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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- -- ACT OF 1934
For the transition period from to
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Commission file number 33-70732
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TELMARK, INC.*
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(Exact name of registrant as specified in its charter)
New York 16-0907546
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Butternut Drive, DeWitt, New York 13214
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(Address of principal executive offices) (Zip Code)
315-449-7935
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
- -
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 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 as of March 31, 1997 and June 30, 1996................................... 3
Condensed Statements of Income and Retained Earnings, for the three and nine months ended
March 31, 1997 and 1996........................................................................... 4
Condensed Statements of Cash Flows for the nine months ended
March 31, 1997 and 1996........................................................................... 5
Notes to Condensed Financial Statements........................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.................................................................. 8
SIGNATURES.................................................................................................. 9
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2
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PART I. FINANCIAL INFORMATION
TELMARK, INC.
CONDENSED BALANCE SHEETS
ASSETS
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<CAPTION>
March 31, June 30,
1997 1996
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(Unaudited)
<S> <C> <C>
Leases and notes ......................................... $ 567,419,010 $ 510,925,527
Unearned interest and finance charges .................... (139,918,506) (124,230,756)
Net deferred origination costs ........................... 8,268,302 7,642,305
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Net investment ..................................... 435,768,806 394,337,076
Allowance for credit losses .............................. (23,665,589) (19,775,962)
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Leases and notes, net .............................. 412,103,217 374,561,114
Investments .............................................. 10,807,417 10,038,421
Equipment, net ........................................... 1,152,455 1,061,672
Deferred income taxes .................................... 13,927,609 11,903,065
Other assets ............................................. 490,620 634,018
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$ 438,481,318 $ 398,198,290
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LIABILITIES AND SHAREHOLDER'S EQUITY
Borrowings under lines of credit ......................... $ 189,400,000 $ 146,000,000
Term notes ............................................... 111,329,379 127,000,427
Subordinated debentures .................................. 30,750,844 24,258,200
Accounts payable ......................................... 6,724,614 4,645,459
Payable to Agway Inc. .................................... 3,880,122 9,521,703
Income taxes payable to Agway Inc. ....................... 2,394,595 2,135,917
Accrued expenses, including interest of
$6,658,324 - 1997 and $4,061,387 - 1996 ............ 9,696,944 6,122,135
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354,176,498 319,683,841
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Common Stock, $1 par value;
authorized 1,000,000 shares;
issued and outstanding 400,000 shares .............. 400,000 400,000
Additional paid-in capital ............................... 31,600,000 31,600,000
Retained earnings ........................................ 52,304,820 46,514,449
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84,304,820 78,514,449
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$ 438,481,318 $ 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
(UNAUDITED)
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<CAPTION>
Three months ended Nine months ended
March 31, March 31,
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1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenues:
Interest and finance charges $13,875,143 $11,654,364 $40,648,021 $34,725,574
Other service fees and other income 414,528 397,152 1,100,334 1,020,693
----------- ----------- ----------- -----------
Total revenues 14,289,671 12,051,516 41,748,355 35,746,267
Expenses:
Interest expense 4,957,751 4,386,748 16,894,637 14,802,535
Provision for credit losses 2,095,000 1,636,000 5,403,000 4,614,400
Selling, general and administrative 3,491,977 2,794,521 9,663,353 7,750,259
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Total expenses 10,544,728 8,817,269 31,960,990 27,167,194
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Income before income taxes 3,744,943 3,234,247 9,787,365 8,579,073
Provision for income taxes 1,458,159 1,298,700 3,996,993 3,511,536
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Net Income 2,286,784 1,935,547 5,790,372 5,067,537
Retained earnings, beginning of period 50,018,036 42,889,605 46,514,448 39,757,615
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Retained earnings, end of period 52,304,820 44,825,152 52,304,820 44,825,152
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
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TELMARK INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Increase (Decrease) in Cash
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<CAPTION>
Nine months ended
March 31,
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1997 1996
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CASH FLOW FROM OPERATING ACTIVITIES ..................... $ 15,600,134 $ 16,123,269
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CASH FLOWS FROM INVESTING ACTIVITIES:
Leases originated ................................ (152,616,854) (114,399,196)
Leases repaid .................................... 109,671,751 92,484,460
Purchases of equipment ........................... (466,050) (974,566)
Purchases of investments ......................... (768,996) (659,694)
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Net cash flow used in investing activities ... (44,180,149) (23,548,996)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in borrowings under lines of credit ... 43,400,000 8,000,000
Repayment of notes payable ....................... (15,622,223) (11,622,222)
Net change payable to Agway Inc. ................. (5,641,581) (444,563)
Proceeds from sale of debentures ................. 6,492,644 11,492,512
Repayment of capital lease ....................... (48,825) 0
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Net cash flow provided by financing activities 28,580,015 7,425,727
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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 nine-month period ended March 31,
1997, 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.
NOTE 2 - Private Placement
On April 23, 1997, the Company completed a private placement of debt. The
Company issued $38,000,000 of senior notes. The notes were issued at par
with equal semi annual payments beginning 4 years from date of issuance
and the final payment due 7 years from date of issuance. Interest on the
debt is payable semi annually at the rate of 7.64% per annum. Proceeds of
the notes were used to pay down debt under the Company's lines of credit.
NOTE 3 - Support Agreement
As of April 30, 1997, the "Support Agreement," dated October 1, 1986
among the Company, Agway Financial Corporation and/or Agway Holdings,
Inc., as amended June 29, 1990 was terminated. Under the Agreement,
Holdings had previously guaranteed it would advance funds to the Company
to maintain its debt to equity ratio at no greater than 5 to 1.
6
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TELMARK INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN 000'S ROUNDED TO NEAREST HUNDRED THOUSAND)
RESULTS OF OPERATIONS
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Total revenues for the third quarter of 1997 increased by $2,200 (18.6%) to
$14,300 compared to the third quarter of the prior year, and increased by $6,000
(16.8%) to $41,700 for the nine month period ended March 31, 1997 as compared to
the corresponding period in the prior year due primarily to higher investment in
leases and notes. The Company's net investment in leases and notes increased by
$18,800 (4.5%) in the third quarter of 1997 and $41,400 (10.5%) for the nine
months ended March 31, 1997 to $435,800, as compared to the corresponding
periods in the prior year.
Total expenses increased $1,700 (19.6%) to $10,500 for the third quarter of 1997
and $4,800 (17.7%) to $32,000 for the nine months ended March 31, 1997 as
compared to the corresponding periods in the prior year. The increase in
expenses is primarily attributable to increases in interest expense and selling,
general and administrative expenses. Interest expense increased $600 (13.0%) to
$5,000 for the third quarter of 1997 and by $2,100 (14.1%) to $16,900 for the
nine months ended March 31, 1997 as compared to the corresponding periods in the
prior year. The Company's higher average levels of interest bearing debt in both
the third quarter and nine months ended March 31, 1997 as compared to the
corresponding periods in the previous year, is the primary reason for these
increases in interest expense. The increase in interest expense is partially
offset by a larger patronage refund from a cooperative bank. The refund was
$1,100 in the third quarter of 1997 compared to a refund of $900 in the third
quarter of the prior year. Selling, general and administrative expenses
increased $700 (25.0%) to $3,500 for the third quarter of 1997 and increased
$1,900 (24.7%) to $9,700 for the nine months ended March 31, 1997 as compared to
the corresponding periods 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 periods in the prior year.
The provision for credit losses increased $500 (28.1%) to $2,100 in the third
quarter and $800 (17.1%) to $5,400 for the nine months ended March 31, 1997 as
compared to the corresponding periods in the prior year due to an increase in
the size of the lease portfolio.
Income from operations for the third quarter of 1997 was $3,700, which was an
increase of $500 (15.8%) over the third quarter of the prior year, and income
from operations for the nine months ended March 31, 1997 was $9,800, which was
an increase of $1,200 (14.1%) compared to 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 decreased $500 (3.2%) to $15,600 in the
nine months ended March 31, 1997 as compared to the corresponding period in the
prior year. Cash used in investing activities increased $20,600 (87.6%) to
$44,200 in the nine months ended March 31, 1997 due to an increase in lease
originations of $38,200 (33.4%), which was partially offset by a $17,200 (18.6%)
increase in principal repayments on leases in the nine months ended March 31,
1997 as compared to the first nine months of the prior year. The cash utilized
in investing activities in the nine months ended March 31, 1997 was financed
with net borrowings from financing activities of $28,600 as compared to $7,400
for the first nine months of the previous year.
As of March 31, 1997, 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 March 31, 1997 under the short-term line of credit and the
revolving term loan facility was $4,000 and $185,400, respectively. On April 23,
1997, the Company completed a private placement of debt totaling $38,000.
Proceeds of the notes were used to pay down debt under the Company's lines of
credit.
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 March 31, 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 APRIL 30, 1997 BY /S/ DANIEL J. EDINGER
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DANIEL J. EDINGER, PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
DATE APRIL 30, 1997 BY /S/ PETER J. O'NEILL, TREASURER
-------------------- ----------------------------------
PETER J. O'NEILL, TREASURER
(PRINCIPAL ACCOUNTING OFFICER)
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 567,419,010
<ALLOWANCES> 23,665,589
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,198,743
<DEPRECIATION> 1,046,288
<TOTAL-ASSETS> 438,481,318
<CURRENT-LIABILITIES> 0
<BONDS> 331,480,273
0
0
<COMMON> 400,000
<OTHER-SE> 83,904,820
<TOTAL-LIABILITY-AND-EQUITY> 438,481,318
<SALES> 0
<TOTAL-REVENUES> 41,748,355
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,403,000
<INTEREST-EXPENSE> 16,894,637
<INCOME-PRETAX> 9,787,365
<INCOME-TAX> 3,996,993
<INCOME-CONTINUING> 5,790,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,790,372
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
