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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 September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 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 November 1, 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, September 30, 1996 and June 30, 1996.................................... 3
Condensed Statements of Income and Retained Earnings, for the three months ended
September 30, 1996 and 1995....................................................................... 4
Condensed Statements of Cash Flows for the three months ended
September 30, 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.................................................................. 9
SIGNATURES.................................................................................................. 10
</TABLE>
2
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PART I. FINANCIAL INFORMATION
TELMARK, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
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(Unaudited)
<S> <C> <C>
Leases and notes..................................................... $ 524,006,620 $ 510,925,527
Unearned interest and finance charges................................ (124,751,142) (124,230,756)
Net deferred origination costs....................................... 7,595,964 7,642,305
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Net investment................................................. 406,851,442 394,337,076
Allowance for credit losses......................................... (21,363,567) (19,775,962)
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Leases and notes, net.......................................... 385,487,875 374,561,114
Investments.......................................................... 10,038,421 10,038,421
Equipment, net....................................................... 1,141,566 1,061,672
Deferred income taxes................................................ 10,151,522 11,903,605
Other assets........................................................ 584,185 634,018
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Total Assets $ 407,403,569 $ 398,198,290
============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Borrowings under lines of credit..................................... $ 160,200,000 $ 146,000,000
Term notes........................................................... 121,473,449 127,000,427
Subordinated debentures.............................................. 26,529,800 24,258,200
Accounts payable..................................................... 4,345,678 4,645,459
Payable to Agway Inc................................................. 4,916,425 9,521,703
Income taxes payable to Agway Inc.................................... 1,496,474 2,135,917
Accrued expenses, including interest of
$6,626,406 - 1997 and $4,061,387 - 1996........................ 8,314,401 6,122,135
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Total Liabilities................................................ 327,276,227 319,683,841
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Commitments & Contingencies.........................................
Common Stock, $1 par value;
authorized 1,000,000 shares;
issued and outstanding 400,000 shares.......................... 400,000 400,000
Additional paid-in capital........................................... 31,600,000 31,600,000
Retained earnings.................................................... 48,127,342 46,514,449
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80,127,342 78,514,449
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$ 407,403,569 $ 398,198,290
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</TABLE>
See accompanying notes to condensed financial statements.
3
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TELMARK, INC.
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Revenues:
Interest and finance charges................... $12,985,072 $11,227,862
Other service fees and other income............ 331,955 297,822
Total revenues............................ 13,317,027 11,525,684
Expenses:
Interest Expense............................... 5,955,589 5,257,197
Provision for credit losses.................... 1,490,000 1,372,000
Selling, general and administrative............ 3,086,122 2,479,064
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Total expenses............................ 10,531,711 9,108,261
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Income before income taxes................ 2,785,316 2,417,423
Provision for income taxes........................... 1,172,423 1,020,498
Net income................................ 1,612,893 1,396,925
Retained earnings, beginning of period............... 46,514,449 39,757,615
Dividends to Parent.................................. 0 0
Retained earnings, end of period.......... $48,127,342 $41,154,540
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</TABLE>
See accompanying notes to condensed financial statements.
4
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TELMARK INC.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
Increase (Decrease) in Cash
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<CAPTION>
1996 1995
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NET CASH FLOW FROM OPERATING ACTIVITIES: .............. $ 6,267,172 $ 6,185,540
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CASH FLOWS FROM INVESTING ACTIVITIES:
Leases originated ................................ (39,714,409) (33,888,875)
Leases repaid .................................... 27,297,648 20,731,966
Purchases of equipment ........................... (189,755) (277,072)
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Net cash flow used in investing activities ... (12,606,516) (13,433,981)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in borrowings under
lines of credit .............................. 14,200,000 10,500,000
Repayment of notes payable ....................... (5,511,111) (5,511,111)
Repayment capital lease .......................... (15,867) 0
Net change payable to Agway Inc. ................. (4,605,278) (628,448)
Proceeds from sale of subordinated debentures .... 2,271,600 2,888,000
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Net cash flow provided by financing activities 6,339,344 7,248,441
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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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</TABLE>
See accompanying notes to condensed financial statements.
5
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TELMARK, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three-month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended June 30,
1997. 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, 1996.
NOTE 2 - 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. The Company adopted Statement 121 effective July 1, 1996,
which had no effect on the Company's financial statements.
6
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PART I. FINANCIAL INFORMATION (CONTINUED)
TELMARK INC.
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 first quarter of fiscal 1997 of $13,300, is an increase
of 15.5% compared to the first quarter of the prior year. The Company's
investment in net leases and notes of $385,500 increased by $10,900 (2.9%)
during the three months ended September 30, 1996. The increased revenues were
the result of a higher average net investment in leases during the first quarter
as compared to the first quarter of the previous year.
Total expenses increased $1,400 (15.6%) for the first quarter compared to the
prior year. Interest expense increased by $700 (13.3%) due to higher borrowings
to support the increased investment in net leases and notes and higher interest
rates on debt in the first quarter as compared to the first quarter in the prior
year. Selling general and administrative expenses increased $600 (24.5%) due to
additional expenses associated with the larger portfolio.
Net income was $1,600 in the first quarter as compared to $1,400 during the
first quarter of the previous year. This represents an increase of $200 (15.5%)
and was due primarily to the larger size of lease portfolio in the current 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 its lines of credit, private placements
of debt with institutional investors, sale of leases, principal collections on
leases and cash provided from operations.
Cash flows from operating activities increased $100 (1.3%) to $6,300 in the
first quarter of fiscal 1997 compared to the first quarter of fiscal 1996. Cash
used in investing activities decreased $800 (6.2%) to $12,600 in the first
quarter of 1997 due to increased principal repayments on leases of $6,600, being
offset by a $5,800 increase in leases originated in the first quarter of fiscal
1997 as compared to the first quarter of the prior year. The cash utilized in
investing activities was financed principally with net borrowings from financing
activities of $6,300 for the current year compared to $7,200 for the first
quarter of the previous year.
As of September 30, 1996, the Company had two separate lines of credit 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 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 September 30, 1996, under the short-term line of credit and
the revolving term loan facility was $4,000 and $156,200, 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, 1998. 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 September 30, 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 NOVEMBER 6, 1996 BY /S/ DANIEL J. EDINGER, PRESIDENT
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DANIEL J. EDINGER, PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
DATE NOVEMBER 6, 1996 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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 524,006,620
<ALLOWANCES> 21,363,567
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,123,633
<DEPRECIATION> 982,067
<TOTAL-ASSETS> 407,403,569
<CURRENT-LIABILITIES> 0
<BONDS> 308,203,249
0
0
<COMMON> 400,000
<OTHER-SE> 79,727,342
<TOTAL-LIABILITY-AND-EQUITY> 407,403,569
<SALES> 0
<TOTAL-REVENUES> 13,317,027
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,490,000
<INTEREST-EXPENSE> 5,955,589
<INCOME-PRETAX> 2,785,316
<INCOME-TAX> 1,172,423
<INCOME-CONTINUING> 1,612,893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,612,893
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
