UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 1996
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 Identification
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)
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
5,112,069 common shares were outstanding as of July 11, 1996.
<PAGE>
AG SERVICES OF AMERICA, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Condensed balance sheets, May 31, 1996 (unaudited) and
February 29, 1996 1
Unaudited condensed statements of income, three months
ended May 31, 1996 and 1995 2
Unaudited condensed statements of cash flows, three months
ended May 31, 1996 and 1995 3
Statement of stockholders' equity, three months ended May 31,
1996 4
Notes to condensed financial statements (unaudited) 5-6
Item 2. Management's discussion and analysis of financial
condition and results of operations 7-10
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on form 8-K: 11
(a) Exhibits
(11) Statement re computation of earnings per common
share 12
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AG SERVICES OF AMERICA, INC.
CONDENSED BALANCE SHEETS
<CAPTION>
ASSETS May 31, February 29,
1996 1996*
(Unaudited)
---------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $175,050 $1,808,778
Customer notes receivable, less allowance for
doubtful notes and reserve for discounts
May 31, 1996 $3,385,000; February 29, 1996
$1,370,000 88,266,514 31,702,885
Accounts receivable 171,855 117,834
Inventories 1,235,315 3,075,087
Foreclosed assets held for sale 2,562,194 2,778,260
Deferred income taxes, net 543,000 543,000
Other current assets 1,433,863 4,550,900
----------- -----------
Total current assets $94,387,791 $44,576,744
----------- -----------
LONG-TERM RECEIVABLES AND OTHER ASSETS
Customer notes receivable, less allowance for
doubtful notes May 31, 1996 $1,395,000;
February 29, 1996 $1,295,000 $8,983,221 $8,336,441
Foreclosed assets held for sale 530,102 574,805
Debt issuance costs, less accumulated
amortization May 31, 1996 $265,628; February 29,
1996 $244,800 596,865 620,200
Deferred income taxes, net 477,000 477,000
----------- -----------
$10,587,188 $10,008,446
----------- -----------
EQUIPMENT, less accumulated depreciation
May 31, 1996 $627,698; February 29, 1996
$603,607 $661,710 $601,115
------------ -----------
$105,636,689 $55,186,305
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $56,900,000 $19,850,000
Excess of outstanding checks over bank
balance 3,884,435 0
Accounts payable 7,679,620 471,291
Accrued expenses 558,018 644,207
Income taxes payable 734,094 0
----------- -----------
Total current liabilities $69,756,167 $20,965,498
----------- -----------
LONG-TERM LIABILITIES
7% covertible subordinated debentures $13,760,000 $13,800,000
----------- -----------
STOCKHOLDERS' EQUITY
Captial stock $8,626,002 $8,499,003
Retained earnings 13,494,520 11,921,804
----------- -----------
$22,120,522 $20,420,807
------------ -----------
$105,636,689 $55,186,305
============ ===========
<CAPTION>
*Condensed from Audited Financial Statements.
<FN>
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
UNAUDITED CONDENSED STATEMENTS OF INCOME
Three Months Ended May 31, 1996 and 1995
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net revenues:
Farm inputs $64,260,085 $47,664,763
Financing income 1,946,888 1,289,060
----------- -----------
$66,206,973 $48,953,823
----------- -----------
Cost of revenues:
Farm inputs $60,141,681 $44,348,579
Financing expense 918,051 657,482
Provision for doubtful notes 1,060,865 802,410
----------- -----------
$62,120,597 $45,808,471
----------- -----------
Income before operating
expenses and income taxes $4,086,376 $3,145,352
Operating expenses 1,630,660 1,346,197
---------- ----------
Income before income taxes $2,455,716 $1,799,155
Federal and state income taxes 883,000 651,000
---------- ----------
Net income $1,572,716 $1,148,155
========== ==========
Earnings per common and common
equivalent share
Primary $0.41 $0.31
========== ==========
Fully diluted $0.33 $0.25
========== ==========
Weighted average common and common
equivalent shares outstanding
Primary 3,852,867 3,676,672
========== =========
Fully diluted 5,354,621 5,168,530
========== =========
<FN>
See Notes to Condensed Financial Statements
</TABLE>
<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended May 31, 1996 and 1995
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,572,716 $1,148,155
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation 53,562 42,641
Amortization 21,600 21,600
Deferred taxes 0 (20,000)
(Gain) loss on sale of equipment (2,547) 0
Change in assets and liabilities (44,451,390) (33,571,472)
------------ -------------
Net cash (used in) operating activities ($42,806,059)($32,379,076)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of equipment $7,000 $0
Purchase of equipment (118,610) (66,274)
(Increase) decrease in foreclosed assets held for
sale 260,769 (1,403,957)
-------- ------------
Net cash provided by (used in) investing $149,159 ($1,470,231)
activities -------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings $38,300,000 $31,650,000
Principal payments on short-term borrowings (1,250,000) 0
Increase in excess of outstanding checks over
bank balance 3,884,435 2,042,450
Proceeds from issuance of capital stock upon
exercise of options 87,625 8,350
Proceeds from issuance of capital stock under
stock purchase plan 1,112 0
----------- -----------
Net cash provided by financing activities $41,023,172 $33,700,800
----------- -----------
(Decrease) in cash ($1,633,728) ($148,507)
CASH
Beginning 1,808,778 326,545
---------- -----------
Ending $175,050 $178,038
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for:
Interest $967,200 $289,866
Income taxes $41,900 $33,000
<FN>
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Quarter Ended May 31, 1996
(Unaudited)
<CAPTION>
Capital Stock
--------------------
Shares Retained
Issued Amount Earnings Total
-------- ------ -------- -----
<S> <C> <C> <C> <C>
Balance, February 29, 1996 3,611,350 $8,499,003 $11,921,804 $20,420,807
Net income 0 0 1,572,716 1,572,716
Issuance of 11,650 shares of capital
stock upon the exercise 11,650 87,625 0 87,625
Issuance of 100 shares of capital
stock under employee stock
purchase plan 100 1,112 0 1,112
Issuance of 4,324 shares of capital
stock upon conversion of
subordinated debentures 4,324 38,262 0 38,262
--------- --------- ---------- ----------
Balance, May 31, 1996 3,627,424 8,626,002 13,494,520 22,120,522
========= ========= ========== ==========
<FN>
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE>
AG SERVICES OF AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements
have been prepared in accordance with the instructions to
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
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 29, 1996. 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, 1996 are not necessarily indicative of the results
that may be expected for the year ending February 28,
1997.
Note 2. Commitments and Contingencies
Commitments:
In the normal course of business, the Company makes
various commitments which are not reflected in the
accompanying condensed financial statements. These
include various commitments to extend credit to
customers. At May 31, 1996 and February 29, 1996
the Company had approximately $48,263,000 and
$37,640,000, respectively, in commitments to supply
farm inputs. No material losses or liquidity
demands are anticipated as a result of these
commitments.
Contingencies:
The Company is named in lawsuits in the ordinary
course of business. Counsel for the Company have
advised the Company, while the outcome of various
legal proceedings is not certain, it is unlikely
that these proceedings will result in any recovery
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 of the outcome of such evaluations.
<PAGE>
Note 3. Earnings per Common and Common Equivalent Share
Earnings per common and common equivalent share was
computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding
during each respective period.
Note 4. Subsequent Event
On June 7, 1996, the Company called for redemption or
conversion all of its outstanding 7% Convertible
Subordinated Debentures due 2003 (the "Debentures").
From June 7, 1996 through July 10, 1996, the redemption
date, the Company issued 1,483,345 shares of common stock
upon conversion of $13,721,000 of Debentures and redeemed
$39,000 of Debentures as full settlement of all
$13,760,000 of the Debentures outstanding at May 31,
1996.
<PAGE>
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, 1996 and 1995. 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,
-------------------
1996 1995
--------- --------
Net Revenues:
Farm Inputs 97.1% 97.4%
Financing income 2.9% 2.6%
--------- ---------
100.0% 100.0%
--------- ---------
Cost of revenues:
Farm Inputs 90.8% 90.6%
Financing expense 1.4% 1.4%
Provision for doubtful notes 1.6% 1.6%
--------- --------
93.8% 93.6%
--------- --------
Income before operating expenses
and income taxes 6.2% 6.4%
Operating expenses 2.5% 2.7%
--------- --------
Income before income taxes 3.7% 3.7%
Federal and state income taxes 1.3% 1.4%
--------- --------
Net Income 2.4% 2.3%
========= ========
Net Revenues:
Net revenues increased $17.3 million or 35.2% during the three
months ended May 31, 1996, compared with the three months ended May
31, 1995. The Company reached this record level through increased
market penetration in the Company's twenty-eight state market area.
Cost of Revenues:
The total cost of revenues increased to 93.8% of net revenues for
the three months ended May 31, 1995. The increase in total cost of
revenues as a percentage of net revenues was attributable to the
decrease in gross margin on the sale of farm inputs but was
partially offset by an increase in gross margin on financing
<PAGE>
income. The gross margin on the sale of farm inputs, alone,
decreased to 6.4% for the three months ended May 31, 1996 from 7.0%
for the three months ended May 31, 1995. The decrease in gross
margin on the sale of farm inputs was primarily the result of
increased volume discounts given to customers on seed sales as well
as a decline in higher margin cotton seed sales (the Company has
reduced marketing efforts in part of its Southern markets) and an
increase in lower margin potato seed sales. The higher amount of
volume discounts given was the result of the increase in average
customer size pushing individual discount volumes into a higher
standard industry discount level. Also contributing to the
increased volume discounts was the fact that farmers purchased more
seed due to fears of U.S. seed inventories being at or near record
low levels. In addition to seed discounts, a change in sales mix
from higher to lower margin farm inputs caused margins to decline
further. The gross margin on financing income, alone, increased to
52.8% for the three months ended May 31, 1996 from 49.0% for the
three months ended May 31, 1995. The increase in gross margin on
financing income was primarily the result of interest income
collected and recorded on customer notes receivable accounts that
were previously classified as impaired (nonaccrual) in terms of
their collectibility. The provision for doubtful notes was 1.6% of
net revenues for the three months ended May 31, 1996 and 1995.
Operating Expenses:
Operating expenses decreased to 2.5% of net revenues for the three
months ended May 31, 1996 from 2.7% of net revenues for the three
months ended May 31, 1995. This decrease is the result of
operating expenses increasing at a lower rate (21.1%) than net
revenues (35.2%) for the three months ended May 31, 1996 due to
economies experienced as a result of the Company's developed
infrastructure. The increase in operating expense is attributed
primarily to the Company's growth. Payroll and payroll related
expenses increased to $1,086,712 for the three months ended May 31,
1996 from $895,856 for the three months ended May 31, 1995.
Net Income:
Net income increased 37.0% to $1,572,716 for the three months ended
May 31, 1996 from $1,148,155 for the three months ended May 31,
1995. The increase is attributable to the increase in net revenues
and the decrease in operating expenses as a percentage of net
revenues.
Inflation:
The Company does not believe the Company's net revenues and income
from continuing operations were significantly impacted by inflation
or changing prices in fiscal 1996 or the first quarter of fiscal
1997.
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 1996 and
the first quarter of fiscal 1997. This information is derived from
unaudited 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.
<PAGE>
Fiscal 1996 Quarter Ended
--------------------------------------------------
May 31 August 31 November 30 February 29
--------- ---------- ------------ ------------
(Dollars in thousands)
Net revenues $48,954 $39,436 $12,006 $14,290
Net income $1,148 $1,359 $538 $88
Fiscal 1997 Quarter Ended
--------------------------------------------------
May 31 August 31 November 30 February 29
------- ---------- ------------ ------------
(Dollars in thousands)
Net revenues $66,207
Net income $1,573
The Company's primary target market experienced a particularly cool
and wet spring in 1996. These were also the conditions experienced
in the spring of 1995, as a result, planting was delayed resulting
in a delay in the Company's normal pattern of revenues in fiscal
1997 and 1996.
Liquidity and Capital Resources:
At May 31, 1996, the Company had working capital of $24,632,000 an
increase of $2,119,000 over a year ago and an increase of
$1,021,000 since February 29, 1996. The components of this net
increase, since February 29, 1996, were (i) $1,051,000 resulting
from operating activities, consisting of approximately $1,573,000
in net income, $54,000 in depreciation, $22,000 in amortization,
and the remainder from the net change in other working capital
items, (ii) capital expenditures of approximately $119,000 related
to the acquisition of equipment and furniture, and (iii) net
proceeds of $89,000 from the issuance of common stock under the
stock purchase plan and upon stock options exercised.
In April 1996, the Company negotiated a $100,000,000 bank line of
credit through February 1998. The line was increased from
$72,000,000 the previous year. The Company's bank line of credit
can be drawn upon based on a percentage of customer notes
receivable. The total outstanding under the line of credit
agreement as of May 31, 1996 was $56,900,000, with an additional
maximum amount available on its line of credit of approximately
$10.4 million based on a percentage of customer notes receivable as
provided by the line of credit agreement. The Company's loan
agreement for its line of credit contains numerous restrictive
covenants, including among others: payment of dividends restricted
to an aggregate of $100,000, mergers, issuance of stock and loans
to shareholders; requirements for the maintenance of certain
financial ratios and total stockholders' equity. The Company was
in compliance with these covenants at May 31, 1996.
In April 1993, the Company completed the public offering of $13.8
million (including $1.8 million as a result of over-allotments)
principal amount of 7% Convertible Subordinated Debentures due
2003. Interest is paid semi-annually on May 31 and November 30 of
each year and is convertible into Common Stock of the Company at
$9.25 per share, subject to adjustment under certain conditions, at
any time prior to maturity, unless previously redeemed or
repurchased. At May 31, 1996 the balance of the Debentures was
$13,760,000.
<PAGE>
On June 7, 1996, the Company called for redemption or conversion
all of its outstanding 7% Convertible Subordinated Debentures due
2003 (the "Debentures"). From June 7, 1996 through July 10, 1996,
the redemption date, the Company issued 1,483,345 shares of common
stock upon conversion of $13,721,000 of Debentures and redeemed
$39,000 of Debentures as full settlement of all $13,760,000 of the
Debentures outstanding at May 31, 1996.
Management believes that the financial resources available to it,
including its bank line of credit, 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 no significant capital commitments.
"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; and other risks detailed in
the Company's Securities and Exchange Commission filings.
<PAGE>
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\Gaylen D. Miller
Gaylen D. Miller
President & Chief Executive Officer
(Principal Financial and Accounting
Officer)
Date: July 11, 1996
<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
<CAPTION>
Three Months Ended
May 31,
-----------------------
1996 1995
---------- --------
<S> <C> <C>
Computation of weighted average number of common
shares outstanding and common equivalent shares:
Primary:
Common shares outstanding at beginning of the
period 3,611,350 3,482,634
Weighted average common shares issued during
the period 7,160 1,068
Weighted average common shares issued under
the stock purchase plan this period 100 0
Weighted average common shares issued due to
7% subordinated debenture conversion this
period 47 0
Weighted average of the common equivalent
shares computed using the treasury stock
method using the average market price during
the period:
Options (1) 234,210 147,864
Warrants 0 45,106
--------- ----------
Weighted average number of common and common
equivalent shares 3,852,867 3,676,672
========== ===========
Net income $1,572,716 $1,148,155
========== ===========
Earnings per common and common equivalent share $0.41 $0.31
========== ===========
Fully diluted:
Common shares outstanding at beginning of the
period 3,611,350 3,482,634
Weighted average common shares issued during
the period 7,160 1,068
Weighted average common shares issued under
the stock purchase plan this period 100 0
Weighted average common equivalent shares
computed using the treasury stock method
using the greater of the quarter end market price
or average market price during the period:
Options (1) 244,119 147,830
Warrants 0 45,106
Assumed conversion of $13.8 million 7% convertible
subordinated debentures (2) 1,491,892 1,491,892
---------- ---------
5,354,621 5,168,530
========== =========
Net income $1,572,716 $1,148,155
Add: Interest on $13.8 million 7% convertible
subordinated debentures, net of income
tax effect 154,077 154,077
Amortization of debt issuance costs, net of
income tax effect 13,781 13,781
---------- ----------
Total $1,740,574 $1,316,013
========== ==========
Earnings per common and common equivalent share $0.33 $0.25
========== ==========
<CAPTION>
(1) Some of the stock options have not been included because they are antidilu
(2) Assumes conversion at the date of issuance on April 23, 1993.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> MAY-31-1996
<CASH> 175,050
<SECURITIES> 0
<RECEIVABLES> 102,201,590
<ALLOWANCES> 4,780,000
<INVENTORY> 1,235,315
<CURRENT-ASSETS> 94,387,791
<PP&E> 1,289,408
<DEPRECIATION> 627,698
<TOTAL-ASSETS> 105,636,689
<CURRENT-LIABILITIES> 69,756,167
<BONDS> 13,760,000
0
0
<COMMON> 8,626,002
<OTHER-SE> 13,494,520
<TOTAL-LIABILITY-AND-EQUITY> 105,636,689
<SALES> 64,260,085
<TOTAL-REVENUES> 66,206,973
<CGS> 60,141,681
<TOTAL-COSTS> 61,059,732
<OTHER-EXPENSES> 1,630,660
<LOSS-PROVISION> 1,060,865
<INTEREST-EXPENSE> 918,051
<INCOME-PRETAX> 2,455,716
<INCOME-TAX> 883,000
<INCOME-CONTINUING> 1,572,716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,572,716
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.33
</TABLE>
