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 November 30, 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
5,464,614 common shares were outstanding as of November 30, 2001.
AG SERVICES OF AMERICA, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Consolidated condensed balance sheets, November 30, 2001
(unaudited) and February 28, 2001 1
Unaudited consolidated condensed statements of income,
three months and nine months ended November 30, 2001 and 2000 2
Unaudited consolidated condensed statements of cash
flows, nine months ended November 30, 2001 and 2000 3
Unaudited consolidated statement of stockholders' equity,
nine months ended November 30, 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 9-14
Item 3. Quantitative and qualitative disclosures about
market risk 14
Part II. OTHER INFORMATION
Item 6. Exhibits and reports on form 8-K: 15
(a) Exhibits
(11) Statement re computation of earnings 16
per common share
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AG SERVICES OF AMERICA, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
November 30, February 28
ASSETS 2001 2001*
(Unaudited)
----------- -----------
CURRENT ASSETS
Cash $7,497 $61
Customer notes receivable, less allowance
for doubtful notes and reserve for
discounts November 30, 2001 $13,022;
February 28, 2001 $7,960 258,736 167,554
Inventory and other assets 750 6,700
Foreclosed assets held for sale 3,323 1,881
Deferred income taxes, net 5,345 2,780
----------- -----------
Total current assets $275,651 $178,976
----------- -----------
LONG-TERM RECEIVABLES AND OTHER ASSETS
Customer notes receivable, less allowance
for doubtful notes November 30, 2001
$4,642; February 28, 2001 $3,490 $50,335 $37,844
Loan origination fees, less accumulated
amortization November 30, 2001 $1,010;
February 28, 2001 $754 687 917
Deferred income taxes, net 2,027 1,290
----------- -----------
$53,049 $40,051
----------- -----------
FIXED ASSETS
Equipment, less accumulated depreciation
November 30, 2001 $1,967; February 28, 2001
$1,487 $980 $1,275
Land and construction in progress 3,728 938
----------- -----------
$4,708 $2,213
----------- -----------
$333,408 $221,240
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, including current maturities $206,435 $119,604
Outstanding checks in excess of
bank balances - 3,934
Accounts payable 9,984 630
Accrued expenses 3,938 2,457
Income taxes payable 1,483 270
----------- -----------
Total current liabilities $221,840 $126,895
----------- -----------
LONG-TERM LIABILITIES
Notes payable, less current maturities $41,224 $28,167
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock $23,858 $23,173
Accumulated other comprehensive income (1,674) -
Retained earnings 48,160 43,005
----------- -----------
$70,344 $66,178
----------- -----------
$333,408 $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 and Nine Months Ended November 30, 2001 and 2000
(Dollars in Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended
November 30, November 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net revenues:
Farm inputs $17,656 $14,314 $277,156 $256,930
Financing income 7,448 9,312 22,417 26,027
----------- ----------- ----------- -----------
Net revenues $25,104 $23,626 $299,573 $282,957
----------- ----------- ----------- -----------
Cost of revenues:
Farm inputs $15,816 $12,951 $264,497 $243,805
Financing expense 3,741 5,533 11,648 13,862
Provision for doubtful notes 484 433 5,435 5,017
----------- ----------- ----------- -----------
Net cost of revenues $20,041 $18,917 $281,580 $262,684
----------- ----------- ----------- -----------
Income before
operating expenses
and income taxes $5,063 $4,709 $17,993 $20,273
Operating expenses 3,078 3,060 9,601 9,252
----------- ----------- ----------- -----------
Income before
income taxes $1,985 $1,649 $8,392 $11,021
Federal and state income taxes 688 651 3,237 4,166
----------- ----------- ----------- -----------
Net income $1,297 $998 $5,155 $6,855
=========== =========== =========== ===========
Earnings per share:
Basic $0.24 $0.19 $0.95 $1.30
=========== =========== =========== ===========
Diluted $0.24 $0.18 $0.94 $1.24
=========== =========== =========== ===========
Weighted average shares:
Basic 5,458 5,272 5,398 5,268
=========== =========== =========== ===========
Diluted 5,487 5,476 5,488 5,508
=========== =========== =========== ===========
See Notes to Consolidated Condensed Financial Statements.
-2-
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended November 30, 2001 and 2000
(Dollars in Thousands)
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $5,155 $6,855
Adjustments to reconcile net income to
net cash (used in) operating activities:
Depreciation 498 301
Amortization 306 275
(Increase) in customer notes receivable (103,674) (110,963)
Changes in assets and liabilities 15,675 14,850
----------- -----------
Net cash (used in) operating activities ($82,040) ($88,682)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and construction
in progress ($3,027) ($545)
Proceeds from sale of equipment 38 182
(Increase)in foreclosed assets
held for sale (1,442) (848)
----------- -----------
Net cash (used in) investing activities ($4,431) ($1,211)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable $302,556 $277,311
Principal payments on notes payable (205,324) (175,700)
(Decrease) in excess of outstanding
checks over bank balance (3,934) (9,834)
(Increase) in loan origination fees (76) (494)
Proceeds from issuance of capital stock, net 685 267
----------- -----------
Net cash provided by financing
activities $93,907 $91,550
----------- -----------
Increase in cash $7,436 $1,657
CASH
Beginning 61 45
----------- -----------
Ending $7,497 $1,702
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $10,371 $12,494
Income taxes $4,342 $3,506
See Notes to Consolidated Condensed Financial Statements
-3-
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended November 30, 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 -- -- -- 5,155 5,155 $5,155
Other comprehensive
income (loss), net
of tax $984 -- -- (1,674) -- (1,674) (1,674)
-------------
Comprehensive
income $3,481
=============
Issuance of capital
stock upon the
exercise of
options 183,550 685 -- -- 685
------------- ------------- ------------- ------------- -------------
Balance,
November 30, 2001 5,464,614 $23,858 ($1,674) $48,160 $70,344
============= ============= ============= ============= =============
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 nine month period ended November 30, 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 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 $1.7 million
for the nine months ended November 30, 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 November 30, 2001 and February 28, 2001 the
Company had approximately $17 million and $120 million, 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 60,000 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 $4.5 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 was terminated or negatively modified
and no comparable private or government program was established, this
would have a material adverse effect on the Company's future operations.
The federal 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 of 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 with respect to $275 million of the
facility that incurs interest at variable rates in the commercial paper market
(current effective rates range from 2.05% to 2.36% at November 30, 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 2.36% at
November 30, 2001). The agreement contains various restrictive covenants
including, among others, restrictions on mergers, issuance of stock, declaration
or payment of dividends and 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 November 30, 2001, the Company had approximately $210 million
outstanding under the asset backed securitized financing program
and had a maximum additional amount available of approximately
$0.7 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
4.032% to 5.25% at November 30, 2001). The agreement also contains various
restrictive covenants, including, among others, restrictions on mergers,
issuance of stock, declaration or payment of dividends and loans to
stockholders, and requires the Company to maintain certain levels of
equity and pretax earnings.
The Company entered into 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 notional
amount of $30 million at November 30, 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.
The Company is currently involved in negotiations with the counter-party
of this transaction to reduce the liability that has accrued under this
agreement.
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 4.032% to 5.25% at November 30, 2001). The agreement also contains
various restrictive covenants, including, among others, restricitions
on mergers, issuance of stock, declaration or payment of dividends and
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 November 30, 2001 the
Company had $5 million outstanding under the agreement and had a
maximum additional amount available of approximately $10 million
based on borrowing base computation as provided by the agreement.
The Company subsequently closed on a new financing agreement following
the end of the third quarter in Fiscal 2002. Under the terms of the agreement,
the Compay may borrow up to $3.9 million, with a declining balance provision,
on a revolving line of credit through April 2022. This credit agreement will
be used to finance construction costs of the Company's new corporate
headquarters at a fixed interet rate of 5.74% for five years. The agreement
also contains various restrictive covenants, including among others,
requirements to maintain certain levels of equity and pretax earnings.
-7-
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.
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 determined 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
determined 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 nine
months ended November 30, 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 Nine Months Ended
November30, November 30,
------------------ ------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net Revenues:
Farm inputs 70.3% 60.6% 92.5% 90.8%
Financing income 29.7% 39.4% 7.5% 9.2%
-------- -------- -------- --------
100.0% 100.0% 100.0% 100.0%
-------- -------- -------- --------
Cost of Revenues:
Farm inputs 63.0% 54.9% 88.3% 86.1%
Financing expense 14.9% 23.4% 3.9% 4.9%
Provision for doubtful
notes 1.9% 1.8% 1.8% 1.8%
-------- -------- -------- --------
79.8% 80.1% 94.0% 92.8%
-------- -------- -------- --------
Income before
operating expenses and
income taxes 20.2% 19.9% 6.0% 7.2%
Operating expenses 12.3% 12.9% 3.2% 3.3%
-------- -------- -------- --------
Income before
income taxes 7.9% 7.0% 2.8% 3.9%
Federal and state income
taxes 2.7% 2.8% 1.1% 1.5%
-------- -------- -------- --------
Net income 5.2% 4.2% 1.7% 2.4%
======== ======== ======== ========
-9-
Net Revenues
Net revenues increased $1.5 million or 6.3% during the three months
ended November 30, 2001, compared with the three months ended
November 30, 2000. Net revenues increased $16.6 million or 5.9%
during the nine months ended November 30, 2001, compared with the
nine months ended November 30, 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. Year-to-date revenue has been impacted
significantly by changes in crops planted by customers and reduced
interest rates. The delay in spring crop planting throughout much
of the Company's primary market area caused many customers to switch
crop plans and leave a portion of acres unplanted which decreased the
Company's seed, chemical and fertilizer sales. Financing income as a
percentage of net revenues decreased to 29.7% and 7.5% for the three
and nine months ended November 30, 2001, respectively, from 39.4%
and 9.2% 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, as compared to the same period one year ago,
by approximately 388 and 263 basis points, respectively, over the
three and nine months ended November 30, 2001.
Cost of Revenues
The total cost of revenues decreased slightly to 79.8% for the
three months ended November 30, 2001, as compared to 80.1% for the
three months ended November 30, 2000. Total cost of revenues
increased to 94.0% for the nine months ended November 30, 2001,
as compared to 92.8% for the nine months ended November 30, 2000.
The gross margin on the sale of farm inputs increased to 10.4%
for the three months ended November 30, 2001, compared to 9.5% for
the three months ended November 30, 2000 and decreased to 4.6% for
the nine months ended November 30, 2001, compared to 5.1% for the
nine months ended November 30, 2000. The increase in gross margin
on the sale of farm inputs for the three months ended November 30,
2001 was due to the increased volume in the Company's crop insurance
program. The decrease in gross margin on the sale of farm inputs for
the nine months ended November 30, 2001 was the result of a sales mix
shift into lower margin inputs which was caused by the delay in spring
crop planting 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 customers have increased due to an improving customer
portfolio and competitive influences. Concerning the gross margin on
financing income alone, the percentage increased to 49.8% for the three
months ended November 30, 2001 from 40.6% for the three months ended
November 30, 2000 and increased to 48.0% for the nine months ended
November 30, 2001, from 46.7% for the nine months ended November 30,
2000. The decrease in financing margin dollars was primarily a
result of a decrease in the prime lending rate by approximately
388 and 263 basis points for the three and nine months ended
November 30, 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 1.9% and 1.8% of net
revenues for the three and nine months ended November 30, 2001, as
compared to 1.8% for the three and nine months ended November 30, 2000.
-10-
Operating Expenses
Operating expenses decreased, as a result of management's efforts
to control costs, to 12.3% and 3.2% of net revenues for the three
and nine months ended November 30, 2001, as compared to 12.9% and
3.3% for the three and nine months ended November 30, 2000.
The increase in the dollar amount of operating expenses is attributed
to the Company's growth. Payroll and payroll related expenses increased
to $2.2 million for the three months ended November 30, 2001 from $2.0
million for the three months ended November 30, 2000 and increased to
$6.6 million for the nine months ended November 30, 2001 from $6.2
million for the nine months ended November 30, 2000.
Net Income
Net income increased 30.0% to $1.3 million for the three months ended
November 30, 2001 from $1.0 million for the three months ended November 30,
2000 and decreased 24.8% to $5.2 million for the nine months ended
November 30, 2001 from $6.9 million for the nine months ended
November 30, 2000. The increase in net income for the three months
is primarily attributable to an increase in volume under the Company's
crop insurance program. The decline in net income for the nine month
period was primarily due to the decrease in financing income resulting
from the decrease in prime lending rate as discussed above. Also
attributing to the decline in net income was 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 and reduced seed, chemical and fertilizer sales
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 nine 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
three 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.
-11-
Fiscal 2002 Quarter Ended
May 31 August 31 November 30 February 28
----------- ----------- ----------- -----------
(Dollars in thousands)
Net revenues $164,160 $110,310 $25,104
Net income $1,834 $2,025 $1,297
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 from
expected levels.
Liquidity and Capital Resources
At November 30, 2001 the Company had working capital of $53.8 million,
a decrease of $1.9 million over a year ago and an increase of $1.7 million
since February 28, 2001. The components of this net increase, since
February 28, 2001, were (i) $4.1 million resulting from operating activities,
consisting of approximately, $5.2 million in net income, $0.5 million in
depreciation, $0.3 million in amortization, and the remainder from a net
change in other working capital items, (ii) capital expenditures of
approximately $3.0 million related to the acquisition of equipment,
furniture and the construction of new corporate headquarters, and
(iii) net proceeds of $0.7 million 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 2.05% to 2.36% at November 30, 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 2.36% at
November 30, 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 November 30, 2001, the Company had approximately $210 million outstanding
under the asset backed securitized financing program and had a maximum
additional amount available of approximately $0.7 million, based on borrowing
base computations as provided by the agreement.
-12-
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 4.032% to 5.25% at
November 30, 2001). The agreement also contains various restrictive covenants,
including, among others, restrictions on mergers, issuance of stock,
declaration or payment of dividends and loans to stockholders, and requires
the Company to maintain certain levels of equity and pretax earnings. At
November 30, 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 notional
amount of $30 million at November 30, 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.
The Company is currently involved in negotiations with the counter-party of
this transaction to reduce the liability that has accrued under this agreement.
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.
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 4.032% to 5.25%
at November 30, 2001). The agreement also contains various restrictive
covenants, including, among others, restrictions on mergers, issuance of stock,
declaration or payment of dividends and 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
November 30, 2001 the Company had $5 million outstanding under the agreement
and had a maximum additional amount available of approximately $10 million based
on borrowing base computations as provided by the agreement.
The Company subsequently closed on a new financing agreement following the
end of the third quarter in Fiscal 2002. Under the terms of the agreement,
the Company may borrow up to $3.9 million, with a declining balance provision,
on a revolving line of credit through April 2022. This credit agreement
will be used to finance construction costs of the Company's new coporate
headquarters at a fixed interest rate of 5.74% for five years.
The agreement also contains various restrictive covenants, including among
others, requirements to maintain certain levels of equity and pretax earnings.
Management believes that the financial resources available to it,
including its bank lines of credit, asset backed securitization
program, five-year term note, construction loan, trade credit, its
equity and internally generated funds, will be sufficient to finance
the Company and its operations in the foreseeable future.
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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 60,000 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 $4.5 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 November 30, 2001 the Company had $245 million outstanding in notes
payable at an average variable interest rate of 3.27%. The Company has
an interest rate swap that effectively 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 $215 million at a variable
interst rate of 2.36%. A 10% increase in the average variable interest
rate would increase interest expense by approximately 33 basis points.
Assuming similar average outstanding borrowings as Fiscal 2001 of $183
million, this would increase the Company's interest expense by approximately
$0.6 million. The Company is currently involved in negotiations with the
counter-party of the swap transaction to reduce the liability that has
accrued under that agreement.
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.
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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
Executive Vice President & Treausurer
(Principal Financial & Accounting Officer)
Date: January 14, 2002
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AG SERVICES OF AMERICA, INC.
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Nine Months Ended
November 30, November 30,
----------------------- -----------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Computation of weighted average
number of basic shares:
Basic:
Common shares outstanding at
beginning of the period 5,451,864 5,269,964 5,281,064 5,249,039
Weighted average number of
shares issued during the
period 6,626 2,522 117,272 19,439
----------- ----------- ----------- -----------
Weighted average shares
outstanding (basic) 5,458,490 5,272,486 5,398,336 5,268,478
=========== =========== =========== ===========
Net income available to
stockholders: $1,296,761 $997,658 $5,155,290 $6,855,525
=========== =========== =========== ===========
Basic earnings per share: $0.24 $0.19 $0.95 $1.30
=========== =========== =========== ===========
Diluted:
Common shares outstanding at
beginning of the period 5,451,864 5,269,964 5,281,064 5,249,039
Weighted average number of
shares issued during the
period 6,626 2,522 117,272 19,439
Weighted average of potential
dilutive shares computed
using the treasury stock
method using the average
market price during the
period:
Options (1) 28,965 203,517 89,620 239,052
----------- ----------- ----------- -----------
Weighted average shares
outstanding (diluted) 5,487,455 5,476,003 5,487,956 5,507,530
=========== =========== =========== ===========
Net income available to
stockholders: $1,296,761 $997,658 $5,155,290 $6,855,525
=========== =========== =========== ===========
Diluted earnings per share: $0.24 $0.18 $0.94 $1.24
=========== =========== =========== ===========
(1) Some of the stock options have been excluded because they are
antidilutive.
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