<PAGE>1
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>2
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>3
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>4
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>5
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>6
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>7
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>8
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>9
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>10
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Unaudited)
(Thousands of Dollars)
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>11
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Unaudited)
(Thousands of Dollars)
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>12
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)
