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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, 1996
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: 315-449-6436
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 AUGUST 30, 1996.
Membership Common Stock, $25 Par Value - $2,677,900
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 AUGUST 30, 1996
----- ------------------------------
Membership Common Stock, $25 Par Value 107,116 Shares
PAGE 1 OF 159. EXHIBIT INDEX APPEARS ON SEQUENTIALLY NUMBERED PAGE 60.
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<PAGE>
FORM 10-K ANNUAL REPORT - 1996
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Page
PART I
<S> <C> <C>
Items 1 & 2. Business and Properties
General................................................................................... 3
Agriculture............................................................................... 5
Retail.................................................................................... 6
Energy.................................................................................... 7
Leasing................................................................................... 7
Insurance................................................................................. 7
Discontinued Operations................................................................... 8
Competition............................................................................... 8
Human Resources........................................................................... 9
Regulation................................................................................ 10
Administrative............................................................................ 10
Stockholder Membership and Control of Agway............................................... 10
Patronage Refunds......................................................................... 12
Retained Margin........................................................................... 12
Item 3. Legal Proceedings............................................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders........................................... 13
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................... 14
Item 6. Selected Financial Data....................................................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 15
Item 8. Financial Statements and Supplementary Data................................................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 24
PART III
Item 10. Directors and Executive Officers of the Registrant............................................ 55
Item 11. Executive Compensation........................................................................ 57
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 59
Item 13. Certain Relationships and Related Transactions................................................ 59
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 60
Signatures.................................................................................... 69
</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, primarily 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; manufacturing of pet foods;
processing and marketing sunflower seeds; the underwriting and sale of certain
types of property and casualty insurance; the sale of health insurance; and
lease financing. Refer to the organizational structure of Agway as of June 30,
1996, 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 the
Company, 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 the Company 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 relief granted pursuant to a "no action letter" issued by
the staff of 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.
In 1995, the Company was reorganized through a process of decentralizing
its management and operations. This was done to further enhance customer service
in the Agriculture and Retail businesses, to address cost increases that
occurred in those units during the prior two years, and to initiate and
implement further cost reductions for the Company. Certain functions and costs
previously centrally managed as part of corporate administration were assumed by
the individual business units. In the Agriculture and Retail businesses, a new,
more decentralized business structure was formulated. The Agriculture business
is now comprised of seven geographically based enterprise units under Agway
Agricultural Products (AAP) and engages in the manufacturing, processing, and
marketing of various animal feeds, crop inputs, fertilizers and farm supplies to
Agway's customer base, primarily in the core northeastern markets. The Country
Products Group (CPG), which principally processes and markets vegetables,
processes, sells and distributes sunflower seeds and manufactures pet foods
through a number of business units, is included in the Agriculture business. The
Retail business, which is shown as a separate segment in 1996, is comprised of
Agway Retail Services (ARS), which is responsible for Agway retail store
locations; provides the wholesale supply of certain products to Agway franchised
representatives, retail stores and other businesses; and provides technical and
administrative support for AAP.
In 1996, the Company continued the process of decentralizing its corporate
administration and reassigned the management of additional functions previously
performed by corporate departments to its business segments. Also, for
disclosure and discussion purposes, the Financial Services segment has been
divided into the Leasing and Insurance segments in order to capture these lines
of business separately.
3
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
ORGANIZATIONAL STRUCTURE OF AGWAY AS OF JUNE 30, 1996
NARRATIVE DESCRIPTION OF ORGANIZATIONAL CHART THAT IS OMITTED
-------------------------------------------------------------
The organizational structure of Agway Inc. as of June 30, 1996 was as
follows:
Agway Inc is the parent company of this organization. The organization
consists of Corporate level legal entities and administration, and five segments
including Agriculture, Retail, Energy, Leasing, and Insurance.
The Corporate administration encompasses the Executive Office, Corporate
Finance and Control, Legal and Public Affairs departments of Agway Inc. The
Corporate legal entities are Agway Financial Corporation (AFC), a wholly owned
subsidiary of Agway Inc. and Agway Holdings Inc. (AHI), a wholly owned
subsidiary of AFC.
Agriculture consists of Agway Agricultural Products (AAP), and Country
Products Group (CPG). Agway Inc. agricultural areas include feed and crop
operations which are part of AAP and seed operations which are part of CPG.
Milford Fertilizer Company, a wholly owned subsidiary of Agway Inc., is also
part of AAP. Agway Consumer Products Inc., a wholly owned subsidiary of AHI,
includes retail farm locations mananged by AAP(1), produce repackaging,
commodity processing and repackaging, pet food manufacturing and bag printing
and manufacturing managed by CPG (2), and retail/wholesale operations managed by
Agway Retail Services (ARS)(3).
The Energy segment consists of Agway Petroleum Corporation, a wholly owned
subsidiary of AHI. The Leasing segment consists of Telmark, Inc., a wholly owned
subsidiary of AHI. The Insurance segment consists of Agway Insurance Company and
Agway General Agency, Inc., both wholly owned subsidiaries of AHI.
[END NARRATIVE]
(1) Certain retail operations, depending upon location, have a primary focus
on farm supply products and also supply yard and garden products, pet food
and pet supplies. These are managed in the Agriculture segment.
(2) These operations are managed by CPG and are made up of the following:
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. Merchants Produce Company
was operational through December 1995.
(3) Retail operations located in more suburban areas have a primary focus on
yard and garden products, 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. These are managed in the Retail segment.
4
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
AGRICULTURE
AGWAY AGRICULTURAL PRODUCTS
Agway Agricultural Products (AAP) is comprised of seven geographically
based enterprise units which provide animal feed, agronomic and farm supply
products and services to farmers in their specific geographic markets. Each
enterprise unit is 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.
ANIMAL FEEDS: AAP operates 16 regional feed mills and 21 grind and mix
facilities, principally in New York, Pennsylvania, and Vermont. These 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 responds to customer
calls to any Agway facility. Production capacity is sufficient to meet market
needs.
AGRONOMIC NEEDS: AAP operates 120 agronomic blending plants and storage
facilities. These operations manufacture, process, and procure crop-related
products to be sold as direct shipments to customers, farmer-dealers, and
wholesale accounts. 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. 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. Agronomic operations are seasonal, with the majority of
sales and demand on working capital generated in late winter and spring.
Production 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, 60 locations have a
significantly heavier emphasis on farm supplies, due to their geographic
location and customer base. These locations are managed by AAP and also
coordinate the delivery of feed and crop-related products to farmers in their
territory.
RESEARCH AND APPLIED TECHNOLOGY: The Research and Applied Technology
Department, which is managed by AAP, 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 comprising a laboratory, office space, and conference rooms
serving Agway and other cooperatives. The Technical Center has chemical and
microbiological assay capability. Approximately 49 employees are engaged in
research and product development activities. During the fiscal years ended June
30, 1996, 1995 and 1994, net expenditures of $600, $1,300 and $1,600,
respectively, were made on agricultural research activities by the Company as a
whole. Research for the crops operations is conducted in conjunction with
universities and other suppliers.
5
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
COUNTRY PRODUCTS GROUP
Country Products Group (CPG) operates in five different businesses:
produce repack operations, commodity processing and repack operations, pet food
manufacturing, bag printing and manufacturing, and forage and turf seed
processing. These operations have sufficient capacity to meet their operating
requirements. The seed operations are seasonal in nature, with the majority of
sales occurring in the spring.
The produce repack operations operated six distribution facilities during
1996, located in Canastota, Elba, and Chittenango, New York; Tampa, Florida; and
two in Plant City, Florida. These produce businesses specialize in the sale of
consumer packages of potatoes, onions, and other vegetables to retail outlets.
Tablestock and seed potatoes are marketed from Presque Isle, Maine. During 1996,
construction of a new produce super center, located at DeWitt, New York, was
substantially completed. The business is named G&P Fresh Pac and became
operational in August 1996. As a result, the Canastota and Chittenango, New
York, facilities will be closed.
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, human edible sunflower seed, 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 seed, hulled millet, wild bird food, and related products.
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 by external customers as well as
internally in the small animal food manufacturing process.
The seed operations produce, condition and market forage seed and turf
seed. These facilities operate in several New York and Pennsylvania locations as
well as Oregon and Idaho.
During 1996, Pro-Lawn, the professional turf business, was sold. The
remaining turf operations are responsible for manufacturing and processing of
turf-related products including seed. These products are marketed to the ARS
retail store and franchised representative system. The turf operations also
serve as a distribution center for various farm seed products marketed through
AAP. Additionally, the new owners of the Pro-Lawn line of business utilize these
facilities and pay CPG for their use. Six facilities are located in
Pennsylvania, New York, and Massachusetts.
RETAIL
AGWAY RETAIL SERVICES
WHOLESALE: Agway Retail Services (ARS) provides support for wholesale
purchasing, warehousing, and distribution activities to AAP and Agway's entire
wholesale and retail system. ARS conducts retail sales and distribution
activities through 174 Company-owned stores and 337 franchised representative
stores located in all of the New England states and in Delaware, Maryland, New
York, New Jersey, and Pennsylvania.Of the Agway-owned stores, although all carry
farm supplies, 114 locations, managed by ARS, are in more suburban areas and
therefore have a greater emphasis on yard and garden products, pet food and pet
supplies. The other 60 Agway-owned stores are managed by AAP.
6
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
RETAIL: The retail system is focused primarily on three product categories:
farm-related products, yard and garden products, 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 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. In May 1996, ARS entered into a ten-year logistics agreement
with an outsourcer to manage its distribution centers with an estimated annual
expense under this agreement of approximately $10,000.
During 1995 and 1996, ARS generated sales of animal health products
directly to farmers through a mail-order catalog service. This channel
complements the Agway retail system.
ENERGY
AGWAY ENERGY PRODUCTS
Energy is Agway Petroleum Corporation [doing business as Agway Energy
Products (AEP)], a Delaware corporation wholly owned by AHI. AEP markets
petroleum products including gasolines, kerosene, fuel oil, diesel fuel,
propane, lubricating oils and greases, and 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, AEP does enter into
supply contracts for periods ranging from three to nine months.
AEP currently owns storage capacity for approximately 2,900,000 barrels of
products at 10 terminals located in New York and Pennsylvania. AEP operates 96
retail distribution centers, located throughout New York, Pennsylvania, New
Jersey, Massachusetts, and Vermont. AEP also distributes petroleum products
through 65 distributors and resellers. Facilities are sufficient to meet the
current operating requirements of the business.
LEASING
TELMARK INC.
Telmark Inc. (Telmark), a New York corporation wholly owned by AHI,
finances buildings, equipment, and vehicles to farmers and other customers,
primarily in rural communities. It operates in 27 northeastern and midwestern
states. As of June 30, 1996, Telmark had approximately $374,200 of leases
outstanding with persons other than Agway and its subsidiaries, net of unearned
interest and finance charges of approximately $124,200. Telmark finances its
lease portfolio through operations and/or direct borrowings including private
placement or issuance of public debentures. As a result of Telmark issuing
subordinated debentures to the public, it files periodic reports with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934.
An agreement exists between AHI and Telmark whereby AHI guarantees to
advance funds (in the form of subordinated notes payable) to Telmark, such that
Telmark can maintain a debt-to-equity ratio of no greater than five to one. 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.
INSURANCE
AGWAY INSURANCE COMPANY
Agway Insurance Company (Insurance) 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 the Insurance headquarters
in DeWitt, New York. Lines of insurance sold include Farmowners, Homeowners,
Farm Commercial and Personal Auto Liability and Physical Damage, and
miscellaneous commercial policies that support the agricultural marketplace.
7
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
DISCONTINUED OPERATIONS
On March 23, 1993, the Agway Board of Directors authorized management to
sell the Company's 34% interest in Curtice Burns Foods, Inc. (Curtice Burns) and
99% interest in H.P. Hood Inc. (Hood). Management and the Board had specific
plans for the divestiture of these operations and expected to divest of both
investments in fiscal 1994; however, due to unanticipated occurrences, Curtice
Burns was sold in fiscal 1995, while Hood was sold in fiscal 1996. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the specifics of these sales.
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 distinguish
itself through superior customer service, product selection and product
knowledge.
AGRICULTURE
AGWAY AGRICULTURAL PRODUCTS: In the animal 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 quality of its products,
research 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 strong in the
commercial farm market. Competition varies significantly by product line and
consists of independent dealers and several nationally integrated 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.
COUNTRY PRODUCTS GROUP: CPG 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, CPG 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 and other cooperatives, and compete based on
product quality. The seed business competes on the basis of technical expertise
and product performance.
RETAIL
ARS 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. ARS competes on the basis of product
knowledge, expertise, and customer service.
ENERGY
AEP 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. AEP
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.
8
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES-CONTINUED
(THOUSANDS OF DOLLARS)
LEASING
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.
INSURANCE
Insurance competes with major direct writers, national agency companies,
and smaller regional insurance carriers. 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 7,500 persons, 2,700 of
which are part-time. There are approximately 200 employees represented by two
different unions with seven existing union contracts. The Company enjoys
satisfactory relations with both its union and nonunion employees as a result of
competitive wage, health, and benefit programs.
9
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
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 Recovery Act; the Clean Air Act; the Safe Drinking
Water Act; the Comprehensive Environmental Response Compensation and Liability
Act (CERCLA); 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 that 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.
As part of its long-term environmental protection program, the Company
spent approximately $2,000 in fiscal 1996 on capital projects. The Company
estimates that during fiscal 1997 and 1998 approximately $1,300 and $3,700 per
year will be spent, respectively, on additional capital projects for
environmental protection. These estimates include the additional capital
required to comply with EPA Underground Storage Tank (UST) regulations that
become effective in December 1998. Presently, the total additional capital
required to comply with the EPA UST regulations is estimated to be approximately
$3,700. 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 240,000 square feet under
terms of a lease with 11 remaining years with two 10-year renewal options. In
addition, under a 5-year renewable lease, AAP and ARS occupy approximately
100,000 square feet of administrative office space located at 301 Plainfield
Road, Syracuse, 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
85,000 farmers.
Only members of the Company and certain contract patrons are eligible to
receive patronage refunds. (See Patronage Refunds.) Members are eligible to
attend membership meetings and to participate in the selection of member
committees. In addition, only members may be elected to the Agway Council or to
the Board of Directors of the Company (each of the foregoing are described
below). Only members, by reason of their ownership of Membership Common Stock of
the Company, are entitled to vote at meetings of the stockholders.
10
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
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 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, which are limited to 8% of the par
value of Membership Common Stock, and 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, Inc., 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 17 persons, all of whom are
nominated on a district representation basis by 94 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. At each annual meeting of the Company, 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, 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 with the Agway Board of Directors
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.
11
<PAGE>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES - CONTINUED
(THOUSANDS OF DOLLARS)
PATRONAGE REFUNDS
The By-laws of the Company provide that, after the close of each fiscal
year, members and so-called "contract patrons" shall be paid patronage refunds
in cash in an amount equal to realized net margin of the Company (computed on a
tax 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 or contract
patrons.) Each member or 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.
12
<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 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 that 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 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 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 accordingly 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. The Company does not believe that
adjustments, if any, will 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 Acton,
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 prepared a risk assessment
scope of work that was approved by the MDEP. The MDEP also recently approved
reclassification of the site. Agway plans to complete its risk assessment for
the site during the fall of 1996. 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. Agway has had further discussions with other
PRPs who have been participating in the ongoing RI/FS and decided to participate
at this time.
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, 1996.
13
<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 August 30, 1996, is 107,116, of which 22,497 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 1996 and fiscal 1995.
(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, 1996,
1995 and 1994 are included elsewhere in the Form 10-K and should be read in
conjunction with the full consolidated financial statements of the Company and
Notes thereto.
<TABLE>
<CAPTION>
(In Thousands of Dollars Except Per Share Amounts)
-----------------------------------------------------------------------------------
Years Ended June 30
1996 1995 1994 1993 1992
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales and revenues (1)... $ 1,662,602 $ 1,592,053 $ 1,694,274 $ 1,719,890 $ 1,815,735
Margin (loss) from
continuing operations (1).. $ 10,085 $ (7,978) $ 696 $ 25,727 $ (44,571)
Net margin (loss) (2)........ $ 11,600 $ (15,908) $ (3,304) $ 19,750 $ (58,813)
Total assets (1)............. $ 1,244,271 $ 1,224,751 $ 1,273,711 $ 1,223,462 $ 1,204,037
Total long-term debt (1) .... $ 291,666 $ 268,310 $ 253,104 $ 216,146 $ 230,135
Total long-term subordinated
debt (1)................. $ 414,927 $ 399,064 $ 407,144 $ 379,619 $ 382,862
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, 1992-1995, have been
reclassified to conform to current year presentation.
(2) The 1992 data reflect a $75,000 charge before taxes for business
restructuring; 1994 data reflect a $6,065 credit before taxes from business
restructuring and an after-tax operating loss of $4,000 from discontinued
operations; 1995 data reflect an after-tax loss of $12,360 in discontinued
operations 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;
1996 data reflect a $1,943 credit before taxes from business restructuring
and an after-tax gain on the sale of Hood, net of operating losses until the
time of sale of $1,515. Activities related to the 1992 restructuring plans
have been concluded and no further charges or credits will be forthcoming.
14
<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
Consolidated Financial Statements of the Company and Notes thereto (Item 8),
specifically Financial Information Concerning Segment Reporting (Note 15) and
Discontinued Operations (Note 18). 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, 1994 through June 30, 1996.
RESULTS OF OPERATIONS
1996 COMPARED WITH 1995
CONSOLIDATED RESULTS
The Company's net margin of $11,600 for fiscal 1996 is a $27,500
improvement over fiscal 1995's net loss of $15,900. Of that improvement, $18,000
comes from improvements in continuing operations and $9,500 comes from
improvement reflected in discontinued operations. The $18,000 from continuing
operations reflects a $25,600 pre-tax improvement, offset by a $7,600 increase
in income tax expense. The $25,600 pre-tax improvement is the result of (1)
improved operating results, particularly in Agway Agricultural Products (AAP)
and Agway Retail Services (ARS), but also in Leasing (Telmark), Country Products
Group (CPG) and Energy, offset by reduced results in the Insurance operations;
(2) net gains on sale of property, plant and equipment, investments and
businesses, principally by CPG, as the Company continues to focus its
operations; and (3) reduced expenses resulting from decentralization activities
undertaken in 1995 to reduce costs for fiscal 1996, reduced severance cost in
1996 as compared to 1995 and continued expense reduction efforts during 1996,
offset by increased interest expense.
Consolidated net sales and revenues of $1,662,600 increased $70,500 (4.4%)
in 1996 compared to $1,592,100 in 1995. The increase was due principally to
price increases in AAP and price and volume increases in Energy, but also by
sales and revenue volume increases in Telmark and some lines of business in CPG.
These increases were offset by reduced sales in 1996 from businesses sold in
1995, principally by ARS; businesses sold in 1996, principally by CPG; and
reduced volume in ARS and Insurance as these units refocus their mix of
business.
Consolidated operating costs and expenses of $1,629,300 in 1996 increased
$53,800 (3.4%) compared to $1,575,500 in 1995. The increase was due principally
to price increases in product costs in AAP and Energy as well as additional
costs associated with an increased portfolio in Telmark and increased claim
costs experienced in Insurance. The selling, general and administrative (SGA)
expenses of $140,300 included above reflect an $11,800 (7.8%) decrease from
$152,200 in 1995. These SGA reductions reflect a decrease in severance cost of
$5,200 to $1,100 in 1996 compared to $6,300 in 1995 and also reflect the ongoing
reduction of costs, net of inflation, which result from the decentralization
activities noted above.
Interest expense, net of interest income, of $33,100 in 1996 increased
$3,100 (10.3%) compared to $30,000 in 1995. Of the increase, $2,100 is due to
interest assessed in the settlement of state income tax audits of prior years
for Energy and $1,300 is due to interest assessed in the settlement of federal
income tax audits of prior years for the Company.
Other income, net, of $19,100 increased $11,900 (167.4%) over 1995. The
increase is substantially attributable to three items: (1) a $5,100 increase in
patronage refunds received from cooperative suppliers; (2) $3,800 in gains on
the sale of businesses (particularly in the CPG operations of Agriculture); and
(3) a $1,300 gain on the sale of an investment.
Income tax expense of $9,200 and $1,600 for 1996 and 1995, respectively,
results in an effective tax rate of 47.9% and 25.6%. See Note 9 of the financial
statements of the Company for more details.
DISCONTINUED OPERATIONS
Hood was sold in December 1995 at a net gain of $2,100 and had experienced
a net loss of $600 through the date of sale. The $1,500 total net gain was
reclassified to discontinued operations. The $7,900 loss in discontinued
operations, as reported for 1995, reflects a $4,400 gain on the November 1994
sale of Curtice Burns and $12,300 of net losses recognized in relation to Hood.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
(THOUSANDS OF DOLLARS)
AGRICULTURE
Total sales and revenues of $869,400 in 1996 represent an increase of
$77,700 (9.8%) from 1995. AAP experienced a $94,200 (17.2%) increase that was
substantially the result of price increases reflecting the increase in cost in
feed and fertilizer ingredients. CPG experienced an overall decline in sales and
revenues in 1996, as compared to 1995, totaling $16,500 (7.1%). The overall
sales reduction resulted from the sales of CPG's Pro-Lawn Products and
laboratory animal diet line of business and Sacramento Valley Milling, a bean
seed operation in California, in 1996. This was somewhat offset by CPG's
sunflower operation which had significant improvements in 1996, increasing its
sales and revenues by $6,900 (20%) over 1995.
The Agriculture operating margin improved $27,400 from a loss of $9,000 in
1995 to a margin of $18,400 in 1996. AAP's 1996 operating margin had a
significant improvement of $23,400 (176.6%) over 1995. The largest contributing
factors to this improvement were the $14,600 (30.8%) increase to AAP's gross
margins, an increase of $5,100 in patronage refunds received from cooperative
suppliers, and a decline in expenses as the result of management's success in
reducing SGA costs from the reorganization and the realignment of AAP into
enterprises during 1995.
AAP's gross margins over 1995 resulted from a change in AAP's feed
ingredient purchasing program. During 1996, Agway Inc., through AAP, joined
forces with Farmland Industries, Inc., to form AFI, a limited liability company,
to provide a vehicle to achieve better pricing in the marketplace through volume
purchasing. Additionally, in a market year with potentially tight supplies and
increasing prices for commodities needed in the Company's feed business, the
Company increased the use of forward purchase contracts, principally to assure
supply, and the use of exchange-traded futures contracts, principally to assist
in the management of the cost of these commodities. AAP's enhanced purchasing
program enabled it to capture the benefits of the rising market during 1996,
which is reflected in reduced cost of sales. Due to the volatility of the
commodities market, the benefits experienced in the feed business from the use
of exchange-traded futures contracts, which was a major component of the gross
margin improvement in 1996 in feed ingredients, may or may not be realized at
the same level in future years.
CPG's operating margin increased $4,000 (93.6%) over 1995, resulting from
a $1,100 (36.5%) improvement in its sunflower operations and a net $3,800 gain
on the sales of businesses noted previously. These were offset by a reduction in
operating margin due to businesses having been sold during the year and one-time
costs attributable to the start-up of the new produce facility in DeWitt, New
York.
RETAIL
Total sales and revenues of $262,200 in 1996 decreased $28,800 (9.9%)
compared to $291,000 in 1995. Sales declines resulted from the exit of the Dairy
Route and I&S businesses in late 1995. Additionally, the summer drought and
early winter conditions in the Northeast during the first half of 1996 adversely
impacted sales, particularly with yard and garden product lines such as
fertilizers and turf seeds. In order to improve overall margins in the retail
store system during 1996, ARS has made product mix changes and created marketing
programs designed to de-emphasize high dollar value and lower margin products
such as power equipment in favor of smaller per unit value products with higher
turnover and margins. This focus has resulted in an overall decline in total
sales and revenues and some improvement in margins.
The operating margin of ARS was $3,500 for 1996, which represents an
$8,500 improvement over 1995. This substantial improvement results in part from
the product mix change noted above, but also from a reduction in expenses as the
result of management's successful efforts to cut back SGA costs of the retail
store system by reorganizing its structure and management organization.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
(THOUSANDS OF DOLLARS)
ENERGY
Total net sales and revenues of $546,000 in 1996 increased $35,200 (6.9%)
as compared to $510,800 in 1995. A large part of this increase (85%) was
attributable to price increases, while the remaining increase was due to volume
increases. The prices for Energy's heating and power fuels increased 8% to 10%
over 1995 as the result of a rise in the market prices during peak winter
months. The volume increases, particularly in heating oil and propane, resulted
from 1996 being 8.4% colder than 1995 (based on degree days). These were
partially offset by volume decreases resulting from management decisions to
close certain company-owned retail keytrol/cardtrol sites which were determined
not to be economical to upgrade to comply with the new storage tank regulatory
requirements, and diesel fuel volume lost in the summer and fall of 1995 to
competitors who sold their excess supplies from the warm 1995 winter at bargain
prices.
Energy's operating margin of $12,200 for 1996 represents a $1,900 increase
over 1995. Gross margin improvements totaled $2,600 in 1996 as compared to 1995
and were mainly attributable to a change in propane sales mix to higher margin
accounts. The margins in heating oils and power fuels were reduced by higher
product costs as the result of a volatile market price of fuel oil that could
not be fully recovered through increased selling price to customers. The lower
gross margins in power fuels were also due to volatile product costs as well as
product mix, competitive pricing and higher operating costs. Additionally,
Energy's operating margin was affected by increases in administrative expenses
of $2,000 over 1995 offset by increases in other income of $1,100 from the sale
of fixed assets and a restructuring credit.
LEASING
Total net revenues of $48,600 in 1996 increased $6,700 (15.9%) compared to
$41,900 in 1995. The increase resulted from a $41,500 (12.4%) increase in the
net lease portfolio in 1996 compared to 1995. Interest and finance charges as a
percent of average net leases and notes increased from 12.7% in 1995 to 12.9% in
1996.
Operating profits increased $2,200 (24.0%) to $11,500 in 1996 as compared
to 1995. The increase in total revenues was partially offset by interest
expense, which increased $2,600 (14.9%) to $20,300 in 1996 due to Telmark's
increased borrowings required to finance the growth of the lease portfolio. The
average cost of debt for Telmark remains unchanged from 1995 at 7.5%. SGA
expenses increased $1,600 (20%) to $9,800 in 1996 as compared to 1995. Telmark
payroll costs for additional personnel, incentives on new business booked and
expansion of its advertising all drove expenses upward in 1996.
INSURANCE
Insurance net sales and revenues of $25,400 in 1996 decreased $4,200
(14.1%) as compared to $29,600 in 1995. The decline in revenues is in
Insurance's direct written premium due to competitive price conditions for
personal lines business.
Operating losses for Insurance in 1996 total $5,300, which represents a
$5,600 decline compared to 1995. This decline was the result of adverse
development in older claims, certain unusually large farmowner and auto losses
and increased claim activity in the second and third quarters of 1996 due to
severe weather conditions in the Northeast.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
(THOUSANDS OF DOLLARS)
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
CONSOLIDATED RESULTS
The Company's net loss of $15,900 in 1995 was a $12,600 (381%) increase
over the $3,300 net loss in 1994. Of that decline, $8,700 comes from continuing
operations and $3,900 comes from discontinued operations. The $8,700 decline
from continuing operations reflected an $11,300 pre-tax decline offset by a
$2,600 decline in tax expense. The $11,300 pre-tax decline was principally a
result of an $14,100 decrease in operating margin from Energy, due to a very
warm winter in 1995 compared to 1994 and less restructuring credits experienced
in 1995 than in 1994. Additionally, operating margin was reduced by $6,300 of
severance costs incurred as part of a reorganization of the Company through a
process of decentralization and was offset by $8,100 of net improvement from
AAP, CPG, ARS and Telmark in 1995 compared to 1994.
Consolidated net sales and revenues of $1,592,100 decreased $102,200
(6.0%) in 1995 compared to $1,694,300 in 1994. The decrease was due primarily to
volume declines in Agriculture, Retail, Energy and Insurance. The Agriculture
decline of $53,400 (6.3%) 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 1995. Additionally, the mild winter conditions in
1995 negatively impacted the retail and wholesale bird food, small animal food
and bagged feed sales. Energy's net sales and revenues decreased $45,300 (8.1%)
and was primarily due to 1995 being the third warmest winter on record, which
negatively impacted heating oil sales volume.
Consolidated operating costs and expenses were $1,575,500 in 1995 as
compared to $1,667,400 in 1994. The $91,900 (5.5%) decrease was the result of a
decrease in product and plant operation costs of $107,700 and was offset by
increases in SGA costs of $8,100; 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, Retail and Energy businesses that occurred as a part of the
Company's restructuring efforts over the past three years. The increase in SGA
costs was mainly the result of additional costs from severance and increased bad
debt expense.
Interest expense, net of interest income, totaled $30,000 in 1995 as
compared to $27,600 in 1994, representing a $2,400 (8.7%) increase. The increase
was attributable to higher interest rates on slightly higher average balances of
debt.
Other income in 1995 totaled $7,100 as compared to other income of $5,700
in 1994. The increase of $1,400 in 1995 was mainly the result of larger
patronage refunds received.
Income tax expense was approximately $1,600 and $4,200 in 1995 and 1994,
respectively, for an effective rate of 25.6% and 85.8%. The statutory rate 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.
The $3,900 decline in operating results of discontinued operations comes
from the Company recognizing a net loss on its investment of $12,300 in 1995
compared to a $4,000 net loss recognized in 1994 offset by a $4,400 net gain in
1995 from the sale of Curtice Burns.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
(THOUSANDS OF DOLLARS)
AGRICULTURE
Total sales and revenues of $791,700 in 1995 represented a decline of
$53,400 (6.3%) from $845,100 in 1994. AAP experienced a $31,700 (5.3%) 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. CPG sales declined $22,000 (8.6%) 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 seeds. 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 operating results improved in 1995 by $4,000 (30.7%) due
to a loss of $9,000 in 1995 as compared to a loss of $13,000 in 1994. A 1995
operating result improvement of $4,000 was offset by $1,300 of severance
incurred to effect the reorganization initiated and implemented in 1995 and a
$4,200 lower credit from restructuring ($2,000 in 1995 compared to $6,200 in
1994). Both components of Agriculture successfully reduced expenses by limiting
overtime, reducing selling and advertising costs, and eliminating of positions.
RETAIL
Total sales and revenues of $291,000 in 1995 dropped $32,000 (9.9%)
compared to $323,000 in 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.
The Retail operating loss of $5,000 improved $3,300 (39.7%) in 1995 as
compared to 1994. This was the result of successfully reducing expenses by
limiting overtime, reducing selling and advertising costs, and eliminating
positions. The margin improvement was after considering approximately $2,300 of
severance costs incurred as a result of the segment's reorganization.
ENERGY
Total net sales and revenues of $510,800 in 1995 decreased $45,200 (8.1%)
as compared to $556,000 in 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%) as 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 (7.6%) 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 $14,100 (57.9%) as compared to 1994. 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 2.0% in 1995, as compared to 4.4% in 1994 as
the result of the above declines.
LEASING
Total sales and revenues of $41,900 in 1995 increased $6,800 (19.4%)
compared to $35,100 in 1994. This increase is the result of a 20% increase in
its net lease revenues, achieved primarily from territory expansion.
Operating profit was $9,300 for 1995, an increase of $800 from $8,500 in
1994.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
(THOUSANDS OF DOLLARS)
INSURANCE
Total sales and revenues of $29,600 in 1995 decreased $1,100 (3.6%)
compared to $30,700 in 1994. 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 Insurance was $300 for 1995, a decrease of $700 from
1994.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS
Cash generated from operations and external borrowings continues to be the
Company's major ongoing source of funds to finance capital improvements and
shareholder dividends. During 1996, significant additional cash was generated
from the sale of businesses.
The net cash flows generated from operating activities of the Company
totaled $9,400, $16,200 and $21,000 in 1996, 1995 and 1994, respectively. The
decline in operating cash flows in 1996, as compared to 1995 and 1994, resulted
principally from an increase in working capital items of $36,700 in 1996 as
compared to a decrease of $17,900 and an increase of $2,600 in 1995 and 1994,
respectively. The impacts from working capital items in each year were offset by
fluctuations in net margins and the change in the level of deferred tax assets.
CASH FLOWS FROM INVESTING
Net cash flows used in the Company's investing activities totaled $28,500,
$20,100 and $75,100 in 1996, 1995 and 1994, respectively. The Company has a
growing leasing business and cash required to fund lease origination growth in
excess of lease repayments and leases sold amounted to $48,500, $62,800 and
$57,300 in 1996, 1995 and 1994, respectively. The Company's discontinued
operations provided cash of $15,900, $76,400 and $2,300 for 1996, 1995 and 1994,
respectively, attributable to the proceeds from the sales of discontinued
operations and the change in net assets of discontinued operations. Finally, the
Company obtained a $31,100 source of cash in 1996 when it sold businesses and a
security investment for cash proceeds. Similar proceeds were not generated at
the same level in 1995 or 1994.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
(THOUSANDS OF DOLLARS)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
CASH FLOWS FROM FINANCING ACTIVITIES
The Company finances its operations and the operations of all its
continuing businesses and subsidiaries, except Telmark and Insurance, through
Agway Financial Corporation (AFC). External sources of short-term financing for
the Company and all its other continuing operations include revolving credit
lines, letters of credit, and a commercial paper program. Telmark and Insurance
finance themselves through operations or direct borrowing arrangements. Each is
financed with a combination of short- and long-term credit facilities. In
addition, Telmark has occasionally sold blocks of its lease portfolio. Sources
of longer-term financing include the following as of June 30, 1996:
<TABLE>
<CAPTION>
Source of debt Agway & AFC Telmark Total
-------------- ------------- ------------- -------------
<S> <C> <C> <C>
Banks - due 7/96 to 2/01 with interest
from 6.0% to 8.5%.................................... $ 3,325 $ 146,000 $ 149,325
Insurance companies - due 9/96 to 11/00................
with interest from 5.9% to 9.2%...................... 126,844 126,844
Capital leases & other - due 1996 to 2007
with interest from 6% to 12%......................... 15,341 156 15,497
------------- ------------- -------------
Long-term debt..................................... 18,666 273,000 291,666
Subordinated money market certificates - due
10/96 to 10/08 with interest from 4.5% to 9.5%....... 367,426 367,426
Subordinated debentures due 1997 to 2003
with interest at 6.0% to 8.5%....................... 23,243 24,258 47,501
------------- ------------- -------------
Total subordinated debt............................ $ 390,669 $ 24,258 $ 414,927
------------- ------------- -------------
Total debt..................................... $ 409,335 $ 297,258 $ 706,593
============= ============= =============
</TABLE>
As of June 30, 1996, the Company had certain facilities available with
various banking institutions whereby lenders have agreed to provide funds up to
$254,000 to separately financed units of the Company as follows: AFC, $50,000
and Telmark, $204,000. In addition, AFC may issue up to $50,000 of commercial
paper under the terms of a separate agreement, backed by a bank letter of
credit. AFC reduced its short-term debt facilities $25,000 ($15,000 lines of
credit and $10,000 commercial paper) since June 30, 1995, because of reduced
needs, primarily the result of debt paydowns from cash generated on lines of
business sold. The availability of credit to Telmark increased $60,000 since
June 30, 1995, which will assist in financing new business and support
incremental repayments on debt.
The $50,000 line of credit available to AFC and its ability to issue
$50,000 of commercial paper require collateralization using certain of the
Company's accounts receivable and non-petroleum inventories ("collateral").
Amounts that can be drawn under these AFC short-term agreements are limited to a
specific calculation based upon the collateral available. Adequate collateral
has existed throughout the fiscal year to permit AFC to borrow amounts 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 retained margins. During the fourth
quarter, the Company extended the AFC short-term facilities through December
1996. The amounts outstanding as of June 30, 1996, under AFC's $50,000 line of
credit and $50,000 commercial paper were $12,200 and $50,000, respectively. The
Company has ongoing discussions with its lenders and expects to continue to have
appropriate and adequate financing to meet its ongoing needs.
Of Agway's and AFC's subordinated debt, $330,100 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 money market
certificates' interest rate is 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. In October 1996, $14,600 of subordinated money market certificates issued
by AFC will mature. 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.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
(THOUSANDS OF DOLLARS)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
CASH FLOWS FROM FINANCING ACTIVITIES (CONTINUED)
At June 30, 1996, Telmark has two separate credit facilities available
from banks which allow Telmark to borrow up to an aggregate of $204,000. An
uncommitted short-term line of credit agreement permits Telmark to borrow up to
$4,000 on an unsecured basis with interest paid upon maturity. The line bears
interest at money market variable rates. A committed $200,000 partially
collateralized revolving term loan facility permits Telmark to draw short-term
funds bearing interest at money market rates or draw long-term debt at rates
appropriate for the term of the note drawn. The total amount outstanding as of
June 30, 1996, under the short-term line of credit and the revolving term loan
facility was $0 and $146,000, respectively.
Telmark borrows under its short-term line of credit agreement and its
revolving term agreement from time to time to fund its operations. Short-term
debt serves as interim financing between the issuances of long-term debt.
Telmark renews its lines of credit annually. The $4,000 line of credit has been
renewed through December 1996. The $200,000 revolving term agreement loan
facility is available through February 1, 1997.
At June 30, 1996, Telmark also had balances outstanding on eleven
unsecured senior note private placements totaling $126,844. Interest is payable
semiannually on each senior note. Principal payments are both semiannual and
annual. The note agreements are similar to one another and each contain
financial covenants, the most restrictive of which prohibit (i) tangible net
worth, defined as tangible assets less total liabilities (excluding any notes
payable to Agway Holdings, Inc.), from being less than $32,000 (ii) the ratio of
total liabilities less subordinated notes payable to Agway Holdings, Inc. to
shareholder's equity plus subordinated notes payable to Agway Holdings, Inc.
from exceeding 5:1, (iii) the ratio of earnings available for fixed charges from
being less than 1.25:1, and (iv) dividend distributions and restricted
investments made after December 31, 1994 that exceed 50% of consolidated net
income for the period beginning on January 1, 1995 through the date of
determination, inclusive.
On October 31, 1994, Telmark's registration with the Securities & Exchange
Commission of its second offering to the public of $30,000 of debentures, due
March 31, 1998, and March 31, 2000, became effective. The debentures are
unsecured, subordinated to all senior debt at Telmark, and are not guaranteed by
Agway nor any of Agway's other subsidiaries. The interest on the debt is payable
quarterly on January 1, April 1, July 1 and October 1. The offering of the
debentures is not underwritten, and there can be no guarantee as to the amount
of debentures, if any, that will 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, 1996, approximately $19,600 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 was sold and is outstanding at June 30, 1996.
The Company believes Telmark will continue to have appropriate and
adequate short-term and long-term financing to meet its ongoing needs.
OTHER MATTERS
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," was issued. SFAS No. 121 requires impairment losses to be
measured and recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company will adopt SFAS No. 121 in the first quarter of fiscal 1997, and
based on presently available estimates, the effect of adoption is estimated at
approximately $2,000.
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
(THOUSANDS OF DOLLARS)
OTHER MATTERS (CONTINUED)
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. The Company expects that it will be required to expend funds to
participate in the remediation of certain sites, including sites where the
Company has been designated by the EPA as a PRP under CERCLA and sites with
underground fuel storage tanks, and will incur other expenses associated with
environmental compliance.
At June 30, 1996, the Company has been designated as a PRP under CERCLA or
as a third party to the original PRPs in several Superfund sites. The liability
under CERCLA is joint and several, meaning that the Company could be required to
pay in excess of its pro rata share of remediation costs. The Company's
understanding of the financial strength of other PRPs at these Superfund sites
has been considered, where appropriate, in the Company's determination of its
estimated liability.
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. The
settlement of the reserves established will cause future cash outlays over
approximately five years based upon current estimates, and 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 $2,000 in fiscal 1996 on capital projects. The Company
estimates that during fiscal 1997 and 1998 approximately $1,300 and $3,700 per
year will be spent, respectively, on additional capital projects for
environmental protection. These estimates include the additional capital
required to comply with EPA Underground Storage Tank (UST) regulations that
become effective in December 1998. Presently, the total additional capital
required to comply with the EPA UST regulations is estimated to be approximately
$3,700. The total capital requirements may change due to the actual number of
USTs actively in use on the effective date.
AGRICULTURAL ECONOMY AND OTHER FACTORS
The financial condition of the Company can be directly affected by factors
affecting the agricultural economy, since these factors impact the demand for
the Company's products and the ability of its customers to make payments for
products already purchased through credit extended by the Company. These factors
include: (i) changes in government agricultural programs (e.g., milk marketing
orders and acreage reduction programs) that may adversely affect the level of
income of customers of the Company, (ii) weather-related conditions which
periodically occur that can impact the agricultural productivity and income of
the customers of the Company; and (iii) the relationship of demand relative to
supply of agricultural commodities.
Federal agricultural legislation, formally known as The Federal Agriculture
Improvement and Reform Act of 1996, was signed into law on April 4, 1996. This
legislation replaced the former program of variable price-linked deficiency
payments with fixed payments to farmers which decline over a seven-year period.
This legislation also eliminated Federal planting restrictions and acreage
controls allowing farmers more flexibility to plant for the market. The impact
of this legislation on the agricultural economy, and on the financial condition
of the Company is not expected to be significant in the short-term. The longer
term impact on the financial condition of the Company of such a major change in
the Federal governments's role in agriculture cannot be predicted at this time.
The Company's energy business is impacted by factors such as weather
conditions in the Northeast and the relationship of supply and demand for
petroleum products worldwide as well as within Agway's market. Agway's retail
business can be impacted by fluctuations in the economy that, in genreal, affect
consumer demand for products in the Northeast. To the extent that these factors
adversely affect the customers of the Company, the financial condition of the
Company could be adversely affected.
<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............................................................ 25
Report of Independent Accountants...................................................................... 26
Consolidated Balance Sheets, June 30, 1996 and 1995.................................................... 29
Consolidated Statements of Operations, fiscal years ended June 30, 1996, 1995 and 1994................. 30
Consolidated Statements of Changes in Shareholders' Equity, fiscal years ended June 30,
1996, 1995 and 1994............................................................................... 31
Consolidated Statements of Cash Flow, fiscal years ended June 30, 1996, 1995 and 1994.................. 32
Notes to Consolidated Financial Statements............................................................. 33
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
This item is inapplicable.
24
<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 LLP, independent
auditors, as it relates to Curtice Burns Foods, Inc. and H.P. Hood Inc., former
investments of the Company, both of which have been sold and are reflected as
discontinued operations in the financial statements. The Coopers & Lybrand
L.L.P. and Price Waterhouse LLP 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 auditors to review the manner in which they are performing their
responsibilities and to discuss auditing, internal accounting controls, and
financial reporting matters. The independent auditors have free access to the
Budget & Audit Committee.
AGWAY INC.
BY DONALD P. CARDARELLI
President, CEO and
General Manager
August 30, 1996
BY PETER J. O'NEILL
Senior Vice President,
Finance & Control,
Treasurer and Controller
August 30, 1996
25
<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, 1996 and 1995, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
years ended June 30, 1996, 1995 and 1994. 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 and
1994 nor did we audit the financial statements of Curtice Burns Foods, Inc. for
the year ended June 30, 1994. Such statements of H. P. Hood Inc. (not presented
separately herein) reflect total assets amounting to $146,886,000 at June 30,
1995, and total revenues amounting to $482,738,000 and $493,003,000 for the
years ended June 30, 1995 and 1994, respectively. Such statements of Curtice
Burns Foods, Inc. (not presented separately herein) reflect total revenues
amounting to $829,116,000 for the year ended June 30, 1994. Those statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for these subsidiaries
prior to any adjustment to reflect the respective subsidiaries as discontinued
operations, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of 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, 1996 and 1995, and the results of their operations
and their cash flows for the years ended June 30, 1996, 1995 and 1994, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
August 30, 1996
26
<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 the years then
ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 11, 1995
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
Curtice Burns Foods, Inc.
In our opinion, the consolidated balance sheet and related consolidated
statements of operation and retained earnings and of 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 the results of their operations and their cash flows for the fiscal year
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Rochester, New York
August 9, 1996
28
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ASSETS
1996 1995
------------- -----------
<S> <C> <C>
Current assets:
Trade accounts receivable (including notes receivable of
$35,182 and $33,491, respectively), less allowance for
doubtful accounts of $10,062 and $9,716, respectively............... $ 207,304 $ 209,949
Leases receivable, less unearned income of $48,403 and $41,523,
respectively........................................................ 105,374 96,165
Advances and other receivables.......................................... 35,914 32,069
Inventories............................................................. 157,518 157,658
Prepaid expenses and other assets....................................... 58,380 69,292
------------- -----------
Total current assets................................................ 564,490 565,133
Marketable securities....................................................... 34,115 34,752
Other security investments.................................................. 42,406 37,981
Properties and equipment, net............................................... 237,015 248,753
Long-term leases receivable, less unearned income of $75,828 and
$68,799, respectively................................................... 268,815 236,522
Net pension asset........................................................... 85,181 73,842
Other assets................................................................ 12,249 12,034
Net assets of discontinued operations....................................... 15,734
------------- -----------
Total assets........................................................ $ 1,244,271 $ 1,224,751
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995
------------- -----------
Current liabilities:
Notes payable........................................................... $ 62,200 $ 70,300
Current installments of long-term debt.................................. 94,253 48,324
Subordinated debt, current.............................................. 14,643 36,296
Accounts payable........................................................ 97,683 116,777
Other current liabilities............................................... 139,873 139,110
------------- -----------
Total current liabilities........................................... 408,652 410,807
Long-term debt.............................................................. 197,413 219,986
Subordinated debt........................................................... 400,284 362,768
Other liabilities........................................................... 66,664 58,825
------------- -----------
Total liabilities................................................... 1,073,013 1,052,386
Shareholders' equity:
Preferred stock, less amount held in Treasury........................... 59,319 65,635
Common stock ($25 par--300,000 shares authorized; 162,070 and
170,853 shares issued, less amount held in Treasury)................ 2,689 2,728
Paid-in capital......................................................... 1,470
Retained margin......................................................... 109,250 102,532
------------- -----------
Total shareholders' equity...................................... 171,258 172,365
Commitments and contingencies...............................................
Total liabilities and shareholders' equity.................. $ 1,244,271 $ 1,224,751
============= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
29
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales and revenues from:
Product sales.................................. $ 1,588,544 $ 1,520,502 $ 1,628,443
Leasing operations............................. 48,627 41,942 35,128
Insurance operations........................... 25,431 29,609 30,703
------------- ------------- -------------
Total net sales and revenues.............. 1,662,602 1,592,053 1,694,274
------------- ------------- -------------
Cost and expenses from:
Products and plant operations.................. 1,449,431 1,391,612 1,499,249
Leasing operations............................. 20,305 17,675 13,259
Insurance operations........................... 21,176 17,321 16,881
Selling, general and administrative activities. 140,332 152,177 144,108
Restructuring credit........................... (1,943) (3,248) (6,065)
------------- ------------- --------------
Total operating costs and expenses........ 1,629,301 1,575,537 1,667,432
------------- ------------- --------------
Operating margin..................................... 33,301 16,516 26,842
Interest expense, net of interest income
of $10,330, $8,829 and $8,945, respectively.... (33,085) (30,003) (27,645)
Other income, net.................................... 19,083 7,137 5,711
------------- ------------- --------------
Margin (loss) from continuing operations before
income taxes................................... 19,299 (6,350) 4,908
Income tax expense................................... (9,214) (1,628) (4,212)
------------- ------------- --------------
Margin (loss) from continuing operations............. 10,085 (7,978) 696
Discontinued operations:
Loss from operations, including tax benefit of
$120, $13,637 and $0, respectively......... (595) (12,360) (4,000)
Gain on disposal of Hood, net of tax expense
of $1,711.................................... 2,110
Gain on disposal of Curtice Burns, net of tax
expense of $19,700........................... 4,430
------------- ------------- --------------
Margin (loss) from discontinued
operations.............................. 1,515 (7,930) (4,000)
------------- ------------- --------------
Net margin (loss).................................... $ 11,600 $ (15,908) $ (3,304)
============= ============= ==============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
30
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
(PAR VALUE $25) PREFERRED PAID-IN RETAINED
SHARES AMOUNT STOCK CAPITAL MARGIN TOTAL
--------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1993.................... 111,609 $ 2,790 $ 53,474 $ 7,350 $ 131,787 $ 195,401
Net loss........................... (3,304) (3,304)
Dividends declared................. 17,864 (5,044) 12,820
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 71,338 6,371 123,346 203,826
Net loss........................... (15,908) (15,908)
Dividends declared................. (4,785) (4,785)
Redeemed, net...................... (1,735) (43) (5,703) (5,746)
Adjustment to unrealized 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 65,635 1,470 102,532 172,365
Net margin......................... 11,600 11,600
Dividends declared................. (4,382) (4,382)
Redeemed, net...................... (975) (39) (6,316) (6,355)
Adjustment to unrealized losses
on available-for-sale securities,
net of tax....................... (500) (500)
Sale of stock of Hood.............. (1,470) (1,470)
--------- ---------- --------- --------- --------- ---------
Balance June 30, 1996.................... 108,144 $ 2,689 $ 59,319 $ 0 $ 109,250 $ 171,258
========= ========== ========= ========= ========= =========
</TABLE>
Common shares, purchased at par value, held in treasury at June 30 were:
53,926 in 1996; 61,734 in 1995; 59,639 in 1994. A common stock dividend per
share of $1.50 was declared for fiscal 1996, 1995 and 1994. Dividend payments
are restricted to a maximum of 8% of par value, as governed by the Farm Credit
Administration. See Note 13 for the details of preferred stock activity.
The accompanying notes are an integral part of the consolidated
financial statements.
31
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 1994
------------- ------------- --------------
<S> <C> <C> <C>
Net margin (loss)................................. $ 11,600 $ (15,908) $ (3,304)
Adjustments to reconcile margins to net cash:
Depreciation and amortization................. 33,422 33,720 34,326
Restructuring credit.......................... (1,943) (3,248) (6,065)
Receivables and other asset provision......... 10,993 9,369 10,131
Pension income................................ (11,338) (9,956) (9,264)
Patronage refund.............................. (3,264) (1,123) (399)
Deferred taxes including valuation allowance.. 10,873 (16,006) (1,380)
(Gain) loss on sale of:
Businesses............................... (3,799)
Other security investments............... (1,348) (11)
Properties and equipment................. 891 1,436 (479)
Changes in assets and liabilities, net
of effects of businesses acquired
or sold:
Receivables.............................. (14,972) 15,333 (16,793)
Inventory................................ (10,757) 21,005 5,048
Payables................................. (19,094) (7,300) 27,510
Other.................................... 8,086 (11,141) (18,358)
------------- ------------- --------------
Net cash flows from operating activities............... 9,350 16,181 20,962
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment........ (26,025) (38,475) (32,729)
Cash paid for acquisitions........................ (688) (5,044)
Disposal of property, plant and equipment......... 4,012 6,373 12,368
Proceeds from disposal of businesses.............. 26,467
Purchases of marketable securities available
for sale..................................... (10,973) (1,704) (21,212)
Sale of marketable securities available for sale.. 11,110 774 21,708
Leases originated................................. (174,999) (170,495) (149,659)
Leases repaid..................................... 126,529 107,649 92,313
Proceeds from lease sales......................... 6,426
Purchases of investments in related
cooperatives................................. (4,401) (1,700) (2,703)
Proceeds from sale of investments in related
cooperatives................................. 4,586 1,069 1,136
Proceeds from sale of discontinued operations..... 15,900 55,786
Net changes in assets of discontinued operations....... 20,625 2,306
------------- ------------- -------------
Net cash flows used in investing activities............ (28,482) (20,098) (75,090)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term borrowing................ (8,100) 7,500 (7,800)
Proceeds from long-term debt...................... 67,478 90,186 112,243
Repayment of long-term debt....................... (42,896) (73,501) (73,957)
Proceeds from sale of subordinated debentures..... 81,565 65,398 41,676
Redemption of subordinated debt................... (65,701) (73,479) (14,150)
Payments on capitalized leases.................... (2,278) (1,479) (1,327)
Proceeds from sale of stock....................... 14 34 1,886
Redemption of stock............................... (6,368) (5,779) (702)
Cash dividends paid............................... (4,582) (4,963) (4,512)
------------- ------------- --------------
Net cash flows from financing activities............... 19,132 3,917 53,357
------------- ------------- -------------
Net increase (decrease) in cash and equivalents........ 0 0 (771)
Cash and equivalents at beginning of year.............. 0 0 771
------------- ------------- -------------
Cash and equivalents at end of year.................... $ 0 $ 0 $ 0
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
32
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED 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 primarily 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; manufacturing of pet foods;
processing and marketing sunflower seeds; 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 year
ended June 30, 1996, was comprised of 53 weeks and fiscal years ended June 30,
1995 and 1994, were each comprised of 52 weeks.
Basis of Consolidation
The consolidated financial statements include the accounts of all wholly
owned subsidiaries. Operations of H.P. Hood Inc. (Hood), which was 99.9% owned
through December 14, 1995, and Curtice Burns Foods, Inc. (Curtice Burns), which
was 34% owned through November 3, 1994, are presented as discontinued operations
(see Note 18). All significant intercompany transactions and balances have been
eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to conform prior year financial
statements with the current year presentation, the most significant of which is
the reclassification of Hood from continuing to discontinued operations.
Cash and Equivalents
The Company considers all investments with a maturity of three months or
less when purchased to be cash equivalents.
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 taken into income using the interest method over the terms of the
lease, which for most commercial and agricultural leases is 60 months or less
with a maximum of 180 months for buildings. Income recognition is suspended on
all leases and loans that become past due greater than 120 days.
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
Inventories are stated at the lower of cost or market, except for grain
inventories associated with the Company's grain marketing program, which are
marked to market. For those inventories stated at cost, the Company uses the
average unit cost or the first-in, first-out method, except for liquid petroleum
products, which are on the last-in, first-out method. The Company's grain
marketing program enters into both forward purchase and sales commitments with
farmers and others on a variety of grain products. At the same time, the Company
enters into generally matched transactions (in both maturity and amount) using
offsetting forward commitments and/or exchange-traded futures contracts to hedge
against price fluctuations in the market price of grains. The Company also uses
exchange-traded futures contracts to manage its exposure to fluctuations in the
prices for its present and anticipated needs of major ingredients for its feed
business. All futures contracts and forward commitments used in the grain
marketing program are marked to market at the end of the reporting period with
the resulting gains or losses being charged to cost of sales.
33
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Marketable Securities
In 1995, the Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under these 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 consist of capital stock of a cooperative bank
and other cooperative suppliers acquired at par or stated value. This stock is
not traded and is historically redeemed on a periodic basis by the issuer at
cost. By its nature, this stock is held to redemption and is reported at cost.
The Company believes it is not practical to estimate the fair value of these
investments without incurring excessive costs since there is no established
market and it is inappropriate to estimate future cash flows which are largely
dependent on future earnings of the cooperative bank and other cooperative
suppliers.
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 $1,400, $900 and $1,300 for the years ended June 30,
1996, 1995 and 1994, respectively. Patronage refunds received on the stock of
other cooperatives are reflected in other income.
Properties and Equipment
Properties and equipment are 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 $7,500 and $9,500 at June 30, 1996 and
1995, 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 $1,600, $2,400 and
$2,800 for fiscal years ending June 30, 1996, 1995 and 1994, respectively.
Impairment of Long-Lived Assets
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," was issued. SFAS No. 121
requires impairment losses to be measured and recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt SFAS No. 121
in the first quarter of fiscal 1997, and based on presently available estimates,
the effect of adoption is estimated at approximately $2,000.
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.
34
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED 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 $600, $1,300 and $1,600
for the years ended June 30, 1996, 1995 and 1994, respectively.
Advertising Costs
The Company generally expenses advertising costs as incurred. Advertising
expense for the years ended June 30, 1996, 1995 and 1994 was approximately
$23,200, $20,700 and $22,700, 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 tax rates that are anticipated to be in effect
when these differences reverse. The deferred tax provision represents 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 for
which realization is reasonably assumed.
Discontinued Operations
Interest expense allocated from continuing operations to discontinued
operations was based upon the proportion of net assets separately financed to
total Company assets. Total interest expense allocated was approximately $400,
$1,000 and $3,600 for the years ended June 30, 1996, 1995 and 1994,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
35
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
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 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 pursuant to a "no action letter" issued
by the staff of the Securities and Exchange Commission, AFC, as a separate
company, is not required to file periodic reports with respect to these debt
securities. However, as required by the 1934 Act, the summarized financial
information concerning AFC and Consolidated Subsidiaries is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
------------------ ------------------ ----------------
<S> <C> <C> <C>
Net sales and revenues....................... $ 1,087,418 $ 1,089,316 $ 1,176,617
Operating margin............................. 29,117 26,715 39,500
Margin (loss) from continuing operations..... (6,274) 13,644 14,862
Net margin (loss)............................ (4,759) 5,714 10,862
JUNE 30, 1996 JUNE 30, 1995
------------------ ------------------
Current assets............................... $ 530,547 $ 544,664
Properties and equipment, net................ 166,504 169,368
Noncurrent assets............................ 353,377 321,153
Net assets of discontinued operations........ 0 15,734
------------------ -----------------
Total assets................................. $ 1,050,428 $ 1,050,919
================== ==================
Current liabilities.......................... $ 227,781 $ 240,975
Long-term debt............................... 191,189 217,425
Subordinated debt............................ 400,284 362,768
Noncurrent liabilities....................... 17,007 8,855
Shareholder's equity......................... 214,167 220,896
------------------ ------------------
Total liabilities and shareholder's equity... $ 1,050,428 $ 1,050,919
================== ==================
</TABLE>
3. RESTRUCTURING RESERVES
In June 1992, the Company established a $75,000 reserve for the estimated
net cost to complete a significant restructuring project to restructure the
Company. This project was planned to be completed over several years. As
initiatives within this project have been completed, the Company has constantly
monitored the estimated costs to complete the project and has recognized into
income a reduction in costs totaling $11,256, which has been realized as
follows: $1,943 in fiscal 1996; $3,248 in fiscal 1995; and $6,065 in fiscal
1994. At June 30, 1996, all projects related to these planned activities were
concluded; no further charges or credits will be forthcoming from these
activities.
36
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
4. LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Net investments in leases at June 30 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Leases (minimum payments):
Commercial and agricultural.......................................... $ 505,783 $ 448,975
Retail............................................................... 4,771 2,461
-------------- -------------
Total leases...................................................... 510,554 451,436
Unearned interest and finance charges................................... (124,231) (110,322)
Net deferred origination costs.......................................... 7,642 6,904
-------------- -------------
Net investment....................................................... 393,965 348,018
Allowance for credit losses............................................. (19,776) (15,331)
-------------- -------------
Net leases receivable................................................ $ 374,189 $ 332,687
============== =============
</TABLE>
Included within the above are unguaranteed estimated residual values of
leased property approximating $54,400 and $49,900 at June 30, 1996 and 1995,
respectively. Additionally, as of June 30, 1996 and 1995, the recognition of
interest income was suspended on approximately $2,900 and $3,800, respectively,
of net leases.
Contractual maturities of leases (minimum payments) over the next five
years and thereafter were as follows at June 30, 1996: $159,443 in 1997;
$124,428 in 1998; $91,951 in 1999; $56,445 in 2000; $29,309 in 2001; and $48,978
thereafter.
5. INVENTORIES
Inventories at June 30 consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Raw materials........................................................ $ 16,161 $ 17,695
Finished goods....................................................... 133,532 132,447
Goods in transit and supplies........................................ 7,825 7,516
-------------- -------------
Total inventories................................................. $ 157,518 $ 157,658
============== =============
</TABLE>
Inventories valued at the lower of LIFO (last-in, first-out) cost or
market are liquid petroleum products. At June 30, 1996 and 1995, current costs
exceeded LIFO costs by approximately $2,500 and $700, respectively. The total of
such inventories was approximately $13,100 at June 30, 1996, and $12,400 at June
30, 1995.
Included in the total inventories are commodities at market (particularly
corn and soybeans) totaling $6,900 at June 30, 1996, and $5,100 at June 30,
1995.
37
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
6. MARKETABLE SECURITIES
Available-for-sale marketable securities include:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
June 30, 1996 Cost Gains Losses Value
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. government securities and obligations............ $ 7,620 $ 13 $ (229) $ 7,404
Non-U.S. government obligations....................... 3,487 (131) 3,356
Mortgage-backed securities............................ 7,357 156 (30) 7,483
Corporate securities.................................. 16,704 10 (842) 15,872
------------- ------------ ------------ ------------
Total available-for-sale marketable securities.. $ 35,168 $ 179 $ (1,232) $ 34,115
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
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>
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.
Gross gains of approximately $500 and $400 were realized on sales of debt
and equity securities in 1996 and 1994, respectively. Gross gains realized in
1995 were immaterial. Gross losses realized on sales of debt and equity
securities totaled approximately $300 in 1996. Gross losses realized in 1995 and
1994 were immaterial.
At June 30, 1996, the Company did not hold any debt 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, 1996, 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........................ $ 1,163 $ 1,171
Due after one year through five years.......... 9,190 9,006
Due after five years through ten years......... 1,425 1,384
Due after ten years............................ 23,390 22,554
--------- ---------
$ 35,168 $ 34,115
========= =========
38
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
7. OTHER SECURITY INVESTMENTS
Other security investments at June 30 consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------------- -------------
CF Industries, Inc............................................... $ 17,521 $ 14,351
CoBank, ACB...................................................... 22,158 18,854
Other............................................................ 2,727 4,776
------------- -------------
$ 42,406 $ 37,981
============= =============
</TABLE>
8. PROPERTIES AND EQUIPMENT
Properties and equipment, at cost, including capital leases, consist of
the following at:
<TABLE>
<CAPTION>
June 30, 1996 Owned Leased Combined
------------- ------------- ------------- ------------
<S> <C> <C> <C>
Land and land improvements................. $ 36,126 $ 1,071 $ 37,197
Buildings and leasehold improvements....... 126,419 8,991 135,410
Machinery and equipment.................... 343,728 7,442 351,170
Capital projects in progress............... 9,484 9,484
------------- ------------- ------------
515,757 17,504 533,261
Less: accumulated depreciation and
amortization....................... 281,861 14,385 296,246
------------- ------------- ------------
Properties and equipment, net.............. $ 233,896 $ 3,119 $ 237,015
============= ============= ============
June 30, 1995 Owned Leased Combined
------------- ------------- ------------- ------------
Land and land improvements................. $ 35,440 $ 1,071 $ 36,511
Buildings and leasehold improvements....... 129,299 8,991 138,290
Machinery and equipment.................... 345,797 7,204 353,001
Capital projects in progress............... 13,318 13,318
------------- ------------- ------------
523,854 17,266 541,120
Less: accumulated depreciation and
amortization....................... 278,566 13,801 292,367
------------- ------------- ------------
Properties and equipment, net.............. $ 245,288 $ 3,465 $ 248,753
============= ============= ============
</TABLE>
Depreciation and amortization expense relating to properties and equipment
amounted to approximately $31,800, $31,300 and $31,500 in 1996, 1995 and 1994,
respectively.
39
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
9. INCOME TAXES
The provision (benefit) for income taxes as of June 30 consists of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Continuing operations:
Current:
Federal.......................... $ (3,750) $ 2,354 $ 1,721
State............................ 2,092 1,352 3,647
Deferred........................... 10,838 (2,925) (1,156)
Increase in valuation allowance.... 34 847
---------- ----------- -----------
$ 9,214 $ 1,628 $ 4,212
=========== =========== ===========
Discontinued operations:
Current:
Federal........................ $ 1,591 $ 9,656
State.......................... 1,553
Deferred......................... (5,146)
---------- ----------- -----------
$ 1,591 $ 6,063 $ 0
========== =========== ===========
</TABLE>
The Company's effective income tax rate on margin (loss) from continuing
operations before income taxes differs from the federal statutory regular tax
rate as of June 30 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate.................................. 35.0% (35.0%) 35.0%
Tax effects of:
State income taxes, net of federal benefit (1)............. 7.5 7.6 63.3
Items for which no federal tax effect was recognized....... 2.8 19.9 6.3
Dividend received deduction................................ - (1.6) 2.5
Amortization of intangibles................................ .5 2.1 2.3
Adjustment of prior year accrual........................... 3.0 17.3 (6.6)
Utilization of loss carryforwards.......................... - - (12.6)
Other items................................................ (.9) 7.0 (4.4)
Basis difference in investment............................. - 8.3 -
-------- -------- --------
Effective income tax rate.............................. 47.9% 25.6% 85.8%
======== ======== ========
</TABLE>
(1) For state income tax purposes, the Company does not file combined
income tax returns and is therefore unable to recognize the benefit of certain
net operating losses incurred by subsidiaries.
40
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
9. INCOME TAXES (CONTINUED)
The components of the deferred tax assets and liabilities as of June 30
were as follows:
<TABLE>
<CAPTION>
Deferred tax assets: 1996 1995
------------- ------------
<S> <C> <C>
Other liabilities and reserves............................. $ 14,644 $ 10,137
Leases receivable.......................................... 9,900 9,456
Self-insurance reserves.................................... 6,554 6,466
Medical reserves........................................... 7,325 6,966
Inventory.................................................. 6,662 6,201
Deferred compensation...................................... 4,964 4,849
Accounts receivable........................................ 3,421 3,303
Environmental.............................................. 3,540 2,758
NOL carryforward........................................... 368 5,252
Alternative minimum tax credit carryforward................ 5,385 1,721
ITC carryforward........................................... 1,194
Basis in discontinued subsidiary........................... 12,395
Restructuring reserve...................................... 1,084
------------- ------------
Gross deferred tax asset................................... 63,957 70,588
Less valuation allowance................................... (881) (847)
------------- ------------
Total net deferred tax asset.......................... 63,076 69,741
------------- ------------
Deferred tax liabilities:
Pension assets............................................. 28,961 25,106
Excess of tax over book depreciation....................... 15,228 13,640
Prepaid medical............................................ 6,455 6,978
Other assets............................................... 2,274 2,213
Miscellaneous.............................................. 773
------------- ------------
Total deferred tax liability.......................... 52,918 48,710
------------- ------------
Net deferred tax asset................................ $ 10,158 $ 21,031
============= ============
</TABLE>
The Company's net deferred tax asset at June 30, 1996 and 1995 of $10,158
and $21,031, respectively, consists of a net current asset of $25,096 and
$35,573 included in prepaid expenses and a net long-term liability of $14,938
and $14,542 included in other liabilities as of June 30, 1996 and 1995,
respectively. The total gross deferred tax assets are partially offset by a
valuation allowance of $881 and $847 at June 30, 1996 and 1995, respectively.
Based on the Company's history of taxable earnings and its expectations for the
future, management has determined that operating income will likely be
sufficient to recognize all of its net deferred tax asset.
At June 30, 1996, the Company's federal AMT credit can be carried forward
indefinitely. The net operating loss (NOL) carryforwards expire in 2010, and the
ITC credits expire in 2003.
41
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
10. SHORT-TERM NOTES PAYABLE
As of June 30, 1996, the Company had certain facilities available with
various banking institutions whereby lenders have agreed to provide funds up to
$254,000 to separately financed units of the Company as follows: AFC, $50,000
and Telmark, $204,000. In addition, AFC may issue up to $50,000 of commercial
paper under the terms of a separate agreement, backed by a bank letter of
credit. AFC reduced its short-term debt facilities $25,000 ($15,000 lines of
credit and $10,000 commercial paper) since June 30, 1995, because of reduced
needs, primarily the result of debt paydowns from cash generated on lines
of business sold. The availability of credit to Telmark increased $60,000
since June 30, 1995, to assist in financing new business and support incremental
repayments on debt. Short-term borrowings under these credit facilities were as
follows:
<TABLE>
<CAPTION>
Agway
and AFC
(excluding
June 30, 1996 Telmark) Telmark Total
- - ------------- ------------- ------------- ------------
<S> <C> <C> <C>
Bank lines of credit............................................ $ 12,200 $ $ 12,200
Commercial paper................................................ 50,000 50,000
------------- ------------- ------------
$ 62,200 $ 0 $ 62,200
============= ============= ============
Weighted average interest rate.................................. 5.86% -
============= =============
Agway
and AFC
(excluding
June 30, 1995 Telmark) Telmark Total
- - ------------- ------------- ------------- ------------
Bank lines of credit............................................ $ 300 $ 10,000 $ 10,300
Commercial paper................................................ 60,000 60,000
------------- ------------- ------------
$ 60,300 $ 10,000 $ 70,300
============= ============= ============
Weighted average interest rate.................................. 6.06% 6.96%
============= =============
</TABLE>
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 7.70% and 7.74% at June 30, 1996, and 6.89% and 9.75% at June
30, 1995. Interest rates on commercial paper outstanding range from 5.37% to
5.62% at June 30, 1996, and 5.97% to 6.10% at June 30, 1995.
Letters of credit of approximately $28,000, which are primarily used to
back general liability claims, are also available to AFC. At June 30, 1996,
letters of credit outstanding totaled approximately $24,300.
The $50,000 line of credit available to AFC and its ability to issue
$50,000 of commercial paper, as amended in April 1996, cover the period through
December 1996. These AFC agreements, including $3,325 in long-term debt, require
collateralization using certain of the Company's accounts receivable and
non-petroleum inventories ("collateral"). Amounts that can be drawn under these
agreements are limited to a specific calculation based upon the collateral
available. Adequate collateral has existed throughout the fiscal year to
permit AFC to borrow amounts 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
retained margins.
42
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
10. SHORT-TERM NOTES PAYABLE (CONTINUED)
Telmark borrows under its short-term line of credit agreement and its
revolving term agreement from time to time to fund its operations. Short-term
debt serves as interim financing between the issuances of long-term debt. The
current uncommitted short-term line of credit agreement permits Telmark to
borrow up to $4,000 on an unsecured basis with interest paid upon maturity. The
line bears interest at money market variable rates. A committed $200,000
partially collateralized revolving term loan facility permits Telmark to draw
short-term funds bearing interest at money market rates or draw long-term debt
at rates appropriate for the term of the note drawn. The total amount
outstanding as of June 30, 1996, under the short-term line of credit and the
revolving term loan facility was $0 and $146,000, respectively.
The Company and Telmark have ongoing discussions with their lenders and
expect to continue to have appropriate and adequate financing to meet their
ongoing needs.
11. DEBT
Long-Term Debt:
Long-term debt consists of the following at June 30, 1996:
<TABLE>
<CAPTION>
Agway
and AFC Telmark Total
------------- ------------ ------------
<S> <C> <C> <C>
Notes payable - banks (a)....................................... $ 3,325 $ 146,000 $ 149,325
Notes payable - insurance companies (b)......................... 126,844 126,844
Other........................................................... 11,136 11,136
------------- ------------ ------------
Subtotal long-term debt excluding capital leases................ 14,461 272,844 287,305
Obligations under capital leases:
Industrial revenue bonds.................................. 2,683 2,683
Others.................................................... 1,522 156 1,678
------------- ------------ ------------
Total long-term debt............................................ 18,666 273,000 291,666
Less: current portion........................................... 6,131 88,122 94,253
------------- ------------ ------------
$ 12,535 $ 184,878 $ 197,413
============= ============ ============
</TABLE>
(a) Under Telmark's revolving loan facility, principal of $146,000 bears
interest at fixed rates ranging from 5.95% to 8.49%, payments commencing
July 1996 with final installments due in 2000. Under an AFC loan agreement
bearing an interest rate of 8.53%, principal of $3,325 is payable in
quarterly installments of $175 commencing August 1996 and ending in
February 2001. The bank notes of $149,325 are collateralized by the
Company's investment in the bank having a book value of $22,158 at June
30, 1996.
The Agway and AFC debt agreements contain a number of restrictive
financial covenants, the most restrictive of which requires the Company to
maintain specific quarterly levels of interest coverage and monthly levels
of tangible retained margins. The $3,325 AFC credit facility loan
covenants are integrated with the short-term facilities.
(b) Under Telmark loan agreements with various insurance companies, principal
of $126,844 bears interest at fixed rates ranging from 5.90% to 9.17%,
payments commencing September 1996 with final installment due in 2000.
The note agreements are similar to one another and each contain financial
covenants, the most restrictive of which prohibit Telmark from having (1)
tangible net worth less than $32,000; (2) a debt-to-equity ratio (as
defined) which exceeds 5:1; (3) a ratio of earnings available for fixed
charges less than 1.25:1; and (4)dividend distributions after December 31,
1994 that exceed 50% of consolidated net income for the period January 1,
1995 through the date of determination.
43
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
11. DEBT (CONTINUED)
Subordinated Debt:
Subordinated debt consists of the following at June 30, 1996:
<TABLE>
<CAPTION>
Agway
and AFC Telmark Total
----------- ------------ ------------
<S> <C> <C> <C>
Subordinated debentures, due 1997 to 2003,
interest at 6.0% to 8.5%......................... $ 23,243 $ 24,258 $ 47,501
Subordinated money market certificates,
due 1996 to 2008, interest at 4.5% to 9.5%....... 367,426 367,426
----------- ------------ ------------
Total long-term subordinated debt...................... 390,669 24,258 414,927
Less: current portion................................. 14,643 14,643
----------- ------------ ------------
$ 376,026 $ 24,258 $ 400,284
=========== ============ ============
</TABLE>
Of Agway's and AFC's subordinated debt, $330,100 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 for AFC and payable quarterly
on January 1, April 1, July 1 and October 1 for Telmark. The money market
certificates' interest rate is 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>
1997....................... $ 1,699 $ 92,884 $ 94,583 $ 14,643
1998....................... 1,349 93,314 94,663 60,902
1999....................... 859 51,640 52,499 72,583
2000....................... 200 40,762 40,962 73,435
2001....................... 201 8,537 8,738 41,602
Thereafter................. 1,079 168 1,247 151,762
------------- ------------- ------------- --------------
5,387 287,305 292,692 414,927
Imputed interest........... (1,026) 0 (1,026) 0
------------- ------------- ------------- --------------
Total...................... $ 4,361 $ 287,305 $ 291,666 $ 414,927
============= ============= ============= ==============
</TABLE>
12. 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
participate in the remediation of certain sites, including sites where the
Company has been designated by the Environmental Protection Agency (EPA) as a
potentially responsible party (PRP) under the Comprehensive Environmental
Response Compensation and Liability Act (CERCLA) and sites with underground fuel
storage tanks, and will incur other expenses associated with environmental
compliance.
44
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
12. 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. 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. At June 30, 1996, the
Company has been designated as a PRP under CERCLA or as a third party to the
original PRPs in several Superfund sites. The liability under CERCLA is joint
and several, meaning that the Company could be required to pay in excess of its
pro rata share of remediation costs. The Company's understanding of the
financial strength of other PRPs at these Superfund sites has been considered,
where appropriate, in the Company's determination of its estimated liability.
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. The settlement of the reserves established will cause future cash
outlays over approximately five years based upon current estimates, and 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 $2,000 in fiscal 1996 on capital projects. The Company
estimates that during fiscal 1997 and 1998 approximately $1,300 and $3,700 per
year will be spent, respectively, on additional capital projects for
environmental protection. These estimates include the additional capital
required to comply with EPA Underground Storage Tank (UST) regulations that
become effective in December 1998. Presently, the total additional capital
required to comply with the EPA UST regulations is estimated to be approximately
$3,700. 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 under the above stated policy will not have a
material adverse effect on the financial position, results of operations or
liquidity 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, 1996 and 1995 approximated $14,800 and
$27,600, respectively.
During 1994 and prior, Telmark entered into lease sale contracts that
contain limited recourse provisions which are limited to 7.5% of the sale
proceeds. At June 30, 1996, Telmark was contingently liable for approximately
$2,000 under the limited recourse provisions. The Company evaluates the
potential liability in establishing its allowance for credit losses.
The Internal Revenue Service performed a routine employment tax audit
during the year and proposed a $6,300 payroll tax adjustment against one of the
Company's operations. The proposed assessment alleges that the Company
misclassified certain workers. The Company believes the assessment is without
merit and that, while possible, it is not probable that any amount will be due.
Therefore, the Company has accrued no liability.
45
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Other (continued)
In 1996, the Company entered into a ten-year logistics agreement with an
outsourcer to manage its two retail distribution centers. The amount of annual
service fees is dependent upon the services provided, volume of activities
required and the number of shipping destinations. The estimated annual expense
under this agreement (before any expense reimbursement) is approximately
$10,000.
Rent expense for the fiscal years 1996, 1995 and 1994 approximated $9,000,
$10,000 and $7,200, respectively. Future minimum payments under noncancelable
operating leases approximate $4,200, $4,000, $3,700, $1,700 and $900 for the
fiscal years 1997 through 2001, respectively, and approximately $1,400
thereafter.
13. PREFERRED STOCK
Values are whole numbers except where noted as (000).
<TABLE>
<CAPTION>
Preferred Stock
---------------------------------------------------------------------------
Cumulative
------------------------------------------------ Honorary Dollar
6% 8% 8% 7% Member Amount
Series A Series B Series B-1 Series C Series HM in 000s
--------- --------- ---------- --------- --------- --------
<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, 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
Issued (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
Issued (redeemed), net ... (50,152) (1,359) (300) (11,365) 67 (6,316)
--------- --------- ---------- --------- --------- ---------
Balance June 30, 1996 ........... 232,911 224,122 19,110 116,443 2,428 $ 59,319
========= ========= ========== ========= ========= =========
</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, 1994..................... $ 6.00 $ 8.00 $ 8.00 $ 7.00 $ 1.50
June 30, 1995..................... $ 6.00 $ 8.00 $ 8.00 $ 7.00 $ 1.50
June 30, 1996..................... $ 6.00 $ 8.00 $ 8.00 $ 7.00 $ 1.50
Shares Held in Treasury
(purchased at par value):
June 30, 1994..................... 12,325 22,900 120,190 21,783 546
June 30, 1995..................... 66,937 24,519 120,590 22,192 632
June 30, 1996..................... 117,089 25,878 120,890 33,557 729
</TABLE>
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. The Series HM preferred stock may be issued only
to former members of Agway and no more than one share of such stock may be
issued to any one person. The preferred stock has no pre-emptive or conversion
rights.
46
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
14. RETIREMENT BENEFITS
Pension Plan
The Company has a non-contributory defined benefit pension plan covering
the majority of employees of Agway Inc. The plan's 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 and no more than the maximum allowed by federal income tax guidelines.
The vested benefit obligation is based on the actuarial present value of the
benefits that the employee would be entitled to at the expected retirement date.
The majority of the plan's investments consist of U.S. government and
agency securities, U.S. corporate bonds, U.S. and foreign equities, equity and
bond funds and temporary investments (short-term investments in demand notes and
money market funds). At June 30, 1996 and 1995, the Company's plan assets
included Company debt securities and preferred stock with estimated fair values
of $5,900 and $4,300, respectively.
The Employees' Retirement Plan of Agway, Inc. has assets that exceed
accumulated benefit obligations. The following table sets forth the plan's
funded status and amounts recognized in the Company's consolidated financial
statements at June 30:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested.................................................................. $ 250,632 $ 250,828
Non-vested.............................................................. 11,668 11,724
------------- -------------
Accumulated benefit obligation............................................... 262,300 262,552
Additional amounts related to projected pay increases........................ 29,180 30,165
------------- -------------
Projected benefit obligation for service rendered to date.................... 291,480 292,717
Plan assets at fair value ................................................... 486,650 425,034
------------- -------------
Projected benefit obligation less than plan assets........................... 195,170 132,317
Unrecognized net gain........................................................ (98,361) (43,633)
Unrecognized prior service cost.............................................. 7,697 9,315
Unrecognized net transition asset............................................ (19,325) (24,157)
-------------- -------------
Net pension asset............................................................ $ 85,181 $ 73,842
============= =============
</TABLE>
Net pension income included the following income/(expense) components for
the year ended June 30:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------- --------------
<S> <C> <C> <C>
Service benefits earned during the period........... $ (6,060) $ (5,920) $ (5,900)
Interest cost on projected benefit obligation....... (21,216) (21,033) (20,700)
Actual return on plan assets........................ 83,238 62,415 7,213
Net amortization and deferral....................... (44,624) (25,506) 28,651
--------------- -------------- ---------------
$ 11,338 $ 9,956 $ 9,264
=============== ============== ===============
</TABLE>
In determining the actuarial present values of the projected benefit
obligations as of June 30, the following assumptions were used:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Weighted average discount rate......................................... 7.75% 7.5%
Rate of increase in future compensation................................ 5.5% 5.5%
Expected long-term rate of return...................................... 10.25% 10.25%
</TABLE>
The effect of the changes in the weighted average discount rate to the
projected benefit obligation and the accumulated benefit obligation was not
material.
47
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
14. RETIREMENT BENEFITS (CONTINUED)
Postretirement Benefits
The Company provides postretirement health care and life insurance
benefits to eligible retirees and their dependents. Eligibility for benefits
depends upon age and years of service. The Company's postretirement benefit
plans are not funded. The reconciliation of funded status and net periodic
postretirement benefit cost recognized in the Company's consolidated financial
statements at June 30 were as follows:
<TABLE>
<CAPTION>
Health and Life Insurance
1996 1995
------------- -------------
<S> <C> <C>
Reconciliation of funded status:
- - --------------------------------
Accumulated postretirement benefit obligation:
Retirees and surviving spouses............................................ $ 30,538 $ 31,150
Actives eligible to retire................................................ 3,345 3,430
Actives not yet eligible to retire........................................ 10,289 10,741
------------- -------------
Total unfunded accumulated postretirement benefit obligation................. 44,172 45,321
Unrecognized net loss........................................................ (1,281) (2,231)
Unrecognized net transition obligation....................................... (21,348) (22,603)
------------- -------------
Accrued postretirement benefit cost....................................... $ 21,543 $ 20,487
============= =============
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Annual expense for fiscal year ended June 30:
- - ---------------------------------------------
Service cost-benefits earning during the period............. $ 816 $ 724 $ 1,209
Interest cost............................................... 3,243 3,521 4,314
Amortization of transition obligation....................... 1,255 1,452 2,042
------------- ------------- -------------
Net periodic postretirement benefit cost................. $ 5,314 $ 5,697 $ 7,565
============= ============= =============
</TABLE>
In determining the accumulated postretirement benefit obligation, the
weighted average discount rate used was 7.75% and 7.5% at June 30, 1996 and
1995, respectively. This change has no material effect on the accumulated
postretirement benefit obligation.
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, 7.3% and 7.7% for June 30, 1996 and 1995, respectively. For persons over age
65, the Company has an insured medical program limiting the Company's subsidy to
a per month/per retiree basis. The health care cost trend rate assumption for
fiscal 1997 and forward at June 30, 1996 and 1995 decreases gradually until the
year 2002, when the ultimate trend rate is then fixed at 5.5%. A one percentage
point increase in the assumed health care cost trend rate at June 30, 1996,
would increase the aggregate service and interest cost components of net
periodic expense by $200, and the accumulated postretirement benefit obligation
by $1,700.
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. 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.
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, 1996, 1995 and 1994 were approximately $1,300, $500 and
$1,400, respectively. For the fiscal year ended June 30, 1996, the Board of
Directors of the Company approved an additional match of 20% to supplement the
minimum contribution level of 10%.
48
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
15. FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING
The Company, as an agricultural cooperative in the northeastern United
States, operates principally in five business segments: (1) Agriculture, through
AAP, engages in the manufacturing and processing of various animal feeds, crop
inputs, fertilizers and farm supplies; and through CPG, engages in the
manufacturing, processing and repacking of a variety of agricultural products
marketed directly to consumers, retailers, wholesalers and processors as well as
to AAP and ARS. (2) Retail, through ARS, engages in the retail marketing of
agricultural supplies and materials, yard and garden items, and pet food and pet
supplies, as well as the wholesale purchase, warehousing and distribution of
these products to Agway franchised representatives and other businesses. It also
provides marketing, purchasing, technical and strategic support for AAP and the
Agway retail store outlets. (3) Energy, through Agway Petroleum Corporation,
markets petroleum products including heating oil, propane, and power fuels,
as well as markets, installs and services oil and gas heating and air
conditioning equipment and other related items. (4) Leasing, through Telmark
Inc., is engaged in the business of leasing agricultural related equipment,
vehicles and buildings to farmers and other customers, primarily in rural
communities. (5) Insurance markets property and casualty insurance, and through
Agway Insurance Agency Inc., markets accident and health insurance as well as
long-term-care 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.
Operating margin (loss) consists of total revenues less operating
expenses. Certain expenses, including personnel, legal, tax reporting, and
corporate management, are allocated based on a formula that considers assets and
revenues. In computing operating margin (loss), none of the following items have
been added to or deducted from segment results: revenue earned at the corporate
level and not derived from operations of any industry segment; corporate
expenses; interest expense, net of interest income; other income generated from
assets not allocable to segments; member refunds; income taxes; and margin 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, net pension assets and net
assets of discontinued operations. As stated in Note 18 to these financial
statements, Hood was reclassified to a discontinued operation in 1996. The
segment reporting reflects this.
<TABLE>
<CAPTION>
Year ended June 30, 1996 Agriculture Retail Energy Leasing Insurance Other(a) Consolidated
- - ------------------------ ----------- ------------- ----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales and revenues to
unaffiliated customers. $ 787,267 $ 253,362 $ 545,704 $ 48,577 $ 25,431 $ 2,261 $ 1,662,602
Intersegment sales and
revenues............... 82,168 8,857 323 50 (91,398)
----------- ------------- ----------- ----------- ---------- ------------ ------------
Total sales and
revenues............... $ 869,435 $ 262,219 $ 546,027 $ 48,627 $ 25,431 $ (89,137) $ 1,662,602
=========== ============= =========== =========== ========== ============ ============
Operating margin (loss)
plus other income, net.. $ 18,428 $ 3,495 $ 12,173 $ 11,502 $ (5,317) $ 12,103 $ 52,384
Interest expense, net of
interest income........ (33,085)
-------------
Margin (loss)
from continuing
operations before
income taxes $ 19,299
============
Identifiable assets...... $ 362,659 $ 105,724 $ 168,452 $ 394,470 $ 53,971 $ 158,995 $ 1,244,271
Depreciation and
amortization............ 10,917 9,872 10,545 450 125 1,513 33,422
Capital expenditures..... 8,624 10,796 4,332 1,142 13 1,118 26,025
</TABLE>
(a) Represents unallocated corporate items and intersegment eliminations.
49
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
15. FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
Year ended June 30, 1995 Agriculture Retail Energy Leasing Insurance Other(a) Consolidated
- - ------------------------ ----------- ------------ ---------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales and revenues to
unaffiliated customers $ 726,877 $ 280,682 $ 510,439 $ 41,874 $ 29,609 $ 2,572 $ 1,592,053
Intersegment sales and
revenues .............. 64,830 10,294 339 68 (75,531)
----------- ------------ ---------- ---------- --------- ---------- ------------
Total sales and
revenues ........... $ 791,707 $ 290,976 $ 510,778 $ 41,942 $ 29,609 $ (72,959) $ 1,592,053
=========== ============ ========== ========== ========= ========== ============
Operating margin (loss)
plus other income, net. $ (9,017) $ (5,039) $ 10,244 $ 9,272 $ 304 $ 17,889 $ 23,653
Interest expense, net of
interest income........ (30,003)
------------
Margin (loss)
from continuing
operations before
income taxes $ (6,350)
============
Identifiable assets...... $ 367,101 $ 106,517 $ 168,987 $ 357,653 $ 56,339 $ 168,154 $ 1,224,751
Depreciation and
amortization........... 15,272 5,013 10,519 257 256 2,403 33,720
Capital expenditures..... 12,725 4,486 18,051 719 144 2,350 38,475
Year ended June 30, 1994 Agriculture Retail Energy Leasing Insurance Other(a) Consolidated
- - ------------------------ ----------- ------------ ----------- ---------- ---------- ---------- ------------
Net sales and revenues to
unaffiliated customers. $ 753,786 $ 316,972 $ 555,549 $ 35,043 $ 30,703 $ 2,221 $ 1,694,274
Intersegment sales and
revenues............... 91,297 6,070 485 85 (97,937)
----------- ------------ ----------- ---------- ---------- ---------- ------------
Total sales and
revenues........... $ 845,083 $ 323,042 $ 556,034 $ 35,128 $ 30,703 $ (95,716) $ 1,694,274
=========== ============ =========== ========== ========== ========== ============
Operating margin (loss)
plus other income, net. $ (13,020) $ (8,353) $ 24,347 $ 8,485 $ 1,010 $ 20,084 $ 32,553
Interest expense, net of
interest income........ (27,645)
------------
Margin (loss)
from continuing
operations before
income taxes $ 4,908
============
Identifiable assets...... $ 375,318 $ 125,316 $ 172,809 $ 300,502 $ 55,041 $ 244,725 $ 1,273,711
Depreciation and
amortization........... 13,353 7,438 10,511 191 245 2,588 34,326
Capital expenditures..... 9,727 7,407 11,649 643 188 3,115 32,729
</TABLE>
(a) Represents unallocated corporate items and intersegment eliminations.
50
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
16. OTHER INCOME (EXPENSE)
The components of other income (expense) for the year ended June 30 are
summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Patronage refund income............................. $ 8,037 $ 2,904 $ 409
Rent & storage revenue.............................. 4,295 3,313 3,672
Gain/(loss) on sale of:
Businesses...................................... 3,799
Other security investments...................... 1,348 11
Properties and equipment........................ (891) (1,436) 479
Dividend income..................................... 320 206 217
Sale of scrap....................................... 189 519 446
Other, net.......................................... 1,986 1,631 477
------------- ------------- -------------
$ 19,083 $ 7,137 $ 5,711
============= ============= =============
17. SUPPLEMENTAL DISCLOSURES ABOUT CASH FLOWS
1996 1995 1994
------------- ------------- -------------
Additional disclosure of operating cash flows:
Cash paid during the year for:
Interest........................................ $ 43,195 $ 39,339 $ 35,929
============= ============= =============
Income taxes.................................... $ 3,499 $ 9,826 $ 11,249
============= ============= =============
Additional disclosure for non-cash investing
and financing activities:
Dividends declared but unpaid at June 30.......... $ 2,210 $ 2,410 $ 2,589
============= ============= =============
</TABLE>
In fiscal 1994, the Company settled the acquisition of 52 affiliates
acquired in fiscal 1993 and 1994 by paying $5,044 in cash and using $16,661 in
restricted preferred stock--6%, $100 par value.
18. 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.
Curtice Burns
On November 3, 1994, Holdings sold its interest in Curtice Burns to
Pro-Fac and received cash proceeds of $55,786 and recorded a $4,430 profit, net
of income taxes of $19,700.
Hood
On December 15, 1995, Holdings sold all of its common stock of Hood. In
accordance with the Stock Purchase Agreement, Holdings received $25,500 in the
form of $15,900 in cash and $9,600 in a promissory note in consideration of the
sale of its Hood common stock. Holdings assumed certain specified obligations of
Hood, including the liability for certain supplemental executive retirement
plans and certain management bonuses. Furthermore, under the Stock Purchase
Agreement, Holdings has indemnified the Buyer with regard to specified
representations, warranties and litigation; federal and state taxes through
fiscal 1995; and 50% of all other indemnification obligations in excess of
$1,000 identified within two years of the closing date. The obligations and/or
liabilities assumed and expenses incurred by Holdings in the transaction are
estimated at $7,000. Immediately after closing, Holdings exchanged the note of
$9,600 received as proceeds for certain specified assets of Hood, including
stock of a Farm Credit System cooperative bank, certain accounts receivable and
certain real estate and fixed assets.
51
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
18. DISCONTINUED OPERATIONS (CONTINUED)
As a result of the sale of Hood, the Company reclassified Hood as a
discontinued operation for financial reporting purposes. Prior year results have
been restated to reflect Hood as a discontinued operation. Net sales and
revenues from the discontinued operations of Hood and Curtice Burns were
approximately $188,000, $749,000 and $1,323,000 for the period of time owned
during the years ended June 30, 1996, 1995 and 1994, respectively.
A summary of net assets of discontinued operations at June 30, 1995,
previously reported as continuing operations, is a follows:
Accounts receivable............................... $ 45,399
Inventory......................................... 20,337
Property, plant and equipment, net................ 62,560
Other, net........................................ 17,262
Accounts payable and other liabilities............ (76,815)
Structured debt................................... (53,009)
-------------
$ 15,734
=============
The impact of the reclassification of Hood losses from continuing
operations to margin (loss) from discontinued operations is as follows:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1996 June 30, 1995 June 30, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Loss from continuing operations as reported
at June 30, 1995...................................... $ (22,962) $ (5,682)
Reclasses to discontinued operations:
Interest expense.......................................... $ (415) (1,000) (1,783)
Transaction costs and allowance........................... (746) (16,724)
Pre-tax margin (loss) from Hood operations................ 446 (2,666) (7,681)
------------- ------------- --------------
Pre-tax loss ............................................. (715) (20,390) (9,464)
Income tax benefit........................................ 120 5,406 3,086
------------- ------------- --------------
Losses reclassified to discontinued operations........ (595) (14,984) (6,378)
------------- -------------- --------------
(Loss) margin from continuing operations--reclassified
balance............................................... $ (595) $ (7,978) $ 696
============= ============= ==============
</TABLE>
A reconciliation to loss from discontinued operations as previously
reported follows:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1996 June 30, 1995 June 30, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Margin (loss) from discontinued operations
as reported at June 30, 1995:
Gain on sale of Curtice Burns, net of tax
of $19,700...................................... $ 4,430
Previous reclassification to reconsolidate Hood,
net of tax benefit (expense) of $8,230 and
$(3,086), respectively.......................... 2,624 $ 2,378
Reclassification of Hood losses to discontinued
operations (above).................................... $ (595) (14,984) (6,378)
------------- -------------- --------------
Restated balance - loss on disposal of discontinued
operations, net of tax................................ $ (595) $ (7,930) $ (4,000)
============= ============= ==============
</TABLE>
52
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
19. FINANCIAL AND COMMODITY INSTRUMENTS
FINANCIAL INSTRUMENTS
Fair Value
Carrying amounts of trade notes and accounts receivable, 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 6.80% to
8.96% in 1996 and 6.75% to 8.38% in 1995.
The carrying amounts and estimated fair values of the Company's
significant financial instruments held for purposes other than trading at June
30, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Liabilities:
Long-term debt (excluding capital leases)..... $ 287,305 $ 288,446 $ 262,722 $ 266,040
Subordinated debentures........................ 414,927 409,163 399,064 398,788
</TABLE>
Off-Balance Sheet Risk
In the normal course of business, the Company has letters of credit,
performance contracts and other guarantees that 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.
Credit and Market Risk
The Company, operating as an agricultural cooperative primarily 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; (2) the impact of adverse
regional weather conditions on crops; and (3) changes in the level of government
expenditures on farm programs and other changes in government agricultural
programs that adversely affect the level of income of farmers. The Company
mitigates this credit risk by analyzing farmer-member credit positions prior to
extending credit and requiring collateral on long-term arrangements and the
underlying asset with Telmark's lease contracts.
Energy extends unsecured credit to petroleum wholesalers and residential
fuel-oil customers. The Retail business extends working capital lines of credit,
secured by inventory and accounts receivable, to its representatives. The credit
function within the Energy and Retail businesses manages credit risk associated
with these trade receivables by routinely assessing the financial strength of
its customers.
53
<PAGE>
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
19. FINANCIAL AND COMMODITY INSTRUMENTS (CONTINUED)
COMMODITY INSTRUMENTS
As described in Note 1, the Company uses exchange-traded futures to manage
the risk of commodity price changes in its grain marketing and feed businesses.
These contracts permit settlement by delivery of commodities and therefore are
not financial instruments as defined. The margin accounts for open commodity
futures contracts, which reflect daily settlements as market values change, are
recorded in advances and other receivables. The margin account represents the
Company's basis in those contracts. As of June 30, 1996 and 1995, the carrying
and fair value of the Company's investment in commodities futures contracts was
$3,600 and $300, respectively. As futures are actively traded on regulated
exchanges, the contracts are subject to movements in market values.
54
<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) 58 Chairman of the Jersey Acres Farms Inc. 1973 November 1997
Board and Director
Robert L. Marshman 57 Vice Chairman of the
Board and Director Marshman Farms 1989 November 1996
Keith H. Carlisle 54 Director Carlisle Bros., Inc. 1995 December 1998
Vyron M. Chapman(2) 63 Director Chapman Farms, Inc. 1985 November 1997
D. Gilbert Couser 55 Director Shawangunk View Farm 1995 December 1998
Andrew J. Gilbert 37 Director Adon Farms 1995 December 1998
Peter D. Hanks 48 Director Big Green Farms, Inc. 1984 November 1996
Frederick A. Hough 70 Director The Hough Farm 1979 November 1997
Samuel F. Minor 58 Director The Springhouse 1987 November 1996
Donald E. Pease 60 Director Pease Farms 1972 November 1996
Carl D. Smith 61 Director Hillacre Farms 1984 November 1996
Thomas E. Smith 61 Director Lazy Acres 1986 December 1998
Gary K. Van Slyke 53 Director VanSlyke's Dairy Farm 1994 November 1997
Joel L. Wenger 65 Director Weng-Lea Farms 1987 November 1996
Edwin C. Whitehead 55 Director White Ayr Farms 1994 November 1997
Christian F. Wolff, Jr. 71 Director Pen-Col Farms 1982 November 1997
William W. Young 43 Director Will-O-Crest Farm 1989 December 1998
</TABLE>
Ralph H. Heffner, Chairman of the Board of Directors, was paid $53,400 and
Robert L. Marshman, Vice Chairman of the Board of Directors, was paid $37,700
for their services for the fiscal year ended June 30, 1996. All other directors
were paid an annual retainer fee of $9,000 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.
A retirement benefit plan for Board members requires annual payments to
retired or permanently disabled directors who served 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 through December 31, 1995, the date the plan was terminated. All
earned benefits as of December 31, 1995, will be paid when due.
(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 has filed a proof of claim in the bankruptcy
proceedings as an unsecured creditor in the sum of $30,000 for
supplies sold on credit to the Chapmans.
55
<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, 1996, except as noted
below:
<TABLE>
<CAPTION>
Years Served
Name Age Office As Officer
---- --- ------ ------------
<S> <C> <C> <C>
Donald P. Cardarelli 40 President, CEO and General Manager 5
Robert A. Fischer, Jr. 48 Vice President, Agway Agricultural Products 1
David M. Hayes 52 Senior Vice President, General Counsel and Secretary 15
Stephen H. Hoefer 41 Vice President, Public Affairs 2
Michael R. Hopsicker 31 Vice President, Agway Energy Products -
Dennis J. LaHood 50 Vice President, Country Products Group 1
Peter J. O'Neill 49 Senior Vice President, Treasurer and Controller 7
William L. Parker 49 Vice President, Chief Information Officer 1
Donald F. Schalk 45 Vice President, Agway Retail Services 1
Robert D. Sears 55 Vice President, Membership 2
</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; 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, 1996.
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, 1996.
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, 1996.
Mr. Hopsicker served as Assistant Treasurer, Finance & Control from
October 1991 to November 1992; as Director, Planning & Operations, AEP, from
November 1992 to December 1994; as Director, Financial Planning, Finance &
Control, from December 1994 to October 1995; as Director, Business Development,
ARS, from October 1995 to April 1996; and as Vice President, Agway Energy
Products, from April 1996 to July 1, 1996.
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,
1996.
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; as Vice President, Information Services, from September
1994 to May 1996; and as Vice President, Chief Information Officer and Director
of Information Services, ARS, from May 1996 to July 1, 1996.
Mr. Schalk served as Director of Marketing-Agriculture from January 1990
to July 1993 and as Vice President, Agway Retail Services, from November 1994 to
July 1, 1996. 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,
1996.
56
<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 1996, 1995 and 1994 of those persons who served as (i) the chief
executive officer (CEO) at any time during the 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, 1996.
<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 1996 $336,065 $330,638 $ 3,038
President, CEO and 1995 236,232 125,000 1,004
General Manager
Robert A. Fischer, Jr. 1996 200,000 175,090 105,212
Vice President, 1995 156,370 - 104,281
Agway Agricultural
Products
Dennis J. LaHood 1996 165,022 132,000 2,780
Vice President, 1995 126,598 - 759
Country Products
Group
Peter J. O'Neill 1996 250,016 150,000 6,137
Senior Vice President, 1995 219,182 75,000 1,990
Finance and Control, 1994 200,582 34,645 1,465
Treasurer and
Controller
Donald F. Schalk 1996 180,124 144,000 1,887
Vice President, 1995 98,280 - 390
Agway Retail
Services
</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) Members of the chief executive officer's staff and other executives
designated by the Company's chief 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. In November
1995, a bonus to the President, CEO and General Manager was determined and paid
based on performance during fiscal 1995.
(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.
57
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION - CONTINUED
EMPLOYEES' RETIREMENT PLAN
The Employees' Retirement Plan of Agway Inc. (the "Retirement Plan") is a
non-contributory defined benefit plan covering nearly 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.
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, 1996. As of June 30, 1996, the
officers and their respective number of credited years of service under the
Retirement Plan were as follows: Messrs. Cardarelli, 11; O'Neill, 7; LaHood, 26;
and Schalk, 21. 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.
58
<PAGE>
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
and/or its subsidiaries. They purchase products from the Company in the normal
course of operating their farm businesses and may sell certain agricultural
products to the Company at market prices. The prices, terms and conditions of
any purchase or sale transaction are on the same basis for all of the Company's
members.
59
<PAGE>
PART IV
<TABLE>
<CAPTION>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE
(A) INDEX TO DOCUMENT LIST LOCATION
--------
(1) FINANCIAL STATEMENTS
<S> <C>
Among the responses to this Item 14(a)(1) are the following
financial statements, which are included in Item 8 on page 24:
(i) Report of Independent Accountants 26
(ii) Consolidated Balance Sheets, June 30, 1996 and 1995 29
(iii) Consolidated Statements of Operations, fiscal years ended June 30, 1996,
1995 and 1994 30
(iv) Consolidated Statements of Changes in Shareholders'
Equity, fiscal years ended June 30, 1996, 1995 and 1994 31
(v) Consolidated Statements of Cash Flow, fiscal years ended June 30, 1996,
1995 and 1994 32
(vi) Notes to Consolidated Financial Statements 33
(2) FINANCIAL STATEMENT SCHEDULES
(i) Report of Independent Accountants 61
(ii) The following schedules are present
Schedule I - Condensed Financial Information of Registrant, each of the
three years in the period ended June 30, 1996 62
Schedule II - Valuation and Qualifying Accounts, fiscal years ended
June 30, 1996, 1995 and 1994 66
</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.
60
<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
August 30, 1996
61
<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, 1996 AND 1995
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Current assets:
Cash...................................................................... $ 1,029
Trade accounts receivable (including notes receivable of $30,820
and $31,240, respectively) less allowance for doubtful
accounts of $5,312 and $5,641, respectively.......................... 89,952 $ 101,504
Operating advances receivable from subsidiaries........................... 18,578 19,357
Inventories............................................................... 57,849 55,458
Other current assets...................................................... 64,367 41,901
-------------- -------------
Total current assets................................................. 231,775 218,220
Investments in subsidiaries..................................................... 183,243 195,403
Properties and equipment, net................................................... 60,188 68,425
Net pension asset............................................................... 85,181 73,842
Other assets.................................................................... 1,449 18,623
-------------- -------------
Total assets......................................................... $ 561,836 $ 574,513
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................... $ 42,405 $ 37,101
Operating advances payable to subsidiaries................................ 185,744 195,167
Other current liabilities................................................. 120,888 117,498
-------------- -------------
Total current liabilities............................................ 349,037 349,766
Other liabilities............................................................... 41,540 52,381
Preferred stock................................................................. 59,319 65,635
Shareholders' equity............................................................ 111,940 106,731
-------------- -------------
Total liabilities and shareholders' equity........................... $ 561,836 $ 574,513
============== =============
</TABLE>
62
<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, 1996, 1995 AND 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- -------------
<S> <C> <C> <C>
Net sales and revenues from:
Product sales........................................... $ 594,188 $ 500,145 $ 535,408
Other services.......................................... 7,890 7,398 8,086
--------------- -------------- -------------
Total net sales and revenues....................... 602,078 507,543 543,494
Cost and expenses from:
Products and plant operations........................... 550,383 472,137 516,810
Selling, general and administrative activities.......... 56,961 58,887 62,776
Restructuring costs (credit)............................ (1,301) (4,179) (6,065)
--------------- -------------- -------------
Total operating costs and expenses................. 606,043 526,845 573,521
--------------- -------------- -------------
Operating loss................................................ (3,965) (19,302) (30,027)
Interest expense, net......................................... (786) (241) (6,206)
Other income, net............................................. 28,857 24,143 18,903
--------------- -------------- -------------
Margin (loss) from continuing operations before
income taxes and equity in earnings of subsidiaries ........ 24,106 4,600 (17,330)
Income tax expense (benefit).................................. 2,185 17,995 (19,848)
--------------- -------------- -------------
Income (loss) before equity in earnings of subsidiaries....... 21,921 (13,395) 2,518
Equity in (loss) earnings of unconsolidated subsidiaries...... (11,836) 5,417 (1,822)
--------------- -------------- -------------
Margin (loss) from continuing operations...................... 10,085 (7,978) 696
Discontinued operations:
Loss from operations, including tax benefit of
$120, $13,637 and $0, respectively.................. (595) (12,360) (4,000)
Gain on disposal of Hood, net of tax expense
of $1,711............................................. 2,110
Gain on disposal of Curtice Burns, net of tax
expense of $19,700.................................... 4,430
--------------- ------------- -------------
Margin (loss) from discontinued operations......... 1,515 (7,930) (4,000)
--------------- -------------- -------------
Net margin (loss) ............................................ 11,600 (15,908) (3,304)
Retained margin - July 1...................................... 102,532 123,346 131,787
Dividends..................................................... (4,382) (4,785) (5,044)
Equity in net unrealized losses of insurance company.......... (500) (121) (93)
--------------- -------------- -------------
Retained margin - June 30..................................... $ 109,250 $ 102,532 $ 123,346
=============== ============== =============
</TABLE>
63
<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 CASH FLOW
FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- --------------
<S> <C> <C> <C>
Net cash flows from operating activities...................... $ 18,063 $ 17,506 $ 4,179
Cash flows from investing activities:
Purchases of property, plant and equipment.............. (4,649) (10,091) (9,349)
Other................................................... (905) 3,871 (7,402)
--------------- -------------- --------------
Net cash flows from investing activities...................... (5,554) (6,220) (16,751)
Cash flows from financing activities:
Payments on capitalized leases.......................... (529) (513) (544)
Cash dividends paid..................................... (4,582) (4,963) (4,512)
Other................................................... (6,369) (5,810) 17,628
--------------- -------------- --------------
Net cash flows from financing activities...................... (11,480) (11,286) 12,572
Net increase in cash and equivalents.......................... 1,029 0 0
Cash and equivalents at beginning of year..................... 0 0 0
--------------- -------------- --------------
Cash and equivalents at end of year........................... $ 1,029 $ 0 $ 0
=============== ============== ==============
</TABLE>
64
<PAGE>
ITEM 14(A)(2). FINANCIAL STATEMENT SCHEDULES - CONTINUED
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
----------------------------------------------------------
AGWAY INC.
NOTES TO CONDENSED FINANCIAL INFORMATION
(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:
1996 1995
------- -------
Raw materials ............... $ 7,787 $14,989
Finished goods .............. 45,706 36,902
Goods in transit and supplies 4,356 3,567
------- -------
$57,849 $55,458
======= =======
DEBT
Debt capital for Agway is supplied by its wholly owned subsidiary, AFC,
which secures financing through bank borrowings and issuance of corporate debt
instruments. The payment of principal and interest on this debt is absolutely
and unconditionally guaranteed by Agway. The total debt of AFC guaranteed by
Agway is disclosed in Note 11.
RELATED PARTY TRANSACTIONS
Transactions between Agway Inc. and its unconsolidated subsidiaries are
as follows:
FISCAL YEARS ENDED JUNE 30
-------------------------------
1996 1995 1994
------- ------- -------
Net sales and revenues ..................... $69,436 $42,291 $64,025
Product and plant operation expenses ....... 10,933 11,523 7,201
Selling, general and administrative
expenses ............................. 11,999 15,618 15,348
Other income, net .......................... 11,999 15,618 15,345
Interest expense, net ...................... 4,855 4,710 10,679
65
<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
------------------------
BALANCE CHARGED TO CHARGED TO BALANCE
AT BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- - -------------------------------------------------------------------------------------------------------------------
for the year ended June 30, 1996
- - -------------------------------------------------------------------------------------------------------------------
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)..................... $ 9,716 $ 3,993 $ 3,647(a) $ 10,062
========= ========= ======== ========== =========
Allowance for doubtful leases receivable.... $ 15,331 $ 7,000 $ 2,555(a) $ 19,776
========= ========= ======== ========== =========
Inventory reserve........................... $ 2,914 $ 367(b) $ 2,547
========= ========= ======== ========== =========
Surplus property reserve.................... $ 660 $ 1,024 $ 256(c) $ 1,428
========= ========= ======== ========== =========
Income tax valuation allowance.............. $ 847 $ 34 $ 881
========= ========= ======== ========== =========
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
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)..................... $ 12,656 $ 2,556 $ 5,496(a) $ 9,716
========= ========= ======== ========== =========
Allowance for doubtful leases receivable.... $ 12,434 $ 6,813 $ 3,916(a) $ 15,331
========= ========= ======== ========== =========
Inventory reserve........................... $ 0 $ 2,914 $ 2,914
========= ========= ======== ========== =========
Surplus property reserve.................... $ 0 $ 660 $ 660
========= ========= ======== ========== =========
Income tax valuation allowance.............. $ 0 $ 847 $ 847
========= ========= ======== ========== =========
<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)..................... $ 13,267 $ 4,204 $ 4,815(a) $ 12,656
========= ========= ======== ========== =========
Allowance for doubtful leases receivable.... $ 12,080 $ 5,927 $ 5,573(a) $ 12,434
========= ========= ======== ========== =========
</TABLE>
- - --------------------------------------------------------------------------------
(a) Accounts charged off, net of recoveries.
(b) Difference between cost and market of applicable inventories.
(c) Locations sold.
66
<PAGE>
ITEM 14(B). REPORTS ON FORM 8-K
No reports on Form 8-K for the three months ended June 30,
1996, 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.
3(c) - By-Laws of Agway Inc., as amended March 20, 1995,
filed by reference to Exhibit 3 of Form 10-K, dated
September 18, 1995.
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 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(d) - 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.
4(e) - 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.
67
<PAGE>
ITEM 14(C)(1). EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION
REGULATION S-K - CONTINUED
4(f) - 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(g) - 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(h) - 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 Member 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(i) - AFC Board of Directors resolutions authorizing
the issuance of Money Market Certificates under
Indentures dated as of August 23, 1989.
4(j) - 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.
4(k) - 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:
12 - STATEMENT 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, 1996.
* Included with electronic filing only.
68
<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 5, 1996
------------------------------------
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 5, 1996
(DONALD P. CARDARELLI) General Manager
(Principal Executive Officer)
/s/ Peter J. O'Neill Senior Vice President, September 5, 1996
(PETER J. O'NEILL) Finance & Control,
Treasurer and Controller
(Principal Financial Officer
& Principal Accounting Officer)
/s/ Ralph H. Heffner Chairman of the September 5, 1996
(RALPH H. HEFFNER) Board and Director
/s/ Robert L. Marshman Vice Chairman of the September 5, 1996
(ROBERT L. MARSHMAN) Board and Director
/s/ Keith H. Carlisle Director September 5, 1996
(KEITH H. CARLISLE)
/s/ Vyron M. Chapman Director September 5, 1996
(VYRON M. CHAPMAN)
/s/ D. Gilbert Couser Director September 5, 1996
(D. GILBERT COUSER)
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Andrew J. Gilbert Director September 5, 1996
(ANDREW J. GILBERT)
/s/ Peter D. Hanks Director September 5, 1996
(PETER D. HANKS)
/s/ Frederick A. Hough Director September 5, 1996
(FREDERICK A. HOUGH)
/s/ Samuel F. Minor Director September 5, 1996
(SAMUEL F. MINOR)
/s/ Donald E. Pease Director September 5, 1996
(DONALD E. PEASE)
/s/ Carl D. Smith Director September 5, 1996
(CARL D. SMITH)
/s/ Thomas E. Smith Director September 5, 1996
(THOMAS E. SMITH)
/s/ Gary K. Van Slyke Director September 5, 1996
(GARY K. VAN SLYKE)
/s/ Joel L. Wenger Director September 5, 1996
(JOEL L. WENGER)
/s/ Edwin C. Whitehead Director September 5, 1996
(EDWIN C. WHITEHEAD)
/s/ Christian F. Wolff, Jr. Director September 5, 1996
(CHRISTIAN F. WOLFF, JR.)
/s/ William W. Young Director September 5, 1996
(WILLIAM W. YOUNG)
</TABLE>
70
<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, 1996. Subsequent to the filing of the annual report on Form 10-K, the
Registrant shall furnish security holders with annual reports.
71
<PAGE>
AGWAY INC.
FORM 10-K
JUNE 30, 1996
EXHIBIT INDEX
Exhibit
Number Title
- - ------ -----
(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, 1996 of
The Agway Inc. Employees' Thrift Investment Plan
*Included with electronic filing only.
<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, 1996
(THOUSANDS OF DOLLARS)
1996 1995 1994 1993 1992
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Margins before income taxes and
member refunds............................. $ 19,299 $ (6,350) $ 4,908 $ 18,818 $ (50,549)
Fixed charges - Interest................... 63,721 56,507 49,849 49,128 52,835
- Rentals.................... 3,004 2,789 2,298 2,610 2,591
---------- ---------- ---------- --------- ----------
Total fixed charges........................ 66,725 59,296 52,147 51,738 55,426
---------- ---------- ---------- --------- ----------
Adjusted net margins....................... $ 86,024 $ 52,946 $ 57,055 $ 70,556 $ 4,877
========== ========== ========== ========= ==========
Ratio of adjusted net margins to total
fixed charges.............................. 1.3 (a) 1.1 1.4 (a)
========== ========== ========== ========= ==========
Deficiency of adjusted net margins to
total fixed charges........................ N/D $ 6,350 N/D N/D $ 50,549
========== ========== ========== ========= ==========
<CAPTION>
Fixed charges and preferred dividends combined: Preferred dividend factor:
<S> <C> <C> <C> <C> <C>
Preferred dividend requirements......... $ 4,255 $ 4,654 $ 4,909 $ 4,130 $ 4,723
Ratio of pre-tax margins to
after-tax margins*...................... 52.1% 74.4% 14.2% 136.7% 111.8%
Preferred dividend factor on
pre-tax basis........................... 8,167 6,255 34,570 3,021 4,225
Total fixed charges (above)................ 66,725 59,296 52,147 51,738 55,426
---------- ---------- ---------- --------- ----------
Fixed charges and preferred dividends
combined................................... $ 74,892 $ 65,551 $ 86,717 $ 54,759 $ 59,651
========== ========== ========== ========= ==========
Ratio of adjusted net margins to fixed
charges and preferred dividends
combined**................................. 1.1 (b) (b) 1.3 (b)
========== ========== ========== ========= ==========
Deficiency of adjusted net margins to
fixed charges and preferred dividends
combined................................... N/D $ 12,605 $ 29,662 N/D $ 54,774
========== ========== ========== ========== ==========
</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 margin divided by fixed charges and preferred
dividends combined.
N/D No deficiency.
(a) Adjusted net margins are inadequate to cover total fixed charges.
(b) Adjusted net margins are inadequate to cover total fixed charges and
preferred dividends combined.
<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, 1996
(THOUSANDS OF DOLLARS)
1996 1995 1994 1993 1992
----------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
Margins before income taxes and
member refunds............................. $ 24,106 $ 4,600 $ (17,330) $ 4,501 $ (51,202)
Fixed charges - Interest................... 7,156 5,874 14,985 8,282 11,940
- Rentals.................... 1,506 1,960 1,183 755 662
---------- ---------- ----------- --------- ----------
Total fixed charges........................ 8,662 7,834 16,168 9,037 12,602
---------- ---------- ----------- --------- ----------
Adjusted net margins....................... $ 32,768 $ 12,434 $ (1,162) $ 13,538 $ (38,600)
========== ========== =========== ========= ===========
Ratio of adjusted net margins to total
fixed charges.............................. 3.8 1.6 (a) 1.5 (a)
========== ========== =========== ========= ===========
Deficiency of adjusted net margins to
total fixed charges........................ N/D N/D $ 17,330 N/D $ 51,202
========== ========== =========== ========= ===========
<CAPTION>
Fixed charges and preferred dividends combined: Preferred dividend factor:
<S> <C> <C> <C> <C> <C>
Preferred dividend requirements......... $ 4,255 $ 4,654 $ 4,909 $ 4,130 $ 4,724
Ratio of pre-tax margin to
after-tax margins*...................... 90.9% (291.2%) 214.5% 404.4% 108.4%
Preferred dividend factor on............
pre-tax basis........................... 4,681 (1,598) 2,289 1,021 4,357
Total fixed charges (above)................ 8,662 7,834 16,168 9,037 12,602
---------- ---------- ----------- --------- -----------
Fixed charges and preferred dividends
combined................................... $ 13,343 $ 6,236 $ 18,457 $ 10,058 $ 16,959
========== ========== =========== ========= ===========
Ratio of adjusted net margins to fixed
charges and preferred dividends
combined**................................. 2.5 2.0 (b) 1.3 (b)
========== ========== =========== ========= ===========
Deficiency of adjusted net margins to
fixed charges and preferred dividends N/D N/D $ 19,619 N/D $ 55,559
========== ========== =========== ========= ===========
</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 margin divided by fixed charges and preferred
dividends combined.
N/D No deficiency.
(a) Adjusted net margins are inadequate to cover total fixed charges.
(b) Adjusted net margins are inadequate to cover total fixed charges and
preferred dividends combined.
<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, 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 November 3, 1995
- - --------------------------------------- --------------------------------
Membership Common Stock, $25 par value 108,326 shares
per share
* 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, 1995 and June 30, 1995....................... 3
Condensed Consolidated Statements of Operations and Retained Margin for the three months
ended September 30, 1995 and September 30, 1994........................................................ 4
Condensed Consolidated Cash Flow Statements for the three months ended September 30, 1995
and September 30, 1994................................................................................. 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............................................................................ 15
Item 6. Exhibits and Reports on Form 8-K............................................................. 15
SIGNATURES............................................................................................ 16
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
-------------- -------------
ASSETS (Unaudited) (Note)
- - ------
<S> <C> <C>
Current Assets:
Trade accounts receivable (including notes receivable of
$30,037 and $33,661, respectively), less allowance for
doubtful accounts of $13,088 and $12,443, respectively.......... $ 205,710 $ 252,052
Leases receivable, less unearned income of $42,640 and
$41,523 respectively............................................ 94,926 96,063
Uncollected insurance premiums.................................... 9,888 10,261
Advances and other receivables.................................... 25,456 22,969
Inventories
Raw materials................................................... 16,879 21,221
Finished goods.................................................. 137,275 139,791
Goods in transit and supplies................................... 13,795 16,984
--------------- -------------
Total inventories............................................... 167,949 177,996
Prepaid expenses.................................................. 67,199 73,890
--------------- -------------
Total current assets.......................................... 571,128 633,231
Marketable securities available for sale............................... 33,075 34,752
Other security investments............................................. 41,273 41,304
Properties and equipment, net.......................................... 305,251 311,313
Long-term leases receivable, less unearned income of
$68,517 and $68,799 respectively..................................... 249,705 236,522
Other assets........................................................... 97,777 96,969
--------------- -------------
Total assets.................................................. $ 1,298,209 $ 1,354,091
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current Liabilities:
Notes payable..................................................... $ 84,500 $ 83,133
Current installments of long-term debt and subordinated debt 94,094 94,818
Accounts payable.................................................. 116,967 153,543
Unearned insurance premiums....................................... 16,674 17,023
Other current liabilities......................................... 128,554 141,234
--------------- -------------
Total current liabilities..................................... 440,789 489,751
Long-term debt......................................................... 238,146 242,668
Subordinated debt...................................................... 380,971 369,962
Other liabilities...................................................... 73,222 73,128
Interest of others in consolidated subsidiaries........................ 6,217 6,217
Commitments and contingencies..........................................
Preferred stock, net................................................... 62,892 65,635
Common stock, net...................................................... 2,712 2,728
Paid-in capital........................................................ 1,470 1,470
Retained margin........................................................ 91,790 102,532
--------------- -------------
Total liabilities and shareholders' equity.................... $ 1,298,209 $ 1,354,091
=============== =============
</TABLE>
Note: The balance sheet at June 30, 1995 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,
--------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Net sales and revenues from:
Product sales..................................... $ 416,130 $ 454,853
Leasing operations................................ 11,180 9,213
Insurance operations............................. 6,887 6,684
Service revenues.................................. 3,392 4,216
--------------- --------------
Total net sales and revenues.................. 437,589 474,966
Cost and expenses from:
Products and plant operations..................... 391,999 430,732
Leasing operations................................ 5,257 4,361
Insurance operations.............................. 4,791 4,458
Selling, general and administrative activities.... 41,994 47,452
--------------- --------------
Total costs and expenses...................... 444,041 487,003
Operating loss......................................... (6,452) (12,037)
Interest expense, net.................................. (8,475) (8,554)
Other income, net...................................... 710 681
--------------- --------------
Loss from continuing operations
before income taxes .............................. (14,217) (19,910)
Income tax benefit..................................... (3,488) (6,834)
--------------- ---------------
Loss from continuing operations........................ (10,729) (13,076)
Discontinued operations:
Adjustment required for reclassification
of Hood to continuing operations.................. 0 1,806
--------------- --------------
Margin from discontinued
operations............................... 0 1,806
--------------- --------------
Net loss.............................................. $ (10,729) $ (11,270)
Retained Margin:
Balance at beginning of period................... 102,532 123,346
Adjustment to unrealized gains (losses)
on available-for-sale securities,
net of tax................................... (13) 95
--------------- --------------
Balance at end of period.............................. $ 91,790 $ 112,171
=============== ==============
</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,
-------------------------------
1995 1994
-------------- -------------
<S> <C> <C>
Net cash flows provided by operating activities........................ $ 12,575 $ 30,258
Cash flows (used in) provided by investing activities:
Purchases of property, plant and equipment........................ (4,453) (7,240)
Proceeds from disposal of businesses and property, plant and
equipment..................................................... 1,381 1,001
Leases originated................................................. (33,889) (34,588)
Leases repaid..................................................... 20,732 14,392
Proceeds from sale of marketable securities....................... 3,947 468
Purchases of marketable securities................................ (2,283) (638)
Other............................................................. 30 (230)
Net changes in net assets of discontinued operations.............. 0 (350)
--------------- --------------
Net cash flows used in investing activities............................ (14,535) (27,185)
Cash flows (used in) provided by financing activities:
Net change in short-term borrowings............................... 1,367 5,840
Proceeds from long-term debt...................................... 10,572 12,000
Repayment of long-term debt....................................... (10,894) (22,689)
Proceeds from sale of subordinated debt........................... 19,496 13,858
Maturity and redemption of subordinated debt...................... (13,273) (6,726)
Redemption of stock............................................... (2,763) (2,419)
Cash dividends paid............................................... (2,410) (2,589)
Other............................................................. (135) (348)
--------------- --------------
Net cash flows provided by (used in) financing activities.............. 1,960 (3,073)
--------------- --------------
Net decrease in cash and equivalents................................... 0 0
Cash and equivalents at beginning of period............................ 0 0
--------------- -------------
Cash and equivalents at end of period.................................. $ 0 $ 0
=============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands of Dollars)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements 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, 1995 are not necessarily indicative of the results that may
be expected for the year ended June 30, 1996 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, 1995.
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 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 pursuant to a "no
action letter" issued 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.
Summarized financial information for AFC and Consolidated Subsidiaries is
as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
Net sales and revenues.......................... $ 334,395 $ 373,046
Operating margin................................ 1,204 (611)
Loss from continuing operations................. (7,701) (7,256)
Net margin (loss)............................... (7,701) (5,450)
September 30, June 30,
1995 1995
---------------- ----------------
Current assets.................................. $ 601,048 $ 615,336
Properties and equipment, net................... 230,421 231,928
Noncurrent assets............................... 345,953 335,568
---------------- ----------------
Total assets.................................... $ 1,177,422 $ 1.182,832
================ ================
Current liabilities............................. $ 321,906 $ 322,492
Long-term debt.................................. 232,497 240,107
Subordinated debt............................... 380,971 369,962
Noncurrent liabilities.......................... 22,649 23,158
Interest of others in consolidated subsidiaries 6,217 6,217
Shareholder's equity............................ 213,182 220,896
---------------- ----------------
Total liabilities and
shareholder's equity........................ $ 1,177,422 $ 1,182,832
================ ================
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
3. BORROWING ARRANGEMENT
----------------------
As of September 30, 1995, the Company had available lines of credit with
various banking institutions whereby lenders have agreed to provide funds
up to $117,000 to separately financed units of the Company as follows: AFC
- $65,000, Telmark - $24,000 and Hood - $28,000 compared to $65,000,
$24,000 and $33,000, respectively, as of June 30, 1995. 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. Telmark has a committed term loan
of $125,000 available to be borrowed through November 30, 1995, of which
$94,000 was outstanding as of September 30, 1995. Long-term and
subordinated debt outstanding amounted to:
<TABLE>
<CAPTION>
Agway & AFC Telmark Hood Total
------------------ ------------------ ------------------ ------------------
9/95 6/95 9/95 6/95 9/95 6/95 9/95 6/95
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt $ 18,672 $ 22,843 $239,955 $245,467 $ 42,103 $ 32,880 $300,730 $301,190
Currently payable 6,764 13,702 45,622 34,622 10,198 10,198 62,584 58,522
-------- ------ -------- -------- -------- -------- -------- ---------
Net long-term debt $ 11,908 $ 9,141 $194,333 $210,845 $ 31,905 $ 22,682 $238,146 $242,668
======== ======= ======== ======== ======= ======== ======== ========
Subordinated debt $394,224 $390,889 $ 11,062 $ 8,174 $ 7,195 $ 7,195 $412,481 $406,258
Currently payable 31,047 35,833 463 463 31,510 36,296
-------- -------- -------- -------- -------- -------- -------- --------
Net long-term debt $363,177 $355,056 $ 11,062 $ 8,174 $ 6,732 $ 6,732 $380,971 $369,962
======== ======= ======== ======== ======== ======== ======== =========
</TABLE>
The AFC short-term lines were available through October 31, 1995. Currently,
one 30-day extension through December 1, 1995 and one 60-day extension
through December 31, 1995 are in place for the availability of the $65,000
line of credit and the availability of issuing $60,000 of commercial paper,
respectively. Annual renewals are in the process of negotiations. These AFC
short-term lines of credit and $1,900 of AFC long-term bank debt payable on
October 1, 1995 are collateralized by certain of the Company's accounts
receivable and non-petroleum inventories ("collateral"). Amounts which can be
drawn under the AFC short-term agreements are limited to a specific
calculation based upon the collateral available. Adequate collateral has
existed throughout the fiscal year to permit AFC to borrow amounts 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. The Company obtained
waivers for specific covenant violations at June 30, 1995 covering July and
August 1995 and amending these covenants for September and October 1995. The
Company has ongoing discussions with its lenders and expects 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 September 30, 1995, Telmark
had $20,500 outstanding against these lines.
Telmark renews its lines of credit annually (usually in the late 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. Annual renewals
are in the process of negotiations. The Company believes Telmark has
sufficient lines of credit in place to meet interim funding needs.
The Hood short-term credit facility is used to supply letters of credit as
well as short-term financing. Letters of credit of $13,200 were outstanding
at September 30, 1995. The short-term credit facility expires on July 1,
1996. 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 I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
4. 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 $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
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.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
5. 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. The following schedule details the remaining reserves to
complete the restructuring project and their intended purposes, as well as
the actual activity for the three-month period ended September 30, 1995:
<TABLE>
<CAPTION>
Reductions
Balance Proceeds ---------- Change Balance
at Sale of Divested Costs in at
6/30/95 Assets Assets Incurred Estimate 9/30/95
----------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Restructuring Reserve:
Plant, Store & Business Divestitures
- - ------------------------------------
Proceeds on sale of assets (A) (1,506) (69) (1,437)
Net book value of assets to be divested (A) 962 23 939
Cost of divestiture (1) (B) 3,099 1,012 2,087
---------- --------- --------- -------- -------- --------
Loss on divestiture 2,555 (69) 23 1,012 1,589
Incremental environmental costs (C) 3,597 60 3,537
---------- --------- --------- -------- -------- --------
TOTAL PLANT, STORE & BUSINESS 6,152 (69) 23 1,072 5,126
TOTAL RESTRUCTURING $ 6,152 $ (69) $ 23 $ 1,072 $ 0 $ 5,126
========== ========= ========= ======== ======== ========
</TABLE>
(1) Includes demolition, asset transfer costs, and commissions on real estate
transactions.
(A) 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. The Company anticipates that the planned
activities will be completed in fiscal 1996.
(B) 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, costs are expected to vary from the
original estimates. The Company anticipates these efforts will be completed
in fiscal 1996.
(C) 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 three years.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. 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 & Consumer net sales and revenues are
traditionally higher in the spring as customers acquire products to initiate the
growing season. Correspondingly, Energy realizes significantly higher net sales
and revenues in the winter months due to cold winter conditions, and Dairy
realizes higher net sales and revenues in the early summer months and the late
fall holiday season. Financial Services and Corporate are not materially
impacted by seasonal fluctuations.
Results by Operating Segment
----------------------------
Increase (Decrease)
Three Months Ended
-------------------
9/30/95 vs. 9/30/94
-------------------
Net Sales and Revenues
Agriculture & Consumer............................. $ (15,830)
Energy............................................. (9,812)
Dairy.............................................. (13,749)
Financial Services................................. 1,790
Corporate.......................................... 224
-------------------
$ (37,377)
===================
Margin (Loss) from Operations before Income Taxes
Agriculture & Consumer............................. $ 3,609
Energy............................................. (1,213)
Dairy.............................................. 2,418
Financial Services................................. 435
Corporate.......................................... 365
-------------------
Operating margin (loss) and other income
(expense), net.................................. 5,614
Interest (expense) income, net..................... 79
-------------------
$ 5,693
===================
Numbers in the following narrative have been rounded to the nearest hundred
thousand.
Agriculture & Consumer
- - ----------------------
Agriculture & Consumer consists of Agway Agricultural Products (AAP),
Agriculture & Related Services (ARS) and Country Products Group (CPG). Total
Agriculture & Consumer net sales and revenues for the first quarter of fiscal
1996 of $207,800 represent a decrease of $15,800 (7.0%) from the first quarter
of fiscal 1995. Operating loss for the first quarter of fiscal 1996 was reduced
by $3,600 (33.9%) as compared to the same period in the prior year.
AAP operations provided 48% of the total Agriculture & Consumer net sales during
the first three months of fiscal 1996 and 1995. First quarter AAP net sales and
revenues totaled $99,900 which is a decrease of $8,400 (7.8%) from the same
period last year. Crop and farm store sales declined $9,100 (19.8%) primarily
due to summer drought conditions in the Northeast which lowered demand for
fertilizer, lime, yard and garden equipment and supplies. Feed sales, which
decreased $1,100 (2.1%), were negatively impacted by poor milk prices which
influenced farmers to reduce spending on feed products. Additionally,
competitive market conditions continue to put pressure on fertilizer (crop
sales) and grain (feed sales) prices. First quarter decreases in sales of crop,
farm store products and feed were partially offset by a $2,100 (13.0%) increase
in ingredient sales over last year - a result of increased focus from a Direct
Marketing operation of ingredient sales to farmers and others at the AAP
enterprises. AAP's gross margin as a percentage of net sales remained constant
at 6% for the first quarter of 1996 versus 1995. Margin gains realized from the
Direct Marketing operations were offset by a decline of $1,200 (25.6%) in margin
on farm store product
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
Agriculture & Consumer (continued)
- - ----------------------------------
sales from heavy price competition in yard and garden and power equipment lines.
In the first quarter, AAP's operating loss of $7,000 reflects an improvement of
$1,800 (20.7%) as compared to a loss of $8,700 in the first quarter of last year
primarily due to a $1,500 decrease in selling and distribution expenses.
ARS operations provided 26% of total Agriculture & Consumer net sales during the
first three months of fiscal 1996 as compared to 30% in the same period in
fiscal 1995, primarily due to lower volume in both its retail and wholesale
operations. ARS net sales totaled $54,300 in the first quarter of fiscal 1996, a
decrease of $12,300 (18.5%) from the same period last year. Of the total ARS net
sales decrease, consumer retail sales and wholesale operations decreased $7,600
(16.0%) and $4,700 (24.8%), respectively. These results were significantly
affected by management's decision to change product mix and to exit its power
equipment, wood pellet stove and patio furniture lines at certain locations.
These products were higher priced yet carried lower margins and lower inventory
turns. In addition, there was a lower demand for yard and garden products
resulting from summer drought conditions in Agway's markets and demand for power
equipment (snowblowers) decreased this year after a mild winter, while in the
prior year, anticipated adverse winter weather conditions resulted in large
sales of power equipment in the first quarter of 1995. First quarter gross
margin declined $2,500 (13.2%) due to the planned exit of various product lines
at certain locations noted above as well as weather-related reductions in volume
and its negative impact on sales; however, gross margin as a percentage of sales
improved from 27% in fiscal 1995 to 29% in 1996. In the first three months, ARS
experienced an operating loss of $200, a $600 (76.1%) improvement over the $800
loss during the same period last year. Selling, distribution and administrative
costs decreased $2,100 (11.3%) due to management's successful efforts to contain
expenses through staff reductions, limits on overtime worked and reduced
spending on selling and advertising costs.
CPG operations provided 26% of total Agriculture & Consumer net sales during the
first three months of fiscal 1996 as compared to 22% in the same period in
fiscal 1995. CPG net sales totaled $53,600 in the first quarter of fiscal 1996,
an increase of $4,900 (10%) from the same period last year. First quarter sales
in the turf and sunflower operations represent $3,300 of the increase from the
first quarter of last year primarily due to volume increases realized from CPG's
efforts to expand its customer base, particularly in the foreign export of human
edible sunflower seeds. CPG's gross margin as a percentage of sales improved
from 22% in fiscal 1995 to 26% in 1996 due primarily to improved purchase
arrangements relative to current market rates as compared to the same period
last year. As a result, CPG's $100 operating margin reflects a $1,200 (115%)
improvement over the operating loss of $1,100 in the first quarter of fiscal
1995.
Energy
- - ------
Total net sales and revenues of $97,500 for the first quarter decreased $9,800
(9.1%) compared with the same period in 1994 due to unit volume decreases in
both the retail and commercial operations. Overall, 10.4 million (9.1%) fewer
gallons of product were sold in the first quarter of fiscal 1996 compared to the
first quarter of fiscal 1995. Average per unit selling prices remained
relatively constant in the first quarter of 1996 versus 1995.
Retail operations provided 81% of total Energy sales during the first quarter as
compared to 80% during the same period last year. Total sales in the retail
sector decreased $6,500 (7.6%), which resulted from a 6.9 million gallon (8.0%)
decline in retail unit volume from the first quarter of last year. Retail
gasoline sales declined $1,600 (6.7%), which represents 2.8 million gallons
(40.0%) of the decline in total retail unit volume, and reflects the ongoing
efforts of the unit to close down certain company-owned keytrol/cardtrol sites
and bulk customer sites that are determined not to be cost beneficial for
upgrade in order to comply with EPA underground storage tank (UST) regulations.
Retail diesel net sales declined $2,000 (11.3%) primarily due to a unit volume
decrease of 1.8 million gallons (8.7%) from the first quarter of last year. This
volume decrease resulted from competitors lowering prices and accepting lower
margins in an attempt to liquidate overstocked fuel oil inventories. Energy did
not react to the price cuts as its just-in-time inventory control over the prior
mild winter left no overstocked inventories. Net sales of home heating oil for
the first three months of fiscal 1996 decreased $2,400 (11.5%) as compared to
the same period last
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
Energy (continued)
- - ------------------
year. The unit volume of home heating oil for the first quarter decreased 2.3
million gallons (8.4%) as compared to the first quarter of the prior year due to
a "summer fill" program which took place later in the first quarter of fiscal
1996 than in fiscal 1995. Also, demand for heating oil was lower in the first
quarter as compared to the prior year since customers still have heating oil
left over in their tanks from last year's mild winter season. The remaining
decrease is primarily due to volume reductions in propane and packaged product
sales and a slight decline in service revenues.
Commercial operations provided 19% of total net sales during the first quarter
as compared to 20% during the same period last year. The decline reflects the
results of management's efforts to exit specific markets and to redirect its
business efforts from high volume/low margin transport delivery sales to high
margin/low volume tankwagon sales. In the first three months of fiscal 1996, 3.5
million (12.5%) fewer gallons of product (primarily diesel) were sold than in
the first quarter of the prior year due to decreases in end-user volumes which
resulted in a decrease of $3,300 (15.4%) in total commercial sales.
For the three months ended September 30, 1995, operating loss of $5,300 was
$1,200 (30.1%) more than the first quarter of the prior year. A reduction in
gross margins of $1,500 (5.2%) is due, in part, to market pressures resulting
from a lower demand for heating oil in the first quarter as compared to the same
period last year. Additionally, retail propane sales to high margin residential
users have declined while demand for propane from lower margin
commercial/industrial users increased over last year. The gross margin reduction
was partially offset by reductions in selling, distribution and administrative
costs in the first three months of fiscal 1996 as compared to 1995.
Dairy
- - -----
For segment reporting purposes, Dairy 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. Net sales in the first quarter of fiscal 1996 were $13,700 (10.8%)
less than the first quarter of fiscal 1995 primarily due to volume reductions.
Since the first quarter of fiscal 1995, Hood lost some of its private label
business to competitors due to pricing. Market pressures continue in this area.
The remaining loss of volume is primarily due to the sale of Hood's Mid-Hudson
Valley business in February 1995. Gross margin percentage for the first quarter
remained fairly constant from last year at 22.0% versus 21.4%.
First quarter operating margin of $2,600 represents an increase of $2,400 from
the same period last year primarily due to management's effort to reduce
selling, administrative and trade promotion spending and production efficiencies
gained by consolidating the Boston fluid milk production with the Agawam and
Portland facilities.
Financial Services
- - ------------------
For segment reporting purposes, Financial Services consists of Telmark, Inc.
("Telmark"), Agway Insurance Company ("Insurance") and Agway General
Agency, Inc. ("General Agency").
Total net sales and revenues of $18,800 for Financial Services for the first
quarter increased $1,800 (10.5%) as compared to the first quarter in the prior
year primarily due to volume increases in the leasing operations of Telmark.
Telmark operations provided $11,500 (61%) of total first quarter net sales and
revenues compared to $9,600 (56%) in the first quarter of last year. Fueled by
rising interest rates and a strong economy, Telmark has experienced volume
growth, resulting in an increase of $53,000 in average assets over the same
period last year. The $1,900 (20.3%) increase in Telmark's net revenues as
compared to the same quarter last year is primarily due to this higher asset
base with relatively higher interest rates. Insurance and General Agency net
revenues for the first quarter of $7,200 are $200 (2.1%) less than the same
period last year due, in part, to General Agency's decision to exit the
third-party claims administration market in the second quarter of last year.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
Financial Services (continued)
- - ------------------------------
Operating margins improved in the first quarter of fiscal 1996 by $400 (21.2%)
as compared to the same period last year. Telmark's operating margin increased
in the first quarter of fiscal 1996 by $600 (32.1%) as compared to the same
period in the prior year. The increase reflects the positive impact of owned
portfolio growth with relatively higher interest rates. This growth was offset
somewhat by increased interest expenses from higher debt levels. The improvement
in operating margins was partially offset by higher claim activity in Insurance
operations in the first quarter of fiscal 1996 as compared to 1995.
Corporate
- - ---------
The increase in net sales and revenues of $200 (158.9%) for the quarter is
primarily due to an increase in external revenues generated from Agway Data
Services.
Operating margin for the first quarter increased $400 (33.4%) as compared to the
prior year. A $700 decrease in re-engineering costs in fiscal 1996 as compared
to 1995 was offset primarily by costs incurred by the Company in the first
quarter of fiscal 1996 to facilitate the sale of Hood ($400).
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Cash flows from operating activities for the three months ended September 30,
1995 decreased $17,700 to $12,600 as compared to the first three months of
fiscal 1995 due primarily to a smaller increase in accounts receivable and
inventory of $17,200 and $5,200, respectively, and a smaller decrease in
accounts payable of $5,600. Net cash used in investing activities for the three
months ended September 30, 1995 was $14,500 as compared to $27,200 for the same
period last year. The reduction in cash use was due primarily to an increase in
leases repaid of $6,400 and net proceeds from sale of marketable securities of
$3,100 and a decrease in the purchase of property, plant and equipment of
approximately $2,700. The net cash flows provided by financing activities for
the three months ended September 30, 1995, were $2,000 as compared to net cash
used of $3,100 for the same period in the prior year. The majority of the change
from financing activities was the result of less net repayments of long-term
debt offset by lower net short-term borrowings. Net repayments of long-term debt
declined approximately $10,400 while short-term borrowings declined $4,500 as
compared to the three months ended September 30, 1994.
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 the following as of
September 30, 1995: borrowings from banks - $127,779 maturing November 1995
through November 1999 with interest rates ranging from 5.4% - 11.5%; borrowings
from insurance companies - $145,955 maturing September 1995 through September
2000 with interest rates ranging from 5.9% - 9.2%; subordinated debt - $412,481
maturing 1995 through 2008 with interest rates ranging from 4.5% - 9.5%; and
capital leases and other long-term debt - $26,996 maturing 1995 through 2008
with interest rates ranging from 6% - 12%. In addition, Telmark has occasionally
sold blocks of its lease portfolio.
The AFC short-term lines were available through October 31, 1995. Currently, one
30-day extension through December 1, 1995 and one 60-day extension through
December 31, 1995 are in place for the availability of the $65,000 line of
credit and the availability of issuing $60,000 of commercial paper,
respectively. Annual renewals are in the process of negotiations. These AFC
short-term lines of credit and $1,900 of AFC long-term bank debt payable on
October 1, 1995 are collateralized by certain of the Company's accounts
receivable and non-petroleum inventories ("collateral"). Amounts which can be
drawn under the AFC short-term agreements are limited to a specific calculation
based upon the collateral available. Adequate collateral has existed throughout
the fiscal year to permit AFC to borrow amounts 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. The Company obtained waivers for specific covenant
violations at June 30, 1995 covering July and August 1995 and amending these
covenants for September and October 1995. The Company has ongoing discussions
with its lenders and expects to continue the appropriate and adequate financing
currently available under these facilities.
<PAGE>
PART II. OTHER INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
(Thousands of Dollars)
Item 1. Legal Proceedings
- - --------------------------
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 has prepared a
risk assessment scope of work and submitted it to 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.
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. Hood entered into a
stipulated judgment on July 5, 1995, whereby Hood agreed to pay CDEP $325,
construct an on-site wastewater pretreatment facility and conduct a study of the
Suffield facility's level of fat, oil and grease discharge.
In August 1995, the Environmental Protection Agency (EPA) notified Agway that
the EPA has reason to believe that Agway is a potentially responsible party
(PRP) under the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) at the Tri-Cities Barrel Site, Port Crane, New York. The EPA
requested that Agway and other PRPs participate in the ongoing Remedial
Investigation/Feasibility Study (RI/FS) for the Tri-Cities Barrel Site. Agway
believes that its involvement at the Tri-Cities Barrel Site is minimal. Agway is
in contact with other PRPs who have been participating in the RI/FS and is in
the preliminary stages of negotiating the terms of possible participation in the
ongoing RI/FS.
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
There were no reports on Form 8-K required to be filed during the first quarter
ended September 30, 1995.
<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 November 7, 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
(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, 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 February 2, 1996
- - -------------------------------------- -------------------------------
Membership Common Stock, $25 par value 108,118 shares
per share
<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 December 31, 1995 and June 30, 1995....................... 3
Condensed Consolidated Statements of Operations and Retained Margin for the three months
and six months ended December 31, 1995 and December 31, 1994.......................................... 4
Condensed Consolidated Cash Flow Statements for the six months ended December 31, 1995
and December 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
<CAPTION>
PART II. OTHER INFORMATION
- - -------- -----------------
<S> <C>
Item 1. Legal Proceedings............................................................................ 18
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 18
Item 6. Exhibits and Reports on Form 8-K............................................................. 18
SIGNATURES............................................................................................ 19
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------ -----------
(Unaudited) (Restated)
<S> <C> <C>
ASSETS
- - ------
Current Assets:
Trade accounts receivable (including notes receivable of
$20,889 and $33,491, respectively), less allowance for
doubtful accounts of $10,459 and $9,716, respectively........... $ 164,891 $ 209,949
Leases receivable, less unearned income of $43,776 and
$41,523 respectively............................................ 98,378 96,165
Uncollected insurance premiums.................................... 9,609 10,261
Advances and other receivables.................................... 31,528 21,808
Inventories
Raw materials................................................... 23,078 20,609
Finished goods.................................................. 155,195 129,533
Goods in transit and supplies................................... 8,464 7,516
------------ -----------
Total inventories............................................... 186,737 157,658
Prepaid expenses.................................................. 50,465 71,044
------------ -----------
Total current assets.......................................... 541,608 566,885
Marketable securities available for sale............................... 35,904 34,752
Other security investments............................................. 38,897 37,981
Properties and equipment, net.......................................... 239,743 248,753
Long-term leases receivable, less unearned income of
$69,963 and $68,799 respectively..................................... 244,611 236,522
Other assets........................................................... 90,343 85,876
Net assets of discontinued operations.................................. 15,734
------------ -----------
Total assets.................................................. $ 1,191,106 $ 1,226,503
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current Liabilities:
Notes payable..................................................... $ 85,876 $ 70,300
Current installments of long-term debt and subordinated debt...... 70,863 84,620
Accounts payable.................................................. 91,008 118,529
Unearned insurance premiums....................................... 16,252 17,023
Other current liabilities......................................... 125,405 122,087
------------ -----------
Total current liabilities..................................... 389,404 412,559
Long-term debt......................................................... 213,306 219,986
Subordinated debt...................................................... 378,221 362,768
Other liabilities...................................................... 57,486 58,825
Commitments and contingencies..........................................
Preferred stock, net................................................... 62,215 65,635
Common stock, net...................................................... 2,705 2,728
Paid-in capital........................................................ 1,470
Retained margin........................................................ 87,769 102,532
------------ -----------
Total liabilities and shareholders' equity.................... $ 1,191,106 $ 1,226,503
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED MARGIN
(Unaudited)
(Thousands of Dollars)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- -----------------------------
1995 1994 1995 1994
------------- ------------- ------------- ------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net sales and revenues from:
Product sales...................... $ 344,134 $ 342,771 $ 647,118 $ 670,730
Leasing operations................. 11,831 9,973 23,045 19,248
Insurance operations............... 5,973 6,677 12,859 13,361
Service revenues................... 3,430 4,303 6,967 8,694
------------- ------------- ------------- ------------
Total net sales and revenues... 365,368 363,724 689,989 712,033
Cost and expenses from:
Products and plant operations...... 322,217 322,851 611,986 639,047
Leasing operations................. 5,159 4,445 10,416 8,806
Insurance operations............... 8,020 3,915 12,811 8,373
Selling, general and
administrative activities........ 32,859 36,074 66,694 71,555
------------- ------------- ------------- ------------
Total costs and expenses....... 368,255 367,285 701,907 727,781
Operating loss.......................... (2,887) (3,561) (11,918) (15,748)
Interest expense, net................... (7,539) (7,159) (14,459) (13,938)
Other income, net....................... 5,923 1,377 7,885 2,903
------------- ------------- ------------- ------------
Loss from continuing operations
before income taxes ............... (4,503) (9,343) (18,492) (26,783)
Income tax expense (benefit)............ 424 (2,884) (3,103) (9,055)
------------- ------------- ------------- ------------
Loss from continuing operations......... (4,927) (6,459) (15,389) (17,728)
Discontinued operations:
Gain (loss) on disposal of Hood,
net of tax expense (benefit) of
$1,585, $(13,261), $1,624 and
$(13,261), respectively............ 2,284 (6,944) 2,017 (6,944)
Gain on disposal of Curtice Burns,
net of tax expense of $19,700...... 4,430 4,430
------------- ------------- ------------- ------------
Margin (loss) from discontinued
operations................. 2,284 (2,514) 2,017 (2,514)
------------- ------------- ------------- ------------
Net loss................................ $ (2,643) $ (8,973) $ (13,372) $ (20,242)
Retained Margin:
Balance at beginning of period..... 91,790 112,171 102,532 123,346
Dividends.......................... (2,172) (2,374) (2,172) (2,374)
Adjustment to unrealized gains
(losses) on available-for-sale
securities, net of tax......... 794 (17) 781 77
------------- ------------- ------------- ------------
Balance at end of period................ $ 87,769 $ 100,807 $ 87,769 $ 100,807
============= ============= ============= ============
</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,
--------------------------------
1995 1994
------------- ---------------
(Restated)
<S> <C> <C>
Net cash flows (used in) provided by operating activities.............. $ (358) $ 23,569
Cash flows (used in) provided by investing activities:
Purchases of property, plant and equipment........................ (7,518) (16,299)
Proceeds from disposal of businesses and property, plant and
equipment..................................................... 1,782 4,296
Leases originated................................................. (74,098) (80,115)
Leases repaid..................................................... 60,841 45,524
Proceeds from sale of marketable securities....................... 5,777 715
Purchases of marketable securities................................ (6,148) (1,618)
Other............................................................. (917) 147
Proceeds from sale of discontinued operations..................... 15,900 55,786
Net changes in net assets of discontinued operations.............. 14,511
------------- -------------
Net cash flows (used in) provided by investing activities.............. (4,381) 22,947
Cash flows (used in) provided by financing activities:
Net change in short-term borrowings............................... 15,576 (23,400)
Proceeds from long-term debt...................................... 19,764 36,205
Repayment of long-term debt....................................... (19,585) (38,155)
Proceeds from sale of subordinated debt........................... 44,790 31,894
Maturity and redemption of subordinated debt...................... (49,304) (47,123)
Redemption of stock............................................... (3,448) (2,536)
Cash dividends paid............................................... (2,410) (2,589)
Other............................................................. (644) (812)
------------- -------------
Net cash flows provided by (used in) financing activities.............. 4,739 (46,516)
------------- -------------
Net decrease in cash and equivalents................................... 0 0
Cash and equivalents at beginning of period............................ 0 0
------------- -------------
Cash and equivalents at end of period.................................. $ 0 $ 0
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands of Dollars)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements 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, 1995 are not necessarily
indicative of the results that may be expected for the year ending June
30, 1996 due, among other reasons, to the sale of H. P. Hood Inc.
("Hood") and 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, 1995.
The financial statements of Agway Inc. and Agway Financial Corporation
have been restated to reflect Hood, which was previously consolidated in
continuing operations, as a discontinued operation. 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 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 pursuant to a "no action letter" issued by the Securities
and Exchange Commission, AFC, as a separate company, is not required to
file periodic reports with respect to these debt securities. However, as
required by the 1934 Act, the summarized financial information concerning
AFC and Consolidated Subsidiaries is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- -----------------------
1995 1994 1995 1994
------------- ------------- ------------- ------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net sales and revenues............. $ 265,432 $ 272,006 $ 486,861 $ 518,395
Operating margin................... 3,307 4,888 1,933 4,127
Loss from continuing operations.... (4,943) (2,880) (12,376) (8,330)
Net margin (loss).................. (2,658) (5,393) (10,359) (10,843)
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------- -------------
(Restated)
<S> <C> <C>
Current assets.................................... $ 565,990 $ 546,416
Properties and equipment, net..................... 166,884 169,368
Noncurrent assets................................. 331,337 321,152
Net assets of discontinued operations............. 15,734
------------- -------------
Total assets...................................... $ 1,064,211 $ 1,052,670
============= =============
Current liabilities............................... $ 257,827 $ 242,726
Long-term debt.................................... 208,595 217,425
Subordinated debt................................. 378,221 362,768
Noncurrent liabilities............................ 14,460 8,855
Shareholder's equity.............................. 205,108 220,896
------------- -------------
Total liabilities and
shareholder's equity.......................... $ 1,064,211 $ 1,052,670
============= =============
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
3. BORROWING ARRANGEMENTS
----------------------
As of December 31, 1995, the Company had available lines of credit with
various banking institutions whereby lenders have agreed to provide funds
up to $89,000 to separately financed units of the Company as follows: AFC
- $65,000 and Telmark - $24,000, the same as June 30, 1995. 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. Telmark had a committed
term loan of $125,000 available to be borrowed through February 1, 1996,
of which $109,000 was outstanding as of December 31, 1995. Telmark's
long- and short-term lines of credit were renegotiated effective February
1, 1996 as discussed below. Long-term and subordinated debt outstanding
amounted to:
<TABLE>
<CAPTION>
Agway & AFC Telmark Total
---------------------------- --------------------------- --------------------------
12/95 6/95 12/95 6/95 12/95 6/95
------------- ------------ ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt.......... $ 15,886 $ 22,843 $ 251,955 $ 245,467 $ 267,841 $ 268,310
Currently payable....... 4,913 13,702 49,622 34,622 54,535 48,324
------------- ------------ ------------- ----------- ----------- ------------
Net long-term debt...... $ 10,973 $ 9,141 $ 202,333 $ 210,845 $ 213,306 $ 219,986
============= ============ ============= =========== =========== ============
Subordinated debt....... $ 378,699 $ 390,890 $ 15,850 $ 8,174 $ 394,549 $ 399,064
Currently payable....... 16,328 36,296 16,328 36,296
------------- ------------ ------------- ----------- ----------- ------------
Net subordinated debt... $ 362,371 $ 354,594 $ 15,850 $ 8,174 $ 378,221 $ 362,768
============= ============ ============= =========== =========== ============
</TABLE>
The AFC available $65,000 line of credit and availability of issuing
$60,000 of commercial paper were extended through February 29, 1996. In
order to consider the effect of the December 15, 1995 sale of Hood on the
line of credit requirements, existing lines of credit were extended to
February 29, 1996. Longer-term renewals are in the process of
negotiations. These AFC short-term lines of credit are collateralized by
certain of the Company's accounts receivable and non-petroleum
inventories ("collateral"). Amounts which can be drawn under the AFC
short-term agreements are limited to a specific calculation based upon
the collateral available. Adequate collateral has existed throughout the
fiscal year to permit AFC to borrow amounts 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. The Company has
ongoing discussions with its lenders and expects to continue to have
appropriate and adequate financing to meet its ongoing needs.
Telmark borrows under its short-term line of credit agreement and its
revolving term agreement from time to time to fund its operations.
Short-term debt serves as interim financing between the issuances of
long-term debt. The current uncommitted short-term line of credit
agreement with one bank permits Telmark to borrow up to $4,000 on an
unsecured basis with interest paid upon maturity. The line bears interest
at money market variable rates. As of December 31, 1995, there were no
amounts outstanding against this line. Effective February 1, 1996, the
$20,000 short-term line of credit and the $125,000 term loan commitment
were replaced by a $200,000 revolving term loan facility from the same
bank against which Telmark may draw short-term funds bearing interest at
money market rates or draw long-term debt at rates appropriate for the
term of the note drawn. The amounts outstanding as of December 31, 1995
on the short-term line and term loan totaled $118,500 and will be applied
against the new $200,000 revolving term loan facility.
Telmark renews its lines of credit annually. The $4,000 line of credit
has been renewed through December 1996. As described above, the $200,000
revolving term agreement is available beginning February 1, 1996 through
February 1, 1997. The Company believes Telmark 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. 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 $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 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.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
5. 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. The following schedule details the remaining
reserves to complete the restructuring project and their intended
purposes, as well as the actual activity for the six-month period ended
December 31, 1995:
<TABLE>
<CAPTION>
Balance Proceeds Reductions Change Balance
---------------------
at Sale of Divested Costs in at
6/30/95 Assets Assets Incurred Estimate 12/31/95
-------- -------- --------- --------- -------- ---------
Restructuring Reserve:
Plant, Store & Business Divestitures
- - ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Proceeds on sale of assets (A) $ (1,506) $ (143) $ (1,363)
Net book value of assets to
be divested (A) 962 $ 32 930
Cost of divestiture (1) (B) 3,099 $ 1,251 1,848
---------- -------- --------- --------- --------- ---------
Loss on divestiture 2,555 (143) 32 1,251 1,415
Incremental environmental
costs (C) 3,597 56 3,541
---------- -------- --------- --------- --------- ---------
TOTAL RESTRUCTURING $ 6,152 $ (143) $ 32 $ 1,307 $ 0 $ 4,956
========== ======== ========= ========= ========= =========
</TABLE>
(1) Includes demolition, asset transfer costs, and commissions on real estate
transactions.
(A) 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. The Company anticipates that the planned
activities will be completed in fiscal 1996.
(B) 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, costs are expected to
vary from the original estimates. The Company anticipates these efforts
will be completed in fiscal 1996.
(C) 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 three years.
<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
-----------------------
In November 1994, the sale of Hood was anticipated to close shortly in a
sale to a Hood management-led buyout group. However, based on changed
business conditions and financial markets during prolonged negotiations,
on January 24, 1995, Agway and the management buyout group mutually
concluded to cease the pursuit of this sale transaction. While Agway was
still actively interested in the sale of Hood and while such a sale could
have been consummated in the near future, Agway no longer was able to
estimate with reasonable certainty whether a sale would occur within the
next year and, accordingly, reclassified Hood to continuing operations
for financial reporting purposes as of December 31, 1994. Since January
24, 1995, Agway has actively pursued alternative buyers for Hood. As
previously reported on Form 8-K on December 18 and 22, 1995, Hood was
sold to Catamount Dairy Holdings Limited Partnership on December 15,
1995.
As a result of the sale of Hood, Agway has reclassified Hood as a
discontinued operation for financial reporting purposes as of December
31, 1995. Net sales and revenues from the discontinued operations of
Hood, sold in December 1995, and Curtice Burns, sold in November 1994,
were approximately $749,000 and $1,323,000 for the years ended June 30,
1995 and 1994, respectively.
A summary of net assets of discontinued operations at June 30, 1995 and
1994, previously reported as continuing operations, is as follows:
<TABLE>
<CAPTION>
1995 1994
------------- ------------------------------------------------
H.P. Curtice H. P.
Hood Burns Hood Total
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Accounts receivable....................... $ 45,399 $ 66,337 $ 51,622 $ 117,959
Inventory................................. 20,337 155,259 19,124 174,383
Property, plant and equipment, net........ 62,560 167,516 68,991 236,507
Other, net................................ 17,262 25,352 23,841 49,193
Accounts payable and other liabilities.... (76,815) (128,760) (67,090) (195,850)
Structured debt........................... (53,009) (237,280) (60,129) (297,409)
------------- -------------- ------------- -------------
$ 15,734 $ 48,424 $ 36,359 $ 84,783
============= ============== ============= =============
</TABLE>
<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)
-----------------------------------
As previously discussed, the financial statements have been reclassified
to reflect Hood as a discontinued 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, 1995 June 30, 1994
----------------- ------------------ ----------------
<S> <C> <C> <C>
Impact of reclassification of loss from
continuing operations to margin
(loss) from discontinued operations:
Interest expense.......................... $ (891) $ (1,000) $ (1,783)
Transaction costs and allowance........... (15,884) (16,724)
Pre-tax margin (loss) from
segment operations.................... 2,177 (2,666) (7,681)
----------------- ------------------ ----------------
Pre-tax (loss) from continuing
operations............................ (14,598) (20,390) (9,464)
Income tax benefit........................ 5,031 5,406 3,086
----------------- ------------------ ----------------
Losses to discontinued operations..... (9,567) (14,984) (6,378)
Original balance - margin (loss)
from continuing operations............ (27,295) (22,962) (5,682)
----------------- ------------------ ----------------
Reclassified balance - margin (loss)
from continuing operations............ $ (17,728) $ (7,978) $ 696
================= ================== ================
<CAPTION>
A reconciliation to loss from discontinued operations as previously
reported follows:
Six Months
December 31, 1994 June 1995 June 1994
----------------- ------------------ ----------------
<S> <C> <C> <C>
Original balance:
Gain on sale of Curtice Burns,
net of tax of $19,700.............. $ 4,430 $ 4,430
================== ==================
Previous reclassification to
reconsolidate Hood, net of tax
benefit (expense) of $8,230, $8,230
and $(3,086), respectively......... $ 2,623 $ 2,624 $ 2,378
Current reclassification of Hood
losses to discontinued operations.. (9,567) (14,984) (6,378)
------------------- ------------------ -----------------
Restated balance - Gain (loss) on
disposal of Hood, net of tax....... $ (6,944) $ (12,360) $ (4,000)
=================== ================== ===================
</TABLE>
7. INCOME TAXES
------------
The income tax benefit from continuing operations and the resulting
effective tax rate for the three- and six-month periods ended December
31, 1995 vary significantly from the anticipated statutory rates. The
difference between the expected tax benefit on current period losses and
the actual amount recorded in the current year is primarily the result of
certain patronage losses not being given current tax benefit.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. 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 primarily the Northeastern
United States. Agriculture & Consumer net sales and revenues are traditionally
higher in the spring as customers acquire products to initiate the growing
season. Energy realizes significantly higher net sales and revenues in the
winter months due to cold winter conditions. Financial Services and Corporate
are not materially impacted by seasonal fluctuations.
<TABLE>
<CAPTION>
Results by Operating Segment
----------------------------
Increase (Decrease)
----------------------------------------------
Three Months Ended Six Months Ended
--------------------- ---------------------
12/31/95 vs. 12/31/94 12/31/95 vs. 12/31/94
--------------------- ---------------------
<S> <C> <C>
Net Sales and Revenues
----------------------
Agriculture & Consumer................. $ (1,528) $ (17,358)
Energy................................. 2,257 (7,556)
Financial Services..................... 812 2,602
Corporate.............................. 103 268
---------------------- ---------------------
$ 1,644 $ (22,044)
====================== ======================
Margin (Loss) from Continuing Operations
----------------------------------------
before Income Taxes
-------------------
Agriculture & Consumer................. $ 6,238 $ 9,847
Energy................................. 726 (488)
Financial Services..................... (3,598) (3,163)
Corporate.............................. 1,854 2,616
---------------------- ---------------------
Operating margin (loss) and other
income (expense), net................ 5,220 8,812
Interest (expense), net................ (380) (521)
---------------------- ----------------------
$ 4,840 $ 8,291
====================== =====================
</TABLE>
Numbers in the following narrative have been rounded to the nearest hundred
thousand.
Consolidated Results
- - --------------------
The sales decrease for the six months ended December 31, 1995 was in part the
planned result from (1) the sale of the Dairy Route and Installation & Service
businesses by AAP in fiscal 1995; (2) the change in product mix from high
dollar volume, low gross margin power equipment to lower unit value, higher
gross margin consumer products which affected both AAP and ARS; (3) the
reduction of power fuel facilities in the Energy segment for locations
determined not to be cost beneficial to upgrade; and (4) a reduction of Energy
sales to high volume, low margin commercial accounts. Sales were adversely
affected in the first quarter by the summer drought conditions which reduced
sales of fertilizer, lime and yard and garden equipment and supplies, as well
as crop and farm store supplies. These sales declines were offset by higher
sales prices in feed and fertilizer products due to an increase in the cost of
these products; by volume increases in CPG, particularly in human edible
sunflower seeds, birdseed and turf; and by increases, particularly in the
second quarter due to the colder weather, in sales of heating oil and propane
for Energy and of winter consumable products and birdseed for ARS.
The pre-tax loss from continuing operations was reduced $4,800 for the three
months and $8,300 for the six months ended December 31, 1995. This improvement
was primarily the result of reductions in selling and administration expenses
in AAP and ARS; an increase in gross margin percent on ARS sales; an increase
in gross margin dollars on increased CPG sales volume; increased margin from
Telmark due to the increase of its net investment in leases; a $1,400 second
quarter gain on the sale of an investment; and the non-reoccurrence of
reengineering costs incurred in the prior year. These improvements were offset
by a significant adverse claim experience in the second quarter for the
Insurance operations.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
Agriculture & Consumer
- - ----------------------
Agriculture & Consumer consists of Agway Agricultural Products (AAP),
Agriculture & Related Services (ARS) and Country Products Group (CPG). Total
Agriculture & Consumer net sales and revenues of $206,000 and $413,800 for the
second quarter and six months ended December 31, 1995, respectively, decreased
$1,500 (1%) and $17,400 (4%) as compared to the prior year. Total pre-tax loss
from continuing operations for the second quarter of $4,600 and for the six
months to date of $11,700 decreased $6,200 (57%) and $9,800 (46%),
respectively, as compared to the prior year. The change from the prior year of
net sales and revenues and pre-tax margin (loss) from continuing operations
for the three-month and six-month periods ended December 31, 1995 within the
segment was as follows:
<TABLE>
<CAPTION>
December 31, 1995 vs 1994
-------------------------
Three Months Ended Six Months Ended
---------------------- -------------------
<S> <C> <C> <C> <C>
Net sales and revenues: $ % $ %
------------- ------ ------------- ----
AAP......................................... $ 5,328 6% $ (3,063) (2%)
ARS......................................... (10,367) (17%) (22,671) (18%)
CPG......................................... 3,511 7% 8,376 9%
------------- -------------
Total................................... $ (1,528) 1% $ (17,358) 4%
============= =============
Pre-tax margin (loss) from continuing
operations:
AAP......................................... 5,011 55% 6,948 37%
ARS......................................... 1,781 37% 2,403 37%
CPG......................................... 585 495% 1,835 163%
Eliminations................................ (1,139) (40%) (1,339) (28%)
------------- -------------
Total $ 6,238 57% $ 9,847 46%
============= =============
</TABLE>
Total net sales and revenues of AAP of $101,700 and $201,600 for the three and
six months ended December 31, 1995 approximate 50% of the total segment. The
sales levels during the first six months have been reduced because of the
decision to exit, during the fourth quarter of fiscal 1995, the Dairy Route
and Installation & Service (I&S) businesses of AAP and as the result of summer
drought conditions, followed by early winter conditions in the Northeast,
which lowered the demand for fertilizer, lime, yard and garden equipment and
supplies and crop and farm store supplies. Increased sales dollars in the
second quarter were mainly the result of increased feed and fertilizer product
costs, which were approximately 15% higher than in the prior year, and
improved wholesale crop sales, particularly in dry fertilizers.
Total net sales and revenues of ARS of $51,100 and $105,400 for the three and
six months ended December 31, 1995 approximate 25% of the total segment. ARS
has experienced significant declines (18%) in net sales and revenues during
the first six months of fiscal 1996. Exiting of the Dairy Route and I&S
businesses in the fourth quarter of fiscal 1995 has reduced sales compared to
the prior year. Further, to improve overall margins, the unit has made product
mix changes and has created marketing programs designed to de-emphasize high
dollar value/lower margin power equipment sales in favor of more consumer
products of smaller per unit value, but with higher turnover rates and
margins. In addition, the summer drought conditions have adversely impacted
the sales in yard and garden product lines, particularly fertilizers and turf
seeds.
Total net sales and revenues of CPG of $53,200 and $106,800 for the three and
six months ended December 31, 1995 approximate 25% of the total segment. As
noted above, the CPG unit has experienced sales growth of 9% over the prior
year six-month period ended December 31. The increase is mainly the result of
increased sales of sunflower seeds, both in use for human consumption and in
the production of birdfoods, and growth in the turf and flour operations.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
Agriculture & Consumer (continued)
- - ----------------------------------
Pre-tax loss for AAP and ARS has shown significant improvement in both the
three-month (55% and 37%, respectively) and six-month (37% and 37%,
respectively) periods ending December 31, 1995 as compared to the prior year.
Substantial improvement has come from management's successful efforts to
reduce selling and administrative expenses in the current year. These
improvements are after considering declines in gross margin dollars of
approximately $700 (5%) for AAP and $5,000 (14%) for ARS and are the result of
the increased product cost or volume reductions noted previously.
Pre-tax margin (loss) improvement for CPG is due primarily to gross margin
gains realized from increased sales volume in sunflower seeds, turf and the
flour operation.
Energy
- - ------
Total net sales and revenues of Energy were $140,200 and $237,600 for the
three and six months ended December 31, 1995 and represent an increase of
$2,200 (2%) for the three-month period and a decrease of $7,600 (3%) for the
six-month period, respectively. The sales reductions occurring during the
first six months were due to (1) ongoing efforts to close down certain
company-owned retail keytrol/cardtrol sites and bulk customer sites determined
not to be cost beneficial for upgrade to comply with storage tank regulation
requirements; (2) a regional oversupply of fuel oil from the prior year's warm
winter in Energy's marketplace was sold by competitors as commercial and
retail diesel fuel at bargain prices which reduced Energy's volume of diesel
fuel sold; and (3) a decision to redirect commercial diesel fuel sales away
from high volume/low margin transport deliveries toward higher margin/low
volume tankwagon sales. However, sales increases did occur in the three-month
period ended December 31, 1995, which partially offset the declines over the
entire six-month period. The increase was substantially due to colder
temperatures than in the prior year which elevated residential heating oil and
propane sales. Overall, unit volume decreased 4% in the six-month period and
remained constant in the three-month period ended December 31, 1995 as
compared to the prior year.
Pre-tax margin (loss) from continuing operations for Energy shows a $700 (14%)
improvement during the second quarter ended December 31, 1995 as compared to
the prior year. However, through six months, pre-tax margin has declined $500
(270%) over the prior year. The decline over the six-month period is
attributable to lower gross margins as a result of lower sales volumes, lower
gross margins in power fuels due to product mix and competitive pricing, and
higher administrative costs which were partially offset by lower amounts of
selling and distribution expenses. During the second quarter, the pre-tax
margin improvement relates to a 2% improvement in gross margin being generated
in the retail propane and fuel oil products and as the result of reduced
selling and distribution expenses.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
Financial Services
- - ------------------
For segment reporting purposes, Financial Services consists of Telmark, Inc.
("Telmark"), Agway Insurance Company ("Insurance") and Agway General
Agency, Inc. ("General Agency").
Total Financial Services net sales and revenues of $18,500 and $37,300 for the
second quarter and year-to-date, respectively, increased $800 (5%) and $2,600
(8%), respectively, as compared to the corresponding periods in the prior
year. Telmark operations provided $12,200 (66%) and $23,700 (64%) of second
quarter and six-month net sales and revenues as compared to $10,300 (58%) and
$19,800 (57%), respectively, in the same periods last year. Telmark continued
to experience booked volume growth as its net investment in leases increased
$12,700 (4%) for the six-month period to $361,100, but did not change during
the second quarter. The increase in Telmark's second quarter and year-to-date
net sales and revenues of $1,900 (19%) and $3,800 (19%) as compared to the
same periods last year is primarily due to the higher level of net investment
as well as having slightly higher revenue rates on its current portfolio as
compared to the prior year. Insurance and General Agency operations provided
$6,300 (34%) and $13,600 (36%) of total Financial Services net sales and
revenues for the second quarter and the six-month period. This represents a
decrease of $1,100 (15%) in the second quarter and $1,200 (8%) year-to-date as
compared to the prior year. Due to competitive price conditions for personal
lines business, Insurance has experienced a decline in direct written
premiums.
Pre-tax operating margins (loss) for Financial Services deteriorated from
$2,800 and $4,900 in the second quarter and for the first six months of the
prior year, respectively, to ($800) and $1,700, respectively. Telmark's
pre-tax operating margin increased in the second quarter and in the six-month
period by $900 (44%) and $1,500 (39%), respectively. The increase reflects the
positive impact of net investment growth with relatively higher interest
rates, which was offset somewhat by an increase in interest expense of $700
and $1,600 in the second quarter and year-to-date, respectively, resulting
from higher interest rates on new and replacement debt. Insurance pre-tax
operating margin was negatively impacted by $4,400 and $4,600 in the second
quarter and six months ended December 1995 as compared to the prior year. This
was primarily due to $3,800 of unusually large farmowner and auto liability
casualty losses and loss development during the second quarter.
Corporate
- - ---------
Net sales and revenues of $600 in the second quarter and $1,200 for the first
six months remained relatively constant as compared to last year and represent
external revenues generated from the Information Services Department and the
elimination of sales and revenues between operating segments.
Operating margins of $3,500 in the second quarter and $6,200 for the first six
months reflect an increase of $1,900 (119%) and $2,600 (72%), respectively,
from last year. Prior year operating margin included reengineering costs
totaling $900 and $1,600 in the second quarter and year-to-date. These costs
were not incurred in fiscal 1996. Additionally, in the second quarter,
Corporate recorded a $1,400 gain on the sale of a security investment.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Cash flows from operating activities for the six months ended December 31,
1995 decreased approximately $23,900 as compared to the first six months of
the prior year due primarily to less cash provided from working capital. A
smaller decline in accounts receivable, a larger increase in inventory and a
larger decrease in accounts payable during the first six months as compared to
the prior year were the reason for the decreased cash flows. Net cash used in
investing activities for the six months was approximately $4,400 as compared
to net cash provided of approximately $22,900 for the same period last year,
primarily due to a reduction in the cash generated from sale of discontinued
operations this year compared to last year and a reduction in the financing
required for growth in the lease portfolio. The net cash flows provided by
financing activities for the six months were approximately $4,700 as compared
to net cash used of approximately $46,500 for the same period in the prior
year. The majority of the change from financing activities was the result of
less net repayments of long-term debt offset by an increase in net short-term
borrowings for the first six months as compared to the prior year. Net
repayments of long-term debt declined approximately $18,000 while the change
in short-term borrowings increased $38,000 as compared to the six months ended
December 31, 1994.
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
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. In addition, Telmark has occasionally sold blocks
of its lease portfolio. Sources of longer-term financing include the following
as of December 31, 1995:
<TABLE>
<CAPTION>
Agway Telmark Total
------------- ------------- -------------
<S> <C> <C> <C>
Source of debt
--------------
Banks - due 2/96 - 8/99 with interest
from 5.4% - 8.5% $ 109,000 $ 109,000
Insurance companies - due 3/96 - 11/00
with interest from 5.7% - 9.2% 142,955 142,955
Capital leases & other - due 1996-2007
with interest from 6% - 12% $ 15,886 15,886
------------- ------------- -------------
Long-term debt 15,886 251,955 267,841
Subordinated debt - due 10/96 - 10/08
with interest from 4.5% - 9.5% 378,699 15,850 394,549
-------------- ------------- -------------
Total debt $ 394,585 $ 267,805 $ 662,390
============== ============= =============
</TABLE>
The AFC available $65,000 line of credit and availability of issuing $60,000
of commercial paper were extended through February 29, 1996. In order to
consider the effect of the December 15, 1995 sale of Hood on the line of
credit requirements, existing lines of credit were extended to February 29,
1996. Longer-term renewals are in the process of negotiations. These AFC
short-term lines of credit are collateralized by certain of the Company's
accounts receivable and non-petroleum inventories ("collateral"). Amounts
which can be drawn under the AFC short-term agreements are limited to a
specific calculation based upon the collateral available. Adequate collateral
has existed throughout the fiscal year to permit AFC to borrow amounts 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. The Company has ongoing
discussions with its lenders and expects to continue to have appropriate and
adequate financing to meet its ongoing needs.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
LIQUIDITY AND CAPITAL RESOURCES (continued)
- - -------------------------------------------
Telmark borrows under its short-term line of credit agreement and its
revolving term agreement from time to time to fund its operations. Short-term
debt serves as interim financing between the issuances of long-term debt. The
current uncommitted short-term line of credit agreement with one bank permits
Telmark to borrow up to $4,000 on an unsecured basis with interest paid upon
maturity. The line bears interest at money market variable rates. As of
December 31, 1995, there were no amounts outstanding against this line.
Effective February 1, 1996, the $20,000 short-term line of credit and the
$125,000 term loan commitment were replaced by a $200,000 revolving term loan
facility from the same bank against which Telmark may draw short-term funds
bearing interest at money market rates or draw long-term debt at rates
appropriate for the term of the note drawn. The amounts outstanding as of
December 31, 1995 on the short-term line and term loan totaled $118,500 and
will be applied against the new $200,000 revolving term loan facility.
Telmark renews its lines of credit annually. The $4,000 line of credit has
been renewed through December 1996. As described above, the $200,000 revolving
term agreement is available beginning February 1, 1996 through February 1,
1997. The Company believes Telmark has sufficient lines of credit in place to
meet interim funding needs.
<PAGE>
PART II. OTHER INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
(Thousands of Dollars)
Item 1. Legal Proceedings
- - --------------------------
In August 1995, the Environmental Protection Agency (EPA) notified Agway that
the EPA has reason to believe that Agway is a potentially responsible party
(PRP) under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) at the Tri-Cities Barrel Site, Port Crane, New York.
The EPA requested that Agway and other PRPs participate in the ongoing
Remedial Investigation/Feasibility Study (RI/FS) for the Tri-Cities Barrel
Site. Agway believes that its involvement at the Tri-Cities Barrel Site is
minimal. Agway discussed with other PRPs who have been participating in the
RI/FS the terms of possible participation in the ongoing RI/FS and decided not
to participate at this time.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------------------------------------------------------------
The Company held its annual meeting of shareholders on November 29, 1995, at
which a quorum was present in person or by proxy. The following Directors were
elected to three-year terms through December 1998:
Nominee In Favor Opposed
---------------------- ---------------------- ---------------
William W. Young 54,246 5,553
Andrew J. Gilbert 54,246 5,553
D. Gilbert Couser 54,246 5,553
Thomas E. Smith 54,246 5,553
Keith H. Carlisle 54,246 5,553
Eligible additional votes totaling 26,834 were not received at the time of the
annual meeting and are not included as either votes in favor or opposed.
Additionally, these 26,834 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
Robert L. Marshman - Vice Chairman of the Board and Director
Keith H. Carlisle - Director
Vyron M. Chapman - Director
D. Gilbert Couser - Director
Andrew J. Gilbert - Director
Peter D. Hanks - Director
Frederick A. Hough - Director
Samuel F. Minor - Director
Donald E. Pease - Director
Carl D. Smith - Director
Thomas E. Smith - Director
Gary K. Van Slyke - Director
Joel L. Wenger - Director
Edwin C. Whitehead - Director
Christian F. Wolff, Jr. - Director
William W. Young - Director
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
There were two reports on Form 8-K required to be filed during the second
quarter ended December 31, 1995.
The first report was filed on December 18, 1995, announcing the sale of H. P.
Hood Inc. to Catamount Dairy Holdings Limited Partnership.
The second report filed on December 22, 1995, included the pro forma financial
information associated with the sale of H. P. Hood Inc. to Catamount Dairy
Holdings Limited Partnership.
<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 February 5, 1996 /s/ PETER J. O'NEILL
-------------------------- ----------------------------------------
Peter J. O'Neill
Senior Vice President,
Finance & Control,
Treasurer and Controller
(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, 1996
--------------
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 26, 1996
- - -------------------------------------- ------------------------------
Membership Common Stock, $25 par value 107,749 shares
per share
<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, 1996 and June 30, 1995........................ 3
Condensed Consolidated Statements of Operations and Retained Margin for the three months
and nine months ended March 31, 1996 and March 31, 1995............................................. 4
Condensed Consolidated Cash Flow Statements for the nine months ended March 31, 1996
and March 31, 1995.................................................................................. 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.......................................................................... 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,
1996 1995
----------- ----------
(Unaudited) (Restated)
<S> <C> <C>
ASSETS
- - ------
Current Assets:
Trade accounts receivable (including notes receivable of
$11,906 and $33,491, respectively), less allowance for
doubtful accounts of $10,643 and $9,716, respectively........... $ 155,867 $ 209,949
Leases receivable, less unearned income of $45,284 and
$41,523 respectively............................................ 98,599 96,165
Uncollected insurance premiums.................................... 9,898 10,261
Advances and other receivables.................................... 33,364 21,808
Inventories
Raw materials................................................... 19,326 20,609
Finished goods.................................................. 209,966 129,533
Goods in transit and supplies................................... 7,672 7,516
-------------- -------------
Total inventories............................................... 236,964 157,658
Prepaid expenses.................................................. 46,467 69,292
-------------- -------------
Total current assets.......................................... 581,159 565,133
Marketable securities available for sale............................... 34,051 34,752
Other security investments............................................. 42,787 37,981
Properties and equipment, net.......................................... 236,191 248,753
Long-term leases receivable, less unearned income of
$70,229 and $68,799 respectively..................................... 251,259 236,522
Other assets........................................................... 91,428 85,876
Net assets of discontinued operations.................................. 15,734
-------------- -------------
Total assets.................................................. $ 1,236,875 $ 1,224,751
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current Liabilities:
Notes payable..................................................... $ 81,800 $ 70,300
Current installments of long-term debt and subordinated debt...... 85,118 84,620
Accounts payable.................................................. 112,031 116,777
Unearned insurance premiums....................................... 16,691 17,023
Other current liabilities......................................... 142,251 122,087
-------------- -------------
Total current liabilities..................................... 437,891 410,807
Long-term debt......................................................... 192,512 219,986
Subordinated debt...................................................... 393,666 362,768
Other liabilities...................................................... 57,989 58,825
Commitments and contingencies..........................................
Preferred stock, net................................................... 59,408 65,635
Common stock, net...................................................... 2,699 2,728
Paid-in capital........................................................ 1,470
Retained margin........................................................ 92,710 102,532
-------------- -------------
Total liabilities and shareholders' equity.................... $ 1,236,875 $ 1,224,751
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED MARGIN
(Unaudited)
(Thousands of Dollars)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- -----------------------------
1996 1995 1996 1995
------------- ------------- ------------- ------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net sales and revenues from:
Product sales .......................... $ 406,421 $ 353,693 $ 1,053,539 $ 1,024,423
Leasing operations................. 11,642 10,329 34,688 29,577
Insurance operations............... 6,123 6,571 18,982 19,932
Service revenues................... 2,941 3,958 9,907 12,652
------------- ------------- ------------- ------------
Total net sales and revenues... 427,127 374,551 1,117,116 1,086,584
Cost and expenses from:
Products and plant operations...... 371,042 321,764 983,026 956,858
Leasing operations................. 4,387 4,027 14,803 12,834
Insurance operations............... 4,943 3,967 17,754 12,340
Selling, general and...............
administrative activities........ 35,502 39,697 102,198 115,204
------------- ------------- ------------- ------------
Total costs and expenses....... 415,874 369,455 1,117,781 1,097,236
Operating margin (loss)................. 11,253 5,096 (665) (10,652)
Interest expense, net................... (8,454) (8,215) (22,913) (22,153)
Other income, net....................... 11,491 5,510 19,376 8,412
------------- ------------- ------------- ------------
Margin (loss) from continuing operations
before income taxes ............... 14,290 2,391 (4,202) (24,393)
Income tax expense (benefit)............ 8,264 2,131 5,161 (6,925)
------------- ------------- ------------- ------------
Margin (loss) from continuing operations 6,026 260 (9,363) (17,468)
Discontinued operations:
Gain (loss) on disposal of Hood,
net of tax expense (benefit) of
$(850), $1,624 and $(14,111),
respectively....................... (1,605) 2,017 (8,549)
Gain on disposal of Curtice Burns,
net of tax expense of $19,700...... 4,430
------------- ------------- ------------- ------------
Margin (loss) from discontinued
operations................. (1,605) 2,017 (4,119)
------------- ------------- ------------- ------------
Net margin (loss)....................... $ 6,026 $ (1,345) $ (7,346) $ (21,587)
Retained Margin:
Balance at beginning of period..... 87,769 100,807 102,532 123,346
Dividends.......................... (2,172) (2,374)
Adjustment to unrealized gains
(losses) on available-for-sale
securities, net of tax......... (1,085) 135 (304) 212
------------- ------------- ------------- ------------
Balance at end of period................ $ 92,710 $ 99,597 $ 92,710 $ 99,597
============= ============= ============= ============
</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,
---------------------------
1996 1995
------------ ------------
(Restated)
<S> <C> <C>
Net cash flows (used in) provided by operating activities.............. $ (8,346) $ 1,622
Cash flows (used in) provided by investing activities:
Purchases of property, plant and equipment........................ (14,683) (24,312)
Proceeds from disposal of businesses.............................. 26,276
Proceeds from disposal of property, plant and equipment........... 2,594 5,305
Leases originated................................................. (114,399) (119,640)
Leases repaid..................................................... 92,484 77,741
Proceeds from sale of marketable securities....................... 6,505 1,023
Purchases of marketable securities................................ (6,108) (2,218)
Net purchase of investments in related cooperatives............... (4,806) (1,832)
Proceeds from sale of discontinued operations..................... 15,900 55,786
Net changes in net assets of discontinued operations.............. 16,912
------------ ------------
Net cash flows provided by investing activities........................ 3,763 8,765
Cash flows (used in) provided by financing activities:
Net change in short-term borrowings............................... 11,500 11,700
Proceeds from long-term debt...................................... 23,637 44,640
Repayment of long-term debt....................................... (29,364) (51,825)
Proceeds from sale of subordinated debt........................... 72,190 60,933
Maturity and redemption of subordinated debt...................... (61,259) (64,819)
Redemption of stock............................................... (6,256) (4,853)
Cash dividends paid............................................... (4,582) (4,963)
Other............................................................. (1,283) (1,200)
------------ ------------
Net cash flows provided by (used in) financing activities.............. 4,583 (10,387)
------------ ------------
Net decrease in cash and equivalents................................... 0 0
Cash and equivalents at beginning of period............................ 0 0
------------ ------------
Cash and equivalents at end of period.................................. $ 0 $ 0
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands of Dollars)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements 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, 1996 are not necessarily indicative of the results that may be expected
for the year ending June 30, 1996 due, among other reasons, to the sale of
H. P. Hood Inc. ("Hood") and 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, 1995.
The financial statements of Agway Inc. and Agway Financial Corporation have
been restated to reflect Hood, which was previously consolidated in
continuing operations, as a discontinued operation. 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 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 pursuant to a "no
action letter" issued by the staff of the Securities and Exchange
Commission, AFC, as a separate company, is not required to file periodic
reports with respect to these debt securities. However, as required by the
1934 Act, the summarized financial information concerning AFC and
Consolidated Subsidiaries is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- -------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net sales and revenues............. $ 304,684 $ 272,684 $ 791,545 $ 791,078
Operating margin................... 18,711 15,192 20,645 19,319
Margin (loss) from continuing
operations..................... 2,386 719 (9,990) (7,611)
Net margin (loss).................. 2,386 (886) (7,973) (11,729)
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
------------- -------------
(Restated)
<S> <C> <C>
Current assets.................................... $ 569,806 $ 544,665
Properties and equipment, net..................... 165,629 169,368
Noncurrent assets................................. 338,425 321,152
Net assets of discontinued operations............. 15,734
------------- -------------
Total assets...................................... $ 1,073,860 $ 1,050,919
============= =============
Current liabilities............................... $ 271,773 $ 240,975
Long-term debt.................................... 187,506 217,425
Subordinated debt................................. 393,666 362,768
Noncurrent liabilities............................ 14,506 8,855
Shareholder's equity.............................. 206,409 220,896
-------------- -------------
Total liabilities and
shareholder's equity.......................... $ 1,073,860 $ 1,050,919
============= =============
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
3. BORROWING ARRANGEMENTS
----------------------
As of March 31, 1996, the Company had certain facilities available with
various banking institutions whereby lenders have agreed to provide funds
up to $254,000 to separately financed units of the Company as follows: AFC
- $50,000 and Telmark - $204,000. In addition, AFC may issue up to $50,000
of commercial paper under the terms of a separate agreement, backed by a
letter of credit. AFC reduced its short-term debt facilities $25,000
($15,000 lines of credit and $10,000 commercial paper) since June 30, 1995
because of reduced needs, primarily the result of debt paydowns from cash
generated on lines of business sold. The availability of credit to Telmark
increased $55,000 since June 30, 1995 which will assist in financing new
business and support incremental repayments on debt.
The $50,000 line of credit available to AFC and its ability to issue
$50,000 of commercial paper require collateralization using certain of the
Company's accounts receivable and non-petroleum inventories ("collateral").
Amounts which can be drawn under the AFC short-term agreements are limited
to a specific calculation based upon the collateral available. Adequate
collateral has existed throughout the fiscal year to permit AFC to borrow
amounts 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
retained margins. During the third quarter, the Company extended the AFC
short-term facilities through December 1996. The amounts outstanding as of
March 31, 1996 under AFC's $50,000 line of credit and $50,000 commercial
paper were $25,800 and $50,000, respectively. The Company has ongoing
discussions with its lenders and expects to continue to have appropriate
and adequate financing to meet its ongoing needs.
Telmark borrows under its short-term line of credit agreement and its
revolving term agreement from time to time to fund its operations.
Short-term debt serves as interim financing between the issuances of
long-term debt. The current uncommitted short-term line of credit agreement
permits Telmark to borrow up to $4,000 on an unsecured basis with interest
paid upon maturity. The line bears interest at money market variable rates.
A committed $200,000 unsecured revolving term loan facility permits Telmark
to draw short-term funds bearing interest at money market rates or draw
long-term debt at rates appropriate for the term of the note drawn. The
total amount outstanding as of March 31, 1996 under the short-term line of
credit and the revolving term loan facility was $0 and $112,000,
respectively.
Telmark renews its lines of credit annually. The $4,000 line of credit has
been renewed through December 1996. The $200,000 revolving term loan
facility is available through February 1, 1997. The Company believes
Telmark has sufficient lines of credit in place to meet interim funding
needs.
Annually, the Company offers subordinated debentures and subordinated money
market certificates to the public with maturities and interest rates that
vary.
Long-term and subordinated debt outstanding amounted to:
<TABLE>
<CAPTION>
Agway & AFC Telmark Total
---------------------------- --------------------------- --------------------------
3/96 6/95 3/96 6/95 3/96 6/95
------------- ------------ ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt.......... $ 15,458 $ 22,843 $ 245,844 $ 245,467 $ 261,302 $ 268,310
Currently payable....... 5,168 13,702 63,622 34,622 68,790 48,324
------------- ------------ ------------- ----------- ------------ ------------
Net long-term debt...... $ 10,290 $ 9,141 $ 182,222 $ 210,845 $ 192,512 $ 219,986
============= ============ ============= =========== ============ ============
Subordinated debt....... $ 390,327 $ 390,890 $ 19,667 $ 8,174 $ 409,994 $ 399,064
Currently payable....... 16,328 36,296 16,328 36,296
------------- ------------ ------------- ----------- ------------ ------------
Net subordinated debt... $ 373,999 $ 354,594 $ 19,667 $ 8,174 $ 393,666 $ 362,768
============= ============ ============= =========== ============ ============
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
4. 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 $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
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.
Contingent Tax Adjustment
In April 1996, the Internal Revenue Service (IRS) indicated to the Company
that for the years 1991-1994 the IRS contends that the Energy Group's use
of independently owned and operated contract haulers does not qualify for
independent contractor reporting status. There is a reasonable possibility
that the IRS will propose a tax adjustment. The Company disagrees with the
examiner's interpretation and will challenge any proposed adjustment. It is
the Company's opinion that the contract haulers are properly reported as
independent contractors. In the event that the IRS does propose a tax
adjustment and the Company is unsuccessful in its challenge, the resulting
amount and effect of such adjustment on the financial statements could be
material but cannot be estimated at this time.
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 other matters
may be resolved unfavorably to the Company. The Company has established
accruals for other matters for which payment is probable and amounts
reasonably estimable. Management believes any liability that may ultimately
result from the resolution of these other matters in excess of amounts
provided will not have a material adverse effect on the financial position
or results of operations of the Company.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Thousands of Dollars)
5. 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.
Periodically, management has reviewed its original estimates and has made
revisions due to changes in circumstances. At June 30, 1995, $6,200 of the
original reserve remained for incremental environmental costs ($3,600),
which are remediation costs identified during the process of asset sales
that primarily relate to real estate assets retained on energy business
sold, and other net costs ($2,600), which include shutdown costs in
connection with the closing and sale of remaining locations. During the
nine months ended March 31, 1996, the Company incurred an additional $1,500
of net costs against this reserve and had no changes in the remaining
estimated reserve levels. The $4,700 reserve remaining at March 31, 1996
includes $3,500 for environmental costs and $1,200 for other net costs. The
Company anticipates that the environmental costs will be incurred over the
next three years, while the efforts associated with the other net costs
will be completed by the end of fiscal 1996.
6. INCOME TAXES
------------
The income tax expense from continuing operations and the resulting
effective tax rate for the three- and nine-month periods ended March 31,
1996 vary significantly from the anticipated statutory rates. The
difference between the expected tax expense (benefit) on current period
margins (losses) and the actual amount recorded in the current year is
primarily the result of certain patronage losses not being given current
tax benefit.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. 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 primarily the Northeastern
United States. Agriculture & Consumer net sales and revenues are traditionally
higher in the spring as customers acquire products to initiate the growing
season. Energy realizes significantly higher net sales and revenues in the
winter months due to cold winter conditions. Financial Services and Corporate
are not materially impacted by seasonal fluctuations.
<TABLE>
<CAPTION>
Results by Operating Segment
----------------------------
Three Months Ended Nine Months Ended
------------------------------------- ---------------------------------------
$ Increase $ Increase
3/31/96 3/31/95 (Decrease) 3/31/96 3/31/95 (Decrease)
---------- ---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales and Revenues
- - ----------------------
Agriculture & Consumer....... $ 216,630 $ 197,817 $ 18,813 $ 630,493 $ 629,038 $ 1,455
Energy....................... 191,603 157,876 33,727 429,282 403,110 26,172
Financial Services........... 18,527 18,278 249 55,809 52,958 2,851
Corporate.................... 367 580 (213) 1,532 1,478 54
---------- ---------- ----------- ----------- ----------- -------------
$ 427,127 $ 374,551 $ 52,576 $ 1,117,116 $ 1,086,584 $ 30,532
========== ========== =========== =========== =========== =============
Margin (Loss) from Continuing
- - -----------------------------
Operations before Income Taxes
------------------------------
Agriculture & Consumer....... $ (1,130) $ (12,421) $ 11,291 $ (12,750) $ (33,856) $ 21,106
Energy....................... 19,322 17,649 1,673 19,012 17,827 1,185
Financial Services........... 2,078 3,469 (1,391) 3,784 8,339 (4,555)
Corporate.................... 2,474 1,909 565 8,665 5,450 3,215
---------- ---------- ----------- ----------- ---------- -------------
Operating margin (loss) and
other income (expense), net 22,744 10,606 12,138 18,711 (2,240) 20,951
Interest (expense), net...... (8,454) (8,215) (239) (22,913) (22,153) (760)
---------- ---------- ----------- ----------- ---------- -------------
$ 14,290 $ 2,391 $ 11,899 $ (4,202) $ (24,393) $ 20,191
========== ========== =========== =========== ========== =============
</TABLE>
Numbers in the following narrative have been rounded to the nearest hundred
thousand.
Consolidated Results
- - --------------------
The sales increase of $30,500 for the nine months ended March 31, 1996 (a 3%
increase over the prior nine-month period) was the result of (1) higher sales
prices charged by AAP for feed and fertilizer products and by Energy for heating
oil and propane products due to an increase in the cost of these products; (2)
volume increases in CPG, particularly in human edible sunflower seeds, bird food
and flour; in Energy heating oil and propane due to colder weather than in the
prior year; and in ARS, particularly in winter consumable products and bird
food.
These sales increases were offset by planned decreases resulting from (1) the
sale of the Dairy Route and Installation & Service businesses by AAP in the
fourth quarter of fiscal 1995; (2) the change in product mix from high dollar
volume, low gross margin power equipment to lower unit value, higher gross
margin consumer products which affected both AAP and ARS; (3) the sale of
Pro-Lawn Products (professional turf business), Sacramento Valley Milling (a
bean seed company) and Agway's laboratory animal diet business (selling the
PROLAB and ISOPRO labels) by CPG in the third quarter of fiscal 1996; (4) the
reduction of power fuel facilities in the Energy segment for locations
determined not to be cost beneficial to upgrade; and (5) a reduction of Energy
sales to high volume, low margin commercial accounts. Sales were also adversely
affected in the first quarter by the summer drought conditions which reduced
sales of fertilizer, lime, and yard and garden equipment and supplies, as well
as crop and farm store supplies.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
Consolidated Results (continued)
- - --------------------------------
The $20,200 (83%) improvement in pre-tax loss from continuing operations for the
nine-month period ended March 31, 1996, as compared to the same period in the
prior year, was primarily the result of reductions in selling and administration
expenses in AAP and ARS; increased patronage refund on fertilizer purchases and
commodity trading gains in feed contracts in AAP; an increase in gross margin
percent on ARS sales; an increase in gross margin dollars on increased CPG sales
volume; increased margin from Telmark due to the increase of its net investment
in leases; a $1,400 second quarter gain on the sale of an investment; a $4,000
third quarter gain on the sale of the Pro-Lawn Products, Sacramento Valley
Milling and laboratory animal diet lines of business of CPG; and the
non-reoccurrence of severance and reengineering costs incurred in the prior
year. These improvements were partially offset by significant adverse claim
experience for Insurance operations in the second and third quarters.
Agriculture & Consumer
- - ----------------------
Agriculture & Consumer consists of Agway Agricultural Products (AAP),
Agriculture & Related Services (ARS) and Country Products Group (CPG). The
change from the prior year of net sales and revenues and pre-tax margin (loss)
from continuing operations for the three-month and nine-month periods ended
March 31, 1996 within the segment was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------- ----------------------------------------
$ Increase $ Increase
3/31/96 3/31/95 (Decrease) 3/31/96 3/31/95 (Decrease)
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales and revenues:
AAP........................ $ 112,329 $ 88,928 $ 23,401 $ 313,964 $ 293,627 $ 20,337
ARS........................ 44,003 46,481 (2,478) 149,403 174,551 (25,148)
CPG........................ 60,298 62,408 (2,110) 167,126 160,860 6,266
------------ ----------- ------------ ----------- ----------- -----------
Total................... $ 216,630 $ 197,817 $ 18,813 $ 630,493 $ 629,038 $ 1,455
============= =========== ============ =========== =========== ===========
Pre-tax margin (loss) from
continuing operations:
AAP........................ $ (3,357) $ (8,709) $ 5,352 $ (15,205) $ (27,415) $ 12,210
ARS........................ (4,624) (7,022) 2,398 (8,687) (13,389) 4,702
CPG........................ 6,785 1,966 4,819 7,553 843 6,710
Eliminations............... 66 1,344 (1,278) 3,589 6,105 (2,516)
------------ ----------- ----------- ----------- ----------- -----------
Total................... $ (1,130) $ (12,421) $ 11,291 $ (12,750) $ (33,856) $ 21,106
============ =========== =========== =========== =========== ===========
</TABLE>
AAP sales during 1996 increased $20,300 (7%) and $23,400 (26%) over the prior
year nine-month and three-month periods ending March 31, respectively. The
increases reflect the impact of increased feed and fertilizer product costs, and
improved wholesale crop sales, particularly in dry fertilizers. This sales
increase has been mitigated by the decision to exit the Dairy Route and
Installation & Service (I&S) businesses and reduced sales caused by the summer
drought conditions during the first quarter, followed by early and prolonged
winter conditions in the Northeast during the second quarter. These mitigating
items lowered demand for fertilizer, lime, yard and garden equipment and
supplies and crop and farm store supplies.
ARS experienced an aggregate decline of $25,100 (14%) in net sales and revenues
during the first nine months of fiscal 1996 as compared to the same period
during the prior fiscal year. To improve overall margins, the unit has made
product mix changes and has created marketing programs designed to de-emphasize
high dollar value/lower margin power equipment sales in favor of more consumer
products of smaller per unit value, but with higher turnover rates and margins.
Exiting of the Dairy Route and I&S businesses in the fourth quarter of fiscal
1995 has also reduced sales compared to the prior year. In addition, the summer
drought and early winter conditions have adversely impacted sales in yard and
garden product lines, particularly fertilizers and turf seeds.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
Agriculture & Consumer (continued)
- - ----------------------------------
The $6,300 (4%) increase in net sales and revenues of CPG over the first nine
months of fiscal 1996 is mainly the result of increased sales of sunflower
seeds, both in use for human consumption and in the production of bird foods,
and growth in the flour operations. Third quarter sales were $2,100 (3%) lower
than the same period in the prior year due, in part, to the impact on volume of
the sale of the Pro-Lawn Products line of business sold.
Pre-tax loss for AAP and ARS has significantly decreased in the nine-month
period {$12,210 (34%) and $4,700 (61%), respectively} and in the three-month
period {$5,400 (35%) and $2,400 (45%), respectively} ending March 31, 1996 as
compared to the prior year. Substantial improvement has come from management's
successful efforts to reduce selling and administrative expenses in the current
year. The AAP improvement is additionally due to an increased patronage refund
for fertilizer purchases and commodity trading gains in feed contracts. The ARS
improvements are after considering declines in gross margin dollars of
approximately $4,900 (10%) over the first three quarters that are the result of
the increased product cost or volume reductions noted previously.
Pre-tax margin improvement of $6,700 (796%) for the nine months ended March 31,
1996 compared to the corresponding period in the prior year for CPG is due
primarily to gross margin gains realized from increased sales volume in
sunflower seeds and growth in the flour operations and from the $4,000 gain on
the sale of Pro-Lawn Products, laboratory animal diet and Sacramento Valley
Milling lines of business. Margin gains from Turf operations realized in the
first six months of fiscal 1996 declined in the third quarter with the sale of
the Pro-Lawn Products business noted previously.
Energy
- - ------
For the nine-month period ended March 31, 1996, net sales and revenues increased
$26,200 (6%) over the same period in the prior year. Overall, nine-month unit
volume increased 2% over the prior year. Third quarter weather-related sales
volume increases and price increases (in response to a rise in cost of product)
were partially offset by the impact of (1) ongoing efforts to close down certain
company-owned retail keytrol/cardtrol sites and bulk customer sites determined
not to be cost beneficial for upgrade to comply with storage tank regulation
requirements; (2) a regional oversupply of fuel oil from the prior year's warm
winter in Energy's marketplace which was sold in the summer and fall seasons by
competitors as commercial and retail diesel fuel at bargain prices which reduced
Energy's volume of diesel fuel sold; and (3) a decision to redirect commercial
diesel fuel sales away from high volume/low margin transport deliveries toward
higher margin/low volume tankwagon sales.
Third quarter net sales and revenues increased $33,700 (21%) over the prior year
three-month period due to (1) colder temperatures than in the prior year which
elevated residential heating oil and propane sales; and (2) an increase in
average selling prices in response to the increase in cost of product. The third
quarter was 6% colder than the third quarter of the prior year and 1% colder
than the five-year average for the three-month period. This increase resulted in
a unit volume increase of 12% over the third quarter of the prior year.
Pre-tax margin for Energy improved $1,200 (7%) and $1,700 (9%) for the
nine-month period and during the third quarter ended March 31, 1996,
respectively, as compared to the prior year periods, primarily due to the
increased unit volume. Margin improvements realized, particularly in the retail
propane and fuel oil products and as the result of reduced selling and
distribution expenses, were partially offset by higher product costs during the
third quarter as the result of a volatile market price of fuel oil which could
not be fully recovered through increased selling price to customers, and lower
gross margins in power fuels due to volatile product costs as well as product
mix, competitive pricing and higher administrative costs.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
Financial Services
- - ------------------
For segment reporting purposes, Financial Services consists of Telmark Inc.
("Telmark"), Agway Insurance Company ("Insurance") and Agway General Agency,
Inc. ("General Agency"). The change from the prior year of net sales and
revenues and pre-tax margin (loss) from continuing operations for the
three-month and nine-month periods ended March 31, 1996 within the segment was
as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------- -------------------------------------------
$ Increase $ Increase
3/31/96 3/31/95 (Decrease) 3/31/96 3/31/95 (Decrease)
----------- ----------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales and revenues:
Telmark.................... $ 12,052 $ 10,729 $ 1,323 $ 35,746 $ 30,577 $ 5,169
Insurance.................. 6,123 6,571 (448) 18,982 19,932 (950)
General Agency............. 352 978 (626) 1,081 2,449 (1,368)
----------- ----------- ---------- ------------ ------------ -------------
Total................. $ 18,527 $ 18,278 $ 249 $ 55,809 $ 52,958 $ 2,851
=========== =========== ========== ============ ============ =============
Pre-tax margin (loss) from
continuing operations:
Telmark.................... $ 3,235 $ 2,950 $ 285 $ 8,588 $ 6,797 $ 1,791
Insurance................. (1,176) 359 (1,535) (4,961) 1,011 (5,972)
General Agency and
Eliminations............ 19 160 (141) 157 531 (374)
----------- ----------- ---------- ------------ ------------ -------------
Total................. $ 2,078 $ 3,469 $ (1,391) $ 3,784 $ 8,339 $ (4,555)
=========== =========== ========== ============ ============ =============
</TABLE>
Telmark continued to experience growth as its net investment in leases increased
$21,100 (6%) and $8,500 (2%) during the nine-month period and for the third
quarter, respectively, to $369,600 as of March 31, 1996 as compared to the
comparable periods during the prior fiscal year. The increase in Telmark's
nine-month and third quarter revenues of $5,200 (17%) and $1,300 (12%), as
compared to the same periods last year, is primarily due to the higher level of
net investment as well as having higher interest rates charged on new leases.
The Insurance Company has experienced a decline in direct written premiums due
to competitive price conditions for personal lines business.
Pre-tax operating margin (loss) for Financial Services deteriorated $4,600 (55%)
for the first nine months and $1,400 (40%) in the third quarter of 1996 as
compared to the prior year. Telmark's pre-tax operating margin increase reflects
the positive impact of net investment growth in leases with relatively higher
interest rates. This increase was offset somewhat by an increase in interest
expense of approximately $2,000 and $400 for the first nine months and in the
third quarter of 1996, respectively, as compared to the corresponding period in
the prior year, due to higher average levels of interest bearing debt and from
higher interest rates on new and replacement debt. The pre-tax operating margin
of Insurance for the nine months ended March 31, 1996 declined $6,000 as
compared to the prior year, which reflected the negative impact by unusually
large farmowner and auto liability casualty losses and loss development
experienced in the second quarter of fiscal 1996 from severe weather conditions.
During the third quarter, Insurance experienced a $1,535 decrease in pre-tax
margin as compared to the corresponding period in the prior year, which was
primarily due to increased property and casualty loss claim activity over the
prior year as a result of blizzard conditions in the Northeast.
Corporate
- - ---------
Net sales and revenues in the nine-month period and for the third quarter ended
March 31, 1996 remained relatively constant as compared to comparable periods
last year and represent miscellaneous external revenues and the elimination of
sales and revenues between operating segments.
Pre-tax operating margins in the nine-month and three-month periods ended March
31, 1996 showed improvement of $3,200 and $600, respectively, as compared to the
same periods in the prior year. Prior year operating margin included
reengineering costs totaling $4,065 and $2,420 in the nine-month and three-month
periods. These costs were not incurred in the current year. Additionally, in the
second quarter of fiscal 1996, Corporate recorded a $1,400 gain on the sale of
an investment.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Cash flows from operating activities for the nine months ended March 31, 1996
decreased approximately $10,000 as compared to the first nine months of the
prior year primarily due to less cash provided from working capital. The
Company's inventory levels at March 31, 1996 are below that of the prior year.
However, low levels of inventory at June 30, 1995 and higher cost of product in
fiscal 1996 resulted in a $30,000 greater build-up of dollars invested in
inventories in the first nine months of fiscal 1996 than in the prior year.
Additionally, receivable balances at the beginning of the current fiscal year
were also substantially lower than the prior year due to improved collection and
follow-up efforts last year. This resulted in a smaller decline of receivable
balances through the first nine months, approximately $60,000 less, than for the
same period last year. The use of cash from inventory and receivable changes was
offset by cash provided from an approximately $50,000 change over the prior year
nine-month period of payables. The change in payables is the result of both the
higher cost of products acquired and agreed upon terms with vendors. Net cash
provided by investing activities for the nine months was approximately $3,800 as
compared to approximately $8,800 for the same period last year. This decline was
primarily due to the cash proceeds from the sale of Curtice Burns in the prior
year exceeding the proceeds in the current year on the sale of H. P. Hood plus
proceeds on the Country Product Group businesses sold. The net cash flows
provided by financing activities for the nine months were approximately $4,600
as compared to net cash used of approximately $10,400 for the same period in the
prior year. The majority of the change from financing activities was the result
of lower repayments of long-term debt offset by an increase in subordinated debt
for the first nine months as compared to the same period in the prior year. Net
repayments of long-term debt declined approximately $22,500 while the change in
subordinated debt, net of redemptions, increased $14,800 as compared to the nine
months ended March 31, 1995.
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). External sources of short-term financing for
the Company and all its other continuing operations include revolving credit
lines, letters of credit, and commercial paper programs. Telmark and Agway
Insurance Company finance themselves through operations or direct borrowing
arrangements. Each is financed with a combination of short- and long-term credit
facilities. In addition, Telmark has occasionally sold blocks of its lease
portfolio. Sources of longer-term financing include the following as of March
31, 1996:
<TABLE>
<CAPTION>
Source of debt Agway & AFC Telmark Total
-------------- ----------- ------------- ----------
<S> <C> <C> <C>
Banks - due 5/96 - 8/99 with interest
from 6.0% - 8.5% $ 106,000 $ 106,000
Insurance companies - due 5/96 - 11/00
with interest from 5.7% - 9.2% 139,844 139,844
Capital leases & other - due 1996-2007
with interest from 6% - 12% 15,458 15,458
----------- ------------- ----------
Long-term debt 15,458 245,844 261,302
Subordinated debt - due 10/96 - 10/08
with interest from 4.5% - 9.5% 390,327 19,667 409,994
----------- ------------- ----------
Total debt $ 405,785 $ 265,511 $ 671,296
=========== ============= ==========
</TABLE>
As of March 31, 1996, the Company had certain facilities available with various
banking institutions whereby lenders have agreed to provide funds up to $254,000
to separately financed units of the Company as follows: AFC - $50,000 and
Telmark - $204,000. In addition, AFC may issue up to $50,000 of commercial paper
under the terms of a separate agreement, backed by a letter of credit. AFC
reduced its short-term debt facilities $25,000 ($15,000 lines of credit and
$10,000 commercial paper) since June 30, 1995 because of reduced needs,
primarily the result of debt paydowns from cash generated on lines of business
sold. The availability of credit to Telmark increased $55,000 since June 30,
1995 which will assist in financing new business and support incremental
repayments on debt.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
(Thousands of Dollars)
LIQUIDITY AND CAPITAL RESOURCES (continued)
- - -------------------------------------------
The $50,000 line of credit available to AFC and its ability to issue $50,000 of
commercial paper require collateralization using certain of the Company's
accounts receivable and non-petroleum inventories ("collateral"). Amounts which
can be drawn under the AFC short-term agreements are limited to a specific
calculation based upon the collateral available. Adequate collateral has existed
throughout the fiscal year to permit AFC to borrow amounts 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 retained margins. During the third quarter, the Company
extended the AFC short-term facilities through December 1996. The amounts
outstanding as of March 31, 1996 under AFC's $50,000 line of credit and $50,000
commercial paper were $25,800 and $50,000, respectively. The Company has ongoing
discussions with its lenders and expects to continue to have appropriate and
adequate financing to meet its ongoing needs.
Telmark borrows under its short-term line of credit agreement and its revolving
term agreement from time to time to fund its operations. Short-term debt serves
as interim financing between the issuances of long-term debt. The current
uncommitted short-term line of credit agreement permits Telmark to borrow up to
$4,000 on an unsecured basis with interest paid upon maturity. The line bears
interest at money market variable rates. A committed $200,000 unsecured
revolving term loan facility permits Telmark to draw short-term funds bearing
interest at money market rates or draw long-term debt at rates appropriate for
the term of the note drawn. The total amount outstanding as of March 31, 1996
under the short-term line of credit and the revolving term loan facility was $0
and $112,000, respectively.
Telmark renews its lines of credit annually. The $4,000 line of credit has been
renewed through December 1996. The $200,000 revolving term loan facility is
available through February 1, 1997. The Company believes Telmark has sufficient
lines of credit in place to meet interim funding needs.
Annually, the Company offers subordinated debentures and subordinated money
market certificates to the public with maturities and interest rates that vary.
<PAGE>
PART II. OTHER INFORMATION
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
(Thousands of Dollars)
Item 1. Legal Proceedings
- - --------------------------
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 prepared a risk
assessment scope of work which has been approved by the MDEP. The MDEP also
recently approved reclassification of the site. Agway plans to complete its risk
assessment for the site during the spring and summer of 1996. 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 Environmental Protection Agency (EPA) notified Agway that
the EPA has reason to believe that Agway is a potentially responsible party
(PRP) under the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) at the Tri-Cities Barrel Site, Port Crane, New York. The EPA
requested that Agway and other PRPs participate in the ongoing Remedial
Investigation/Feasibility Study (RI/FS) for the Tri-Cities Barrel Site. Agway
believes that its involvement at the Tri-Cities Barrel Site is minimal. Agway
has had further discussions with other PRPs who have been participating in the
ongoing RI/FS and decided to participate at this time.
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
There were no reports on Form 8-K required to be filed during the third quarter
ended March 31, 1996.
<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 6, 1996 /s/ PETER J. O'NEILL
------------------------ ----------------------------------------
Peter J. O'Neill
Senior Vice President,
Finance & Control,
Treasurer and Controller
(Principal Financial Officer and
Chief Accounting Officer)
<PAGE>
EXHIBIT 21
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
As of June 30, 1996
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
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. (1).........................................Delaware
Notes:
(1) Agway Petroleum Corporation owns 67% of Texas City Refining, Inc. In
September 1993, Texas City Refining, Inc., filed a certificate of
dissolution in the office 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. 33-62927) and on Form S-8 (File No. 33-54083) of our reports
dated August 30, 1996, on our audits of the consolidated financial statements
and financial statement schedules of Agway Inc. and Consolidated Subsidiaries as
of June 30, 1996, and 1995, and for the years ended June 30, 1996 1995 and 1994,
which reports are included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
September 6, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation of reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (File No. 33-62927)
of Agway Inc. of our report dated August 11, 1995, relating to the consolidated
financial statements of H. P. Hood Inc., appearing on page 27 of this Form 10-K.
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 5, 1996
<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., appearing on page 27 of this Form 10-K.
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 5, 1996
<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. 33-62927) and on Form S-8 (File No. 33-54083) of our report dated August 9,
1996, relating to the June 25, 1994 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 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 34,115
<RECEIVABLES> 217,366
<ALLOWANCES> 10,062
<INVENTORY> 157,518
<CURRENT-ASSETS> 564,490
<PP&E> 533,262
<DEPRECIATION> 296,247
<TOTAL-ASSETS> 1,244,271
<CURRENT-LIABILITIES> 408,652
<BONDS> 597,697
0
59,319
<COMMON> 2,689
<OTHER-SE> 109,250
<TOTAL-LIABILITY-AND-EQUITY> 1,244,271
<SALES> 1,588,544
<TOTAL-REVENUES> 1,662,602
<CGS> 1,449,431
<TOTAL-COSTS> 1,490,912
<OTHER-EXPENSES> 138,389
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,085
<INCOME-PRETAX> 19,299
<INCOME-TAX> 9,214
<INCOME-CONTINUING> 10,085
<DISCONTINUED> 1,515
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,600
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 0
<SECURITIES> 34,752
<RECEIVABLES> 219,665
<ALLOWANCES> 9,716
<INVENTORY> 157,658
<CURRENT-ASSETS> 565,133
<PP&E> 541,120
<DEPRECIATION> 292,367
<TOTAL-ASSETS> 1,224,751
<CURRENT-LIABILITIES> 410,807
<BONDS> 582,754
0
65,635
<COMMON> 2,728
<OTHER-SE> 104,002
<TOTAL-LIABILITY-AND-EQUITY> 1,224,751
<SALES> 1,520,502
<TOTAL-REVENUES> 1,592,053
<CGS> 1,391,612
<TOTAL-COSTS> 1,426,608
<OTHER-EXPENSES> 148,929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,003
<INCOME-PRETAX> (6,350)
<INCOME-TAX> 1,628
<INCOME-CONTINUING> (7,978)
<DISCONTINUED> (7,930)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,908)
<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, 1996
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, 1996
---------------------------------------------
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
JUNE 30, 1996 AND 1995
---------------------------------------------
INDEX
-----
Independent Auditors' Report................................................F-2
Financial Statements:
Statements of Net Assets Available for Benefits
as of June 30, 1996 and 1995...................................F-3
Statements of Changes in Net Assets Available for Benefits
for the years ended June 30, 1996 and 1995.....................F-4
Notes to Financial Statements..............................F-5 to F-17
Supplemental Schedules (Form 5500 information):
Item 27a. Schedule of Assets Held for Investment Purposes
as of June 30, 1996................................S-1.1 and S-1.2
Item 27d. Schedule of Reportable Transactions
for the year ended June 30, 1996.............................S-2.1
F-1
<PAGE>
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,
1996 and 1995, and the related statements of changes in net assets available for
benefits for the years ended June 30, 1996 and 1995. 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, 1996 and 1995, and the changes in net assets available for benefits for
the years ended June 30, 1996 and 1995, 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.
Coopers & Lybrand L.L.P.
Syracuse, New York
August 23, 1996
F-2
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
June 30, 1996 and 1995
-----------
(Thousands of Dollars)
ASSETS
1996 1995
-------- --------
Stock Fund:
Collective Common Stock Investment Fund,
at fair value
(cost: 1996 - $31,635; 1995 - $31,437) $ 44,777 $ 36,689
Company Security Fund:
Agway, Inc., Preferred Securities, at fair value
(approximates cost) 28,849 34,509
Agway Financial Corp., Subordinated
Money Market Certificates, at fair value
(approximates cost) 16,724 15,961
Agway Financial Corp., Subordinated
Debentures, at fair value (approximates cost) 2,630 3,130
Bond Fund:
Collective Bond Investment Fund, at fair value
(cost: 1996 - $1,974; 1995 - $ 1,235) 2,111 1,333
Cash Fund:
Collective Cash Investment Funds, at fair value
(equals cost) 1,982 2,019
Loans to participants 1,221 1,239
-------- --------
TOTAL INVESTMENTS 98,294 94,880
Accrued income 1,830 2,003
Contributions receivable, employer 837 0
-------- --------
NET ASSETS AVAILABLE FOR BENEFITS $100,961 $ 96,883
======== ========
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, 1996 and 1995
-----------
(Thousands of Dollars)
1996 1995
-------- --------
Net increase of interest in collective investment funds $ 8,526 $ 6,856
Interest income 1,748 1,660
Dividend income 3,170 3,467
-------- --------
13,444 11,983
-------- --------
Contributions:
Participants 5,554 5,901
Agway, Inc. 1,256 467
-------- --------
6,810 6,368
-------- --------
Total additions 20,254 18,351
-------- --------
Deductions:
Benefit payments to participants 15,929 12,714
Trustee fees, administrative and other expenses 247 287
-------- --------
16,176 13,001
-------- --------
Net additions 4,078 5,350
Net assets available for benefits:
Beginning of year 96,883 91,533
-------- --------
Net assets available for benefits:
End of year $100,961 $ 96,883
======== ========
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 document for more
complete information of benefits provided under the Plan.
General
The Plan is a defined contribution plan covering substantially 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, as amended
("ERISA").
Contributions
Participants may elect to contribute "regular investments" of 2% to 6%
of annual compensation (as defined in the Plan). These investments can
be made on a "pre-tax" basis or an "after-tax" basis or a combination,
subject to Internal Revenue Service ("IRS") limitations, 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 ("IRC") and are contributed to the Plan before being
subject to federal income tax and, in most cases, state 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 defined in the Plan) 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
contributions 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 and 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 Stock Fund, Company Security 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. As of June 30, 1996, there were 4,647 employees
participating in this Plan. The number of employees under each
investment fund at June 30, 1996, is as follows:
Stock Fund 3,440 Bond Fund 570
Company Security Fund 4,538 Cash Fund 302
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)
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 the Sponsor's Employee Benefit Plans Investment
Committee ("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 "BZW
Barclays Global Investors, N.A. ("BGI") U. S. Equity Market Fund" at
June 30, 1996 and 1995, 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.
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 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.
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 BGI "Government/Corporate Bond
Index Fund" and Bankers Trust "Government Corporate Bond Index Fund" at
June 30, 1996 and 1995, 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 BGI "Money Market Fund" and
Bankers Trust Company's "Discretionary Cash Fund" at June 30, 1996 and
1995, respectively.
Loans to Participants
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, 1996 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, in most circumstances, to receive either a
lump-sum amount equal to the value of the participant's vested interest
in his or her account, and either monthly 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 ("collective
investment 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 increase in interest in collective investment funds
which consists of the realized gains or losses and the net increase in
interest in 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 $204
in 1996 and $221 in 1995 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)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Risks and Uncertainties
The Plan provides for various investment options in any combination of
three collective investment funds (stock, bond or money market) or
company securities. Investment securities are exposed to various risks,
such as interest rate and market. Due to the level of risk associated
with certain investment securities and the level of uncertainty related
to changes in the value of investment securities, it is at least
reasonably possible that changes in risks in the near term would
materially affect participants' account balances and the amounts
reported in the statement of net assets available for plan benefits and
the statement of changes in net assets available for plan benefits.
F-10
<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
1996 1995
------- -------
Stock Fund:
BGI U. S. Equity Market Fund $44,777 $36,689
Company Security Fund:
Agway, Inc., Preferred Securities:
6% cumulative preferred stock - Series A 4,595
8% cumulative preferred stock - Series B 18,442 18,442
7% cumulative preferred stock - Series C 10,407 11,472
------- -------
28,849 34,509
Agway Financial Corp., Subordinated
Money Market Certificates 16,724 15,961
Agway Financial Corp., Subordinated
Debentures 2,630 3,130
Bond Fund:
BGI Government/Corporate Index Fund 2,111 1,333
Cash Fund 1,982 2,019
Loans to participants 1,221 1,239
------- -------
TOTAL INVESTMENTS AT FAIR VALUE $98,294 $94,880
======= =======
F-11
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
3. INVESTMENTS (CONTINUED)
During 1996 and 1995, the Plan's interest in collective investment
funds (including gains and losses on investments bought and sold, as
well as held during the year) increased in value for the fiscal years
ended June 30 as follows:
NET INCREASE IN INTEREST IN 1996 1995
COLLECTIVE INVESTMENT FUNDS: ------ ------
BGI U. S. Equity Market Fund $8,454 $6,724
BGI Government/Corporate
Bond Index Fund 72 132
------ ------
Total $8,526 $6,856
====== ======
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, BZW Barclays Global Investors, N.A., 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.
F-12
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
6. FEDERAL INCOME TAX STATUS
A favorable determination letter dated December 5, 1995, was issued by
the IRS on behalf of the Plan which stated that the Plan, as then
designed, was in compliance with the applicable requirements of the
IRC. Accordingly, no provision for income taxes has been included in
the Plan's financial statements.
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
June 30, 1996
-------------
<TABLE>
<CAPTION>
Non-
Participant
Participant-Directed Directed
-------------------------------------------------------------- --------
Company Company
Stock Security Bond Cash Loans to Security
ASSETS Fund Fund Fund Fund Participants Fund Total
------ -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Collective Common
Stock Investment
Fund $ 44,777 $ 44,777
Company Security
Fund $ 34,463 $ 13,740 48,203
Collective Bond
Investment Fund $ 2,111 2,111
Collective Cash
Investment Funds 318 313 1 $ 1,349 $ 1 1,982
Loans to participants 1,221 1,221
Accrued income 2 1,316 512 1,830
Contributions receivable,
employer 837 837
-------- -------- -------- -------- -------- -------- --------
NET ASSETS
AVAILABLE
FOR BENEFITS $ 45,097 $ 36,092 $ 2,112 $ 1,349 $ 1,222 $ 15,089 $100,961
======== ======== ======== ======== ======== ======== ========
</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)
June 30, 1995
-------------
<TABLE>
<CAPTION>
Non-
Participant
Participant-Directed Directed
----------------------------------------------------------------- ---------
Company Company
Stock Security Bond Cash Loans to Security
ASSETS Fund Fund Fund Fund Participants Fund Total
------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Collective Common
Stock Investment $36,689 $36,689
Fund
Company Security
Fund $38,898 $14,702 53,600
Collective Bond
Investment Fund $ 1,333 1,333
Collective Cash
Investment Funds 292 313 10 $ 1,404 2,019
Loans to participants $ 1,239 1,239
Accrued income 2 1,440 1 560 2,003
------- ------- ------- ------- ------- ------- -------
NET ASSETS
AVAILABLE
FOR BENEFITS $36,983 $40,651 $ 1,343 $ 1,405 $ 1,239 $15,262 $96,883
======= ======= ======= ======= ======= ======= =======
</TABLE>
F-15
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
8. ALLOCATION OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
TO INVESTMENT PROGRAMS
June 30, 1996
-------------
<TABLE>
<CAPTION>
Non-
Participant
Participant-Directed Directed
-------------------------------------------------------- --------
Company Company
Stock Security Bond Cash Loans to Security
Fund Fund Fund Fund Participants Fund Total
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net increase of interest
in collective
investment funds $ 8,454 $ 72 $ 8,526
Interest income 24 $ 1,126 $ 79 $ 86 $ 433 1,748
Dividend income 883 1,651 636 3,170
-------- -------- -------- -------- -------- -------- --------
9,361 2,777 72 79 86 1,069 13,444
-------- -------- -------- -------- -------- -------- --------
Contributions:
Participants 2,834 2,272 305 143 5,554
Agway, Inc. 1,256 1,256
-------- -------- -------- -------- -------- -------- --------
2,834 2,272 305 143 1,256 6,810
-------- -------- -------- -------- -------- -------- --------
Total additions 12,195 5,049 377 222 86 2,325 20,254
-------- -------- -------- -------- -------- -------- --------
Deductions
Benefit payments
to participants 6,631 6,085 191 423 138 2,461 15,929
Administrative
expenses 105 96 5 4 37 247
-------- -------- -------- -------- -------- -------- --------
Total deductions 6,736 6,181 196 427 138 2,498 16,176
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
before interfund
transfers 5,459 (1,132) 181 (205) (52) (173) 4,078
Transfers (from) to
other funds 2,655 (3,427) 588 149 35 0
Net assets available
for benefits,
beginning of year 36,983 40,651 1,343 1,405 1,239 15,262 96,883
-------- -------- -------- -------- -------- -------- --------
Net assets available
for benefits,
end of year $ 45,097 $ 36,092 $ 2,112 $ 1,349 $ 1,222 $ 15,089 $100,961
======== ======== ======== ======== ======== ======== ========
</TABLE>
F-16
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
(Thousands of Dollars)
8. ALLOCATION OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
TO INVESTMENT PROGRAMS (CONTINUED)
June 30, 1995
-------------
<TABLE>
<CAPTION>
Non-
Participant
Participant-Directed Directed
---------------------------------------------------------------- --------
Company Company
Stock Security Bond Cash Loans to Security
Fund Fund Fund Fund Participants Fund Total
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net increase of interest
in collective
investment funds $ 6,724 $ 132 $ 6,856
Interest income 21 $ 1,093 1 $ 61 $ 63 $ 421 1,660
Dividend income 827 1,906 734 3,467
-------- -------- -------- -------- -------- -------- --------
7,572 2,999 133 61 63 1,155 11,983
-------- -------- -------- -------- -------- -------- --------
Contributions:
Participants 2,793 2,719 265 124 0 5,901
Agway, Inc. 467 467
-------- -------- -------- -------- -------- -------- --------
2,793 2,719 265 124 0 467 6,368
-------- -------- -------- -------- -------- -------- --------
Total additions 10,365 5,718 398 185 63 1,622 18,351
-------- -------- -------- -------- -------- -------- --------
Deductions
Benefit payments
to participants 4,675 5,551 81 270 2,137 12,714
Administrative
expenses 103 129 3 2 50 287
-------- -------- -------- -------- -------- -------- --------
Total deductions 4,778 5,680 84 272 2,187 13,001
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
before interfund
transfers 5,587 38 314 (87) 63 (565) 5,350
Transfers (from) to
other funds 871 (2,427) 67 1,109 380 0
Net assets available
for benefits,
beginning of year 30,525 43,040 962 383 796 15,827 91,533
-------- -------- -------- -------- -------- -------- --------
Net assets available
for benefits,
end of year $ 36,983 $ 40,651 $ 1,343 $ 1,405 $ 1,239 $ 15,262 $ 96,883
======== ======== ======== ======== ======== ======== ========
</TABLE>
F-17
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
ITEM 27a of Form 5500 - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
as of June 30, 1996
(Thousands of Dollars)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D
------ ------ ------ ------
Balance Held at
Close of Period
(Number of Shares Market Value
Name of Issuer or Principal Amount Cost of of Each Item at
and Title of Issue of Bonds and Notes) Each Item Close of Period
- - ----------------------------------- -------------------- --------- ---------------
<S> <C> <C> <C>
Stock Fund:
BGI U. S. Equity Market Fund 1,466,099 31,635 44,777
BGI Money Market Fund 19 -- --
Collective Cash Investment Fund 317,923 318 318
--------- ---------
Total Stock Fund 31,953 45,095
Company Security Fund:
AGWAY, INC.:
8% cumulative preferred
stock - Series B 184,420 18,442 18,442
7% cumulative preferred
stock - Series C 104,070 10,407 10,407
AGWAY FINANCIAL CORP.:
5-1/2% subordinated money
market certificates,
due October 31, 1996 2,684,267 2,684 2,684
7-3/4% subordinated money
market certificates,
due October 31, 1997 1,808,369 1,808 1,808
8-1/2% subordinated money
market certificates,
due October 31, 1998 710,220 710 710
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 1,193,881 1,194 1,194
9% subordinated money
market certificates,
due October 31, 2000 2,483,205 2,483 2,483
8% subordinated money
market certificates,
due October 31, 1998 3,646,667 3,647 3,647
8-1/2% subordinated money
market certificates,
due October 31, 2001 2,832,383 2,833 2,833
7-1/2% subordinated debentures,
due July 1, 2003 1,500,000 1,500 1,500
8% subordinated money
market certificates,
due October 31, 2005 1,364,956 1,365 1,365
--------- ---------
Total Company securities 48,203 48,203
Collective Cash Investment Fund 312,850 313 313
--------- ---------
Total Company Security Fund 48,516 48,516
</TABLE>
S-1.1
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
ITEM 27a of Form 5500 - SCHEDULE OF ASSETS HELD FOR
INVESTMENT PURPOSES, Continued
as of June 30, 1996
(Thousands of Dollars)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D
------ ------ ------ ------
Balance Held at
Close of Period
(Number of Shares Market Value
Name of Issuer or Principal Amount Cost of of Each Item at
and Title of Issue of Bonds and Notes) Each Item Close of Period
- - -------------------------------- ------------------- --------- ---------------
<S> <C> <C> <C>
Bond Fund:
BGI Government/Corporate
Bond Index Fund 172,977 1,974 2,111
BGI Money Market Fund 1,017 1 1
---------- ----------
Total Bond Fund 1,975 2,112
Cash Fund:
BGI Money Market Fund 1,348,987 1,349 1,349
---------- ----------
Total Cash Fund 1,349 1,349
Loans to Participants:
Participant Notes 1,221,385 1,221 1,221
Collective Cash Investment Fund 1,368 1 1
---------- ----------
Total Loan Fund 1,222 1,222
TOTAL INVESTMENTS $ 85,015 $ 98,294
========== ==========
</TABLE>
S-1.2
<PAGE>
AGWAY, INC. EMPLOYEES' THRIFT INVESTMENT PLAN
ITEM 27d of Form 5500 - SCHEDULE OF REPORTABLE TRANSACTIONS
for the year ended June 30, 1996
(Thousands of Dollars)
<TABLE>
<CAPTION>
Current Value
of Investment
Purchase Selling on Transaction Net
Price Price Date Gain(Loss)
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SINGLE SECURITY TRANSACTIONS IN
EXCESS OF 5% OF MARKET VALUE None
SERIES OF SECURITY TRANSACTIONS
IN EXCESS OF 5% OF MARKET VALUE
BGI Bank Money Market Fund $ 3,445 $ 3,445 $ 0
The Boston Company Inc. Pooled
Employee Fund 21,925 21,925 0
Boston Safe Deposit Trust - Late
Money Deposit Account II
ERISA Custodian 4,650 4,650 0
BGI Bank Money Market Fund $ 3,488 3,488 0
The Boston Company Inc. Pooled
Employee Fund 21,914 21,914 0
Boston Safe Deposit Trust - Late
Money Deposit Account ERISA
Custodian 4,650 4,650 0
</TABLE>
S-2.1
