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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, 1995
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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) 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
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN ANY DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. X
---
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NONAFFILIATES OF THE REGISTRANT AS OF SEPTEMBER 15, 1995.
Membership Common Stock, $25 Par Value - $2,712,400
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 15, 1995
----- ---------------------------------
Membership Common Stock, $25 Par Value 108,496 Shares
PAGE 1 OF 212. EXHIBIT INDEX APPEARS ON SEQUENTIALLY NUMBERED PAGE 73.
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<PAGE>
FORM 10-K ANNUAL REPORT - 1995
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CROSS REFERENCE SHEET
<TABLE>
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Page
PART I
<S> <C> <C>
Items 1. & 2. Business and Properties
Description of Business and Properties........................................................ 3
Competition................................................................................... 10
Human Resources............................................................................... 11
Regulation.................................................................................... 11
Administrative................................................................................ 12
Stockholder Membership and Control of Agway................................................... 12
Patronage Refunds............................................................................. 14
Item 3. Legal Proceedings............................................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders........................................... 16
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................... 17
Item 6. Selected Financial Data....................................................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 18
Item 8. Financial Statements and Supplementary Data................................................... 30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 30
PART III
Item 10. Directors and Executive Officers of the Registrant............................................ 67
Item 11. Executive Compensation........................................................................ 70
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 72
Item 13. Certain Relationships and Related Transactions................................................ 72
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 73
Signatures.................................................................................... 83
</TABLE>
2
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)
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 manufacturing,
processing, distribution and marketing of products and services for its
farmer-members and other customers 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 retail and wholesale sales of farm supplies, yard
and garden products, pet food and pet supplies; 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 lease financing. Refer to the organizational structure of Agway as of June
30, 1995 on page 4.
Operating on a cooperative basis, the Company is eligible to pay
patronage refunds to its 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 patronage refunds, if or
when paid.
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 principal business activities
consist 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 AHI's
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 but does report summarized AFC financial
information in the Company's financial statement footnotes. (See Note 2 to the
financial statements in Item 8.)
The operations of the Company are conducted directly and through its
subsidiaries and affiliates principally in four business segments: Agriculture
& Consumer, Energy, Dairy and Financial Services. (See Note 14 to the
financial statements in Item 8 for financial information regarding industry
segments.)
Effective July 1, 1994, (i) certain subsidiaries of AFC (Seedway Inc.,
Allied Seed Cooperative Inc., and Pro-Lawn Products Inc.) were merged into
Agway Inc., and (ii) certain operating divisions of Agway Inc.
(Retail/Wholesale Operations) were transferred to AFC and merged with the
Country Foods operations into Agway Consumer Products Inc., formerly Agway
Country Foods, Inc. The prior year financial statements have been restated to
give retroactive effect to this change in reporting entity.
In 1995, the Company was further reorganized through a process of
decentralizing its management and operations. This was done to further enhance
customer service in Agriculture & Consumer, to address cost increases in that
unit of the past two years and to implement and initiate further cost
reductions for the Company. Certain functions and costs previously managed in
a centralized manner as part of corporate administration were assumed by the
individual business units. In Agriculture & Consumer, a new, more
decentralized business structure was formulated so that the Agriculture
component is made up of seven geographically-based enterprise units under
Agway Agricultural Products (AAP) and engages in the manufacturing and
processing of various farm animal feeds, crop inputs, fertilizers, crop
protectants and farm supplies to our customer base in the core northeastern
markets. The Consumer component is comprised of Agriculture & Related Services
(ARS) and the Country Products Group (CPG). ARS is accountable for Agway
retail store locations; wholesale supply of certain products to Agway
franchised representatives, retail stores and other business; and provides
technical and administrative support for AAP.
3
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
GENERAL (CONTINUED)
ORGANIZATIONAL STRUCTURE OF AGWAY AS OF JUNE 30, 1995
NARRATIVE DESCRIPTION OF ORGANIZATIONAL CHART OMITTED
-----------------------------------------------------
The organizational structure of Agway Inc. as of June 30, 1995 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, information services, and
human resources. 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 Agway Agricultural Products
(AAP), Agriculture and Related Services (ARS), and Country Products Group
(CPG). Agway Inc. operations include feed and crop operations which are
part of AAP and seed and turf operations which are part of CPG. Milford
Fertilizer Company, a wholly owned subsidiary of Agway Inc., is part of
AAP. Agway Consumer Products Inc., a wholly owned subsidiary of AHI,
includes retail operations which are part of AAP (1), retail/wholesale
operations which are part of ARS(2), and produce repackaging, commodity
processing and repackaging, pet food manufacturing and bag printing and
manufacturing which are part of CPG(3).
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 the
dairy group consisting of H. P. Hood Inc., a subsidiary of AHI.
(1) Certain retail operations, depending upon location, have a primary focus
on farm supply products and also supply yard and garden, pet food and
pet supplies.
(2) The more suburban located retail operations have a primary focus on yard
and garden, pet food and pet supplies but also provide farm supplies, as
appropriate, to their market. Wholesale operations support all retail
operations, whether Agway owned or franchised, regardless of location.
(3) These operations are made up of the following operations: Sacramento
Valley Milling, Merchants Produce Company, Mid-State Potato
Distributors, V. Giufre & Sons, Sam Panebianco & Sons, Churchville
Flour, Grandin Sunflower, Apex Bag Co., bean processing, small animal
food manufacturing and Maine operations.
4
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
GENERAL (CONTINUED)
In 1992, the Company initiated Customer Driven: 1995 (the "Project") to
better focus the Company on its members and customers for the 21st century and
to improve the Company's business processes. These restructuring measures
included a reduction in personnel through an early retirement program; plant
and store closings; and business divestitures; and resulted in a pre-tax
restructuring charge of $75,000 in the fourth quarter of fiscal 1992, the
amount estimated at that time to be necessary to accomplish the Project goals.
Project initiatives for Agriculture & Consumer 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 and increased the cost of operations. An additional
initiative focused on merging 53 local store cooperatives into Agway, which
was substantially completed in the fourth quarter of fiscal 1993. This
initiative had the effect of incrementally increasing assets, sales, gross
margins and expenses in fiscal 1994 over preceding periods. Finally,
Agriculture & Consumer has continued to close, consolidate and/or convert
various facilities to focus assets and capital into selected markets and to
eliminate duplication.
For Energy, Project initiatives included divestitures of retail plant
locations and excess assets in an effort to focus assets and capital in
selected markets. In addition, sales to commercial accounts were positioned
away from high volume/low profit accounts.
There were no Project initiatives within the Dairy and Financial
Services segments as there was no major re-engineering considered necessary in
Financial Services, and it was anticipated that the Company would sell the
Dairy segment.
In the fourth quarter of fiscal 1994, with a substantial number of its
initiatives completed, excess accruals of $6,100 were credited to operating
earnings. During fiscal 1995, the Company continued to complete Project
initiatives and to analyze remaining restructuring reserves in light of the
Project's three-year implementation period. A total of $3,200 was credited to
income in 1995 in order to reflect further changes in estimating the costs to
complete remaining original Project initiatives. See Note 3 to the financial
statements in Item 8 and Item 7, "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.
5
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
AGRICULTURE & CONSUMER
AGWAY AGRICULTURAL PRODUCTS (AAP)
The president and staff of each of the seven geographically-based
enterprise units of AAP are organized to align the Agway feed, crop and farm
supply service to farmers in their specific geographic markets. The enterprise
units are responsible for management, operations, sales, billing and customer
service. This operational structure allows management accountability and
customer services to be in closer proximity to customers while eliminating
costs associated with the prior structure.
FEED: Feed operations manufacture livestock and poultry feeds under
Company formula and provide grain and ingredient brokerage services. Products
are sold primarily through an Agway sales force which actively calls on farmer
customers and through customer calls to any Agway facility, including nine
agricultural customer service centers which can be called using an 800 number
to conveniently place orders. The Company operates 16 regional feed mills and
23 grind and mix facilities, principally in New York, Pennsylvania, and
Vermont. Productive capacity is sufficient to meet market needs.
CROPS: Crops operations manufacture, process, and procure crop-related
products sold as direct shipments to customers, farmer-dealers, and wholesale
accounts. Products sold primarily for 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 own and
operate approximately 120 blending plants and storage facilities. Productive
capacity is sufficient to meet market needs.
FARM SUPPLIES: While all Agway-owned retail stores carry farm supplies,
yard and garden products, pet food and pet supplies, 53 identified locations
within the seven enterprise units of AAP have a significantly heavier emphasis
on farm supplies due to their geographic location and customer base. These
locations are managed through AAP and also coordinate the delivery of feed and
crop-related products to farmers in their territory.
AGRICULTURE & RELATED SERVICES (ARS)
RETAIL/WHOLESALE: ARS provides support for wholesale purchasing,
warehousing, and distribution activities to AAP and Agway's entire wholesale
and retail system. Through its store and franchised representative system, ARS
conducts retail sales and distribution activities through 174 Company-owned
facilities and 353 franchised representatives located in all of the New
England states and in Delaware, Maryland, New York, New Jersey, and
Pennsylvania. Of these Agway-owned stores, although all carry farm supplies,
121 locations are in more suburban areas and therefore have a greater emphasis
on yard and garden, pet food and pet supplies. The other 53 Agway-owned stores
are managed by AAP.
The retail system is focused primarily on three primary product
categories: farm-related products, yard and garden and pet food and pet
supplies. The farm-related and yard and garden 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.
Through other distribution channels during 1995, ARS conducted sales,
installation, and service operations for farm mechanical equipment; provided a
catalog for farmers with mail and telephone ordering of farm animal health
products; provided a dairy route delivery service of animal health and farm
supplies.
6
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
AGRICULTURE & CONSUMER (CONTINUED)
AGRICULTURE & RELATED SERVICES (ARS) (CONTINUED)
RESEARCH AND APPLIED TECHNOLOGY: 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 over 810 acres, facilities with 500 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. Approximately 49 employees are engaged in research
and product development activities.
The people and facilities associated with the Company's Research and
Applied Technology Department are managed by ARS and add strength to member
customer service and product development efforts. The 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, 1995, 1994 and 1993, gross
expenditures of $4,500, $5,000 and $4,900, respectively, were made on research
activities by the Company as a whole. Research for the crops operations is
conducted in conjunction with universities and other suppliers.
COUNTRY PRODUCTS GROUP (CPG)
Country Products Group operates in seven different businesses - produce
repack operations, commodity processing and repack operations, pet food
manufacturing, bag printing and manufacturing, field and garden seed
processing, turf operations, and fertilizer production. These operations have
sufficient capacity to meet their operating requirements. The seed, turf, and
fertilizer operations are seasonal in nature with the majority of the sales
occurring in the spring.
The produce repack segment operates five potato and onion repacking
facilities located at Moosic, Pennsylvania; Canastota, Elba, and 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.
The commodity processing and repack operations purchase certain
commodities produced by members and other farmers and conduct 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, human edible sunflower, bird
food, and flour. Edible dry bean processing plants are located at Caledonia,
Geneva and Moravia, New York, with combined storage capacity of 185,000 cwt.
The flour mill is 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. Tablestock and seed potatoes are
marketed from Presque Isle, Maine.
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 retail store and franchised representative system, other
cooperatives, and direct to users. The small animal food plant at St. Marys is
leased from the City of St. Marys, Ohio, under 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.
The field and garden seed operations produce, condition and market field
seed, turf grass seed, dry edible bean seed, pea seed, and commercial and
retail vegetable seed. These facilities operate in several New York and
Pennsylvania locations as well as California, Oregon, and Idaho.
7
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
AGRICULTURE & CONSUMER (CONTINUED)
COUNTRY PRODUCTS GROUP (CPG) (CONTINUED):
The turf operations are responsible for manufacturing, processing and
procurement of turf-related products including seed, crop protectants and
fertilizer. These products are marketed to the professional market for golf,
landscape and nursery customers, as well as to the ARS retail store and
franchised representative system. These operations also serve as a
distribution center for various farm seed products marketed through AAP. Six
facilities are located in Pennsylvania, New York, and Massachusetts.
The fertilizer operation in Big Flats, New York, manufactures a wide
variety of yard and garden fertilizers sold through AAP and ARS as well as to
outside customers.
ENERGY
AGWAY PETROLEUM CORPORATION
Energy is Agway Petroleum Corporation (doing business as Agway Energy
Products), a Delaware corporation wholly owned by AHI. Agway Energy Products
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 product
emphasis 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 Energy
Products does enter into supply contracts for periods ranging from three to
nine months.
Agway Energy Products currently owns storage capacity for approximately
2,900,000 barrels of products at 10 terminals located in New York and
Pennsylvania. Energy operates 97 retail distribution centers located
throughout New York, Pennsylvania, New Jersey, Massachusetts, and Vermont.
Agway Energy Products also distributes petroleum products through 65
distributors and resellers. Facilities are sufficient to meet the current
operating requirements of the business.
DAIRY
The Dairy segment consists of H. P. Hood Inc. (Hood). AHI owns
approximately 99.9% 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. Agway is actively interested in the sale of
Hood and while such a sale could be consummated in the near future, Agway is
not presently able to determine with reasonable certainty whether a sale will
occur within the next year. Accordingly, Hood is reported as a continuing
operation for financial reporting purposes.
FINANCIAL SERVICES
Financial Services consists of Telmark Inc., a leasing subsidiary; Agway
Insurance Company, a property and casualty insurance subsidiary; and Agway
General Agency, a subsidiary which markets accident and health insurance and
long-term care products.
8
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
FINANCIAL SERVICES (CONTINUED)
TELMARK INC.
Telmark Inc. (Telmark), a New York corporation wholly owned by AHI,
finances buildings, equipment, and vehicles to the rural community. It
operates in 24 northeastern and midwestern states. As of June 30, 1995,
Telmark had approximately $332,600 of leases outstanding with persons other
than Agway and its subsidiaries, net of unearned interest and finance charges
of approximately $110,300.
An agreement exists between AHI and Telmark whereby AHI agrees to
advance funds to Telmark, such that Telmark's debt-to-equity ratio is limited
to be no greater than 5 to 1. Any funds advanced by AHI are regarded as
subordinated debt. This agreement is in effect for a one-year period, renewed
annually, unless terminated by either 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 property and casualty company
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 10 eastern states from its facility in DeWitt,
New York. Lines of insurance sold include Farmowners, Homeowners,
Businessowners, Auto Liability, and Physical Damage and General Liability.
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
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 continued to execute their plans for sale
into fiscal 1995 and on November 3, 1994 sold its interest in Curtice Burns as
described below. Due to the cessation of discussions with a management buyout
group on the sale of Hood in January 1995, the Company re-introduced Hood as a
continuing operation as of that time.
CURTICE BURNS FOODS, INC.
Curtice Burns accepted an offer from Pro-Fac Cooperative Inc. (Pro-Fac)
to acquire all outstanding shares of Curtice Burns for $19 per share in cash,
and entered into a definitive merger agreement with Pro-Fac. This agreement
closed on November 3, 1994, and at that time, the Company sold its interest in
Curtice Burns to Pro-Fac and received cash proceeds of $55,786 and recorded a
profit, net of income taxes of $19,700, of $4,430. See Note 17 to the
financial statements included in Item 8 for details on the effect of the sale
on Agway.
H. P. HOOD INC.
Agway had expected to consummate its sale of Hood by December 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 June 30, 1994, causing further delay, while Hood
management developed financial plans to deal with the marketplace change.
As of November 1994, the sale of Hood was anticipated to close shortly
in a sale to the Hood management-led buyout group, the terms of which had been
generally agreed to by Agway and the management buyout group in a
9
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
DISCONTINUED OPERATIONS (CONTINUED)
H. P. HOOD INC. (CONTINUED)
transaction which included a complex financing structure. A further delay
ensued. Based on changed business conditions and financial markets during this
prolonged negotiation, on January 24, 1995, Agway and the management buyout
group mutually concluded to cease the pursuit of this sale transaction.
At that time, while Agway was still actively interested in the sale of
Hood, Agway was not able to determine with reasonable certainty whether a sale
would occur within the next year. Accordingly, effective December 31, 1994,
Agway reclassified Hood from a discontinued operation to a continuing
operation for financial reporting purposes. Prior year results have been
restated to reflect Hood as a continuing operation.
COMPETITION
The Company, one of the largest farm 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, product selection and product
knowledge.
AGRICULTURE & CONSUMER
AGWAY AGRICULTURAL PRODUCTS: 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 market position held by Agway in
the feed business is significant, resulting from performance of its quality
products and an established 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 expert assistance to the farmer in making crop
management decisions.
AGRICULTURE & RELATED SERVICES: Retail competition varies by product
line and location and consists of larger yard and garden chains, smaller yard
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 PRODUCTS GROUP: Country Products competes with a large number of
firms of all sizes and types in most of its product categories. The principal
factors of competition in the produce 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, and flour, Country Products Group does not occupy a major position
in national markets. The bird food and pet food products are primarily
marketed to the Agway retail store and franchised representative system, other
cooperatives and research facilities, and compete based on product quality.
The seed, turf and fertilizer businesses compete on the basis of technical
expertise and product performance.
10
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
COMPETITION (CONTINUED)
ENERGY
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.
DAIRY
Dairy competes with a large number of firms of all sizes in most product
categories. The principal methods of competition in the dairy industry are
product quality, an efficient distribution system for a broad line of
products, concentration in selected markets and price. Dairy and other
products of Hood are marketed in highly competitive markets primarily in the
Northeast. Hood occupies a significant position in the New England dairy
product market. Profit margins from these product lines are generally narrow
and earnings depend upon maintenance of large sales volumes and efficiency of
operation and distribution.
FINANCIAL SERVICES
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.
HUMAN RESOURCES
Agway and its subsidiaries employ approximately 9,000 persons, 2,000 of
which are part-time and approximately 1,500 are employed by Hood. There are
approximately 320 employees represented by four different unions with ten
existing contracts. The Company enjoys satisfactory relations with both its
union and nonunion employees as a result of competitive wage, health, and
benefit programs.
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.
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 laws
administered by the Environmental Protection Agency (EPA) are the Toxic
Substances Control Act; the Federal Insecticide, Fungicide and Rodenticide
Act; the Resource Conservation and
11
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
REGULATION (CONTINUED)
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 $4,000 in fiscal 1995 on capital projects. The Company
estimates that during fiscal 1996 and 1997 approximately $4,000 per year will
be spent on additional capital projects for environmental protection. These
estimates recognize the additional capital required to comply with EPA
Underground Storage Tank (UST) Regulations which become effective in December
1998. Presently, the total cost to comply with the EPA UST Regulations is
estimated to be approximately $5,000. The total capital requirements may
change due to the actual number of USTs actively in use on the effective date.
ADMINISTRATIVE
The Company's principal administrative office is located at 333
Butternut Drive in DeWitt, New York. It occupies approximately 190,000 square
feet under terms of a lease with 12 remaining years. In addition, under a
5-year renewable lease, the Company's Agriculture & Consumer business occupies
approximately 100,000 square feet of administrative office space located at
301 Plainfield Road, Syracuse, New York. Agway Insurance Company occupies
approximately 60,000 square feet of administrative office space located at
5794 Widewaters Parkway, DeWitt, New York.
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 86,400 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 by
members of Agway, the Agway Inc. Employees' Thrift Investment Plan and the
general public. The Honorary Member Preferred Stock, Series HM ($25 par
value), is
12
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
STOCKHOLDER MEMBERSHIP AND CONTROL OF AGWAY (CONTINUED)
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.
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.
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 currently numbers 18 persons, all of whom are
nominated on a district representation basis by 95 Agway Geographic Member
Committees. Each year, directors are nominated on a district representation
basis by Agway Geographic Member Committees representing members within the
district. A plan was adopted by the Board of Directors in 1994 to reduce the
number of Director Districts from 18 to 15 over the period 1994 through 1997.
The first phase of this plan will start following the Annual Meeting in 1995
when the number of Districts will be reduced to 17. At each annual meeting of
the corporation, the stockholders elect five or 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 Geographic
Member Committees, the persons so nominated are elected by the vote of all
members.
The Agway Council consists of the chairperson of each Agway Geographic
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.
13
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
PATRONAGE REFUNDS
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. (The term "purchasing,"
as referred to herein refers to the buying of Agway farm supplies by Agway
members and contract patrons.) Each member and contract patron shares the
total patronage refunds in the proportion in which his/her purchases of farm
supplies transacted for the year directly with the Company as well as through
Agway representatives 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
less than 1% of the Company's annual sales volume.
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.
14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
(THOUSANDS OF DOLLARS)
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 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 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
(APC), Speedsville Volunteer Fire Department, and other defendants alleging
they are strictly and jointly and severally liable for $158 in cleanup and
removal costs incurred by the New York Environmental Protection and Spill
Compensation Fund and $200 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 APC and Speedsville Volunteer
Fire Department. Because APC believes that at no time did it own the gasoline
storage system and its gasoline did not contribute to the contamination, APC
denies NYS's allegations and believes the relief sought by NYS against APC is
unjustified. Therefore, APC intends to contest the allegations in the lawsuit
and believes adjustments, if any, will not be material in relation to the
consolidated financial position of Agway.
In November 1991, APC notified the EPA that APC had recently discovered
that certain forms that APC's facilities are required to file under the
Emergency Planning and Community Rights-To-Know Act (EPCRA) may not have been
filed on time. In August 1994, the EPA filed an Administrative Complaint
against APC for violations of EPCRA alleging penalties. A settlement of this
matter has been negotiated in which APC and EPA executed a consent agreement
under which APC will pay the EPA $100 in cash and agree to undertake certain
environmentally beneficial expenditures with a value of $500.
On May 29, 1992, the Commissioner of Environmental Protection of the
State of Connecticut (CDEP) commenced a civil action against Hood alleging
violations of state statutes and regulations relating to pollution of the
waters of the state in connection with Hood's Suffield, Connecticut, facility.
In connection with these allegations, the CDEP has made a demand of $2,400.
Settlement of this matter is being negotiated in which Hood and the CDEP will
agree to a stipulated Judgment under which Hood will pay CDEP $325 and agree
to construct on-site wastewater pretreatment facilities and conduct a study of
the Suffield facility's level of fat, oil and grease discharge. Hood believes
that this matter will be satisfactorily resolved and any adjustments will not
be material in relation to the consolidated financial position of Agway.
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS - CONTINUED
(THOUSANDS OF DOLLARS)
In August 1994, the EPA notified Motor Transportation Services, Inc.
(MTS), an inactive wholly owned subsidiary of AHI, that the EPA has reason to
believe that MTS is a potentially responsible party (PRP) under the federal
CERCLA at the Rosen Site, Cortland, New York. The EPA requested that MTS and
other PRPs participate in the ongoing Remedial Investigation/Feasibility Study
(RI/FS) for the Rosen Site. MTS believes that its involvement at the Rosen
Site, if any, is minimal and responded appropriately to the EPA's request. In
a related matter, other PRPs at the Rosen Site, Cooper Industries, Inc., et
al., filed a complaint under CERCLA against the Company, MTS and other alleged
PRPs at the Rosen Site in the U. S. District Court, Northern District of New
York in June 1992 seeking reimbursement for the cost of the ongoing RI/FS. The
Company and MTS believe the relief sought by Cooper Industries, Inc., et al.
is unjustified and are contesting the allegations in the lawsuit. Adjustments,
if any, will not be material in relation to the consolidated financial
position of Agway.
In December 1985, it was asserted by the Massachusetts Department of
Environmental Protection (MDEP) that certain real property located in West
Concord, Massachusetts previously owned by Agway is contaminated and that
Agway and the current owner of the property are responsible for the cost of
investigating and cleaning up environmental contamination at the property. In
September 1993, Agway entered into an Administrative Consent Order with the
MDEP pursuant to which Agway performed a phase II comprehensive site
assessment. In March 1995, Agway and the current owner entered into a
settlement agreement whereby Agway agreed, at Agway's expense, to complete any
additional assessment, containment, removal or remediation actions at the
property. The current owner agreed to cooperate with Agway in achieving a
permanent solution satisfactory to the MDEP and in compliance with the MDEP's
requirements. Agway is preparing a risk assessment scope of work in
cooperation with the MDEP. The Company currently has accrued its best estimate
relative to the cost of any additional assessment, containment, removal or
remediation actions regarding the property. However, it is reasonably possible
that the results of ongoing and/or future environmental studies or other
factors could alter this estimate and require the recording of additional
liabilities. The extent or amount of such events cannot be estimated at this
time. However, Agway believes that its past experience provides a reasonable
basis for its estimates recorded for this matter.
In August 1995, the EPA notified Agway that the EPA has reason to
believe that Agway is a PRP under CERCLA at the Tri-Cities Barrel Site, Port
Crane, New York. The EPA requested that Agway and other PRPs participate in
the ongoing RI/FS for the Tri-Cities Barrel Site. Agway believes that its
involvement at the Tri-Cities Barrel Site is minimal, and Agway is in the
process of gathering information concerning the cost of participating in the
ongoing RI/FS and any subsequent remedial work prior to responding to the
EPA's request.
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, 1995.
16
<PAGE>
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 15, 1995, is 108,496, of which 22,286 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 1995 and fiscal 1994.
(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 consolidated financial statements audited
by Coopers & Lybrand L.L.P., whose reports for the periods ended June 30,
1995, 1994 and 1993 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,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales and revenues (1) ................ $ 2,082,861 $ 2,187,193 $ 2,278,829 $ 2,390,652 $ 2,577,706
=========== =========== =========== =========== ===========
Margin (loss) from
continuing operations (1 and 2) ........... $ (22,962) $ (5,682) $ 24,218 $ (59,188) $ (6,049)
=========== =========== =========== =========== ===========
Net margin (loss) (3) ..................... $ (15,908) $ (3,304) $ 19,750 $ (58,813) $ (6,420)
=========== =========== =========== =========== ===========
Total assets (1) .......................... $ 1,354,091 $ 1,400,314 $ 1,352,064 $ 1,372,992 $ 1,385,681
=========== =========== =========== =========== ===========
Total long-term debt (1) .................. $ 301,190 $ 291,587 $ 261,690 $ 278,314 $ 284,258
=========== =========== =========== =========== ===========
Total long-term subordinated
debt (1) .............................. $ 406,258 $ 414,306 $ 386,303 $ 389,551 $ 327,650
=========== =========== =========== =========== ===========
Preferred stock ........................... $ 65,635 $ 71,338 $ 53,474 $ 64,522 $ 64,384
=========== =========== =========== =========== ===========
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, 1991-1994 have
been reclassified to conform to current year presentation of Hood being
re-introduced as a continuing operation.
(2) 1995 and 1994 data reflects the adoption of Statement of Financial
Accounting Standards No. 106, "Accounting for Postretirement Benefits
Other Than Pensions." See Note 13 to the financial statements included in
Item 8.
(3) 1992 data reflects a $75,000 charge before taxes for business
restructuring; 1994 data reflects a $6,065 credit before taxes from
business restructuring; 1995 data reflects a $16,724 loss before taxes on
investment value and divestiture expenses related to Hood, an after-tax
gain on the sale of Curtice Burns of $4,430 and a credit before taxes from
business restructuring of $3,248. See Note 3 and 17 to the financial
statements included in Item 8.
17
<PAGE>
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"
(Item 6) and the Financial Statements of the Company and Notes thereto (Item
8), specifically "Segment Reporting" (Note 14) and "Discontinued Operations"
(Note 17). 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, 1993 through
June 30, 1995.
FINANCIAL OVERVIEW
The Company's consolidated net loss of $15,900 for fiscal 1995 compares
to a $3,300 net loss in 1994 and $19,750 in net margin in 1993. Loss from
continuing operations before income taxes totaled $26,700 in 1995 compared to
a $4,600 loss in 1994 and income of $10,300 in 1993. There are three principal
reasons for the increased pre-tax loss from continuing operations in 1995.
First, in keeping with Agway's intent to divest of its 99.9% investment in H.
P. Hood Inc. (Hood), the Company recognized a cost of $16,700 in pre-tax loss
in value in its investment in Hood and expenses incurred in efforts to sell
Hood that were previously deferred but are currently recognized as the result
of no longer classifying Hood as a discontinued operation. Second was an
$11,600 decrease in operating profit (without regard to the effects of
restructuring of $14,800) from Energy due primarily to climate conditions.
1995 was the third warmest winter on record, according to a weekly publication
of an investment broker, which was approximately 11% warmer than historical
average degree days for the winter months compared to 1994 which was 9% colder
as compared to historical average degree days. Third, the Company incurred
$7,600 in severance costs in 1995, $1,300 of which had to do with
restructuring operations at Hood and $6,300 of which was a result of further
reorganization of the Company through a process of decentralization. The
decentralization is intended to improve future operations through reduced
costs and further emphasis on customer service through local decision-making.
These principal causes of increased loss were offset to an extent by improved
operating results in Agriculture & Consumer of $10,300 after giving
consideration to $3,600 of severance incurred by this segment and by a $5,700
gain from curtailment of the Hood defined benefit pension plan. The increased
loss from continuing operations was reduced by a $4,430 after-tax gain on the
sale of Agway's investment in Curtice Burns Foods, Inc. (Curtice Burns)
consummated in November 1994 and a $2,600 after-tax income adjustment required
when reclassifying Hood to continuing operations. See "Discontinued
Operations."
Consolidated net sales decreased in 1995 to $2,082,900 from $2,187,200
in 1994 and $2,278,800 in 1993. This represents an 8.6% decrease in net sales
and revenues since 1993. This was primarily due to $127,300 of reduced Energy
sales from planned divestitures of retail locations under the Company's
restructuring efforts, an effort to reduce gas and diesel sales to low-margin,
high-volume commercial accounts and heating oil volume decreases from the
warmer than normal winter in fiscal 1995 noted above.
Consolidated operating costs of $2,069,000 decreased $94,800 (4.4%) in
1995 compared to 1994 and decreased $165,500 (7.4%) since 1993. Operating
costs, before the effects of restructuring, as a percentage of total net sales
and revenues were 99.5%, 99.2% and 98.1% as of 1995, 1994 and 1993,
respectively. Product and plant operation costs were approximately 88.2% of
total net sales and revenues in 1995, a reduction from 88.9% in 1994 and 88.7%
in 1993. This improvement was offset by higher selling, general and
administrative (SG&A) activities over the same period. Total SG&A costs as a
percent of total net sales and revenues were 9.6% in 1995 compared to 8.9% in
1994 and 7.9% in 1993.
Interest expense, net of interest income, has remained relatively
constant over the three-year period at approximately 1.6% of total operating
costs and expenses.
Other income has increased each year from 1993 to 1995 and has been
mainly due to improved results on the sale of properties and equipment,
increased patronage refunds received and, in 1995, also as the result of a
Hood pension curtailment gain. (See Note 15 to the financial statements in
Item 8.)
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
FINANCIAL OVERVIEW (CONTINUED)
Income taxes have been affected by a number of items over the past three
years which is reflected in the effective tax rates of (14.1%), 24.7% and
(134.2%) for the fiscal years ending June 30, 1995, 1994 and 1993,
respectively. In 1993, the tax benefit resulted from reversals of both prior
year tax accruals and a deferred tax asset valuation allowance and as a result
of Hood being re-introduced to continuing operations. In 1994, the tax expense
resulted from the requirement to pay state income taxes on profitable
corporate operations and from the change in the valuation allowance. The
statutory rate was beneficially impacted in 1995 by the current recognition of
an anticipated tax benefit with respect to the future sale of Hood and
adversely impacted by state income taxes (see Note 8 to the financial
statements in Item 8).
Since late in fiscal 1992, the Company has been implementing its major
restructuring effort, Customer Driven: 1995 (the "Project"), that was
anticipated to be completed over a three-year period. The Project was
comprehensive and management believed its study and the resulting conceptual
design made it possible to reasonably estimate the total cost of the Project.
An accrual of $75,000 was estimated and accrued at that time, but it was
anticipated that changes in the plan and reserve would occur during
implementation. Costs of $65,900 were initially estimated to implement the
plan. These included $23,400 for personnel reductions, $25,800 in connection
with the planned disposition of assets and $16,700 of other costs anticipated
in connection with the implementation of the plan. The estimate also included
the disposal or sale of assets with a net book value of approximately $108,900
with estimated proceeds of approximately $99,800.
At June 30, 1994, based on the work accomplished in the first two years
of the Project and an assessment of the work remaining to be accomplished, it
was determined that of the $75,000 net reserve initially provided for the
Project, only $68,900 would be required and $6,100 was released to operating
earnings. This net impact affected the segment results for 1994 as follows
(expense)income: Agriculture & Consumer, $4,700; Energy, $13,500; and
Corporate, $(12,100). As the initiatives were completed and drew toward
closure in fiscal 1995, an additional $3,200 was released to operating income
to adjust for anticipated future costs avoided due to insufficient benefits.
The net impact on the segments for 1995 was as follows (expense)income:
Agriculture & Consumer, $2,400; Energy, $(1,300); and Corporate, $2,100. As of
June 30, 1995, the unexpended reserves remaining in the restructuring
initiatives totaled $6,200. Expected future cash requirements to complete
these initiatives approximate $5,200. See Note 3 to the financial statements
in Item 8 for a detail breakout of the Company's restructuring efforts.
During fiscal 1995, in an initiative separate from the Project, the
Company analyzed its corporate general and administrative costs to determine
where costs could be eliminated in the future, what functions could be more
efficiently and cost effectively performed by the different business units and
where certain fixed costs could be converted to variable. As a result, a
number of functions performed at the corporate level were eliminated or
transferred to operating units. Concurrent with this process, the Company's
Agriculture & Consumer units were realigning themselves to be closer to
Agway's farm customers and to provide even higher levels of customer service.
Newly appointed executive officers in these units significantly reduced
operating costs while implementing the new business structure discussed. This
process, as was noted previously, generated approximately $6,300 in severance
costs being recognized in 1995, of which $3,600 was incurred in Agriculture &
Consumer, $600 in Energy and $2,100 in Corporate.
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 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 continued to execute their plans for sale into fiscal 1995 and
on November 3, 1994 sold its interest in Curtice Burns as described below. Due
to the cessation of discussions with a management buyout group on the sale of
Hood in January 1995, the Company re-introduced Hood as a continuing operation
at that time.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
FINANCIAL OVERVIEW (CONTINUED)
DISCONTINUED OPERATIONS (CONTINUED)
CURTICE BURNS FOODS, INC.
Curtice Burns accepted an offer from Pro-Fac Cooperative Inc. (Pro-Fac)
to acquire all outstanding shares of Curtice Burns for $19 per share in cash,
and entered into a definitive merger agreement with Pro-Fac. This agreement
closed on November 3, 1994, and at that time, the Company sold its interest in
Curtice Burns to Pro-Fac and received cash proceeds of $55,786 and recorded a
profit, net of income taxes of $19,700, of $4,430. See Note 17 to the
financial statements included in Item 8 for details on the effect of the sale.
H. P. HOOD INC.
Agway had expected to consummate its sale of Hood by December 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 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 June 30, 1994, causing further delay, while Hood management developed
financial plans to deal with the marketplace change.
As of November 1994, the sale of Hood was anticipated to close shortly
in a sale to the Hood management-led buyout group, the terms of which had been
generally agreed to by Agway and the management buyout group in a transaction
which included a complex financing structure. A further delay ensued. Based on
changed business conditions and financial markets during this prolonged
negotiation, on January 24, 1995, Agway and the management buyout group
mutually concluded to cease the pursuit of this sale transaction.
At that time, while Agway was still actively interested in the sale of
Hood, Agway was no longer able to estimate with reasonable certainty whether a
sale would occur within the next year. Accordingly, effective December 31,
1994, Agway reclassified Hood from a discontinued operation to a continuing
operation for financial reporting purposes. Prior year results have been
restated to reflect Hood as a continuing operation.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
CONSOLIDATED RESULTS
Consolidated net sales and revenues of $2,082,900 decreased $104,300
(4.8%) in fiscal 1995 compared to 1994. The decrease was due to declines in
Agriculture & Consumer, Energy and Dairy. The Agriculture & Consumer decline
of $55,300 (5.2%) was attributed to a softer demand for feed products as corn
and soybean harvests were strong and plentiful which substantially reduced the
tons of feed sold during fiscal 1995. Additionally, the mild winter conditions
in 1995 negatively impacted the retail and wholesale bird food, small animal
food and bagged feed sales. The Energy decrease of $45,300 (8.1%) was
primarily due to 1995 being the third warmest winter on record which
negatively impacted the volume of heating oil sales. Dairy experienced a
$10,400 (2.1%) decrease in net sales and revenues primarily in its dairy
division due to the loss of private label volume. This decline was partially
offset by improvements to its manufactured products group (MPG) sales from
continued growth of the group's extended shelf-life business.
Consolidated operating costs and expenses were $2,069,000 in 1995 as
compared to $2,163,800 in 1994. The $94,800 (4.4%) decrease was the result of
a decrease in product and plant operation costs of $107,700 and was offset by
increases in selling, general and administrative costs of $5,300, leasing
operating costs of $4,400 and a $2,800 decrease in restructuring credits in
1995. The decrease in product and plant costs was a result of the various
location divestitures in the Agriculture & Consumer and Energy businesses that
occurred as a part of the Company's restructuring efforts over the past three
years. The increase in selling, general and administrative costs was mainly
the result of additional costs from severance and increased bad debt expense.
Total operating costs, before restructuring credits, as a percent of total net
sales and revenues were 99.5% and 99.2% in fiscal 1995 and 1994, respectively.
Interest expense, net of interest income, totaled $36,200 in 1995 as
compared to $33,600 in 1994, representing a $2,600 (7.7%) increase. The
increase was attributable to higher interest rates on slightly higher average
balances of debt.
Other income in fiscal 1995 totaled $12,300 as compared to other income
of $5,600 in 1994. The increase of $6,700 in 1995 was mainly the result of
larger patronage refunds received and a Hood pension curtailment gain.
As previously discussed, in keeping with Agway's interest to divest of
its 99.9% interest in Hood, the Company recognized a cost of $16,700 in
pre-tax loss in value in its investment in Hood and expenses incurred in its
efforts to sell Hood from March 23, 1993 to June 30, 1995. These costs include
a $15,884 loss before taxes for transaction costs incurred in connection with
past sales efforts and an impairment allowance with respect to the ultimate
sale of its investment in Hood.
Pre-tax margin (loss) from continuing operations was $(26,700) in 1995
compared to $(4,600) in 1994. As described earlier and in more detail in
subsequent segment discussion, the increased loss was primarily a result of
the above costs related to Hood, the negative impact in the Energy segment
from the mild winter conditions and severance incurred from the Company's
decentralization. These were offset by improved operational results in
Agriculture & Consumer and the Hood pension plan curtailment gain.
Income tax expense (benefit) was $(3,800) and $1,100 in fiscal 1995 and
1994, respectively, for an effective rate of (14.1%) and 24.7%. The statutory
rate was beneficially impacted in 1995 and 1994 by the current recognition of
an anticipated tax benefit with respect to the future sale of Hood and was
adversely impacted by state income taxes as the Company is unable to recognize
the benefit of operating losses from certain subsidiaries to offset state tax
on income from other operations.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
RESULTS OF OPERATIONS (CONTINUED)
AGRICULTURE & CONSUMER
Total sales and revenues of $1,015,800 in 1995 represented a decline of
$55,300 (5.2%) from 1994. The Agway Agricultural Products (AAP) component
experienced a $14,400 (2.8%) decrease that was substantially due to softer
demand for feed products as corn and soybean harvests were strong and
plentiful. The crops sales were relatively level compared to 1994. Agriculture
& Related Services (ARS) sales and revenues dropped $36,300 (11.9%) compared
to 1994. The retail decrease was due to the warm winter with less than average
snowfall negatively impacting seasonal items such as bird food, small animal
food and bagged feed sales. The retail product sales decrease was partially
offset by an increase in wholesale sales. Wholesale volume increases were the
result of higher power equipment, nursery and soil conditioner volumes to
franchised dealers in 1995. Country Products Group (CPG) sales declined $4,600
(1.8%) compared to 1994. The majority of the decline occurred in commodity
processing, produce repack and tablestock and seed potatoes and was offset by
improvements in field and garden seed operations and turf operations.
Commodity product declines were in sunflower. The warm winter reduced the
demand for sunflower bird food unit volume by 17.5% which was partially offset
by 11.8% unit volume increases in human edible sunflower seeds. The produce
and Maine operations declines resulted from a net loss of volume, as well as a
poor quality of crop in Maine due to a blight that affected the harvest.
The Agriculture & Consumer operating results improved in 1995 by $4,400
(62%) due to a loss of $2,700 as compared to a loss of $7,100 in 1994. A 1995
operating result improvement of $10,300 was offset by $3,600 of severance
incurred to effect the reorganization initiated and implemented in 1995 and a
$2,300 lower credit from restructuring ($2,400 in 1995 compared to $4,700 in
1994). All three components of Agriculture & Consumer successfully reduced
expenses from limiting overtime worked, reducing selling and advertising costs
and through the elimination of positions.
ENERGY
Total net sales and revenues for fiscal 1995 of $510,800 decreased
$45,200 (8.1%) as compared to fiscal 1994, primarily due to lower heating oil
volume from 1995 being the third warmest winter on record. Heating oil sales
decreased $38,300 due to a volume decrease of 35.7 million gallons (15.0%) in
1995 as compared to 1994. Power fuels sales (gasoline and diesel fuel)
decreased $6,800 or 11.3 million gallons (4.4%) and is a direct result of
underground tank removal necessitated by federal regulations. In total, sales
unit volume was down 49.1 million gallons (8.3%). This equates to a $42,100
(7.1%) sales decline due to volume. The average price per unit was down .7
cents per gallon (.8%), which decreased revenues by approximately $3,100 in
1995.
Due to the unit volume and selling price declines in 1995, Energy
realized a decline in operating margins of $11,600 as compared to the previous
fiscal year. Operating margins in 1995 were an additional $14,800 lower than
1994 due to a restructuring charge of $1,300 in 1995 compared to a
restructuring credit of $13,500 in 1994. Operating margins, after
restructuring, as a percentage of net sales and revenues decreased to 2.9% in
fiscal 1995 as compared to 4.7% in the prior fiscal year as the result of
the above declines.
DAIRY
Dairy consists of Hood, of which 99.9% is owned by AHI.
Hood net sales and revenues declined $10,400 (2.1%) to $483,600 in 1995.
The dairy and ice cream operations experienced decreases of $25,200 (8.4%) and
$1,100 (1.5%) in net sales and revenues, while manufactured products group
(MPG) had an increase of $15,900 (13.5%) compared to 1994. The dairy division
operations decrease was the result of volume reductions of private-label
products and the sale of the Mid-Hudson business in February 1995. The ice
cream decrease was also volume-related. MPG experienced continued growth in
its lactaid and license business which was reflected in increased volume in
1995.
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
RESULTS OF OPERATIONS (CONTINUED)
DAIRY (CONTINUED)
Net operating results of a $1,400 loss in 1995 showed improvement from a
$3,400 loss in 1994. The 1995 gross margin as a percent of net sales improved
slightly from 20.7% in 1994 to 21.4% in 1995. Operating expenses as a percent
of net sales were consistent between 1995 and 1994 at 19.7% and 19.3%,
respectively. The improvement in net operating results substantially came from
increased gross margin of $1,600 and a gain of $2,100 in February 1995 when
the dairy division sold its Mid-Hudson business to Crowley Foods. These
improvements were offset by a May 1995 decision to move the fluid milk
operation from Boston to Agawam. As a result, costs of $1,700 were incurred
which included $1,300 for severance related to the reduction in work force and
$400 for the write-down of certain fixed assets.
FINANCIAL SERVICES
Financial Services 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 sales and revenues for fiscal 1995 totaled $71,500 and is made up
of $41,900 at Telmark and $29,600 at the insurance operations. These results
reflect a $6,800 (19.4%) increase in Telmark revenues offset by a $1,100
(3.6%) decrease in revenues from the insurance operations in 1995 as compared
to the prior year. Telmark's increase is the result of a 20% increase in its
net lease revenues primarily from expanding its territory, thus generating the
additional revenues. The insurance operations overall had a stable operating
performance and the slight decline in revenue was not inconsistent with prior
year variations.
Operating profit for Financial Services was $10,500 for both 1995 and
1994. Telmark experienced an $800 increase which was fully offset by a decline
in the insurance operating profit.
CORPORATE
The Corporate operating loss of $10,300 in 1995 improved over a 1994
loss of $10,900. The $600 improvement resulted from lower miscellaneous net
expenses. However, during 1995, many large offsetting items did occur. In
1995, Corporate reported $2,200 of restructuring credits compared to a $13,000
expense in 1994 and Hood curtailed its defined benefit plan which resulted in
a $5,700 gain. The $20,900 improvement from these two items was fully offset
by Hood loss on investment value and divestiture expenses in 1995 of $16,700,
approximately $2,100 of deferred costs written off due to certain planned
technological improvements in the Company's restructuring efforts being
terminated and $2,100 of severance incurred in connection with 1995
decentralization initiatives.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
RESULTS OF OPERATIONS
1994 COMPARED WITH 1993
CONSOLIDATED RESULTS
Consolidated net sales and revenues of $2,187,200 decreased $91,600
(4.0%) in fiscal 1994 compared to 1993. The decrease in fiscal 1994 was
principally due to decreased revenues in Energy and Dairy offset, in part, by
increases in Agriculture & Consumer. Energy revenue decreases in 1994 of
$82,100 were primarily associated with divestitures of retail locations and
gas and diesel sales to low-margin, high-volume commercial customers. The
$60,800 sales increase in fiscal 1994 from Agriculture & Consumer primarily
reflects $46,900 from the full-year operation of the store corporations under
ARS, 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 were $2,163,800
as compared to $2,234,500 in 1993, representing a decrease over the prior year
of $70,700 (3.2%). Operating costs and expenses were favorably impacted by a
restructuring credit of $6,100 in fiscal 1994. Total operating costs, before
restructuring credit, as a percent of total net sales and revenues were 99.2%
and 98.1%, respectively, in fiscal 1994 and 1993. In fiscal 1994, selling,
general and administrative costs increased by $14,600 (8.1%) to $194,600 as
Agriculture & Consumer 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 operations.
Interest expense, net of interest income, in fiscal 1994 and 1993 was
$33,600 and $35,700, respectively, representing a $2,100 (5.9%) decrease. The
decrease was the result of increased average borrowings being more than fully
offset by lower interest rates in fiscal 1994 compared to 1993.
Other income in fiscal 1994 was $5,600 as compared to $1,800 in 1993. In
fiscal 1993, other income was adversely impacted by a loss on disposal of
property and equipment of $4,200 and settlement costs associated with a former
subsidiary.
Pre-tax (loss) margin from continuing operations was $(4,600) and
$10,300 in fiscal 1994 and 1993, respectively. The decrease in pre-tax margins
in fiscal 1994 resulted primarily from increased operating losses incurred by
Agriculture & Consumer offset, in part, by improved operating results from
Energy as further explained in the following segment discussions.
Income tax expense (benefit) was $1,100 and $(13,900) in fiscal 1994 and
1993, respectively, for an effective rate of 24.7% and (134.2%). The effective
rate was beneficially impacted each year by the current recognition of an
anticipated tax benefit with respect to the future sale of Hood. In fiscal
1994 and 1993, the effective rate was adversely impacted by state income taxes
as 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 net reversal of a $6,000 deferred
tax asset valuation allowance established in 1992.
AGRICULTURE & CONSUMER
Total net sales and revenues for Agriculture & Consumer were $1,070,800
and $1,010,200 for fiscal years 1994 and 1993, respectively. Net sales and
revenues increased $60,600 (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 CPG business unit. Total net
sales and revenues for AAP remained relatively constant with the prior year.
Gross margins for AAP declined slightly in fiscal 1994 due to competitive
market conditions in the northeast service area.
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
RESULTS OF OPERATIONS (CONTINUED)
AGRICULTURE & CONSUMER (CONTINUED)
Agriculture & Consumer 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 $13,300 in fiscal 1993. 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 increased
the costs of operations during the course of implementation.
As part of the Company's overall restructuring efforts previously
discussed, restructuring initiatives for Agriculture & Consumer during fiscal
1994 and 1993 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 for ARS. In addition to
completing the New York transition, the fiscal 1994 initiatives for the
segment 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, consolidating, or converting facilities to focus assets and capital
in selected markets and eliminate duplication; and sales enhancement through
customer service and quality reviews.
ENERGY
In fiscal 1993, divestitures of 19 locations were completed, and during
fiscal 1994, divestitures of four retail locations were completed by Energy as
part of the Company's restructuring 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 continued to decrease sales volume but had a
favorable impact on per unit gross margins realized.
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 unit volume was down 29,800 gallons (4.8%) primarily for
gas and diesel fuels, after accounting for divestitures. The average price per
unit was down 5.5 cents per gallon (7.9%) in 1994 compared to 1993, which
decreased revenues including heating oil and propane sales by approximately
$41,400.
Despite the unit volume and selling price declines, Energy realized an
improvement in operating margins of $17,100 ($3,600, excluding a restructuring
credit of $13,500) in the 1994 fiscal year as compared to the previous fiscal
year. Operating margins as a percentage of net sales and revenues increased by
3.6% in fiscal 1994 as compared to the prior fiscal year, and total costs and
expenses for Energy declined in fiscal 1994 as a result of the above changes.
DAIRY
Total sales and revenues of $493,900 decreased $66,400 (11.8%) during
1994 as compared to 1993. The dairy division operations declined 8.1% while
manufactured products group (MPG) and ice cream had increases of 13.5% and
2.2%, respectively. The dairy sales decline resulted from the sale of the
Central New York business in January 1993 and the sale of Hood's cheese
manufacturing operations. The MPG increase was the result of several new
branded products while the ice cream increase was from the introduction of new
Hood products.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
RESULTS OF OPERATIONS (CONTINUED)
DAIRY (CONTINUED)
Net operating results of a $3,400 loss in 1994 deteriorated from a
$2,900 margin in 1993. The 1994 gross margin and operating expenses as a
percent of net sales were consistent with 1993 at 20.7% and 19.3% versus 21.8%
and 18.8%, respectively. The $6,300 decline in operating results was primarily
due to product costs increasing at a faster rate than sales ($9,900, or 3.1%,
compared to $4,500, or .9%, for sales).
FINANCIAL SERVICES
Total net sales and revenues for fiscal 1994 decreased $4,300 (6.2%) to
$65,800 as compared to fiscal 1993. 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.
In fiscal 1994, operating margins for Financial Services declined $500
(4.9%) as compared to fiscal 1993. 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.
CORPORATE
The net loss from Corporate was $10,800 and $3,900 in 1994 and 1993,
respectively. The most significant factors affecting these results were a
$13,000 restructuring expense in 1994 with no such charge in 1993 offset by a
$3,800 increase in consolidated other income in 1994.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Cash generated from operations and external borrowings continues to be
the Company's major source of funds to finance capital improvements and
shareholder dividends.
Cash provided from operating activities totaled $45,700 in 1995, $25,700
in 1994 and $48,700 in 1993. The increase in cash provided in 1995 was due
primarily to decreases in receivables and inventory. The decrease in cash
provided between 1993 and 1994 was primarily the result of a decline in net
margin from continuing operations and increases in accounts payable.
Investing activities have used cash of $41,800 in 1995, $85,700 in 1994
and $15,000 in 1993. Capital expenditures totaled $42,100, $40,600 and
$34,700, respectively, for the same three-year period. In existing agreements
with its lenders, 1996 capital expenditures are limited to annual depreciation
amounts and will reflect routine capital and technology improvements. The
Company anticipates it will have adequate flexibility to meet its capital
expenditure requirements.
Proceeds from the disposal of businesses and property, plant and
equipment have declined $30,300 over the past three years and reflect the
wind-down of the Company's restructuring efforts, which included divestitures
of certain operating assets. Telmark has continued to grow its portfolio as
leases originated, net of lease repayments
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
CASH FLOWS (CONTINUED)
and leases sold, have increased $121,200 since 1993 and have represented cash
used in investing activities. In 1995, the Company sold its interest in
Curtice Burns which generated $55,800 in cash proceeds and was used to pay
down debt.
At June 30, 1994, the Company had anticipated spending $22,000 over two
years to design and implement new processes and information systems. During
1995, it was determined that the expected benefit associated with this
spending would be less than anticipated. As a result, this program was
terminated.
DEBT
The Company finances its operations and the operations of all its
continuing businesses and subsidiaries, except Telmark, Agway Insurance
Company and Hood, through Agway Financial Corporation (AFC). Telmark, Agway
Insurance Company and Hood finance themselves through operations or direct
borrowing arrangements.
The Company uses cash from external sources obtained through revolving
credit lines, letters of credit and commercial paper programs to meet the
Company's short-term capital requirements. Sources of longer-term financing
include borrowings from banks and insurance companies as well as through
issuances of subordinated debentures and capital leases. In addition, Telmark
has occasionally sold blocks of its lease portfolio. Short-term borrowings,
including notes payable and current portions of long-term debt and
subordinated debt, totaled $178,000 in 1995 and $194,300 in 1994.
In fiscal 1995, AFC renegotiated and renewed certain of its bank loan
agreements through October 31, 1995. Adequate lines of credit of $122,000 were
available to the Company through AFC, Telmark and Hood as of June 30, 1995. In
addition, the Company retained a commercial paper facility of $60,000. The AFC
short-term lines of credit and $6,000 of AFC long-term debt are collateralized
by the Company's accounts receivable and non-petroleum inventories. Amounts
which can be drawn under the AFC short-term 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 and is
expected to continue to do so. In addition, the agreements include certain
covenants, the most restrictive of which requires to Company to maintain
specific monthly levels of tangible net worth and quarterly levels of interest
coverage. In September 1995, waivers were obtained effective as of June 30,
1995 and covering through August 1995, and amendments were obtained for
September and October 1995, for specific covenant violations within AFC's
ongoing short-term credit facilities. Negotiations of the renewal of AFC
short-term lines of credit are in process and are expected to continue through
October 1995. It is management's expectation that appropriate credit
facilities will be in place to meet the ongoing needs of the Company.
Additionally, the covenant violations do not have a material impact on Agway's
interest rates for new short-term or long-term debt. These credit facilities
continue to be available to the Company.
In October 1995, $31,200 of subordinated debt issued by AFC 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 does not anticipate the events noted in the
preceding paragraph will have an impact on these plans.
On October 31, 1994, Telmark's registration of its second offering to
the public of $30,000 of debentures, due March 31, 2000, 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.
27
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
DEBT (CONTINUED)
The offering of the debentures is not underwritten, and there can be no
guarantee as to the amount of debentures to be sold. This offer of debentures
is continuing and the proceeds of the offering will be used to provide
financing for Telmark's leasing activities. As of June 30, 1995, approximately
$3,500 of debentures were sold. Telmark's first registration of debentures due
December 31, 1997 was effective February 1, 1994 and approximately $4,700 of
that $25,000 offering were sold and are outstanding at June 30, 1995. No other
debentures will be sold pursuant to this offering. It is Telmark's expectation
that appropriate credit facilities will be in place to meet ongoing needs of
Telmark.
The Hood short-term credit facility is used to supply letters of credit
as well as short-term financing. Letters of credit of $16,300 were outstanding
at June 30, 1995. This facility was scheduled to expire on July 31, 1995. Hood
negotiated an extension of this facility until such time as it could be
restructured.
Effective August 7, 1995, Hood restructured its line of credit facility
with its bank. Per the amended agreement, the bank has made available to Hood
a $28,000 facility through March 31, 1996 with an increase to $33,000
commencing on April 1, 1996. Borrowings under the line of credit facility are
limited to the total of 80% of the receivables less than sixty days old plus
the balance of inventories (not to exceed $5,000) to the extent that such
equation does not exceed $28,000 and $33,000, respectively. Borrowings under
the line of credit facility are to be repaid on demand. All outstanding cash
advances are due on or before July 1, 1996. Letter of credit accommodations
may be comprised of up to $18,000 of the total facility and may be advanced
through June 30, 1996. Outstanding letter of credit accommodations as of June
30, 1996 are not renewable upon expiration. Hood's expectation is that
appropriate credit facilities will be in place to meet ongoing needs of Hood.
OTHER MATTERS
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement health care and life insurance
benefits, and Hood provides postretirement health care benefits, to eligible
retirees and their dependents. Eligibility for benefits depends upon age and
years of service.
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards (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 and Hood elected to
amortize the transition obligation of $40,800 and $4,600, respectively, over
20 years for both plans. As a result of the adoption of SFAS No. 106, pre-tax
income in fiscal 1994 was reduced by approximately $3,900. The change had no
impact on cash flow.
In October 1994, the Company elected to amend the existing Company
program for providing postretirement health care benefits (OPEB) effective
January 1, 1995. The plan amendment establishes a separate and distinct
insured medical program for retirees aged 65 or over, caps the Company's
contributions to retirees aged 65 or over and modifies coverage for active
employees and retirees under age 65.
These amendments have resulted in reduction to the Company's net
periodic expense and accumulated postretirement benefit obligation for the
year ended June 30, 1995 of $2,000 and $15,000, respectively.
28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
OTHER MATTERS (CONTINUED)
HOOD CURTAILMENT GAIN
The Hood pension plan (the "Plan") covers substantially all its
employees and provides defined benefits based on years of credited service,
average compensation (as defined) and social security benefits. The
administrative committee of Hood approved, effective December 31, 1994, to
freeze the benefit accruals under the Plan. As a result, Hood recognized a
curtailment gain of $5,677 as of December 31, 1994. This amount is included in
other income.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This statement requires the recognition of both
economic and permanent impairment losses on long-lived assets. The statement
is effective for fiscal years beginning after December 15, 1995 (the Company's
fiscal 1997). The adoption effect of this statement cannot be reasonably
estimated at this time.
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 $4,000 in fiscal 1995 on capital projects. The Company
estimates that during fiscal 1996 and 1997 approximately $4,000 per year will
be spent on additional capital projects for environmental protection. These
estimates recognize the additional capital required to comply with EPA
Underground Storage Tank (UST) regulations which become effective in December
1998. Presently, the total cost to comply with the EPA UST regulations is
estimated to be approximately $5,000. The total capital requirements may
change due to the actual number of USTs actively in use on the effective date.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES:
Agway Inc.'s Report on Financial Statements............................................................ 31
Report of Independent Accountants...................................................................... 32
Consolidated Balance Sheets, June 30, 1995 and 1994.................................................... 35
Consolidated Statements of Operations, for the fiscal years ended June 30, 1995, 1994 and 1993......... 36
Consolidated Statements of Changes in Shareholders' Equity, for the fiscal years ended June 30,
1995, 1994 and 1993............................................................................... 37
Consolidated Cash Flow Statements for the fiscal years ended June 30, 1995, 1994 and 1993.............. 38
Notes to Financial Statements.......................................................................... 39
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
This item is inapplicable.
30
<PAGE>
AGWAY INC.'S REPORT ON FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles by the Company. The
integrity and objectivity of the data in these financial statements, including
estimates and judgments, are the responsibility of Agway, as is all other
information included in this annual report.
The consolidated financial statements of Agway Inc. and Consolidated
Subsidiaries have been audited by Coopers & Lybrand L.L.P., independent
auditors, who relied on the opinions of Price Waterhouse, independent
auditors, as it relates to Curtice Burns Foods, Inc. and H. P. Hood Inc. Their
reports follow. Agway 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, Agway believes that all representations made
to Coopers & Lybrand L.L.P. during its audit were valid and appropriate.
Agway maintains a system of internal accounting controls intended to
provide reasonable assurance, given the inherent limitations of all internal
control systems, at appropriate costs, that transactions are executed in
accordance with Company authorization, are properly recorded and reported in
the financial statements, and that assets are adequately safeguarded.
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.
AGWAY INC.
BY DONALD P. CARDARELLI
President, CEO and
General Manager
September 15, 1995
BY PETER J. O'NEILL
Senior Vice President,
Treasurer and Controller
September 15, 1995
31
<PAGE>
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, 1995 and 1994, and the related
consolidated statements of operations, changes in shareholders' equity and
cash flows for the years ended June 30, 1995, 1994 and 1993. 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 did not audit the financial statements of H. P. Hood Inc. for
the years ended June 30, 1995, 1994 and 1993 nor did we audit the financial
statements of Curtice Burns Foods, Inc. for the years ended June 30, 1994 and
1993. Such statements of H. P. Hood Inc.(not presented separately herein)
reflect total assets amounting to $146,886,000 and $164,276,000 at June 30,
1995 and 1994, respectively, and total revenues amounting to $482,738,000,
$493,003,000 and $504,028,000 for the years ended June 30, 1995, 1994 and
1993, respectively. Such statements of Curtice Burns Foods, Inc. (not
presented separately herein) reflect total assets amounting to $446,938,000 at
June 30,1994 and total revenues amounting to $829,116,000 and $878,627,000 for
the years ended June 30, 1994 and 1993, 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 Curtice Burns Foods, Inc. as a discontinued
operation, 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 the
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the 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, 1995 and 1994 and the results of
their operations and their cash flows for the years ended June 30, 1995, 1994
and 1993 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 15, 1995
32
<PAGE>
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 deficit and of cash
flows present fairly, in all material respects, the financial position of H.
P. Hood Inc. and its subsidiaries (the "Company") at June 24, 1995 and June
25, 1994, and the results of their operations and their cash flows for each of
the three years in the period ended June 24, 1995, 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.
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 11, 1995
33
<PAGE>
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 two 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.
PRICE WATERHOUSE LLP
Rochester, New York
August 16, 1995
34
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ASSETS
1995 1994
------------ -------------
<S> <C> <C>
Current assets:
Trade accounts receivable (including notes receivable of
$33,661 and $31,051, respectively), less allowance for
doubtful accounts of $12,443 and $15,515, respectively........... $ 252,052 $ 272,791
Leases receivable, less unearned income of $41,523 and $33,209
respectively..................................................... 96,063 84,788
Uncollected insurance premiums........................................ 10,261 9,936
Advances and other receivables........................................ 22,969 26,447
Inventories........................................................... 177,996 197,788
Prepaid expenses...................................................... 73,890 86,013
------------ -------------
Total current assets............................................. 633,231 677,763
Marketable securities....................................................... 34,752 33,943
Other security investments.................................................. 41,304 38,913
Properties and equipment, net............................................... 311,313 318,359
Long-term leases receivable, less unearned income of $68,799 and
$51,775, respectively................................................. 236,522 191,653
Other assets................................................................ 96,969 91,259
Net assets of discontinued operations....................................... 48,424
------------ -------------
Total assets..................................................... $ 1,354,091 $ 1,400,314
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1994
------------ -------------
Current liabilities:
Notes payable......................................................... $ 83,133 $ 77,193
Current installments of long-term debt................................ 58,522 82,672
Subordinated debt, current............................................ 36,296 34,471
Accounts payable...................................................... 153,543 166,482
Unearned insurance premiums........................................... 17,023 16,868
Other current liabilities............................................. 141,234 145,180
------------ -------------
Total current liabilities........................................ 489,751 522,866
Long-term debt.............................................................. 242,668 208,915
Subordinated debt........................................................... 369,962 379,835
Other liabilities........................................................... 73,128 78,655
Commitments and contingencies...............................................
Interest of others in consolidated subsidiary............................... 6,217 6,217
Preferred stock............................................................. 89,075 89,071
Preferred stock held in treasury............................................ (23,440) (17,733)
Common stock ($25 par, 170,853 and 170,493 shs. issued; 109,119 and
110,854 shs. outstanding, respectively)............................... 4,272 4,262
Common stock held in treasury............................................... (1,544) (1,491)
Paid-in capital............................................................. 1,470 6,371
Retained margin............................................................. 102,532 123,346
------------ -------------
Total liabilities and shareholders' equity............................ $ 1,354,091 $ 1,400,314
============ =============
</TABLE>
The accompanying notes are an integral part of the
financial statements.
35
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Net sales and revenues from:
Product sales.................................. $ 2,015,812 $ 2,126,789 $ 2,214,890
Leasing operations............................. 40,426 33,539 33,808
Insurance operations........................... 26,623 26,865 30,131
------------ ------------ -------------
Total net sales and revenues.............. 2,082,861 2,187,193 2,278,829
------------ ------------ -------------
Cost and expenses from:
Products and plant operations.................. 1,837,326 1,945,074 2,020,735
Leasing operations............................. 17,675 13,259 13,258
Insurance operations........................... 17,321 16,881 20,488
Selling, general and administrative activities. 199,939 194,628 180,061
Restructuring credit........................... (3,248) (6,065)
------------ ------------ -------------
Total operating costs and expenses........ 2,069,013 2,163,777 2,234,542
------------ ------------ -------------
Operating margin..................................... 13,848 23,416 44,287
Interest expense, net of interest income
of $8,829, $8,945 and $8,192, respectively..... (36,169) (33,570) (35,736)
Other income, net.................................... 12,305 5,598 1,789
Loss on investment value and divestiture
expenses related to H. P. Hood Inc............ (16,724)
------------ ------------ -------------
(Loss) margin from continuing operations before
income taxes................................... (26,740) (4,556) 10,340
Income tax (benefit) expense......................... (3,778) 1,126 (13,878)
------------ ------------ -------------
(Loss) margin from continuing operations............. (22,962) (5,682) 24,218
Discontinued operations:
Income from operations, including tax expense
of $2,286 and after interest of others
of $2,767.................................... 534
Gain on disposal of Curtice Burns, net of tax
expense of $19,700........................... 4,430
Adjustment required for reclassification of
Hood to continuing operations, net of tax
(benefit) expense of $(8,231), $3,086
and $5,145, respectively................... 2,624 2,378 (5,002)
------------ ------------ -------------
Margin (loss) from discontinued
operations.............................. 7,054 2,378 (4,468)
------------ ------------ -------------
Net (loss) margin.................................... $ (15,908) $ (3,304) $ 19,750
============ ============ =============
</TABLE>
The accompanying notes are an integral part of the
financial statements.
36
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
(PAR VALUE $25) PAID-IN RETAINED
SHARES AMOUNT CAPITAL MARGIN TOTAL
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
Net loss.................................... (15,908) (15,908)
Dividends declared.......................... (4,785) (4,785)
Redeemed, net............................... (1,735) (43) (43)
Adjustment to unrealized gains (losses)
on available-for-sale securities,
net of tax................................ (121) (121)
Sale of stock of Curtice Burns.............. (4,901) (4,901)
------- --------- --------- --------- ---------
Balance June 30, 1995............................. 109,119 $ 2,728 $ 1,470 $ 102,532 $ 106,730
======= ========= ========= ========= =========
</TABLE>
Authorized shares of common stock is 300,000 shares.
Common shares, purchased at par value, held in treasury at June 30 were:
1995 - 61,734; 1994 - 59,639; 1993 - 58,260; 1992 - 56,768. A common stock
dividend per share of $1.50 was declared for fiscal 1995, 1994 and 1993.
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.
37
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Net (loss) margin................................. $ (15,908) $ (3,304) $ 19,750
Adjustments to reconcile margins to net cash:
Depreciation and amortization................. 47,629 48,710 51,905
Restructuring credit.......................... (3,248) (6,065)
Receivables and other asset provision......... 19,988 11,063 12,925
Gain on pension curtailment................... (5,677)
Pension adjustment............................ (9,060) (6,793) (6,253)
Deferred taxes including valuation allowance.. (8,443) (4,731) 5,508
Loss (gain) on sale of businesses and property,
plant and equipment...................... (597) (584) 4,189
Gain on sale of discontinued operations....... (4,430)
Changes in assets and liabilities net of
effects of businesses acquired:
Receivables.............................. 21,225 (19,355) (16,263)
Inventory................................ 19,793 3,489 11,086
Payables................................. (12,939) 31,259 (4,280)
Other.................................... (2,588) (27,953) (29,911)
------------ ------------ -------------
Net cash flows from operating activities............... 45,745 25,736 48,656
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment........ (42,162) (40,590) (34,651)
Cash paid for acquisitions........................ (5,044)
Proceeds from disposal of businesses and
property, plant and equipment................. 10,732 13,283 41,046
Purchases of marketable securities................ (1,704) (21,212) (31,654)
Proceeds from sale of marketable securities....... 774 21,708 30,752
Leases originated................................. (170,495) (149,659) (106,388)
Leases repaid..................................... 107,649 92,313 86,764
Proceeds from lease sales......................... 6,426 12,232
Purchases of investments in related
cooperatives.................................. (3,535) (4,049) (4,712)
Proceeds from sale of investments in related
cooperatives.................................. 1,144 1,126 1,168
Proceeds from sale of discontinued operations..... 55,786
Net changes in net assets of discontinued operations... (30) (9,605)
------------ ------------ -------------
Net cash flows used in investing activities............ (41,811) (85,728) (15,048)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term borrowing................ 5,940 3,943 (1,303)
Proceeds from long-term debt...................... 90,153 114,840 73,276
Repayment of long-term debt....................... (79,268) (83,542) (86,591)
Proceeds from sale of subordinated debt........... 65,431 42,154 54,937
Redemption of subordinated debt................... (73,479) (14,150) (58,186)
Payments on capitalized leases.................... (2,002) (1,401) (3,086)
Proceeds from sale of stock....................... 34 1,886 1,431
Redemption of stock............................... (5,779) (702) (12,500)
Cash dividends paid............................... (4,964) (4,511) (4,571)
------------ ------------ -------------
Net cash flows from financing activities............... (3,934) 58,517 (36,593)
------------ ------------ -------------
Net increase (decrease) in cash and equivalents........ 0 (1,475) (2,985)
Cash and equivalents at beginning of year.............. 0 1,475 4,460
------------ ------------ -------------
Cash and equivalents at end of year.................... $ 0 $ 0 $ 1,475
============ ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
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 manufacturing,
processing, distribution and marketing of products and services for its
farmer-members and other customers 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 retail and wholesale sales of farm supplies; yard
and garden products; pet food and pet supplies; 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 lease financing.
Fiscal Year
The Company's fiscal year-end is on the last Saturday in June. Fiscal
years ending June 30, 1995, 1994 and 1993 were each comprised of 52 weeks.
Basis of Consolidation
The consolidated financial statements include the accounts of all wholly
owned subsidiaries and the Company's majority-owned subsidiary, H. P. Hood
Inc. (Hood), which is 99.9% owned. Curtice Burns Foods, Inc. (Curtice Burns),
which was 34% owned through November 3, 1994, is presented as a discontinued
operation. All significant intercompany transactions and balances have been
eliminated in consolidation.
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, which for most commercial and agricultural leases is 60 months
or less and a maximum of 180 months for buildings. Income recognition is
suspended on all leases and loans which become past due greater than 120 days.
Gains on lease sales are reduced for estimated future servicing fees and
estimated losses under the recourse provisions of the sale (limited to 7.5% of
the sale proceeds). Servicing amounts are amortized over the life of the sold
leases.
Origination Fees and Costs
Fees received and direct costs incurred for the origination of leases
and notes are deferred and amortized to interest income over the contractual
lives of the instruments using the interest method, adjusted for estimated
prepayment experience.
Inventories
Feed, crops, non-liquid petroleum products and retail inventories
(including inventories in regional distribution centers as well as consumer
stores) are stated at the lower of cost or market. Cost is determined using
average unit cost or first-in, first-out methods. Liquid petroleum inventories
are stated at the lower of cost or market using the last-in, first-out method
of costing. Grain inventories are stated at market, as adjusted for unrealized
gains and losses on open futures contracts and open purchase and sales
contracts.
Financial Instruments
The Company enters into futures contracts to the extent considered
practicable to hedge exposure to commodity price fluctuations for grains used
in the manufacturing of dairy, beef, swine and poultry feeds. All net gains
and losses realized from hedging activities, which were immaterial for the
years ended June 30, 1995, 1994 and 1993,
39
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments (continued)
are included in cost of sales. Contracts and hedges typically expire within
one year and included with inventories are marked to market at the date of
closing.
Marketable Securities
In 1995, the Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under the new rules, all of the
Company's marketable debt and equity securities, which relate entirely to the
company's insurance operations, are classified as available-for-sale and
carried at fair value. Unrealized gains and losses, net of tax, are reported
in a separate component of shareholders' equity. At June 30, 1995, the effects
of adopting this statement resulted in a reduction in shareholders' equity,
net of tax, of approximately $300.
Other Security Investments
Other security investments consists of capital stock of a cooperative
bank and other cooperative suppliers acquired at par or stated value. This
bank stock is not traded and is historically redeemed on a periodic basis by
the bank at cost. By its nature, this stock is held to redemption and is
reported at cost. Patronage refunds received from the cooperative bank in the
form of additional bank stock and cash are recorded as a reduction of interest
expense and totaled approximately $1,200, $1,600 and $2,000 for the years
ended 1995, 1994 and 1993, respectively. Patronage refunds received on the
stock of other cooperatives are reflected in other income.
Properties and Equipment
Property and equipment is recorded at cost. 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. Ordinary maintenance and repairs are
charged to operations as incurred. Gains and losses on disposition or
retirement of assets are reflected in income as incurred.
Other Assets
Other assets include approximately $16,000 and $19,400 at June 30, 1995
and 1994, respectively, of costs in excess of the fair value of net tangible
assets acquired in purchase transactions (goodwill) as well as acquired
non-compete agreements and trademarks. Goodwill and other intangible assets
are amortized on a straight-line basis over periods ranging from 1 to 40
years. Amortization included in continuing operations totaled approximately
$7,800, $8,600, and $10,200 for fiscal years ending June 30, 1995, 1994 and
1993, respectively.
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This statement requires the recognition of both
economic and permanent impairment losses on long-lived assets. The statement
is effective for fiscal years beginning after December 15, 1995 (the Company's
fiscal 1997). The adoption effect of this statement cannot be reasonably
estimated at this time.
Environmental Remediation Costs
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Accruals
for estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remedial feasibility study. Such
accruals are adjusted as further information develops or circumstances change.
Costs of future expenditures for environmental remediation obligations are not
discounted to their present value. Recoveries of environmental remediation
costs from other parties are recorded as assets when their receipt is deemed
probable.
40
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development
The Company expenses research and development costs as they are
incurred. Net research and development costs were approximately $2,100, $2,600
and $2,100 for the years ended June 30, 1995, 1994 and 1993, respectively.
Advertising Costs
The Company generally expenses advertising costs as incurred or shown.
Prepaid advertising costs at June 30, 1995 and 1994 are immaterial.
Advertising expense for the years ended June 30, 1995, 1994 and 1993 was
approximately $39,300, $42,300 and $40,200, respectively.
Income Taxes
The Company provides for income taxes in accordance with the provisions
of 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.
Reclassifications
Certain reclassifications have been made to conform prior year financial
statements with the current year presentation.
41
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
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 Consolidated Subsidiaries is as follows:
<TABLE>
<CAPTION>
RESTATED RESTATED
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales and revenues....................... $ 1,572,065 $ 1,669,536 $ 1,962,046
Operating margin............................. 25,327 36,074 48,256
Margin (loss) from continuing operations..... (1,340) 8,484 9,747
Net margin................................... 5,714 10,862 5,279
June 30, 1995 June 30, 1994
----------------- -----------------
Current assets............................... 615,336 $ 650,266
Properties and equipment, net................ 231,928 233,287
Noncurrent assets............................ 335,568 290,245
Net assets of discontinued operations........ 0 48,424
----------------- -----------------
Total assets................................. $ 1,182,832 $ 1,222,222
================= =================
Current liabilities.......................... $ 322,492 $ 391,233
Long-term debt............................... 240,107 205,579
Subordinated debt............................ 369,962 379,835
Noncurrent liabilities....................... 23,158 24,803
Interest of others in consolidated
subsidiaries.............................. 6,217 6,217
Shareholder's equity......................... 220,896 214,555
----------------- -----------------
Total liabilities and shareholder's equity... $ 1,182,832 $ 1,222,222
================= =================
</TABLE>
On July 1, 1994, certain subsidiaries of AFC were transferred to Agway
Inc., and certain operating divisions of Agway Inc. were transferred to AFC.
The above summarized financial information for the fiscal years ended June 30,
1994 and 1993 have been restated to reflect these changes.
3. RESTRUCTURING RESERVES
In June 1992, the Company established a $75,000 reserve for the
estimated net cost to complete a significant restructuring of the Company (the
Project) planned at that time. As initiatives within the restructuring project
have been completed and the Project has drawn closer to an end, the Company
has been constantly monitoring the estimates of cost to complete. The
estimated total project cost as of June 30, 1995 is $65,687 ($75,000 less
credits to date of $9,313) and includes a net $6,152 in reserves left to be
used. The remaining estimated cost to complete of $6,152 is comprised of
$3,597 of environmental-related cost, which will be managed over time in
coordination with the Company's overall environmental management activities,
and $2,555 of remaining initiatives expected to be completed in fiscal 1996.
The $9,313 reduction in cost from the $75,000 original estimate to the current
estimate was recognized in income, $6,065 in fiscal 1994 and $3,248 in fiscal
1995.
42
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
3. RESTRUCTURING RESERVES (CONTINUED)
During the three years ended June 30, 1995, the Company has implemented
a substantial portion of its original restructuring plans with modifications,
revisions and refinement as determined to be appropriate during this detail
implementation period. The more significant revisions made at June 30, 1995
and 1994 related to retention of certain locations originally targeted for
divestiture, and severance and other costs in connection with personnel
reductions which reduced estimated disposal costs. These reductions were
partially offset by additional corporate costs, principally contract buyouts
and other costs and outside consulting fees. In 1995, the Company released
restructuring reserves to income totaling a net $1,279 in the third quarter
and $1,969 in the fourth quarter.
<TABLE>
<CAPTION>
For the Year Ended June 30, 1995
Balance Proceeds Reserve
at on Reductions Revisions Balance
-------------------
Beginning Sale of Divested Costs Additions at End
Restructuring Reserve: of Period Assets Assets Incurred (Releases) of Period
--------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Personnel Reductions
--------------------
Severance and early retirement program $ 2,502 $ 392 $ (2,110) $ 0
--------- -------- ------- ------- -------- -------
TOTAL PERSONNEL 2,502 392 (2,110) 0 (A)
Plant, Store & Business Divestitures
------------------------------------
Proceeds on sale of assets (6,349) $ 4,448 395 (1,506)(B)
Net book value of assets to be divested 11,527 $ 6,274 (4,291) 962 (B)
Cost of divestiture (1) 3,295 2,949 2,753 3,099 (C)
--------- -------- ------- ------- -------- -------
Loss on divestiture 8,473 4,448 6,274 2,949 (1,143) 2,555
Incremental environmental costs 5,906 2,732 423 3,597 (D)
--------- -------- ------- ------- -------- -------
TOTAL PLANT, STORE & BUSINESS 14,379 4,448 6,274 5,681 (720) 6,152
Other Costs
-----------
Consulting fees 1,329 1,229 (100) 0
Contract buyouts and other costs (2) 1,042 724 (318) 0
--------- -------- ------- ------- -------- -------
TOTAL OTHER 2,371 1,953 (418) 0 (E)
--------- -------- ------- ------- -------- -------
TOTAL RESTRUCTURING $ 19,252 $ 4,448 $ 6,274 $ 8,026 $ (3,248) $ 6,152
========= ======== ======= ======= ======== =======
</TABLE>
43
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
3. RESTRUCTURING RESERVES (CONTINUED)
<TABLE>
<CAPTION>
For the Year Ended June 30, 1994
Balance Proceeds Reserve
at on Reductions Revisions Balance
-------------------
Beginning Sale of Divested Costs Additions at End
Restructuring Reserve: of Period Assets Assets Incurred (Releases) of Period
--------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Personnel Reductions
--------------------
Severance and early retirement program $ 3,144 $ 2,170 $ 1,528 $ 2,502
--------- -------- ------- ------- -------- -------
TOTAL PERSONNEL 3,144 2,170 1,528 2,502
Plant, Store & Business Divestitures
------------------------------------
Proceeds on sale of assets (51,902) $16,566 28,987 (6,349)
Net book value of assets to be divested 57,131 $17,071 (28,533) 11,527
Cost of divestiture (1) 6,662 2,338 (1,029) 3,295
--------- -------- -------- ------- -------- -------
Loss on divestiture 11,891 16,566 17,071 2,338 (575) 8,473
Incremental environmental costs 15,744 1,812 (8,026) 5,906
--------- -------- -------- ------- -------- -------
TOTAL PLANT, STORE & BUSINESS 27,635 16,566 17,071 4,150 (8,601) 14,379
Other Costs
-----------
Consulting fees (1,062) 4,382 6,773 1,329
Contract buyouts and other costs (2) 8,801 1,994 (5,765) 1,042
--------- -------- -------- ------- -------- -------
TOTAL OTHER 7,739 6,376 1,008 2,371
TOTAL RESTRUCTURING RESERVE $ 38,518 $16,566 $17,071 $12,696 $(6,065) $19,252
========= ======== ======== ======= ======= =======
</TABLE>
For the Year Ended June 30, 1993
<TABLE>
<CAPTION>
Balance Proceeds
at on Reductions Balance
-------------------
Beginning Sale of Divested Costs at End
Restructuring Reserve: of Period Assets Assets Incurred of Period
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Personnel Reductions
--------------------
Severance and early retirement program $ 23,430 $ 20,286 $ 3,144
--------- -------- -------- -------- --------
TOTAL PERSONNEL 23,430 20,286 3,144
Plant, Store & Business Divestitures
------------------------------------
Proceeds on sale of assets (99,803) $ 47,901 (51,902)
Net book value of assets to be divested 108,918 $ 51,787 57,131
Cost of divestiture (1) 8,805 2,143 6,662
--------- -------- -------- -------- --------
Loss on divestiture 17,920 47,901 51,787 2,143 11,891
Incremental environmental costs 16,942 1,198 15,744
--------- -------- -------- -------- --------
TOTAL PLANT, STORE & BUSINESS 34,862 47,901 51,787 3,341 27,635
Other Costs
-----------
Consulting fees 4,500 5,562 (1,062)
Contract buyouts and other costs (2) 12,208 3,407 8,801
--------- -------- -------- -------- --------
TOTAL OTHER 16,708 8,969 7,739
TOTAL RESTRUCTURING RESERVE $ 75,000 $ 47,901 $ 51,787 $ 32,596 $ 38,518
========= ======== ======== ======== ========
</TABLE>
(1) Includes demolition, asset transfer costs, and commissions on real estate
transactions.
(2) Includes amounts of relocation, debt restructuring costs, legal fees,
and other costs.
44
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
3. RESTRUCTURING RESERVES (CONTINUED)
(A) During the quarter ended March 31, 1995, the Company completed a review
of the planned technological improvement for data warehouse, customer
management and supply chain management and concluded that the
anticipated future cost of these improvements was excessive for the
benefits expected to be achieved. As a result, the employee reductions
and related severance originally expected from implementation of this
technology will not be realized, and the corresponding restructuring
reserve was eliminated.
(B) Represents certain assets identified for disposition as part of the
original restructuring plan which have yet to be sold or closed. Efforts
to sell the assets and complete the shutdowns are ongoing. Ultimate
disposition will depend upon successful negotiations with willing buyers
for remaining properties. During the third and fourth quarters of 1995,
it was determined by management that certain anticipated proceeds from
the sale of fixed assets would be less than originally estimated and
certain assets originally scheduled for disposal will be retained for
use in the business. Therefore, the reserve estimates for these items
have been revised to reflect these facts. The Company anticipates that
the remaining planned activities will be completed in fiscal 1996.
(C) Cost of divestitures includes shutdown costs in connection with the
closing and sale of remaining locations. Ultimate disposition will
depend upon successful negotiations with willing buyers for remaining
properties. As operational shutdowns are completed, additional costs are
expected to be incurred in excess of the original estimations. As a
result, an increase to this component of the restructuring reserve was
required during 1995. The Company anticipates these efforts will be
completed in fiscal 1996.
(D) Included in the costs related to business divestitures are environmental
remediation costs, identified during the process of asset sales, that
primarily relate to real estate assets retained on energy business sold.
These anticipated environmental costs are reviewed periodically by the
Company's environmental engineers and adjusted for changes in
circumstances. These anticipated cash outlays are part of the ongoing
programs regarding environmental remediation and are expected to be
incurred over the next four years. The revision to this component
reflects larger anticipated costs associated with the environmental
remediation.
(E) As a result of the termination of certain planned technological
improvements noted under Item (A), future consulting costs have been
eliminated. Additionally, contract buyouts and other costs have been
concluded.
45
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
4. LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Net investments in leases at June 30 were as follows:
1995 1994
--------- ---------
Leases (minimum payments):
Commercial and agricultural .................. $ 448,873 $ 366,589
Retail ....................................... 2,461 2,034
--------- ---------
Total leases .............................. 451,334 368,623
Unearned interest and finance charges .......... (110,322) (84,984)
Net deferred origination costs ................. 6,904 5,236
--------- ---------
Net investment ............................ 347,916 288,875
Allowance for credit losses .................... (15,331) (12,434)
--------- ---------
Net leases receivable ..................... $ 332,585 $ 276,441
========= =========
Included within the above are unguaranteed estimated residual values of
leased property approximating $49,900 and $43,800 at June 30, 1995 and 1994,
respectively. Additionally, as of June 30, 1995, 1994 and 1993, the
recognition of interest income was suspended on approximately $3,800, $7,700
and $11,800, respectively, of net leases.
Contractual maturities of leases (minimum payments) over the next five
years and thereafter were as follows at June 30, 1995: $142,730 in 1996,
$110,505 in 1997, $78,801 in 1998, $49,407 in 1999, $26,183 in 2000 and
$43,708 thereafter.
5. INVENTORIES
Inventories at June 30 consist of the following:
1995 1994
-------- --------
Raw materials ................................ $ 21,221 $ 23,292
Finished goods ............................... 139,791 158,639
Goods in transit and supplies ................ 16,984 15,857
-------- --------
Total inventories ........................ $177,996 $197,788
======== ========
Inventories valued at the lower of LIFO (last-in, first-out) cost or
market include refined products of Agway Petroleum Corporation. At June 30,
1995 and 1994, current costs exceeded LIFO costs by approximately $700 and
$400, respectively. The total of such inventories was approximately $13,000 at
June 30, 1995 and $9,000 at June 30, 1994.
46
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
6. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
Available-for-sale securities include: Gross Gross
Amortized Unrealized Unrealized Fair
June 30, 1995 Cost Gains Losses Value
------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
U. S. government securities and obligations $ 9,070 $ 51 $ (99) $ 9,022
Non-U. S. government obligations 3,495 (137) 3,358
Mortgage-backed securities 2,113 143 2,256
Corporate securities 18,874 22 (528) 18,368
------- ------- ------- -------
Total debt securities 33,552 216 (764) 33,004
Common and preferred stocks 1,489 411 (152) 1,748
------- ------- ------- -------
Total available-for-sale marketable securities $35,041 $ 627 $ (916) $34,752
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
June 30, 1994 Cost Gains Losses Value
------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
U. S. government securities and obligations $ 8,699 $ 9 $ (595) $ 8,113
Non-U. S. government obligations 2,503 (329) 2,174
Mortgage-backed securities 2,828 109 (5) 2,932
Corporate securities 18,461 3 (1,777) 16,687
------- ------- ------- -------
Total debt securities 32,491 121 (2,706) 29,906
Common and preferred stocks 1,528 141 (217) 1,452
------- ------- ------- -------
Total marketable securities $34,019 $ 262 $(2,923) $31,358
======= ======= ======= =======
</TABLE>
The cost of securities sold is based on the specific identification
method. Realized gains and losses, declines in value judged to be
other-than-temporary and interest and dividends are included in income. Prior
to July 1, 1994, debt securities were stated at amortized cost while preferred
and common stocks were stated at fair value.
Proceeds from the sale of debt and equity securities totaled
approximately $774, $21,708 and $30,752 in 1995, 1994 and 1993, respectively.
Gross gains of approximately $400 and $1,300 were realized on those sales in
1994 and 1993, respectively. There were no gains realized in 1995. Gross
losses realized on those sales in 1995, 1994 and 1993 were immaterial.
At June 30, 1995, the Company did not hold any debt or equity securities
from a single issuer that exceeded 10 percent of the Company's shareholders'
equity.
The amortized cost and fair value of available-for-sale debt securities
at June 30, 1995, 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.
Amortized Fair
Cost Value
------- -------
Due in one year or less $ 2,998 $ 2,444
Due after one year through five years 5,655 5,237
Due after five years through ten years 4,143 3,868
Due after ten years 20,756 21,455
------- -------
$33,552 $33,004
======= =======
47
<PAGE>
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:
June 30, 1995 Owned Leased Combined
------------- -------- -------- --------
Land and land improvements ................. $ 41,623 $ 1,071 $ 42,694
Buildings and leasehold improvements ....... 166,249 8,991 175,240
Machinery and equipment .................... 268,900 10,499 279,399
Office equipment ........................... 40,773 169 40,942
Automotive equipment ....................... 85,535 85,535
Capital projects in progress ............... 17,911 17,911
-------- -------- --------
620,991 20,730 641,721
Less: accumulated depreciation and
amortization ....................... 313,872 16,536 330,408
-------- -------- --------
Properties and equipment, net .............. $307,119 $ 4,194 $311,313
======== ======== ========
June 30, 1994 Owned Leased Combined
------------- -------- -------- --------
Land and land improvements ................. $ 41,432 $ 1,070 $ 42,502
Buildings and leasehold improvements ....... 165,947 9,375 175,322
Machinery and equipment .................... 253,289 10,645 263,934
Office equipment ........................... 33,572 193 33,765
Automotive equipment ....................... 81,781 243 82,024
Capital projects in progress ............... 13,192 13,192
-------- -------- --------
589,213 21,526 610,739
Less: accumulated depreciation and
amortization ....................... 275,362 17,018 292,380
-------- -------- --------
Properties and equipment, net .............. $313,851 $ 4,508 $318,359
======== ======== ========
Depreciation and amortization expense relating to properties and
equipment amounted to approximately $39,792, $40,085 and $41,683 in 1995, 1994
and 1993, respectively.
48
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
8. INCOME TAXES
The provision (benefit) for income taxes as of June 30 consists of the
following:
1995 1994 1993
-------- -------- --------
Continuing operations:
Current:
Federal $ 3,100 $ 1,568 $ (7,763)
State 1,466 4,015 6,604
Deferred (9,304) (7,559) (6,659)
Increase (decrease) in
valuation allowance 960 3,102 (6,060)
-------- -------- --------
$ (3,778) $ 1,126 $(13,878)
======== ======== ========
Discontinued operations:
Current:
Federal $ 9,626 153 $ 8,833
State 1,438 (368) 287
Deferred 405 3,301 (1,689)
-------- -------- --------
$ 11,469 $ 3,086 $ 7,431
======== ======== ========
The Company's effective income tax rate on (loss) margin from continuing
operations before income taxes differs from the federal statutory regular tax
rate as of June 30 as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate ........................ (35.0%) (35.0%) 34.0%
Tax effects of:
State income taxes, net of federal benefit (1) ..... 1.9 64.4 37.6
Items for which no federal tax effect was recognized 6.2 2.3 (3.9)
Dividend received deduction ........................ (.5) 2.7 1.2
Fines and penalties ................................ .2 4.5 4.8
Tax credits ........................................ (23.1)
Amortization of intangibles ........................ 1.5 8.2 (2.5)
Adjustment of prior year accrual ................... 2.1 4.7 (87.0)
Utilization of loss carryforwards .................. (13.6) (5.9)
Change in valuation allowance ...................... 3.6 68.1 (52.7)
Other items ........................................ 5.0 (14.8) (2.4)
Reclassifying Hood to continuing operations ........ .9 (66.8) (34.3)
------ ------ -------
Effective income tax rate ........................ (14.1%) 24.7% (134.2%)
====== ====== =======
</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.
49
<PAGE>
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
were as follows:
<TABLE>
<CAPTION>
Deferred tax assets: 1995 1994
------------ ------------
<S> <C> <C>
Other liabilities and reserves....................... $ 25,351 $ 20,768
Leases receivable.................................... 9,456 10,757
Self-insurance reserves.............................. 7,727 7,888
Medical reserves..................................... 6,966 6,366
Inventory............................................ 6,345 4,874
Deferred compensation................................ 4,952 5,683
Accounts receivable.................................. 4,025 5,275
Restructuring reserve................................ 2,092 6,545
Miscellaneous........................................ 3,798 3,839
NOL carryforward..................................... 5,651
Alternative minimum tax credit carryforward.......... 1,721 7,316
------------ ------------
Gross deferred tax asset............................. 78,084 79,311
Less valuation allowance............................. (4,961) (4,001)
------------ ------------
Total net deferred tax asset.................... 73,123 75,310
------------ ------------
Deferred tax liabilities:
Pension assets....................................... 25,020 20,010
Excess of tax over book depreciation................. 16,646 19,719
Prepaid medical...................................... 6,978 7,259
Other assets......................................... 2,188 3,894
Undistributed earnings of discontinued operation..... 9,234
Miscellaneous........................................ 1,451 2,797
------------ ------------
Total deferred tax liability.................... 52,283 62,913
------------ ------------
Net deferred tax asset.......................... $ 20,840 $ 12,397
============ ============
</TABLE>
The Company's net deferred tax asset at June 30, 1995 and 1994 of
$20,840 and $12,397, respectively, consists of a net current asset of $35,888
and $36,859 included in prepaid expenses and a net long-term liability of
$15,048 and $24,462 included in other liabilities as of June 30, 1995 and
1994, respectively. The total gross deferred tax assets are partially offset
by a valuation allowance of $4,961 and $4,001 at June 30, 1995 and 1994,
respectively. The allowance is related primarily to the Company's subsidiary,
Hood, and its limitations on net operating loss carryforwards and future tax
deductions for which no benefit can be realized. Based on the Company's
history of taxable earnings and its expectations for the future, management
has determined that operating income will more likely than not be sufficient
to recognize its deferred tax assets.
At June 30, 1995, the Company's federal AMT credit can be carried
forward indefinitely, and the net operating loss (NOL) carryforwards expire in
2010.
50
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
9. SHORT-TERM NOTES PAYABLE
As of June 30, 1995, the Company had available lines of credit with
various banking institutions whereby lenders have agreed to provide funds up
to $122,000 to separately financed units of the Company as follows: Agway
Financial Corporation (AFC) - $65,000; Telmark - $24,000; Hood - $33,000. In
addition, AFC may issue up to $60,000 of commercial paper under the terms of a
separate agreement, backed by a letter of credit.
Borrowings under these credit facilities were as follows:
<TABLE>
<CAPTION>
Agway and
AFC (excluding
June 30, 1995 Telmark and Hood) Telmark Hood Total
------------- ----------------- ------- ------- -------
<S> <C> <C> <C> <C>
Bank lines of credit $ 300 $10,000 $12,833 $23,133
Commercial paper 60,000 60,000
------- ------- ------- -------
$60,300 $10,000 $12,833 $83,133
======= ======= ======= =======
Weighted average interest rate 6.06% 6.96% 9.40%
======= ======= =======
June 30, 1994
-------------
Bank lines of credit $18,000 $14,393 $32,393
Commercial paper 44,800 44,800
------- ------- -------
$62,800 $14,393 $77,193
======= ======= =======
Weighted average interest rate 5.00% 7.31%
======= =======
</TABLE>
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.
Interest rates charged by the banks on cash drawdowns of the Company's
lines of credit approximate prevailing short-term borrowing rates ranging
between 6.89% and 10.85% at June 30, 1995 and 6.50% and 8.50% at June 30,
1994. Interest rates on commercial paper outstanding range from 5.97% to 6.10%
at June 30, 1995 and 4.35% to 4.42% at June 30, 1994.
At June 30, 1995, letters of credit of approximately $28,000 and
$25,000, which are primarily used to back commercial paper and general
liability claims, are available to AFC and Hood, respectively. Letters of
credit outstanding at June 30, 1995 were approximately $25,000 and $16,300 for
AFC and Hood, respectively.
The AFC agreements, as amended in December 1994, cover the period
through October 31, 1995 and are in process of renegotiation. These AFC
agreements, including $6,000 in long-term debt, are collateralized by the
Company's accounts receivable and non-petroleum inventories. Amounts which can
be drawn under these agreements are limited to a specific calculation based
upon the total of 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
quarterly levels of tangible net worth.
As a result of specific covenant violations within AFC's credit
facilities at June 30, 1995, waivers were obtained effective as of June 30,
1995 and covering through August 1995, and amendments were obtained for
September and October 1995 from AFC's banking institutions. Negotiations are
expected to continue through October 1995, and it is management's expectation
that appropriate credit facilities will continue to be in place to meet the
ongoing needs of the Company.
51
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
9. SHORT-TERM NOTES PAYABLE (CONTINUED)
The Hood short-term credit facility is used to supply letters of credit
as well as short-term financing. Letters of credit of $16,300 were outstanding
at June 30, 1995. This facility was scheduled to expire on July 31, 1995. Hood
negotiated an extension of this facility until such time as it could be
restructured.
Effective August 7, 1995, Hood restructured its line of credit facility
with its bank. Per the amended agreement, the bank has made available to Hood
a $28,000 facility through March 31, 1996 with an increase to $33,000
commencing on April 1, 1996. Borrowings under the line of credit facility are
limited to the total of 80% of the receivables less than sixty days old plus
the balance of inventories (not to exceed $5,000) to the extent that such
equation does not exceed $28,000 and $33,000, respectively. Borrowings under
the line of credit facility are to be repaid on demand. All outstanding cash
advances are due on or before July 1, 1996. Letter of credit accommodations
may be comprised of up to $18,000 of the total facility and may be advanced
through June 30, 1996. Outstanding letter of credit accommodations as of June
30, 1996 are not renewable upon expiration.
10. DEBT
Long-Term Debt:
Long-term debt consists of the following at June 30, 1995:
<TABLE>
<CAPTION>
Agway and
AFC Excluding
Telmark and
Hood Telmark Hood Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Notes payable - banks (a) $ 6,000 $ 94,000 $ 22,463 $122,463
Notes payable - insurance companies (b) 151,467 151,467
Other 11,255 10,085 21,340
-------- -------- -------- --------
Subtotal long-term debt excluding capital leases 17,255 245,467 32,548 295,270
Obligations under capital leases
Industrial revenue bonds 3,769 3,769
Others 1,819 332 2,151
-------- -------- -------- --------
Total long-term debt 22,843 245,467 32,880 301,190
Less: current portion 13,702 34,622 10,198 58,522
-------- -------- -------- --------
$ 9,141 $210,845 $ 22,682 $242,668
======== ======== ======== ========
</TABLE>
(a) Under loan agreements, principal of $122,463 bears interest at fixed
rates ranging from 5.4% to 11.50%, payments commencing July 1995 with
final installments due in 1999. The notes are collateralized by the
Company's investment in the bank having a book value of $22,333 at June
30, 1995.
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 quarterly
levels of tangible net worth. The $6,000 AFC credit facility loan
covenants are integrated with the short-term facilities. As a result of
specific covenant violations with the Company's short-term notes,
waivers and amendments were obtained (see Note 9).
(b) Under Telmark loan agreements with various insurance companies,
principal of $151,467 bears interest at fixed rates ranging from 5.90%
to 9.17%, payments commencing September 1995 with final installment due
in 2000.
52
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
10. DEBT (CONTINUED)
<TABLE>
<CAPTION>
Subordinated Debt: Agway and
AFC Excluding
Telmark and
Hood Telmark Hood Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Subordinated debt consists of the following at June 30, 1995:
Subordinated Debentures due 1995 to 2004,
interest at 6.0% to 8.5% ................................. $ 30,201 $ 8,174 $ 7,195 $ 45,570
Subordinated Money Market Certificates,
due 1995 to 2008, interest at 4.5% to 9.5% ............... 360,688 360,688
-------- -------- -------- --------
Total long-term subordinated debt .............................. 390,889 8,174 7,195 406,258
Less current portion ........................................... 35,833 463 36,296
-------- -------- -------- --------
$355,056 $ 8,174 $ 6,732 $369,962
======== ======== ======== ========
</TABLE>
Some of 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.
Maturities:
Aggregate annual maturities on long-term debt during the next five years
and thereafter are as follows:
<TABLE>
<CAPTION>
Fiscal Year Capital Subordinated
Ending June 30, Leases Borrowings Total Debt
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
1996 $ 2,048 $ 56,745 $ 58,793 $ 36,296
1997 1,611 88,991 90,602 15,217
1998 1,333 96,881 98,214 46,833
1999 841 35,427 36,268 48,662
2000 203 7,003 7,206 64,790
Thereafter 1,282 10,223 11,505 194,460
------------- ------------- ------------- --------------
7,318 295,270 302,588 406,258
Imputed interest 1,398 1,398
------------- ------------- ------------- --------------
Total $ 5,920 $ 295,270 $ 301,190 $ 406,258
============= ============= ============= ==============
</TABLE>
53
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
11. COMMITMENTS AND CONTINGENCIES
Environmental
The Company is subject to a number of governmental regulations
concerning environmental matters, either directly, or as a result of the
operations of its subsidiaries. Agway expects that it will be required to
expend funds to participate in the remediation of 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 $4,000 in fiscal 1995 on capital projects. The Company
estimates that during fiscal 1996 and 1997 approximately $4,000 per year will
be spent on additional capital projects for environmental protection. These
estimates recognize the additional capital required to comply with EPA
Underground Storage Tank (UST) regulations which become effective in December
1998. Presently, the total cost to comply with the EPA UST regulations is
estimated to be approximately $5,000. The total capital requirements may
change due to the actual number of USTs actively in use on the effective date.
Other
The Company is also subject to various investigations, claims, and legal
proceedings covering a wide range of matters that arise in the ordinary course
of its business activities. Each of these matters is subject to various
uncertainties, and it is possible that some of these matters may be resolved
unfavorably to the Company. The Company has established accruals for matters
for which payment is probable and amounts reasonably estimable. Management
believes any liability that may ultimately result from the resolution of these
matters in excess of amounts provided will not have a material adverse effect
on the financial position or results of operations of the Company.
Commitments to extend credit at the Company's leasing subsidiary,
Telmark, 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, 1995 approximated $27,600.
During fiscal 1994 and prior, 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, 1995, the Company was contingently liable
for approximately $2,600 under the limited recourse provisions.
Rent expense for the fiscal years 1995, 1994 and 1993 approximated
$20,800, $14,700 and $17,200, respectively. Future minimum payments under
noncancelable operating leases approximate $12,100, $9,700, $8,300, $11,500,
and $4,600 for the fiscal years 1996 through 2000, respectively, and
approximately $500 thereafter.
54
<PAGE>
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, 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
Issues (redeemed), net (54,612) (1,619) (400) (409) 70 (5,703)
--------- --------- --------- --------- --------- ---------
Balance June 30, 1995 283,063 225,481 19,410 127,808 2,361 $ 65,635
========= ========= ========= ========= ========= =========
</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, 1993 $ 6.00 $ 8.00 $ 8.00 $ 7.00 $ 1.50
June 30, 1994 $ 6.00 $ 8.00 $ 8.00 $ 7.00 $ 1.50
June 30, 1995 $ 6.00 $ 8.00 $ 8.00 $ 7.00 $ 1.50
Shares Held in Treasury
(purchased at par value):
June 30, 1993 193,510 21,720 119,140 21,449 479
June 30, 1994 12,325 22,900 120,190 21,783 546
June 30, 1995 66,937 24,519 120,590 22,192 632
</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. 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.
55
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
13. RETIREMENT BENEFITS
Pension Plan
The Company and Hood each have non-contributory defined benefit pension
plans covering substantially all employees of Agway Inc. and Hood. The pension
plans' benefit formulae generally base payments to retired employees upon
years of credited 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 by
federal income tax guidelines. 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.
The majority of the plans' investments consist of U. S. government and
agency securities, U. S. corporate bonds, U. S. and foreign equities, equity
funds and temporary investments (short-term investments in demand notes and
money market funds). At June 30, 1995 and 1994, the Company's plan assets
included Company debt securities and preferred stock with estimated fair
values of $4,300 and $5,500, respectively.
At December 31, 1994, Hood amended its pension plan so that additional
benefits to be earned by employees for future service were suspended. In
accordance with SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits," a
gain of approximately $5,700 was recognized in the statement of operations for
fiscal 1995. The gain is the net of a decrease in the projected benefit
obligation of approximately $6,800 and the recognition of previously
unrecognized prior service costs of $1,100.
The Employees' Retirement Plan of Agway, Inc. and the H. P. Hood Inc.
Pension Plan have assets that exceed accumulated benefit obligations. The
following table sets forth the plans' funded status and amounts recognized in
the Company's consolidated financial statements at June 30:
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
Agway Hood Agway Hood
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested ........................................................ $ 249,709 $ 24,911 $ 229,977 $ 23,948
Non-vested .................................................... 12,887 1,556 11,808 390
--------- --------- --------- ---------
Accumulated benefit obligation ..................................... 262,596 26,467 241,785 24,338
Additional amounts related to projected pay increases .............. 35,609 30,718 7,723
--------- --------- --------- ---------
Projected benefit obligation for service rendered to date .......... 298,205 26,467 272,503 32,061
Plan assets at fair value .......................................... 425,035 26,814 382,309 26,162
--------- --------- --------- ---------
Projected benefit obligation less than (in excess of)
plan assets ................................................... 126,830 347 109,806 (5,899)
Unrecognized net gain .............................................. (38,146) (1,436) (27,864) (1,147)
Unrecognized prior service cost .................................... 9,315 10,933 1,376
Unrecognized net transition asset .................................. (24,157) (571) (28,988) (773)
--------- --------- --------- ---------
Prepaid (accrued) pension cost ..................................... $ 73,842 $ (1,660) $ 63,887 $ (6,443)
========= ========= ========= =========
</TABLE>
56
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
13. RETIREMENT BENEFITS (CONTINUED)
Pension Plan (continued)
Net pension income included the following income/(expense) components for the
year ended June 30:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the period ...................... $ (6,630) $ (7,754) $ (7,378)
Interest cost on projected benefit obligation ....................... (23,250) (23,137) (22,095)
Actual return on plan assets ........................................ 65,142 8,659 71,689
Net amortization and deferral ....................................... (26,202) 29,025 (35,963)
-------- -------- --------
$ 9,060 $ 6,793 $ 6,253
======== ======== ========
</TABLE>
In determining the actuarial present values of the projected benefit
obligations as of June 30, the following assumptions were used:
<TABLE>
<CAPTION>
Agway Hood
-------------- ---------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average discount rate 7.5% 8.0% 7.5% 8.0%
Rate of increase in future compensation 5.5% 5.5% N/A 4.5%
Expected long-term rate of return 10.25% 10.25% 8.0% 8.0%
</TABLE>
The effect of the changes in the weighted average discount rate was to
increase the projected benefit obligation by approximately $18,100 and $1,200
and increase the accumulated benefit obligation by approximately $14,000 and
$1,200 for the Company and Hood, respectively. Assumed future salary increases
are age-related and range from 10.5% for lower ages to 4.8% for higher ages.
Postretirement Benefits
In addition to providing pension benefits, the Company provides
postretirement health care and life insurance benefits, and Hood provides
postretirement health care benefits, to eligible retirees and their
dependents. Eligibility for benefits depends upon age and years of service.
Prior to July 1, 1993, the Company and Hood accounted for the expense of
providing these benefits as claims were paid and through accruals based on
experience. Funding of costs was made as payments were due. Effective July 1,
1993, the Company and Hood adopted 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. In connection with the adoption of this
statement, the Company and Hood elected to amortize the transition obligation
of approximately $40,800 and $4,600, respectively, as of July 1, 1993 over 20
years. Total net periodic benefit cost under SFAS No. 106 was approximately
$6,500 and $8,400 for fiscal years 1995 and 1994, respectively, compared with
the costs based on cash payments and accruals for retiree health and life
insurance benefits of approximately $4,500 in 1993.
Effective January 1, 1994, the Hood plan changed its eligibility
requirements to age 62 with 25 years of service. For employees who became
eligible after January 1, 1994, Hood also limited its employee subsidy.
Effective January 1, 1995, the Company amended its postretirement health
care benefits by establishing a separate and distinct insured medical program
for retirees aged 65 or over, limiting the Company's subsidy to a per
month/per retiree basis for retirees aged 65 or over and modifying health care
coverage for active employees and retirees under age 65. These amendments have
resulted in reduction to the Company's net periodic expense and accumulated
postretirement benefit obligation for the year ended June 30, 1995 of $2,000
and $15,000, respectively.
57
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
13. RETIREMENT BENEFITS (CONTINUED)
Postretirement Benefits (continued)
The following tables set forth the plans' funded status and net periodic
postretirement benefit cost recognized in the Company's consolidated financial
statements at June 30:
<TABLE>
<CAPTION>
1995 1994
---------------------------------- ----------------------------------
Health Life Health Life
Insurance Insurance Total Insurance Insurance Total
-------- -------- -------- -------- -------- --------
Reconciliation of funded status:
--------------------------------
Accumulated postretirement benefit obligation:
<S> <C> <C> <C> <C> <C> <C>
Retirees and surviving spouses .................... $ 29,113 $ 5,984 $ 35,097 $ 37,741 $ 5,639 $ 43,380
Actives eligible to retire ........................... 2,598 414 3,012 3,383 333 3,716
Actives not yet eligible to retire ................ 8,544 733 9,277 13,904 702 14,606
-------- -------- -------- -------- -------- --------
Total accumulated postretirement
benefit obligation ................................ 40,255 7,131 47,386 55,028 6,674 61,702
-------- -------- -------- -------- -------- --------
Plan assets at fair value
Funded status ........................................ 40,255 7,131 47,386 55,028 6,674 61,702
Unrecognized net (loss) gain ......................... (109) (471) (580)
Unrecognized net transition obligation ............... (20,357) (5,962) (26,319) (36,685) (6,293) (42,978)
-------- -------- -------- -------- -------- --------
Accrued postretirement benefit cost .................. $ 19,789 $ 698 $ 20,487 $ 18,343 $ 381 $ 18,724
======== ======== ======== ======== ======== ========
Annual expense for fiscal year ended June 30:
---------------------------------------------
Service cost ...................................... $ 711 $ 70 $ 781 $ 1,188 $ 76 $ 1,264
Interest cost ..................................... 3,356 522 3,878 4,162 509 4,671
Amortization of transition
obligation ...................................... 1,518 331 1,849 2,132 331 2,463
-------- -------- -------- -------- -------- --------
Net periodic postretirement benefit
cost ............................................ $ 5,585 $ 923 $ 6,508 $ 7,482 $ 916 $ 8,398
======== ======== ======== ======== ======== ========
</TABLE>
In determining the accumulated postretirement benefit obligation, the
weighted average discount rate used was 7.5% and 8% at June 30, 1995 and 1994,
respectively. This change increased the accumulated postretirement benefit
obligation by approximately $1,500.
For measurement purposes, the assumed health care cost trend rate used
to measure the Company's accumulated benefit obligation was, for persons under
age 65, 7.7% and 8% for June 30, 1995 and 1994, respectively. For persons over
age 65, a 9% rate was used for June 30, 1994, and due to the plan amendment
discussed previously, there was no such assumption at June 30, 1995. The
health care cost trend rate assumption for fiscal 1996 and forward at June 30,
1995 and 1994 decreases gradually until the year 2002 where the ultimate trend
rate is then fixed at 5.5% (6% at June 30, 1994). A one percentage point
increase in the assumed health care cost trend rate at June 30, 1995 would
increase the aggregate service and interest cost components of net periodic
expense by $300, and the accumulated postretirement benefit obligation by
$1,100.
58
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
13. RETIREMENT BENEFITS (CONTINUED)
Postretirement Benefits (continued)
For fiscal 1995, Hood assumed a 12.5% annual rate of increase in the per
capita cost of covered health care benefits decreasing gradually down to 7.5%
for fiscal 2005 and remaining level thereafter. An increase in the assumed
health care cost trend rate one percentage point each year would not have a
material effect on the accumulated postretirement benefit obligation as of
June 24, 1995 and the aggregate of the service and interest cost components of
the net periodic postretirement benefit cost for fiscal 1995.
Voluntary Employees' Beneficiary Association
The Company has established a Voluntary Employees' Beneficiary
Association ("VEBA") trust to fund the employer's portion of employee and
retiree health and welfare benefits. Contributions to the VEBA trust are tax
deductible, subject to limitations contained in the Internal Revenue Code and
regulations. Trust assets of approximately $20,500 and $21,400 are included in
prepaid expenses in the accompanying balance sheets as of June 30, 1995 and
1994, respectively. The Company's current policy is to invest these trust
assets primarily in government securities. Additionally, an
actuarially-determined medical benefit obligation for incurred but not
reported claims for active employees and retirees under 65 of approximately
$4,000 and $4,900 is reflected in other current liabilities at June 30, 1995
and 1994, respectively.
Employees' Thrift Investment Plan
The Agway Inc. Employees' Thrift Investment Plan is a defined
contribution plan covering substantially all employees of Agway and its
subsidiaries (excluding Hood). Under the plan, each participant may invest up
to 15% of his or her salary, of which a maximum of 6% qualifies for Company
matching. Participant contributions are invested at the option of the
participant in any combination of four funds. As of June 30, 1995, there were
4,864 employees participating in this plan. The number of employees under each
investment fund at June 30, 1995 is as follows:
Company Security Fund 4,789 Cash Fund 286
Stock Fund 3,460 Bond Fund 471
The Company will contribute an amount of at least 10%, but not more than
50%, of each participant's regular contributions, as defined, up to 6% of his
or her salary on an annual basis. Company contributions to this plan for
fiscal years ended June 30, 1995, 1994 and 1993 were approximately $500,
$1,400 and $500, respectively.
Hood maintains a separate retirement savings plan offering participating
employees a program of regular savings and investment funded by their own
contributions and those of Hood. The amount of contributions for fiscal 1995,
1994 and 1993 totaled approximately $1,000, $500 and $600, respectively.
Benefit Equalization Plan
The Company also maintains a non-qualified, unfunded benefit
equalization plan designed to provide pension and thrift benefits for
employees whose normal benefits are reduced by limitations under the Employee
Retirement Income Security Act (ERISA) and the Internal Revenue Code. Accrued
pension costs under this plan were approximately $3,400 and $3,200 for 1995
and 1994, respectively. Net benefit expense, including the Company matching
contributions in the thrift component of the plan, for 1995, 1994 and 1993
totaled approximately $400, $500 and $400, respectively. In determining the
actuarial present values of the projected benefit obligations of the pension
component of this plan, the same assumptions were used as those for the
Company's defined benefit pension plan.
59
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
14. FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING
The company operates principally in four business segments: (1)
Agriculture & Consumer engages in the manufacturing and processing of various
farm animal feeds, crop inputs, fertilizers, crop protectants and farm
supplies under Agway Agricultural Products (AAP). Agriculture & Related
Services (ARS) engages in the wholesale purchase, warehousing and distribution
of agricultural supplies and materials, yard and garden items and pet food and
pet supplies. It also provides marketing, purchasing, technical and strategic
support for AAP, the Agway retail store outlets and the wholesale supply of
certain product categories to Agway franchised representatives and other
businesses. Finally, Country Products Group (CPG), engages in the
manufacturing, processing and repacking of a variety of agricultural products
which are marketed directly to consumer, retailers, wholesalers and processors
as well as to AAP and ARS; (2) Energy markets petroleum products including
gasolines, kerosene, fuel oil, propane, lubricating oils and greases,
antifreeze, as well as oil and gas heating and air conditioning equipment and
other related items; (3) Dairy engages in the processing and distribution of
branded and private label dairy and other foods with concentration in three
product classes - fluid milk, ice cream and manufactured products. Total
revenue of each industry segment includes the sale of products and services to
unaffiliated 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; and (4) Financial Services is
engaged in the lease financing of buildings, equipment, and vehicles and
markets accident and health insurance and long-term care products.
Operating profit (loss) consists of total revenues less operating
expenses. Certain expenses, including personnel, legal, tax reporting, and
corporate management, are allocated based on a formula which considers assets,
revenues and payroll. In prior years, expenses for rent, data processing,
insurance, corporate treasury, and office services were also allocated to the
segments. However, in 1995 these costs were decentralized and captured in each
segment's operating profit (loss). Prior year amounts have been reclassified
to conform to the results of this decentralization. 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.
60
<PAGE>
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, 1995
-----------------------------------------------------------------------------------
Agriculture
& Financial
Consumer Energy Dairy Services Corporate Consolidated
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales and revenues to
unaffiliated customers .................... $ 1,015,618 $ 510,439 $ 483,571 $ 71,486 $ 1,747 $2,082,861
Intersegment sales and revenues ............. 155 339 0 65 (559) 0
----------- ----------- ----------- ----------- ----------- ----------
Total sales and revenues .............. $ 1,015,773 $ 510,778 $ 483,571 $ 71,551 $ 1,188 $2,082,861
=========== =========== =========== =========== =========== ==========
Operating profit/(loss) ..................... $ (2,705) $ 13,368 $ (1,388) $ 10,487 $ (10,333) $ 9,429
Interest expense, net of
interest income ........................... (36,169)
Margin from continuing ----------
operations before
income taxes ........................ $ (26,740)
==========
Identifiable assets ......................... $ 472,712 $ 170,739 $ 86,337 $ 413,991 $ 210,312 $1,354,091
Depreciation ................................ 19,172 9,192 8,511 513 2,404 39,792
Capital expenditures ........................ 17,211 18,051 3,687 863 2,350 42,162
<CAPTION>
Year ended June 30, 1994
-----------------------------------------------------------------------------------
Agriculture
& Financial
Consumer Energy Dairy Services Corporate Consolidated
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales and revenues to
unaffiliated customers .................... $ 1,070,757 $ 555,549 $ 493,943 $ 65,751 $ 1,193 $2,187,193
Intersegment sales and revenues ............. 277 485 0 81 (843) 0
----------- ----------- ----------- ----------- ----------- ----------
Total sales and revenues .............. $ 1,071,034 $ 556,034 $ 493,943 $ 65,832 $ 350 $2,187,193
=========== =========== =========== =========== =========== ==========
Operating profit/(loss) ..................... $ (7,077) $ 39,784 $ (3,372) $ 10,523 $ (10,844) $ 29,014
Interest expense, net of
interest income ........................... (33,570)
Margin from continuing ----------
operations before
income taxes ...................... $ (4,556)
==========
Identifiable assets ......................... $ 499,147 $ 174,760 $ 102,106 $ 355,466 $ 268,835 $ 1,400,314
Depreciation ................................ 19,615 8,849 8,596 436 2,589 40,085
Capital expenditures ........................ 17,135 11,649 7,861 831 3,114 40,590
61
</TABLE>
<PAGE>
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, 1993
-----------------------------------------------------------------------------------
Agriculture
& Financial
Consumer Energy Dairy Services Corporate Consolidated
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales and revenues to
unaffiliated customers ............... $ 1,009,805 $ 637,631 $ 560,315 $ 69,948 $ 1,130 $2,278,829
Intersegment sales and revenues ........ 436 537 0 213 (1,186) 0
----------- ----------- ----------- ----------- ----------- ----------
Total sales and revenues ......... $ 1,010,241 $ 638,168 $ 560,315 $ 70,161 $ (56) $2,278,829
=========== =========== =========== =========== =========== ==========
Operating profit/(loss) ................ $ 13,279 $ 22,696 $ 2,907 $ 11,068 $ (3,874) $ 46,076
Interest expense, net of
interest income ...................... (35,736)
----------
Margin from continuing
operations before
income taxes ................. $ 10,340
==========
Identifiable assets .................... $ 488,632 $ 198,938 $ 103,035 $ 304,441 $ 257,018 $1,352,064
Depreciation ........................... 18,960 9,822 9,681 441 2,779 41,683
Capital expenditures ................... 18,760 9,170 5,867 342 512 34,651
</TABLE>
15. OTHER INCOME (EXPENSE)
The components of other income (net) for the year ended June 30 are
summarized below:
1995 1994 1993
-------- -------- --------
Gain on Hood pension curtailment ............ $ 5,677
Rent & storage revenue ...................... 3,313 $ 3,791 $ 2,987
Patronage refund income ..................... 2,904 409 1,567
Gain/(loss) on sale of properties & equipment 597 584 (4,189)
Sale of scrap ............................... 519 446 395
Gain (loss) on sale of investments .......... -- 11 (335)
Texas City Refining settlements, net ........ -- -- (1,339)
Other, net .................................. (705) 357 2,703
-------- -------- --------
$ 12,305 $ 5,598 $ 1,789
======== ======== ========
62
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
16. SUPPLEMENTAL DISCLOSURES ABOUT CASH FLOWS
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ -------------
<S> <C> <C> <C>
Additional disclosure of operating cash flows:
Cash paid during the year for:
Interest..................................... $ 45,412 $ 41,902 $ 47,010
============= ============ =============
Income taxes................................. $ 9,951 $ 11,494 $ 8,070
============= ============ =============
Additional disclosure for non-cash investing and
financing activities:
Dividends declared but unpaid at June 30 $ 2,410 $ 2,589 $ 2,056
============= ============ =============
</TABLE>
1993 and 1994 - During the fiscal year ended June 30, 1993, 46 local
cooperative affiliates were either merged into Agway or acquired for a total
purchase price of $20,395 plus certain liabilities assumed of $13,779. In
fiscal 1994, six additional cooperatives were merged into Agway for a total
purchase price of $1,309 plus current liabilities assumed of $2,089. In 1993,
of the $20,395 purchase price, $16,316 was paid in Agway 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. The total purchase price for the 52 affiliates of $21,705
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).
17. DISCONTINUED OPERATIONS
On March 23, 1993, the Company's Board of Directors authorized
management to sell its 34% interest in Curtice Burns and 99.9% interest in
Hood, the major investments in what was Agway's food group segment. 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 the end of
fiscal 1994. Plans for the divestiture continued into 1995.
Curtice Burns
Curtice Burns accepted an offer from Pro-Fac Cooperative Inc. (Pro-Fac)
to acquire all outstanding shares of Curtice Burns for $19 per share in cash,
and entered into a definitive merger agreement with Pro-Fac. This agreement
closed on November 3, 1994, and at that time, the Company sold its interest in
Curtice Burns to Pro-Fac and received cash proceeds of $55,786 and recorded a
profit, net of income taxes of $19,700, of $4,430.
The net sales and revenues from discontinued operations (Curtice Burns)
was approximately $829,100 in 1994 and $878,600 in 1993.
A summary of net assets of discontinued operations at June 30, 1994 is
as follows:
1994
---------
Accounts receivable $ 66,337
Inventory 155,259
Property, plant & equipment, net 167,516
Other, net 25,352
Accounts payable and accrued expenses (128,760)
Long-term debt (237,280)
---------
Net assets of discontinued operations $ 48,424
=========
63
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
17. DISCONTINUED OPERATIONS (CONTINUED)
Hood
As of November 1994, the sale of Hood was anticipated to close shortly
in a sale to a Hood management led buyout group, the terms of which had been
generally agreed to by Agway and the management buyout group in a transaction
which included a complex financing structure. A delay ensued. Based on changed
business conditions and financial markets during this prolonged negotiation,
on January 24, 1995, Agway and the management buyout group mutually concluded
to cease the pursuit of this sale transaction.
Agway is actively pursuing alternative buyers for Hood. Under these
circumstances, while Agway is still actively interested in the sale of Hood
and while such a sale could be consummated in the near future, Agway is no
longer able to estimate with reasonable certainty whether a sale will occur
within the next year and, accordingly, has reclassified Hood to continuing
operations for financial reporting purposes.
A reconciliation to margin (loss) from continuing operations as
previously reported follows:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
Ended Ended
June 30, 1994 June 30, 1993
-------- --------
<S> <C> <C>
Impact of reclassification of loss from discontinued operations to margin
(loss) from continuing operations:
Deferred interest expense .............................................................. $ (1,783) $ (2,248)
Pre-tax loss from segment operations ................................................. (7,681) (6,231)
-------- --------
Pre-tax loss from continuing operations ................................................ (9,464) (8,479)
Income tax benefit ..................................................................... 3,086 6,970
-------- --------
Loss from continuing operations ........................................................ (6,378) (1,509)
Original balance - margin from continuing operations.................................... 696 25,727
-------- --------
Reclassified balance - (loss) margin from continuing operations ........................ $ (5,682) $ 24,218
======== ========
</TABLE>
A reconciliation to margin (loss) from discontinued operations as
previously reported follows:
<TABLE>
<CAPTION>
June 1994 June 1993
------- -------
<S> <C> <C>
Original balance - loss from discontinued operations ..................................... $(4,000) $(5,977)
Reclassification of Hood losses to continuing operations ................................. 6,378 1,509
------- -------
Reclassified balance - margin (loss) from discontinued operations ........................ $ 2,378 $(4,468)
======= =======
</TABLE>
The net loss relating to Hood from July 1992 to March 23, 1993 was $6,510
and was reflected in the $5,977 net loss from discontinued operations through
the measurement date as previously reported for the year ended June 30, 1994.
This included $5,454 of losses related to the operations and sale of the
cheese manufacturing division of Hood business offset by a $1,799 gain on the
sale of a segment of Hood's fluid milk business.
64
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
17. DISCONTINUED OPERATIONS (CONTINUED)
Hood (continued)
The net (loss) margin and deferred expenses relating to Hood were $(6,378)
and $(1,509) for the years ended June 30, 1994 and 1993, respectively. This
incurred margin (loss) in relation to Hood includes deferred interest expense,
actual Hood losses and a tax benefit representing the book/tax difference in the
basis of Hood. Additionally, at June 30, 1995, the loss on investment value and
divestiture expenses related to Hood of $16,724 includes a $15,884 pre-tax loss
for transaction costs incurred in connection with these past sales efforts and
for pre-tax impairment allowance with respect to the ultimate sale of its
investment in Hood.
Total assets and total liabilities of Hood previously
reported in discontinued operations were $164,726 and $128,601 at June 30, 1994.
Net sales and revenues previously reported in discontinued operations were
approximately $493,000 and $504,000 in 1994 and 1993, respectively.
18. FINANCIAL INSTRUMENTS
The table below presents the carrying amounts and estimated fair values
of the Company's significant financial instruments held for purposes other
than trading at June 30, 1995 and 1994 and derivatives at June 30, 1995.
Estimated fair value amounts have been determined by the Company using
available market data and valuation methodologies. Considerable judgment is
required in developing the methodologies used to determine the estimates of
fair value and in interpreting available market data and, accordingly, the
estimates presented herein are not necessarily indicative of the values of
such instruments in a current market exchange. Carrying amounts of trade notes
and accounts receivable, other security investments, financial instruments
included in other assets and other liabilities, notes payable and accounts
payable approximate their fair values because of the short-term maturities of
these instruments. The fair value of the Company's long-term debt and
subordinated debentures is estimated based on discounted cash computations
using estimated borrowing rates available to the Company ranging from 6.75% to
8.38% in 1995 and 6.66% to 9.55% in 1994. Estimated fair values of derivatives
are based on average trade prices.
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Liabilities:
Long-term debt (excluding capital leases) $295,270 $298,588 $284,385 $286,120
Subordinated debentures 406,258 405,983 414,306 396,168
Derivative Financial Instruments:
Grain futures 6,773 7,299
</TABLE>
In the normal course of business, the Company has letters of credit,
performance contracts and other guarantees which are not reflected in the
accompanying consolidated balance sheets. In the past, no significant claims
have been made against these financial instruments. Management believes that
the likelihood of performance under these financial instruments is minimal and
expects no material losses to occur in connection with these instruments.
The Company's leasing subsidiary, Telmark, 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.
In the event of nonperformance by the other party to the financial instrument,
the Company's credit risk is limited to the contractual amount of Telmark's
commitment to extend credit.
65
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
18. FINANCIAL INSTRUMENTS (CONTINUED)
Credit and Market Risk
Most financial instruments expose the holder to credit risk for
non-performance and to market risk for changes in interest and currency rates.
The Company, operating as an agricultural cooperative in the Northeast, has a
concentration of accounts and lease receivables due from farmer/members
throughout the region. This concentration of agricultural customers may affect
the Company's overall credit risk in that the repayment of farmer/member
receivables may be affected by inherent risks associated with (1) the overall
economic environment of the region and (2) the impact of adverse regional
weather conditions on crops. The Company mitigates this credit risk by
analyzing farmer/member credit positions prior to extending credit and
requiring collateral (in the form of crop liens) on long-term arrangements.
Energy extends unsecured credit to petroleum wholesalers and residential
fuel-oil customers. The Consumer business extends working capital lines of
credit, secured by inventory and accounts receivable, to its representatives.
The credit function within the Energy and Consumer businesses manage credit
risk associated with these trade receivables by routinely assessing the
financial strength of its customers.
The Company manages market risk primarily by investing in short-term,
highly liquid investments and, in the case of derivatives, by limiting the use
of derivatives to hedging activities or by limiting potential exposure to
amounts that are not material to result of operation or cash flow. The Company
does not enter into derivative financial instruments to speculate. The use of
derivative instruments has been limited to hedging exposure to price
fluctuations on grain and, to a limited extent, petroleum purchases.
66
<PAGE>
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) 57 Chairman of the Jersey Acres Farms Inc. 1973 November 1997
Board and Director
Robert L. Marshman 56 Vice Chairman of the
Board and Director Marshman Farms 1989 November 1996
Keith H. Carlisle 53 Director Carlisle Bros., Inc. 1995 November 1995
Vyron M. Chapman(2) 62 Director Chapman Farms, Inc. 1985 November 1997
Peter D. Hanks 47 Director Big Green Farms, Inc. 1984 November 1996
Frederick A. Hough 69 Director The Hough Farm 1979 November 1997
Stephen P. James 65 Director Monument Farms Inc. 1983 November 1995
Samuel F. Minor 57 Director The Springhouse 1987 November 1996
Donald E. Pease 59 Director Pease Farms 1972 November 1996
John H. Ross 67 Director Ross Farms Inc. 1977 November 1995
Carl D. Smith 60 Director Hillacre Farms 1984 November 1996
Thomas E. Smith 60 Director Lazy Acres 1986 November 1995
John H. Talmage(3) 65 Director H. R. Talmage & Son 1967 November 1995
Gary K. Van Slyke 52 Director VanSlyke's Dairy Farm 1994 November 1997
Joel L. Wenger 64 Director Weng-Lea Farms 1987 November 1996
Edwin C. Whitehead 54 Director White Ayr Farms 1994 November 1997
Christian F. Wolff, Jr. 70 Director Pen-Col Farms 1982 November 1997
William W. Young 42 Director Will-O-Crest Farm 1989 November 1995
</TABLE>
Ralph H. Heffner, Chairman of the Board of Directors, was paid $50,200
and Robert L. Marshman, Vice Chairman of the Board of Directors, was paid
$13,014 for their services for the fiscal year ended June 30, 1995. 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.
(1) All correspondence in relation to operational matters should be
addressed to D. P. Cardarelli, President, Chief Executive Officer
and General Manager, Agway Inc., P.O. Box 4933, Syracuse, New York
13221.
(2) On May 18, 1995, Mr. Chapman and Mildred E. Chapman, doing business
as Chapman Farms and Chapman Country Store, filed a petition under
Chapter 12 of the Federal Bankruptcy Code in U. S. Bankruptcy Court,
Utica, New York. Agway was listed as an unsecured creditor in the
sum of $34,000.
(3) Director of Long Island Lighting Company.
67
<PAGE>
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, except for Mr. Schalk, has been as an officer or
employee of the Company. The following is a listing of these officers as of
July 1, 1995, except as noted below:
<TABLE>
<CAPTION>
Years Served
Name Age Office As Officer
---- --- ------ ----------
<S> <C> <C> <C>
Donald P. Cardarelli 39 President, CEO and General Manager 4
Peter J. O'Neill 48 Senior Vice President, Treasurer and Controller 6
David M. Hayes 51 Senior Vice President, Corporate Services;
General Counsel and Secretary 14
Stephen B. Burnett 48 Group Vice President, Energy Group 4
Robert A. Fischer, Jr. 47 Vice President, Agway Agricultural Products -
Kevin S. Fuess 46 Vice President, Risk & Environmental Quality 1
Stephen H. Hoefer 40 Vice President, Public Affairs 1
Dennis J. LaHood 49 Vice President, Country Products Group -
Margaret N. Luttinger 44 Vice President, Human Resources -
William L. Parker 48 Vice President, Information Services -
Donald F. Schalk 44 Vice President, Ag & Related Services -
Robert D. Sears 54 Vice President, Membership 1
</TABLE>
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 August 1994, as Executive Vice President and Chief Operating
Officer from August 1994 to January 1995 and as General Manager and CEO from
January 1995 and President from February 1995 to July 1, 1995.
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
to July 1, 1995.
Mr. Fischer has served as President, Milford Fertilizer Company since
June 1970 and as Vice President, Agway Agricultural Products from September
1994 to July 1, 1995.
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, 1995.
Mr. Hoefer served as Director of Public Affairs/Government Relations
from July 1984 through June 1992, as Director of Government Affairs/Corporate
Transportation Services from June 1992 through June 1994 and as Vice
President, Public Affairs from June 1994 to July 1, 1995.
Mr. LaHood served as President, ADS from October 1987 to August 1992, as
Director, Computer and Communication Services from August 1992 to October
1992, as Director, Country Foods from October 1992 to October 1994, as
Executive Director, Country Foods and Seed Operations from October 1994 to
February 1995, and as Vice President, Country Products Group from February
1995 to July 1, 1995.
68
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED
EXECUTIVE OFFICERS (CONTINUED)
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, Corporate Groups from August 1992 to
September 1994 and as Vice President, Human Resources from September 1994 to
July 1, 1995.
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 from
September 1994 to July 1, 1995.
Mr. Schalk served as Vice President, Agriculture & Related Services from
November 1994 to July 1, 1995 and as Director of Marketing-Agriculture from
January 1990 to July 1993. For the period July 1993 to November 1994, Mr.
Schalk was a region manager of Harris Moran Seed Co.
Mr. Sears served 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, Membership from June 1994 to
July 1, 1995.
69
<PAGE>
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 1995, 1994 and 1993 of those persons who served as (i)
the chief executive officer (CEO) at any time during the prior fiscal year,
and (ii) the other four most highly compensated executive officers of the
Company (other than the CEO) who were serving in such capacity at June 30,
1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION
---------------------------------------
NAME AND ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald P. Cardarelli ............................... 1995 $236,232 -- $ 1,004
President, CEO and
General Manager (4)
Charles F. Saul .................................... 1995 193,858 -- 266,445
President, CEO and ............................... 1994 346,561 $ 68,250 14,886
General Manager (5) .............................. 1993 299,251 228,500 21,212
Peter J. O'Neill ................................... 1995 219,182 75,000 1,990
Senior Vice President, ........................... 1994 200,582 34,645 1,465
Treasurer and .................................... 1993 183,806 99,493 3,671
Controller
David M. Hayes ..................................... 1995 180,908 -- 4,110
Senior Vice President, ........................... 1994 178,808 45,227 3,841
Corporate Services ............................... 1993 170,192 95,209 7,834
Stephen B. Burnett ................................. 1995 176,670 -- 985
Group Vice President, ............................ 1994 174,605 68,901 1,048
Energy Group ..................................... 1993 151,808 87,965 1,404
Robert A. Fischer Jr ............................... 1995 156,370 -- 104,281
Vice President,
Agway Agricultural
Products
</TABLE>
(1) Salary is used in determining the average annual compensation
pursuant to the Company's retirement plan. This amount includes all deferred
amounts under the Company's 40l(k) Plan and Benefits Equalization 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. 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"). Contingent 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) Amounts shown for certain officers include contributions made by the
Company to the Agway Inc. Employees' Thrift Investment Plan, the Agway Inc.
Employees' Benefit Equalization Plan, the Agway Inc. Employees' Deferred
Compensation Program, non-compete payments and any other payments not
appropriately characterized as salary or bonus.
70
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION - CONTINUED
(4) On August 29, 1994, the board of directors elected Mr. Cardarelli to
the position of executive vice president and chief operating officer with full
responsibility for management of the Company. Mr. Cardarelli was named chief
executive officer and general manager of Agway Inc., January 10, 1995. He
assumed the additional title of president upon the retirement of Mr. Saul on
February 1, 1995.
(5) On August 29, 1994, Mr. Saul, then president, chief executive
officer and general manager of Agway Inc., announced that he would retire on
February 1, 1995. Until that date, Saul retained the title of president and
represented Agway in a number of agricultural industry and ag-cooperative
related projects. In connection with his retirement, he received other
compensation totaling $249,246.
LONG-TERM INCENTIVE PLAN
The Company had a Long-Term Incentive Plan (the "Incentive Plan")
effective July 1, 1992 to provide an incentive to the former president, CEO
and general manager, Mr. Saul, to achieve specified levels of equity. Awards
under the Incentive Plan had a maturity date of June 30, 1995. No amounts were
earned pursuant to this plan and no other long-term incentive plans existed as
of June 30, 1995.
EMPLOYEES' RETIREMENT PLAN
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 compensation 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 Internal Revenue Code; however, the extent of
any reduction will vary in individual cases according to circumstances
existing at the time pension payments commence. The Company's Employees'
Benefit Equalization Plan of Agway Inc. has been established to provide for
the amount of any such reduction in annual pension benefits under the
Retirement Plan.
71
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION - CONTINUED
EMPLOYEES' RETIREMENT PLAN (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 continuing the Plan's
benefit formulas as in effect on June 30, 1995. As of June 30, 1995, the
officers and their respective number of credited years of service under the
Retirement Plan were as follows: Messrs. Cardarelli, 10; Saul, 41; O'Neill, 6;
Burnett, 25; and Hayes, 22. Mr. Fischer does not participate in the retirement
plan nor any other long-term incentive programs of the Company. However, he
participates in the profit sharing plan of Milford Fertilizer. "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
There are no reportable items under this caption.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are no reportable items under this caption.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Agway's members, including its Directors, are customers of the Company
or its subsidiaries. They purchase product from the Company in the normal
course of operating their farm businesses and may sell certain agricultural
product to the Company at market prices. The prices, terms and conditions of
any purchase or sale transaction is on the same basis for all of the Company's
members.
72
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
(A) INDEX TO DOCUMENT LIST LOCATION
--------
<S> <C>
(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 30:
(i) Report of Independent Accountants 32
(ii) Consolidated Balance Sheets, June 30, 1995 and 1994 35
(iii) Consolidated Statements of Operations, for the fiscal years ended June 30, 1995, 1994
and 1993 36
(iv) Consolidated Statements of Changes in Shareholders' Equity, for the fiscal years ended
June 30, 1995, 1994 and 1993 37
(v) Consolidated Cash Flow Statements, for the fiscal years ended June 30,
1995, 1994 and 1993 38
(vi) Notes to Financial Statements 39
(2) FINANCIAL STATEMENT SCHEDULES
(i) Report of Independent Accountants 74
(ii) The following schedules are presented:
Schedule I - Condensed Financial Information of Registrant 75
Schedule II - Valuation and Qualifying Accounts 79
</TABLE>
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.
73
<PAGE>
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)(ii) 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 information required to
be included therein.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
September 15, 1995
74
<PAGE>
ITEM 14(A)(2). FINANCIAL STATEMENT SCHEDULES
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
----------------------------------------------------------
AGWAY INC.
CONDENSED BALANCE SHEETS
JUNE 30, 1995 AND 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ASSETS
1995 1994
-------------- --------------
<S> <C> <C>
Current assets:
Trade accounts receivable (including notes receivable of $31,240 and
$27,668, respectively) less allowance for doubtful
accounts of $5,641 and $8,939, respectively.......................... $ 101,504 $ 110,980
Operating advances receivable from subsidiaries........................... 19,357 23,211
Inventories............................................................... 55,458 62,570
Other current assets...................................................... 41,901 67,548
-------------- --------------
Total current assets................................................. 218,220 264,309
Investments in subsidiaries..................................................... 195,403 193,465
Properties and equipment, net................................................... 68,425 73,303
Other assets.................................................................... 92,465 81,999
-------------- --------------
Total assets......................................................... $ 574,513 $ 613,076
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................... $ 37,101 $ 57,023
Operating advances payable to subsidiaries................................ 195,167 194,400
Other current liabilities................................................. 117,498 105,881
-------------- --------------
Total current liabilities............................................ 349,766 357,304
Other liabilities............................................................... 52,381 51,943
Preferred stock................................................................. 65,635 71,338
Shareholders' equity............................................................ 106,731 132,491
-------------- --------------
Total liabilities and shareholders' equity........................... $ 574,513 $ 613,076
============== ==============
</TABLE>
75
<PAGE>
ITEM 14(A)(2). FINANCIAL STATEMENT SCHEDULES - CONTINUED
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
----------------------------------------------------------
AGWAY INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED
MARGIN FISCAL YEARS ENDED JUNE 30, 1995,
1994 AND 1993
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net sales and revenues from:
Product sales........................................... $ 508,204 $ 535,408 $ 462,083
Other services.......................................... 7,398 8,086 6,248
------------- ------------- -------------
Total net sales and revenues....................... 515,602 543,494 468,331
Cost and expenses from:
Products and plant operations........................... 488,104 516,810 441,521
Selling, general and administrative activities.......... 50,979 62,776 35,502
Restructuring costs (credit)............................ (4,179) (6,065)
------------- ------------- -------------
Total operating costs and expenses................. 534,904 573,521 477,023
------------- ------------- -------------
Operating loss................................................ (19,302) (30,027) (8,692)
Interest expense, net......................................... (241) (6,206) (3,337)
Other income, net............................................. 24,143 18,903 16,530
------------- ------------- -------------
Margin (loss) from continuing operations before
income taxes and equity in earnings of subsidiaries ........ 4,600 (17,330) 4,501
Income tax expense (benefit).................................. 17,995 (19,848) (13,703)
------------- ------------- -------------
(Loss) income before equity in earnings of subsidiaries....... (13,395) 2,518 18,204
Equity in earnings (loss) of unconsolidated subsidiaries...... (9,567) (8,200) 6,015
------------- ------------- -------------
(Loss) margin from continuing operations...................... (22,962) (5,682) 24,219
Discontinued operations:
Income from operations, including tax
expense of $2,286 and after interest of others
of $2,767............................................. 533
Gain on disposal of Curtice Burns, net of
tax expense of $19,700................................ 4,430
Adjustment required for reclassification of Hood to
continuing operations, net of tax (benefit) expense
of $(8,231), $3,086 and $5,145, respectively.......... 2,624 2,378 (5,002)
------------- ------------- -------------
Income (loss) from discontinued operations......... 7,054 2,378 (4,469)
------------- ------------- -------------
Net (loss) margin ............................................ (15,908) $ (3,304) $ 19,750
Retained margin - July 1...................................... 123,346 131,787 116,112
Dividends ................................................... (4,785) (5,044) (4,129)
Equity in net unrealized gains (losses) of insurance company.. (121) (93) 54
------------- ------------- -------------
Retained margin - June 30..................................... $ 102,532 $ 123,346 $ 131,787
============= ============= =============
</TABLE>
76
<PAGE>
ITEM 14(A)(2). FINANCIAL STATEMENT SCHEDULES - CONTINUED
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
----------------------------------------------------------
AGWAY INC.
CONDENSED CASH FLOW STATEMENTS
FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) margin ............................................ $ (15,908) $ (3,304) $ 19,750
Adjustments to reconcile net (loss) margin to net cash:
Restructuring credit.................................... (4,179) (6,065)
Other................................................... 37,415 14,080 3,072
-------------- ------------- -------------
Net cash flows from operating activities...................... 17,328 4,711 22,822
Cash flows from investing activities:
Purchases of property, plant and equipment.............. (10,091) (9,349) (11,230)
Other................................................... 3,871 (7,402) 5,738
-------------- ------------- -------------
Net cash flows from investing activities...................... (6,220) (16,751) (5,492)
Cash flows from financing activities:
Payments on capitalized leases.......................... (513) (544) (1,872)
Cash dividends paid..................................... (4,785) (5,044) (4,129)
Other................................................... (5,810) 17,628 (11,329)
-------------- ------------- -------------
Net cash flows from financing activities...................... (11,108) 12,040 (17,330)
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>
77
<PAGE>
ITEM 14(A)(2). FINANCIAL STATEMENT SCHEDULES - CONTINUED
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
----------------------------------------------------------
AGWAY INC.
ADDITIONAL DISCLOSURES
FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(THOUSANDS OF DOLLARS)
BASIS OF PRESENTATION
In the preceding condensed financial statements, which represent the
parent company only, the Company's investment in subsidiaries is stated at
cost plus equity in undistributed earnings of subsidiaries since the date of
acquisition. These financial statements should be read in conjunction with the
Company's consolidated financial statements.
INVENTORIES
Inventories at June 30 consist of the following:
1995 1994
------- -------
Raw materials ............... $14,989 $14,479
Finished goods .............. 36,902 45,214
Goods in transit and supplies 3,567 2,877
------- -------
$55,458 $62,570
======= =======
DEBT
Debt capital for Agway is supplied by its wholly owned subsidiary, 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 subsidiaries are
as follows:
FISCAL YEARS ENDED JUNE 30,
--------------------------------
1995 1994 1993
-------- -------- --------
Net sales and revenues ..................... $ 42,291 $ 64,025 $181,489
Product and plant operation expenses ....... 11,523 7,201 1,821
Selling, general and administrative
expenses ............................. 15,618 15,348 10,890
Other income, net .......................... 15,618 15,345 10,885
Interest expense, net ...................... 4,710 10,679 5,072
78
<PAGE>
ITEM 14(A)(2). FINANCIAL STATEMENT SCHEDULES - CONTINUED
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II - 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
-------------------------------------------------------------------------------------------------------------------
for the year ended June 30, 1995
-------------------------------------------------------------------------------------------------------------------
Reserves deducted in the balance sheet from assets to which they apply:
<S> <C> <C> <C> <C> <C>
Allowance for doubtful notes and accounts
receivable (current)..................... $ 15,515 $ 2,556 $ 5,628(a) $ 12,443
========= ========= ========= ========== =========
Allowance for doubtful leases receivable.... $ 12,434 $ 6,813 $ 3,916(a) $ 15,331
========= ========= ========= ========== =========
Inventory reserve........................... $ 0 $ 2,914 $ (b) $ 2,914
========= ========= ========= ========== =========
Income tax valuation allowance.............. $ 4,001 $ 960 $ 4,961
========= ========= ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
for the year ended June 30, 1994
-------------------------------------------------------------------------------------------------------------------
Reserves deducted in the balance sheet from assets to which they apply:
<S> <C> <C> <C> <C> <C>
Allowance for doubtful notes and accounts
receivable (current)..................... $ 16,385 $ 5,136 $ 6,006(a) $ 15,515
========= ========= ========= ========== =========
Allowance for doubtful leases receivable.... $ 12,080 $ 5,927 $ 5,573(a) $ 12,434
========= ========= ========= ========== =========
Income tax valuation allowance.............. $ 899 $ 3,102 $ 4,001
========= ========= ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
for the year ended June 30, 1993
-------------------------------------------------------------------------------------------------------------------
Reserves deducted in the balance sheet from assets to which they apply:
<S> <C> <C> <C> <C> <C>
Allowance for doubtful notes and accounts
receivable (current)..................... $ 13,308 $ 8,266 $ 5,189(a) $ 16,385
========= ========= ========= ========== =========
Allowance for doubtful leases receivable.... $ 12,045 $ 4,659 $ 4,624(a) $ 12,080
========= ========= ========= ========== =========
Income tax valuation allowance.............. $ 6,347 $ 5,448(c) $ 899
========= ========= ========= ========== =========
</TABLE>
-------------------------------------------------------------------------------
(a) Accounts charged off, net of recoveries.
(b) Difference between cost and market of applicable inventories.
(c) Reversal due to change in circumstance attributable to future taxable
income from sale of discontinued subsidiary investments.
79
<PAGE>
ITEM 14(B). REPORTS ON FORM 8-K
No reports on Form 8-K for the three months ended June 30,
1995, 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 Statement 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
Subordinated Money Market Certificates (Minimum
9% per annum) due October 31, 1997, and
Subordinated Money Market Certificates (minimum 9
1/2% 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 September 1, 1985,
between Agway and Key Bank of Central New York of
Syracuse, New York, Trustee, including forms of
Subordinated Money Market Certificates (Minimum 7
1/2% per annum) due October 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(c) - 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
Subordinated Money Market Certificates (Minimum
8% per annum) due October 31, 1995, and
Subordinated Member Money Market Certificates
(Minimum 8 1/2% 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(d) - 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
Subordinated Member Money Market Certificates
(Minimum 6 1/2% 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
1/2% 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(e) - 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,
including forms of subordinated debt securities
filed by reference to Exhibit 4 of Registration
Statement on Form S-3, File No. 33-8676, dated
September 11, 1986.
80
<PAGE>
ITEM 14(C)(1). EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION
REGULATION S-K - CONTINUED
4(f) - 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
Subordinated Member Money Market Certificates
(Minimum 7% per annum) due October 31, 1998, and
Subordinated Member Money Market Certificates
(Minimum 6 1/2% per annum) due October 31, 2008,
and Subordinated Money Market Certificates
(Minimum 6 1/2% 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(g) - 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
Subordinated Member Money Market Certificates
(Minimum 9 1/2% 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
1/2% per annum) due October 31, 2000, filed by
reference to Exhibit 4 of Registration Statement
on Form S-3, File No. 33-24093, dated August 31,
1988.
4(h) - 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(i) - 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(j) - AFC Board of Directors resolutions authorizing
the issuance of Money Market Certificates under
Indentures dated as of August 23, 1989.
4(k) - 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.
81
<PAGE>
ITEM 14(C)(1). EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION
REGULATION S-K - CONTINUED
4(l) - The Supplemental Indenture dated as of August
24, 1992 among AFC, Agway Inc. and Key Bank of
New York, Trustee, 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 MARCH 20, 1995
12 - STATEMENTS RE COMPUTATION OF RATIOS
13 - ANNUAL REPORT TO SECURITY HOLDERS, FORM 10-Q OR
QUARTERLY REPORT TO SECURITY HOLDERS
21 - SUBSIDIARIES OF THE 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, 1995.
82
<PAGE>
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
PRESIDENT, CEO AND
GENERAL MANAGER
(PRINCIPAL EXECUTIVE OFFICER)
Date September 15, 1995
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 President, CEO and September 15, 1995
(DONALD P. CARDARELLI) General Manager
(Principal Executive Officer)
/s/ Peter J. O'Neill Senior Vice President, September 15, 1995
(PETER J. O'NEILL) Treasurer and Controller
(Principal Financial Officer
& Principal Accounting Officer)
/s/ Ralph H. Heffner Chairman of the September 15, 1995
(RALPH H. HEFFNER) Board and Director
/s/ Robert L. Marshman Vice Chairman of the September 15, 1995
(ROBERT L. MARSHMAN) Board and Director
/s/ Keith H. Carlisle Director September 15, 1995
(KEITH H. CARLISLE)
/s/ Vyron M. Chapman Director September 15, 1995
(VYRON M. CHAPMAN)
/s/ Peter D. Hanks Director September 15, 1995
(PETER D. HANKS)
/s/ Frederick A. Hough Director September 15, 1995
(FREDERICK A. HOUGH)
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Stephen P. James Director September 15, 1995
(STEPHEN P. JAMES)
/s/ Samuel F. Minor Director September 15, 1995
(SAMUEL F. MINOR)
/s/ Donald E. Pease Director September 15, 1995
(DONALD E. PEASE)
/s/ John H. Ross Director September 15, 1995
(JOHN H. ROSS)
/s/ Carl D. Smith Director September 15, 1995
(CARL D. SMITH)
/s/ Thomas E. Smith Director September 15, 1995
(THOMAS E. SMITH)
/s/ John H. Talmage Director September 15, 1995
(JOHN H. TALMAGE)
/s/ Gary K. Van Slyke Director September 15, 1995
(GARY K. VAN SLYKE)
/s/ Joel L. Wenger Director September 15, 1995
(JOEL L. WENGER)
/s/ Edwin C. Whitehead Director September 15, 1995
(EDWIN C. WHITEHEAD)
/s/ Christian F. Wolff, Jr. Director September 15, 1995
(CHRISTIAN F. WOLFF, JR.)
/s/ William W. Young Director September 15, 1995
(WILLIAM W. YOUNG)
</TABLE>
84
<PAGE>
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, 1995. Subsequent to the filing of the annual report on Form
10-K, the Registrant shall furnish security holders with annual reports.
85
<PAGE>
AGWAY INC.
FORM 10-K
JUNE 30, 1995
EXHIBIT INDEX
Exhibit
Number Title
------- -----
( 3) Articles of incorporation and by-laws
(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) Consent of experts and counsel
(27) Financial data schedule*
(99) Additional exhibits
Annual report on Form 11-K for the year ended June 30, 1995
of The Agway Inc.Employees' Thrift Investment Plan
*Included with electronic filing only.
<PAGE>
EXHIBIT 3
<PAGE>
BY-LAWS
of
AGWAY INC.
As Amended to March 20, 1995
GENERAL
1.1 Certificate of Incorporation - The certificate of incor-
poration 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 references 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 incorpora-
tion.
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 orga-
nization.
(b) "Farmer" means any person who produces agricultural
products for sale.
(c) "Member" means any person meeting the qualifications
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 corporation, and
(2) has purchased farm supplies or farm services or
has marketed farm products through this corporation since
the beginning of the preceding fiscal year of the corpo-
ration.
<PAGE>
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 provided in
sections 9.1-9.5 of these by-laws.
(c) To attend and participate in local membership meet-
ings, 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 Dela-
ware, 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 stockhold-
er 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.
2.6 Non-Transferability of Membership - No membership shall
be assigned or transferred either voluntarily or involuntarily or by
operation of law.
2.7 Termination of Membership - A membership shall be termi-
nated:
(a) By transfer or the tender for purchase by the corpo-
ration by a member of his share of $25 par value membership
common stock of the corporation, such termination to be effec-
tive upon the recording of such transfer or purchase upon the
stock records of the corporation.
<PAGE>
(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 committees 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 nomination 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 certifi-
cate 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-presi-
dent 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.
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 conformi-
ty 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 de-
stroyed, 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.
<PAGE>
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 cancella-
tion 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 abso-
lutely. 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 Delaware.
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 delivered 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 there-
after be entitled to vote in respect to such stock, or otherwise to
enjoy any of the privileges and benefits of ownership thereof, but only
to receive, 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 enti-
tled 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 certif-
icates issued by any predecessor corporation in lieu of cash
patronage refunds, or by this corporation in exchange for such
certificates issued by a predecessor 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.
<PAGE>
(b) Retained Margins and Patrons' Equities - Retained
margins (any net margin retained by the corporation or any
predecessor and apportioned to patrons on the books of the
corporation or of predecessor corporations, but not allocated
to patrons in the form of any written notice) and patrons'
equities (retained net margin of the corporation or any prede-
cessor allocated to patrons in the form of a written notice
other than a revolving fund certificate) constitute the resid-
ual 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 provi-
sions 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 dissolu-
tion of the corporation. In the event of dissolution, after
payment in full of all debts and of any amounts to which the
holders of preferred stock, revolving fund certificates and
common stock shall be entitled pursuant to the provisions of
these by-laws, the remaining assets of the corporation shall
be distributed 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 connection with the
merger of Agway local store corporations into Agway, Inc. after Septem-
ber 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 stockholders 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.
<PAGE>
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 adjournment 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 stockhold-
ers entitled to vote at any election of directors, arranged in alphabet-
ical 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 the officer in charge of the stock ledger of the
corporation. Such list shall be open to the examination of any stock-
holder 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 elec-
tion 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 stock-
holders of the greater of (i) 100 persons each holding a share of $25
par value membership common stock, or (ii) the minimum number of stock-
holders 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 meet-
ings. 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 conducted 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 thereto) 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
<PAGE>
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 stock-
holder'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; 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 announcement of the date of
the meeting was communicated to stockholders. 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 conducting such business at the annual meeting, (b) the name and ad-
dress, as they appear on the corporation's books, of the stockholder
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 election of
directors may be made by the board of directors or a committee appointed
by the board of directors or by any stockholder 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 nomina-
tions 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 elec-
tion 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 descrip-
tion 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 nomination or nominations are to be made
by the stockholder; (d) such other information regarding each nominee
<PAGE>
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 compli-
ance 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 stock-
holders' 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 Catta-
raugus (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
Allegany, 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;
Commonwealth of Pennsylvania, northern section of
county of McKean and northwest section of county
of Potter.
<PAGE>
District 3. State of New York, counties of
Broome, Cayuga, Chenango (except for northwest
section), Cortland, (except for northeast section)
Delaware, Onondaga (southern half), Seneca
(southern section), Tompkins and the Town of
Gilbertsville located in the county of Otsego.
District 4. State of New York, counties of
Chenango (northwest section), Cortland (northeast
section), Herkimer (southern half), Madison,
Oneida, Onondaga (except for the southern half),
Oswego and Otsego (except for the Town of
Gilbertsville).
District 5. State of New York, counties of
Clinton, Essex, Franklin, Hamilton (northern
half), Herkimer (northern half), Jefferson, Lewis
and St. Lawrence.
District 6. State of New York, counties of
Fulton, Hamilton (southern half), Montgomery,
Rensselaer, Saratoga, Schenectady, Warren and
Washington; State of Vermont, counties of Addison,
Chittenden, Franklin, Grand Isle, Lamoille,
Rutland and Washington.
District 7. Commonwealth of Pennsylvania,
counties of Berks, Carbon, Dauphin, Lehigh,
Lancaster, Lebanon, Monroe (southern half),
Northampton and Schuylkill.
District 8. Intentionally left blank.
District 9. States of Maine and New Hampshire;
State of Vermont, counties of Bennington,
Caledonia, Essex, Orange, Orleans, Windham and
Windsor.
District 10. States of Connecticut and Rhode
Island; Commonwealth of Massachusetts; State of
New York, counties of Albany, Columbia, Dutchess,
Greene, Putnam and Schoharie.
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),
Ulster and Westchester.
District 12. Commonwealth of Pennsylvania,
counties of Bradford, Lackawanna, Luzerne
(northern section), Monroe (northern half), Pike,
Sullivan, Susquehanna, Wayne and Wyoming; State of
New York, county of Tioga, and the Towns of
Callicoon, Cochecton, Delaware and Fremont located
in the county of Sullivan.
<PAGE>
District 13. Commonwealth of Pennsylvania,
counties of Cameron, Centre, Clearfield, Clinton,
Columbia, Elk, Luzerne (southern section),
Lycoming, McKean (except for northern section),
Montour, Northumberland, Potter (except for
northwest section), Snyder, Tioga and Union.
District 14. Commonwealth of Pennsylvania,
counties of Armstrong, Beaver, Butler, Clarion,
Crawford, Erie (except for northeast corner),
Forest, Jefferson, Lawrence, Mercer, Venango and
Warren (except for northern section); and northern
Ohio.
District 15. Commonwealth of Pennsylvania,
counties of Allegheny, Bedford, Blair, Cambria,
Fayette, Fulton, Greene, Huntingdon, Indiana,
Somerset, Washington, and Westmoreland; State of
Maryland, counties of Allegany and Garrett;
southern Ohio and northern West Virginia.
District 16. State of New Jersey.
District 17. State of Delaware; State of
Maryland, counties of Caroline, Cecil, Dorchester,
Kent, Queen Annes, Somerset, Talbot, Wicomico and
Worcester; Commonwealth of Pennsylvania, counties
of Bucks, Chester, Delaware, Montgomery and
Philadelphia.
District 18. Commonwealth of Pennsylvania,
counties of Adams, Cumberland, Franklin, Juniata,
Mifflin, Perry and York; State of Maryland,
counties 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-
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
<PAGE>
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.
(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 meetings.
<PAGE>
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 (3/4) 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.
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:
<PAGE>
(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.
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.
<PAGE>
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-
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 sentence.
<PAGE>
(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
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.
<PAGE>
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 1/2 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)
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.
<PAGE>
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.
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
<PAGE>
(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."
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, 1995
(THOUSANDS OF DOLLARS)
----------------------------------------------------------------
1995 1994 1993 1992 1991
---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Margins before income taxes and
member refunds............................. $ (26,740) $ (4,556) $ 10,340 $ (62,432) $ (2,388)
Fixed charges - Interest................... 62,673 55,774 57,186 65,676 67,465
- Rentals 6,942 4,908 5,728 6,756 6,075
---------- --------- ---------- --------- ----------
Total fixed charges........................ 69,615 60,682 62,914 72,432 73,540
---------- --------- ---------- --------- ----------
Adjusted net margins....................... $ 42,875 $ 56,126 $ 73,254 $ 10,000 $ 71,152
========== ========= ========== ========= ==========
Ratio of margins to fixed
charges................................... 0.6 0.8 1.1 0.1 1.0
========== ========= ========== ========= ==========
Deficiency of adjusted net
margins to total fixed charges $ 26,740 $ 4,556 N/A $ 62,432 N/A
========== ========= ========== ========= ==========
Fixed charges and preferred
dividends combined:
Preferred dividend factor:
Preferred dividend requirements $ 4,620 $ 4,878 $ 3,962 $ 4,724 $ 5,052
Ratio of pre-tax margin to
after-tax margin* 114.1% 75.3% 234.2% 110.2% (412.1%)
Preferred dividend factor on
pre-tax basis....................... 4,049 6,478 1,692 4,287 (1,226)
Total fixed charges (above) 69,615 60,682 62,914 72,432 73,540
---------- --------- ---------- --------- ----------
Fixed charges and preferred
dividends.............................. $ 73,664 $ 67,160 $ 64,606 $ 76,719 $ 72,314
========== ========= ========== ========= ==========
Ratio of margins to fixed charges
and preferred dividends
combined**............................. 0.6 0.9 1.2 0.1 1.0
========== ========= ========== ========= ==========
Deficiency of adjusted net
margins to fixed charges and
preferred dividends.................... $ 30,789 $ 11,034 N/A $ 66,719 N/A
========== ========= ========== ========= ==========
</TABLE>
* Represents pre-tax adjusted net margin from continuing operations divided by
after-tax margin, which adjusts dividends on preferred stock to a pre-tax
basis.
**Represents adjusted net margins divided by fixed charges and preferred
dividends.
N/A - No deficiency.
<PAGE>
Computation of Ratio of Margins to Fixed Charges and Preferred
Dividends Combined
<TABLE>
<CAPTION>
AGWAY INC. (PARENT)
FOR THE FIVE YEARS ENDED JUNE 30, 1995
(THOUSANDS OF DOLLARS)
----------------------------------------------------------------
1995 1994 1993 1992 1991
---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Margins before income taxes and
member refunds of others................... $ 4,600 $ (17,330) $ 4,501 $ (51,202) $ 16,793
Fixed charges - Interest................... 5,874 14,985 8,282 11,940 16,368
- Rentals 1,960 1,183 755 662 684
---------- --------- ---------- --------- ----------
Total fixed charges........................ 7,834 16,168 9,037 12,602 17,052
---------- --------- ---------- --------- ----------
Adjusted net margins....................... $ 12,434 $ (1,162) $ 13,538 $ (38,600) $ 33,845
========== ========= ========== ========= ==========
Ratio of margins to fixed
charges.................................... 1.6 (0.1) 1.5 (3.1) 2.0
========== ========= ========== ========= ==========
Deficiency of adjusted net
margins to total fixed charges N/A $ 17,330 N/A $ 51,202 N/A
========== ========= ========== ========= ==========
Fixed charges and preferred
dividends combined:
Preferred dividend factor:
Preferred dividend requirements $ 4,620 $ 4,878 $ 3,962 $ 4,724 $ 5,502
Ratio of pre-tax margin to
after-tax margin* (291.2%) 214.5% 404.4% 108.4% 99.5%
Preferred dividend factor on
pre-tax basis....................... (1,587) 2,274 980 4,358 5,077
Total fixed charges (above) 7,834 16,168 9,037 12,602 17,052
---------- --------- ---------- --------- ----------
Fixed charges and preferred
dividends.............................. $ 6,247 $ 18,442 $ 10,017 $ 16,960 $ 22,129
========== ========= ========== ========= ==========
Ratio of margins to fixed charges
and preferred dividends
combined**............................. 2.0 (0.1) 1.4 (2.3) 1.5
========== ========= ========== ========= ==========
Deficiency of adjusted net
margins to fixed charges and
preferred dividends.................... N/A $ 19,604 N/A $ 55,560 N/A
========== ========= ========== ========= ==========
</TABLE>
* Represents pre-tax adjusted net margin from continuing operations divided
by after-tax margin, which adjusts dividends on preferred stock to a
pre-tax basis.
**Represents adjusted net margins divided by fixed charges and preferred
dividends.
N/A - No deficiency.
<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, 1994
------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934
For the transition period from to
----------------- ------------------
Commission file number 2-22791
-------
AGWAY INC.*
------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 15-0277720
------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Butternut Drive, DeWitt, New York 13214
-----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
315-449-6431
-----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at October 28, 1994
------------------------------------- -------------------------------
Common Stock, $25 par value per share 110,342 shares
* Agway is a taxpaying corporation founded on cooperative principles.
Membership is limited to farmers and each may hold only one share of
common stock.
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
------- ---------------------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1994 and June 30, 1994 . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations and Retained Margin for the three months
ended September 30, 1994 and September 30, 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Cash Flow Statements for the three months ended September 30, 1994
and September 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . 10
<CAPTION>
PART II. OTHER INFORMATION
-------- -----------------
<S> <C>
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
September 30, June 30,
1994 1994
------------- -------------
ASSETS (Unaudited) (Note)
------
<S> <C> <C>
Current Assets:
Trade notes and accounts receivable, less allowance for
doubtful accounts of $12,884 and $12,656, respectively . . . . . $ 170,822 $ 224,406
Leases receivable, less unearned income of $33,165 and
$33,209, respectively. . . . . . . . . . . . . . . . . . . . . . 84,191 84,744
Uncollected insurance premiums . . . . . . . . . . . . . . . . . . 10,080 9,936
Advances and other receivables . . . . . . . . . . . . . . . . . . 19,903 25,819
Inventories
Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . 15,215 22,470
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . 139,960 148,505
Goods in transit and supplies. . . . . . . . . . . . . . . . . . 7,957 7,689
-------------- --------------
Total inventories. . . . . . . . . . . . . . . . . . . . . . . . 163,132 178,664
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . 69,730 74,805
-------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . 517,858 598,374
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . 34,208 33,943
Other security investments. . . . . . . . . . . . . . . . . . . . . . . 36,358 36,226
Properties and equipment, net . . . . . . . . . . . . . . . . . . . . . 245,361 249,369
Long-term leases receivable, less unearned income of
$53,257 and $51,775, respectively . . . . . . . . . . . . . . . . . . 211,017 191,654
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,223 79,965
Net assets of discontinued operations . . . . . . . . . . . . . . . . . 85,545 84,783
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,212,570 $ 1,274,314
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,500 $ 62,800
Current installments of long-term debt and subordinated debt . . . 97,203 111,008
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 86,229 124,679
Unearned insurance premiums. . . . . . . . . . . . . . . . . . . . 16,899 16,868
Other current liabilities. . . . . . . . . . . . . . . . . . . . . 111,268 121,147
-------------- --------------
Total current liabilities. . . . . . . . . . . . . . . . . . . 380,099 436,502
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,152 176,567
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 379,843 372,673
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,085 84,746
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,932 71,338
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,762 2,771
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,526 6,371
Retained margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,171 123,346
-------------- --------------
Total liabilities and shareholders' equity . . . . . . . . . . $ 1,212,570 $ 1,274,314
============== ==============
</TABLE>
Note: The balance sheet at June 30, 1994 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED MARGIN
(Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Net sales and revenues from:
Product sales. . . . . . . . . . . . . . . . . . . . $ 334,203 $ 328,607
Leasing operations . . . . . . . . . . . . . . . . . 9,275 7,815
Insurance operations . . . . . . . . . . . . . . . . 6,684 6,699
-------------- --------------
Total net sales and revenues . . . . . . . . . . 350,162 343,121
Cost and expenses from:
Products and plant operations. . . . . . . . . . . . 314,100 312,723
Leasing operations . . . . . . . . . . . . . . . . . 4,361 3,500
Insurance operations . . . . . . . . . . . . . . . . 4,458 4,387
Selling, general and
administrative activities. . . . . . . . . . . . . 38,193 34,152
--------------- ---------------
Total costs and expenses . . . . . . . . . . . . 361,112 354,762
Operating loss. . . . . . . . . . . . . . . . . . . . . . (10,950) (11,641)
Interest expense, net . . . . . . . . . . . . . . . . . . 6,813 6,507
Other income, net . . . . . . . . . . . . . . . . . . . . 323 353
--------------- ---------------
Loss from continuing operations before income taxes . . . (17,440) (17,795)
Income tax benefit. . . . . . . . . . . . . . . . . . . . 6,170 6,014
--------------- ---------------
Loss from continuing operations . . . . . . . . . . . . . (11,270) (11,781)
Results from discontinued operations. . . . . . . . . . .
--------------- ---------------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . (11,270) (11,781)
Retained Margin:
Balance at beginning of period . . . . . . . . . . . 123,346 131,787
Equity in unrealized capital gains (losses)
of insurance companies . . . . . . . . . . . . . 95 (8)
-------------- --------------
Balance at end of period. . . . . . . . . . . . . . . . . $ 112,171 $ 119,998
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
September 30,
1994 1993
-------------- -------------
<S> <C> <C>
Net cash flows from operating activities. . . . . . . . . . . . . . . . $ 29,582 $ 34,096
Cash flows (used in) provided by investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . (6,923) (4,380)
Cash paid for acquisitions . . . . . . . . . . . . . . . . . . . . (4,810)
Proceeds from disposal of businesses and property, plant and
equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . 955 3,165
Leases originated. . . . . . . . . . . . . . . . . . . . . . . . . (34,588) (25,050)
Leases repaid. . . . . . . . . . . . . . . . . . . . . . . . . . . 14,392 15,644
Proceeds from sale of marketable securities. . . . . . . . . . . . 468 4,062
Purchases of marketable securities . . . . . . . . . . . . . . . . (638) (3,927)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (132) (249)
Net changes in net assets of discontinued operations . . . . . . . (762) (227)
-------------- -------------
Net cash flows used in investing activities . . . . . . . . . . . . . . (27,228) (15,772)
Cash flows (used in) provided by financing activities:
Net change in short-term borrowings. . . . . . . . . . . . . . . . 5,700 (18,400)
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . 12,000 10,000
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . (22,240) (22,672)
Proceeds from sale of subordinated debt. . . . . . . . . . . . . . 13,858 15,656
Redemption of subordinated debt. . . . . . . . . . . . . . . . . . (6,241) (2,973)
Proceeds from sale of stock. . . . . . . . . . . . . . . . . . . . 4 1,840
Redemption of stock. . . . . . . . . . . . . . . . . . . . . . . . (2,419) (260)
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . . (2,589) (2,056)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (427) (230)
-------------- -------------
Net cash flows used in financing activities . . . . . . . . . . . . . . (2,354) (19,095)
-------------- -------------
Net decrease in cash and equivalents. . . . . . . . . . . . . . . . . . 0 (771)
Cash and equivalents at beginning of period . . . . . . . . . . . . . . 0 771
-------------- -------------
Cash and equivalents at end of period . . . . . . . . . . . . . . . . . $ 0 $ 0
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands of Dollars)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial
statements of Agway Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-
month period ended September 30, 1994 are not necessarily
indicative of the results that may be expected for the year ended
June 30, 1995 due, among other reasons, to the seasonal nature of
certain major segments of the Company's business. For further
information, refer to the consolidated financial statements and notes
thereto included in the annual report on Form 10-K for the year
ended June 30, 1994.
Certain reclassifications have been made to conform prior year
financial statements with the current year presentation. These
reclassifications had no effect on the working capital or
shareholders' equity of the Company.
2. AGWAY FINANCIAL CORPORATION
---------------------------
Agway Financial Corporation (AFC) is a wholly owned subsidiary
of the Company whose principal business activity is securing
financing through bank borrowings and issuance of corporate debt
instruments to provide funds for the Company, its sole stockholder,
and AFC's sole wholly owned subsidiary, Agway Holdings Inc.
(AHI), and AHI's subsidiaries, for general corporate purposes.
The payment of principal and interest on this debt is absolutely and
unconditionally guaranteed by the Company. In an exemptive
order granted by the Securities and Exchange Commission, AFC,
as a separate company, is not required to file periodic reports with
respect to these debt securities provided the 1934 Act reports of the
Company contain summarized financial information concerning
AFC.
On July 1, 1994, (i) certain subsidiaries of AFC (Seedway Inc.,
Allied Seed Cooperative Inc., and Pro-Lawn Products Inc.) were
transferred to and merged into to Agway Inc., and (ii) certain
operating divisions of Agway Inc. (Retail/Wholesale Operations)
were transferred to AFC and merged together with the Country
Foods operations into Agway Consumer Products Inc., formerly
Agway Country Foods, Inc. The prior year financial statements
have been restated to give retroactive effect to this change in
reporting entity.
As discussed in Note 6, the sale of Curtice Burns closed on
November 3, 1994, and the pro-forma impact on the Company's
consolidated financial statements is shown. The pro-forma impact
of this sale on the summarized financial information for AFC and
Consolidated Subsidiaries is identical in dollar amount and
classification to the Company's consolidated financial statements,
due to the fact that Curtice Burns is owned by AFC, which is
owned by Agway Inc., as shown below.
Summarized financial information for AFC and Consolidated
Subsidiaries is as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------------
1994 1993
------------ --------------
<S> <C> <C>
Net sales and revenues. . . . . . . . . $ 251,013 $ 260,012
Operating margin. . . . . . . . . . . . 6,366 3,595
Loss from continuing operations . . . . (5,450) (9,549)
Net loss. . . . . . . . . . . . . . . . (5,450) (9,549)
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands of Dollars)
2. AGWAY FINANCIAL CORPORATION (continued)
---------------------------------------
<TABLE>
<CAPTION>
Restated
September 30, June 30,
1994 1994
--------------- --------------
<S> <C> <C>
Current assets. . . . . . . . . . . . . . . . . . . . . . . . . . $ 501,645 $ 568,477
Properties and equipment, net . . . . . . . . . . . . . . . . . . 164,275 164,296
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . 296,230 275,759
Net assets of discontinued operations . . . . . . . . . . . . . . 85,545 84,783
--------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,047,695 $ 1,093,315
=============== ==============
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . $ 267,469 $ 313,873
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . 176,765 173,231
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . 379,843 372,673
Noncurrent liabilities. . . . . . . . . . . . . . . . . . . . . . 14,263 18,985
Shareholder's equity. . . . . . . . . . . . . . . . . . . . . . . 209,355 214,553
Total liabilities and --------------- ---------------
shareholder's equity. . . . . . . . . . . . . . . . . . . . . $ 1,047,695 $ 1,093,315
=============== ===============
</TABLE>
The following is an updated organizational structure of the Company
reflecting the above noted transfers between the Company and AFC.
It reflects changes to the organization structure of the Company
included in page 4 of the Company's annual report on Form 10-K for
the fiscal year ended June 30, 1994.
ORGANIZATIONAL CHART OMITTED HERE. SEE APPENDIX FOR A NARRATIVE
OF THE ORGANIZATIONAL CHART.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
3. SUPPLEMENTAL DISCLOSURES ABOUT OPERATING CASH FLOWS
---------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Additional disclosure of operating cash flows:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 14,894 $ 15,354
============== ==============
Income taxes . . . . . . . . . . . . . . . . . . . . . $ 759 $ 4,717
============== ==============
</TABLE>
During the fiscal year ended June 30, 1993, 46 local cooperative
affiliates were acquired, and during fiscal 1994, 6 additional local
cooperative affiliates were acquired. The total purchase price of
$21,700 plus certain liabilities assumed of $15,900 was settled in
fiscal 1994 in the form of cash ($5,000) and restricted preferred
stock, 6%, $100 par value, ($16,700). This occurred primarily in
the first quarter of fiscal 1994 for cash ($4,800) and restricted
preferred stock, 6%, $100 par value, ($15,900).
4. BORROWING ARRANGEMENTS
----------------------
The Company finances its operations and the operations of all its
continuing businesses and subsidiaries, except Telmark and Agway
Insurance Company, through AFC. Telmark and Agway Insurance
Company finance themselves through operations or direct
borrowings.
As of September 30, 1994, lines of credit were available to AFC
of $105,000 and Telmark of $23,000 compared to $135,000 and
$23,000, respectively, in the prior year. The AFC credit facilities
are adequate for the Company's current needs and are available
through December 31, 1994, with conclusion of longer-term
renewal negotiations pending the sale of Curtice Burns, the cash
proceeds from which impact the forecasted short-term debt need
for the coming year (See Note 6. Subsequent Event). These
longer-term renewals are in the final stages of negotiation and are
expected to close in December 1994. Telmark's lines of credit
expire at various times throughout the fall of 1994. It is
management's expectation that appropriate facilities will be in
place to meet the ongoing needs of Telmark and the Company.
Certain of the AFC agreements are collateralized by the
Company's accounts receivable and non-petroleum inventories.
Amounts which can be drawn under these agreements are limited
to a specific calculation based upon the total of certain accounts
receivable and non-petroleum inventories ("collateral"). Adequate
collateral has existed throughout the fiscal year to meet the
ongoing needs of the Company. In addition, the agreements
include certain covenants, the most restrictive of which requires
the Company to maintain specific monthly levels of interest
coverage and tangible net worth.
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
Environmental
The Company is subject to a number of governmental regulations
concerning environmental matters, either directly, or as a result of
the operations of its subsidiaries. The Company expects that it
will be required to expend funds to remediate certain sites,
including certain Superfund sites and sites with underground fuel
storage tanks. In addition, the Company expects that it will incur
other expenses associated with environmental compliance.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
5. COMMITMENTS AND CONTINGENCIES (continued)
-----------------------------------------
Environmental (continued)
The Company continually monitors its operations with respect to
potential environmental issues, including changes in legally
mandated standards and remediation technologies. The Company's
recorded liability reflects those specific issues where remediation
activities are currently deemed to be probable and where the cost
of remediation is estimable. Estimates of the extent of the
Company's degree of responsibility of a particular site and the
method and ultimate cost of remediation require a number of
assumptions for which the ultimate outcome may differ from
current estimates; however, the Company believes that its past
experience provides a reasonable basis for estimating its liability.
As additional information becomes available, estimates are adjusted
as necessary. While the Company does not anticipate that any
such adjustment would be material to its financial statements, it is
reasonably possible that the result of ongoing and/or future
environmental studies or other factors could alter this expectation
and require the recording of additional liabilities. The extent or
amount of such events, if any, cannot be estimated at this time.
As part of its long-term environmental protection program, the
Company spent approximately $5,000 in fiscal 1994 on capital
projects. The Company estimates that during fiscal 1995 and 1996
approximately $4,000 per year will be spent on additional capital
projects for environmental protection. These estimates recognize
the additional capital required to comply with Environmental
Protection Agency (EPA) Underground Storage Tank (UST)
regulations which become effective in December 1998. Presently,
the total cost to comply with the EPA UST regulations is estimated
to be approximately $5,000. The total capital requirements may
change due to the actual number of USTs actively in use on the
effective date.
Other
The Company is also subject to various investigations, claims, and
legal proceedings covering a wide range of matters that arise in the
ordinary course of its business activities. Each of these matters is
subject to various uncertainties, and it is possible that some of
these matters may be resolved unfavorably to the Company. The
Company has established accruals for matters for which payment
is probable and amounts reasonably estimable. Management
believes any liability that may ultimately result from the resolution
of these matters in excess of amounts provided will not have a
material adverse effect on the financial position or results of
operations of the Company.
6. SUBSEQUENT EVENT
----------------
Curtice Burns accepted an offer from Pro-Fac Cooperative Inc.
(Pro-Fac) to acquire all outstanding shares of Curtice Burns for
$19 per share in cash, and had entered into a definitive merger
agreement with Pro-Fac. This agreement closed on November 3,
1994 and the Company received $55,786 in cash proceeds.
Both Curtice Burns and Hood, combined, are reflected as
discontinued operations in the Company's consolidated financial
statements. Therefore, since the sale of Hood has not yet closed,
and since the terms of the Curtice Burns merger agreement were
not significantly different from those estimated, the Company's
consolidated financial statements will not be significantly impacted
by the disposition of Curtice Burns. There is no impact to the
consolidated statement of operations and retained margins. Had
this transaction closed as of September 30, 1994, the consolidated
balance sheet would have been impacted as follows, which in
general reflects the paydown of notes payable, establishment of
income taxes payable, deferral of gain on sale, and reduction of
net assets of discontinued operations. As a result of the sale of
Curtice Burns, approximately $5,000 previously included in paid-in
capital, which arose from periodic changes in the Company's
percentage of ownership in Curtice Burns, has been eliminated and
the effect considered in conjunction with the net assets of
discontinued operations.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
6. SUBSEQUENT EVENT (continued)
----------------------------
<TABLE>
<CAPTION>
Actual Pro Forma
September 30, September 30,
1994 1994
----------------------- -----------------------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . $ 517,858 $ 517,858
Other long-term assets. . . . . . . . . . . . . . . . 609,167 609,167
Net assets of discontinued operations . . . . . . . . 85,545 35,782
----------------------- -----------------------
Total assets . . . . . . . . . . . . . . . . . . $ 1,212,570 $ 1,162,807
======================= =======================
Notes payable . . . . . . . . . . . . . . . . . . $ 68,500 $ 12,714
Other current liabilities . . . . . . . . . . . . . . 311,599 331,912
Long-term liabilities . . . . . . . . . . . . . . . . 642,080 632,846
Preferred stock . . . . . . . . . . . . . . . . . . 68,932 68,932
Common stock . . . . . . . . . . . . . . . . . . 2,762 2,762
Paid-in capital . . . . . . . . . . . . . . . . . . 6,526 1,470
Retained margin . . . . . . . . . . . . . . . . . . 112,171 112,171
----------------------- -----------------------
Total liabilities and shareholder's equity . . . $ 1,212,570 $ 1,162,807
======================= =======================
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
---------------------
The Company's net sales and revenues and operating results are significantly
impacted by seasonal fluctuations due to the nature of its operations and
the geographic location of its service area, which is defined primarily as
the Northeastern United States. Agriculture and Consumer Group net sales
and revenues are traditionally higher in the spring as customers initiate
the growing season. Correspondingly, the Company's Energy Group realizes
significantly higher net sales and revenues in the winter months due to the
cold winter conditions in the Northeast. The Financial Services and Corporate
Groups are generally not materially impacted by seasonal fluctuations.
<TABLE>
<CAPTION>
Results by Operating Segment
----------------------------
Increase (Decrease) Three Months Ended
-------------------
9/30/94 vs. 9/30/93
-------------------
Net Sales and Revenues
----------------------
<S> <C>
Agriculture & Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,920
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,767
Financial Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,281
Corporate Groups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
-------------------
$ 7,041
===================
<CAPTION>
Margin (Loss) from Continuing Operations before Income Taxes
------------------------------------------------------------
<S> <C>
Agriculture & Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,056
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 589
Financial Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Corporate Groups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,070)
-------------------
Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . 660
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (306)
-------------------
$ 355
===================
</TABLE>
Parenthetical numbers in the following narrative have been rounded to the
nearest hundred thousand.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Unaudited)
(Thousands of Dollars)
Discontinued Operations
-----------------------
On March 23, 1993, the Company's Board of Directors authorized
management to sell its 34% interest in Curtice Burns Foods, Inc.
(Curtice Burns) and 99% interest in H. P. Hood Inc. (Hood).
Management and the Board had specific plans for the divestiture of
these operations and expected the divestiture of both investments in
fiscal 1994; however, due to unanticipated occurrences, neither
transaction was consummated by June 30, 1994. The investment in
Curtice Burns has been sold effective November 3, 1994. The
investment in Hood is expected to consummate within this fiscal year.
Accordingly, these operations are reflected as discontinued operations.
The Company's decision to make these sales is part of the overall
strategic plan of focusing on its agriculture, consumer, energy,
insurance and leasing businesses.
The November 3, 1994 sale of the Company's investment in Curtice
Burns was not significantly different on terms than those previously
estimated, and there have been no recent developments regarding the
anticipated terms of the sale of Hood that would require recognition of
further losses on disposal of these investments.
Curtice Burns
On September 28, 1994, Curtice Burns accepted an offer from Pro-Fac
Cooperative Inc. to acquire all outstanding shares of Curtice Burns for
$19 per share in cash, and had entered into a definitive merger
agreement with Pro-Fac. (See also Item 6. Exhibits and Reports on
Form 8-K.)
This agreement closed on November 3, 1994 and the Company
received $55,786 in cash proceeds. The financial impact of this sale
is disclosed in Note 6 to the financial statements and in Item 5. Other
Information.
Hood
During the quarter, negotiations with an investor group, led by the
management of Hood in a transaction expected to involve the use of an
employee stock ownership plan, continued to progress according to
schedule. The investor group is still intact and interested in the
acquisition of Hood based on terms being negotiated that are consistent
with the current market conditions and financial plans for Hood.
Agriculture & Consumer Group
----------------------------
Net sales and revenues for the first quarter of fiscal 1995 of $225,500
increased $3,900 (1.8%) as compared to the corresponding period in
the prior fiscal year. Increases in Consumer sales are primarily due to
the impact of a marketing program which accelerated power equipment
sales into the first quarter. This increase was offset by sales declines
in Agriculture feed sales due primarily to price declines in corn and
soybean products.
Operating losses for the first quarter of fiscal 1995 of $10,600
decreased $1,100 as compared to the corresponding period in the prior
fiscal year. Gross margin percentage for the Group improved from
11.2% in the first quarter of fiscal 1994 to 11.9% in the first quarter
of fiscal 1995 due primarily to enhanced pricing of agricultural
commodities, primarily in the feed business. This improvement was
somewhat offset by declines in gross margin percentage for the
Consumer Retail segment due to product mix, and increases in
commodity prices on the Country Foods segment. This improvement
was partially offset by increases in expense for severance and due to
timing of expenditures.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Unaudited)
(Thousands of Dollars)
Energy Group
------------
Energy Group net sales and revenues of $107,300 for the first quarter
of fiscal 1995 increased $1,800 (1.7%) as compared to the first quarter
of the prior year. Total unit volume (in millions of gallons) for the
first quarter increased 1,100 gallons as compared to the corresponding
period in the prior year. Volume increases in heating oil and propane,
due primarily to an early tank filling program, were offset by a volume
decline in diesel, due to plant divestitures and fewer keytrol facilities.
Overall average selling price increased slightly versus the prior year,
reflecting increased gasoline and diesel prices, offset by declines in
heating oil and propane. Service revenues also increased in the first
quarter of fiscal 1995 versus 1994 due to an increased emphasis on
customer service in the field and a growing customer base.
Net operating losses for the Energy Group of $4,000 for the first
quarter of fiscal 1995 were $600 lower than the corresponding period
in the prior year, due primarily to improved gross margins offset by
increased administrative expenses resulting from higher product taxes.
Gross margins improved due to increases in sales volume as well as
overall increases in average gross margin per unit of 3.1%.
Financial Services Group
------------------------
For segment reporting purposes, the Financial Services Group consists
of Telmark Inc., Agway Insurance Company, and Agway General
Agency, Inc.
Net sales and revenues of $17,000 for the Financial Services Group for
the first quarter of fiscal 1995 increased $1,300 (8.2%) as compared to
the first quarter of the prior year. The increase for the quarter is
attributed to Telmark Inc. which increased revenues by $1,500 due to
a higher average net investment in leases compared to the first quarter
of the previous year. The increased net investment resulted from new
business being booked during the past year at a faster rate than the
existing business terminated, partially offset by a lease sale of $5,500
in the third quarter of fiscal 1994. Agway General Agency Inc.
revenues declined $200 for the first quarter as compared to the
corresponding period in the prior year due to a decline in administrative
fees on a declining base of participants in the Agway member group
health insurance plan.
Operating profit increased in the first quarter of fiscal 1995 by $100
(4.3%) over the same period in the previous year. Telmark Inc.'s
operating margins increased $200 in the first quarter due primarily to
the increased size of the lease portfolio generating additional gross
margins on a relatively flat expense base. This was offset by a first
quarter decline of $100 in operating margins for the Agway Insurance
Company due to unfavorable underwriting experience versus the prior
year and smaller capital gains on investments.
Corporate Groups
----------------
The net sales and revenues of the Corporate Groups represent external
revenues generated from the Information Services Department and the
elimination of sales and revenues between the operating segments.
The operating profit (loss) of the Corporate Groups represents
corporate expenses and other income generated from assets not
allocable to segments. The increase in expenses for the first quarter of
fiscal 1995 versus 1994 of $1,100 is primarily the effect of early
recognition of severance expenses versus salaries normally occurring
throughout the year.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Unaudited)
(Thousands of Dollars)
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash flows from operating activities for the three months ended
September 30, 1994 decreased $4,500 to $29,600 as compared to the
first three months of fiscal 1994 due primarily to changes in working
capital. Net cash utilized in investing activities for the three months
ended September 30, 1994 was $27,200 as compared to $15,800 for the
same period last year due primarily to increased leasing activity in
fiscal 1995 resulting in the use of an additional $10,800 of cash
compared to the same period last year. As a result of cash utilized in
investing activities, net cash flows used in financing activities was
decreased from $19,100 in the first quarter of fiscal 1994 to $2,400 in
the first quarter of fiscal 1995. The majority of this change was seen
in short-term borrowings, where additional borrowings of $5,700
occurred in the first quarter of fiscal 1995 versus payments of $18,400
in the same period of the prior fiscal year, and increased net
redemptions of subordinated debt and preferred stock in the first
quarter of the current year versus the same period in the prior year.
The Company finances its operations and the operations of all its
continuing businesses and subsidiaries, except Telmark and Agway
Insurance Company, through Agway Financial Corporation (AFC).
Telmark and Agway Insurance Company finance themselves through
operations or direct borrowing arrangements. Each business unit is
financed with a combination of short- and long-term credit facilities as
appropriate. External sources of short-term financing for the Company
and all its continuing operations include revolving credit lines, letters
of credit, and commercial paper programs. Sources of longer-term
financing include borrowings from banks and insurance companies,
subordinated debt, and capital leases. In addition, Telmark has
occasionally sold blocks of its lease portfolio.
As of September 30, 1994, lines of credit were available to AFC of
$105,000 and Telmark of $23,000 compared to $135,000 and $23,000,
respectively, in the prior year. The AFC credit facilities are adequate
for the Company's current needs and are available through December
31, 1994, with conclusion of longer-term renewal negotiations pending
the sale of Curtice Burns, the cash proceeds from which impact the
forecasted short-term debt need for the coming year. This sale closed
on November 3, 1994, and the Company received $55,786 in proceeds
(See also Note 6 to the financial statements and Item 5. Other
Information). These longer-term renewals are in the final stages of
negotiation and are expected to close in December 1994. Telmark's
lines of credit expire at various times throughout the fall of 1994. It
is management's expectation that appropriate facilities will be in place
to meet the ongoing needs of Telmark and the Company.
Certain of the AFC agreements are collateralized by the Company's
accounts receivable and non-petroleum inventories. Amounts which
can be drawn under these agreements are limited to a specific
calculation based upon the total of certain accounts receivable and non-
petroleum inventories ("collateral"). Adequate collateral has existed
throughout the fiscal year to meet the ongoing needs of the Company.
In addition, the agreements include certain covenants, the most
restrictive of which requires the Company to maintain specific monthly
levels of interest coverage and tangible net worth.
<PAGE>
PART II. OTHER INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
(Thousands of Dollars)
Item 1. Legal Proceedings
--------------------------
In November 1991, Agway Petroleum Corporation (APC) notified the
Environmental Protection Agency (EPA) that APC had recently
discovered that certain forms that APC's facilities are required to file
under the Emergency Planning and Community Rights-To-Know Act
(EPCRA) may not have been filed on time. In August 1994, the EPA
filed an Administrative Complaint against APC for violations of
EPCRA alleging penalties. A tentative settlement of this matter has
been negotiated in which APC and EPA will execute a consent
agreement under which APC will pay EPA $100 in cash and agree to
undertake certain environmentally beneficial expenditures with a value
of $500. The settlement is in the process of being finalized.
In August 1994, the EPA notified Motor Transportation Services, Inc.
(MTS), an inactive, indirect wholly owned subsidiary of the Company,
that the EPA has reason to believe that MTS is a potentially responsible
party (PRP) under the federal Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) at the Rosen Site,
Cortland, New York. The EPA requested that MTS and other PRPs
participate in the ongoing Remedial Investigation/Feasibility Study
(RI/FS) for the Rosen Site. MTS believes that its involvement at the
Rosen Site, if any, is minimal and responded appropriately to the
EPA's request. In a related matter, other PRPs at the Rosen Site,
Cooper Industries, Inc., et al., filed a complaint under CERCLA
against the Company, MTS and other alleged PRPs at the Rosen Site
in the U. S. District Court, Northern District of New York in June
1992 seeking reimbursement for the cost of the ongoing RI/FS. The
Company and MTS believe the relief sought by Cooper Industries,
Inc., el al. is unjustified and are contesting the allegations in the
lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
On July 1, 1994, the Company's common stockholders were requested
to appoint a proxy to elect six nominees to the Company's Board of
Directors at the annual stockholders meeting scheduled November 30,
1994.
Item 5. Other Information
--------------------------
On September 28, 1994, Curtice Burns accepted an offer from Pro-Fac
to acquire all outstanding shares of Curtice Burns for $19 per share in
cash, and entered into a definitive merger agreement with Pro-Fac. An
8-K was filed relative to that announcement. On November 2, 1994,
Pro-Fac's tender offer for Curtice Burns expired with 6,229,442 shares
of Class A and 2,046,997 shares of Class B common stock of Curtice
Burns (or approximately 94 percent and 99 percent, respectively, of the
total of outstanding shares of Class A and Class B common stock of
Curtice Burns) having been validly tendered and not withdrawn. All
such tendered shares were accepted for payment by PF Acquisition
Corp., a wholly owned subsidiary of Pro-Fac. On November 3, 1994,
Pro-Fac announced that it had completed its acquisition of Curtice
Burns and that Curtice Burns has become a wholly owned subsidiary
of Pro-Fac. As a result of this transaction, the Company received
$55,786 in cash proceeds. As allowed by Item 5 of Form 10-Q, we
are incorporating the disclosure required for an Item 2 of Form 8-K -
Acquisition or Disposition of Assets in this first quarter 10-Q. See
also Footnote 6 to the financial statements.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
For the first quarter of the fiscal year ending June 30, 1995 four
reports on Form 8-K were filed. Three reports on Form 8-K related
to the sale of one of the Company's significant investments, Curtice
Burns. The fourth report on Form 8-K related to a management change
within the Company.
The first of these reports dated July 11, 1994 related to certain events
regarding the proposed sale of Curtice Burns to Dean Foods Company
at a maximum cash price of $20 per share. This proposal was subject
to a number of contingencies, including reaching an agreement with
Pro-Fac Cooperative, Inc. on various issues related to the Integrated
Agreement with Curtice Burns dated June 27, 1992 (the "Integrated
Agreement"). Under the terms of the Integrated Agreement, Curtice
Burns and Pro-Fac are required to settle any dispute thereunder by
arbitration. On July 11, 1994, Curtice Burns commenced arbitration
proceedings against Pro-Fac.
<PAGE>
PART II. OTHER INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
(Thousands of Dollars)
Item 6. Exhibits and Reports on Form 8-K (continued)
-----------------------------------------------------
The second report dated August 2, 1994 covered several issues
involving the sale of Curtice Burns. The first issue discussed Curtice
Burns' filing a petition on August 2, 1994 in the Supreme Court of
New York for an order compelling Pro-Fac to proceed with arbitration
proceedings under the Integrated Agreement. The second issue involved
Pro-Fac's response and counterdemand for arbitration served on August
4, 1994. The third issue involved two proposals dated August 5, 1994
and August 9, 1994 from Pro-Fac to acquire Curtice Burns for $19 per
share in cash. No action was taken by Curtice Burns on either of these
proposals due to a number of contingencies involved in the proposals.
The third report dated September 28, 1994 related to the announcement
that Curtice Burns had accepted an offer from Pro-Fac to acquire all
outstanding shares of Curtice Burns for $19 per share in cash and that
Curtice Burns had entered into a definitive merger agreement with Pro-
Fac.
The Company also filed a report on Form 8-K dated August 29, 1994,
announcing the retirement of Charles F. Saul, president, chief executive
officer and general manager effective as of February 1, 1995 and the
election of Donald P. Cardarelli to the position of executive vice
president and chief operating officer.
No financial statements were filed as a part of these reports.
<PAGE>
PART II. OTHER INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
(Thousands of Dollars)
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AGWAY INC.
--------------------------------
(Registrant)
Date November 11, 1994 /s/ PETER J. O'NEILL
----------------------- --------------------------------
Peter J. O'Neill
Senior Vice President
Corporate Finance and Control
(Principal Financial Officer and
Chief Accounting Officer)
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to
------------------- ------------------
Commission file number 2-22791
-------
AGWAY INC.*
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 15-0277720
-----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Butternut Drive, DeWitt, New York 13214
-----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
315-449-6431
-----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at January 24, 1995
------------------------------------- -------------------------------
Common Stock, $25 par value per share 110,104 shares
* Agway is a taxpaying corporation founded on cooperative principles.
Membership is limited to farmers and each may hold only one share
of common stock.
<PAGE>
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)
Discontinued Operations
-----------------------
On March 23, 1993, the Company's Board of Directors authorized
management to sell its 34% interest in Curtice Burns Foods, Inc.
(Curtice Burns) and 99% interest in H. P. Hood Inc. (Hood).
Management and the Board had specific plans for the divestiture of
these operations and expected the divestiture of both investments in
fiscal 1994; however, due to unanticipated occurrences, neither
transaction was consummated by June 30, 1994. The investment in
Curtice Burns has been sold effective November 3, 1994. The
investment in Hood is expected to consummate within this fiscal year.
Accordingly, these operations are reflected as discontinued operations.
The Company's decision to make these sales is part of the overall
strategic plan of focusing on its agriculture, consumer, energy,
insurance and leasing businesses.
The November 3, 1994 sale of the Company's investment in Curtice
Burns was not significantly different on terms than those previously
estimated, and there have been no recent developments regarding the
anticipated terms of the sale of Hood that would require recognition of
further losses on disposal of these investments.
Curtice Burns
On September 28, 1994, Curtice Burns accepted an offer from Pro-Fac
Cooperative Inc. to acquire all outstanding shares of Curtice Burns for
$19 per share in cash, and had entered into a definitive merger
agreement with Pro-Fac. (See also Item 6. Exhibits and Reports on
Form 8-K.)
This agreement closed on November 3, 1994 and the Company
received $55,786 in cash proceeds. The financial impact of this sale
is disclosed in Note 6 to the financial statements and in Item 5. Other
Information.
Hood
During the quarter, negotiations with an investor group, led by the
management of Hood in a transaction expected to involve the use of an
employee stock ownership plan, continued to progress according to
schedule. The investor group is still intact and interested in the
acquisition of Hood based on terms being negotiated that are consistent
with the current market conditions and financial plans for Hood.
Agriculture & Consumer Group
----------------------------
Net sales and revenues for the first quarter of fiscal 1995 of $225,500
increased $3,900 (1.8%) as compared to the corresponding period in
the prior fiscal year. Increases in Consumer sales are primarily due to
the impact of a marketing program which increased power equipment
sales by approximately $7,700 in the first quarter. Of this increase,
$4,000 is an increase in sales, and approximately $3,700 is an
acceleration of sales, which last year occurred primarily in the second
quarter. This increase was offset by sales declines in Agriculture feed
sales due primarily to price declines in corn and soybean products.
Operating losses for the first quarter of fiscal 1995 of $10,600
decreased $1,100 as compared to the corresponding period in the prior
fiscal year. Gross margin percentage for the Group improved from
11.2% in the first quarter of fiscal 1994 to 11.9% in the first quarter
of fiscal 1995 due primarily to enhanced pricing of agricultural
commodities, primarily in the feed business. This improvement was
somewhat offset by declines in gross margin percentage for the
Consumer Retail segment due to product mix, and increases in
commodity prices on the Country Foods segment. This improvement
was also partially offset by increases in expense due to reductions
in personnel in connection with ongoing efforts to improve
profitability, and due to timing of expenditures.
<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
------------
Energy Group net sales and revenues of $107,300 for the first quarter
of fiscal 1995 increased $1,800 (1.7%) as compared to the first quarter
of the prior year. Total unit volume (in millions of gallons) for the
first quarter increased 1,100 gallons as compared to the corresponding
period in the prior year. Volume increases in heating oil and propane,
due primarily to an early tank filling program, were offset by a volume
decline in diesel, due to plant divestitures and fewer keytrol facilities.
Overall average selling price increased slightly versus the prior year,
reflecting increased gasoline and diesel prices, offset by declines in
heating oil and propane. Service revenues also increased in the first
quarter of fiscal 1995 versus 1994 due to an increased emphasis on
customer service in the field and a growing customer base.
Net operating losses for the Energy Group of $4,000 for the first
quarter of fiscal 1995 were $600 lower than the corresponding period
in the prior year, due primarily to improved gross margins offset by
increased administrative expenses resulting from higher product taxes.
Gross margins improved due to increases in sales volume as well as
overall increases in average gross margin per unit of 3.1%.
Financial Services Group
------------------------
For segment reporting purposes, the Financial Services Group consists
of Telmark Inc., Agway Insurance Company, and Agway General
Agency, Inc.
Net sales and revenues of $17,000 for the Financial Services Group for
the first quarter of fiscal 1995 increased $1,300 (8.2%) as compared to
the first quarter of the prior year. The increase for the quarter is
attributed to Telmark Inc. which increased revenues by $1,500 due to
a higher average net investment in leases compared to the first quarter
of the previous year. The increased net investment resulted from new
business being booked during the past year at a faster rate than the
existing business terminated, partially offset by a lease sale of $5,500
in the third quarter of fiscal 1994. Agway General Agency Inc.
revenues declined $200 for the first quarter as compared to the
corresponding period in the prior year due to a decline in administrative
fees on a declining base of participants in the Agway member group
health insurance plan.
Operating profit increased in the first quarter of fiscal 1995 by $100
(4.3%) over the same period in the previous year. Telmark Inc.'s
operating margins increased $200 in the first quarter due primarily to
the increased size of the lease portfolio generating additional gross
margins on a relatively flat expense base. This was offset by a first
quarter decline of $100 in operating margins for the Agway Insurance
Company due to unfavorable underwriting experience versus the prior
year and smaller capital gains on investments.
Corporate Groups
----------------
The net sales and revenues of the Corporate Groups represent external
revenues generated from the Information Services Department and the
elimination of sales and revenues between the operating segments.
The operating profit (loss) of the Corporate Groups represents
corporate expenses and other income generated from assets not
allocable to segments. The increase in expenses for the first quarter of
fiscal 1995 versus 1994 of $1,100 is primarily the effect of recognition
of separation expenses for recent executive officer and staff changes
versus salaries normally occurring throughout the quarter.
<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
-------------------------------
Cash flows from operating activities for the three months ended
September 30, 1994 decreased $4,500 to $29,600 as compared to the
first three months of fiscal 1994 due primarily to changes in working
capital. Net cash utilized in investing activities for the three months
ended September 30, 1994 was $27,200 as compared to $15,800 for the
same period last year due primarily to increased leasing activity in
fiscal 1995 resulting in the use of an additional $10,800 of cash
compared to the same period last year. As a result of cash utilized in
investing activities, net cash flows used in financing activities was
decreased from $19,100 in the first quarter of fiscal 1994 to $2,400 in
the first quarter of fiscal 1995. The majority of this change was seen
in short-term borrowings, where additional borrowings of $5,700
occurred in the first quarter of fiscal 1995 versus payments of $18,400
in the same period of the prior fiscal year, and increased net
redemptions of subordinated debt and preferred stock in the first
quarter of the current year versus the same period in the prior year.
The Company finances its operations and the operations of all its
continuing businesses and subsidiaries, except Telmark and Agway
Insurance Company, through Agway Financial Corporation (AFC).
Telmark and Agway Insurance Company finance themselves through
operations or direct borrowing arrangements. Each business unit is
financed with a combination of short- and long-term credit facilities as
appropriate. External sources of short-term financing for the Company
and all its continuing operations include revolving credit lines, letters
of credit, and commercial paper programs. Sources of longer-term
financing include borrowings from banks and insurance companies,
subordinated debt, and capital leases. In addition, Telmark has
occasionally sold blocks of its lease portfolio.
As of September 30, 1994, lines of credit were available to AFC of
$105,000 and Telmark of $23,000 compared to $135,000 and $23,000,
respectively, in the prior year. The AFC credit facilities are adequate
for the Company's current needs and are available through December
31, 1994, with conclusion of longer-term renewal negotiations pending
the sale of Curtice Burns, the cash proceeds from which impact the
forecasted short-term debt need for the coming year. This sale closed
on November 3, 1994, and the Company received $55,786 in proceeds
(See also Note 6 to the financial statements and Item 5. Other
Information). These longer-term renewals are in the final stages of
negotiation and are expected to close in December 1994. Telmark's
lines of credit expire at various times throughout the fall of 1994. It
is management's expectation that appropriate facilities will be in place
to meet the ongoing needs of Telmark and the Company.
Certain of the AFC agreements are collateralized by the Company's
accounts receivable and non-petroleum inventories. Amounts which
can be drawn under these agreements are limited to a specific
calculation based upon the total of certain accounts receivable and non-
petroleum inventories ("collateral"). Adequate collateral has existed
throughout the fiscal year to meet the ongoing needs of the Company.
In addition, the agreements include certain covenants, the most
restrictive of which requires the Company to maintain specific monthly
levels of interest coverage and tangible net worth.
<PAGE>
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 January 27, 1995 /s/ PETER J. O'NEILL
------------------------ ---------------------------------
Peter J. O'Neill
Senior Vice President
Corporate Finance and Control
(Principal Financial Officer and
Chief Accounting Officer)
<PAGE>
APPENDIX
NARRATIVE DESCRIPTION OF ORGANIZATIONAL CHART OMITTED ON PAGE 7
---------------------------------------------------------------
The organizational structure of Agway Inc. as of July 1,1994
was as follows:
Agway Inc is the parent company of this organization. The
organization consists of these areas: Corporate
Administration, Agriculture, and Other Segments.
Corporate Administration encompasses divisions of Agway
Inc. responsible for financial, legal, corporate and
information services, cooperative relations and planning
and operations. Also within this group are Agway
Financial Company (AFC), a wholly owned subsidiary of
Agway Inc. and Agway Holdings Inc. (AHI), a wholly
owned subsidiary of AFC.
Agriculture consists of feed and crops operations. Divisions
within Agway Inc. are responsible for feed and crop operations.
Also within the feed and crop operations is Milford Fertilizer
Company, a wholly owned subsidiary of Agway Inc.
Consumer includes country foods and retail/wholesale operations,
both of which are divisions of Agway Consumer Products Inc., a
wholly owned subsidiary of AHI.
The Other Segments include the energy group, consisting
of Agway Petroleum Corporation, a wholly owned
subsidiary of AHI; the financial services group consisting
of Telmark, Inc., Agway Insurance Company, and Agway
General Agency, Inc., all wholly owned subsidiaries of
AHI; and discontinued operations consisting of Curtice
Burns Foods, Inc. and H. P. Hood Inc., both subsidiaries
of AHI.
<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, 1994
-----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to
----------------- ----------------
Commission file number 2-22791
-------
AGWAY INC.*
---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 15-0277720
---------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Butternut Drive, DeWitt, New York 13214
---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
315-449-6431
---------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at January 31, 1995
------------------------------------- -------------------------------
Common Stock, $25 par value per share 110,085 shares
* Agway is a taxpaying corporation founded on cooperative principles.
Membership is limited to farmers and each may hold only one share of
common stock.
<PAGE>
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, 1994
and June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations and Retained Margin
for the three months and six months ended December 31, 1994 and
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Cash Flow Statements for the six months ended
December 31, 1994 and December 31, 1993 . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . .15
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . .19
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . .19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . .20
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
<PAGE>
PART I. FINANCIAL INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
------------ ------------
ASSETS (Unaudited) (Note)<F1>
------
<S> <C> <C>
Current Assets:
Trade notes and accounts receivable, less allowance for
doubtful accounts of $15,572 and $15,515, respectively . . . . . $ 202,136 272,925
Leases receivable, less unearned income of $36,274 and
$33,209, respectively. . . . . . . . . . . . . . . . . . . . . . 93,968 84,653
Uncollected insurance premiums . . . . . . . . . . . . . . . . . . 10,124 9,936
Advances and other receivables . . . . . . . . . . . . . . . . . . 21,303 26,447
Inventories
Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . 23,774 23,292
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . 157,437 158,639
Goods in transit and supplies. . . . . . . . . . . . . . . . . . 24,245 15,857
-------------- --------------
Total inventories. . . . . . . . . . . . . . . . . . . . . . . . 205,456 197,788
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . 88,950 92,039
-------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . 621,937 683,788
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . 34,923 33,943
Other security investments. . . . . . . . . . . . . . . . . . . . . . . 39,048 38,913
Properties and equipment, net . . . . . . . . . . . . . . . . . . . . . 312,479 318,359
Long-term leases receivable, less unearned income of
$59,450 and $51,775, respectively . . . . . . . . . . . . . . . . . . 213,736 191,654
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,764 91,214
Net assets of discontinued operations . . . . . . . . . . . . . . . . . 0 48,424
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,313,887 $ 1,406,295
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,248 $ 77,193
Current installments of long-term debt and subordinated debt . . . 98,344 117,143
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 145,214 165,134
Unearned insurance premiums. . . . . . . . . . . . . . . . . . . . 16,951 16,868
Other current liabilities. . . . . . . . . . . . . . . . . . . . . 139,131 136,197
-------------- --------------
Total current liabilities. . . . . . . . . . . . . . . . . . . 451,888 512,535
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,868 208,915
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 364,175 379,835
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,045 94,967
Interest of others in consolidated subsidiaries . . . . . . . . . . . . 6,055 6,217
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,824 71,338
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,755 2,771
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,470 6,371
Retained margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,807 123,346
-------------- --------------
Total liabilities and shareholders' equity . . . . . . . . . . $ 1,313,887 $ 1,406,295
============== ==============
<FN>
<F1> Note: The balance sheet at June 30, 1994 has been derived from the audited financial statements at that date
but does not include all the information and footnotes required by generally accepted accounting principles for
complete financial statements. It has been reclassified to consolidate H. P. Hood (Hood) previously reported as a
discontinued operation.
</FN>
</TABLE>
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,
-------------------------------- --------------------------------
1994 1993 1994 1993
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales and revenues from:
Product sales. . . . . . . . . . . . $ 473,802 $ 478,729 $ 934,723 $ 932,850
Leasing operations . . . . . . . . . 9,924 8,230 19,138 15,957
Insurance operations . . . . . . . . 6,677 6,982 13,361 13,681
-------------- -------------- -------------- --------------
Total net sales and revenues . . 490,403 493,941 967,222 962,488
Cost and expenses from:
Products and plant operations. . . . 431,929 438,368 860,565 863,105
Leasing operations . . . . . . . . . 4,445 3,580 8,806 7,080
Insurance operations . . . . . . . . 3,915 4,341 8,373 8,728
Selling, general and
administrative activities. . . . . 54,169 49,814 105,535 97,246
-------------- -------------- -------------- --------------
Total costs and expenses . . . . 494,458 496,103 983,279 976,159
Operating loss. . . . . . . . . . . . . . (4,055) (2,162) (16,057) (13,671)
Interest expense, net . . . . . . . . . . (9,083) (7,695) (17,672) (15,861)
Other Hood costs, net . . . . . . . . . . (10,207) 0 (10,207) 0
Other income (expense), net . . . . . . . 1,874 1,422 2,555 2,163
-------------- -------------- -------------- --------------
Loss from continuing operations
before income taxes . . . . . . . . (21,471) (8,435) (41,381) (27,369)
Income tax benefit. . . . . . . . . . . . 7,251 2,134 14,086 8,895
-------------- -------------- -------------- --------------
Loss from continuing operations . . . . . (14,220) (6,301) (27,295) (18,474)
Discontinued operations:
Gain on disposal of Curtice Burns,
net of tax expense of $19,700. . . . 4,430 0 4,430 0
Adjustment required for reclassification
of Hood to continuing operations . . 817 743 2,623 1,135
Credit from discontinued -------------- -------------- -------------- --------------
operations . . . . . . . . . 5,247 743 7,053 1,135
-------------- -------------- -------------- --------------
Net loss. . . . . . . . . . . . . . . . . (8,973) (5,558) (20,242) (17,339)
Retained Margin:
Balance at beginning of period . . . 112,171 119,998 123,346 131,787
Dividends. . . . . . . . . . . . . . (2,374) (2,454) (2,374) (2,454)
Equity in unrealized capital gains
(losses) of insurance companies . (17) (2) 77 (10)
-------------- -------------- -------------- --------------
Balance at end of period. . . . . . . . . $ 100,807 $ 111,984 $ 100,807 $ 111,984
============== ============== ============== ==============
</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>
Six Months Ended
December 31,
-------------------------------
1994 1993
-------------- -------------
<S> <C> <C>
Net cash flows provided by operating activities . . . . . . . . . . . . $ 42,426 $ 39,436
Cash flows (used in) provided by investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . (17,340) (14,401)
Cash paid for acquisitions . . . . . . . . . . . . . . . . . . . . 0 (4,985)
Proceeds from disposal of businesses and property, plant and
equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,329 5,079
Leases originated. . . . . . . . . . . . . . . . . . . . . . . . . (80,115) (61,148)
Leases repaid. . . . . . . . . . . . . . . . . . . . . . . . . . . 45,524 45,125
Proceeds from sale of marketable securities. . . . . . . . . . . . 715 (19,450)
Purchases of marketable securities . . . . . . . . . . . . . . . . (1,618) 19,442
Proceeds from sale of discontinued operations. . . . . . . . . . . 55,786 0
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (135) (1,105)
Net changes in net assets of discontinued operations . . . . . . . 0 325
-------------- -------------
Net cash flows provided by (used in) investing activities . . . . . . . 7,146 (31,118)
Cash flows (used in) provided by financing activities:
Net change in short-term borrowings. . . . . . . . . . . . . . . . (24,945) (25,800)
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . 36,205 59,475
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . (39,238) (55,939)
Proceeds from sale of subordinated debt. . . . . . . . . . . . . . 31,894 19,560
Maturity and redemption of subordinated debt . . . . . . . . . . . (47,611) (5,985)
Proceeds from sale of stock. . . . . . . . . . . . . . . . . . . . 6 1,857
Redemption of stock. . . . . . . . . . . . . . . . . . . . . . . . (2,536) (348)
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . . (2,589) (2,057)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (758) (556)
-------------- -------------
Net cash flows used in financing activities . . . . . . . . . . . . . . (49,572) (9,793)
-------------- -------------
Net decrease in cash and equivalents. . . . . . . . . . . . . . . . . . 0 (1,475)
Cash and equivalents at beginning of period . . . . . . . . . . . . . . 0 1,475
-------------- -------------
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 of Agway Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended
December 31, 1994 are not necessarily indicative of the results that
may be expected for the year ended June 30, 1995 due, among other
reasons, to the seasonal nature of certain major segments of the
Company's business. For further information, refer to the
consolidated financial statements and notes thereto included in the
annual report on Form 10-K for the year ended June 30, 1994.
Certain reclassifications have been made to conform prior year
financial statements with the current year presentation. These
reclassifications had no effect on the shareholders' equity of the
Company. Subsequent to the close of the second quarter of fiscal
1995, Agway determined that Hood should no longer be classified
as a discontinued operation and has reclassified Hood to continuing
operations for all periods presented (see also Note 6 to the financial
statements).
2. AGWAY FINANCIAL CORPORATION
Agway Financial Corporation (AFC) is a wholly owned subsidiary
of the Company whose principal business activity is securing
financing through bank borrowings and issuance of corporate debt
instruments to provide funds for the Company, its sole stockholder,
and AFC's sole wholly owned subsidiary, Agway Holdings Inc.
(AHI), and AHI's subsidiaries, for general corporate purposes. The
payment of principal and interest on this debt is absolutely and
unconditionally guaranteed by the Company. In an exemptive relief
granted by the Securities and Exchange Commission, AFC, as a
separate company, is not required to file periodic reports with
respect to these debt securities provided the 1934 Act reports of the
Company contain summarized financial information concerning
AFC.
On July 1, 1994, (i) certain subsidiaries of AFC (Seedway Inc.,
Allied Seed Cooperative Inc., and Pro-Lawn Products Inc.) were
transferred to and merged into Agway Inc., and (ii) certain operating
divisions of Agway Inc. (Retail/Wholesale Operations) were
transferred to AFC and merged together with the Country Foods
operations into Agway Consumer Products Inc., formerly Agway
Country Foods, Inc. The prior year financial statements have been
restated to give retroactive effect to these changes in reporting
entities.
Summarized financial information for AFC and Consolidated
Subsidiaries is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------- --------------------------------
1994 1993 1994 1993
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales and revenues. . . . . . . . . $ 401,831 $ 394,436 $ 779,501 $ 779,874
Operating margin. . . . . . . . . . . . 11,488 15,230 18,005 20,101
Loss from continuing operations . . . . (10,641) (6,353) (17,897) (18,944)
Net loss. . . . . . . . . . . . . . . . (5,394) (5,610) (10,844) (17,809)
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands of Dollars)
2. AGWAY FINANCIAL CORPORATION (continued)
---------------------------------------
<TABLE>
<CAPTION>
Reclassified
December 31, June 30,
1994 1994
--------------- ---------------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 593,665 $ 656,290
Properties and equipment, net. . . . . . . . . . . . . . . . . . 230,536 233,287
Noncurrent assets. . . . . . . . . . . . . . . . . . . . . . . . 311,088 290,201
Net assets of discontinued operations. . . . . . . . . . . . . . 0 48,424
--------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,135,289 $ 1,228,202
=============== ==============
Current liabilities. . . . . . . . . . . . . . . . . . . . . . . $ 321,754 $ 392,809
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 220,764 205,579
Subordinated debt. . . . . . . . . . . . . . . . . . . . . . . . 364,175 379,835
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . 29,708 35,424
Shareholder's equity . . . . . . . . . . . . . . . . . . . . . . 198,888 214,555
Total liabilities and --------------- --------------
shareholder's equity. . . . . . . . . . . . . . . . . . . . . $ 1,135,289 $ 1,228,202
=============== ==============
<CAPTION>
3. SUPPLEMENTAL DISCLOSURES ABOUT OPERATING CASH FLOWS
---------------------------------------------------
Six Months Ended
December 31,
--------------------------------
1994 1993
Additional disclosure of operating cash flows: --------------- --------------
<S> <C> <C>
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,640 $ 20,375
=============== ==============
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . $ 2,154 $ 6,756
=============== ==============
</TABLE>
During the fiscal year ended June 30, 1993, 46 local cooperative
affiliates were acquired, and during fiscal 1994, 6 additional local
cooperative affiliates were acquired. The total purchase price of
$21,700 plus certain liabilities assumed of $15,900 was settled in
fiscal 1994 in the form of cash ($5,000) and restricted preferred
stock, 6%, $100 par value, ($16,700). This occurred primarily in
the first quarter of fiscal 1994 for cash ($4,800) and restricted
preferred stock, 6%, $100 par value, ($15,900).
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
4. BORROWING ARRANGEMENTS
----------------------
As of December 31, 1994, short-term borrowing availability to AFC
of $125,000, Telmark of $24,000 and Hood of $33,000 is compared
to $135,000, $23,000 and $33,000, respectively, in the prior year.
Long-term and subordinated debt outstanding amounted to:
<TABLE>
<CAPTION>
Agway & AFC Telmark Hood Total
---------------------- ---------------------- ------------------ ----------------------
12/94 6/94 12/94 6/94 12/94 6/94 12/94 6/94
---------- ---------- ---------- ---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt $ 27,759 $ 33,524 $ 222,578 $ 219,489 $ 37,460 $ 38,574 $ 287,797 $ 291,587
Currently payable 14,581 14,424 41,622 62,022 7,726 6,226 63,929 82,672
---------- ---------- ---------- ---------- -------- -------- ---------- ----------
Net long-term debt $ 13,178 $ 19,100 $ 180,956 $ 157,467 $ 29,734 $ 32,348 $ 223,868 $ 208,915
========== ========== ========== ========== ======== ======== ========== ==========
Subordinated debt $ 386,606 $ 403,432 $ 5,310 $ 3,712 $ 6,674 $ 7,162 $ 398,590 $ 414,306
Currently payable 34,415 34,471 0 0 0 0 34,415 34,471
---------- ---------- ---------- ---------- -------- -------- ---------- ----------
Net long-term debt $ 352,191 $ 368,961 $ 5,310 $ 3,712 $ 6,674 $ 7,162 $ 364,175 $ 379,835
========== ========== ========== ========== ======== ======== ========== ==========
</TABLE>
In addition, as of December 31, 1994, Telmark has a committed
term loan credit of $125,000 available to be borrowed through
November 30, 1995, of which $90,000 is outstanding as of
December 31, 1994. Hood has available from its bank a committed
term loan facility of up to $10,000 under specified conditions which
may be borrowed against at any time prior to June 1995. No
borrowings have been made against this $10,000 line and any that
are made would be due for repayment by October 31, 1995 and
would be guaranteed by Agway.
The AFC short-term lines are available through October 31, 1995.
These AFC short-term lines of credit and $10,000 of AFC long-term
bank debt are collateralized by the Company's accounts receivable
and non-petroleum inventories. Amounts which can be drawn under
the AFC short-term agreements are limited to a specific calculation
based upon the total of certain accounts receivable and non-
petroleum inventories ("collateral"). Adequate collateral has existed
throughout the fiscal year to meet the ongoing needs of the Company
and is expected to continue to do so. In addition, the agreements
include certain covenants, the most restrictive of which requires the
Company to maintain specific quarterly levels of interest coverage
and monthly levels of tangible net worth. These covenants were set
giving consideration to Hood as a discontinued operation. No covenant
violations existed as of December 31, 1994. Unless covenant
requirements are amended or waived, the Company anticipates future
covenant violations based upon the current credit agreement covenant
requirements and the change in circumstances with Hood as described
in Note 6. The Company has had preliminary discussions with its
lenders and expects covenant amendments or waivers will be negotiated
to make appropriate and adequate financing available under these
facilities given the change in circumstances.
The Hood short-term credit facility is used to supply letters of credit
as well as short-term financing. Letters of credit of $12,027 were
outstanding at December 31, 1994. In anticipation of the sale of
Hood, the availability of short-term financing for Hood was not
extended for a long period of time, and accordingly, the current
facility expires on February 28, 1995. Due to the change in
circumstances regarding the sale of Hood, the Company and Hood
are working with their financial institution to extend and renegotiate
the financing at adequate levels and for appropriate periods of time.
No covenant violations existed as of December 31, 1994. Unless covenant
requirements are amended or waived, the Company anticipates future
covenant violations based upon the current credit agreement covenant
requirements and the change in circumstances with Hood as described
in Note 6.
<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
-----------------------------
Environmental
The Company is subject to a number of governmental regulations
concerning environmental matters, either directly, or as a result of
the operations of its subsidiaries. The Company expects that it will
be required to expend funds to remediate certain sites, including
certain Superfund sites and sites with underground fuel storage
tanks. In addition, the Company expects that it will incur other
expenses associated with environmental compliance.
The Company continually monitors its operations with respect to
potential environmental issues, including changes in legally mandated
standards and remediation technologies. The Company's recorded
liability reflects those specific issues where remediation activities
are currently deemed to be probable and where the cost of remediation
is estimable. Estimates of the extent of the Company's degree of
responsibility of a particular site and the method and ultimate cost
of remediation require a number of assumptions for which the
ultimate outcome may differ from current estimates; however, the
Company believes that its past experience provides a reasonable
basis for estimating its liability. As additional information becomes
available, estimates are adjusted as necessary. While the Company
does not anticipate that any such adjustment would be material to its
financial statements, it is reasonably possible that the result of
ongoing and/or future environmental studies, changes in legal
requirements or other factors could alter this expectation and require
the recording of additional liabilities. The extent or amount of such
events, if any, cannot be estimated at this time.
As part of its long-term environmental protection program, the
Company spent approximately $5,000 in fiscal 1994 on capital
projects. The Company estimates that during fiscal 1995 and 1996
approximately $4,000 per year will be spent on additional capital
projects for environmental protection. These estimates recognize the
additional capital required to comply with Environmental Protection
Agency (EPA) Underground Storage Tank (UST) regulations which
become effective in December 1998. Presently, the total cost to
comply with the EPA UST regulations is estimated to be
approximately $5,000. The total capital requirements may change
due to, amongst other things, the actual number of USTs actively in
use on the effective date.
Other
The Company is also subject to various investigations, claims and
legal proceedings covering a wide range of matters that arise in the
ordinary course of its business activities. Each of these matters is
subject to various uncertainties, and it is possible that some of these
matters may be resolved unfavorably to the Company. The
Company has established accruals for matters for which payment is
probable and amounts reasonably estimable. Management believes
any liability that may ultimately result from the resolution of these
matters in excess of amounts provided will not have a material
adverse effect on the financial position or results of operations of the
Company.
6. DISCONTINUED OPERATIONS
-----------------------
On March 23, 1993, the Company's Board of Directors authorized
management to sell its 34% interest in Curtice Burns Foods, Inc.
(Curtice Burns) and 99% interest in Hood, the major investments in
Agway's food group segment.
Curtice Burns
Curtice Burns accepted an offer from Pro-Fac Cooperative Inc. (Pro-
Fac) to acquire all outstanding shares of Curtice Burns for $19 per
share in cash, and entered into a definitive merger agreement with
Pro-Fac. This agreement closed on November 3, 1994 and the
Company received cash proceeds of $55,786.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
6. DISCONTINUED OPERATIONS (continued)
-----------------------------------
Curtice Burns (continued)
The effect of disposal of Curtice Burns versus the original estimate
is as follows:
<TABLE>
<CAPTION>
November 3, 1994 June 30, 1994
--------------- ----------------
<S> <C> <C>
Operating loss from measurement date to November 3
and June 30, 1994, including tax expense of
$12,200 and $11,500, respectively <F1>. . . . . . . . . . . . $ (17,300) $ (17,500)
Estimated operating income (loss) from July 1, 1994
through plan disposal date, including tax expense
of $0 and $200, respectively. . . . . . . . . . . . . . . . . 0 (200)
--------------- ---------------
Total operating losses during phaseout period, net of tax expense (17,300) (17,700)
Actual/expected gain, including tax expense of $7,500
and $9,400, respectively. . . . . . . . . . . . . . . . . . 21,730 19,600
Gain on disposal, net of tax expense of $19,700 and $21,100, --------------- ---------------
respectively <F2> . . . . . . . . . . . . . . . . . . . . . . $ 4,430 $ 1,900
=============== ===============
<FN>
<F1> 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. In addition, tax expense relating to the operating loss from the measurement date
includes $9,200 for taxes on the undistributed margins of Curtice Burns as of the measurement date.
<F2> The $4,430 net after tax gain exceeded the $1,900 gain estimated as of June 30, 1994. The net operating
results from June 1994 through date of close exceeded June estimates by $400, and the gain on disposal,
net of taxes, exceeded June estimates by $2,100 primarily due to a $1,900 reduction in anticipated state
taxes. Taxes of $16,700 (which include the $9,200 tax on undistributed margins) are currently payable
on the pre-tax gain of $29,230.
</FN>
</TABLE>
Hood
As of November 1994, the sale of Hood was anticipated to close
shortly in a sale to a Hood management led buyout group, the terms
of which had been generally agreed to by Agway and the
management buyout group in a transaction which included a complex
financing structure. A delay ensued. Based on changed business
conditions and financial markets during this prolonged negotiation,
on January 24, 1995, Agway and the management buyout group
mutually concluded to cease the pursuit of this sale transaction.
Agway is actively pursuing alternative buyers for Hood. Under
these circumstances, while Agway is still actively interested in the
sale of Hood and while such a sale could be consummated in the
near future, Agway is no longer able to estimate with reasonable
certainty whether a sale will occur within the next year and,
accordingly, has reclassified Hood to continuing operations for
financial reporting purposes.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
6. DISCONTINUED OPERATIONS (continued)
-----------------------------------
Hood (continued)
Financial information with respect to Hood previously reported as
discontinued as of June 30, 1993, June 30, 1994 and December 31, 1994
and for the periods then ended:
<TABLE>
<CAPTION>
December 31, 1994 June 30, 1994 June 30, 1993
------------------- ------------------- -------------------
<S> <C> <C> <C>
Total assets . . . . . . . . . . . . . . . $ 159,700 $ 164,300 $ 162,400
Total liabilities. . . . . . . . . . . . . $ 126,500 $ 128,800 $ 118,400
<CAPTION>
Six Months Fiscal Year Fiscal Year
Ended Ended Ended
December 31, 1994 June 30, 1994 June 30, 1993
------------------- ------------------- -------------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . $ 252,800 $ 493,000 $ 559,500
Operating profits. . . . . . . . . . . . . $ 800 $ (3,300) $ 3,000
</TABLE>
Total assets of Hood consist primarily of accounts receivable,
inventories and properties and equipment, net.
Total liabilities consist primarily of notes payable, long-term debt and
accounts payable. The following table details the major components of
Hood debt.
<TABLE>
<CAPTION>
December 31, 1994 June 30, 1994 June 30, 1993
------------------- ------------------- -------------------
<S> <C> <C> <C>
Note payable <F1>. . . . . . . . . . . . . $ 12,800 $ 14,400 $ 2,700
=================== =================== ===================
Long-term debt
Bank loan <F2> . . . . . . . . . . . . $ 26,100 $ 27,000 $ 30,200
Senior lender <F3> . . . . . . . . . . 9,300 9,600 13,200
6% income debentures, interest
cumulative due 1996-2004 . . . . . . . 500 500 500
7.5% subordinated debentures
due 2001 <F4>. . . . . . . . . . . 6,700 6,700 6,700
Other long-term debt . . . . . . . . . . . 1,500 1,900 2,100
------------------- ------------------- -------------------
44,100 45,700 52,700
Less current portion . . . . . . . . . . . 7,700 6,200 11,100
------------------- ------------------- -------------------
$ 36,400 $ 39,500 $ 41,600
=================== =================== ===================
<FN>
<F1> Hood has a $33,000 credit facility with a bank, which is collateralized by all of the assets of Hood and
supports both Hood's working capital and letters of credit needs. Outstanding letters of credit, which may
comprise up to $25,000 of the total facility, were $12,027 at December 31, 1994.
<F2> Borrowings from the bank consist of a term loan due through June 1, 1996, which is collateralized by all
of the assets of Hood, and an unsecured note assigned by Agway, which is due through fiscal 2001. The
bank requires Hood to comply with certain financial, operating and other covenants.
<F3> Long-term debt due a senior lender at December 31, 1994 is evidenced by four notes due through May
31, 1998 collateralized by certain property, plant and equipment of Hood (this senior lender's interests are
generally subordinate to those of the bank); and a unsecured note for $600. Hood has available from its
bank a committed term loan facility of up to $10,000 under specified conditions which may be borrowed
against at any time prior to June 1995. No borrowings have been made against this $10,000 line and any
that are made would be due for repayment by October 31, 1995 and would be guaranteed by Agway.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
6. DISCONTINUED OPERATIONS (continued)
----------------------------------------
Hood (continued)
<F4> In addition to its outstanding debt, Hood has $7.3 million of preferred stock outstanding,
which is included on the consolidated balance sheet as interest of others in consolidated
subsidiaries. The indentures related to the 7.5% subordinated debentures require certain
levels of common equity be maintained in Hood before dividends can be paid to preferred
and common shareholders or before Hood can redeem such stock. Earnings in recent periods
have been insufficient to maintain the necessary common equity and have precluded payments
of preferred and common dividends. Hood has been precluded from paying dividends by these
provisions since the quarter ended March 1994. Dividends for preferred stock are cumulative,
and unpaid dividends at December 31, 1994 amounted to $448. When unpaid dividends on certain
of these preferred shares accumulate to an amount equal to eight quarters of unpaid dividends,
holders of such preferred stock have a right, if they so choose, to elect 25% of the members
of the Hood Board of Directors.
</FN>
</TABLE>
As previously discussed, the financial statements have been
reclassified to reflect Hood as a continuing operation. A
reconciliation to margin (loss) from continuing operations as
previously reported follows:
<TABLE>
<CAPTION>
Six Months Fiscal Year Fiscal Year
Ended Ended Ended
December 31, 1994 June 30, 1994 June 30, 1993
------------------- ------------------- ------------------
<S> <C> <C> <C>
Impact of reclassification of loss from
discontinued operations to margin
(loss) from continuing operations:
Deferred interest expense. . . . . . . . . $ (891) $ (1,783) $ (2,248)
Transaction costs and allowance. . . . . . (15,884)
Pre-tax margin (loss) from
segment operations . . . . . . . . . . 2,178 (7,681) (6,231)
Pre-tax loss from continuing ------------------- ------------------- ------------------
operations . . . . . . . . . . . . . . (14,597) (9,464) (8,479)
Income tax benefit . . . . . . . . . . . . 5,031 3,086 6,970
------------------- ------------------- ------------------
Loss from continuing operations. . . . . . (9,566) (6,378) (1,509)
Original balance - margin (loss)
from continuing operations . . . . . . (17,729) 696 25,727
Reclassified balance - margin (loss) ------------------- ------------------- ------------------
from continuing operations . . . . . . $ (27,295) $ (5,682) $ 24,218
=================== =================== ==================
<CAPTION>
A reconciliation to margin (loss) from discontinued operations as previously reported follows:
June 1994 June 1993
------------------- ------------------
<S> <C> <C>
Original balance - loss from discontinued operations . . . . . . . $ (4,000) $ (5,977)
Reclassification of Hood losses to continuing operations . . . . . 6,378 1,509
Reclassified balance - credit (loss) from ------------------- ------------------
discontinued operations. . . . . . . . . . . . . . . . . . . . $ 2,378 $ (4,468)
=================== ==================
</TABLE>
The net loss relating to Hood from July 1992 to March 23, 1993
was $6,510, which was reflected in the $5,977 net loss from
discontinued operations through the measurement date as previously
reported for the year ended June 30, 1994. This included $5,454
of losses related to the operations and sale of the cheese
manufacturing division of Hood business offset by a $1,799 gain on
the sale of a segment of Hood's fluid milk business.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
6. DISCONTINUED OPERATIONS (continued)
-----------------------------------
Hood (continued)
The net margin (loss) and deferred expenses relating to Hood were
$5,001, $(6,378) and $(9,566) for the year ended June 30, 1993,
year ended June 30, 1994 and six months ended December 31, 1994,
respectively. This incurred margin (loss) in relation to Hood
includes deferred interest expense, actual Hood losses and a tax
benefit representing the book/tax difference in the basis of Hood, for
all periods. Additionally, in December 1994, the other Hood pre-tax
costs of $10,207 include $15,884 pre-tax loss for transaction costs
incurred in connection with these past sales efforts and for pre-tax
impairment allowance with respect to the ultimate sale of its
investment in Hood, net of a $5,677 gain on curtailment of a Hood
defined benefit pension plan as described in Note 7.
The actual results of operations for Hood differed from that
originally projected due to a significant downturn in the Northeast
dairy market which adversely impacted Hood operating results. This
downturn caused a $12,600 reduction in Agway's estimated net after
tax realization from the sale of Hood which was recognized in the
$4,000 net loss from discontinued operations in June 1994. This
revaluation was based primarily upon negotiations for the sale of
Hood which reflected the market downturn.
7. RETIREMENT BENEFITS
-------------------
Postretirement Benefits
In October 1994, the Company elected to amend the existing
program for providing postretirement health care benefits (OPEB)
effective January 1, 1995. The plan amendment establishes a
separate and distinct insured medical program for retirees aged 65
or over, caps the Company's contributions to retirees aged 65 or
over and modifies coverage for active employees and retirees under
age 65. As a result of this amendment, the liability for this plan
was remeasured on October 1, 1994. Due to increasing market
rates of interest, the discount rate assumption was increased from
8% to 8.5% at the remeasurement date.
These amendments have resulted in reducing the net periodic OPEB
costs in 1995 and prospectively. This reduction of costs in the
second quarter and for the fiscal year ending June 30, 1995, totals
approximately $600 and $2,000, respectively.
The plan amendment and discount rate assumption change resulted
in a decrease of the accumulated postretirement benefit obligation
for health insurance by approximately $15,000 and $3,000,
respectively. The accumulated postretirement benefit obligation for
health insurance as of the remeasurement date totaled $33,300.
Hood Curtailment Gain
The Hood pension plan (the "Plan") covers substantially all its
employees and provides defined benefits based on years of credited
service, average compensation (as defined) and social security
benefits. The administrative committee of Hood approved, effective
December 31, 1994, to freeze the benefit accruals under the Plan.
As a result, Hood recognized a curtailment gain of $5,677 as of
December 31, 1994.
8. RESTRUCTURING RESERVES
----------------------
The following schedule details the restructuring reserves to complete
the project and their intended purposes as well as the actual activity
through the six-month period ended December 31, 1994:
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
8. RESTRUCTURING RESERVES (continued)
----------------------------------
<TABLE>
<CAPTION>
Proceeds Reductions
-----------------------
Balance at Sale of Divested Costs Balance at
Restructuring Reserve: 6/30/94 Assets Assets Incurred 12/31/94
-------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Personnel Reductions
--------------------
Severance and early retirement program $ 2,502 $ 433 $ 2,069
-------------- --------- --------- --------- ----------
TOTAL PERSONNEL <F3> 2,502 433 2,069
Plant, Store, & Business Divestitures
Proceeds on sale of assets <F4> (6,349) $ 3,598 (2,751)
Net book value of assets to be divested <F4> 11,527 $ 3,196 8,331
Cost of divestiture <F1> <F5> 3,295 1,121 2,174
-------------- --------- --------- --------- ----------
(Gain) loss on divestiture 8,473 3,598 3,196 1,121 7,754
Incremental environmental costs <F6> 5,906 693 5,213
-------------- --------- --------- --------- ----------
TOTAL PLANT, STORE & BUSINESS 14,379 3,598 3,196 1,814 12,967
Other Costs
Consulting fees 1,329 924 405
Contract buyouts and other costs <F2> 1,042 492 550
-------------- --------- --------- --------- ----------
TOTAL OTHER <F7> 2,371 1,416 955
TOTAL RESTRUCTURING $ 19,252 $ 3,598 $ 3,196 $ 3,663 $ 15,991
============== ========= ========= ========= ==========
<FN>
<F1> Includes demolition, asset transfer costs, and commissions on real estate transactions.
<F2> Includes amounts of relocation, debt restructuring costs, legal fees, and other costs.
<F3> Represents anticipated severance costs expected to result from planned business process improvements.
The detail design and implementation of certain of the business process improvements has and will take
longer than originally anticipated which has delayed the occurrence of these costs which are expected
cash outlays over the next year and one-half.
<F4> Represents certain assets identified for disposition as part of the original restructuring plan which have yet to
be sold or closed. Efforts to sell them and complete the shutdowns are ongoing. Ultimate disposition will
depend upon successful negotiations with willing buyers for remaining properties.
<F5> Cost of divestitures includes shutdown cost in connection with the closing and sale of remaining locations.
Ultimate disposition will depend upon successful negotiations with willing buyers for remaining properties.
<F6> Included in the costs related to business divestitures are environmental remediation costs identified during this
process of asset sales primarily related to real estate assets retained on energy business sold. These are
anticipated cash outlays and will be considered for expenditure as part of our ongoing programs regarding
environmental remediation and are expected to be expended over the next four and one-half years.
<F7> Other expenses include $1.3 million of consulting fees which are cash outlays expected to be paid in the fiscal
year ending June 1995. An additional $700 thousand of cash expense is expected to be paid over the next two years
related to contractual obligations for which there is no future value due to the sale of related facilities.
</FN>
</TABLE>
<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)
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 acquire products to initiate the growing season.
Correspondingly, the Company's Energy Group realizes significantly
higher net sales and revenues in the winter months due to the cold winter
conditions in the Northeast. The Financial Services and Corporate
Groups are generally not materially impacted by seasonal fluctuations.
<TABLE>
<CAPTION>
Results by Operating Segment
----------------------------
Increase (Decrease) Three Months Ended Six Months Ended
--------------------- ---------------------
12/31/94 vs. 12/31/93 12/31/94 vs. 12/31/93
Net Sales and Revenues --------------------- ---------------------
----------------------
<S> <C> <C>
Agriculture & Consumer. . . . . . . . . . . . . . . $ (1,670) $ 2,250
Energy. . . . . . . . . . . . . . . . . . . . . . . (8,937) (7,170)
Financial Services. . . . . . . . . . . . . . . . . 1,024 2,305
Food Group. . . . . . . . . . . . . . . . . . . . . 5,825 7,032
Corporate Groups. . . . . . . . . . . . . . . . . . 220 317
-------------------- --------------------
$ (3,538) $ 4,734
==================== ====================
<CAPTION>
Margin (Loss) from Continuing Operations before Income Taxes
------------------------------------------------------------
<S> <C> <C>
Agriculture & Consumer. . . . . . . . . . . . . . . $ 4,276 $ 5,332
Energy. . . . . . . . . . . . . . . . . . . . . . . (5,227) (4,638)
Financial Services. . . . . . . . . . . . . . . . . 92 346
Food Good . . . . . . . . . . . . . . . . . . . . . 13 (1,187)
Corporate Groups. . . . . . . . . . . . . . . . . . (10,802) (12,054)
-------------------- --------------------
Operating profit (loss) . . . . . . . . . . . . . . (11,648) (12,201)
Interest expense, net . . . . . . . . . . . . . . . (1,388) (1,811)
-------------------- --------------------
$ (13,036) $ (14,012)
==================== ====================
</TABLE>
Parenthetical numbers in the following narrative have been rounded to the
nearest hundred thousand.
Discontinued Operations
-----------------------
On March 23, 1993, the Company's Board of Directors authorized
management to sell its 34% interest in Curtice Burns Foods, Inc.
(Curtice Burns) and 99% interest in H.P. Hood, Inc. (Hood), the major
investments in Agway's food group segment. The investment in Curtice
Burns was sold effective November 3, 1994, as previously discussed in
Note 6 to the financial statements and in Agway's 10-Q filing for the
quarter ended September 30, 1994.
Agway has been in actual negotiations with a Hood management-led
buyout group for some time. Based on changed business conditions and
capital markets and based on the status of the discussions regarding this
transaction, on January 24, 1995, it was mutually agreed by Agway and
the buyers that this transaction would no longer be pursued. Agway has
decided to actively pursue alternative buyers for Hood. Under these
circumstances, while Agway is still actively interested in the sale of Hood
and while such a sale could be consummated in the near future, Agway
is no longer able to estimate with reasonable certainty whether a sale will
occur within the next year and, accordingly, has reclassified Hood from
discontinued operations to continuing operations for financial reporting
purposes. The effect of this decision is included in Note 6 to the
financial statements.
<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)
Agriculture & Consumer Group
----------------------------
Net sales and revenues for the second quarter of fiscal 1995 of $208,600
and for the six months to date of $434,100 decreased $1,700 (.8%) and
increased $2,250 (.5%), respectively, as compared to the corresponding
period in the prior fiscal year. The decrease in the quarter and the
increase for the six-month period were the result of several offsetting
factors in the Agriculture & Consumer Group. The increase in consumer
franchise dealers, increased volume in sales of winter-related items and
farm fertilizers from rising market prices provided net sales and revenue
increases. These increases were offset by lower birdseed sales due to the
mild, early winter, competitive pricing in the Group's produce
repackaging business and lower feed sales in corn and soybean products
as a result of the bumper crop harvested this past fall.
Operating losses for the second quarter of fiscal 1995 of $10,900 and for
the six months to date of $21,440 decreased $4,300 (28%) and $5,300
(20%), respectively, as compared to the corresponding period in the prior
fiscal year. Gross margin percentage for the Group improved from 9.1%
to 12.5% in the second quarter and from 10.2% to 12.2% in the six-
month period as compared to the prior year.
Increased margins in Agriculture are mainly the result of improved price
management within the feed operations, earlier sales of dry fertilizers due
to rising market prices and a longer season from favorable weather
conditions in the crops operations, and growth in high-margin products
in the turf operations. The Consumer retail stores contributed to the
improved margins through increased volume in sales of snow throwers,
ice melter supplies and other winter-related products.
Energy Group
------------
Energy segment net sales and revenues of $138,000 for the second
quarter declined $9,000 (6%) as compared to the second quarter of the
prior year. Fiscal 1995 year-to-date net sales and revenues of $245,200
declined $7,200 (3%) as compared to the same period in the prior year.
The decrease for the quarter and year to date is primarily attributable to
volume decreases from a warmer November and December than in the
previous year as well as from locations divested since the prior year.
Total unit volume (in millions of gallons) for the quarter and year to date
had a net decrease of 10.3 (7%) and 9.2 (3%) gallons, respectively, as
compared to the corresponding periods in the prior year. The decreases
were principally due to lower retail fuel oil sales. Overall, average
selling price increased slightly over the prior year as the result of
increased gasoline prices offset by declines in diesel fuel, heating oils
and propane.
The second quarter and six-month period operating margins reflected the
significant reduction in volume by declining $5,200 (55%) and $4,600
(96%), respectively, as compared to the prior year.
Financial Services Group
------------------------
For segment reporting purposes, the Financial Services Group consists
of Telmark Inc., Agway Insurance Company and Agway General
Agency, Inc.
Net sales and revenues of $17,700 for the Financial Services Group for
the second quarter increased $1,000 (6%) as compared to the second
quarter of the prior year. Fiscal 1995 year-to-date net sales and revenues
of $34,700 increased $2,300 (7%) as compared to the same period in the
prior year. The increase for the quarter and year to date is primarily
attributed to Telmark, which had increases of $1,600 (19%) and $3,100
(13%), respectively, due to a higher net investment in leases as compared
to the prior year. Agway General Agency and Insurance Company
revenues declined by $600 (34%) and $800 (27%) due to smaller
amounts of income on investments and increases in operating expenses
which partially offset Telmark's increase.
<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 improved in the second quarter of fiscal 1995 by $90
(3%) and increased $350 (7%) for the six-month period ended December
31 as compared to the same period in the prior year. Telmark's
operating margin improved in the second quarter of fiscal 1995 by $230
(13%) and increased $430 (13%) for the six-month period as compared
to the same period in the prior year. The increase is due primarily to
Telmark's higher average net investment and higher revenue rates.
However, increases in prevailing interest and lease rates in the
marketplace are offset by higher interest expense from a larger average
net investment and higher average borrowing rates. Operating margins
for the Agway Insurance Company decreased $200 and $300 for the
quarter and six-month period as compared to the same period in the prior
year due to smaller amounts of income on investments and increases in
operating expenses partially offset by favorable underwriting experience.
Food Group
----------
For segment reporting purposes, the Food Group consists of Agway
Inc.'s wholly owned subsidiary Hood, a manufacturer, distributor and
marketer of dairy and dairy-related products to the retail and food service
industries throughout the Northeast. The Food Group net sales increased
$5,800 (5%) and $7,000 (3%) over the three- and six-month periods
ended December 31 versus the prior year. In the three-month period,
sales increases in the manufacturing products group (MPG) and ice cream
were partially offset by a decrease in the dairy group. For the year-to-
date period, sales increases in MPG were offset by decreases from the
other groups. The biggest contributing factor to the MPG sales increase
is the continuing growth of its extended shelf life business.
Operating margins increased in the second quarter $13 (2%) but
decreased for the six-month period $1,200 (145%). The increased
margins for the second quarter resulted from improved MPG results
offset by the dairy and ice cream
group. MPG improved margins were a direct result of the growth in
extended shelf life business. The ice cream group profitability dropped
despite increase in net sales due to an increase in operating costs and a
change in product mix to lower margin products. For the six-month
period, decreases in both the dairy and ice cream groups more than offset
increases in MPG. In the ice cream group, product mix, higher
marketing costs from promotional efforts and slightly higher distribution
costs have resulted in a decline in margins while the dairy group has
experienced certain price concessions as well as promotional costs that
have driven their margin down.
Corporate Groups
----------------
The net sales and revenues of the Corporate Groups of $200 and $300
for the quarter and six-month period represent external revenues
generated from the Information Services Department and the elimination
of sales and revenues between the operating segments.
The operating loss of $10,800 and $12,000 for the three and six months
ended December 31, 1994 for the Corporate Groups represents corporate
expenses and other income generated from assets not allocable to
segments. It also includes a $10,200 provision for other Hood costs,
including transaction costs incurred in connection with past sales efforts
and an impairment allowance with respect to the ultimate sale of its
investment in Hood, net of a gain on curtailment of a Hood defined
benefit pension plan (see Notes 6 and 7 to the financial statements).
<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
-------------------------------
Cash flows from operating activities for the six months ended December
31, 1994 increased $3,000 to $42,400 as compared to the first six months
of fiscal 1994 due primarily to changes in working capital. Net cash
provided by investing activities for the six months ended December 31,
1994 was $7,100 as compared to net cash utilized of $31,100 for the
same period last year and was due primarily to proceeds from the sale of
discontinued operations (Curtice Burns) of $56,000 offset by increased
leasing activity in fiscal 1995 resulting in the use of an additional
$19,000 of cash for this activity compared to the same period last year.
The net cash flows used in financing activities increased from $9,800
in the second quarter of fiscal 1994 to $49,600 in the second quarter
of fiscal 1995. The majority of this change was seen in long-term
debt, where net repayment of $3,000 occurred in the second quarter
of fiscal 1995 versus net proceeds of $3,500 in the same period of
the prior fiscal year, and increased net redemptions of subordinated
debt, where net redemptions totalled $15,700 in the second quarter
of fiscal 1995 versus net proceeds of $13,600 from such debt in the
same period of the prior fiscal year due primarily to a scheduled
redemption in fiscal 1995 of $34,000.
The Company finances its operations and the operations of all its
continuing businesses and subsidiaries, except Telmark, Agway Insurance
Company and Hood, through Agway Financial Corporation (AFC).
Telmark, Agway Insurance Company and Hood finance themselves
through operations or direct borrowing arrangements. Each is financed
with a combination of short- and long-term credit facilities as
appropriate. External sources of short-term financing for the Company
and all its continuing operations include revolving credit lines, letters of
credit, and commercial paper programs. Sources of longer-term
financing include borrowings from banks and insurance companies,
subordinated debt and capital leases. In addition, Telmark has
occasionally sold blocks of its lease portfolio.
The AFC short-term lines are available through October 1995. These
AFC short-term lines of credit and $10,000 of AFC long-term debt are
collateralized by the Company's accounts receivable and non-petroleum
inventories. Amounts which can be drawn under the AFC short-term
agreements are limited to a specific calculation based upon the total of
certain accounts receivable and non-petroleum inventories ("collateral").
Adequate collateral has existed throughout the fiscal year to meet the
ongoing needs of the Company and is expected to continue to do so. In
addition, the agreements include certain covenants, the most restrictive
of which requires the Company to maintain specific quarterly levels of
interest coverage and monthly levels of tangible net worth. These
covenants were set giving consideration to Hood as a discontinued
operation. No covenant violations existed as of December 31, 1994.
Unless covenant requirements are amended or waived, the Company
anticipates future covenant violations based upon the current
credit agreement covenant requirements and the change in circumstances
with Hood as described in Note 6. The Company has had preliminary
discussions with its lenders and expects covenant amendments or waivers
will be negotiated to make appropriate and adequate financing available
under these facilities given the change in circumstances.
The Hood short-term credit facility is used to supply letters of credit as
well as short-term financing. Letters of credit of $12,027 were
outstanding at December 31, 1994. In anticipation of the sale of Hood,
the availability of short-term financing for Hood was not extended for a
long period of time, and accordingly, the current facility expires on
February 28, 1995. Due to the change in circumstances regarding the
sale of Hood, the Company and Hood are working with their financial
institution to extend and renegotiate the financing at adequate levels and
for appropriate periods of time. No covenant violations existed as of
December 31, 1994. Unless covenant requirements are amended or waived,
the Company anticipates future covenant violations based upon the current
credit agreement covenant requirements and the change in circumstances with
Hood as described in Note 6.
<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. 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. It is currently scheduled for
trial on March 27, 1995. Settlement negotiations are ongoing. 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.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The Company held its annual meeting of shareholders on November 30,
1994, at which a quorum was present in person or by proxy. The
following Directors were elected to three-year terms through December
1997:
Nominee In Favor Opposed
----------------------- -------- -------
Gary K. Van Slyke 66,215 3,765
Vyron M. Chapman 66,215 3,765
Ralph H. Heffner 66,215 3,765
Edwin C. Whitehead 66,215 3,765
Christian F. Wolff, Jr. 66,215 3,765
Frederick A. Hough 66,215 3,765
Eligible additional votes totaling 20,373 were not received at the time of
the annual meeting and are not included as either votes in favor or opposed.
Additionally, these 20,373 eligible additional votes may be considered
abstentions and were not included for purposes of determining a quorum at
the annual meeting.
The following is a list of directors whose terms 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
Vyron M. Chapman - 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
Gary K. Van Slyke - Director
Joel L. Wenger - Director
Edwin C. Whitehead - Director
Christian F. Wolff, Jr. - Director
William W. Young - Director
<PAGE>
PART II. OTHER INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
(Thousands of Dollars)
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
There were no reports on Form 8-K required to be filed during the
second quarter ended December 31, 1994. However, there were two
Form 8-Ks filed in January 1995.
The first report was filed on January 13, 1995, announcing the
appointment of Donald P. Cardarelli as chief executive officer and
general manager of Agway Inc. Since August 1994, Cardarelli has
managed the farmer-owned cooperative as executive vice president and
chief operating officer.
On January 27, 1995, a second Form 8-K was filed to describe recent
developments surrounding the sale of the Company's 99% interest in
Hood in that the Company was no longer able to estimate with reasonable
certainty whether a sale will occur within the next year and therefore
reclassified Hood from discontinued operations to continuing operations.
<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 14, 1995 /s/ 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, 1995
--------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to
--------------- -----------------------
Commission file number 2-22791
-------
AGWAY INC.*
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 15-0277720
----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Butternut Drive, DeWitt, New York 13214
----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
315-449-6431
----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1995
------------------------------------- -----------------------------
Common Stock, $25 par value per share 109,272 shares
* Agway is a taxpaying corporation founded on cooperative principles.
Membership is limited to farmers and each may hold only one share of
common stock.
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
------- ---------------------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1995 and June 30, 1994 . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations and Retained Margin for the three months
and nine months ended March 31, 1995 and March 31, 1994. . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Cash Flow Statements for the nine months ended March 31, 1995
and March 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
----------- -----------
ASSETS (Unaudited) (Note)
------
<S> <C> <C>
Current Assets:
Trade notes and accounts receivable, less allowance for
doubtful accounts of $14,966 and $15,515, respectively . . . . . $ 179,769 $ 272,925
Leases receivable, less unearned income of $37,418 and
$33,209, respectively. . . . . . . . . . . . . . . . . . . . . . 85,165 84,653
Uncollected insurance premiums . . . . . . . . . . . . . . . . . . 10,045 9,936
Advances and other receivables . . . . . . . . . . . . . . . . . . 18,690 26,447
Inventories
Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . 25,751 23,292
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . 207,558 158,639
Goods in transit and supplies. . . . . . . . . . . . . . . . . . 25,845 15,857
-------------- --------------
Total inventories. . . . . . . . . . . . . . . . . . . . . . . . 259,154 197,788
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . 83,636 92,039
-------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . 636,459 683,788
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . 35,350 33,943
Other security investments. . . . . . . . . . . . . . . . . . . . . . . 41,554 38,913
Properties and equipment, net . . . . . . . . . . . . . . . . . . . . . 309,658 318,359
Long-term leases receivable, less unearned income of
$61,369 and $51,775, respectively . . . . . . . . . . . . . . . . . . 228,754 191,654
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,439 91,214
Net assets of discontinued operations . . . . . . . . . . . . . . . . . 0 48,424
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,345,214 $ 1,406,295
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,323 $ 77,193
Current installments of long-term debt and subordinated debt . . . 98,314 117,143
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 145,354 165,134
Unearned insurance premiums. . . . . . . . . . . . . . . . . . . . 17,007 16,868
Other current liabilities. . . . . . . . . . . . . . . . . . . . . 137,328 136,197
-------------- --------------
Total current liabilities. . . . . . . . . . . . . . . . . . . 483,326 512,535
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,623 208,915
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,199 379,835
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,687 94,967
Interest of others in consolidated subsidiaries . . . . . . . . . . . . 6,055 6,217
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,523 71,338
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,734 2,771
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,470 6,371
Retained margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,597 123,346
-------------- --------------
Total liabilities and shareholders' equity . . . . . . . . . . $ 1,345,214 $ 1,406,295
============== ==============
</TABLE>
Note: The balance sheet at June 30, 1994 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements. It has been reclassified to consolidate
H. P. Hood (Hood) previously reported as a discontinued operation.
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 March 31,
-------------------------------- --------------------------------
1995 1994 1995 1994
Net sales and revenues from: -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Product sales. . . . . . . . . . . . $ 472,520 $ 543,574 $ 1,407,243 $ 1,476,423
Leasing operations . . . . . . . . . 10,288 8,778 29,427 24,735
Insurance operations . . . . . . . . 6,571 6,682 19,932 20,363
-------------- -------------- -------------- --------------
Total net sales and revenues . . 489,379 559,034 1,456,602 1,521,521
Cost and expenses from:
Products and plant operations. . . . 424,839 486,688 1,285,403 1,349,793
Leasing operations . . . . . . . . . 4,027 2,507 12,834 9,587
Insurance operations . . . . . . . . 3,967 4,762 12,340 13,490
Selling, general and
administrative activities. . . . . 54,562 52,086 160,096 149,332
Restructuring credit . . . . . . . . (1,279) (1,279)
--------------- -------------- --------------- --------------
Total costs and expenses . . . . 486,116 546,043 1,469,394 1,522,202
Operating margin (loss) . . . . . . . . . 3,263 12,991 (12,792) (681)
Interest expense, net . . . . . . . . . . 9,293 8,380 26,967 24,240
Other Hood costs, net . . . . . . . . . . 0 0 (10,207) 0
Other income, net . . . . . . . . . . . . 5,966 1,239 8,520 3,402
Margin (loss) from continuing operations --------------- -------------- --------------- ---------------
before income taxes . . . . . . . . (64) 5,850 (41,446) (21,519)
Income tax benefit (expense). . . . . . . (1,280) (5,157) 12,806 3,737
Margin (loss) from continuing
operations . . . . . . . . . . . . . (1,344) 693 (28,640) (17,782)
Discontinued operations:
Gain on disposal of Curtice Burns,
net of tax expense of $19,700. . . . 0 0 4,430 0
Adjustment required for reclassifica-
tion of Hood to continuing operations 0 3,682 2,623 4,818
Credit from discontinued --------------- -------------- -------------- --------------
operations . . . . . . . . . 0 3,682 7,053 4,818
--------------- -------------- --------------- ---------------
Net gain (loss) . . . . . . . . . . . . . (1,344) 4,375 (21,587) (12,964)
Retained Margin:
Balance at beginning of period . . . 100,806 111,983 123,346 131,786
Dividends. . . . . . . . . . . . . . 0 (2) (2,374) (2,456)
Equity in unrealized capital gains
(losses) of insurance companies. . . 135 (27) 212 (37)
-------------- --------------- -------------- ---------------
Balance at end of period. . . . . . . . . $ 99,597 $ 116,329 $ 99,597 $ 116,329
============== =============== ============== ===============
</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,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Net cash flows provided by operating activities . . . . . . . . . . . . $ 30,243 $ 17,592
Cash flows (used in) provided by investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . (26,412) (23,898)
Cash paid for acquisitions . . . . . . . . . . . . . . . . . . . . 0 (5,044)
Proceeds from disposal of businesses and property, plant and
equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,563 10,346
Leases originated. . . . . . . . . . . . . . . . . . . . . . . . . (119,640) (96,339)
Leases repaid. . . . . . . . . . . . . . . . . . . . . . . . . . . 77,741 67,634
Proceeds from sale of marketable securities. . . . . . . . . . . . 1,023 19,764
Purchases of marketable securities . . . . . . . . . . . . . . . . (2,218) (20,901)
Proceeds from sale of discontinued operations. . . . . . . . . . . 55,786 0
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,640) 3,764
Net changes in net assets of discontinued operations . . . . . . . 0 503
------------- ------------
Net cash flows used in investing activities . . . . . . . . . . . . . . (10,797) (44,171)
Cash flows (used in) provided by financing activities:
Net change in short-term borrowings. . . . . . . . . . . . . . . . 8,130 21,425
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . 44,640 59,475
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . (56,830) (78,064)
Proceeds from sale of subordinated debt. . . . . . . . . . . . . . 60,933 36,892
Maturity and redemption of subordinated debt . . . . . . . . . . . (65,248) (10,113)
Proceeds from sale of stock. . . . . . . . . . . . . . . . . . . . 14 1,879
Redemption of stock. . . . . . . . . . . . . . . . . . . . . . . . (4,867) (573)
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . . (4,963) (4,512)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,255) (1,305)
------------- ----------
Net cash flows (used in) provided by financing activities . . . . . . . (19,446) 25,104
------------- ----------
Net decrease in cash and equivalents. . . . . . . . . . . . . . . . . . 0 (1,475)
Cash and equivalents at beginning of period . . . . . . . . . . . . . . 0 1,475
------------- ----------
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 of Agway Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended
March 31, 1995 are not necessarily indicative of the results that
may be expected for the year ended June 30, 1995 due, among
other reasons, to the seasonal nature of certain major segments of
the Company's business. For further information, refer to the
consolidated financial statements and notes thereto included in the
annual report on Form 10-K for the year ended June 30, 1994, and
on Form 10-Q for the quarters ended September 30 and December
31, 1994.
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 the Company whose principal business activity is securing
financing through bank borrowings and issuance of corporate debt
instruments to provide funds for the Company, its sole stockholder,
and AFC's sole wholly owned subsidiary, Agway Holdings Inc.
(AHI), and AHI's subsidiaries, for general corporate purposes. The
payment of principal and interest on this debt is absolutely and
unconditionally guaranteed by the Company. In an exemptive relief
granted by the Securities and Exchange Commission, AFC, as a
separate company, is not required to file periodic reports with
respect to these debt securities provided the 1934 Act reports of the
Company contain summarized financial information concerning
AFC.
On July 1, 1994, (i) certain subsidiaries of AFC (Seedway Inc.,
Allied Seed Cooperative Inc., and Pro-Lawn Products Inc.) were
transferred to and merged into Agway Inc., and (ii) certain
operating divisions of Agway Inc. (Retail/Wholesale Operations)
were transferred to AFC and merged together with the Country
Foods operations into Agway Consumer Products Inc., formerly
Agway Country Foods, Inc. Additionally, as of December 31,
1994, H. P. Hood, which was previously reported as a discontinued
operation, has been included as a continuing operation. The prior
year financial statements have been restated to give retroactive
effect to these changes in reporting entities.
Summarized financial information for AFC and Consolidated
Subsidiaries is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- ------------------
1995 1994 1995 1994
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales and revenues. . . . . . . . . $ 392,619 $ 451,118 $ 1,172,121 $ 1,231,992
Operating margin. . . . . . . . . . . . 19,174 30,664 37,179 50,765
Loss from continuing operations . . . . (886) (143) (18,783) (19,087)
Net margin (loss) . . . . . . . . . . . (886) 3,538 (11,729) (14,271)
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands of Dollars)
2. AGWAY FINANCIAL CORPORATION (continued)
---------------------------------------
<TABLE>
<CAPTION>
Restated
March 31, June 30,
1995 1994
---------------- ---------------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 599,957 $ 656,290
Properties and equipment, net. . . . . . . . . . . . . . . . . . 229,841 233,287
Noncurrent assets. . . . . . . . . . . . . . . . . . . . . . . . 327,827 290,201
Net assets of discontinued operations. . . . . . . . . . . . . . 0 48,424
---------------- ---------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,157,625 $ 1,228,202
================ ===============
Current liabilities. . . . . . . . . . . . . . . . . . . . . . . $ 343,753 $ 392,809
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 211,918 205,579
Subordinated debt. . . . . . . . . . . . . . . . . . . . . . . . 375,199 379,835
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . 28,618 35,424
Shareholder's equity . . . . . . . . . . . . . . . . . . . . . . 198,137 214,555
---------------- --------------
Total liabilities and
shareholder's equity. . . . . . . . . . . . . . . . . . . . . $ 1,157,625 $ 1,228,202
================ ===============
<CAPTION>
3. SUPPLEMENTAL DISCLOSURES ABOUT OPERATING CASH FLOWS
---------------------------------------------------
Nine Months Ended
March 31,
--------------------------------
1995 1994
--------------- --------------
Additional disclosure of operating cash flows:
<S> <C> <C>
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,205 $ 37,425
================ ===============
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . $ 7,699 $ 9,494
================ ===============
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
4. BORROWING ARRANGEMENTS
----------------------
As of March 31, 1995, short-term borrowing availability to AFC
of $65,000, Telmark of $24,000 and Hood of $33,000 is compared
to $76,250, $23,000 and $23,000, respectively, in the prior year.
Long-term and subordinated debt outstanding amounted to:
<TABLE>
<CAPTION>
Agway & AFC Telmark Hood Total
---------------------- --------------------- ------------------- ----------------------
3/95 6/94 3/95 6/94 3/95 6/94 3/95 6/94
---------- ---------- ---------- ---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt $ 20,702 $ 33,524 $ 219,466 $ 219,489 $ 33,426 $ 38,574 $ 278,144 $ 291,587
Currently payable 11,807 14,424 39,622 62,022 8,497 6,226 63,521 82,672
---------- ----------- ----------- ----------- --------- --------- ----------- -----------
Net long-term debt $ 8,895 $ 19,100 $ 179,844 $ 157,467 $ 24,929 $ 32,348 $ 214,623 $ 208,915
========== =========== =========== =========== ========= ========= =========== ===========
Subordinated debt $ 395,811 $ 403,432 $ 7,448 $ 3,712 $ 6,733 $ 7,162 $ 409,992 $ 414,306
Currently payable 34,793 34,471 0 0 0 0 34,793 34,471
---------- ----------- ----------- ----------- --------- --------- ----------- -----------
Net long-term debt $ 361,018 $ 368,961 $ 7,448 $ 3,712 $ 6,733 $ 7,162 $ 375,199 $ 379,835
========== =========== =========== =========== ========= ========= =========== ===========
</TABLE>
In addition, as of March 31, 1995, Telmark has a committed term
loan credit of $125,000 available to be borrowed through November
30, 1995, of which $90,100 is outstanding as of March 31, 1995.
Hood has available from its bank a committed term loan facility of
up to $10,000 under specified conditions which may be borrowed
against at any time prior to June 1995. No borrowings have been
made against this $10,000 line and any that are made would be due
for repayment by November 1, 1996 and would be guaranteed by
Agway.
The AFC short-term lines are available through October 31, 1995.
These AFC short-term lines of credit and $8,000 of AFC long-term
bank debt are collateralized by the Company's accounts receivable
and non-petroleum inventories. Amounts which can be drawn
under the AFC short-term agreements are limited to a specific
calculation based upon the total of certain accounts receivable and
non-petroleum inventories ("collateral"). Adequate collateral has
existed throughout the fiscal year to meet the ongoing needs of the
Company and is expected to continue to do so. In addition, the
agreements include certain covenants, the most restrictive of which
requires the Company to maintain specific quarterly levels of
interest coverage and monthly levels of tangible net worth. These
covenants were originally set giving consideration to Hood as a
discontinued operation; however, Hood was reclassified to
continuing operations in the quarter ended December 31, 1994.
With this change in circumstances, unless covenant requirements
are amended or waived, the Company anticipates future covenant
violations may occur based upon the current credit agreement
covenant requirements. The Company has ongoing discussions with
its lenders and expects covenant amendments or waivers will be
negotiated to continue the appropriate and adequate financing
currently available under these facilities.
Telmark borrows under its short-term line of credit agreements
from time to time to fund its operations. Short-term lines serve as
interim financing between the issuances of long-term debt. The
current line of credit agreements with various banks permit Telmark
to borrow up to $24,000 on an unsecured basis with interest paid
quarterly and/or upon maturity, of which $20,000 is formally
committed and $4,000 is uncommitted. The lines bear interest at
money market variable rates. As of March 31, 1995, the Company
had no borrowings against these lines.
These lines of credit are renewed annually usually in the fall. The
$20,000 line of credit has been renewed through November 30,
1995. The $4,000 line of credit has been renewed through
December 31, 1995. The Company believes it has
sufficient lines of credit in place to meet interim funding needs.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
4. BORROWING ARRANGEMENTS (continued)
----------------------------------
The Hood short-term credit facility is used to supply letters of
credit as well as short-term financing. Letters of credit of $12,527
were outstanding at March 31, 1995. The short-term credit facility
expires on August 1, 1995. The Company has ongoing discussions
with the lenders to Hood and expects to negotiate a continuation of
the appropriate and adequate current financing available to Hood.
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
Environmental
The Company is subject to a number of governmental regulations
concerning environmental matters, either directly, or as a result of
the operations of its subsidiaries. The Company expects that it will
be required to expend funds to remediate certain sites, including
certain Superfund sites and sites with underground fuel storage
tanks. In addition, the Company expects that it will incur other
expenses associated with environmental compliance.
The Company continually monitors its operations with respect to
potential environmental issues, including changes in legally
mandated standards and remediation technologies. The Company's
recorded liability reflects those specific issues where remediation
activities are currently deemed to be probable and where the cost
of remediation is estimable. Estimates of the extent of the
Company's degree of responsibility of a particular site and the
method and ultimate cost of remediation require a number of
assumptions for which the ultimate outcome may differ from
current estimates; however, the Company believes that its past
experience provides a reasonable basis for estimating its liability.
As additional information becomes available, estimates are adjusted
as necessary. While the Company does not anticipate that any such
adjustment would be material to its financial statements, it is
reasonably possible that the result of ongoing and/or future
environmental studies, changes in legal requirements or other
factors could alter this expectation and require the recording of
additional liabilities. The extent or amount of such events, if any,
cannot be estimated at this time.
As part of its long-term environmental protection program, the
Company spent approximately $5,000 in fiscal 1994 on capital
projects. The Company estimates that during fiscal 1995 and 1996
approximately $4,000 per year will be spent on additional capital
projects for environmental protection. These estimates recognize
the additional capital required to comply with Environmental
Protection Agency (EPA) Underground Storage Tank (UST)
regulations which become effective in December 1998. Presently,
the total cost to comply with the EPA UST regulations is estimated
to be approximately $5,000. The total capital requirements may
change due to, amongst other things, the actual number of USTs
actively in use on the effective date.
Severance Costs
In the Company's continuing efforts to better focus on its service
to members and customers and to improve future profitability, the
Company has made, and is in the process of making, certain
management changes. The Company's chief operating officer, who
was appointed to chief executive officer in January 1995, has
spearheaded these changes in management structure and personnel,
as well as the elimination of positions either through elimination of
work or the reorganization of work processes.
All severance and related costs associated with personnel decisions
made prior to April 1, 1995, have been paid or accrued in the
financial statements as of March 31, 1995, and on a year-to-date
basis total $4,900. Subsequent to March 1995, the Company has
made further decisions to refine its Agriculture & Consumer and
Corporate staff at an estimated additional severance cost of $800,
and Hood has announced that fluid milk production in Hood's
Boston, Massachusetts, plant will begin the process of being
transferred to Hood's plants in Portland, Maine, and Agawam,
Massachusetts. The severance costs associated with this
announcement at Hood are estimated to be $1,100. The severance
costs associated with decisions made in April 1995 will be recorded
in the Company's fourth quarter results.
<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 (continued)
-----------------------------------------
Other
The Company is also subject to various investigations, claims and
legal proceedings covering a wide range of matters that arise in the
ordinary course of its business activities. Each of these matters is
subject to various uncertainties, and it is possible that some of these
matters may be resolved unfavorably to the Company. The
Company has established accruals for matters for which payment is
probable and amounts reasonably estimable. Management believes
any liability that may ultimately result from the resolution of these
matters in excess of amounts provided will not have a material
adverse effect on the financial position or results of operations of
the Company.
6. RESTRUCTURING RESERVES
----------------------
In June 1992, the Company established a $75 million reserve for
the estimated net cost to complete a significant restructuring of the
Company planned at that time. Periodically, management has
reviewed its original estimates and has made revisions due to
changes in circumstances as the restructuring plan evolved. For the
quarter ended March 31, 1995, the overall net change in estimate
reflects income of $1,300. The following schedule details the
remaining reserves to complete the restructuring project and their
intended purposes, as well as the actual activity for the nine-month
period ended March 31, 1995:
<TABLE>
<CAPTION>
Balance Proceeds Reductions Change Balance
--------------------
at Sale of Divested Costs in at
Restructuring Reserve: 6/30/94 Assets Assets Incurred Estimate 3/31/95
------------ ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Personnel Reductions
--------------------
Severance and early retirement program $ 2,502 $ 392 $ (2,110) $ 0
------------ ---------- --------- --------- --------- ----------
TOTAL PERSONNEL (A) 2,502 392 (2,110) 0
Plant, Store & Business Divestitures
------------------------------------
Proceeds on sale of assets (B) (6,349) $ 4,273 1,679 (397)
Net book value of assets to be divested (B) 11,527 $ 5,083 (2,710) 3,734
Cost of divestiture <F1> (C) 3,295 2,366 1,382 2,311
------------ ---------- ---------- ---------- -------- ----------
Loss on divestiture 8,473 4,273 5,083 2,366 351 5,648
Incremental environmental costs (D) 5,906 2,598 928 4,236
------------ ---------- ---------- ---------- -------- ----------
TOTAL PLANT, STORE & BUSINESS 14,379 4,273 5,083 4,964 1,279 9,884
Other Costs
-----------
Consulting fees 1,329 1,229 (100) 0
Contract buyouts and other costs <F2> 1,042 694 (348) 0
------------ ---------- ---------- ---------- ---------- ----------
TOTAL OTHER (E) 2,371 1,923 (448) 0
TOTAL RESTRUCTURING $ 19,252 $ 4,273 $ 5,083 $ 7,279 $ (1,279) $ 9,884
============ ========== ========== ========== ========== ==========
<FN>
<F1> Includes demolition, asset transfer costs, and commissions on real estate transactions.
<F2> Includes amounts of relocation, debt restructuring costs, legal fees, and other costs.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
6. RESTRUCTURING RESERVES (continued)
----------------------------------
(A) During the quarter ended March 31, 1995, the Company completed
a review of the planned technological improvement for data
warehouse, customer management and supply chain management
and concluded that the anticipated future cost of these improvements
was excessive for the benefits expected to be achieved. This review
was terminated in the third quarter. As a result, the employee
reductions and related severance originally expected from
implementation of this technology will not be realized, and the
corresponding restructuring reserve has been eliminated.
(B) Represents certain assets identified for disposition as part of the
original restructuring plan which have yet to be sold or closed.
Efforts to sell the assets and complete the shutdowns are ongoing.
Ultimate disposition will depend upon successful negotiations with
willing buyers for remaining properties. During the third quarter
of 1995, it was determined that certain anticipated proceeds from
the sale of fixed assets would be less than originally estimated and
the disposal of certain assets would not occur. Therefore, the
reserve estimates for these items have been adjusted to reflect these
facts.
(C) Cost of divestitures includes shutdown costs in connection with the
closing and sale of remaining locations. Ultimate disposition will
depend upon successful negotiations with willing buyers for
remaining properties. As operational shutdowns are completed,
additional costs are expected to be incurred in excess of the original
estimations. As a result, an increase to this component of the
restructuring reserve was required.
(D) Included in the costs related to business divestitures are
environmental remediation costs identified during the process of
asset sales and primarily relates to real estate assets retained on
energy business sold. These anticipated cash outlays will be part
of our ongoing programs regarding environmental remediation and
are expected to be incurred over the next four years. The change
in estimate reflects larger anticipated costs associated with the
environmental remediation.
(E) As a result of the termination of certain planned technological
improvements noted under Item (A), future consulting costs have
been eliminated. Additionally, contract buyouts and other costs
have been concluded.
<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 acquire products to 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. The Financial Services and Corporate Groups are
generally not materially impacted by seasonal fluctuations.
<TABLE>
<CAPTION>
Results by Operating Segment
----------------------------
Increase (Decrease)
Three Months Ended Nine Months Ended
------------------- -------------------
3/31/95 vs. 3/31/94 3/31/95 vs. 3/31/94
------------------- -------------------
Net Sales and Revenues
<S> <C> <C>
Agriculture & Consumer. . . . . . . . . . . . . . . $ (26,327) $ (24,077)
Energy. . . . . . . . . . . . . . . . . . . . . . . (37,500) (44,670)
Financial Services. . . . . . . . . . . . . . . . . 1,443 3,748
Food . . . . . . . . . . . . . . . . . . . . . . . (7,486) (454)
Corporate . . . . . . . . . . . . . . . . . . . . . 215 534
-------------------- --------------------
$ (69,655) $ (64,919)
==================== ====================
<CAPTION>
Margin (Loss) from Continuing Operations before Income Taxes
------------------------------------------------------------
<S> <C> <C>
Agriculture & Consumer. . . . . . . . . . . . . . . $ (1,489) $ 3,843
Energy. . . . . . . . . . . . . . . . . . . . . . . (9,370) (14,008)
Financial Services. . . . . . . . . . . . . . . . . 665 1,011
Food. . . . . . . . . . . . . . . . . . . . . . . . (563) (1,750)
Corporate . . . . . . . . . . . . . . . . . . . . . 5,756 (6,297)
-------------------- --------------------
Operating profit (loss) . . . . . . . . . . . . . . (5,001) (17,201)
Interest expense, net . . . . . . . . . . . . . . . (913) (2,726)
-------------------- --------------------
$ (5,914) $ (19,927)
==================== ====================
</TABLE>
Parenthetical numbers in the following narrative have been rounded to
the nearest hundred thousand.
In the Company's continuing efforts to better focus on its service to
members and customers and to improve future profitability, the
Company has made, and is in the process of making, certain
management changes. The Company's chief operating officer, who was
appointed to chief executive officer in January 1995, has spearheaded
these changes in management structure and personnel, as well as the
elimination of positions either through elimination of work or the
reorganization of work processes, which have resulted in a year-to-date
cost of $4,900. This has been particularly true in the Agriculture &
Consumer Group and the Corporate Group, where the Company has
incurred severance costs of $2,500 and $1,900 year to date and $1,600
and $500 for the three months ended March 31, 1995, respectively.
Subsequent to March 1995, the Company has further refined the
Agriculture & Consumer and Corporate staff at an additional severance
cost of $800 and has announced that fluid milk production in Hood's
Boston, Massachusetts, plant will begin the process of being transferred
to Hood's plants in Portland, Maine, and Agawam, Massachusetts.
Severance costs associated with this announcement at Hood are
estimated to be $1,100.
<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)
RESULTS OF OPERATIONS(continued)
--------------------------------
At this time, the Company expects that it will incur a loss for the 1994-95
fiscal year of approximately $15,000. It is anticipated that the Company will
return to profitability in 1995-96 due to expected improvements from the above
Hood restructuring, reduced ongoing costs from the employee reductions in
Agriculture & Consumer and Corporate, as well as a return to higher
profitibility in Agway Energy Products consistent with normal weather patterns.
Actual results for both years could significantly differ either positively or
negatively based on the level of success of the Company's spring season,
further developments with the Company's anticipated sale of H. P. Hood, and/or
unanticipated events or factors outside of the control of the Company.
Agriculture & Consumer Group
----------------------------
Net sales and revenues for the third quarter of fiscal 1995 of $200,800
and for the nine months to date of $634,900 decreased $26,300 (12%)
and $24,100 (4%), respectively, as compared to the corresponding
period in the prior fiscal year. The decreases in the quarter and for the
nine-month period were primarily the result of lower birdseed sales due
to the mild winter conditions, competitive pricing in the Group's
produce repackaging business and lower feed sales in corn and soybean
products as a result of the bumper crop harvested last fall. These
decreases were partially offset by increases in retail sales and farm
fertilizers from the prior year.
Operating losses for the third quarter of fiscal 1995 of $14,900
increased $1,500 (12%) and for the nine months to date losses of
$36,300 decreased $3,900 (10%) as compared to the corresponding
period in the prior year. The increased losses in the quarter resulted
from sales decreases noted above. The net decrease in operating losses
for the year-to-date period represents the sales decreases, higher
ingredient costs and severance costs offset by reductions in
manufacturing, processing and handling costs in the consumer retail and
agriculture feed businesses. Gross margin percentage for the Group was
level at 11% in the third quarter and increased from 10% to 12% in the
nine-month period as compared to the prior year.
Energy Group
------------
Energy segment net sales and revenues of $157,900 for the third quarter
declined $37,500 (19%) as compared to the third quarter of the prior
year. Fiscal 1995 year-to-date net sales and revenues of $403,100
declined $44,700 (10%) as compared to the same period in the prior
year. The decrease for the quarter and year to date is primarily
attributable to volume decreases from a warmer winter than in the
previous year as well as from locations divested since the prior year.
Total unit volume (in millions of gallons) for the quarter and year to
date had a net decrease of 37.6 (18%) and 46.8 (10%) gallons,
respectively, as compared to the corresponding periods in the prior year.
The majority of these decreases were due to lower retail fuel oil sales
as a result of the warmer than normal temperatures during the winter
months. The combined average selling price of all products declined
1% for the quarter and for the year-to-date period as compared to the
previous year, as the result of sufficient supplies of distillates from the
warmer weather. The Group experienced increases in gasoline prices
as compared to the prior year which were more than offset by price
declines in diesel fuel, heating oils and propane.
The third quarter and nine-month period operating margins have
declined $9,400 (36%) and $14,000 (46%), respectively, as compared
to the prior year and reflect the significant reduction in volume noted
above, a slight decrease in average gross margin rate and a change in
estimate increasing the Group's required reserves relative to
restructuring by declining $8,000 (31%) and $12,700 (41%),
respectively, as compared to the prior year.
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 $18,300 for the Financial Services Group for
the third quarter and $53,000 for the year-to-date period increased
$1,400 (9%) and $3,700 (8%), respectively, as compared to the prior
year. The increase for the quarter and year to date is primarily
attributed to Telmark, which had increases of $1,500 (17%) and $4,600
(18%), respectively, due to a higher net investment in leases as
compared to the prior year. Agway General Agency and Insurance
Company revenues declined by $90 (1%) and $900 (4%) due to smaller
amounts of income on investments and increases in operating expenses
which partially offset Telmark's increase.
<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 improved in the third quarter of fiscal 1995 by $700
(24%) and increased $1,000 (14%) for the nine-month period ended
March 31 as compared to the same period in the prior year. Telmark's
operating margin declined in the third quarter of fiscal 1995 by $200
(7%) and increased $200 (3%) for the nine-month period as compared
to the same period in the prior year. The current quarter decline is due
primarily to increased interest costs on Telmark's higher debt levels for
the current period due to the portfolio growth. However, on a year-to-
date basis, the revenue increases from portfolio growth with relatively
higher rates exceed the increases in interest expense from higher debt
levels. Operating margins for the Agway Insurance Company and
General Agency together increased $800 (170%) and $700 (218%) for
the quarter and nine-month period as compared to the same period in the
prior year due to a combination of an increase in net earned premiums
and improved net incurred losses. The improvement in incurred losses
has been the result of a stable automobile underwriting performance as
well as mild Northeast weather patterns as compared to the prior year.
Food Group
----------
For segment reporting purposes, the Food Group consists of Agway
Inc.'s wholly owned subsidiary Hood, a manufacturer, distributor and
marketer of dairy and dairy-related products to the retail and food
service industries throughout the Northeast. The Food Group net sales
decreased $7,500 (6%) and $500 (0%) over the three- and nine-month
periods ended March 31 versus the prior year. In the three-month
period, the majority of the sales decreases were experienced in the dairy
group due primarily to a reduction in volume with existing customers
and also due to the February 1995 sale of previously serviced
in the Mid-Hudson Valley. The dairy group sales decrease was partially
offset by sales increases in the manufacturing product group (MPG).
For the year-to-date period, sales increases in MPG were more than
offset by decreases in the dairy and ice cream groups. The MPG sales
increases were the result of continuing growth of its extended shelf life
business, while decreases in the dairy and ice cream groups were the
result of net volume losses in private label business and lower average
selling prices from change in product mix, respectively.
Operating margins decreased in the third quarter $600 (22%) and for the
nine-month period $1,800 (99%) and were the result of changes in net
sales noted above.
Corporate Groups
----------------
The increase in net sales and revenues of the Corporate Groups of $200
and $500 for the quarter and nine-month period represents external
revenues generated from the Information Services Department and the
elimination of sales and revenues between the operating segments.
The Group net margin for the quarter increased $5,800 to $7,400 as
compared to the prior year and was the result of (1) a patronage refund
received in the Agriculture & Consumer Group of $2,800; (2) release
of restructuring reserves of $2,200 as described in Note 6; and (3) a
gain on sale of the Food Group's Mid-Hudson business in the current
year of $2,100. These increases are partially offset by a $1,600 write-
off of assets associated with technological improvement in data
warehouse, customer management and supply chain management for
which it was concluded in the third quarter that the anticipated future
cost was excessive for the benefits expected to be achieved. On a fiscal
year-to-date basis, a net margin of $500 in the current year represents
a $6,300 decrease as compared to the same period in the prior year.
This results from the above income being offset by $10,200 for Hood
transaction cost and impairment allowance with respect to the ultimate
sale of the investment in Hood, which were provided for in the quarter
ended December 31, 1994.
<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
-------------------------------
Cash flows from operating activities for the nine months ended March
31, 1995 increased $12,600 to $30,200 as compared to the first nine
months of fiscal 1994 due primarily to changes in working capital. Net
cash used in investing activities for the nine months ended March 31,
1995 was $10,800 as compared to $44,200 for the same period last year.
This was due primarily to proceeds from the sale of discontinued
operations (Curtice Burns) of $55,800 offset by increased leasing
activity in fiscal 1995 resulting in the use of an additional $13,200 of
cash for this activity compared to the same period last year. The net
cash flows used in financing activities for the nine months ended March
31, 1995, were $19,500 as compared to net cash provided of $25,100
for the same period in the prior year. The majority of the change from
financing activities was the result of activity with the Company's
subordinated debt. Proceeds from the sale of subordinated debt
increased $24,000, while maturities and redemptions increased $55,100
over the same period in the prior year primarily due to a scheduled
redemption in fiscal 1995 of $34,000.
The Company finances its operations and the operations of all its
continuing businesses and subsidiaries, except Telmark, Agway
Insurance Company and Hood, through Agway Financial Corporation
(AFC). Telmark, Agway Insurance Company and Hood finance
themselves through operations or direct borrowing arrangements. Each
is financed with a combination of short- and long-term credit facilities.
External sources of short-term financing for the Company and all its
continuing operations include revolving credit lines, letters of credit, and
commercial paper programs. Sources of longer-term financing include
borrowings from banks and insurance companies, subordinated debt and
capital leases. In addition, Telmark has occasionally sold blocks of its
lease portfolio.
The AFC short-term lines are available through October 1995. These
AFC short-term lines of credit and $8,000 of AFC long-term debt are
collateralized by the Company's accounts receivable and non-petroleum
inventories. Amounts which can be drawn under the AFC short-term
agreements are limited to a specific calculation based upon the total of
certain accounts receivable and non-petroleum inventories ("collateral").
Adequate collateral has existed throughout the fiscal year to meet the
ongoing needs of the Company and is expected to continue to do so. In
addition, the agreements include certain covenants, the most restrictive
of which requires the Company to maintain specific quarterly levels of
interest coverage and monthly levels of tangible net worth. These
covenants were originally set giving consideration to Hood as a
discontinued operation; however, Hood was reclassified to continuing
operations in the quarter ended December 31, 1994. With this change
in circumstances, unless covenant requirements are amended or waived,
the Company anticipates future covenant violations may occur based
upon the current credit agreement covenant requirements. The
Company has ongoing discussions with its lenders and expects covenant
amendments or waivers will be negotiated to continue the appropriate
and adequate financing currently available under these facilities.
The Hood short-term credit facility is used to supply letters of credit as
well as short-term financing. Letters of credit of $12,527 were
outstanding at March 31, 1995. The short-term credit facility expires
on August 1, 1995. The Company has ongoing discussions with the
lenders to Hood and expects to negotiate a continuation of the
appropriate and adequate financing currently available to Hood.
<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. As of April 30, 1995, all of the claims made by
owners of the affected horses have been settled. The last pending
lawsuit was 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. On April 11, 1995, that lawsuit was settled and the amount
payable to the Kolkowskis was fully covered by insurance. 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 FDA investigation will be
satisfactorily resolved and any adjustments will not be material in
relation to the consolidated financial position of Agway.
Item 5. Other Information
--------------------------
Effective March 1, 1995, Charles C. Brosius resigned as a Director and
as Vice Chairman of the Agway Inc. Board of Directors. Mr. Brosius
was nominated and confirmed as the Secretary of Agriculture for the
Commonwealth of Pennsylvania in March 1995. The Agway Inc. Board
of Directors elected Robert L. Marshman as Vice Chairman of the
Agway Inc. Board of Directors effective March 20, 1995.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
There were two reports on Form 8-K required to be filed during the
third quarter ended March 31, 1995.
The first report was filed on January 13, 1995, announcing the
appointment of Donald P. Cardarelli as chief executive officer and
general manager of Agway Inc. Since August 1994, Cardarelli has
managed the farmer-owned cooperative as executive vice president and
chief operating officer.
On January 27, 1995, a second Form 8-K was filed to describe recent
developments surrounding the sale of the Company's 99% interest in
Hood in that the Company was no longer able to estimate with
reasonable certainty whether a sale will occur within the next year and
therefore reclassified Hood from discontinued operations to continuing
operations.
<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 15, 1995 /s/ PETER J. O'NEILL
------------ -----------------------------------------
Peter J. O'Neill
Senior Vice President,
Treasurer and Controller
(Principal Financial Officer and
Chief Accounting Officer)
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-Q/A
AMENDMENT NO.1
(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, 1995
--------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to
--------------- -----------------------
Commission file number 2-22791
-------
AGWAY INC.*
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 15-0277720
----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Butternut Drive, DeWitt, New York 13214
----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
315-449-6431
----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1995
------------------------------------- -----------------------------
Common Stock, $25 par value per share 109,272 shares
* Agway is a taxpaying corporation founded on cooperative principles.
Membership is limited to farmers and each may hold only one share of
common stock.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands of Dollars)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial
statements of Agway Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended
March 31, 1995 are not necessarily indicative of the results that
may be expected for the year ended June 30, 1995 due, among
other reasons, to the seasonal nature of certain major segments of
the Company's business. For further information, refer to the
consolidated financial statements and notes thereto included in the
annual report on Form 10-K for the year ended June 30, 1994, and
on Form 10-Q for the quarters ended September 30 and December
31, 1994.
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 the Company whose principal business activity is securing
financing through bank borrowings and issuance of corporate debt
instruments to provide funds for the Company, its sole stockholder,
and AFC's sole wholly owned subsidiary, Agway Holdings Inc.
(AHI), and AHI's subsidiaries, for general corporate purposes. The
payment of principal and interest on this debt is absolutely and
unconditionally guaranteed by the Company. In an exemptive relief
granted by the Securities and Exchange Commission, AFC, as a
separate company, is not required to file periodic reports with
respect to these debt securities provided the 1934 Act reports of the
Company contain summarized financial information concerning
AFC.
On July 1, 1994, (i) certain subsidiaries of AFC (Seedway Inc.,
Allied Seed Cooperative Inc., and Pro-Lawn Products Inc.) were
transferred to and merged into Agway Inc., and (ii) certain
operating divisions of Agway Inc. (Retail/Wholesale Operations)
were transferred to AFC and merged together with the Country
Foods operations into Agway Consumer Products Inc., formerly
Agway Country Foods, Inc. Additionally, as of December 31,
1994, H. P. Hood, which was previously reported as a discontinued
operation, has been included as a continuing operation. The prior
year financial statements have been restated to give retroactive
effect to these changes in reporting entities.
Summarized financial information for AFC and Consolidated
Subsidiaries is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- ------------------
1995 1994 1995 1994
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales and revenues. . . . . . . . . $ 392,619 $ 451,118 $ 1,172,121 $ 1,231,992
Operating margin. . . . . . . . . . . . 19,174 30,664 37,179 50,765
Loss from continuing operations . . . . (886) (143) (18,783) (19,087)
Net margin (loss) . . . . . . . . . . . (886) 3,538 (11,729) (14,271)
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
2. AGWAY FINANCIAL CORPORATION (continued)
---------------------------------------
<TABLE>
<CAPTION>
Restated
March 31, June 30,
1995 1994
---------------- ---------------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 599,957 $ 656,290
Properties and equipment, net. . . . . . . . . . . . . . . . . . 229,841 233,287
Noncurrent assets. . . . . . . . . . . . . . . . . . . . . . . . 327,827 290,201
Net assets of discontinued operations. . . . . . . . . . . . . . 0 48,424
---------------- ---------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,157,625 $ 1,228,202
================ ===============
Current liabilities. . . . . . . . . . . . . . . . . . . . . . . $ 343,753 $ 392,809
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 211,918 205,579
Subordinated debt. . . . . . . . . . . . . . . . . . . . . . . . 375,199 379,835
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . 28,618 35,424
Shareholder's equity . . . . . . . . . . . . . . . . . . . . . . 198,137 214,555
---------------- --------------
Total liabilities and
shareholder's equity. . . . . . . . . . . . . . . . . . . . . $ 1,157,625 $ 1,228,202
================ ===============
<CAPTION>
3. SUPPLEMENTAL DISCLOSURES ABOUT OPERATING CASH FLOWS
---------------------------------------------------
Nine Months Ended
March 31,
--------------------------------
1995 1994
--------------- --------------
Additional disclosure of operating cash flows:
<S> <C> <C>
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,205 $ 37,425
================ ===============
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . $ 7,699 $ 9,494
================ ===============
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
4. BORROWING ARRANGEMENTS
----------------------
As of March 31, 1995, short-term borrowing availability to AFC
of $65,000, Telmark of $24,000 and Hood of $33,000 is compared
to $76,250, $23,000 and $23,000, respectively, in the prior year.
Long-term and subordinated debt outstanding amounted to:
<TABLE>
<CAPTION>
Agway & AFC Telmark Hood Total
---------------------- --------------------- ------------------- ----------------------
3/95 6/94 3/95 6/94 3/95 6/94 3/95 6/94
---------- ---------- ---------- ---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt $ 20,702 $ 33,524 $ 219,466 $ 219,489 $ 33,426 $ 38,574 $ 278,144 $ 291,587
Currently payable 11,807 14,424 39,622 62,022 8,497 6,226 63,521 82,672
---------- ----------- ----------- ----------- --------- --------- ----------- -----------
Net long-term debt $ 8,895 $ 19,100 $ 179,844 $ 157,467 $ 24,929 $ 32,348 $ 214,623 $ 208,915
========== =========== =========== =========== ========= ========= =========== ===========
Subordinated debt $ 395,811 $ 403,432 $ 7,448 $ 3,712 $ 6,733 $ 7,162 $ 409,992 $ 414,306
Currently payable 34,793 34,471 0 0 0 0 34,793 34,471
---------- ----------- ----------- ----------- --------- --------- ----------- -----------
Net long-term debt $ 361,018 $ 368,961 $ 7,448 $ 3,712 $ 6,733 $ 7,162 $ 375,199 $ 379,835
========== =========== =========== =========== ========= ========= =========== ===========
</TABLE>
In addition, as of March 31, 1995, Telmark has a committed term
loan credit of $125,000 available to be borrowed through November
30, 1995, of which $90,100 is outstanding as of March 31, 1995.
Hood has available from its bank a committed term loan facility of
up to $10,000 under specified conditions which may be borrowed
against at any time prior to June 1995. No borrowings have been
made against this $10,000 line and any that are made would be due
for repayment by November 1, 1996 and would be guaranteed by
Agway.
The AFC short-term lines are available through October 31, 1995.
These AFC short-term lines of credit and $8,000 of AFC long-term
bank debt are collateralized by the Company's accounts receivable
and non-petroleum inventories. Amounts which can be drawn
under the AFC short-term agreements are limited to a specific
calculation based upon the total of certain accounts receivable and
non-petroleum inventories ("collateral"). Adequate collateral has
existed throughout the fiscal year to meet the ongoing needs of the
Company and is expected to continue to do so. In addition, the
agreements include certain covenants, the most restrictive of which
requires the Company to maintain specific quarterly levels of
interest coverage and monthly levels of tangible net worth. These
covenants were originally set giving consideration to Hood as a
discontinued operation; however, Hood was reclassified to
continuing operations in the quarter ended December 31, 1994.
With this change in circumstances, unless covenant requirements
are amended or waived, the Company anticipates future covenant
violations may occur based upon the current credit agreement
covenant requirements. The Company has ongoing discussions with
its lenders and expects covenant amendments or waivers will be
negotiated to continue the appropriate and adequate financing
currently available under these facilities.
Telmark borrows under its short-term line of credit agreements
from time to time to fund its operations. Short-term lines serve as
interim financing between the issuances of long-term debt. The
current line of credit agreements with various banks permit Telmark
to borrow up to $24,000 on an unsecured basis with interest paid
quarterly and/or upon maturity, of which $20,000 is formally
committed and $4,000 is uncommitted. The lines bear interest at
money market variable rates. As of March 31, 1995, the Company
had $16,000 outstanding against these lines.
These lines of credit are renewed annually usually in the fall. The
$20,000 line of credit has been renewed through November 30,
1995. The $4,000 line of credit has been renewed through
December 31, 1995. The Company believes it has
sufficient lines of credit in place to meet interim funding needs.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
4. BORROWING ARRANGEMENTS (continued)
----------------------------------
The Hood short-term credit facility is used to supply letters of
credit as well as short-term financing. Letters of credit of $12,527
were outstanding at March 31, 1995. The short-term credit facility
expires on August 1, 1995. The Company has ongoing discussions
with the lenders to Hood and expects to negotiate a continuation of
the appropriate and adequate current financing available to Hood.
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
Environmental
The Company is subject to a number of governmental regulations
concerning environmental matters, either directly, or as a result of
the operations of its subsidiaries. The Company expects that it will
be required to expend funds to remediate certain sites, including
certain Superfund sites and sites with underground fuel storage
tanks. In addition, the Company expects that it will incur other
expenses associated with environmental compliance.
The Company continually monitors its operations with respect to
potential environmental issues, including changes in legally
mandated standards and remediation technologies. The Company's
recorded liability reflects those specific issues where remediation
activities are currently deemed to be probable and where the cost
of remediation is estimable. Estimates of the extent of the
Company's degree of responsibility of a particular site and the
method and ultimate cost of remediation require a number of
assumptions for which the ultimate outcome may differ from
current estimates; however, the Company believes that its past
experience provides a reasonable basis for estimating its liability.
As additional information becomes available, estimates are adjusted
as necessary. While the Company does not anticipate that any such
adjustment would be material to its financial statements, it is
reasonably possible that the result of ongoing and/or future
environmental studies, changes in legal requirements or other
factors could alter this expectation and require the recording of
additional liabilities. The extent or amount of such events, if any,
cannot be estimated at this time.
As part of its long-term environmental protection program, the
Company spent approximately $5,000 in fiscal 1994 on capital
projects. The Company estimates that during fiscal 1995 and 1996
approximately $4,000 per year will be spent on additional capital
projects for environmental protection. These estimates recognize
the additional capital required to comply with Environmental
Protection Agency (EPA) Underground Storage Tank (UST)
regulations which become effective in December 1998. Presently,
the total cost to comply with the EPA UST regulations is estimated
to be approximately $5,000. The total capital requirements may
change due to, amongst other things, the actual number of USTs
actively in use on the effective date.
Severance Costs
In the Company's continuing efforts to better focus on its service
to members and customers and to improve future profitability, the
Company has made, and is in the process of making, certain
management changes. The Company's chief operating officer, who
was appointed to chief executive officer in January 1995, has
spearheaded these changes in management structure and personnel,
as well as the elimination of positions either through elimination of
work or the reorganization of work processes.
All severance and related costs associated with personnel decisions
made prior to April 1, 1995, have been paid or accrued in the
financial statements as of March 31, 1995, and on a year-to-date
basis total $4,900. Subsequent to March 1995, the Company has
made further decisions to refine its Agriculture & Consumer and
Corporate staff at an estimated additional severance cost of $800,
and Hood has announced that fluid milk production in Hood's
Boston, Massachusetts, plant will begin the process of being
transferred to Hood's plants in Portland, Maine, and Agawam,
Massachusetts. The severance costs associated with this
announcement at Hood are estimated to be $1,100. The severance
costs associated with decisions made in April 1995 will be recorded
in the Company's fourth quarter results.
<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 (continued)
-----------------------------------------
Other
The Company is also subject to various investigations, claims and
legal proceedings covering a wide range of matters that arise in the
ordinary course of its business activities. Each of these matters is
subject to various uncertainties, and it is possible that some of these
matters may be resolved unfavorably to the Company. The
Company has established accruals for matters for which payment is
probable and amounts reasonably estimable. Management believes
any liability that may ultimately result from the resolution of these
matters in excess of amounts provided will not have a material
adverse effect on the financial position or results of operations of
the Company.
6. RESTRUCTURING RESERVES
----------------------
In June 1992, the Company established a $75,000 reserve for
the estimated net cost to complete a significant restructuring of the
Company planned at that time. Periodically, management has
reviewed its original estimates and has made revisions due to
changes in circumstances as the restructuring plan evolved. For the
quarter ended March 31, 1995, the overall net change in estimate
reflects income of $1,300. The following schedule details the
remaining reserves to complete the restructuring project and their
intended purposes, as well as the actual activity for the nine-month
period ended March 31, 1995:
<TABLE>
<CAPTION>
Balance Proceeds Reductions Change Balance
--------------------
at Sale of Divested Costs in at
Restructuring Reserve: 6/30/94 Assets Assets Incurred Estimate 3/31/95
------------ ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Personnel Reductions
--------------------
Severance and early retirement program $ 2,502 $ 392 $ (2,110) $ 0
------------ ---------- --------- --------- --------- ----------
TOTAL PERSONNEL (A) 2,502 392 (2,110) 0
Plant, Store & Business Divestitures
------------------------------------
Proceeds on sale of assets (B) (6,349) $ 4,273 1,679 (397)
Net book value of assets to be divested (B) 11,527 $ 5,083 (2,710) 3,734
Cost of divestiture <F1> (C) 3,295 2,366 1,382 2,311
------------ ---------- ---------- ---------- -------- ----------
Loss on divestiture 8,473 4,273 5,083 2,366 351 5,648
Incremental environmental costs (D) 5,906 2,598 928 4,236
------------ ---------- ---------- ---------- -------- ----------
TOTAL PLANT, STORE & BUSINESS 14,379 4,273 5,083 4,964 1,279 9,884
Other Costs
-----------
Consulting fees 1,329 1,229 (100) 0
Contract buyouts and other costs <F2> 1,042 694 (348) 0
------------ ---------- ---------- ---------- ---------- ----------
TOTAL OTHER (E) 2,371 1,923 (448) 0
TOTAL RESTRUCTURING $ 19,252 $ 4,273 $ 5,083 $ 7,279 $ (1,279) $ 9,884
============ ========== ========== ========== ========== ==========
<FN>
<F1> Includes demolition, asset transfer costs, and commissions on real estate transactions.
<F2> Includes amounts of relocation, debt restructuring costs, legal fees, and other costs.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
6. RESTRUCTURING RESERVES (continued)
----------------------------------
(A) During the quarter ended March 31, 1995, the Company completed
a review of the planned technological improvement for data
warehouse, customer management and supply chain management
and concluded that the anticipated future cost of these improvements
was excessive for the benefits expected to be achieved. This review
was terminated in the third quarter. As a result, the employee
reductions and related severance originally expected from
implementation of this technology will not be realized, and the
corresponding restructuring reserve has been eliminated.
(B) Represents certain assets identified for disposition as part of the
original restructuring plan which have yet to be sold or closed.
Efforts to sell the assets and complete the shutdowns are ongoing.
Ultimate disposition will depend upon successful negotiations with
willing buyers for remaining properties. During the third quarter
of 1995, it was determined that certain anticipated proceeds from
the sale of fixed assets would be less than originally estimated and
the disposal of certain assets would not occur. Therefore, the
reserve estimates for these items have been adjusted to reflect these
facts.
(C) Cost of divestitures includes shutdown costs in connection with the
closing and sale of remaining locations. Ultimate disposition will
depend upon successful negotiations with willing buyers for
remaining properties. As operational shutdowns are completed,
additional costs are expected to be incurred in excess of the original
estimations. As a result, an increase to this component of the
restructuring reserve was required.
(D) Included in the costs related to business divestitures are
environmental remediation costs identified during the process of
asset sales, that primarily relate to real estate assets retained on
energy business sold. These anticipated cash outlays will be part
of our ongoing programs regarding environmental remediation and
are expected to be incurred over the next four years. The change
in estimate reflects larger anticipated costs associated with the
environmental remediation.
(E) As a result of the termination of certain planned technological
improvements noted under Item (A), future consulting costs have
been eliminated. Additionally, contract buyouts and other costs
have been concluded.
<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 acquire products to 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. The Financial Services and Corporate Groups are
generally not materially impacted by seasonal fluctuations.
<TABLE>
<CAPTION>
Results by Operating Segment
----------------------------
Increase (Decrease)
Three Months Ended Nine Months Ended
------------------- -------------------
3/31/95 vs. 3/31/94 3/31/95 vs. 3/31/94
------------------- -------------------
Net Sales and Revenues
----------------------
<S> <C> <C>
Agriculture & Consumer. . . . . . . . . . . . . . . $ (26,327) $ (24,077)
Energy. . . . . . . . . . . . . . . . . . . . . . . (37,500) (44,670)
Financial Services. . . . . . . . . . . . . . . . . 1,443 3,748
Food . . . . . . . . . . . . . . . . . . . . . . . (7,486) (454)
Corporate . . . . . . . . . . . . . . . . . . . . . 215 534
-------------------- --------------------
$ (69,655) $ (64,919)
==================== ====================
<CAPTION>
Margin (Loss) from Continuing Operations before Income Taxes
------------------------------------------------------------
<S> <C> <C>
Agriculture & Consumer. . . . . . . . . . . . . . . $ (1,489) $ 3,843
Energy. . . . . . . . . . . . . . . . . . . . . . . (9,370) (14,008)
Financial Services. . . . . . . . . . . . . . . . . 665 1,011
Food. . . . . . . . . . . . . . . . . . . . . . . . (563) (1,750)
Corporate . . . . . . . . . . . . . . . . . . . . . 5,756 (6,297)
-------------------- --------------------
Operating profit (loss) . . . . . . . . . . . . . . (5,001) (17,201)
Interest expense, net . . . . . . . . . . . . . . . (913) (2,726)
-------------------- --------------------
$ (5,914) $ (19,927)
==================== ====================
</TABLE>
Parenthetical numbers in the following narrative have been rounded to
the nearest hundred thousand.
In the Company's continuing efforts to better focus on its service to
members and customers and to improve future profitability, the
Company has made, and is in the process of making, certain
management changes. The Company's chief operating officer, who was
appointed to chief executive officer in January 1995, has spearheaded
these changes in management structure and personnel, as well as the
elimination of positions either through elimination of work or the
reorganization of work processes, which have resulted in a year-to-date
cost of $4,900. This has been particularly true in the Agriculture &
Consumer Group and the Corporate Group, where the Company has
incurred severance costs of $2,500 and $1,900 year to date and $1,600
and $500 for the three months ended March 31, 1995, respectively.
Subsequent to March 1995, the Company has further refined the
Agriculture & Consumer and Corporate staff at an additional severance
cost of $800 and has announced that fluid milk production in Hood's
Boston, Massachusetts, plant will begin the process of being transferred
to Hood's plants in Portland, Maine, and Agawam, Massachusetts.
Severance costs associated with this announcement at Hood are
estimated to be $1,100.
<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)
RESULTS OF OPERATIONS(continued)
--------------------------------
At this time, the Company expects that it will incur a loss for the 1994-95
fiscal year of approximately $15,000. It is anticipated that the Company will
return to profitability in 1995-96 due to expected improvements from the above
Hood restructuring, reduced ongoing costs from the employee reductions in
Agriculture & Consumer and Corporate, as well as a return to higher
profitibility in Agway Energy Products consistent with normal weather patterns.
Actual results for both years could significantly differ either positively or
negatively based on the level of success of the Company's spring season,
further developments with the Company's anticipated sale of H. P. Hood, and/or
unanticipated events or factors outside of the control of the Company.
Agriculture & Consumer Group
----------------------------
Net sales and revenues for the third quarter of fiscal 1995 of $200,800
and for the nine months to date of $634,900 decreased $26,300 (12%)
and $24,100 (4%), respectively, as compared to the corresponding
period in the prior fiscal year. The decreases in the quarter and for the
nine-month period were primarily the result of lower birdseed sales due
to the mild winter conditions, competitive pricing in the Group's
produce repackaging business and lower feed sales in corn and soybean
products as a result of the bumper crop harvested last fall. These
decreases were partially offset by increases in retail sales and farm
fertilizers from the prior year.
Operating losses for the third quarter of fiscal 1995 of $14,900
increased $1,500 (12%) and for the nine months to date losses of
$36,300 decreased $3,900 (10%) as compared to the corresponding
period in the prior year. The increased losses in the quarter resulted
from sales decreases noted above. The net decrease in operating losses
for the year-to-date period represents the sales decreases, higher
ingredient costs and severance costs offset by reductions in
manufacturing, processing and handling costs in the consumer retail and
agriculture feed businesses. Gross margin percentage for the Group was
level at 11% in the third quarter and increased from 10% to 12% in the
nine-month period as compared to the prior year.
Energy Group
------------
Energy segment net sales and revenues of $157,900 for the third quarter
declined $37,500 (19%) as compared to the third quarter of the prior
year. Fiscal 1995 year-to-date net sales and revenues of $403,100
declined $44,700 (10%) as compared to the same period in the prior
year. The decrease for the quarter and year to date is primarily
attributable to volume decreases from a warmer winter than in the
previous year as well as from locations divested since the prior year.
Total unit volume (in millions of gallons) for the quarter and year to
date had a net decrease of 37.6 (18%) and 46.8 (10%) gallons,
respectively, as compared to the corresponding periods in the prior year.
The majority of these decreases were due to lower retail fuel oil sales
as a result of the warmer than normal temperatures during the winter
months. The combined average selling price of all products declined
1% for the quarter and for the year-to-date period as compared to the
previous year, as the result of sufficient supplies of distillates from the
warmer weather. The Group experienced increases in gasoline prices
as compared to the prior year which were more than offset by price
declines in diesel fuel, heating oils and propane.
The third quarter and nine-month period operating margins have
declined $9,400 (36%) and $14,000 (46%), respectively, as compared
to the prior year and reflect the significant reduction in volume noted
above, a slight decrease in average gross margin rate and a change in
estimate increasing the Group's required reserves relative to
restructuring.
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 $18,300 for the Financial Services Group for
the third quarter and $53,000 for the year-to-date period increased
$1,400 (9%) and $3,700 (8%), respectively, as compared to the prior
year. The increase for the quarter and year to date is primarily
attributed to Telmark, which had increases of $1,500 (17%) and $4,600
(18%), respectively, due to a higher net investment in leases as
compared to the prior year. Agway General Agency and Insurance
Company revenues declined by $90 (1%) and $900 (4%) due to smaller
amounts of income on investments and increases in operating expenses
which partially offset Telmark's increase.
<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 improved in the third quarter of fiscal 1995 by $700
(24%) and increased $1,000 (14%) for the nine-month period ended
March 31 as compared to the same period in the prior year. Telmark's
operating margin declined in the third quarter of fiscal 1995 by $200
(7%) and increased $200 (3%) for the nine-month period as compared
to the same period in the prior year. The current quarter decline is due
primarily to increased interest costs on Telmark's higher debt levels for
the current period due to the portfolio growth. However, on a year-to-
date basis, the revenue increases from portfolio growth with relatively
higher rates exceed the increases in interest expense from higher debt
levels. Operating margins for the Agway Insurance Company and
General Agency together increased $800 (170%) and $700 (218%) for
the quarter and nine-month period as compared to the same period in the
prior year due to a combination of an increase in net earned premiums
and improved net incurred losses. The improvement in incurred losses
has been the result of a stable automobile underwriting performance as
well as mild Northeast weather patterns as compared to the prior year.
Food Group
----------
For segment reporting purposes, the Food Group consists of Agway
Inc.'s wholly owned subsidiary Hood, a manufacturer, distributor and
marketer of dairy and dairy-related products to the retail and food
service industries throughout the Northeast. The Food Group net sales
decreased $7,500 (6%) and $500 (0%) over the three- and nine-month
periods ended March 31 versus the prior year. In the three-month
period, the majority of the sales decreases were experienced in the dairy
group due primarily to a reduction in volume with existing customers
and also due to the February 1995 sale of business previously serviced
in the Mid-Hudson Valley. The dairy group sales decrease was partially
offset by sales increases in the manufacturing product group (MPG).
For the year-to-date period, sales increases in MPG were more than
offset by decreases in the dairy and ice cream groups. The MPG sales
increases were the result of continuing growth of its extended shelf life
business, while decreases in the dairy and ice cream groups were the
result of net volume losses in private label business and lower average
selling prices from change in product mix, respectively.
Operating margins decreased in the third quarter $600 (22%) and for the
nine-month period $1,800 (99%) and were the result of changes in net
sales noted above.
Corporate Groups
----------------
The increase in net sales and revenues of the Corporate Groups of $200
and $500 for the quarter and nine-month period represents external
revenues generated from the Information Services Department and the
elimination of sales and revenues between the operating segments.
The Group net margin for the quarter increased $5,800 to $7,400 as
compared to the prior year and was the result of (1) a patronage refund
received in the Agriculture & Consumer Group of $2,800; (2) release
of restructuring reserves of $2,200 as described in Note 6; and (3) a
gain on sale of the Food Group's Mid-Hudson business in the current
year of $2,100. These increases are partially offset by a $1,600 write-
off of assets associated with technological improvement in data
warehouse, customer management and supply chain management for
which it was concluded in the third quarter that the anticipated future
cost was excessive for the benefits expected to be achieved. On a fiscal
year-to-date basis, a net margin of $500 in the current year represents
a $6,300 decrease as compared to the same period in the prior year.
This results from the above income being offset by $10,200 for Hood
transaction cost and impairment allowance with respect to the ultimate
sale of the investment in Hood, which were provided for in the quarter
ended December 31, 1994.
<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
-------------------------------
Cash flows from operating activities for the nine months ended March
31, 1995 increased $12,600 to $30,200 as compared to the first nine
months of fiscal 1994 due primarily to changes in working capital. Net
cash used in investing activities for the nine months ended March 31,
1995 was $10,800 as compared to $44,200 for the same period last year.
This was due primarily to proceeds from the sale of discontinued
operations (Curtice Burns) of $55,800 offset by increased leasing
activity in fiscal 1995 resulting in the use of an additional $13,200 of
cash for this activity compared to the same period last year. The net
cash flows used in financing activities for the nine months ended March
31, 1995, were $19,500 as compared to net cash provided of $25,100
for the same period in the prior year. The majority of the change from
financing activities was the result of activity with the Company's
subordinated debt. Proceeds from the sale of subordinated debt
increased $24,000, while maturities and redemptions increased $55,100
over the same period in the prior year primarily due to a scheduled
redemption in fiscal 1995 of $34,000.
The Company finances its operations and the operations of all its
continuing businesses and subsidiaries, except Telmark, Agway
Insurance Company and Hood, through Agway Financial Corporation
(AFC). Telmark, Agway Insurance Company and Hood finance
themselves through operations or direct borrowing arrangements. Each
is financed with a combination of short- and long-term credit facilities.
External sources of short-term financing for the Company and all its
continuing operations include revolving credit lines, letters of credit, and
commercial paper programs. Sources of longer-term financing include
borrowings from banks and insurance companies, subordinated debt and
capital leases. In addition, Telmark has occasionally sold blocks of its
lease portfolio.
The AFC short-term lines are available through October 1995. These
AFC short-term lines of credit and $8,000 of AFC long-term debt are
collateralized by the Company's accounts receivable and non-petroleum
inventories. Amounts which can be drawn under the AFC short-term
agreements are limited to a specific calculation based upon the total of
certain accounts receivable and non-petroleum inventories ("collateral").
Adequate collateral has existed throughout the fiscal year to meet the
ongoing needs of the Company and is expected to continue to do so. In
addition, the agreements include certain covenants, the most restrictive
of which requires the Company to maintain specific quarterly levels of
interest coverage and monthly levels of tangible net worth. These
covenants were originally set giving consideration to Hood as a
discontinued operation; however, Hood was reclassified to continuing
operations in the quarter ended December 31, 1994. With this change
in circumstances, unless covenant requirements are amended or waived,
the Company anticipates future covenant violations may occur based
upon the current credit agreement covenant requirements. The
Company has ongoing discussions with its lenders and expects covenant
amendments or waivers will be negotiated to continue the appropriate
and adequate financing currently available under these facilities.
The Hood short-term credit facility is used to supply letters of credit as
well as short-term financing. Letters of credit of $12,527 were
outstanding at March 31, 1995. The short-term credit facility expires
on August 1, 1995. The Company has ongoing discussions with the
lenders to Hood and expects to negotiate a continuation of the
appropriate and adequate financing currently available to Hood.
<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 22, 1995 /s/ PETER J. O'NEILL
------------ -----------------------------------------
Peter J. O'Neill
Senior Vice President,
Treasurer and Controller
(Principal Financial Officer and
Chief Accounting Officer)
<PAGE>
EXHIBIT 21
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
AS OF JUNE 30, 1995
SUBSIDIARY STATE OF INCORPORATION
---------- ----------------------
Agway Consumer Products, Inc........................................Delaware
Agway Data Services, 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
H. P. Hood Inc. (1)............................................Massachusetts
Janes Street, Inc...................................................Michigan
Milford Fertilizer Company..........................................Delaware
Motor Transportation Services, Inc..................................Delaware
New Albany Seed Company, Inc........................................Indiana
Telmark Inc.........................................................New York
Texas City Refining, Inc. (2).......................................Delaware
Notes:
(1) Agway Holdings Inc. owns 99.9% of H. P. Hood Inc.
(2) Agway Petroleum Corporation owns 67% of Texas City Refining, Inc. In
September 1993, Texas City Refining, Inc., filed a certificate of
dissolution in the offfice of the Delaware Secretary of State.
<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. 33-55985) and on Form S-8 (File No. 33-54083)
of our reports dated September 15, 1995, on our audits of the consolidated
financial statements and financial statement schedules of Agway Inc. and
Consolidated Subsidiaries as of June 30, 1995, and 1994, and for the years
ended June 30, 1995, 1994 and 1993, which reports are included in this Annual
Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
September 15, 1995
<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.
33-55985) of Agway Inc. of our report dated August 11, 1995 relating to the
consolidated financial statements of H. P. Hood Inc., which report appears on
page 33 of this Form 10-K.
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 13, 1995
<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 11, 1995 relating to the consolidated financial statements of H. P.
Hood Inc., which report appears on page 33 of this Form 10-K.
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 13, 1995
<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. 33-55985) and on Form S-8 (File No. 33-54083) of our report dated
August 16, 1995, relating to the June 25, 1994 and June 26, 1993 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 15, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000002852
<NAME> AGWAY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 0
<SECURITIES> 34752
<RECEIVABLES> 252052
<ALLOWANCES> 12443
<INVENTORY> 177996
<CURRENT-ASSETS> 633231
<PP&E> 641721
<DEPRECIATION> 330408
<TOTAL-ASSETS> 1354091
<CURRENT-LIABILITIES> 489751
<BONDS> 612630
<COMMON> 2728
0
65635
<OTHER-SE> 104002
<TOTAL-LIABILITY-AND-EQUITY> 1354091
<SALES> 2015812
<TOTAL-REVENUES> 2082861
<CGS> 1837326
<TOTAL-COSTS> 1872322
<OTHER-EXPENSES> 196691
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36169
<INCOME-PRETAX> (26740)
<INCOME-TAX> (3778)
<INCOME-CONTINUING> (22962)
<DISCONTINUED> 7054
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15908)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000002852
<NAME> AGWAY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> JUN-30-1994
<CASH> 0
<SECURITIES> 33943
<RECEIVABLES> 272791
<ALLOWANCES> 15515
<INVENTORY> 197788
<CURRENT-ASSETS> 677763
<PP&E> 610739
<DEPRECIATION> 292380
<TOTAL-ASSETS> 1400314
<CURRENT-LIABILITIES> 522866
<BONDS> 588750
<COMMON> 2771
0
71338
<OTHER-SE> 129717
<TOTAL-LIABILITY-AND-EQUITY> 1400314
<SALES> 2126789
<TOTAL-REVENUES> 2187193
<CGS> 1945074
<TOTAL-COSTS> 1975214
<OTHER-EXPENSES> 188563
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33570
<INCOME-PRETAX> (4556)
<INCOME-TAX> 1126
<INCOME-CONTINUING> (5682)
<DISCONTINUED> 2378
<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, 1995
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>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
Report on Audited Financial Statements
for the year ended June 30, 1995
-----------------------------------------------------------------------
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
JUNE 30, 1995 AND 1994
-----------------------------------------------------------------------
INDEX
-----
Independent Auditors' Report...............................................F-2
Financial Statements:
Statements of Net Assets Available for Benefits
as of June 30, 1995 and 1994.............................F-3
Statements of Changes in Net Assets Available for Benefits
for the years ended June 30, 1995 and 1994...............F-4
Notes to Financial Statements.............................F-5 to F-15
Supplemental Schedules:
Item 27a. Schedule of Assets Held for Investment Purposes
as of June 30, 1995..........................S-1.1 and S-1.2
Item 27d. Schedule of Reportable Transactions
for the year ended June 30, 1995.............S-2.1 and S-2.2
F-1
<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 (the "Plan") as
of June 30, 1995 and 1994, and the related statements of changes in net
assets available for benefits for the years ended June 30, 1995 and 1994.
These financial statements are the responsibility of the Plan's management.
Our responsibility is to express an opinion on these financial statements
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, 1995 and 1994, and the changes in net assets available for
benefits for the years ended June 30, 1995 and 1994, in conformity with
generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedules
listed in the accompanying index are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974. The supplemental schedules
have been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/COOPERS & LYBRAND
Syracuse, New York
August 25, 1995
F-2
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
June 30, 1995 and 1994
-----------
(Thousands of Dollars)
<TABLE>
<CAPTION>
ASSETS
1995 1994
-------- --------
<S> <C> <C>
Mutual Common Stock, at fair value
(cost: 1995 - $31,437; 1994 - $31,469) $36,689 $30,193
Agway, Inc., Preferred Securities, at fair value
(approximates cost) 34,509 38,409
Agway Financial Corp., Subordinated
Money Market Certificates, at fair value
(approximates cost) 15,961 14,969
Agway Financial Corp., Subordinated
Debentures, at fair value (approximates cost) 3,130 3,130
Temporary Investment Funds, at fair value
(equals cost) 2,019 977
Mutual Bond Fund at fair value
(cost: 1995 - $1,235; 1994 - $959) 1,333 962
Loans to participants 1,239 796
------- -------
TOTAL INVESTMENTS 94,880 89,436
Accrued income 2,003 2,097
------- -------
NET ASSETS AVAILABLE FOR BENEFITS $96,883 $91,533
======= =======
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-3
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
for the years ended June 30, 1995 and 1994
-----------
(Thousands of Dollars)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Net appreciation (depreciation) in
fair value of investments $ 6,856 $ (180)
Interest income 1,660 1,414
Dividend income 3,467 3,270
-------- --------
11,983 4,504
-------- --------
Contributions:
Participants 5,901 6,031
Agway, Inc. 467 1,378
-------- --------
6,368 7,409
-------- --------
18,351 11,913
-------- --------
Deductions:
Benefits payments to participants 12,714 4,413
Trustee fees, administrative and other expenses 287 365
-------- --------
13,001 4,778
-------- --------
Net additions 5,350 7,135
Net assets available for benefits:
Beginning of year 91,533 84,398
-------- --------
Net assets available for benefits:
End of year $ 96,883 $ 91,533
======== ========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-4
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
1. DESCRIPTION OF THE PLAN
The following brief description of the Agway, Inc. Employees'
Thrift Investment Plan (the "Plan") is provided for general
information purposes only. Participants should refer to the Plan
agreement for more complete information.
General
The Plan is a defined contribution plan covering all full-time
employees of Agway, Inc. (the "Sponsor") and part-time employees
who have reached their first anniversary date (as defined in the
Plan) and worked 1,000 hours. It is subject to the provisions of
the Employee Retirement Income Security Act of 1974 (ERISA).
Contributions
Participants may elect to contribute "regular investments" of 2%
to 6% of annual compensation (as defined in the Plan). 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 Section 401(k) of the Internal Revenue Code and are
contributed to the Plan before being subject 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.
Participants may invest an additional 1% to 9% of annual
compensation as "additional investments" on a pre-tax basis
(subject to IRS limitations) 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 participant.
Participants may also contribute amounts representing
distributions from other qualified benefit or contribution plans.
The Sponsor shall contribute an amount equal to at least 10%, but
not more than 50%, of each participant's regular investment to the
Plan. All employer contributions are invested in the Company
Security Fund. The discretionary percentage of Sponsor
contributions above 10% for each year of operation of the Plan
shall be determined by the Board of Directors of the Sponsor. The
Sponsor's contribution will be made each week at a rate of 10% of
the participant's regular investment. Any amount of the Sponsor'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 Sponsor's
federal income tax return for the applicable taxable year,
including extensions for such filing.
F-5
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
1. DESCRIPTION OF THE PLAN (CONTINUED)
Contributions (continued)
The Sponsor 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 Sponsor's Money Market Certificates, will equal
one-half percent less than the interest rate plus any declared
"extra" paid on the Sponsor's member debentures. This contribution
is made semi-annually to participants with amounts invested in the
Company Security Fund.
Participant Accounts
Each participant's account is credited with the participant's
contribution and allocations of (a) the Sponsor's contributions,
(b) plan earnings, and (c) administrative expenses. Allocation of
plan earnings is done on a monthly basis and is based on each
fund's monthly earning percentage (fund earnings divided by fund
market value) times the participant's accumulated investments and
earnings in the fund. The benefit to which a participant is
entitled is the benefit that can be provided from the
participant's vested account.
Vesting
Participants vest immediately in their contributions plus actual
earnings thereon. Effective July 1, 1993, participants also vest
immediately in that part of the Company Security Fund representing
Sponsor contributions and earnings thereon.
Investment Options
The Plan provides for the following separate investment fund
choices to participants: the Company Security Fund, Stock Fund,
Bond Fund and Cash Fund. Upon enrollment in the Plan, a
participant may direct employee contributions in 25 percent
increments in any of the four funds. A participant may change
investment options or elect to transfer employee contributions up
to once a month. Sponsor contributions and earnings thereon may
not be transferred from the Company Security Fund to other
investment funds.
F-6
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
1. DESCRIPTION OF THE PLAN (CONTINUED)
Investment Options (continued)
Company Security Fund
It is explicitly provided and intended that the Company Security
Fund be invested in qualified Agway, Inc. securities. However, if
at any time when the Trustee has funds available for such
investment and such prescribed securities are not available for
purchase from the Sponsor, 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, as instructed by the
Sponsor's Employee Benefit Plans Investment Committee ("EBPIC"),
which are comparable to the prescribed securities of the Sponsor.
Securities of Agway, Inc. will be purchased from the Sponsor at
par value or principal amount, since the market value of such
securities is maintained as such by the Sponsor as a result of its
practice of repurchasing outstanding securities at par whenever
holders thereof elect to tender them for redemption.
Stock Fund
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 EBPIC may deem advisable from
time to time, but which shall not include shares of stock or other
securities of the Sponsor 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 selection and purchase of suitable
securities. Substantially all of the Stock Fund investments were
in the "Wells Fargo U. S. Equity Market Fund" at June 30, 1995 and
1994, 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 applicable
Market Fund, stated at quoted market values, by the units
outstanding.
F-7
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
1. DESCRIPTION OF THE PLAN (CONTINUED)
Investment Options (continued)
Bond Fund
The Bond Fund is 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. Substantially
all of the Bond Fund investments were in the Wells Fargo
"Government/Corporate Bond Index Fund" and Bankers Trust
"Government Corporate Bond Index Fund" at June 30, 1995 and 1994,
respectively. 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 value, by the units outstanding.
Cash Fund
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 majority of investments of the Cash
Fund were in the Wells Fargo "Money Market Fund" and Bankers Trust
Company's "Discretionary Cash Fund" at June 30, 1995 and 1994,
respectively.
Loan Fund
The Plan also includes various terms and conditions under which a
participating employee can make loans from the Plan. 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. Loan
transactions are treated as a transfer to (from) the investment
fund from (to) the participant notes fund. Loan terms range from 1
to 5 years or up to 20 years for the purchase of a primary
residence. The loans are secured by the balance in the
participant's account and bear interest at a rate of 1 percent
over prime. Interest rates on loans outstanding at June 30, 1995
range from 7 to 10 percent. Principal and interest are paid
ratably through payroll deductions.
F-8
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
1. DESCRIPTION OF THE PLAN (CONTINUED)
Payment of Benefits
On termination of service due to death, disability or retirement,
a participant may elect to receive either a lump-sum amount equal
to the value of the participant's vested interest in his or her
account, or annual installments over periods ranging from 5 to 20
years. For termination of service due to other reasons, a
participant may receive the value of the vested interest in his or
her account as a lump-sum distribution.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Plan are prepared under the
accrual basis of accounting in conformity with generally accepted
accounting principles. The accounting principles and practices
which affect the more significant elements of the financial
statements are:
Investment Valuation
Agway, Inc. preferred stock and debt securities are valued at par,
which approximates fair value, since it has been the Sponsor's
practice to repurchase outstanding securities at par when
redeemed. All other Plan investments are held in bank commingled
trust funds, shares of which are valued at the net asset value of
shares held by the Plan at year-end as determined by the
investment manager. Purchases and sales of securities are recorded
on a trade-date basis. Participant loans are valued at cost, which
approximates fair value.
Income Recognition
Interest income from investments is recognized as earned.
Dividends are recorded on the ex-dividend date. Gain or loss on
sale of securities is based on average cost. The Plan presents in
the statement of changes in net assets the net appreciation
(depreciation) in the fair value of its investments which consists
of the realized gains or losses and the unrealized appreciation
(depreciation) on those investments.
Trustee Fees, Administrative and Other Expenses
Trustee fees, administrative expenses and all other expenses are
recognized on the accrual basis. The Plan incurred approximately
$221 in 1995 and $87 in 1994 in administrative expenses paid to
the Sponsor during the year.
F-9
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
3. INVESTMENTS
The Plan's investments are held by a bank-administered trust fund.
The following table presents the fair value of investments as
determined by estimated market price. Investments that represent 5
percent or more of the Plan's net assets are separately
identified.
INVESTMENTS AT ESTIMATED FAIR VALUE
1995 1994
------- -------
Wells Fargo U. S. Equity Market Fund $36,689 $30,193
Agway, Inc., Preferred Securities:
6% cumulative preferred stock - Series A 4,595 8,495
8% cumulative preferred stock - Series B 18,442 18,442
7% cumulative preferred stock - Series C 11,472 11,472
------- -------
34,509 38,409
Agway Financial Corp., Subordinated
Money Market Certificates 15,961 14,969
Agway Financial Corp., Subordinated
Debenture Certificates 3,130 3,130
Temporary Investments 2,019 977
Mutual Bond Fund 1,333 962
Loans to Participants 1,239 796
------- -------
TOTAL INVESTMENTS AT FAIR VALUE $94,880 $89,436
======= =======
During 1995 and 1994, the Plan's investments (including gains and
losses on investments bought and sold, as well as held during the
year) appreciated (depreciated) in value for the fiscal year ended
June 30 as follows:
1995 1994
------ ------
NET (DEPRECIATION) APPRECIATION
AT ESTIMATED FAIR VALUES
Wells Fargo U. S. Equity Market Fund
Equity Market Fund $6,724 $ (164)
Mutual Bond Fund 132 (16)
------ ------
Total $6,856 $ (180)
====== ======
F-10
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
4. PLAN TRUSTEE
The cash and investments of the Plan are held by Boston Safe
Deposit and Trust Company (the "Trustee") under a trust agreement
dated April 1, 1995. In general, the duties of the Trustee
include: (1) holding assets and collecting income therefrom; (2)
investing the assets of the Plan as directed by EBPIC or the
appointed investment manager; (3) selling or exchanging the assets
of the Plan; and (4) paying benefits to participants in the Plan
on the written order of the Employee Benefit Plans Administrative
Committee ("EBPAC"), which is appointed by the Board of Directors
of the Sponsor. The investment of assets in the Stock Fund, Bond
Fund and Cash Fund are directed by an investment manager, Wells
Fargo Institutional Trust Company, San Francisco, California.
5. PLAN TERMINATION
The Sponsor may amend or terminate the Plan. Although the Sponsor
has not expressed any intent to do so, 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.
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. Accordingly,
no provision for income taxes has been included in the Plan's
financial statements.
The Plan has been amended since receiving the determination
letter. In 1995, the plan administrator filed for a favorable
determination letter from the Internal Revenue Service regarding
the amended and restated plan. The plan administrator and the
Plan's tax counsel believe that the Plan is designed and currently
being operated in compliance with the applicable requirements of
the IRC.
F-11
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
7. ALLOCATION OF PLAN ASSETS AND LIABILITIES TO INVESTMENT PROGRAMS
June 30, 1995
-------------
<TABLE>
<CAPTION>
Company
Security Stock Bond Cash Loan
ASSETS Fund Fund Fund Fund Fund TOTAL
------ ------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Securities of Agway, $53,600 $53,600
Inc.
Common stock $36,689 36,689
Mutual Bond Fund $ 1,333 1,333
Loans to participants $ 1,239 1,239
Temporary investment
funds 313 292 10 $ 1,404 2,019
Accrued income 2,000 2 0 1 2,003
------- ------- ------- ------- ------- -------
$55,913 $36,983 $ 1,343 $ 1,405 $ 1,239 $96,883
======= ======= ======= ======= ======= =======
NET ASSETS
AVAILABLE
FOR BENEFITS $55,913 $36,983 $ 1,343 $ 1,405 $ 1,239 $96,883
======= ======= ======= ======= ======= =======
</TABLE>
F-12
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
7. ALLOCATION OF PLAN ASSETS AND LIABILITIES TO INVESTMENT PROGRAMS (CONTINUED)
June 30, 1994
-------------
<TABLE>
<CAPTION>
Company
Security Stock Bond Cash Loan
ASSETS Fund Fund Fund Fund Fund TOTAL
------ ------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Securities of Agway, $56,508 $56,508
Inc.
Common stock $30,193 30,193
Mutual Bond Fund $962 962
Loans to participants $796 796
Temporary investment
funds 263 332 $382 977
Accrued income 2,096 1 2,097
------- ------- ------- ------- ------- -------
$58,867 $30,525 $962 $383 $796 $91,533
======= ======= ======= ======= ======= =======
NET ASSETS
AVAILABLE
FOR BENEFITS $58,867 $30,525 $962 $383 $796 $91,533
======= ======= ======= ======= ======= =======
</TABLE>
F-13
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
7. ALLOCATION OF PLAN ASSETS AND LIABILITIES TO INVESTMENT PROGRAMS (CONTINUED)
<TABLE>
<CAPTION>
June 30, 1995
-------------
Company
Security Stock Bond Cash Loan
ASSETS Fund Fund Fund Fund Fund TOTAL
--------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Additions to net
assets attributed to:
Net appreciation in fair
value of investments $ 6,724 $ 132 $ 6,856
Interest $ 1,514 21 1 $ 61 $ 63 1,660
Dividends 2,640 827 3,467
-------- -------- -------- -------- -------- -------
4,154 7,572 133 61 63 11,983
-------- -------- -------- -------- -------- -------
Contributions:
Participants 2,719 2,793 265 124 0 5,901
Agway, Inc. 467 467
-------- -------- -------- -------- -------- -------
3,186 2,793 265 124 6,368
-------- -------- -------- -------- -------- -------
Total additions 7,340 10,365 398 185 63 18,351
-------- -------- -------- -------- -------- -------
Deductions from net assets attributed to:
Participants 7,688 4,675 81 270 12,714
Administrative expenses 179 103 3 2 287
-------- -------- -------- -------- -------- -------
Total deductions 7,867 4,778 84 272 13,001
-------- -------- -------- -------- -------- -------
Net increase (decrease)
before interfund
transfers (527) 5,587 314 (87) 63 5,350
Transfers from ( to) other funds (2,427) 871 67 1,109 380 0
Net assets available for
benefits,
beginning of year 58,867 30,525 962 383 796 91,533
-------- -------- -------- -------- -------- -------
Net assets available
for benefits,
end of year $ 55,913 $ 36,983 $ 1,343 $ 1,405 $ 1,239 $ 96,883
======== ======== ======== ======== ======== ========
</TABLE>
F-14
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
7. ALLOCATION OF PLAN ASSETS AND LIABILITIES TO INVESTMENT PROGRAMS (CONTINUED)
<TABLE>
<CAPTION>
June 30, 1994
-------------
Company
Security Stock Bond Cash Loan
ASSETS Fund Fund Fund Fund Fund TOTAL
--------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Additions to net
assets attributed to:
Net (depreciation)
appreciation in fair
value of investments $ (163) $ (17) $ (180)
Interest $ 1,378 24 $ 12 1,414
Dividends 2,788 482 3,270
-------- -------- -------- ----- ------- --------
4,166 343 (17) 12 4,504
-------- -------- -------- ----- ------- --------
Contributions:
Participants 2,841 2,839 275 76 6,031
Agway, Inc. 1,378 1,378
-------- -------- -------- ----- ------- --------
4,219 2,839 275 76 7,409
-------- -------- -------- ----- ------- --------
Total additions 8,385 3,182 258 88 11,913
-------- -------- -------- ----- ------- --------
Deductions from net assets attributed to:
Participants 2,954 1,345 84 30 4,413
Administrative expenses 233 125 5 2 365
-------- -------- -------- ----- ------- --------
Total deductions 3,187 1,470 89 32 4,778
-------- -------- -------- ----- ------- --------
Net increase (decrease)
before interfund
transfers 5,198 1,712 169 56 7,135
Transfers from (to) other funds (865) 177 (183) 75 $ 796 0
Net assets available for
benefits,
beginning of year 54,534 28,636 976 252 84,398
-------- -------- -------- ----- ------- --------
Net assets available
for benefits,
end of year $ 58,867 $ 30,525 $ 962 $ 383 $ 796 $ 91,533
======== ======== ======== ======== ======== ========
</TABLE>
F-15
<PAGE>
ITEM 27a. SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
as of June 30, 1995
(Thousands of Dollars)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Balance Held at
Close of Period
(Number of Shares Market Value Proceeds
Name of Issuer or Principal Amount Cost of of Each Item at of
and Title of Issue of Bonds and Notes) Each Item Close of Period Disposition
------------------ ------------------- --------- --------------- -----------
<S> <C> <C> <C> <C>
Company Security Fund:
AGWAY, INC.:
6% cumulative preferred
stock - Series A 4,595,000 $ 4,595 $ 4,595
8% cumulative preferred
stock - Series B 18,442,000 18,442 18,442
7% cumulative preferred
stock - Series C 11,472,000 11,472 11,472
AGWAY FINANCIAL CORP.:
7% subordinated money
market certificates,
due October 31, 1995 1,857,457 1,857 1,857
8% subordinated money
market certificates,
due October 31, 1995 1,975,628 1,976 1,976
5-1/2% subordinated money
market certificates,
due October 31, 1996 2,536,213 2,536 2,536
7-1/2% subordinated money
market certificates,
due October 31, 1997 1,686,846 1,687 1,687
7-3/4% subordinated money
market certificates,
due October 31, 1997 1,337
6-1/2% subordinated money
market certificates,
due October 31, 1998 1,604
8-1/2% subordinated money
market certificates,
due October 31, 1998 653,493 654 654
8% subordinated debentures,
due July 1, 1999 1,130,000 1,130 1,130
7-1/2% subordinated money
market certificates,
due October 31, 1999 1,109,136 1,109 1,109
9% restricted debenture fund,
due October 31, 2000 2,273,945 2,274 2,274
</TABLE>
Continued
S-1.1
<PAGE>
ITEM 27a. SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES, Continued
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
as of June 30, 1995
(Thousands of Dollars)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Balance Held at
Close of Period
(Number of Shares Market Value Proceeds
Name of Issuer or Principal Amount Cost of of Each Item at of
and Title of Issue of Bonds and Notes) Each Item Close of Period Disposition
------------------ ------------------- --------- --------------- -----------
<S> <C> <C> <C>
Company Security Fund: (Continued)
Agway Financial Corp.: (Continued)
8-1/2% subordinated money
market certificates,
due October 31, 2001 2,606,153 $ 2,606 $ 2,606
7-1/2% subordinated debentures,
due July 1, 2003 2,000,000 2,000 2,000
8% subordinated money
market certificates,
due October 31, 2005 1,261,979 1,262 1,262
---------- ----------
Total Company securities 53,600 53,600
Temporary Investment Fund 312,900 313 313
---------- ----------
Total Company Security Fund 53,913 53,913
---------- ----------
Stock Fund:
Wells Fargo U.S.Equity Market Fund 1,295,399 31,437 36,689
Temporary Investment Fund 293,600 294 294
---------- ----------
Total Stock Fund 31,731 36,983
---------- ----------
Bond Fund:
Wells Fargo Government/Corporate
Bond Index Fund 114,294 1,235 1,333
Temporary Investment Fund 9,958 10 10
---------- ----------
Total Bond Fund 1,245 1,343
---------- ----------
Cash Fund:
Wells Fargo Money Market Fund 1,397,828 1,398 1,398
Temporary Investment Fund 4,640 4 4
---------- ----------
Total Cash Fund 1,402 1,402
---------- ----------
Loan Fund:
Participant Notes 1,239 1,239
---------- ----------
Total Loan Fund 1,239 1,239
---------- ----------
TOTAL INVESTMENTS $ 89,530 $ 94,880
========== ==========
</TABLE>
S-1.2
<PAGE>
ITEM 27d. SCHEDULE OF REPORTABLE TRANSACTIONS
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
for the year ended June 30, 1995
<TABLE>
<CAPTION>
Current Value
of Investment
Purchase Selling on Transaction Net
Price Price Date Gain(Loss)
------------- ----------- -------------- ----------
SINGLE SECURITY TRANSACTIONS IN
EXCESS OF 5% OF MARKET VALUE
TRANSFERS TO NEW TRUSTEES:
<S> <C> <C> <C> <C>
Agway, Inc. Preferred Series B 8% $ 18,442,000 $ 18,442,000 0
Agway, Inc. Preferred Series C 7% 11,472,000 11,472,000 0
Agway, Inc. Preferred Series A 6% 8,495,000 8,495,000 0
Wells Fargo U. S. Equity Market Fund 31,760,344 31,760,344 0
Agway, Inc. Preferred Series B 8% 18,442,000 18,442,000 0
Agway, Inc. Preferred Series C 7% 11,472,000 11,472,000 0
Agway, Inc. Preferred Series A 6% 8,495,000 8,495,000 0
Wells Fargo U. S. Equity Market Fund 31,760,344 31,760,344 0
Agway, Inc. Preferred Series B 8% 18,442,000 18,442,000 0
Agway, Inc. Preferred Series C 7% 11,472,000 11,472,000 0
Agway, Inc. Preferred Series A 6% 5,345,000 5,345,000 0
Wells Fargo U. S. Equity Market Fund 33,165,875 33,165,875 0
Agway, Inc. Preferred Series B 8% 18,442,000 18,442,000 0
Agway, Inc. Preferred Series C 7% 11,472,000 11,472,000 0
Agway, Inc. Prefererd Series A 6% 5,345,000 5,345,000 0
Wells Fargo U. S. Equity Market Fund 33,165,875 33,165,875 0
</TABLE>
S-2.1
<PAGE>
ITEM 27d. SCHEDULE OF REPORTABLE TRANSACTIONS
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN (continued)
for the year ended June 30, 1995
<TABLE>
<CAPTION>
Current Value
of Investment
Purchase Selling on Transaction Net
Price Price Date Gain(Loss)
------------- ----------- -------------- ----------
SERIES OF SECURITY TRANSACTIONS
IN EXCESS OF 5% OF MARKET VALUE
<S> <C> <C> <C> <C>
Agway, Inc. Preferred Series B 8% $ 36,884,000 $ 36,884,000 0
Agway, Inc. Preferred Series C 7% 22,944,000 22,944,000 0
Agway, Inc. Preferred Series A 6% 13,840,000 13,840,000 0
Wells Fargo U. S. Equity Market Fund 66,922,439 66,922,439 0
U. S. Trust Co. Pooled Trust
Short-Term Fixed Income Fund 9,374,248 9,374,248 0
Fidelity Money Market Trust 6,232,183 6,232,183 0
Domestic Money Market Portfolio
Wells Fargo Bank Money Market Fund 4,857,484 4,857,484 0
TBC INC Pooled Employee Fund 6,838,641 6,838,641 0
Agway, Inc. Preferred Series B 8% 36,884,000 36,884,000 0
Agway, Inc. Preferred Series C 7% 22,944,000 22,944,000 0
Agway, Inc. Preferred Series A 6% 16,990,000 16,990,000 0
Wells Fargo U. S. Equity Market Fund 67,346,042 67,346,042 196,068
U. S. Trust Co. Pooled Trust
Short-Term Fixed Income Fund 9,369,863 9,369,863 0
Fidelity Money Market Trust 6,232,183 6,232,183 0
Domestic Money Market Portfolio
Wells Fargo Bank Money Market Fund 3,464,379 3,464,379 0
TBC INC Pooled Employee Fund 6,217,501 6,217,501 0
</TABLE>
S-2.2
