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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 33-70732
TELMARK INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEW YORK 16-0907546
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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333 BUTTERNUT DRIVE, DEWITT, NEW YORK 13214
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 315-449-7935
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 OF 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 AUGUST 12, 1996.
ZERO
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 12, 1996
----- ------------------------------
COMMON STOCK, $1 PAR VALUE 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
J(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
PAGE 1 OF 31. EXHIBIT INDEX APPEARS ON SEQUENTIALLY NUMBERED PAGE 20.
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FORM 10-K ANNUAL REPORT - 1996
TELMARK INC.
CROSS-REFERENCE SHEET
PART I
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Page
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Item 1. & 2. Business and Properties....................................................................... 3
Item 3. Legal Proceedings............................................................................. 4
Item 4. Not Required
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................... 5
Item 6. Not Required
Item 7. Management's Discussion and Analysis of Results of Operations................................. 5
Item 8. Financial Statements.......................................................................... 6
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 19
PART III
Item 10. Not Required
Item 11. Not Required
Item 12. Not Required
Item 13. Not Required
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 20
Signatures................................................................................... 21
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2
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PART I
ITEM 1. & 2. BUSINESS AND PROPERTIES
Telmark Inc. ("Telmark" or the "Company") was organized in 1964 under the
Business Corporation Law of the State of New York. It is a wholly owned
subsidiary of Agway Holdings, Inc., which is an indirect subsidiary of Agway,
Inc. ("Agway").
Agway is subject to certain informational reporting requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Commission. Reports filed with the Commission can be
inspected at the Public Reference Section of the Commission at 450 Fifth Street
N.W., Washington D.C. 20549 and at the regional offices of the Commission at
Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661, and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such materials can be obtained from the Commission at
prescribed rates.
The Company's operations are comprised almost exclusively of direct finance
leasing of agricultural related equipment, vehicles and buildings to farmers or
other rural businesses that serve the agricultural marketplace (herein,
"customers" or "lessees"). The Company's leases offer customers an alternative
to directly purchasing or borrowing to purchase as a means of acquiring the use
of equipment, vehicles or buildings. Telmark has branded its leasing service as
Agrilease(R) and TFS(SM), and the Company highlights its service-oriented
approach, using the tagline "The Flexible Financing Alternative(SM)" in its
advertisements and product brochures. Telmark offers a variety of lease
financing packages, with varying payment schedules on a monthly, quarterly,
semiannual or annual basis, depending on the expected timing of customer cash
flows and customer credit quality and the customer's individual preferences.
With a direct finance lease the customers have use of the leased property over a
specified term for a periodic rental charge: the lease payment. Lease payments
are made in advance of the period and typically the equivalent of two monthly
payments are required in advance at the outset of the lease. Most direct finance
leases offered are for a period which does not exceed the Company's estimate of
the useful life of the equipment or the building leased. Equipment leases
generally do not exceed eight years. Building leases are typically offered for
longer terms (e.g., 5 to 10 years) than for equipment leases, up to maximum
terms of 15 years. As of June 30, 1996, the Company's outstanding leases had an
average original term of 4.8 years and average remaining term of 3.8 years.
Generally, the lessee selects the supplier of the equipment or other property to
be leased and the Company is not responsible for its suitability, performance,
life, or any other characteristics. The Company's only responsibility is to buy
the property from the supplier, lease it to the lessee, and collect the lease
payments. Telmark also offers financing through specific equipment manufacturer
programs. The lessee assumes all obligations of insurance, repairs, maintenance,
service, and property taxes. At the expiration of the direct finance lease term,
the lessee has an option to (i) purchase the leased property, (ii) renew the
lease, or (iii) return the leased property to the Company. In 95% of the
Company's lease transactions, the lessee purchases the leased property or
equipment upon termination of the lease.
Bankruptcies, contract disputes, or defaults by lessees could result in the
non-payment of amounts due to the Company under its leases. The ultimate
collectability of amounts due under its leases is directly dependent upon the
credit practices employed by Telmark and the credit worthiness of the individual
leases comprising its portfolio. Despite current credit practices and the
existence of financial reserves to anticipate the potential impact of default or
nonpayment of leases, there are other factors that could significantly impact
the Company's lease collection experience and its earnings. These factors
include: (i) changes in general economic conditions; (ii) changes in the level
of government expenditures on farm programs and other changes in government
agricultural programs that adversely effect the level of income of customers of
the Company; (iii) adverse weather-related conditions that negatively impact the
agricultural productivity and income of customers of the Company; and (iv)
oversupply of, or reduced demand for, agricultural commodities produced by
customers of the Company.
Credit approvals are made based on the total amount outstanding to the customer.
Lending authority is assigned to members of management depending on position,
training, and experience. The Board of Directors must approve all amounts
exceeding $1 million. Potential lessees undergo a thorough credit approval
process after a Telmark field representative completes a financial application.
Telmark retains title to the equipment or building leased. In addition,
3
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ITEM 1. & 2. BUSINESS AND PROPERTIES (CONT.)
Telmark often obtains a second lien on the real estate owned by the farmer or
lessee as collateral for payments under a building lease. Telmark maintains
monthly delinquency reports which monitor leases that have been delinquent for
over 30 days, and non-earning leases. Generally, accounts past due at least 120
days, as well as accounts in foreclosure or bankruptcy, are transferred to
non-earning status. The potential loses from non-earning leases are mitigated by
the ability of the Company to repossess leased property and to foreclose on
other property in which the Company has been granted a security interest.
The Company realizes most of its net earnings (profits) to the extent that
revenues from its leases exceeds the Company's operating expenses and income
taxes. The Company's "revenue" from a lease is the sum of all payments due under
the lease plus the residual value of the leased property, less the cost of
purchasing the leased property. "Operating expenses" include interest expense,
provision for credit losses (the dollar amount the Company sets aside to cover
its estimated losses should a lessee fail to make required payments under a
lease), and selling and general and administrative expenses including the
Company's payroll costs, rent, advertising costs and fees paid for credit
checking and legal and accounting services. "Interest expense" is the single
largest operating cost of the Company and is primarily the interest it must pay
on the amounts borrowed by the Company from banks and other investors to finance
its leases.
The Company leases all of the office space it uses from Agway. It does not own
any of the real property it uses for office facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation or legal proceedings pending, or to
the best of its knowledge threatened, which, in the opinion of its management,
individually or in the aggregate, would have a material adverse affect on its
operations or financial condition.
ITEM. 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not required.
4
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
All of the common stock of Telmark is indirectly owned by Agway. There is no
public market for such stock and none is expected to develop. During the years
ended June 30, 1996 and 1995, Telmark declared dividends with respect to its
common stock of $0 and $.795 per share, respectively. Under a loan covenant,
dividends are prohibited to the extent they exceed 50% of net income for the
period beginning on January 1, 1995 through the date of determination,
inclusive. As of June 30, 1996, $4,804,940 of retained earnings were free of
this restriction.
ITEM. 6. SELECTED FINANCIAL DATA
Not required.
ITEM. 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
FISCAL 1996 COMPARED WITH 1995. Telmark's net income for 1996 increased by $1.7
million (34.3%) from 1995 to $6.8 million. The increase is due to a larger
outstanding portfolio during the year and a somewhat higher margin on the
portfolio.
Revenue is recognized over the term of the leases. Increases in the lease
portfolio from new booked volume of $175.0 million in 1996 and $170.5 million in
1995, in excess of lease reductions from collection, sale of leases, and net bad
debt expense totaling $134 million and $114 million in 1996 and 1995
respectively, have the effect of increasing total revenues. Total revenues
increased by $6.7 million (15.9%) attributable in part from the $41 million
(12.4%) increase in net leases during fiscal 1996. Interest and finance charges,
as a percentage of the notes and leases, increased slightly from 12.7% in fiscal
1995 to 12.9% in fiscal 1996. During the same period, the average cost of
interest paid on debt remained unchanged at 7.5%.
Selling, general and administrative expenses increased by $1.6 million (20.0%)
to $9.8 million from $8.2 the previous year. Those increases were primarily the
result of additional people, incentives paid relating to the additional new
business booked, and advertising. Other administrative expenses remained low due
to tight expense control. For fiscal 1996, interest expense increased by $2.6
million (14.9%) to $20.3 million due to increased borrowings required to finance
the growth of the lease portfolio while the average cost of interest paid on
debt remained unchanged.
The provision for credit losses increased 2.8% to $7.0 million and is based on
the Company's analysis of reserves required to provide for uncollectible
receivables. Telmark's allowance for credit losses is determined by a periodic
review of the lease portfolio, including analysis of delinquent accounts,
current economic conditions, estimated residual values and credit worthiness of
customers. Reserves are established at a level sufficient to cover all estimated
losses in the portfolio. The basis for the amount is a comprehensive review of
all large and non-earning accounts, and a quantitative and qualitative review of
the entire portfolio based on prior experience. In 1995, Telmark implemented an
aggressive write off policy which resulted in a decrease in the total of
non-earning accounts to $3.8 million. During 1996, the general economy remained
strong and the total of non-earning accounts was further reduced to $2.9
million. However, management believes that it was prudent to increase the level
of reserve to approximately $19.8 million because of the increase in the size of
the overall lease portfolio over the prior year. Accordingly, the provision for
credit losses increased.
5
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
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PAGES
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TELMARK INC.:
Independent Auditor's Report............................................................................ 7
Balance Sheets, June 30, 1996 and 1995.................................................................. 8
Statements of Income and Retained Earnings,
for the years ended June 30, 1996, 1995 and 1994............................................... 9
Statements of Cash Flows for the fiscal years ended June 30, 1996, 1995 and 1994........................ 10
Notes to Financial Statements........................................................................... 11
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6
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Telmark Inc.:
We have audited the accompanying balance sheets of TELMARK INC. (a wholly-owned
subsidiary of Agway Holdings, Inc.) as of June 30, 1996 and 1995, and the
related statements of income and retained earnings 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 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 financial position of Telmark Inc. as of June 30,
1996 and 1995, and the results of its operations and its 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 6, 1996
7
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TELMARK INC.
BALANCE SHEETS
JUNE 30, 1996 AND 1995
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ASSETS
1996 1995
------------ ------------
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Leases and notes, net ....................................................... $374,561,114 $333,091,287
Investments ................................................................. 10,038,421 9,378,727
Equipment, net .............................................................. 1,061,672 1,471,982
Deferred income taxes ....................................................... 11,903,065 13,796,180
Other assets ................................................................ 634,018 895,984
------------ ------------
Total Assets ................................................................ $398,198,290 $358,634,160
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
1996 1995
------------ ------------
Borrowings under lines of credit ............................................ $ 0 $ 10,000,000
Term Debt ................................................................... 273,000,427 245,466,667
Subordinated Debentures ..................................................... 24,258,200 8,174,000
Subordinated notes payable
to Agway Holdings Inc. ................................................ 0 27,000,000
Accounts payable ............................................................ 4,645,459 6,823,754
Payable to Agway Inc. ....................................................... 9,521,703 7,191,968
Income taxes payable to Agway Inc. .......................................... 2,135,917 4,013,691
Accrued expenses, including interest of
$4,061,387 - 1996 and $3,683,417 - 1995 ............................... 6,122,135 5,206,465
------------ ------------
Total Liabilities ........................................................... 319,683,841 313,876,545
------------ ------------
Commitments & Contingencies
Common Stock, $1 par value;
authorized 1,000,000 shares;
issued and outstanding 400,000 shares ................................. 400,000 400,000
Additional paid-in capital .................................................. 31,600,000 4,600,000
Retained earnings ........................................................... 46,514,449 39,757,615
------------ ------------
Total Shareholder's Equity .................................................. 78,514,449 44,757,615
------------ ------------
$398,198,290 $358,634,160
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
TELMARK INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
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1996 1995 1994
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Revenues:
Interest and finance charges ....... $ 47,241,547 $ 40,668,073 $ 33,457,441
Other service fees and other income 1,385,011 1,273,999 1,185,009
------------ ------------ ------------
Total revenues ................. 48,626,558 41,942,072 34,642,450
------------ ------------ ------------
Expenses:
Interest expense ................... 20,305,365 17,674,736 13,258,635
Provision for credit losses ........ 7,000,000 6,812,695 5,926,253
Selling, general and administrative 9,819,581 8,182,331 7,458,929
------------ ------------ ------------
Total expenses ................. 37,124,946 32,669,762 26,643,817
------------ ------------ ------------
Income from operations ......... 11,501,612 9,272,310 7,998,633
Gain from portfolio sale ................ 0 0 485,908
------------ ------------ ------------
Income before income taxes ..... 11,501,612 9,272,310 8,484,541
Provision for income taxes .............. 4,744,778 4,239,990 4,125,581
------------ ------------ ------------
Net income ..................... 6,756,834 5,032,320 4,358,960
Retained earnings, beginning of year .... 39,757,615 35,043,295 31,908,335
Dividends to parent ..................... 0 (318,000) (1,224,000)
------------ ------------ ------------
Retained Earnings, End of Year .......... $ 46,514,449 $ 39,757,615 $ 35,043,295
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
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TELMARK INC.
STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JUNE 30, 1996, 1995, AND 1994
Increase (Decrease) in Cash
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1996 1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................. $ 6,756,834 $ 5,032,320 $ 4,358,960
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization ...... 450,453 256,992 191,024
Deferred taxes ..................... 1,893,115 (929,732) (3,338,207)
Provision for doubtful accounts .... 7,000,000 6,812,695 5,926,253
Gain from portfolio sale ........... (485,908)
Changes in assets and liabilities:
Other assets .................. 261,966 (120,365) (325,946)
Payables ...................... (2,178,295) 1,106,381 1,004,139
Income taxes payable .......... (1,877,774) (751,267) (5,698,440)
Accrued expenses .............. 915,670 631,633 483,275
------------- ------------- -------------
Net cash flow provided by
operating activities .......... 13,221,969 12,038,657 2,115,150
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Leases originated ...................... (174,998,949) (170,494,948) (149,659,398)
Leases repaid .......................... 126,529,122 107,648,633 92,312,814
Proceeds from lease sales .............. 6,425,781
Purchases of equipment ................. (1,127,445) (735,302) (643,538)
Proceeds from sale of equipment ........ 1,290,252
Purchase of investments ................ (659,694) (1,436,651) (1,868,349)
Proceeds from sale of investments ...... 0 457,948 457,108
------------- ------------- -------------
Net cash flow used
in investing activities ....... (48,966,714) (64,560,320) (52,975,582)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in borrowings under
lines of credit .................... (10,000,000) 10,000,000 (7,000,000)
Proceeds from notes payable ............ 62,000,000 88,000,000 112,000,000
Repayment of notes payable ............. (34,622,222) (58,022,222) (59,911,111)
Repayment of capital lease ............. (46,968)
Repayment of subordinated notes payable (27,000,000)
Proceeds from subordinated notes payable 0 6,500,000 2,500,000
Net change in payable to Agway Inc. .... 2,329,735 1,899,885 783,543
Proceeds from sale of debentures ....... 16,084,200 4,462,000 3,712,000
Proceeds from capital contribution ..... 27,000,000
Cash dividends paid .................... 0 (318,000) (1,224,000)
------------- ------------- -------------
Net cash flow provided by
financing activities ............. 35,744,745 52,521,663 50,860,432
------------- ------------- -------------
Net change in cash .......................... 0 0 0
Cash at beginning of year ................... 0 0 0
Cash at end of year ......................... $ 0 $ 0 $ 0
============= ============= =============
Cash paid during period for:
Interest ........................... $ 19,927,395 $ 16,983,499 $ 13,143,190
Taxes .............................. $ 4,729,205 $ 5,941,459 $ 12,844,639
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
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TELMARK INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Operations
Telmark Inc. ("The Company") is in the business of leasing agricultural
related equipment, vehicles, and buildings. Telmark's customers are farmers and
other rural businesses as well as manufacturers and independent dealers that
serve the agricultural marketplace. The Company is indirectly owned and
controlled by Agway Inc. ("Agway"), one of the largest agricultural supply and
services cooperatives in the United States. Telmark is a direct wholly-owned
subsidiary of Agway Holdings, Inc. ("Holdings"), a subsidiary of Agway. Telmark
operates in 27 states including Alabama, Connecticut, Delaware, Georgia,
Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan,
Minnesota, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West
Virginia and Wisconsin.
Cash and Equivalents
The Company considers all investments with a maturity of three months or
less when purchased to be cash equivalents.
Leases
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 which become
past due greater than 120 days.
Gains on lease sales are reduced for estimated future servicing fees and
estimated losses under the recourse provisions of the sale (limited to 7.5% of
the sale proceeds). Servicing amounts are amortized over the life of the sold
leases.
Credit Losses
Provisions for credit losses are charged to income in amounts sufficient
to maintain the allowance at a level considered adequate to cover losses in the
existing portfolio. The net investment of a lease is charged against the
allowance for credit losses when determined to be uncollectible.
Investments
Investments comprise capital stock of a cooperative bank acquired from the
bank at par or stated value. This stock is not traded and is historically
redeemed on a periodic basis by the bank at cost. By its nature, this stock is
held for redemption and is reported at cost. Dividends on this stock are
recorded as a reduction of interest expense and total $942,420, $635,298 and
$848,810 for the years ended June 30, 1996, 1995 and 1994, respectively.
Impairment of Long Lived Assets
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which 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. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. Based on presently
available estimates, there will be no effect when the Company adopts Statement
121 in the first quarter of fiscal 1997.
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.
Equipment
Depreciation is calculated using the straight-line method over the
estimated useful lives of the equipment.
11
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TELMARK INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Advertising Costs
The Company generally expenses advertising costs as incurred. Advertising
expense for the years ended June 30, 1996, 1995 and 1994, was approximately
$607,500, $216,800, and $202,300.
Income Taxes
The Company provides for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (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
which 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.
The Company is included in a consolidated federal tax return filed by
Agway Inc. Under the Agway/Telmark tax sharing agreement, the provision for
income taxes and related credits and carry forwards are calculated on a separate
company basis. The Company files a separate state tax return.
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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
12
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TELMARK INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. LEASES, NOTES AND ALLOWANCE FOR CREDIT LOSSES
Net investment in leases and notes at June 30 are summarized as follows:
1996 1995
------------- -------------
Leases and notes $ 510,925,527 $ 451,840,085
Unearned interest and finance charges (124,230,756) (110,321,837)
Net deferred origination costs 7,642,305 6,904,047
------------- -------------
Net investment 394,337,076 348,422,295
Allowance for credit losses (19,775,962) (15,331,008)
------------- -------------
$ 374,561,114 $ 333,091,287
============= =============
Leases and notes as of June 30 were as follows:
1996 1995
------------- -------------
Leases:
Commercial and agricultural $ 505,563,322 $ 446,485,259
Leasing to Agway Inc.
and subsidiaries 591,255 2,894,265
------------- -------------
506,154,577 449,379,524
Retail installment loans 4,770,950 2,460,561
------------- -------------
Total leases and notes $ 510,925,527 $ 451,840,085
============= =============
Included within the above is unguaranteed estimated residual values of leased
property approximating $54,400,000 and $49,900,000 at June 30, 1996 and 1995,
respectively.
Contractual maturities of leases and notes were as follows at June 30, 1996:
Leases Retail
Commercial To Agway Installment
and Inc. and Loans and
Agricultural Subsidiaries Miscellaneous Total
------------ ------------ ------------- -----
1997 $157,352,862 $ 210,034 $ 1,935,054 $159,497,950
1998 123,148,522 92,047 1,268,764 124,509,333
1999 91,368,558 71,133 579,580 92,019,271
2000 56,072,787 66,144 354,612 56,493,543
2001 29,028,508 73,984 280,133 29,382,625
Thereafter 48,592,085 77,913 352,807 49,022,805
------------ ------------ ------------ ------------
Totals $505,563,322 $ 591,255 $ 4,770,950 $510,925,527
============ ============ ============ ============
Changes in the allowance for credit losses for the years ended June 30
were as follows:
1996 1995 1994
----------- ----------- -----------
Balance, beginning of year $15,331,008 $12,433,825 $12,080,376
Provision charged to operations 7,000,000 6,812,695 5,926,253
Charge-offs (4,611,546) (6,104,708) (6,471,583)
Recoveries 2,056,500 2,189,196 898,779
----------- ----------- -----------
Balance, end of year $19,775,962 $15,331,008 $12,433,825
=========== =========== ===========
As of June 30, 1996 and 1995, the recognition of interest income was suspended
on $2,890,791 and $3,814,034 respectively, of net leases and notes.
13
<PAGE>
TELMARK INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. EQUIPMENT
Equipment, at cost, including capital leases, consisted of the following
at June 30:
<TABLE>
<CAPTION>
1996 Owned Leased Combined
---- ---------- ---------- ----------
<S> <C> <C> <C>
Office equipment ......................... $1,698,135 $ 202,950 $1,901,085
Other equipment .......................... 37,121 37,121
---------- ---------- ----------
Total .............................. 1,735,256 202,950 1,938,206
Less accumulated depreciation
and amortization ................... 825,796 50,738 876,534
---------- ---------- ----------
$ 909,460 $ 152,212 $1,061,672
========== ========== ==========
1995
----
Office equipment ......................... $1,375,569 $1,375,569
Other equipment .......................... 1,370,282 1,370,282
---------- ----------
Total .............................. 2,745,851 2,745,851
Less accumulated depreciation
and amortization ................... 1,273,869 1,273,869
---------- ----------
$1,471,982 $1,471,982
========== ==========
</TABLE>
4. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Currently payable:
Federal ...... $ 1,998,193 $ 4,373,703 $ 5,832,371
State ........ 853,470 796,019 1,631,417
Deferred ......... 1,893,115 (929,732) (3,338,207)
----------- ----------- -----------
$ 4,744,778 $ 4,239,990 $ 4,125,581
=========== =========== ===========
</TABLE>
The Company's effective income tax rate on pre-tax income differs from the
federal statutory tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate ..... 34.0% 35.0% 35.0%
Tax effects of:
State taxes, net of federal benefit 6.7 7.2 10.1
Adjustment of prior years accruals .2 4.0 2.1
Other items ....................... .4 (.5) 1.4
---- ---- ----
Effective income tax rate ............. 41.3% 45.7% 48.6%
===== ===== =====
</TABLE>
14
<PAGE>
TELMARK INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONT.)
The components of the net deferred tax asset as of June 30 were as follows:
1996 1995
------------- -------------
Deferred tax assets:
Lease receivable reserves...... $ 7,356,164 $ 6,074,144
Difference between book and
tax treatment of leases..... 3,582,485 6,575,940
Other reserves................. 717,038 558,142
Other.......................... 430,887 587,954
------------- -------------
Total deferred tax assets. $ 12,086,574 $ 13,796,180
------------- -------------
Deferred tax liabilities:
Other.......................... 183,509 0
------------- -------------
Net deferred tax asset.... $ 11,903,065 $ 13,796,180
============= =============
Based on the Company's history of taxable earnings and its expectations for the
future, management has determined that operating income will more likely than
not be sufficient to recognize its deferred tax assets.
5. BORROWINGS UNDER LINES OF CREDIT AND TERM DEBT
As of June 30, 1996, the Company had two separate credit facilities
available from banks which allow the Company to borrow up to an aggregate of
$204,000,000. An uncommitted short-term line of credit agreement permits the
Company to borrow up to $4,000,000 on an unsecured basis with interest paid upon
maturity. The line bears interest at money market variable rates. A committed
$200,000,000 partially collateralized 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 June 30, 1996 under the short-term line of credit and
the revolving term loan facility was $0 and $146,000,000, 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 $4,000,000 line of credit has
been renewed through December 1996. The $200,000,000 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.
15
<PAGE>
TELMARK INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. BORROWINGS UNDER LINES OF CREDIT AND TERM DEBT (CONT.)
At June 30, term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Notes payable to bank due in varying amount and
dates through July 15, 2000 with interest
ranging from 5.95% to 8.49% ................................................. $146,000,000 $ 94,000,000
Notes payable to insurance companies due in varying
amount and dates through 2000 with interest
ranging from 5.9% to 9.17% .................................................. 126,844,445 151,466,667
Capital lease payable in annual installments
of $78,720 due in 1999 ...................................................... 155,982 0
------------ ------------
Total Term Debt ........................................................... 273,000,427 245,466,667
Subordinated debentures due in varying amount
and dates through 2000 with interest ranging
from 6% to 8.5% ............................................................. 24,258,200 8,174,000
Subordinated non-interest bearing notes payable to Holdings .................... 0 27,000,000
------------ ------------
Total Debt ................................................................ $297,258,627 $280,640,667
============ ============
</TABLE>
The notes payable to bank represents the portion of a $200,000,000 and
$125,000,000 credit facility outstanding at June 30, 1996 and 1995,
respectively. The notes are partially collateralized by the Company's investment
in a cooperative bank having a book value of $10,038,421 and $9,378,727 at June
30, 1996 and 1995, respectively.
Pursuant to the debt agreements between the Company, Holdings and the insurance
companies, Holdings guarantees it will advance funds (in the form of
subordinated notes payable) or otherwise cause the Company to maintain its debt
to equity ratio (as defined) at no greater than five to one. Holdings reserves
the right to withdraw the advances whenever the Company's debt and borrowing
ratios are lower than five to one, provided the withdrawal would not increase
the ratios above five to one and the Company is not in default of any
obligation.
The subordinated debentures represent the outstanding balance of registered
debentures offered to and held by the general public. The debentures are
unsecured and are subordinate to all senior debt of the Company.
On June 19, 1996, the Board of Directors of Telmark approved the repayment of
$27,000,000 of indebtedness owned by Telmark to Holdings.
Based on a discounted cash flow calculation using current prevailing borrowing
rates available to the Company for notes payable with similar terms and
maturities, the fair value of the Company's outstanding term debt approximates
it's carrying value at June 30, 1996 and 1995.
The aggregate amounts of notes payable and capital leases maturing after June
30, 1996 are as follows:
<TABLE>
<CAPTION>
Notes Payable
--------------------------------- Capital Subordinated
Fiscal Year Ending June 30, Bank Ins. Companies Lease Debentures Total
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1997 $ 43,000,000 $ 45,122,222 $ 78,720 $ 0 $ 88,200,942
1998 40,000,000 50,222,223 78,720 10,244,900 100,545,843
1999 23,000,000 23,500,000 19,680 0 46,519,680
2000 36,000,000 4,000,000 0 14,013,300 54,013,300
2001 4,000,000 4,000,000 0 0 8,000,000
Thereafter 0 0 0 0 0
------------- ------------- ------------- ------------- -------------
$ 146,000,000 $ 126,844,445 $ 177,120 $ 24,258,200 $ 297,279,765
Imputed Interest 0 0 (21,138) 0 (21,138)
------------- ------------- ------------- ------------- -------------
$ 146,000,000 $ 126,844,445 $ 155,982 $ 24,258,200 $ 297,258,627
============= ============= ============= ============= =============
</TABLE>
The Company has various loan covenants, of which the most restrictive is to
maintain a tangible net worth of at least $32,000,000, and the debt to equity
ratio (as defined) no greater than five to one. In addition, dividend
distributions and restricted investments (as defined) made after December 31,
1994 are prohibited to the extent they exceed 50% of net income for the period
beginning on January 1, 1995 through the date of determination, inclusive. As of
June 30, 1996, $4,804,940 of retained earnings were free of this restriction.
16
<PAGE>
TELMARK INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. EMPLOYEE BENEFIT PLANS
Employees of Telmark participate in Agway's employee benefit plans, which
include a defined benefit retirement plan, a defined contribution 401(K) plan, a
medical and dental benefit plan, a postretirement medical plan expense, and a
life and health insurance plan. Total benefit costs under these plans are
allocated by Agway to Telmark primarily based on payroll costs. Benefit costs
included in selling, general and administrative expense were approximately
$820,000, $649,000, and $610,000 for the periods ended June 30, 1996, 1995 and
1994, respectively.
7. RELATED PARTY TRANSACTIONS
Cash Management
- ---------------
In lieu of having its own cash account the Company utilizes the depository
accounts of its parent, Agway Inc., drawing checks against these accounts and
making deposits to them. At June 30, 1996 and 1995, the payable to Agway Inc.
includes approximately $4,897,000 and $2,187,000 respectively of checks drawn
that have not yet cleared the banking system.
Inter-Company Transactions
- --------------------------
Selected amounts related to transactions with Agway Inc. and Subsidiaries are
separately disclosed in the financial statements. Certain other transactions for
the years ended June 30 with Agway Inc. and Subsidiaries were approximately:
(Revenue) Expense 1996 1995 1994
----------------- ---------- ---------- ----------
Interest and finance charges............. $ (52,000) $ (259,000) $ (413,000)
Administrative and general expense....... 1,828,000 3,034,000 2,852,000
Interest and finance charges are earned on equipment leases to Agway Inc. and
subsidiaries. The administrative and general expense caption described above
includes certain expenses incurred by Agway Inc. on behalf of the Company,
including rent, data processing, personnel, legal, tax reporting, corporate
management, treasury and auditing. A portion of these expenses were allocated to
the Company and management believes the methodology used to allocate these
expenses is reasonable.
On June 19, 1996, the Board of Directors of Agway Inc. approved a capital
contribution of $27,000,000 from Holdings to Telmark. There were no other
changes in paid in capital or common stock in the three years ended June 30,
1996.
8. COMMITMENTS & CONTINGENCIES
COMMITMENTS
Commitments to extend credit 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 $14,800,000 and $27,600,000 respectively.
During 1994 and prior, the Company entered into lease sale contracts which
contain limited recourse provisions which are limited to 7.5% of the sale
proceeds. At June 30, 1996, the Company was contingently liable for
approximately $2,000,000 under the limited recourse provisions. The Company
includes this potential liability in establishing its allowance for credit
losses.
LEGAL PROCEEDINGS
The Company is not a party to any litigation or legal proceedings pending, or to
the best of its knowledge threatened, which, in the opinion of its management,
individually or in the aggregate, would have a material adverse affect on its
operations or financial condition.
17
<PAGE>
TELMARK INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of its business to meet the financing needs of its customers.
These financial instruments consist of commitments to extend credit not
recognized in the balance sheet. The contract amounts of those instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of the instrument. The Company uses the
same credit and collateral policies in making commitments as it does for
on-balance sheet instruments.
10. CONCENTRATIONS
Telmark's business is concentrated in agriculture in the New England,
Mid-Atlantic, and Midwest states with approximately 75% of its leases directly
related to production agriculture. At June 30, 1996, approximately 52% of the
Company's net lease investment was in the states of Ohio, Pennsylvania, Michigan
and New York. Adverse developments in any of these areas of concentration could
affect operating results adversely.
The Company endeavors to limit the effects of changes in interest rates by
matching as closely as possible, on an ongoing basis, the maturity and repricing
charateristics of funds borrowed to finance its leasing activities with the
maturity and repricing characteristics of its lease portfolio. However, a rise
in interest rates would increase that portion of the debt which is not precisely
matched to the characteristics of the portfolio and could lower the value of the
Company's outstanding leases in the secondary market.
18
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Not Required.
ITEM 11. EXECUTIVE COMPENSATION
Not Required.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not Required.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Required.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE
(A) INDEX TO DOCUMENT LIST LOCATION
--------
(1) FINANCIAL STATEMENTS
Among the responses to this Item 14(a)(1) are the following
financial statements which are included in Item 8.
(i) Independent Auditor's Report...................................7
(ii) Balance Sheets, June 30, 1996 and 1995.........................8
(iii) Statements of Income and Retained Earnings,
for the years ended June 30, 1996, 1995, and 1994..............9
(iv) Statements of Cash Flow, for the years ended
June 30, 1996, 1995, and 1994.................................10
(v) Notes to Financial Statements.................................11
(2) FINANCIAL STATEMENT SCHEDULES
Schedules are omitted for the reason that they are not
required or are not applicable, or the required information
is shown in the financial statements or notes thereto.
(3) THE FOLLOWING REQUIRED EXHIBITS ARE HEREBY INCORPORATED BY REFERENCE
TO PREVIOUSLY FILED REGISTRATION STATEMENTS FILED AS SPECIFIED.
3 - ARTICLES OF INCORPORATION
3(a) - Certificate of Incorporation of Telmark Inc. dated
June 4, 1964, as amended September 8, 1964; January 15,
1975; and June 16, 1987, filed by reference to Exhibit 3
of the Registration Statement (Form S-1), File No.
33-70732, dated October 22, 1993.
4 - INSTRUMENT DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4(a) - The Indenture dated as of September 30, 1993, between
Telmark Inc. and OnBank & Trust Co. of Syracuse,
New York, Trustee, filed by reference to Exhibit 4 of the
Registration Statement (Form S-1), File No. 33-70732,
dated October 22, 1993.
4(b) - Telmark Inc. Board of Directors resolutions authorizing
the issuance of Debentures under the Indenture dated as
of June 21, 1995, filed by reference to Exhibit 4 of the
post effective Amendment No. 1 to the Registration
Statement (Form S-1), File No. 33-84442, dated August 28,
1995.
10 - MATERIAL CONTRACTS
10(a)- The Agreement dated as of October 1, 1986 among
Agway Inc., Agway Financial Corporation, Telmark Inc.,
and Agway Holdings, Inc., as amended by Addendum to
Agreement effective June 29, 1990, filed by reference to
Exhibit 10 of the Registration Statement (Form S-1),
File No. 33-70732, dated October 22, 1993.
(3) THE FOLLOWING REQUIRED EXHIBIT IS HEREBY ATTACHED TO THIS ANNUAL
REGISTRATION FORM 10-K BELOW:
3 - BY-LAWS
3(a) - Bylaws of Telmark Inc. as Amended
September 19, 1995 ....................................22
(B) REPORT ON FORM 8-K
No reports on Form 8-K for the three months ended June 30,
1996, have been filed.
20
<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.
TELMARK INC.
(Registrant)
By DANIEL J. EDINGER
President
(Principal Executive Officer)
Date 08/12/96
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 date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
DANIEL J. EDINGER President 08/12/96
(Principal Executive Officer)
PETER J. O'NEILL Treasurer and Chairman of the Board 08/12/96
and Director
(Principal Financial Officer
& Principal Accounting Officer)
SAMUEL F. MINOR Director 08/12/96
GARY K. VANSLYKE Director 08/12/96
WILLIAM W. YOUNG Director 08/12/96
STANLEY A. WEEKS Director 08/12/96
CHRISTIAN F. WOLFF, JR. Director 08/12/96
21
<PAGE>
BYLAWS
OF
TELMARK INC.
OFFICES
-------
1. The principal office of the corporation shall be in the City of
Syracuse, County of Onondaga, and State of New York.
2. The corporation may also have offices at such other places as the Board
of Directors may from time to time determine or the business of the corporation
may require.
MEETINGS OF STOCKHOLDERS
------------------------
3. All meetings of stockholders for the election of directors shall be held
at the principal office of the corporation in the State of New York. Meetings of
stockholders for any other purpose may be held at such place within the State of
New York as shall be stated in the notice of the meeting, or in a duly executed
waiver of notice thereof.
4. The annual meeting of the stockholders of the corporation, commencing
with the year 1965, shall be held on the fourth Monday of July in each year if
not a legal holiday and, if a legal holiday, then on the next secular day
following at ten o'clock in the forenoon, when they shall elect a Board of
Directors by a plurality vote, and transact such other business as may properly
come before the meeting.
5. Written notice of every meeting of stockholders, stating the purpose or
purposes for which the meeting is called, the time when and the place within the
State of new York where it is to be held, shall be served, either personally or
by mail, upon each stockholder entitled to vote at such meeting and upon each
stockholder of record who, by reason of any action proposed at such meeting,
would be entitled to have his stock appraised if such action were taken, not
less than ten nor more than forty days before the meeting. If mailed, such
notice shall be directed to a stockholder at his address as it shall appear on
the books of the corporation unless he shall have filed with the Secretary of
the corporation written request that notices intended for him be mailed to some
other address, in which case it shall be mailed to the address designated in
such request.
22
<PAGE>
6. Special meetings of the stockholders for any purposes or purposes,
unless otherwise prescribed by statute or by the certificate of incorporation,
may be called by resolution of the Board of Directors or by the President, and
shall be called by the President or Secretary at the request in writing of a
majority of the Board of Directors or at the request in writing by stockholders
owning a majority in amount of the entire capital stock of the corporation
issued and outstanding. Such request shall state the purpose or purposes of the
proposed meeting.
7. Business transacted at all special meetings shall be confined to the
objects stated in the call.
8. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall be
requisite and shall constitute a quorum at all meetings of the stockholders for
the transaction of business except as otherwise provided by statute or by the
certificate of incorporation or by these bylaws. If a quorum shall not be
present or represented, the stockholders entitled to vote thereat, present in
person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
9. When a quorum is present or represented at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of the statutes or
of the certificate of incorporation or of these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
10. Each stockholder of record having the right to vote shall be entitled
at every meeting of the stockholders of the corporation to one vote for each
share of stock having voting power standing in the name of such stockholder on
the books of the corporation, and such votes may be cast either in person or by
written proxy.
11. Every proxy must be executed in writing by the stockholders or by his
duly authorized attorney and shall be field with the secretary of the meeting
before being voted. No proxy shall be valid after the expiration of eleven
months from the date of its execution unless it shall have specified therein its
duration. Every proxy shall be revocable at the pleasure of the person executing
it or of his personal representatives or assigns.
23
<PAGE>
12. The annual election of directors shall be conducted by two inspectors
of election. The inspectors shall be chosen at each annual meeting of
stockholders to serve for the ensuing year, and if such inspectors shall not be
present at any election, the stockholders present at the meeting may, by a per
capita vote, choose others in their place. The inspectors, before entering on
the discharge of their duties, shall be sworn faithfully to execute the duties
of inspectors with strict impartiality, and according to the best of their
ability, and shall make a written certificate of the result of the election.
DIRECTORS
---------
13. The Board of Directors shall consist of not less than three (3) nor
more than fifteen (15) Directors, which number shall be fixed by the Board of
Directors, each of whom shall be at least twenty-one (21) years of age. The
number of Directors may be altered by a resolution adopted by a majority of the
entire Board of Directors or the Shareholders. Directors shall be elected at the
Annual Meeting of the Stockholders, except as proved in Section 14 of the
By-Laws and in the case of newly created Directorships resulting from an
increase in the number of Directors, by plurality vote and each Director shall
be elected to serve for one (1) year and until his successor shall be elected
and shall qualify.
14. If the office of any director or directors shall become vacant for any
reason, the directors in office, although less than a quorum, by a majority
vote, may choose a successor or successors, who shall hold office for the
unexpired term in respect to which such vacancy occurred or until the next
election of directors, or any vacancy may be filled by the stockholders at any
meeting thereof.
15. The business of this corporation shall be managed by its Board of
Directors which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these bylaws required to be exercised or done by the
stockholders.
MEETINGS OF THE BOARD
---------------------
16. The directors may hold their meetings at the office of the corporation
in Syracuse, New York, or at such other places, either within or without the
State of New York as they may from time to time determine.
24
<PAGE>
17. Regular meetings of the board may be held without notice at such time
and place as shall from time to time be determined by resolution of the board.
18. Special meetings of the board may be called by the President on two
days' notice to each director either personally or by mail or by wire; special
meetings shall be called by the President or Secretary in a like manner on the
written request of two directors.
19. At all meetings of the board, the presence of a majority of the entire
number of directors shall be necessary to constitute a quorum and sufficient for
the transaction of business and any act of a majority present at a meeting, at
which there is a quorum, shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation or by these bylaws. If a quorum shall not be present at any
meeting of directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
20. The Board of Directors may designate from their number not less than
one-third of the board then in office an Executive Committee, if deemed
necessary, and a Finance Committee, if also deemed necessary, and may also
designate such other committees from their number which they may wish to
establish for such specific purposes as they may specify.
Nothing herein contained shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor, and in
the absence of fraud, any such director or any corporation of which he is an
officer, director, stockholder or employee, or in which he is financially
interested, may be a party to or financially interested in any contract,
transaction or act of the corporation.
COMPENSATION OF DIRECTORS
-------------------------
21. Directors, as such, shall not receive any stated salary for their
services but, by resolution of the board, a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the board. Nothing herein contained shall be construed to preclude
any director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
25
<PAGE>
WAIVER OF NOTICE
----------------
22. Whenever by statute, the provisions of the Certificate of Incorporation
or these bylaws, the stockholders or the Board of Directors are authorized to
take any action after notice, such notice may be waived, in writing before or
after the holding of the meeting, by the person or persons entitled to such
notice, or in the case of a stockholder, by his attorney thereunto authorized.
OFFICERS
--------
23. The officers of the corporation shall be a Chairman of the Board of
Directors, a President, one or more Vice-Presidents, one or more Assistant
Vice-Presidents, a Secretary, a Treasurer, one or more Assistant Secretaries and
one or more Assistant Treasurers. Any two of the aforesaid offices, except those
of Chairman of the Board, the President and any Vice-President, may be held by
the same person.
24. The directors, immediately after each annual meeting of stockholders,
shall appoint from their number a Chairman of the Board, a President and may
also choose a Vice-President, a Secretary and a Treasurer who need not be
members of the board.
25. The board may appoint such other officers, agents and employees as it
shall deem necessary who shall have such authority and shall perform such duties
as from time to time shall be prescribed by the board.
26. The salaries of all officers of the corporation shall be fixed by the
Board of Directors.
27. The officers of the corporation shall hold office for one year and
until their successors are chosen and qualify in their stead. Any officer
elected or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the directors. If the office of any officer
becomes vacant for any reason, the vacancy shall be filled by the Board of
Directors.
CHAIRMAN OF THE BOARD
---------------------
28. The Chairman of the Board shall preside at all meetings of the
stockholders and directors and shall see that all orders and resolutions of the
board are carried into effect.
26
<PAGE>
PRESIDENT
---------
29. The President shall be the executive officer of the corporation; he
shall, in the absence of the Chairman of the Board, preside at all meetings of
the stockholders and directors; he shall have the management of the business of
the corporation and shall, subject to the Chairman of the Board, see that all
orders and resolutions of the board are carried into effect.
VICE-PRESIDENT
--------------
30. The Vice-Presidents, in the order designated by the Board of Directors
and in the absence or disability of the President, shall perform the duties and
exercise the powers of the President. Each Vice-President shall have such powers
and shall perform such others duties as the Board of Directors shall prescribe.
SECRETARY
---------
31. The Secretary shall attend all sessions of the board and all meetings
of the stockholders and record all votes and the minutes of all proceedings in a
book to be kept for that purpose. He shall give or cause to be given notice of
all meetings of stockholders and special meetings of the Board of Directors and
shall perform such other duties as may be prescribed by the Board of Directors.
He shall keep in safe custody the seal of the corporation and affix it to any
instrument when authorized by the Board of Directors.
TREASURER
---------
32. The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the corporation as may be ordered by the board, taking
proper vouchers for such disbursements, and shall render to the President and
directors at the regular meetings of the board, or whenever they may require it,
an account of all his transactions as Treasurer and of the financial condition
of the corporation.
27
<PAGE>
33. Each such officer shall, if required by the board, give the corporation
a bond in such sum or sums and with such surety or sureties as shall be
satisfactory to the board, conditioned upon the faithful performance of his
duties and for the restoration to the corporation in case of his death,
resignation, retirement or removal from office of all books, papers, vouchers,
money and other property of whatever kind in his possession, or under his
control belonging to the corporation.
CERTIFICATES OF STOCK
---------------------
34. The certificates of stock of the corporation shall be numbered and
entered in the books of the corporation as they are issued. They shall exhibit
the holder's name and the number of shares and shall be signed by the President
or a Vice-President and the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary and shall bear the corporate seal. Such seal may be a
facsimile, engraved or printed. Where any such certificate is signed by a
transfer agent or transfer clerk, and by a registrar, the signature of any such
officers may be facsimile, engraved or printed.
LOST CERTIFICATES
-----------------
35. The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
corporation, alleged to have been lost or destroyed, upon the making of an
affidavit of the fact by the person claiming the certificate of stock to be lost
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or give the corporation a bond in such sum and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost or destroyed.
TRANSFERS OF STOCK
------------------
36. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate of stock duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and to cancel the old certificate; every such transfer of stock shall
be entered on the stock book of the corporation which shall be kept at its
principal office in Ithaca.
28
<PAGE>
37. The corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof, and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
share on the part of any other person whether or not it shall have express or
other notice thereof, except as expressly provided by the laws of New York.
CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE
--------------------------------------------------
38. The Board of Directors may prescribe a period of not exceeding forty
days prior to the date of meetings of the stockholders or prior to the last day
on which the consent or dissent of stockholders may be effectively expressed for
any purpose without a meeting, during which no transfer of stock on the books of
the corporation may be made; or in lieu of prohibiting the transfer of stock,
may fix a time not more than forty days prior to the date of any meeting of
stockholders or prior to the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose without a meeting, as
the time as of which stockholders entitled to notice of and to vote at such a
meeting or whose consent or dissent is required or may be expressed for any
purpose, as the case may be, shall be determined; and all persons who were
holders of record of voting stock at such time and no others shall be entitled
to notice of and to vote at such meeting or to express their consent or dissent,
as the case may be. The Board of Directors may also fix a time not exceeding
forty days preceding the date fixed for the payment of any dividend or the
making of any distribution, or for the delivery of evidences of rights, or
evidences of interests arising out of any change, conversion or exchange of
capital stock, as a record time for the determination of the stockholders
entitled to receive any such dividend, distribution, rights or interests, or, at
its option, in lieu of so fixing a record time, may prescribe a period not
exceeding forty days prior to the date for such payment, distribution or
delivery during which no transfer of stock on the books of the corporation may
be made.
DIVIDENDS
---------
39. Dividends upon the capital stock of the corporation, subject to any
provisions of the Certificate of Incorporation relating thereto may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
29
<PAGE>
40. Before payment of any dividend, there may be set aside out of the net
profits of the corporation available for dividends such sum or sums as the
directors from time to time in their absolute discretion think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interests of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
SEAL
----
41. The seal of the corporation shall be circular in form and contain the
name of the corporation, the year of its organization and the words "Corporate
Seal, New York". The seal may be used by causing it to be impressed directly on
the instrument or writing to be sealed, or upon adhesive substance affixed
thereto. The seal on any corporate obligation for the payment of money may be a
facsimile, engraved or printed.
CHECKS
------
42. All checks or demands for money and notes of the corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
AMENDMENTS
----------
43. The bylaws may be amended or repealed by the affirmative vote of a
majority of the Board of Directors, at any regular meeting, or at any special
meeting of the Board if notice of the proposed amendment or repeal shall have
been given. If any bylaw regulating an impending election of directors is
adopted or amended or repealed by the Board, there shall be set forth in the
notice of the next meeting of the stockholders for the election of directors the
bylaw so adopted or amended or repealed, together with a concise statement of
the changes made.
FISCAL YEAR
-----------
44. The fiscal year of the corporation shall begin on the first day of July
in each year, unless otherwise provided by the Board of Directors.
30
<PAGE>
INDEMNIFICATION OF DIRECTORS, OFFICERS, AND EMPLOYEES
-----------------------------------------------------
45. The corporation shall indemnify each director, officer, or employee of
this corporation and each person who at the request of the corporation serves as
an officer, director or employee of another corporation or other form of
business enterprise against judgments, fines, amounts paid in settlement,
reasonable expenses including attorneys fees actually and necessarily incurred
or as a result of any action, suit or proceeding pending or threatened or in
connection with an appeal therein, whether civil or criminal, in which such
person may be involved by reason of his being or having been a director,
officer, or employee of this corporation or of such other enterprise. Such
indemnification shall be made subject to, in accordance with, and to the maximum
extent provided under the laws of the State of New York. The corporation may
purchase and maintain insurance on behalf of any such directors, officers, or
employees against such liabilities asserted against such persons whether or not
the corporation would have the power to indemnify such directors, officers, or
employees against such liabilities under the laws of the State of New York. If
any expenses or other amounts are paid by way of indemnification other than by
court order or action by the shareholders or any insurance carrier, the
corporation shall provide notice of such payment to the shareholders in
accordance with the provisions of the laws of the State of New York.
(Section 45. effective September 19, 1995)
31
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<PERIOD-END> JUN-30-1996
<CASH> 0
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<RECEIVABLES> 510,925,527
<ALLOWANCES> 19,775,962
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0
0
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