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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X]Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended February 28, 2002
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
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.)
1309 Technology Parkway, Cedar Falls, Iowa 50613
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(319)277-0261
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
Common Stock, no par value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (229.405 of this chapter)
is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-
affiliates of the registrant as of May 13, 2002, was approximately
$56,059,000 (based on the last reported sale price of $13.40 per
share on May 13, 2002, on the New York Stock Exchange).
As of May 13, 2002, 5,476,864 shares of the registrant's common
stock, no par value, were issued and outstanding. At that date,
there were 127 stockholders of record and approximately 2,600
stockholders for whom securities firms acted as nominees.
DOCUMENTS INCORPORATED BY REFERENCE
Herein the following documents are incorporated by reference:
Selected portions of the Registrant's Annual Report to
Stockholders for the year ended February 28, 2002, are
incorporated by reference into Part II.
Selected portions of the Registrant's Definitive Proxy Statement
for the annual shareholders' meeting to be held July 31, 2002,
are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
General Development of Business
Ag Services of America, Inc. (the "Company") was incorporated under the
laws of the state of Iowa in 1985. The Company supplies farm inputs,
including seed, fertilizer, agricultural chemicals, crop insurance and
cash advances for rent, fuel and irrigation, to farmers through out
the United States. The Company buys seed, fertilizer, agricultural
chemicals and other farm inputs from numerous national and
regional manufacturers, distributors and suppliers of seed, fertilizer
and agricultural chemicals. Farmers have traditionally purchased farm
inputs from one or more suppliers using credit from commercial banks,
the Farm Credit System, the FmHA or other agricultural lenders. The
Company extends credit and provides farmers the convenience of
purchasing and financing a wide variety of farm inputs from a single
source at competitive prices.
On August 1, 1991, the Company completed its initial public offering of
1,060,000 shares of common stock (including 60,000 shares due to over-
allotments completed August 30, 1991), of which 382,000 previously
issued shares were sold by certain stockholders (including 32,000 shares
as a result of over-allotments). The Company received net proceeds of
approximately $4.7 million for the 678,000 newly issued shares sold by
the Company including 28,000 shares as a result of over-allotments.
On April 22, 1993, the Company completed a public offering of
$13,800,000 principal amount of 7% Convertible Subordinated Debentures
due 2003 (including $1,800,000 due to over-allotments) ("the Debentures").
The Debentures were convertible into Common Stock of the Company at $9.25
per share. The Company received net proceeds of approximately $12.9 million.
On June 7, 1996, the Company called for redemption or conversion all of
its outstanding Debenutres. From June 7, 1996 through July 10, 1996, the
redemption date, the Company issued 1,487,669 shares of common stock upon
conversion of $13,761,000 of Debentures and redeemed $39,000 of
Debentures as full settlement of all $13,800,000 of the Debentures
outstanding.
Financial Information about Industry Segments
The Company is engaged in one industry segment - the supplying of a
wide range of farm inputs at competitive prices along with the credit
to finance these farm inputs through the crop growing cycle.
Narrative Description of Business
General:
The Company supplies farm inputs, including seed, fertilizer,
agricultural chemicals, crop insurance and cash advances for rent, fuel
and irrigation, to farmers primarily in the central United States.
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The Company's strategy has been to provide a single source of farm inputs
and the credit necessary to finance these inputs through the growing
cycle by taking a security interest in the crop itself. This strategy
is an attractive alternative to farmers who had difficulty obtaining
credit, who needed additional credit for the expansion of existing
operations and/or who wanted the convenience of a single source of farm
inputs, finance and product expertise.
The Company believes that its business strategy has been responsible
for its growth and has focused its efforts on the following principles:
* Supplying and financing a complete line of quality farm inputs from
several suppliers at competitive prices with prompt delivery.
* Providing customers with appropriate product selection and crop
production advice from the Company's product specialists.
* Providing detailed monthly statements to simplify the customer's
bookkeeping for all farm inputs purchased from the Company throughout
each growing season.
* Offering multi-peril crop insurance through the Company as a
licensed insurance agency.
* Visiting customers' farms to view crops and discuss harvest plans
and marketing strategies.
* Providing professional and personalized service throughout the
entire growing season to encourage renewed business each year.
* Selecting credit worthy and experienced customers.
Principal Markets:
The Company's customers are currently located in 34 states. The
Company's principal target market is corn and soybean producers in the
states of Iowa, Minnesota, Nebraska, Illinois, Ohio, North Dakota,
South Dakota, Texas and Indiana.
Products and Suppliers:
The Company buys seed, fertilizer, agricultural chemicals and other
farm inputs from numerous manufacturers, distributors or dealers.
These suppliers generally deliver the farm inputs directly to the
Company's customers. The Company negotiates the purchase price,
discounts and trade credit annually with most of these suppliers.
During the year ended February 28, 2002 ("Fiscal 2002"), the
percentage of net revenues attributed to the sale of
seed, fertilizer, agricultural chemicals, and other farm inputs
including, among others, cash rents, fuel, and irrigation was 14.8%,
11.3%, 12.3% and 54.8%, respectively. The balance of the Company's net
revenues from continuing operations in Fiscal 2002 was attributed to
financing income.
Seed. The Company currently buys seed from approximately 30 national
and regional seed companies. Seed company representatives as well as
the Company's product specialists work directly with the Company's
customers to assist them in selecting specific hybrids and varieties of
seed. The Company sells seed at competitive prices and achieves its
margin based on standard industry discounts or negotiated volume
discounts, if available. Seed is delivered to the Company's customers
directly by the seed companies.
Fertilizer. The Company currently buys fertilizer from over 500
suppliers. The Company sells fertilizer at competitive prices and
achieves its margin based on dealer discounts, negotiated pricing or
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opportunistic purchasing. The Company purchases fertilizer using two
alternative methods, depending on the customer's needs. For those
customers with storage facilities to handle bulk dry materials, bulk
fluids or anhydrous ammonia, the Company may purchase the materials
through major fertilizer distribution terminals or manufacturers.
These bulk materials may be direct-shipped in truckload quantities to
the customer's farm. Customers without storage facilities can have the
materials supplied by the Company, which may enlist the delivery
service of a local fertilizer dealer.
Agricultural Chemicals. The Company currently buys agricultural
chemicals from several major distributors or suppliers. The Company
sells agricultural chemicals at competitive prices and achieves its
margin based on dealer discounts, negotiated pricing, manufacturers'
rebates and opportunistic purchasing. Agricultural chemicals are
generally delivered directly to the customer's farm by the distributor
or through a dealer.
Insurance, Cash Rents, Fuel, Irrigation and Custom Application. The
Company offers its customers multi-peril crop insurance as an agent,
although customers may also purchase multi-peril crop insurance from
other insurance agents. Through twenty-seven of its employees, the
Company is currently licensed as an insurance agent in 30 states.
When customers purchase the insurance through the Company's agent, the
Company receives a standard industry commission based on the premium
amount.
The Company also provides its customers with credit for cash rents,
fuel, irrigation and custom application costs. If a customer's farm
acreage is leased, the landowner may require payment of the annual rent
before planting. Based on its credit policy and the customer's needs,
the Company may assist its customers with the advance payment of all or
a portion of these cash rents. The Company's customers generally
arrange their own fuel, irrigation and custom application needs and the
Company may, based on its credit policy, advance cash for a portion or
all of these costs.
Government Programs:
The two principal government programs affecting the Company's business
are government underwritten multi-peril crop insurance and the
government's farm subsidy program payments.
Multi-Peril Crop Insurance. The Company requires that its customers
purchase multi-peril crop insurance and assign the insurance coverage
to the Company as collateral for the credit extended by the Company to
the customer. Multi-peril crop insurance, while sold and administered
in large part by private companies, is currently underwritten by the
Federal Crop Insurance Corporation ("FCIC"), an agency of the United
States Government. Current multi-peril crop insurance generally covers
crop losses for hail, wind, drought, flood and certain other covered
events.
While various forms of federal multi-peril crop insurance have been in
existence since 1938, federal farm policies and funding are subject to
periodic change, and there can be no assurance that the FCIC or any
other federal agency will continue to underwrite multi-peril crop
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insurance on an ongoing basis. If the Company's customers were not
able to obtain multi-peril crop insurance through some combination of
the FCIC or domestic or foreign private insurance underwriters at a
reasonable cost, the Company would be required to seek alternative
collateral from its customers, which could have a material adverse
affect on the Company's net revenues. There can be no assurance that
multi-peril crop insurance will continue to be available to the
Company's customers or, if available, for a reasonable cost.
FSA "Farm Program" Payments. The United States Department of
Agriculture, through its Farm Service Agency ("FSA"), guarantees
participating farmers various forms of payments on "base acres"
for various crops over the next year under Farm Security and Rural
Investment Act of 2002 ("2002 Farm Bill"). Corn, soybeans, wheat
and certain other crops are currently eligible under the FSA farm
program. If a customer of the Company participates in the FSA farm
program, the Company supplements its security by obtaining an assignment
of the customer's FSA "Farm Program" payments. While various forms
of federal support programs have been in existence since 1933, federal
farm policies and funding, including support payments under the 2002
Farm Bill, are subject to periodic change, and there can be no assurance
that the FSA or any other federal agency will continue to provide
support programs on an ongoing basis. Prior to the signing of the
2002 Farm Bill, the Federal Agriculture and Improvement Act of 1995
was in effect.
Farm Input Pricing and Finance Charges:
The Company structures its pricing of farm inputs so that the net
prices paid by its customers who take advantage of the Company's
payment discounts are generally competitive with farm inputs purchased
from another distributor or supplier. The Company charges its customers
for farm inputs when provided. Finance charges on credit extended to a
customer commence immediately for cash rents provided by the Company
and on the date shipped for other farm input products sold by the
Company to a customer. The Company establishes and sets its interest
rates each year based on the Company's estimate of anticipated interest
costs over the year. For the year ending February 28, 2003
("Fiscal 2003"), the Company's customers will be charged interest at
a variable rate note at prime to 4.0% above prime based on the credit
worthiness of the customer. As of April 9, 2002, the current prime
rate is 4.75% per annum as published in the Midwest Edition of the
Wall Street Journal.
Customer accounts, including all interest, are due by January
15th for North accounts and January 31st for South accounts. The
Company currently assesses a 3.0% program fee based on the customer's
established credit limit and the customer can earn back all or part of
the program fee based on the following repayment dates for North
accounts: 3.0% for customer accounts paid off by December 1, 2.0% for
customer accounts paid off by December 21 and 1.0% for customer
accounts paid off by January 15th. South accounts, 3.0% for
customer accounts paid off by December 18, 2.0% for customer accounts
paid off by January 8 and 1.0% for customer accounts paid off by
January 31st.
Customer Support:
The Company provides customers personalized service with their farm
input needs throughout the entire crop growing cycle. The Company's
account managers provide information on the availability and use of
various chemicals, fertilizers and seed, while the ultimate decision of
product choice is made by the customer. The Company's account managers
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discuss with customers the efficient use of farm inputs,
cost-effective fertility and weed control programs, product
availability, pricing and delivery. When orders are received, the
Company coordinates the customer's needs and delivery requirements with
the appropriate suppliers. The Company also generally schedules at
least one or two visits to the customer's farm to inspect the growing
crop and to discuss harvest plans and any pertinent problems during the
growing cycle. The Company provides each customer a detailed monthly
statement to simplify the customer's bookkeeping for all farm inputs
purchased from the Company throughout each growing season.
Credit Policy and Customer Notes:
The Company has established a credit policy with procedures for credit
review and approval. Each new customer and customers from prior years
must provide financial and credit information to the Company. If a
customer is approved by the Company for credit, the Company will
generally extend credit from 80% to 95% of the insured value of that
customer's planned crop, based on his multi-peril insurance coverage.
The Company secures its position principally by obtaining a lien on the
crop and by receiving an assignment of the farmer's multi-peril crop
insurance and government farm program payments, if available. For
certain customers, the Company's lien on the crop might be subordinate
to one or more prior liens, which would directly reduce the amount of
credit available to that customer. The Company obtains a current
credit report or search to verify the priority of the Company's lien.
The Company also contacts customer references, and for larger accounts,
the Company may visit the prospective customer's farm to review farm
operations before extending credit.
In conjunction with the loans discussed above, the Company also offers
intermediate term financing and crop input-only financing on a limited basis.
Intermediate term loans range from one to five years in length and are
secured with machinery and equipment and/or real estate. Crop input-only
notes are typically unsecured and are used by the Company's customers as
a source for financing seed, chemicals, and/or fertilizer from various
national manufacturers and suppliers. Crop input-only notes are due in
the fall following harvest.
The Company's principal asset are its notes receivable from customers
who finance their purchase of farm inputs from the Company throughout
the crop growing cycle. At February 28, 2002 and February 28, 2001,
the total number of customer notes receivable were $267,747,000 and
$216,848,000 respectively. For the years ended February 28, 2002
and February 28, 2001, there were no individual customers whose
accounts were 5% or more of the Company's total customer notes
receivable at year end.
Each customer account is assigned to an employee of the Company for
monitoring the collection of customer accounts during harvest season,
under the supervision of the Company's account managers. The
Company's employees generally contact their respective assigned
customers biweekly during the harvest season. Through this process,
the Company obtains information from customers concerning crop yields,
marketing strategy, number of acres harvested and the location of the
customers' stored crops. If a customer has a claim under his multi-
peril crop insurance, the Company will take steps to assure that the
claim has been properly and timely filed. Under the Company's credit
arrangements, when a customer sells his crop, the customer is required
to obtain the sale proceeds by check, payable to both the customer and
the Company, and forward the check to the Company as endorsed by the
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customer. Upon receipt of the check, the Company applies the proceeds
as a payment on the customer's account and forwards any overpayments to
the customer. The Company does not retain customer funds on deposit.
If a customer is to receive all or a portion of the value of his crop
through a multi-peril crop insurance claim or farm program payment, the
collection of that customer's account could be delayed pending receipt
of those payments.
Some customers may wish to store their crops for later sale, or for
other reasons may not pay their accounts in full when due. The Company
monitors and documents its collateral and collection position on all
accounts on an ongoing basis. The Company will informally extend the
payment of a customer's note receivable to accommodate a customer's
crop marketing requirements if the Company determines that there
continues to be sufficient collateral. Therefore, a customer's note
receivable that is past due may not be past due because of a customer's
inability to pay or collateral impairment. The amount of customer
notes receivable that were past due (including notes extended by the
Company) at February 28, 2002 and February 28, 2001 was $140,364,000
and $120,779,000, respectively. The amount of past due customer notes
receivable increased slightly from 34.9% of net revenues
in Fiscal 2001 to 36.2% in Fiscal 2002, primarily as a result of an
increase in the amount of customers utilizing an extended marketing cycle.
This increase in past due customer notes receivable was in line with
the Company's expectations. The increased dollar amount of past due
customer notes receivable has not had a material adverse affect on the
Company's earnings, and management does not believe that this increase
will have a material adverse affect on earnings or the Company's
ability to supply and finance farm inputs in the future.
The Company also continually evaluates and classifies each customer
account based on collateral and expected timing of collection in
determining its allowance for doubtful notes. At February 28, 2002 and
February 28, 2001, the Company's allowance for doubtful notes was
$9,500,000 and $7,300,000, respectively.
Sales and Marketing:
The Company markets its program through advertising, including direct
mail and telemarketing, customer solicitation and referrals, including
cooperative marketing efforts with several major seed and fertilizer
suppliers which allow the Company to market its program through their
dealer networks. In addition, the Company employs thirty-eight full
time salaried sales people and one independent sales representative.
The sales representatives identify prospective customers and assist in
obtaining customer information for the Company's credit review and
approval. After the Company has approved a customer, the Company's
employees begin to service the customer's account generally without
assistance from the sales representatives.
In Fiscal 2002 and 2001, the Company incurred approximately $663,000
and $1,071,000, respectively, in advertising expenses. The Company plans
to spend approximately $675,000 on advertising in Fiscal 2003.
Powerfarm:
The Company continues to leverage its business model and use of its
credit products via the Internet through Powerfarm.com. The
Powerfarm website offers growers one of the most comprehensive
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assortments of agricultural products, services and credit options
available in the agricultural industry. The site highlights Ag Services
credit programs and allows farmers to apply for credit lines electronically.
In addition, existing customers have the ability to access detailed
account information 24 hours a day through the site.
Seasonal Factors:
The sale of farm inputs is seasonal with approximately 75% of revenues
being generated from March 1 through August 31 of each year.
Credit Facilities:
Due to the seasonality of the Company's revenues and the terms of its
customer notes receivable, the Company is required to finance the
carrying of its revenues as notes receivable for a majority of its
fiscal year.
The Company's business and its growth are dependent on adequate credit
to finance its sales of farm inputs to farmers. The Company uses its
capital, trade credit and bank and commercial paper borrowings to
finance farm input purchases. The terms of the Company's trade credit
vary for each supplier and type of farm input and may require a lien on
certain assets of the Company.
In March of 1997, the Company negotiated an asset backed securitized
financing program with a maximum available amount of $135 million,
which was increased to $205 million in March of 1998. In June of 1999,
the Company amended the asset backed securitized financing program
and increased the borrowing amount under the facility to $275 million.
During June of 2000, the Company increased the maximum available
borrowing amount under the facility to $325 million, which was
increased again in 2001 to $345 million and is now extended through
November 2002. The Company also has a $30 million term note that
matures in November 2002. In conjunction with the securitized
financing program and the term loan, the Company maintains a revolving
bank line of credit through November 2002 with a maximum available
borrowing cpacity of $15 million. If the Company were not able to
maintain a sufficient line of credit or other credit facility, the
Company would not be able to finance sufficient sales of farm inputs,
which would have a material adverse affect on the Company's business
and its growth. The Company's current financing program expires in
November 2002 and several financing alternatives are presently being
considered. Management believes that the financial resources
available to it will be sufficient to finance the Company's business
over the next fiscal year.
Competition:
The Company faces competition from many types of suppliers of farm
inputs, including manufacturers' dealers, independent distributors and
suppliers, and farm cooperatives. Farm input financing is competitive
and, in recent years, several large agricultural supply companies have
provided financing for various farm inputs. Many of the Company's
competitors are considerably larger and better capitalized, and there
can be no assurance that the Company will be able to compete
effectively against such competitors in the future. Within this
competitive environment, the Company competes principally on the basis
of its competitive pricing, broad range of farm inputs offered and the
convenience of its financing.
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Major Customers:
The customer base is sufficiently broad that no customer accounts for
10% or more of the Company's revenues.
Backlog Orders:
Although the Company had approximately $152,763,000 in commitments to
supply farm inputs, there was no material sales backlog as of February
28, 2002.
Government Regulation:
Farm input financing and cash advances are subject to certain state
laws governing money brokers, federal and states truth-in-lending
regulations, and state usury laws limiting interest rates for certain
types of customers. Additional laws and regulations could be
implemented in the future governing the Company's financing activities
for the sale of farm inputs and cash advances or other aspects of the
Company's business. Compliance with these laws and regulations may
adversely affect the Company's operations and costs.
The sale of certain farm inputs, including agricultural chemicals and
pesticides is subject to certain federal and state environmental rules
and regulations. The Company holds licenses necessary for the sale of
these products. The Company also serves as an agent for the sale of
multi-peril crop insurance and has twenty-seven employees with the
required insurance agent's license.
Employees:
As of February 28, 200, the company had 164 full time employees,
including thirteen executive positions, four in product specialization
and distribution, fifty-eight in credit review and approval, three in
multi-peril crop insurance sales, nineteen in accounting and
administration, eight in information systems, one in customer service,
fourteen in legal and collection, forty-one in sales and marketing, and
three in Powerfarm, Inc. None of the Company's employees are covered by a
collective bargaining agreement. The Company considers its relations
with its employees to be good.
Risk Factors:
Availablility of Credit to Finance Farm Inputs. The Company's principal
source of revenues, which accounted for at least 90% of net revenue
over the past three fiscal years, is the sale of farm inputs to farmers.
If a farmer does not have sufficient cash resources to cover farm input
costs until the sale of the crops after harvest, he must finance his
purchase of farm inputs throughout the crop growing cycle. To facilitate
the sale of farm inputs, the Company offers its customers financing
during the entire growing season for each crop. For the fiscal years
ended February 28, 2002, 2001 and 2000, the Company financed its purchase
of farm inputs from the following sources in the respective percentages
indicated: bank and corporate lines of credit 78.6%, 79.2% and 78.3%;
trade credit 3.3%, 4.3% and 4.5%; and equity 18.1%, 16.5% and 17.1%.
If the Company is not able to obtain and maintain sufficient term debt
and lines of credit,
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the Company would not be able to finance sufficient sales of farm inputs,
which would have a material adverse effect on the Coimpany's business.
The Company is currently renegotiating and restructuring its lines of
credit and term debt. In that effort, the Company is experiencing
a tight credit environment. Accordingly, any new debt facility of
the Company may incur higher rates of interest or be subject to
other terms and conditions more adverse than those currently in place,
which would have a material adverse effect on the Company's business.
Security and Collection of Customer Notes Receivable. The Company's
principal asset is its notes receivable from customers who finance
their purchase of farm inputs from the Company throughout the crop
growing cycle. The Company currently secures its position principally
by obtaining a lien on the crop and by receiving an assignment of
the farmers' multi-peril crop insurance and an assignment of government
farm program payments, if available. For certain customers, the
Company's lien on the crop might be subordinate to one or more prior
liens. Agricultural co-ops and other suppliers of farm inputs who
provide financing for their particular brands of farm inputs
typically obtain a lien on the crop or assets sold but do not
generally require a lien on farm land or equipment. Since the
Company finances the purchase of farm inputs on a short-term basis
through the crop growing and marketing cycle, the Company also
generally does not require that customers provide a lien on farm
land or equipmnent. Although the Company's credit policies include
taking action necessary to preserve its lien and rights to a
customer's crop, if the Company fails to perfect its lien or if
a customer commits fraud, including the improper sale of crop to
a bona fide purchaser, the Company may have difficulty preserving
its lien rights. In addition, if a farmer does not engage in
proper farming practices, the multi-peril crop insurance may
not be available.
The Company also offers intermediate term financing for customers
with repayment terms ranging from one to five years. These
intermediate term loans are used to finance machinery and equipment
and/or real estate. The Company typically takes a first lien position
on the corresponding collateral. In addition to the above financing
programs the Company also offers a crop-input only financing program
whereby the Company finances customers' purchases of seed, chemical
and/or fertilizer only from certain national manufacturers and suppliers.
These notes are typically unsecured and repayment terms are generally
in fall of the year following harvest.
The Company reviews its customer notes receivable monthly and classifies
each customer note receivable into one or more of the following
five classifications: "acceptable," "watch," "substandard," "doubtful"
and "loss." Although the Company believes it has made adequate provision
in its Financial Statements for possible losses on these receivables,
the value of the Company's collateral may fluctuate due to the
variability of crop and fixed asset values over time, which could
adversely affect the adequacy of the Company's reserve for doubtful notes.
From time to time, there is a concentration of large customer accounts.
If one or more large customer accounts does not repay their account
in full, this could have a material adverse effect on the earnings of
the Company.
Availability of Government Underwritten Multi-Peril Crop Insurance. The
Company currently secures its position principally by obtaining a
lien on the crop and by receiving an assignment of the farmer's
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multi-peril crop insurance and government farm program payments,
if available. Multi-peril crop insurance attaches only if the crop
is properly planted by a previously established date. If the insurance
underwriter determined that a farmer did not engage in proper farming
practices, or if a farmer did not plant his crop on a timely basis
(other than as a result from weather), multi-peril crop insurance
coverage could be denied. While various forms of federal multi-peril
crop insurance have been in existence since 1938, federal farm policies
and funding are subject to periodic change, and there can be no
assurance that the Federal Crop Insurance Corporation ("FCIC") or
any other federal agency will continue to underwrite multi-peril crop
insurance on an ongoing basis. If the Company's customers were not
able to obtain multi-peril crop insurance through some combination of
the FCIC or private insurance carriers at a reasonable cost, the
Company would be required to seek alternative collateral from its
customers, which could have a material adverse effect on the Company's
net revenues.
Agricultural Industry Cycles. Because all of the Company's customers
are engaged in farming, the Company is subject to weather and
agricultural industry cycles. The sale of farm inputs is seasonal
based on the crop growing cycle. Farm input costs, crop prices,
interest rates and credit availability for agricultural lending
are all subject to fluctuations from time to time based on market
conditions, weather, and the United States and world economics.
The agricultural crop production industry is currently going
through a consolidation phase which is reducing the number of
viable farming operations. Currently, this is increasing the
demand for credit throughout the industry. Further consolidation
could change the need for financing in agriculture in the future,
which could have a material adverse effect on the Company's net
revenues.
Competition. Although the Company is not currently aware of other
companies which provide the same range of farm inputs and financing
currently provided by the Company, many different companies provide
one or more of the Company's products. The Company faces competition
from many types of suppliers of farm inputs, including manufacturers'
dealers, independent distributors and suppliers, and farm cooperatives.
Commercial banks, the Farm Credit System and other agricultural lenders
compete with the Company for farm input financing. Farm input financing
is competitive and, in recent years, several large agricultural supply
companies and cooperatives, including Pioneer Hi-Bred International Inc.,
Deere Credit and Cenex/Land O'Lakes, have provided financing for various
farm inputs. Many of the Company's competitors are considerably larger
and better capitalized, and there can be no assurance that the Company
will be able to compete effectively against its competitors in the future.
Dependence on Key Officers. The success of the Company is dependent
on its President and Chief Executive Officer, Henry C. Jungling, Jr.,
its Chairman of the Board, Gaylen D. Miller and its Chief Operating
Officer and Secretary, Kevin D. Schipper. The loss of the services of
these officers could have a material adverse effect on the business
of the Company.
Government Regulation. Farm input financing, including cash advances,
is subject to certain state laws governing money brokers, federal and
state truth in lending regulations, and state usury laws limiting interest
rates for certain types of customers. The sale of certain farm inputs,
including agricultural chemicals and pesticides, is subject to certain
federal and state environmental rules and regulations. The Company also
is subject to insurance agency regulations for its sale of multi-peril
crop insurance. Additional laws and regulations could be implemented in
the future governing the Company's financing activities for the sale of
farm inputs, including cash advances, or other aspects of the Company's
business. Compliance with these laws and regulations may adversely affect
the Company's operations and costs.
- 12 -
ITEM 2. PROPERTIES
During Fiscal 2001 the Company was granted land by the City of Cedar Falls,
Iowa to construct new headquarters. The construction of the Company's
new corporate headquarters was completed in February of 2002. The new
headquarters, aggregating approximately 60,000 square feet, is located
in Cedar Falls, Iowa. The land and building are used as security for
the Company's outstanding credit agreements.
ITEM 3. LEGAL PROCEEDINGS
The Company is named in lawsuits in the ordinary course of its business.
Although it is not possible to predict the outcome of such lawsuits,
in the opinion of management the outcomes will not have a material adverse
effect on the financial condition of the Company. The Company maintains
insurance coverage that management believes is reasonable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock is traded on the New York Stock Exchange
("NYSE"), under the symbol ASV. The market quotations provided by
the NYSE appearing on page four of the Annual Report to Shareholders
for the year ended February 28, 2002 are incorporated herein by reference.
These quotations reflect prices without retail markup, markdown or
commissions and may not represent actual transactions.
Stockholders
As of February 28, 2002, the Company had 127 stockholders of record
and approximately 2,600 stockholders for whom securities firms acted
as nominees.
Dividends
The holders of common shares are entitled to receive dividends when
and as declared by the Board of Directors. However, other than dividends
paid prior to September 1989 to its then parent corporation, which was
subsequently merged into the Company, the Company has not paid a cash
dividend on its common stock. The Company does not anticipate payment
of any cash dividends in the foreseeable future. The Company presently
intends to retain earnings to
- 13 -
finance growth. The Company's current borrowing agreements contain
covenants that prohibit the declaration or payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
The "Selected Financial Data" for the Company appearing on pages
12 and 13 of the Annual Report to Stockholders for the year ended
February 28, 2002 is herein incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing on pages 15 through 20 of the Annual
Report to Stockholders for the year ended February 28, 2002 is herein
incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At February 28, 2002 the Company had $187.6 million outstanding in
notes payable at an average variable interest rate of 3.64%. The
Company has an interest rate swap which effectively converts $30 million
of this variable rate debt to a fixed rate instrument. The Company
also has a building loan with a fixed rate of interest. After considering
the effect of the swap and the building loan, the Company has floating
rate debt of $151.9 million at a variable interest rate of 2.38%. A 10%
increase in the average variable interest rate would increase interest
expense by approximately 24 basis points. Assuming similar average variable
rate outstanding borrowings for Fiscal 2002 of $246 million, the Company's
interest expense would increase by approximately $591,000.
The above sensitivity analysis is to provide information about the
Company's potential market risks as they pertain to an adverse change
in interest rates. The above analysis excludes the positive impact that
increased interest rates would have on financing income, as 95% of the
Company's notes receivable are variable rate notes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules set forth in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure
with the Company's independent public accountants.
- 14 -
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers
The name, age and office(s) held by each of the Registrant's
executive officers are shown below. Each of the executive officers
listed below serves at the pleasure of the Board of Directors,
except Messrs, Jungling, Miller and Schipper who have entered into
employment agreements with the Registrant effective through June 2003.
Name Age Position With the Company
Henry C. Jungling, Jr.(1) 55 President and Chief Executive Officer
Gaylen D. Miller (1) 53 Chairman of the Board
Kevin D. Schipper (1) 42 Chief Operating Officer and Secretary
Shawn R. Smeins (1) 34 Executive Vice President of Operations
John T. Roth (2) 30 Vice President Finance
Todd J. Ryan (1) 39 Vice President Sales and Marketing
Eunice M. Schipper (1) 60 Vice President Credit
Neil H. Stadlman (1) 56 Vice President Credit Administration
Lisa M. Meester (1) 42 Vice President Information Systems
Bruce Nelson (1) 51 Vice President Collections
Jamey Ross (1) 30 Vice President Products and Distribution
Linda Kobliska (3) 46 General Counsel
Matt Cory (4) 33 VP Information Systems -
Powerfarm, Inc.
Tad Mozena (1) 34 VP Marketing & Public Relations -
Powerfarm, Inc.
(1) These executive officers of the Registrant have been an employee
of the Company in varying capacities for more than the past five years.
(2) Mr. Roth has been employed by the Company in varying capacities
since October 1998. Before joining the Company, Mr. Roth was a CPA
with McGladrey and Pullen, LLP, a public accounting firm, from July
1995 through October 1998. McGladrey and Pullen, LLP is the Company's
independent auditor.
(3) Ms. Kobliska has been employed by the Company in varying capacities
since January 1998. Before joining the Company, Ms. Kobliska was a
self-employed legal researcher, from 1997 through 1998.
(4) Mr. Cory has been employed by the Company in varying capacities since
February 2000. Prior to working with Ag Services of America, Mr. Cory
worked for State Farm Insurance as a part of its National Catastrophe
program.
The balance of the information regarding directors and executive officers
of the Company is set forth in the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held July 31, 2002 on
- 15 -
pages 10 to 12, under the heading "Election of Directors," and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is set forth in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders
to be held July 31, 2002 on page 10, under the heading "Election
of Directors," on page 12, under the heading "Election of Directors -
Compensation Committee Interlocks and Insider Participation," and
on pages 4 to 14, under the heading "Executive Compensation and Other
Related Information," and is incorporated herein by reference.
However, the "Board Report on Executive Compensation" and the
"Performance Graph," on pages 7 to 8 and page 9, respectively,
are specifically not incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this item is set forth in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders
to be held July 31, 2002 on page 3, under the heading "Security
Ownership of Certain Beneficial Owners and Management," and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders
to be held July 31, 2002 on pages 10 to 12, under the heading
"Election of Directors," and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
Page
(a)(1) - Financial Statements 15
(a)(2) - Financial Statement Schedules 15
(a)(3) and (c) - Exhibits 15
(b) - Reports on Form 8-K
No reports on Form 8-K were filed in the last quarter of the
period covered by this Form 10-K.
- 16 -
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following index is submitted in response to Item 14:
Page Reference
Annual Report
10-K to Stockholders
FINANCIAL STATEMENTS
Report of Independent Public Accountants 21
Consolidated balance sheets, February 28,
2002 and February 28, 2001 22
Consolidated statements of income, years
ended February 28, 2002, February 28, 2001
and February 29, 2000 23
Consolidated statements of stockholders'
equity, years ended February 28, 2002,
February 28, 2001 and February 29, 2000 24
Consolidated statements of cash flows, years
ended February 28, 2002, February 28, 2001
and February 29, 2000 25
Notes to consolidated financial statements 26 - 46
FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants 18
Schedule II - Valuation and Qualifying
Accounts 19
EXHIBITS
See Index of Exhibits on pages 22, 23 and 24.
The Financial Statements listed in the above index are included in the
Company's Annual Report to Stockholders for the year ended February 28,
2002, are herein incorporated by reference. With the exception of the
pages listed in the above index and the information incorporated by
reference included in Items 5, 6, 7, 10, 11, 12 and 13, the Annual
Report to Stockholders for the year ended February 28, 2002 is not
deemed filed as a part of this report.
- 17 -
McGLADREY & PULLEN, LLP RSM
Certified Public Accountants and Consultants International
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
Ag Services of America, Inc.
Cedar Falls, Iowa
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purpose of complying with
the Securities and Exchange Commission's rules and is not a part of
the basic financial statements. This schedule has been subjected to
the auditing procedures applied in our audits of the basic consolidated
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic consolidated financial statements
taken as a whole.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
Des Moines, Iowa
April 10, 2002
- 18 -
AG SERVICES OF AMERICA, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
- --------------------------------- ------------- ------------------------------ --------------- --------------
Additions
------------------------------
(2)
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts - Deductions - End of
Description of Perod Expenses Describe Describe Period
- --------------------------------- ------------- -------------- --------------- --------------- --------------
Year ended February 28, 2002:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful notes $7,300,000 $7,485,110 $5,285,110 (1) $9,500,000
Reserve for discounts $4,150,000 $7,490,381 (2) $6,540,381 (3) $5,100,000
Year ended February 28, 2001:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful notes $4,550,000 $6,266,196 $3,516,196 (1) $7,300,000
Reserve for discounts $2,700,000 $7,019,085 (2) $5,569,085 (3) $4,150,000
Year ended February 29, 2000:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful notes $3,695,000 $5,431,651 $4,576,651 (1) $4,550,000
Reserve for discounts $2,500,000 $5,798,274 (2) $5,598,274 (3) $2,700,000
(1) Uncollectible customer notes receivable written off, net of recoveries.
(2) Provision for discounts as a reduction of revenues.
(3) Cash discounts taken.
- 19 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the under-signed, thereunto duly authorized.
(Registrant) AG SERVICES OF AMERICA, INC.
By(Signature and Title) \s\ Gaylen D. Miller
Gaylen D. Miller
Chairman of the Board
(Principal Financial and Accounting Officer)
\s\ Henry C. Jungling, Jr.
Henry C. Jungling, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date May 23, 2002
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated:
By:/s/ Gaylen D. Miller
Gaylen D. Miller
Chairman and Director
Date: May 23, 2002
By:/s/ Henry C. Jungling, Jr.
Henry C. Jungling, Jr.
President and Chief Executive Officer
and Director
Date: May 17, 2002
By:/s/ Kevin D. Schipper
Kevin D. Schipper
Chief Operating Officer and Director
Date: May 21, 2002
By:/s/ James D. Gerson
James D. Gerson
Director
Date: May 16, 2002
- 20 -
By:/s/ Michael Lischin
Michael Lischin
Director
Date: May 16, 2002
By:/s/ Ervin J. Mellema
Ervin J. Mellema
Director
Date: May 15, 2002
- 21 -
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -----------------------------
3.1 Articles of Restatement of the Company (1)
3.2 Amended and Restated Bylaws of the Company (3)
3.3 Articles of Amendment (2)
4.1 Form of stock certificate evidencing common stock,
without par value, of the Company (2)
4.2 Form of Indenture between Ag Services of America,
Inc. and Norwest Bank Minnesota, N.A., as Trustee(4)
4.3 Form of 7% convertible Subordinated Debentures due
2003 (included in Exhibit 4.2) (4)
10.1 Loan Agreement dated April 15, 1996 (7)
10.8 1993 Stock Option Plan (4)
10.9 Form of Indemnification Agreement between the
Company and each officer and director (2)
10.10 Commercial Notes dated April 15, 1996 (7)
10.14 Form of Amendment to 1993 Stock Option Plan (6)
10.15 Retirement and Savings Plan (4)
10.16 Amendment to Retirement and Savings Plan (6)
10.17 Form of 1995 Stock Purchase Plan (6)
10.18 Amended and Restated Loan Agreement dated March 12,
1997 (8)
10.19 Credit Agreement dated March 12, 1997 (8)
10.20 Purchase and Contribution Agreement dated March 12
1997 (8)
10.21 Amendment No. 1 to Third Amended and Restated Loan
Agreement (9)
- 22 -
10.22 Amendment No. 2 to Third Amended and Restated Loan
Agreement (9)
10.23 Amendment No. 3 to Third Amended and Restated Loan
Agreement (9)
10.24 Amendment No. 1 to Credit Agreement (9)
10.25 Master Trust Indenture and Security Agreement (10)
10.26 Employee Agreement with Kevin D. Schipper (11)
10.27 Employee Agreement with Gaylen D. Miller (11)
10.28 Employee Agreement with Henry C. Jungling (11)
10.29 Amendment No. 4 and Master Waiver to Master Trust
Indenture and Security Agreement (12)
21.1 Subsidiaries of the Registrant (12)
- 23 -
(1) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Registration Statement on Form S-1 on May 31, 1991 as Commission File
No. 33-40981.
(2) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with Pre-
Effective Amendment No. 1 to the Registration Statement on Form S-1 on
July 12, 1991 as Commission File No. 33-40981.
(3) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with Pre-
Effective Amendment No. 2 to the Registration Statement on Form S-1 on
July 24, 1991 as Commission File No. 33-40981.
(4) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Registration Statement on Form S-1 on March 31, 1993 as Commission File
No. 33-60358.
(5) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Company's Form 10-K for the year ended February 28, 1994.
(6) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Company's Form 10-K for the year ended February 28, 1995.
(7) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Company's Form 10-K for the year ended February 29, 1996.
(8) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Company's Form 10-K for the year ended February 28, 1997.
(9) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Company's Form 10-K for the year ended February 28, 1998.
(10) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Company's Form 10-K for the year ended February 28, 1999.
(11) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits file with the
Company's Form 10-Q for the quarter ended November 30, 2000.
(12) - Filed herewith
- 24 -
AG SERVICES OF AMERICA, INC.
EXHIBIT 13.1
FORM OF ANNUAL REPORT TO
SHAREHOLDERS FYE FEBRUARY 28, 2002
- 25 -
FINANCIAL HIGHLIGHTS
----------------------
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
(expressed in thousands, except per share amounts)
Earnings:
Net revenues $387,356 $345,653 $294,584 $223,813 $186,001
Net revenues increase 12.1% 17.3% 31.6% 20.3% 26.0%
Net income $5,476 $7,453 $7,610 $6,493 $5,181
Net income as a percentage of net revenues 1.4% 2.2% 2.6% 2.9% 2.8%
Return on beginning stockholders' equity 8.3% 12.8% 15.1% 14.8% 13.6%
Per share data:
Net income:
Basic $1.01 $1.41 $1.45 $1.25 $1.01
Diluted $1.00 $1.36 $1.40 $1.20 $0.96
Book value $13.07 $12.53 $11.13 $9.70 $8.45
Weighted average shares:
Basic 5,415 5,271 5,233 5,204 5,155
Diluted 5,490 5,490 5,453 5,431 5,425
Financial position:
Working capital $19,138 $52,081 $45,139 $39,390 $33,806
Total assets $273,801 $221,240 $164,328 $134,644 $93,248
Stockholders' equity $71,467 $66,178 $58,436 $50,537 $43,756
Quarterly Common Stock Prices
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2002
High $15.70 $16.15 $13.27 $14.00
Low $13.90 $12.70 $9.55 $10.00
2001
High $31.56 $18.50 $19.94 $15.95
Low $16.25 $14.38 $12.31 $10.44
- 4 -
SIXTEEN-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
February February February February February February February February
2002 2001 2000 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- --------- --------- ---------
Statement of Income Data:
Net revenues:
Farm inputs $360,820 $313,792 $269,517 $204,133 $172,646 $137,443 $106,869 $81,936
Financing income 26,536 31,861 25,067 19,680 13,355 10,204 7,817 5,395
--------- --------- --------- --------- --------- --------- --------- ---------
Total net revenues $387,356 $345,653 $294,584 $223,813 $186,001 $147,647 $114,686 $87,331
--------- --------- --------- --------- --------- --------- --------- ---------
Cost of revenues:
Farm inputs $344,457 $297,489 $253,588 $191,648 $162,140 $127,698 $98,280 $75,247
Financing expense 13,830 17,082 12,062 9,309 5,536 4,768 4,258 2,784
Provision for doubtful notes 7,485 6,266 5,421 4,021 2,963 2,290 1,863 1,409
--------- --------- --------- --------- --------- --------- --------- ---------
Total cost of revenues $365,772 $320,837 $271,071 $204,978 $170,639 $134,756 $104,401 $79,440
--------- --------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations before operating
expenses and income taxes $21,584 $24,816 $23,513 $18,835 $15,362 $12,891 $10,285 $7,891
Operating expenses 12,679 12,799 10,556 8,374 7,200 6,216 5,422 4,128
--------- --------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations before income
taxes $8,905 $12,017 $12,957 $10,461 $8,162 $6,675 $4,863 $3,763
Fed and state income taxes 3,429 4,564 4,878 3,722 2,915 2,329 1,730 1,361
--------- --------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations $5,476 $7,453 $8,079 $6,739 $5,247 $4,346 $3,133 $2,402
Discontinued operations -- -- (469) (246) (66) -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net Income $5,476 $7,453 $7,610 $6,493 $5,181 $4,346 $3,133 $2,402
========= ========= ========= ========= ========= ========= ========= =========
Earnings per share - Basic:
Income from continuing
operations $1.01 $1.41 $1.54 $1.29 $1.02 $0.95 $0.89 $0.69
Discontinued operations -- -- (0.09) (0.04) (0.01) -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income $1.01 $1.41 $1.45 $1.25 $1.01 $0.95 $0.89 $0.69
========= ========= ========= ========= ========= ========= ========= =========
Earnings per share - Diluted:
Income from continuing
operations $1.00 $1.36 $1.48 $1.24 $0.97 $0.84 $0.73 $0.60
Discontinued operations -- -- (0.08) (0.04) (0.01) -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income $1.00 $1.36 $1.40 $1.20 $0.96 $0.84 $0.73 $0.60
========= ========= ========= ========= ========= ========= ========= =========
Cash dividends per share $-- $-- $-- $-- $-- $-- $-- $--
========= ========= ========= ========= ========= ========= ========= =========
Weighted average shares:
Basic 5,415,104 5,271,069 5,232,895 5,203,976 5,155,186 4,578,720 3,538,603 3,478,144
========= ========= ========= ========= ========= ========= ========= =========
Diluted 5,489,755 5,490,109 5,453,478 5,430,781 5,424,977 5,352,257 5,201,231 5,150,556
========= ========= ========= ========= ========= ========= ========= =========
February February February February February February February February
2002 2001 2000 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- --------- --------- ---------
Balance Sheet Data:
Working capital $19,138 $52,081 $45,139 $39,390 $33,806 $27,375 $23,611 $21,546
Total assets 273,801 221,240 164,328 134,644 93,248 60,773 55,186 38,277
Total debt 187,640 147,771 93,390 70,300 45,243 21,000 33,650 20,900
Stockholders' equity 71,467 66,178 58,436 50,537 43,756 38,216 20,421 16,660
- 12 -
SIXTEEN-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
February February February February February February February February
1994 1993 1992 1991 1990 1989 1988 1987
--------- --------- --------- --------- --------- --------- --------- ---------
Statement of Income Data:
Net revenues:
Farm inputs $61,644 $51,088 $33,062 $27,443 $21,236 $9,451 $4,176 $2,833
Financing income 3,910 3,474 2,472 1,983 1,515 512 184 165
--------- --------- --------- --------- --------- --------- ---------- ---------
Total net revenues 65,554 54,562 35,534 29,426 22,751 9,963 4,360 2,998
--------- --------- --------- --------- --------- --------- ---------- ---------
Cost of revenues:
Farm inputs $56,296 $46,447 $30,355 $25,131 $19,215 $8,541 $3,728 $2,441
Financing expense 1,720 1,308 913 1,039 1,241 365 129 116
Provision for doubtful notes 1,050 812 471 375 451 53 37 10
--------- --------- --------- --------- --------- --------- ---------- ---------
Total cost of revenues $59,066 $48,567 $31,739 $26,545 $20,907 $8,959 $3,894 $2,567
--------- --------- --------- --------- --------- --------- ---------- ---------
Income from continuing
operations before operating
expenses and income taxes $6,488 $5,995 $3,795 $2,881 $1,844 $1,004 $466 $431
Operating expenses 3,404 3,094 1,941 1,637 1,399 585 408 377
--------- --------- --------- --------- --------- --------- ---------- ---------
Income from continuing
operations before income
taxes $3,084 $2,901 $1,854 $1,244 $445 $419 $58 $54
Fed and state income taxes 1,117 1,045 676 446 183 159 18 7
--------- --------- --------- --------- --------- --------- ---------- ---------
Income from continuing
operations $1,967 $1,856 $1,178 $798 $262 $260 $40 $47
Discontinued operations -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------- ---------
Net Income $1,967 $1,856 $1,178 $798 $262 $260 $40 $47
========= ========= ========= ========= ========= ========= ========== =========
Earnings per share - Basic:
Income from continuing
operations $0.58 $0.55 $0.42 $0.42 $0.22 $0.22 $0.03 $0.04
Discontinued operations -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ----------
Net income $0.58 $0.55 $0.42 $0.42 $0.22 $0.22 $0.03 $0.04
========= ========= ========= ========= ========= ========= ========= ==========
Earnings per share - Diluted:
Income from continuing
operations $0.52 $0.53 $0.42 $0.42 $0.22 $0.22 $0.03 $0.04
Discontinued operations -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ----------
Net income $0.52 $0.53 $0.42 $0.42 $0.22 $0.22 $0.03 $0.04
========= ========= ========= ========= ========= ========= ========= ==========
Cash dividends per share $-- $-- $-- $-- $-- $-- $-- $--
========= ========= ========= ========= ========= ========= ========== =========
Weighted average shares:
Basic 3,408,192 3,360,542 2,784,864 1,910,116 1,179,802 1,179,802 1,179,802 1,179,802
========= ========= ========= ========= ========= ========= ========== =========
Diluted 4,893,838 3,524,278 2,822,166 1,910,116 1,179,802 1,179,802 1,179,802 1,179,802
========= ========= ========= ========= ========= ========= ========== =========
February February February February February February February February
1994 1993 1992 1991 1990 1989 1988 1987
--------- --------- --------- --------- --------- --------- --------- ---------
Balance Sheet Data:
Working capital $23,034 $8,531 $7,908 $3,470 $358 $281 $36 $14
Total assets 28,786 20,983 13,971 7,231 3,952 1,421 355 195
Total debt 13,800 8,000 3,500 2,265 308 636 126 15
Stockholders' equity 14,198 11,760 9,839 4,001 588 326 66 26
- 13 -
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 2002 marks the sixteenth consecutive year Ag Services has reached
record levels of sales. Net revenues increased 12% to $387.4 million for
Fiscal 2002 as compared to $345.7 million in Fiscal 2001. Net income
decreased 27% to $5.5 million in 2002 from $7.5 million in 2001.
Revenue increases were mitigated by cool, wet weather conditions during
the spring of 2001 and declining interest rates. The impact of reduced
interest rates reduced the Company's pre-tax earnings by approximately
$3.1 million. The Company reported basic and diluted earnings per
share of $1.01 and $1.00 for Fiscal 2002, respectively, compared to
$1.41 and $1.36 per share, respectively, in 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.
Dollars (in thousands) and Percentage of Total Net Revenue
-----------------------------------------------------------
Year Ended Year Ended Year Ended
February 28, 2002 February 28, 2001 February 29, 2000
----------------- ----------------- -----------------
Net revenues:
Farm inputs $360,820 93.1% $313,792 90.8% $269,517 91.5%
Financing income 26,536 6.9% 31,861 9.2% 25,067 8.5%
--------- ------ --------- ------ --------- ------
Total net revenues $387,356 100.0% $345,653 100.0% $294,584 100.0%
--------- ------ --------- ------ --------- ------
Cost of revenues:
Farm inputs $344,457 88.9% $297,489 86.1% $253,588 86.1%
Financing expense 13,830 3.6% 17,082 4.9% 12,062 4.1%
Provision for
doubtful notes 7,485 1.9% 6,266 1.8% 5,421 1.8%
--------- ------ --------- ------ --------- ------
Total cost of
revenues $365,772 94.4% $320,837 92.8% $271,071 92.0%
--------- ------ --------- ------ --------- ------
Income from continuing
operations before
operating expenses
and income taxes $21,584 5.6% $24,816 7.2% $23,513 8.0%
Operating expenses 12,679 3.3% 12,799 3.7% 10,556 3.6%
--------- ------ --------- ------ --------- ------
Income from continuing
operations before
income taxes $8,905 2.3% $12,017 3.5% $12,957 4.4%
Federal and state
income taxes 3,429 0.9% 4,564 1.3% 4,878 1.7%
--------- ------ --------- ------ --------- ------
Income from continuing
operations $5,476 1.4% $7,453 2.2% $8,079 2.7%
Discontinued
operations -- 0.0% -- 0.0% (469) (0.2%)
--------- ------ --------- ------ --------- ------
Net Income $5,476 1.4% $7,453 2.2% $7,610 2.6%
========= ====== ========= ====== ========= ======
- 15 -
Net Revenues
Net revenues in Fiscal 2002 increased 12% to $387.4 million, compared
with $345.7 million in 2001, and $294.6 million in 2000. The Company
reached record level of revenues in 2002 through greater volume under
the Company's Agri-Flex Credit(R) Financing Program and increases in
the Seed and Chemical Financing Program. Fiscal year revenue was
impacted significantly by changes in crops planted by customers and
reduced interest rates. Cool, wet weather last spring in many areas
in North Dakota, South Dakota, Minnesota and portions of Iowa and
Nebraska caused many producers to switch to a less favorable mix of
crops and to leave a portion of their acres unplanted. This negatively
impacted product sales by approximately $10-12 million. Financing
income as a percentage of net revenues decreased to 6.9% in Fiscal
2002 from 9.2% in 2001 and 8.5% in 2000. The decrease in financing
income as a percentage of net revenues for Fiscal 2002 was primarily
a result of a decrease in the average prime lending rate over the
prior year of approximately 300 basis points, which is the base rate
used by the Company to charge interest on a variable rate basis to
its customers. The increase in financing income as a percentage of
net revenues for Fiscal 2001 over Fiscal 2000 was primarily a result
of an increase in the prime-lending rate by approximately 120 basis
points. 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.
Cost of Revenues
The total cost of revenues was 94.4% of net revenues for Fiscal 2002,
which increased from 92.8% of net revenues in 2001, which increased
from 92.0% of net revenues in 2000. The increase in total cost of
revenues as a percentage of net revenues in Fiscal 2002 was a result
of a decrease in margin on the sale of farm inputs. The gross margin
on farm inputs decreased to 4.5% in 2002 from 5.2% in 2001 and 6.0%
in 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 the delay in spring crop planting described above that
reduced seed, chemical and fertilizer sales. Gross margins on the
sale of farm inputs were also reduced as a result of increasing the
reserve for program discounts as discounts earned by customers have
increased due to an improving customer portfolio and competitive
influences. In Fiscal 2002, margin on financing decreased to $12.7
million from $14.8 million in 2001 and $13.0 million in 2000. The
decrease in financing income is due to a decrease in the average prime
lending rate by approximately 300 basis points. 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 the market. For Fiscal 2002, 2001 and
2000, the Company offered variable rate notes to customers ranging from
prime to 4.0% above prime. Contributing 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, as a percentage of net
revenues, increased slightly to 1.9% in Fiscal 2002 from 1.8% in Fiscal
2001 and 2000.
Operating Expenses
Operating expenses decreased to 3.3% of net revenues in Fiscal 2002 as
compared to 3.7% for Fiscal 2001, which increased from 3.6% for Fiscal
2000. The decrease in operating expenses, as a percentage of net
revenues for Fiscal 2002, was a result of a decrease in the operating
expenses associated with Powerfarm and reduced incentive compensation
related to lower Company earnings. The increase in operating expenses
as a percentage of net revenues for Fiscal 2001 is attributed to the
Company's investment in the build-out of Powerfarm.com. Excluding the
impact of Powerfarm, operating expenses for Fiscal 2001 increased only
8.1% from Fiscal 2000.
- 16 -
Manpower expenses increased to $8.6 million in Fiscal 2002 from $8.3
million in 2001 and $7.6 million in 2000. This is a result of the
Company adding employees as well as general wage rate increases to
existing employees. Although manpower expenses increased in Fiscal
2002, overall operating expenses were down, primarily due to the Company's
decreased spending on the build-out of Powerfarm.com.
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.
Net revenue from the retail facilities for Fiscal 2000 was $1,376,000.
Net operating (loss) from discontinued operations was ($176,000) for
Fiscal 2000. Loss on disposal of discontinued operations for Fiscal 2000
was $293,000. There was no net revenue or net operating loss from
discontinued operations in Fiscal 2002 and 2001.
Net Income
Net income decreased 27% to $5.5 million in Fiscal 2002, compared with
$7.5 million in 2001, which decreased from $7.6 million in 2000. The
decrease in net income is primarily attributable to the decrease in
financing income resulting from the decrease in prime lending rate as
discussed above. Also attributing to the decline in net income was
the cool, wet weather conditions throughout the Company's primary market
area during the first quarter of Fiscal 2002 which delayed the current
crop growing season and reduced seed, chemical and fertilizer sales.
Powerfarm
The Company continues to leverage its business model and use of its
credit products via the Internet through Powerfarm.com. The Powerfarm
website offers growers one of the most comprehensive assortments of
agricultural products, services and credit options available in the
agricultural industry. The site highlights Ag Services credit programs
and allows farmers to apply for credit lines electronically. In addition,
existing customers have the ability to access detailed account
information 24 hours a day through the site.
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 2002 and 2001. 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.
- 17 -
Fiscal 2002 Quarter Ended
-------------------------------------------------------------
May 31 August 31 November 30 February 28
-------- --------- ----------- -----------
(Dollars in Thousands)
Net revenues $164,160 $110,310 $25,104 $87,782
Net income $1,834 $2,025 $1,297 $320
Fiscal 2001 Quarter Ended
-------------------------------------------------------------
May 31 August 31 November 30 February 28
-------- --------- ----------- -----------
(Dollars in Thousands)
Net revenues $155,801 $103,530 $23,626 $62,696
Net income $3,124 $2,733 $998 $598
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 2002, 2001, or 2000.
Adoption of Financial Accounting Standard
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 recognized 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 Fiscal 2002 comprehensive income by $1.4 million.
Pronouncements Issued Not Yet Adopted
In July 2001, the Financial Accounting Standards Board issued
SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill
and Other Intangible Assets". Statement 141 eliminates the pooling
method for accounting for business combinations, requires intangible
assets that meet certain criteria to be reported separately from
goodwill and requires negative goodwill to be recorded as an
extraordinary gain. Statement 142 eliminates the amortization of
goodwill and other intangibles that are determined to have an
indefinite life and requires annual impairment tests for those assets.
The Company has completed its full assessment of the effects of
these new pronouncements on its financial statements and has determined
that there will be no impact on the financial statements upon adoption
of these standards.
Liquidity and Capital Resources
Due to the seasonality of the Company's revenues and the terms of
its customer notes receivable, the Company is required to finance the
carrying of its revenues as customer 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 28, 2002
and 2001, the Company had approximately $153 million and $120 million
respectively, in commitments to supply farm inputs.
- 18 -
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 28, 2002, 2001 and 2000, the Company financed its purchase
of farm inputs from the following sources in the respective percentages
indicated: bank and commercial paper borrowings 78.6%, 79.2% and 78.3%;
trade credit 3.3%, 4.3% and 4.5%; and equity 18.1%, 16.5% and 17.1%.
The 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. 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 increased to $325 million in
June of 2000 and to $345 million in 2001 and is now extended through
November 2002. The Company's asset backed securitized financing program
can be drawn upon based on a percentage of customer notes receivable.
The Company has generally borrowed up to the full amount available on its
commercial paper facility. The total outstanding under commercial paper
borrowings as of February 28, 2002, 2001 and 2000, was $132.5 million,
$110.0 million, and $75.5 million, respectively, with an additional
maximum amount available of approximately $6.9 million, $2.5 million,
and $0.4 million, 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
(current effective rates range from 1.87% to 1.94% at February 28, 2002).
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
Company's current financing program expires in November 2002 and several
financing alternatives are presently being considered. The terms of the
Company's trade credit vary for each supplier and type of crop input.
The Company also has a $30 million term note that matures in November of 2002.
Additional terms of the agreement allow for two variable interest rate
alternatives based on prime or LIBOR (current effective rates range from 3.90%
to 5.25% at February 28, 2002). At February 28, 2002 the Company had $30
million outstanding under the term loan.
In conjunction with the securitized financing program and the term loan,
Ag Services maintains a $15 million revolving bank line of credit through
November 2002. 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 3.90% to 5.25%
at February 28, 2002). The total outstanding under the revolving line of
credit at February 28, 2002 and 2001 was $15.0 million and $7.8 million,
respectively.
All borrowings are collateralized by substantially all assets of the Company.
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
- 19 -
in effect unless written consent is obtained. Advances under the
agreements are also subject to portfolio performance, financial
covenant restrictions, and borrowing base calculations. The
Company was in violation of financial covenants at February 28, 2002,
however, the note holders have waived these covenant violations.
The Company closed on a new financing agreement during December of 2001.
Under the terms of the agreement, the Company may borrow up to
$3.9 million, with a declining balance provision, on a revolving
line of credit through April 2022. This credit agreement was used
to finance construction costs of the Company's new corporate
headquarters at a fixed interest rate of 5.74% for five years.
The total outstanding under the credit agreement was $3.5 million
at February 28, 2002. The agreement also contains various
restrictive financial covenants.
In February 2002, three executive officers of the Company, who
are also the original founders of the Company, loaned an aggregate
$4.4 million to the Company, due on March 31, 2003. The Company
makes monthly interest payments to these officers at a variable
interest rate of 0.5% below the prime rate (current effective rate
is 4.25% at February 28, 2002). These notes are unsecured.
The Company maintains an interest-rate risk-management strategy
that uses derivative instruments to minimize significant,
unanticipated earnings fluctuations caused by interest-rate
volatility. The Company's specific goal is to lower (where possible)
the cost of its borrowed funds.
In July 2000, the Company entered into an interest rate swap agreement
related to their $30 million term note. The swap is utilized to manage
interest rate exposures and is designated as a highly effective cash
flow hedge. The differential to be paid or received on the swap agreement
is accrued as interest rates change and is recognized over the lives of
the agreements in interest expense. The swap agreement is a variable
receive/fixed pay swap which expires in July, 2005 and has the effect of
converting the interest rate paid on the $30 million term note to a fixed
rate of 9.78%. The notional amount at inception was $30 million and
will decrease by $7.5 million annually in each July 2002, 2003, 2004
and 2005. Included in other comprehensive income is a loss of
approximately $1.4 million relating to the fair value of this swap
agreement as of February 28, 2002. As this instrument ages toward
maturity and/or the interest rates increase, the loss will be
reclassified from accumulated other comprehensive income into earnings.
As of February 28, 2002, the amount of net deferred losses in
accumulated other comprehensive income which will be reclassified into
earnings during the next twelve months is an amount which, when
added to the cash interest payments on the $30 million term note,
will result in interest expense on the term note of 9.78%.
The Company's current securitized financing program, term note and
revolving line of credit, expire in November 2002. The Company is
presently considering several financing alternatives and believes
the options available to it will be sufficient to finance the
Company and it's operations in the foreseeable future. Failure
to obtain alternative financing resources would materially impair
the Company's ability to finance sufficient sales of farm inputs
in order to continue operations under the normal course of business.
- 20 -
Quantitative and Qualitative Disclosures About Market Risk
At February 28, 2002, the Company had $187.6 million outstanding
in notes payable at an average variable interest rate of 3.64%.
The Company has an interest rate swap which effectively converts
$30 million of this variable rate debt to a fixed rate instrument.
The Company also has a building loan with a fixed rate of interest.
After considering the effect of the swap and the building loan,
the Company has floating rate debt of $151.9 million at a variable
interest rate of 2.38%. A 10% increase in the average variable
interest rate would increase interest expense by approximately
24 basis points. Assuming similar average outstanding borrowings
for Fiscal 2002 of $246 million, this would increase the Company's
interest expense by approximately $591,000.
The above sensitivity analysis is to provide information about the
Company's potential market risks as they pertain to an adverse change
in interest rates. The above analysis excludes the positive impact
that increased interest rates would have on financing income as more
than 95% of the Company's notes receivable are variable rate notes.
"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.
- 21 -
McGladrey & Pullen, LLP RSM
Certified Public Accountants and Consultants international
INDEPENDENT AUDITOR'S REPORT
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 28, 2002
and 2001, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years ended February 28, 2002,
February 28, 2001 and February 29, 2000. 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 auditing standards generally
accepted in the United States of America. 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 28 2002 and 2001,
and the results of their operations and their cash flows for the years
ended February 28, 2002, February 28, 2001 and February 29, 2000 in
conformity with accounting principles generally accepted in the United
States of America.
/s/ McGladrey & Pullen, LLP
Des Moines, Iowa
April 10, 2002, except for the fourth paragraph
of Note 3 as to which the date is May 28, 2002
- 22 -
AG SERVICES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
February 28, 2002 and February 28, 2001
(Dollars in Thousands)
ASSETS (Note 3) 2002 2001
----------- -----------
CURRENT ASSETS
Cash $42 $61
Customer notes receivable, less allowance for
doubtful notes and reserve for discounts
2002 $10,521; 2001 $7,960 (Notes 2 and 6) 202,981 167,554
Inventory and other assets 3,466 6,700
Foreclosed assets held for sale 2,314 1,881
Prepaid income taxes 735 --
Deferred income taxes, net (Note 5) 4,030 2,780
----------- -----------
Total current assets $213,568 $178,976
----------- -----------
LONG-TERM RECEIVABLES AND OTHER ASSETS
Customer notes receivable, less allowance
for doubtful notes 2002 $4,079; 2001 $3,490
(Note 2) $51,166 $37,844
Loan origination fees, less accumulated
amortization 2002 $513; 2001 $754 598 917
Deferred income taxes, net (Note 5) 2,335 1,290
----------- -----------
$54,099 $40,051
----------- -----------
PROPERTY AND EQUIPMENT
Land and building $5,316 $938
Equipment, less accumulated depreciation
2002 $1675; 2001 $1,487 818 1,275
----------- -----------
$6,134 $2,213
----------- -----------
$273,801 $221,240
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, inluding current maturities $179,736 $119,604
(Note 3)
Outstanding checks in excess of bank balances 10,723 3,934
Accounts payable 1,738 630
Accrued expenses, including due to officers
2002 $257; 2001 $591 2,233 2,457
Income taxes payable -- 270
----------- -----------
Total current liabilities $194,430 $126,895
----------- -----------
LONG-TERM LIABILITIES (Note 3) $7,904 $28,167
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3, 4 and 7)
STOCKHOLDERS' EQUITY (Note 3)
Capital stock, common, no par or stated value;
authorized 10,000,000 shares; issued 2002
5,468,864 shares; 2001 5,281,064 shares $24,396 $23,173
(Notes 6 and 8)
Retained earnings 48,481 43,005
Accumulated other comprehensive income(loss) (1,410) --
----------- -----------
$71,467 $66,178
----------- -----------
$273,801 $221,240
=========== ===========
See Notes to Consolidated Financial Statements.
- 23 -
AG SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended February 28, 2002, February 28, 2001, and February 29, 2000
(Dollars in Thousands, Except Per Share Amounts)
2002 2001 2000
----------- ----------- -----------
Net revenues:
Farm inputs $360,820 $313,792 $269,517
Financing income 26,536 31,861 25,067
----------- ----------- -----------
$387,356 $345,653 $294,584
----------- ----------- -----------
Cost of revenues:
Farm inputs $344,457 $297,489 $253,588
Financing expense 13,830 17,082 12,062
Provision doubtful notes (Note 2) 7,485 6,266 5,421
----------- ----------- -----------
$365,772 $320,837 $271,071
----------- ----------- -----------
$21,584 $24,816 $23,513
Operating expenses (Notes 4 and 7) 12,679 12,799 10,556
----------- ----------- -----------
Income from continuing
operations before income taxes $8,905 $12,017 $12,957
Income taxes (Note 5) 3,429 4,564 4,878
----------- ----------- -----------
Income from continuing operations $5,476 $7,453 $8,079
----------- ----------- -----------
Discontinued operations (Note 10):
(Loss) from operations, net $-- $-- ($176)
(Loss) on disposal of discontinued
operations, net -- -- (293)
----------- ----------- -----------
$-- $-- ($469)
----------- ----------- -----------
Net income $5,476 $7,453 $7,610
=========== =========== ===========
Earnings per share - Basic
(Notes 6 and 8):
Income from continuing operations $1.01 $1.41 $1.54
Discontinued operations -- -- ($0.09)
----------- ----------- -----------
Net income $1.01 $1.41 $1.45
=========== =========== ===========
Earnings per share - Diluted
(Notes 6 and 8):
Income from continuing operations $1.00 $1.36 $1.48
Discontinued operations -- -- ($0.08)
----------- ----------- -----------
Net income $1.00 $1.36 $1.40
=========== =========== ===========
Weighted average shares
(Notes 6 and 8):
Basic 5,415,104 5,271,069 5,232,895
=========== =========== ===========
Diluted 5,489,755 5,490,109 5,453,478
=========== =========== ===========
See Notes to Consolidated Financial Statements.
- 24 -
AG SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended February 28, 2002, February 28, 2001, and February 29, 2000
(Dollars in Thousands)
Capital Stock
-------------------
Accumulated
Other
Shares Retained Comprehensive Comprehensive
Issued Amount Earnings Income (Loss) Total Income
------------ ------------ ------------ ------------ ------------ ------------
Balance, February 28, 1999 5,212,604 $22,595 $27,942 $-- $50,537
Comprehensive income:
Net income -- -- 7,610 -- 7,610 $7,610
============
Issuance of capital stock
upon the exercise of
options (Note 6) 35,225 270 -- -- 270
Issuance 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
Comprehensive income:
Net income -- -- 7,453 -- 7,453 $7,453
============
Issuance of capital stock
upon exercise of
options (Note 6) 31,525 278 -- -- 278
Issuance of capital stock
under stock purchase plan
(Note 6) 500 11 -- -- 11
------------ ------------ ------------ ------------ ------------
Balance, February 28, 2001 5,281,064 $23,173 $43,005 $-- $66,178
Comprehensive income:
Net income -- -- 5,476 -- 5,476 5,476
Other comprehensive income
(loss), net of tax
Interest rate swap (Note 3):
Cumulative effect of the
change in accounting
principle -- -- -- (1,313) (1,313) (1,313)
Change for the year -- -- -- (97) (97) (97)
------------
Total comprehensive income $4,066
============
Issuance of capital stock
upon the exercise of
options (Note 6) 187,700 717 -- -- 717
Tax benefit from employee
stock options exercised -- 505 -- -- 505
Issuance of capital stock
under stock purchass plan
(Note 6) 100 1 -- -- 1
------------ ------------ ------------ ------------ ------------
Balance, February 28, 2002 5,468,864 $24,396 $48,481 ($1,410) $71,467
============ ============ ============ ============ ============
See Notes to Consolidated Financial Statements.
- 25 -
AG SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended February 28, 2002, and February 28, 2001 and February 29, 2000
(Dollars in Thousands)
2002 2001 2000
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $5,476 $7,453 $7,610
Adjustments to reconcile net income to
net cash (used in) operating activities:
Depreciation 486 485 504
Amortization 344 300 219
Deferred income taxes (1,470) (1,858) (690)
(Gain)loss on sale of equipment 149 (62) (10)
Loss on disposal of discontinued
operations, net -- -- 293
Change in assets and liabilities:
(Increase) in customer notes
receivable (50,104) (52,333) (25,867)
(Increase)decrease in inventory
and other assets 3,234 (1,837) 2,165
(Increase)decrease in prepaid and
income taxes payable (500) 1,192 (1,458)
Increase (decrease) in accounts
payable and accrued expenses 884 (456) (323)
----------- ----------- -----------
Net cash (used in) operating
activities ($41,501) ($47,116) ($17,557)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment $126 $224 $167
Purchase of building and equipment (4,682) (778) (726)
Proceeds from sale of foreclosed assets
held for sale 1,916 296 237
Purchase of foreclosed assets held
for sale (994) (810) (4,856)
----------- ----------- -----------
Net cash (used in) investing
activities ($3,634) ($1,068) ($5,178)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings $4,404 $31,450 $42,325
Principal payments on short-term
borrowings -- (49,350) (42,325)
Proceeds from long-term borrowings 362,572 288,663 231,556
Principal payments on long-term
borrowings (329,342) (216,382) (208,466)
Increase (decrease) in excess of
outstanding checks over bank balances 6,789 (5,900) (152)
Loan origination fees (25) (570) (514)
Proceeds from issuance of
capital stock, net (Note 6) 718 289 289
----------- ----------- -----------
Net cash provided by financing
activities $45,116 $48,200 $22,713
----------- ----------- -----------
Increase (decrease) in cash ($19) $16 ($22)
CASH
Beginning 61 45 67
----------- ----------- -----------
Ending $42 $61 $45
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest $13,415 $16,635 $12,203
Income taxes $5,399 $3,372 $6,760
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Deferred revenue on donated land -- $875 --
Customer notes receivable transferred
to foreclosed assets held for resale $1,355 $292 --
Foreclosed assets held for resale
transferred to customer notes
receivable -- -- $4,380
See Notes to Consolidated Financial Statements.
- 26 -
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 throughout the
United 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 subsidiaries,
Ag Acceptance Corporation and Powerfarm, Inc., which are 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
accounting principles generally accepted in the United States
of America 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 revenue from the sales of farm inputs such
as seed, fertilizer and agricultural chemicals upon delivery to the
customers and for cash advances for other farm inputs such as cash
rents, fuel, irrigation and custom application costs at the time
cash is advanced. Revenue from services, primarily program fees, are
recognized at estimated realizable amounts 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. During the three years ended February 28, 2002, 2001 and
February 29, 2000, the percentage of net revenues attributable to the
sale of seed, fertilizer, agricultural chemicals and other farm inputs,
- 27 -
including among others, cash rents, fuel, and irrigation was as follows.
2002 2001 2000
---------- ---------- ----------
Seed 14.8% 12.8% 13.7%
Fertilizer 11.3% 12.5% 12.9%
Chemicals 12.3% 14.0% 15.0%
Other farm inputs 54.8% 51.5% 50.0%
Financing 6.8% 9.2% 8.4%
---------- ---------- ----------
Total income 100.0% 100.0% 100.0%
========== ========== ==========
Financing 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 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 44%
Second quarter, June 1 to August 31 30%
Third quarter, September 1 to November 30 8%
Fourth quarter, December 1 to February 28 18%
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.
- 28 -
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.
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.
Property, equipment and depreciation:
Land, which is the land donated by the City of Cedar Falls, Iowa
is carried at $875, which is the estimated fair market value of
the land at the date of the grant. The corresponding deferred revenue
associated with the land donated to the Company is included in accrued
expenses and will be amortized by the straight-line method over the
estimated life of the building placed into service on February 11, 2002.
Building, primarily the office space constructed on the donated land
is carried at cost and is being depreciated using the straight-line
method over 40 years.
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:
The Company pays loan origination fees to lenders in connection
with its borrowing programs. These fees are deferred and amortized
using the straight-line method over the life of the respective loan
agreement.
- 29 -
Advertising costs:
The Company charges the costs of advertising to expense as incurred.
Advertising expense for the years ended February 28, 2002,
February 28, 2001 and February 29, 2000 was $663, $1,071 and $390,
respectively.
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:
The Company has 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 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, current 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 approximate fair value because these instruments bear
interest at approximate current rates offered to credit customers
and available to the Company for similar borrowings. The fair
value of the interest rate swap agreement discussed in Note 3 is
based on the market price provided by the commercial bank which
is counterparty to the agreement, and represents the amount the
Company would pay or receive to terminate the agreement.
- 30 -
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.
Adoption of FAS 133:
The Company adopted Statement of Financial Accounting Standards
No. 133 (FAS 133), Accounting for Derivative Instruments and
Hedging Activities, on March 1, 2001. In accordance with the
transition provisions of FAS 133, the Company recorded a net-of-tax
cumulative-effect-type adjustment of $1,313 in accumulated other
comprehensive income to recognize at fair value all derivatives
that are designated as cash-flow hedging instruments.
Derivative instruments and hedging activities:
All derivatives are recognized on the balance sheet at their fair
value. The Company uses derivative instruments solely in connection
with borrowings on their term debt. On the date the derivative
contract is entered into, the Company designates the derivative
as a hedge of a forecasted transaction or of the variability of cash
flows to be received or paid related to a recognized liability
("cash flow" hedge). Changes in the fair value of a derivative
that is highly effective, and that is designated and qualifies as
a cash-flow hedge, are recorded in other comprehensive income,
until earnings are affected by the variability of cash flows (e.g.,
when periodic settlements on a variable-rate liability are recorded
in earnings).
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective
and strategy for undertaking various hedged transactions. This
process includes linking all derivatives that are designated as
cash-flow hedges to specific assets and liabilities on the balance
sheet or to specific firm commitments or forecasted transactions.
- 31 -
The Company also formally assesses, both at the hedge's inception and
on an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in cash flows
of hedged items. When it is determined that a derivative is not highly
effective as a hedge or that it has ceased to be a highly effective hedge,
the Company discontinues hedge accounting prospectively.
- 32 -
Note 2. Customer Notes Receivable
Customer notes receivable consist of the following:
As of As of
February 28, February 28,
2002 2001
------------ ------------
Prior years $850 $1,962
1998 spring accounts 4,176 8,061
1999 spring accounts 10,712 15,372
2000 spring accounts 17,501 95,384
2001 spring accounts 107,125 75,288
2002 spring accounts 97,022 --
Intermediate accounts 31,361 20,781
-------- --------
$268,747 $216,848
Less reserve for discounts 5,100 4,150
Less allowance for doubtful notes 9,500 7,300
-------- --------
$254,147 $205,398
======== ========
The amount of principal and accrued and unpaid interest applicable
to the customer notes receivable were as follows:
As of As of
February 28, February 28,
2002 2001
------------ -----------
Principal $263,928 $211,767
Accrued interest 4,819 5,081
----------- -----------
Total $268,747 $216,848
=========== ===========
Accrued interest is primarily included on the balance sheet with
customer notes receivable.
Impaired (nonaccrual) customer notes receivable are summarized
as follows:
As of As of
February 28, February 28,
2002 2001
------------ -----------
Principal $25,417 $21,689
Accrued interest 812 890
----------- ------------
Total $26,229 $22,579
=========== ============
- 33 -
Allowance provided for impaired
(nonaccrual) notes, included
in allowance for doubtful
notes $4,216 $2,626
=========== ============
Average balance of impaired
(nonaccrual) customer notes
receivable outstanding
during fiscal year $29,134 $16,285
=========== ============
Number of customers 115 98
The Company collected and recorded $186, $118 and $91 of interest
income on impaired (nonaccrual) notes receivable during Fiscal
2002, 2001 and 2000, 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 January 15 for
north accounts and January 31 for south accounts ranging from 1% to 3%.
The notes bear interest from 8.0% to 10.5% for fixed rate notes and
from prime to 4.0% above the prime rate as listed in the Wall Street
Journal (currently 4.75% at February 28, 2002) 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 January 15 for north accounts and
January 31 for south accounts. The amount of customer notes receivable
that was past due at February 28, 2002, 2001 and 2000 was $140,364,
$120,779 and $84,046 respectively.
Changes in the allowance for doubtful notes are summarized as follows:
Year Ended Year Ended Year Ended
February 28, February 28, February 29,
2002 2001 2000
------------ ------------ ------------
Balance, beginning $7,300 $4,550 $3,695
Provision charged to
operating expense 7,485 6,266 5,432
Recoveries of
charged-off notes 756 515 155
Notes charged-off (6,041) (4,031) (4,732)
---------- --------- ---------
Balance, ending $9,500 $7,300 $4,550
========== ========= =========
- 34 -
The following table shows the Company's classification of its
customer notes receivable:
February 28, 2002
-----------------------------------------------------------------------------------
Sub-
Acceptable(1) Watch(2) standard(3) Doubtful(4) Loss(5) Total
------------- ------------- ------------- ------------- ------------- -------------
Prior Years $-- $164 $675 $11 $-- $850
1998 spring
accounts -- 1,174 2,413 589 -- 4,176
1999 spring
accounts 198 1,806 7,256 1,452 -- 10,712
2000 spring
accounts 5,859 3,773 3,346 4,523 -- 17,501
2001 spring
accounts 86,656 13,397 6,000 1,072 -- 107,125
------------- ------------- ------------- ------------- ------------- -------------
Total past
due $92,713 $20,314 $19,690 $7,647 $-- $140,364
------------- ------------- ------------- ------------- ------------- -------------
2002 spring
accounts $97,022 $-- $-- $-- $-- $97,022
Intermediate
accounts 25,383 2,496 3,334 148 -- 31,361
------------- ------------- ------------- ------------- ------------- -------------
$122,405 $2,496 $3,334 $148 $-- $128,383
------------- ------------- ------------- ------------- ------------- -------------
Total customer
notes
receivable $215,118 $22,810 $23,024 $7,795 $-- $268,747
============= ============= ============= ============= ============= =============
February 28, 2001
-----------------------------------------------------------------------------------
Sub-
Acceptable(1) Watch(2) standard(3) Doubtful(4) Loss(5) Total
------------- ------------- ------------- ------------- ------------- -------------
Prior Years $-- $-- $697 $-- $-- $697
1997 spring
accounts -- 28 1,033 204 -- 1,265
1998 spring
accounts -- 3,419 3,291 1,351 -- 8,061
1999 spring
accounts 2,294 4,553 8,259 266 -- 15,372
2000 spring
accounts 67,587 14,110 12,815 872 -- 95,384
------------- ------------- ------------- ------------- ------------- -------------
Total past
due $69,881 $22,110 $26,095 $2,693 $-- $120,779
------------- ------------- ------------- ------------- ------------- -------------
2001 spring
accounts $75,288 $-- $-- $-- $-- $75,288
Intermediate
accounts 15,546 1,340 3,895 -- -- 20,781
------------- ------------- ------------- ------------- ------------- -------------
$90,834 $1,340 $3,895 $-- $-- $96,069
------------- ------------- ------------- ------------- ------------- -------------
Total customer
notes
receivable $160,715 $23,450 $29,990 $2,693 $-- $216,848
============= ============= ============= ============= ============= =============
(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.
(2) A customer note receivable is classified by the Company as "watch"
if a customer account is secured by adequate collateral which may possibly
become impaired if not closely monitored by the Company. In addition,
certian of these accounts, while adequately collateralized, have required
an extended period of time to receivce 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
- 35 -
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.
- 36 -
Note 3. Pledged Assets and Related Debt
The Company entered into an asset backed securitized financing
program through November 2002, with a maximum available borrowing
amount of $375 million. Under the terms of the facility, the
Company sells and may continue to sell or contribute certain notes
receivable to Ag Acceptance Corporation ("Ag Acceptance", a wholly
owned, special purpose subsidiary of the Company. Ag Acceptance
pledges its interest in these notes receivable to a commercial paper
market conduit entity with respect to $305 million of the facility
that incurs interest at variable rates in the commercial paper market
(current effective rates range from 1.87% to 1.94% at February 28, 2002)
and the remaining $70 million is a three-year term note with interest
at a variable cost of LIBOR plus 25 basis points (current effective
rate is 2.10%). This program contains wind down provisions which call
for an orderly collection of the notes receivable and pay down of the
outstanding borrowings in the event the rogram is not fully paid prior
to maturity. At February 28, 2002 and February 28, 2001, the
Company had a maximum amount available under the asset backed
securitization financing program of approximately $6,933 and $2,506,
respectively, based on a borrowing base computation as provided by
the agreement. The total outstanding under the asset backed securitized
financing program at February 28, 2002 and February 28, 2001 was
$132,501 and $110,001, respectively.
The Company also has a $30 million term loan that matures in
November of 2002. Additional terms of the agreement allow for
two variable interest rate alternatives based on prime or LIBOR
(current effective rates range from 3.90% to 5.25% at February 28, 2002).
At February 28, 2002 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 November 2002. 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 3.90% to 5.25%
at February 28, 2002). The total outstanding under the revolving
line of credit at February 28, 2002 was $15,000.
All borrowings are collateralized by substantially all assets of
the Company. 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.
Advances under the agreements are also subject to portfolio
performance, financial covenant restrictions, and borrowing base
calculations. The Company was in violation of various covenants
at February 28, 2002; however, the note holders, by notice dated
May 28, 2002, have waived these violations.
- 37 -
The Company closed on a new financing agreement during December
of 2001. Under the terms of the agreement, the Company may
borrow up to $3.9 million, with a declining balance provision,
on a revolving line of credit through April 2022. This credit
agreement was used to finance construction costs of the Company's
new corporate headquarters at a fixed interest rate of 5.74% for
five years. The agreement also contains various restrictive
financial covenants.
In February 2002, three executive officers of the Company,
who are also the original founders of the Company, loaned an
aggregate $4,404 to the Company, due on March 31, 2003. The
Company makes monthly interest payments to these officers at
a variable interest rate of 0.5% below the prime rate (current
effective rate is 4.25% at February 28, 2002). These notes are
unsecured.
The Company maintains an interest-rate risk-management strategy
that uses derivative instruments to minimize significant,
unanticipated earnings fluctuations caused by interest-rate
volatility. The Company's specific goal is to lower (where
possible) the cost of its borrowed funds.
In July 2000, the Company entered into an interest rate swap
agreement related to their $30 million term note. The swap
is utilized to manage interest rate exposures and is designated
as a highly effective cash flow hedge. The differential to be
paid or received on the swap agreement is accrued as interest
rates change and is recognized over the lives of the agreements
in interest expense. The swap agreement is a variable receive/
fixed pay swap which expires in July, 2005 and has the effect of
converting the interest rate paid on the $30 million term note
to a fixed rate of 9.78%. The notional amount at inception was
$30 million and will decrease by $7.5 million annually in each
July 2002, 2003, 2004 and 2005. Included in other comprehensive
income is a loss of approximately $1,410 relating to the fair
value of the swap agreement as of February 28, 2002. As this
instrument ages toward maturity and/or the interest rates
increase, the loss will be reclassified from accumulated other
comprehensive income into earnings. As of February 28, 2002,
the amount of net deferred losses in accumulated other
comprehensive income which will be reclassified into earnings
during the next twelve months is an amount which, when added
to the cash interest payments on the $30 million term note,
will result in interest expense on the term note of 9.78%.
- 38 -
Total amounts outstanding under all above agreements are summarized below:
As of As of
February 28, February 28,
2002 2001
------------ ------------
Asset backed securitization
financing program $132,501 $110,001
$15 million revolving
line of credit 15,000 7,770
$30 million term loan 30,000 30,000
Building line of credit 3,500 --
Loans from executive officers 4,404 --
Interest rate swap 2,235 --
------------ ------------
Total debt $187,640 $147,771
Less current maturities 179,736 119,604
------------ ------------
Long-term debt liabilities $7,904 $28,167
============ ============
The Company's current securitized financing program, term note
and revolving line of credit expire in November 2002. The
Company is presently considering several financing alternatives
and believes the options available to it will be sufficient to
finance the Company and it's operations in the foreseeable future.
Failure to obtain alternative financing resources would materially
impair the Company's ability to finance sufficient sales of farm
inputs in order to continue operations under the normal course of
business.
- 39 -
Note 4. Commitments and Contingencies
Commitments
In the normal course of business, the Company makes various
commitments that are not reflected in the accompanying
financial statements. These include various commitments
to supply farm inputs to customers. At February 28, 2002,
February 28, 2001 and February 29, 2000, the Company had
approximately $152,763, $120,446 and $91,182 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 insurance program and is
likely to review the program in the future, but there can
be no assurance of the outcome of such evaluations.
- 40 -
Note 5. Income Taxes
Net deferred tax assets consist of the following components:
As of As of
February 28, February 28,
2002 2001
------------ ------------
Deferred tax assets:
Allowance for doubtful notes $3,515 $2,700
Deferred revenue 324 324
Reserve for discounts 1,887 1,535
Interest rate swap contract 825 --
Accrued vacations 138 111
------------ ------------
$6,689 $4,670
------------ ------------
Deferred tax liabilities:
Property and equipment $324 $324
Customer notes receivable -- 276
------------ ------------
$324 $600
------------ ------------
$6,365 $4,070
============ ============
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheet as follows:
As of As of
February 28, February 28,
2002 2001
------------ ------------
Current assets $4,030 $2,780
Noncurrent assets 2,335 1,290
------------ ------------
$6,365 $4,070
============ ============
Income tax expense from continuing operations is made up of
the following components:
Year Ended Year Ended Year Ended
February 28, February 28, February 29,
2002 2001 2000
------------- ------------ ------------
Current tax expense:
Federal $4,328 $5,662 $4,876
State 571 760 692
----------- ----------- -----------
$4,899 $6,422 $5,568
Deferred tax expense (1,470) (1,858) (690)
----------- ----------- -----------
$3,429 $4,564 $4,878
=========== =========== ===========
Total reported tax expense from continuing operations applicable
to the Company's 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 28, February 28, February 29,
2002 2001 2000
------------ ------------ ------------
Federal statutory rate 35.0% 35.0% 35.0%
State tax expense 5.0% 4.5% 5.3%
Other, net (1.2%) (1.5%) (2.7%)
----------- ----------- -----------
Effective tax rate 38.5% 38.0% 37.6%
=========== =========== ===========
- 41 -
Note 6. Employee Stock Plans and Capital Stock
At February 28, 2002, 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:
2002 2001 2000
------------ ------------ ------------
Reported:
Net income
Continuing operations $5,476 $7,453 $8,079
Discontinued operations -- -- (469)
------------ ------------ ------------
Net income $5,476 $7,453 $7,610
============ ============ ============
Basic earnings per share
Continuing operations $1.01 $1.41 $1.54
Discontinued operations -- -- (0.09)
------------ ------------ ------------
Net income $1.01 $1.41 $1.45
============ ============ ============
Diluted earnings per share
Continuing operations $1.00 $1.36 $1.48
Discontinued operations -- -- (0.08)
------------ ------------ ------------
Net income $1.00 $1.36 $1.40
============ ============ ============
Pro Forma:
Net income
Continuing operations $5,008 $7,021 $7,766
Discontinued operations -- -- (469)
------------ ------------ ------------
Net income $5,008 $7,021 $7,297
============ ============ ============
Basic earnings per share
Continuing operations $0.92 $1.33 $1.48
Discontinued operations -- -- (0.09)
------------ ------------ ------------
Net income $0.92 $1.33 $1.39
============ ============ ============
Diluted earnings per share
Continuing operations $0.91 $1.28 $1.42
Discontinued operations -- -- (0.08)
------------ ------------ ------------
Net income $0.91 $1.28 $1.34
============ ============ ============
- 42 -
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 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. No additional options may be granted under this plan
subsequent to the plan's termination date of May 21, 2001. The
termination does not effect any options outstanding on the termination
date.
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. On August 21, 2000, the stockholders of the Company
- 43 -
approved a proposal to amend its "1993 Stock Option Plan" to
increase the maximum number of shares issuable from 400,000
shares to 700,000 shares. The other provisions of the 1993
Stock Option Plan remained the same as previously discussed
above. At February 28, 2002 and 2001, the total shares available
for future grant under the 1991 and 1993 plans, combined, were
230,675 and 258,525 shares, respectively.
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 2002, 2001,
and 2000, respectively: risk-free interest rates of 5.2%, 4.7%,
and 6.2%; expected lives of 7 for all years; price volatility
of 39.5%, 33.9%, and 27.1% 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, 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
Granted 98,800 $16.02
Excercised (31,525) $8.83
Canceled (22,750) $17.85
--------------- ---------------
Balance at February 28, 2001 509,190 $10.24
Granted 20,200 $11.72
Excercised (187,700) $3.82
Canceled (7,700) $16.11
--------------- ---------------
Balance at February 28, 2002 333,990 $13.80
=============== ===============
Number of Options
---------------------------------
2002 2001 2000
-------- -------- --------
Exercisable, end of year 229,665 363,565 360,190
======== ======== ========
Weighted-average fair value
per option of options
granted during the year $5.86 $7.04 $8.54
======== ======== ========
Options are exercisable over varying periods ending on
February 28, 2012.
- 44 -
A further summary of the fixed options outstanding at February 28, 2002
is as follows:
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
- --------------- ----------- ----------- --------- ----------- -----------
$5.63 to $7.75 24,830 2.49 $6.71 24,830 $6.71
$8.75 to $9.88 79,260 2.46 $9.36 79,260 $9.36
$10.30 to $16.00 81,000 7.99 $13.07 29,854 $13.40
$16.31 to $24.75 148,900 7.20 $17.74 95,721 $17.66
----------- ---------- --------- ----------- -----------
333,990 5.92 $13.80 229,665 $13.06
=========== ========== ========= =========== ===========
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. During the years ended
February 28, 2002, 2001 and 2000, 100, 500, and 1,210 shares,
respectively, were purchased under this plan.
In total, 478,780 shares of Common Stock are reserved for
issuance under the plans discussed above.
- 45 -
Note 7. Employee Benefits
The Company has contractual employment and noncompetition
agreements through July 1, 2003 with its three top officers
who are also directors of the Company. Each agreement provides
for (i) a base salary adjustable annually, (ii) payment of an
annual bonus based upon diluted EPS, (iii) $250 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 28, 2002 and 2001 and February 29, 2000 was $75,
$375 and $620, 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 Wells
Fargo 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 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 28, 2002 and 2001 and February
29, 2000, $128, $129 and $110, respectively, was contributed
to employee accounts including $35, $35 and $22, respectively,
contributed to the accounts of the Company's executive officers.
Effective May 31, 2000, the Company established a Management
Bonus Program. The Company pays bonuses to all eligible
management employees based upon the diluted earnings per share
growth of the Company. The total amount of bonus compensation
charged to expense for the years ended February 28, 2002 and 2001
was none and $83, respectively.
The Company also has 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 28, 2002 and 2001 and February
29, 2000 was none, none and $95, respectively, including none,
none and $9, respectively, was paid to the Company's executive
officers.
- 46 -
Note 8. Earnings Per Share
Basic and diluted earnings per share are calculated as follows:
Year Ended Year Ended Year Ended
February 28, February 28, February 29,
2002 2001 2000
------------ ------------ ------------
Net income available to
shareholders:
Income from continuing operations $5,476 $7,453 $8,079
Discontinued operations -- -- (469)
------------ ------------- -----------
Net income available to
stockholders $5,476 $7,453 $7,610
============ ============ ============
Earnings per share:
Weighted average shares
outstanding - basic 5,415,104 5,271,069 5,232,895
============ ============ ============
Basic earnings per share:
Income from continuing operations $1.01 $1.41 $1.54
Discontinued operations -- -- (0.09)
------------ ------------- -----------
Basic earnings per share $1.01 $1.41 $1.45
============ ============ ============
Diluted earnings per share:
Weighted average shares
outstanding - basic 5,415,104 5,271,069 5,232,895
Effect of dilutive securities:
Employee stock options 74,651 219,040 220,583
------------ ------------ ------------
Weighted average shares -
diluted 5,489,755 5,490,109 5,453,478
============ ============ ============
Diluted earnings per share:
Income from continuing operations $1.00 $1.36 $1.48
Discontinued operations -- -- (0.08)
------------ ------------ ------------
Diluted earnings per share $1.00 $1.36 $1.40
============ ============ ============
At February 28, 2002, 2001 and 2000, respectively, 185,900, 31,300,
and 103,000 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.
- 47 -
Note 9. Customer Credit Operations
Customer credit operations were as follows:
Year Ended Year Ended Year Ended
February 28, February 28, February 29,
2002 2001 2000
------------ ------------ ------------
Financing income $26,536 $31,861 $25,067
------------ ------------ ------------
Direct costs:
Financing expense $13,830 $17,082 $12,062
Payroll and related costs 3,749 3,028 2,885
Credit report services 50 52 62
Legal fees 898 944 481
Provision for doubtful
notes 7,485 6,266 5,421
------------- ------------ -----------
Total direct costs $26,012 $27,372 $20,911
------------- ------------ -----------
Net financing income $524 $4,489 $4,156
============= ============ ===========
The above results do not reflect any allocation of corporate
overhead expenses.
- 48 -
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 reduced the value of the assets of the retail
service centers to their estimated fair market value.
Loss from discontinued operations:
2002 2001 2000
---------- ---------- ----------
Net revenues $-- $-- $1,376
---------- ---------- ----------
Cost of revenues $-- $-- $1,185
Operating expenses -- -- 633
Income taxes -- -- (266)
---------- ---------- ----------
$-- $-- $1,522
---------- ---------- ----------
Loss from discontinued operations $-- $-- ($176)
========== ========== ==========
Loss on disposal of discontinued
operations, net $-- $-- ($293)
========== ========== ==========
- 49 -
Note 11. Selected Quarterly Financial Data (Unaudited)
First Second Third Fourth
Fiscal 2002 Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------
Net revenues $164,160 $110,310 $25,104 $87,782
Cost of revenue $157,841 $103,699 $20,041 $84,191
Gross profit $6,319 $6,611 $5,063 $3,591
Net income $1,834 $2,025 $1,297 $320
Basic earnings per share $0.35 $0.37 $0.24 $0.06
Diluted earnings per share $0.34 $0.37 $0.24 $0.06
First Second Third Fourth
Fiscal 2001 Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------
Net revenues $155,801 $103,530 $23,626 $62,696
Cost of revenue $147,722 $96,045 $18,917 $58,153
Gross profit $8,080 $7,485 $4,709 $4,542
Net income $3,124 $2,733 $998 $598
Basic earnings per share $0.59 $0.52 $0.19 $0.11
Diluted earnings per share $0.57 $0.50 $0.18 $0.11
- 50 -
BOARD OF DIRECTORS
Gaylen D. Miller Chairman of the Board
Ag Services of America, Inc.
Henry C. Jungling, Jr. 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
Gaylen D. Miller Chairman of the Board
Henry C. Jungling, Jr. President and
Chief Executive Officer
Kevin D. Schipper Chief Operating Officer and
Secretary
Shawn R. Smeins Executive Vice President - Operations
John T. Roth Vice President Finance
Todd J. Ryan Vice President Sales and Marketing
Eunice M. Schipper Vice President Account Management
Neil H. Stadlman Vice President Credit Administration
Lisa Meester Vice President Information Systems
Bruce Nelson Vice President Collections
Jamey Ross Vice President Products and
Distribution
Linda Kobliska General Counsel
Matt Cory Vice President Information Systems -
Powerfarm, Inc.
Tad Mozena Vice President Marketing and Public Relations -
Powerfarm, Inc.
- 51 -
CORPORATE DATA
Annual Meeting
All shareholders are welcome to attend our annual meeting, which
will be held at 9:00 a.m. on Wednesday, July 31, 2002, at the
Company's corporate headquarters. Any shareholders who will be
unable to attend are encouraged to send questions and comments in
writing, to John T. Roth, Vice President Finance, 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 28, 2002, there were 5,468,864 shares of common
stock outstanding. At that date, there were 127 shareholders of
record and approximately 2,600 shareholders for whom securities
firms acted as nominees.
Transfer Agent
Wells Fargo 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 28, 2002, may do so
by writing John T. Roth, Vice President Finance, at our 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:
Gaylen Miller
Chairman of the Board
(319) 277-0261
E-mail: gaylen.miller@agservices.com
- 52 -
Corporate Headquarters
1309 Technology Parkway
P.O. Box 668
Cedar Falls, IA 50613
(319) 277-0261
Independent Public Accountants
McGladrey & Pullen, LLP
400 Locust Street, Suite 640
Des Moines, IA 50309
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.
- 53 -
AMENDMENT NO. 4 AND WAIVER
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
THIS AMENDMENT NO. 4 AND WAIVER TO MASTER TRUST INDENTURE
AND SECURITY AGREEMENT dated as of March 20, 2002 (this "Amendment")
is entered into by and among AG ACCEPTANCE CORPORATION, as Issuer
(the "Issuer"), AG SERVICES OF AMERICA, INC., as Servicer
(the "Servicer"), U.S. BANK, N.A., as Trustee (d/b/a FIRSTAR BANK,
N.A., as Trustee) (the "Trustee") and MBIA INSURANCE CORPORATION,
as the Insurer (the "Insurer"). Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to
such terms in the Indenture (as defined below and amended hereby).
WHEREAS, the Issuer, the Servicer, the Trustee and the Insurer
have entered into that certain Master Trust Indenture and Security
Agreement, dated as of June 23, 1999 (as amended, restated,
supplemented or otherwise modified from time to time, the
"Indenture"); and
WHEREAS, the Issuer, the Servicer, the Trustee and the Insurer
have agreed to amend the Indenture as hereinafter set forth; and
WHEREAS, pursuant to a letter dated February 11, 2002, the
Issuer has requested that the Insurer waive any noncompliance
with the Indenture resulting solely from (a) the Servicer Default
described in the Originator's letter to the Insurer dated
February 11, 2002 and (b) the Event of Default described in
the Issuer's letter to the Insurer dated February 11, 2002
(such letters referred to hereinafter as the "Default Notices"),
and the Insurer has agreed, in its capacity as Control Party,
to waive such noncompliance subject to the terms and conditions
hereinafter set forth;
NOW THEREFORE, in consideration of the premises and other
mutual covenants contained herein, the parties hereto agree
as follows:
SECTION 1. Amendments. The Indenture is hereby amended
as follows, such amendment to be effective as of the date set
forth in Section 3 hereof, and subject to the satisfaction of
the conditions precedent set forth in Section 3 hereof:
1.1 The Indenture is hereby amended to delete the defined
terms "Intermediate Loan Concentration Limit Excess",
"Scheduled Wind Down Date", "Seed Loan Concentration Limit Excess"
and "Servicing Officer" from Section 1.01 of the Indenture and
to substitute the following therefor:
"Intermediate Loan Concentration Limit Excess" means,
at any time, the amount (if any) by which the aggregate
outstanding Principal Balances of Eligible Advances
- 1 -
included in Pledged Assets in respect of Intermediate Loans,
exceeds the Intermediate Loan Concentration Limit at such time.
"Scheduled Wind Down Date" means, the Distribution Date
occurring in November, 2002, as such date may from time to
time be extended pursuant to Section 12.01 hereof; provided
that on the Distribution Date occurring in November, 2002, the
Scheduled Wind Down Date shall automatically be extended to
the Distribution Date occurring in November, 2003 if (i) the
Consolidated Capital Requirement shall be satisfied on June
30, 2002 and each day thereafter and (ii) no Amortization Date,
Wind Down Date, Event of Default or Unmatured Event of Default
shall have occurred and be continuing on such date.
"Seed Loan Concentration Limit Excess" means, at any time,
the amount (if any) by which the aggregate outstanding
Principal Balances of Eligible Advances included in Pledged
Assets in respect of Seed Loans, exceeds the Seed Loan
Concentration Limit at such time.
"Servicing Officer" means any officer, employee or other
agent of the Servicer who in any case is involved in, or
responsible for, the administration and servicing of the
Loans and whose name appears on a list of servicing officers
furnished to the Trustee by the Servicer, as such list may
from time to time be amended; provided however, that with
respect to any certification made in connection with any
Servicer's Daily Report, Monthly Report or Semi-Monthly
Cash Flow Report, "Servicing Officer" shall mean only Hank
Jungling, Gaylen Miller or Kevin Schipper.
1.2 The Indenture is hereby amended to add the
following defined terms to Section 1.01 of the Indenture
in the proper alphabetical order:
"Consolidated Capital" means with respect to the
Originator and its consolidated Subsidiaries, as of
any date of determination, an amount equal to the sum
of (a) consolidated shareholders' equity, plus
(b) Qualifying Long Term Debt, minus (c) any intangible
assets of the Originator and its consolidated Subsidiaries,
all determined in accordance with Agreement Accounting
Principles.
"Consolidated Capital Requirement" means, as of June
30, 2002, and as of the end of any calendar month thereafter,
Consolidated Capital shall equal or exceed an amount equal
to the sum of $162,200,000 plus 100% of cumulative
Consolidated Net Income (if positive) earned after the
calendar month ended February 28, 2002.
"Intermediate Loan Concentration Limit" means, at any
time, the product of (i) 3.5% and (ii) the Greatest Amount
of Eligible Advances at such time.
"Qualifying Long Term Debt" means long term debt of
the Originator under the Originator Credit Agreement and
any other long term debt or preferred stock of the
Originator; provided that none of (a) the principal
portion of any such debt which is payable within one year
of such date of determination and (b) any portion such
preferred stock which has a redemption date within one
year (or which allows the holder thereof the
- 2 -
option to require redemption within one year) of
such date of determination, shall be included in the
computation of Qualifying Long Term Debt.
"Seed Loan Concentration Limit" means, at any time,
the product of (i) 3.5% and (ii) the Greatest Amount
of Eligible Advances at such time.
"Semi-Monthly Cash Flow Report" has the meaning
specified in Section 3.04(g)(x).
1.3 The Indenture is hereby amended to delete
clause (xi) from defined term "Eligible Advance"
contained in Section 1.01 of the Indenture and to
substitute the following therefor:
(xi) prior to the Distribution Date occurring
in November, 2002, (A) which with respect to any Crop
Loan or any Seed Loan, is due in a single installment
of principal and interest and is payable in full by
no later than (I) the applicable Due Date in January,
2003 with respect to any such Crop Loan, or (II) the
applicable Due Date in December, 2002 with respect to
any such Seed Loan, and (B) with respect to any
Intermediate Loan, is due in installments of principal
and interest to be made not less than annually each
calendar year and is payable in full by no later than
the applicable Due Date in November, 2007 for the
applicable Intermediate Loan; and
thereafter, (X) which with respect to any Crop
Loan or any Seed Loan, is due in a single installment
of principal and interest and is payable in full by
no later than (I) the applicable Due Date in January,
2004 with respect to any such Crop Loan, or (II) the
applicable Due Date in December, 2003 with respect to
any such Seed Loan, and (Y) with respect to any
Intermediate Loan, is due in installments of principal
and interest to be made not less than annually each
calendar year and is payable in full by no later than
the applicable Due Date in November, 2008 for the
applicable Intermediate Loan;
1.4 The Indenture is hereby amended to delete
Section 2.05(c) of the Indenture and to substitute
the following therefor:
(c) Audits. The Issuer will, at any time and
from time to time during regular business hours,
permit the Insurer, so long as the Insurer is the
Control Party, and otherwise the Trustee (the
"Audit Control Party"), or its agents or representatives,
(i) access to the offices and properties of the
Issuer (including, without limitation, any repository
used by the Issuer, or the Servicer on the Issuer's behalf,
to store the computer tapes or other computer records
constituting the Servicer's Daily Report), in order to
examine and make copies of and abstracts from all books,
correspondence and Records of the Issuer as appropriate
to verify the Issuer's compliance with this Indenture,
the Purchase and Contribution Agreement, any other
Transaction Documents to which it is a party and any
other agreement contemplated hereby or thereby, and
the Audit Control Party and/or respective agents and
representatives may examine and audit the same, and
make photocopies and computer tape or other computer
replicas thereof (as appropriate), and Issuer agrees to
render to the Audit Control Party and/or its agents and
- 3 -
representatives, at Issuer's cost and expense, such
clerical and other assistance as may be reasonably
requested with regard thereto;
(ii) access to the officers or employees
of the Issuer in order to discuss matters relating
to the Pledged Assets or the Issuer's performance
hereunder with any of the officers or employees of
the Issuer having knowledge of such matters; and
(iii) from and after the last day of the
Revolving Period for any Series of Notes, to have
its agents and/or representatives present in the
offices of the Issuer to observe the opening of
all mail of the Issuer, and to monitor the receipt
of all Collections and the making of all disbursements
by the Issuer.
The number and frequency of any such audits shall
be limited to such number and frequency as the
Audit Control Party may deem reasonable in its
sole discretion. Each such audit shall be the joint
and several obligation of the Issuer and the Originator.
The Audit Control Party and its agents and
representatives shall also have the right to discuss
the Issuer's affairs with the officers and employees
of the Issuer and Issuer's independent accountants and
to verify under appropriate procedures the validity,
amount, quality, quantity, value and condition of, or
any other matter relating to, the Pledged Assets.
1.5 The Indenture is hereby amended to delete
clause (iii) from Section 3.04(g) of the Indenture
and to substitute the following therefor:
(iii) Certificate of Servicing Officer.
Simultaneously with the delivery of any Servicer's
Daily Report, Monthly Report and Semi-Monthly Cash
Flow Report, as contemplated in the form thereof, a
certificate of a Servicing Officer, certifying the
accuracy of such report and that no Event of Default
or Unmatured Event of Default has occurred, or if such
event has occurred and is continuing, specifying the
event and its status.
1.6 The Indenture is hereby amended to add the
following clause (x) to Section 3.04(g) of the Indenture:
(x) Semi-Monthly Cash Flow Reports. On the first and
sixteenth calendar day of each month (or if such calendar
day is not a Business Day, the immediately preceding
Business Day), commencing with April 1, 2002, a report
substantially in the form of Exhibit H (each such report
being referred to herein as a "Semi-Monthly Cash Flow Report"),
appropriately filled-out, setting forth, among other things,
projected cash receipts and disbursements for the immediately
succeeding six (6) semi-monthly periods. Any transmission of
such report to the Trustee or the Insurer shall be deemed to
be a representation and warranty by the Servicer to the Trustee,
the Insurer and the Noteholders that the information contained
therein is true and correct in all material respects.
1.7 The Indenture is hereby amended to add the
following clause (o) to Section 3.04 of the Indenture:
- 4 -
(o) Semi-Monthly File of Pledged Assets.
On the fifteenth and last calendar day of each month
(or if such calendar day is not a Business Day, the immediately
preceding Business Day), commencing with March 31, 2002, the
Servicer shall deliver to the Insurer and the Trustee a computer
tape or disk in a format to be agreed upon by the Servicer,
the Trustee and the Insurer, setting forth with respect to each
Acquired Asset, the detail of certain information required to be
set forth in the Monthly Report, including, without limitation,
the year and type of Loan, the Loan number, the Obligor's name,
the outstanding principal balance of the Loan, the Loan limit
and the outstanding principal balance of the Eligible Advances
in respect of such Loan. Any transmission of such information to
the Trustee or the Insurer shall be deemed to be a representation
and warranty by the Servicer to the Trustee, the Insurer and the
Noteholders that the information contained therein is true and
correct in all material respects.
1.8 The Indenture is hereby amended to delete from
and including clause Fourth from Section 4.03(d) through
the end of such Section of the Indenture and to substitute
the following therefor:
Fourth, to the Insurer for the payment of Insurance Obligations
and any other accrued and unpaid fees, costs, expenses or
other obligations owed to the Insurer under this Indenture,
any Supplement, the Master Insurance Agreement or any Trust
Insurance Policy.
Fifth, to be deposited to the Trustee's own account, any
Series Account or otherwise paid to any Successor Servicer
or to the Insurer for the payment of any accrued and unpaid
fees, costs, expenses or other obligations (including prepayment
premiums, if applicable) or Insurance Obligations owed to such
Persons under this Indenture, any Supplement, the Master
Insurance Agreement or any Trust Insurance Policy.
(iv) If, on any Business Day during the Wind Down Period,
the amount of funds on deposit in the Collection Account and
available for allocation under any of clauses First, Third
or Fifth above is less than the amount of the obligations
described in such clause, then the available Collections
shall be allocated by the Servicer pro rata for distribution
to the Persons to whom such amounts are owed according to
the respective amounts of such obligations held by such
Persons. All obligations in lower priority categories shall
remain unsatisfied until the obligations in the preceding
category have been satisfied.
After the payment in full of all amounts described
above in priority categories First through Fifth, all
remaining funds received or held in the Collection Account
and/or any of the other Trust Accounts shall be remitted
to the Issuer.
Collections and other funds distributed for the
benefit of Noteholders of any Series pursuant to this
Section 4.03(d) will be deposited and distributed as
specified in the related Supplement, and amounts so
allocated to any Series will not, except as specified in
the related Supplement, be available to the Noteholders
of any other Series.
1.9 The Indenture is hereby amended to delete
clause (p) from Section 9.01 of the Indenture and to
substitute the following therefor:
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(p)(i) the Originator's Consolidated Pre-Tax Margin
shall be less than 2.1% as of the end of the fiscal quarters
ended May 31, 2002, August 31, 2002, November 30, 2002 or
February 28, 2003, or less than 3.0% as of the end of any
fiscal quarter thereafter;
(ii) as of the end of any fiscal quarter from and after
the fiscal quarter ended February 29, 2000, the Originator's
Consolidated Net Worth shall be less than an amount equal to
the sum of $50,000,000 plus 75% of cumulative Consolidated Net
Income (if positive) earned after the fiscal quarter ended
February 29, 2000;
(iii) on October 31, 2002, and as of the end of any
calendar month thereafter, the Consolidated Capital shall
be less than an amount equal to the sum of $162,200,000
plus 100% of cumulative Consolidated Net Income (if positive)
earned after the calendar month ended February 28, 2002; or
1.10 Section 9.01 of the Indenture is hereby amended to
delete the first clause (t) in its entirety and to substitute
the following therefor:
(t) the Originator shall fail to achieve a Fixed Charge
Coverage Ratio of at least (i) 1.75 to 1.00 as of the end
of the four-Fiscal Quarter period ended May 31, 2002 and as
of the end of the four-Fiscal Quarter period ended August
31, 2002, (ii) 1.70 to 1.00 as of the end of the four-Fiscal
Quarter period ended November 30, 2002 and as of the end
of the four-Fiscal Quarter period ended February 28, 2003
and (iii) 1.75 to 1.00 as of the end of any Fiscal Quarter
thereafter for the four-Fiscal Quarter period then ended; or
1.11 Section 9.01 of the Indenture is hereby amended
to re-letter the second clause (t) of Section 9.01 as
clause (v) as follows:
(v) the Originator shall fail to have at least $20,000,000
of Qualifying Long Term Debt;
1.12 Section 9.01 of the Indenture is hereby amended to
(i) add the following clause (w) immediately after such
clause (v) and (ii) delete the paragraph at the end of
Section 9.01 and to substitute the following therefor:
(w) without the prior written consent of the Control Party,
any shareholder of the Originator shall demand or receive any
repayment of principal in respect of any loan made by such
shareholder to the Originator;
then, in the case of any such event, the Insurer, so long
as no Insurer Default has occurred and is continuing, otherwise,
the Trustee (unless otherwise directed by the Majority
Noteholders), or the Majority Noteholders, by notice given
in writing to the Issuer and the Servicer (and to the Trustee
if such notice is given by the Control Party), may declare
(provided such event shall not have been remedied or waived
by the Control Party) that such event is an event of default
(an "Event of Default", and may also declare that (x) the
date of such notice (or such other date specified therein)
shall be the Wind Down Date and (y) the Notes shall become
immediately due and payable on the date of
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such notice (or on such other date specified therein);
provided that, in the case of any event described in
clause (g), the Wind Down Date shall automatically occur,
and the Notes and all other Secured Obligations shall
immediately and automatically become due and payable, in
each case, without any notice or other action on the part
of the Trustee or the Control Party, immediately upon the
occurrence of such event; provided further that, in the
case of any event described in clause (s), the Wind Down
Date shall occur only upon declaration by the Trustee at
the direction of the Majority Noteholders. Promptly and
in any event within one Business Day after the Servicer
becomes aware of any Event of Default, the Servicer shall
notify the Trustee and the Insurer of the occurrence of
such Event of Default.
1.13 The Indenture is hereby amended to add
Exhibit H attached hereto as Exhibit H to the Indenture.
SECTION 2. Waiver. Effective as of the Amendment
Effective Date, subject to the satisfaction of the
conditions precedent set forth in Section 3 hereof, the
Insurer in its capacity as the Control Party, and pursuant
to the rights granted to the Control Party pursuant to
Section 10.01 of the Indenture, hereby waives the Issuer'
noncompliance, if any, with the Indenture, solely as a
result of the occurrence of those certain Events of Default
and Servicer Defaults described in Default Notices.
SECTION 3. Amendment Effective Date. This Amendment
shall become effective as of the date (the "Amendment
Effective Date") on which each of the following conditions
precedent shall have been satisfied:
(a) each of the Issuer, the Servicer, the Trustee
and the Insurer shall have received a copy of this
Amendment duly executed by each of the parties hereto;
(b)either (i) the Noteholder's Consents attached to
this Amendment shall have been duly executed and delivered
by the Majority Noteholders; or (ii) with respect to each
Rating Agency, the Rating Agency Condition shall have been
satisfied with respect thereto; and
(c) the Insurer shall have received a copy of the
amended Fee Agreement, duly executed by the Issuer.
SECTION 4. Covenants, Representations and Warranties
of the Issuer and the Servicer.
4.1 Upon the effectiveness of this Amendment,
(i) each of the Issuer and the Servicer hereby reaffirms
all representations and warranties made by it in the
Indenture as amended hereby (except for those representations
and warranties that relate to a specific date) and agrees
that all such covenants, representations and warranties shall
be deemed to have been remade as of the effective date of
this Amendment (except for those representations and
warranties that relate to a specific date) and (ii) each
of the Issuer and the Servicer hereby represents and warrants
that (x) no Asset Deficiency is continuing and (y) after
giving effect to the waiver set forth in Section 2 hereof,
no Event of Default or event or circumstance which,
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with the giving of notice or the passage of time, or both,
would constitute an Event of Default shall have occurred
and be continuing.
4.2 Each of the Issuer and the Servicer represents
and warrants that this Amendment constitutes a legal, valid
and binding obligation of such party, enforceable against it
in accordance with its terms.
4. In consideration for the execution of this
Amendment by the Insurer and the Trustee, and the execution
by the Noteholders of their respective consent to this
Amendment, each of the Issuer and the Servicer hereby waives
each and every claim, defense, demand, action and suit of
any kind or nature whatsoever against each of the Insurer,
Trustee, Noteholder and each of their respective directors,
officers, shareholders, employees and agents arising on or
prior to the date hereof in connection with the Indenture, any
of the other Transaction Documents and the transactions
contemplated thereby.
SECTION 5. Reference to and Effect on the Indenture
and the Transaction Documents.
5.1 As of the Amendment Effective Date, each
reference in the Indenture to "this Indenture", "hereunder",
"hereof", "herein", or words of like import shall mean and
be a reference to the Indenture as amended hereby, and each
reference to the Indenture in any other Transaction Document,
instrument or agreement executed and/or delivered in
connection with the Indenture shall mean and be a reference
to the Indenture as amended hereby.
5.2 Except as specifically amended above and in
connection herewith, the Indenture and all other documents,
instruments and agreements executed and/or delivered in
connection therewith shall remain in full force and effect
and are hereby ratified and confirmed.
5.3 The execution, delivery and effectiveness of
this Amendment shall not operate as a waiver of any right,
power or remedy of the Trustee or the Insurer under the
Indenture or any other document, instrument or agreement
executed in connection therewith, nor constitute a waiver
of any provision contained therein, except as specifically
set forth herein.
SECTION 6. Governing Law. This Amendment will be
governed by and construed in accordance with the internal
laws (as opposed to any conflict of law provisions, except
Sections 5-1401 and 5-1402 of the New York General Obligations
Law) and decisions of the State of New York.
SECTION 7. Severability. Each provision of this
Amendment shall be severable from every other provision of
this Amendment for the purpose of determining the legal
enforceability of any provision hereof, and the
unenforceability of one or more provisions of this Amendment
in one jurisdiction shall not have the effect of rendering
such provision or provisions unenforceable in any other
jurisdiction.
SECTION 8. Execution in Counterparts. This Amendment
may be executed in one or more counterparts and by different
parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original, but
all of which taken together shall constitute one and the same
instrument. Delivery of an executed counterpart of a signature
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page to this Amendment by facsimile shall be effective as
delivery of a manually executed counterpart of this Amendment.
SECTION 9. Successors and Assigns. This Amendment shall
be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and assigns.
SECTION 10. Headings. Section headings in this
Amendment are included herein for convenience of reference
only and shall not constitute a part of this Amendment for
any other purpose.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties have caused this
Amendment to be executed by their respective officers
thereunto duly authorized, as of the date first above
written.
AG ACCEPTANCE CORPORATION, as the Issuer
By:
Name:
Title:
AG SERVICES OF AMERICA, INC., as Servicer
By:
Name:
Title:
U.S. BANK, N.A., as Trustee
(d/b/a FIRSTAR BANK, N.A., as Trustee)
By:
Name:
Title:
MBIA INSURANCE CORPORATION, as Insurer
By:
Name:
Title:
- 1 -
CONSENT TO
AMENDMENT NO. 4 AND WAIVER
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
The undersigned, as the Series 1999-1 Noteholder,
hereby consents to the Amendment No. 4 and Waiver to
the Master Trust Indenture and Security Agreement
dated as of March 20, 2002 (the "Amendment") to which
this Consent is attached. The consent granted hereunder
shall apply only to the foregoing Amendment and shall not
be deemed to be a consent to any other amendment for which
the consent of the undersigned is required.
TRIPLE-A ONE FUNDING CORPORATION, as the Series
1999-1 Noteholder and Majority Noteholder
By: MBIA Insurance Corporation, as Attorney-in-Fact
By:
Name:
Title:
- 2 -
CONSENT TO
AMENDMENT NO. 4 AND WAIVER
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
The undersigned, as the Series 1999-2 Noteholder
hereby consents to the Amendment No. 4 and Waiver to
the Master Trust Indenture and Security Agreement dated
as of March 20, 2002 (the "Amendment") to which this
Consent is attached. The consent granted hereunder shall
apply only to the foregoing Amendment and shall not be
deemed to be a consent to any other amendment for which
the consent of the undersigned is required.
COBANK, ACB, as the Series 1999-2 Noteholder
By:
Name:
Title:
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AG SERVICES OF AMERICA, INC.
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
There is no parent of the Company. The following is a listing of
subsidiaries of the Company.
Jurisdiction of
Organization
---------------
Ag Acceptance Corporation Delaware
Powerfarm, Inc. Delaware
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