10-Q/A 1 dec10qa2002.txt 10Q/A DECEMBER 2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (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, 2002 ----------------- 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. DEBTOR-IN-POSSESSION AS OF OCTOBER 1, 2002 -------------------------------------------------------------------------------- (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) 315-449-6715 -------------------------------------------------------------------------------- (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 ----- ----- Indicated by check mark whether the registrant is an accelerated filer. Yes No X ---- ----- 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 March 28, 2003 ------------------------ ------------------------------- Membership Common Stock, 96,446 shares $25 par value per share 1 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) AND CONSOLIDATED SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) (Thousands of Dollars) CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Agway is including the following cautionary statement in this Form 10-Q/A to make applicable and take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statement made by, or on behalf of, Agway. Where any such forward-looking statement includes a statement of the assumptions or basis underlying such forward-looking statement, Agway cautions that, while it believes such assumptions or basis to be reasonable and makes them in good faith, assumed facts or basis almost always vary from actual results, and the differences between assumed facts or basis and actual results can be material, depending upon the circumstances. Certain factors that could cause actual results to differ materially from those projected have been discussed in this report and include the factors set forth below. Other factors that could cause actual results to differ materially include uncertainties of economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Where, in any forward-looking statement, Agway, or its management, expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. The words "intend," "believe," "expect," and "anticipate" and phrases "it is probable" and "it is possible" or similar words or phrases identify forward-looking statements. Background On October 1, 2002 (the "Petition Date"), Agway Inc. and five of its subsidiaries (collectively, the "Debtors") filed voluntary petitions to reorganize under Chapter 11 of the United States Bankruptcy Code (the "Chapter 11 Proceedings") in the United States Bankruptcy Court for the Northern District of New York in Utica, New York (the "Bankruptcy Court"). The Chapter 11 Proceedings have been consolidated for procedural purposes only and are being administered jointly under case numbers 02-65872 through 02-65877 pursuant to an order of the Bankruptcy Court entered on October 1, 2002. The subsidiaries that were included in the Chapter 11 Proceedings were Feed Commodities International LLC, Country Best-DeBerry LLC, Country Best Adams, LLC, Brubaker Agronomic Consulting Service LLC, and Agway General Agency, Inc. Four wholly owned Agway Inc. subsidiaries ARE NOT included in the Chapter 11 Proceedings: Agway Energy Products LLC, Agway Energy Services, Inc., Agway Energy Services-PA, Inc. and Telmark LLC. In addition, Telmark debenture holders ARE NOT subject to the Chapter 11 Proceedings. Cooperative Milling, Inc., a company 50% owned by Agway Inc. was also not included in the Chapter 11 Proceedings. Finally, the Agway dealer stores ARE NOT included in the Chapter 11 Proceedings, because they are independently owned and are not affiliated with Agway Inc. in any way. Agway Energy Products is a separate subsidiary which historically has generated, and is expected to continue to generate, sufficient cash to meet its needs. Agway Energy Products requires short-term borrowings from the Company's lines of credit to meet seasonal and working capital requirements. Such short-term financing will be made available to Agway Energy Products as a non-debtor borrower on an ongoing basis by our senior lenders as part of a $125,000 Debtor-in-Possession financing agreement ("DIP Facility"). The details of the DIP Facility are discussed in Note 3 to the condensed consolidated financial statements. However, Agway Energy Products will continue to operate as it has in the past and IS NOT included in the Agway Inc. Chapter 11 Proceedings. Telmark LLC is a separately financed subsidiary with an appropriate capital structure for its industry. Telmark LLC will continue to be financed and to be operated separately from Agway Inc. as it has in the past and IS NOT included in the Agway Inc. Chapter 11 Proceedings. As discussed in Note 1 to the condensed consolidated financial statements, Telmark has entered into a definitive agreement to sell substantially all of its assets. 2 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) AND CONSOLIDATED SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) (Thousands of Dollars) Chapter 11 Process Each of the Debtors continues to operate its business and manage its property as a Debtor-in-Possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. As Debtors-in-Possession, the Debtors are authorized to operate their business but may not engage in transactions outside the ordinary course of business without the approval of the Bankruptcy Court. The Bankruptcy Court entered orders on October 1, 2002 granting various initial requests of Agway, including payment of employee wages and salaries on schedule, continuation of Feed and Agronomy customer pre-pay product programs, and interim access to cash funding. Also, on October 1, 2002, the Bankruptcy Court entered an order authorizing the Company to pay vendors in the ordinary course for all goods and services received on or after October 1, 2002. We also agreed to terms of a DIP Facility with our present senior lender group to provide a $125,000 facility over a term of 18 months, which we believe will provide adequate cash resources for Agway to meet future operating requirements while we restructure the business. On October 4, 2002, the Bankruptcy Court approved the DIP Facility on an interim basis and on October 22, 2002, approved the Company's motion for final access to the full amount of the $125,000 DIP Facility. Upon obtaining final approval from the Bankruptcy Court, the DIP Facility replaced Agway's existing senior debt and the credit agreement. See Note 3 of the condensed consolidated financial statements for terms and conditions including covenants under the DIP Facility. On October 9, 2002, the United States Trustee appointed an official committee of unsecured creditors (the "Creditors' Committee"). The Creditors' Committee and its legal representatives may take positions on matters that come before the Bankruptcy Court and, at the appropriate time, will negotiate with Agway the terms of a plan of reorganization. On October 11, 2002, the Creditors' Committee filed a motion seeking reconsideration of all the first day motions entered by the Bankruptcy Court on October 1, 2002. The reconsideration motion has not yet been finalized and it is possible that one of the first day orders will be modified. Agway and the Creditors' Committee and their respective advisors are holding discussions in an effort to resolve the reconsideration motion and other related matters. The outcome of these discussions cannot be determined at this time. On January 30, 2003, the Bankruptcy Court granted a motion by the Company to extend the exclusivity period for filing a plan or reorganization by 120 days to May 30, 2003. This reserves the right under bankruptcy law for the Company to be the only party allowed to file a plan of reorganization with the Bankruptcy Court. At this stage, we cannot predict the impact of the Chapter 11 Proceedings on our financial condition and results of operations. However, until a plan of reorganization is developed and approved by the Bankruptcy Court and our creditors, we will be prohibited from paying all pre-petition indebtedness, including principal, interest, and maturities on our outstanding debt securities and various other obligations or claims against the Company such as pending litigation and environmental claims without Bankruptcy Court approval. Accordingly, the $33,100 maturity and related interest on subordinated debt due on November 1, 2002 was not paid. Following confirmation by the Bankruptcy Court of a plan of reorganization, treatment of our pre-petition obligations will be determined by the terms of that plan. Historically, the Company voluntarily repurchased certain of its securities, including its subordinated debentures. The Company ceased that practice in June 2002 and initiated the Chapter 11 Proceedings on October 1, 2002. To the Company's knowledge, the Company's securities do not currently have an established trading market. Fair market value of the Company's securities is not presently determinable and it is not presently known when such fair market value will be determined. Even though the ultimate impact on the value of the Company's securities cannot be determined currently, it is likely that, as a result of the Chapter 11 Proceedings, the value of the Company's securities will be adversely impacted and this impact could be material. 3 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) AND CONSOLIDATED SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) (Thousands of Dollars) RESULTS OF OPERATIONS --------------------- Agway's continuing operations 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. Energy generally realizes significantly higher net sales and revenues in the winter months due to the higher demand for its products from cold winter conditions. The Agriculture feed business and Country Products Group net sales and revenues and operating results are not materially impacted by seasonal fluctuations. On March 6, 2002, the Company announced details of a comprehensive plan designed to refocus capital resources on four selected businesses: Animal Feed and Nutrition (the principal operation within the Agriculture segment), Energy Products (Energy segment), Produce, and Agricultural Technologies (operations within the Country Products Group segment). This plan also disclosed our intentions to divest of four business operations: Telmark (Leasing segment), Agway Insurance (the principal operation within the Insurance segment), and Agronomy and Seedway (components of the Agriculture segment). After this plan was announced, as part of its ongoing strategic assessment of remaining Agway businesses, including its sunflower business (an operation included within the Country Products Group segment), Agway engaged an investment advisor to assist in the exploration of strategic alternatives involving the sunflower business. In June 2002, after reviewing a number of written indications of interest, the Agway Board of Directors affirmed management's intentions to actively pursue a sale of this business. As required by generally accepted accounting principles, the financial statements separately reflect the business operations planned for divestiture, or actually divested, as discontinued operations for all periods reported. For further information on the discontinued operations, refer to Note 4 of the condensed consolidated financial statements. To date, significant progress has been made regarding all divestiture plans. On August 28, 2002, Agway announced the completion of the sale of its wholly owned insurance subsidiary, Agway Insurance Company, to United Farm Family Mutual Insurance Company. On September 16, 2002, Agway completed the sale of its sunflower business (an operation historically included within the Country Products Group segment) to Cenex Harvest States Cooperatives. On December 3, 2002, Agway announced the completion of the sale of its Agronomy and Seedway businesses and related assets to GROWMARK. On December 23, 2002, Agway and Wells Fargo Financial Leasing, Inc., ("Wells Fargo") announced that they had signed a definitive agreement regarding the sale of substantially all of the assets of Telmark to Wells Fargo. Pursuant to a letter agreement amongst Agway, Telmark, Wells Fargo and the unsecured creditors' committee for Agway Inc.'s Chapter 11 Proceedings (Creditors' Committee), the parties have agreed to auction procedures and to amend certain provisions of the definitive agreement at the request of the Creditors' Committee in conjunction with Agway's Chapter 11 Proceedings. The auction procedures set forth in the definitive agreement, as amended in accordance with the letter agreement, were approved by the Bankruptcy Court on February 5, 2003. The auction is scheduled to be held on Thursday, February 27, 2003 at 2 p.m. and a hearing to confirm the successful bidder is set for 3 p.m. on that same day. On February 6, 2003, Agway filed a motion with the Bankruptcy Court for approval of the sale in accordance with the definitive agreement as amended by the letter agreement. The Creditors' Committee has reserved the right to object to the sale in the event it concludes the sale is not in the best interest of Agway's creditors. If the sale to Wells Fargo is uncontested, management expects the sale to close on or about March 1, 2003, subject to satisfaction of customary closing conditions as set forth in the agreement. A copy of the definitive agreement, as amended, along with the letter agreement reflecting changes to be made to the definitive agreement and the Bankruptcy Court order authorizing and scheduling an auction and hearing to consider approval of proposed sale resulting from the auction, were attached as exhibits to an 8-K filing on February 6, 2003. 4 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) AND CONSOLIDATED SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) (Thousands of Dollars) Amounts in the following narrative have been rounded to the nearest hundred thousand. Consolidated Results -------------------- Consolidated continuing operations net sales and revenues of $259,600 and $448,500 for the three- and six-month periods ended December 31, 2002 increased $30,200 (13%) and $17,500 (4%), respectively, as compared to the same periods in the prior year. The increases in both the three- and six-month periods were substantially the result of increased sales in Energy as more fully discussed below. The consolidated final net losses of $11,900 and $34,700 for the three- and six-month periods ended December 31, 2002 increased $8,400 (232%) and $20,900 (150%), respectively, as compared to the same periods in the prior year. This increase in losses includes the following (increases) decreases:
Periods Ended December 31, 2002 -------------------------------- Three Months Six Months -------------- --------------- Net discontinued operations.................................... $ (13,200) $ (15,000) Pre-tax continuing operations.................................. 6,000 1,900 Reorganization expenses........................................ (3,000) (3,000) Change in continuing operations taxes.......................... 1,800 (4,800) -------------- --------------- Increase in final net loss................................ $ (8,400) $ (20,900) ============== ===============
Consolidated pre-tax earnings from continuing operations of $6,600 for the three months ended December 31, 2002 have increased $6,000 and the pre-tax loss of continuing operations of $10,900 for the six months ended December 31, 2002 has decreased $1,900. The improvements in both periods are due to increased earnings in Energy and in Agriculture that were offset by increased corporate costs. The Country Products Group earnings declined in the three-month period but improved over the six-month period as compared to the prior year. Net corporate costs of $4,800 and $11,100 have increased $2,900 (155%) and $7,200 (183%), respectively, as compared to the same periods in the prior year. The net corporate cost increases are primarily related to a reduction in the pension income and an increase in professional services compared to the same periods in the prior year. The pension plan amendments made last fiscal year, as previously disclosed in the Agway Form 10-K as of June 30, 2002, have reduced pension income from historical levels. The professional service expense increase related to services rendered in connection with the Chapter 11 Proceedings. The increased loss from discontinued operations is more fully discussed below. Agriculture ----------- Total Agriculture sales and revenues of $58,300 and $114,500 for the three and six months ended December 31, 2002 decreased by $500 (1%) and $3,700 (3%), respectively, as compared to the same periods in the prior year. The feed business sales and revenues decreased $900 (2%) and $3,300 (3%) for the three and six months ended December 31, 2002. The decline was substantially the result of reduced volumes in manufactured dairy and poultry feeds. These reductions are a result of the overall general decrease in the farm economy compared to the same periods in the prior year. Additionally, sales decreased $1,300 (100%) for the six months ended December 31, 2002 as a result of closed Agriculture farm stores that were part of the planned business realignment which began in mid-fiscal 2001. The declines in sales noted above were partially offset by increased tested specific pathogen free ("TSPF") heifer rearing service revenues of $400 (21%) and $900 (28%) for the three- and six month-periods ended December 31, 2002 compared to the same period in the prior year from the result of increased utilization of the facilities this year compared to the same periods in the prior year. 5 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) AND CONSOLIDATED SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) (Thousands of Dollars) Agriculture (continued) ----------------------- Agriculture pre-tax loss of $200 and $900 for the three- and six-month periods ended December 31, 2002 decreased $900 (82%) and $1,100 (55%), respectively, as compared to the same periods in the prior year. The decrease in pre-tax loss resulted from a combination of factors. For the six-month period, Agway received a royalty payment of $900 for the use of Agway's name in connection with the sale of agricultural products. Additionally, there was a reduction in administration expenses for the three- and six-month periods ending December 31, 2002 from the impact of the planned closing of Agriculture locations. The pre-tax loss for the TSPF heifer rearing facilities decreased $200 (21%) for the three months and remained the same for the six-month period ended December 31, 2002. The decrease in the three-month period was a result of an increase in the utilization of the facilities, along with an increase in service revenue fees earned per heifer. The above improvements were partially offset by a decrease in pre-tax results within the feed business of $500 and $1,500 for the three and six months, respectively. These reductions consisted of a negotiated settlement of $900 reported in the second quarter of the prior year. Additionally, for the six-month period ended December 31, 2002, there was an increase in bad debt expense of $600 due to the bankruptcy of a dairy customer, and an increase in interest expense of $200 compared to the prior year as a result of increased working capital in the current year. Country Products Group ---------------------- Country Products Group (CPG) total sales and revenues of $23,400 and $58,400 for the three and six months ended December 31, 2002 decreased $10,900 (32%) and $10,300 (15%), respectively, as compared to the same periods in the prior year. Sales in CPG ongoing operations decreased $7,900 (25%) and $4,300 (7%) for the three and six months ended December 31, 2002 and sales decreased $2,800 (100%) and $6,000 (87%) for the three and six months ended December 31, 2002 from the closing or selling of a number of CPG business operations. A decrease in sales in the continuing operations of the Produce Group of $8,100 (27%) and $4,600 (8%), for the three and six months ended December 31, 2002, resulted principally from a decrease in the volume of potatoes and empire sweet onions sold. Potato volume was down due to competitive conditions and empire sweet onion volume was down due to a planned reduction in acres planted. The above decrease in sales were partially offset by an increase in sales in CPG Nutrients of $200 (18%) and $300 (15%) for the three and six months ending December 31, 2002, as compared to the prior year. CPG pre-tax loss of $1,100 for the three months ended December 31, 2002 increased $500 (86%) over the same period in the prior year. Pre-tax earnings of $500 increased $1,500 (150%) for the six months ended December 31, 2002. The ongoing CPG operations generated pre-tax losses of $1,100 and $500 for the three and six months ended December 31, 2002. These losses were primarily a result of decreased produce sales mentioned above in both the three- and six-month periods. In the three-month period, we also incurred a decrease in margins in potatoes due to competition in the market. Additionally, Apex Bag was sold in August 2002 generating a gain on the sale of $1,000 which created a $800 favorable variance in the pre-tax earnings for the six months ended December 31, 2002. The remaining combination of closed business locations and operations to be divested generated pre-tax income for the six months ended December 31, 2002 of $100 compared to a pre-tax loss of $100 in the prior year. 6 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) AND CONSOLIDATED SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) (Thousands of Dollars) Energy ------ Energy sales and revenues of $178,500 and $277,100 for the three and six months ended December 31, 2002, increased $41,300 (30%) and $31,100 (13%), respectively, as compared to the same periods in the prior year. Overall sales dollar increases from liquid product volume were $13,200 (10%) and $800 (0%), respectively, as compared to the same periods in the prior year. The volume increases were primarily the result of higher wholesale volumes in heating oil and propane, which are a result of colder winter weather in the Northeast as compared to the same periods in the prior year. The heating oil and propane volume increases were partially offset by a decrease in volume for power fuels (gasoline and diesel). The generally weaker economic conditions compared to the same periods in the prior year have lowered the demand for power fuels. Sales dollar increases relating to price in liquid products, substantially the result of an increase in commodity prices during the three- and six-month periods, were $22,200 (16%) and $20,200 (8%), respectively, as compared to the same periods in the prior year. Additionally, sales and revenues from the electric and natural gas marketing business improved $4,600 (3%) and $5,300 (2%) for the three and six months ended December 31, 2002. These increases are primarily a result of increase volume in these businesses. Finally, the heating, ventilation and air conditioning installation and service increased sales by $1,300 (1%) and $4,800 (2%) for the three and six months ended December 31, 2002, compared to the same periods in the prior year. Energy pre-tax earnings of $12,700 and $600 for the three and six months ended December 31, 2002, increased $8,600 (208%) and $6,500 (110%), respectively, as compared to the same periods in the prior year. Overall gross margin dollars increased $11,100 (23%) and $9,600 (12%) primarily from the increased sales mentioned above. Pre-tax earnings were partially offset from an increase in operating expenses of $2,900 (7%) and $4,000 (5%) for the three and six months ended December 31, 2002. These increases resulted from higher payroll and insurance costs. These items were partially offset from a reduction in interest expense of $400 (27%) and $900 (27%) for the three and six months ended December 31, 2002, as compared to the same periods in the prior year as a result of reduced working capital. Discontinued Operations ----------------------- The following discussion represents the operational results of Agway's discontinued operations for the three and six months ended December 31, 2002 and 2001, respectively.
Three Months Ended -------------------------------------------------------------------------------------------- December 31, 2002 Leasing Insurance Sunflower Agronomy(1) Other (2) Total ----------------- ------------- ----------- -------------- ------------ ------------- -------------- Total sales & revenue $ 21,883 $ 0 $ 0 $ 9,951 $ 0 $ 31,834 Pre-tax earnings (loss) from operations....... $ 6,393 $ 0 $ 359 $ (6,457) $ 894 $ 1,189 December 31, 2001 ----------------- Total sales & revenue $ 23,314 $ 7,217 $ 10,999 $ 19,827 $ 6 $ 61,363 Pre-tax earnings (loss) from operations....... $ 6,490 $ 461 $ 110 $ (6,585) $ (3,388) $ (2,912)
7 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) AND CONSOLIDATED SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) (Thousands of Dollars) Discontinued Operations (continued) -----------------------------------
Six Months Ended ---------------------------------------------------------------------------------------- December 31, 2002 Leasing Insurance Sunflower Agronomy(1) Other (2) Total ----------------- ------------- ----------- ------------ ------------- ------------ -------------- Total sales & revenue $ 44,179 $ 4,806 $ 10,352 $ 40,068 $ 0 $ 99,405 Pre-tax earnings (loss) from operations....... $ 12,523 $ 108 $ (485) $ (13,269) $ (1,908) $ (3,031) December 31, 2001 ----------------- Total sales & revenue $ 45,832 $ 14,292 $ 21,258 $ 55,482 $ (1) $ 136,863 Pre-tax earnings (loss) from operations....... $ 11,789 $ 789 $ 190 $ (13,948) $ (6,546) $ (7,726)
(1) Includes the Agronomy, Seedway, and Brubaker Consulting businesses formerly part of the Agriculture business segment. (2) The Other column includes the elimination of intercompany sales and revenues between discontinued operations components and other pre-tax earnings (loss) impacts of the discontinued operations, principally interest allocated to the net investment in discontinued operations. Leasing (Telmark) ---------------- Leasing total revenues of $21,900 and $44,200 for the three and six months ended December 31, 2002 decreased $1,400 (6%) and $1,600 (4%) compared to total revenues of $23,300 and $45,800, respectively, for the same periods in the prior year. The decrease in revenues is primarily due to a lower average income rate on the outstanding portfolio caused by lower interest rates. Pre-tax earnings from continuing operations of $6,400 and $12,500, decreased $100 (2%) for the three months ended December 31, 2002 and increased $700 (6%) for the six months ended December 31, 2002. The increase in pre-tax earnings for the six months ended December 31, 2002 is primarily due to overall lower interest rates on the outstanding debt compared to the prior year. Additionally, a decrease in the provision for credit losses contributed to the increase in pre-tax earnings. Telmark's allowance for credit losses is based on a periodic review of the collection history of past leases, current credit practices, an analysis of delinquent accounts, and current economic conditions. Insurance --------- Agway Insurance Company net revenues of $0 and $4,800 for the three and six months ended December 31, 2002, decreased $7,200 (100%) and $9,500 (66%), respectively, as compared to the same periods in the prior year. The Agway Insurance Company was sold on August 28, 2002 to United Farm Mutual Insurance Company, and therefore, there was no activity for the three-month period ended December 31, 2002. For the six-month period, the decrease in sales is due to only two months of activity prior to the date of sale in the current year compared to six months of activity in the same period in the prior year. Pre-tax earnings of the Agway Insurance Company of $0 and $100 for the three and six months ended December 31, 2002 decreased $500 (100%) and $700 (86%) compared to the same periods in the prior year due principally to the sale of the company noted above. 8 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) AND CONSOLIDATED SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) (Thousands of Dollars) Sunflower (Operation of the Country Products Group) -------------------------------------------------- The Sunflower operation was previously a component of the Country Products Group segment. Total sales and revenue of $0 and $10,400 for the three and six months ended December 31, 2002, decreased $11,000 (100%) and $10,900 (51%) for the three- and six-month periods, respectively, as compared to the same periods in the prior year. The sunflower operation was sold on September 16, 2002 to Cenex Harvest States Cooperative. Sunflower's pre-tax earnings of $400 increased $300 (226%) for the three months ended December 31, 2002, compared to the same period in the prior year. The pre-tax loss of $500 was a deterioration of $700 (350%) from pre-tax earnings of $200 for the six months ended December 31, 2002, as compared to the same period in the prior year. Discontinued Agriculture Components ----------------------------------- Agronomy, Seedway and Brubaker Consulting services were all previously reported as part of the Agriculture segment. Total sales and revenue of $10,000 and $40,100 for the three and six months ended December 31, 2002 decreased $9,900 (50%) and $15,400 (28%), respectively, compared to the same periods in the prior year. The decrease in sales resulted from a decrease in sales in Agronomy of $7,000 (49%) and $9,600 (23%), a decrease in sales in Seedway of $2,600 (49%) and $5,200 (40%) and a decrease in sales in Brubaker of $300 (100%) and $700 (100%) for the three- and six-month periods ended December 31, 2002, compared to the sales in Agronomy, Seedway, and Brubaker, respectively, during in the same periods in the prior year. Sales decreased for the three-month period due principally to the sale of the agriculture components on December 3, 2002 to GROWMARK Inc, therefore only reporting two months of sales in the current quarter. In addition, the decreases in sales for the six months ended December 31, 2002 are attributable to dryer than normal conditions that existed in the summer of 2002 which caused a reduction in the number of acres planted by our customers. When normal summer conditions exist, many customers that purchase both the Agronomy and Seedway products are able to plant a second crop; however, due to the drought conditions in the summer of 2002, this second planting generally did not occur. The Brubaker Consulting operation was shut down in fiscal 2001. Agriculture's discontinued components pre-tax loss of $6,500 decreased $100 (2%) for the three months ended December 31, 2002. Pre-tax loss of $13,300 for the six months ended December 31, 2002 decreased $700 (5%) compared to the same period in the prior year. The decrease in pre-tax losses for the six months ended December 31, 2002 is related to a reduction in expenses related to packaging and distribution of Agronomy related products. These reductions were partially offset by inventory write-downs of seasonal seed products that were not sold due to the adverse weather conditions noted above. 9 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) 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 ------------------------------- As discussed in more detail below, due to the Company's projected level of cash from operations and the status of its previously announced plan to divest certain of its businesses, the Company determined in the quarter ended September 30, 2002 that it would have difficulty in satisfying its anticipated short-term and long-term liquidity needs. As described in more detail below, the Company agreed to terms of a DIP Facility with its then existing lender group and filed for an order of protection under Chapter 11 of the United States Bankruptcy Code on October 1, 2002. It is currently expected that the DIP Facility will be sufficient to meet the liquidity needs of the Company during the Chapter 11 Proceedings. At this stage, we cannot predict the impact of the Chapter 11 Proceedings on our financial condition and results of operations. However, until a plan of reorganization is developed and approved by the Bankruptcy Court and our creditors, we will be prohibited from paying all pre-petition indebtedness, including principal, interest, and maturities on our outstanding debt securities and various other obligations or claims against the Company such as pending litigation and environmental claims without Bankruptcy Court approval. Accordingly, the $33,100 maturity and related interest on subordinated debt due on November 1, 2002 was not paid. Following confirmation by the Bankruptcy Court of a plan of reorganization, treatment of our pre-petition obligations will be determined by the terms of that plan. Cash Flows for Six Months Ended December 31, 2002 and 2001 During the six months ended December 31, 2002 and 2001, cash generated from sale of discontinued operations and from sale of assets was a major source of funds to finance capital improvements, redemption of debt, redemption of stock, and shareholder dividends. During the six months ended December 31, 2002, the cash flows generated also provided for increased working capital needs. During the six months ended December 31, 2001, reduced working capital provided another major source of funds.
December 31, December 31, Increase 2002 2001 (Decrease) --------------- -------------- --------------- Net cash flows provided by (used in): Continuing operating activities...... $ (41,228) $ 34,794 $ (76,022) Investing activities of continuing operations......................... 95,842 (4,655) 100,497 Financing activities of continuing operations......................... (37,991) (62,807) 24,816 Discontinued operating activities.... (4,930) 32,668 (37,598) --------------- -------------- --------------- Net increase (decrease) in cash and equivalents...................... $ 11,693 $ 0 $ 11,693 =============== ============== ===============
Cash Flows from Continuing Operating Activities Cash flows from continuing operations for the three months ended December 31, 2002 used cash of $41,200, compared to generation cash of $34,800 for the same period in the prior year. The fluctuations in continuing operations cash flows are substantially the result of fluctuations in the cash required to fund working capital. Due to the commodities used in our Energy and Agriculture businesses, inventory, receivables and payables are significantly impacted by changes in the commodity prices. The increased energy commodity prices and the colder winter weather in the Northeast during the quarter ended December 31, 2002, as compared to the same period in the prior year, has increased the use of cash in the Energy business to fund working capital. Additionally, cash used for pre-petition services associated with the contingency planning which ultimately resulted in the Chapter 11 Proceedings, as well as post-petition Chapter 11 reorganization activities, totaled $4,200 during the six months ended December 31, 2002. 10 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) 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) ------------------------------------------- Cash Flows from Investing Activities of Continuing Operations Capital expenditures required cash of $5,900 and $3,500 for the three months ended December 31, 2002 and 2001, respectively. The increase in capital expenditures in the current year reflects a decline in the amount of Energy assets leased under operating leases. Cash flows used in investing were partially funded by cash generated from the proceeds from the disposal of property and equipment, which amounted to $2,700 and $500 for the three months ended December 31, 2002 and 2001, respectively. Additionally, the sale of certain discontinued operations generated cash of $99,100 for the six months ended December 31, 2002. Cash Flows from Financing Activities of Continuing Operations For the three months ended December 31, 2002, the financing obligations of the Company, including short-term notes payable and subordinated debentures, were reduced principally through net cash proceeds received from discontinued operations activities, principally sale of assets. The following details the Company's current financing activities: Agway Senior Debt As more fully described below, as a result of the Company's Chapter 11 Proceedings, the Agway Senior Debt Agreement ("Senior Debt") has been replaced by the DIP Facility. During the first quarter ended September 30, 2002, the Company had available under its Senior Debt, an asset-based revolving line of credit for up to $150,000 pursuant to the terms of a credit agreement dated March 28, 2001 between Agway Inc., certain subsidiaries, and a syndicated group of lenders (the "Credit Agreement"). During the first quarter, we sold the Agway Insurance Company and the Sunflower division of our CPG segment for gross proceeds of approximately $42,100, which had the impact of reducing the commitment level from $150,000 to $125,000. The Credit Agreement had a number of financial covenants which had restricted capital spending and required us to maintain minimum levels of earnings before interest, taxes, depreciation, and amortization (EBITDA), as defined in the Credit Agreement and minimum ratios of EBITDA to fixed charges and interest of Senior Debt. Prior to June 30, 2002, this Credit Agreement had been amended three times in response to violations of financial covenants. In connection with those amendments, those violations were waived. As of September 30, 2002, Agway was in default under the Credit Agreement, and it was necessary to obtain a waiver regarding those covenant violations. Those covenant violations were permanently waived on November 14, 2002, and as a result, Agway no longer has any obligations under the Credit Agreement. The Senior Debt was collateralized by a variety of our assets, including the outstanding limited liability company membership interest of Telmark. Interest rates were determined as either prime rate plus 2.5% or the London Interbank Offered Rate (LIBOR) plus 4%. On October 22, 2002, the Bankruptcy Court granted Agway and certain subsidiaries including the non-debtor borrowers, final approval to enter into an 18-month term DIP Facility of $125,000 with its existing lenders to fund working capital requirements of the Debtors during the Chapter 11 Proceedings, and to fund the working capital requirements of the non-debtor borrowers. The DIP Facility line is collateralized by a variety of our assets, including the pledge of the limited liability company membership interest in Telmark. As in the former Credit Agreement, interest rates are determined, at the option of Agway, as either prime rate plus 2.5% or the London Interbank Offered rate (LIBOR) plus 4%. The amount available to Agway under this asset-based line of credit is the lesser of the "collateral borrowing base" or the $125,000 upper limit of the line of credit. 11 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) 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) ------------------------------------------- Cash Flows from Financing Activities of Continuing Operations (continued) Agway Senior Debt (continued) In the event of the sale of certain assets, as defined in the DIP Facility, the upper limit of the line of credit will decrease from $125,000 to $100,000. The collateral borrowing base consists of certain of Agway's eligible accounts receivable, inventory and cash collateral (as defined in the DIP Facility). In addition, the collateral borrowing base includes other assets pledged as collateral up to the lesser of $25,000 or $125,000 less the eligible accounts receivable and inventory. In the event that a sale of certain assets, as defined in the DIP Facility, is not completed on or before December 31, 2002, the $25,000 additional collateral borrowing base related to those assets is reduced by $10,000 and is further reduced by $5,000 in each succeeding month to zero by March 31, 2003 in the event the assets are not sold by then. At that time, the collateral borrowing base will consist solely of eligible accounts receivable, inventory and cash collateral. The sale of certain assets as defined in the DIP, however, had not been completed as of January 31, 2003, and therefore, the additional collateral borrowing base related to those assets has been reduced by $15,000. As of January 31, 2003, Agway had $78,400 available under the DIP Facility. On December 3, 2002, Agway announced the completion of the sale of its Agronomy and Seedway business to GROWMARK Inc. for gross proceeds of approximately $57,000, which reduced to zero the outstanding revolving credit balance with our secured lender and provided $15,000 of cash collateral to support the Company's outstanding letters of credit as required per the terms of the DIP Facility. The DIP Facility has a number of financial covenants which restrict our capital spending and require us to maintain minimum levels of earnings before interest, taxes, depreciation, amortization, and restructuring charges, as well as a maximum level of restructuring charges. As of December 31, 2002, the Company is in compliance with all covenants with regard to the DIP Facility. Agway Subordinated Debt Agway previously registered with the Securities and Exchange Commission (SEC) to offer debentures and money market certificates to the public. As previously disclosed, since March 6, 2002, the Company temporarily suspended its active capital raising efforts through the sale of Company securities pending the filing of certain financial information related to its decision to sell certain subsidiaries. However, due to the unexpected failed sale of Telmark in May 2002 and the related uncertainty caused by the failed sale, Agway did not recommence its active capital raising efforts even though the relevant financial information had been filed. At this stage, we do not expect to sell any additional securities in the near future, if at all. The debentures and money market certificates are unsecured and subordinated to all senior debt of Agway. Furthermore, as a result of the Chapter 11 Proceedings, payment of interest and maturities on these securities are prohibited. Accordingly, the $33,100 maturity of subordinated debt due on November 1, 2002 was not paid. Cash Flows from Discontinued Operating Activities The increase in cash flows from discontinued operations activities for the six months ending December 31, 2002 compared to the same period in the prior year resulted from the sale of the Agronomy and Seedway businesses and sale of our investment in CF Industries and Allied Seed LLC. 12 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) 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) ------------------------------------------- Cash Flows from Discontinued Operating Activities (continued) Telmark Virtually all of the cash flows from operations have historically been invested in growth of the Telmark lease portfolio, repayment of debt and dividends to Agway. Telmark has been successful in arranging its past financing needs and believes that its current financing arrangements are adequate to meet its operating requirements through March 31, 2003. Due to the ongoing process relating to the potential sale of Telmark and to Agway's Chapter 11 Proceedings, there can be no assurance that Telmark will be able to obtain future financing in amounts, or on terms, that are favorable. Telmark's inability to obtain financing and continue its operations would adversely impact its ability to provide dividends to Agway or meet any of its obligations to Agway. Surety Liquidity Risk In July 2002, our surety provider ("Surety") issued cancellation notices relative to $23,900 of surety bonds supporting our insurance programs. This has no impact on our insurance coverage, but it does give our insurance carriers the right to demand payment of the collateral amount provided by the bonds from the issuer of the bonds. If our Surety chooses to pay cash to our insurers rather than reissue bonds, our Surety would have a right to make a claim against us for such amounts in the Chapter 11 Proceedings. Because of the cancellation notices issued, our insurers have a right to make demand on our Surety for $4,625 starting late September 2002 and for $6,000 starting late October 2002. We dispute the right of the Surety to cancel the remaining $13,275 at this time but recognize their right to cancel coverage in the spring of 2003 at the scheduled renewal dates. On October 11, 2003, one of our insurers charged Agway $355 for retroactive premium adjustments for prior years' claims in accordance with our contractual arrangements and $100 to fund a claim payment account. Because the charges were related to pre-petition claim years, the bills were stayed and Agway was unable to pay it at this time. The insurance carrier made claim against Agway's Surety for these amounts. In addition, due to the cancellation notices sent by Agway's Surety referred to above, one of Agway's insurance providers made a demand against the Surety in the amount of $7,500. In response to these demands and in anticipation of further demands by other insurance providers relative to cancelled bonds, on January 29, 2003, the Surety filed a suit demanding $3,176 against Agway Energy Products, LLC, Agway Energy Services, Inc., Agway Energy Services-Pa, Inc. and Telmark, LLC. The complaint alleges that these non-debtor subsidiaries of Agway are indemnitors under an indemnity agreement signed by Agway Inc. in relation to the surety bonds against which demands are being made. It is too early to determine the merits of these claims and the impact, if any, on the financial statements. Agway's and these subsidiaries' anticipated claim losses are fully reserved on a discounted basis by Agway and are included in Liabilities Subject to Compromise. The resolution of this Surety claim will determine, to some degree, the timing of when cash gets paid and how much gets paid relative to these claims. 13 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) AND CONSOLIDATED SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) (Thousands of Dollars) CRITICAL ACCOUNTING POLICIES ---------------------------- Critical accounting policies are those accounting policies that are very important to the portrayal of the Company's financial condition and results which require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company believes the following to be critical and could result in materially different amounts being reported under different conditions or using different assumptions. Financial Reporting by Entities in Reorganization Under the Bankruptcy Code SOP 90-7 requires that pre-petition liabilities that are subject to compromise be segregated in Agway's unaudited Condensed Consolidated Balance Sheet as "Liabilities Subject to Compromise" and that revenues, expenses, interest income, realized gains and losses, and provisions for losses resulting from the reorganization of the Debtors be reported separately as reorganization items, except for those revenues and expenses required to be reported as discontinued operations, in the unaudited Condensed Consolidated Statements of Operations. Disposal of Long-Lived Assets/Discontinued Operations With the announcement of our March 6, 2002 plan, our ongoing strategic assessment, and our adoption of SFAS No. 144, we are required to separately report the combined results of businesses that we are taking steps to sell as discontinued operations and to immediately recognize any estimated losses directly related to the sales of those businesses. Actual gains, if any, realized on sale of discontinued operations are not reported until realized. The results of operations of all discontinued businesses are reported in discontinued operations in the periods in which they occur. Discontinued business operations results are reported in the income statement, net of tax, in earnings (loss) from operations of discontinued operations. The recognition of any estimated losses directly related to the sales of these businesses are reported in the income statement, net of taxes, in gain (loss) on disposal of discontinued operations. The estimation of any loss on disposal, including the direct costs to sell, is dependent on numerous factors that continuously change as we proceed in our negotiations to sell these operations. This creates a situation where our estimate can change frequently and could differ significantly from period to period. Commodity Instruments SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. For fair-value hedge transactions in which the Company is hedging changes in fair value of an asset, liability, or firm commitment, changes in the fair value of the derivative instrument are generally offset in the income statement by changes in the hedged item's fair value. For cash-flow hedge transactions, in which the Company is hedging the variability of cash flows related to a variable-priced asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument are reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income are reclassified as earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges are recognized in current-period earnings. 14 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) AND CONSOLIDATED SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) (Thousands of Dollars) CRITICAL ACCOUNTING POLICIES (continued) --------------------------------------- Commodity Instruments (continued) The Company's Energy segment enters into a combination of exchange-traded futures and options contracts and, in certain circumstances, over-the-counter options (collectively "derivatives") to manage the price risk associated with future purchases of the commodities used in its operations, principally heating oil and propane. Energy has fair value hedges associated with its fixed price purchase contracts and cash flow hedges for its variable priced purchase contracts. The derivatives are specifically matched in volume and maturity with the various purchase commitments of the business and generally expire within a year. Under SFAS No. 133, the value of option contracts that Energy enters into has two components: time and intrinsic value. The intrinsic value is the value by which the option is in the money. The remaining amount of option value is attributable to time value. Energy does not include the time value of option contracts in its assessment of hedge effectiveness and therefore records changes in the time value component of its options currently in earnings. In the Agriculture segment, the purchase of corn, soy complex, and oats, which can be sold directly as ingredients or included in feed products sold by Agriculture, creates price risk for this business. Agriculture intends to match its purchase and sales contracts whenever possible to hedge price risk; however, exchange-traded commodity instruments are used principally to manage the price risk associated with unmatched commodity purchases or sales. Agriculture matches all derivative contracts with their underlying purchase or sale contract; however, due to the differences in the changes in the commodity cash price at an Agriculture location versus the Chicago Board of Trade, a highly effective hedging relationship (as defined by SFAS No. 133) has not been achieved. Therefore, the derivatives used in Agriculture are marked to market currently in earnings. Liability for Self-Insurance The Company is primarily self-insured for workers compensation, general and auto liability and certain group health and welfare costs. Self-insurance liabilities are actuarially calculated based on claims filed and an estimate of claims incurred but not yet reported. Projection of losses concerning these liabilities is subject to a high degree of variability due to factors such as claim settlement patterns, litigation trends, legal interpretations, future levels of health care costs and the selection of discount rates. Employee Benefit Plans The actuarial determination of Agway's obligations and expense for Company-sponsored pension and postretirement benefits is dependent on the Company's selection of assumptions including the discount rate, expected long-term rate of return on plan assets, rates of compensation increase and health care cost trend rate. Significant differences between our actual experience or significant changes in our assumptions may materially affect our pension income and net periodic postretirement obligation expense. Revenue Recognition We record revenue from product sales when the goods are shipped, title and risk of loss passes to the customer, and when collection is reasonably assured. Revenue from service contracts is accounted for when the services are provided. 15 PART I. FINANCIAL INFORMATION (continued) AGWAY INC. (DEBTOR-IN-POSSESSION) AND CONSOLIDATED SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) (Thousands of Dollars) CRITICAL ACCOUNTING POLICIES (continued) ---------------------------------------- Income Taxes Agway is subject to income taxes on all income not distributed to patrons as patronage refunds and 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 generally represents the net change in the assets and liabilities for deferred tax. The Company records a valuation allowance when it is necessary to reduce deferred tax assets to amounts for which realization is more likely than not. The provision for income taxes has been allocated between continuing and discontinued operations for all years presented. Environmental Remediation Costs Agway 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 (primarily other PRPs and state environmental funds) are considered in determining the Company's accrual for these losses. 16 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 March 31, 2003 /s/ PETER J. O'NEILL ------------------- ------------------------------------------ Peter J. O'Neill Senior Vice President, Finance & Control (Principal Financial Officer and Chief Accounting Officer) 17 CERTIFICATIONS UNDER NEW EXCHANGE ACT RULES 13A-14 -------------------------------------------------- AND 15D-14 OF THE EXCHANGE ACT OF 1934 -------------------------------------- I, Donald P. Cardarelli, certify that: 1. I have reviewed this quarterly report on Form 10-Q/A for the period ended December 31, 2002 of Agway Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 4. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 5. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 --------------- /s/ Donald P. Cardarelli ------------------------- Donald P. Cardarelli President and Chief Executive Officer 18 CERTIFICATIONS UNDER NEW EXCHANGE ACT RULES 13A-14 -------------------------------------------------- AND 15D-14 OF THE EXCHANGE ACT OF 1934 -------------------------------------- I, Peter J. O'Neill, certify that: 1. I have reviewed this quarterly report on Form 10-Q/A for the period ended December 31, 2002 of Agway Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 4. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 5. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 -------------- /s/ Peter J. O'Neill --------------------- Peter J. O'Neill Senior Vice President, Finance and Control 19