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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
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ACT OF 1934
For the quarterly period ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT OF 1934
For the transition period from to
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Commission file number 33-70732
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TELMARK INC.*
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(Exact name of registrant as specified in its charter)
New York 16-0907546
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Butternut Drive, DeWitt, New York 13214
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(Address of principal executive offices) (Zip Code)
315-449-7935
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 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. AND CONSOLIDATED SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
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PAGES
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ITEM 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets, September 30, 1997 and June 30, 1997....................... 3
Condensed Consolidated Statements of Income and Retained Earnings, for the three months ended
September 30, 1997 and 1996....................................................................... 4
Condensed Consolidated Statements of Cash Flows for the three months ended
September 30, 1997 and 1996....................................................................... 5
Notes to Condensed Consolidated 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. AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
ASSETS
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September 30, June 30,
1997 1997
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(Unaudited)
Leases and notes ......................................... $ 638,266,118 $ 613,532,639
Unearned interest and finance charges .................... (154,406,474) (152,590,770)
Net deferred origination costs ........................... 8,857,589 8,841,537
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Net investment ..................................... 492,717,233 469,783,406
Allowance for credit losses .............................. (25,457,956) (24,013,513)
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Leases and notes, net .............................. 467,259,277 445,769,893
Investments .............................................. 10,807,417 10,807,417
Equipment, net ........................................... 1,024,646 1,055,377
Deferred income taxes .................................... 8,327,803 10,643,896
Income taxes prepaid to Agway Inc. ....................... 2,098,502 979,599
Other assets ............................................. 904,581 937,120
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Total Assets .......................................... $ 490,422,226 $ 470,193,302
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LIABILITIES AND SHAREHOLDER'S EQUITY
Borrowings under lines of credit and term debt ........... 348,981,943 339,482,406
Subordinated debentures .................................. 31,656,584 31,043,938
Accounts payable ......................................... 3,674,123 4,398,757
Payable to Agway Inc. .................................... 7,481,248 712,678
Accrued expenses, including interest of
$8,217,979 - 1998 and $4,785,997 - 1997 ............ 10,454,193 8,149,485
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Total Liabilities ..................................... 402,248,091 383,787,264
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Commitments & Contingencies ..............................
Common Stock, $1 par value;
authorized 1,000,000 shares;
issued and outstanding 400,000 shares .............. 400,000 400,000
Additional paid-in capital ............................... 31,600,000 31,600,000
Retained earnings ........................................ 56,174,135 54,406,038
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88,174,135 86,406,038
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$ 490,422,226 $ 470,193,302
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</TABLE>
See accompanying notes to condensed financial statements.
3
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TELMARK INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
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1997 1996
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Revenues:
Interest and finance charges................... $15,411,214 $12,985,072
Other service fees and other income............ 350,616 331,955
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Total revenues............................ 15,761,830 13,317,027
Expenses:
Interest Expense............................... 7,049,156 5,955,589
Provision for credit losses.................... 1,516,000 1,490,000
Selling, general and administrative............ 4,038,439 3,086,122
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Total expenses............................ 12,603,595 10,531,711
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Income before income taxes................ 3,158,235 2,785,316
Provision for income taxes........................... 1,390,138 1,172,423
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Net income................................ 1,768,097 1,612,893
Retained earnings, beginning of period............... 54,406,038 46,514,449
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Retained earnings, end of period.......... $56,174,135 $48,127,342
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</TABLE>
See accompanying notes to condensed financial statements.
4
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TELMARK INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
Increase (Decrease) in Cash
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1997 1996
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NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES: ....... $ 6,231,642 $ 6,267,172
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CASH FLOWS FROM INVESTING ACTIVITIES:
Leases originated ................................ (60,869,343) (46,484,561)
Leases repaid .................................... 37,863,959 34,067,800
Proceeds from lease sales
Purchases of equipment ........................... (107,011) (189,755)
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Net cash flow used in investing activities ... (23,112,395) (12,606,516)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable ...................... 30,100,000 25,200,000
Repayment of notes payable ....................... (20,582,914) (16,511,111)
Repayment capital lease .......................... (17,549) (15,867)
Net change payable to Agway Inc. ................. 6,768,570 (4,605,278)
Proceeds from sale of debentures ................. 612,646 2,271,600
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Net cash flow provided by financing activities 16,880,753 6,339,344
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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. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated 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, 1997 are not necessarily
indicative of the results that may be expected for the year ended June 30,
1998. For further information, refer to the consolidated financial
statements and notes thereto included in the annual report on Form 10-K for
the year ended June 30, 1997.
NOTE 2 - 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. The balance in the Payable to Agway Inc. is
dependant on the timing of deposits and the drawing of checks.
6
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PART I. FINANCIAL INFORMATION (CONTINUED)
TELMARK INC. AND CONSOLIDATED SUBSIDIARIES
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 1998 increased by $2,400 (18.4%) to
$15,800 compared to the first quarter of the prior year due primarily to higher
investment in leases and notes. The Company's net investment in leases and notes
increased by $22,900 (4.9%) in the first quarter of 1998 to $492,700, as
compared to the corresponding period in the prior year.
Total expenses increased $2,100 (19.7%) to $12,600 for the first quarter of 1998
as compared to the corresponding period in the prior year. The increase in
expenses is primarily attributable to increases in interest expense and selling,
general and administrative expenses. Interest expense increased $1,100 (18.4%)
to $7,000 for the first quarter of 1998 as compared to the corresponding period
in the prior year. The Company's higher average levels of interest bearing debt
in the first quarter as compared to the corresponding period in the previous
year, is the primary reason for these increases in interest expense. Selling,
general and administrative expenses increased $1,000 (30.9%) to $4,000 for the
first quarter of 1998 as compared to the corresponding period of the prior year.
These increases are attributable to increased sales incentives and payroll costs
required to manage the larger portfolio as compared to the corresponding period
in the prior year.
The provision for credit losses increased slightly to $1,500 in the first
quarter as compared to the corresponding period in the prior year due to an
increase in the size of the lease portfolio.
Income from operations for the first quarter of 1998 was $1,800, which was an
increase of $200 (9.6%) over the first quarter of 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 debentures to the
public, sale of leases, lease-backed asset securitization, principal collections
on leases and cash provided from operations.
Cash flows from operating activities of $6,200 in the three months ended
September 30, 1997 is comparable to the corresponding period in the prior year.
Cash used in investing activities increased $10,500 (83.3%) to $23,100 in the
three months ended September 30, 1997 as compared to the first quarter of the
prior year is due to an increase in lease originations of $14,400 (30.9%), which
increase was partially offset by an increase of $3,800 (11.1%) in principal
repayments on leases in the three months ended September 30, 1997 as compared to
the first three months of the prior year. The cash utilized in investing
activities in the three months ended September 30, 1997 was financed with net
borrowings from financing activities of $16,900 as compared to $6,300 for the
first three months of the previous year.
As of September 30, 1997, the Company had two separate lines of credit available
from banks which allow the Company to borrow up to an aggregate of $257,000. An
uncommitted short-term line of credit agreement permits the Company to borrow up
to $7,000 on an unsecured basis with interest paid upon maturity. The line bears
interest at money market variable rates. A committed $250,000 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 $7,000 line was increased from $4,000 on August 19, 1997 and
the $250,000 line was increased from $200,000 on September 22, 1997. The total
amount outstanding as of September 30, 1997 under the short-term line of credit
and the revolving term loan facility was $7,000 and $200,000, 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 $7,000 line of credit has been renewed through
December 31, 1997. The $250,000 revolving term agreement loan facility is
available through July 31, 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, 1997.
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 OCTOBER 31, 1997 BY /S/ DANIEL J. EDINGER, PRESIDENT
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DANIEL J. EDINGER, PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
DATE OCTOBER 31, 1997 BY /S/ PETER J. O'NEILL, TREASURER
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PETER J. O'NEILL, TREASURER
(PRINCIPAL ACCOUNTING OFFICER)
9
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 638,266,118
<ALLOWANCES> 25,457,956
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,326,728
<DEPRECIATION> 1,302,082
<TOTAL-ASSETS> 490,422,226
<CURRENT-LIABILITIES> 0
<BONDS> 380,638,527
0
0
<COMMON> 400,000
<OTHER-SE> 87,774,135
<TOTAL-LIABILITY-AND-EQUITY> 490,422,226
<SALES> 0
<TOTAL-REVENUES> 15,761,830
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,516,000
<INTEREST-EXPENSE> 7,049,156
<INCOME-PRETAX> 3,158,235
<INCOME-TAX> 1,390,138
<INCOME-CONTINUING> 1,768,097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,768,097
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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