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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 December 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 ______________
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 January 31, 1997
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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, December 31, 1996 and June 30, 1996..................................... 3
Condensed Statements of Income and Retained Earnings, for the three months and six months
ended December 31, 1996 and 1995.................................................................. 4
Condensed Statements of Cash Flows for the six months ended
December 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>
December 31, June 30,
1996 1996
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(Unaudited)
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Leases and notes..................................................... $ 539,752,367 $ 510,925,527
Unearned interest and finance charges................................ (130,524,899) (124,230,756)
Net deferred origination costs....................................... 7,789,185 7,642,305
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Net investment................................................. 417,016,653 394,337,076
Allowance for credit losses......................................... (22,735,881) (19,775,962)
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Leases and notes, net.......................................... 394,280,772 374,561,114
Investments.......................................................... 10,038,421 10,038,421
Equipment, net....................................................... 1,255,879 1,061,672
Deferred income taxes................................................ 13,879,739 11,903,605
Other assets........................................................ 517,444 634,018
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Total Assets $ 419,972,255 $ 398,198,290
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LIABILITIES AND SHAREHOLDER'S EQUITY
Borrowings under lines of credit..................................... $ 168,000,000 $ 146,000,000
Term notes........................................................... 114,457,177 127,000,427
Subordinated debentures.............................................. 29,172,936 24,258,200
Accounts payable..................................................... 5,703,766 4,645,459
Payable to Agway Inc................................................. 7,837,907 9,521,703
Income taxes payable to Agway Inc.................................... 6,501,827 2,135,917
Accrued expenses, including interest of
$4,340,355 and $4,061,387...................................... 6,280,605 6,122,135
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Total Liabilities................................................ 337,954,218 319,683,841
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Commitments & Contingencies.........................................
Common Stock, $1 par value;
authorized 1,000,000 shares;
issued and outstanding 400,000 shares.......................... 400,000 400,000
Additional paid-in capital........................................... 31,600,000 31,600,000
Retained earnings.................................................... 50,018,037 46,514,449
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82,018,037 78,514,449
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$ 419,972,255 $ 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
SIX MONTHS ENDED DECEMBER 31,
(UNAUDITED)
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Three months ended Six months ended
December 31, December 31,
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1996 1995 1996 1995
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Revenues:
Interest and finance charges $13,787,806 $11,843,348 $26,772,878 $23,071,210
Other service fees and other income 353,851 325,719 685,806 623,541
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Total revenues 14,141,657 12,169,067 27,458,684 23,694,751
Expenses:
Interest expense 5,981,297 5,158,590 11,936,886 10,415,787
Provision for credit losses 1,818,000 1,606,400 3,308,000 2,987,400
Selling, general and administrative 3,085,254 2,476,674 6,171,376 4,955,738
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Total expenses 10,884,551 9,241,664 21,416,262 18,349,925
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Income before income taxes 3,257,106 2,927,403 6,042,422 5,344,826
Provision for income taxes 1,366,411 1,192,338 2,538,834 2,212,836
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Net income 1,890,695 1,735,065 3,503,588 3,131,990
Retained earnings, beginning of period 48,127,341 41,154,540 46,514,448 39,757,615
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Retained earnings, end of period $50,018,036 $42,889,605 $50,018,036 $42,889,605
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</TABLE>
See accompanying notes to condensed financial statements.
4
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TELMARK INC.
CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31,
(UNAUDITED)
Increase (Decrease) in Cash
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<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
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1996 1995
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CASH FLOW FROM OPERATING ACTIVITIES: ......................... $ 10,767,650 $ 8,779,304
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CASH FLOWS FROM INVESTING ACTIVITIES:
Leases originated.................................... (93,264,256) (74,098,050)
Leases repaid........................................ 70,236,598 60,840,678
Purchases of equipment............................... (427,682) (349,575)
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Net cash flow used
in investing activities..................... (23,455,340) (13,606,947)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in borrowings under
lines of credit.................................. 22,000,000 14,500,000
Proceeds from notes payable.......................... 0 0
Repayment of notes payable........................... (12,511,111) (8,511,111)
Proceeds from sale of debentures..................... 4,914,736 7,675,941
Repayment capital lease.............................. (32,139) 0
Net change payable to Agway Inc...................... (1,687,690) (8,837,187)
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Net cash flow provided by
financing activities........................... 12,687,690 4,827,643
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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)
(THOUSANDS OF DOLLARS)
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- and six-month period ended December 31, 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.
Certain reclassifications have been made to conform prior year financial
statements with the current year presentation.
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 of $14,100 for the three months and $27,500 for the six-months
ended December 31, 1996 increased 16.2% and 15.9%, respectively, as compared to
the corresponding period in the prior year. The Company's net investment
increased by $22,700 (5.8%) to $417,000 for the six-month period ended December
31, 1996, as compared to an increase of $12,700 (3.6%) to $361,100 for the
corresponding period in the prior year. Increased revenues were the result of
higher average net investment and higher revenue rates associated with the
current period leases compared to the leases written in the corresponding prior
periods.
Total expenses increased $1,600 (17.8%) for the three months and $3,100 (16.7%)
for the six-months ended December 31, 1996 as compared to the corresponding
periods in the prior year. The increase in expenses was attributable to
increased interest expense and selling, general and administrative expenses, and
provision for credit losses. Interest expense for the three months increased by
$800 and $1,500 for the six months due to a larger average net investment and
slightly higher interest rates on new and replacement debt. Selling, general and
administrative expenses increased $600 (24.6%) for the three months and $1,200
(24.5%) for the six-month period to date compared to the corresponding periods
of the prior year due primarily to additional salaries and wages, and increases
in contract data processing, travel and rent expenses. The provision for credit
losses increased by $200 for the three months and $300 for the six-months due to
an increase in the size of the lease portfolio.
Net income for the three months was $1,900, an increase of $200 (9.0%) from the
corresponding period in the prior year. For the six-months ended December 31,
1996, net income was $3,500, an increase of $400 (11.9%) from the corresponding
period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
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The Company has financed its operations, including the growth of its lease
portfolio, principally 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 $2,000 (22.7%) to $10,800 in the
first six months of fiscal 1997 compared to the first six months of fiscal 1996.
Cash used in investing activities increased $9,800 (72.4%) in the first six
months of 1997 due to increased lease originations of $19,200, being partly
offset by a $9,400 increase in principal repayments on leases in the first six
months of fiscal 1997 as compared to the first six months of the prior year. The
cash utilized in investing activities was financed with net borrowings from
financing activities of $12,700 for the current year compared to $4,800 for the
first six months of the previous year.
As of December 31, 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 December 31, 1996 under the short-term line of credit and the
revolving term loan facility was $4,000 and $164,000, 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 31, 1997. 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 December 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 JANUARY 31, 1997 BY /S/ DANIEL J. EDINGER, PRESIDENT
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DANIEL J. EDINGER, PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
DATE JANUARY 31, 1997 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 539,752,367
<ALLOWANCES> 22,735,881
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,361,561
<DEPRECIATION> 1,105,683
<TOTAL-ASSETS> 419,972,255
<CURRENT-LIABILITIES> 0
<BONDS> 311,630,113
0
0
<COMMON> 400,000
<OTHER-SE> 81,618,037
<TOTAL-LIABILITY-AND-EQUITY> 419,972,255
<SALES> 0
<TOTAL-REVENUES> 27,458,684
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,308,000
<INTEREST-EXPENSE> 11,936,886
<INCOME-PRETAX> 6,042,422
<INCOME-TAX> 2,538,834
<INCOME-CONTINUING> 3,503,588
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,503,588
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
