condensed statements of cash
flows, six months ended August 31, 2001 and 2000 3
Unaudited consolidated statement of stockholders' equity,
six months ended August 31, 2001 4
Notes to consolidated condensed financial statements
(unaudited) 5-8
Item 2. Management's discussion and analysis of
financial condition and results of operations 9-13
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 13
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and reports on form 8-K: 14
(a) Exhibits
(11) Statement re computation of earnings 15
per common share
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AG SERVICES OF AMERICA, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
August 31, February 28
ASSETS 2001 2001*
(Unaudited)
----------- -----------
CURRENT ASSETS
Cash $18 $61
Customer notes receivable, less allowance
for doubtful notes and reserve for
discounts August 31, 2001 $14,292;
February 28, 2001 $7,960 381,976 167,554
Inventory and other assets 1,318 6,700
Foreclosed assets held for sale 2,185 1,881
Deferred income taxes, net 5,346 2,780
----------- -----------
Total current assets $390,843 $178,976
----------- -----------
LONG-TERM RECEIVABLES AND OTHER ASSETS
Customer notes receivable, less allowance
for doubtful notes August 31, 2001
$3,508; February 28, 2001 $3,490 $38,035 $37,844
Loan origination fees, less accumulated
amortization August 31, 2001 $925;
February 28, 2001 $754 772 917
Deferred income taxes, net 1,945 1,290
----------- -----------
$40,752 $40,051
----------- -----------
FIXED ASSETS
Equipment, less accumulated depreciation
August 31, 2001 $1,814; February 28, 2001
$1,487 $1,080 $1,275
Land and construction in progress 2,001 938
----------- -----------
$3,081 $2,213
----------- -----------
$434,676 $221,240
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, including current maturities $314,231 $119,604
Outstanding checks in excess of
bank balances 2,229 3,934
Accounts payable 10,143 630
Accrued expenses 4,209 2,457
Income taxes payable 1,983 270
----------- -----------
Total current liabilities $332,795 $126,895
----------- -----------
LONG-TERM LIABILITIES
Notes payable, less current maturities $32,696 $28,167
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock $23,807 $23,173
Accumulated other comprehensive income (1,486) -
Retained earnings 46,864 43,005
----------- -----------
$69,185 $66,178
----------- -----------
$434,676 $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 and Six Months Ended August 31, 2001 and 2000
(Dollars in Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
August 31, August 31,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net revenues:
Farm inputs $101,600 $92,866 $259,501 $242,616
Financing income 8,710 10,664 14,969 16,716
----------- ----------- ----------- -----------
Net revenues $110,310 $103,530 $274,470 $259,332
----------- ----------- ----------- -----------
Cost of revenues:
Farm inputs $97,258 $88,731 $248,681 $230,854
Financing expense 4,517 5,491 7,907 8,329
Provision for doubtful notes 1,924 1,823 4,951 4,584
----------- ----------- ----------- -----------
Net cost of revenues $103,699 $96,045 $261,539 $243,767
----------- ----------- ----------- -----------
Income before
operating expenses
and income taxes $6,611 $7,485 $12,931 $15,565
Operating expenses 3,171 3,082 6,523 6,192
----------- ----------- ----------- -----------
Income before
income taxes $3,440 $4,403 $6,408 $9,373
Federal and state income taxes 1,415 1,670 2,549 3,515
----------- ----------- ----------- -----------
Net income $2,025 $2,733 $3,859 $5,858
=========== =========== =========== ===========
Earnings per share:
Basic $0.37 $0.52 $0.72 $1.11
=========== =========== =========== ===========
Diluted $0.37 $0.50 $0.70 $1.06
=========== =========== =========== ===========
Weighted average shares:
Basic 5,451 5,269 5,369 5,265
=========== =========== =========== ===========
Diluted 5,504 5,476 5,488 5,521
=========== =========== =========== ===========
See Notes to Consolidated Condensed Financial Statements.
-2-
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended August 31, 2001 and 2000
(Dollars in Thousands)
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $3,859 $5,858
Adjustments to reconcile net income to
net cash (used in) operating activities:
Depreciation 346 183
Amortization 221 169
(Increase) in customer notes receivable (214,613) (222,450)
Changes in assets and liabilities 16,007 18,802
----------- -----------
Net cash (used in) operating activities ($194,180) ($197,438)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment ($1,242) ($392)
Proceeds from sale of equipment 33 126
(Increase)in foreclosed assets
held for sale (304) (813)
----------- -----------
Net cash (used in) investing activities ($1,513) ($1,079)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable $263,975 $266,194
Principal payments on notes payable (67,178) (61,817)
(Decrease) in excess of outstanding
checks over bank balance (1,705) (5,540)
(Increase) in loan origination fees (76) (473)
Proceeds from issuance of capital stock, net 634 216
----------- -----------
Net cash provided by financing
activities $195,650 $198,580
----------- -----------
Increase (decrease) in cash ($43) $63
CASH
Beginning 61 45
----------- -----------
Ending $18 $108
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $6,084 $6,310
Income taxes $3,184 $2,045
See Notes to Consolidated Condensed Financial Statements
-3-
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended August 31, 2001
(Dollars in thousands)
Capital Stock
-----------------------
Accumulated
Other
Shares Comprehensive Retained Comprehensive
Issued Amount Income Earnings Total Income
------------- ------------- ------------- ------------- ------------- -------------
Balance,
February 28, 2001 5,281,064 $23,173 $-- $43,005 $66,178 $--
Comprehensive
income:
Net income -- -- -- 3,859 3,859 $3,859
Other comprehensive
income (loss), net
of tax $755 -- -- (1,486) -- (1,486) (1,486)
-------------
Comprehensive
income $2,373
=============
Issuance of capital
stock upon the
exercise of
options 170,800 634 -- -- 634
------------- ------------- ------------- ------------- -------------
Balance,
August 31, 2001 5,451,864 $23,807 ($1,486) $46,864 $69,185
============= ============= ============= ============= =============
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
and six month periods ended August 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending
February 28, 2002.
Unless otherwise noted, all amounts presented are in thousands except
per share amounts.
Principles of Consolidation:
The consolidated financial statements include the accounts of Ag
Services of America, Inc. (the Company) and its wholly owned subsidiaries,
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 $1,486 for
the six months ended August 31, 2001.
-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 August 31, 2001 and February 28, 2001 the
Company had approximately $58,000 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 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.
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 $345
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 $275 million of the facility that
incurs interest at variable rates in the commercial paper market (current
effective rates range from 3.51% to 3.59% at August 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 3.83% at
August 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,
-6-
financial covenant restrictions and borrowing base calculations.
At August 31, 2001, the Company had approximately $301.1 million
outstanding under the asset backed securitized financing program
and had a maximum additional amount available of approximately
$0.1 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
5.581% to 7.0% at August 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.
The Company has an interest rate swap agreement that effectively limits
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 August 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 counter-party
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 5.581% to 7.0% at August 31, 2001). The agreement also contains
various restrictive covenants, including, among others, restricitions
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
restrictions and borrowing base calculations. At August 31, 2001 the
Company had $13.5 million outstanding under the agreement and had a
maximum additional amount available of approximately $1.5 million
based on borrowing base computation 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-
Note 5. Pronouncements Issued Not Yet Adopted
In July 2001, the Financial Accounting Standards Board issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and
Other Intangible Assets". Statement 141 eliminates the pooling
method for accounting for business combinations, requires intangible
assets that meet certain criteria to be reported separately from
goodwill and requires negative goodwill to be recorded as an
extraordinary gain. Statement 142 eliminates the amortization of
goodwill and other intangibles that are determind to have an
indefinite life and requires annual impairment tests for those assets.
The Company has completed its full assessment of the effects of
these new pronouncements on its financial statements and has
determind that there will be no impact on the financial statements
upon adoption of these standards.
-8-
AG SERVICES OF AMERICA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS 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 and six
months ended August 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 Percentage
of Net Revenues of Net Revenues
------------------ ------------------
Three Months Ended Six Months Ended
August 31, August 31,
------------------ ------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net Revenues:
Farm inputs 92.1% 89.7% 94.5% 93.6%
Financing income 7.9% 10.3% 5.5% 6.4%
-------- -------- -------- --------
100.0% 100.0% 100.0% 100.0%
-------- -------- -------- --------
Cost of Revenues:
Farm inputs 88.2% 85.7% 90.6% 89.0%
Financing expense 4.1% 5.3% 2.9% 3.2%
Provision for doubtful
notes 1.7% 1.8% 1.8% 1.8%
-------- -------- -------- --------
94.0% 92.8% 95.3% 94.0%
-------- -------- -------- --------
Income before
operating expenses and
income taxes 6.0% 7.2% 4.7% 6.0%
Operating expenses 2.9% 3.0% 2.4% 2.4%
-------- -------- -------- --------
Income before
income taxes 3.1% 4.2% 2.3% 3.6%
Federal and state income
taxes 1.3% 1.6% 0.9% 1.4%
-------- -------- -------- --------
Net income 1.8% 2.6% 1.4% 2.2%
======== ======== ======== ========
Net Revenues:
Net revenues increased $6.8 million or 6.5% during the three months
ended August 31, 2001, compared with the three months ended
August 31, 2000. Net revenues increased $15.1 million or 5.8% during
the six months ended August 31, 2001, compared with the six months ended
August 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 cool, wet weather conditions during the
spring of 2001 that caused reduced seed, chemical and fertilizer sales
throughout much of the Company's primary market area. The cool, wet
weather resulted in many acres remaining unplanted.
-9-
Financing income as a percentage of net revenues decreased to
7.9% and 5.5% for the three and six months ended August 31,
2001, respectively, from 10.3% and 6.4% for the same periods
of the previous year. The decrease in financing margin was
primarily the result of a decrease in the prime lending rate,
which is the base rate used by the Company to charge interest
on a variable rate basis to its customers, by approximately
275 and 200 basis points, respectively, over the three and
six months ended August 31, 2001.
Cost of Revenues:
The total cost of revenues increased to 94.0% and 95.3% of
net revenues for the three and six months ended August 31, 2001
as compared to 92.8% and 94.0% for the three and six months ended
August 31, 2000. The gross margin on the sale of farm inputs
decreased to 4.3% and 4.2% for the three and six months ended August
31, 2001, compared to 4.5% and 4.8%, respectively, for the three and
six months ended August 31, 2000. The decrease in gross margin on
the sale of farm inputs was the result of a sales mix shift into
lower margin inputs which was caused by cool, wet weather conditions
described above that reduced seed, chemical and fertilizer sales.
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 customer have increased due to an improving cutstomer portfolio
and competitive influences. Concerning the gross margin on financing
income alone, the percentages decreased to 48.1% and 47.2% for the
three and six months ended August 31, 2001 from 48.5% and 50.2% for
the three and six months ended August 31, 2000. The decrease in
financing margins was primarily a result of a decrease in the prime
lending rate by approximately 275 and 200 basis points for the three
and six months ended August 31, 2001 as compared to a year ago.
Attributing to the decrease in financing margin was the impact of an
interest rate swap agreement as discussed in Note 3. The provision for
doubtful notes remained relatively constant at 1.7% and 1.8% of net
revenues for the three and six months ended August 31, 2001, as compared
to 1.8% for the three and six months ended August 31, 2000.
Operating Expenses:
Operating expenses remained relatively constant at 2.9% and 2.4% of net
revenues for the three and six months ended August 31, 2001 as compared
to 3.0% and 2.4% for the three and six months ended August 31, 2000.
The increase in the dollar amount of operating expenses is attributed
to the Company's growth. Payroll and payroll related expenses decreased
to $2,140 for the three months ended August 31, 2001 from $2,161 for the
three months ended August 31, 2000 and increased to $4,412 for the six
months ended August 31, 2001 from $4,208 for the six months ended
August 31, 2000.
Net Income:
Net income decreased 25.9% to $2,025 for the three months ended
August 31, 2001 from $2,733 for the three months ended August
31, 2000 and decreased 34.1% to $3,859 for the six months ended
August 31, 2001 from $5,858 for the six months ended August 31, 2000.
The decrease in net income for the three months is primarily
attributable to the cool, wet weather conditions throughout the Company's
primary market area during the first quarter of Fiscal 2002 which 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 also reduced seed, chemical
-10-
and fertilizer sales. 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 one
of 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 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 six 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 tables show the Company's
quarterly net revenues and net income for Fiscal 2001 and the first
two quarters 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 $110,310
Net income $1,834 $2,025
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
reduced seed, chemical and fertilizer sales in Fiscal 2002.
-11-
Liquidity and Capital Resources:
At August 31, 2001 the Company had working capital of $58,048 an
increase of $223 over a year ago and an increase of $5,967 since
February 28, 2001. The components of this net increase, since
February 28, 2001, were (i) $6,575 resulting from operating activities,
consisting of approximately, $3,859 in net income, $346 in depreciation,
$221 in amortization, and the remainder from a net change in other
working capital items, (ii) capital expenditures of approximately $1,242
related to the acquisition of equipment and furniture, and (iii) net
proceeds of $634 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 $345
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 $275 million of the facility which
incurs interest at variable rates in the commercial paper market (current
effective rates range from 3.51% to 3.59% at August 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 3.83% at
August 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 August 31, 2001, the Company had approximately $301.1 million outstanding
under the asset backed securitized financing program and had a maximum
additional amount available of approximately $0.1 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 5.581% to 7.0% at
August 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. At
August 31, 2001, the Company had $30 million outstanding under the term loan.
The Company has an interest rate swap agreement that effectively limits
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 August 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 counter-party
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
-12-
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 interst rate alternatives
based on prime or LIBOR (current effective rates range from 5.581% to 7.0%
at August 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 restrictions, and borrowing base calculations. At August 31,
2001 the Company had $13.5 million outstanding under the agreement and had
a maximum additional amount available of approximately $1.5 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 involve 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; unknown risks; and other risks detailed in
the Company's Securities and Exchange Commission filings.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At August 31, 2001 the Company had $344.6 million outstanding in notes
payable at an average variable interest rate of 4.30%. The Company has
an interest rate swap that effectively converts $30 million of this variable
rate debt to a fixed rate insturment. After considering the effect of this
swap, the Company has floating rate debt of $314.6 million at a variable
interst rate of 3.78%. A 10% increase in the average variable interest
rate would increase interest expense by approximately 43 basis points.
Assuming similar average outstanding borrowings as Fiscal 2001 of $183
million, this would increase the Company's interest expense by approximately
$787,000.
The above sensitivity ananlysis 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.
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AG SERVICES OF AMERICA, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on August
1, 2001. Proxies for such meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended.
Votes Votes
Director Name in Favor Withheld
---------------- ---------- ----------
Gaylen D. Miller 4,643,440 133,712
James D. Gerson 4,771,452 5,700
In addition, a proposal to ratify the appointment of McGladrey
& Pullen, LLP as independent auditors for the Company for the
Fiscal year ending February 28, 2002 was approved by a vote of
4,802,961 votes in favor, 5,100 votes against, and 6,171 votes
abstaining.
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: October 15, 2001
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AG SERVICES OF AMERICA, INC.
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Six Months Ended
August 31, August 31,
----------------------- -----------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Computation of weighted average
number of basic shares:
Basic:
Common shares outstanding at
beginning of the period 5,450,614 5,266,364 5,281,064 5,249,039
Weighted average number of
shares issued during the
period 636 2,300 87,770 16,066
----------- ----------- ----------- -----------
Weighted average shares
outstanding (basic) 5,451,250 5,268,664 5,368,834 5,265,105
=========== =========== =========== ===========
Net income available to
stockholders: $2,024,398 $2,732,564 $3,858,529 $5,857,867
=========== =========== =========== ===========
Basic earnings per share: $0.37 $0.52 $0.72 $1.11
=========== =========== =========== ===========
Diluted:
Common shares outstanding at
beginning of the period 5,450,614 5,266,364 5,281,064 5,249,039
Weighted average number of
shares issued during the
period 636 2,300 87,770 16,066
Weighted average of potential
dilutive shares computed
using the treasury stock
method using the average
market price during the
period:
Option (1) 52,891 207,222 119,026 256,165
----------- ----------- ----------- -----------
Weighted average shares
outstanding (diluted) 5,504,141 5,475,886 5,487,860 5,521,270
=========== =========== =========== ===========
Net income available to
stockholders: $2,024,398 $2,732,564 $3,858,529 $5,857,867
=========== =========== =========== ===========
Diluted earnings per share: $0.37 $0.50 $0.70 $1.06
=========== =========== =========== ===========
(1) Some of the stock options have been excluded because they are
antidilutive.
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