<PAGE>1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---
EXCHANGE ACT OF 1934
For the quarterly period ended 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>2
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>3
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>4
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED MARGIN
(Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended 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>6
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands of Dollars)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
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>7
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>8
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>9
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>10
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>11
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Unaudited)
(Thousands of Dollars)
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>12
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Unaudited)
(Thousands of Dollars)
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>13
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Unaudited)
(Thousands of Dollars)
LIQUIDITY AND CAPITAL RESOURCES (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>14
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>15
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)
