UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended August 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 000-19320
Ag Services of America, Inc.
(Exact name of registrant as specified in its charter)
Iowa 42-1264455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2302 West First Street, Cedar Falls, Iowa 50613
(Address of principal executive offices) (Zip Code)
(319) 277-0261
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
5,269,864 common shares were outstanding as of August 31, 2000.
<PAGE>
AG SERVICES OF AMERICA, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Consolidated condensed balance sheets, August 31, 2000
(unaudited) and February 29, 2000 1
Unaudited consolidated condensed statements of income,
three months and six months ended August 31, 2000 and 1999 2
Unaudited consolidated condensed statements of cash
flows, six months ended August 31, 2000 and 1999 3
Unaudited consolidated statement of stockholders' equity,
six months ended August 31, 2000 and 1999 4
Notes to consolidated condensed financial statements
(unaudited) 5-7
Item 2. Management's discussion and analysis of
financial condition and results of operations 8-12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and reports on form 8-K: 14
(a) Exhibits
(11) Statement re computation of earnings 15
per common share
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AG SERVICES OF AMERICA, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
August 31, February 29
ASSETS 2000 2000*
(Unaudited)
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $108 $45
Customer notes receivable, less allowance
for doubtful notes and reserve for
discounts August 31, 2000 $11,420;
February 29, 2000 $5,700 351,661 130,882
Inventory and other assets 1,643 4,863
Foreclosed assets held for sale 1,888 1,075
Prepaid income taxes - 922
Deferred income taxes, net 4,170 1,920
----------- -----------
Total current assets $359,470 $139,707
----------- -----------
LONG-TERM RECEIVABLES AND OTHER ASSETS
Customer notes receivable, less allowance
for doubtful notes August 31, 2000
$2,850; February 29, 2000 $1,550 $24,146 $22,475
Loan origination fees, less accumulated
amortization August 31, 2000 $624;
February 29, 2000 $454; 951 647
Deferred income taxes, net 915 292
----------- -----------
$26,012 $23,414
----------- -----------
EQUIPMENT, less accumulated depreciation
August 31, 2000 $1,730; February 29, 2000
$1,546; $1,290 $1,207
----------- -----------
$386,772 $164,328
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, including current maturities $277,150 $82,066
Outstanding checks in excess of
bank balances 4,294 9,834
Accounts payable 13,530 1,091
Accrued expenses 3,250 1,577
Income taxes payable 3,421 -
----------- -----------
Total current liabilities $301,645 $94,568
----------- -----------
LONG-TERM LIABILITIES
Notes payable, less current maturities $20,617 $11,324
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock $23,100 $22,884
Retained earnings 41,410 35,552
----------- -----------
$64,510 $58,436
----------- -----------
$386,772 $164,328
=========== ===========
<CAPTION>
*Condensed from Audited Financial Statements.
<FN>
See notes to Consolidated Condensed Financial Statements.
</TABLE>
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<TABLE>
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three Months and Six Months Ended August 31, 2000 and 1999
(Dollars in Thousands, Except Per Share Amounts)
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Farm inputs $92,866 $80,925 $242,616 $209,010
Financing income 10,664 7,778 16,716 12,570
----------- ----------- ----------- -----------
Net revenues $103,530 $88,703 $259,332 $221,580
----------- ----------- ----------- -----------
Cost of revenues:
Farm inputs $88,731 $76,322 $230,854 $197,309
Financing expense 5,491 3,782 8,329 5,705
Provision for doubtful notes 1,823 1,614 4,584 4,099
----------- ----------- ----------- -----------
Net cost of revenues $96,045 $81,718 $243,767 $207,113
----------- ----------- ----------- -----------
Income from continuining
operations before
operating expenses
and income taxes $7,485 $6,985 $15,565 $14,467
Operating expenses 3,082 2,561 6,192 5,102
----------- ----------- ----------- -----------
Income from continuing
operations before
income taxes $4,403 $4,424 $9,373 $9,365
Federal and state income taxes 1,670 1,673 3,515 3,511
----------- ----------- ----------- -----------
Income from continuing
operations $2,733 $2,751 $5,858 $5,854
Discontinued operations - (24) - (50)
----------- ----------- ----------- -----------
Net income $2,733 $2,727 $5,858 $5,804
=========== =========== =========== ===========
Earnings per share: Basic
Income from continuing
operations $0.52 $0.53 $1.11 $1.12
Discontinued operations - ($0.01) - ($0.01)
=========== =========== =========== ===========
Net Income $0.52 $0.52 $1.11 $1.11
=========== =========== =========== ===========
Earnings per share: Diluted
Income from continuing
operations $0.50 $0.50 $1.06 $1.07
Discontinued operations - - - -
----------- ----------- ----------- -----------
Net income $0.50 $0.50 $1.06 $1.07
=========== =========== =========== ===========
Weighted average shares:
Basic 5,269 5,233 5,265 5,226
=========== =========== =========== ===========
Diluted 5,476 5,461 5,521 5,449
=========== =========== =========== ===========
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
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<TABLE>
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended August 31, 2000 and 1999
(Dollars in Thousands)
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $5,858 $5,804
Adjustments to reconcile net income to
net cash (used in) operating activities:
Depreciation 183 197
Amortization 169 82
(Increase) in customer notes receivable (222,450) (194,638)
Changes in assets and liabilities 18,802 16,728
----------- -----------
Net cash (used in) operating activities ($197,438) ($171,827)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment ($392) ($351)
Proceeds from sale of equipment 126 64
(Increase)in foreclosed assets
held for sale (813) (3,353)
----------- -----------
Net cash (used in) investing activities ($1,079) ($3,640)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable $266,194 $212,407
Principal payments on notes payable (61,817) (29,843)
Increase (decrease) in excess of outstanding
checks over bank balance (5,540) (6,783)
(Increase) in loan origination fees (473) (508)
Proceeds from issuance of capital stock, net 216 161
----------- -----------
Net cash provided by financing
activities $198,580 $175,434
----------- -----------
Increase (decrease) in cash and cash
equivalants $63 ($33)
CASH
Beginning 45 67
----------- -----------
Ending $108 $34
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $6,310 $4,344
Income taxes $2,045 $3,837
<FN>
See Notes to Consolidated Condensed Financial Statements
</TABLE>
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<TABLE>
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended August 31, 2000
(Dollars in thousands)
<CAPTION>
Capital Stock
-----------------------
Shares Retained
Issued Amount Earnings Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance,
February 29, 2000 5,249,039 $22,884 $35,552 $58,436
Net income -- -- 5,858 5,858
Issuance of 20,425
shares of capital
stock upon the
exercise of
options 20,425 205 -- 205
Issuance of 500
shares of capital
stock under the
employee stock
purchase plan 500 11 -- 11
----------- ----------- ----------- -----------
Balance,
August 31, 2000 5,269,964 $23,100 $41,410 $64,510
=========== =========== =========== ===========
<FN>
See Notes to Consolidated Condensed Financial Statements
</TABLE>
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<PAGE>
AG SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements
have been prepared in accordance with the instructions of Form 10-Q
and Rule 10-01 of Regulation S-X. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested these interim consolidated
condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's
Annual Report for the year ended February 29, 2000. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim
periods presented have been made. Operating results for the three
and six month periods ended August 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending
February 28, 2001.
Principles of Consolidation:
The consolidated financial statements include the accounts of Ag
Services of America, Inc. (the Company) and its wholly owned subsidiaries,
Ag Acceptance Corporation and Powerfarm, Inc. All material intercompany
balances and transactions have been eliminated in consolidation.
According to the terms related to the asset backed securitized
financing program as described in Note 3 of the consolidated condensed
financial statements, the Company formed Ag Acceptance Corporation,
a wholly owned, special purpose corporation.
In conjunction with the Company's e-commerce initiative the Company
created Powerfarm, Inc. a wholly owned subsidiary which operates
and manages the Company's e-commerce website Powerfarm.com.
Unless otherwise noted, all amounts presented are in thousands except
per share amounts.
Note 2. Commitments and Contingencies
Commitments:
In the normal course of business, the Company makes various commitments
that are not reflected in the accompanying consolidated condensed
financial statements. These include various commitments to extend
credit to customers. At August 31, 2000 and February 29, 2000 the
Company had approximately $34,000 and $91,000, 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 has advised the Company, while the outcome
of various legal proceedings is not certain, it is unlikely that these
proceedings will result in any liability which will materially affect
the financial position or operating results of the Company.
-5-
<PAGE>
The availability of lines of credit to finance operations and the
existence of a multi-peril crop insurance program are essential to the
Company's operations. If the federal multi-peril crop insurance
program currently in existence were terminated or negatively modified
and no comparable private or government program were established, this
could have a material adverse effect on the Company's future operations.
The government has from time to time evaluated the federal multi-peril
insurance program and is likely to review the program in the future,
and there can be no assurance about the outcome of such evaluations.
Note 3. Pledged Assets and Related Debt
The Company entered into a five-year asset backed securitized financing
program through fiscal 2004, with a maximum available borrowing amount
of $325 million. Under the terms of the five-year facility, the
Company sells and may continue to sell or contribute certain notes
receivable to Ag Acceptance Corporation ("Ag Acceptance"), a wholly
owned, special purpose subsidiary of the Company. Ag Acceptance
pledges its interest in these notes receivable to a commercial-paper
market conduit entity on $255 million of the facility that incurs
interest at variable rates in the commercial paper market and the
remaining $70 million is a three-year term note with interest at
a variable cost of LIBOR plus 25 basis points. The agreement contains
various restrictive covenants including, among others, restrictions
on mergers, issuance of stock, declaration or payment of dividends,
transactions with affiliates and requires the Company to maintain
certain levels of equity and pretax earnings. Advances under the
facility are made subject to portfolio performance, financial covenant
restrictions and borrowing base calculations. At August 31, 2000,
the Company had a maximum amount available under the asset backed
securitized financing program of approximately $14.6 million based
on borrowing base computations as provided by the agreement.
During August of 2000, the Company negotiated a new $30 million
term loan. The term loan will be due in four equal annual installments
beginning in July of 2002 through maturity in July of 2005.
Additional terms of the agreement allow two variable interest rate
alternatives based on prime or LIBOR (current effective rates range from
8.625% to 10.0% at August 31, 2000). The agreement also contains various
restrictive covenants, including, among others, restrictions on mergers,
issuance of stock, declaration or payment of dividends, loans to
stokholders, and requires the Company to maintain certian levels of
equity and pretax earnings. At August 31, 2000, the Company
had $30 million outstanding under the term loan.
In conjunction with the securitized financing program and the term loan,
the Company maintains a $15 million revolving bank line of credit through
July 2003. The line of credit is accessible to cover any potential
deficiencies in available funds financed through the securitization
program. The terms of the agreement allow for two variable interest
rate alternatives based on prime or LIBOR (current effective rates range
from 8.625% to 10.0% at August 31, 2000). The agreement also contains
various restrictive covenants, including, among others, restricitions
on mergers, issuance of stock, declaration or payment of dividends,
loans to stock holders, and requires the Company to maintain certain
levels of equity and pretax earnings. Advances under the line of credit
agreement are also subject to portfolio performance, financial covenant
restrictions and borrowing base calculations.
-6-
<PAGE>
At August 31, 2000 the Company
had a maximum amount available under the agreement of approximately
$11.2 million based on borrowing base computation as provided by the
agreement.
Note 4. Earnings Per Share
Basic earnings per share is computed by dividing net income available
to common stockholders by the weighted average number of shares
outstanding. In computing diluted earnings per share, the dilutive
effect of stock options during the periods presented increase the
weighted average number of shares.
-7-
<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 and six
months ended August 31, 2000 and 1999. In the opinion of
management, all normal and recurring adjustments necessary for a
fair statement of the results for such periods have been included.
The operating results for any period are not necessarily
indicative of results for any future period.
Percentage Percentage
of Net Revenues of Net Revenues
------------------ ------------------
Three Months Ended Six Months Ended
August 31, August 31,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net Revenues:
Farm inputs 89.7% 91.2% 93.6% 94.3%
Financing Income 10.3% 8.8% 6.4% 5.7%
-------- -------- -------- --------
100.0% 100.0% 100.0% 100.0%
-------- -------- -------- --------
Cost of Revenues:
Farm inputs 85.7% 86.0% 89.0% 89.0%
Financing expense 5.3% 4.3% 3.2% 2.6%
Provision for doubtful
notes 1.8% 1.8% 1.8% 1.9%
-------- -------- -------- --------
92.8% 92.1% 94.0% 93.5%
-------- -------- -------- --------
Income from continuining
operationgs before
operating expenses and
income taxes 7.2% 7.9% 6.0% 6.5%
Operating expenses 3.0% 2.9% 2.4% 2.3%
-------- -------- -------- --------
Income from continuing
operations before
income taxes 4.2% 5.0% 3.6% 4.2%
Federal and state income
taxes 1.6% 1.9% 1.4% 1.6%
-------- -------- -------- --------
Income from continuing
operations 2.6% 3.1% 2.2% 2.6%
Discontinued operations 0.0% 0.0% 0.0% 0.0%
-------- -------- -------- --------
Net income 2.6% 3.1% 2.2% 2.6%
======== ======== ======== ========
-8-
<PAGE>
Net Revenues:
Net revenues from continuing operations increase $14.8 million or
16.7% during the three months ended August 31, 2000, compared with
the three months ended August 31, 1999. Net revenues from continuing
operations increased $37.8 million or 17.0% during the
six months ended August 31, 2000, compared with the six months ended
August 31, 1999. The Company reached this record level through
greater market penetration with the increased name recognition gained
by the Company's Agri-Flex Credit(R) program in its 30 state market
area. Financing income as a percentage of net revenues increased
to 10.3% and 6.4% for the three and six months ended August 31, 2000,
respectively, from 8.8% and 5.7% for the same periods of the previous year.
This increase was primarily a result of an increase in the prime lending
rate by approximately 140 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 and a decline in volume under the Company's
servicing and marketing agreement.
Cost of Revenues:
The total cost of revenues increased slightly to 92.8% and
94.0% of net revenues for the three and six months ended August 31,
2000 as compared to 92.1% and 93.5% for the three and six months ended
August 31, 1999. The gross margin on the sale of farm inputs
decreased to 4.5% and 4.8% for the three and six months ended August
31, 2000, respectively, compared to 5.7% and 5.6% for the three and
six months ended August 31, 1999. The decrease in gross margin on
the sale of farm inputs was the result of increased pricing pressures
in the chemical industry, sales mix shift into lower margin inputs for
non-traditional crops such as sugar beets and potatoes, increases in
the average size of the Company's customers and the resulting volume
discounts. Concerning the gross margin on financing income
alone, the percentages decreased to 48.5% and 50.2% for the three and
six months ended August 31, 2000 from 51.4% and 54.6% for the three
and six months ended August 31, 1999. The decrease in financing
margins was primarily a result of an increase in the prime lending
rate by approximately 140 basis points as compared to a year ago.
The decrease in gross margin was also a result of a continued increase
in leverage and financing fees associated with changes in the commercial
paper program over the same periods one year ago. The provision for
doubtful notes remaind relatively constant at 1.8% of net revenues for
the three and six months ended August 31, 2000, as compared to 1.8% and
1.9% for the three and six months ended August 31, 1999.
Operating Expenses:
Operating expenses increased slightly to 3.0% of net revenues for the
three months ended August 31, 2000 from 2.9% for the three months
ended August 31, 1999 due to expenses associated with Powerfarm.com
the Company's e-commerce initiative. Operating expenses increased slightly
to 2.4% of net revenues for the six months ended August 31, 2000 as compared
to 2.3% for the same period last year. The increase in operating expenses
is attributed primarily to the Company's growth and expenses associated with
Powerfarm.com the Company's e-commerce initiative. Payroll and payroll
related expenses increased to $2,161 and $4,208 for the three and six months
ended August 31, 2000 from $1,920 and $3,766 for the three and six months ended
August 31, 1999.
Net Income:
Net income from continuing operations decreased 0.7% to $2,733 for
the three months ended August 31, 2000 from $2,751 for the three months
ended August 31,1999 and increased 0.1% to $5,858 for the six months ended
August 31, 2000 from $5,854 for the six months ended August 31, 1999.
The change in net income for the three and six months is attributable to
the increase in net revenues and the corresponding decrease in gross profit.
-9-
<PAGE>
The percentage increase in net income was less than the increase in net
revenue due to the expenses associated with infrastructure development
of Powerfarm.com the Company's e-commerce initiative and lower farm input
margins as discussed above.
Powerfarm:
Powerfarm.com has compiled the most comprehensive assortment of agriculture
products, services and credit options available on the Internet today.
Products currently available include seed, fertilizer and crop protection
chemicals, along with headline ag news, market quotes and weather. Growers
can shop at their convenience day or night for products and sign up for
additional services like crop insurance, grain marketing programs, crop
scouting and soil sampling services. Within the Powerfarm Community,
growers can post questions for the Company's agronomists and Certified
Crop Advisors. The Company continues discussions with additional suppliers
serving the $250 billion agriculture industry.
The investment and build out of Powerfarm impacted three and six month earnings
by $195,000 and $416,000, or $0.04 and $0.08 per share on a diluted basis,
respectively. Powerfarm's results included revenues of approximately $700,000,
cost of revenues of $695,000 and expenses related to infrastructure and web site
development and the ongoing operations of Powerfarm of $670,000 for the first
six months of fiscal 2001. The Company expects Powerfarm operations to operate
at a loss during fiscal 2001.
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 or the first six months of fiscal
2001.
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 the first
two quarters of fiscal 2001. This information is derived from
unaudited consolidated financial statements, which include, in the
opinion of management, all normal and recurring adjustments which
management consider necessary for a fair statement of results of
those periods. The operating results for any quarter are not
necessarily indicative of the results for any future period.
Fiscal 2001 Quarter Ended
May 31 August 31 November 30 February 28
----------- ----------- ----------- -----------
(Dollars in thousands)
Net revenues $155,802 $103,530
Net income $3,125 $2,733
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
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<PAGE>
Liquidity and Capital Resources:
At August 31, 2000 the Company had working capital of $57,825 an
increase of $11,058 over a year ago and an increase of $12,686 since
February 29, 2000. The components of this net increase, since
February 29, 2000, were (i) $12,862 resulting from operating activities,
consisting of approximately, $5,858 in net income, $183 in depreciation,
$169 in amortization, and the remainder from a net change in other
working capital items, (ii) capital expenditures of approximately $392
related to the acquisition of equipment and furniture, and (iii) net
proceeds of $216 from the issuance of common stock upon exercise of
options and sales of stock through the employee stock purchase plan.
The Company entered into a five-year asset backed securitized financing
program through fiscal 2004 with a maximum available borrowing amount
of $325 million. Under the terms of the five-year facility, the Company
sells and may continue to sell or contribute certain notes receivable to
Ag Acceptance Corporation ("Ag Acceptance"), wholly owned, special
purpose subsidiary of the Company. Ag Acceptance pledges its interest
in these notes receivable to a commercial paper market conduit entity
on $255 million of the facility which incurs interest at variable rates
in the commercial paper market and the remaining $70 million is a
three-year term note with interest at a variable cost of LIBOR plus 25
basis points. The agreement contains various restrictive covenants,
including, among others, restrictions on mergers, issuance of stock,
declaration or payment of dividends, transactions with affiliates, and
requires the Company to maintain certain levels of equity and pretax
earnings. Advances under the facility are made subject to portfolio
performance, financial covenant restrictions and borrowing base
calculations. At August 31, 2000, the Company had a maximum additional
amount available under the asset backed securitized financing program of
approximately $14.6 million, based on borrowing base computations as
provided by the agreement.
During August of 2000, the Company negotiated a new $30 million term loan.
The term loan will be due in four equal annual installments beginning in
July of 2002 through maturity in July of 2005. All borrowings are
collateralized by substantially all assets of the Company. Additional
terms of the agreement allow two variable interest rate alternatives based
on prime or LIBOR (current effective rates range from 8.625% to 10.0% at
August 31, 2000). The agreement also contains various restrictive covenants,
including, among others, restrictions on mergers, issuance of stock,
declaration or payment of dividends, loans to stockholders, and requires
the Company to maintain certain levels of equity and pretax earnings. At
August 31, 2000, the Company had $30 million outstanding under the term loan.
In conjunction with the securitized financing program and the term loan,
the Company maintains a $15 million revolving bank line of credit through
July 2003. The line of credit is accessible to cover any potential
deficiencies in available funds financed through the securitization program.
All borrowings are collateralized by substantially all assets of the Company.
The terms of the agreement allow for two variable interst rate alternatives
based on prime or LIBOR (current effective rates range from 8.625% to 10.0%
at August 31, 2000). The agreement also contains various restrictive covenants,
including, among others, restrictions on mergers, issuance of stock,
declaration or payment of dividends, loans to stockholders, and requires the
Company to maintain certain levels of equity and pretax earnings. Advances
under the line of credit agreement are also subject to portfolio performance,
financial covenant restrictions, and borrowing base calculations. At August
31, 2000 the Company had a maximum amount available under the agreement of
approximately $11.2 million based on borrowing base computations as provided
by the agreement.
Management believes that the financial resources available to it,
including its bank lines of credit, asset backed securitization
program, five-year term note, trade credit, its equity and internally
-11-
<PAGE>
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; technological
problems; the amount and availability under its asset backed
securitization program; unknown risks; and other risks detailed in
the Company's Securities and Exchange Commission filings.
Item 3. Quantitaive AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At August 31,2000 the Company had $297.8 million outstanding in notes payable
at an average variable interest rate of 6.91%. A 10% increase in the average
variable interest rate would increase interest expense by approximately 69 basis
points. Assuming similar average outstanding borrowings as fiscal 2000 of
$167.5 million, this would increase the Company's interest expense by
approximately $1,156,000.
The above sensitivity ananlysis is to provide information about the Company's
potential market risks as they pertain to an adverse change in interest rates.
The above analysis excludes the positive impact that increased interest rates
would have on financing income as 98% of the Company's notes receivable are
variable rate notes.
-12-
<PAGE>
AG SERVICES OF AMERICA, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on August
21, 2000. Proxies for such meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended. At such Meeting, management's six Directors were
elected for staggered three-year terms, (ranging from the
Company's 2001 Annual Meeting through the Company's 2003 Annual
Meeting), and until the director's respective successors are duly
elected and qualified;
Votes Votes
Director Name in Favor Withheld
Gaylen D. Miller 4,561,461 545
Henry C. Jungling, Jr. 4,561,461 545
Kevin D. Schipper 4,561,461 545
James D. Gerson 4,560,381 1,325
Michael Lischin 4,561,906 100
Ervin J. Mellema 4,535,381 26,625
A proposal to amend the Articles of Incorporation to establish a
classified board of directors with staggered terms and removal of
directors only for cause was approved by a vote of 2,482,448 votes
in favor, 936,427 votes against, and 33,398 votes abstaining.
A proposal to amend the Articles of Incorporation to authorize
10,000,000 shares of preferred stock was approved by a vote of
2,456,536 votes in favor, 956,745 votes against, and 39,532 votes
abstaining.
A proposal to amend the Articles of Incorporation to increase the
authorized shares of common stock from 10,000,000 to 30,000,000 was
approved by a vote of 3,880,881 votes in favor, 860,629 votes against,
and 26,132 votes abstaining.
A proposal to amend the 1993 stock option plan to increase the shares
reserved for issuance under the plan from 400,000 to 700,000 shares
was approved by a vote of 2,523,811 votes in favor, 901,490 votes
against, and 26,792 votes abstaining.
In addition, a proposal to ratify the appointment of McGladrey
& Pullen, LLP as independent auditors for the Company for the
fiscal year ending February 28, 2001 was approved by a vote of
4,493,128 votes in favor, 256,104 votes against, and 18,410 votes
abstaining.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re computation of earnings per common share is attached.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AG SERVICES OF AMERICA, INC.
----------------------------
(Registrant)
/s/ Brad D. Schlotfeldt
----------------------------
Brad D. Schlotfeldt
Vice President of Finance & Treasurer
(Principal Financial & Accounting Officer)
Date: October 16, 2000
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<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Computation of weighted average
number of basic shares:
Basic:
Common shares outstanding at
beginning of the period 5,266,364 5,231,264 5,249,039 5,212,604
Weighted average number of
shares issued during the
period 2,300 2,049 16,066 13,587
----------- ----------- ----------- -----------
Weighted average shares
outstanding (basic) 5,268,664 5,233,313 5,265,105 5,226,191
=========== =========== =========== ===========
Net income available to
shareholders:
Income from continuing
operations $2,732,564 $2,751,329 $5,857,867 $5,854,194
Discontinued operations - (23,537) - (49,849)
----------- ----------- ----------- -----------
Net income available to
stockholders: $2,732,564 $2,727,792 $5,857,867 $5,804,345
=========== =========== =========== ===========
Basic earnings per share:
Income from continuing
operations $0.52 $0.53 $1.11 $1.12
Discontinued opeartions - ($0.01) - ($0.01)
----------- ----------- ----------- -----------
Basic earnings per share $0.52 $0.52 $1.11 $1.11
=========== =========== =========== ===========
Diluted:
Common shares outstanding at
beginning of the period 5,266,364 5,231,264 5,249,039 5,212,604
Weighted average number of
shares issued during the
period 2,300 2,049 16,066 13,587
Weighted average of potential
dilutive shares computed
using the treasury stock
method using the average
market price during the
period:
Option (1) 207,222 227,713 256,165 223,289
----------- ----------- ----------- -----------
Weighted average shares
outstanding (diluted) 5,475,886 5,461,026 5,521,270 5,449,480
=========== =========== =========== ===========
Net income
Income from continuing
operations $2,732,564 $2,751,329 $5,857,867 $5,854,194
Discontinued operations - (23,537) - (49,849)
----------- ----------- ----------- -----------
Net income available to
stockholders $2,732,564 $2,727,792 $5,857,897 $5,804,345
=========== =========== =========== ===========
Diluted earnings per share
Income from continuing
operations $0.50 $0.50 $1.06 $1.07
Discontinued operations - - - -
----------- ----------- ----------- -----------
Diluted earnings per share $0.50 $0.50 $1.06 $1.07
=========== =========== =========== ===========
<CAPTION>
(1) Some of the stock options have been excluded because they are
antidilutive.
</TABLE>
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<PAGE>
