<PAGE>1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
For the transition period from to
----------------- ------------------
Commission file number 2-22791
-------
AGWAY INC.*
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 15-0277720
- ------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Butternut Drive, DeWitt, New York 13214
- -----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
315-449-6431
- -----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at October 28, 1994
- ------------------------------------- -------------------------------
Common Stock, $25 par value per share 110,342 shares
* Agway is a taxpaying corporation founded on cooperative principles.
Membership is limited to farmers and each may hold only one share of
common stock.
<PAGE>2
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
- ------- ---------------------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1994 and June 30, 1994 . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations and Retained Margin for the three months
ended September 30, 1994 and September 30, 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Cash Flow Statements for the three months ended September 30, 1994
and September 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . 10
<CAPTION>
PART II. OTHER INFORMATION
- -------- -----------------
<S> <C>
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE>3
PART I. FINANCIAL INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
September 30, June 30,
1994 1994
------------- -------------
ASSETS (Unaudited) (Note)
- ------
<S> <C> <C>
Current Assets:
Trade notes and accounts receivable, less allowance for
doubtful accounts of $12,884 and $12,656, respectively . . . . . $ 170,822 $ 224,406
Leases receivable, less unearned income of $33,165 and
$33,209, respectively. . . . . . . . . . . . . . . . . . . . . . 84,191 84,744
Uncollected insurance premiums . . . . . . . . . . . . . . . . . . 10,080 9,936
Advances and other receivables . . . . . . . . . . . . . . . . . . 19,903 25,819
Inventories
Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . 15,215 22,470
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . 139,960 148,505
Goods in transit and supplies. . . . . . . . . . . . . . . . . . 7,957 7,689
-------------- --------------
Total inventories. . . . . . . . . . . . . . . . . . . . . . . . 163,132 178,664
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . 69,730 74,805
-------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . 517,858 598,374
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . 34,208 33,943
Other security investments. . . . . . . . . . . . . . . . . . . . . . . 36,358 36,226
Properties and equipment, net . . . . . . . . . . . . . . . . . . . . . 245,361 249,369
Long-term leases receivable, less unearned income of
$53,257 and $51,775, respectively . . . . . . . . . . . . . . . . . . 211,017 191,654
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,223 79,965
Net assets of discontinued operations . . . . . . . . . . . . . . . . . 85,545 84,783
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,212,570 $ 1,274,314
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,500 $ 62,800
Current installments of long-term debt and subordinated debt . . . 97,203 111,008
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 86,229 124,679
Unearned insurance premiums. . . . . . . . . . . . . . . . . . . . 16,899 16,868
Other current liabilities. . . . . . . . . . . . . . . . . . . . . 111,268 121,147
-------------- --------------
Total current liabilities. . . . . . . . . . . . . . . . . . . 380,099 436,502
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,152 176,567
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 379,843 372,673
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,085 84,746
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,932 71,338
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,762 2,771
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,526 6,371
Retained margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,171 123,346
-------------- --------------
Total liabilities and shareholders' equity . . . . . . . . . . $ 1,212,570 $ 1,274,314
============== ==============
</TABLE>
Note: The balance sheet at June 30, 1994 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See accompanying notes to condensed consolidated financial statements.
<PAGE>4
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED MARGIN
(Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Net sales and revenues from:
Product sales. . . . . . . . . . . . . . . . . . . . $ 334,203 $ 328,607
Leasing operations . . . . . . . . . . . . . . . . . 9,275 7,815
Insurance operations . . . . . . . . . . . . . . . . 6,684 6,699
-------------- --------------
Total net sales and revenues . . . . . . . . . . 350,162 343,121
Cost and expenses from:
Products and plant operations. . . . . . . . . . . . 314,100 312,723
Leasing operations . . . . . . . . . . . . . . . . . 4,361 3,500
Insurance operations . . . . . . . . . . . . . . . . 4,458 4,387
Selling, general and
administrative activities. . . . . . . . . . . . . 38,193 34,152
--------------- ---------------
Total costs and expenses . . . . . . . . . . . . 361,112 354,762
Operating loss. . . . . . . . . . . . . . . . . . . . . . (10,950) (11,641)
Interest expense, net . . . . . . . . . . . . . . . . . . 6,813 6,507
Other income, net . . . . . . . . . . . . . . . . . . . . 323 353
--------------- ---------------
Loss from continuing operations before income taxes . . . (17,440) (17,795)
Income tax benefit. . . . . . . . . . . . . . . . . . . . 6,170 6,014
--------------- ---------------
Loss from continuing operations . . . . . . . . . . . . . (11,270) (11,781)
Results from discontinued operations. . . . . . . . . . .
--------------- ---------------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . (11,270) (11,781)
Retained Margin:
Balance at beginning of period . . . . . . . . . . . 123,346 131,787
Equity in unrealized capital gains (losses)
of insurance companies . . . . . . . . . . . . . 95 (8)
-------------- --------------
Balance at end of period. . . . . . . . . . . . . . . . . $ 112,171 $ 119,998
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>5
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
September 30,
1994 1993
-------------- -------------
<S> <C> <C>
Net cash flows from operating activities. . . . . . . . . . . . . . . . $ 29,582 $ 34,096
Cash flows (used in) provided by investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . (6,923) (4,380)
Cash paid for acquisitions . . . . . . . . . . . . . . . . . . . . (4,810)
Proceeds from disposal of businesses and property, plant and
equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . 955 3,165
Leases originated. . . . . . . . . . . . . . . . . . . . . . . . . (34,588) (25,050)
Leases repaid. . . . . . . . . . . . . . . . . . . . . . . . . . . 14,392 15,644
Proceeds from sale of marketable securities. . . . . . . . . . . . 468 4,062
Purchases of marketable securities . . . . . . . . . . . . . . . . (638) (3,927)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (132) (249)
Net changes in net assets of discontinued operations . . . . . . . (762) (227)
-------------- -------------
Net cash flows used in investing activities . . . . . . . . . . . . . . (27,228) (15,772)
Cash flows (used in) provided by financing activities:
Net change in short-term borrowings. . . . . . . . . . . . . . . . 5,700 (18,400)
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . 12,000 10,000
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . (22,240) (22,672)
Proceeds from sale of subordinated debt. . . . . . . . . . . . . . 13,858 15,656
Redemption of subordinated debt. . . . . . . . . . . . . . . . . . (6,241) (2,973)
Proceeds from sale of stock. . . . . . . . . . . . . . . . . . . . 4 1,840
Redemption of stock. . . . . . . . . . . . . . . . . . . . . . . . (2,419) (260)
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . . (2,589) (2,056)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (427) (230)
-------------- -------------
Net cash flows used in financing activities . . . . . . . . . . . . . . (2,354) (19,095)
-------------- -------------
Net decrease in cash and equivalents. . . . . . . . . . . . . . . . . . 0 (771)
Cash and equivalents at beginning of period . . . . . . . . . . . . . . 0 771
-------------- -------------
Cash and equivalents at end of period . . . . . . . . . . . . . . . . . $ 0 $ 0
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>6
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands of Dollars)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial
statements of Agway Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-
month period ended September 30, 1994 are not necessarily
indicative of the results that may be expected for the year ended
June 30, 1995 due, among other reasons, to the seasonal nature of
certain major segments of the Company's business. For further
information, refer to the consolidated financial statements and notes
thereto included in the annual report on Form 10-K for the year
ended June 30, 1994.
Certain reclassifications have been made to conform prior year
financial statements with the current year presentation. These
reclassifications had no effect on the working capital or
shareholders' equity of the Company.
2. AGWAY FINANCIAL CORPORATION
---------------------------
Agway Financial Corporation (AFC) is a wholly owned subsidiary
of the Company whose principal business activity is securing
financing through bank borrowings and issuance of corporate debt
instruments to provide funds for the Company, its sole stockholder,
and AFC's sole wholly owned subsidiary, Agway Holdings Inc.
(AHI), and AHI's subsidiaries, for general corporate purposes.
The payment of principal and interest on this debt is absolutely and
unconditionally guaranteed by the Company. In an exemptive
order granted by the Securities and Exchange Commission, AFC,
as a separate company, is not required to file periodic reports with
respect to these debt securities provided the 1934 Act reports of the
Company contain summarized financial information concerning
AFC.
On July 1, 1994, (i) certain subsidiaries of AFC (Seedway Inc.,
Allied Seed Cooperative Inc., and Pro-Lawn Products Inc.) were
transferred to and merged into to Agway Inc., and (ii) certain
operating divisions of Agway Inc. (Retail/Wholesale Operations)
were transferred to AFC and merged together with the Country
Foods operations into Agway Consumer Products Inc., formerly
Agway Country Foods, Inc. The prior year financial statements
have been restated to give retroactive effect to this change in
reporting entity.
As discussed in Note 6, the sale of Curtice Burns closed on
November 3, 1994, and the pro-forma impact on the Company's
consolidated financial statements is shown. The pro-forma impact
of this sale on the summarized financial information for AFC and
Consolidated Subsidiaries is identical in dollar amount and
classification to the Company's consolidated financial statements,
due to the fact that Curtice Burns is owned by AFC, which is
owned by Agway Inc., as shown below.
Summarized financial information for AFC and Consolidated
Subsidiaries is as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------------
1994 1993
------------ --------------
<S> <C> <C>
Net sales and revenues. . . . . . . . . $ 251,013 $ 260,012
Operating margin. . . . . . . . . . . . 6,366 3,595
Loss from continuing operations . . . . (5,450) (9,549)
Net loss. . . . . . . . . . . . . . . . (5,450) (9,549)
</TABLE>
<PAGE>7
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands of Dollars)
2. AGWAY FINANCIAL CORPORATION (continued)
---------------------------------------
<TABLE>
<CAPTION>
Restated
September 30, June 30,
1994 1994
--------------- --------------
<S> <C> <C>
Current assets. . . . . . . . . . . . . . . . . . . . . . . . . . $ 501,645 $ 568,477
Properties and equipment, net . . . . . . . . . . . . . . . . . . 164,275 164,296
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . 296,230 275,759
Net assets of discontinued operations . . . . . . . . . . . . . . 85,545 84,783
--------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,047,695 $ 1,093,315
=============== ==============
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . $ 267,469 $ 313,873
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . 176,765 173,231
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . 379,843 372,673
Noncurrent liabilities. . . . . . . . . . . . . . . . . . . . . . 14,263 18,985
Shareholder's equity. . . . . . . . . . . . . . . . . . . . . . . 209,355 214,553
Total liabilities and --------------- ---------------
shareholder's equity. . . . . . . . . . . . . . . . . . . . . $ 1,047,695 $ 1,093,315
=============== ===============
</TABLE>
The following is an updated organizational structure of the Company
reflecting the above noted transfers between the Company and AFC.
It reflects changes to the organization structure of the Company
included in page 4 of the Company's annual report on Form 10-K for
the fiscal year ended June 30, 1994.
ORGANIZATIONAL CHART OMITTED HERE. SEE APPENDIX FOR A NARRATIVE
OF THE ORGANIZATIONAL CHART.
<PAGE>8
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
3. SUPPLEMENTAL DISCLOSURES ABOUT OPERATING CASH FLOWS
---------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Additional disclosure of operating cash flows:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 14,894 $ 15,354
============== ==============
Income taxes . . . . . . . . . . . . . . . . . . . . . $ 759 $ 4,717
============== ==============
</TABLE>
During the fiscal year ended June 30, 1993, 46 local cooperative
affiliates were acquired, and during fiscal 1994, 6 additional local
cooperative affiliates were acquired. The total purchase price of
$21,700 plus certain liabilities assumed of $15,900 was settled in
fiscal 1994 in the form of cash ($5,000) and restricted preferred
stock, 6%, $100 par value, ($16,700). This occurred primarily in
the first quarter of fiscal 1994 for cash ($4,800) and restricted
preferred stock, 6%, $100 par value, ($15,900).
4. BORROWING ARRANGEMENTS
----------------------
The Company finances its operations and the operations of all its
continuing businesses and subsidiaries, except Telmark and Agway
Insurance Company, through AFC. Telmark and Agway Insurance
Company finance themselves through operations or direct
borrowings.
As of September 30, 1994, lines of credit were available to AFC
of $105,000 and Telmark of $23,000 compared to $135,000 and
$23,000, respectively, in the prior year. The AFC credit facilities
are adequate for the Company's current needs and are available
through December 31, 1994, with conclusion of longer-term
renewal negotiations pending the sale of Curtice Burns, the cash
proceeds from which impact the forecasted short-term debt need
for the coming year (See Note 6. Subsequent Event). These
longer-term renewals are in the final stages of negotiation and are
expected to close in December 1994. Telmark's lines of credit
expire at various times throughout the fall of 1994. It is
management's expectation that appropriate facilities will be in
place to meet the ongoing needs of Telmark and the Company.
Certain of the AFC agreements are collateralized by the
Company's accounts receivable and non-petroleum inventories.
Amounts which can be drawn under these agreements are limited
to a specific calculation based upon the total of certain accounts
receivable and non-petroleum inventories ("collateral"). Adequate
collateral has existed throughout the fiscal year to meet the
ongoing needs of the Company. In addition, the agreements
include certain covenants, the most restrictive of which requires
the Company to maintain specific monthly levels of interest
coverage and tangible net worth.
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
Environmental
The Company is subject to a number of governmental regulations
concerning environmental matters, either directly, or as a result of
the operations of its subsidiaries. The Company expects that it
will be required to expend funds to remediate certain sites,
including certain Superfund sites and sites with underground fuel
storage tanks. In addition, the Company expects that it will incur
other expenses associated with environmental compliance.
<PAGE>9
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
5. COMMITMENTS AND CONTINGENCIES (continued)
-----------------------------------------
Environmental (continued)
The Company continually monitors its operations with respect to
potential environmental issues, including changes in legally
mandated standards and remediation technologies. The Company's
recorded liability reflects those specific issues where remediation
activities are currently deemed to be probable and where the cost
of remediation is estimable. Estimates of the extent of the
Company's degree of responsibility of a particular site and the
method and ultimate cost of remediation require a number of
assumptions for which the ultimate outcome may differ from
current estimates; however, the Company believes that its past
experience provides a reasonable basis for estimating its liability.
As additional information becomes available, estimates are adjusted
as necessary. While the Company does not anticipate that any
such adjustment would be material to its financial statements, it is
reasonably possible that the result of ongoing and/or future
environmental studies or other factors could alter this expectation
and require the recording of additional liabilities. The extent or
amount of such events, if any, cannot be estimated at this time.
As part of its long-term environmental protection program, the
Company spent approximately $5,000 in fiscal 1994 on capital
projects. The Company estimates that during fiscal 1995 and 1996
approximately $4,000 per year will be spent on additional capital
projects for environmental protection. These estimates recognize
the additional capital required to comply with Environmental
Protection Agency (EPA) Underground Storage Tank (UST)
regulations which become effective in December 1998. Presently,
the total cost to comply with the EPA UST regulations is estimated
to be approximately $5,000. The total capital requirements may
change due to the actual number of USTs actively in use on the
effective date.
Other
The Company is also subject to various investigations, claims, and
legal proceedings covering a wide range of matters that arise in the
ordinary course of its business activities. Each of these matters is
subject to various uncertainties, and it is possible that some of
these matters may be resolved unfavorably to the Company. The
Company has established accruals for matters for which payment
is probable and amounts reasonably estimable. Management
believes any liability that may ultimately result from the resolution
of these matters in excess of amounts provided will not have a
material adverse effect on the financial position or results of
operations of the Company.
6. SUBSEQUENT EVENT
----------------
Curtice Burns accepted an offer from Pro-Fac Cooperative Inc.
(Pro-Fac) to acquire all outstanding shares of Curtice Burns for
$19 per share in cash, and had entered into a definitive merger
agreement with Pro-Fac. This agreement closed on November 3,
1994 and the Company received $55,786 in cash proceeds.
Both Curtice Burns and Hood, combined, are reflected as
discontinued operations in the Company's consolidated financial
statements. Therefore, since the sale of Hood has not yet closed,
and since the terms of the Curtice Burns merger agreement were
not significantly different from those estimated, the Company's
consolidated financial statements will not be significantly impacted
by the disposition of Curtice Burns. There is no impact to the
consolidated statement of operations and retained margins. Had
this transaction closed as of September 30, 1994, the consolidated
balance sheet would have been impacted as follows, which in
general reflects the paydown of notes payable, establishment of
income taxes payable, deferral of gain on sale, and reduction of
net assets of discontinued operations. As a result of the sale of
Curtice Burns, approximately $5,000 previously included in paid-in
capital, which arose from periodic changes in the Company's
percentage of ownership in Curtice Burns, has been eliminated and
the effect considered in conjunction with the net assets of
discontinued operations.
<PAGE>10
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
6. SUBSEQUENT EVENT (continued)
----------------------------
<TABLE>
<CAPTION>
Actual Pro Forma
September 30, September 30,
1994 1994
----------------------- -----------------------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . $ 517,858 $ 517,858
Other long-term assets. . . . . . . . . . . . . . . . 609,167 609,167
Net assets of discontinued operations . . . . . . . . 85,545 35,782
----------------------- -----------------------
Total assets . . . . . . . . . . . . . . . . . . $ 1,212,570 $ 1,162,807
======================= =======================
Notes payable . . . . . . . . . . . . . . . . . . $ 68,500 $ 12,714
Other current liabilities . . . . . . . . . . . . . . 311,599 331,912
Long-term liabilities . . . . . . . . . . . . . . . . 642,080 632,846
Preferred stock . . . . . . . . . . . . . . . . . . 68,932 68,932
Common stock . . . . . . . . . . . . . . . . . . 2,762 2,762
Paid-in capital . . . . . . . . . . . . . . . . . . 6,526 1,470
Retained margin . . . . . . . . . . . . . . . . . . 112,171 112,171
----------------------- -----------------------
Total liabilities and shareholder's equity . . . $ 1,212,570 $ 1,162,807
======================= =======================
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
- ---------------------
The Company's net sales and revenues and operating results are significantly
impacted by seasonal fluctuations due to the nature of its operations and
the geographic location of its service area, which is defined primarily as
the Northeastern United States. Agriculture and Consumer Group net sales
and revenues are traditionally higher in the spring as customers initiate
the growing season. Correspondingly, the Company's Energy Group realizes
significantly higher net sales and revenues in the winter months due to the
cold winter conditions in the Northeast. The Financial Services and Corporate
Groups are generally not materially impacted by seasonal fluctuations.
<TABLE>
<CAPTION>
Results by Operating Segment
- ----------------------------
Increase (Decrease) Three Months Ended
-------------------
9/30/94 vs. 9/30/93
-------------------
Net Sales and Revenues
----------------------
<S> <C>
Agriculture & Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,920
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,767
Financial Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,281
Corporate Groups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
-------------------
$ 7,041
===================
<CAPTION>
Margin (Loss) from Continuing Operations before Income Taxes
------------------------------------------------------------
<S> <C>
Agriculture & Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,056
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 589
Financial Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Corporate Groups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,070)
-------------------
Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . 660
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (306)
-------------------
$ 355
===================
</TABLE>
Parenthetical numbers in the following narrative have been rounded to the
nearest hundred thousand.
<PAGE>11
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Unaudited)
(Thousands of Dollars)
Discontinued Operations
- -----------------------
On March 23, 1993, the Company's Board of Directors authorized
management to sell its 34% interest in Curtice Burns Foods, Inc.
(Curtice Burns) and 99% interest in H. P. Hood Inc. (Hood).
Management and the Board had specific plans for the divestiture of
these operations and expected the divestiture of both investments in
fiscal 1994; however, due to unanticipated occurrences, neither
transaction was consummated by June 30, 1994. The investment in
Curtice Burns has been sold effective November 3, 1994. The
investment in Hood is expected to consummate within this fiscal year.
Accordingly, these operations are reflected as discontinued operations.
The Company's decision to make these sales is part of the overall
strategic plan of focusing on its agriculture, consumer, energy,
insurance and leasing businesses.
The November 3, 1994 sale of the Company's investment in Curtice
Burns was not significantly different on terms than those previously
estimated, and there have been no recent developments regarding the
anticipated terms of the sale of Hood that would require recognition of
further losses on disposal of these investments.
Curtice Burns
On September 28, 1994, Curtice Burns accepted an offer from Pro-Fac
Cooperative Inc. to acquire all outstanding shares of Curtice Burns for
$19 per share in cash, and had entered into a definitive merger
agreement with Pro-Fac. (See also Item 6. Exhibits and Reports on
Form 8-K.)
This agreement closed on November 3, 1994 and the Company
received $55,786 in cash proceeds. The financial impact of this sale
is disclosed in Note 6 to the financial statements and in Item 5. Other
Information.
Hood
During the quarter, negotiations with an investor group, led by the
management of Hood in a transaction expected to involve the use of an
employee stock ownership plan, continued to progress according to
schedule. The investor group is still intact and interested in the
acquisition of Hood based on terms being negotiated that are consistent
with the current market conditions and financial plans for Hood.
Agriculture & Consumer Group
- ----------------------------
Net sales and revenues for the first quarter of fiscal 1995 of $225,500
increased $3,900 (1.8%) as compared to the corresponding period in
the prior fiscal year. Increases in Consumer sales are primarily due to
the impact of a marketing program which accelerated power equipment
sales into the first quarter. This increase was offset by sales declines
in Agriculture feed sales due primarily to price declines in corn and
soybean products.
Operating losses for the first quarter of fiscal 1995 of $10,600
decreased $1,100 as compared to the corresponding period in the prior
fiscal year. Gross margin percentage for the Group improved from
11.2% in the first quarter of fiscal 1994 to 11.9% in the first quarter
of fiscal 1995 due primarily to enhanced pricing of agricultural
commodities, primarily in the feed business. This improvement was
somewhat offset by declines in gross margin percentage for the
Consumer Retail segment due to product mix, and increases in
commodity prices on the Country Foods segment. This improvement
was partially offset by increases in expense for severance and due to
timing of expenditures.
<PAGE>12
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Unaudited)
(Thousands of Dollars)
Energy Group
- ------------
Energy Group net sales and revenues of $107,300 for the first quarter
of fiscal 1995 increased $1,800 (1.7%) as compared to the first quarter
of the prior year. Total unit volume (in millions of gallons) for the
first quarter increased 1,100 gallons as compared to the corresponding
period in the prior year. Volume increases in heating oil and propane,
due primarily to an early tank filling program, were offset by a volume
decline in diesel, due to plant divestitures and fewer keytrol facilities.
Overall average selling price increased slightly versus the prior year,
reflecting increased gasoline and diesel prices, offset by declines in
heating oil and propane. Service revenues also increased in the first
quarter of fiscal 1995 versus 1994 due to an increased emphasis on
customer service in the field and a growing customer base.
Net operating losses for the Energy Group of $4,000 for the first
quarter of fiscal 1995 were $600 lower than the corresponding period
in the prior year, due primarily to improved gross margins offset by
increased administrative expenses resulting from higher product taxes.
Gross margins improved due to increases in sales volume as well as
overall increases in average gross margin per unit of 3.1%.
Financial Services Group
- ------------------------
For segment reporting purposes, the Financial Services Group consists
of Telmark Inc., Agway Insurance Company, and Agway General
Agency, Inc.
Net sales and revenues of $17,000 for the Financial Services Group for
the first quarter of fiscal 1995 increased $1,300 (8.2%) as compared to
the first quarter of the prior year. The increase for the quarter is
attributed to Telmark Inc. which increased revenues by $1,500 due to
a higher average net investment in leases compared to the first quarter
of the previous year. The increased net investment resulted from new
business being booked during the past year at a faster rate than the
existing business terminated, partially offset by a lease sale of $5,500
in the third quarter of fiscal 1994. Agway General Agency Inc.
revenues declined $200 for the first quarter as compared to the
corresponding period in the prior year due to a decline in administrative
fees on a declining base of participants in the Agway member group
health insurance plan.
Operating profit increased in the first quarter of fiscal 1995 by $100
(4.3%) over the same period in the previous year. Telmark Inc.'s
operating margins increased $200 in the first quarter due primarily to
the increased size of the lease portfolio generating additional gross
margins on a relatively flat expense base. This was offset by a first
quarter decline of $100 in operating margins for the Agway Insurance
Company due to unfavorable underwriting experience versus the prior
year and smaller capital gains on investments.
Corporate Groups
- ----------------
The net sales and revenues of the Corporate Groups represent external
revenues generated from the Information Services Department and the
elimination of sales and revenues between the operating segments.
The operating profit (loss) of the Corporate Groups represents
corporate expenses and other income generated from assets not
allocable to segments. The increase in expenses for the first quarter of
fiscal 1995 versus 1994 of $1,100 is primarily the effect of early
recognition of severance expenses versus salaries normally occurring
throughout the year.
<PAGE>13
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Unaudited)
(Thousands of Dollars)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flows from operating activities for the three months ended
September 30, 1994 decreased $4,500 to $29,600 as compared to the
first three months of fiscal 1994 due primarily to changes in working
capital. Net cash utilized in investing activities for the three months
ended September 30, 1994 was $27,200 as compared to $15,800 for the
same period last year due primarily to increased leasing activity in
fiscal 1995 resulting in the use of an additional $10,800 of cash
compared to the same period last year. As a result of cash utilized in
investing activities, net cash flows used in financing activities was
decreased from $19,100 in the first quarter of fiscal 1994 to $2,400 in
the first quarter of fiscal 1995. The majority of this change was seen
in short-term borrowings, where additional borrowings of $5,700
occurred in the first quarter of fiscal 1995 versus payments of $18,400
in the same period of the prior fiscal year, and increased net
redemptions of subordinated debt and preferred stock in the first
quarter of the current year versus the same period in the prior year.
The Company finances its operations and the operations of all its
continuing businesses and subsidiaries, except Telmark and Agway
Insurance Company, through Agway Financial Corporation (AFC).
Telmark and Agway Insurance Company finance themselves through
operations or direct borrowing arrangements. Each business unit is
financed with a combination of short- and long-term credit facilities as
appropriate. External sources of short-term financing for the Company
and all its continuing operations include revolving credit lines, letters
of credit, and commercial paper programs. Sources of longer-term
financing include borrowings from banks and insurance companies,
subordinated debt, and capital leases. In addition, Telmark has
occasionally sold blocks of its lease portfolio.
As of September 30, 1994, lines of credit were available to AFC of
$105,000 and Telmark of $23,000 compared to $135,000 and $23,000,
respectively, in the prior year. The AFC credit facilities are adequate
for the Company's current needs and are available through December
31, 1994, with conclusion of longer-term renewal negotiations pending
the sale of Curtice Burns, the cash proceeds from which impact the
forecasted short-term debt need for the coming year. This sale closed
on November 3, 1994, and the Company received $55,786 in proceeds
(See also Note 6 to the financial statements and Item 5. Other
Information). These longer-term renewals are in the final stages of
negotiation and are expected to close in December 1994. Telmark's
lines of credit expire at various times throughout the fall of 1994. It
is management's expectation that appropriate facilities will be in place
to meet the ongoing needs of Telmark and the Company.
Certain of the AFC agreements are collateralized by the Company's
accounts receivable and non-petroleum inventories. Amounts which
can be drawn under these agreements are limited to a specific
calculation based upon the total of certain accounts receivable and non-
petroleum inventories ("collateral"). Adequate collateral has existed
throughout the fiscal year to meet the ongoing needs of the Company.
In addition, the agreements include certain covenants, the most
restrictive of which requires the Company to maintain specific monthly
levels of interest coverage and tangible net worth.
<PAGE>14
PART II. OTHER INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
(Thousands of Dollars)
Item 1. Legal Proceedings
- --------------------------
In November 1991, Agway Petroleum Corporation (APC) notified the
Environmental Protection Agency (EPA) that APC had recently
discovered that certain forms that APC's facilities are required to file
under the Emergency Planning and Community Rights-To-Know Act
(EPCRA) may not have been filed on time. In August 1994, the EPA
filed an Administrative Complaint against APC for violations of
EPCRA alleging penalties. A tentative settlement of this matter has
been negotiated in which APC and EPA will execute a consent
agreement under which APC will pay EPA $100 in cash and agree to
undertake certain environmentally beneficial expenditures with a value
of $500. The settlement is in the process of being finalized.
In August 1994, the EPA notified Motor Transportation Services, Inc.
(MTS), an inactive, indirect wholly owned subsidiary of the Company,
that the EPA has reason to believe that MTS is a potentially responsible
party (PRP) under the federal Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) at the Rosen Site,
Cortland, New York. The EPA requested that MTS and other PRPs
participate in the ongoing Remedial Investigation/Feasibility Study
(RI/FS) for the Rosen Site. MTS believes that its involvement at the
Rosen Site, if any, is minimal and responded appropriately to the
EPA's request. In a related matter, other PRPs at the Rosen Site,
Cooper Industries, Inc., et al., filed a complaint under CERCLA
against the Company, MTS and other alleged PRPs at the Rosen Site
in the U. S. District Court, Northern District of New York in June
1992 seeking reimbursement for the cost of the ongoing RI/FS. The
Company and MTS believe the relief sought by Cooper Industries,
Inc., el al. is unjustified and are contesting the allegations in the
lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
On July 1, 1994, the Company's common stockholders were requested
to appoint a proxy to elect six nominees to the Company's Board of
Directors at the annual stockholders meeting scheduled November 30,
1994.
Item 5. Other Information
- --------------------------
On September 28, 1994, Curtice Burns accepted an offer from Pro-Fac
to acquire all outstanding shares of Curtice Burns for $19 per share in
cash, and entered into a definitive merger agreement with Pro-Fac. An
8-K was filed relative to that announcement. On November 2, 1994,
Pro-Fac's tender offer for Curtice Burns expired with 6,229,442 shares
of Class A and 2,046,997 shares of Class B common stock of Curtice
Burns (or approximately 94 percent and 99 percent, respectively, of the
total of outstanding shares of Class A and Class B common stock of
Curtice Burns) having been validly tendered and not withdrawn. All
such tendered shares were accepted for payment by PF Acquisition
Corp., a wholly owned subsidiary of Pro-Fac. On November 3, 1994,
Pro-Fac announced that it had completed its acquisition of Curtice
Burns and that Curtice Burns has become a wholly owned subsidiary
of Pro-Fac. As a result of this transaction, the Company received
$55,786 in cash proceeds. As allowed by Item 5 of Form 10-Q, we
are incorporating the disclosure required for an Item 2 of Form 8-K -
Acquisition or Disposition of Assets in this first quarter 10-Q. See
also Footnote 6 to the financial statements.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
For the first quarter of the fiscal year ending June 30, 1995 four
reports on Form 8-K were filed. Three reports on Form 8-K related
to the sale of one of the Company's significant investments, Curtice
Burns. The fourth report on Form 8-K related to a management change
within the Company.
The first of these reports dated July 11, 1994 related to certain events
regarding the proposed sale of Curtice Burns to Dean Foods Company
at a maximum cash price of $20 per share. This proposal was subject
to a number of contingencies, including reaching an agreement with
Pro-Fac Cooperative, Inc. on various issues related to the Integrated
Agreement with Curtice Burns dated June 27, 1992 (the "Integrated
Agreement"). Under the terms of the Integrated Agreement, Curtice
Burns and Pro-Fac are required to settle any dispute thereunder by
arbitration. On July 11, 1994, Curtice Burns commenced arbitration
proceedings against Pro-Fac.
<PAGE>15
PART II. OTHER INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
(Thousands of Dollars)
Item 6. Exhibits and Reports on Form 8-K (continued)
- -----------------------------------------------------
The second report dated August 2, 1994 covered several issues
involving the sale of Curtice Burns. The first issue discussed Curtice
Burns' filing a petition on August 2, 1994 in the Supreme Court of
New York for an order compelling Pro-Fac to proceed with arbitration
proceedings under the Integrated Agreement. The second issue involved
Pro-Fac's response and counterdemand for arbitration served on August
4, 1994. The third issue involved two proposals dated August 5, 1994
and August 9, 1994 from Pro-Fac to acquire Curtice Burns for $19 per
share in cash. No action was taken by Curtice Burns on either of these
proposals due to a number of contingencies involved in the proposals.
The third report dated September 28, 1994 related to the announcement
that Curtice Burns had accepted an offer from Pro-Fac to acquire all
outstanding shares of Curtice Burns for $19 per share in cash and that
Curtice Burns had entered into a definitive merger agreement with Pro-
Fac.
The Company also filed a report on Form 8-K dated August 29, 1994,
announcing the retirement of Charles F. Saul, president, chief executive
officer and general manager effective as of February 1, 1995 and the
election of Donald P. Cardarelli to the position of executive vice
president and chief operating officer.
No financial statements were filed as a part of these reports.
<PAGE>16
PART II. OTHER INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
(Thousands of Dollars)
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AGWAY INC.
--------------------------------
(Registrant)
Date November 11, 1994 /s/ PETER J. O'NEILL
----------------------- --------------------------------
Peter J. O'Neill
Senior Vice President
Corporate Finance and Control
(Principal Financial Officer and
Chief Accounting Officer)
<PAGE>17
APPENDIX
NARRATIVE DESCRIPTION OF ORGANIZATIONAL CHART OMITTED ON PAGE 7
- ---------------------------------------------------------------
The organizational structure of Agway Inc. as of July 1,1994
was as follows:
Agway Inc is the parent company of this organization. The
organization consists of these areas: Corporate
Administration, Agriculture, and Other Segments.
Corporate Administration encompasses divisions of Agway
Inc. responsible for financial, legal, corporate and
information services, cooperative relations and planning
and operations. Also within this group are Agway
Financial Company (AFC), a wholly owned subsidiary of
Agway Inc. and Agway Holdings Inc. (AHI), a wholly
owned subsidiary of AFC.
Agriculture consists of feed and crops operations. Divisions
within Agway Inc. are responsible for feed and crop operations.
Also within the feed and crop operations is Milford Fertilizer
Company, a wholly owned subsidiary of Agway Inc.
Consumer includes country foods and retail/wholesale operations,
both of which are divisions of Agway Consumer Products Inc., a
wholly owned subsidiary of AHI.
The Other Segments include the energy group, consisting
of Agway Petroleum Corporation, a wholly owned
subsidiary of AHI; the financial services group consisting
of Telmark, Inc., Agway Insurance Company, and Agway
General Agency, Inc., all wholly owned subsidiaries of
AHI; and discontinued operations consisting of Curtice
Burns Foods, Inc. and H. P. Hood Inc., both subsidiaries
of AHI.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000002852
<NAME> AGWAY INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-30-1994
<CASH> 0
<SECURITIES> 34208
<RECEIVABLES> 170822
<ALLOWANCES> 12884
<INVENTORY> 163132
<CURRENT-ASSETS> 517858
<PP&E> 519464
<DEPRECIATION> 274103
<TOTAL-ASSETS> 1212570
<CURRENT-LIABILITIES> 380099
<BONDS> 559995
<COMMON> 2762
68932
0
<OTHER-SE> 118697
<TOTAL-LIABILITY-AND-EQUITY> 1212570
<SALES> 334203
<TOTAL-REVENUES> 350162
<CGS> 314100
<TOTAL-COSTS> 322919
<OTHER-EXPENSES> 38193
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6813
<INCOME-PRETAX> (17440)
<INCOME-TAX> (6170)
<INCOME-CONTINUING> (11270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11270)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
