<PAGE>1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
incorporation or organization) (I.R.S. Employer Identification No.)
333 Butternut Drive, DeWitt, New York 13214
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code 315-449-6431
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant as of September 7, 1994.
Membership Common Stock, $25 Par Value - $2,763,550.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Class Outstanding at September 7, 1994
----- --------------------------------
Membership Common Stock, $25 Par Value 110,542 Shares
PAGE 1 OF . EXHIBIT INDEX APPEARS ON SEQUENTIALLY NUMBERED PAGE .
<PAGE>2
FORM 10-K ANNUAL REPORT - 1994
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CROSS REFERENCE SHEET
Page
PART I
Items 1. & 2. Business and Properties
Description of Business and Properties . . . . 3
Competition. . . . . . . . . . . . . . . . . . 9
Human Resources. . . . . . . . . . . . . . . . 10
Regulation . . . . . . . . . . . . . . . . . . 10
Administrative . . . . . . . . . . . . . . . . 11
Stockholder Membership and Control of Agway. . 11
Patronage Refunds. . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings. . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . 14
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . 15
Item 6. Selected Financial Data. . . . . . . . . . . . 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . 16
Item 8. Financial Statements and Supplementary Data. . 25
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of
the Registrant . . . . . . . . . . . . 54
Item 11. Executive Compensation . . . . . . . . . . . . 57
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . 59
Item 13. Certain Relationships and Related Transactions 59
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K. . . . . . . . . . 60
Signatures . . . . . . . . . . . . . . . . . . 74
Appendix . . . . . . . . . . . . . . . . . . . 77
<PAGE>3
PART I
Items 1 and 2. Business and Properties
GENERAL
Agway Inc. (the "Company" or "Agway"), incorporated under the
Delaware General Corporation Law in 1964 and headquartered in
DeWitt, New York, functions as an agricultural cooperative directly
engaged in product manufacturing, processing and distribution,
wholesale purchasing, and the marketing of commodities for its
farmer-members and other patrons in the states of Connecticut,
Delaware, Maine, Maryland, Massachusetts, New Hampshire, New
Jersey, New York, Ohio, Pennsylvania, Rhode Island, and Vermont.
The Company, through certain of its subsidiaries, is involved in the
distribution of petroleum products; repackaging and marketing of
vegetables; underwriting and sale of certain types of property and
casualty insurance; sale of health insurance; and financing. Refer to
the following page which summarizes the organizational structure of
Agway as of June 30, 1994.
Operating on a cooperative basis, the Company is eligible to pay
patronage refunds to members and contract patrons. For income tax
purposes, Agway is subject to corporate income tax at applicable tax
rates on all taxable income remaining after deductions for such
patronage refunds.
Agway Financial Corporation (AFC), a wholly owned subsidiary
of Agway, is a Delaware corporation incorporated in 1986 with
principal executive offices located in Wilmington, Delaware. AFC's
business activities consist primarily of securing financing through bank
borrowings and issuance of corporate debt instruments to provide funds
to its sole stockholder, Agway, and AFC's sole wholly owned
subsidiary, Agway Holdings, Inc. (AHI), and its subsidiaries, for
general corporate purposes. The payment of principal and interest on
this debt is absolutely and unconditionally guaranteed by Agway.
The operations of the Company are conducted directly and through
its subsidiaries and affiliates under the Agriculture & Consumer,
Energy, and Financial Services Groups described below. (See Note 14 to
the financial statements for financial information regarding industry
segments.) In 1992, the Company initiated Customer Driven:
1995...Focusing on the 21st Century (the "Project") to restructure the
Company to better focus on its members and customers and to re-
engineer the Company's business processes to improve future
profitability. These restructuring measures included a reduction in
personnel; plants; stores; and adjustments to net realizable values of
certain assets which were disposed; and resulted in a pre-tax
restructuring charge of $75 million in the fourth quarter of fiscal 1992,
the amount estimated at that time to be necessary to accomplish Project
goals.
Project initiatives for the Agriculture & Consumer Group were
primarily focused on transferring the marketing, sales, and related
operating assets of agricultural products, previously conducted through
retail operations, to agricultural hubs and dedicated customer service
centers. These initiatives, designed to facilitate customer order entry
and to improve customer service, were implemented over the period
from October 1992 through October 1993 and have increased the cost
of operations during the course of their implementation. An additional
initiative focused on merging 53 local store cooperatives into Agway,
which was substantially completed in the fourth quarter of fiscal 1993,
to provide strategic positioning in the marketplace. This initiative had
the effect of incrementally increasing sales, gross margins and expenses
in fiscal 1994 over preceding periods. Finally, the Agriculture &
Consumer Group closed, consolidated and/or converted various
facilities to focus assets and capital into selected markets and to
eliminate duplication. For the Energy Group, Project initiatives were
primarily divestitures of retail locations in an effort to focus assets and
capital in selected markets. In addition, sales to commercial accounts
were refocused away from price-oriented accounts to service-oriented
accounts. Other initiatives included personnel reductions through an
early retirement program and changes in work practices, as well as a
reduction in selected corporate assets through sale and/or disposal of
excess assets.
With a substantial number of its initiatives completed, the
Company now estimates the total cost of the program will be $6.1
million less than the initial $75 million estimate. In the fourth quarter
of fiscal 1994, therefore, excess accruals of $6.1 million were credited
to operating earnings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a more complete
discussion of the financial aspects of the restructuring program.
(Reference is also made to Note 14 to the financial statements with
respect to financial information for each of these groups.)
<PAGE>4
Items 1 and 2. Business and Properties - Continued
GENERAL (continued)
ORGANIZATIONAL STRUCTURE OF AGWAY AS OF JUNE 30, 1994
ORGANIZATIONAL CHART INSERTED HERE. SEE APPENDIX FOR NARRATIVE OF THE
CONTENTS OF THE CHART.
Effective July 1, 1994, certain subsidiaries were merged into
Agway Inc. There was no change in the reporting entity Agway Inc.
and Consolidated Subsidiaries. However, the consolidated financial
statement of Agway Financial Corporation, a wholly owned subsidiary
of Agway Inc., was affected. See Note 2 to the financial statements
included elsewhere herein.
<PAGE>5
Items 1 and 2. Business and Properties - Continued
DISCONTINUED OPERATIONS
On March 23, 1993, the Agway Inc. Board of Directors
authorized management to sell its interest in Curtice Burns Foods, Inc.
(Curtice Burns) and H. P. Hood Inc. (Hood). Agway had hired
Goldman, Sachs & Co. in February 1993 to assist in an assessment of
sales alternatives with respect to Curtice Burns, and Compton &
Associates in October 1992 with respect to Hood. Agway and Goldman, Sachs
& Co. later terminated this engagement and Goldman, Sachs & Co. was
retained by Curtice Burns in connection with pursuing a sale of Curtice
Burns. Management and the Board had specific plans for the divestiture of
these operations and expected to divest of both investments in fiscal
1994; however, due to unanticipated occurrences, neither transaction was
consummated by June 30, 1994. Management and the Board continue to
execute their plans for sale and expect to consummate the transactions
within the next fiscal year. (Reference is made to Note 17 to the
financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Discontinued Operations.")
Agway's decision to sell its interest in its food processing
subsidiaries (Curtice Burns and Hood) is part of the Company's overall
strategic plan of focusing on its agriculture, consumer, energy,
insurance, and leasing businesses.
Curtice Burns Foods, Inc.
AHI owns approximately 34% of the outstanding shares of
common stock of Curtice Burns, a New York corporation organized in
1961. AHI ownership consists of 14% of the outstanding Class A
common stock and 99% of the outstanding Class B common stock.
The Class A common stock is publicly traded and is listed on the
American Stock Exchange. Class A and Class B common stock have
equal voting rights, except that the holders of Class A common stock,
voting separately and as a class, are entitled to vote for the election of
30% of the number of Directors then constituting the entire Board of
Directors of Curtice Burns, rounded to the nearest whole number.
Holders of Class B common stock, voting separately and as a class, are
entitled to vote for the election of all other Directors of Curtice Burns.
Therefore, since AHI owns 99% of the Class B common stock, Agway
can elect 70% of the Board of Directors of Curtice Burns. Dividends
may be paid on Class A shares without payment of dividends on Class
B shares; any dividends paid on Class B shares cannot exceed per share
dividends on Class A shares.
Curtice Burns' business is principally conducted in one industry
segment, the processing and sale of various branded and private label
food products. Through its seven operating divisions, Curtice Burns
produces and markets a variety of processed food products, including
canned vegetables, frozen vegetables and fruits, canned desserts,
canned fruits, condiments and salad dressings, snack foods, pickles,
canned meat dishes, soups and peanut butter, and produces containers
for some of its food products.
H. P. Hood Inc.
Agway, either directly or through AHI, owns approximately 99%
of Hood. Hood, which is headquartered in Boston, Massachusetts, is
a processor and distributor of branded and private label dairy and other
foods to the northeastern United States, with sales concentrated in three
product classes - fluid milk and related products, ice cream, and
manufactured products.
CONTINUING OPERATIONS
AGRICULTURE & CONSUMER GROUP
The Agriculture component (Agriculture) of this Group engages
in the manufacturing and processing of various farm animal feeds, field
crop and garden seeds, fertilizers, and chemicals and sells these
products directly to end-user customers. The Consumer component
(Consumer) of this segment sells farm-related products, pet foods and
animal care products, and yard and garden products. Additionally,
Consumer functions as a wholesaler of certain product categories to
franchised representatives and other businesses. Management of
Agway's Country Foods business unit is the responsibility of Consumer
and is included in the Agriculture & Consumer segment.
<PAGE>6
Items 1 and 2. Business and Properties - Continued
AGRICULTURE & CONSUMER GROUP (continued)
Agriculture
Agriculture serves customers through two aligned businesses, Feed
operations and Crops operations.
Feed: Feed operations manufacture livestock and poultry feeds
under Company formula and provide grain and ingredient brokerage
services. Products are sold primarily through three Agriculture
customer service hub locations. The Company operates 16 regional
feed mills, principally in New York, Pennsylvania, and Vermont.
Productive capacity is sufficient to meet market needs.
Crops: Crops operations are responsible for the manufacturing,
processing, and procurement of crop-related products sold through
three Agriculture hub locations as direct shipments to patrons, farmer-
dealers, and wholesale accounts. Products sold primarily for farm use
and selected non-farm use include plant nutrients, lime, crop
protectants, and various seed products. For certain products, customers
are offered extended payment terms and are entitled to return their
purchase for either a replacement item or refund in the ordinary course
of business. Crops operations are seasonal with the majority of sales
and demand on working capital being generated in late winter and
spring. Crops operations now own and operate approximately 80
nutrient plants and storage facilities, four seed plants, and three crop
protectant warehouses. Productive capacity is sufficient to meet market
needs.
In addition, people and facilities associated with the Company's
Research and Applied Technology Department, managed by
Agriculture, add strength to member customer service and product
development efforts. The Research and Applied Technology
Department, which conducts all of the Company's research and
development activities, develops, tests, and demonstrates concepts,
products, and practices which, when used as an integral part of a
prescribed program, will enhance the profit potential of farming.
During the fiscal years ended June 30, 1994, 1993 and 1992, gross
expenditures of $5.0 million, $4.9 million and $5.9 million,
respectively, were made on research activities by the Company as a
whole. Approximately 49 employees are engaged in research and
product development activities.
The Research and Applied Technology Department operates the
Agway Farm Research Center in Tully, New York, and a Technical
Center in Ithaca, New York. The Agway Farm Research Center
consists of nearly 745 acres, facilities for 600 head of dairy cattle, and
a unit which provides an appropriate laboratory, office space, and
conference rooms. The Technical Center has chemical and
microbiological assay capability and engages in small animal research.
Consumer
Consumer is comprised of two units, Retail/Wholesale operations
and Country Foods operations.
Retail/Wholesale: Through its store and franchised representa-
tive system, Consumer conducts retail sales and distribution activities
through 172 Company-owned facilities and 364 franchised
representatives located in all of the New England states and in
Delaware, Maryland, New York, New Jersey, and Pennsylvania. In
1992, 55 unconsolidated local cooperatives served as outlets for Agway
products and services. During the fiscal year ended June 1993, 53 of
these local cooperatives voted to merge into Agway. Mergers of 46 of
these store cooperatives were completed by June 30, 1993, and the
remaining seven mergers were completed in the 1994 fiscal year. The
two cooperatives that did not elect to merge into Agway voted to
become franchised representatives.
The retail system is focused primarily on three primary product
categories: yard and garden, pet food and animal care, and farm-
related products. The yard and garden and farm-related products are
seasonal with the majority of sales and demand on working capital
being generated in late winter and spring. The franchised
representatives are authorized to sell Agway branded products and are
primarily located in areas where Company-owned facilities are not in
existence. Two distribution centers, located in Elizabethtown,
Pennsylvania, and Westfield, Massachusetts, are operated to support the
retail store and franchised representative system and provide adequate
storage space to effectively handle distribution needs.
<PAGE>7
Items 1 and 2. Business and Properties - Continued
AGRICULTURE & CONSUMER GROUP (continued)
Retail/Wholesale: (continued)
Through other distribution channels, Consumer conducts sales,
installation, and service operations for farm mechanical equipment in
regionalized areas; provides a catalog for farmers with mail and
telephone ordering of farm animal health products; manufactures pet
food; and provides a dairy route delivery service of animal health and
farm supplies in regionalized areas. In support of these marketing and
sales activities, Consumer conducts wholesale purchasing, warehousing,
and distribution activities.
Two pet food manufacturing plants, located in Waverly, New
York, and St. Marys, Ohio, produce small animal food products which
are distributed through the Agway distribution system, other
cooperatives, and direct to users. The small animal food plant at St.
Marys is leased from the City of St. Marys, Ohio, pursuant to a
20-year industrial revenue bond financing agreement that expires in
March 1999. A multi-walled bag printing plant, located in
Wapakoneta, Ohio, supplies bags used in the small animal food
manufacturing process.
Country Foods: The Country Foods business unit of Consumer
is comprised of six operating subsidiaries owned directly or indirectly
by AHI. Through its Country Foods unit, Consumer purchases certain
commodities produced by members and other farmers and conducts
repacking and processing operations as well as marketing, sales, and
distribution of the end products. Principal commodities processed,
sold, and distributed include edible dry beans, tablestock and seed
potatoes, onions, human edible sunflower, bird food, and flour.
Several of these Country Foods businesses operate outside the
Northeast and serve both rural and suburban markets.
Country Foods operates processing plants for edible dry beans at
Caledonia, Geneva, and Moravia, New York, with combined storage
capacity of 185,000 cwt., and a flour mill in Churchville, New York,
with wheat storage capacity of 250,000 bushels. Sunflower processing
and storage facilities, located at Grandin, North Dakota, produce and
market human edible sunflower, hulled millet, wild bird food, and
related products.
The Country Foods unit also operates six potato and onion
repacking facilities located at Moosic, Pennsylvania; Prattsburg, New
York; Canastota, New York; Elba, New York; Chittenango, New
York; and Plant City, Florida. These produce businesses specialize in
the sale of consumer packages of potatoes, onions, and other vegetables
to retail outlets. Another operation, located in Ordbend, California,
procures, conditions, and sells stock and commercial dry edible beans,
field seeds, vine seeds and mung beans. The Country Foods facilities
have sufficient capacity to meet their operating requirements.
ENERGY GROUP
The Energy Group consists of Agway Petroleum Corporation.
Agway Petroleum Corporation
Agway Petroleum Corporation (d/b/a Agway Energy Products),
a Delaware corporation wholly owned by AHI, markets petroleum
products including gasolines, kerosene, fuel oil, diesel fuel, propane,
lubricating oils and greases, antifreeze, as well as oil and gas heating
and air conditioning equipment, and other related items. A
concentration in oil and propane heating fuels creates seasonal increases
in sales and working capital requirements in the fall and winter months.
All products are purchased from numerous suppliers or through open
market purchases. There are no long-term supply contracts exceeding
one year; however, Agway Petroleum Corporation does enter into
supply contracts for periods ranging from three to nine months.
Agway Energy Products currently owns storage capacity for
approximately 2,880,000 barrels of products at 10 terminals located in
New York and Pennsylvania. The Group operates 104 retail
distribution centers located throughout New York, Pennsylvania, New
Jersey, Massachusetts, and Vermont. Agway Energy Products also
distributes petroleum products through 87 distributors and resellers.
Facilities are sufficient to meet the current operating requirements of
the business.
<PAGE>8
Items 1 and 2. Business and Properties - Continued
FINANCIAL SERVICES GROUP
The Financial Services Group consists of Telmark Inc., a leasing
subsidiary; Agway Insurance, a property and casualty insurance
subsidiary; and Agway General Agency, a subsidiary which markets
accident and health insurance products and administers health insurance
programs.
Telmark Inc.
Telmark Inc. (Telmark), a New York corporation wholly owned
by AHI, finances buildings, equipment, and vehicles primarily to the
rural community in 21 northeastern and midwestern states. As of June
30, 1994, Telmark had approximately $370 million of leases
outstanding with persons other than Agway and its subsidiaries,
including unearned interest and finance charges of approximately $85
million.
An agreement exists between AHI and Telmark whereby AHI
agrees to advance funds to Telmark, such that Telmark's debt-to-equity
ratio will be preserved at no greater than 5 to 1. Any funds advanced
by AHI are regarded as subordinated debt. This agreement is in effect
for one year periods, renewed annually, unless terminated by any party
upon thirty days' written notice. Agway has guaranteed the
performance of AHI's obligations under this agreement.
Agway Insurance Company
Agway Insurance Company is a New York corporation wholly
owned by AHI. This company is authorized to write insurance as
specified in the New York Insurance Law, Sections 46 and 341 (1) (d),
and currently writes insurance in 14 eastern states from its facility in
DeWitt, New York. Lines of insurance sold include Farmowners,
Homeowners, Fire, Extended Coverage, Auto Liability, and Physical
Damage and General Liability.
<PAGE>9
Items 1 and 2. Business and Properties - Continued
COMPETITION
The Company, one of the largest supply cooperatives in the
country, deals in a wide variety of product lines and market segments.
Many of its high volume products are sold in highly competitive
markets where product differentiation is difficult to achieve. The
Company strives to differentiate itself through superior customer
service and product knowledge.
Agriculture & Consumer Group
Agriculture: In the livestock and poultry feed business, the
Company is one of the largest in sales volume in the northeastern
United States. Competition exists with large national and regional feed
manufacturers as well as with local independent mills. The strong
competitive market position held by Agway in the feed business has
resulted from technological advances in the performance of its products
and an effective manufacturing and distribution system.
Agway plant nutrients, seed, crop protectants, and lime products
compete in the commercial farm market. Although there are substantial
regional variations in market share, the Company's competitive position
is generally strong in the commercial farm market. Competition varies
significantly by product line and consists of independent dealers and
several major manufacturing corporations. Agway competes on the
basis of technical expertise and field application services, product
performance, crop management practices developed by Agway, and
computerized assistance to the farmer in making crop management
decisions.
Consumer: Retail competition varies by product line and location
and consists of larger lawn and garden chains, smaller lawn and garden
nurseries, building material stores, home center stores, large
discounters, and specialty pet stores. Wholesale competition to
franchised representatives also varies by product line and consists of
national, regional and local wholesalers; independent distributors; and
pet food manufacturers. Agway competes on the basis of product
knowledge, expertise, and customer service, while maintaining
competitive pricing. Country Foods competes with a larger number of
firms of all sizes and types in most of its product categories. The
principal factors of competition in the vegetable repack operations are
product quality, efficiencies in product distribution, concentration in
selected markets, and current market pricing. In the product lines of
dry beans, tablestock and seed potatoes, onions, and flour, Country
Foods does not occupy a major position in national markets.
Energy Group
Agway Energy Products competes in the residential, farm, and
commercial markets with a large number and variety of competitors,
ranging from major oil companies to local fuel oil distributors. The
principal methods of competition are service, quality, and price.
Improved technologies and products in the energy field and expansion
of its propane business are providing growth opportunities. Agway
Energy Products continues to maintain and expand its share of the
heating oil and propane market in the geographic areas where it
perceives its market goals can be achieved, exiting those markets where
they cannot.
Financial Services Group
Telmark competes with national and regional leasing companies
in addition to traditional agricultural lenders. Other major sources of
competition are manufacturers' finance and lease programs and regional
banks offering lease products to their customers. The Farm Credit
System is the major independent competitor presently active in the
agricultural market. The Farm Credit System offers a complete array
of traditional loan programs as well as lease financing through Farm
Credit Leasing.
Agway Insurance Company competes with major direct writers,
national agency companies, and smaller regional insurance carriers.
Agway Insurance utilizes an independent agency distribution system to
market insurance products and services for the benefit of the farm,
rural, and suburban community. Growth opportunities come through
the development of specialty products for the agricultural community,
professional agency recruitment, and dedication of marketing resources
to targeted rural markets.
<PAGE>10
Items 1 and 2. Business and Properties - Continued
HUMAN RESOURCES
Agway employs approximately 7,900 persons, 2,200 of which are
part-time. There are approximately 200 employees represented by
three different unions with 10 existing contracts. The Company enjoys
satisfactory relations with both its union and nonunion employees as a
result of competitive wage, health, and benefit programs.
The Company maintains a noncontributory retirement plan for
nonunion employees. Appropriate retirement plans have also been
negotiated with the various unions to cover union employees.
The Company also has an Employees' Thrift Investment Plan
under which the Company matches a portion of employees' investment
in the plan. Company contributions are, in all cases, invested in
Agway securities, while employee contributions may be invested in a
choice of four different funds.
The Company also provides, on a contributory basis, a
comprehensive plan of health insurance, group life insurance, and
weekly and long-term disability insurance for its employees.
REGULATION
The Food and Drug Administration's regulatory powers are
applied throughout the agricultural industry and many of Agway's
products are subject to these regulations. The Company believes its
business, as currently conducted, is not adversely affected by present
Food and Drug Administration laws and regulations. (See Item 3,
"Legal Proceedings.")
The Company and its subsidiaries are subject to various laws and
governmental regulations concerning employee health, product safety,
and environmental matters. It can be anticipated that increasingly
stringent requirements will be imposed upon the Company and the
chemical and petroleum distribution industries in general. Examples of
federal environmental legislation administered by the Environmental
Protection Agency (EPA) are the Toxic Substances Control Act; the
Federal Insecticide, Fungicide and Rodenticide Act; the Resource
Conservation and Recovery Act; the Clean Air Act; the Safe Drinking
Water Act; the Comprehensive Environmental Response, Compensation
and Liability Act (Superfund); and the Superfund Amendments and
Reauthorization Act (SARA). The Company is also subject to
regulations of the Occupational Safety and Health Administration
(OSHA) concerning employee safety and health matters. Under these
and other statutes, the EPA, OSHA and other federal agencies have the
authority to promulgate regulations which result in expenditures for
pollution control, reduction of chemical exposure, waste treatment and
disposal, and plant modification. These regulations might also result
in discontinuance of certain products and operations. The Company is
negotiating with various government agencies
concerning Superfund cleanup sites. In addition to these federal
activities, various states have been delegated certain authority under the
aforementioned federal statues. These delegations of authority
generally involve permit issuance and compliance with the statutes.
Many states have adopted or are in the process of adopting
environmental, product safety, and health laws and regulations, some
of which may be more burdensome than similar federal requirements.
The state environmental legislation administered by state agencies
includes laws for regulating air, surface and ground water, occupational
safety, solid waste, and hazardous substances cleanup. (See Item 3,
"Legal Proceedings" and Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Environmental Issues.")
As part of its long-term environmental protection program, the
Company spent approximately $5 million in fiscal 1994 on capital
projects. The Company estimates that during fiscal 1995 and 1996
approximately $4 million per year will be spent on additional capital
projects for environmental protection. These estimates recognize the
additional capital required to comply with 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 million. The total capital
requirements may change due to the actual number of USTs actively in
use on the effective date.
<PAGE>11
Items 1 and 2. Business and Properties - Continued
ADMINISTRATIVE
The Company's principal administrative office is located at 333
Butternut Drive in DeWitt, New York. Under terms of a 40-year
lease, it occupies an office building consisting of a six-story section and
a two-story wing, containing a gross area of approximately 190,000
square feet. In addition, the Company leases administrative office
space with an area of approximately 200,000 square feet.
STOCKHOLDER MEMBERSHIP AND CONTROL OF AGWAY
The membership of Agway consists of farmers or cooperative
organizations of farmers who are record holders of one share of
Membership Common Stock of Agway and who purchase farm supplies
or farm services or market farm products through Agway or franchised
representatives. Present membership is approximately 90,000 farmers.
Only members of the Company and certain contract patrons are
eligible to receive patronage refunds. (See "Patronage Refunds.")
Members are eligible to attend membership meetings and to participate
in the selection of member committees. In addition, only members
may be elected to the Agway Council or to the Board of Directors of
the Company (each of the foregoing are described below). Only
members, by reason of their ownership of Membership Common Stock
of the Company, are entitled to vote at meetings of the stockholders.
The Company has presently outstanding two classes of capital
stock, preferred and common. The series of preferred stock are: 6%
Cumulative Preferred Stock, Series A ($100 par value); 8% Cumulative
Preferred Stock, Series B ($100 par value); 8% Cumulative Preferred
Stock, Series B-1 ($100 par value); and 7% Cumulative Preferred
Stock, Series C ($100 par value) owned both by members of Agway
and the general public. The Honorary Member Preferred Stock, Series
HM ($25 par value), is held only by former Agway members. The
Membership Common Stock ($25 par value) is held only by active
farmers who are patrons of Agway.
The incidents of ownership of Membership Common Stock in
Agway differ considerably from those of common stock ownership in
the usual business corporation. The Membership Common Stock may
be purchased only by persons entitled to membership in the Company.
Only farmers and cooperative organizations of farmers who purchase
farm supplies or services or market farm products through Agway may
be members. By reason of the fact that the Company functions as an
agricultural cooperative, its Membership Common Stock primarily
serves the purpose of evidencing membership in the Company rather
than of evidencing an equity interest in the Company. The equity claim
of Membership Common stockholders to the assets of Agway is
measured by, and restricted to, the $25 par value of the share, plus
dividends declared and unpaid, if any, for the current year. Except for
the dividends, limited to 8% of the par value of Membership Common
Stock, which may be declared in any one year and the capital invested
as represented by the par value of such shares, the residual equities in
the net assets of Agway (Retained Margin) are held for the benefit of
past and present member-patrons of the Company which include the
patrons of predecessor and certain acquired corporations. Such
Retained Margin as was allocable to their respective patrons on the
books of Eastern States Farmers' Exchange, Incorporated and
Cooperative Grange League Federation Exchange, Inc. as of June 30,
1964, Pennsylvania Farm Bureau Cooperative Association and its
affiliates as of May 31, 1965, and other cooperatives acquired by
Agway, has been assumed by and retains its status in Agway by virtue
of the mergers and acquisitions at that time.
The Company maintains records of purchases by past and present
Agway member-patrons of Agway products. No Agway member is
entitled to a distribution of assets with respect to Retained Margin prior
to the dissolution of the Company. In the event of dissolution of the
Company and after payment in full of all debts and any amounts to
which holders of preferred stock, revolving fund certificates, and
common stock are entitled, pursuant to the provisions of the By-laws
of the Company, the Retained Margin will be distributed
proportionately among the Agway member-patrons in accordance with
their interests as reflected on the books of the Company and the books
of predecessor and certain acquired corporations.
<PAGE>12
Items 1 and 2. Business and Properties - Continued
STOCKHOLDER MEMBERSHIP AND CONTROL OF AGWAY
(continued)
The control of the affairs and business of Agway is vested in its
Board of Directors. All shareholder actions, except as otherwise
provided by law, including the election of directors, are determined by
the vote of Agway stockholder-members present by proxy or in person
at the annual meeting (or special meetings) of stockholders.
The Board of Directors numbers 18 persons, all of whom are
nominated on a district representation basis by 96 Agway Member
Committees. Each year, six directors are nominated on a district
representation basis by Agway Member Committees representing
members within the district. At each annual meeting of the
corporation, the stockholders elect six directors to fill the vacancies
resulting from the expiration of the terms of district directors and each
director so elected holds office for a term of three years. Although the
directors are nominated on a district representation basis by Agway
Member Committees, the persons so nominated are elected by the vote
of all members.
The Agway Council consists of the chairperson of each Agway
Member Committee and one other committee member appointed
annually by the chairperson. Being elected chairperson of one of these
committees automatically places a person on the Council and removal
as chairperson automatically removes him/her from the Council. The
Council meets formally with the Agway Board annually and serves as
liaison between the Agway Board, Agway management, and the
chairperson's committee. The objective of the Agway Council is to
improve member communications and to increase the effectiveness of
the committees.
PATRONAGE REFUNDS
(The term "purchasing," as referred to herein refers to the
buying of Agway farm supplies by Agway members and contract patrons.)
The By-laws of the Company provide that members and so-called
"contract patrons" shall be paid, after the close of each fiscal year,
patronage refunds in cash in an amount equal to realized net margin of
the Company (computed on a tax accounting basis) derived from sales
of farm supplies for the fiscal year after deduction of (a) such
reasonable reserves as the Board of Directors may determine to be
necessary for operating purposes and (b) amounts paid or set aside for
payments as dividends on issued and outstanding stock of the Company,
provided that the total of such refunds paid shall not exceed the total
net margin attributable to purchasing business conducted with such
members and contract patrons during the fiscal year. Each member
and contract patron shares the total patronage refunds in the proportion
which his/her purchases of farm supplies from the Company for the
year involved bears to the total farm supply business transacted with all
such members and contract patrons in such year. No patronage refunds
are payable with respect to marketing business done through Agway
except on a contract basis.
Pursuant to the Company's By-laws, the Board of Directors has
authorized the Company to enter into patronage refund contracts with
the following contract patrons: certain departments or agencies of state
governments and political subdivisions; the Federal Government; and
charitable, religious, and educational institutions engaged in the
production or utilization of agricultural products. The business done
with such contract patrons represents approximately 1% of the
Company's annual sales volume.
Members of Agway are entitled to patronage refunds on
purchasing business transacted directly with the Company as well as
business transacted through Agway representatives.
<PAGE>13
Items 1 and 2. Business and Properties - Continued
PATRONAGE REFUNDS (continued)
Retained Margin: All net margin (gross receipts reduced by all
operating expenses) of the Company remaining after provision for
payment of applicable income taxes, payment of dividends on issued
and outstanding stock of the Company, payment of patronage refunds
from purchasing activities, as well as all net margin from the business
activities of predecessors in interest to the Company retained as
reasonable reserves, represent the Retained Margin of the Company.
Such Retained Margin consists of:
(1) That portion of member margin (net margin derived from
purchasing business with members) undistributed to
member-patrons.
(2) Residual net margin attributable to nonmember patron
business and to marketing operations.
(3) All other income, including dividends and interest
from investments.
Item 3. Legal Proceedings
The Company and its subsidiaries are not involved in any material
pending legal proceedings other than ordinary routine litigation
incidental to the business except the following:
In March 1987, Benjamin Farber filed a third party complaint in
the U.S. District Court, District of New Jersey, against certain parties
formerly connected with an industrial site in South Kearny, New
Jersey. The United States of America, on behalf of the Environmental
Protection Agency (EPA), filed a complaint under the federal
Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) against Mr. Farber seeking reimbursement for
engineering studies, clean up costs, and future remedial work in
connection with alleged contamination of the South Kearny property.
Mr. Farber's action against Agway and others seeks contribution from
Agway and others. Agway, a former owner of the South Kearny
property, sold its remaining interest in 1966. Agway has executed a
consent decree with the EPA which should resolve Mr. Farber's claims
against Agway and potential claims by the EPA against Agway.
According to the consent decree, Agway's contribution to the
contamination of the South Kearny property, if any, was de minimis
and Agway agreed to pay the EPA a $300,000 settlement. The consent
decree should be entered by the Court in the near future. The New
Jersey Department of Environmental Protection (NJDEP) has also
demanded the clean up of the site. Agway believes the pending lawsuit
and the claim by the NJDEP will be satisfactorily resolved and any
adjustments will not be material in relation to the consolidated financial
position of Agway.
In February 1988, Agway leased a feed mill located in
Woodridge, New York from Inter-County Farmers Cooperative
Association, Inc. Agway manufactured horse, poultry, and dairy feed
at the feed mill. In early July 1989, due to a mechanical malfunction,
some horse feed manufactured at the feed mill was contaminated with
Monensin, a feed medication used with poultry and dairy feed but
which is harmful to horses. Agway immediately recalled the
contaminated horse feed and contacted regulatory agencies, including
the United States Food and Drug Administration (FDA). As a result
of eating the contaminated horse feed, a number of horses located in
the State of New Jersey died or were damaged. As of June 30, 1994,
all but one of the claims made by owners of the affected horses have
been settled. The pending lawsuit is John Kolkowski, et al. v. Agway
Inc., et al., filed on July 3, 1990 in Supreme Court of the State of New
York for Westchester County. The lawsuit includes claims for money
damages. On June 17, 1994, a previously pending lawsuit by a horse
owner against Agway, Orlando R. Petrocelli v. Agway Inc., et al.,
filed on August 5, 1991 in the Superior Court of New Jersey for
Mercer County, was settled. Agway agreed to pay Orlando R.
Petrocelli $24,500, which was covered by an insurance policy issued
to Agway. The FDA conducted an investigation of the incident and
referred the matter to the U.S. Department of Justice (DOJ) to consider
institution of criminal proceedings. Agway has had an opportunity to
present its views to the DOJ on why criminal proceedings should not
be instituted and the DOJ and FDA discussed with Agway resolution
of issues resulting from the FDA investigation. Agway believes the
pending lawsuit and the FDA investigation will be satisfactorily
resolved and any adjustments will not be material in relation to the
consolidated financial position of Agway.
<PAGE>14
Item 3. Legal Proceedings - Continued
In June 1990, the State of New York (NYS) commenced a lawsuit
in the New York State Supreme Court for Albany County against
Agway Petroleum Corporation, Speedsville Volunteer Fire Department,
and other defendants alleging they are strictly and jointly and severally
liable for $157,731 in cleanup and removal costs incurred by the New
York Environmental Protection and Spill Compensation Fund and
$200,000 in statutory penalties pursuant to the New York State
Navigation Law. NYS alleges that a gasoline storage system located
on property of the Speedsville Volunteer Fire Department discharged
gasoline which was detected in a nearby residential well. NYS also
alleges that the owners of the gasoline storage system included Agway
Petroleum Corporation and Speedsville Volunteer Fire Department.
Because Agway Petroleum Corporation believes that at no time did it
own the gasoline storage system and its gasoline did not contribute to
the contamination, Agway Petroleum Corporation denies NYS's
allegations and believes the relief sought by NYS against Agway
Petroleum Corporation is unjustified. Therefore, Agway Petroleum
Corporation intends to contest the allegations in the lawsuit.
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 Right-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 in the amount of $1,926,600. APC believes
the relief sought by the EPA is unjustified and has requested a hearing
to contest the allegations in the Administrative Complaint. In addition,
APC is continuing ongoing settlement discussions with the EPA to
attempt to resolve this matter.
In August 1994, the EPA notified Motor Transportation Services,
Inc. (MTS), an inactive indirect wholly owned subsidiary of Agway,
that the EPA has reason to believe that MTS is a potentially responsible
party (PRP) under 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 will respond 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 Agway, 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. Agway 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
There were no items submitted to a vote of security holders for
the three months ended June 30, 1994.
<PAGE>15
PART II
Item 5. Market For the Registrant's Common Equity and Related Stockholder
Matters
(a) Principal Market
There is no market for the equity securities of the
Company other than through its current practice of
repurchasing outstanding securities at par ($25) whenever
registered holders thereof elect to tender them for
redemption.
(b) Approximate Numbers of Holders of Common Stock
The number of holders of record of the Company's Common
Stock, as of September 7, 1994, is 110,854, of which
20,463 shares have been called for those holders no
longer meeting the membership eligibility requirements as
identified in Section 2.1(a) in the By-Laws of Agway Inc.
(c) Dividends Paid
An annual 6% dividend, or $1.50 per share, was paid on the
Company's Common Stock in fiscal 1994 and fiscal 1993.
(d) Limitations on Ownership and Availability of Net Margin to
Membership Common Stockholders
Refer to Items 1 and 2, "Business and Properties" sections
on "Stockholder Membership and Control of Agway" and
"Patronage Refunds."
Item 6. Selected Financial Data
The following "Selected Financial Data" of the Company and
Consolidated Subsidiaries has been derived from financial statements
audited by Coopers & Lybrand L.L.P., whose reports for the periods ended
June 30, 1994, 1993 and 1992 are included elsewhere in the 10-K, and
should be read in conjunction with the full financial statements of the
Company and Notes thereto included under Item 8.
<TABLE>
<CAPTION>
(In Thousands of Dollars Except Per Share Amounts)
-----------------------------------------------------------------------
Years Ended June 30,
1994 1993 1992 1991 1990
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales and revenues (1) . . $ 1,694,978 $ 1,720,594 $ 1,815,735 $ 1,986,253 $ 1,984,770
Margin (loss) from
continuing operations (2). . $ 696 $ 25,727 $ (44,571) $ 666 $ 18,821
Net margin (loss) (3). . . . . $ (3,304) $ 19,750 $ (58,813) $ (6,420) $ 8,102
Total assets (1) . . . . . . . $ 1,274,314 $ 1,223,462 $ 1,204,037 $ 1,211,097 $ 1,125,774
Long-term debt . . . . . . . . $ 176,567 $ 150,107 $ 155,405 $ 168,058 $ 156,244
Long-term subordinated debt. . $ 372,673 $ 379,619 $ 349,116 $ 303,337 $ 266,816
Preferred stock. . . . . . . . $ 71,338 $ 53,474 $ 64,522 $ 64,384 $ 61,698
Cash dividends per share
of common stock . . . . . . $ 1.50 $ 1.50 $ 1.50 $ 1.50 $ 1.50
</TABLE>
(1) Certain amounts reported in fiscal years ended June 30, 1991-1993 have
been reclassified to conform to current year presentation.
(2) 1994 data reflects the adoption of Statement of Financial Accounting
Standard No. 106, "Accounting for Postretirement Benefits Other Than
Pensions." See Note 13 to the financial statements.
(3) 1992 data reflects a $75,000 pre-tax charge for business
restructuring; 1994 data reflects a $6,065 pre-tax credit from
business restructuring. See Note 3 to the financial statements.
<PAGE>16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Thousands of Dollars)
The following discussion refers to Agway Inc. and Consolidated
Subsidiaries and should be read in conjunction with "Selected Financial
Data," "Segment Reporting," (reference is made to Note 14 to the
financial statements), "Discontinued Operations" (reference is made to
Note 17 to the financial statements) and the Financial Statements of the
Company and Notes thereto. The purpose of this discussion is to
outline the most significant factors having an impact upon the results
of operations, the liquidity and the capital resources of the Company
for fiscal years ended June 30, 1992 through June 30, 1994.
RESTRUCTURING OF OPERATIONS
The operations of the Company are conducted directly and through
its subsidiaries and affiliates under the Agriculture & Consumer,
Energy, and Financial Services Groups described below. In 1992, the
Company initiated Customer Driven: 1995...Focusing on the 21st
Century (the "Project") to restructure the Company to better focus on
its members and customers and to re-engineer the Company's business
processes to improve future profitability. These restructuring measures
included a reduction in personnel; plants; stores; and adjustments to net
realizable values of certain assets which were disposed; and resulted in a
pre-tax restructuring charge of $75 million in the fourth quarter of fiscal
1992, the amount estimated at that time to be necessary to accomplish
Project goals.
Project initiatives for the Agriculture & Consumer Group were
primarily focused on transferring the marketing, sales, and related
operating assets of agricultural products, previously conducted through
retail operations, to agricultural hubs and dedicated customer service
centers. These initiatives, designed to facilitate customer order entry
and improve customer service, were implemented over the period from
October 1992 through October 1993 and have increased the cost of
operations during the course of their implementation. An additional
initiative focused on merging 53 local store cooperatives into Agway,
which was substantially completed in the fourth quarter of fiscal 1993,
to provide strategic positioning in the marketplace. This initiative had
the effect of incrementally increasing sales, gross margins and expenses
in fiscal 1994 over preceding periods. Finally, the Agriculture &
Consumer Group closed, consolidated and/or converted various
facilities to focus assets and capital into selected markets and to
eliminate duplication. For the Energy Group, Project initiatives were
primarily divestitures of retail locations in an effort to focus assets and
capital in selected markets. In addition, sales to commercial accounts
were refocused away from price-oriented accounts to service-oriented
accounts. Other initiatives included personnel reductions through an
early retirement program and changes in work practices, as well as a
reduction in selected corporate assets through sale and/or disposal of
excess assets.
During the two years ended June 30, 1994, the Company has
implemented a substantial portion of its original 1992 restructuring
plans with modifications, revisions and refinement as determined to be
appropriate during this detail implementation period. The more
significant revisions related to retention of certain locations originally
targeted for divestiture reducing estimated disposal costs by
approximately $8,400, and excess personnel and equipment relocation
costs of approximately $6,200. These reductions were partially offset
by additional corporate costs, principally outside consulting fees, of
$6,800; severance and other costs in connection with personnel
reductions of $1,500; and other miscellaneous costs of $200. As of
June 30, 1994, the Company estimates that $19,300 of remaining
reserves are required to complete the Project initiatives relating
principally to the demolition and divestiture of selected properties and
related costs. With a substantial number of the initiatives completed,
the Company now estimates the total cost of the Project will be $6.1
million less than the initial $75 million. In the fourth quarter of fiscal
1994, therefore, excess accruals of $6.1 million were credited to
operating earnings.
DISCONTINUED OPERATIONS
On March 23, 1993, the Agway Board of Directors authorized
management to sell the Company's interest in Curtice Burns Foods,
Inc. (Curtice Burns) and H. P. Hood Inc. (Hood). Management and
the Board had specific plans for the divestiture of these operations and
expected to divest of both investments in fiscal 1994; however, due to
unanticipated occurrences, neither transaction was consummated by June
30, 1994. Management and the Board continue to execute their plans for
sale and expect to consummate the transactions
<PAGE>17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Continued
(Thousands of Dollars)
within the next fiscal year. Accordingly, these operations are reflected
as discontinued operations for all periods presented. Agway's decision
to sell these operations is part of the overall strategic plan of focusing
on its agriculture, consumer, energy, insurance, and leasing businesses.
At June 30, 1994, a $4,000 loss on the disposal of both com-
panies was recognized as a result of recent developments regarding the
anticipated terms of the sales transactions. This loss recognizes
changes in the estimate of the net selling price anticipated on the sale
of Curtice Burns as a result of a competitive bidding process and on the
anticipated sale of Hood due to the downturn in the Northeast dairy market
and the impact on Hood's operating results. Other additional factors
are the changes in estimates of the related transaction costs and
estimates in operating results during the estimated holding periods.
Actual results of discontinued operations for fiscal 1994 were
a loss of $8,400. Actual results through the originally planned disposal
dates of an $800 loss differed from the $5,500 estimated income
principally due to a significant downturn in the Northeast dairy market
which adversely impacted Hood's operating results. This downturn,
which continues, and the development of contractual disputes between
Curtice Burns and Pro-Fac Cooperative Inc. (Pro-Fac) affecting the
bidding process for the sale of Curtice Burns are the principal reasons
which delayed the disposal process and caused the Company to re-
evaluate its planned disposal dates into fiscal 1995. (See Note 17 to the
financial statements).
Curtice Burns Foods, Inc.
With respect to Curtice Burns, at its meeting held on August 9
and 10 of 1993, the Curtice Burns Board of Directors authorized its
management, with advice of financial and legal advisors, to pursue
strategic alternatives for Curtice Burns. The three viable alternatives
that the Company pursued included (i) the possible sale of all of Curtice
Burns' equity to a third party, (ii) negotiation with Pro-Fac relative
to Pro-Fac acquiring control of Curtice Burns, and (iii) the
implementation of additional restructuring actions that may
include recapitalizing Curtice Burns to terminate an agreement (the
"Integrated Agreement) and buy out Pro-Fac. Under the Integrated
Agreement with Pro-Fac, title to substantially all of Curtice Burns'
fixed assets is held by Pro-Fac, and Pro-Fac provides a major portion
of the financing of Curtice Burns' operations. Under the Integrated
Agreement, Curtice Burns has an option to terminate the Integrated
Agreement and to purchase these assets from Pro-Fac at their book
value at the time of purchase. In addition, in the event of such a
termination, Curtice Burns would be required to repay all of the debt
owed to Pro-Fac. As Curtice Burns has pursued its alternatives, Pro-
Fac has made it clear that in connection with the possibility that Curtice
Burns, or a third party buyer of Curtice Burns, may decide to exercise
the Integrated Agreement's termination option, Pro-Fac intends to
dispute Curtice Burns' right to terminate and the amount Pro-Fac is to
receive as the result of termination.
From May through July 1993, Agway, Curtice Burns and Pro-Fac
preliminarily discussed possible acquisition proposals involving Pro-
Fac, although no acceptable progress was made. From August 1993
through December 1993, the strategic alternatives described above were
evaluated and the Board of Directors of Curtice Burns concluded that
it was in the best interest of all stockholders to invite interested buyers
to bid for Curtice Burns, rather than pursuing a recapitalization of
Curtice Burns to buy out Pro-Fac. In November 1993, Curtice Burns
retained Goldman, Sachs & Co. and Donaldson, Lufkin and
Jenrette as financial advisors in connection with the sale of Curtice
Burns. At that time, Agway agreed not to seek a separate sale of its
Curtice Burns shares while the sale of the Curtice Burns was in progress.
In the quarter ended March 1994, Curtice Burns, along with its
financial advisors, made a request for proposals from qualified bidders.
On June 8, 1994, Pro-Fac submitted a bid for $16.87 per share;
however, the Curtice Burns Board of Directors voted to pursue a
proposal from Dean Foods Company (Dean Foods) to acquire all the
outstanding shares of common stock of Curtice Burns at a maximum
cash price of $20 per share, subject to a number of contingencies,
including an agreement with Pro-Fac covering the termination of the
Integrated Agreement, an agreement with Hormel Foods Corporation
for the purchase of the Nalley's Fine Foods division of Curtice Burns,
clearance of the transaction by appropriate government agencies,
negotiation of definitive agreements and approval of any transaction by
Curtice Burns' shareholders.
<PAGE>18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
(Thousands of Dollars)
DISCONTINUED OPERATIONS (continued)
Curtice Burns Foods, Inc. (continued)
As a result of Pro-Fac's unwillingness to enter into
the agreement required by Dean Foods, on July 11, 1994,
Curtice Burns commenced arbitration proceedings against
Pro-Fac under the Integrated Agreement. On August 3, 1994,
Pro-Fac responded to Curtice Burns' claims and served the
Company with counterclaims in the arbitration proceedings.
On August 4, 1994, Pro-Fac submitted a proposal for
acquisition of all the outstanding stock of Curtice Burns
for $19.00 per share in cash, and upon acceptance of the
offer, Pro-Fac would relinquish its claims against Curtice
Burns. The contingencies of this Pro-Fac offer involve
shareholder approval and financing.
On September 2, 1994, Pro-Fac submitted a
revised proposal to acquire all the outstanding shares for
$19 per share, in cash; Pro-Fac stated that the proposal had
been approved by its members, but that its offer
remained subject to financing, including the sale of high-
yield subordinated debt.
As of the date hereof, both Pro-Fac and Dean Foods have
indicated a continued interest in acquiring Curtice
Burns and the Curtice Burns Board of Directors is actively considering
proposals from Pro-Fac and Dean Foods. As a result, Agway expects the
sale of Agway's interests in Curtice Burns within this fiscal year,
though the complications brought on by the disputes with Pro-Fac have
delayed this sale to date and may further extend the process.
H. P. Hood Inc.
Agway had expected to consummate its sale of Hood by Decem-
ber 1993 to an investor group led by the management of Hood in a
transaction expected to involve the use of an employee stock ownership
plan. Financing for the investor group was delayed in December 1993,
and the make-up of the investor group was reconstituted by February
1994. A downturn in the Northeast dairy market adversely impacted
Hood operating results starting in November 1993 and caused a
reassessment of the terms of sale and terms for the various members
of the investor group, further delaying the transaction. The adverse
operating results continued through year-end, causing further delay,
while Hood management developed financial plans to deal with the
marketplace change. The investment 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. A transaction is expected to consummate within this next fiscal
year.
Hood has restrictive financial covenants related to financing
arrangements. As of June 30, 1994, Hood was in violation of certain
of these covenants and has obtained amendments or waivers for all
violations. In connection with ongoing financing of Hood, in Septem-
ber 1994 Agway agreed to guarantee an additional $10,000 of debt
facilities of Hood until the sale of the operation is consummated.
The financial impact of the planned divestitures is discussed in
more detail in Note 17 of the accompanying financial statements.
<PAGE>19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Continued
(Thousands of Dollars)
RESULTS OF OPERATIONS
The following discussions relate solely to the Company's
continuing operations.
Operating Summary
Consolidated net sales and revenues decreased $25,600 (1.5%) in
fiscal 1994 and $95,100 (5.2%) in fiscal 1993. The decrease in fiscal
1994 was principally due to decreased revenues in the Energy Group,
offset in part by increases in the Company's Agriculture & Consumer
Group. In fiscal 1993, consolidated net sales and revenues declined
principally due to decreased revenues from the Energy Group. The
Energy Group revenue decreases in 1994 of $82,100 and in 1993 of
$92,900 were primarily associated with planned divestitures of retail
locations and a refocus away from price-oriented commercial accounts
to service-oriented business. The $60,800 sales increase in fiscal 1994
from the Agriculture & Consumer Group reflects approximately
$46,900 from the full-year operation of the store corporations, which
were acquired primarily in the fourth quarter of 1993 and the first
quarter of fiscal 1994.
Consolidated operating costs and expenses in fiscal 1994, 1993
and 1992 were $1,668,000, $1,679,000 and $1,851,800, respectively,
representing a decrease over the prior year of $11,000 (.7%) in 1994
and a decrease of $172,800 (9.3%) in 1993. Operating costs and
expenses were favorably impacted by a restructuring credit of $6,100
in fiscal 1994 and adversely impacted by a restructuring charge of
$75,000 in fiscal 1992. Without regard to the restructuring cred-
it/charge, total operating expenses as a percent of total net sales and
revenues were 98.8%, 97.6% and 97.9%, respectively, in fiscal 1994,
1993 and 1992. In fiscal 1994, selling, general and administrative
costs increased by $17,500 (12.7%) as the Agriculture & Consumer
Group incurred increased costs to administer the newly acquired store
corporations and additional costs in connection with the marketing,
selling and operating practices of the newly segregated agriculture and
consumer retail groups.
Interest expense, net of interest income and amounts allocated
to discontinued operations (see Note 1), in fiscal 1994, 1993 and 1992
was $27,800, $27,300 and $26,800, respectively, and remained
relatively constant as increased average borrowings were offset by
lower interest rates in fiscal 1994 and 1993.
Other income in fiscal 1994, 1993 and 1992 was $5,700, $4,600
and $12,300, respectively. In fiscal 1993, other income was adversely
impacted by a loss on disposal of property and equipment of $1,200.
Fiscal 1992 other income was favorably impacted by a non-recurring
$7,300 receipt of a defined payout component from the 1988 sale of
Texas City Refining Inc.'s refining operations.
Pre-tax margins (loss) from continuing operations were $4,900,
$18,800 and $(50,500) in fiscal 1994, 1993 and 1992, respectively.
The decrease in pre-tax margins in fiscal 1994 resulted primarily from
an operating loss incurred by the Company's Agriculture & Consumer
Group which was offset, in part, by improved operating results from
the Energy Group. Fiscal 1993 pre-tax margins of $18,800 increased
$1,700 (9.8%) over 1992 results before non-recurring restructuring
charges of $75,000 and the receipt of $7,300 related to the deferred
payout component from the sale of Texas City Refining Inc.
Income tax expense (benefit) was $4,200, $(6,900) and $(6,000)
in fiscal 1994, 1993 and 1992, respectively, for an effective rate of
85.8%, (36.7%) and 11.8%. In fiscal 1994, the effective rate was
adversely impacted by state income taxes, as the Company does not file
combined returns for many of its subsidiaries. Therefore, for state
income tax purposes, the Company was unable to recognize the benefit
of operating losses from certain subsidiaries to offset state tax on
income from other operations. The 1993 benefit was principally the
result of an adjustment of a prior year tax accrual no longer deemed
necessary and the reversal of a $6,400 deferred tax asset valuation
allowance established in 1992. The reversal of the valuation allowance
is due to a change in circumstances attributable to future taxable income
from the sale of discontinued subsidiary investments.
<PAGE>20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Continued
(Thousands of Dollars)
RESULTS OF OPERATIONS (continued)
Agriculture & Consumer Group
Project initiatives for the Agriculture & Consumer Group were
primarily focused on transferring the marketing, sales and related
operating assets of agricultural products, previously conducted through
retail operations, to agricultural hubs and dedicated customer service
centers. This transition was completed in fiscal 1993 in New England
and Pennsylvania and was completed in New York in the first half of
fiscal 1994. An additional initiative focused on merging 53 local store
cooperatives into Agway, which was substantially completed in the
fourth quarter of fiscal 1993, which increased sales, gross margins and
expenses. In addition to completing the New York transition, the fiscal
1994 initiatives for the Group centered around designing and, to some
degree, implementing the streamlining of operating and administrative
processes through reviews of supply chain management, product
category management, and warehousing systems; closing, consolidat-
ing, or converting facilities to focus assets and capital in selected
markets and eliminate duplication; and sales enhancement through
customer service and quality reviews.
Total net sales and revenues for the Agriculture & Consumer
Group were $1,071,700, $1,010,900 and $1,002,100 for fiscal years
1994, 1993 and 1992, respectively. Net sales and revenues increased
6.0% in fiscal 1994 due to the acquisition of 53 store corporations,
primarily in the fourth quarter of fiscal 1993, which incrementally
increased sales, gross margins and expenses over the preceding year;
and to volume and price increases in the Group's Country Foods
business unit. Total net sales and revenues for the Group's agriculture
business remained relatively constant with the prior year. Gross
margins for the Group declined slightly in fiscal 1994 due to competi-
tive market conditions in the Group's northeast service area.
Total net sales and revenues for fiscal 1993 increased $8,800
(.9%) from 1992 revenues. Feed revenues and tonnage in the
Agriculture unit increased as customers responded positively to the new
Agriculture hub Project strategy put into effect in fiscal 1993. Seed
revenues dropped due to the sale of two seed subsidiaries in fiscal
1993. Consumer Retail/Wholesale revenues increased for farm and
animal health products and yard and garden supplies. In addition, retail
sales were increased due to the mergers of 46 local cooperatives into
Agway, partially offset by decreases from the closure of nine store
facilities. Country Foods sales improved over 1992 primarily due to
favorable results in the Florida potato repack operations.
The Agriculture & Consumer Group incurred an operating loss of
$7,100 in fiscal 1994 ($11,800, excluding a restructuring credit of
$4,700) as compared to an operating profit of $13,400 in fiscal 1993
and an operating loss of $29,500 ($13,200 profit, excluding a restruc-
turing charge of $42,700) in fiscal 1992. The change in operating
results from 1993 to 1994 reflects the decline in gross margin,
increases in costs due to inflationary increases, plus increases incurred
on transferring the marketing, sales, and related operating assets of
agricultural products, previously conducted through retail operations,
to agricultural hubs and dedicated service centers. These changes to
improve customer service have increased the costs of operations during
the course of implementation.
Operating margins of $13,400 for 1993 represent a slight
improvement over the 1992 operating loss of $29,500 ($13,200 profit,
excluding a restructuring charge of $42,700).
Energy Group
In fiscal 1993, divestitures of 19 locations were completed, and
during fiscal 1994, divestitures of 4 retail locations were completed as
part of the Project strategy to focus assets and capital in selected
markets. In addition, refocusing of sales to commercial accounts away
from price-oriented accounts to service-oriented businesses continued
to occur. As expected, this continues to decrease sales volume but had
a favorable impact on per unit gross margins realized.
<PAGE>21
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Continued
(Thousands of Dollars)
RESULTS OF OPERATIONS (continued)
Energy Group (continued)
Total net sales and revenues for fiscal 1994 of $556,000
decreased $82,100 (12.9%) as compared to fiscal 1993, primarily due to
planned plant divestitures ($40,700) and reduced gas and diesel sales to
low-margin, high-volume commercial customers. Heating oil and propane
sales decreased $5,800 due to a volume increase of 1.2%, offset by a
selling price decrease of 3.1%. In total, sales volume was down
29,800 gallons (4.8%) primarily for gas and diesel fuels, after
accounting for divestitures, and the average price per unit was down
5.5 cents per gallon (7.9%), which decreased revenues by approximately
$41,400.
Total sales and revenues for fiscal 1993 of $638,200 decreased
$92,900 (12.7%) as compared to fiscal 1992 due to planned divestitures
($35,700) and planned decreases in high-volume, low-margin commer-
cial accounts. While the average selling price for propane decreased
in 1993 compared to 1992 due to a change in customer mix, propane
sales increased due to higher volumes, particularly to farmers for crop
drying. In total, sales volumes were down 81,100 gallons (10.9%)
primarily for gas, diesel, and heating oil, after accounting for divesti-
tures. The average price per unit was up 2.2 cents per gallon (2.3%)
which offset these volume decreases.
Despite the unit volume and selling price declines, the Energy
Group realized an improvement in operating margins of $18,300
($4,800, excluding a restructuring credit of $13,500) in the 1994 fiscal
year as compared to the previous fiscal year. Gross margins as a
percentage of net sales and revenues increased by 1.3% in fiscal 1994
as compared to the prior fiscal year, and total costs and expenses for
the Group declined in fiscal 1994 as a result of the above changes.
Operating margin of $22,700 in fiscal 1993 increased by $10,500
as compared to $12,100 ($19,600, excluding a restructuring charge of
$7,500) in fiscal 1992. The increase in operating margin before
restructuring of $3,100 is due primarily to reductions in operating and
distribution expense ($6,400) and increased gross margins from
undivested operations ($2,100), offset by a reduction in gross margins
of $9,400 in divested plants.
Financial Services
The Financial Services Group consists of Telmark, a leasing
subsidiary; Agway Insurance, a property and casualty insurance
subsidiary; and Agway General Agency, a subsidiary which markets
accident and health insurance products and administers health insurance
programs.
Total net sales and revenues for fiscal 1994 decreased $4,300
(6.2%) to $65,800 as compared to the prior year. The decrease,
primarily attributed to the Agway Insurance Company and the Agway
General Agency, is generated by the termination of reinsurance
assumed contracts of $1,400, increased reinsurance ceded treaties of
$400, a decline of $1,000 in investment earnings, and a decline in
administrative fees of $500 due to a declining base of participants in the
Agway member group health insurance plan. In addition, Telmark
revenues declined $500 as compared to fiscal 1993 due to the effect of
portfolio sales in 1994 and 1993 and the effect of lower lease rates
charged on new business in fiscal 1994.
Total net sales and revenues for fiscal 1993 for the Financial
Services Group declined $7,500 (9.7%) as compared to fiscal 1992.
The decline was attributed to a decrease in Telmark revenues of $3,700
due to reduced revenue streams resulting from portfolio sales, which
was partially offset by slight volume growth, and a decrease of $3,800
in property and casualty insurance revenues due to reductions in
investment income and administrative fees.
<PAGE>22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Continued
(Thousands of Dollars)
RESULTS OF OPERATIONS (continued)
Financial Services (continued)
In fiscal 1994, operating margins for the Group declined $700
(5.9%) as compared to the prior year. The decrease is primarily
attributed to Telmark due to a lower gain on portfolio sale in 1994 of
$500 versus a 1993 gain of $1,200. The Agway Insurance Company
revenue decline from the reinsurance termination was offset by an equal
reduction in costs and expenses with no impact on operating margin.
In fiscal 1993, operating margins for the Group improved $3,900
(55.5%) as compared to fiscal 1992. Although revenues decreased for
the insurance operations, expenses were controlled accordingly,
resulting in only a small deterioration in operating margins. Telmark's
margins improved due primarily to a reduction in its bad debt expense
from $12,600 in 1992 to $4,700 in 1993, offset by somewhat smaller
gains on sale of its lease portfolio, the reduced revenue stream from the
1992 portfolio sale, and lower than historical interest spreads on its
current year leasing activities due to tighter competition.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash flows from operating activities for the fiscal year ended
June 30, 1994 increased by $1,200 to $16,600. This increase was caused
primarily by an increase in cash flows associated with operating assets
and liabilities, offset by a decline in operating margin of $23,100 in
fiscal 1994 as compared to 1993. Net cash utilized in investing
activities increased to $70,800 from $5,000 in fiscal 1993. This
increase resulted from an increase in net leasing activity of $43,500
combined with a reduction in proceeds from property, plant and
equipment disposals of $16,400 as compared to the prior year. As a
result of cash utilized in investing activities, net long-term borrowings
increased $64,500 while short-term borrowings declined by $7,800.
Increased short-term borrowings in the prior year of $23,100 resulted
from a decrease in long-term borrowings of $17,200 combined with a
redemption of $12,500 of capital stock issued in connection with an
acquisition in a prior year.
The Company is committed to continue to streamline operations
and introduce new technology to meet the needs of its customers and
the challenges of operating a more cost-effective and efficient company
in the future. In the next two fiscal years, the Company expects to
spend approximately $22 million to design and implement new
processes and information systems. The Company expects to benefit
from these changes through reduced personnel expenses, lower levels
of operating assets through a more effective method of handling
products and services, and the elimination of overhead costs through
the use of integrated systems.
In October 1994, $34,500 of subordinated debt issued by the
Company matures. The Company expects to either refinance this debt
through a new issue of subordinated debt, fund it through short-term
bank borrowings, or a combination of both. Other current maturities
of long-term debt, which relate principally to leasing operations, will
be funded through a combination of cash from operations, bank or
insurance company borrowings, or the issuance of public debentures.
The Company anticipates that cash flow from the sale of discon-
tinued operations will be used to reduce short-term indebtedness.
Debt
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 Agway 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
<PAGE>23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Continued
(Thousands of Dollars)
LIQUIDITY AND CAPITAL RESOURCES (continued)
Debt (continued)
companies, subordinated debt, and capital leases. In addition, Telmark has
occasionally sold blocks of its lease portfolio. On February 1, 1994,
Telmark's registration of its offering to the public of $25,000 of
debentures, due December 31, 1997, with the Securities & Exchange
Commission became effective. The debentures are unsecured,
subordinated to all senior debt at Telmark, and are not guaranteed by
Agway nor any of Agway's other subsidiaries. The offering of the
debentures are not underwritten, and there can be no guarantee as to
the amount of debentures to be sold. The proceeds of the offering will
be used to provide financing for Telmark's leasing activities. As of
June 30, 1994, approximately $3,700 of debentures were sold.
In fiscal 1994, the Company renegotiated and renewed certain of
its bank loan agreements through October 28, 1994. Adequate lines of
credit of $149,250 were available to the Company as of June 30, 1994
under the new agreements as compared to lines of credit of $158,000
in the prior agreements. This includes retention of a commercial paper
facility of $50,000. Subsequent to June 30, 1994, certain of AFC's
credit lines were no longer available such that, at September 1, 1994,
total Company short-term credit availability is $128,000, which is
adequate to meet the Company's immediate needs.
Certain of these agreements, upon the occurrence of certain
defined events, give the lenders the right to perfect a security interest
in certain of the Company's accounts receivables and non-petroleum
inventories. Amounts which can be drawn under these agreements are
limited to a specific calculation based upon the total of these 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 to Company
to maintain specific monthly levels of interest coverage and tangible net
worth. In September 1994, waivers were obtained effective as of June
30, 1994 and covering through August 1994, and amendments were
obtained for September and October 1994, for a specific covenant
violation within AFC's ongoing short-term credit facilities. In addition,
at June 30, 1994, a lien event occurred and the continuing banking
institutions are in the process of perfecting a security interest in
certain accounts receivable and non-petroleum inventories of the Company.
Negotiations are expected to continue through October 1994, and it is
management's expectation that appropriate credit facilities will be in
place to meet the ongoing needs of the Company.
Capital Expenditures
Capital expenditures were $32,700, $28,800 and $35,200 in fiscal
1994, 1993 and 1992, respectively. Planned capital expenditures are
focused on technological enhancements and continued upgrading of
facilities and equipment in the next fiscal year. In the Company's
existing agreements with its lenders, capital expenditures are limited to
$45,000 on a rolling twelve-month basis. The Company is currently
negotiating this requirement and believes it will have adequate funding
to meet its requirements. The Company anticipates its capital needs
will be provided from operating cash flow and supplemented from
external borrowings as required.
OTHER MATTERS
Debt and Equity Securities
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," effective for fiscal
years beginning after December 15, 1993. SFAS No. 115 addresses
the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. Management anticipates that the implementation of SFAS No.
115 will not have a material effect on the Company's results of
operations and financial position.
<PAGE>24
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Continued
(Thousands of Dollars)
OTHER MATTERS (continued)
Postretirement Benefits Other Than Pensions
Effective July 1, 1993, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," which requires employers to accrue the cost of providing
postretirement benefits other than pensions during the period employees
are expected to earn the benefit. The Company is recognizing the
related transition benefit obligation over 20 years. As a result of the
adoption of SFAS No. 106, pre-tax income in fiscal 1994 was reduced
by approximately $3,800. The change had no impact on cash flow.
Environmental Issues
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. Agway 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, Agway
expects that it will incur other expenses associated with environmental
compliance.
The Company continually monitors its operations with respect to
potential environmental issues, including changes in legally mandated
standards and remediation technologies. Agway'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. Although settlement of the reserves
will cause future cash outlays based upon current estimates, it is not
expected that such outlays will materially impact the Company's
liquidity position.
As part of its long-term environmental protection program, the
Company spent approximately $5 million in fiscal 1994 on capital
projects. The Company estimates that during fiscal 1995 and 1996
approximately $4 million per year will be spent on additional capital
projects for environmental protection. These estimates recognize the
additional capital required to comply with 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 million. The total capital require-
ments may change due to the actual number of USTs actively in use on
the effective date.
<PAGE>25
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Pages
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES:
Report of Management. . . . . . . . . . . . . . . . . . . 26
Independent Accountants' reports. . . . . . . . . . . . . 27
Consolidated Balance Sheets, June 30, 1994 and 1993 . . . 30
Consolidated Statements of Operations, for the fiscal
years ended June 30, 1994, 1993 and 1992. . . . . . . 31
Consolidated Statements of Changes in Shareholders' Equity,
for the fiscal years ended June 30, 1994,
1993 and 1992. . . . . . . . . . . . . . . . . . . . . 32
Consolidated Cash Flow Statements for the fiscal years
ended June 30, 1994, 1993 and 1992 . . . . . . . . . . 33
Notes to Financial Statements . . . . . . . . . . . . . . 34
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
This item is inapplicable.
<PAGE>26
REPORT OF MANAGEMENT
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting principles
by management of the Company. The integrity and objectivity of the
data in these financial statements, including estimates and judgments,
are the responsibility of management, as is all other information
included in this annual report.
The consolidated financial statements of Agway Inc. and Consoli-
dated Subsidiaries have been audited by Coopers & Lybrand L.L.P., indepen-
dent auditors, who relied on the opinions of Price Waterhouse L.L.P.,
independent auditors, as it relates to Curtice Burns Foods, Inc. and H.
P. Hood Inc., both subsidiaries reflected as discontinued operations.
Their reports follow. Management has made available to Coopers &
Lybrand L.L.P. all of the Company's financial records and related data, as
well as the minutes of directors' meetings. Furthermore, management
believes that all representations made to Coopers & Lybrand L.L.P.during
its audit were valid and appropriate.
Management has established and maintains a system of internal
accounting controls that provides reasonable assurance as to the
integrity and reliability of the financial statements and that the
Company's assets are safeguarded from unauthorized use or disposition.
Management continually monitors the system of internal accounting
controls for compliance and to assure that organizational arrangements
provide an appropriate division of responsibility.
The Budget & Audit Committee of the Board of Directors, which
consists of six directors who are not employees, meets periodically with
management and the independent auditor to review the manner in which
they are performing their responsibilities and to discuss auditing,
internal accounting controls, and financial reporting matters. The
independent auditor has free access to the Budget & Audit Committee.
PETER J. O'NEILL DONALD P. CARDARELLI
Senior Vice President Executive Vice President and
Finance & Control Chief Operating Officer
September 22, 1994 September 22, 1994
<PAGE>27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Agway Inc.:
We have audited the consolidated balance sheets of Agway Inc.
and Consolidated Subsidiaries as of June 30, 1994 and 1993, and the
related consolidated statements of operations, changes in shareholders'
equity and cash flows for the years ended June 30, 1994, 1993 and
1992. These financial statements are the responsibility of the Com-
pany's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the
financial statements of Curtice Burns Foods, Inc. or H. P. Hood Inc.
for the years ended June 30, 1994, 1993 and 1992, both presented as
discontinued operations. Such statements (not presented separately
herein) reflect total assets amounting to $611,214,000 and
$656,174,000 at June 30, 1994 and 1993, respectively, and total
revenues amounting to $1,322,119,000, $1,438,153,000 and
$1,471,959,000 for the years ended June 30, 1994, 1993 and 1992,
respectively. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates
to the amounts included for these subsidiaries prior to any adjustment
to reflect the respective subsidiaries as discontinued operations, is based
solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Agway Inc. and
Consolidated Subsidiaries, as of June 30, 1994 and 1993 and the results
of their operations and their cash flows for the years ended June 30,
1994, 1993 and 1992 in conformity with generally accepted accounting
principles.
As discussed in Note 13 to the financial statements, the Company
changed its method of accounting for postretirement benefits in fiscal
1994 by adopting Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits other Than
Pensions."
COOPERS & LYBRAND L.L.P.
Syracuse, New York
September 22, 1994
<PAGE>28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of H. P. Hood Inc.:
In our opinion, the accompanying Consolidated Balance Sheets and the
related Consolidated Statements of Operations and Retained Earnings
(Deficit) and of Cash Flows (not presented separately herein) present
fairly, in all material respects, the financial position of H. P. Hood Inc.
and its subsidiaries (the "Company") at June 25, 1994 and June 26,
1993, and the results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted
auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
As discussed in Note 1 to the financial statements, the Company
changed its method for accounting for postretirement benefits in fiscal
1994 by adopting Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits other Than
Pensions".
Price Waterhouse LLP
Boston, Massachusetts
August 3, 1994, except as to Note 8,
which is as of September 19, 1994.
<PAGE>29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
Curtice Burns Foods, Inc.
In our opinion, the consolidated balance sheets and the related
consolidated statements of income and retained earnings and cash flows
(not presented separately herein) present fairly, in all material respects,
the financial position of Curtice Burns Foods, Inc. and its subsidiaries
at June 25, 1994 and June 26, 1993, and the results of their operations
and their cash flows for each of the three fiscal years in the period
ended June 25, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted
auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
As discussed in Notes 2 and 4 to the consolidated financial statements,
several disputes currenly exist between the Pro-Fac Cooperative,
Inc. and the Company. The Company has requested arbitration to
resolve the disputes with Pro-Fac Cooperative, Inc. Additionally, two
competing offers to acquire the outstanding common stock of the
Company have been made.
In connection with our examination of the consolidated financial
statements mentioned above, we also examined the schedules (not
presented separately herein) listed in the accompanying index of
financial statement schedules. In our opinion, these financial statement
schedules present fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated
financial statements.
PRICE WATERHOUSE LLP
Rochester, New York
August 10, 1994 (except as to Note 3, which is as of September 22, 1994)
<PAGE>30
<TABLE>
<CAPTION>
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1994 and 1993
(Thousands of Dollars)
ASSETS
1994 1993
------------ -------------
<S> <C> <C>
Current assets:
Cash and equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 771
Trade notes and accounts receivable, less allowance for doubtful
accounts of $12,656 and $13,267, respectively. . . . . . . . . . . . 224,406 212,196
Leases receivable, less unearned income of $33,209 and $28,717,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,744 75,243
Uncollected insurance premiums. . . . . . . . . . . . . . . . . . . . . 9,936 9,953
Advances and other receivables. . . . . . . . . . . . . . . . . . . . . 25,819 26,271
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,664 181,859
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,805 72,450
------------ -------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 598,374 578,743
Marketable securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 33,943 34,532
Other security investments . . . . . . . . . . . . . . . . . . . . . . . . 36,226 34,102
Properties and equipment, net. . . . . . . . . . . . . . . . . . . . . . . 249,369 259,980
Long-term leases receivable, less unearned income of $51,775 and
$41,253, respectively . . . . . . . . . . . . . . . . . . . . . . . . . 191,654 155,544
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,965 73,473
Net assets of discontinued operations. . . . . . . . . . . . . . . . . . . 84,783 87,088
------------ -------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,274,314 $ 1,223,462
============
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
1994 1993
------------ -------------
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,800 $ 70,600
Current installments of long-term debt. . . . . . . . . . . . . . . . . 76,537 66,039
Subordinated debt, current. . . . . . . . . . . . . . . . . . . . . . . 34,471
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,679 95,735
Unearned insurance premiums . . . . . . . . . . . . . . . . . . . . . . 16,868 17,096
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . 121,147 127,103
------------ -------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 436,502 376,573
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,567 150,107
Subordinated debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372,673 379,619
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,746 121,762
Commitments and contingencies. . . . . . . . . . . . . . . . . . . . . . .
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,071 89,068
Preferred stock held in treasury . . . . . . . . . . . . . . . . . . . . . (17,733) (35,594)
Common stock ($25 par, 170,493 and 169,869 shs. issued; 110,854 and
111,609 shs. outstanding, respectively) . . . . . . . . . . . . . . . . 4,262 4,247
Common stock held in treasury. . . . . . . . . . . . . . . . . . . . . . . (1,491) (1,457)
Paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,371 7,350
Retained margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,346 131,787
------------ -------------
Total liabilities and shareholders' equity . . . . . . . . . . . . $ 1,274,314 $ 1,223,462
============
=============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>31
<TABLE>
<CAPTION>
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS of OPERATIONS
fiscal years ended June 30, 1994, 1993 and 1992
(Thousands of Dollars)
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Net sales and revenues from:
Product sales . . . . . . . . . . . . . . . . . . $ 1,634,251 $ 1,656,036 $ 1,745,208
Leasing operations. . . . . . . . . . . . . . . . 33,862 34,427 38,555
Insurance operations. . . . . . . . . . . . . . . 26,865 30,131 31,972
------------- ------------- -------------
Total net sales and revenues . . . . . . . . . . 1,694,978 1,720,594 1,815,735
------------- ------------- -------------
Cost and expenses from:
Products and plant operations . . . . . . . . . . 1,488,618 1,507,396 1,597,153
Leasing operations. . . . . . . . . . . . . . . . 13,259 13,258 14,468
Insurance operations. . . . . . . . . . . . . . . 16,881 20,488 22,052
Selling, general and administrative activities. . 155,308 137,851 143,132
Restructuring costs (credit). . . . . . . . . . . (6,065) 75,000
------------- ------------- -------------
Total operating costs and expenses . . . . . . 1,668,001 1,678,993 1,851,805
------------- ------------- -------------
Operating margin (loss). . . . . . . . . . . . . . 26,977 41,601 (36,070)
Interest expense, net of interest income
of $8,945, $8,668 and $11,570, respectively . . . (27,780) (27,337) (26,796)
Other income, net. . . . . . . . . . . . . . . . . 5,711 4,554 12,317
------------- ------------- -------------
Margin (loss) from continuing operations before
income taxes. . . . . . . . . . . . . . . . . . . 4,908 18,818 (50,549)
Income tax expense (benefit) . . . . . . . . . . . 4,212 (6,909) (5,978)
------------- ------------- -------------
Margin (loss) from continuing operations . . . . . 696 25,727 (44,571)
Discontinued operations:
Loss from operations, including tax expense
of $0, $725 and $139 and after interest of others
of $0, $2,767 and $3,746, respectively. . . . . (5,977) (14,242)
Loss on disposal, including tax expense of $7,800 (4,000)
-------------- ------------- -------------
Loss from discontinued operations. . . . . . . (4,000) (5,977) (
-------------- ------------- -------------
Net margin (loss). . . . . . . . . . . . . . . . . $ (3,304) $ 19,750 $ (58,813)
============== =============
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>32
<TABLE>
<CAPTION>
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS of CHANGES in SHAREHOLDERS' EQUITY
fiscal years ended June 30, 1994, 1993 and 1992
(Thousands of Dollars)
Common Stock
-------------------
(Par Value $25) Paid-In Retained
Shares Amount Capital Margin Total
------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1991. . . . . . . . . . . . . 112,832 $ 2,821 $ 6,528 $ 179,716 $ 189,065
Net loss. . . . . . . . . . . . . . . . . . . (58,813) (58,813)
Dividends declared. . . . . . . . . . . . . . (4,861) (4,861)
Redeemed, net . . . . . . . . . . . . . . . . (417) (11) (11)
Equity in net unrealized capital gains of
insurance companies . . . . . . . . . . . . 70 70
Other . . . . . . . . . . . . . . . . . . . . 428 428
-------- --------- --------- ----------- ----------
Balance June 30, 1992. . . . . . . . . . . . . 112,415 2,810 6,956 116,112 125,878
Net margin. . . . . . . . . . . . . . . . . . 19,750 19,750
Dividends declared. . . . . . . . . . . . . . (4,129) (4,129)
Redeemed, net . . . . . . . . . . . . . . . . (806) (20) (20)
Equity in net unrealized capital gains of
insurance companies . . . . . . . . . . . . 54 54
Other . . . . . . . . . . . . . . . . . . . . 394 394
-------- --------- --------- ----------- ----------
Balance June 30, 1993. . . . . . . . . . . . . 111,609 2,790 7,350 131,787 141,927
Net loss. . . . . . . . . . . . . . . . . . . (3,304) (3,304)
Dividends declared. . . . . . . . . . . . . . (5,044) (5,044)
Redeemed, net . . . . . . . . . . . . . . . . (755) (19) (19)
Equity in net unrealized capital losses of
insurance companies . . . . . . . . . . . . (93) (93)
Other . . . . . . . . . . . . . . . . . . . . (979) (979)
-------- --------- --------- ----------- ----------
Balance June 30, 1994. . . . . . . . . . . . . 110,854 $ 2,771 $ 6,371 $ 123,346 $ 132,488
======== ========= =========
=========== ==========
</TABLE>
Authorized shares of common stock is 300,000 shares.
Common shares, purchased at par value, held in treasury at June 30
were: 1994 - 59,639; 1993 - 58,260; 1992 - 56,768; 1991 - 55,521. A
common stock dividend per share of $1.50 was declared for fiscal 1994,
1993 and 1992. Dividend payments are restricted to a maximum of 8% of
par value, as governed by the Farm Credit Administration.
The accompanying notes are an integral part of the financial statements.
<PAGE>33
<TABLE>
<CAPTION>
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
fiscal years ended June 30, 1994, 1993 and 1992
(Thousands of Dollars)
1994 1993 1992
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net margin (loss) . . . . . . . . . . . . . . . . . $ (3,304) $ 19,750 $ (58,813)
Adjustments to reconcile margins to net cash:
Depreciation and amortization. . . . . . . . . . 34,327 36,139 40,205
Restructuring costs (credit) . . . . . . . . . . (6,065) 75,000
Accounts receivable allowance. . . . . . . . . . 4,204 5,517 7,382
Leases receivable allowance. . . . . . . . . . . 5,927 4,659 12,555
Pension income . . . . . . . . . . . . . . . . . (9,264) (8,371) (9,438)
Deferred taxes including valuation allowance . . (1,156) 2,672 (21,539)
(Gain) or loss on sale of businesses and property,
plant and equipment . . . . . . . . . . . . . (479) 1,164 393
Changes in assets and liabilities net of effects
of businesses acquired:
Receivables . . . . . . . . . . . . . . . . . (16,792) (21,291) 2,701
Inventory . . . . . . . . . . . . . . . . . . 5,048 1,214 6,180
Payables. . . . . . . . . . . . . . . . . . . 28,113 (7,279) 1,964
Other . . . . . . . . . . . . . . . . . . . . (23,913) (18,719) 3,223
----------- ----------- ------------
Net cash flows from operating activities . . . . . . 16,646 15,455 59,813
Cash flows from investing activities:
Purchases of property, plant and equipment. . . . . (32,729) (28,783) (35,240)
Cash paid for acquisitions. . . . . . . . . . . . . (5,044)
Proceeds from disposal of businesses and
property, plant and equipment. . . . . . . . . . 17,095 33,458 4,224
Purchases of marketable securities. . . . . . . . . (21,212) (31,654) (17,514)
Proceeds from sale of marketable securities . . . . 21,708 30,752 12,651
Leases originated . . . . . . . . . . . . . . . . . (149,659) (106,388) (99,602)
Leases repaid . . . . . . . . . . . . 92,313 86,764 75,059
Proceeds from lease sales . . . . . . . . . . . . . 6,426 12,232 25,109
Purchases of investments in related cooperatives. . (3,102) (3,645) (2,772)
Proceeds from sale of investments in related
cooperatives . . . . . . . . . . . . . . . . . . 1,126 1,168 1,815
Net changes in net assets of discontinued operations 2,305 1,138 5,067
----------- ----------- ------------
Net cash flows from investing activities . . . . . . (70,773) (4,958) (31,203)
Cash flows from financing activities:
Net change in short-term borrowing. . . . . . . . . (7,800) 23,147 (87,350)
Proceeds from long-term debt. . . . . . . . . . . . 112,243 58,276 58,142
Repayment of long-term debt . . . . . . . . . . . . (73,957) (69,700) (54,204)
Proceeds from sale of subordinated debt . . . . . . 41,675 54,937 94,951
Redemption of subordinated debt . . . . . . . . . . (14,150) (58,181) (33,543)
Payments on capitalized leases. . . . . . . . . . . (1,328) (2,566) (1,883)
Proceeds from sale of stock . . . . . . . . . . . . 1,886 1,431 886
Redemption of stock . . . . . . . . . . . . . . . . (702) (12,499) (758)
Cash dividends paid . . . . . . . . . . . . . . . . (4,511) (4,571) (4,851)
----------- ----------- ------------
Net cash flows from financing activities . . . . . . 53,356 (9,726) (28,610)
----------- ----------- ------------
Net increase (decrease) in cash and equivalents. . . (771) 771 0
Cash and equivalents at beginning of year. . . . . . 771 0 0
----------- ----------- ------------
Cash and equivalents at end of year. . . . . . . . . $ 0 $ 771 $ 0
=========== ===========
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>34
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Thousands of Dollars)
1. Summary of Significant Accounting Policies
Fiscal Year
The Company's fiscal year-end is on the last Saturday in June.
Fiscal years ending June 30, 1994, 1993 and 1992 were each comprised
of 52 weeks.
Consolidation
All subsidiaries of continuing operations are wholly owned and
are included in the consolidated financial statements and all significant
intercompany balances and transactions have been eliminated in
consolidation. Operations of Curtice Burns Foods, Inc. (Curtice
Burns), which is 34% owned, and H. P. Hood Inc. (Hood), which is
99% owned, are presented as discontinued operations (see Note 17).
The authorized capital of Curtice Burns consists of two classes of
common shares, Class A and Class B, each with substantially identical
rights, except for the right to elect a majority of directors which is
restricted to the Class B shares. The Company's ownership interest
includes 99% of the Class B shares outstanding.
Cash and Equivalents
The Company considers all investments with a maturity of three
months or less when purchased to be cash equivalents. The carrying
amount reported in the balance sheet approximates fair value.
Leases Receivable
The Company's leasing operation (Telmark Inc.) finances
buildings and equipment for Agway members and others. Leases are
made on a precomputation basis (finance charges included in the face
amounts of the notes). Finance charges are realized as income,
utilizing the interest method over the terms of the leases.
Inventories
Inventories are priced at the lower of cost or market. Cost is
determined on the following bases: average; first-in, first-out; and last-
in, first-out.
Marketable Securities
Long-term marketable securities, which relate entirely to the
Company's insurance operations, are recorded in the consolidated
financial statements as follows: bonds at amortized cost, preferred
stocks and common stocks at market. Unrealized net capital gains or
losses are credited or charged directly to retained margin, while the
realized amounts are included in income.
Other Security Investments
Investments are stated at cost, which approximates market.
Securities received as patronage refunds from various cooperatives are
stated principally at estimated fair market value at time of receipt.
Other Assets
Other assets include approximately $12,100 and $13,300 at June
30, 1994 and 1993, respectively, of costs in excess of the fair value of
net tangible assets acquired in purchase transactions (goodwill) as well
as acquired non-competition agreements and trademarks. Goodwill and
other intangible assets are amortized on a straight-line basis over
periods ranging from 1 to 40 years. Amortization from continuing
operations totaled $2,838, $4,137 and $5,739 for fiscal years ending
June 30, 1994, 1993 and 1992, respectively.
Depreciation and Amortization
Depreciation and amortization are charged to operations,
principally on a straight-line basis, over the estimated useful lives of the
properties and equipment, and over the term of the lease for capital
leases.
<PAGE>35
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company provides for income taxes in accor-
dance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under the liability method specified by
SFAS No. 109, deferred tax assets and liabilities are
based on the difference between the financial statement
and tax basis of assets and liabilities as measured by the enacted
tax rates which are anticipated to be in effect when these differences
reverse. The deferred tax provision is the result of the net change in
the assets and liabilities for deferred tax. A valuation allowance is
established when it is necessary to reduce deferred tax assets to
amounts expected to be realized.
Discontinued Operations
Interest expense allocated from continuing operations to discon-
tinued operations was based upon the proportion of net assets separately
financed to total Company net assets. Total interest expense allocated
was approximately $3,600, $4,100 and $5,500 for the years ended June
30, 1994, 1993 and 1992, respectively.
Reclassifications
Certain reclassifications have been made to conform prior year
financial statements with the current year presentation.
2. Agway Financial Corporation
Agway Financial Corporation (AFC) is a wholly owned subsidiary
of Agway whose principal business activity is securing financing
through bank borrowings and issuance of corporate debt instruments to
provide funds for its sole stockholder, Agway, and AFC's sole wholly
owned subsidiary, Agway Holdings Inc. (AHI), and its subsidiaries, for
general corporate purposes. The payment of principal and interest on
this debt is absolutely and unconditionally guaranteed by Agway. 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
Agway contain summarized financial information concerning AFC.
Accordingly, summarized financial information for AFC and Consoli-
dated Subsidiaries is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
June 30, 1994 June 30, 1993 June 30, 1992
------------ ----------- --------------
<S> <C> <C> <C>
Net sales and revenues. . . . . . . . . . . . . $ 904,714 $ 972,814 $ 1,089,197
Operating margin. . . . . . . . . . . . . . . . 64,579 65,130 57,386
Margin from continuing operations . . . . . . . 26,416 13,347 6,636
Net margin (loss) . . . . . . . . . . . . . . . 22,416 7,370 (7,606)
</TABLE>
<TABLE>
<CAPTION>
June 30, 1994 June 30, 1993
------------ -------------
<S> <C> <C>
Current assets. . . . . . . . . . . . . . . . . $ 460,969 $ 433,907
Properties and equipment, net . . . . . . . . . 124,697 128,898
Noncurrent assets . . . . . . . . . . . . . . . 273,828 240,004
Net assets of discontinued operations . . . . . 84,783 87,088
------------ -----------
Total assets. . . . . . . . . . . . . . . . . . $ 944,277 $ 889,897
============ ===========
Current liabilities . . . . . . . . . . . . . . $ 283,326 $ 249,721
Long-term debt. . . . . . . . . . . . . . . . . 173,224 146,364
Subordinated debt . . . . . . . . . . . . . . . 372,673 379,619
Noncurrent liabilities. . . . . . . . . . . . . 18,154 38,637
Shareholder's equity. . . . . . . . . . . . . . 96,900 75,556
------------ -----------
Total liabilities and shareholder's equity. . . $ 944,277 $ 889,897
============ ===========
</TABLE>
<PAGE>36
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
2. Agway Financial Corporation (continued)
On July 1, 1994, certain subsidiaries of AFC were transferred to
Agway Inc., and certain operating divisions of Agway Inc. were
transferred to AFC. Had these transactions taken place at July 1,
1993, assets, revenues and net margin of AFC for the period ended
June 30, 1994 would have been approximately $1,000,000, $1,200,000
and $11,000, respectively.
3. Restructuring
In 1992, the Company initiated Customer Driven: 1995...Focusing
on the 21st Century to evaluate its business strategies and anticipated
market demographics. After a review of the Company's business
practices, the business practices of successful competitors, and market
research of current and potential members and customers, the Company
identified restructuring measures resulting in a pre-tax restructuring
charge to operations of $75,000. The primary components of the
restructuring charge were facility closures and sales, product line
rationalization, severance costs, and write-down of certain non-strategic
assets to net realizable value.
With a substantial number of its initiatives completed, the
Company now estimates the total cost of the program will be $6,065
less than the initial $75 million estimate. In the fourth quarter of fiscal
1994, excess accruals of $6,065 were credited to operating earnings.
As of June 30, 1994, the Company has remaining reserves of approxi-
mately $19,300 to complete program initiatives relating principally to
the demolition and divestiture of selected properties and related costs.
During 1994 and 1993, these business strategies generated net cash of
$1,869 in 1994 and $27,824 in 1993 (see Note 16).
4. Leases Receivable
Net investments in leases at June 30, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Leases (minimum payments):
Commercial and agricultural . . . . . . $ 366,546 $ 308,258
Retail installment loans. . . . . . . . 2,034 1,341
----------- -----------
Total leases . . . . . . . . . . . . 368,580 309,599
Unearned interest and finance charges . . (84,984) (69,970)
Net deferred origination costs. . . . . . 5,236 3,238
----------- -----------
Net investment. . . . . . . . . . . . . 288,832 242,867
Allowance for doubtful leases . . . . . . (12,434) (12,080)
----------- -----------
Net leases receivable . . . . . . . . . $ 276,398 $ 230,787
=========== ===========
</TABLE>
Most commercial and agricultural leases have terms of 60 months or
less, although buildings are leased for a maximum of 180 months.
Contractual maturities of leases were as follows at June 30, 1994:
<TABLE>
<CAPTION>
<S> <C>
1995 $ 119,726
1996 93,080
1997 63,870
1998 39,862
1999 21,294
Thereafter 30,748
-----------
$ 368,580
===========
</TABLE>
Included within the above are unguaranteed estimated residual
values of leased property approximating $43,900 and $38,500 at June 30,
1994 and 1993, respectively.
<PAGE>37
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
4. Leases Receivable (continued)
The Company is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs
of its leasing customers. These financial instruments consist of
commitments to extend credit not recognized in the balance sheet. The
contract amounts of those instruments reflect the extent of involvement
the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperfor-
mance by the other party to the financial instrument for commitments
to extend credit is represented by the contractual amount of the
instrument. The Company uses the same credit and collateral policies
in making commitments as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or
other termination clauses. Since some of the commitments are expected
to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. Outstanding
commitments to extend lease financing at June 30, 1994 approximated
$12,300,000.
During 1994 and 1993, the Company entered into lease sale
contracts which contain limited recourse provisions which are limited
to 7.5% of the sale proceeds. At June 30, 1994, the Company was
contingently liable for approximately $3,300,000 under the limited
recourse provisions.
5. Inventories
Inventories at June 30 consist of the following:
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Raw materials . . . . . . . . . . $ 22,470 $ 19,919
Finished goods. . . . . . . . . . 148,505 152,348
Goods in transit and supplies . . 7,689 9,592
----------- ----------
Total inventories. . . . . . . $ 178,664 $ 181,859
=========== ==========
</TABLE>
Inventories valued at the lower of LIFO (last-in, first-out) cost or
market include refined products of Agway Petroleum Corporation. At
June 30, 1994 and 1993, current costs exceeded LIFO costs by $373
and $448, respectively. The total of such inventories was $8,544 at
June 30, 1994 and $23,086 at June 30, 1993. In 1994 and 1993,
certain inventory quantities were reduced, resulting in liquidations of
LIFO inventories carried at lower costs prevailing in prior years, the
effect of which is immaterial.
<PAGE>38
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
6. Marketable Securities
Marketable securities consist of bonds and stocks held by the
insurance company. The approximate cost of preferred and common
stocks is $1,528 and $1,508 for 1994 and 1993 with associated market
values of $1,452 and $1,525 for 1994 and 1993, respectively.
The amortized cost and estimated market value of investments in
debt securities are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
June 30, 1994 Cost Gains Losses Value
------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Government securities and obligations $ 14,030 $ 384 $ (233) $ 14,181
Corporate securities 18,461 22 (879) 17,604
----------- ---------- ----------- ----------
Totals $ 32,491 $ 406 $ (1,112) $ 31,785
=========== ========== ===========
==========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
June 30, 1993 Cost Gains Losses Value
------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Government securities and obligations $ 13,990 $ 370 $ (110) $ 14,250
Corporate securities 19,017 131 (66) 19,082
----------- ---------- ----------- ----------
Totals $ 33,007 $ 501 $ (176) $ 33,332
=========== ========== ===========
==========
</TABLE>
The amortized cost and estimated market value of debt securities
at June 30, 1994, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
------------ ------------
<S> <C> <C>
Due in one year or less $ 419 $ 419
Due after one year through five years 4,752 4,700
Due after five years through ten years 4,780 4,725
Due after ten years 22,540 21,941
------------ ------------
$ 32,491 $ 31,785
============ ============
</TABLE>
Proceeds from sales of investments in debt securities during
1994 and 1993 were $21,708 and $31,388, respectively. Gross gains of
$417 and gross losses of $32 were realized on those sales in 1994, and
gross gains of $1,283 and gross losses of $97 were realized on those
sales in 1993.
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," effective for fiscal
years beginning after December 15, 1993. SFAS No. 115 addresses
the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. Management anticipates that the implementation of SFAS
No. 115 will not have a material effect on the Company's results of
operations and financial position.
<PAGE>39
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
7. Properties and Equipment
Properties and equipment, at cost, including capital leases, consist
of the following at:
<TABLE>
<CAPTION>
June 30, 1994 Owned Leased Combined
------------- ------------ --------- -----------
<S> <C> <C> <C>
Land and land improvements. . . . . . . . $ 35,714 $ 1,071 $ 36,785
Buildings and leasehold improvements. . . 131,870 9,375 141,245
Machinery and equipment . . . . . . . . . 209,475 7,900 217,375
Office equipment. . . . . . . . . . . . . 33,573 193 33,766
Automotive equipment. . . . . . . . . . . 81,781 242 82,023
Construction in progress. . . . . . . . . 8,339 8,339
------------ --------- -----------
500,752 18,781 519,533
Less: accumulated depreciation and
amortization. . . . . . . . . . 255,592 14,572 270,164
------------ --------- -----------
Properties and equipment, net . . . . . . $ 245,160 $ 4,209 $ 249,369
============ ========= ===========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1993 Owned Leased Combined
------------- ------------ --------- -----------
<S> <C> <C> <C>
Land and land improvements. . . . . . . . $ 38,597 $ 1,071 $ 39,668
Buildings and leasehold improvements. . . 135,535 9,260 144,795
Machinery and equipment . . . . . . . . . 207,779 7,925 215,704
Office equipment. . . . . . . . . . . . . 33,077 193 33,270
Automotive equipment. . . . . . . . . . . 78,165 998 79,163
Construction in progress. . . . . . . . . 7,423 7,423
------------ --------- -----------
500,576 19,447 520,023
Less: accumulated depreciation and
amortization. . . . . . . . . . 245,521 14,522 260,043
------------ --------- -----------
Properties and equipment, net . . . . . . $ 255,055 $ 4,925 $ 259,980
============ ========= ===========
</TABLE>
Depreciation and amortization expense relating to properties and
equipment amounted to $31,489, $32,002 and $34,466 in 1994, 1993
and 1992, respectively.
8. Income Taxes
The current portion of deferred income tax assets for continuing
operations of $35,809 for 1994 and $34,627 for 1993 is included in
prepaid expenses. The noncurrent portion of deferred income tax
liabilities for continuing operations of $30,784 for 1994 and $30,758
for 1993 is included in other liabilities.
<PAGE>40
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
8. Income Taxes (continued)
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Continuing operations:
Current:
Federal. . . . . . . . . $ (591) $ (8,461) $ 10,316
State. . . . . . . . . . 3,647 6,788 5,253
Deferred. . . . . . . . . 1,156 1,111 (27,894)
Increase (decrease) in
valuation allowance . . (6,347) 6,347
---------- ---------- ----------
$ 4,212 $ (6,909) $ (5,978)
========== ========== ==========
Discontinued operations:
Current:
Federal. . . . . . . . . $ 9,795 $ (1,741)
State. . . . . . . . . . 102 906
Deferred. . . . . . . . $ 7,800 (9,172) 974
---------- ---------- ----------
$ 7,800 $ 725 $ 139
========== ========== ==========
</TABLE>
The Company's effective income tax rate on margin (loss) from
continuing operations before income taxes differs from the federal
statutory regular tax rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------- -------
<S> <C> <C> <C>
Statutory federal income tax rate . . . . . . . . . . . . 35.0% 34.0% (34.0%)
Tax effects of:
State income taxes, net of federal benefit (1). . . . . 63.3 21.7 8.3
Items for which no federal tax effect was recognized. . 2.1 2.3 (0.2)
Dividend received deduction . . . . . . . . . . . . . . 2.6 0.7 0.1
Fines and penalties . . . . . . . . . . . . . . . . . . 4.2 2.7 0.4
Tax credits . . . . . . . . . . . . . . . . . . . . . . (12.7) 3.3
Amortization of intangibles . . . . . . . . . . . . . . 2.3 (1.8) 5.5
Adjustment of prior year accrual. . . . . . . . . . . . (47.8) (4.6)
Utilization of loss carryforwards . . . . . . . . . . . (20.9) (3.3)
Change in valuation allowance . . . . . . . . . . . . . (33.7) 12.6
Other items . . . . . . . . . . . . . . . . . . . . . . (2.8) 1.2 (3.2)
------ ------- -------
Effective income tax rate. . . . . . . . . . . . . . 85.8% (36.7%) (11.8%)
====== ======= =======
</TABLE>
(1) For state income tax purposes, the Company does not file
combined income tax returns and is therefore unable to recognize the
benefit of certain net operating losses incurred by subsidiaries.
<PAGE>41
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
8. Income Taxes (continued)
The components of the deferred tax assets and liabilities as of June
30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Deferred tax assets:
Restructuring reserve. . . . . . . . . . . . . . . . $ 6,545 $ 13,617
Self-insurance reserves. . . . . . . . . . . . . . . 7,880 7,767
Deferred compensation. . . . . . . . . . . . . . . . 5,531 5,413
Medical reserves . . . . . . . . . . . . . . . . . . 6,366 5,073
Accounts receivable. . . . . . . . . . . . . . . . . 4,303 4,510
Vacation pay accrual . . . . . . . . . . . . . . . . 3,208 2,889
Inventory. . . . . . . . . . . . . . . . . . . . . . 4,765 4,021
Leases receivable. . . . . . . . . . . . . . . . . . 10,757 8,094
Other liabilities and reserves . . . . . . . . . . . 4,351 4,182
Miscellaneous. . . . . . . . . . . . . . . . . . . . 4,141 550
Alternative minimum tax credit carryforward. . . . . 7,316 7,858
------------ -----------
Total deferred tax asset. . . . . . . . . . . . . 65,163 63,974
------------ -----------
Deferred tax liabilities:
Property, plant & equipment. . . . . . . . . . . . . 15,789 17,475
Pension assets . . . . . . . . . . . . . . . . . . . 21,722 18,572
Prepaid medical. . . . . . . . . . . . . . . . . . . 7,259 7,074
Other assets . . . . . . . . . . . . . . . . . . . . 3,338 3,674
Undistributed earnings of discontinued operation . . 9,234 9,234
Miscellaneous. . . . . . . . . . . . . . . . . . . . 2,796 4,076
------------ ------------
Total deferred tax liability. . . . . . . . . . . 60,138 60,105
------------ ------------
Net deferred tax (asset) liability. . . . . . . . $ (5,025) $ (3,869)
============ ============
</TABLE>
At June 30, 1994, the Company's federal AMT credit can be carried
forward indefinitely.
9. Short-Term Notes Payable
As of June 30, 1994, the Company had available lines of credit
with various banking institutions whereby lenders have agreed to
provide funds up to $99,250 to separately financed units of the
Company as follows: Agway Financial Corporation (AFC) - $76,250;
Telmark - $23,000. Borrowings under these lines amounted to $18,000
at June 30, 1994 and generally bear interest at prevailing short-term
interest rates (6.5% at June 30, 1994). In addition, AFC may issue up
to $50,000 of commercial paper under the terms of a separate
agreement, backed by a letter of credit. Commercial paper outstanding
at June 30, 1994 amounted to $44,800 at interest rates ranging between
4.4% and 4.5%. Subsequent to June 30, 1994, certain of AFC's credit
lines were no longer available such that, at September 1, 1994, credit
availability to AFC was reduced from $76,250 to $55,000, reducing the
Company's total available lines to $78,000. The total commercial
paper facility of $50,000 remains in place, creating total short-term
availability of $128,000. The credit available to the Company, through
its existing lines of credit with banking institutions and its commercial
paper program, is sufficient to meet the Company's immediate needs.
The carrying amount of the Company's short-term borrowings
approximates their fair value.
The AFC agreements, as amended in January 1994, cover the
period through October 28, 1994 and are in process of renegotiation.
These agreements, upon the occurrence of certain defined events, give
the lenders the right to perfect a security interest in certain accounts
receivable and non-petroleum inventories of the Company. Amounts
which can be drawn under these agreements are limited to a specific
calculation based upon the total of these 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>42
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
9. Short-Term Notes Payable (continued)
As a result of a specific covenant violation within AFC's credit
facilities at June 30, 1994, waivers were obtained effective as of June
30, 1994 and covering through August 1994, and amendments were
obtained for September and October 1994 from AFC's continuing
banking institutions to allow for total Company continuing availability
of $128,000. In addition, at June 30, 1994, a lien event occurred and
the continuing banking institutions are in the process of perfecting a
security interest in certain accounts receivable and non-petroleum
inventories of the Company. Negotiations are expected to continue
through October 1994, and it is management's expectation that
appropriate credit facilities will continue to be in place to meet the
ongoing needs of the Company.
At June 30, 1994, the Company also maintained letters of credit
totalling $22,678, primarily related to general liability claims of the
Company.
10. Debt
Long-Term Debt:
Long-term debt consists of the following at June 30, 1994:
<TABLE>
<CAPTION>
Agway and
AFC Excluding
Telmark Telmark Total
------------- ------------ ----------
<S> <C> <C> <C>
Notes payable - banks (a). . . . . . . . . . . . . . $ 14,000 $ 88,000 $ 102,000
Notes payable - insurance companies (b). . . . . . . 131,489 131,489
Other . . . . . . . . . . . . . . . 12,548 12,548
------------- ------------ ----------
Subtotal long-term debt excluding capital leases . . 26,548 219,489 246,037
Obligations under capital leases:
Industrial revenue bonds. . . . . . . . . . . . . . 4,854 4,854
Others. . . . . . . . . . . . . . . . . . . . . . . 2,213 2,213
------------- ------------ ----------
Total long-term debt . . . . . . . . . . . . . . . . 33,615 219,489 253,104
Less: current portion. . . . . . . . . . . . . . . . 14,515 62,022 76,537
------------- ------------ ----------
$ 19,100 $ 157,467 $ 176,567
============= ============
==========
</TABLE>
(a) Under loan agreements, principal of $102,000 bears interest at
fixed rates ranging from 5.4% to 9.18%, payments commencing
July 1994 with final installments due in 1999. The notes are
collateralized by the Company's investment in the bank having a
book value of $18,053 at June 30, 1994.
The Agway and AFC debt agreements contain a number of
restrictive financial covenants, the most restrictive of which
requires the Company to maintain specific monthly levels of
interest coverage and tangible net worth. The $14,000 AFC
credit facility loan covenants are integrated with the short-
term facilities. As a result of a specific covenant violation
and a lien event which occurred in conjunction with the
Company's short-term notes, waivers and amendments were obtained,
and certain assets were pledged as collateral. (See Note 9).
(b) Under Telmark loan agreements with various insurance compa-
nies, principal of $131,489 bears interest at fixed rates ranging
from 5.90% to 10.05%, payments commencing July 1994 with
final installment due in 2000.
<PAGE>43
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
10. Debt (continued)
Subordinated Debt:
<TABLE>
<CAPTION>
<S> <C>
Subordinated debt consists of the following at June 30, 1994:
Subordinated Debentures due 1995 to 2003, interest at 6.0% to 8.5% . . . $ 35,153
Subordinated Money Market Certificates, due 1994 to 2008, interest at
4.5% to 10.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371,991
-----------
Total long-term subordinated debt . . . . . . . . . . . . . . . . . . . . 407,144
Less current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . 34,471
-----------
$ 372,673
===========
</TABLE>
The Company's subordinated debt is redeemable in whole or in
part at the principal amount plus accrued interest, prior to maturity
dates, at the option of the Company. The foregoing debt bears interest
payable semi-annually on January 1 and July 1 of each year; the
debentures at the rates quoted and the money market certificates at the
greater of the quoted rate or a rate based upon the discount rate for
U.S. Government Treasury Bills, with maturities of 26 weeks. For the
following six-month periods, the annual interest rates paid were:
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------
June 30, 1994 December 31, 1993
------------- -----------------
<S> <C> <C>
Subordinated Debentures 7.0%-8.5% 7.0%-8.5%
Subordinated Money Market Certificates 4.5%-10.5% 4.5%-10.5%
</TABLE>
This information is provided solely to comply with SFAS No.
107, "Disclosures About Fair Value of Financial Instruments."
The fair value of the Company's debt is estimated based on
discounted cash flow computations using estimated borrowing rates
available to the Company ranging from 7.27% to 8.14% for replace-
ment debt with similar terms and maturities. The carrying amounts and
fair values of the Company's debt at June 30, 1994 are as follows:
<TABLE>
<CAPTION>
Carrying Amount Fair Value
--------------- -----------
<S> <C> <C>
Long-term debt, excluding capital leases $ 246,037 $ 244,195
Subordinated debt $ 407,144 $ 412,063
</TABLE>
Maturities:
Total payments due on debt after one year are as follows:
<TABLE>
<CAPTION>
Fiscal Year Capital Subordinated
Ending June 30, Leases Borrowings Total Debt
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
1996 $ 1,811 $ 37,541 $ 39,352 $ 35,390
1997 1,693 57,732 59,425 12,940
1998 1,318 47,822 49,140 26,554
1999 844 23,664 24,508 50,236
Thereafter 1,492 4,120 5,612 247,553
---------- ------------- ---------- ------------
7,158 170,879 178,037 372,673
Imputed interest 1,470 1,470
---------- ------------- ---------- ------------
Total $ 5,688 $ 170,879 $ 176,567 $ 372,673
========== ============= ==========
============
</TABLE>
<PAGE>44
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
11. Commitments and Contingencies
Rent expense for the fiscal years 1994, 1993 and 1992 approxi-
mated $7,177, $7,830 and $7,774, respectively. Future minimum
payments under noncancelable operating leases approximate $2,289,
$1,796, $1,500, $1,443 and $1,386 for the fiscal years 1995 through
1999, respectively, and $595 thereafter.
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. Agway 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, Agway
expects that it will incur other expenses associated with environmental
compliance.
The Company continually monitors its operations with respect to
potential environmental issues, including changes in legally mandated
standards and remediation technologies. Agway'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 million in fiscal 1994 on capital
projects. The Company estimates that during fiscal 1995 and 1996
approximately $4 million per year will be spent on additional capital
projects for environmental protection. These estimates recognize the
additional capital required to comply with 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 million. The total capital require-
ments 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.
<PAGE>45
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
12. Preferred Stock
Dollar values are whole dollars except where noted as (000).
<TABLE>
<CAPTION>
Preferred Stock
------------------------------------------------------------------------------------------
Cumulative
---------------------------------------------------------
Honorary
6% 8% 8% 7% Member Amount
Series A Series B Series B-1 Series C Series HM (000)
----------- ------------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Par Value $ 100 $ 100 $ 100 $ 100 $ 25
=========== ============ ============
=========== ===========
Shares Authorized 350,000 250,000 140,000 150,000 80,000
=========== ============ ============
=========== ===========
Shares Outstanding:
Balance June 30, 1991 160,824 214,606 138,400 129,467 2,157 $ 64,384
Issued (redeemed), net (3,595) 6,913 (1,586) (363) 54 138
----------- ------------ ------------ ----------- ----------- -------------
Balance June 30, 1992 157,229 221,519 136,814 129,104 2,211 64,522
Issued (redeemed), net (739) 6,761 (115,954) (553) 23 (11,048)
----------- ------------ ------------ ----------- ----------- -------------
Balance June 30, 1993 156,490 228,280 20,860 128,551 2,234 53,474
Issued (redeemed), net 181,185 (1,180) (1,050) (334) 57 17,864
----------- ------------ ------------ ----------- ----------- -------------
Balance June 30, 1994 337,675 227,100 19,810 128,217 2,291 $ 71,338
=========== ============ ============
=========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
Preferred Stock
--------------------------------------------------------------------------------
Cumulative
---------------------------------------------------------------
Honorary
6% 8% 8% 7% Member
Series A Series B Series B-1 Series C Series HM
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Annual Dividends Per Share
June 30, 1992 $ 6.00 $ 8.00 $ 8.00 $ 7.00 $ 1.50
June 30, 1993 $ 6.00 $ 8.00 $ 8.00 $ 7.00 $ 1.50
June 30, 1994 $ 6.00 $ 8.00 $ 8.00 $ 7.00 $ 1.50
Shares Held in Treasury (purchased at par value):
June 30, 1992 192,771 28,481 3,186 20,896 397
June 30, 1993 193,510 21,720 119,140 21,449 479
June 30, 1994 12,325 22,900 120,190 21,783 546
</TABLE>
Dividend payments are restricted to a maximum of 8% of par
value, as governed by the Farm Credit Administration. There are
10,000 shares of authorized preferred stock undesignated as to series,
rate, and other attributes. The Series A preferred stock has priority
with respect to the payment of dividends. The Company maintains the
practice of providing a market by repurchasing, at par, preferred stock
as the holders elect to tender the securities for repurchase, subject to
Board of Directors' approval. The Company practice of repurchasing
preferred stock specifically does not apply to approximately 166,600
shares of 6% Series A preferred stock issued in fiscal 1994 in
connection with the acquisition of local cooperative affiliates (see Note
16). As a condition of this transaction, the Company's repurchase
practice for this preferred stock was specifically suspended for a
minimum of four years through July 1997.
<PAGE>46
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
13. Retirement Benefits
Pension Plan
The Company has a non-contributory defined benefit pension plan
covering substantially all employees. The pension plan's benefit
formulae generally base payments to retired employees upon their
length of service and a percentage of qualifying compensation during
the final years of employment. Generally, pension costs are funded
annually at no less than the amount required by law nor more than the
maximum allowed as a federal income tax deduction. The vested
benefit obligation is based on the actuarial present value of the benefits
which the employee would be entitled to at the expected retirement
date. Plan assets consist of U.S. Treasury bonds and notes, U.S.
Government agency issues, corporate bonds, common and preferred
stocks and equity fund investments.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated financial statements at June
30, 1994 and 1993, respectively:
<TABLE>
<CAPTION>
June 30, 1994 June 30, 1993
-------------- ---------------
<S> <C> <C>
Actuarial present value of benefits based on service to
date and present pay levels:
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . $ 229,901 $ 223,458
Non-vested. . . . . . . . . . . . . . . . . . . . . . . . 12,095 11,756
--------------- ---------------
Accumulated benefit obligation . . . . . . . . . . . . . . 241,996 235,214
Additional amounts related to projected pay increases. . . 33,915 32,964
--------------- ---------------
Projected benefit obligation for service rendered to date. 275,911 268,178
Plan assets at fair value . . . . . . . . . . . . . . . . 382,309 394,638
--------------- ---------------
Projected benefit obligation less than plan assets . . . . 106,398 126,460
Unamortized net amount from past experience different
from that assumed and effects of changes in
assumptions . . . . . . . . . . . . . . . . . . . . . . . (24,456) (50,847)
Prior service cost not yet recognized in net periodic
pension cost. . . . . . . . . . . . . . . . . . . . . . . 10,933 12,830
Unamortized net obligation or (asset). . . . . . . . . . . (28,988) (33,820)
--------------- ---------------
Prepaid pension cost . . . . . . . . . . . . . . . . . . . $ 63,887 $ 54,623
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
------------- ----------- -----------
<S> <C> <C> <C>
Net pension income included the following income/(expense)
components:
Service cost-benefits earned during the period. . . . . . $ (5,900) $ (5,895) $ (6,046)
Interest cost on projected benefit obligation . . . . . . (20,700) (19,754) (18,050)
Actual return on plan assets. . . . . . . . . . . . . . . 7,213 70,151 37,031
Net amortization and deferral . . . . . . . . . . . . . . 28,651 (36,131) ( 3,497)
------------- ----------- -----------
$ 9,264 $ 8,371 $ 9,438
============= ===========
===========
</TABLE>
In determining the actuarial present values of the projected benefit
obligations, the weighted average discount was 8.0% for both 1994 and
1993. The rate of increase in future compensation levels was 5.5% for
both 1994 and 1993. The expected long-term rate of return on
retirement plan assets was 10.25% for both 1994 and 1993.
<PAGE>47
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
13. Retirement Benefits (continued)
Postretirement Benefits
Generally, employees retiring from the company on or after age
55 who have had at least 20 years of service are provided post-
retirement health care benefits and life insurance coverage, subject to
deductibles, co-payment provisions, and other limitations. As of
January 1, 1993, management amended the existing program to provide
program participants with two options, which differ only in cost-sharing
arrangements and deductible levels. The amendment had the effect of
reducing the cost of these programs to the Company in 1993 and
prospectively. The costs are funded as payment is due. The number
of eligible participants associated with these costs, including retirees,
spouses, and children of retirees, was 5,462 for 1994, 5,756 for 1993,
and 5,557 for 1992.
In December 1990, the Financial Accounting Standards Board
issued SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This standard requires companies to
accrue postretirement benefits during the years employees are working
and earning benefits for retirement. The provisions of SFAS No. 106
permit the transition obligation to be either recognized immediately, as
a cumulative effect of an accounting change, or on a delayed basis over
the program participants' future service periods (20 year maximum).
Effective July 1, 1993, the Company adopted the standard and
began amortizing the transition obligation over 20 years. The annual
impact on pre-tax health care and life insurance benefits expense, after
adoption, is in excess of the prior method by approximately $3,800.
Prior to July 1, 1993, the Company accounted for the expense of
providing these benefits as claims were paid and through accruals based
on experience. The net expense charges for 1993 and 1992 amounted
to $3,780 and $6,962, respectively.
Net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
Health Life
Insurance Insurance Total
----------- ---------- ----------
<S> <C> <C> <C>
Annual expense for fiscal year ending June 30, 1994:
Service cost. . . . . . . . . . . . . . . . . . . . . . $ 1,133 $ 76 $ 1,209
Interest cost . . . . . . . . . . . . . . . . . . . . . 3,805 509 4,314
Amortization of transition obligation over 20 years . . 1,711 331 2,042
----------- ---------- ----------
Net periodic annual expense for fiscal 1994. . . . . . . $ 6,649 $ 916 $ 7,565
=========== ==========
==========
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of funded status: Health Life
Insurance Insurance Total
------------ ----------- -----------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and surviving spouses
Under age 65. . . . . . . . . . . . . . . . . . . . $ 7,446 $ 897 $ 8,343
At least age 65 . . . . . . . . . . . . . . . . . . 12,107 4,742 16,849
Covered spouses
Under age 65. . . . . . . . . . . . . . . . . . . . 8,855 0 8,855
At least age 65 . . . . . . . . . . . . . . . . . . 6,393 0 6,393
------------ ----------- -----------
Subtotal retirees and spouses . . . . . . . . . . . . 34,801 5,639 40,440
Actives eligible to retire. . . . . . . . . . . . . . 3,236 333 3,569
Actives not yet eligible to retire. . . . . . . . . . 12,814 702 13,516
------------ ----------- -----------
Total accumulated postretirement benefit obligation. . 50,851 6,674 57,525
Plan assets at fair value. . . . . . . . . . . . . . . 0 0 0
------------ ----------- -----------
Funded status. . . . . . . . . . . . . . . . . . . . . 50,851 6,674 57,525
Unrecognized prior service cost. . . . . . . . . . . . 0 0 0
Unrecognized net (loss) gain . . . . . . . . . . . . . 0 0 0
Unrecognized net transition obligation . . . . . . . . (32,508) (6,293) (38,801)
------------ ----------- -----------
Accrued postretirement benefit cost. . . . . . . . . . $ 18,343 $ 381 $ 18,724
============ ===========
===========
</TABLE>
<PAGE>48
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
13. Retirement Benefits (continued)
Postretirement Benefits (continued)
In determining the actuarial present values of the accumulated
postretirement benefit obligation, the weighted average discount was
8%. The future salary increase is age-related and ranges from 10.5%
for lower ages to 4.8% for higher ages.
The assumed health care cost trend rate used to measure the
expected cost of benefits for the next year was 8% for persons under
age 65 and for dental, and 9% for persons over age 65. Medical trends
for fiscal 1995 and forward decrease .3% to .5% until the year 2002
where the trend rate is then fixed at 6%. For each one percentage
point increase in the assumed health care cost trend rate, the aggregate
service and interest cost components of net periodic expense would rise
$900, and the accumulated postretirement benefit obligation would
increase $7,500.
Employees' Thrift Investment Plan
The Company also makes contributions to the Employees' Thrift
Investment Plan for participating employees. Under the Plan, each
participant may invest up to 15% of their salary, of which a maximum
of 6% qualifies for Company matching. The Company will contribute
an amount of at least 10%, but not more than 50%, of each parti-
cipant's regular contributions, as defined, on an annual basis.
Company contributions for 1994, 1993 and 1992 were $474, $1,347
and $490, respectively.
14. Financial Information Concerning Segment Reporting
The Company operates principally in three basic business
segments: (1) Agriculture & Consumer Group is engaged in the
manufacturing, processing, and sale of various farm animal feeds, field
crop and garden seeds, fertilizers, and chemicals to farmer-members
and other patrons. In addition to the aforementioned products, the
Group engages in the wholesale purchase, warehousing, and distribu-
tion of agricultural supplies and materials, lawn and garden items, and
pet food and supplies. Marketing and repacking operations relating to
the sale of commodities produced by members and farmers are also
part of the Group's activities; (2) Energy Group is engaged in the
distribution of heating and motor vehicle fuels; and (3) Financial
Services Group is engaged in providing insurance needs and lease
financing of buildings, equipment, and vehicles. Total revenue of each
industry segment includes the sale of products and services to unaffiliat-
ed customers, as reported in the Company's consolidated statements of
operations, as well as sales to other segments of the Company which
are accounted for on a cost plus markup basis.
Operating profit (loss) consists of total revenues less
operating expenses. Certain expenses, including rent, data processing,
insurance, personnel, legal, tax reporting, corporate management and
treasury are allocated based on a formula which considers assets, revenues
and payroll. In computing operating profit (loss), none of the following
items have been added to or deducted from segment results: corporate
expenses; interest expense, net of interest income; other income
generated from assets not allocable to segments; member refunds;
income taxes; and income or (loss) from discontinued operations.
Identifiable assets in the segments of the Company are those
assets used by each segment in its operations. General management assets
consist principally of cash, various prepaid expenses, fixed assets and
net assets of discontinued operations. Contracts with various federal,
state, and local government agencies are immaterial.
<PAGE>49
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
14. Financial Information Concerning Segment Reporting (continued)
<TABLE>
<CAPTION>
Year ended June 30, 1994
---------------------------------------------------------------------------
Agriculture & Financial
Consumer Energy Services Corporate
Group Group Group Groups Consolidated
-------------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Sales and revenues to unaffiliated
customers. . . . . . . . . . . . . . . . $ 1,071,461 $ 555,549 $ 65,750 $ 2,218 $ 1,694,978
Intersegment sales and revenues. . . . . . 277 485 81 (843) 0
-------------- ----------- ------------ ---------- ------------
Total sales and revenues. . . . . . . $ 1,071,738 $ 556,034 $ 65,831 $ 1,375 $ 1,694,978
============== ===========
============ ========== ============
Operating profit/(loss). . . . . . . . . . $ (7,072) $ 41,043 $ 10,418 $ (11,701) $ 32,688
Interest expense, net of interest income . (27,780)
Margin from continuing operations -------------
before income taxes . . . . . . . . $ 4,908
=============
Identifiable assets. . . . . . . . . . . . 499,147 173,411 355,466 246,290 $ 1,274,314
Depreciation . . . . . . . . . . . . . . . 19,615 8,849 436 2,589 31,489
Capital expenditures . . . . . . . . . . . 18,760 11,649 831 3,114 34,354
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30, 1993
----------------------------------------------------------------------------
Agriculture & Financial
Consumer Energy Services Corporate
Group Group Group Groups Consolidated
------------- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Sales and revenues to unaffiliated
customers. . . . . . . . . . . . . . . . $ 1,010,509 $ 637,630 $ 69,948 $ 2,507 $ 1,720,594
Intersegment sales and revenues. . . . . . 436 537 213 (1,186) 0
------------- ----------- ------------ ---------- -------------
Total sales and revenues. . . . . . . $ 1,010,945 $ 638,167 $ 70,161 $ 1,321 $ 1,720,594
============= ===========
============ ========== =============
Operating profit/(loss). . . . . . . . . . $ 13,414 $ 22,696 $ 11,068 $ (1,023) $ 46,155
Interest expense, net of interest income . (27,337)
Margin from continuing operations -------------
before income taxes . . . . . . . . . $ 18,818
=============
Identifiable assets. . . . . . . . . . . . 488,632 198,938 304,809 231,083 $ 1,223,462
Depreciation . . . . . . . . . . . . . . . 18,960 9,822 441 2,779 32,002
Capital expenditures . . . . . . . . . . . 33,255 9,170 342 512 43,279
</TABLE>
<PAGE>50
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
14. Financial Information Concerning Segment Reporting (continued)
<TABLE>
<CAPTION>
Year ended June 30, 1992
----------------------------------------------------------------------------
Agriculture & Financial
Consumer Energy Services Corporate
Group Group Group Groups Consolidated
-------------- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Sales and revenues to unaffiliated
customers. . . . . . . . . . . . . . . . $ 1,001,377 $ 730,696 $ 77,373 $ 6,289 $ 1,815,735
Intersegment sales and revenues. . . . . . 705 360 297 (1,362) 0
-------------- ----------- ------------ ---------- -------------
Total sales and revenues. . . . . . . $ 1,002,082 $ 731,056 $ 77,670 $ 4,927 $ 1,815,735
============== ===========
============ ========== =============
Operating profit/(loss). . . . . . . . . . $ (29,539) $ 12,149 $ 7,120 $ (13,483) $ (23,753)
Interest expense, net of interest income . (26,796)
Loss from continuing operations -------------
before income taxes . . . . . . . . $ (50,549)
=============
Identifiable assets 373,264 224,685 290,681 315,407 $ 1,204,037
Depreciation 19,988 10,501 469 3,508 34,466
Capital expenditures 18,600 14,808 263 1,569 35,240
</TABLE>
15. Other Income (Expense)
The components of other income (expense) are summarized below:
<TABLE>
<CAPTION>
June 1994 June 1993 June 1992
------------- ------------ --------------
<S> <C> <C> <C>
Gain/(loss) on sale of properties & equipment . . $ 479 $ (1,164) $ (393)
Patronage refund income . . . . . . . . . . . . . 409 1,567 1,374
Sale of scrap . . . . . . . . . . . . . . . . . . 446 395 304
Texas City Refining settlements, net. . . . . . . (1,339) 7,316 (1)
Rent & storage revenue. . . . . . . . . . . . . . 3,672 2,987 2,928
Other, net. . . . . . . . . . . . . . . . . . . . 705 2,108 788
------------- ------------ -----------
$ 5,711 $ 4,554 $ 12,317
============= ============
===========
</TABLE>
(1) Deferred payout component from 1988 sale of Texas City Refining
recorded during the fourth quarter of 1992.
<PAGE>51
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
16. Supplemental Disclosures about Cash Flows
<TABLE>
<CAPTION>
1994 1993 1992
---------- --------- ---------
<S> <C> <C> <C>
Additional disclosure of operating cash flows:
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . . . $ 36,064 $ 38,555 $ 35,868
========== ========= =========
Income taxes. . . . . . . . . . . . . . . . . . $ 11,249 $ 8,050 $ 6,389
========== ========= =========
Additional disclosure for non-cash investing and
financing activities:
Dividends declared but unpaid at June 30 $ 2,589 $ 2,056 $ 2,498
========== ========= =========
</TABLE>
1993 and 1994 - During the fiscal year ended June 30, 1993, 46
local cooperative affiliates were acquired. Three of these cooperatives
were merged into Agway during the first and second quarters of fiscal
1993, while the remaining 43 were acquired during the third and fourth
quarters, for a total purchase price of $20,395 plus certain liabilities
assumed of $13,779. In fiscal 1994, six additional cooperatives were
merged for a total purchase price of $1,309 plus current liabilities
assumed of $2,089. The total purchase price of $21,704 plus certain
liabilities assumed of $15,868 was settled in fiscal 1994 in the form of
cash ($5,044) and restricted preferred stock, 6%, $100 par value
($16,661). In 1993, of the total $20,395 purchase price, $16,316 was
paid in July 1993 in restricted preferred stock and, accordingly, was
classified as other non-current liabilities with the remaining $4,079
classified as other current liabilities at June 30, 1993.
1992 - On May 1, 1992, Agway acquired an additional 8.3% of
the common stock of Hood from DCI Holding Corp. (bringing the
ownership level beyond 99%) by issuing a note to DCI Holding. Total
consideration was $6,000.
Certain other supplemental disclosures are as follows:
<TABLE>
<CAPTION>
Schedule of Restructuring Activities: 1994 1993
- - - - - - - - ------------------------------------- ------------ ----------
<S> <C> <C>
Cash flows from operating activities
Cash proceeds . . . . . . . . . . . . . . $ 3,747 $ 12,998
Cash spent. . . . . . . . . . . . . . . . (12,589) (15,366)
------------ ----------
Total cash flow from operating activities . (8,842) (2,368)
Cash flows from investing activities. . . .
proceeds from disposal of
businesses and PP&E . . . . . . . . . . 10,711 30,192
------------ ----------
Net increase in cash and equivalents. . . . $ 1,869 $ 27,824
============ ==========
</TABLE>
<PAGE>52
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
17. Discontinued Operations
On March 23, 1993, the Agway Board of Directors authorized
management to sell the Company's interest in Curtice Burns and Hood.
Management and the Board had specific plans and expected timetables
for the divestiture of these operations during fiscal 1994. Due to
unexpected delays, these sales have not been completed. Management
and the Board have re-evaluated their expected timetables and anticipate
these operations to be sold during fiscal 1995. These operations are
classified as discontinued for all periods presented.
The effect of disposal of discontinued operations reflected as
of June 30 includes the following:
<TABLE>
<CAPTION>
Loss on disposal: 1994 1993
- - - - - - - - ----------------- --------------- -------------
<S> <C> <C>
Operating loss from measurement date to June 30, 1994
and 1993, including tax expense of $11,400
and $9,200 in 1994 and 1993, respectively (1)(2)(3) . . . . . . . . . $ (27,600) $ (19,200)
Estimated operating income (loss) from July 1, 1994
and 1993 through plan disposal date, including
tax expense (benefit) of $(100) and $4,400
for 1994 and 1993, respectively (2)(3). . . . . . . . . . . . . . . . (1,500) 5,500
Total operating losses during phaseout period, net of tax expense. . . (29,100) (13,700)
Expected gain applied, including tax benefit of $3,500 for 1994 (4) . . 25,100 13,700(5)
Loss on disposal, including tax expense of $7,800 at June 30, 1994 . . . $ (4,000)(6) $ 0
</TABLE>
(1) Includes a pre-tax restructuring charge of $9,700 for Curtice
Burns, which occurred in the fourth quarter of fiscal 1993, for
exiting the meat snacks business, closure of the Hiland potato
chip business, and certain staff reductions.
(2) The tax on operating results differs from the expected tax as a
result of operating losses of Hood for which no tax benefit was
recognized. In addition, 1994 and 1993 tax expense relating to
the operating loss from the measurement date includes $9,200
provided for taxes on the undistributed margins of Curtice Burns
as of the measurement date.
(3) Actual results of discontinued operations for fiscal 1994 were a
loss of $8,400. Actual results through the originally planned
disposal dates of an $800 loss differed from the $5,500 estimated
income principally due to a significant downturn in the Northeast
dairy market which adversely impacted Hood's operating results.
This downturn, which continues, and the development of an unex-
pected contractual dispute between Curtice Burns and Pro-Fac
Cooperative Inc. affecting the bidding process for the sale of
Curtice Burns are the principal reasons which delayed the
disposal process and caused the Company to re-evaluate its
planned disposal dates into fiscal 1995.
(4) The tax benefit related to the expected gain differs from the
statutory tax rate as a result of differences between the book
and tax basis of Hood.
(5) Reflects only the portion of the net gain expected on the sale
of both Curtice Burns and Hood required to offset operating
losses during the phaseout period in 1993.
(6) At June 30, 1994, a $4,000 loss on the disposal of both compa-
nies was recognized as a result of recent developments regarding
the anticipated provisions of the sales transactions. This loss
recognizes changes in the estimate of the net selling price
anticipated on the sale of Curtice Burns as a result of the
bidding process and on the anticipated sale of Hood due to the
downturn in the Northeast dairy market and the impact on Hood's
operating results. Other additional factors are the changes in
estimates of the related transaction costs and estimates in
operating results during the estimated holding periods.
<PAGE>53
AGWAY INC. and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
(Thousands of Dollars)
17. Discontinued Operations (continued)
Net sales and revenues from discontinued operations are
approximately $1,322,000 in 1994, $1,438,000 in 1993 and $1,472,000 in
1992.
A summary of net assets of discontinued operations at June 30,
1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Accounts receivable. . . . . . . . . . . $ 121,144 $ 120,336
Inventory. . . . . . . . . . . . . . . . 174,383 187,041
Property, plant and equipment, net . . . 236,507 262,989
Other, net . . . . . . . . . . . . . . . 47,751 53,259
Accounts payable and accrued expenses (197,593) (200,540)
Long-term debt . . . . . . . . . . . . . (297,409) (335,997)
------------ ------------
$ 84,783 $ 87,088
============ ============
</TABLE>
Certain debt agreements pertaining to discontinued operations
contain a number of restrictive financial covenants. These operations
are in compliance with, or have obtained amendments and waivers for,
restrictions and requirements under the terms of all borrowing
agreements. The Company has guaranteed up to $25,000 of debt
facilities of Hood until the sale of this operation.
<PAGE>54
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The Directors of the Company determine Company policy and are
nominated on a district representation basis by committees representing
members within each district. Each of the following directors is a full-
time farmer and has been engaged in full-time farming during the past
five years:
<TABLE>
<CAPTION>
Year
Became
A
Name Age Office Name of Farm Director Term Expires
- - - - - - - - ------------------- -- ---------------------- ----------------------- -------- ------------
<S> <C> <C> <C> <C> <C>
Ralph H. Heffner(1) 56 Chairman of the Jersey Acres Farms Inc. 1973 October 1994
Board and Director
Charles C. Brosius(2) 63 Vice Chairman of Clonmell 1986 October 1995
the Board and Director
Richard C. Call 64 Director My-T Acres, Inc. 1973 October 1994
Vyron M. Chapman(2) 61 Director Chapman Farms, Inc. 1985 October 1994
Eugene Freund 69 Director Freund's Farm Inc. 1979 October 1994
Peter D. Hanks 46 Director Big Green Farms, Inc. 1984 October 1996
Frederick A. Hough 68 Director The Hough Farm 1979 October 1994
Stephen P. James 64 Director Monument Farms Inc. 1983 October 1995
Robert L. Marshman 55 Director Marshman Farms 1989 October 1996
Samuel F. Minor 56 Director The Springhouse 1987 October 1996
Donald E. Pease(2) 58 Director Pease Farms 1972 October 1996
John H. Ross 66 Director Ross Farms Inc. 1977 October 1995
Carl D. Smith(2) 59 Director Hillacre Farms 1984 October 1996
Thomas E. Smith 59 Director Lazy Acres 1986 October 1995
John H. Talmage(3) 64 Director H. R. Talmage & Son 1967 October 1995
Joel L. Wenger 63 Director Weng-Lea Farms 1987 October 1996
Christian F. Wolff, Jr.(2) 69 Director Pen-Col Farms 1982 October 1994
William W. Young 41 Director Will-O-Crest Farm 1989 October 1995
</TABLE>
Ralph H. Heffner, Chairman of the Board of Directors, was paid
$50,200 and Charles C. Brosius, Vice Chairman of the Board of
Directors, was paid $34,700 for their services for the fiscal year ended
June 30, 1994. All other directors were paid an annual retainer fee of
$6,000 and an amount of $200 for each day that they were involved in
business for the Company. The Company has a program in which all
directors have an option to either receive or defer amounts earned as
directors. Expenses of Board members incurred in connection with
Company business are reimbursed by the Company.
Effective July 1, 1993, a retirement benefit plan was instituted
for existing and future Board members. The terms of this plan require
annual payments to retired or permanently disabled directors who serve
a minimum of six full years. The benefit is computed at $250 for each
full year of service and is paid to the director or surviving spouse for
a period equal to the years served on the Board. Directors who receive
payments under this plan are required to sign a non-compete agreement
and remain available to advise and consult with the members of the
Board, as needed.
(1) All correspondence in relation to operational matters should
be addressed to D. P. Cardarelli, Executive Vice President
and Chief Operating Officer, Agway Inc., P.O. Box 4933,
Syracuse, New York 13221.
(2) Director of Curtice Burns Foods, Inc.
(3) Director of Long Island Lighting Company.
<PAGE>55
Item 10. Directors and Executive Officers of the Registrant - Continued
Executive Officers
The executive officers of the Company provide operating control
to carry out the policies established by the Board of Directors and serve
at the discretion of the Board with no guarantee of employment. There
are no full-time executive officers of the Company who are members
of the Board of Directors. The principal occupation of all executive
officers of the Company for the past five years has been as an officer
or employee of the Company. The following is a listing of these
officers as of July 1, 1994, except as noted below:
<TABLE>
<CAPTION>
Years Served
Name Age Office As Officer
- - - - - - - - --------------------------- --- ------------------------------------------------- ------------
<S> <C> <C> <C>
Charles F. Saul 61 President, CEO and General Manager (1) 13
Peter J. O'Neill 47 Senior Vice President, Finance & Control 5
Courtney B. Burdette 54 Senior Vice President, Cooperative Relations 6
David M. Hayes 50 Senior Vice President, Corporate Services;
General Counsel and Secretary 13
Bruce D. Ruppert 42 Senior Vice President, Planning & Operations (2) 2
Carleton E. Whittemore, Jr. 51 Senior Vice President, Information Services (2) 7
Stephen B. Burnett 47 Group Vice President, Energy Group 3
Joel G. Newman 45 Group Vice President, Agriculture Group 4
John L. Norris 51 Group Vice President, Consumer Group 6
Donald P. Cardarelli 38 Vice President, Treasurer (1) 3
Robert T. Engfer 58 Vice President, Human Resources 2
Ralph F. Gaiss 59 Vice President, Retail 6
Kevin S. Fuess 45 Vice President, Risk & Environmental Quality -
Stephen H. Hoefer 39 Vice President, Public Affairs -
Robert D. Sears 53 Vice President, Member Relations -
William L. Parker 47 Vice President, Information Services -
Margaret N. Luttinger 42 Vice President, Human Resources -
</TABLE>
All of the Company's executive officers, with the exception of
Messrs. Newman, Burnett, Cardarelli, Ruppert, Engfer, Fuess, Hoefer,
Sears, Parker and Ms. Luttinger, have performed executive duties for
the Company for at least five years.
Mr. Newman served as Director of Feed Division from June 1989
to May 1990, as Vice President, Feed and Crops Division from May
1990 through June 1992 and as Group Vice President, Agriculture from
July 1992 through July 1, 1994.
Mr. Burnett served as Director, Corporate Personnel from August
1988 through November 1990, as Vice President, Financial Services
Group from November 1990 through July 1992, as Vice President,
Country Foods from July 1992 to September 1992 and as Group Vice
President, Energy from October 1992 through July 1, 1994.
Mr. Cardarelli served as Executive Vice President for Agway
Insurance Company from July 1988 through August 1991, as Treasurer
of the Company from August 1991 through May 1992 and as Vice
President, Treasurer of the Company from May 1992 to July 1, 1994.
Mr. Ruppert served as Director, Seed Operations from April 1989
through March 1990, as Accounting Project Manager for Executive VP
Agri-Services from April 1990 through October 1990, as Controller for
Executive VP Agri-Services from November 1990 through April 1991,
as Director, Operations & Planning from May 1991 through June 1992
and as Senior Vice President, Planning & Operations from July 1992
through July 1, 1994.
<PAGE>56
Item 10. Directors and Executive Officers of the Registrant -
Continued
Executive Officers (continued)
Mr. Engfer served as Director of Employee Relations for the
Company from June 1982 through June 1991, as Director of Corporate
Personnel for the Company from July 1991 through June 1992 and as
Vice President, Human Resources since July 1992. Effective Septem-
ber 16, 1994, Mr. Engfer retired from the Company.
Mr. Fuess served as Director of Risk & Environmental Quality
from January 1988 through June 1994 and as Vice President, Risk &
Environmental Quality from June 1994 to July 1, 1994.
Mr. Hoefer served as Director of Public Affairs/Government
Relations from July 1984 through June 1992, as Director of Govern-
ment Affairs/Corporate Transportation Services from June 1992
through June 1994 and as Vice President, Public Affairs from June
1994 to July 1, 1994.
Mr. Sears served as Director of Feed Services from July 1980 to
June 1990, as Director of Business Development of Country Foods
from June 1990 through June 1992, as Director of Member Relations
from June 1992 through June 1994 and as Vice President, Member
Relations from June 1994 to July 1, 1994.
Mr. Parker served as Vice President, Systems for Agway
Insurance from July 1985 to January 1993, as Director of New Project
Management from January 1993 to September 1994 and as Vice
President, Information Services as of September 14, 1994.
Ms. Luttinger served as Personnel Manager, Crop Services from
March 1985 to October 1990, as Employment Services Supervisor from
October 1990 to August 1992, as Director Human Resources, Corpo-
rate Groups from August 1992 to September 1994 and as Vice
President, Human Resources as of September 14, 1994.
(1) On August 29, 1994, Charles F. Saul, president, chief executive
officer and general manager of Agway Inc. since 1992, announced
that he will retire on February 1, 1995. Until that date, Saul
will retain the title president and will represent Agway in a
number of agricultural industry and ag-cooperative related
projects. The board of directors elected Donald P. Cardarelli
to the position of executive vice president and chief operating
officer with full responsibility for management of the Company.
(2) Messrs. Ruppert and Whittemore resigned from the Company
effective September 14, 1994.
<PAGE>57
Item 11. Executive Compensation
The following table sets forth information regarding annual and
long-term compensation for services in all capacities to the Company
for the fiscal years ended June 1994, 1993 and 1992 of those persons
who were, at June 30, 1994, (i) the chief executive officer and (ii) the
other four most highly compensated executive officers of the Company:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- - - - - - - - ----------------------------------------------------------------------------------------------
Annual Compensation
---------------------------
Name and All Other
Principal Position Year Salary(1) Bonus(2) Compensation(3)(4)
- - - - - - - - ------------------ ---- --------- --------- ------------------
<S> <C> <C> <C> <C>
Charles F. Saul . . . . . . . 1994 $346,561 $ 68,250 $14,886
President, CEO and 1993 299,251 228,500 21,212
General Manager 1992 224,952
Stephen B. Burnett . . . . . 1994 174,605 68,901 1,048
Group Vice President, 1993 151,808 87,965 1,404
Energy Group 1992 105,144
Peter J. O'Neill . . . . . . 1994 200,582 34,645 1,465
Senior Vice President, 1993 183,806 99,493 3,671
Finance & Control 1992 135,756
David M. Hayes . . . . . . . 1994 178,808 45,227 3,841
Senior Vice President, 1993 170,192 95,209 7,834
Corporate Services 1992 135,200
John L. Norris . . . . . . . 1994 174,605 25,617 2,425
Group Vice President, 1993 165,094 53,235 4,913
Consumer Group 1992 118,222
</TABLE>
(1) Salary is used in determining the average annual compensa-
tion pursuant to the Company's retirement plan.
This amount includes all deferred amounts under the 40l(k) Plan.
(2) Bonuses are payable in cash or executives may elect
to defer their awards for payments at a later date, subject to certain
contingencies. Beginning in fiscal 1993, members of the General Manager
Staff and Division Management Group and other executives designated by
the Company's principal executive officer are eligible for participation
in the Agway Inc. Management Incentive Plan (the "Plan"). Contin-
gent upon each individual's performance, the Company's net margin,
and other performance factors, each eligible executive may be paid a
bonus. Bonuses are reflected in the fiscal year earned regardless of
payment date.
(3) In accordance with the transitional provisions applicable to
the revised rule on executive officer and director compensation
disclosure adopted by the Securities and Exchange Commission,
amounts of All Other Compensation are excluded for the Company's
1992 fiscal year.
(4) Amounts shown for certain officers include contributions
made by the Company to the Agway Inc. Employees' Thrift Plan, the
Agway Inc. Employees' Benefit Equalization Plan, and the Agway Inc.
Employees' Deferred Compensation Program.
<PAGE>58
Item 11. Executive Compensation - Continued
Long-Term Incentive Plans
The Company adopted the Long-Term Incentive Plan (the
"Incentive Plan") effective July 1, 1992 to provide an incentive to the
President, CEO and General Manager through awards of participation
units to be paid in cash. Awards under the Incentive Plan have a
maturity date of June 30, 1995. Payouts of awards are tied to
achieving specified levels of equity. The amounts provided through
the fiscal year ended June 30, 1994 are as shown in the following table:
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
- - - - - - - - ------------------------------------------------------------------------------------------------
Performance or Estimated Future Payouts
Other Period Until under Non-Stock Price-Based Plans
-------------------------------------
Maturation or Threshold Maximum
Payout ($) ($)
------------------ -------------- ---------------
<S> <C> <C> <C>
Charles F. Saul June 30, 1995 $ 50,000 $ 150,000
</TABLE>
The Employees' Retirement Plan of Agway Inc. (the "Retirement
Plan") is a non-contributory defined benefit plan covering substantially
all employees. The Retirement Plan provides for retirement benefits,
at a normal retirement age of 65, based upon average annual compensa-
tion received during the highest 60 consecutive months in the last 10
years of service and credited years of service. Optional earlier
retirement and other benefits are also provided. The Retirement Plan
pays a monthly retirement benefit based on the greater amount
calculated under two formulas. The benefit amount under one formula
is subject to an offset for Social Security benefits.
The following table shows estimated annual benefits payable upon
retirement based on certain 5-year average remuneration levels and
years-of-service classifications. The table was developed assuming a
normal retirement at age 65.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Years of Credited Service
- - - - - - - - -----------------------------------------------------------------------------------
Remuneration 5 15 25 35 45
- - - - - - - - ------------ ------- ------- --------- --------- ---------
<S> <C> <C> <C <C> <C>
$100,000 $ 8,000 $24,000 $ 40,000 $ 56,000 $ 72,000
125,000 10,000 30,000 50,000 70,000 90,000
150,000 12,000 36,000 60,000 84,000 108,000
175,000 14,000 42,000 70,000 98,000 126,000*
200,000 16,000 48,000 80,000 112,000 144,000*
225,000 18,000 54,000 90,000 126,000* 162,000*
250,000 20,000 60,000 100,000 140,000* 180,000*
275,000 22,000 66,000 110,000 154,000* 198,000*
300,000 24,000 72,000 120,000* 168,000* 216,000*
325,000 26,000 78,000 130,000* 182,000* 234,000*
350,000 28,000 84,000 140,000* 196,000* 252,000*
375,000 30,000 90,000 150,000* 210,000* 270,000*
</TABLE>
*Amount under the Retirement Plan may be subject to reduction
because of the limitations imposed under the IRC; however, the extent
of any reduction will vary in individual cases according to circumstanc-
es existing at the time pension payments commence. Effective July 1,
1987, the Company adopted the Employees' Benefit Equalization Plan
of Agway Inc., which, among other things, will provide the amount of
any such reduction in annual pension benefits under the Retirement
Plan.
<PAGE>59
Item 11. Executive Compensation - Continued
Long-Term Incentive Plans (continued)
The benefits shown are computed on a straight life basis and do not
reflect an offset for up to 50% of the Social Security benefits, subject
to certain minimum benefits. Also, the benefits are based on continu-
ing the Plan's benefit formulas as in effect on June 30, 1994. As of
June 30, 1994, the officers and their respective number of credited
years of service under the Retirement Plan were as follows: Messrs.
Saul, 40; O'Neill, 6; Burnett, 23; Hayes, 21; and Norris, 22.
"Compensation" is defined as the regular salary or wages as reported
in the "Salary" column of the Summary Compensation Table, which is
paid to an employee for services rendered to Agway Inc., including
overtime and vacation pay but excluding bonuses or special pay.
Compensation Committee Interlocks and Inside Participation
This item is inapplicable.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information as of June 30, 1994
with respect to the Class A Common Stock issued by Curtice Burns
Foods, Inc. beneficially owned, directly or indirectly, by all Agway
directors and executive officers as a group:
<TABLE>
<CAPTION>
Amount of
Shares
Name of Beneficially Per Cent of
Title of Class Beneficial Owner Owned Class
- - - - - - - - ------------------------- ------------------ ------------ ------------
<S> <C> <C> <C>
Curtice Burns Foods, Inc.
Class A Common Stock Charles C. Brosius 11,763 Less than 1%
Richard C. Call 2,240 Less than 1%
Vyron M. Chapman 200 Less than 1%
Peter D. Hanks 200 Less than 1%
Ralph H. Heffner 1,540 Less than 1%
Frederick A. Hough 346 Less than 1%
Robert L. Marshman 50 Less than 1%
Donald E. Pease 1,982 Less than 1%
John H. Ross 114 Less than 1%
Carl D. Smith 3,300 Less than 1%
John H. Talmage 13,864 Less than 1%
Christian F. Wolff, Jr. 150 Less than 1%
William W. Young 700 Less than 1%
All directors and officers
as a group (1) 37,289 Less than 1%
</TABLE>
(1) Includes totals of individual directors separately disclosed.
Item 13. Certain Relationships and Related Transactions
There are no reportable items under this caption.
<PAGE>60
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page
(a) Index to Document List Location
(1) Financial Statements
Among the responses to this Item 14(a)(1) are the
following financial statements which are included in
Item 8 on page 25:
(i) Independent Accountants' reports 27
(ii) Balance Sheets, June 30, 1994 and 1993 30
(iii) Statements of Operations, for the fiscal
years ended June 30, 1994, 1993 and 1992 31
(iv) Statements of Changes in Shareholders'
Equity, for the fiscal years ended
June 30, 1994, 1993 and 1992 32
(v) Consolidated Cash Flow Statements, for
the fiscal years ended June 30,
1994, 1993 and 1992 33
(vi) Notes to Financial Statements 34
(2) Financial Statement Schedules
(i) The following schedules are presented:
Schedule III- Condensed Financial
Information of Registrant 62
Schedule V- Properties and Equipment 66
Schedule VI- Accumulated Depreciation,
Depletion and Amortization
Properties and Equipment 67
Schedule VIII- Valuation and Qualifying
Accounts 68
Schedule IX- Short-Term Borrowings 69
Schedule X- Supplementary Income
Statement Information 70
Schedules other than these listed above have been omitted as they are not
required, inapplicable, or the required information is included in the
consolidated financial statements or notes thereto.
<PAGE>61
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Agway Inc.:
Our report on the consolidated financial statements of Agway Inc.
and Consolidated Subsidiaries has been included in this form 10-K of
Agway Inc. and Consolidated Subsidiaries. In connection with our
audits of such financial statements, we have also audited the related
financial statement schedules listed in Item 14(a)(2)(i) of Part IV of this
annual report on Form 10-K.
In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements,
taken as a whole, present fairly, in all material respects, the informa-
tion required to be included therein.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
September 22, 1994
<PAGE>62
Item 14(a)(2). Financial Statement Schedules
<TABLE>
<CAPTION>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AGWAY INC.
CONDENSED BALANCE SHEETS
June 30, 1994 and 1993
(Thousands of Dollars)
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Advances and other receivables. . . . . . . . $ 150,188 $ 154,399
Inventories . . . . . . . . . . . . . . . . . 130,379 120,646
Prepaid expenses. . . . . . . . . . . . . . . 44,572 40,965
----------- -----------
Total current assets . . . . . . . . . . . 325,139 316,010
Investments in and advances to subsidiaries,
including discontinued operations. . . . . 121,545 112,366
Properties and equipment, net. . . . . . . . . 112,902 117,728
Other assets . . . . . . . . . . . . . . . . . 83,279 60,002
----------- -----------
Total assets . . . . . . . . . . . . . . . $ 642,865 $ 606,106
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt. . . $ 599 $ 1,068
Accounts payable. . . . . . . . . . . . . . 70,298 56,647
Other liabilities . . . . . . . . . . . . . 303,445 265,636
----------- -----------
Total current liabilities. . . . . . . . . 374,342 323,351
Long-term debt . . . . . . . . . . . . . . . . 3,351 3,716
Other liabilities. . . . . . . . . . . . . . . 61,346 83,638
Preferred stock. . . . . . . . . . . . . . . . 71,338 53,474
Shareholders' equity . . . . . . . . . . . . . 132,488 141,927
----------- -----------
Total liabilities and shareholders' equity $ 642,865 $ 606,106
=========== ===========
</TABLE>
<PAGE>63
Item 14(a)(2). Financial Statement Schedules - Continued
<TABLE>
<CAPTION>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AGWAY INC.
fiscal years ended JUNE 30, 1994, 1993 and 1992
(Thousands of Dollars)
CONDENSED STATEMENTS of OPERATIONS and RETAINED MARGIN
1994 1993 1992
----------- ----------- ------------
<S> <C> <C> <C>
Net sales and revenues from:
Product sales . . . . . . . . . . . . . . . . . . . . . . . $ 767,054 $ 713,066 $ 729,385
Other services. . . . . . . . . . . . . . . . . . . . . . . 13,147 20,967 21,576
------------ ----------- ------------
Total net sales and revenues . . . . . . . . . . . . . . 780,201 734,033 750,961
Cost and expenses from:
Products and plant operations . . . . . . . . . . . . . . . 776,666 700,132 705,092
Selling, general and administrative activities. . . . . . . 64,970 62,037 67,187
Restructuring costs (credit). . . . . . . . . . . . . . . . (6,065) 75,000
------------ ----------- ------------
Total operating costs and expenses . . . . . . . . . . . 835,571 762,169 847,279
------------ ----------- ------------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . (55,370) (28,136) (96,318)
Interest expense, net. . . . . . . . . . . . . . . . . . . . 5,765 811 5,875
Other income, net. . . . . . . . . . . . . . . . . . . . . . 31,648 30,710 37,840
------------ ----------- ------------
Margin (loss) from continuing operations before
income taxes and equity in earnings of subsidiaries . . . (29,487) 1,763 (64,353)
Income tax benefit . . . . . . . . . . . . . . . . . . . . . (20,046) (14,446) (5,030)
------------ ----------- ------------
Income (loss) before equity in earnings of subsidiaries. . . (9,441) 16,209 (59,323)
Equity in earnings of unconsolidated subsidiaries. . . . . . 10,137 9,518 14,752
------------ ----------- ------------
Margin (loss) from continuing operations . . . . . . . . . . 696 25,727 (44,571)
Discontinued operations:
Loss from operations, including tax
expense of $0, $725 and $139 and
after interest of others of $0, $2,767
and $3,746, respectively. . . . . . . . . . . . . . . . . (5,977) (14,242)
Loss on disposal, including tax expense of $7,800 . . . . . (4,000)
------------ ----------- ------------
Loss from discontinued operations. . . . . . . . . . . . (4,000) (5,977) (14,242)
------------ ----------- ------------
Net margin (loss). . . . . . . . . . . . . . . . . . . . . . $ (3,304) $ 19,750 $ (58,813)
Retained margin - July 1 . . . . . . . . . . . . . . . . . . 131,787 116,112 179,716
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . (5,044) (4,129) (4,861)
Equity in net unrealized gains (losses) of insurance company (93) 54 70
------------ ----------- ------------
Retained margin - June 30. . . . . . . . . . . . . . . . . . $ 123,346 $ 131,787 $ 116,112
============ ===========
===========
</TABLE>
<PAGE>64
Item 14(a)(2). Financial Statement Schedules - Continued
<TABLE>
<CAPTION>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AGWAY INC.
fiscal years ended JUNE 30, 1994, 1993 and 1992
(Thousands of Dollars)
CONDENSED CASH FLOW STATEMENTS
1994 1993 1992
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net margin (loss). . . . . . . . . . . . . . . . . . . . $ (3,304) $ 19,750 $ (58,813)
Adjustments to reconcile net margin (loss) to net cash:
Restructuring costs (credit). . . . . . . . . . . . . . (6,065) 75,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . 17,325 (570) (3,983)
----------- ---------- -----------
Net cash flows from operating activities . . . . . . . . 7,956 19,180 12,204
Cash flows from investing activities:
Purchases of PP&E . . . . . . . . . . . . . . . . . . . (18,043) (30,349) (12,027)
Other . . . . . . . . . . . . . . . . . . . . . . . . . (1,879) 28,276 9,138
----------- ---------- -----------
Net cash flows from investing activities . . . . . . . . (19,922) (2,073) (2,889)
Cash flows from financing activities:
Payments on capitalized leases. . . . . . . . . . . . . (588) (2,010) (4,136)
Cash dividends paid . . . . . . . . . . . . . . . . . . (5,044) (4,129) (4,861)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 17,598 (10,968) (318)
----------- ---------- -----------
Net cash flows from financing activities . . . . . . . . 11,966 (17,107) (9,315)
Net increase (decrease) in cash and equivalents. . . . . 0 0 0
Cash and equivalents at beginning of year. . . . . . . . 0 0 0
----------- ---------- -----------
Cash and equivalents at end of year. . . . . . . . . . . $ 0 $ 0 $ 0
=========== ==========
===========
</TABLE>
<PAGE>65
Item 14(a)(2). Financial Statement Schedules - Continued
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Thousands of Dollars)
ADDITIONAL DISCLOSURES
Inventories
Inventories at June 30 consist of the following:
<TABLE>
<CAPTION>
1994 1993
------------- -----------
<S> <C> <C>
Raw materials. . . . . . . . . . $ 14,530 $ 13,157
Finished goods . . . . . . . . . 110,774 100,561
Goods in transit and supplies. . 5,075 6,928
------------- -----------
$ 130,379 $ 120,646
============= ===========
</TABLE>
Debt
Debt capital for Agway is supplied by its wholly owned subsid-
iary, AFC, which provides financing through issuance of debt securities
and bank borrowings. The payment of principal and interest on such
debt is absolutely and unconditionally guaranteed by Agway. The total
debt of AFC guaranteed by Agway is disclosed in Note 10.
Related Party Transactions
Transactions between Agway Inc. and its unconsolidated subsi-
diaries are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
--------------------------------------------
1994 1993 1992
------------ ---------- ----------
<S> <C> <C> <C>
Net sales and revenues . . . . . . . . $ 35,512 $ 31,557 $ 35,857
Selling, general and administrative
expenses. . . . . . . . . . . . . . 21,821 22,236 25,653
Interest expense, net. . . . . . . . . 10,745 5,766 13,342
</TABLE>
<PAGE>66
Item 14(a)(2). Financial Statement Schedules - Continued
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE V - PROPERTIES AND EQUIPMENT
(Thousands of Dollars)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
Other Changes
(Add Balance
at Beginning Additions Deduct)- at End
Classification of Period at Cost Retirements Describe(1) of Period
- - - - - - - - --------------- ------------ --------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
for the year ended June 30, 1994
Land and land improvements . . . . . . . . . . . $ 39,668 $ 1,610 $ 4,748 $ 255 $ 36,785
Buildings and improvements to leased property. . 144,795 7,051 9,346 (1,255) 141,245
Machinery and equipment. . . . . . . . . . . . . 215,704 14,171 11,144 (1,356) 217,375
Office equipment . . . . . . . . . . . . . . . . 33,270 3,483 2,939 (48) 33,766
Automotive equipment . . . . . . . . . . . . . . 79,163 7,123 4,302 39 82,023
Construction in progress . . . . . . . . . . . . 7,423 916 8,339
$ 520,023 $ 34,354 $ 32,479 $ (2,365) $ 519,533
for the year ended June 30, 1993
Land and land improvements . . . . . . . . . . . $ 38,524 $ 4,812 $ 3,726 $ 58 $ 39,668
Buildings and improvements to leased property. . 148,176 9,600 12,889 (92) 144,795
Machinery and equipment. . . . . . . . . . . . . 224,263 20,103 29,247 585 215,704
Office equipment . . . . . . . . . . . . . . . . 37,555 1,914 6,186 (13) 33,270
Automotive equipment . . . . . . . . . . . . . . 81,704 9,717 12,412 154 79,163
Construction in progress . . . . . . . . . . . . 10,290 (2,867) 7,423
$ 540,512 $ 43,279 $ 64,460 $ 692 $ 520,023
for the year ended June 30, 1992
Land and land improvements . . . . . . . . . . . $ 37,300 $ 2,151 $ 958 $ 31 $ 38,524
Buildings and improvements to leased property. . 146,872 3,861 4,651 2,094 148,176
Machinery and equipment. . . . . . . . . . . . . 212,823 18,707 7,240 (27) 224,263
Office equipment . . . . . . . . . . . . . . . . 37,879 2,775 3,381 282 37,555
Automotive equipment . . . . . . . . . . . . . . 80,199 10,677 9,709 537 81,704
Construction in progress . . . . . . . . . . . . 13,221 (2,931) 10,290
$ 528,294 $ 35,240 $ 25,939 $ 2,917 $ 540,512
</TABLE>
(1) Principally reclassifications
Depreciation and amortization are charged to operations, principally on
a straight-line basis, over the estimated useful lives of the properties
and equipment or over the term of the lease for certain capital leases.
The principal depreciation and amortization rates used are as follows:
Percentage Rate
Per Annum
Land improvements. . . . . . . . . . . . . . . . 5 to 10
Buildings and improvements to leased property. . 2 to 10
Machinery and equipment. . . . . . . . . . . . . 3 to 12.5
Office equipment . . . . . . . . . . . . . . . . 10 to 33
Automotive equipment . . . . . . . . . . . . . . 12.5 to 33
<PAGE>67
Item 14(a)(2). Financial Statement Schedules - Continued
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTIES AND EQUIPMENT
(Thousands of Dollars)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
Other
Additions Changes-
Balance Charged to Add Balance
Beginning Cost and (Deduct)- at End
Classification of Period Expenses Retirements Describe(1) of Period
- - - - - - - - -------------- --------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
for the year ended June 30, 1994
Land and land improvements . . . . . . . . . . . $ 9,801 $ 969 $ 1,659 $ 104 $ 9,215
Buildings and improvements to leased property. . 76,560 5,962 5,906 (226) 76,390
Machinery and equipment. . . . . . . . . . . . . 102,472 11,987 6,825 (446) 107,188
Office equipment . . . . . . . . . . . . . . . . 24,790 3,730 2,509 (31) 25,980
Automotive equipment . . . . . . . . . . . . . . 46,420 8,841 3,394 (476) 51,391
$ 260,043 $ 31,489 $ 20,293 $ (1,075) $ 270,164
for the year ended June 30, 1993
Land and land improvements . . . . . . . . . . . $ 10,208 $ 935 $ 1,395 $ 53 $ 9,801
Buildings and improvements to leased property. . 79,174 5,519 8,042 (91) 76,560
Machinery and equipment. . . . . . . . . . . . . 108,233 11,745 17,593 87 102,472
Office equipment . . . . . . . . . . . . . . . . 25,664 4,624 5,584 86 24,790
Automotive equipment . . . . . . . . . . . . . . 45,844 9,179 8,754 151 46,420
$ 269,123 $ 32,002 $ 41,368 $ 286 $ 260,043
for the year ended June 30, 1992
Land and land improvements . . . . . . . . . . . $ 9,469 $ 918 $ 257 $ 78 $ 10,208
Buildings and improvements to leased property. . 74,981 5,662 2,495 1,026 79,174
Machinery and equipment. . . . . . . . . . . . . 102,189 12,008 6,307 343 108,233
Office equipment . . . . . . . . . . . . . . . . 22,521 5,874 2,904 173 25,664
Automotive equipment . . . . . . . . . . . . . . 43,901 10,004 8,444 383 45,844
$ 253,061 $ 34,466 $ 20,407 $ 2,003 $ 269,123
</TABLE>
(1) Principally reclassifications
<PAGE>68
Item 14(a)(2). Financial Statement Schedules - Continued
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Additions
-------------------------
Charged to
Balance Charged to Other Balance
at Beginning Costs and Accounts- Deductions- at End
Description of Period Expenses Describe Describe of Period
- - - - - - - - ----------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
for the year ended June 30, 1994
Reserves deducted in the balance sheet from
assets to which they apply:
Allowance for doubtful notes and accounts
receivable (current) . . . . . . . . . . . $ 13,267 $ 4,204 $ 4,815(a) $ 12,656
Allowance for doubtful leases receivable. . $ 12,080 $ 5,927 $ 5,573(a) $ 12,434
Restructuring reserve. . . . . . . . . . . . . $ 26,702 $ (6,065) $ 1,385(b) $ 19,252
for the year ended June 30, 1993
Reserves deducted in the balance sheet from
assets to which they apply:
Allowance for doubtful notes and accounts
receivable (current) . . . . . . . . . . . $ 9,678 $ 5,517 $ 1,928(a) $ 13,267
Allowance for doubtful leases receivable. . $ 12,045 $ 4,659 $ 4,624(a) $ 12,080
Restructuring reserve. . . . . . . . . . . . . $ 75,000 $ 48,298(b) $ 26,702
Income tax valuation allowance . . . . . . . . $ 6,347 $ 6,347(c) $ 0
for the year ended June 30, 1992
Reserves deducted in the balance sheet from
assets to which they apply:
Allowance for doubtful notes and accounts
receivable (current) . . . . . . . . . . . $ 4,424 $ 7,382 $ 2,128(a) $ 9,678
Allowance for doubtful leases receivable. . $ 3,338 $ 12,555 $ 3,848(a) $ 12,045
Inventory reserve (current). . . . . . . . . . $ 1,500 $ 1,500(d) $ 0
Restructuring reserve. . . . . . . . . . . . . $ 0 $ 75,000 $ 75,000
Income tax valuation allowance . . . . . . . . $ 0 $ 6,347 $ 6,347
</TABLE>
(a) Accounts charged off, net of recoveries.
(b) Liquidation of reserve due to personnel reductions, plant and store
closings, discontinuation of product lines, and the sale of
non-essential assets.
(c) Reversal due to change in circumstance attributable to future taxable
income from sale of discontinued subsidiary investments.
(d) Difference between Cost and Market of applicable inventories.
<PAGE>69
Item 14(a)(2). Financial Statement Schedules - Continued
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E(1) Col. F(2)
Weighted
Maximum Average average
Category of Weighted amount amount interest
aggregate Balance average outstanding outstanding rate
short-term at end interest during during during
borrowings of period rate the period the period the period
---------- ------------ ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
for the year ended June 30, 1994
Notes payable. . . . . $ 62,800 5.5% $ 91,400 $ 65,024 4.4%
for the year ended June 30, 1993
Notes payable. . . . . $ 70,600 4.9% $ 96,200 $ 67,970 4.6%
for the year ended June 30, 1992
Notes payable. . . . . $ 38,300 5.9% $ 133,100 $ 104,757 5.9%
</TABLE>
(1) The average amount outstanding during the period was determined by
dividing the sum of each day's outstanding amount by 365 days.
(2) The weighted average rate was determined by dividing the total
interest paid on short-term borrowings by the weighted average of
such borrowings outstanding on a daily basis.
<PAGE>70
Item 14(a)(2). Financial Statement Schedules - Continued
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Thousands of Dollars)
<TABLE>
<CAPTION>
Column A Column B
Charge to costs
Item and expenses
- - - - - - - - ------------------------------------------- ------------------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Maintenance and repairs. . . . . . . . . . . . . . . . $ 29,340 $ 24,214 $ 22,435
Depreciation and amortization of intangible assets,
preoperating costs and similar deferrals. . . . . . * * *
Taxes, other than payroll and income taxes . . . . . . * * *
Royalties. . . . . . . . . . . . . . . . . . . . . . . * * *
Advertising costs. . . . . . . . . . . . . . . . . . . $ 21,409 $ 18,865 $ 20,730
</TABLE>
*Less than 1% of net sales and revenues
<PAGE>71
Item 14(b). Reports on Form 8-K
No reports on Form 8-K for the three months ended June 30,
1994, have been filed.
Item 14(c)(1). Exhibits Required by Securities and Exchange Commission
Regulation S-K
i) The following required exhibits are hereby
incorporated by reference to previously filed
Registration Statements on Forms S-1, S-2 or S-
3, filed on the dates as specified:
Articles of incorporation and by-laws
3(a) - Certificate creating series of preferred
stock of Agway Inc. dated July 5, 1977,
filed by reference to Exhibit 3(a)(5) of
Registration Statement on Form S-1,
File No. 2-59896, dated September 16,
1977.
3(b) - Certificate creating series of Honorary
Member Preferred Stock of Agway Inc.
dated June 15, 1981, filed by reference
to Exhibit 1(c) of the Registration State-
ment on Form S-1, File No. 2-73928,
dated September 3, 1981.
Instrument defining the rights of security
holders, including indentures
4(a) - The Indenture dated as of August 25,
1982, between Agway and Key Bank of
Central New York of Syracuse, New
York, Trustee, including forms of Sub-
ordinated Money Market Certificates
(Minimum 9% per annum) due October
31, 1997, and Subordinated Money
Market Certificates (minimum 9.5% per
annum) due October 31, 1997, filed by
reference to Exhibit 4 of the Registration
Statement (Form S-1), file No. 2-79047,
dated August 27, 1982.
4(b) - The Indenture dated as of August 1,
1984 between Agway and Key Bank of
Central New York of Syracuse, New
York, Trustee, including forms of Sub-
ordinated Money Market Certificates
(Minimum 9.5% per annum) due Octo-
ber 31, 1984, and Subordinated Member
Money Market Certificates (Minimum
10% per annum) due October 31, 1994,
filed by reference to Exhibit 4 of the
Registration Statement (Form S-2), File
No. 2-92989, dated August 28, 1984.
4(c) - The Indenture dated as of August 2,
1984, between Agway and Key Bank of
Central New York of Syracuse, New
York, Trustee, including forms of Sub-
ordinated Money Market Certificates
(Minimum 10% per annum) due October
31, 1984, and Subordinated Member
Money Market Certificates (Minimum
10.5% per annum) due October 31,
1994, filed by reference to Exhibit 4 of
the Registration Statement (Form S-2),
File No. 2-92989, dated August 28,
1984.
4(d) - The Indenture dated as of September 1,
1985, between Agway and Key Bank of
Central New York of Syracuse, New
York, Trustee, including forms of Sub-
ordinated Money Market Certificates
(Minimum 7.5% per annum) due Octo-
ber 31, 2005, and Subordinated Member
Money Market Certificates (Minimum
8% per annum) due October 31, 1995,
filed by reference to Exhibit 4 of the
Registration Statement (Form S-2), File
No. 2-99905, dated August 27, 1985.
4(e) - The Indenture dated as of September 2,
1985, between Agway and Key Bank of
Central New York of Syracuse, New
York, Trustee, including forms of Sub-
ordinated Money Market Certificates
(Minimum 8% per annum) due October
31, 1995, and Subordinated Member
Money Market Certificates (Minimum
8.5% per annum) due October 31, 1995,
filed by reference to Exhibit 4 of the
Registration Statement (Form S-2), File
No. 2-99905, dated August 27, 1985.
<PAGE>72
Item 14(c)(1). Exhibits Required by Securities and Exchange
Commission Regulation S-K - Continued
4(f) - The Indenture dated as of September 1,
1986 between AFC and Key Bank of
Central New York of Syracuse, New
York, Trustee, including forms of Sub-
ordinated Member Money Market Cer-
tificates (Minimum 6.5% per annum)
due October 31, 1996, Subordinated
Member Money Market Certificates
(Minimum 6% per annum) due October
31, 2006, Subordinated Money Market
Certificates (Minimum 6% per annum)
due October 31, 1996, and Subordinated
Money Market Certificates (Minimum
5.5% per annum) due October 31, 2006,
filed by reference to Exhibit 4 of the
Registration Statement (Form S-3), File
No. 33-8676, dated September 11, 1986.
4(g) - The Supplemental Indenture dated as of
October 1, 1986 among AFC, Agway
Inc. and Key Bank of Central New York
of Syracuse, New York, Trustee, includ-
ing forms of subordinated debt securities
filed by reference to Exhibit 4 of Regis-
tration Statement on Form S-3, File No.
33-8676, dated September 11, 1986.
4(h) - The Indenture dated as of August 24,
1987 between AFC and Key Bank of
Central New York of Syracuse, New
York, Trustee, including forms of Sub-
ordinated Member Money Market Cer-
tificates (Minimum 7% per annum) due
October 31, 1998, and Subordinated
Member Money Market Certificates
(Minimum 6.5% per annum) due Octo-
ber 31, 2008, and Subordinated Money
Market Certificates (Minimum 6.5% per
annum) due October 31, 1998, and
Subordinated Money Market Certificates
(Minimum 6% per annum) due October
31, 2008, filed by reference to Exhibit 4
of Registration Statement on Form S-3,
File No. 33-16734, dated August 31,
1987.
4(i) - The Indenture dated as of August 23,
1988 between AFC and Key Bank of
Central New York of Syracuse, New
York, Trustee, including forms of Sub-
ordinated Member Money Market Cer-
tificates (Minimum 9.5% per annum)
due October 31, 2000, and Subordinated
Member Money Market Certificates
(Minimum 9% per annum) due October
31, 2008, and Subordinated Money
Market Certificates (Minimum 9% per
annum) due October 31, 2000, and
Subordinated Money Market Certificates
(Minimum 8.5% per annum) due Octo-
ber 31, 2000, filed by reference to
Exhibit 4 of Registration Statement on
Form S-3, File No. 33-24093, dated
August 31, 1988.
4(j) - The Supplemental Indenture dated as of
October 14, 1988 among AFC, Agway
Inc. and Key Bank of Central New
York, National Association, Trustee,
amending the Indentures dated as of
August 23, 1988 and August 24, 1988
filed on October 18, 1988.
4(k) - The Indenture dated as of August 23,
1989, among AFC, Agway Inc. and Key
Bank of Central New York of Syracuse,
New York, Trustee, including forms of
Subordinated Money Market Certificates
and Subordinated Members Money
Market Certificates, filed by reference to
Exhibit 4 of Registration Statement on
Form S-3, File No. 33-30808, dated
August 30, 1989.
4(l) - AFC Board of Directors resolutions
authorizing the issuance of Money Mar-
ket Certificates under Indentures dated
as of August 23, 1989.
4(m) - Agway Board of Directors resolutions
authorizing the issuance of Honorary
Member Preferred Stock, Series HM
and Membership Common Stock and
authorizing AFC to issue Money Market
Certificates under Indentures dated as of
August 23, 1989.
<PAGE>73
Item 14(c)(1). Exhibits Required by Securities and Exchange
Commission Regulation S-K - Continued
4(n) - The Supplemental Indenture dated as of
August 24, 1992 among AFC, Agway
Inc. and Key Bank of New York, Trust-
ee, amending the Indenture dated as of
August 23, 1989.
(ii) The following exhibits are filed as a separate
section of this report:
3 - Agway, Inc. By-laws as amended June 14, 1994
12 - Statements re computation of ratios
13 - Annual report to security holders, Form 10-Q or
quarterly report to security holders
21 - Subsidiaries of registrant
23 - Consents of experts and counsel
27 - Financial data schedule
99 - Additional exhibits
The Annual Report on Form 11-K for fiscal year ended
June 30, 1994.
<PAGE>74
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 undersigned, thereunto duly
authorized.
AGWAY INC.
(Registrant)
By /s/ Donald P. Cardarelli
Donald P. Cardarelli
Executive Vice President and
Chief Operating Officer
(Principal Executive Officer)
Date September 21, 1994
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Donald P. Cardarelli Executive Vice President and September 21, 1994
(Donald P. Cardarelli) Chief Operating Officer
(Principal Executive Officer)
/s/ Peter J. O'Neill Senior Vice President, September 21, 1994
(Peter J. O'Neill) Finance & Control
(Principal Financial Officer
& Principal Accounting Officer)
/s/ Ralph H. Heffner Chairman of the September 21, 1994
(Ralph H. Heffner) Board and Director
/s/ Charles C. Brosius Vice Chairman of the September 21, 1994
(Charles C. Brosius) Board and Director
/s/ Richard C. Call Director September 21, 1994
(Richard C. Call)
/s/ Vyron M. Chapman Director September 21, 1994
(Vyron M. Chapman)
/s/ Eugene Freund Director September 21, 1994
(Eugene Freund)
/s/ Peter D. Hanks Director September 21, 1994
(Peter D. Hanks)
</TABLE>
<PAGE>75
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Frederick A. Hough Director September 21, 1994
(Frederick A. Hough)
/s/ Stephen P. James Director September 21, 1994
(Stephen P. James)
/s/ Robert L. Marshman Director September 21, 1994
(Robert L. Marshman)
/s/ Samuel F. Minor Director September 21, 1994
(Samuel F. Minor)
/s/ Donald E. Pease Director September 21, 1994
(Donald E. Pease)
/s/ John H. Ross Director September 21, 1994
(John H. Ross)
/s/ Carl D. Smith Director September 21, 1994
(Carl D. Smith)
/s/ Thomas E. Smith Director September 21, 1994
(Thomas E. Smith)
/s/ John H. Talmage Director September 21, 1994
(John H. Talmage)
/s/ Joel L. Wenger Director September 21, 1994
(Joel L. Wenger)
/s/ Christian F. Wolff, Jr. Director September 21, 1994
(Christian F. Wolff, Jr.)
/s/ William W. Young Director September 21, 1994
(William W. Young)
</TABLE>
<PAGE>76
Supplemental Information to be Furnished with Reports Filed
Pursuant to Section 15(d) of the Act by Registrants Which Have
Not Registered Securities Pursuant to Section 12 of the Act.
As of the date of this filing on Form 10-K, the Registrant has not
had available to be sent to security holders the annual report for fiscal
year ended June 30, 1994. Subsequent to the filing of the annual report
on Form 10-K, the Registrant shall furnish security holders with annual
reports.
<PAGE>
APPENDIX
NARRATIVE DESCRIPTION OF ORGANIZATIONAL CHART OMITTED ON PAGE 4
- - - - - - - - ---------------------------------------------------------------
The organizational structure of Agway Inc. as of June 30,
1994 was as follows:
Agway Inc is the parent company of this organization. The
organization consists of these areas: Corporate
Administration, Agriculture and Consumer, 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 and Consumer consists of feed and crops
operations, retail/wholesale operations, and country foods.
Divisions within Agway Inc. are responsible for feed and
crop operations as well as retail/wholesale operations.
Within the feed and crop operations, Milford Fertilizer
Company is a wholly owned subsidiary of Agway Inc. and
Seedway Inc., Allied Seed Cooperative Inc. and Pro-Lawn
Products Inc. are wholly owned subsidiaries of AHI.
Within the country foods operations, Sacramento Valley
Milling Inc. and Agway Country Foods Inc. are wholly
owned subsidiaries of AHI. Also within the country foods
operations are Merchants Produce Company Inc., Midstate
Potato Distributors, Inc., V. Guifre & Sons, Inc., and Sam
Panebianco and Sons, Inc., all wholly owned subsidiaries
of Agway Country Foods Inc.
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.
<PAGE>
AGWAY INC.
FORM 10-K
JUNE 30, 1994
EXHIBIT INDEX
Exhibit
Number Title
- - - - - - - - ------ -----
( 3) Articles of incorporation and by-laws . . . . . . . . . . . .Page
(12) Statements re computation of ratios . . . . . . . . . . . . .Page
(13) Annual report to security holders, Form 10-Q
or quarterly report to security holders . . . . . . . . . . .Page
(21) Subsidiaries of registrant. . . . . . . . . . . . . . . . . .Page
(23) Consent of experts and counsel. . . . . . . . . . . . . . . .Page
(27) Financial data schedule . . . . . . . . . . . . . . . . . . .Page
(99) Additional exhibits
Annual report on Form 11-K for the fiscal year
ended June 30, 1994 of The Agway Inc. Employees'
Thrift Investment Plan. . . . . . . . . . . . . . . . . . .Page
<PAGE>
EXHIBIT 3
<PAGE>
BY-LAWS
of
AGWAY INC.
As Amended to June 14, 1994
GENERAL
1.1 Certificate of Incorporation - The certificate of
incorporation of the corporation is hereby made a part of these
by-laws and all matters hereinafter contained in these by-laws
shall be subject to such provisions in regard thereto, if any, as
are set forth in the certificate of incorporation. All referenc-
es in these by-laws to the certificate of incorporation shall be
construed to mean the certificate of incorporation as from time
to time amended. The name and purposes of the corporation shall
be as set forth in the certificate of incorporation.
1.2 Definitions - As used in these by-laws, the
following terms have the following meanings:
(a) "Person" means any individual, partnership,
firm, corporation, association, or any other form of
business organization.
(b) "Farmer" means any person who produces agri-
cultural products for sale.
(c) "Member" means any person meeting the quali-
fications specified in section 2.1 of these by-laws;
and for purposes of sections 9.1-9.4 of these by-laws,
also includes any contract patron.
(d) "Contract Patron" means any person who is a
party to a contract with the corporation providing for
the payment of patronage refunds authorized by section
9.6 of these by-laws.
MEMBERSHIP
2.1 Members - The following persons shall be members
of the corporation:
(a) Any farmer or cooperative organization of
farmers which:
(1) is a record holder of one share of $25
par value membership common stock of this corpora-
tion, and
(2) has purchased farm supplies or farm
services or has marketed farm products through
<PAGE>
this corporation since the beginning of the pre-
ceding fiscal year of the corporation.
A cooperative organization of farmers, which acts only
as a local representative of the corporation in the distribution
of farm supplies, shall not thereby be qualified for membership.
2.2 Non-Members - All persons or organizations, not
qualified for membership under section 2.1 of these by-laws, who
shall purchase from or market through the corporation shall be
non-members of the corporation, and, except in the case of
contract patrons, shall not be entitled to share in refunds based
on their patronage.
2.3 Privileges of Membership - Each member shall have
the following rights and privileges:
(a) As a stockholder, to participate in and vote
at meetings of stockholders as provided in section 2.4
of these by-laws.
(b) To participate in patronage refunds as pro-
vided in sections 9.1-9.5 of these by-laws.
(c) To attend and participate in local membership
meetings, and to participate in the selection of member
committees or committeemen.
(d) To be eligible to serve on local member
committees or on the Agway council or on the board of
directors of this corporation.
2.4 Voting -
(a) All voting rights shall be vested in the $25
par value membership common stock of the corporation,
the holder of which shall be entitled to one vote to be
cast by the holder thereof in person, or by proxy, at
any meeting of stockholders.
(b) Except as otherwise provided by the laws of
Delaware, the certificate of incorporation or these by-
laws, all actions taken at a meeting of stockholders
shall be determined by a majority vote at a meeting at
which a quorum is present.
2.5 Representative of a Member or Stockholder - If any
member or stockholder is other than a natural person, such member
or stockholder may be represented by any officer thereof or by
any other individual duly authorized by a writing executed and
filed with the secretary of the corporation.
<PAGE>
2.6 Non-Transferability of Membership - No membership
shall be assigned or transferred either voluntarily or involun-
tarily or by operation of law.
2.7 Termination of Membership - A membership shall be
terminated:
(a) By transfer or the tender for purchase by the
corporation by a member of his share of $25 par value
membership common stock of the corporation, such termi-
nation to be effective upon the recording of such
transfer or purchase upon the stock records of the
corporation.
(b) By the call for redemption by the corporation
of the member's share of $25 par value membership
common stock of the corporation because the person has
ceased to be a member of the corporation as defined in
section 2.1 of these by-laws.
(c) By the call for redemption by the corporation
of the member's share of $25 par value membership
common stock of the corporation because such redemption
is necessary to maintain the status of the corporation
as an agricultural cooperative under applicable law.
2.8 Member Committees - Members shall be eligible to
attend meetings at which those members doing business with the
corporation and residing within a geographical area shall select
a member committee from among their own number. Member commit-
tees shall select a chairman, vice chairman, and secretary, and
shall keep minutes of their meetings and actions taken. Each
member committee so chosen shall function with respect to nomina-
tion procedures as specified in section 5.3 of these by-laws, and
shall act in an advisory capacity in representing members in
their relationships with this corporation, its subsidiaries and
qualified agencies.
CAPITAL STOCK AND PATRONS' INTERESTS
3.1 Capital Stock - The amount of the authorized
capital stock and the par value of the shares shall be as fixed
in the certificate of incorporation. The issuance of any shares
of capital stock of any class shall be authorized by the board of
directors by resolution fixing the consideration for such issue.
3.2 Certificates of Stock - Certificates of stock will
be signed in the name of the corporation by the president or a
vice-president and the treasurer or an assistant treasurer or the
secretary or an assistant secretary. Such signatures may be
facsimile. Certificates shall be numbered and registered in the
order in which they are issued and the seal of the corporation
shall be affixed thereto.
<PAGE>
Notwithstanding anything to the contrary in this
section 3.2 of these by-laws, certificates of stock shall be in
such form as shall, in conformity to law, be prescribed from time
to time by the board of directors.
3.3 Loss of Certificate - In case of the alleged loss
or destruction or of the mutilation of a certificate of stock, a
duplicate certificate may be issued in place thereof, upon such
terms in conformity with law as the board of directors may
prescribe. The corporation may issue a new certificate of stock
in the place of any certificate theretofore issued by it, alleged
to have been lost, stolen or destroyed, and the corporation may,
in its discretion and as a condition precedent to the issuance
thereof, require the owner of the lost, stolen or destroyed
certificate, or his legal representative, to give the corporation
(i) an affidavit (in form and substance satisfactory to the
corporation) describing the loss, theft or destruction of any
such certificate, and/or (ii) a bond sufficient to indemnify it
against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
3.4 Transfer of Shares of Stock - Shares of stock of
the corporation shall be transferable only on the books of the
corporation by assignment in writing by the owner thereof, his
attorney legally constituted, or his legal representatives, upon
surrender and cancellation of the certificates therefor and, in
the case of common stock, only with the written consent of the
corporation, endorsed on the certificate of stock. Shares of
common stock may not be transferred except absolutely. The
corporation and its transfer agents and registrars, if any, shall
be entitled to treat the holder of record of any share or shares
of stock as the absolute owner thereof for all purposes except as
otherwise expressly provided by the laws of the State of Dela-
ware.
3.5 Redemption or Purchase of Shares of Stock -
Whenever any stock is called by the corporation for redemption,
or whenever any $25 par value membership common stock held by a
person who has ceased to be a member is presented by the holder
for sale to the corporation, the certificates representing such
stock duly endorsed for transfer and bearing any appropriate
transfer stamps shall be delivered at the principal office of the
corporation or at such bank or trust company as may be specified
in the call by the corporation. Payment for any stock so deliv-
ered shall be made by the corporation promptly after such deliv-
ery. After call duly made in accordance with the foregoing
provisions (unless such stock shall have been duly delivered as
required by such call and the corporation shall have failed to
make payment therefor within one week after such delivery), the
stock covered by such call shall be deemed to have been purchased
by the corporation on the date fixed by the call for redemption
and the holder thereof shall not thereafter be entitled to vote
in respect to such stock, or otherwise to enjoy any of the
<PAGE>
privileges and benefits of ownership thereof, but only to re-
ceive, after delivery of the certificates therefor, payment for
such stock as hereinbefore provided.
3.6 Record Date - The board of directors may fix in
advance a date not exceeding sixty (60) nor less than ten (10)
days preceding the date of any meeting of the stockholders, or
not exceeding sixty (60) days preceding the date for payment of
any dividend, as a record date for the determination of the
stockholders entitled to notice of, and to vote at any such
meeting or entitled to receive a payment of any such dividend;
and in such case such stockholders and only such stockholders as
shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at such meeting, or to
receive payment of such dividend, notwithstanding any transfer of
any stock on the books of the corporation after such record date
so fixed.
3.7 Rights, Limitations and Priorities of Patrons'
Interest -
(a) Revolving Fund Certificates - Revolving fund
certificates issued by any predecessor corporation in
lieu of cash patronage refunds, or by this corporation
in exchange for such certificates issued by a predeces-
sor corporation, shall be redeemed at face amount,
fully or pro rata, in the order of issuance by year if
and when the board of directors in its sole discretion
considers the funds represented thereby no longer
necessary for corporate purposes. In the event of
dissolution, such certificates shall be retired in full
or on a pro rata basis. No interest shall be paid on
revolving fund certificates.
(b) Retained Margins and Patrons' Equities -
Retained margins (any net margin retained by the corpo-
ration or any predecessor and apportioned to patrons on
the books of the corporation or of predecessor corpora-
tions, but not allocated to patrons in the form of any
written notice) and patrons' equities (retained net
margin of the corporation or any predecessor allocated
to patrons in the form of a written notice other than a
revolving fund certificate) constitute the residual
equity of the corporation which, subject to reduction
by losses, shall be held for the benefit of patrons,
past as well as present, having an interest therein
pursuant to the provisions of these by-laws or the by-
laws of any predecessor corporation. Retained margins
and patrons' equities entitle the holders thereof to
the same rights and privileges, and neither shall enjoy
any preference over the other. No person shall be
entitled to any distribution of assets with respect of
retained margins or patrons' equities prior to the
dissolution of the corporation. In the event of disso-
<PAGE>
lution, after payment in full of all debts and of any
amounts to which the holders of preferred stock, re-
volving fund certificates and common stock shall be
entitled pursuant to the provisions of these by-laws,
the remaining assets of the corporation shall be dis-
tributed proportionately among those persons having
interests in retained margins and patrons' equities and
in accordance with such interests as reflected on the
books of the corporation and predecessor corporations.
3.8 6% Cumulative Preferred Stock, Series A - Agway,
Inc. 6% Cumulative Preferred Stock, Series A, issued in connec-
tion with the merger of Agway local store corporations into
Agway, Inc. after September 22, 1992 will not be subject to
transfer until July 1, 1997 and thereafter.
MEETINGS OF STOCKHOLDERS
4.1 Annual Meeting - A regular annual meeting of
stockholders shall be held at the City of Syracuse, State of New
York, on the first Wednesday of the month of December, or at such
other time and place as may be designated by resolution of the
board of directors.
4.2 Notice of Annual Meeting - Notice of the time and
place of the annual meeting shall be given all stockholders
entitled to vote not less than ten (10) days nor more than sixty
(60) days before the time of such meeting.
4.3 Special Meeting - A special meeting of stockhold-
ers may be called at any time by the chairman, or in his absence
by the vice-chairman, or by a majority of the directors or by one
percent of the membership by petition in writing. Only such
business may be transacted as is specified in the notice of the
special meeting.
4.4 Notice of Special Meetings - Notice of special
meetings shall be given in the same manner as for the annual
meeting and in addition shall state the purpose for which the
meeting is called.
4.5 Adjournment and Notice - Any meeting may be
adjourned because of the absence of a quorum or for any other
reason. If the adjournment is for less than thirty (30) days, no
new notice need be given if the time and place of the adjourned
meeting is announced at the time of adjournment. If the adjourn-
ment is more than thirty (30) days, notice shall be given as
required for the original meeting.
4.6 List of Stockholders - A complete list of the
stockholders entitled to vote at any election of directors,
arranged in alphabetical order, and showing the address of each
stockholder and stating that each stockholder owns one share
shall be prepared at least ten (10) days before such election by
<PAGE>
the officer in charge of the stock ledger of the corporation.
Such list shall be open to the examination of any stockholder
during ordinary business hours, for a period of at least ten (10)
days prior to the election, at a place within the city where the
election is to be held, which place shall be specified in the
notice of the meeting, and such list shall be produced and kept
at the time and place of election during the whole time thereof,
and subject to the inspection of any stockholder who may be
present.
4.7 Quorum - The presence in person at any meeting of
stockholders of the greater of (i) 100 persons each holding a
share of $25 par value membership common stock, or (ii) the
minimum number of stockholders required under applicable law to
establish a quorum, shall constitute a quorum for the transaction
of business. The stockholders present at a duly called and held
meeting at which a quorum is present may continue to do business
until adjournment notwithstanding withdrawal of stockholders.
4.8 Inspectors of Election - There shall be elected
each year one Inspector of Election from each of the districts
holding nominating meetings for the election of directors. Said
Inspectors shall serve at the annual meeting of the corporation
following said nominating meetings. The election of each of the
Inspectors of Election shall be by a majority of the votes cast
at each of said nominating meetings, and the weighted-vote
procedure set forth in section 5.3 of these by-laws shall obtain
with respect to the election of said Inspectors of Election.
Nominations for Inspector of Election shall be made from the
floor at said nominating meetings.
If less than two of the Inspectors of Election
elected pursuant to the provisions of the above paragraph are
present at the annual meeting for which they are elected, the
Chairman shall appoint one or two members, as required, to serve
as Inspectors of Election at said annual meeting so that there
shall be at least two members serving as Inspectors of Election
at each annual meeting.
4.9 Notice of Stockholder Business - At an annual
meeting of the stockholders, only such business shall be conduct-
ed as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be
(a) specified in the notice of meeting (or any supplement there-
to) given by or at the direction of the board of directors,
(b) otherwise properly brought before the meeting by or at the
direction of the board of directors, or (c) otherwise properly be
requested to be brought before the meeting by a stockholder. For
business to be properly requested to be brought before an annual
meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the
corporation not less than ninety (90) days prior to the meeting;
<PAGE>
provided, however, that in the event that the date of the meeting
is not publicly announced by the corporation by mail, press
release or otherwise more than ninety (90) days prior to the
meeting, notice by the stockholder to be timely must be delivered
to the secretary of the corporation not later than the close of
business on the tenth day following the day on which such an-
nouncement of the date of the meeting was communicated to stock-
holders. A stockholder's notice to the secretary shall set forth
as to each matter the stockholder proposes to bring before the
annual meeting (a) a brief description of the business desired to
be brought before the annual meeting and the reasons for conduct-
ing such business at the annual meeting, (b) the name and ad-
dress, as they appear on the corporation's books, of the stock-
holder proposing such business, (c) the class and number of
shares of the corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in
such business. Notwithstanding anything in the by-laws to the
contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in section 4.9
of these by-laws. The chairman of an annual meeting shall, if
the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in
accordance with the provisions of section 4.9 of these by-laws,
and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting
shall not be transacted.
4.10 Director Nominations - Nominations for the elec-
tion of directors may be made by the board of directors or a
committee appointed by the board of directors or by any stock-
holder entitled to vote in the election of directors generally or
by the secretary of the corporation pursuant to section 5.3 of
these by-laws. However, any stockholder entitled to vote in the
election of directors generally may nominate one or more persons
for election as directors at a meeting only if written notice of
such stockholder's intent to make such nomination or nominations
has been given, either by personal delivery or by United States
mail, postage prepaid, to the secretary of the corporation not
later than (i) with respect to an election to be held at an
annual meeting of stockholders, ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting, and
(ii) with respect to an election to be held at a special meeting
of stockholders for the election of directors, the close of
business on the tenth day following the date on which notice of
such meeting is first given to stockholders. Each such notice
shall set forth: (a) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be
nominated; (b) a representation that the stockholder is a holder
of record of stock of the corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the
<PAGE>
nomination or nominations are to be made by the stockholder; (d)
such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission; and (e) the consent of each nominee to serve
as a director of the corporation if so elected. The chairman of
the meeting may refuse to acknowledge the nomination of a person
not made in compliance with the foregoing procedure.
4.11 Order of Business - Unless otherwise determined by
the board of directors prior to the meeting, the chairman of the
stockholders' meeting shall determine the order of business and
shall have the authority in his discretion to regulate the
conduct of any such meeting, including, without limitation, by
imposing restrictions on the persons (other than stockholders of
the corporation or their duly appointed proxies) who may attend
any such stockholders' meeting based upon any determination by
the chairman, in his sole discretion, that any such person has
unduly disrupted or is likely to disrupt the proceedings thereat,
and the circumstances in which any person may make a statement or
ask questions at any stockholders' meeting.
DIRECTORS
5.1 Number and Qualification - The board of directors
shall consist of eighteen (18) members until the regular annual
meeting of stockholders is held in 1995; thereafter, the board of
directors shall consist of seventeen (17) members until the
regular annual meeting of stockholders is held in 1997; immedi-
ately after the 1997 regular annual stockholders meeting the
board of directors shall consist of fifteen (15) members. Direc-
tors shall be members of the corporation, except that members who
are employees or franchised representatives of the corporation
shall not be eligible for election as directors.
5.2 Nomination Districts - The territory in which the
corporation operates shall be divided into nomination districts,
eighteen (18) in number, described as follows:
District 1. State of New York, counties of Cat-
taraugus (except for southeast section),
Chautauqua, Erie, Genesee, Niagara, Orleans and
Wyoming and Towns of Clarkson, Gates, Greece,
Hamlin, Ogden, Parma and Sweden located in the
county of Monroe; Commonwealth of Pennsylvania,
northeast corner of the county of Erie and the
northern section of county of Warren.
District 2. State of New York, counties of Alle-
gany, Cattaraugus (southeast section), Chemung,
Livingston, Monroe (except for the Towns of
Clarkson, Gates, Greece, Hamlin, Ogden, Parma and
Sweden), Ontario, Schuyler, Seneca (except for
southern section), Steuben, Wayne and Yates;
<PAGE>
Commonwealth of Pennsylvania, northern section of
county of McKean and northwest section of county
of Potter.
District 3. State of New York, counties of
Broome, Cayuga, Chenango (except for northwest
section), Cortland, (except for northeast section)
Delaware (western half), Onondaga (southern half),
Seneca (southern section), Tioga, Tompkins and
Town of Gilbertsville located in the county of
Otsego; Commonwealth of Pennsylvania, northeast
section of county of Bradford.
District 4. State of New York, counties of
Chenango (northwest section), Cortland (northeast
section), Herkimer (southern half), Madison, Onei-
da, Onondaga (except for the southern half), Oswe-
go and Otsego (except for the Town of
Gilbertsville).
District 5. State of New York, counties of Clin-
ton, Essex, Franklin, Hamilton (northern half),
Herkimer (northern half), Jefferson, Lewis and St.
Lawrence.
District 6. State of New York, counties of Alba-
ny, Columbia, Delaware (eastern half), Dutchess,
Fulton, Greene, Hamilton (southern half), Montgom-
ery, Putnam, Rensselaer, Saratoga, Schenectady,
Schoharie, Warren and Washington.
District 7. Commonwealth of Pennsylvania, coun-
ties of Berks, Dauphin, Lancaster, Lebanon and
Schuylkill.
District 8. States of Vermont and New Hampshire.
District 9. State of Maine.
District 10. States of Connecticut and Rhode
Island; and Commonwealth of Massachusetts.
District 11. State of New York, New York City and
Long Island counties, and counties of Orange,
Rockland, Sullivan (except for the Towns of
Callicoon, Cochecton, Delaware and Fremont), Ul-
ster and Westchester.
District 12. Commonwealth of Pennsylvania, coun-
ties of Bradford (except for northeast section),
Lackawanna, Luzerne (northern section), Monroe
(northern half), Pike, Sullivan, Susquehanna,
Wayne and Wyoming; State of New York, Towns of
<PAGE>
Callicoon, Cochecton, Delaware and Fremont located
in the county of Sullivan.
District 13. Commonwealth of Pennsylvania, coun-
ties of Cameron, Centre, Clearfield, Clinton,
Columbia, Elk, Luzerne (southern section),
Lycoming, McKean (except for northern section),
Montour, Northumberland, Potter (except for north-
west section), Snyder, Tioga and Union.
District 14. Commonwealth of Pennsylvania, coun-
ties of Armstrong, Beaver, Butler, Clarion, Craw-
ford, Erie (except for northeast corner), Forest,
Jefferson, Lawrence, Mercer, Venango and Warren
(except for northern section); and northern Ohio.
District 15. Commonwealth of Pennsylvania, coun-
ties of Allegheny, Bedford, Blair, Cambria,
Fayette, Fulton, Greene, Huntingdon, Indiana,
Somerset, Washington, and Westmoreland; State of
Maryland, counties of Allegany and Garrett; south-
ern Ohio and northern West Virginia.
District 16. State of New Jersey.
District 17. State of Delaware; State of Mary-
land, counties of Caroline, Cecil, Dorchester,
Kent, Queen Annes, Somerset, Talbot, Wicomico and
Worcester; Commonwealth of Pennsylvania, counties
of Bucks, Carbon, Chester, Delaware, Lehigh, Mon-
roe (southern half), Montgomery, Northampton and
Philadelphia.
District 18. Commonwealth of Pennsylvania, coun-
ties of Adams, Cumberland, Franklin, Juniata,
Mifflin, Perry and York; State of Maryland, coun-
ties of Baltimore, Carroll, Frederick, Harford and
Washington.
5.3 Nomination Procedures - District Directors - Each
district as defined in section 5.2 of these by-laws shall be
subdivided into geographical areas, each to be represented by a
member committee, selected in the manner set forth in section 2.8
of these by-laws, which by its chairman or vice chairman shall
act for its committee as provided herein. At least one hundred
forty (140) days before each annual meeting of the corporation,
the chairman of the corporation shall appoint, for each nomina-
tion district from which a district director is to be elected at
the next annual meeting, a nominating committee for such district
consisting of one director of the corporation from outside such
district plus a member (preferably a committeeperson) from each
member committee area within such district with the total number
of members to be not less than four or greater than the number of
member committees within such district. Such nominating commit-
<PAGE>
tee shall recommend the member it deems best qualified to serve
as district director from such district, or if it so chooses, it
may recommend two members, both of whom it deems qualified to
serve as district director from such district, and shall report
such recommendation or recommendations to the chairman of the
corporation, who thereupon shall call a meeting of all members of
the member committees within such district, at a place and at a
time designated by the board of directors. The chairman of the
corporation shall designate a chairman and alternate chairman for
the meeting so called and the presiding officer thereof shall
appoint a secretary. At such a meeting the nominating committee
of the district shall present its recommendation or recommenda-
tions to the meeting in the form of a nomination. Additional
nominations of members residing within the district may be made
from the floor. If there is more than one nominee, voting shall
be by ballot of the chairman (or his alternate) of each member
committee within the district. The vote of each such chairman
(or his alternate) shall be weighted by the volume of member
business represented by such chairman (or his alternate) in
accordance with the following formula: under $250,000, 1 vote;
$250,000 to $499,999, 2 votes; $500,000 to $749,999, 3 votes;
$750,000 to $999,999, 4 votes; $1,000,000 to $1,999,999, 5 votes;
one additional vote for each additional $1,000,000 of member
volume.
Whoever receives a majority of the votes cast shall be
declared the nominee for the district. In case no candidate
receives a majority on the first ballot, on each ballot the
candidate with the least number of votes will be eliminated until
one candidate receives a majority. Immediately after such
meeting the secretary thereof shall transmit to the secretary of
the corporation a sworn certificate stating the name of such
nominee, which shall be placed in nomination at the annual
meeting by the secretary of the corporation or his designee.
5.4 Vacancies -
(a) Any vacancy on the board of directors occur-
ring during the term of any director, caused by death,
resignation or otherwise may be filled for the unex-
pired portion of the term or until a successor shall be
elected by a majority of the directors then in office
at any regular or special meeting of the board. If the
term of a district director being replaced extends
beyond the next annual meeting, the portion of the term
following such meeting shall be filled at such meeting
by the stockholders in accordance with nomination
procedures specified by the board of directors and
conforming, as closely as time permits, to the proce-
dures set forth in section 5.3 of these by-laws. Any
vacancy shall be filled by a person from the same
district as the person being replaced.
<PAGE>
(b) In case the entire board of directors shall
die or resign, any ten (10) stockholders may call a
special meeting in the same manner that the chairman
may call such a meeting, and directors for the unex-
pired terms may be elected at such special meeting in
the manner provided for their election at annual meet-
ings.
5.5 Place of Meetings - Meetings of the board of
directors shall be held at any place which has been designated by
the board or by written consent of all members of the board.
5.6 Regular Meetings - Regular meetings of the board of
directors may be held at such time and place as may be appointed
by the board, which time may be changed from time to time. At
the regular meeting of the board of directors in November, the
election of officers, including the chairman of the board, the
vice-chairman and the president-general manager shall be conduct-
ed.
5.7 Special Meetings - A special meeting of the board
of directors shall be held whenever called by the chairman, or by
the vice-chairman of the board in the absence of the chairman, or
by any five (5) directors. Any and all business may be transact-
ed at a special meeting.
5.8 Notice of Meetings of Directors - No notice of
regular meetings of the directors need be given except that in
case of a change in the time for regular meetings written notice
of such change shall be given to directors who were not present
at the meeting when such change was made. Notice of each special
meeting shall be given pursuant to section 13.3 of these by-laws,
showing the time and place, at least five (5) days prior to the
time of such meeting.
5.9 Adjournment - Notice of time and place of holding
an adjourned meeting need not be given to absent directors, if
the time and place be fixed at the meeting adjourned and the
adjournment is for a period of not more than seven (7) days.
5.10 Quorum - Except as herein provided, a majority of
the directors in office shall be necessary to constitute a quorum
for the transaction of business. In the event of an extreme
emergency, including a substantial disruption of communication as
a result of a disaster, whether nuclear, labor strike, flood,
hurricane or any other cause, making it extremely difficult or
impossible to assemble a majority of the board for a duly called
meeting, and such emergency has been declared, either by the
president, or, in his absence, the chairman of the board, or by
the President of the United States, or by any of the Governors of
the states in which the corporation does business, a quorum of
the board of directors for the transaction of business at a
meeting duly called shall not be less than one-third of the
directors.
5.11 Compensation of Directors - Directors, as such,
shall not receive any stated compensation for their services
unless its payment has been first authorized by the board of
directors. In addition to an annual retainer, the board of
directors may allow a reasonable per diem and expenses for
attendance at any meeting of the board or of the executive
committee, and any other meeting or official business.
<PAGE>
5.12 Removal for Cause - A director may be removed for
failure to attend three (3) consecutive meetings of the board
without adequate cause, or for other neglect of duty, or for any
other cause. Such removal may be effected in either of the
following two ways:
(a) Removal may be by the vote or consent of the
holders of a majority of the shares entitled to vote at
an election of directors; or
(b) Removal may be by the affirmative vote of
three-fourths of the entire board (excluding the
director complained of) at any regular or special
meeting of the board, following reasonable notice to
the director complained of and a hearing by the board
of directors; provided, however, that in the event of
any such removal, the board of directors, if requested
in writing by the director subject to removal within
ten (10) days of the removal decision by the board of
directors, shall call a special meeting of the stock-
holders to confirm or overrule the decision of the
board of directors. If the earliest practicable date
to hold the special meeting of the stockholders falls
within ninety (90) days of the date of the annual
meeting as provided in section 4.1 of these by-laws,
the matter shall be presented to the stockholders for a
vote at the annual meeting. At the meeting of stock-
holders at which the question of the removal of the
director is presented for a vote, the director com-
plained of shall be provided a reasonable opportunity
to present his position. The vote of the holders of a
majority of the shares, present and voting, entitled to
vote at an election of directors shall confirm or
overrule the decision of the board of directors. Until
such time as the stockholders act on the removal of the
director complained of, if the stockholders are re-
quired to do so, neither the board of directors nor the
stockholders shall fill the vacancy caused by the
removal of the director.
A vacancy resulting from a vote of the stockhold-
ers may be filled by the stockholders at the meeting voting the
removal and if not so filled shall be filled by the board of
directors as provided in section 5.4 of these by-laws.
<PAGE>
POWERS OF DIRECTORS
6.1 General Powers - Subject to the limitations of the
certificate of incorporation, of the by-laws and of the statutes
of the State of Delaware relating to action which shall be
authorized or approved by stockholders, all corporate powers
shall be exercised by or under the authority of, and the business
and affairs of the corporation shall be controlled by, the board
of directors. Without prejudice to such general powers, but
subject to the same limitations, it is expressly declared that
the board of directors shall have the following powers to wit:
(a) To control the affairs and business of the
corporation and to establish and enforce rules and
regulations not inconsistent with the laws of the State
of Delaware, the certificate of incorporation or by-
laws, for the guidance of its officers and the manage-
ment and conduct of its affairs and business.
(b) To borrow money and incur indebtedness for
corporate purposes, and to cause to be executed and
delivered therefor, in the corporate name, promissory
notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations and other evidences of indebt-
edness and securities therefor, and to do every act and
thing necessary to effectuate the same.
COMMITTEES OF THE BOARD
7.1 Executive & Planning Committee - An executive and
planning committee may be established by resolution passed by a
majority of the whole board, to consist of such number of direc-
tors as may be specified, which shall have and may exercise, in
the intervals between meetings of the board, the powers of the
board of directors, including the power to authorize the seal of
the corporation to be affixed to all papers which may require it.
7.2 Other Committees of the Board - Other committees
may be established, from time to time, by resolution of the board
specifying the number of members and prescribing the committee
functions and duties.
OFFICERS AND MANAGEMENT
8.1 Corporate Officers - The officers of the corpora-
tion shall be elected by the board of directors and shall be a
chairman of the board, a vice-chairman, a president-general
manager, one or more vice-presidents, a secretary, a controller,
a treasurer and a general counsel. The board may also appoint
any other corporate officers whom the board of directors may see
fit in its discretion to designate. The chairman of the board
and the vice-chairman shall be elected by the directors from
their number. The president-general manager shall recommend
employee officers to the board of directors.
<PAGE>
8.2 Election and Term of Office - Officers shall be
elected annually at the first meeting of the board of directors
following the annual meeting of stockholders, or at such other
time as the board of directors shall determine. Unless sooner
removed by the board of directors, or unless they resign or
become disqualified, all officers shall hold office until their
successors are chosen and have qualified. Any officer, whether
elected or appointed by the board of directors, may be removed at
any time by a majority vote of all of the directors.
8.3 Powers and Duties - Subject at all times to the
control and direction of the board of directors, the president-
general manager shall conduct the business of the corporation in
accordance with its purposes, and shall have administrative
authority over all personnel, including employee officers, in the
employ of the corporation; and each other corporate officer shall
have and exercise the powers and duties usual to his office or
delegated to him by the board of directors.
8.4 Compensation of Officers - Officers shall each
receive such compensation as may be fixed by the directors. The
president-general manager shall recommend compensation for
employee officers to the board of directors.
8.5 Vacancies - A vacancy occurring in any office may
be filled by a majority of the directors then in office at any
regular or special meeting of the board.
8.6 Checks, Bills and Notes - All checks, drafts,
bills of exchange, notes, orders for the payment of money and
other negotiable instruments of the corporation shall be made in
the name of the corporation, and shall be signed by any one of
the following: the president, any vice president, the secretary,
treasurer, controller, or any assistant secretary, assistant
treasurer or assistant controller. The board of directors may
also delegate to other officers or agents the power to sign or
countersign such instruments. No officers or agents of the
corporation singly or jointly with others shall have the power to
make any bill payable, note or check or other negotiable instru-
ment or endorse the same in the name of the corporation, or
contract or cause to be contracted any debt or liability in the
name or on behalf of the corporation, except as provided in these
by-laws, and as authorized by the board of directors. Bills of
exchange, checks,notes and other negotiable instruments received
by the corporation shall be endorsed for collection by such
officers or agents as may be designated by the board of directors
for that purpose.
PATRONAGE ACCOUNTING
9.1 Scope of Patronage Refund Provisions - The provi-
sions of sections 9.2-9.5 of these by-laws provide for patronage
refunds only with respect to that portion of the corporation's
business consisting of sales of farm supplies. Patronage re-
<PAGE>
funds, if any, with respect to marketing operations will be paid
only pursuant to marketing contracts with members and contract
patrons providing for the payment of such refunds.
9.2 Definitions - As used in sections 9.2-9.5 of these
by-laws:
(a) Member - The term "member" includes any
member of the corporation as defined in section 1.2(c)
of these by-laws and also any person who has entered
into a patronage refund contract with the corporation
as authorized by section 9.5 of these by-laws. The
term "non-member" refers to any person who is not a
member as that term is defined in the preceding sen-
tence.
(b) Net Margin - The "net margin" of the corpora-
tion shall be taxable income from sales of farm sup-
plies for the fiscal year, as computed for federal
income tax purposes, but without taking into account
any deductions for patronage refunds.
(c) Member Margin - "Member margin" shall be that
portion of the net margin derived from sales of farm
supplies to members, determined by multiplying the net
margin by the percentage of gross purchasing volume
which is attributable to sales of farm supplies to
members.
(d) Volume Subject to Refund - "Volume subject to
refund" is the gross volume of the corporation from
sales of farm supplies for any fiscal year, reduced by
that portion of such volume attributable to business
with non-members, and increased by the average percent-
age mark-up necessary to reflect an equivalent volume
at the retail level.
(e) Member's Pro Rata Share - Each "member's pro
rata share" of any refund or reserve shall be computed
by multiplying the amount or volume subject to refund
attributable to such member by a percentage determined
by dividing the total refund or reserve to be allocat-
ed, as the case may be, by the total amount of volume
subject to refund.
(f) Patronage Refund - The term "patronage re-
fund" shall include a patronage refund or rebate or any
amount paid to a patron pursuant to section 9.5 of
these by-laws on the basis of business done with or for
such a patron.
9.3 Reasonable Reserves - The board of directors may
set aside each fiscal year, from the net margin of the corpora-
tion, such amounts as the board of directors in its discretion
<PAGE>
deems necessary for the efficient prosecution of the corpora-
tion's business, provided however, that no amounts shall be set
aside which are not reasonable in amount, giving due regard to
the purposes thereof (such amounts being sometimes hereinafter
referred to as "reasonable reserves"). Any reserves set aside
pursuant to section 9.3 of these by-laws shall be allocated first
to all net earnings, as defined in (ii) of section 9.4 of these
by-laws, of the corporation other than member margin and, to the
extent that such reserves exceed such net earnings, to member
margin. Such reasonable reserves may be used for such proper
corporate purposes as shall be determined by the board of direc-
tors, including, but not limited to the accumulation of working
capital, contributions to sinking funds to meet future indebted-
ness, payment of Federal income and excess profits taxes, acqui-
sition of funds for expansion or replacement, or accumulations of
reserves to offset price declines. The corporation shall main-
tain records sufficient to afford permanent means for apportion-
ing to each member his pro rata share of all amounts retained by
the corporation as reasonable reserves for each fiscal year.
9.4 Dividends on Capital Stock - The board of direc-
tors may set aside each fiscal year from funds available therefor
such amounts as the board deems appropriate for payment as
dividends on issued and outstanding capital stock. Such amounts
shall be allocated pro rata between (i) member margin and (ii)
all other net earnings of the corporation (including both net
margin derived from purchasing business conducted with non-
members, and earnings not derived from purchasing).
9.5 Payment of Patronage Refunds -
(a) Obligation to Pay Patronage Refunds - The
corporation shall be obligated, as soon as practicable
after the close of each fiscal year and in no event
later than 8 and one half months after the close thereof, to pay
each member in cash as a patronage refund his pro rata
share of all member margin remaining after deducting
amounts, if any, set aside therefrom by the board of
directors (1) as reasonable reserves pursuant to sec-
tion 9.3 of these by-laws and (2) for payment as divi-
dends on issued and outstanding capital stock pursuant
to section 9.4 of these by-laws; provided that the
amount of patronage refunds thus determined shall be
increased or decreased to the extent necessary to
enable the obligation for the payment of such refunds
to be expressed as a percentage of volume.
(b) Minimum Payment of Patronage Refunds - Not-
withstanding the provisions of paragraph (a) of section
9.5 of these by-laws, the board of directors shall fix
and/or amend from time to time the minimum amount which
shall be paid as a patronage refund and any amount less
than that so fixed shall not be distributed to the
member entitled thereto (unless he claims it in cash)
<PAGE>
but shall be retained by the corporation as through it
were part of a reasonable reserve set aside pursuant to
section 9.3 of these by-laws.
(c) Obligation to Pay Patronage Refunds Absolute-
The corporation shall be absolutely liable for the
payment of patronage refunds as provided herein without
further action on the part of any officer or of the
board of directors.
(d) Place of Purchase Immaterial - Each member
shall be entitled to his respective pro rata share of
any patronage refunds paid with respect to Agway dis-
tributed goods, regardless of where such goods were
purchased. The corporation shall enter into such
contracts, undertakings and understandings with Agway
agent-buyers, local representatives and local coopera-
tives as may be necessary and proper to insure that
each member will receive his pro rata share of such
refunds.
9.6 Contract Patrons - The board of directors may
authorize the appropriate officers and/or employees of the
corporation to contract to pay and to pay patronage refunds to
patrons other than the members as defined in section 1.2(c) of
these by-laws, provided the amounts of such patronage refunds are
determined upon the same basis and under the same terms and
conditions as those of such members, and provided further that
any such contract shall be entered into prior to the accumulation
of any gross receipts subject to the charge of such patronage
refunds.
MARKETING
10.1 Marketing Contracts - The terms and conditions
under which agricultural products of members shall be marketed
may be established by marketing contracts to be executed by the
corporation and its members on an individual commodity or commod-
ity group basis, not inconsistent with the provisions of these
by-laws.
(11.1 - Intentionally left blank)
INDEMNIFICATION
12.1 To the fullest extent possible under the provi-
sions of the Delaware General Corporation Law and in the manner
provided for thereunder, the corporation shall indemnify any
person who is or was a director, officer, employee or agent of
the corporation or any person who is or was serving at the
request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise.
<PAGE>
MISCELLANEOUS
13.1 Principal Office - The principal office of the
corporation in the State of Delaware shall be located at 1209
Orange Street in the City of Wilmington, County of New Castle.
13.2 Other Offices - The principal office outside the
State of Delaware shall be at DeWitt, New York. The corporation
may also have an office or offices at such other place or places,
within or without the State of Delaware as the board of directors
may from time to time appoint, or the business of the corporation
may require.
13.3 Method of Giving Notice - Whenever in these by-
laws notice is required to be given, it may be given by any one
or more of the following methods:
(a) Delivered personally; or
(b) Written notice either deposited in the mail
postage prepaid or sent by telegraph, addressed to the
residence or place of business of the person to be
notified as the same shall appear on the records of the
corporation; or
(c) To members or stockholders by publication in
any corporation bulletin or other periodical mailed to
members or stockholders; or
(d) Any other means permitted under applicable
law.
13.4 Waiver of Notice - The transactions of any meeting
of the board of directors or any committee however called and
noticed or wherever held, shall be as valid as though had at a
meeting duly held, after regular call and notice, if a quorum be
present, and if, either before or after the meeting, each of the
directors or committee members not present signs a written waiver
of notice or a consent to holding such meeting. All such waivers
or consents shall be filed with the corporate records or made a
part of the minutes of the meeting.
13.5 Effect of Holiday - If the time designated herein
for any meeting shall fall upon a legal holiday, then any such
meeting shall be held on the next day following which is not a
holiday.
13.6 Fiscal Year - The fiscal year of the corporation
shall extend from July 1 to June 30 following.
13.7 Seal - The seal of the corporation shall be
circular in form and shall have inscribed thereon the name of the
corporation, the year of organization and the words: "Corporate
Seal, Delaware."
<PAGE>
13.8 Amendments - These by-laws may be amended or
repealed or new by-laws adopted as follows:
(a) At any meeting of stockholders, by a vote of
a majority of the stockholders present and voting,
provided that the notice of the meeting shall have set
forth the substance of the proposed amendment, repeal
or new by-law provision upon which the vote is taken,
or
(b) By vote of two-thirds of the directors in
office.
<PAGE>
EXHIBIT 12
<PAGE>
Computation of Ratio of Margins to Fixed Charges and
Preferred Dividends Combined
<TABLE>
<CAPTION>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
For the five years ended June 30, 1994
(Thousands of Dollars)
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Margins before income taxes, and
member refunds. . . . . . . . . . . . . . . . $ 4,908 $ 18,818 $ (50,549) $ 10,257 $ 31,114
Fixed charges - Interest. . . . . . . . . . . 49,984 49,263 52,833 53,275 47,713
- Rentals . . . . . . . . . . . 2,392 2,610 2,591 2,808 2,626
------------ ------------ ------------ ------------ ------------
Total fixed charges . . . . . . . . . . . . . 52,376 51,873 55,424 56,083 50,339
------------ ------------ ------------ ------------ ------------
Adjusted net margins. . . . . . . . . . . . . $ 57,284 $ 70,691 $ 4,875 $ 66,340 $ 81,453
============ ============ ============ ============ ============
Fixed charges and preferred
dividends combined:
Preferred dividend factor:
Preferred dividend requirements . . . . . . . $ 4,878 $ 3,962 $ 4,724 $ 5,052 $ 4,727
Ratio of pre-tax margin to after-tax
margin. . . . . . . . . . . . . . . . . . . . 705.2% 73.1% 113.4% 1,540.1% 165.3%
------------ ------------ ------------ ------------ -------------
Preferred dividend factor on
pre-tax basis . . . . . . . . . . . . . . . . 34,398 2,898 5,358 77,805 7,814
Total fixed charges (above) . . . . . . . . . 52,376 51,873 55,424 56,083 50,339
------------ ------------ ------------ ------------ ------------
Fixed charges and preferred
dividends . . . . . . . . . . . . . . . . . . $ 86,774 $ 54,771 $ 60,782 $ 133,888 $ 58,153
============ ============ ============ ============ ============
Ratio of margins to fixed charges
and preferred dividends
combined* . . . . . . . . . . . . . . . . . 0.7 1.3 0.1 0.5 1.4
</TABLE>
*Represents adjusted net margins divided by fixed charges and preferred
dividends.
<PAGE>
EXHIBIT 13
<PAGE>
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, 1993
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.
<TABLE>
<CAPTION>
Class Outstanding at September 30, 1993
- - - - - - - - ------------------------------------- ---------------------------------
<S> <C>
Common Stock, $25 par value per share 111,408 shares
</TABLE>
* 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>
AGWAY INC.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheet
September 30, 1993 and June 30, 1993 . . . . . . . . 3
Consolidated Condensed Statement of Operations
and Retained Margin for the three months
ended September 30, 1993 and September 30, 1992. . . 4
Consolidated Condensed Cash Flow Statement for the
three months ended September 30, 1993
and September 30, 1992 . . . . . . . . . . . . . . . 5
Notes to Consolidated Condensed Financial Statements . . . . 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . 9
PART II. OTHER INFORMATION
Item #3 - - Legal Proceedings. . . . . . . . . . . . . . . .13
Item #4 - - Results of Votes of Securities Holders . . . . .13
Item #6 - - Exhibits and Reports on Form 8-K . . . . . . . .13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . .14
<PAGE>
PART I. FINANCIAL INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
September 30, June 30,
1993 1993
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents. . . . . . . . . . . . . . . . . . . . . . $ 771
Trade notes and accounts receivable, less allowance for
doubtful accounts of $13,227 and $13,267, respectively. . . . $ 162,036 212,196
Lease receivables, less unearned income of $27,929 and
$28,717, respectively . . . . . . . . . . . . . . . . . . . . 74,863 75,243
Advances and other receivables. . . . . . . . . . . . . . . . . 31,721 36,224
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . 16,988 19,919
Finished goods. . . . . . . . . . . . . . . . . . . . . . . . 135,554 152,348
Goods in transit and supplies . . . . . . . . . . . . . . . . 9,535 9,592
-------------- --------------
Total inventories . . . . . . . . . . . . . . . . . . . . . . 162,077 181,859
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . 68,026 58,863
-------------- --------------
Total current assets 498,723 565,156
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . 34,389 34,532
Other security investments. . . . . . . . . . . . . . . . . . . . . 34,425 34,102
Properties and equipment, net . . . . . . . . . . . . . . . . . . . 254,586 259,980
Long-term lease receivables, less unearned income of
$41,993 and $41,253, respectively . . . . . . . . . . . . . . . . 164,284 155,544
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,644 72,140
Net assets of discontinued operations . . . . . . . . . . . . . . . 92,771 83,310
-------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $ 1,151,822 $ 1,204,764
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,200 $ 70,600
Current installments of long-term debt and subordinated debt. . 60,760 66,039
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . 75,568 95,735
Other current liabilities . . . . . . . . . . . . . . . . . . . 114,433 132,773
-------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . 302,961 365,147
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 142,484 150,107
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . 392,301 379,619
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 113,970 114,490
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . 71,009 53,474
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,785 2,790
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 6,314 7,350
Retained margin . . . . . . . . . . . . . . . . . . . . . . . . . . 119,998 131,787
-------------- --------------
Total liabilities and shareholders' equity. . . . . . . . . $ 1,151,822 $ 1,204,764
============== ==============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED MARGIN
(Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
September 30, September 30,
1993 1992
-------------- -------------
<S> <C> <C>
Net sales and revenues from:
Product sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 322,795 $ 345,539
Leasing operations. . . . . . . . . . . . . . . . . . . . . . . 7,815 8,043
Insurance operations. . . . . . . . . . . . . . . . . . . . . . 6,699 8,566
Other services. . . . . . . . . . . . . . . . . . . . . . . . . 5,812 7,786
-------------- -------------
Total net sales and revenues. . . . . . . . . . . . . . . . 343,121 369,934
Cost and expenses from:
Products and plant operations . . . . . . . . . . . . . . . . . 270,612 292,063
Leasing operations. . . . . . . . . . . . . . . . . . . . . . . 3,500 3,658
Insurance operations. . . . . . . . . . . . . . . . . . . . . . 4,387 6,004
Retail operations . . . . . . . . . . . . . . . . . . . . . . . 40,235 42,645
Selling, general and administrative
activities. . . . . . . . . . . . . . . . . . . . . . . . . . 36,965 30,236
-------------- -------------
Total operating costs and expenses. . . . . . . . . . . . . 355,699 374,606
Operating margin. . . . . . . . . . . . . . . . . . . . . . . . . . (12,578) (4,672)
Operating interest expense, net . . . . . . . . . . . . . . . . . . 6,801 6,441
Other income (expense), net . . . . . . . . . . . . . . . . . . . . 1,584 1,151
-------------- -------------
Margin (loss) from continuing operations before income taxes . . . (17,795) (9,962)
Income tax expense (benefit). . . . . . . . . . . . . . . . . . . . (6,014) (2,974)
--------------- -------------
Margin (loss) from continuing operations. . . . . . . . . . . . . . (11,781) (6,988)
Discontinued operations:
Loss from operations, net of tax expense (benefit) of
$ 0 and $(163) and interest of others of $ 0
and $880, respectively. . . . . . . . . . . . . . . . . . . (1,236)
Effect of disposal. . . . . . . . . . . . . . . . . . . . . . .
-------------- -------------
Loss from discontinued operations. . . . . . . . . . . (1,236)
-------------- -------------
Net margin (loss) . . . . . . . . . . . . . . . . . . . . . . . . . (11,781) (8,224)
Retained Margin:
Balance at beginning of period. . . . . . . . . . . . . . . . . 131,787 116,112
Equity in unrealized gains (losses) of
insurance companies . . . . . . . . . . . . . . . . . . . . . (8) 61
-------------- -------------
Balance at end of period. . . . . . . . . . . . . . . . . . . . . . $ 119,998 $ 107,949
============== =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED CONDENSED CASH FLOW STATEMENT
(Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
September 30, September 30,
1993 1992
-------------- --------------
<S> <C> <C>
Net cash flows from continuing operations activities. . . . . . . . $ 38,520 $ 14,108
Net loss from discontinued operations . . . . . . . . . . . . . . . (1,235)
-------------- --------------
Net cash flows from operating activities. . . . . . . . . . . . . . 38,520 12,873
Cash flows from investing activities:
Purchases of property, plant and equipment. . . . . . . . . . . (4,380) (5,145)
Proceeds from disposal of businesses and P,P,& E. . . . . . . . 3,165 462
Leases originated . . . . . . . . . . . . . . . . . . . . . . . (25,050) (22,463)
Leases repaid . . . . . . . . . . . . . . . . . . . . . . . . . 15,644 15,956
Proceeds from sale of marketable securities . . . . . . . . . . 4,062 5,623
Purchases of marketable securities. . . . . . . . . . . . . . . (3,927) (5,874)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (249) (476)
-------------- --------------
Net investing activities from continuing operations . . . . . . . . (10,735) (11,917)
Net changes in net assets of discontinued operations. . . . . . . . (9,461) 5,482
-------------- --------------
Net cash flows from investing activities. . . . . . . . . . . . . . (20,196) (6,435)
Cash flows from financing activities:
Net change in short-term borrowings . . . . . . . . . . . . . . (18,400) 26,200
Proceeds from long-term debt. . . . . . . . . . . . . . . . . . 10,000 12,670
Repayment of long-term debt . . . . . . . . . . . . . . . . . . (22,672) (34,745)
Proceeds from sale of subordinated debt . . . . . . . . . . . . 15,656 8,287
Redemption of subordinated debt . . . . . . . . . . . . . . . . (2,973) (4,721)
Redemption of capital stock . . . . . . . . . . . . . . . . . . (260) (8,192)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (446) (2,092)
-------------- --------------
Net cash flows from financing activities. . . . . . . . . . . . . . (19,095) (2,593)
-------------- --------------
Net increase in cash and equivalents. . . . . . . . . . . . . . . . (771) 3,845
Cash and equivalents at beginning of year . . . . . . . . . . . . . 771 0
-------------- --------------
Cash and equivalents at end of period . . . . . . . . . . . . . . . $ 0 $ 3,845
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Thousands of Dollars)
1. OPINION
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly its
consolidated financial position as of September 30, 1993, and June 30,
1993, and its consolidated results of operations and retained margin
for the three months ended September 30, 1993 and 1992 and consolidated
cash flow statement for the three months ended September 30, 1993 and
1992.
All subsidiaries of continuing operations are wholly owned and are
included in the consolidated financial statements, and all significant
intercompany balances and transactions have been eliminated in
consolidation. Additionally, certain reclassifications have been made
to conform comparative financial statement information with the current
period presentation.
2. AGWAY FINANCIAL CORPORATION
Summarized financial information for Agway Financial Corporation and
Consolidated Subsidiaries is as follows:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
September 30, September 30,
1993 1992
-------------- ---------------
<S> <C> <C>
Net sales and revenues. . . . . . . . . $ 178,225 $ 216,445
Operating margin. . . . . . . . . . . . . 4,392 4,179
Margin (loss) from continuing operation . (4,533) (1,045)
Net margin (loss) . . . . . . . . . . . . (4,533) (2,281)
</TABLE>
<TABLE>
<CAPTION>
September 30, June 30,
1993 1993
-------------- ---------------
<S> <C> <C>
Current assets. . . . . . . . . . . . . $ 402,752 $ 433,907
Properties and equipment, net . . . . . 126,979 128,898
Noncurrent assets . . . . . . . . . . . 241,787 240,004
Net assets of discontinued operations . 92,771 83,310
-------------- ---------------
Total assets. . . . . . . . . . . . . . $ 864,289 $ 886,119
============== ===============
Current liabilities . . . . . . . . . . $ 232,499 $ 249,721
Long-term debt. . . . . . . . . . . . . 138,164 146,364
Subordinated debt . . . . . . . . . . . 392,301 379,619
Noncurrent liabilities. . . . . . . . . 31,347 34,859
Shareholders' equity. . . . . . . . . . 69,978 75,556
-------------- ---------------
Total liabilities and shareholders' equity $ 864,289 $ 886,119
============== ===============
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
3. SUPPLEMENTAL DISCLOSURES ABOUT OPERATING CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
September 30, September 30,
1993 1992
------------- -------------
<S> <C> <C>
Additional disclosure of operating cash flows:
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . $ 15,647 $ 16,992
============= ==============
Income taxes. . . . . . . . . . . . . . . . . . . . . . . $ 4,717 $ 6,179
============= ==============
</TABLE>
During the fiscal year ended June 30, 1993, 46 local cooperative affiliates
were acquired, and during fiscal 1994, 5 additional local cooperative
affiliates were acquired. Three of these cooperatives were merged into
Agway during the first and second quarters of fiscal 1993, 43 were acquired
during the third and fourth quarters of fiscal 1993, and 5 were merged in
the first quarter of fiscal 1994, for a total purchase price of $20,700
plus certain liabilities assumed of $16,300. Payment for these acquisitions
was made in the first quarter of fiscal 1994 and settled in the form of cash
($4,800) and restricted preferred stock, par value, ($15,900).
Certain other supplemental disclosures are as follows:
Schedule of Restructuring Activities:
<TABLE>
<CAPTION>
Cash flows from operating activities
<S> <C> <C>
Cash proceeds . . . . . . . . . . . . . . . . . . . . . . $ 2,549 $ 1,107
Cash spent. . . . . . . . . . . . . . . . . . . . . . . . (3,741) (1,426)
------------- --------------
Total cash flow from operating activities . . . . . . . . (1,192) (319)
Cash flows from investing activities
Proceeds from disposal of business and PP&E . . . . . . . 485 176
------------- --------------
Net increase (decrease) in cash and equivalents . . . . . $ (707) $ (143)
============= ==============
</TABLE>
4. POSTRETIREMENT BENEFITS
Generally, employees retiring from the company on or after age 55 who have
had at least 20 years of service are provided postretirement health care
benefits and life insurance coverage, subject to deductibles, co-payment
provisions, and other limitations. As of January 1, 1993, management
amended the existing program to provide program participants with two
options which differ only in cost-sharing arrangements and deductible
levels. The amendment had the effect of reducing the cost of these programs
to the Company in 1993 and prospectively. The costs are funded as payment
is due.
In December 1990, the Financial Accounting Standards Board issued SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
This standard requires companies to accrue postretirement benefits during
the years employees are working and earning benefits for retirement. The
provisions of SFAS No. 106 permit the transition obligation to be either
recognized immediately, as a cumulative effect of an accounting change, or
on a delayed basis over the program participants' future service periods
(20 year maximum).
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
4. POSTRETIREMENT BENEFITS (continued)
Effective July 1, 1993, the Company adopted the standard and began amortizing
the transition obligation over 20 years. The annual impact on pre-tax health
care, and life insurance benefits expense, after adoption, is in excess of
the prior method by approximately $3,900, which equates to approximately
$1,000 for the first quarter.
The following table is presented in accordance with SFAS No. 106, and sets
forth the program's funded status and amounts to be recognized in the
Company's consolidated financial statements for the fiscal year ended June
30, 1994.
<TABLE>
<CAPTION>
Health Life
Insurance Insurance Total
----------- ----------- ----------
<S> <C> <C> <C>
Annual expense for fiscal year ending June 30, 1994:
Service cost. . . . . . . . . . . . . . . . . . . . . . . $ 1,141 $ 74 $ 1,215
Interest cost . . . . . . . . . . . . . . . . . . . . . . 3,814 513 4,327
Amortization of Transition Obligation over 20 years . . . 1,714 334 2,048
----------- ----------- ----------
Net periodic annual expense for fiscal 1994 . . . . . . . . $ 6,669 $ 921 $ 7,590
=========== =========== ==========
Reconciliation of funded status (beginning of fiscal year 1994):
Health Life
Insurance Insurance Total
----------- ---------- ---------
Accumulated Postretirement Benefit Obligation as of July 1, 1993
Retirees and Surviving Spouses
Under Age 65. . . . . . . . . . . . . . . . . . . . . . . . $ 7,975 $ 1,078 $ 9,053
At Least Age 65 . . . . . . . . . . . . . . . . . . . . . . 11,061 4,664 15,725
Covered Spouses
Under Age 65. . . . . . . . . . . . . . . . . . . . . . . . 9,487 0 9,487
At Least Age 65 . . . . . . . . . . . . . . . . . . . . . . 5,958 0 5,958
---------- ---------- ---------
Subtotal retirees and Spouses . . . . . . . . . . . . . . . . 34,481 5,742 40,223
Actives Eligible to Retire. . . . . . . . . . . . . . . . . . 2,684 276 2,960
Actives Not Yet Eligible to Retire. . . . . . . . . . . . . . 12,045 670 12,715
---------- ---------- ---------
Total Accumulated Postretirement Benefit Obligation . . . . . . 49,210 6,688 55,898
Plan assets at fair value . . . . . . . . . . . . . . . . . . . 0 0 0
---------- ---------- ---------
Funded status . . . . . . . . . . . . . . . . . . . . . . . 49,210 6,688 55,898
Unrecognized Prior Service Cost . . . . . . . . . . . . . . . . 0 0 0
Unrecognized Net (Loss) Gain. . . . . . . . . . . . . . . . . . 0 0 0
Unrecognized Net Transition Obligation. . . . . . . . . . . . . (34,290) (6,688) (40,978)
---------- ---------- ---------
(Prepaid) Accrued Postretirement Benefit Cost . . . . . . . . . $ 14,920 $ 0 $ 14,920
========== ========== =========
</TABLE>
In determining the actuarial present values of the accumulated
postretirement benefit obligation, the weighted average discount was 8%.
The future salary increase is age-related and ranges from 10.5% for lower
ages to 4.8% for higher ages.
The assumed health care cost trend rate used to measure the expected cost
of benefits for the next year was 8% for persons under age 65 and for
dental, and 9% for persons over age 65. Medical trends for fiscal 1995
and forward decrease .4% to .7% until the year 2002 where the trend rate
is then fixed at 5%. For each one percentage point increase in the
assumed health care cost trend rate, the aggregate service and interest
cost components of net periodic expense would rise $800, and the
accumulated postretirement benefit obligation would increase $6,500.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION OF RESULTS OF
OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION
(Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Results by Operating Segment
Increase (Decrease)
Three Months Ended
9/30/93 vs. 9/30/92
<S> <C>
Net Sales and Revenues
Agriculture & Consumer. . . $ 9,070
Energy. . . . . . . . . . . (33,237)
Financial Services. . . . . (2,541)
Intercompany Transactions (105)
--------
$(26,813)
========
Margin (Loss) before Income Taxes from Continuing Operations
Agriculture & Consumer. . . $ (7,536)
Energy. . . . . . . . . . . 1,138
Financial Services. . . . . (532)
--------
Operating Margin (Loss) (6,930)
Other Items . . . . . . . . (903)
--------
Margin (Loss) before
income taxes from
continuing operations. . $ (7,833)
========
</TABLE>
Parenthetical numbers in the following narrative have been rounded to the
nearest hundred thousand.
Restructuring of Operations
In fiscal 1992, the Company initiated Customer Driven: 1995 (the "Project")
to restructure the Company to better focus on its members and customers and
to re-engineer the Company's business processes to improve future
profitability. Implementation of Project strategies has and will continue
to have a significant impact on the markets served, assets utilized, and
operating practices of the Agriculture & Consumer and Energy groups, as well
as on the administrative functions. During the quarter under review, and as
indicated in the Company's annual report on Form 10-K for the fiscal year
ended June 30, 1993, Company management has continued implementation of the
Project and details of certain of these strategies will be reviewed in the
following segment discussions.
Discontinued Operations
On March 23, 1993, the Agway Board of Directors authorized management to sell
the Company's 34% interest in Curtice Burns Foods, Inc. (Curtice Burns Foods)
and 99% interest in H. P. Hood Inc. (Hood). Management and the Board have a
plan for the divestiture of these operations, and expect to finalize the
sales transactions by the end of fiscal 1994. Accordingly, these operations
are reflected as discontinued operations. Agway's decision to make these
sales is part of the overall strategic plan of focusing on its agriculture,
consumer, energy, insurance, and leasing businesses.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION OF RESULTS OF
OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION (continued)
(Unaudited)
(Thousands of Dollars)
Discontinued Operations (continued)
Management continues to implement its plan of divestiture. On October 13,
1993, Curtice Burns Foods, Inc. signed a definitive agreement, with the
approval of Pro-Fac Cooperative Inc. (Pro-Fac), to sell the oats portion of
the National Oats business. Pro-Fac and Curtice Burns Foods are negotiating
a definitive agreement with respect to Curtice Burns Food's sale of the
Hiland Potato Chip business to the Weaver Potato Chip Company. These
transactions are expected to close by the end of calendar 1993.
Agriculture & Consumer Group
Project initiatives for fiscal 1993 for the Agriculture & Consumer group
were primarily focused on transferring the marketing, sales and related
operating assets of agricultural sales, previously conducted through retail
operations, to Agriculture hubs and dedicated customer service centers.
This transition was completed in fiscal 1993 in New England and Pennsylvania
and is currently nearing completion in New York, the final region to
transition. An additional initiative focused on merging 51 local store
cooperatives into Agway, which, when completed, will serve to increase sales
and asset levels. Fiscal 1994 initiatives for the Group center around
streamlining current operations through reviews of supply chain management,
product category management, and warehousing systems; closing, consolidating,
or converting facilities to focus assets and capital in selected markets and
eliminate duplication; and sales enhancement through customer service and
quality reviews. The fiscal 1993 initiatives were primarily done to improve
customer service, knowing that certain of these changes would increase costs
at least during the period of transition until cost reduction strategies can
be implemented. The 1994 initiatives focus on detail plans for future
implementation of strategies for expense control and sales enhancement
anticipated to improve future year results of operations.
First quarter net sales and revenues for Agriculture & Consumer of $223,800
represent an increase of $9,100 (4.2%) from the first quarter of the previous
year. Most of this increase is generated from the mergers of local store
cooperatives into Agway primarily during the fourth quarter of fiscal 1993.
These increases were somewhat offset by reduced seed revenues due to the
divestiture of two seed subsidiaries in fiscal 1993. Feed and crop tonnage
was up as customers continue to respond favorably to the new Agriculture hub
and customer service center strategies. Sales of Consumer yard and garden
products showed improvement over the prior year due to a mixture of
promotions and favorable weather conditions.
Operating losses of $10,100 for the first quarter for the segment increased
$7,500 compared to an operating loss of $2,600 for the first quarter a year
ago. A major reason for this increase in losses is increases in operating
expenses due to mergers of local store cooperatives into Agway, as the
seasonality of these operations provides proportionately more revenues in the
fourth quarter. Further incremental costs, previously discussed, were being
incurred from the Project initiatives implemented in fiscal 1993 which,
through the transition period, depress operating results. Gross margins as a
percentage of sales for the Group rose from 10.7% to 11.5% due to
improvements in Agriculture and Consumer Retail, offset by declines in
Consumer Wholesale and Country Foods.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS
AND ANALYSIS OF FINANCIAL CONDITION (continued)
(Unaudited)
(Thousands of Dollars)
Energy Group
Project initiatives for fiscal 1993 for the Energy Group were primarily
focused on divestitures of retail locations to focus assets and capital
in selected markets. Additionally in 1993, sales to commercial accounts
were refocused away from price-oriented accounts to service-oriented
businesses. As expected, these initiatives decreased sales volume, but had
a favorable impact on realized per unit gross margins. Additional Project
initiatives for 1994 include implementation of operational efficiency and
asset management strategies, such as centralized credit management,
simplified data entry procedures, and mutually beneficial supplier
agreements.
Energy segment net sales and revenues of $105,800 for the first quarter
declined $33,200 (23.9%) compared to first quarter of last year. $12,800
of this decrease is attributable to divestitures which occurred throughout
fiscal 1993 and reduced volumes of business with low-margin, high-volume
commercial customers. Average selling prices declined 8.8% which also
contributed to the sales decrease, due to an over-production of oil in an
already saturated world market, and a weakened demand. Total volume for all
product lines was off 21.8 million gallons (15.3%) compared to the first
quarter of the prior year, comprised of reductions due to divestitures of
11.6 million gallons as well as reductions in all product lines due primarily
to the commercial refocus.
Despite the volume declines, the Energy group posted an improvement in net
operating margins of $1,100 (19.4%) in comparison to the first quarter of
last year. The improvement was primarily a result of gross margin improving
from 22.4% to 25.6% across all product categories due to the refocus away
from price-oriented commercial business to service-oriented businesses, as
well as a reduction in distribution expenses due primarily to asset
divestitures.
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 for the Financial Services Group of $15,700 were
$2,500 (13.9%) below those for the same period of last year. Telmark
experienced a slight decrease in net sales and revenues of $200 (2.6%),
and the Insurance Group showed a decrease of $2,300 (23.4%). The Agway
Insurance Company revenue is down $1,300 due to termination of a
reinsurance assumed contract, $300 from reduced investment income and $200
from changes in reinsurance ceded treaties. Agway General Agency Inc.
revenues are down $500 due to reduced commissions on a declining base of
the Agway member group health insurance plan. Current year operating
margins for the Financial Services Group of $1,700 reflect a decrease of
$500 (23.4%) when compared to the same three months of last year. Telmark
operating margins are reduced by $200. The $1,300 revenue decline from
the reinsurance termination was offset by an equal reduction in costs and
expenses with no impact on operating margin. The Agway Insurance Company
revenue reductions were offset by a $600 reduction in loss and loss
adjustment expenses for a $100 net improvement in operating margin.
The Agway General Agency, Inc. commission reduction reduces operating margin
by $500.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION OF RESULTS OF
OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION (continued)
(Unaudited)
(Thousands of Dollars)
Other Items
The increase in other item net expenses of $900 for the current quarter
compared to the first quarter of last year principally is a result of
reduced interest revenues due to the elimination of a note receivable from
Hood, and increased operating expenses for postretirement health and life
insurance benefits, and information services consulting fees incurred for
Project work, partially offset by increased pension revenues.
Liquidity and Capital Resources
Cash flows from continuing operations for three months ended September 30,
1993 showed a net cash inflow of $38,500 as opposed to a cash inflow of
$14,100 for the first quarter of last year resulting in an overall change of
$24,400. This overall change was primarily a result of higher June 1993
Agriculture & Consumer inventories and receivables due to the late spring,
which were reduced during the first quarter of the current fiscal year. Net
cash outflows for the three month ended September 30, 1993 of $10,700 from
investing activities from continuing operations compares to net outflows of
$11,900 for the same period last year. These outflows in both years were
principally the result of net growth in Telmark's lease portfolio. As a
result of increased net cash flows from continuing operations in the current
year, short-term borrowings were reduced $18,400. Increased short-term
borrowing in the prior year resulted from decreased prior year operating
cash flows as well as for redemption of $8,200 of capital stock.
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 Agway 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 and in October 1993, filed a
Form S-1 Registration Statement with the Securities & Exchange Commission
with respect to a future offer by it of $25,000 unsecured debt to the public.
The unsecured debt to be offered by Telmark will not be guaranteed by Agway
nor any of Agway's other subsidiaries. At September 30, 1993, total short-
term credit availability was $158,000 compared to $159,000 at September 30,
1992. Borrowings outstanding at September 30, 1993, totalled $52,200.
Available lines of credit by borrowing entity as of September 30, 1993 are as
follows: AFC - $85,000; and Telmark - $23,000. In addition, AFC may issue
up to $50,000 of commercial paper under the terms of a separate agreement,
backed by a letter of credit.
The AFC agreements, as amended in June 1993, cover the period through
December 31, 1993 and are scheduled for renegotiation in the fall of 1993
for calendar 1994. Certain events as defined within the existing
agreements could lead to creditors acquiring collateral rights in certain
accounts receivable and non-petroleum inventories of the Company. The
events that have been defined to generate the assumption of these collateral
rights are projected by the Company to occur by November or December 1993.
Should such events occur and lenders choose to exercise their right for
collateralization, sufficient collateral is available to provide lines of
credit availability that are adequate to meet the Company's needs. In
addition, the agreements include certain covenants, the most restrictive
of which require the Company to maintain specific monthly levels of
interest coverage and tangible net worth. The Company currently anticipates
the interest coverage covenant, as currently defined, will not be met in the
months of November nor December 1993. If the interest coverage covenant is
violated in November or December 1993, and is continuing, the Company may be
held in default of the existing agreements with creditors. The company has
ongoing communication with its lenders and despite the possibility of these
occurrences, it is management's expectation that appropriate and adequate
lines of credit will be negotiated for 1994 and that appropriate amendments
to existing credit facilities will be made if necessary.
<PAGE>
PART II. OTHER INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
(Thousands of Dollars)
Item 3, Legal Proceedings
In February 1988, Agway leased a feed mill located in Woodridge, New York
from Inter-County Farmers Cooperative Association, Inc. Agway manufactured
horse, poultry, and dairy feed at the feed mill. In early July 1989, due to
a mechanical malfunction, some horse feed manufactured at the feed mill was
contaminated with Monensin, a feed medication used with poultry and dairy
feed but which is harmful to horses. Agway immediately recalled the
contaminated horse feed and contacted regulatory agencies, including the
United States Food and Drug Administration (FDA). As a result of eating the
contaminated horse feed, a number of horses located in the State of New
Jersey died or were damaged. The majority of claims made by owners of the
affected horses have been settled. As of October 31, 1993, there were
three lawsuits pending which were filed by horse owners against Agway:
Anthony D. Nini, et al. v. Agway Inc., et al., filed on October 24, 1990
in the Superior Court of New Jersey for Mercer County; John Kolkowski, et
al. v. Agway Inc., et al., filed on July 3, 1990 in the Supreme Court of the
State of New York for Westchester County; Orlando R. Petrocelli v. Agway
Inc., et al., filed on August 5, 1991 in the Superior Court of New Jersey
for Mercer County. Each of these lawsuits include claims for money damages.
In the beginning of October 1993, two previously pending lawsuits by horse
owners against Agway, Michael M. Selesnick, et al. v. Agway Inc., et al.,
filed on June 15, 1990 in the Superior Court of New Jersey for Monmouth
County; and Lisa Popik, et al. v. Agway Inc., filed September 20, 1990 in
the Superior Court of New Jersey for Middlesex County, were settled. Agway
agreed to pay Lisa Popik, et al. $65 and Michael M. Selesnick, et al. $10.
The FDA conducted an investigation of the incident and referred the matter
to the U.S. Department of Justice (DOJ) to consider institution of criminal
proceedings. Agway has had an opportunity to present its views to the DOJ
on why criminal proceedings should not be instituted and the DOJ and FDA
are discussing with Agway resolution of issues resulting from the FDA
investigation. Agway believes the pending lawsuits and the FDA
investigation will be satisfactorily resolved and any adjustments will not
be material in relation to the consolidated financial position of Agway.
Item 4, Results of Votes of Security Holders
On July 1, 1993, 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 December 1, 1993.
Item 6(b), Reports on Form 8-K
There were no reports on Form 8-K required to be filed during the first
quarter ended September 30, 1993.
<PAGE>
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, hereunto duly authorized.
AGWAY INC.
(registrant)
Date: November 12, 1993 PETER J. O'NEILL
(signature)
Senior Vice President
Corporate Finance and Control
(Principal Financial Officer and
Chief Accounting Officer)
<PAGE>
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 December 31, 1993
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.
<TABLE>
<CAPTION>
Class Outstanding at January 31, 1994
- - - - - - - - ------------------------------------- -------------------------------
<S> <C>
Common Stock, $25 par value per share 111,181 shares
</TABLE>
* 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>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
as of December 31, 1993 and June 30, 1993 . . . . . . . . . 3
Condensed Consolidated Statements of Operations
and Retained Margin for the three months and six
months ended December 31, 1993 and
December 31, 1992 . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Cash Flow Statements for
the six months ended December 31, 1993
and December 31, 1992 . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders. 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . .14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . .15
<PAGE>
PART I. FINANCIAL INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31, June 30,
1993 1993
(Unaudited) (Note)
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents. . . . . . . . . . . . . . . . . . . . . . $ 771
Trade notes and accounts receivable, less allowance for
doubtful accounts of $13,633 and $13,267, respectively. . . . $ 159,961 212,196
Lease receivables, less unearned income of $27,363 and
$28,717, respectively . . . . . . . . . . . . . . . . . . . . 75,374 75,243
Advances and other receivables. . . . . . . . . . . . . . . . . 40,704 36,224
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . 22,313 19,919
Finished goods. . . . . . . . . . . . . . . . . . . . . . . . 136,186 152,348
Goods in transit and supplies . . . . . . . . . . . . . . . . 11,283 9,592
-------------- --------------
Total inventories . . . . . . . . . . . . . . . . . . . . . . 169,782 181,859
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . 65,970 58,863
-------------- --------------
Total current assets 511,791 565,156
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . 34,530 34,532
Other security investments. . . . . . . . . . . . . . . . . . . . . 35,061 34,102
Properties and equipment, net . . . . . . . . . . . . . . . . . . . 252,690 259,980
Long-term lease receivables, less unearned income of
$43,024 and $41,253, respectively . . . . . . . . . . . . . . . . 168,962 155,544
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,969 72,140
Net assets of discontinued operations . . . . . . . . . . . . . . . 92,950 92,544
-------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $ 1,172,953 $ 1,213,998
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,300 $ 70,600
Current installments of long-term debt and subordinated debt. . 97,624 66,039
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . 85,861 95,735
Other current liabilities . . . . . . . . . . . . . . . . . . . 125,274 132,773
-------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . 345,059 365,147
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 161,259 150,107
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . 359,009 379,619
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 115,071 123,724
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . 71,474 53,474
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,780 2,790
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 6,317 7,350
Retained margin . . . . . . . . . . . . . . . . . . . . . . . . . . 111,984 131,787
-------------- --------------
Total liabilities and shareholders' equity. . . . . . . . . $ 1,172,953 $ 1,213,998
============== ==============
</TABLE>
Note: The balance sheet at June 30, 1993 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>
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 Six Months Ended
December 31, December 31,
------------------------------- --------------------------------
1993 1992 1993 1992
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales and revenues from:
Product sales . . . . . . . . . . . $ 354,038 $ 367,796 $ 676,834 $ 713,334
Leasing operations. . . . . . . . . 8,311 8,286 16,127 16,329
Insurance operations. . . . . . . . 6,982 7,350 13,681 15,916
Other services. . . . . . . . . . . 4,811 6,938 10,623 14,726
-------------- -------------- -------------- ---------------
Total net sales and revenues. . 374,142 390,370 717,265 760,305
Cost and expenses from:
Products and plant operations . . . 289,276 299,375 559,455 591,000
Leasing operations. . . . . . . . . 3,580 3,564 7,080 7,221
Insurance operations. . . . . . . . 4,341 5,079 8,728 11,083
Retail operations . . . . . . . . . 42,031 43,089 82,266 84,338
Selling, general and
administrative activities . . . . 37,142 35,582 74,540 67,653
-------------- -------------- -------------- ---------------
Total costs and expenses. . . . 376,370 386,689 732,069 761,295
Operating margin. . . . . . . . . . . . (2,228) 3,681 (14,804) (990)
Operating interest expense, net . . . . 6,230 7,086 13,032 13,526
Other income (expense), net . . . . . . 1,861 1,354 3,444 2,503
-------------- -------------- -------------- ---------------
Margin (loss) from continuing
operations before income taxes . . (6,597) (2,051) (24,392) (12,013)
Income tax expense (benefit). . . . . . (1,039) 448 (7,053) (2,526)
-------------- -------------- -------------- ---------------
Margin (loss) from continuing
operations. . . . . . . . . . . . . (5,558) (2,499) (17,339) (9,487)
Discontinued operations:
Loss from operations, net of tax
expense (benefit) of $ 0 and
$(163) and interest of others
of $ 0 and $880, respectively . . 24 (1,211)
Effect of disposal. . . . . . . . .
-------------- -------------- -------------- ---------------
Loss from discontinued
operations. . . . . . . . . . 24 (1,211)
-------------- -------------- -------------- ---------------
Net margin (loss) . . . . . . . . . . . (5,558) (2,475) (17,339) (10,698)
Retained Margin:
Balance at beginning of period. . . 119,998 107,949 131,787 116,112
Dividends . . . . . . . . . . . . . (2,454) (2,073) (2,454) (2,073)
Equity in unrealized gains (losses)
of insurance companies. . . . . (2) 14 (10) 74
-------------- -------------- -------------- ---------------
Balance at end of period. . . . . . . . $ 111,984 $ 103,415 $ 111,984 $ 103,415
============== ============== ============== ===============
</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>
Six Months Ended
December 31,
-------------------------------
1993 1992
-------------- --------------
<S> <C> <C>
Net cash flows from continuing operations activities. . . . . . . . $ 35,761 $ 33,422
Net loss from discontinued operations . . . . . . . . . . . . . . . (1,211)
-------------- --------------
Net cash flows from operating activities. . . . . . . . . . . . . . 35,761 32,211
Cash flows (used in) provided by investing activities:
Purchases of property, plant and equipment. . . . . . . . . . . (11,216) (10,341)
Proceeds from disposal of businesses and property and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . 4,669 19,051
Leases originated . . . . . . . . . . . . . . . . . . . . . . . (61,148) (46,864)
Leases repaid . . . . . . . . . . . . . . . . . . . . . . . . . 45,125 40,922
Proceeds from sale of marketable securities . . . . . . . . . . 19,442 9,054
Purchases of marketable securities. . . . . . . . . . . . . . . (19,450) (9,176)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (829) (621)
-------------- --------------
Net investing activities (used in) provided by continuing operations (23,407) 2,025
Net change in net assets of discontinued operations . . . . . . . . (406) 5,281
-------------- --------------
Net cash flows (used in) provided by investing activities . . . . . (23,813) 7,306
Cash flows used in financing activities:
Net change in short-term borrowings . . . . . . . . . . . . . . (34,300) 18,600
Proceeds from long-term debt. . . . . . . . . . . . . . . . . . 57,000 22,978
Repayment of long-term debt . . . . . . . . . . . . . . . . . . (47,828) (52,504)
Proceeds from issuance of subordinated debt . . . . . . . . . . 19,560 32,154
Redemption of subordinated debt . . . . . . . . . . . . . . . . (5,985) (46,009)
Redemption of capital stock . . . . . . . . . . . . . . . . . . (347) (8,323)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (819) (2,803)
-------------- --------------
Net cash flows used in financing activities . . . . . . . . . . . . (12,719) (35,907)
-------------- --------------
Net (decrease) increase in cash and equivalents . . . . . . . . . . (771) 3,610
Cash and equivalents at beginning of period . . . . . . . . . . . . 771
-------------- --------------
Cash and equivalents at end of period . . . . . . . . . . . . . . . $ 0 $ 3,610
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
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
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- and six-month periods
ended December 31, 1993 are not necessarily indicative of the results
that may be expected for the year ended June 30, 1994. 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, 1993.
Certain amounts have been reclassified in the June 30, 1993 condensed
consolidated balance sheet to conform to the December 31, 1993
presentation. These reclassifications had no effect on the working
capital or shareholders' equity of the Corporation.
2. AGWAY FINANCIAL CORPORATION
Summarized financial information for Agway Financial Corporation and
Consolidated Subsidiaries is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------- ------------------------------
1993 1992 1993 1992
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales and revenues. . . . . . . . . . $ 226,469 $ 259,392 $ 404,694 $ 475,838
Operating margin. . . . . . . . . . . . . 19,815 19,905 24,208 24,086
Margin from continuing operations . . . . 5,860 7,796 1,327 6,751
Net margin. . . . . . . . . . . . . . . . 5,860 7,821 1,327 5,541
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
1993 1993
-------------- --------------
<S> <C> <C>
Current assets. . . . . . . . . . . . . . $ 421,708 $ 433,907
Properties and equipment, net . . . . . . 127,063 128,898
Noncurrent assets . . . . . . . . . . . . 247,869 240,004
Net assets of discontinued operations . . 92,950 92,544
-------------- --------------
Total assets. . . . . . . . . . . . . . . $ 889,590 $ 895,353
============== ==============
Current liabilities . . . . . . . . . . . $ 266,546 $ 249,721
Long-term debt. . . . . . . . . . . . . . 156,690 155,598
Subordinated debt . . . . . . . . . . . . 359,009 379,619
Noncurrent liabilities. . . . . . . . . . 31,506 34,859
Shareholders' equity. . . . . . . . . . . 75,839 75,556
-------------- --------------
Total liabilities and
shareholders' equity. . . . . . . . . $ 889,590 $ 895,353
============== ==============
</TABLE>
<PAGE>
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>
Six Months Ended
December 31,
------------------------------------
1993 1992
------------- --------------
<S> <C> <C>
Additional disclosure of operating cash flows:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . $ 17,417 $ 19,219
============= ==============
Income taxes. . . . . . . . . . . . . . . . . . . . . . . $ 6,511 $ 8,232
============= ==============
</TABLE>
During the fiscal year ended June 30, 1993, 46 local cooperative affiliates
were acquired, and during fiscal 1994, 5 additional local cooperative
affiliates were acquired. Three of these cooperatives were merged into
Agway during the first and second quarters of fiscal 1993, 43 were acquired
during the third and fourth quarters of fiscal 1993, 3 were merged in the
first quarter of fiscal 1994 and 2 were merged in the second quarter fiscal
1994, for a total purchase price of $21,500 plus certain liabilities
assumed of $17,100. Settlement for the acquisitions was consummated in the
six-month period ended December 31, 1993 in the form of cash ($5,000) and
restricted preferred stock, 6%, $100 par value, ($16,500).
Certain other supplemental disclosures are as follows:
Schedule of Restructuring Activities:
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C> <C>
Cash proceeds . . . . . . . . . . . . . . . . . . . . . . $ 2,933 $ 14,578
Cash spent. . . . . . . . . . . . . . . . . . . . . . . . (6,721) (5,966)
------------- --------------
Total cash flow used in operating activities. . . . . . . (3,788) 8,612
Cash flows from investing activities:
Proceeds from disposal of business and property,
plant and equipment . . . . . . . . . . . . . . . . . . . 2,307 16,909
------------- --------------
Net increase (decrease) in cash and equivalents . . . . . $ (1,481) $ 25,521
============= ==============
</TABLE>
4. BORROWING ARRANGEMENTS
The Company renegotiated and renewed certain of its bank loan agreements
through October 28, 1994. Adequate lines of credit of $149,250 are
available to the Company under the new agreements as compared to lines of
credit of $158,000 in the prior agreements. This includes retention of
a commercial paper facility of $50,000. These agreements, upon the
occurrence of certain defined events, give the lenders the right to
perfect a security interest in certain of the Company's accounts
receivables and non-petroleum inventories. In addition, the agreements
include certain covenants, the most restrictive of which requires to
Company to maintain specific monthly levels of interest coverage and
tangible net worth.
<PAGE>
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
The Company is subject to various investigations, claims, and legal
proceedings covering a wide range of matters that arise in the ordinary
course of its business activities. In addition, the Company is
conducting a number of environmental investigations and remedial actions
at current and former Company locations and, along with other companies,
has been named a potentially responsible party for certain waste disposal
sites. 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.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
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
third and fourth quarters as customers initiate the growing season.
Correspondingly, the Company's Energy Group realizes significantly higher
net sales and revenues in the second and third quarters due to the cold
winter conditions in the Northeast. The Financial Services Group is
generally not impacted by seasonal fluctuations.
<TABLE>
<CAPTION>
Results by Operating Segment
Increase (Decrease)
Three Months Ended Six Months Ended
12/31/93 vs. 12/31/92 12/31/93 vs.12/31/92
------------------- -------------------
<S> <C> <C>
Net Sales and Revenues
Agriculture & Consumer. . . . . . . . . . . $ 21,944 $ 31,013
Energy. . . . . . . . . . . . . . . . . . . (37,102) (70,339)
Financial Services. . . . . . . . . . . . . (513) (3,055)
Intercompany Transactions . . . . . . . . . (557) (659)
------------------- -------------------
$ (16,228) $ (43,040)
=================== ===================
Margin (Loss) from Continuing Operations before Income Taxes
Agriculture & Consumer. . . . . . . . . . . $ (8,142) $ (15,679)
Energy. . . . . . . . . . . . . . . . . . . 541 1,679
Financial Services. . . . . . . . . . . . . 463 (69)
Operating Margin (Loss) . . . . . . . . . . (7,138) (14,069)
Other Items . . . . . . . . . . . . . . . . 2,592 1,690
------------------- -------------------
$ (4,546) $ (12,379)
=================== ===================
</TABLE>
Parenthetical numbers in the following narrative have been rounded to the
nearest hundred thousand.
Restructuring of Operations
- - - - - - - - ---------------------------
In fiscal 1992, the Company initiated Customer Driven: 1995 (the "Project")
to restructure the Company to better focus on its members and customers and
to re-engineer the Company's business processes to improve future
profitability. Implementation of Project strategies has and will continue
to have a significant impact on the markets served, assets utilized, and
operating practices of the Agriculture & Consumer and Energy groups, as
well as on administrative functions. During the quarter under review, and
as indicated in the Company's annual report on Form 10-K for the fiscal
year ended June 30, 1993, Company management has continued implementation
of the Project and details of certain of these strategies will be reviewed
in the following segment discussions.
Discontinued Operations
- - - - - - - - -----------------------
On March 23, 1993, the Agway Board of Directors authorized management to
sell the Company's 34% interest in Curtice Burns Foods, Inc. (Curtice
Burns Foods) and 99% interest in H. P. Hood Inc. (Hood). Management and
the Board are actively pursuing their plan to sell these investments in
fiscal 1994. Accordingly, these operations are reflected as discontinued
operations. Agway's decision to make these sales is part of the overall
strategic plan
<PAGE>
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 (continued)
- - - - - - - - ----------------------------------
of focusing on its agriculture, consumer, energy, insurance, and leasing
businesses. In the fourth quarter of fiscal 1993, Curtice Burns
initiated a restructuring program. As part of that program, in the
quarter ended December 1993, Curtice Burns Foods, Inc. completed the sale
of two businesses, the oats portion of the National Oats business and
the Hiland Potato Chip business, and continues to pursue the sale of a
third business, Curtice Burns Meat Snacks.
Agriculture & Consumer Group
- - - - - - - - ----------------------------
Project initiatives for fiscal 1993 for the Agriculture & Consumer Group
were primarily focused on transferring the marketing, sales and related
operating assets of agricultural products, previously conducted through
retail operations, to agricultural hubs and dedicated customer service
centers. This transition was completed in fiscal 1993 in New England
and Pennsylvania and recently was completed in New York, the final region
to transition. An additional initiative focused on merging 51 local
store cooperatives into Agway, which was essentially completed in the
fourth quarter of fiscal 1993, will serve to increase sales and asset
levels. Fiscal 1994 initiatives for the Group center around streamlining
operating and administrative processes through reviews of supply chain
management, product category management, and warehousing systems;
closing, consolidating, or converting facilities to focus assets and
capital in selected markets and eliminate duplication; and sales
enhancement through customer service and quality reviews. The fiscal
1993 initiatives were intended to improve customer service, knowing that
certain of these changes would increase costs at least during the period
of transition until cost reduction strategies can be implemented. The
1994 initiatives focus on detail plans for future implementation of
strategies for expense control and sales enhancement anticipated to
improve future year results of operations.
Net sales and revenues for the second quarter of fiscal 1994 of $212,300
and for the six months to date of $436,100 increased $22,000 (11.5%) and
$31,000 (7.7%), respectively, as compared to the corresponding periods in
the prior fiscal year. The increases are primarily attributed to the
Group's consumer business which included the merger of local store
cooperatives into Agway, and to an increase in the second quarter for its
food distribution unit which realized increased revenues of $11,000 due
to a strong market, combined with modest price increases. Revenues for
the Group's agricultural businesses, crop and feed input items, also
improved slightly over the preceding periods due to volume and price
increases.
Operating losses for the second quarter of fiscal 1994 of $14,600 and for
the six months to date of $24,700 increased $8,100 and $15,700,
respectively, as compared to the corresponding periods in the prior fiscal
year. The Group experiences seasonal fluctuations in its business and
incurs losses in the first six months of the year and gains in the second
six months. In fiscal 1994, these losses have been further accentuated
due to (i) the merger of 51 store corporations into Agway which now defers
the recognition of a certain portion of its margins until goods are sold
to the end user (previously these margins were recognized as wholesale
margins at the time inventory was sold to the store corporation), (ii)
incremental costs associated with the Company's Project initiatives which
include expanding the Company's sales force and the establishment of
agricultural hubs and dedicated customer service centers, and (iii)
depressed gross margins across the Group's selected product lines due
to higher raw material prices, a change in product mix, and competitive
pricing in the marketplace.
The Company expects to benefit from the merged store corporations as they
will provide additional retail margins and increased sales in the second
half of the year as the spring growing season commences. Furthermore, the
increasing costs associated with the Project initiatives tend to be fixed
throughout the year, while incremental revenues realized from Project
initiatives will tend to follow the seasonal sales pattern and be more
fully realized in the second half of the year as the spring growing
season commences.
<PAGE>
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
- - - - - - - - ------------
Project initiatives for fiscal 1993 for the Energy Group were primarily
divestitures of retail locations in an effort to focus assets and capital
in selected markets. In addition, sales to commercial accounts were
refocused away from price-oriented accounts to service-oriented
businesses. As expected, these initiatives decreased sales volume, but
had a favorable impact on gross margins. Project initiatives for fiscal
1994 include implementation of operational efficiency and asset management
strategies, such as centralized credit management, automating certain
field operating activities and mutually beneficial supplier agreements.
Energy segment net sales and revenues of $146,900 for the second quarter
declined $37,100 (20.1%) as compared to the second quarter of the prior
year. Fiscal 1994 year-to-date net sales and revenues of $252,400
declined $70,300 (21.8%) as compared to the same period in the prior
year. The decrease for the quarter and year to date is primarily
attributable to planned Project initiatives which included divestitures
of low-margin retail locations and a refocusing away from low-margin,
high-volume commercial customers.
Total unit volume (in millions of gallons) for the quarter and year to
date decreased 30,000 and 51,800 gallons, respectively, as compared to the
corresponding periods in the prior year. Average selling prices declined
4.6% in the second quarter and 3.6% for the six months to date as compared
to the corresponding period in the prior year due to softness in the world
market which also contributed to the sales decrease.
Despite the unit volume and selling price declines, the Energy Group
realized an improvement in net operating margins of $500 (6.1%) and $1,700
(57.1%) in the second quarter and fiscal year to date as compared to the
corresponding period in the previous fiscal year. Gross margins as a
percentage of net sales and revenues increased by 4.5% and 4.1% in the
second quarter and fiscal year to date as compared to the corresponding
period in the prior fiscal year. Also, total costs and expenses declined
as a result of the above changes in operations.
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 $16,700 for the Financial Services Group for
the second quarter declined $500 (3.0%) as compared to the second quarter
of the prior year. Fiscal 1994 year-to-date net sales and revenues of
$35,500 decreased $3,100 (8.6%) as compared to the same period in the
prior year. The decrease for the quarter and year to date is primarily
attributed to the Agway Insurance Company and the Agway General Agency.
Agway Insurance Company revenues were down $200 for the second quarter
and $1,600 for the six months to date, as compared to the corresponding
periods in the prior year, due to termination of reinsurance assumed
contracts; and $200 and $600, respectively, from changes in reinsurance
ceded treaties. Agway General Agency Inc. revenues declined $200 and
$700 for the second quarter and for the six months to date 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. Telmark revenues remained constant
for the second quarter and six-month period to date as compared to the
prior year as current year volume growth was offset by declining
prevailing lease rates as a result of increasing competition in the
marketplace as well as a sale of $11,000 of lease receivables in
June 1993.
Operating margins improved in the second quarter of fiscal 1994 by $500
(21%) over the same period in the previous year but decreased $100 (1.5%)
for the six-month period ended December 31, 1993 as compared to the same
period in the prior year. The Agway Insurance Company revenue decline
from the reinsurance termination was offset by an equal reduction in
costs and expenses with no impact on operating margin. Operating margin
increases of $800 in the second quarter and $800 for the six months to
date for Agway Insurance Company, due
<PAGE>
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)
Financial Services Group (continued)
- - - - - - - - ------------------------------------
to favorable underwriting experience as compared to corresponding periods
in the prior fiscal year, were offset in part by (i) reduced operating
margins for Agway General Agency of $100 for the second quarter and $500
for the six months to date as compared to the corresponding period in the
prior fiscal year due to declining revenues as noted above, and (ii)
reduced operating margin of $200 for the second quarter and $400 for the
six months to date for Telmark as compared to the corresponding period
in the prior fiscal year due to the lack of significant revenue growth.
Other Items
- - - - - - - - -----------
Other items include certain corporate activities not included within the
Company's three operating segments and includes interest expense. For the
second quarter, other items realized an increase in income of $2,600 over
the corresponding period in the prior fiscal year. The increase was
attributed primarily to increased revenues from the receipt of vendor
rebates in the second quarter of $1,100 and a reduction in interest
expense for the quarter of $900. For the six-month period to date, other
items realized an increase in income of $1,700 over the corresponding
period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
- - - - - - - - -------------------------------
Cash flows from continuing operations for the six months ended December
31, 1993 increased $2,000 to $36,000 as compared to the first six months
of fiscal 1993. This increase was primarily a result of higher June 1993
Agriculture & Consumer inventories and receivables due to the late spring,
which were reduced during the first six months of the current fiscal year
Net cash utilized in investing activities from continuing operations for
the six months ended December 31, 1993 was $23,400 as compared to cash
provided of $2,000 for the same period last year. Cash flows utilized in
investing activities for the six months ended December 31, 1992 were
favorably impacted by proceeds of $19,100 from disposals of businesses
and property, plant and equipment, while increased leasing activity in
fiscal 1994 resulted in the use of an additional $10,100 of cash compared
to the same period last year. As a result of cash flow from continuing
operations and an increase in net long-term borrowings of $23,000 in the
current year, short-term borrowings were reduced $34,300. Increased
short-term borrowing in the prior year resulted from a decrease in net
long-term borrowings of $43,400 combined with redemption of $8,200 of
capital stock.
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 Agway 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. On February 1, 1994, Telmark's registration of its
offering to the public of $25,000 of debentures due December 31, 1997 with
the Securities & Exchange Commission became effective. The debentures are
unsecured and are not guaranteed by Agway nor any of Agway's other
subsidiaries. The offering of the debentures will not be underwritten and
there can be no guarantee as to the amount of debentures to be sold. The
proceeds of the offering will be used to provide financing for Telmark's
leasing activities.
The Company renegotiated and renewed certain of its bank loan agreements
through October 28, 1994. Adequate lines of credit of $149,250 are
available to the Company under the new agreements as compared to lines of
credit of $158,000 in the prior agreements. This includes retention of a
commercial paper facility of $50,000. These agreements, upon the
occurrence of certain defined events, give the lenders the right to
perfect a security interest
<PAGE>
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 (continued)
- - - - - - - - -------------------------------------------
in certain of the Company's accounts receivables and non-petroleum
inventories. In addition, the agreements include certain covenants, the
most restrictive of which requires to Company to maintain specific monthly
levels of interest coverage and tangible net worth. The Company has
ongoing communication with its lenders and it is management's opinion that
appropriate and adequate lines of credit exist to finance the Company's
operations and capital requirements.
<PAGE>
PART II. OTHER INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
(Thousands of Dollars)
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on December 1, 1993.
The following Directors were elected to renewed three-year terms through
December 1996:
<TABLE>
<CAPTION>
In
Nominee Favor Opposed
--------------------- ------ -------
<S> <C> <C>
Peter D. Hanks 58,572 3,888
Robert L. Marshman 58,572 3,888
Samuel F. Minor 58,572 3,888
Donald E. Pease 58,572 3,888
Carl D. Smith 58,572 3,888
Joel L. Wenger 58,572 3,888
</TABLE>
The following is a list of directors whose terms of office as Directors
continued after the Annual Meeting:
Ralph H. Heffner - Chairman of the Board and Director
Charles C. Brosius - Vice Chairman of the Board and Director
Richard C. Call - Director
Vyron M. Chapman - Director
Eugene Freund - Director
Peter D. Hanks - Director
Frederick A. Hough - Director
Stephen P. James - Director
Robert L. Marshman - Director
Samuel F. Minor - Director
Donald E. Pease - Director
John H. Ross - Director
Carl D. Smith - Director
Thomas E. Smith - Director
John H. Talmage - Director
Joel L. Wenger - Director
Christian F. Wolff, Jr. - Director
William W. Young - Director
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended December 31, 1993.
<PAGE>
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 February 9, 1994 PETER J. O'NEILL
---------------- ----------------
Peter J. O'Neill
Senior Vice President
Corporate Finance and Control
(Principal Financial Officer and
Chief Accounting Officer)
<PAGE>
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 March 31, 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.
<TABLE>
<CAPTION>
Class Outstanding at April 30, 1994
- - - - - - - - -------------------------------------- -----------------------------
<S> <C>
Common Stock, $25 par value per share 111,025 shares
</TABLE>
* 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>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1994 and
June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations and Retained
Margin for the three months and nine months ended
March 31, 1994 and March 31, 1993 . . . . . . . . . . . . . . . 4
Condensed Consolidated Cash Flow Statements for the nine months
ended March 31, 1994 and March 31, 1993 . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . .14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . .14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . .15
<PAGE>
PART I. FINANCIAL INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, June 30,
1994 1993
(Unaudited) (Note)
----------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 771
Trade notes and accounts receivable, less allowance for
doubtful accounts of $13,724 and $13,267, respectively . . . . . . $ 162,743 212,196
Lease receivables, less unearned income of $29,004 and
$28,717, respectively. . . . . . . . . . . . . . . . . . . . . . . 81,304 75,243
Advances and other receivables . . . . . . . . . . . . . . . . . . . 43,272 36,224
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . . 24,622 19,919
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . 205,470 152,348
Goods in transit and supplies. . . . . . . . . . . . . . . . . . . 14,255 9,592
-------------- --------------
Total inventories. . . . . . . . . . . . . . . . . . . . . . . . . 244,347 181,859
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 64,036 58,863
-------------- --------------
Total current assets 595,702 565,156
Marketable securities. . . . . . . . . . . . . . . . . . . . . . . . . . 35,632 34,532
Other security investments . . . . . . . . . . . . . . . . . . . . . . . 36,184 34,102
Properties and equipment, net. . . . . . . . . . . . . . . . . . . . . . 249,868 259,980
Long-term lease receivables, less unearned income of
$42,419 and $41,253, respectively. . . . . . . . . . . . . . . . . . . 168,451 155,544
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,449 72,140
Net assets of discontinued operations. . . . . . . . . . . . . . . . . . 93,137 92,544
-------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,260,423 $ 1,213,998
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,000 $ 70,600
Current installments of long-term debt and subordinated debt . . . . 94,521 66,039
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 126,192 95,735
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . 125,725 132,773
-------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . . 433,438 365,147
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143,025 150,107
Subordinated debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 371,626 379,619
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,454 123,724
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,456 53,474
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,776 2,790
Paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,319 7,350
Retained margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,329 131,787
-------------- --------------
Total liabilities and shareholders' equity. . . . . . . . . . . $ 1,260,423 $ 1,213,998
============== ==============
</TABLE>
Note: The balance sheet at June 30, 1993 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>
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 Nine Months Ended
March 31, March 31,
--------------------------------- ----------------------------------
1994 1993 1994 1993
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net sales and revenues from:
Product sales. . . . . . . . . . . . . $ 420,433 $ 396,447 $ 1,097,267 $ 1,109,781
Leasing operations . . . . . . . . . . 8,857 7,808 24,984 24,137
Insurance operations . . . . . . . . . 6,682 6,616 20,363 22,532
Other services . . . . . . . . . . . . 3,793 5,682 14,416 20,408
--------------- --------------- --------------- ----------------
Total net sales and revenues. . . 439,765 416,553 1,157,030 1,176,858
Cost and expenses from:
Products and plant operations. . . . . 327,613 314,847 887,068 905,847
Leasing operations . . . . . . . . . . 2,507 2,502 9,587 9,724
Insurance operations . . . . . . . . . 4,762 4,506 13,490 15,589
Retail operations. . . . . . . . . . . 48,361 47,070 130,627 131,407
Selling, general and
administrative activities. . . . . . 41,049 34,442 115,589 102,095
--------------- --------------- --------------- ----------------
Total costs and expenses. . . . . 424,292 403,367 1,156,361 1,164,662
Operating margin . . . . . . . . . . . . . 15,473 13,186 669 12,196
Operating interest expense, net. . . . . . 7,361 6,923 20,393 20,450
Other income (expense), net. . . . . . . . 1,823 2,168 5,267 4,671
Margin (loss) from continuing --------------- --------------- --------------- ----------------
operations before income taxes . . . . 9,935 8,431 (14,457) (3,583)
Income and franchise tax
expense (benefit). . . . . . . . . . . 5,560 5,398 (1,493) 2,872
Margin (loss) from continuing --------------- --------------- --------------- ----------------
operations . . . . . . . . . . . . . . 4,375 3,033 (12,964) (6,455)
Discontinued operations:
Loss from operations, net of tax
expense (benefit) of $0, $(333),
$0, and $(1,069) and interest of
others of $0, $468, $0, and $2,767,
respectively . . . . . . . . . . . . (621) (1,830)
Effect of disposal . . . . . . . . . . --------------- --------------- --------------- ----------------
Loss from discontinued
operations. . . . . . . . . . . (621) (1,830)
--------------- --------------- --------------- ----------------
Net margin (loss). . . . . . . . . . . . . 4,375 2,412 (12,964) (8,285)
Retained Margin:
Balance at beginning of period . . . . 111,984 103,415 131,787 116,112
Dividends. . . . . . . . . . . . . . . (2) (2,456) (2,073)
Equity in unrealized gains (losses)
of insurance companies. . . . . . (28) 4 (38) 77
--------------- ---------------- --------------- ----------------
Balance at end of period . . . . . . . . . $ 116,329 $ 105,831 $ 116,329 $ 105,831
=============== ================ =============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Net cash flows from continuing operations activities . . . . . . . . . . $ 7,203 $ 4,806
Net loss from discontinued operations. . . . . . . . . . . . . . . . . . (1,830)
-------------- --------------
Net cash flows from operating activities . . . . . . . . . . . . . . . . 7,203 2,976
Cash flows (used in) provided by investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . (18,486) (16,859)
Proceeds from disposal of businesses and property and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,856 32,098
Leases originated. . . . . . . . . . . . . . . . . . . . . . . . . . (96,339) (69,664)
Leases repaid. . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,634 62,859
Proceeds from sale of marketable securities. . . . . . . . . . . . . 19,764 12,565
Purchases of marketable securities . . . . . . . . . . . . . . . . . (20,901) (13,656)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,490 (2,310)
-------------- --------------
Net investing activities (used in) provided by continuing operations . . (33,982) 5,033
Net change in net assets of discontinued operations. . . . . . . . . . . (593) 5,710
-------------- --------------
Net cash flows (used in) provided by investing activities. . . . . . . . (34,575) 10,743
Cash flows used in financing activities:
Net change in short-term borrowings. . . . . . . . . . . . . . . . . 16,400 28,141
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . 57,000 51,004
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . (69,119) (71,588)
Proceeds from issuance of subordinated debt. . . . . . . . . . . . . 36,892 49,320
Redemption of subordinated debt. . . . . . . . . . . . . . . . . . . (10,110) (52,398)
Redemption of capital stock. . . . . . . . . . . . . . . . . . . . . (573) (12,365)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,889) (5,833)
-------------- --------------
Net cash flows provided by (used in) financing activities. . . . . . . . 26,601 (13,719)
-------------- --------------
Net decrease in cash and equivalents . . . . . . . . . . . . . . . . . . (771) 0
Cash and equivalents at beginning of period. . . . . . . . . . . . . . . 771 0
-------------- --------------
Cash and equivalents at end of period. . . . . . . . . . . . . . . . . . $ 0 $ 0
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
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
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- and nine-month periods
ended March 31, 1994 are not necessarily indicative of the results that
may be expected for the year ended June 30, 1994. 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, 1993.
Certain amounts have been reclassified in the June 30, 1993 condensed
consolidated balance sheet to conform to the March 31, 1994
presentation. These reclassifications had no effect on the working
capital or shareholders' equity of the Corporation.
2. AGWAY FINANCIAL CORPORATION
Summarized financial information for Agway Financial Corporation and
Consolidated Subsidiaries is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------- ---------------------------------
1994 1993 1994 1993
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales and revenues . . . . . . . . . . . $ 291,587 $ 279,623 $ 696,281 $ 755,460
Operating margin . . . . . . . . . . . . . . 40,601 31,246 64,809 55,332
Margin from continuing operations. . . . . . 18,127 13,241 19,454 19,991
Net margin . . . . . . . . . . . . . . . . . 18,127 12,620 19,454 18,161
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30,
1994 1993
--------------- ---------------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . $ 462,000 $ 433,907
Properties and equipment, net. . . . . . . . 126,580 128,898
Noncurrent assets. . . . . . . . . . . . . . 248,926 240,004
Net assets of discontinued operations. . . . 93,137 92,544
--------------- ---------------
Total assets . . . . . . . . . . . . . . . . $ 930,643 $ 895,353
=============== ===============
Current liabilities. . . . . . . . . . . . . $ 295,272 $ 249,721
Long-term debt . . . . . . . . . . . . . . . 138,705 155,598
Subordinated debt. . . . . . . . . . . . . . 371,626 379,619
Noncurrent liabilities . . . . . . . . . . . 31,098 34,859
Shareholders' equity . . . . . . . . . . . . 93,942 75,556
Total liabilities and --------------- ---------------
shareholders' equity . . . . . . . . . . $ 930,643 $ 895,353
=============== ===============
</TABLE>
<PAGE>
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>
Nine Months Ended
March 31,
---------------------------------------
1994 1993
--------------- ---------------
<S> <C> <C>
Additional disclosure of operating cash flows:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,229 $ 34,077
=============== ===============
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . $ 9,494 $ 9,782
=============== ===============
</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. Three of these cooperatives were merged into
Agway during the first and second quarters of fiscal 1993, 43 were acquired
during the third and fourth quarters of fiscal 1993, 3 were merged in the
first quarter of fiscal 1994, 2 were merged in the second quarter fiscal
1994 and 1 was merged in the third quarter of fiscal 1994, for a total
purchase price of $21,700 plus certain liabilities assumed of $17,300.
Settlement for the acquisitions was consummated in the nine-month period
ended March 31, 1994 in the form of cash ($5,000) and restricted preferred
stock, 6%, $100 par value, ($16,700).
Certain other supplemental disclosures are as follows:
Schedule of Restructuring Activities:
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Cash proceeds. . . . . . . . . . . . . . . . . . . . . . . . $ 3,013 $ 21,384
Cash spent . . . . . . . . . . . . . . . . . . . . . . . . . (8,405) (11,147)
--------------- ---------------
Total cash flow (used in) provided by operating activities . . (5,392) 10,237
Cash flows from investing activities:
Proceeds from disposal of business and property,
plant and equipment. . . . . . . . . . . . . . . . . . . . . 6,714 30,099
--------------- ---------------
Net increase in cash and equivalents . . . . . . . . . . . . . $ 1,322 $ 40,336
=============== ===============
</TABLE>
4. BORROWING ARRANGEMENTS
In fiscal 1994, the Company renegotiated and renewed certain of its bank
loan agreements through October 28, 1994. Adequate lines of credit of
$149,250 are available to the Company under the new agreements as compared
to lines of credit of $158,000 in the prior agreements. This includes
retention of a commercial paper facility of $50,000. Certain of these
agreements, upon the occurrence of certain defined events, give the lenders
the right to perfect a security interest in certain of the Company's
accounts receivables and non-petroleum inventories. In addition, the
agreements include certain covenants, the most restrictive of which
requires to Company to maintain specific monthly levels of interest
coverage and tangible net worth.
H. P. Hood, Inc., a subsidiary held for sale by the Company, was in
violation of certain financial covenants relating to credit facilities
provided by a bank for the months ended February and March 1994. The
Bank has issued a waiver for these violations for each month and has
subsequently amended the loan agreement through June 30, 1994. At
March 31, 1994, borrowing outstanding under the credit facilities
aggregated $36,641.
<PAGE>
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
The Company is subject to various investigations, claims, and legal
proceedings covering a wide range of matters that arise in the ordinary
course of its business activities. In addition, the Company is
conducting a number of environmental investigations and remedial actions
at current and former Company locations and, along with other companies,
has been named a potentially responsible party for certain waste disposal
sites. 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.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
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 Group is
generally not materially impacted by seasonal fluctuations.
Results by Operating Segment
Increase (Decrease)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
3/31/94 vs. 3/31/93 3/31/94 vs. 3/31/93
-------------------- --------------------
<S> <C> <C>
Net Sales and Revenues
Agriculture & Consumer . . . . . . . . . . . . $ 24,115 $ 55,128
Energy . . . . . . . . . . . . . . . . . . . . (1,915) (72,254)
Financial Services . . . . . . . . . . . . . . 1,080 (1,975)
Intercompany Transactions. . . . . . . . . . . (68) (727)
-------------------- --------------------
$ 23,212 $ (19,828)
==================== ====================
Margin (Loss) from Continuing Operations before
Income Taxes
Agriculture & Consumer . . . . . . . . . . . . $ (2,674) $ (18,353)
Energy . . . . . . . . . . . . . . . . . . . . 6,768 8,447
Financial Services . . . . . . . . . . . . . . (340) (409)
Operating Margin (Loss). . . . . . . . . . . . 3,754 (10,315)
Other Items. . . . . . . . . . . . . . . . . . (2,250) (559)
-------------------- --------------------
$ 1,504 $ (10,874)
==================== ====================
</TABLE>
Parenthetical numbers in the following narrative have been rounded to the
nearest hundred thousand.
Restructuring of Operations
- - - - - - - - ---------------------------
In fiscal 1992, the Company initiated Customer Driven: 1995 (the "Project")
to restructure the Company to better focus on its members and customers and
to re-engineer the Company's business processes to improve future
profitability. Implementation of Project strategies has and will continue
to have a significant impact on the markets served, assets utilized, and
operating practices of the Agriculture & Consumer and Energy groups, as well
as on administrative functions. During the quarter under review, and as
indicated in the Company's annual report on Form 10-K for the fiscal year
ended June 30, 1993, Company management has continued implementation of the
Project and details of certain of these strategies will be reviewed in the
following segment discussions.
Discontinued Operations
- - - - - - - - -----------------------
On March 23, 1993, the Agway Board of Directors authorized management to
sell the Company's 34% interest in Curtice Burns Foods, Inc. (Curtice Burns
Foods) and 99% interest in H. P. Hood Inc. (Hood). Management and the
Board are actively pursuing their plan to sell these investments in fiscal
1994 and negotiations regarding these sales continued throughout the third
quarter. Accordingly, these operations are reflected as discontinued
operations. Agway's decision to make these sales is part of the overall
strategic plan of focusing on its agriculture, consumer,
<PAGE>
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 (continued)
- - - - - - - - ----------------------------------
energy, insurance, and leasing businesses. In the fourth quarter of fiscal
1993, Curtice Burns initiated a restructuring program. As part of that
program, in the quarter ended December 1993, Curtice Burns Foods, Inc.
completed the sale of two businesses, the oats portion of the National Oats
business and the Hiland Potato Chip business, and, in the quarter ended
March 31, 1994, completed the sale of the Curtice Burns Meat Snacks
business.
Agriculture & Consumer Group
- - - - - - - - ---------------------------
Project initiatives for fiscal 1993 for the Agriculture & Consumer Group were
primarily focused on transferring the marketing, sales and related operating
assets of agricultural products, previously conducted through retail
operations, to agricultural hubs and dedicated customer service centers.
This transition was completed in fiscal 1993 in New England and Pennsylvania
and was completed in New York, the final region to transition, in the first
half of fiscal 1994. An additional initiative focused on merging 52 local
store cooperatives into Agway, which was materially completed in the fourth
quarter of fiscal 1993, has increased sales and asset levels in fiscal 1994.
Fiscal 1994 initiatives for the Group center around streamlining operating
and administrative processes through reviews of supply chain management,
product category management, and warehousing systems; closing,
consolidating, or converting facilities to focus assets and capital in
selected markets and eliminate duplication; and sales enhancement through
customer service and quality reviews. The fiscal 1993 initiatives were
intended to improve customer service, knowing that certain of these changes
would increase costs at least during the period of transition until cost
reduction strategies can be implemented. The 1994 initiatives focus on
detail plans for future implementation of strategies for expense control
and sales enhancement anticipated to improve results of operations in future
years.
Net sales and revenues for the third quarter of fiscal 1994 of $228,400 and
for the nine months to date of $664,500 increased $24,100 (11.8%) and
$55,100 (9.0%), respectively, as compared to the corresponding periods in
the prior fiscal year. The increases are primarily attributed to the
Group's consumer business which included the merger of local store
cooperatives into Agway and to a lesser extent volume and price increases
among selected product lines within the Group.
Operating losses for the third quarter of fiscal 1994 of $12,900 and for the
nine months to date of $37,600 increased $2,700 and $18,400, respectively,
as compared to the corresponding periods in the prior fiscal year. The Group
experiences seasonal fluctuations in its business and generally experiences
higher net sales and revenues in the spring as customers initiate the
growing season. However, weather conditions can impact the timing of the
commencement of the spring growing season, and in fiscal 1993 and 1994 the
extreme weather conditions in the winter have adversely impacted the Group's
results for the quarter and year to date. In fiscal 1994, operating losses
have been further accentuated due to (i) the merger of 52 store corporations
into Agway which now defers the recognition of a certain portion of its
margins until goods are sold to the end user (previously these margins were
recognized as wholesale margins at the time inventory was sold to the store
corporation), (ii) incremental costs associated with the Company's Project
initiatives which include expanding the Company's sales force and the
establishment of agricultural hubs and dedicated customer service centers,
and (iii) depressed gross margins across the Group's selected product lines
due to higher raw material prices, a change in product mix, and competitive
pricing in the marketplace.
The Company expects to benefit from the merged store corporations as they
will provide additional retail margins and increased sales in the spring
as the growing season commences. Furthermore, the increasing costs
associated with the Project initiatives tend to be fixed throughout the
year, while incremental revenues realized from Project initiatives will
tend to follow the seasonal sales pattern and also be more fully realized
in the spring as the growing season commences.
<PAGE>
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
- - - - - - - - ------------
Project initiatives for fiscal 1993 for the Energy Group were primarily
divestitures of retail locations in an effort to focus assets and capital in
selected markets. In addition, sales to commercial accounts were refocused
away from price-oriented accounts to service-oriented businesses. As
expected, these initiatives decreased sales volume, but had a favorable
impact on gross margins. Project initiatives for fiscal 1994 include
implementation of operational efficiency and asset management strategies,
such as centralized credit management, automating certain field operating
activities and mutually beneficial supplier agreements.
Energy segment net sales and revenues of $195,400 for the third quarter
declined $1,900 (1.0%) as compared to the third quarter of the prior year.
Fiscal 1994 year-to-date net sales and revenues of $447,800 declined $72,300
(13.9%) as compared to the same period in the prior year. The decrease for
the quarter and year to date is primarily attributable to planned Project
initiatives which included divestitures of low-margin retail locations and a
refocusing away from low-margin, high-volume commercial customers. However,
the anticipated decline in net sales and revenue for the quarter was
mitigated by extremely cold weather which increased the volume of heating
oils and propane.
Total unit volume (in millions of gallons) for the quarter and year to date
decreased 700 and 52,400 gallons, respectively, as compared to the
corresponding periods in the prior year. Average selling prices remained
constant in the third quarter and decreased 2.2% for the nine months to date
as compared to the corresponding periods in the prior year due to softness
in the world market, which also contributed to the sales decrease.
Despite the unit volume and selling price declines, the Energy Group realized
an improvement in net operating margins of $6,800 (35.7%) and $8,400
(38.5%) in the third quarter and fiscal year to date as compared to the
corresponding period in the previous fiscal year. Gross margins as a
percentage of net sales and revenues increased by 4.8% and 4.7% in the third
quarter and fiscal year to date as compared to the corresponding period in
the prior fiscal year. Total costs and expenses for the Group increased
slightly in the third quarter as compared to the corresponding period in the
prior fiscal year due to the adverse weather conditions, but declined on a
year-to-date basis as a result of the above changes in operations.
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 $16,800 for the Financial Services Group for the
third quarter increased $1,100 (6.9%) as compared to the third quarter of
the prior year. Fiscal 1994 year-to-date net sales and revenues of $49,200
decreased $2,000 (3.9%) as compared to the same period in the prior year.
The increase for the quarter is primarily attributed to Telmark Inc. which
increased revenues by $1,000 due to increased volume of bookings in fiscal
1994 and a gain of $500 from the sale of $5,600 of lease receivables in the
third quarter. For the nine months to date, Telmark's revenues were up by
$800. The decrease for the year-to-date period is primarily attributed to
the Agway Insurance Company and the Agway General Agency. Agway Insurance
Company revenues were constant for the third quarter but declined $2,200
for the nine months to date, as compared to the corresponding periods in
the prior year, due to termination of reinsurance assumed contracts of
$1,600 and from changes in reinsurance ceded treaties of $600 in prior
quarters. Agway General Agency Inc. revenues also remained constant for
the third quarter but declined $600 for the nine months to date 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.
<PAGE>
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)
Financial Services Group (continued)
- - - - - - - - -----------------------------------
Operating margins declined in the third quarter of fiscal 1994 by $300
(11.0%) over the same period in the previous year and $400 (5.4%) for the
nine-month period ended March 31, 1994 as compared to the same period in the
prior year. The Agway Insurance Company revenue decline from the
reinsurance termination was offset by an equal reduction in costs and
expenses with no impact on operating margin. Operating margins for the
Agway Insurance Company decreased by $400 in the third quarter due to
unfavorable underwriting experience associated with adverse weather
conditions, but for the nine month period remained $400 ahead of the prior
year. Agway General Agency experienced a reduction in margins of $200 for
the third quarter and $700 for the nine months to date as compared to the
corresponding period in the prior fiscal year due to declining revenues as
noted above. Telmark Inc.'s operating margins increased $300 in the third
quarter, but decreased $100 for the nine-month period ended March 31, 1994
as the sale of certain lease receivables resulted in $500 of revenue for the
third quarter.
Other Items
- - - - - - - - -----------
Other items include certain corporate activities not included within the
Company's three operating segments and includes interest expense. For the
third quarter, other items realized a decrease in income of $2,300 over the
corresponding period in the prior fiscal year. The decrease was attributed
primarily to decreased revenues from the timing of receipt of vendor rebates
in the amount of $800 in the third quarter of fiscal 1993 (received in second
quarter of fiscal 1994), an increase in interest expense for the third
quarter of $900 due to a higher level of borrowings in the quarter, and
increased costs associated with unallocated general corporate expenses. For
the nine-month period to date, other items realized a decrease in income of
$600 over the corresponding period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
- - - - - - - - -------------------------------
Cash flows from continuing operations for the nine months ended March 31,
1994 increased $2,400 to $7,200 as compared to the first nine months of
fiscal 1993. This increase was primarily a result of higher June 1993
Agriculture & Consumer receivables due to the late spring, which were
reduced during the first nine months of the current fiscal year, and to an
increase in accounts payable during the nine-month period. Net cash
utilized in investing activities from continuing operations for the nine
months ended March 31, 1994 was $34,000 as compared to cash provided of
$5,000 for the same period last year. Cash flows utilized in investing
activities for the nine months ended March 31, 1993 were favorably impacted
by proceeds of $32,000 from disposals of businesses and property, plant and
equipment, while increased leasing activity in fiscal 1994 resulted in the
use of an additional $21,900 of cash compared to the same period last year.
As a result of cash utilized in investing activities, net long-term
borrowings increased $15,000 in the current year, and short-term borrowings
increased $16,400. Increased short-term borrowing in the prior year
resulted from a decrease in net long-term borrowings of $23,700 combined
with redemption of $12,400 of capital stock issued in connection with an
acquisition in a 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 Agway 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. On February 1, 1994, Telmark's
registration of its offering to the public of $25,000 of debentures due
December 31, 1997 with the Securities & Exchange Commission became effective.
The debentures are unsecured and are not guaranteed by Agway nor any of
Agway's other subsidiaries. The offering of the debentures are not
underwritten and there can be no guarantee as to the amount of debentures to
be sold. The proceeds of the offering
<PAGE>
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 (continued)
- - - - - - - - ------------------------------------------
will be used to provide financing for Telmark's leasing activities. As of
March 31, 1994, approximately $1,500 of debentures were sold.
In fiscal 1994, the Company renegotiated and renewed certain of its bank
loan agreements through October 28, 1994. Adequate lines of credit of
$149,250 are available to the Company under the new agreements as compared
to lines of credit of $158,000 in the prior agreements. This includes
retention of a commercial paper facility of $50,000. Certain of these
agreements, upon the occurrence of certain defined events, give the lenders
the right to perfect a security interest in certain of the Company's
accounts receivables and non-petroleum inventories. In addition, the
agreements include certain covenants, the most restrictive of which requires
to Company to maintain specific monthly levels of interest coverage and
tangible net worth. The Company has ongoing communication with its lenders
and it is management's opinion that appropriate and adequate lines of credit
exist to finance the Company's operations and capital requirements.
<PAGE>
PART II. OTHER INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
(Thousands of Dollars)
Item 1. Legal Proceedings
- - - - - - - - --------------------------
In February 1988, Agway leased a feed mill located in Woodridge, New York
from Inter-County Farmers Cooperative Association, Inc. Agway manufactured
horse, poultry, and dairy feed at the feed mill. In early July 1989, due to
a mechanical malfunction, some horse feed manufactured at the feed mill was
contaminated with Monensin, a feed medication used with poultry and dairy
feed but which is harmful to horses. Agway immediately recalled the
contaminated horse feed and contacted regulatory agencies, including the
United States Food and Drug Administration (FDA). As a result of eating the
contaminated horse feed, a number of horses located in the State of New
Jersey died or were damaged. The majority of claims made by owners of the
affected horses have been settled. As of April 30, 1994, there were two
lawsuits pending which were filed by horse owners against Agway: John
Kolkowski, et al. v. Agway Inc., et al., filed on July 3, 1990 in the
Supreme Court of the State of New York for Westchester County; and Orlando
R. Petrocelli v. Agway Inc., et al., filed on August 5, 1991 in the Superior
Court of New Jersey for Mercer County. Each of these lawsuits includes
claims for money damages. On April 18, 1994, a previously pending lawsuit
by horse owners against Agway, Anthony D. Nini, et al. v. Agway Inc., et al.,
filed on October 24, 1990 in the Superior Court of New Jersey for Mercer
County, was settled. Agway agreed to pay Anthony D. Nini, et al., $1,498,
which was covered by an insurance policy issued to Agway. The FDA conducted
an investigation of the incident and referred the matter to the U. S.
Department of Justice (DOJ) to consider institution of criminal proceedings.
Agway has had an opportunity to present its views to the DOJ on why criminal
proceedings should not be instituted and the DOJ and FDA discussed with
Agway resolution of issues resulting from the FDA investigation. Agway
believes the pending lawsuits and the FDA investigation will be
satisfactorily resolved and any adjustments will not be material in relation
to the consolidated financial position of Agway.
Item 6. Exhibits and Reports on Form 8-K
- - - - - - - - -----------------------------------------
The Company did not file any reports on Form 8-K during the three months
ended March 31, 1994.
<PAGE>
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 May 13, 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>
EXHIBIT 21
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
As of June 30, 1994
Subsidiary State of Incorporation
Agway Country Foods, Inc. . . . . . . . . . . . . . . . . . . . . .Delaware
Agway Financial Corporation . . . . . . . . . . . . . . . . . . . .Delaware
Agway General Agency, Inc. . . . . . . . . . . . . . . . . . . . . .New York
Agway Holdings Inc . . . . . . . . . . . . . . . . . . . . . . . . .Delaware
Agway Insurance Company . . . . . . . . . . . . . . . . . . . . . .New York
Agway Petroleum Corporation. . . . . . . . . . . . . . . . . . . . .Delaware
Agway Realties, Inc. . . . . . . . . . . . . . . . . . . . . . . . .Delaware
Allied Seed Cooperative, Inc . . . . . . . . . . . . . . . . . . . .New York
Curtice Burns Foods, Inc. (1). . . . . . . . . . . . . . . . . . . .New York
H. P. Hood Inc. (2). . . . . . . . . . . . . . . . . . . . . . Massachusetts
Merchants Produce Company, Inc . . . . . . . . . . . . . . . . . . .Delaware
Midstate Potato Distributors, Inc. . . . . . . . . . . . . . . . . . Florida
Milford Fertilizer Company . . . . . . . . . . . . . . . . . . . . .Delaware
Pro-Lawn Products, Inc . . . . . . . . . . . . . . . . . . . . . . .New York
Sacramento Valley Milling, Inc . . . . . . . . . . . . . . . . . . .Delaware
Sam Panebianco and Sons, Inc . . . . . . . . . . . . . . . . . . . .Delaware
Seedway Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Delaware
Telmark Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .New York
Texas City Refining, Inc.(3) . . . . . . . . . . . . . . . . . . . .Delaware
V. Guifre & Sons, Inc. . . . . . . . . . . . . . . . . . . . . . . .Delaware
Notes:
(1) Agway Holdings Inc. owns 13% of Class A common stock and 99% of
Class B common stock, both of which are voting shares. Since
Class B common stockholders have the right to elect 70% of the
directors of Curtice Burns Foods, Inc., Agway can indirectly elect
70% of the directors of Curtice Burns Foods, Inc.
(2) Agway Holdings Inc. owns 99% of H. P. Hood Inc.
(3) Agway Petroleum Corporation owns 67% of Texas City Refining, Inc.
<PAGE>
EXHIBIT 23
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Agway Inc.:
We consent to the incorporation by reference in the registration
statements on Form S-3 (File No. 33-50469) and on Form S-8 (File No.
33-54083) of our reports dated September 22, 1994, on our audits of the
consolidated financial statements and financial statement schedules of
Agway Inc. and Consolidated Subsidiaries as of June 30, 1994, and 1993,
and for the years ended June 30, 1994, 1993 and 1992, which reports are
included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
September 22, 1994
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (File No.
33-50469) of Agway Inc. of our report dated August 3, 1994, except as
to Note 8, which is as of September 19, 1994, relating to the
consolidated financial statements of H. P. Hood Inc., which report
appears on page 28 of this Annual Report on Form 10-K.
Price Waterhouse LLP
Boston, Massachusetts
September 21, 1994
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 33-54083) of Agway Inc. of our report
dated August 3, 1994, except as to Note 8, which is as of September 19,
1994, relating to the consolidated financial statements of H. P. Hood
Inc., which report appears on page 28 of this Annual Report on Form 10-K.
Price Waterhouse LLP
Boston, Massachusetts
September 21, 1994
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements of Agway Inc. on Form
S-3 (File No. 33-50469) and on Form S-8 (File No. 33-54083) of our report
dated August 10, 1994, (except as to Note 3, which is as of September 22,
1994) relating to the June 25, 1994, June 26, 1993 and June 26, 1992,
financial statements of Curtice Burns Foods, Inc., which report appears
under Item 8 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Rochester, New York
September 22, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000002852
<NAME> AGWAY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> JUN-30-1994
<CASH> 0
<SECURITIES> 33943
<RECEIVABLES> 224406
<ALLOWANCES> 12656
<INVENTORY> 178664
<CURRENT-ASSETS> 598374
<PP&E> 519533
<DEPRECIATION> 270164
<TOTAL-ASSETS> 1274314
<CURRENT-LIABILITIES> 436502
<BONDS> 549240
<COMMON> 2771
71338
0
<OTHER-SE> 129717
<TOTAL-LIABILITY-AND-EQUITY> 1274314
<SALES> 1634251
<TOTAL-REVENUES> 1694978
<CGS> 1488618
<TOTAL-COSTS> 1518758
<OTHER-EXPENSES> 1668001
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27780
<INCOME-PRETAX> 4908
<INCOME-TAX> 4212
<INCOME-CONTINUING> 696
<DISCONTINUED> (4000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3304)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1994
AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN
--------------------------------------------------
(Full title of the Plan)
AGWAY INC.
-------------------------------------------------------------------
(Name of Issuer of the securities held pursuant to the Plan)
333 BUTTERNUT DRIVE
DEWITT, NEW YORK 13214
-------------------------------------------------------------------
(Address of principal executive offices of the Plan
and the issuer of the securities)
<PAGE>
Item 1. Changes in the Plan.
None
Item 2. Changes in Investment Policy.
None
Item 3. Contributions Under the Plan.
The following represents the Company's Contribution
to the Company Security Fund during the last five years as
a percent of the employees' contribution:
<TABLE>
<CAPTION> 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Contribution as a percentage of
employees' contribution. . . . . . . . . 10% 30% 10% 10% 25%
</TABLE>
Item 4. Participating Employees.
As of June 30, 1994, the number of employees participating
in the Plan totaled 5,117.
Item 5. Administration of the Plan.
(a) The members of the Employee Benefit Plans
Administration Committee are as follows:
<TABLE>
<CAPTION>
Name Address Capacity Agway Office Held
- - - - - - - - ---- ------- -------- -----------------
<S> <S> <S> <S>
R. T. Engfer Agway Inc. Chairman Vice President, Human Resources
DeWitt, N.Y.
D. P. Cardarelli Agway Inc. Administrator Vice President, Treasurer
DeWitt, N.Y.
P. L. DiPasqua Agway Inc. Administrator Senior Corporate Legal Assistant
DeWitt, N.Y.
K. L. Gillespie Agway Inc. Administrator Director, Seed Operations-Agriculture
DeWitt, N.Y.
G. C. Gugger Agway Inc. Administrator Vice President, Finance and Treasurer-
DeWitt, N.Y. Agway Insurance Group
N. G. Magnuson Agway Inc. Administrator Associate General Counsel
DeWitt, N.Y.
M. F. Meath Agway Inc. Administrator Manager, Government Relations
DeWitt, N.Y.
R. A. Schlote Agway Inc. Administrator Director, Compensation & Benefits
DeWitt, N.Y.
C. E. Whittemore Agway Inc. Administrator Senior Vice President-Information
DeWitt, N.Y. Services
K. M. Williams Agway Inc. Administrator Director, Sales-Agriculture
DeWitt, N.Y.
Boston Safe One Boston Place Investment June 30,1985 to November 21, 1993
Deposit & Trust Boston, MA Manager
Company
Bankers Trust 280 Park Avenue Investment January 1, 1993 to Present
Company New York, NY Manager
Wells Fargo 45 Fremont Street Investment November 22, 1993 to Present
Institutional Trust San Francisco, CA Manager
Company
</TABLE>
(b) No Compensation is received by the above-named
administrators for services under the Plan. The
Plan paid $43,516 to the Boston Safe Deposit &
Trust Company, Wells Fargo Institutional Trust
Company and Bankers Trust Company for services as
investment managers.
<PAGE>
Item 6. Custodian of Investments.
(a) The Chase Manhattan Bank, N.A., Chase MetroTech
Center, Brooklyn, NY 11245, Trustee, is custodian
of the securities of the Plan. Effective August
1, 1994, United States Trust Company of New York,
770 Broadway, New York, NY 10003, became custodian
of the securities of the Plan.
(b) The Plan paid $24,337 to the aforementioned Trustee
for trustee fees.
(c) There is no bond furnished by the Trustee in connec-
tion with the custody of the securities of the Plan.
Item 7. Reports to Participating Employees.
Each participating employee has received an annual
report of the Plan for the fiscal year ended June 30, 1993.
A similar annual report will be sent to each participant
in March 1995, for the fiscal year ended June 30, 1994.
Each participating employee will receive a report
of the status of the employee's account under the Plan
dated prior to October 15, 1994.
Item 8. Investment of Funds.
There were no brokerage commissions paid by the
Plan during the three most recent fiscal years to any
broker which is an affiliated person of the Plan, which
is an affiliated person of such person or an affiliated
person of which is an affiliated person of the Plan, or
its investment advisor or principal underwriter.
The Plan did not direct brokerage transactions
to a broker because of research services.
Item 9. Financial Statements and Exhibits.
(a) Financial Statements. The financial statements
and schedule of the Agway Inc. Employees' Thrift
Investment Plan filed herein are as follows:
Report of independent accountants . . . . . . . Page F-1
Statements of net assets available for
benefits as of June 30, 1994 and 1993.. . . . . .Page F-2
Statements of changes in net assets available
for benefits for the years ended June 30,
1994, 1993, and 1992. . . . . . . . . . . . . . .Page F-3
Notes to financial statements.. . . . . .Pages F-4 to F-8
Schedule I - Investments as of
June 30, 1994.. . . . . . . . . . . .Pages S-1.1 to S-1.2
Schedule II - Statement of net assets
available for benefits as of June 30,
1994, and 1993 of the Company Security
Fund, Stock Fund, Bond Fund, and the
Cash Fund,separately. . . . . . . . . . . . . . .Page S-2
Schedule III - Statements of changes
in net assets available for benefits
for the years ended June 30, 1994, 1993
and 1992 of the Company Security Fund,
Stock Fund, Bond Fund and the Cash
Fund, separately. . . . . . . . . . . . . . . . .Page S-3
Schedules other than those listed above have been omitted
for the reason that they are not applicable, not required,
or the required information is included in the aforemen-
tioned statements and schedules.
<PAGE>
AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN
Data for Inclusion in Form 11-K
as of June 30, 1994
___________
<PAGE>
(logo)
COOPERS certified public accountants
& LYBRAND
INDEPENDENT AUDITORS' REPORT
To the Employee Benefit Plans
Administration Committee,
Agway Inc.
We have audited the accompanying statements of net assets available
for benefits of AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN as of
June 30, 1994 and 1993, and the related statements of changes in net
assets available for benefits for the years ended June 30, 1994,
1993 and 1992, and the supporting financial statement schedules.
These financial statements and financial statement schedules are
the responsibility of the Plan's management. Our responsibility is
to express an opinion on these financial statements and financial
statement schedules based on our audit.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets available for
benefits of the Plan as of June 30, 1994 and 1993, and the changes
in net assets available for benefits for the years ended June 30,
1994, 1993, and 1992, in conformity with generally accepted account-
ing principles. In addition, in our opinion, the financial state-
ment schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly in
all material respects the information included therein.
Syracuse, New York
July 29, 1994
F-1
<PAGE>
AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
June 30, 1994 and 1993
___________
(Thousands of Dollars)
<TABLE>
<CAPTION>
ASSETS 1994 1993
---- ----
<S> <C> <C>
Securities of Agway Inc. and Agway Financial
Corp., at fair value (approximates cost) Schedule I $ 56,508 $ 52,453
Mutual common stock, at fair value (cost: 1994 -
$31,469; 1993 - $11,489) Schedule I 30,193 27,363
Mutual bond fund at fair value (cost: 1994 -
$959; 1993 - $948) Schedule I 962 976
Temporary investment funds, at fair value
(equals cost) Schedule I 977 1,625
Loans to participants 796
Accrued income 2,097 1,981
-------- --------
TOTAL ASSETS $ 91,533 $ 84,398
======== ========
NET ASSETS AVAILABLE FOR BENEFITS $ 91,533 $ 84,398
======== ========
</TABLE>
See Schedule II for allocation by Fund.
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Years Ended June 30, 1994, 1993 and 1992
___________
(Thousands of Dollars)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Additions to net assets attributed to:
Investment income
Net appreciation (depreciation) in fair
value of investments (Note 4) ($ 180) $ 3,982 $ 2,944
Interest 1,414 1,451 1,539
Dividends 3,270 2,687 2,615
-------- -------- --------
4,504 8,120 7,098
-------- -------- --------
Contributions
Participants 6,031 5,687 6,331
Agway Inc. 1,378 449 490
-------- ------- --------
7,409 6,136 6,821
-------- ------- --------
Total additions 11,913 14,256 13,919
-------- ------- --------
Deductions from net assets attributed to:
Benefits paid to participants 4,413 12,563 7,192
Forfeitures to Agway Inc. 15 61
Administrative expenses 365 185 144
-------- ------- --------
Total deductions 4,778 12,763 7,397
-------- ------- --------
Net increase 7,135 1,493 6,522
Net assets available for
benefits, beginning of year 84,398 82,905 76,383
-------- ------- --------
Net assets available for
benefits, end of year $ 91,533 $ 84,398 $ 82,905
======== ======== ========
</TABLE>
See Schedule III for allocation by Fund.
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
___________
(Thousands of Dollars)
1. PLAN TRUSTEE
------------
The cash and investments of the Plan are held by The Chase
Manhattan Bank, N.A., Trustee, under a trust agreement dated
January 1, 1985. In general, the duties of the Trustee include:
(1) holding assets and collecting income therefrom;
(2) investing the assets of the Plan; (3) selling or exchanging
the assets of the Plan; and (4) paying benefits to participants
in the Plan on the written order of the Administrative Committee
which is appointed by the Board of Directors of Agway Inc. The
investment of assets in the Stock Fund are directed by an
investment manager, Wells Fargo Institutional Trust Company,
San Francisco, California. The Bond Fund and the Cash Fund are
managed by Bankers Trust Company, New York.
2. PLAN PROVISIONS
---------------
The Plan is a defined contribution plan covering Agway Inc.'s
full-time employees and part-time employees who have reached
their first anniversary date and have worked 1,000 hours.
A participant may elect to contribute "regular investments" of
2% to 6% of his total compensation. These investments are made
on a "pre-tax" basis or an "after-tax" basis or a combination
totaling up to 6% of a participant's total compensation. Pre-
tax regular investments are designed to take advantage of Sec-
tion 401(k) and are contributed to the Plan before being sub-
ject to federal income tax and most states' income tax. After-
tax regular investments are contributed to the Plan after being
subject to federal and state income taxes.
The participant may invest an additional 1% to 9% of his total
compensation as additional investments on a pre-tax basis
(limited to an annually established IRS determination) if the
participant contributes the maximum 6% of regular investments.
Amounts exceeding the limits established by the regulations will
be made on an after tax basis based on the election of the par-
ticipant.
On January 1, 1993, the Plan was amended to provide for separate
investment fund choices to participants: the Company Security
Fund, Stock Fund, Bond Fund, and Cash Fund. Prior to January 1,
1993, investment fund choices consisted of the Company Security
Fund and the Stock Fund.
All participants' investments are invested at the option of the
participant in any combination of the four funds in multiples
of 25%. A participant can change his designation of the funds
into which his contributions are made upon 30 days notice at
the first of each month. A current employee or retiree may
transfer from one fund to another once each month.
F-4
<PAGE>
AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
___________
(Thousands of Dollars)
2. PLAN PROVISIONS (Continued)
---------------
The Company shall contribute on behalf of each participant an
amount equal to at least 10%, but not more than 50% of each
participant's regular investments to the Plan. The Company
contribution applies only to a participant's regular invest-
ments. The Company does not contribute based on a participant's
additional investments. The Company contribution will be made
to the Company Security Fund. The discretionary percentage of
Company contributions above 10% for each year of operation of
the Plan shall be determined by the Board of Directors of the
Company. The Company's contribution will be made each week
at a rate of 10% of the participant's regular investment.
Any amount of the Company's contribution greater than 10% of
the participant's regular investment as determined by the Board
of Directors will be paid not later than the time prescribed by
law for filing the Company's federal income tax return for the
applicable taxable year, including extensions for such filing.
The Company shall also contribute on behalf of each participant,
if necessary, an amount such that the rate of return on current
market value of that portion of the Company Security Fund not
invested in the Company's Money Market Certificates, will equal
one-half percent less than the interest rate plus any declared
"extra" paid on the Company's member debentures. This contribu-
tion is made semi-annually to the Company Security Fund. The
contribution is allocated to individual accounts so that each
individual attains the rate of return described above.
It is explicitly provided and intended that the Company Security
Fund be invested in qualified Agway securities. However, if at
any time when the Trustee has funds available for such invest-
ment, such prescribed securities are not available for purchase
from the Company, the Trustee is authorized to hold such funds
in an interest bearing account, or to invest such funds in one
or more securities of other corporations which, in the Trustee's
opinion, are comparable to the prescribed securities of the
Company. Securities of Agway, Inc. will be purchased from the
Company at par value or principal amount, since the market value
of such securities is maintained as such by the Company as a
result of the Company's practice of repurchasing its outstanding
securities at par whenever holders thereof elect to tender them
for redemption.
The Stock Fund, including earnings thereon, shall be invested
in any common stock(s), common stock fund(s), or any security
convertible into common stock as the Investment Committee may
deem advisable from time to time, but which shall not include
shares of stock or other securities of the Company or any of
its subsidiaries or affiliates. The Investment Manager will
make purchases of such securities in the open market at prices
prevailing in such market on the day of purchase. Short-term
obligations of the U. S. Government or other investments of a
short-term nature may be purchased and held pending the selec-
tion and purchase of suitable securities based on the short-
term expectations
F-5
<PAGE>
AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
___________
(Thousands of Dollars)
2. PLAN PROVISIONS (Continued)
---------------
of the relative return in the equity market. Substantially all
of the Stock Fund investments were in the Wells Fargo "U. S.
Equity Market Fund" and The Boston Safe Deposit and Trust
Company Inc.'s "Wilshire 5000 Index Market Fund" at June 30,
1994 and 1993, respectively. As there is no market quotation
available, fair value of the Stock Fund Investments is based on
the unit market value established by the Investment Manager.
This unit value is calculated by dividing the net assets of the
Market Fund, stated at quoted market values, by the units
outstanding.
The Cash Fund investment objective is to preserve capital and
earn a competitive day-to-day interest rate. It invests in
high quality, short-term money market instruments whose
maturities normally will not exceed one year and are, on
average, less than three months. Investments may be made in
U. S. Treasury or agency obligations; obligations issued by
financial, industrial, public utility, or other companies;
bankers' acceptances, bank certificates of deposit or time
deposits; commercial paper; and other similar obligations.
The Bond Fund invested primarily in bonds of U. S. Government
and investment grade bonds of industrial, financial, and
utility corporations. "Investment Grade" is a term for
securities of high quality that are rated Baa or better by
Moody's Investor Service and BBB or better by Standard &
Poor's Corporation. All of the Bond Fund investments were
in the Bankers Trust Company's "Corporate Bond Index Fund"
at June 30, 1994 and 1993. As there is no market quotation
available, fair value of the Bond Fund Investments is based
on the unit market value established by the Investment Manager.
This unit value is calculated by dividing the net assets of
the Bond Index Fund, stated at quoted market values, by the
units outstanding.
Allocation of plan earnings is done on a monthly basis and
is based on the funds monthly earning percentage (fund
earnings divided by fund market value) times the participant's
accumulated investments and earnings in the fund.
Effective July 1, 1993, participants vest immediately in
Company contributions and earnings on those contributions.
The Plan also includes various terms and conditions under
which a participating employee can make withdrawals from
the Plan. Effective July 1, 1993 participants may borrow up
to 50% of their vested account balance. Participant loans
must be no less than $500 and no greater than $50,000.
As of June 30, 1994 there were 5,117 employees participating
in the Plan. The number of employees electing to invest
contributions, in whole or in part, in each of the available
investment funds, is as follows at June 30, 1994:
Company Security Fund 5,100
Stock Fund 3,652
Cash Fund 177
Bond Fund 446
F-6
<PAGE>
AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
___________
(Thousands of Dollars)
3. PLAN TERMINATION
----------------
The Company may amend, modify, suspend or terminate the Plan.
Although the Company has no intention of so doing, in the
event the Plan is terminated or employer contributions are
discontinued, all of the assets of the Plan shall be used for
the benefit of participants and beneficiaries under the Plan
and the interest of each participant in employer contributions
and earnings thereon included in the Company Security Fund
shall vest immediately.
4. NET APPRECIATION (DEPRECIATION) IN FAIR VALUE OF INVESTMENTS
------------------------------------------------------------
The Plan presents in the statement of changes in net assets
available for benefits the net appreciation (depreciation) in
the fair value of its investments which consists of the
realized gains or losses and the unrealized appreciation
(depreciation) of those investments.
Unrealized appreciation (depreciation) in Stock Fund investments
was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Excess of market quotations
over cost at beginning of year $15,873 $13,415 $10,582
Excess of market quotations
over cost at end of year ( 1,276) 15,873 13,415
------- ------- -------
Unrealized appreciation
(depreciation) ($17,149) $ 2,458 $ 2,833
======= ======= =======
</TABLE>
During fiscal 1994, 1993 and 1992, the Stock Fund sold
securities with an aggregate historical cost of $18,021,
$4,220 and $2,456, respectively (specific identification)
receiving aggregate proceeds thereon of $35,006, $5,715 and
$2,567, respectively, resulting in a net realized gain of
$16,985, $1,494 and $111, respectively.
Unrealized appreciation (depreciation) on Bond Fund investments
was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Excess of market quotations
over cost at beginning of year $ 28 $ -0- $ -0-
Excess of market quotations
over cost at end of year 3 28 -0-
------- ------- -------
Unrealized appreciation
(depreciation) ($ 25) $ 28 $ -0-
======= ======= =======
</TABLE>
During fiscal 1994 and 1993, the Bond Fund sold securities with
aggregate historical costs of $332 and $168, respectively, re-
ceiving aggregate proceeds thereon of $341 and $170, respective-
ly, resulting in net realized gains of $9 and $2, respectively.
F-7
<PAGE>
AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
___________
(Thousands of Dollars)
5. PLAN EXPENSES
-------------
During fiscal years 1994, 1993 and 1992 the Employee Benefit
Plan Administration Committee of Agway Inc. authorized certain
direct administrative expenses incurred by Agway Inc. for the
benefit of the Plan to be reimbursed by the Plan. These amounts
are approximately $87,000, $78,000 and $91,000 for the years
ended June 30, 1994, 1993 and 1992, respectively. They are
included in administrative expenses.
6. FEDERAL INCOME TAX STATUS
-------------------------
A favorable determination letter dated July 25, 1985, was issued
by the Internal Revenue Service on behalf of the Plan which
stated that the Plan, as then designed, was in compliance with
the applicable requirements of the Internal Revenue Code.
Therefore, no provision for income taxes has been included in
the Plan's financial statements.
The Plan was amended in 1994 and the Plan Administrator has
filed for a favorable determination letter from the Internal
Revenue Service.
No provision for income taxes has been included in the Plan's
financial statements.
Until such time as a participant withdraws all or part of their
investment, they will not be subject to federal income tax for
"pre-tax" regular investments, contributions made on the
participant's behalf by the Company, appreciation of invest-
ments or dividend and interest income credited to the parti-
cipants' account in the Plan. These amounts are also not
subject to State income tax, except that "pre-tax" regular
investments are subject to income tax in some states.
F-8
<PAGE>
AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN
SCHEDULE I - INVESTMENTS
as of June 30, 1994
___________
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D
------ ------ ------ ------
Balance Held at
Close of Period.
Number of Shares or Market Value
Name of Issuer Principal Amount Cost of of Each Item at
and Title of Issue of Bonds and Notes Each Item Close of Period
------------------ ------------------ --------- ---------------
(Thousands of Dollars)
<S> <C> <C> <C>
Company Security Fund:
Agway Inc.:
6% cumulative preferred
stock - Series A 84,950 $ 8,495 $ 8,495
8% cumulative preferred
stock - Series B 131,870 13,187 13,187
7% cumulative preferred
stock - Series C 114,720 11,472 11,472
8% restricted preferred
stock - Series B 52,550 5,255 5,255
6-1/2% subordinated money
market certificates due
October 31, 1998 $1,504,565 1,505 1,505
7-1/2% subordinated debentures,
due July 1, 2003 $2,000,000 2,000 2,000
8% subordinated money
market certificates, due
October 31, 1995 $1,826,580 1,827 1,827
8% subordinated debentures,
due July 1, 1999 $1,130,000 1,130 1,130
10% subordinated money
market certificates, due
October 31, 1994 $1,424,962 1,425 1,425
Agway Financial Corp.:
7% subordinated money
market certificates,
due October 31, 1995 $1,733,956 1,734 1,734
8% subordinated money market
certificates, due
October 31, 2005 $1,166,770 1,167 1,167
8-1/2% subordinated money
market certificates,
due October 31, 1998 $ 601,297 601 601
8-1/2% subordinated money
market certificates,
due October 31, 2001 $2,397,992 2,398 2,398
9% restricted debenture fund,
due October 31, 2000 $2,082,320 2,082 2,082
</TABLE>
Continued
S-1.1
<PAGE>
AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN
SCHEDULE I - INVESTMENTS, Continued
as of June 30, 1994
___________
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D
------ ------ ------ ------
Balance Held at
Close of Period.
Number of Shares or Market Value
Name of Issuer Principal Amount Cost of of Each Item at
and Title of Issue of Bonds and Notes Each Item Close of Period
------------------ ------------------ --------- ---------------
(Thousands of Dollars)
<S> <C> <C> <C>
Company Security Fund: (Continued)
Agway Financial Corp.: (Continued)
7-1/2% subordinated money
market certificates, due
October 31, 1999 $1,030,407 $ 1,030 $ 1,030
5-1/2% subordinated money
market certificates, due
October 31, 1996 $1,200,000 1,200 1,200
-------- --------
Total Company securities 56,508 56,508
Temporary Investment Fund $ 262,913 263 263
-------- --------
Total Company Security Fund 56,771 56,771
-------- --------
Stock Fund:
Wilshire 5000 Index Market Fund 1,552,854 31,469 30,193
Temporary Investment Fund $ 332,068 332 332
-------- -------
Total Stock Fund 31,801 30,525
-------- -------
Bond Fund:
Bankers Trust Corporate
Bond Index Fund 540,165 959 962
-------- -------
Total Bond Fund 959 962
-------- -------
Cash Fund:
Bankers Trust Discretionary Cash Fund $ 381,996 382 382
-------- -------
Total Cash Fund 382 382
-------- -------
TOTAL INVESTMENTS $ 89,913 $ 88,640
======== ========
</TABLE>
S-1.2
<PAGE>
AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN
SCHEDULE II - STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
June 30, 1994 and 1993
___________
(Thousands of Dollars)
<TABLE>
<CAPTION>
Company
Security Fund Stock Fund Bond Fund Cash Fund Total
------------- ---------- --------- ---------
ASSETS 1994 1993 1994 1993 1994 1993 1994 1993 1994
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities of Agway Inc., at
fair value (approximates cost) $56,508 $52,453 $56,508
Common stock, at fair value
(cost: 1994 - $31,469;
1993 - $11,489) $30,193 $27,363 30,193
Mutual Bond Fund at fair value
(cost:1994 - $959; 1993 - $948) $ 962 $ 976 962
Loans to participants 431 338 19 $ 8 796
Temporary investment funds, at
fair value (equals cost) 263 101 332 1,273 382 $ 251 977
Accrued income 2,096 1,980 1 1 2,097
------- ------- ------- ------- ------- ------- ------- ------- -------
$59,298 $54,534 $30,863 $28,636 $ 981 $ 976 $ 391 $ 252 $91,533
======= ======= ======= ======= ======= ======= ======= ======= =======
NET ASSETS AVAILABLE
FOR BENEFITS $59,298 $54,534 $30,863 $28,636 $ 981 $ 976 $ 391 $ 252 $91,533
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
S-2
<PAGE>
AGWAY INC. EMPLOYEES' THRIFT INVESTMENT PLAN
SCHEDULE III - STATEMENTS OF CHANGES IN
NET ASSETS AVAILABLE FOR BENEFITS
Years Ended June 30, 1994, 1993 and 1992
___________
(Thousands of Dollars)
<TABLE>
<CAPTION>
Company Security Fund Stock Fund Bond Fund Cash Fund Total
--------------------- ---------- --------- --------- -----
1994 1993 1992 1994 1993 1992 1994 1993 1994 1993 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions to net
assets attributed to:
Net appreciation in fair
value of investments ($ 163) $ 3,952 $ 2,944 ($ 17) $ 30 ($ 180)
Interest $ 1,378 $ 1,435 $ 1,526 24 14 13 $ 12 $ 2 1,414
Dividends 2,788 2,687 2,615 482 3,270
------- ------- ------- ------- ------- ------- ----- ------ ----- ----- -------
4,166 4,122 4,141 343 3,966 2,957 ( 17) 30 12 2 4,504
------- ------- ------- ------- ------- ------- ----- ------ ----- ----- --------
Contributions
Participants 2,841 3,033 3,868 2,839 2,500 2,463 275 124 76 30 6,031
Agway Inc. 1,378 449 490 1,378
Transfer from other
funds, net ( 434) (1,703) ( 418) 515 656 418 ( 163) 823 82 224 -0-
------- ------- ------- ------- ------- ------ ----- ----- ----- ----- -------
3,785 1,779 3,940 3,354 3,156 2,881 112 947 158 254 7,409
------- ------- ------- ------- ------- ------ ----- ----- ----- ----- -------
Total additions 7,951 5,901 8,081 3,697 7,122 5,838 95 977 170 256 11,913
------- ------- ------- ------- ------- ------ ----- ----- ----- ----- -------
Deductions from net
assets attributed to:
Participants 2,954 8,867 5,402 1,345 3,692 1,790 85 29 4,413
Forfeitures to Agway Inc. 15 61
Administrative expenses 233 93 72 125 91 72 5 1 2 365
------- ------- ------- ------- ------- ------ ----- ----- ----- ----- -------
Total deductions 3,187 8,975 5,535 1,470 3,783 1,862 90 1 31 -0- 4,778
------- ------- ------- ------- ------- ------ ----- ----- ----- ----- -------
Net increase (decrease) 4,764 ( 3,074) 2,546 2,227 3,339 3,976 5 976 139 256 7,135
Net assets available for
benefits, beginning of year 54,534 57,608 55,062 28,636 25,297 21,321 976 252 84,398
------- ------- ------- ------- ------- ------ ----- ----- ----- ----- -------
Net assets available
for benefits, end of year $59,298 $54,534 $57,608 $30,863 $28,636 $25,297 $ 981 $ 976 $ 391 $ 256 $91,533
======= ======= ======= ======= ======= ======= ====== ====== ===== ===== =======
</TABLE>
S-3
