AG SERVICES OF AMERICA, INC.
EXHIBIT 13.1
FORM OF ANNUAL REPORT TO
SHAREHOLDERS FYE FEBRUARY 29, 2000
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<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
----------------------
<CAPTION>
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(expressed in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Earnings:
Net revenues $294,584 $223,813 $186,001 $147,647 $114,686
Net revenues increase 31.6% 20.3% 26.0% 28.7% 31.3%
Net income $7,610 $6,493 $5,181 $4,346 $3,133
Net income as a percentage of net revenues 2.6% 2.9% 2.8% 2.9% 2.7%
Return on beginning stockholders' equity 15.1% 14.8% 13.6% 21.3% 18.8%
Per share data:*
Net income:
Basic $1.45 $1.25 $1.01 $0.95 $0.89
Diluted $1.40 $1.20 $0.96 $0.84 $0.73
Book value $11.13 $9.70 $8.45 $7.44 $5.65
Weighted average shares:*
Basic 5,233 5,204 5,155 4,579 3,539
Diluted 5,453 5,431 5,425 5,352 5,201
Financial position:
Working capital $45,139 $39,390 $33,806 $27,375 $23,611
Total assets $164,328 $134,644 $93,248 $60,773 $55,186
Stockholders' equity $58,436 $50,537 $43,756 $38,216 $20,421
</TABLE>
<TABLE>
Quarterly Common Stock Prices
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
2000
High $17 7/8 $18 1/16 $17 3/8 $24 3/4
Low $13 $16 1/4 $14 3/16 $14 1/16
1999
High $18 1/4 $18 1/2 $15 9/16 $15 1/2
Low $16 5/8 $11 5/8 $11 5/8 $13
</TABLE>
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<PAGE>
<TABLE>
FIFTEEN-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
<CAPTION>
February February February February February February February
2000 1999 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net revenues:
Farm inputs $269,517 $204,133 $172,646 $137,443 $106,869 $81,936 $61,644
Financing income 25,067 19,680 13,355 10,204 7,817 5,395 3,910
--------- --------- --------- --------- --------- --------- ---------
Total net revenues $294,584 $223,813 $186,001 $147,647 $114,686 $87,331 $65,554
--------- --------- --------- --------- --------- --------- ---------
Cost of revenues:
Farm inputs $253,588 $191,648 $162,140 $127,698 $98,280 $75,247 $56,296
Financing expense 12,062 9,309 5,536 4,768 4,258 2,784 1,720
Provision for doubtful notes 5,421 4,021 2,963 2,290 1,863 1,409 1,050
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenues $271,071 $204,978 $170,639 $134,756 $104,401 $79,440 $59,066
--------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations before operating
expenses and income taxes $23,513 $18,835 $15,362 $12,891 $10,285 $7,891 $6,488
Operating expenses 10,556 8,374 7,200 6,216 5,422 4,128 3,404
--------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations before income
taxes $12,957 $10,461 $8,162 $6,675 $4,863 $3,763 $3,084
Fed and state income taxes 4,878 3,722 2,915 2,329 1,730 1,361 1,117
--------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations $8,079 $6,739 $5,247 $4,346 $3,133 $2,402 $1,967
Discontinued operations (469) (246) (66) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net Income $7,610 $6,493 $5,181 $4,346 $3,133 $2,402 $1,967
========= ========= ========= ========= ========= ========= =========
Earnings per share - Basic:
Income from continuing
operations $1.54 $1.29 $1.02 $0.95 $0.89 $0.69 $0.58
Discontinued operations (0.09) (0.04) (0.01) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income $1.45 $1.25 $1.01 $0.95 $0.89 $0.69 $0.58
========= ========= ========= ========= ========= ========= =========
Earnings per share - Diluted:
Income from continuing
operations $1.48 $1.24 $0.97 $0.84 $0.73 $0.60 $0.52
Discontinued operations (0.08) (0.04) (0.01) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income $1.40 $1.20 $0.96 $0.84 $0.73 $0.60 $0.52
========= ========= ========= ========= ========= ========= =========
Cash dividends per share $ -- $ -- $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= ========= ========= =========
Weighted average shares:
Basic 5,232,895 5,203,976 5,155,186 4,578,720 3,538,603 3,478,144 3,408,192
========= ========= ========= ========= ========= ========= =========
Diluted 5,453,478 5,430,781 5,424,977 5,352,257 5,201,231 5,150,556 4,893,838
========= ========= ========= ========= ========= ========= =========
<CAPTION>
February February February February February February February
2000 1999 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
Balance Sheet Data:
Working capital $45,139 $39,390 $33,806 $27,375 $23,611 $21,546 $23,034
Total assets 164,328 134,644 93,248 60,773 55,186 38,277 28,786
Total debt 93,390 70,300 45,243 21,000 33,650 20,900 13,800
Stockholders' equity 58,436 50,537 43,756 38,216 20,421 16,660 14,198
</TABLE>
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<PAGE>
<TABLE>
FIFTEEN-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
<CAPTION>
February February February February February February February February
1993 1992 1991 1990 1989 1988 1987 1986*
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net revenues:
Farm inputs $51,088 $33,062 $27,443 $21,236 $9,451 $4,176 $2,833 $10
Financing income 3,474 2,472 1,983 1,515 512 184 165 --
--------- --------- --------- --------- --------- --------- ---------- ---------
Total net revenues 54,562 35,534 29,426 22,751 9,963 4,360 2,998 $10
--------- --------- --------- --------- --------- --------- ---------- ---------
Cost of revenues:
Farm inputs $46,447 $30,355 $25,131 $19,215 $8,541 $3,728 $2,441 $--
Financing expense 1,308 913 1,039 1,241 365 129 116 --
Provision for doubtful notes 812 471 375 451 53 37 10 --
--------- --------- --------- --------- --------- --------- ---------- ---------
Total cost of revenues $48,567 $31,739 $26,545 $20,907 $8,959 $3,894 $2,567 $--
--------- --------- --------- --------- --------- --------- ---------- ---------
Income from continuing
operations before operating
expenses and income taxes $5,995 $3,795 $2,881 $1,844 $1,004 $466 $431 $10
Operating expenses 3,094 1,941 1,637 1,399 585 408 377 31
--------- --------- --------- --------- --------- --------- ---------- ---------
Income from continuing
operations before income
taxes $2,901 $1,854 $1,244 $445 $419 $58 $54 ($21)
Fed and state income taxes 1,045 676 446 183 159 18 7 --
--------- --------- --------- --------- --------- --------- ---------- ---------
Income from continuing
operations $1,856 $1,178 $798 $262 $260 $40 $47 ($21)
Discontinued operations -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------- ---------
Net Income $1,856 $1,178 $798 $262 $260 $40 $47 ($21)
========= ========= ========= ========= ========= ========= ========== =========
Earnings per share - Basic:
Income from continuing
operations $0.55 $0.42 $0.42 $0.22 $0.22 $0.03 $0.04 ($0.02)
Discontinued operations -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ----------
Net income $0.55 $0.42 $0.42 $0.22 $0.22 $0.03 $0.04 ($0.02)
========= ========= ========= ========= ========= ========= ========= ==========
Earnings per share - Diluted:
Income from continuing
operations $0.53 $0.42 $0.42 $0.22 $0.22 $0.03 $0.04 ($0.02)
Discontinued operations -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ----------
Net income $0.53 $0.42 $0.42 $0.22 $0.22 $0.03 $0.04 ($0.02)
========= ========= ========= ========= ========= ========= ========= ==========
Cash dividends per share $-- $-- $-- $-- $-- $-- $-- $--
========= ========= ========= ========= ========= ========= ========== =========
Weighted average shares:
Basic 3,360,542 2,784,864 1,910,116 1,179,802 1,179,802 1,179,802 1,179,802 1,179,802
========= ========= ========= ========= ========= ========= ========== =========
Diluted 3,524,278 2,822,166 1,910,116 1,179,802 1,179,802 1,179,802 1,179,802 1,179,802
========= ========= ========= ========= ========= ========= ========== =========
<CAPTION>
February February February February February February February February
1993 1992 1991 1990 1989 1988 1987 1986*
--------- --------- --------- --------- --------- --------- --------- ---------
Balance Sheet Data:
Working capital $8,531 $7,908 $3,470 $358 $281 $36 $14 ($32)
Total assets 20,983 13,971 7,231 3,952 1,421 355 195 39
Total debt 8,000 3,500 2,265 308 636 126 15 52
Stockholders' equity 11,760 9,839 4,001 588 326 66 26 (21)
<FN>
* - Represents operations from October 1985, the Company's inception, through February 28, 1986.
</TABLE>
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<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with the Financial
Statements of the Company, the related notes thereto and Selected
Financial Data included elsewhere in this Annual Report.
General
Fiscal 2000 marks the twelfth consecutive year Ag Services has reached
record levels of sales and earnings. Compared to fiscal 1999, the
Company's annual net revenues rose 32% to $294.6 million and net income
grew 17% to $7.6 million. Net income from continuing operations
increased 20% to $8.1 million as compared to $6.7 million in fiscal 1999.
The Company reported basic and diluted earnings per share of $1.45 and
$1.40, respectively, compared to $1.25 and $1.20 per share, respectively,
in fiscal 1999.
Subsequent to fiscal 2000 year end, the Company negotiated an increase
in the asset backed securitized financing program of $50 million to a
maximum available amount of $325 million. The increase in the facility
should provide the Company adequate financing for fiscal 2001.
Results of Operations
Selected Operating Results
The following table sets forth the dollars and percentages of net
revenues by the selected items in the Consolidated Statements of Income
of the Company.
<TABLE>
Dollars (in thousands) and Percentage of Total Net Revenue
-----------------------------------------------------------
<CAPTION>
Year Ended Year Ended Year Ended
February 29, 2000 February 28, 1999 February 28, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net revenues:
Farm inputs $269,517 91.5% $204,133 91.2% $172,646 92.8%
Financing income 25,067 8.5% 19,680 8.8% 13,355 7.2%
--------- ------ --------- ------ --------- ------
Total net revenues $294,584 100.0% $223,813 100.0% $186,001 100.0%
--------- ------ --------- ------ --------- ------
Cost of revenues:
Farm inputs $253,588 86.1% $191,648 85.6% $162,140 87.1%
Financing expense 12,062 4.1% 9,309 4.2% 5,536 3.0%
Provision for
doubtful notes 5,421 1.8% 4,021 1.8% 2,963 1.6%
--------- ------ --------- ------ --------- ------
Total cost of
revenues $271,071 92.0% $204,978 91.6% $170,639 91.7%
--------- ------ --------- ------ --------- ------
Income from continuing
operations before
operating expenses
and income taxes $23,513 8.0% $18,835 8.4% $15,362 8.3%
Operating expenses 10,556 3.6% 8,374 3.7% 7,200 3.9%
--------- ------ --------- ------ --------- ------
Income from continuing
operations before
income taxes $12,957 4.4% $10,461 4.7% $8,162 4.4%
Federal and state
income taxes 4,878 1.7% 3,722 1.7% 2,915 1.6%
--------- ------ --------- ------ --------- ------
Income from continuing
operations $8,079 2.7% $6,739 3.0% $5,247 2.8%
Discontinued
operations (469) (0.2%) (246) (0.1%) (66) 0.0%
--------- ------ --------- ------ --------- ------
Net Income $7,610 2.6% $6,493 2.9% $5,181 2.8%
========= ====== ========= ====== ========= ======
</TABLE>
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<PAGE>
Net Revenues
Net revenues in fiscal 2000 increased 32% to $294.6 million, compared
with $223.8 million in 1999, and $186.0 million in 1998. Financing
income as a percentage of net revenues decreased to 8.5% in fiscal 2000
from 8.8% in 1999 and 7.2% in 1998. The decline in financing income as
a percentage of net revenues for fiscal 2000 was primarily a result of
a decrease in the prime-lending rate by approximately 25 basis points,
which is the base rate used by the Company to charge interest on a
variable rate basis to its customers, as compared to a year ago. The
increase in fiscal 1999 financing income as a percentage of net
revenues as compared to 1998 reflects the additional $2.6 million in
financing income generated from the servicing and marketing agreement
with a major national agricultural supplier. The net revenues
associated with this agreement are primarily financing income as the
Company finances the farm input purchases and cash advances of
customers of the agricultural supplier. For the last three fiscal
years over 95% of the Company's customers have had variable rate notes,
which allows the Company to pass interest rate risk onto its customers.
The number of customers in fiscal 2000 increased 13% to 1,533 compared
to 1,358 in 1999 and 1,235 in 1998. The average net revenue generated
by each customer increased 16% to $192,000 in fiscal 2000, compared
with $165,900 in 1999 and $150,700 in 1998. The Company achieved these
record net revenue levels through increased marketing and sales efforts
in our 30 state market area.
Cost of Revenues
The total cost of revenues was 92.0% of net revenues for fiscal 2000,
which increased from 91.6% of net revenues in 1999, which decreased
from 91.7% of net revenues in 1998. The increase in total cost of
revenues as a percentage of net revenues in fiscal 2000 was a result of
a decrease in margin on the sale of farm inputs. The decrease in total
cost of revenues as a percentage of net revenues in fiscal 1999 was
attributed to the increase in gross margin on financing income
resulting from the servicing and marketing agreement discussed above.
The gross margin on farm inputs, alone, remained relatively constant at
6.0%, 6.2% and 6.1% for fiscal 2000, 1999 and 1998 respectively. The
decrease in gross margin on the sale of farm inputs in fiscal 2000 was
primarily the result of a change in product sales mix from higher to
lower margin farm inputs. This change in sales mix was primarily due
to the change in our customer growth areas, as the Company's program
was expanded significantly in Idaho and North Dakota where the margin
on the sale of farm inputs was lower than traditional margins. In
fiscal 2000, margin on financing increased to $13.0 million from $10.3
million in 1999 and $7.8 million in 1998. The increase in financing
margin in fiscal 2000 and 1999 was due to the following two reasons.
The primary reason for the increase in financing income is due to the
increased financing under the Company's Agri-Flex program, as noted by
the increased revenues in the corresponding years. Secondly, the
servicing and marketing agreement mentioned above resulted in an
additional $1.5 million and $1.3 million of gross margin on financing
income for fiscal years 2000 and 1999, respectively. The average
interest rate on the Company's financing agreements decreased from 7.3%
in fiscal 1998 to 7.1% in fiscal 1999 and 6.9% in fiscal 2000.
Financing expense, as a cost of revenue, is directly affected by
changes in the prevailing prime, LIBOR, and commercial paper interest
rates under the Company's financing agreements. The Company
establishes interest rates for customers each year based on the
Company's anticipated financing expenses and competitive influences in
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<PAGE>
the market. For fiscal 2000, 1999, and 1998, the Company offered
variable rate notes to customers ranging from prime to 4.5% above prime.
This allowed the Company to limit exposure to interest rate risk. The
provision for doubtful notes, as a percentage of net revenues, increased
to 1.8% in fiscal 2000 and 1999 as compared to 1.6% in fiscal 1998. The
increase in provision for doubtful notes as a percentage of net revenues
is a result of the Company's recorded provision for doubtful notes
related to the originations under the servicing and marketing agreement
discussed above.
Operating Expenses
Operating expenses decreased to 3.6% of net revenues in fiscal 2000 as
compared to 3.7% and 3.9% for fiscal 1999 and 1998. The decrease in
operating expenses for fiscal 2000 and 1999 is the result of
Management's continuing efforts to control expenses as well as operating
economies achieved. The increase in the dollar amount of operating
expenses is primarily due to the increase in payroll to $5.7 million in
fiscal 2000 from $4.7 million in 1999 and $3.9 in 1998. This is the
result of the Company adding employees as well as general wage rate
increases to existing employees. The balance of the increase in
operating expenses is attributed principally to the Company's growth.
Net Income
Net income increased 17% to $7.6 million in fiscal 2000, compared with
$6.5 million in 1999 and $5.2 million in 1998. The increase in net
income is attributable to the increase in net revenues, increase in
financing income related to the servicing and marketing agreement and a
decline in operating expenses as a percentage of net revenue.
Discontinued Operations
During fiscal 2000 the Company decided to discontinue the operations for
the three retail service centers in Northwestern Illinois. The Company
began leasing the three retail service centers in May of 1997 as a pilot
program to increase its customer base in Northwestern Illinois, as well
as create synergies to improve margins on the sale of fertilizer and
agricultural chemicals. Due to changes in market conditions at the
retail level, the Company was not successful in developing a profitable
customer base in the area. In addition, management's long-term
strategies for continued growth and profitability are focused on
services, information and technology rather than bricks and mortar.
Net revenues from the retail facilities for fiscal years 2000, 1999 and
1998 were $1,376,000, $1,481,000 and $72,000, respectively. Net
operating (loss) from discontinued operations were ($176,000),
($246,000) and ($66,000), respectively for fiscal years 2000, 1999 and
1998. Loss on disposal of discontinued operations for fiscal 2000 was
$293,000. At year-end $137,000 of machinery and equipment remain on the
balance sheet related to the retail service centers.
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 2000 and 1999. This information is
derived from unaudited financial statements, which include, in the
opinion of management, all normal and recurring adjustments which
management considers 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.
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<PAGE>
Fiscal 2000 Quarter Ended
-------------------------------------------------------------
May 31 August 31 November 30 February 29
-------- --------- ----------- -----------
(Dollars in Thousands)
Net revenues $132,877 $88,703 $26,794 $46,210
Net income $3,077 $2,727 $1,615 $191
Fiscal 1999 Quarter Ended
-------------------------------------------------------------
May 31 August 31 November 30 February 28
-------- --------- ----------- -----------
(Dollars in Thousands)
Net revenues $101,529 $69,397 $16,447 $37,920
Net income $2,429 $2,276 $1,407 $381
During the fourth quarter of fiscal 2000, the Company took a charge for
the disposal of the retail facilities in Northwestern Illinois. This
charge and loss from operations on those facilities resulted in a $347
thousand loss during the fourth quarter.
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 2000, 1999, or 1998.
Future Adoption of Financial Accounting Standard
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." As amended by SFAS No. 137, this statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for
hedging activities. This statement must be adopted no later than
March 1, 2001, although earlier application is permitted. The Company
is currently evaluating the impact of adopting SFAS No. 133 and believes
there will be no material effect to the financial statements of adopting
this standard.
Liquidity and Capital Resources
Due to the seasonality of the Company's revenues and the terms of its
notes receivable, the Company is required to finance the carrying of its
revenues as notes receivable for a majority of its fiscal year. As a
result, the Company's need for capital has increased significantly due
to its rapid growth. At February 29, 2000 and February 28, 1999, the
Company had approximately $91 million and $84 million respectively, in
commitments to supply farm inputs.
The Company has funded its operating requirements and growth through a
combination of retained earnings, equity capital, trade credit and bank
and commercial paper borrowings. For the fiscal years ended February 29,
2000 and February 28, 1999 and 1998, the Company financed its purchase of
farm inputs from the following sources in the respective percentages
indicated: bank and commercial paper borrowings 78.3%, 75.8% and 69.1%;
trade credit 4.5%, 5.1% and 5.6%; and equity 17.1%, 19.1% and 25.3%. The
- 18 -
<PAGE>
increase in bank and commercial paper borrowings as a percentage of farm
input purchases is a result of the Company's decision to finance more of
its farm input purchases through the favorable terms of commercial paper
borrowings. Capital expenditures have been financed through bank
borrowings and equipment leasing. The Company's principal source of
working capital has been bank and commercial paper borrowings, retained
earnings, a $2.5 million sale of common stock by the Company, the $4.7
million from its initial public offering of common stock in August 1991,
and the $12.9 million from its convertible subordinated debenture
offering in April 1993, which was converted to common stock in fiscal
1997. In March 1997, the Company negotiated a $135 million asset backed
securitized financing program through February 2002. This facility was
amended and increased to $275 million in June of 1999. The Company's
asset back securitized financing program can be drawn upon based on a
percentage of customer notes receivable. The Company has genrally
borrowed up to the full amount available on its commercial paper
facility. The total outstanding under commercial paper borrowings as of
February 29, 2000 and February 28, 1999 and 1998, was $75.5 million,
$55.3 million, and $45.2 million, respectively, with an additional
maximum amount available of approximately $66,000, $16,000, and $900,000,
respectively, based on a percentage of customer notes receivable as
provided by the agreements. The agreements are collateralized by a lien
on substantially all of the Company's assets. Under the terms of the
five year asset backed securitized financing program, 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 and incurs
interest at variable rates in the commercial paper market. The Company
may make these interest rate elections at any time during each fiscal
year in which the agreement is in effect and for any amount. The terms
of the Company's trade credit vary for each supplier and type of crop
input.
In conjunction with the securitized financing program, Ag Services
maintains an $8.5 million revolving bank line of credit through June
2000. The line of credit is accessible to cover any potential
deficiencies in available funds financed through the securitization
program. The agreement allows for three variable interest rate
alternatives based on prime, Fed Fund rates, or LIBOR (current effective
rates range from 7.92% to 9.25% at February 29, 2000). The agreement
requires that the total outstanding borrowings be repaid in full for 10
consecutive days during the Company's fiscal second quarter.
The Company entered into a two year bank line of credit, through June
2000, with a maximum available borrowing amount of $12 million. The line
of credit is accessible to cover the Company's funding requirements for
its intermediate loan program. The terms of the agreement allow for
three variable interest rate alternatives based on prime, Fed Fund rates,
or LIBOR (current effective rates range from 7.92% to 9.25% at
February 29, 2000). All borrowings are collateralized by substantially
all assets of the Company. At February 29, 2000 and February 28, 1999
the Company had a maximum amount available under the revolving line of
credit of $5,000 and $55,000, respectively, based on the borrowing base
computation as provided by the agreement. The total outstanding under
the revolving line of credit at February 29, 2000 and February 28, 1999
was $9.4 million and $6.5 million, respectively.
The agreements as discussed above contain various restrictive
covenants, including, among others, restrictions on mergers, issuance of
stock, declaration or payment of dividends, transactions with affiliates,
loans to stockholders, and requires the company to maintain certain
levels of equity and pretax earnings. These restrictions are in effect
unless written consent is obtained. The company was in compliance with
these covenants at February 29, 2000.
- 19 -
<PAGE>
Advances under the agreements are also subject to portfolio performance,
financial covenant restrictions, and borrowing base calculations.
The Company believes that the financial resources available to it,
including its bank line of credit and its asset backed securitized
financing program, its equity, and internally generated funds, will be
sufficient to finance the Company and its operations in the foreseeable
future.
Year 2000
As of this report date, all of the Company's information systems
appear to be operational subsequent to the millenium change. There were
no internal system disruptions caused by the changeover from year 1999 to
year 2000 and to date have noticed no third party system failures. The
Company will continue to monitor the situation for any internal or third
party system disruptions, but expects none at this time. Costs incurred
by the Company to prepare internal systems for the Year 2000 were funded
with cash from operations totaling approximately $30 thousand dollars.
These costs exclude the costs associated with information specialists
already on staff.
"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 agricultural 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.
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<PAGE>
McGladrey & Pullen, LLP RSM
Certified Public Accountants and Consultants international
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Ag Services of America, Inc.
Cedar Falls, Iowa
We have audited the accompanying consolidated balance sheets of Ag
Services of America, Inc. and its subsidiary as of February 29, 2000 and
February 28, 1999, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years ended February 29,
2000 and February 28, 1999 and 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ag
Services of America, Inc. as of February 29, 2000 and February 28, 1999,
and the results of their operations and their cash flows for the years
ended February 29, 2000 and February 28, 1999 and 1998 in conformity with
generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Des Moines, Iowa
April 23, 2000
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<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
February 29, 2000 and February 28, 1999
(Dollars in Thousands)
<CAPTION>
ASSETS (Note 3) 2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $45 $67
Customer notes receivable, less allowance for
doubtful notes and reserve for discounts
2000 $5,700; 1999 $4,440 (Notes 2 and 6) 130,882 106,211
Inventory and other assets 4,863 7,028
Foreclosed assets held for sale 1,075 836
Prepaid income taxes 922 --
Deferred income taxes, net (Note 5) 1,920 872
----------- -----------
Total current assets $139,707 $115,014
----------- -----------
LONG-TERM RECEIVABLES AND OTHER ASSETS
Customer notes receivable, less allowance
for doubtful notes 2000 $1,550; 1999 $1,755
(Note 2) $22,475 $16,899
Loan origination fees, less accumulated
amortization 2000 $454; 1999 $235 647 352
Deferred income taxes, net (Note 5) 292 650
----------- -----------
$23,414 $17,901
----------- -----------
EQUIPMENT, less accumulated depreciation
2000 $1,546; 1999 $1,406 $1,207 $1,729
----------- -----------
$164,328 $134,644
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, inluding current maturities $82,066 $61,817
(Note 3)
Outstanding checks in excess of bank balances 9,834 9,986
Accounts payable 1,091 1,732
Accrued expenses, including due to officers
2000 $695; 1999 $546 1,577 1,553
Income taxes payable -- 536
----------- -----------
Total current liabilities $94,568 $75,624
----------- -----------
LONG-TERM LIABILITIES
Notes payable, less current maturities $11,324 $8,483
(Note 3) ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 7)
STOCKHOLDERS' EQUITY (Note 3)
Capital stock, common, no par or stated value;
authorized 10,000,000 shares; issued 2000
5,249,039 shares; 1999 5,212,604 shares $22,884 $22,595
(Notes 6 and 8)
Retained earnings 35,552 27,942
----------- -----------
$58,436 $50,537
----------- -----------
$164,328 $134,644
=========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- 22 -
<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended February 29, 2000, February 28, 1999 and 1998
(Dollars in Thousands, Except Per Share Amounts)
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues:
Farm inputs $269,517 $204,133 $172,646
Financing income 25,067 19,680 13,355
----------- ----------- -----------
$294,584 $223,813 $186,001
----------- ----------- -----------
Cost of revenues:
Farm inputs $253,588 $191,648 $162,140
Financing expense 12,062 9,309 5,536
Provision doubtful notes (Note 2) 5,421 4,021 2,963
----------- ----------- -----------
$271,071 $204,978 $170,639
----------- ----------- -----------
$23,513 $18,835 $15,362
Operating expenses (Notes 4 and 7) 10,556 8,374 7,200
----------- ----------- -----------
Income from continuing
operations before income taxes $12,957 $10,461 $8,162
Federal and state income taxes 4,878 3,722 2,915
(Note 5)
----------- ----------- -----------
Income from continuing operations $8,079 $6,739 $5,247
----------- ----------- -----------
Discontinued operations (Note 10):
(Loss) from operations, net ($176) ($246) ($66)
(Loss) on disposal of discontinued
operations, net (293) -- --
----------- ----------- -----------
($469) ($246) ($66)
----------- ----------- -----------
Net income $7,610 $6,493 $5,181
=========== =========== ===========
Earnings per share - Basic
(Notes 6 and 8):
Income from continuing operations $1.54 $1.29 $1.02
Discontinued operations ($0.09) ($0.04) ($0.01)
----------- ----------- -----------
Net Income $1.45 $1.25 $1.01
=========== =========== ===========
Earnings per share - Diluted
(Notes 6 and 8):
Income from continuing operations $1.48 $1.24 $0.97
Discontinued operations ($0.08) ($0.04) ($0.01)
----------- ----------- -----------
Net income $1.40 $1.20 $0.96
=========== =========== ===========
Weighted average shares
(Notes 6 and 8):
Basic 5,232,895 5,203,976 5,155,186
=========== =========== ===========
Diluted 5,453,478 5,430,781 5,424,977
=========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- 23 -
<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended February 29, 2000, February 28, 1999, and 1998
(Dollars in Thousands)
<CAPTION>
Capital Stock
-------------------
Shares Retained
Issued Amount Earnings Total
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Balance, February 28, 1997 5,135,719 $21,948 $16,268 $38,216
Net income -- -- 5,181 5,181
Issuance of 40,035 shares of capital
stock upon the exercise of
options (Note 6) 40,035 337 -- 337
Issuance of 1,400 shares of capital
stock under stock purchase plan
(Note 6) 1,400 22 -- 22
----------- --------- ---------- ---------
Balance, February 28, 1998 5,177,154 $22,307 $21,449 $43,756
Net income -- -- 6,493 6,493
Issuance of 34,750 shares of capital
stock upon the exercise of
options (Note 6) 34,750 277 -- 277
Issuance of 700 shares of capital
stock under stock purchase plan
(Note 6) 700 11 -- 11
----------- --------- ---------- ---------
Balance, February 28, 1999 5,212,604 $22,595 $27,942 $50,537
Net income -- -- 7,610 7,610
Issuance of 35,225 share of capital
stock upon exercise of
options (Note 6) 35,225 270 -- 270
Issuance of 1,210 shares of capital
stock under stock purchase plan
(Note 6) 1,210 19 -- 19
----------- --------- ---------- ---------
Balance, February 29, 2000 5,249,039 $22,884 $35,552 $58,436
=========== ========= ========== =========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- 24 -
<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended February 29, 2000, and February 28, 1999 and 1998
(Dollars in Thousands)
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $7,610 $6,493 $5,181
Adjustments to reconcile net income to
net cash (used in) operating activities:
Depreciation 504 435 308
Amortization 219 121 114
Deferred income taxes (690) (1,105) 658
(Gain)loss on sale of equipment (10) (7) 7
Loss on disposal of discontinued
operations, net 293 -- --
(Gain) on sale of foreclosed
assets held for sale -- -- (23)
Change in assets and liabilities:
(Increase) in customer notes
receivable (25,867) (38,586) (32,564)
(Increase)decrease in inventory
and other assets 2,165 (2,392) (99)
(Increase)decrease in prepaid and
income taxes payable (1,458) 1,293 (561)
Increase (decrease) in accounts
payable and accrued expenses (323) 829 899
---------- ----------- -----------
Net cash (used in) operating
activities ($17,557) ($32,919) ($26,080)
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment $167 $14 $22
Proceeds from sale of foreclosed assets
held for sale 237 266 1,342
Purchase of equipment (726) (631) (1,197)
Purchase of foreclosed assets held
for sale (4,856) (359) (617)
---------- ----------- -----------
Net cash (used in) investing
activities ($5,178) ($710) ($450)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings $42,325 $37,225 $169,404
Principal payments on short-term
borrowings (42,325) (37,225) (151,076)
Proceeds from long-term borrowings 231,556 163,162 5,915
Principal payments on long-term
borrowings (208,466) (138,105) --
Increase (decrease) in excess of
outstanding checks over bank balances (152) 8,193 1,793
Loan origination fees (514) (16) (571)
Proceeds from issuance of
capital stock, net (Note 6) 289 288 359
---------- ----------- -----------
Net cash provided by financing
activities $22,713 $33,522 $25,824
---------- ----------- -----------
(Decrease) in cash and cash
equivalents ($22) ($107) ($706)
CASH AND CASH EQUIVALENTS
Beginning 67 174 880
---------- ----------- -----------
Ending $45 $67 $174
========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest $12,203 $9,304 $5,130
Income taxes $6,760 $3,397 $2,783
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Customer notes receivable transferred
to foreclosed assets held for resale -- $622 $656
Contract sale of foreclosed assets held
for sale -- ($71) ($360)
Foreclosed assets held for resale
transferred to customer notes
receivable $4,380 -- --
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- 25 -
<PAGE>
AG SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
The Company's operations consist primarily of the retail sale of farm
inputs to agricultural producers located primarily in thirty midwestern
and south central states through direct financing of these farm inputs
on credit terms that the Company establishes for its customers.
Basis of presentation:
The consolidated financial statements include the accounts of Ag
Services of America, Inc. (The Company) and its subsidiary, Ag
Acceptance Corporation, which is wholly-owned. All material
intercompany balances and transactions have been eliminated in
consolidation.
Unless otherwise noted, all dollar amounts presented are in thousands
except per share amounts.
Accounting estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reported period. Actual results could differ
from those estimates. A material estimate that is particularly
susceptible to significant change in the near term relates to the
determination of the allowance for doubtful notes.
Significant accounting policies:
Revenue recognition and seasonal nature of business:
The Company recognizes product revenue upon delivery to the customers.
Revenue from services is recognized as the services are performed.
Insurance brokerage revenues are recognized generally on the effective
date of the policies or on the billing date, whichever is later.
Interest income on customer notes receivable is accrued based upon the
principal amount of the underlying note. The Company does not accrue
interest on notes where any portion is classified as doubtful. An
account is considered doubtful when the account may not be collected
in full due to deficiencies regarding either the customer or the
collateral. When previously accrued interest is deemed to be
uncollectible, such
- 26 -
<PAGE>
amount is charged to the allowance for doubtful notes.
Due to the nature of the Company's operations, the majority of revenues
are generated in the months of April through June of each fiscal year.
The Company's debt financing requirements to fund operations corresponds
with the revenue cycle. Historically, the percentage of net revenues
recognized in each quarter has approximated the following:
First quarter, March 1 to May 31 45%
Second quarter, June 1 to August 31 31%
Third quarter, September 1 to November 30 8%
Fourth quarter, December 1 to February 28 16%
Customer notes receivable and allowance for doubtful notes:
Customer notes receivable are stated at the principal amounts
outstanding reduced by the reserve for unearned discounts and the
allowance for doubtful notes. The reserve for unearned discounts is
maintained at an amount considered to be adequate, based on past
experience of cash discounts granted. The reserve is increased by
provisions recorded as a reduction of revenues and is reduced by cash
discounts granted to customers. The allowance for doubtful notes is
maintained at an amount considered adequate to provide for losses that
reasonably can be anticipated. The allowance is increased by
provisions charged to cost of revenues and recoveries of notes
previously charged off and is reduced by charge-offs. Management
determines the adequacy of the allowance based on an evaluation of the
note portfolio, recent note loss experience and other pertinent factors.
Customer notes receivable are considered impaired when based on current
information and events, it is probable the Company will not be able to
collect all amounts due. The portion of the allowance for doubtful notes
applicable to collateral dependent impaired (nonaccrual) customer notes
receivable has been computed based on the fair value of the collateral.
The entire change in the fair value of the collateral of a collateral
dependent impaired (nonaccrual) customer note receivable is reported as
a change in the provision for doubtful notes. Financing income is not
recognized on impaired (nonaccrual) customer notes receivable until all
principal has been collected.
Cash and cash equivalents:
For purposes of reporting cash flows, the Company considers all money
market funds purchased with a maturity of three months or less to be
cash equivalents.
- 27 -
<PAGE>
Inventories:
Inventories, primarily chemicals, are valued at lower of cost (first-in,
first-out method) or market.
Foreclosed assets held for sale:
Foreclosed assets, primarily real estate, are valued at lower of cost or
fair market value minus estimated costs to sell.
Equipment and depreciation:
Equipment, primarily transportation and office equipment, is carried at
cost and is depreciated using declining-balance methods over the
estimated useful lives ranging from three to seven years.
Loan origination fees:
Loan origination fees are deferred and amortized using the straight-line
method over the life of the respective loan agreement.
Income tax matters:
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Stock options issued to employees:
In fiscal year 1997, the Company adopted the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", which establishes a fair value
based method for the financial reporting of its stock-based employee
compensation plans. However, as allowed by the new standard, the Company
has elected to continue to apply the intrinsic value based method as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". Under this method, compensation is measured
as the difference between the market value of the stock on the grant
date, less the
- 28 -
<PAGE>
amount required to be paid for the stock. The difference, if any, is
charged to expense over the period of service.
Fair value of financial instruments:
The carrying amount of cash and cash equivalents, customer notes
receivable and accounts payable approximates fair value because of the
relative short maturity of these instruments. The carrying amount of
non-current customer notes receivable and notes payable approximates
fair value because these instruments bear interest at approximate
current rates offered to credit customers and available to the Company
for similar borrowings.
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.
Reportable operating segments:
Effective March 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The Company
has only one operating segment that meets the quantitative thresholds of
SFAS No. 131.
Recently issued accounting standards:
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. As amended by
SFAS No. 137, this statement must be adopted no later than March 1, 2001,
although earlier application is permitted. The Company is currently
evaluating the impact of adopting SFAS No. 133 and believes there will be
no material effect to the financial statements of adopting this standard.
- 29 -
<PAGE>
Note 2. Customer Notes Receivable
Customer notes receivable consist of the following:
As of As of
February 29, February 28,
2000 1999
------------ ------------
1995 spring accounts $-- $1,490
1996 spring accounts 1,264 1,875
1996 fall accounts 45 45
1997 spring accounts 3,162 6,464
1998 spring accounts 14,100 59,892
1998 fall accounts -- 31
1999 spring accounts 65,475 47,599
2000 spring accounts 61,451 --
Intermediate accounts 15,110 11,909
-------- -------
$160,607 $129,305
Less reserve for discounts 2,700 2,500
-------- -------
$157,907 $126,805
Less allowance for doubtful notes 4,550 3,695
-------- -------
$153,357 $123,110
========= =======
The amount of principal and accrued and unpaid interest applicable
to the customer notes receivable were as follows:
As of As of
February 29, February 28,
2000 1999
------------ -----------
Principal $156,761 $126,447
Accrued interest 3,846 2,858
----------- -----------
Total $160,607 $129,305
=========== ===========
Accrued interest is primarily included on the balance sheet with
current customer notes receivable.
Impaired (nonaccrual) customer notes receivable are summarized
as follows:
As of As of
February 29, February 28,
2000 1999
------------ -----------
Principal $11,079 $5,971
Accrued interest 982 354
----------- ------------
Total $12,061 $6,325
=========== ============
Allowance provided for impaired
(nonaccrual) notes, included
in allowance for doubtful
notes $1,765 $830
=========== ============
- 30 -
<PAGE>
Average balance of impaired
(nonaccrual) customer notes
receivable outstanding
during fiscal year $10,656 $8,749
=========== ============
Number of customers 113 69
The Company collected and recorded $91, $141 and $121 of interest income
on impaired (nonaccrual) notes receivable during fiscal 2000, 1999 and
1998, respectively.
It is the Company's policy to obtain a lien on the customer's growing
crop, along with an assignment of the customer's federal crop insurance
and government farm program payments, if available. The Company extends
discounts to customers paying their notes on or before September 15 for
fall accounts and January 15 for north spring accounts and January 31
for south spring accounts ranging from 1% to 3%. The notes bear
interest from 9.0% to 10.0% for fixed rate notes and from prime to 4.5%
above the prime rate as listed in the Wall Sreet Journal (currently
8.75% at February 29, 2000) for variable rate notes.
Due to the Company's customers' marketing strategies and the timing of
their receiving payment on insurance claims and government subsidies, it
is the Company's normal operating policy to carry customer notes
receivable past their due date of September 15 for fall accounts and
January 15 for north spring accounts and January 31 for south spring
accounts. The amount of customer notes receivable that were past due at
February 29, 2000 and February 28, 1999 and 1998 was $84,046, $69,796,
and $38,494, respectively.
Changes in the allowance for doubtful notes are summarized as follows:
Year Ended Year Ended Year Ended
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
Balance, beginning $3,695 $2,800 $2,237
Provision charged to
operating expense 5,432 4,035 2,963
Recoveries of
charged-off notes 155 195 141
Notes charged-off (4,732) (3,335) (2,541)
---------- --------- ---------
Balance, ending $4,550 $3,695 $2,800
========== ========= =========
- 31 -
<PAGE>
<TABLE>
The following table shows the Company's classification of its
customer notes receivable:
<CAPTION>
February 29, 2000
-------------------------------------------------------------------
Acceptable (1)
-----------------
Small Large Sub-
Accounts Accounts Watch(2) standard(3) Doubtful(4) Loss(5) Total
-------- -------- -------- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 spring
accounts $-- $-- $-- $847 $404 $13 $1,264
1996 fall
accounts -- -- -- 40 5 -- 45
1997 spring
accounts -- -- -- 2,435 727 -- 3,162
1998 spring
accounts -- -- 6,262 5,708 2,124 6 14,100
1999 spring
accounts 12,523 23,455 17,704 11,730 45 18 65,475
------- ------- ------- ------- ------ --- --------
Total past
due $12,523 $23,455 $23,966 $20,760 $3,305 $37 $84,046
------- ------- ------- ------- ------ --- --------
2000 spring
accounts $32,328 $28,726 $397 $-- $-- $-- $61,451
Intermediate
accounts 2,697 8,791 1,815 1,807 -- -- 15,110
------- ------- ------- ------- ------ --- --------
$35,025 $37,517 $2,212 $1,807 $-- $-- $76,561
------- ------- ------- ------- ------ --- --------
Total customer
notes
receivable $47,548 $60,972 $26,178 $22,567 $3,305 $37 $160,607
======= ======= ======= ======= ====== === ========
</TABLE>
<TABLE>
February 28, 1999
-------------------------------------------------------------------
Acceptable (1)
-----------------
Small Large Sub-
Accounts Accounts Watch(2) standard(3) Doubtful(4) Loss(5) Total
-------- -------- -------- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 spring
accounts $-- $-- $31 $1,131 $328 $-- $1,490
1996 spring
accounts -- -- -- 1,657 218 -- 1,875
1996 fall
accounts 39 -- -- 6 -- -- 45
1997 spring
accounts 1,181 1,183 1,803 2,082 215 -- 6,464
1998 spring
accounts 14,647 29,241 11,324 4,152 528 -- 59,892
1998 fall
accounts 31 -- -- -- -- -- 31
------- ------- ------- ------ ------ -- --------
Total past
due $15,898 $30,424 $13,158 $9,028 $1,289 $-- $69,797
------- ------- ------- ------ ------ -- --------
1999 spring
accounts $27,224 $20,375 $-- $-- $-- $-- $47,599
Intermediate
accounts 3,992 6,493 611 813 -- -- 11,909
------- ------- ------- ------ ------ -- --------
$31,216 $26,868 $611 $813 $-- $-- $59,508
------- ------- ------- ------ ------ -- --------
Total customer
notes
receivable $47,114 $57,292 $13,769 $9,841 $1,289 $-- $129,305
======= ======= ======= ====== ====== == ========
</TABLE>
(1) A customer note receivable is classified by the Company as
"acceptable" if a customer account does not display any deficiencies
regarding either the customer or the collateral. Small accounts include
only customer notes receivable that are less than $200,000. Large
accounts include only customer notes receivable that are $200,000 or
more. Because of the size of the large accounts, the Company monitors
large accounts in the same manner as those customer accounts classified
as "watch" even though the large accounts classified as "acceptable" do
not display any deficiencies regarding either the customer or the
collateral.
(2) A customer note receivable is classified by the Company as "watch"
if a customer account is secured by adequate
- 32 -
<PAGE>
collateral which may possibly become impaired if not closely monitored
by the Company. In addition, certain of these accounts, while
adequately collateralized, have required an extended period of time to
receive payment in full.
(3) A customer note receivable is classified by the Company as
"substandard" if a customer account displays limited deficiencies
regarding either the customer or the collateral. Payment in full is
still considered likely and will require more than normal servicing and
monitoring. Some probability of loss potential, while existing in the
aggregate amount of substandard notes receivable, does not have to exist
in individual notes classified as substandard.
(4) A customer note receivable is classified by the Company as
"doubtful" if a customer account displays significant deficiencies
regarding either the customer or the collateral. The "doubtful"
classification does not mean that the customer note receivable has no
likelihood of payment. However, under this classification, the
deficiencies may result in the Company receiving less than payment in
full.
(5) A customer note receivable is classified by the Company as "loss"
if a customer account is clearly not performing. The "loss"
classification does not mean that the loan has absolutely no recovery
value in the future, but that currently there is limited liquidation
value.
When determining the amount of a customer's credit limit, the Company
estimates the value of the collateral. If there are superior liens on
the collateral, such as a landlord's lien on the crop, the Company will
not include the value of the collateral, to the extent of the amount of
the superior lien, when determining a customer's credit limit. In the
opinion of management, superior liens are not material to the Company's
operations and do not materially affect the Company's rights because
the Company values its collateral net of any existing superior liens.
- 33 -
<PAGE>
Note 3. Pledged Assets, Related Debt and Subsequent Event
The Company entered into a five year asset backed securitized financing
program, through fiscal 2004 with a maximum available borrowing amount
of $275 million. Under the terms of the five-year facility, the Company
sells and may continue to sell or contribute certain notes receivable to
Ag Acceptance Corporation ("Ag Acceptance"), awholly owned, special
purpose subsidiary of the Company. Ag Acceptance pledges its interest in
these notes receivable to a commercial-paper market conduit entity on
$205 million of the facility which incurs interest at variable rates in
the commercial paper market and the remaining $70 million is a three-year
term note with interest at a variable cost of LIBOR plus 25 basis points.
At February 29, 2000 and February 28, 1999, the Company had a maximum
amount available under the asset backed securitization financing program
of approximately $66 and $16, respectively, based on a borrowing base
computation as provided by agreement. The total outstanding under the
asset backed securitized financing program at February 29, 2000 and
February 28, 1999 was $75,490 and $55,300, respectively.
Subsequent to year end, the Company amended the asset backed securitized
financing program which increased the maximum available borrowing amount
under the facility to $325 million, $255 million will incur interest at
variable rates in the commercial paper market and the remaining $70
million will be a three year term note with a cost of LIBOR plus 25 basis
points. The other terms and conditions of the agreement stay
substantially in effect.
In conjunction with the securitized financing program, Ag Services
maintains an $8.5 million revolving bank line of credit through June 2000.
The line of credit is accessible to cover any potential deficiencies in
available funds financed through the securitization program. The
agreement allows for three variable interest rate alternatives based on
prime, Fed Fund rates, or LIBOR (current effective rates range from 7.92%
to 9.25% at February 29, 2000). All borrowings are collateralized by
substantially all assets of the Company. The agreement requires that the
total outstanding borrowings be repaid in full for 10 consecutive days
during the Company's fiscal second quarter. The total outstanding under
the revolving line of credit at February 29, 2000 and February 28, 1999
was $8,500.
The Company entered into a two year bank line of credit, through June
2000, with a maximum available borrowing amount of $12 million. The
line of credit is accessible to cover the Company's funding requirements
for its intermediate loan program. The terms of the agreement allow for
three variable interest rate alternatives based on prime, Fed Fund rates,
or LIBOR (current effective rates range from 7.92% to 9.25% at
- 34 -
<PAGE>
February 29, 2000). All borrowings are collateralized by substantially
all assets of the Company. At February 29, 2000 and February 28, 1999
the Company had a maximum amount available under the revolving line of
credit of $5 and $55, respectively, based on the borrowing base
computation as provided by the agreement. The total outstanding under
the revolving line of credit at February 29, 2000 and February 28, 1999
was $9,400 and $6,500, respectively.
The agreements as discussed above contain various restrictive covenants,
including, among others, restrictions on mergers, issuance of stock,
declaration or payment of dividends, transactions with affiliates, loans
to stockholders, and requirements that the Company maintain certain
levels of equity and pretax earnings. These restrictions are in effect
unless written consent is obtained. The Company was in compliance with
these covenants at February 29, 2000. Advances under the agreements are
also subject to portfolio performance, financial covenant restrictions,
and borrowing base calculations.
Total amounts outstanding under all above agreements are summarized
below:
As of As of
February 29, February 28,
2000 1999
------------ ------------
Asset backed securitization
financing program $75,490 $55,300
$8.5 million revolving
line of credit 8,500 8,500
$12 million bank line
of credit 9,400 6,500
--------- ----------
Total debt $93,390 $70,300
Less current maturities 82,066 61,817
--------- ----------
Long-term debt $11,324 $8,483
========= ==========
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<PAGE>
Note 4. Commitments and Contingencies
Lease Commitments
The Company has entered into a three-year agreement to lease its office
space, which expires April 30, 2003, and requires minimum annual
rentals, plus the payment of normal maintenance and insurance. The
total minimum rental commitment at February 29, 2000 is $804 which is
due as follows:
Year ending February:
2001 $244
2002 244
2003 270
2004 46
----
$804
====
The total rental expense included in the income statements for the
years ended February 29, 2000 and February 28, 1999 and 1998 was $253,
$196, and $168, respectively.
Other commitments:
In the normal course of business, the Company makes various commitments,
which are not reflected in the accompanying financial statements. These
include commitments to supply farm inputs to customers. At February 29,
2000 and February 28, 1999 and 1998 the Company had approximately
$91,182, $84,002 and $69,151, 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 was terminated or negatively modified and no
comparable private or government program was 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 crop
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<PAGE>
insurance program and is likely to review the program in the future,
but there can be no assurance of the outcome of such evaluations.
- 37 -
<PAGE>
Note 5. Income Taxes
Net deferred tax assets consist of the following components:
As of As of
February 29, February 28,
2000 1999
------------ ------------
Deferred tax assets:
Allowance for doubtful notes $1,684 $1,367
Reserve for discounts 999 925
Inventory allowances 8 8
Accrued vacations 76 54
----------- -----------
$2,767 $2,354
Deferred tax liabilities:
Customer notes receivable $555 $832
----------- -----------
$2,212 $1,522
=========== ===========
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheet as follows:
As of As of
February 29, February 28,
2000 1999
------------ -------------
Current assets $1,920 $872
Noncurrent assets 292 650
---------- -----------
$2,212 $1,522
========== ===========
Income tax expense from continuing operations is made up of
the following components:
Year Ended Year Ended Year Ended
February 29, February 28, February 28,
2000 1999 1998
------------- ------------ ------------
Current tax expense:
Federal $4,876 $4,148 $1,936
State 692 679 321
----------- ----------- -----------
$5,568 $4,827 $2,257
Deferred tax expense (690) (1,105) 658
----------- ----------- -----------
$4,878 $3,722 $2,915
=========== =========== ===========
Total reported tax expense from continuing operations varies from
the amount that would have resulted by applying the effective
federal income tax rate to income before income taxes for the
following reasons:
Year Ended Year Ended Year Ended
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
Federal statutory rate 35.0% 35.0% 35.0%
State tax expense, net
of federal income tax
benefit 5.3% 5.2% 4.0%
Other, net (2.7%) (4.6%) (3.3%)
----------- ----------- -----------
Effective tax rate 37.6% 35.6% 35.7%
=========== =========== ===========
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<PAGE>
Note 6. Employee Stock Plans and Capital Stock
At February 29, 2000, the Company has two stock-based compensation plans
which are described below. As permitted under generally accepted
accounting principles, grants under those plans are accounted for
following APB Opinion No. 25 and related interpretations. Accordingly,
no compensation cost has been recognized for grants under the two fixed
stock option plans. Had compensation cost for the two stock based
compensation plans been determined based on the grant date fair values
of the awards (the method prescribed in SFAS No. 123), reported net
income and earnings per common share would have been reduced to the pro
forma amounts shown below:
2000 1999 1998
------------- ------------ ------------
Reported:
Net income
Continuing operations $8,079 $6,739 $5,247
Discontinued operations (469) (246) (66)
-------- -------- --------
Net income $7,610 $6,493 $5,181
======== ======== ========
Basic earnings per share
Continuing operations $1.54 $1.29 $1.02
Discontinued operations (0.09) (0.04) (0.01)
-------- -------- --------
Net income $1.45 $1.25 $1.01
======== ======== ========
Diluted earnings per share
Continuing operations $1.48 $1.24 $0.97
Discontinued operations (0.08) (0.04) (0.01)
-------- -------- --------
Net income $1.40 $1.20 $0.96
======== ======== ========
Pro Forma:
Net income
Continuing operations $7,766 $6,447 $5,108
Discontinued operations (469) (246) (66)
-------- -------- --------
Net income $7,297 $6,201 $5,042
======== ======== ========
Basic earnings per share
Continuing operations $1.48 $1.23 $0.99
Discontinued operations (0.09) (0.04) (0.01)
-------- -------- --------
Net income $1.39 $1.19 $0.98
======== ======== ========
Diluted earnings per share
Continuing operations $1.42 $1.18 $0.94
Discontinued operations (0.08) (0.04) (0.01)
-------- -------- --------
Net income $1.34 $1.14 $0.93
======== ======== ========
Stock options plans:
On May 30, 1991 the Company adopted its "1991 Stock Option Plan" which
provides for the issuance of a maximum of 300,000 shares of common stock
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<PAGE>
to directors, officers, employees or other persons. Options granted
under the stock option plan may be either "incentive stock options" or
"nonqualified stock options." As designated by the Board of Directors,
the stock option plan is administered by the officers of the Company,
who designate the type of option to be granted, the number of options to
be granted, the number of shares of common stock to be covered by each
option (subject to a specified maximum number of shares of common stock
which may be purchased under all options granted), the exercise price,
the period during which the options are exercisable, the method of
payment and certain other terms. The exercise price for each share of
common stock covered by an option is determined by the Board of
Directors or the committee, except (i) the exercise price for an
incentive stock option may not be less than the fair market value, at
the time the option is granted, of the stock subject to the option and
(ii) the exercise price for a nonqualified stock option may not be less
than 85% of the fair market value, at the time the option is granted,
of the stock subject to the option. The exercise price for an incentive
stock option granted to any individual who owns stock, at the time of
the grant, possessing more than 10% of the voting power of the capital
stock of the Company may not be less than 110% of such fair market value
on the date of the grant. No more than $100,000 of stock vesting during
any calendar year per person will qualify for incentive stock option
treatment. Options are nontransferable, other than by will or the laws
of descent and distribution, and may be exercised only by the optionee
while employed by or providing services to the Company or within three
months after termination of employment by reason of retirement or six
months following termination of employment resulting from death or
permanent disability. Options expire no later than ten years from the
date of grant, provided that incentive stock options granted to
employees owning stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of its
subsidiaries expire five or fewer years from the date of grant.
On August 3, 1993 the Stockholders of the Company adopted its "1993
Stock Option Plan" which provides for the issuance of a maximum of
200,000 shares of common stock to directors, officers, employees or
other persons. The other provisions of the 1993 Stock Option Plan are
the same as provisions of the 1991 Stock Option Plan discussed above.
On August 1, 1995 the stockholders of the Company approved a proposal
to amend its "1993 Stock Option Plan" to increase the maximum number
shares of common stock issuable to directors, officers, employees or
other persons from 200,000 to 400,000 shares. The other provisions of
the 1993 Stock Option Plan remained the same as previously discussed
above. At February 29, 2000 and February 28, 1999, the total shares
available for future grant under the 1991 and 1993 plans, combined,
were 34,575 and 58,525 shares, respectively.
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<PAGE>
Fixed Stock Option Plans:
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in fiscal 2000, 1999 and 1998, respectively:
risk-free interest rates of 6.2%, 5.5% and 5.8%; expected lives of 7
for all years; price volatility of 27.1%, 25.6% and 26.2% and no
expected dividends.
The following table summarizes the options to purchase shares of the
Company's common stock under the two option plans combined:
Stock Options
-------------------------------
Weighted
Average
Outstanding Exercise Price
----------- ---------------
Balance at February 28, 1997 468,600 $6.76
Granted 43,300 $17.51
Exercised (40,035) $8.65
Canceled (29,225) $11.77
----------- ---------------
Balance at February 28, 1998 442,640 $7.31
Granted 87,000 $16.09
Exercised (34,750) $7.96
Canceled (18,950) $14.64
----------- ---------------
Balance at February 28, 1999 475,940 $8.58
Granted 34,500 $19.14
Exercised (35,225) $7.69
Canceled (10,550) $14.82
----------- ---------------
Balance at February 29, 2000 464,665 $9.29
=========== ===============
Number of Options
---------------------------------
2000 1999 1998
------- ------- --------
Exercisable, end of year 360,190 355,414 349,190
======== ======= ========
Weighted-average fair value
per option of options
granted during the year $8.54 $6.61 $7.40
===== ===== =====
Options are exercisable over varying periods ending on February 28,
2010.
- 41 -
<PAGE>
A further summary of the fixed options outstanding at February 29, 2000
is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.50 to $3.88 188,050 1.27 $3.52 188,050 $3.52
$5.63 to $7.88 30,580 4.27 $6.65 30,580 $6.65
$8.00 to $9.88 94,610 4.55 $9.31 94,610 $9.31
$10.88 to $24.75 151,425 8.41 $16.96 46,950 $16.15
----------- ----------- -------- ----------- --------
464,665 4.46 $9.29 360,190 $6.95
=========== =========== ======== =========== ========
</TABLE>
Capital stock:
In August 1995, the Company's Board of Directors approved the "1995
Stock Purchase Plan" which allows directors, officers and all other
employees of the Company to purchase common stock directly from the
Company, subject to certain restrictions. Shares may be purchased at
(i) the closing price of the stock on the trading day immediately
preceding the purchase date or (ii) the cost at which the shares may be
purchased in the open market, exclusive of brokerage commissions and
fees. An aggregate of 150,000 authorized but unissued shares are
reserved for issuance under the plan. The stock purchase plan is
administered by the Company and is subject to termination or amendment
by the Board of Directors at any time. At February 29, 2000 and
February 28, 1999 and 1998, 1,210, 700 and 1,400 shares, respectively,
were purchased under this plan.
In total, 610,055 shares of Common Stock are reserved for issuance
under the plans discussed above.
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<PAGE>
Note 7. Employee Benefits
The Company has contractual employment and noncompetition agreements
through July 1, 2000 with its three top officers who are also directors
of the Company. Each of which provides for (i) a base salary adjustable
annually, (ii) payment of an annual bonus in the amount of 2% of the
Company's pretax income in excess of $2.5 million, (iii) $250 thousand
in life insurance coverage and (iv) receipt of other Company benefits
including use of an automobile. The total amount of the annual bonus
included as compensation expense for the years ended February 29, 2000
and February 28, 1999 and 1998 was $620, $480 and $354, respectively.
Effective June 1, 1992, the Company has established a Retirement and
Savings Plan (the "401(k) plan"). Currently, all employees of the
Company, including officers, are eligible to participate in the 401(k)
Plan. Benefits provided under the 401(k) Plan are funded by a qualified
retirement trust administered by Norwest Bank Iowa, N.A. as trustee.
Participants may contribute an amount of their compensation, including
base salary and overtime, to the 401(k) Plan, which can not be more than
15% of the participant's compensation or, if less, the maximum dollar
limit allowed by law on a pretax basis. The Company makes a matching
contribution to the 401(k) Plan subject to certain limitations, equal to
40% of each participant's pretax contribution on an amount of up to 7%
of such participant's compensation.
For the years ended February 29, 2000 and February 28, 1999 and 1998,
$110, $85 and $78, respectively, was contributed to employee accounts
including $22, $22 and $19, respectively, contributed to the accounts
of the Company's executive officers.
Effective August 13, 1998, the Company established an Employee Incentive
Compensation Program. The Company pays bonuses to all eligible
employees based on the growth in net revenues and net income. The
bonuses range from zero to 8% of all eligible employees calendar year
compensation. The total amount of incentive compensation charged to
expense for the years ended February 29, 2000 and February 28, 1999 and
1998 was $95, $118 and none, respectively, including $9, $13 and none,
respectively, was paid to the Company's executive officers.
- 43 -
<PAGE>
Note 8. Earnings Per Share
Basic and diluted earnings per share are calculated as follows:
Year Ended Year Ended Year Ended
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
Net income available to
shareholders:
Income from continuing operations $8,079 $6,739 $5,247
Discontinued operations (469) (246) (66)
------------ ------------- -----------
Net income available to
stockholders $7,610 $6,493 $5,181
============ ============ ============
Earnings per share:
Weighted average shares
outstanding - basic 5,232,895 5,203,976 5,155,186
============ ============ ============
Basic earnings per share:
Income from continuing operations $1.54 $1.29 $1.02
Discontinued operations (0.09) (0.04) (0.01)
------------ ------------- -----------
Basic earnings per share $1.45 $1.25 $1.01
============ ============ ============
Diluted earnings per share:
Weighted average shares
outstanding - basic 5,232,895 5,203,976 5,155,186
Effect of dilutive securities:
Employee stock options 220,583 226,805 269,791
------------ ------------ ------------
Weighted average shares -
diluted 5,453,478 5,430,781 5,424,977
============ ============ ============
Diluted earnings per share:
Income from continuing operations $1.48 $1.24 $0.97
Discontinued operations (0.08) (0.04) (0.01)
------------ ------------- -----------
Diluted earnings per share $1.40 $1.20 $0.96
============ ============= ===========
At February 29, 2000 and February 28, 1999 and 1998, respectively,
103,000, 100,100 and 34,900 employee stock options were outstanding but
were not included in computation of diluted earnings per share because
the exercise price was greater than the average market price of the
common shares.
- 44 -
<PAGE>
Note 9. Customer Credit Operations
Customer credit operations were as follows:
Year Ended Year Ended Year Ended
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
Financing income $25,067 $19,680 $13,355
------------ ------------ ------------
Direct costs:
Financing expense $12,062 $9,309 $5,536
Payroll and related costs 2,885 2,362 1,916
Credit report services 62 19 61
Legal fees 481 348 423
Provision for doubtful
notes 5,421 4,021 2,963
------------- ------------ -----------
Total direct costs $20,911 $16,059 $10,899
------------- ------------ -----------
Net financing income (loss) $4,156 $3,621 $2,456
============= ============ ===========
The above results do not reflect any allocation of corporate
overhead expenses.
At the close of fiscal 1998, the Company entered into a servicing and
marketing agreement with a major national agricultural supplier. The
Company services customers as the underwriter in providing financing
under the agreement. In fiscal 2000, 1999 and 1998 the Company had
$31,233 and $38,625 and none, respectively of loan originations under
the agreement, which generated financing income of $2,760, $2,562 and
none, respectively.
- 45 -
<PAGE>
Note 10. Discontinued Operations
During fiscal 2000 the Company decided to discontinue operations for the
three retail service centers in Northwestern Illinois. At February 29,
2000 the Company has reduced the value of the assets of the retail
service centers to their estimated fair market value. The remaining
fixed assets from these retail facilities at year-end are primarily
machinery and equipment with a value of approximately $137.
Loss from discontinued operations:
2000 1999 1998
------- -------- --------
Net revenues $1,376 $1,480 $72
Cost of revenues $1,185 $1,302 $57
Operating expenses 633 561 116
Income taxes (266) (137) (35)
-------- -------- --------
$1,522 $1,726 $138
-------- -------- --------
Loss from discontinued operations ($176) ($246) ($66)
======== ======== ========
Loss on disposal of discontinued
operations, net ($293) $-- $--
======== ======== ========
- 46 -
<PAGE>
BOARD OF DIRECTORS
Henry C. Jungling, Jr. Chairman of the Board
Ag Services of America, Inc.
Gaylen D. Miller President and
Chief Executive Officer
Ag Services of America, Inc.
Kevin D. Schipper Chief Operating Officer and
Secretary
Ag Services of America, Inc.
James D. Gerson Senior Vice President
Fahnestock & Co., Inc.
Michael Lischin Attorney at Law
Ervin J. Mellema Operating Principal
Campbell Mellema Insurance, Inc.
and Campbell Mellema Realty, LLC
OFFICERS
Henry C. Jungling, Jr. Chairman of the Board
Gaylen D. Miller President and
Chief Executive Officer
Kevin D. Schipper Chief Operating Officer and
Secretary
Todd J. Ryan Vice President Sales and Marketing
Brad D. Schlotfeldt Vice President Finance and Treasurer
Eunice M. Schipper Vice President Credit
Neil H. Stadlman Vice President Credit Administration
Terry L. Gibson General Counsel
- 47 -
<PAGE>
CORPORATE DATA
Annual Meeting
All shareholders are welcome to attend our annual meeting, which
will be held at 9:00 a.m. on Tuesday, August 1, 2000, at the
Company's corporate headquarters. Any shareholders who will be
unable to attend are encouraged to send questions and comments in
writing, to Brad D. Schlotfeldt, Vice President Finance and
Treasurer, at our corporate headquarters.
Stock Market Information
The Company's common stock is traded on the New York Stock Exchange
under the symbol ASV.
As of February 29, 2000, there were 5,249,039 shares of common
stock outstanding. At that date, there were 138 shareholders of
record and approximately 3,100 shareholders for whom securities
firms acted as nominees.
Transfer Agent
Norwest Bank Minnesota, N.A.
Stock Transfer Department
161 North Concord Exchange
P.O. Box 738
South St. Paul, MN 55075-0738
612/450-4064 or 800/468-9716
Form 10-K
Shareholders who wish to obtain, without charge, a copy of our
annual report on form 10-K, filed with the Securities and Exchange
Commission for the fiscal year ended February 29, 2000, may do so
by writing Brad D. Schlotfeldt, Vice President Finance and
Treasurer, at corporate headquarters.
Investor Relations Contact
Shareholders and prospective investors are welcome to call or write
Ag Services with questions or requests for additional information.
Inquiries should be directed to corporate headquarters to the
attention of:
Brad D. Schlotfeldt
Vice President Finance and Treasurer
(319) 277-0261
E-mail: [email protected]
Corporate Headquarters
2302 West First Street
Thunder Ridge Court
P.O. Box 668
Cedar Falls, IA 50613
(319) 277-0261
- 48 -
<PAGE>
Independent Public Accountants
McGladrey & Pullen, LLP
201 Tower Park Drive, Suite 103
P.O. Box 2656
Waterloo, IA 50704
Internet Address
Ag Services makes Company information available electronically via
a site on the World Wide Web. This site is regularly updated and
includes information on the Company's products and services, press
releases, and key publications such as the annual report. The
Company's Internet address is www.agservices.com.
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<PAGE>
