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 March 31, 2000
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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 LLC*
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(Exact name of registrant as specified in its charter)
Delaware 16-1551523
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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 membership interests outstanding of each of the issuer's
classes of membership interests, as of the latest practicable date.
Class Outstanding at May 1, 2000
- ---------------------- --------------------------
Membership Certificate One
* 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
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Pages
-----
<S> <C> <C>
ITEM 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets, March 31, 2000 and June 30, 1999........................... 3
Condensed Consolidated Statements of Income and Member's Equity, for the three months and
nine months ended March 31, 2000 and 1999......................................................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended
March 31, 2000 and 1999........................................................................... 5
Notes to Condensed Consolidated Financial Statements.............................................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk........................................ 10
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.................................................................. 11
SIGNATURES.................................................................................................. 12
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
---------- ----------
(Unaudited)
<S> <C> <C>
Restricted Cash .......................................... $ 4,479 $ 4,480
Leases and notes ......................................... 841,608 768,580
Unearned interest and finance charges .................... (226,313) (199,122)
Net deferred origination costs ........................... 12,913 11,591
---------- ----------
Net investment ..................................... 628,208 581,049
Allowance for credit losses .............................. (33,055) (29,978)
---------- ----------
Leases and notes, net .............................. 595,153 551,071
Investments .............................................. 13,606 12,780
Equipment, net ........................................... 576 868
Deferred income taxes .................................... 7,224 5,443
Other assets ............................................. 1,740 1,345
---------- ----------
Total Assets .......................................... $ 622,778 $ 575,987
========== ==========
LIABILITIES AND MEMBER'S EQUITY
Accounts payable ......................................... 9,573 6,692
Payable to Agway Inc. and subsidiaries ................... 3,569 22,337
Accrued expenses, including interest of
$8,844 - March 31, 2000 and $3,258 - June 30, 1999 . 13,119 7,658
Borrowings under short term lines of credit .............. 56,588 35,000
Borrowings under revolving line of credit ................ 205,100 156,300
Term debt ................................................ 176,418 204,801
Subordinated debentures .................................. 44,529 37,633
---------- ----------
Total liabilities .................................. 508,896 470,421
Commitments & contingencies
Member's equity .......................................... 113,882 105,566
---------- ----------
Total liabilities and member's equity .............. $622,778 $575,987
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 1. FINANCIAL STATEMENTS
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS of INCOME and MEMBER'S EQUITY
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
------------------------------------- -------------------------------------
2000 1999 2000 1999
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Interest and finance charges $18,791 $16,797 $55,363 $50,539
Service fees and other income 474 472 1,229 1,226
--------------- ---------------- --------------- ---------------
Total revenues 19,265 17,269 56,592 51,765
Expenses:
Interest expense 6,921 5,610 22,801 20,164
Provision for credit losses 2,391 1,959 6,308 5,529
Selling, general and administrative 4,108 3,943 13,239 12,873
--------------- ---------------- --------------- ---------------
Total expenses 13,420 11,512 42,348 38,566
--------------- ---------------- --------------- ---------------
Income before income taxes 5,845 5,757 14,244 13,199
Provision for income taxes 2,436 2,428 5,928 5,480
--------------- ---------------- --------------- ---------------
Net income 3,409 3,329 8,316 7,719
Member's equity, beginning of period 110,473 99,554 105,566 95,164
--------------- ---------------- --------------- ---------------
Member's equity, end of period $113,882 $102,883 $113,882 $102,883
=============== ================ =============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 1. FINANCIAL STATEMENTS
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS of CASH FLOWS
NINE MONTHS ENDED MARCH 31,
(Thousands of Dollars)
(Unaudited)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Net cash flow provided by operating activities: ........................... $ 22,585 $ 22,656
--------- ---------
Cash flows from investing activities:
Leases originated .................................................... (203,635) (176,672)
Leases repaid ........................................................ 153,246 145,232
Purchases of equipment ............................................... 0 (12)
Purchase of investment ............................................... (826) (930)
--------- ---------
Net cash flow used in investing activities ....................... (51,215) (32,382)
--------- ---------
Cash flows from financing activities:
Net increase (decrease) in borrowings under short term lines of credit 21,588 32,000
Net increase (decrease) in borrowings under revolving line of credit . 48,800 (14,000)
Repayment of term debt ............................................... (28,383) (14,579)
Net increase (decrease) payable to Agway Inc. and subsidiaries ....... (20,272) 3,607
Proceeds from sale of debentures ..................................... 6,896 2,831
Net (increase) decrease in restricted cash ........................... 1 (133)
--------- ---------
Net cash flow provided by financing activities ................... 28,630 9,726
--------- ---------
Net increase (decrease) in cash .................................. 0 0
Cash at beginning of period ............................................... 0 0
--------- ---------
Cash at end of period ..................................................... $ 0 $ 0
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 1. FINANCIAL STATEMENTS
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Thousands of Dollars)
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
We have prepared the accompanying unaudited condensed consolidated
financial statements pursuant to 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 our
management, we have included all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation. Operating
results for the three-month and nine-month periods ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 2000. 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, 1999.
NOTE 2 - RESTRICTED CASH
We hold and restrict the use of cash related to securitized leases in
segregated accounts pending distribution to the lease-backed note holders.
On March 31, 2000 restricted cash was $4,479 compared to $4,480 on June 30,
1999.
NOTE 3 - CASH MANAGEMENT
During the quarter ended March 31, 2000 we discontinued the use of the
depository and disbursement accounts of our parent Agway Inc. and initiated
our own independent cash management system. The payable to Agway is
principally income taxes payable.
6
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
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
We are including the following cautionary statement in this Form 10-Q to make
applicable and take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statement made
by us, or on our behalf. Where any such forward-looking statement includes a
statement of the assumptions or basis underlying such forward-looking statement,
we caution that, while we believe such assumptions or basis to be reasonable and
make them in good faith, assumed facts or basis almost always vary from actual
results, and the differences between assumed facts or basis and actual results
can be material, depending upon the circumstances. Certain factors that could
cause actual results to differ materially from those projected have been
discussed in this report and include the factors set forth below. Other factors
that could cause actual results to differ materially include uncertainties of
economic, competitive and market decisions and future business decisions, all of
which are difficult or impossible to predict accurately and many of which are
beyond our control. Where, in any forward-looking statement, we, or our
management, express an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but we cannot assure you that the statement of expectation or
belief will result or be achieved or accomplished. The words "believe," "expect"
and "anticipate" and similar expressions identify forward-looking statements.
Our total revenues for the three-month and nine-month periods ended March 31,
2000 compared to the corresponding periods of the prior year are as follows:
<TABLE>
<CAPTION>
This Year Last Year $ Increase % Increase
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Three-months $19,300 $17,300 2,000 11.6
Nine-months $56,600 $51,800 4,800 9.3
</TABLE>
The increase in our total revenues this year is mostly due to an increase in our
investment in leases and notes, as compared to the comparable period of the
prior year partly offset by a lower income rate on new and replacement leases
and notes. Average net investment in leases and notes for the three-month and
nine-month periods ended March 31, 2000 compared to the corresponding periods of
the prior year are as follows:
<TABLE>
<CAPTION>
This Year Last Year $ Increase % Increase
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Three-months $615,500 $544,500 71,000 13.0
Nine-months $604,100 $539,300 64,800 12.0
</TABLE>
Increases in our expenses for the three-month and nine-month periods ended March
31, 2000 compared to the corresponding periods in the prior year are as follows:
<TABLE>
<CAPTION>
Three-months Nine-months
Increase Increase
------------ -----------
$ % $ %
------ ----- ------ -----
<S> <C> <C> <C> <C>
Interest expense .......... $1,300 23.4% $2,600 13.1%
Selling, general, and
administrative expenses ... 200 4.2% 400 2.8%
Provision for credit losses 400 22.1% 800 14.1%
------ ----- ------ -----
Total expenses ............ $1,900 16.6% $3,800 9.8%
</TABLE>
The increase in our interest expense is primarily due to an increase in the
amount of debt required to finance the increase in the amount of net leases and
notes in both the three month and nine month periods as compared to the prior
year.
Selling, general and administrative expense increased for the three month and
nine month periods as compared to the comparable periods of the prior year due
to: incentives paid to certain employees relating to overall profitability,
retention of business, and profitability of new business; and slightly higher
expenses related to contract data processing expenses and higher travel,
telephone and training expenses.
The provision for credit losses for the nine months increased due to an increase
in the size of our lease portfolio.
7
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
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 (continued)
Our net income for the three-months ended March 31, 2000 was $3,400, an increase
of $100 (2%) from the corresponding period in the prior year. For the
nine-months ended March 31, 2000, our net income was $8,300, an increase of $600
(8%) from the corresponding period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The ongoing availability of adequate financing to maintain the size of our
portfolio and to permit lease portfolio growth is key to our continuing
profitability and stability. We have principally financed our operations,
including the growth of our lease portfolio, through borrowings under our lines
of credit, private placements of debt with institutional investors and other
term debt, lease backed notes, principal collections on leases and cash provided
from operations.
<TABLE>
<CAPTION>
Cash In Flows This Year Last Year
--------- ---------
<S> <C> <C>
Cash flows from operations $ 22,600 $ 22,700
Cash flows from financing 28,600 9,700
--------- ---------
Total cash in flows $ 51,200 $ 32,400
========= =========
Cash Out Flows
Cash flows from investing $(51,200) $(32,400)
========= =========
</TABLE>
We invested cash flows from both operations and financing activities into growth
of our lease portfolio. We have been successful in arranging our past financing
needs and believe that our current financing arrangements are adequate to meet
our foreseeable operating requirements. We cannot assure you, however, that we
will be able to obtain future financing in amounts or on terms that are
acceptable. Our inability to obtain adequate financing would have a material
adverse effect on our operations. Our management conducts ongoing discussions
and negotiations with existing and potential lenders for future financing needs.
During the quarter ended March 31, 2000 we discontinued the use of the
depository and disbursement accounts of our parent Agway Inc. and initiated our
own independent cash management system. The payable to Agway is principally
income taxes payable.
As of March 31, 2000, we had credit facilities available from banks which allow
us to borrow up to an aggregate of $331,700. Uncommitted short-term line of
credit agreements permit us to borrow up to $81,700 on an unsecured basis with
interest paid upon maturity. The lines bear interest at money market variable
rates. A committed $250,000 partially collateralized (by stock in a cooperative
bank) revolving line of credit permits us 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. As of March 31, 2000, our total outstanding debt
under the short-term lines of credit and the revolving term loan facility was
$56,600 and $205,100, respectively.
We borrow under our short-term line of credit agreements and our revolving term
agreement from time to time to fund our operations. Short-term debt provides us
with interim financing between the issuances of long-term debt. We renew our
lines of credit annually. The $81,700 of uncommitted lines of credit all have
terms expiring at various times during the next 12 months. The $250,000
revolving term loan facility is available through August 1, 2001.
We had balances outstanding on unsecured senior notes from private placements
totaling $122,000 at March 31, 2000 and $146,000 at June 30, 1999. The principal
bears interest at fixed rates ranging from 6.5% to 7.6%. We must pay interest
semiannually on each senior note. We pay principal payments on both a semiannual
and an annual basis. The note agreements are similar to one another and each
contains specific financial covenants that must be complied with by us.
Through two wholly owned special purpose subsidiaries, we have lease-backed
notes outstanding totaling $54,400 and $58,800 at March 31, 2000, and June 30,
1999, respectively, payable to insurance companies. Interest rates on these
classes of notes range from 6.5% to 7.6%. The notes are collateralized by
leases, which were sold to those subsidiaries, having an aggregate present value
of contractual lease payments equal to the principal balance of the notes. The
final scheduled maturity of these notes is December 2007.
8
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(In 000's rounded to nearest hundred thousand)
LIQUIDITY AND CAPITAL RESOURCES (continued)
We offer subordinated debentures to the public. The debentures are unsecured and
subordinated to all of our senior debt. The interest on the debt is payable
quarterly on January 1, April 1, July 1 and October 1 and is allowed to be
reinvested.
We believe we have sufficient lines of credit in place to meet our interim
funding needs.
YEAR 2000 READINESS
As previously disclosed, we initiated our year 2000 efforts in January 1996 and
completed extensive work to assure that our operations were not impacted by the
century date change as of January 1, 2000.
Our efforts focused on information system modification or replacement, as well
as a review of all other areas of our business operations that might be impacted
by this event. Business contingency and continuity plans were developed, and a
command center was established to monitor and react to critical business
interruptions, if any, either prior or subsequent to the millennium date change.
We had no material issues relating to the millennium date change on January 1,
2000, the leap year on February 29, 2000, the month end processing, and
quarter-end processing. Based on this experience and the amount of work and
testing we have previously performed, we believe the likelihood of a year 2000
issue that would have a material effect on the results of operations, liquidity,
or financial condition continues to be remote as we run year-end programs.
Our cost estimates relating to year 2000 efforts have not changed in light of
the fact that no issues have arisen to date. The conversion and testing of
existing applications and the replacement of hardware are estimated to have cost
us approximately $800.
The year 2000 statements set forth above are designed as "Year 2000 Readiness
Disclosures" pursuant to the Year 2000 Information and Readiness Disclosure Act
(P.L. 105-271).
9
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not use derivatives or other financial instruments to hedge interest rate
risk in our portfolio. The principal cash flow of our debt obligations and
related weighted average interest rates by contractual maturity dates have not
materially changed since June 30, 1999. Quantitative and Qualitative Disclosures
about market risk are contained in Item 7a of our Annual Report on Form 10-K for
the year ended June 30, 1999.
10
<PAGE>
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, 2000.
11
<PAGE>
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 LLC
(Registrant)
Date May 8, 2000 By /s/ Daniel J. Edinger
-------------------- ----------------------------------------
Daniel J. Edinger, President
(Principal Executive Officer)
Date May 8, 2000 By /s/ Peter J. O'Neill
-------------------- ----------------------------------------
Peter J. O'Neill, Senior Vice President,
Finance and Control
(Principal Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-2000
<CASH> 4,479,293
<SECURITIES> 0
<RECEIVABLES> 841,607,899
<ALLOWANCES> 33,055,424
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,570,779
<DEPRECIATION> 1,994,720
<TOTAL-ASSETS> 622,777,933
<CURRENT-LIABILITIES> 0
<BONDS> 482,634,732
0
0
<COMMON> 0
<OTHER-SE> 113,881,822
<TOTAL-LIABILITY-AND-EQUITY> 622,777,933
<SALES> 0
<TOTAL-REVENUES> 56,591,976
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,308,050
<INTEREST-EXPENSE> 22,801,213
<INCOME-PRETAX> 14,243,630
<INCOME-TAX> 5,928,144
<INCOME-CONTINUING> 8,315,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,315,486
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
