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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
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - --- ACT OF 1934
For the transition period from to
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Commission file number 33-70732
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TELMARK, INC.*
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(Exact name of registrant as specified in its charter)
New York 16-0907546
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Butternut Drive, DeWitt, New York 13214
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(Address of principal executive offices) (Zip Code)
315-449-7935
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(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
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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 31, 1996
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Common Stock, $1 par value per share 400,000 shares
* Telmark is a direct wholly owned subsidiary of Agway Holdings, Inc., a
subsidiary of Agway, Inc., which is a reporting Company under the
Securities Exchange Act of 1934, and meets the conditions set forth in
General Instructions H(1)(a) and (b) of Form 10-Q and is therefore
filing this form with the reduced disclosure format.
1
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TELMARK, INC.
INDEX
PART I. FINANCIAL INFORMATION
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PAGES
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ITEM 1. Financial Statements (unaudited)
Condensed Balance Sheets as of March 31, 1996 and June 30, 1995................................... 3
Condensed Statements of Income and Retained Earnings, for the three and nine months ended
March 31, 1996 and 1995........................................................................... 4
Condensed Statements of Cash Flows for the nine months ended
March 31, 1996 and 1995........................................................................... 5
Notes to Condensed Financial Statements........................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.................................................................. 8
SIGNATURES.................................................................................................. 9
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2
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PART I. FINANCIAL INFORMATION
TELMARK, INC.
CONDENSED BALANCE SHEETS
ASSETS
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<CAPTION>
March 31, June 30,
1996 1995
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(Unaudited) (Note)
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Leases and notes .......................................................... $ 477,790,302 $ 451,840,085
Unearned interest and finance charges ..................................... (115,512,704) (110,321,837)
Net deferred origination costs ............................................ 7,275,093 6,904,047
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Net investment ...................................................... 369,552,691 348,422,295
Allowance for credit losses ............................................... (19,161,068) (15,331,008)
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Leases and notes, net ............................................... 350,391,623 333,091,287
Investments ............................................................... 10,038,421 9,378,727
Equipment, net ............................................................ 2,171,754 1,471,982
Deferred income taxes ..................................................... 15,264,147 13,796,180
Other assets .............................................................. 911,469 895,984
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$ 378,777,414 $ 358,634,160
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LIABILITIES AND SHAREHOLDER'S EQUITY
Short term borrowings ..................................................... $ 6,000,000 $ 10,000,000
Long term debt ............................................................ 245,844,445 245,466,667
Long term debentures ...................................................... 19,666,512 8,174,000
Subordinated notes payable
to Agway Holdings Inc. .............................................. 27,000,000 27,000,000
Accounts payable .......................................................... 7,532,197 6,823,754
Payable to Agway Inc. ..................................................... 6,747,405 7,191,968
Income taxes payable to Agway Inc. ........................................ 8,201,923 4,013,691
Accrued expenses, including interest of
$5,969,771 and $3,683,417 ........................................... 7,959,780 5,206,465
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328,952,262 313,876,545
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Common Stock, $1 par value;
authorized 1,000,000 shares;
issued and outstanding 400,000 shares ............................... 400,000 400,000
Additional paid-in capital ................................................ 4,600,000 4,600,000
Retained earnings ......................................................... 44,825,152 39,757,615
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49,825,152 44,757,615
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$ 378,777,414 $ 358,634,160
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</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 of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to condensed financial statements.
3
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PART I. FINANCIAL INFORMATION (CONTINUED)
TELMARK, INC.
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
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<CAPTION>
Three months ended Nine months ended
March 31, March 31,
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Revenues:
Interest and finance charges .................... $ 11,654,364 $ 10,344,674 $ 34,725,574 $ 29,627,025
Other service fees and other income ............. 397,152 384,464 1,020,693 950,599
------------ ------------ ------------ ------------
Total revenues ............................. 12,051,516 10,729,138 35,746,267 30,577,624
Expenses:
Interest expense ................................ 4,386,748 4,027,125 14,802,535 12,833,521
Provision for credit losses ..................... 1,636,000 1,564,000 4,614,400 4,802,695
Selling, general and administrative ............. 2,794,521 2,191,541 7,750,259 6,149,023
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Total expenses ............................. 8,817,269 7,782,666 27,167,194 23,785,239
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Income before income taxes ................. 3,234,247 2,946,472 8,579,073 6,792,385
Provision for income taxes ............................ 1,298,700 1,190,650 3,511,536 2,902,907
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Net income ................................. 1,935,547 1,755,822 5,067,537 3,889,478
Retained earnings, beginning of period ................ 42,889,605 36,858,951 39,757,615 35,043,295
Dividends to parent ................................... 0 0 0 (318,000)
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Retained earnings, end of period ................ $ 44,825,152 $ 38,614,773 $ 44,825,152 $ 38,614,773
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
4
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PART I. FINANCIAL INFORMATION (CONTINUED)
TELMARK INC.
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
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<CAPTION>
Nine months ended
March 31,
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1996 1995
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CASH FLOW FROM OPERATING ACTIVITIES ..................... 16,123,269 14,005,665
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CASH FLOWS FROM INVESTING ACTIVITIES:
Leases originated ................................ (114,399,196) (119,639,574)
Leases repaid .................................... 92,484,460 77,741,395
Purchases of equipment ........................... (974,566) (558,615)
Purchases of investments ......................... (659,694) (1,436,651)
Proceeds from sale of investments ................ 0 457,948
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Net cash flow used in investing activities ... (23,548,996) (43,435,497)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in borrowings under lines of credit ... (4,000,000) 16,000,000
Proceeds from notes payable ...................... 22,000,000 44,000,000
Repayment of notes payable ....................... (21,622,222) (40,022,222)
Proceeds from sale of debentures ................. 11,492,512 3,736,000
Net change in subordinated notes payable ......... 0 5,500,000
Net change in payable to Agway Inc. .............. (444,563) 534,054
Cash dividends paid .............................. 0 (318,000)
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Net cash flow provided by financing activities 7,425,727 29,429,832
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Net change in cash ........................... 0 0
CASH AT BEGINNING OF YEAR ............................... 0 0
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Cash at end of year .......................... $ 0 $ 0
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See accompanying notes to condensed financial statements.
5
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PART I. FINANCIAL INFORMATION (CONTINUED)
TELMARK INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Telmark Inc.
("Telmark" or 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- and nine-month period ended March 31, 1996, are not
necessarily indicative of the results that may be expected for the year
ended June 30, 1996. For further information, refer to the 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.
NOTE 2 - Notes Payable
As of March 31, 1996, the Company had two separate credit facilities
available from banks which allow the Company to borrow up to an aggregate
of $204,000. An uncommitted short-term line of credit agreement permits
the Company 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 the Company 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 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. The Company believes it has sufficient lines of credit in place to
meet interim funding needs.
6
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PART I. FINANCIAL INFORMATION (CONTINUED)
TELMARK INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN 000'S ROUNDED TO NEAREST HUNDRED THOUSAND)
RESULTS OF OPERATIONS
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Total revenues for the third quarter increased by $1,300 (12.3%) to $12,000
compared to the third quarter of the prior year, and increased by $5,200 (16.9%)
to $35,700 for the nine month period ended March 31, 1996 as compared to the
corresponding period in the prior year due to higher investment in leases and
notes and higher rates charged on new business. The Company's net investment in
leases and notes increased by $8,500 (2.3%) in the third quarter and $21,100
(6.1%) for the nine months ended March 31, 1996 to $369,600 as compared to the
corresponding periods in the prior year.
Total expenses increased $1,000 (13.3%) for the third quarter and $3,400 (14.2%)
for the nine month period to date as compared to the corresponding periods in
the prior year. The increase in expenses is primarily attributable to increases
in interest expense and selling, general and administrative expenses. Interest
expense increased $400 (8.9%) for the third quarter compared to the third
quarter of the prior year and by $2,000 (15.3%) for the nine month period as
compared to the prior year. The Company's higher average levels of interest
bearing debt compared to corresponding periods in the previous year and slightly
higher interest rates on new and replacement debt outstanding are the primary
reasons for the increase in interest expense for the nine month period compared
to the corresponding period in the previous year. The increase in interest
expense for the three months is partly offset by a larger patronage refund from
a cooperative bank. The refund was $900 in the third quarter compared to a
refund of $600 in the third quarter of the prior year. Selling, general and
administrative expenses increased $600 (27.5%) for the quarter and increased
$1,600 (26.0%) for the nine month period ended March 31, 1996 as compared to the
corresponding periods of the prior year. Principal increases for the nine months
are attributable to increased advertising of $500 and the additional people
required to manage the larger portfolio, increasing salaries by $500.
The provision for credit losses increased $100 (4.6%) to $1,600 in the third
quarter and decreased $200 (3.9%) to $4,600 for the nine months ended March 31,
1996 as compared to the corresponding periods during the prior year due to
changes in increases to the size of the portfolio and changes in portfolio
currency.
Income from operations for the third quarter was $3,200, which was an increase
of $300 (9.8%) over the third quarter of the prior year, and $8,600 for the nine
months ended March 31, 1996, which was an increase of $1,800 (26.3%) compared to
the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
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The Company has principally financed its operations, including the growth of its
lease portfolio, through borrowing under lines of credit, private placements of
debt with institutional investors, sale of leases, principal collections on
leases, sale of debentures to the public, and cash provided from operations.
Sources of longer term financing include the following:
AMOUNTS OUTSTANDING AT
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SOURCE OF DEBT MARCH 31, 1996
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Banks - due 5/96 - 8/99 with interest from 6.0% - 8.5% $106,000
Insurance Companies - due 5/96 - 11/00
with interest from 5.7% - 9.2% 139,844
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Long-term debt 245,844
Subordinated debt - due 12/97 - 3/00
with interest from 6.0% - 8.5% 19,667
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Total debt $265,511
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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 revolving term agreement loan facility is available through
February 1, 1997. The Company believes it has sufficient lines of credit in
place to meet interim funding needs.
7
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three months
ended March 31, 1996.
8
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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.
TELMARK, INC.
(REGISTRANT)
DATE 5/2/96 BY /S/ DANIEL J. EDINGER
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DANIEL J. EDINGER, PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
DATE 5/2/96 BY /S/ PETER J. O'NEILL, TREASURER
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PETER J. O'NEILL, TREASURER
(PRINCIPAL ACCOUNTING OFFICER)
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 477,790,302
<ALLOWANCES> 19,161,068
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,462,287
<DEPRECIATION> 1,290,533
<TOTAL-ASSETS> 378,777,414
<CURRENT-LIABILITIES> 0
<BONDS> 271,510,957
0
0
<COMMON> 400,000
<OTHER-SE> 49,425,152
<TOTAL-LIABILITY-AND-EQUITY> 378,777,414
<SALES> 0
<TOTAL-REVENUES> 35,746,267
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,614,400
<INTEREST-EXPENSE> 14,802,535
<INCOME-PRETAX> 8,579,073
<INCOME-TAX> 3,511,536
<INCOME-CONTINUING> 5,067,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,067,537
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
