UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended August 31, 2001 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number: 000-19320 Ag Services of America, Inc. (Exact name of registrant as specified in its charter) Iowa 42-1264455 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2302 West First Street, Cedar Falls, Iowa 50613 (Address of principal executive offices) (Zip Code) (319) 277-0261 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No 5,451,864 common shares were outstanding as of August 31, 2001. AG SERVICES OF AMERICA, INC. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial statements: Consolidated condensed balance sheets, August 31, 2001 (unaudited) and February 28, 2001 1 Unaudited consolidated condensed statements of income, three months and six months ended August 31, 2001 and 2000 2 Unaudited consolidated condensed statements of cash flows, six months ended August 31, 2001 and 2000 3 Unaudited consolidated statement of stockholders' equity, six months ended August 31, 2001 4 Notes to consolidated condensed financial statements (unaudited) 5-8 Item 2. Management's discussion and analysis of financial condition and results of operations 9-13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 13 Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and reports on form 8-K: 14 (a) Exhibits (11) Statement re computation of earnings 15 per common share PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AG SERVICES OF AMERICA, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands) August 31, February 28 ASSETS 2001 2001* (Unaudited) ----------- ----------- CURRENT ASSETS Cash $18 $61 Customer notes receivable, less allowance for doubtful notes and reserve for discounts August 31, 2001 $14,292; February 28, 2001 $7,960 381,976 167,554 Inventory and other assets 1,318 6,700 Foreclosed assets held for sale 2,185 1,881 Deferred income taxes, net 5,346 2,780 ----------- ----------- Total current assets $390,843 $178,976 ----------- ----------- LONG-TERM RECEIVABLES AND OTHER ASSETS Customer notes receivable, less allowance for doubtful notes August 31, 2001 $3,508; February 28, 2001 $3,490 $38,035 $37,844 Loan origination fees, less accumulated amortization August 31, 2001 $925; February 28, 2001 $754 772 917 Deferred income taxes, net 1,945 1,290 ----------- ----------- $40,752 $40,051 ----------- ----------- FIXED ASSETS Equipment, less accumulated depreciation August 31, 2001 $1,814; February 28, 2001 $1,487 $1,080 $1,275 Land and construction in progress 2,001 938 ----------- ----------- $3,081 $2,213 ----------- ----------- $434,676 $221,240 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable, including current maturities $314,231 $119,604 Outstanding checks in excess of bank balances 2,229 3,934 Accounts payable 10,143 630 Accrued expenses 4,209 2,457 Income taxes payable 1,983 270 ----------- ----------- Total current liabilities $332,795 $126,895 ----------- ----------- LONG-TERM LIABILITIES Notes payable, less current maturities $32,696 $28,167 ----------- ----------- STOCKHOLDERS' EQUITY Capital stock $23,807 $23,173 Accumulated other comprehensive income (1,486) - Retained earnings 46,864 43,005 ----------- ----------- $69,185 $66,178 ----------- ----------- $434,676 $221,240 =========== =========== *Condensed from Audited Financial Statements.See notes to Consolidated Condensed Financial Statements. -1- AG SERVICES OF AMERICA, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME Three Months and Six Months Ended August 31, 2001 and 2000 (Dollars in Thousands, Except Per Share Amounts) Three Months Ended Six Months Ended August 31, August 31, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Net revenues: Farm inputs $101,600 $92,866 $259,501 $242,616 Financing income 8,710 10,664 14,969 16,716 ----------- ----------- ----------- ----------- Net revenues $110,310 $103,530 $274,470 $259,332 ----------- ----------- ----------- ----------- Cost of revenues: Farm inputs $97,258 $88,731 $248,681 $230,854 Financing expense 4,517 5,491 7,907 8,329 Provision for doubtful notes 1,924 1,823 4,951 4,584 ----------- ----------- ----------- ----------- Net cost of revenues $103,699 $96,045 $261,539 $243,767 ----------- ----------- ----------- ----------- Income before operating expenses and income taxes $6,611 $7,485 $12,931 $15,565 Operating expenses 3,171 3,082 6,523 6,192 ----------- ----------- ----------- ----------- Income before income taxes $3,440 $4,403 $6,408 $9,373 Federal and state income taxes 1,415 1,670 2,549 3,515 ----------- ----------- ----------- ----------- Net income $2,025 $2,733 $3,859 $5,858 =========== =========== =========== =========== Earnings per share: Basic $0.37 $0.52 $0.72 $1.11 =========== =========== =========== =========== Diluted $0.37 $0.50 $0.70 $1.06 =========== =========== =========== =========== Weighted average shares: Basic 5,451 5,269 5,369 5,265 =========== =========== =========== =========== Diluted 5,504 5,476 5,488 5,521 =========== =========== =========== =========== See Notes to Consolidated Condensed Financial Statements. -2- AG SERVICES OF AMERICA, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Six Months Ended August 31, 2001 and 2000 (Dollars in Thousands) 2001 2000 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $3,859 $5,858 Adjustments to reconcile net income to net cash (used in) operating activities: Depreciation 346 183 Amortization 221 169 (Increase) in customer notes receivable (214,613) (222,450) Changes in assets and liabilities 16,007 18,802 ----------- ----------- Net cash (used in) operating activities ($194,180) ($197,438) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment ($1,242) ($392) Proceeds from sale of equipment 33 126 (Increase)in foreclosed assets held for sale (304) (813) ----------- ----------- Net cash (used in) investing activities ($1,513) ($1,079) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable $263,975 $266,194 Principal payments on notes payable (67,178) (61,817) (Decrease) in excess of outstanding checks over bank balance (1,705) (5,540) (Increase) in loan origination fees (76) (473) Proceeds from issuance of capital stock, net 634 216 ----------- ----------- Net cash provided by financing activities $195,650 $198,580 ----------- ----------- Increase (decrease) in cash ($43) $63 CASH Beginning 61 45 ----------- ----------- Ending $18 $108 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash payments for: Interest $6,084 $6,310 Income taxes $3,184 $2,045 See Notes to Consolidated Condensed Financial Statements -3- AG SERVICES OF AMERICA, INC. UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Six Months Ended August 31, 2001 (Dollars in thousands) Capital Stock ----------------------- Accumulated Other Shares Comprehensive Retained Comprehensive Issued Amount Income Earnings Total Income ------------- ------------- ------------- ------------- ------------- ------------- Balance, February 28, 2001 5,281,064 $23,173 $-- $43,005 $66,178 $-- Comprehensive income: Net income -- -- -- 3,859 3,859 $3,859 Other comprehensive income (loss), net of tax $755 -- -- (1,486) -- (1,486) (1,486) ------------- Comprehensive income $2,373 ============= Issuance of capital stock upon the exercise of options 170,800 634 -- -- 634 ------------- ------------- ------------- ------------- ------------- Balance, August 31, 2001 5,451,864 $23,807 ($1,486) $46,864 $69,185 ============= ============= ============= ============= ============= See Notes to Consolidated Condensed Financial Statements -4- AG SERVICES OF AMERICA, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Basis of Presentation The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions of Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested these interim consolidated condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report for the year ended February 28, 2001. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented have been made. Operating results for the three and six month periods ended August 31, 2001 are not necessarily indicative of the results that may be expected for the year ending February 28, 2002. Unless otherwise noted, all amounts presented are in thousands except per share amounts. Principles of Consolidation: The consolidated financial statements include the accounts of Ag Services of America, Inc. (the Company) and its wholly owned subsidiaries, Ag Acceptance Corporation and Powerfarm, Inc. All material intercompany balances and transactions have been eliminated in consolidation. According to the terms related to the asset backed securitized financing program as described in Note 3 of the consolidated condensed financial statements, the Company formed Ag Acceptance Corporation, a wholly owned, special purpose corporation. In conjunction with the Company's e-commerce initiative the Company created Powerfarm, Inc. a wholly owned subsidiary which operates and manages the Company's e-commerce website Powerfarm.com. Derivative Instruments and Hedging Activities: Effective March 1, 2001, the Company adopted FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires that all derivative financial instruments that qualify for hedge accounting, such as interest rate swap contracts, be reconginzed in the financial statements and measured at fair value regardless of the purpose or intent for holding them. Changes in fair value of derivative financial instruments are either recognized periodically in income or stockholder's equity (as a component of comprehensive income), depending on whether the derivative is being used to hedge changes in fair value or cash flows. The adoption of FAS 133 did not have a material effect on the primary financial statements, but did reduce comprehensive income by $1,486 for the six months ended August 31, 2001. -5- Note 2. Commitments and Contingencies Commitments: In the normal course of business, the Company makes various commitments that are not reflected in the accompanying consolidated condensed financial statements. These include various commitments to extend credit to customers. At August 31, 2001 and February 28, 2001 the Company had approximately $58,000 and $120,000, respectively, in commitments to supply farm inputs. No material losses or liquidity demands are anticipated as a result of these commitments. The Company currently has contracted with a company to construct a building to replace the Company's corporate headquarters. The new facility will have approximately 55,000 square feet of office space with adequate land for future expansion. The construction of the new office facility has started with an estimated cost of $4.8 million and completion projected for February of 2002. Contingencies: The Company is named in lawsuits in the ordinary course of business. Counsel for the Company has advised the Company, while the outcome of various legal proceedings is not certain, it is unlikely that these proceedings will result in any liability which will materially affect the financial position or operating results of the Company. The availability of lines of credit to finance operations and the existence of a multi-peril crop insurance program are essential to the Company's operations. If the federal multi-peril crop insurance program currently in existence were terminated or negatively modified and no comparable private or government program were established, this could have a material adverse effect on the Company's future operations. The government has from time to time evaluated the federal multi-peril insurance program and is likely to review the program in the future, and there can be no assurance about the outcome of such evaluations. Note 3. Pledged Assets and Related Debt The Company entered into an asset backed securitized financing program through Fiscal 2004, with a maximum available borrowing amount of $345 million. Under the terms of the facility, the Company sells and may continue to sell or contribute certain notes receivable to Ag Acceptance Corporation ("Ag Acceptance"), a wholly owned, special purpose subsidiary of the Company. Ag Acceptance pledges its interest in these notes receivable to a commercial paper market conduit entity on $275 million of the facility that incurs interest at variable rates in the commercial paper market (current effective rates range from 3.51% to 3.59% at August 31, 2001) and the remaining $70 million is a three-year term note with interest at a variable cost of LIBOR plus 25 basis points (current effective rate is 3.83% at August 31, 2001). The agreement contains various restrictive covenants including, among others, restrictions on mergers, issuance of stock, declaration or payment of dividends, transactions with affiliates, and requires the Company to maintain certain levels of equity and pretax earnings. Advances under the facility are made subject to portfolio performance, -6- financial covenant restrictions and borrowing base calculations. At August 31, 2001, the Company had approximately $301.1 million outstanding under the asset backed securitized financing program and had a maximum additional amount available of approximately $0.1 million based on borrowing base computations as provided by the agreement. During August of 2000, the Company negotiated a new $30 million term loan. The term loan will be due in four equal annual installments beginning in July of 2002 through maturity in July of 2005. Additional terms of the agreement allow two variable interest rate alternatives based on prime or LIBOR (current effective rates range from 5.581% to 7.0% at August 31, 2001). The agreement also contains various restrictive covenants, including, among others, restrictions on mergers, issuance of stock, declaration or payment of dividends, loans to stockholders, and requires the Company to maintain certain levels of equity and pretax earnings. The Company has an interest rate swap agreement that effectively limits the exposure to increasing interest rates on the above term note. The interest rate swap agreement matures in July of 2005 and has a principal amount of $30 million at August 31, 2001 and decreases as the principal amount is repaid. The agreement has effectively fixed the interest rate on the Company's $30 million term note at 9.78%. Although the Company is exposed to credit loss in the event of nonperformance by the counter-party on the interest rate swap agreement, management does not expect nonperformance. In conjunction with the securitized financing program and the term loan, the Company maintains a $15 million revolving bank line of credit through July 2003. The line of credit is accessible to cover any potential deficiencies in available funds financed through the securitization program. The terms of the agreement allow for two variable interest rate alternatives based on prime or LIBOR (current effective rates range from 5.581% to 7.0% at August 31, 2001). The agreement also contains various restrictive covenants, including, among others, restricitions on mergers, issuance of stock, declaration or payment of dividends, loans to stockholders, and requires the Company to maintain certain levels of equity and pretax earnings. Advances under the line of credit agreement are also subject to portfolio performance, financial covenant restrictions and borrowing base calculations. At August 31, 2001 the Company had $13.5 million outstanding under the agreement and had a maximum additional amount available of approximately $1.5 million based on borrowing base computation as provided by the agreement. Note 4. Earnings Per Share Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding. In computing diluted earnings per share, the dilutive effect of stock options during the periods presented increase the weighted average number of shares. -7- Note 5. Pronouncements Issued Not Yet Adopted In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". Statement 141 eliminates the pooling method for accounting for business combinations, requires intangible assets that meet certain criteria to be reported separately from goodwill and requires negative goodwill to be recorded as an extraordinary gain. Statement 142 eliminates the amortization of goodwill and other intangibles that are determind to have an indefinite life and requires annual impairment tests for those assets. The Company has completed its full assessment of the effects of these new pronouncements on its financial statements and has determind that there will be no impact on the financial statements upon adoption of these standards. -8- AG SERVICES OF AMERICA, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Results of Operations The following table sets forth percentages of net revenues represented by the selected items in the unaudited condensed statements of income of the Company for the three and six months ended August 31, 2001 and 2000. In the opinion of management, all normal and recurring adjustments necessary for a fair statement of the results for such periods have been included. The operating results for any period are not necessarily indicative of results for any future period. Percentage Percentage of Net Revenues of Net Revenues ------------------ ------------------ Three Months Ended Six Months Ended August 31, August 31, ------------------ ------------------ 2001 2000 2001 2000 -------- -------- -------- -------- Net Revenues: Farm inputs 92.1% 89.7% 94.5% 93.6% Financing income 7.9% 10.3% 5.5% 6.4% -------- -------- -------- -------- 100.0% 100.0% 100.0% 100.0% -------- -------- -------- -------- Cost of Revenues: Farm inputs 88.2% 85.7% 90.6% 89.0% Financing expense 4.1% 5.3% 2.9% 3.2% Provision for doubtful notes 1.7% 1.8% 1.8% 1.8% -------- -------- -------- -------- 94.0% 92.8% 95.3% 94.0% -------- -------- -------- -------- Income before operating expenses and income taxes 6.0% 7.2% 4.7% 6.0% Operating expenses 2.9% 3.0% 2.4% 2.4% -------- -------- -------- -------- Income before income taxes 3.1% 4.2% 2.3% 3.6% Federal and state income taxes 1.3% 1.6% 0.9% 1.4% -------- -------- -------- -------- Net income 1.8% 2.6% 1.4% 2.2% ======== ======== ======== ======== Net Revenues: Net revenues increased $6.8 million or 6.5% during the three months ended August 31, 2001, compared with the three months ended August 31, 2000. Net revenues increased $15.1 million or 5.8% during the six months ended August 31, 2001, compared with the six months ended August 31, 2000. The increase in net revenues was primarily the result of greater volume under the Company's AgriFlex Credit(R) Financing Program and increases in the Seed and Chemical Financing Program. Revenue increases were mitigated by cool, wet weather conditions during the spring of 2001 that caused reduced seed, chemical and fertilizer sales throughout much of the Company's primary market area. The cool, wet weather resulted in many acres remaining unplanted. -9- Financing income as a percentage of net revenues decreased to 7.9% and 5.5% for the three and six months ended August 31, 2001, respectively, from 10.3% and 6.4% for the same periods of the previous year. The decrease in financing margin was primarily the result of a decrease in the prime lending rate, which is the base rate used by the Company to charge interest on a variable rate basis to its customers, by approximately 275 and 200 basis points, respectively, over the three and six months ended August 31, 2001. Cost of Revenues: The total cost of revenues increased to 94.0% and 95.3% of net revenues for the three and six months ended August 31, 2001 as compared to 92.8% and 94.0% for the three and six months ended August 31, 2000. The gross margin on the sale of farm inputs decreased to 4.3% and 4.2% for the three and six months ended August 31, 2001, compared to 4.5% and 4.8%, respectively, for the three and six months ended August 31, 2000. The decrease in gross margin on the sale of farm inputs was the result of a sales mix shift into lower margin inputs which was caused by cool, wet weather conditions described above that reduced seed, chemical and fertilizer sales. Gross margins on the sale of farm inputs were also reduced as a result of increasing the reserve for program discounts as discounts earned by customer have increased due to an improving cutstomer portfolio and competitive influences. Concerning the gross margin on financing income alone, the percentages decreased to 48.1% and 47.2% for the three and six months ended August 31, 2001 from 48.5% and 50.2% for the three and six months ended August 31, 2000. The decrease in financing margins was primarily a result of a decrease in the prime lending rate by approximately 275 and 200 basis points for the three and six months ended August 31, 2001 as compared to a year ago. Attributing to the decrease in financing margin was the impact of an interest rate swap agreement as discussed in Note 3. The provision for doubtful notes remained relatively constant at 1.7% and 1.8% of net revenues for the three and six months ended August 31, 2001, as compared to 1.8% for the three and six months ended August 31, 2000. Operating Expenses: Operating expenses remained relatively constant at 2.9% and 2.4% of net revenues for the three and six months ended August 31, 2001 as compared to 3.0% and 2.4% for the three and six months ended August 31, 2000. The increase in the dollar amount of operating expenses is attributed to the Company's growth. Payroll and payroll related expenses decreased to $2,140 for the three months ended August 31, 2001 from $2,161 for the three months ended August 31, 2000 and increased to $4,412 for the six months ended August 31, 2001 from $4,208 for the six months ended August 31, 2000. Net Income: Net income decreased 25.9% to $2,025 for the three months ended August 31, 2001 from $2,733 for the three months ended August 31, 2000 and decreased 34.1% to $3,859 for the six months ended August 31, 2001 from $5,858 for the six months ended August 31, 2000. The decrease in net income for the three months is primarily attributable to the cool, wet weather conditions throughout the Company's primary market area during the first quarter of Fiscal 2002 which delayed the current crop growing season approximately two to three weeks compared to a normal planting season and roughly four to five weeks behind last year's early crop season. These conditions also reduced seed, chemical -10- and fertilizer sales. Also attributing to the decline in net income is the decrease in financing income as discussed above. Powerfarm: Powerfarm.com, the Company's e-commerce website, has compiled one of the most comprehensive assortment of agriculture products, services and credit options available on the Internet today. Products currently available include seed, fertilizer and crop protection chemicals, along with headline ag news, market quotes and weather. Growers can shop at their convenience day or night for products and sign up for additional services like crop insurance, grain marketing programs, crop scouting and soil sampling services. Within the Powerfarm Community, growers can post questions for the Company's agronomists and Certified Crop Advisors. The Company continues discussions with additional suppliers serving the $250 billion agriculture industry. Inflation: The Company does not believe the Company's net revenues and net income were significantly impacted by inflation or changing prices in Fiscal 2001 or the first six months of Fiscal 2002. Seasonality: The Company's revenues and income are directly related to the growing cycle for crops. Accordingly, quarterly revenues and income vary during each fiscal year. The following tables show the Company's quarterly net revenues and net income for Fiscal 2001 and the first two quarters of Fiscal 2002. This information is derived from unaudited consolidated financial statements, which include, in the opinion of management, all normal and recurring adjustments which management consider necessary for a fair statement of results of those periods. The operating results for any quarter are not necessarily indicative of the results for any future period. Fiscal 2002 Quarter Ended May 31 August 31 November 30 February 28 ----------- ----------- ----------- ----------- (Dollars in thousands) Net revenues $164,160 $110,310 Net income $1,834 $2,025 Fiscal 2001 Quarter Ended May 31 August 31 November 30 February 28 ----------- ----------- ----------- ----------- (Dollars in thousands) Net revenues $155,802 $103,530 $23,626 $62,696 Net income $3,125 $2,733 $998 $598 Wet weather conditions in much of the Company's primary market area reduced seed, chemical and fertilizer sales in Fiscal 2002. -11- Liquidity and Capital Resources: At August 31, 2001 the Company had working capital of $58,048 an increase of $223 over a year ago and an increase of $5,967 since February 28, 2001. The components of this net increase, since February 28, 2001, were (i) $6,575 resulting from operating activities, consisting of approximately, $3,859 in net income, $346 in depreciation, $221 in amortization, and the remainder from a net change in other working capital items, (ii) capital expenditures of approximately $1,242 related to the acquisition of equipment and furniture, and (iii) net proceeds of $634 from the issuance of common stock upon exercise of options. The Company entered into an asset backed securitized financing program through Fiscal 2004, with a maximum available borrowing amount of $345 million. Under the terms of the facility, the Company sells and may continue to sell or contribute certain notes receivable to Ag Acceptance Corporation ("Ag Acceptance"), a wholly owned, special purpose subsidiary of the Company. Ag Acceptance pledges its interest in these notes receivable to a commercial paper market conduit entity on $275 million of the facility which incurs interest at variable rates in the commercial paper market (current effective rates range from 3.51% to 3.59% at August 31, 2001) and the remaining $70 million is a three-year term note with interest at a variable cost of LIBOR plus 25 basis points (current effective rate is 3.83% at August 31, 2001). The agreement contains various restrictive covenants, including, among others, restrictions on mergers, issuance of stock, declaration or payment of dividends, transactions with affiliates, and requires the Company to maintain certain levels of equity and pretax earnings. Advances under the facility are made subject to portfolio performance, financial covenant restrictions and borrowing base calculations. At August 31, 2001, the Company had approximately $301.1 million outstanding under the asset backed securitized financing program and had a maximum additional amount available of approximately $0.1 million, based on borrowing base computations as provided by the agreement. During August of 2000, the Company negotiated a new $30 million term loan. The term loan will be due in four equal annual installments beginning in July of 2002 through maturity in July of 2005. All borrowings are collateralized by substantially all assets of the Company. Additional terms of the agreement allow two variable interest rate alternatives based on prime or LIBOR (current effective rates range from 5.581% to 7.0% at August 31, 2001). The agreement also contains various restrictive covenants, including, among others, restrictions on mergers, issuance of stock, declaration or payment of dividends, loans to stockholders, and requires the Company to maintain certain levels of equity and pretax earnings. At August 31, 2001, the Company had $30 million outstanding under the term loan. The Company has an interest rate swap agreement that effectively limits the exposure to increasing interest rates on the above term note. The interest rate swap agreement matures in July of 2005 and has a principal amount of $30 million at August 31, 2001 and decreases as the principal amount is repaid. The agreement has effectively fixed the interest rate on the Company's $30 million term note at 9.78%. Although the Company is exposed to credit loss in the event of nonperformance by the counter-party on the interest rate swap agreement, management does not expect nonperformance. In conjunction with the securitized financing program and the term loan, the Company maintains a $15 million revolving bank line of credit through July 2003. The line of credit is accessible to cover any potential -12- deficiencies in available funds financed through the securitization program. All borrowings are collateralized by substantially all assets of the Company. The terms of the agreement allow for two variable interst rate alternatives based on prime or LIBOR (current effective rates range from 5.581% to 7.0% at August 31, 2001). The agreement also contains various restrictive covenants, including, among others, restrictions on mergers, issuance of stock, declaration or payment of dividends, loans to stockholders, and requires the Company to maintain certain levels of equity and pretax earnings. Advances under the line of credit agreement are also subject to portfolio performance, financial covenant restrictions, and borrowing base calculations. At August 31, 2001 the Company had $13.5 million outstanding under the agreement and had a maximum additional amount available of approximately $1.5 million based on borrowing base computations as provided by the agreement. Management believes that the financial resources available to it, including its bank lines of credit, asset backed securitization program, five-year term note, trade credit, its equity and internally generated funds, will be sufficient to finance the Company and its operations in the foreseeable future. The Company currently has contracted with a company to construct a building to replace the Company's corporate headquarters. The new facility will have approximately 55,000 square feet of office space with adequate land for future expansion. The construction of the new office facility has started with an estimated cost of $4.8 million and completion projected for February of 2002. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 Information contained in this report, other than historical information, should be considered forward looking which reflect Management's current views of future events and financial performance that involve a number of risks and uncertainties. The factors that could cause actual results to differ materially include, but are not limited to, the following: general economic conditions within the agriculture industry; competitive factors and pricing pressures; changes in product mix; changes in the seasonality of demand patterns; changes in weather conditions; changes in agricultural regulations; technological problems; the amount and availability under its asset backed securitization program; unknown risks; and other risks detailed in the Company's Securities and Exchange Commission filings. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At August 31, 2001 the Company had $344.6 million outstanding in notes payable at an average variable interest rate of 4.30%. The Company has an interest rate swap that effectively converts $30 million of this variable rate debt to a fixed rate insturment. After considering the effect of this swap, the Company has floating rate debt of $314.6 million at a variable interst rate of 3.78%. A 10% increase in the average variable interest rate would increase interest expense by approximately 43 basis points. Assuming similar average outstanding borrowings as Fiscal 2001 of $183 million, this would increase the Company's interest expense by approximately $787,000. The above sensitivity ananlysis is to provide information about the Company's potential market risks as they pertain to an adverse change in interest rates. The above analysis excludes the positive impact that increased interest rates would have on financing income as approximately 98% of the Company's notes receivable are variable rate notes. -13- AG SERVICES OF AMERICA, INC. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company held its Annual Meeting of Stockholders on August 1, 2001. Proxies for such meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Votes Votes Director Name in Favor Withheld ---------------- ---------- ---------- Gaylen D. Miller 4,643,440 133,712 James D. Gerson 4,771,452 5,700 In addition, a proposal to ratify the appointment of McGladrey & Pullen, LLP as independent auditors for the Company for the Fiscal year ending February 28, 2002 was approved by a vote of 4,802,961 votes in favor, 5,100 votes against, and 6,171 votes abstaining. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (11)Statement re computation of earnings per common share is attached. (b) Reports on Form 8-K No reports on Form 8-K were filed during the period covered by this report. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AG SERVICES OF AMERICA, INC. ---------------------------- (Registrant) /s/ Brad D. Schlotfeldt ---------------------------- Brad D. Schlotfeldt Senior Executive Officer & Treasurer (Principal Financial & Accounting Officer) Date: October 15, 2001 -14- AG SERVICES OF AMERICA, INC. EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE Three Months Ended Six Months Ended August 31, August 31, ----------------------- ----------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Computation of weighted average number of basic shares: Basic: Common shares outstanding at beginning of the period 5,450,614 5,266,364 5,281,064 5,249,039 Weighted average number of shares issued during the period 636 2,300 87,770 16,066 ----------- ----------- ----------- ----------- Weighted average shares outstanding (basic) 5,451,250 5,268,664 5,368,834 5,265,105 =========== =========== =========== =========== Net income available to stockholders: $2,024,398 $2,732,564 $3,858,529 $5,857,867 =========== =========== =========== =========== Basic earnings per share: $0.37 $0.52 $0.72 $1.11 =========== =========== =========== =========== Diluted: Common shares outstanding at beginning of the period 5,450,614 5,266,364 5,281,064 5,249,039 Weighted average number of shares issued during the period 636 2,300 87,770 16,066 Weighted average of potential dilutive shares computed using the treasury stock method using the average market price during the period: Option (1) 52,891 207,222 119,026 256,165 ----------- ----------- ----------- ----------- Weighted average shares outstanding (diluted) 5,504,141 5,475,886 5,487,860 5,521,270 =========== =========== =========== =========== Net income available to stockholders: $2,024,398 $2,732,564 $3,858,529 $5,857,867 =========== =========== =========== =========== Diluted earnings per share: $0.37 $0.50 $0.70 $1.06 =========== =========== =========== =========== (1) Some of the stock options have been excluded because they are antidilutive. -15-