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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2000
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
TELMARK LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF FORMATION)
DELAWARE 16-1551523
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
333 BUTTERNUT DRIVE, DEWITT, NEW YORK 13214
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 315-449-7935
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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.
X
---- ----
Yes No
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN ANY DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE OF PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. X
---
STATE THE AGGREGATE MARKET VALUE OF THE VOTING AND NON-VOTING COMMON EQUITY
HELD BY NON-AFFILIATES OF THE REGISTRANT SEPTEMBER 11, 2000.
ZERO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
EQUITY SECURITIES, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT SEPTEMBER 11, 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
I(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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--------------------------------------------------------------------------------
<PAGE>
FORM 10-K ANNUAL REPORT - 2000
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
CROSS-REFERENCE SHEET
PART I
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 1. & 2. Business and Properties.........................................................................3
Item 3. Legal Proceedings...............................................................................5
Item 4. Submission of Matters to Vote of Security Holders...............................................5
PART II
Item 5. Market for the Registrant's Common Equity and Related Membership Matters........................6
Item 6. Selected Financial Data.........................................................................6
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...........6
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....................................10
Item 8. Financial Statements...........................................................................11
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........24
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................25
Item 11. Executive Compensation.........................................................................26
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................28
Item 13. Certain Relationships and Related Transactions.................................................29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................30
Signatures.....................................................................................32
</TABLE>
2
<PAGE>
PART I
ITEM 1. & 2. BUSINESS AND PROPERTIES
Telmark LLC ("Telmark," "we," "our," "us" or "Company") was organized in 1964 as
Telmark Inc. under the Business Corporation Law of the State of New York.
Effective July 1, 1998, Telmark Inc. was merged into Telmark LLC, a Delaware
limited liability company that was formed solely to carry on the business of
Telmark in limited liability company, rather than corporate, form. We are owned
and controlled by Agway Inc. ("Agway"), one of the largest agricultural supply
and services cooperatives in the United States, in terms of revenues, based on a
1999 Co-op 100 Index produced by the National Cooperative Bank. We are a direct
wholly-owned subsidiary of Agway Holdings, Inc., ("Holdings") an indirect
subsidiary of Agway.
Telmark is subject to certain informational reporting requirements of the
Securities Exchange Act of 1934 and in accordance with those rules, files
reports and other information with the Commission. Reports filed with the
Commission can be inspected at the Public Reference Section of the Commission at
450 Fifth Street N.W., Washington D.C. 20549 and at the regional offices of the
Commission at Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661, and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of the materials can be obtained from the Commission at
prescribed rates.
Our operations are comprised almost exclusively of direct finance leasing of
agricultural related equipment, vehicles and buildings to farmers or other rural
businesses that serve the agricultural marketplace. Our leases offer customers
an alternative to directly purchasing or borrowing to purchase as a means of
acquiring the use of equipment, vehicles or buildings.
o We brand our leasing service as Agrilease(R) and Telease
Financial Services(R).
o We highlight our service-oriented approach in advertisements
and product brochures.
We have over 17,000 customers, most of whom are in the dairy, forestry, crops,
and transportation industries. We operate throughout the continental United
States and Canada. Our customers are farmers and other rural businesses as well
as manufacturers and independent dealers who serve the agricultural marketplace.
We compete with finance affiliates of equipment manufacturers, agricultural
financial institutions, other independent finance and leasing companies, and
commercial banks. Many of these organizations have substantial financial and
other resources and consequently are able to compete on a long-term basis within
the market segment which we serve.
We use direct mail, advertisements in trade magazines and referrals from
equipment retailers and building contractors to solicit customers. Our main
competitors are agricultural lenders and other leasing companies. We believe
that we compete effectively because of:
o our special expertise in agricultural equipment financing;
o our close relationship with the farming community;
o our focus on service;
o our financial strength; and
o our credit management.
Telmark's business is concentrated in agriculture in the New England,
Mid-Atlantic, and Midwest states with approximately 70% of its leases directly
related to production agriculture. However, the portfolio of agricultural leases
is diversified into many different kinds of agriculture. As of June 30, 2000,
the largest concentration was in crops enterprises which represented 18% of the
portfolio, dairy enterprises which represented 17% of the portfolio, and wood
products enterprises which represented 11% of the portfolio. At June 30, 2000,
approximately 44% of our net lease investment was in the states of Michigan, New
York, Ohio, and Pennsylvania. Adverse developments in any of these areas of
concentration could affect operating results.
3
<PAGE>
ITEM 1. & 2. BUSINESS AND PROPERTIES (CONTINUED)
We offer a variety of lease financing packages, with varying payment schedules
on a monthly, quarterly, semiannual or annual basis, depending on the expected
timing of customer cash flows, customer credit quality, and the customer's
individual preferences.
With a direct finance lease our customers have use of the leased property over a
specified term for a periodic rental charge: i.e., the lease payment. Customers
make lease payments in advance. In most cases, at least two months of the lease
payments are collected before the lease starts. We require the advance payment
to provide protection in the event of default on the lease.
We offer most of the direct finance leases for a period which does not exceed
our estimate of the useful life of the equipment, vehicle, or the building
leased.
o We offer equipment and vehicle leases typically for a period of
3 to 6 years, and generally do not exceed eight years.
o We offer building leases typically for longer terms (e.g., 5 to
10 years) than for equipment leases, up to maximum terms of 15
years.
As of June 30, 2000, our outstanding leases had an average original term of
approximately 5.9 years and average remaining term of approximately 4.6 years.
Generally, the customer selects the supplier of the equipment or other property
to be leased and we are not responsible for its suitability, performance, life,
or any other characteristics. Our primary responsibility is to buy the property
from the supplier, lease it to the customers, and collect the lease payments.
For certain lease contracts we have agreed to indemnify customers if certain
adverse tax consequences arise in connection with a lease. We cannot predict our
liability under these indemnification provisions, but we believe that our
liability is remote and the net effect of any liability is not material. Telmark
also offers financing through specific equipment manufacturer programs.
Telmark has internal credit approval policies that must be followed prior to
entering into any lease transaction. The required procedures vary by kind and
size of transaction. We set credit approval limits based on the total amount of
leases outstanding with the customer. We assign lending authority to members of
management depending on position, training, and experience. Telmark's Board of
Directors must approve all lease amounts exceeding $1 million. After a Telmark
field representative completes a financial application, we conduct a thorough
credit approval process.
Telmark retains title to the equipment or building leased. If appropriate,
Telmark obtains a lien on the real estate owned by the farmer or customer as
collateral for payments under a building lease. We maintain monthly delinquency
reports which monitor leases that have been delinquent for over 30 days, as well
as non-earning leases. Generally, accounts past due at least 120 days, as well
as accounts in foreclosure or bankruptcy, are transferred to non-earning status.
The potential losses from non-earning leases are partly offset by our ability to
repossess leased property and to foreclose on other property in which we have
been granted a security interest. Accounts are generally written off at the
earlier of the time they are determined to be uncollectible or when they become
one year past due.
We retain title to the leased property, but our customers are responsible for
insurance, repairs, maintenance, service, and property taxes. At the expiration
of the direct finance lease term, the lessee has an option to:
o purchase the leased property,
o renew the lease, or
o return the leased property to us.
Historically, in most of our lease transactions, the lessee has purchased the
leased property or equipment upon termination of the lease.
4
<PAGE>
ITEM 1. & 2. BUSINESS AND PROPERTIES (CONTINUED)
We may not be able to collect lease payments under the following circumstances:
o Bankruptcy of the customer;
o Defaults by customer; or
o Contract disputes between customers and suppliers.
The ultimate collectibility of amounts due under our leases is directly
dependent upon the credit practices we use, and the creditworthiness of our
customers. Even though we follow our credit policies and we establish reserves
for bad debts, there are other factors that could significantly impact a
customer's ability to pay and consequently, effect our lease collection
experience and our earnings. Additional factors that might impact our ability to
collect lease payments are:
o Changes in general economic conditions;
o Changes in the level of government expenditures on farm programs
and other changes in government agricultural programs that
adversely effect the level of income of our customers;
o Adverse weather-related conditions that negatively impact the
agricultural productivity and income of customers; and
o Oversupply of, or reduced demand for, agricultural commodities
produced by our customers.
We realize net earnings if revenues from our leases exceed our operating
expenses and income taxes.
o "Revenue" from a lease is the sum of all payments due under the
lease plus the residual value of the leased property, less the
cost of purchasing the leased property.
o "Operating expenses" include interest expense, provision for
credit losses (the dollar amount Telmark sets aside to cover its
estimated losses should a customer fail to make required
payments under a lease), and selling, general and administrative
expenses, including our payroll costs, rent, advertising costs
and fees paid for credit checking and legal and accounting
services.
o "Interest expense" is the single largest operating expense of
Telmark and is primarily the interest it must pay on the amounts
borrowed from banks and other investors to finance the leases it
makes to customers.
We lease all of our office space from Agway. We do not own any of the real
property we use for office facilities. As of September 11, 2000, Telmark had 234
employees.
We have four wholly owned subsidiaries:
o Telease Financial Services, Ltd.;
o Telmark Lease Funding I, LLC;
o Telmark Lease Funding II, LLC; and
o Telmark Lease Funding III, LLC.
Telease Financial Services, Ltd. is a Canadian Corporation formed to conduct
certain lease transactions with Canadian customers. Telmark Lease Funding I,
LLC, Telmark Lease Funding II, LLC, and Telmark Lease Funding III, LLC were
established solely to enable the lease securitization financings entered into in
1997, 1999, and 2000, respectively.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any litigation or legal proceedings pending, or to the
best of our knowledge threatened, which, in the opinion of management,
individually or in the aggregate, would have a material adverse affect on our
results of operations, financial condition, or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not required.
5
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MEMBERSHIP
MATTERS (THOUSANDS OF DOLLARS)
Effective July 1, 1998, Telmark Inc's. common stock was cancelled by virtue of
the merger of Telmark Inc. with and into Telmark LLC, with Telmark LLC being the
surviving entity in the merger. We have one limited liability company membership
interest outstanding, which is indirectly owned by Agway through its
wholly-owned subsidiary Holdings. There is no public market for the membership
interest and we do not expect one to develop. In the fiscal year ended June 30,
2000, a distribution of $5,000 in member's equity was paid. During the years
ended June 30, 1999 and 1998, there was no distribution of member's equity.
Under a loan covenant, distributions of member equity are prohibited to the
extent they exceed 50% of net income for the period beginning on July 1, 1999,
through the date of determination, inclusive. As of June 30, 2000, $900 of
member's equity was free of this restriction.
ITEM 6. SELECTED FINANCIAL DATA
Not required.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (THOUSANDS OF DOLLARS)
2000 COMPARED TO 1999.
NET INCOME
Our net income increased by $1,300 (13%) from $10,400 in 1999 to $11,700 in
2000.
<TABLE>
<CAPTION>
PERCENTAGE
FY 2000 FY 1999 INCREASE CHANGE
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Net income $11,700 $10,400 $1,300 13%
</TABLE>
The increase was principally due to increased revenue from a larger outstanding
portfolio of leases during 2000 as compared to 1999.
TOTAL REVENUES
Total revenues of $76,800 in 2000 increased $6,800 (10%) as compared to $70,000
in 1999.
<TABLE>
<CAPTION>
PERCENTAGE
FY 2000 FY 1999 INCREASE CHANGE
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Total revenues $76,800 $70,000 $6,800 10%
</TABLE>
The increase is attributable in part to a $75,500 (14%) increase in net leases
and notes outstanding at June 30, 2000 compared to 1999. Total revenue, as a
percentage of average net leases and notes outstanding, decreased slightly from
13.1% in 1999 to 12.6% in 2000.
INCREASE IN LEASE PORTFOLIO
Increases in the lease portfolio resulting from new booked volume of $282,100 in
2000 and $252,100 in 1999 exceeding lease reductions from leases repaid and net
bad debt expense of $206,600 and $196,700 in 2000 and 1999, respectively.
Increase In Lease Portfolio FY 2000 FY 1999
--------- ----------
New booked volume $282,100 $252,100
Leases repaid (198,700) (188,700)
Provision for credit losses ( 7,900) ( 8,000)
--------- ----------
Portfolio increase $ 75,500 $ 55,400
========= ==========
The increase in new booked volume in excess of leases repaid and bad debt
provisions had the effect of increasing total revenues.
6
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (THOUSANDS OF DOLLARS) (CONTINUED)
INTEREST EXPENSE
While the weighted average interest rate paid on debt remained constant at 6.9%,
total interest expense increased due to increased borrowings required to finance
the growth of the lease portfolio noted above.
<TABLE>
<CAPTION>
PERCENTAGE
FY 2000 FY 1999 INCREASE CHANGE
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Interest expense $31,500 $27,600 $3,900 14%
</TABLE>
Total debt outstanding at June 30, 2000 increased by $83,600 to $517,300 as
compared to total debt at June 30, 1999.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses of $17,300 in 2000 increased by
$1,100 (7%) compared to $16,200 in 1999.
<TABLE>
<CAPTION>
PERCENTAGE
FY 2000 FY 1999 INCREASE CHANGE
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Selling, general,
and administrative
expenses $17,300 $16,200 $1,100 7%
</TABLE>
The increase was primarily the result of additional personnel and incentive
costs relating to the additional new business booked.
PROVISION FOR CREDIT LOSSES
The provision for credit losses of $7,900 in 2000 represents a decrease of $100
(1%) compared to $8,000 in 1999.
<TABLE>
<CAPTION>
INCREASE PERCENTAGE
FY 2000 FY 1999 (DECREASE) CHANGE
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Provision for Credit Losses $7,900 $8,000 (100) 1%
</TABLE>
This decrease is based on our analysis of reserves required to provide for
uncollectible receivables. Telmark's allowance for credit losses is based on a
periodic review of the collection history of past leases, current credit
practices, an analysis of delinquent accounts, and current economic conditions.
At June 30, 2000 the allowance for credit losses was $32,500 compared to $30,000
at June 30, 1999. During 2000 and 1999, the general economy remained strong and
the total value of non-earning accounts increased from $4,900 in 1999 to $6,000
in 2000 and as a percentage of the lease portfolio remained unchanged at 0.9%
for both 1999 and 2000. Reserves are established at a level management believes
is sufficient to cover estimated losses in the portfolio.
1999 COMPARED TO 1998.
NET INCOME
Our Net Income increased by 1,600 (18%) from $8,800 in 1998 to $10,400 in 1999.
<TABLE>
<CAPTION>
PERCENTAGE
FY 1999 FY 1998 INCREASE CHANGE
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Net income $10,400 $8,800 $1,600 18%
</TABLE>
The increase was principally due to increased revenue from a larger outstanding
portfolio of leases and notes receivable during 1999 as compared to 1998.
TOTAL REVENUES
Total Revenues of $70,000 in 1999 increased $4,500 (7%) as compared to $65,500
in 1998.
<TABLE>
<CAPTION>
PERCENTAGE
FY 1999 FY 1998 INCREASE CHANGE
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Total revenues $70,000 $65,500 $4,500 7%
</TABLE>
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (THOUSANDS OF DOLLARS) (CONTINUED)
TOTAL REVENUES (CONTINUED)
The increase is attributable in part to a $55,400 (11%) increase in net leases
and notes in 1999 as compared to 1998. Total revenue as a percentage of average
net leases and notes decreased from 13.5% in 1998 to 13.1% in 1999.
INCREASE IN LEASE PORTFOLIO
Increases in the lease portfolio resulting from new booked lease volume of
$252,100 in 1999 and $227,300 in 1998 exceeded lease reductions from leases
repaid and provision for credit losses of $196,700 and $177,400 in 1999 and
1998, respectively.
FY 1999 FY 1998
--------- ---------
New booked lease volume $252,100 $227,300
Leases repaid (188,700) (169,800)
Provision for credit losses ( 8,000) ( 7,600)
--------- ---------
Portfolio increase $ 55,400 $ 49,900
========= =========
The increase in new booked lease volume in excess of leases repaid and provision
for credit losses had the effect of increasing the size of the lease portfolio,
thereby increasing total revenues. The increased volume of new leases resulted
from development of Telmark's existing markets and the addition of new
employees.
INTEREST EXPENSE
Interest expense increased from $26,900 in 1998 to $27,600 in 1999. While the
weighted average interest rate paid on debt decreased from 7.2% to 6.9%, total
interest expense increased due to increased borrowings required to finance the
growth of the lease portfolio noted above.
<TABLE>
<CAPTION>
PERCENTAGE
FY 1999 FY 1998 INCREASE CHANGE
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Interest expense $27,600 $26,900 $700 3%
</TABLE>
Total debt outstanding at June 30, 1999 increased by $28,100 to $433,700 as
compared to total debt outstanding at June 30,1998.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses of $16,200 in 1999 increased by
$600 (4%) compared to $15,600 in 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Selling, general, PERCENTAGE
and administrative FY 1999 FY 1998 INCREASE CHANGE
------- ------- -------- ----------
expenses $16,200 $15,600 $600 4%
</TABLE>
The increase in total selling, general, and administrative expenses was
primarily the result of additional personnel and incentives paid to certain
employees relating to additional new business. Expenses which are determined to
be related to origination of new lease business are deferred and recorded over
the term of the leases.
PROVISION FOR CREDIT LOSSES
The provision for credit losses of $8,000 in 1999 represents an increase of $400
(5%) compared to $7,600 in 1998.
<TABLE>
<CAPTION>
PERCENTAGE
FY 1999 FY 1998 INCREASE CHANGE
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Provision for Credit Losses $8,000 $7,600 $400 5%
</TABLE>
This increase is based on our analysis of reserves required to provide for
uncollectible receivables. Telmark's allowance for credit losses is based on a
periodic review of the collection history of past leases, current credit
practices, an analysis of delinquent accounts, and current economic conditions.
At June 30, 1999, the allowance for credit losses was $30,000 compared to
$27,100 at June 30, 1998. During 1998 and 1999, the general economy remained
strong, however, the total value of non-earning accounts increased from $3,000
in 1998 to $4,900 in 1999 and as a percentage of lease portfolio was 0.6% of
leases in 1998 to 0.9% of leases in 1999. Reserves are established at a level
management believes is sufficient to cover estimated losses in the portfolio.
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (THOUSANDS OF DOLLARS) (CONTINUED)
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. Total assets have grown at an average annual rate of 16% over
the past fifteen years. The liability to equity ratio increased from 4.5 in 1999
to 4.8 in 2000.
FY 2000 FY 1999 FY 1998
-------- -------- --------
CASH IN FLOWS
Cash flows from operations $24,400 $22,800 $21,200
Cash flows from financing 64,600 43,700 37,100
-------- -------- --------
Total cash in flows 89,000 66,500 58,300
CASH OUT FLOWS
Cash flows from investing (83,400) (63,800) (58,000)
Cash flows to restricted cash ( 5,600) (2,700) (300)
-------- -------- --------
Total cash out flows (89,000) (66,500) (58,300)
Virtually all of the cash flows from both operations and financing activities
were invested in restricted cash and growth of the lease portfolio. Telmark has
been successful in arranging its past financing needs and believes that its
current financing arrangements are adequate to meet its foreseeable operating
requirements. There can be no assurance, however, that Telmark 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. Management conducts ongoing discussions and negotiations with
existing and potential lenders for future financing needs. See Note 5 to the
Consolidated Financial Statements "Borrowing under Lines of Credit and Term
Debt."
OTHER MATTERS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
We are including the following cautionary statement in this Form 10-K 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, or on behalf of, Telmark. Where any such forward-looking statement includes
a statement of the assumptions or basis underlying such forward-looking
statement, Telmark cautions that, while it believes such assumptions or basis to
be reasonable and makes 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 herein 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 the control of Telmark. Where, in any forward-looking
statement, Telmark, or its management, expresses 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 there can be no assurance 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.
YEAR 2000 READINESS
We had no material issues relating to the millennium date change on January 1,
2000, the leap year on February 29, 2000, or the month end, the quarter-end, or
the year end processing. 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.
Our cost for conversion and testing of existing applications and the replacement
of hardware was 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>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(THOUSANDS OF DOLLARS)
The following table provides information about Telmark's debt securities and
loans that are sensitive to changes in interest rates. The table presents
principal cash flows (in 000's) and related weighted average interest rates by
contractual maturity dates.
<TABLE>
<CAPTION>
FIXED INTEREST RATE Fair Value
Liabilities 2001 2002 2003 2004 2005 Thereafter Total 6/30/00
------- ------- ------- ------- ------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short Term Bank
Lines of Credit 75,676 - - - - - 75,676 75,676
Weighted Average
Interest Rate 7.36% - - - - - - -
Long-Term Debt,
including current portion 132,773 104,257 85,010 69,842 8,648 3,726 404,256 411,071
Weighted Average
Interest Rate 6.90% 6.98% 7.11% 6.87% 7.69% 7.75% -
Subordinated Debentures,
including current portion 5,497 7,321 11,071 6,096 - 7,413 37,398 35,950
Weighted Average
Interest Rate 6.40% 6.94% 8.43% 8.25% - 8.75% -
</TABLE>
Telmark does not use derivatives or other financial instruments to hedge
interest rate risk in its portfolio. Telmark endeavors to limit the effects of
changes in interest rates by matching as closely as possible, on an ongoing
basis, the maturity and repricing characteristics of funds borrowed to finance
its leasing activities with the maturity and repricing characteristics of its
lease portfolio. However, a rise in interest rates would increase the cost of
that portion of the debt which is not precisely matched to the characteristics
of the portfolio. Telmark has a formal risk management policy which limits the
short-term exposure to an amount which is immaterial to the results of
operations or cash flows. The subordinated debentures' interest rate is at the
greater of the quoted rate or a rate based upon an average discount rate for
U.S. Government Treasury Bills (T-Bill), with maturities of 26 weeks. Based on
the T-Bill rate of 5.96% as of June 30, 2000, as compared to the stated rates of
the debentures, which range from 6.0% to 8.75% at June 30, 2000, we believe a
reasonably possible near-term change in interest rates and the conversion of
debt to a variable rate would not cause material near-term losses in future
earnings or cash flows. Finally, for the portion of debt which is not precisely
matched as of June 30, 2000, we do not believe that reasonably possible
near-term changes in interest rates will result in a material effect on future
earnings, fair values, or cash flows of Telmark.
10
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES:
Report of Independent Accountants.......................................................................12
Consolidated Balance Sheets, June 30, 2000 and 1999.....................................................13
Consolidated Statements of Income and Member's Equity,
for the years ended June 30, 2000, 1999 and 1998...............................................14
Consolidated Statements of Cash Flows for the years ended June 30, 2000, 1999 and 1998..................15
Notes to Consolidated Financial Statements..............................................................16
</TABLE>
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Telmark LLC:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and member's equity and cash flows present
fairly, in all material respects, the financial position of TELMARK LLC (a
wholly-owned subsidiary of Agway Holdings, Inc.) and its subsidiaries at June
30, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 2000, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of Telmark's management; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Syracuse, New York
August 18, 2000
12
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
JUNE 30, 2000 AND 1999
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Restricted cash........................................$ 10,103 $ 4,480
Leases and notes receivable, net....................... 626,538 551,071
Investments............................................ 13,606 12,780
Equipment, net......................................... 483 868
Deferred income taxes.................................. 0 5,443
Other assets........................................... 1,753 1,345
------------ ------------
Total Assets...........................................$ 652,483 $ 575,987
============ ============
LIABILITIES AND MEMBER'S EQUITY
2000 1999
------------ ------------
Borrowings under lines of credit and term debt.........$ 479,932 $ 396,101
Subordinated debentures................................ 37,398 37,633
Accounts payable....................................... 9,666 6,692
Payable to Agway Inc................................... 5,114 22,337
Deferred income taxes.................................. 39 0
Accrued expenses, including interest of
$4,020 - 2000 and $3,258 - 1999 ................. 8,061 7,658
------------ ------------
Total Liabilities...................................... 540,210 470,421
Commitments & Contingencies
Member's Equity........................................ 112,273 105,566
------------ ------------
Total Liabilities and Member's Equity.............$ 652,483 $ 575,987
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
13
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME AND MEMBER'S EQUITY
FISCAL YEARS ENDED JUNE 30, 2000, 1999, AND 1998
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Interest and finance charges ....... $ 75,131 $ 68,337 $ 63,872
Service fees and other income ...... 1,654 1,669 1,604
--------- --------- ---------
Total revenues ................. 76,785 70,006 65,476
--------- --------- ---------
Expenses:
Interest expense ................... 31,536 27,626 26,871
Provision for credit losses ........ 7,899 8,024 7,587
Selling, general and administrative 17,291 16,198 15,606
--------- --------- ---------
Total expenses ................. 56,726 51,848 50,064
--------- --------- ---------
Income before income taxes ..... 20,059 18,158 15,412
Provision for income taxes .............. 8,352 7,756 6,654
--------- --------- ---------
Net income ..................... 11,707 10,402 8,758
Member's equity, beginning of year ...... 105,566 95,164 86,406
Distribution of member's equity ......... (5,000) 0 0
--------- --------- ---------
Member's equity, end of year ............ $ 112,273 $105,566 $ 95,164
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JUNE 30, 2000, 1999, AND 1998
(THOUSANDS OF DOLLARS)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................... $ 11,707 $ 10,402 $ 8,758
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization ........ 386 510 607
Deferred taxes ....................... 5,481 1,587 3,614
Provision for credit losses .......... 7,899 8,024 7,587
Patronage refund received in stock ... (826) (930) (1,043)
Changes in assets and liabilities:
Other assets .................... (408) (239) (169)
Payables ........................ 2,974 1,584 709
Income taxes payable ............ (3,190) 2,153 1,330
Accrued expenses ................ 403 (260) (231)
--------- --------- ---------
Net cash flow provided by
operating activities ............ 24,426 22,831 21,162
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Leases originated ........................ (282,064) (252,107) (227,270)
Leases repaid ............................ 198,698 188,637 169,827
Purchases of equipment, net .............. 0 (378) (552)
--------- --------- ---------
Net cash flow used
in investing activities ......... (83,366) (63,848) (57,995)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in borrowings under
short term line of credit ............ 40,176 15,000 16,000
Net change under revolving line of credit 8,200 (8,700) (25,900)
Proceeds from notes payable .............. 0 0 100,000
Repayment of notes payable ............... (24,000) (23,000) (50,723)
Proceeds from lease backed notes ......... 68,100 48,384 0
Repayment of lease backed notes .......... (8,645) (7,243) (7,785)
Repayment of capital lease ............... 0 (17) (73)
Net change payable to Agway Inc. ......... (14,033) 15,742 2,663
Repayment of debentures .................. (18,380) 0 (11,208)
Proceeds from sale of debentures ......... 18,145 3,627 14,170
Distribution of member's equity .......... (5,000) 0 0
--------- --------- ---------
Net cash flow provided by
financing activities .......... 64,563 43,793 37,144
--------- --------- ---------
Net change in cash ....................... 5,623 2,776 311
Cash at beginning of year ................ 4,480 1,704 1,393
--------- --------- ---------
Cash at end of year ...................... $ 10,103 $ 4,480 $ 1,704
========= ========= =========
Cash paid during period for:
Interest ............................. $ 30,774 $ 28,629 $ 27,395
Income Taxes ......................... $ 6,202 $ 3,556 $ 2,972
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES
Operations
Telmark LLC ("Telmark" or the "Company") was organized in 1964 as Telmark
Inc. under the Business Corporation Law of the State of New York. Effective July
1, 1998, Telmark Inc. was merged into Telmark LLC, a Delaware limited liability
company. Telmark is in the business of leasing agricultural related equipment,
vehicles, and buildings. Telmark's customers are farmers and other rural
businesses as well as manufacturers and independent dealers that serve the
agricultural marketplace. Telmark is indirectly owned and controlled by Agway
Inc. and subsidiaries ("Agway"), one of the largest agricultural supply and
services cooperatives in the United States. Telmark is a wholly-owned subsidiary
of Agway Holdings, Inc. ("Holdings"), a subsidiary of Agway. Telmark operates
throughout the continental United States and Canada.
Basis of Consolidation
The consolidated financial statements include the accounts of all wholly
owned subsidiaries. All significant intercompany transactions and balances have
been eliminated in consolidation.
Cash and Equivalents
Telmark considers all investments with a maturity of three months or less
when purchased to be cash equivalents. Certain cash accounts amounting to
$10,103 and $4,480 at June 30, 2000, and 1999, respectively, collateralize
lease- backed notes payable. See Note 5. This cash is held in segregated cash
accounts pending distribution and is restricted in its use.
Lease Accounting
Completed lease contracts, which qualify as direct finance leases as
defined by Statement of Financial Accounting Standards ("SFAS") No. 13
"Accounting for Leases," are accounted for by recording on the balance sheet the
total future minimum lease payments receivable, plus the estimated unguaranteed
residual value of leased equipment, less the unearned interest and finance
charges. Unearned interest and finance charges represent the excess of the total
future minimum lease payments plus the estimated unguaranteed residual value
expected to be realized at the end of the lease term over the cost of the
related equipment. Interest and finance charge income is recognized as revenue,
by using the interest method over the term of the lease, which for most
commercial and agricultural leases is 60 months or less with a maximum of 180
months for buildings. Income recognition is suspended on all leases and notes
which become past due greater than 120 days. As of June 30, 2000, and 1999, the
recognition of interest income was suspended on leases and notes totaling $6,048
and $4,890, respectively.
Initial direct costs incurred in consummating a lease are not expensed when
the lease is originated. The expense is capitalized and amortized over the life
of the lease. This deferral of expenses has the effect of reducing the expense
recorded in the period the lease is booked, and increasing the expense
recognized over the remaining life of the lease. Initial direct costs deferred
and amortization expense recognized were as follows for the years ended June 30:
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Expenses not recognized this year
are deferred to later years 7,524 6,745 5,256
Expenses from prior years amortized
this year 5,643 4,969 4,553
</TABLE>
Provisions for credit losses are charged to income in amounts sufficient to
maintain the allowance at a level considered adequate to cover losses in the
existing portfolio. The net investment in a lease is charged against the
allowance for credit losses when determined to be uncollectible, generally
within one year of becoming past due.
16
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT)
Investments
Investments comprise capital stock of a cooperative bank acquired from the
bank at par or stated value. This stock is not traded and is historically
redeemed on a periodic basis by the bank at cost. By its nature, this stock is
held for redemption and is reported at cost. Patronage refunds on this stock are
recorded as a reduction of interest expense and totalled $1,180, $1,329, and
$1,489 for the years ended June 30, 2000, 1999, and 1998, respectively.
Equipment
Depreciation is calculated using the straight-line method over the
estimated useful lives of the equipment.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the
years ended June 30, 2000, 1999, and 1998, was $1,034, $1,008, and $877,
respectively.
Income Taxes
Telmark provides for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under the liability method specified by SFAS No. 109, deferred
tax assets and liabilities are based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the tax rates
which are anticipated to be in effect when these differences reverse. The
deferred tax provision represents the net change in the assets and liabilities
for deferred tax.
Telmark is included in a consolidated federal tax return filed by Agway.
Through June 30, 1998, Telmark filed separate state tax returns. Effective July
1, 1998, for income tax filing purposes, Telmark is included as a business
division of Holdings. Under Telmark's tax sharing agreement, the provision for
income taxes and related credits and carry forwards are calculated on a separate
company basis and billed to Telmark as appropriate on an interim basis.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
17
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
2. LEASES, NOTES AND ALLOWANCE FOR CREDIT LOSSES
Leases and notes as of June 30 were as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Leases:
Commercial and agricultural $861,863 $740,011
Leasing to Agway Inc. and subsidiaries 4,000 220
-------- --------
865,863 740,231
Retail installment loans 20,388 28,349
-------- --------
Total leases and notes $886,251 $768,580
======== ========
Net investment in leases and notes at June 30 are summarized as follows:
2000 1999
-------- --------
Leases and notes $886,251 $768,580
Unearned interest and finance charges (240,745) (199,122)
Net deferred origination costs 13,568 11,591
-------- --------
Net investment 659,074 581,049
Allowance for credit losses (32,536) (29,978)
-------- --------
Leases and notes, net $626,538 $551,071
======== ========
</TABLE>
Included within the above leases and notes are unguaranteed estimated residual
values of leased property approximating $92,700 and $82,100 at June 30, 2000,
and 1999, respectively.
Contractual maturities of leases and notes were as follows at June 30, 2000:
<TABLE>
<CAPTION>
Leases
--------------------------
Commercial To Agway Retail
and Inc. and Installment
Agricultural Subsidiaries Loans Total
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
2001 $ 229,809 $ 555 $ 8,124 $ 238,488
2002 183,283 526 5,260 189,069
2003 138,468 507 2,577 141,552
2004 97,675 479 1,568 99,722
2005 61,989 479 732 63,200
Thereafter 150,639 1,454 2,127 154,220
------------ ------------ ----------- ---------
Totals $ 861,863 $4,000 $20,388 $ 886,251
============ ============ =========== =========
</TABLE>
Changes in the allowance for credit losses for the years ended June 30 were as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year $29,978 $27,071 $24,014
Provision for credit losses charged to operations 7,899 8,024 7,587
Charge-offs (9,179) (6,820) (6,513)
Recoveries 3,838 1,703 1,983
-------- -------- --------
Balance, end of year $32,536 $29,978 $27,071
======== ======== ========
</TABLE>
18
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
3. EQUIPMENT
Equipment, at cost, consisted of the following at June 30:
2000 1999
-------- --------
Office and other equipment .. $ 2,571 $ 2,571
Less accumulated depreciation (2,088) (1,703)
-------- --------
$ 483 $ 868
======== ========
4. INCOME TAXES
The provision for income taxes consists of the following:
2000 1999 1998
------ ------ ------
Currently payable:
Federal ..... $2,427 $4,451 $2,321
State ....... 444 1,718 719
Deferred ......... 5,481 1,587 3,614
------ ------ ------
$8,352 $7,756 $6,654
====== ====== ======
Telmark's effective income tax rate on pre-tax income differs from the federal
statutory tax rate as follows:
2000 1999 1998
----- ----- -----
Statutory federal income tax rate ..... 34.0% 34.0% 34.0%
Tax effects of:
State taxes, net of federal benefit 6.4 8.0 8.7
Other items ....................... 1.2 .7 .5
----- ----- -----
Effective income tax rate ............. 41.6% 42.7% 43.2%
===== ===== =====
The components of the net deferred tax asset as of June 30 were as follows:
2000 1999
--------- ---------
Deferred tax assets:
Allowance for credit losses ....... $ 12,839 $ 11,849
Alternative minimum tax
credit carryforward ............ 5,870 3,574
Other ............................. 917 960
--------- ---------
Total deferred tax assets ......... 19,626 16,383
--------- ---------
Deferred tax liabilities:
Difference between book and
tax treatment of leases ....... 19,470 10,745
Other ............................. 195 195
--------- ---------
Total deferred tax liabilities 19,665 10,940
--------- ---------
Net deferred tax asset
(liability) ................. $ (39) $ 5,443
========= =========
Based on Telmark's history of taxable earnings and its expectations for the
future, management has determined that operating income will more likely than
not be sufficient to recognize its deferred tax assets. At June 30, 2000,
Telmark's federal alternative minimum tax credit can be carried forward
indefinitely.
19
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
5. BORROWINGS UNDER LINES OF CREDIT AND TERM DEBT
As of June 30, 2000, Telmark has credit facilities available from banks which
allow it to borrow up to an aggregate of $336,700. Uncommitted short-term line
of credit agreements permit borrowing up to $86,700 on an uncollateralized basis
with interest paid upon maturity. The lines bear interest at money market
variable rates. A committed $250,000 partially collateralized revolving term
loan facility 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. The total amount outstanding as of June 30, 2000, under the
short-term lines of credit and the revolving term loan facility was $75,200 and
$164,500, respectively. The revolving term loan facility of $164,500 is
partially collateralized by our investment in a cooperative bank having a book
value of $13,600 at June 30, 2000.
Telmark has issued lease-backed notes, through three wholly owned special
purpose funding subsidiaries as follows:
<TABLE>
<CAPTION>
TELMARK LEASE FUNDING YEAR ISSUED ISSUED CLASS A ISSUED CLASS B RATE CLASS A RATE CLASS B
--------------------- ----------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
I 1997 $24,000 $ 2,000 6.58% 7.01%
II 1999 44,800 3,600 6.54% 7.61%
III 2000 63,000 5,100 7.69% 9.05%
</TABLE>
The notes are collateralized by leases having an aggregate present value of
contractual lease payments equal to the principal balance of the notes, and the
notes are further collateralized by the residual values of these leases and by
segregated cash accounts.
Telmark borrows under its short-term line of credit agreements 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 $86,700 lines of credit all have terms expiring
during the next 12 months. The $250,000 revolving term loan facility is
available through August 1, 2001.
At June 30, 2000, we had balances outstanding on uncollateralized senior note
private placements totaling $122,000. Interest is payable semiannually on each
senior note. Principal payments are both semiannual and annual. The note
agreements are similar to each other and each contain financial covenants, the
most restrictive of which prohibit:
(i) tangible net worth, defined as consolidated tangible assets less
total liabilities (excluding notes payable to Holdings), from being
less than an amount equal to or greater than the sum of $85,000, plus
50% of all net income (if a positive number) for all fiscal years
ended after January 1, 2000. As of June 30, 2000 required minimum net
worth is $90,900;
(ii) the ratio of total liabilities less subordinated notes payable to
Holdings to member's equity plus subordinated notes payable to
Holdings from exceeding 5:1;
(iii) the ratio of earnings available for fixed charges from being less
than 1.25:1, and
(iv) equity distributions and restricted investments (as defined) made
after July 1, 1999 to exceed 50% of consolidated net income for the
period beginning on July 1, 1999 through the date of determination,
inclusive. As of June 30, 2000, $900 of member's equity is free of
this restriction.
For the year ended June 30, 2000, Telmark has complied with all covenants
contained in its borrowing agreements.
<TABLE>
<CAPTION>
At June 30, borrowings under lines of credit, term debt
and subordinated debentures consisted of the following: 2000 1999
-------- --------
<S> <C> <C>
Notes payable to banks due in varying amount and dates through
April 12, 2004 with interest ranging from 5.56% to 8.5% .... $239,676 $191,300
Unsecured notes payable to insurance companies due in varying
amount and dates through May 29, 2004, with interest
ranging from 6.47% to 7.64% ................................ 122,000 146,000
Lease-backed notes payable to insurance companies in varying
amounts and dates through December 15, 2008 with interest
rates ranging from 6.54% to 9.05% .......................... 118,256 58,801
-------- --------
Total borrowings under lines of credit and Term Debt ..... 479,932 396,101
Subordinated debentures due in varying amount and dates through
March 31, 2008, with interest ranging from 6.00% to 8.75% .. 37,398 37,633
-------- --------
Total Debt ............................................... $517,330 $433,734
======== ========
</TABLE>
20
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
5. BORROWINGS UNDER LINES OF CREDIT AND TERM DEBT (CONT.)
The subordinated debentures represent the outstanding balance of registered
debentures offered to and held by the general public. Interest is paid on the
debentures on January 1, April 1, July 1, and October 1 of each year. The
interest rate paid on debentures is the greater of the stated rate or a rate
based upon an average discount rate for U.S. Government Treasury Bills with a
maturity of 26 weeks. The debentures are uncollateralized and are subordinate to
all senior debt of Telmark.
The carrying amounts and estimated fair values of our significant financial
instruments held for purposes other than trading at June 30, were as follows:
<TABLE>
<CAPTION>
2000 1999
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Lines of Credit and Term Debt ............................. $479,932 $486,747 $396,101 $404,386
Subordinated Debentures ................................... 37,398 35,950 37,633 37,887
</TABLE>
The aggregate amounts of notes payable, and subordinated debentures maturing
after June 30, 2000, are as follows:
<TABLE>
<CAPTION>
Notes Payable
--------------------------------- Subordinated
Year Ending June 30, Bank Ins. Companies Debentures Total
--------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
2001 $ 148,676 $ 59,773 $ 5,497 $ 213,946
2002 25,000 79,257 7,321 111,578
2003 36,000 49,010 11,071 96,081
2004 30,000 39,842 6,096 75,938
2005 0 8,648 0 8,648
Thereafter 0 3,726 7,413 11,139
--------------- ---------------- ------------- -------------
$ 239,676 $ 240,256 $ 37,398 $ 517,330
=============== ================ ============= =============
</TABLE>
21
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
6. EMPLOYEE BENEFIT PLANS
Employees of Telmark participate in Agway's employee benefit plans, which
include a defined benefit Retirement Plan, a defined contribution 401(K) plan, a
medical and dental benefit plan, a postretirement medical plan, and a life and
health insurance plan. Total benefit costs under these plans are allocated by
Agway to Telmark primarily based on payroll costs. Benefit costs for those plans
included in selling, general and administrative expense were approximately
$1,500, $1,400, and $1,100 for the periods ended June 30, 2000, 1999, and 1998,
respectively.
7. RELATED PARTY TRANSACTIONS
Payable to Agway Inc.
---------------------
During the quarter ended March 31, 2000 Telmark discontinued the use of the
depository and disbursement accounts of Agway and initiated its own independent
cash management system. The payable to Agway Inc. after this change is
principally any unpaid member equity distribution and/or any net income taxes
payable.
Inter-Company Transactions
--------------------------
Inter-company transactions related to leases with Agway, income taxes, and
Agway's employee benefit plans are separately disclosed in the financial
statements. Other inter-company transactions with Agway for the years ended June
30 are:
(Revenue) Expense 2000 1999 1998
----------------- ------- ------- -------
Interest and finance charges..................$ (159) $ (27) $ (49)
Administrative and general expense............ 1,546 1,691 1,638
Interest and finance charges are earned on equipment leases to Agway. The
administrative and general expense caption described above includes certain
shared expenses incurred by Agway on behalf of Telmark, including the corporate
insurance program, information services, payroll, benefits, accounts payable
administration, and facilities management. These expenses were allocated to
Telmark based on what management believes is a reasonable methodology.
During the year ended June 30, 2000, Telmark distributed $5,000 of member's
equity. During the years ended June 30, 1999 and 1998, there were no
distributions of member's equity.
8. COMMITMENTS & CONTINGENCIES
COMMITMENTS
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Since some
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Outstanding commitments to extend lease financing at June 30, 2000 amounted to
$4,415.
LEGAL PROCEEDINGS
Telmark is not a party to any litigation or legal proceedings pending, or to the
best of its knowledge threatened, which, in the opinion of its management,
individually or in the aggregate, would have a material adverse affect on its
results of operations, financial position or liquidity.
22
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
9. FINANCIAL INSTRUMENTS
Off Balance-Sheet Risk
Telmark is a party to financial instruments with off-balance sheet risk in the
normal course of its business to meet the financing needs of its customers.
These financial instruments consist of commitments to extend credit not
recognized in the balance sheet. In the event of non-performance by the other
party to the financial instrument, Telmark's credit risk is limited to the
amount of Telmark's commitment to extend credit. Our exposure to credit loss in
the event of nonperformance by the other party to the financial instrument for
commitments to extend credit is represented by the contractual amount of the
instrument. Telmark uses the same credit and collateral policies in making
commitments as it does for on-balance sheet instruments.
Market Risk
Telmark's business is concentrated in agriculture industry in the New England,
Mid-Atlantic, and Midwest states with approximately 70% of its leases directly
related to production agriculture. However, the portfolio of agricultural leases
is diversified into many different agriculture segments. As of June 30, 2000,
the largest concentration is in crops enterprises which represents 18% of the
portfolio, dairy enterprises which represents 17% of the portfolio, and wood
products enterprises which represents 11% of the portfolio. At June 30, 2000,
approximately 44% of our net lease investment is in the states of Michigan, New
York, Ohio, and Pennsylvania. Developments in any of these areas of
concentration could affect operating results adversely.
Telmark endeavors to limit the effects of changes in interest rates by matching
as closely as possible, on an ongoing basis, the maturity and repricing
characteristics of funds borrowed to finance its leasing activities with the
maturity and repricing characteristics of its lease portfolio. However, a rise
in interest rates would increase the cost of that portion of the debt which is
not precisely matched to the characteristics of the portfolio and could lower
the value of our outstanding leases in the secondary market.
23
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting and
financial disclosure.
24
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND MANAGEMENT
DIRECTORS,
EXECUTIVE OFFICERS AND SIGNIFICANT MEMBERS OF MANAGEMENT OF THE REGISTRANT
The Directors of Telmark determine our policy and are elected by the member at
each annual meeting to serve until the next annual meeting or until their
successors are elected and qualified. The following table sets forth certain
information regarding Telmark's Directors, executive officers and significant
members of management:
<TABLE>
<CAPTION>
Years served Year Became Term
Name Age Position as Officer a Director Expires
-------------------------------------------------------------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Peter J. O'Neill 53 Senior Vice President,
Finance and Control,
Chairman of the
Board and Director 6 1995 July, 2001
Andrew J. Gilbert 41 Director 1997 July, 2001
Samuel F. Minor 62 Director 1989 July, 2001
Edwin C. Whitehead 59 Director 1999 July, 2001
William W. Young 47 Director 1992 July, 2001
Daniel J. Edinger 49 President and Director 12 1988 July, 2001
Raymond G. Fuller 49 Director of Customer 6
Operations
Herbert E. Gerhart 55 Secretary and 23
Director of Finance
Karen J. Ohliger 38 Treasurer 1
Richard A. Kalin 51 Controller 6
Kipp R. Weaver 50 Director of Credit 6
</TABLE>
The Board of Directors, except for Messrs. O'Neill and Edinger, are paid an
annual retainer fee of $1,000 for their services on the Telmark Board. The
executive officers and significant members of management of Telmark provide
operating control to carry out the policies established by the Board of
Directors and serve at the discretion of the Board with no guarantee of
employment. Telmark is organized with nine functional managers and six region
managers reporting to the President, Daniel J. Edinger. The officers with
company wide responsibilities who report to the President are the Director of
Credit, Director of Customer Operations, Director of Finance, and the
Controller. More detailed biographies of each person listed above, are set forth
below.
PETER J. O'NEILL - Mr. O'Neill's principal occupation has been Senior Vice
President, Finance and Control of Agway for more than five years.
ANDREW J. GILBERT - Mr. Gilbert is a member of the Agway Board of Directors. He
has been engaged in full-time farming for more than five years.
SAMUEL J. MINOR - Mr. Minor is a member of the Agway Board of Directors. He has
been engaged in full-time farming for more than five years.
EDWIN C. WHITEHEAD - Mr. Whitehead is a member of the Agway Board of Directors.
He has been engaged in full time farming for more than 5 years.
WILLIAM W. YOUNG - Mr. Young is a member of the Agway Board of Directors. He has
been engaged in full-time farming for more than five years.
DANIEL J. EDINGER - Mr. Edinger's principal occupation has been President of
Telmark for more than five years.
RAYMOND G. FULLER - Mr. Fuller's principal occupation has been Director of
Customer Operations of Telmark for more than five years.
HERBERT E. GERHART - Mr. Gerhart's principal occupation has been Director of
Finance of Telmark for more than five years.
KAREN J. OHLIGER - Ms. Ohliger is Treasurer of Agway. She served as Assistant
Treasurer of Agway from September 1992 to August 1998. She was named Treasurer
of Agway and Telmark in August 1998.
RICHARD A. KALIN - Mr. Kalin's principal occupation has been Controller of
Telmark for more than five years.
KIPP R. WEAVER - Mr. Weaver's principal occupation has been Director of Credit
of Telmark for more than five years.
25
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Employees of Telmark are eligible to participate in Agway's benefits and
compensation plans. The following table sets forth information regarding annual
and long-term compensation for services in all capacities to Telmark for the
fiscal years ended June 30, 2000, 1990, and 1998, of the chief executive officer
and any of the other four most highly compensated executive officers of Telmark
(other than the CEO) who were serving in such capacity at June 30, 2000 and were
compensated over $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------
ANNUAL
COMPENSATION(4)
----------------------------
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) (3)
------------------------------ ------------ --------------- ------------ -------------------
<S> <C> <C> <C> <C>
Daniel J. Edinger............. 2000 $224,637 $184,950 $5,017
President 1999 199,710 155,040 3,764
1998 178,853 105,240 3,033
Raymond G. Fuller............. 2000 $ 70,018 $ 56,804 $2,852
Director of 1999 69,139 61,616 1,556
Customer Operations 1998 60,580 38,688 814
Herbert E. Gerhart............ 2000 $70,018 $56,804 $3,684
Secretary and 1999 69,208 61,616 1,480
Director of Finance 1998 61,152 39,059 1,253
Richard A. Kalin.............. 2000 $70,018 $56,804 $4,042
Controller 1999 69,238 61,616 2,001
1998 61,412 39,220 1,258
Kipp R. Weaver................ 2000 $84,890 $68,871 $4,310
Director of Credit 1999 84,890 74,703 2,126
1998 82,394 52,632 968
</TABLE>
------------------
(1) Total compensation (defined as base salary or wages, overtime and bonus
or incentive compensation) is used in determining the average annual
compensation pursuant to the Employees' Retirement Plan of Agway Inc. This
amount includes all deferred amounts under the Agway Inc. Employees' 401(K)
Thrift Investment Plan and the Agway Inc. Employee's Benefits Equalization Plan.
(2) Members of Agway's chief executive officer's staff and other executives
designated by Agway's chief executive officer are eligible for participation in
Agway's management incentive plan. Within Telmark, the President qualified for
this program. A bonus may be paid to each eligible executive contingent upon
each individual's performance as determined by the President and CEO of Agway,
Telmark's net margin, and other performance factors. Bonuses for other Telmark
executive officers may be paid to each eligible executive contingent upon each
individual's performance as determined by the President of Telmark, Telmark's
net margin and other performance factors. Bonuses are reflected in the fiscal
year earned regardless of payment date.
(3) Amounts shown include contributions made to the Agway Inc. Employees'
401(K) Thrift Investment Plan and the Agway Inc. Employees' Benefits
Equalization Plan and any other payment not appropriately characterized as
salary or bonus.
(4) There are no perquisites paid by us in excess of the lesser of $50,000
or 10% of an executives total salary and bonus for the years disclosed.
26
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION - CONTINUED
EMPLOYEES' RETIREMENT PLAN
The Employees' Retirement Plan of Agway Inc. (the Retirement Plan) is a
non-contributory defined benefit plan covering nearly all employees. The
Retirement Plan was amended effective July 1, 1998, to include a pension equity
formula, as well as to recognize incentive compensation as pensionable
compensation for all employees. It provides for retirement benefits, up to the
limits provided by law, based upon average annual compensation received during
the highest 36 consecutive months in the last 10 years of service and credits
earned for years of service with Telmark. Full credits are earned for service on
and after July 1, 1998, and credits equal to approximately 3/4 of the full
credits are earned for service prior to July 1, 1998. The benefit is defined as
an account balance and can be paid out as a lump sum or an annuity. An employee
is 100% vested in his benefit after completing 5 years of service or attaining
age 55 after completing one year of service.
The following table shows estimated annual benefits payable upon retirement
using the credit formula in effect for service after June 30, 1998, based on
certain 3-year average remuneration levels and years-of-service classifications.
Under the formula, base credits are applied to the total average annual
compensation and excess credits are applied to the average annual compensation
in excess of one-half the Social Security Wage Base. In developing this table,
both base and excess credits have been applied to the total average annual
compensation. Further, the table was developed assuming a normal retirement at
age 65 and an annuity conversion factor based on a 6% interest rate.
PENSION PLAN TABLE
(NEW FORMULA)
YEARS OF CREDITED SERVICE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
3-YEAR AVERAGE
REMUNERATION 5 10 15 20 25 30 35
-------------------- ------------ -------------- -------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 125,000 $ 8,800 $ 16,800 $ 24,800 $ 32,100 $ 39,500 $46,300 $53,000
150,000 10,600 20,200 29,700 38,500 47,400 55,500 63,600
175,000 12,400 23,500 34,700 45,000 55,300 64,800 74,300
200,000 14,100 26,900 39,600 51,400 63,200 74,000 84,900
225,000 15,900 30,200 44,600 57,800 71,100 83,300 95,500
250,000 17,700 33,600 49,500 64,200 79,000 92,500 106,100
275,000 19,400 37,000 54,500 70,700 86,900 101,800 116,700
300,000 21,200 40,300 59,400 77,100 94,800 111,000 127,300
325,000 23,000 43,700 64,400 83,500 102,700 120,300 137,900
350,000 24,800 47,000 69,300 89,900 110,600 129,500 148,500
375,000 26,500 50,400 74,300 96,400 118,500 138,800 159,100
400,000 28,300 53,700 79,200 102,800 126,400 148,000 169,700
425,000 30,100 57,100 84,200 109,200 134,300 157,200 180,300
</TABLE>
Active participants are entitled to receive no less than the value of their
benefits accrued under the old retirement plan benefit formula which was in
effect through June 30, 1998. In addition, most active participants whose age
plus service totaled 55 years or more as of July 1, 1998, will receive the
greater of the benefit determined under the new formula described above, or the
benefit determined had the old formula remained in effect (grandfathered).
The old retirement plan benefit formula is based upon average annual
compensation received during the highest 60 consecutive months in the last 10
years of service and credited years of service. Optional earlier retirement and
other benefits are also provided. The old formula pays a monthly retirement
benefit based on the greater amount calculated under two formulas. The benefit
amount under one formula is subject to an offset for Social Security benefits.
27
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION - CONTINUED
EMPLOYEES' RETIREMENT PLAN (CONTINUED)
The following table shows estimated annual benefits under the old retirement
plan formula in effect for service before July 1, 1998, upon retirement based on
certain 5-year average remuneration levels and years-of-service classifications.
The table was developed assuming a normal retirement at age 65 and does not
reflect an offset for up to 50% of the Social Security benefit, subject to
certain minimum benefits.
PENSION PLAN TABLE
(OLD FORMULA)
YEARS OF CREDITED SERVICE
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
5-YEAR AVERAGE
REMUNERATION 5 10 15 20 25 30 35
-------------------- ------------ ------------- ------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $ 8,000 $16,000 $24,000 $32,000 $40,000 $48,000 $56,000
125,000 10,000 20,000 30,000 40,000 50,000 60,000 70,000
150,000 12,000 24,000 36,000 48,000 60,000 72,000 84,000
175,000 14,000 28,000 42,000 56,000 70,000 84,000 98,000
200,000 16,000 32,000 48,000 64,000 80,000 96,000 112,000
225,000 18,000 36,000 54,000 72,000 90,000 108,000 126,000
250,000 20,000 40,000 60,000 80,000 100,000 120,000 140,000
275,000 22,000 44,000 66,000 88,000 110,000 132,000 154,000
300,000 24,000 48,000 72,000 96,000 120,000 144,000 168,000
325,000 26,000 52,000 78,000 104,000 130,000 156,000 182,000
350,000 28,000 56,000 84,000 112,000 140,000 168,000 196,000
375,000 30,000 60,000 90,000 120,000 150,000 180,000 210,000
400,000 32,000 64,000 96,000 128,000 160,000 192,000 224,000
425,000 34,000 68,000 102,000 136,000 170,000 204,000 238,000
</TABLE>
Amounts under the Retirement Plan may be subject to reduction because of the
limitations imposed under the Internal Revenue Code; however, the extent of any
reduction will vary in individual cases according to circumstances existing at
the time pension payments commence. The Agway Inc. Employees' Benefit
Equalization Plan has been established to provide for the amount of any such
reduction in annual pension benefits under the Retirement Plan.
The benefits shown are computed on a straight life basis and do not reflect an
offset for up to 50% of the Social Security benefit, subject to certain minimum
benefits. Also, the benefits are based on continuing the retirement plan's
benefit formulas as in effect on June 30, 2000. As of June 30, 2000, the
officers and their respective number of credited years of service under the
Retirement Plan were as follows: Messrs. Edinger, 21; Fuller, 15; Gerhart, 27;
Kalin, 27; and Weaver, 5. "Compensation" is defined as the regular salary or
wages, as reported in the Salary and Bonus columns of the Summary Compensation
Table, which is paid to an employee for services rendered to Telmark, including
overtime, vacation pay and bonuses or special pay.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Telmark has no compensation committee. The salary of Daniel J. Edinger,
President of Telmark is determined by Donald P. Cardarelli, President and CEO of
Agway. The salary of the other Executive Officers of Telmark is determined by
Mr. Edinger. Salaries of all Executive Officers are included in the annual
operating budget, which budget is approved by the entire Board of Directors of
Telmark.
None of the Executive Officers or Directors who participated in establishing
compensation policies had interlocks reportable under Section 402 (j) of
Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding member's equity of Telmark is indirectly owned by Agway.
None of the executive officers who are directors of Telmark own any membership
interest of Telmark or equity securities of Agway or Agway's subsidiaries. All
of the other directors are also directors of Agway. Agway is an agricultural
cooperative and each of its members, including each Agway director, owns one
share of $25 par value common stock. None of the Telmark executive officers and
directors, either individually or in the aggregate, own greater than 1% of any
class of equity security of Telmark, of Agway, or of any Agway subsidiaries.
28
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Agway's members, including its director, are customers of Agway and/or its
subsidiaries and may be customers of Telmark. They purchase products from Agway
or enter into leases with Telmark in the normal course of operating their farm
businesses. The price, terms and conditions of any sale or lease transaction are
on the same basis for all of Agway's members.
Telmark is an indirect wholly-owned subsidiary of Agway and as such, had
intercompany transactions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 7 to the Financial
Statement for further information.
PRINCIPAL MEMBER
Telmark is a wholly-owned subsidiary of Holdings. Holdings is a wholly-owned
subsidiary of Agway Financial Corporation which in turn is a wholly-owned
subsidiary of Agway. Agway is one of the largest supply and services
cooperatives in the United States.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
(A) INDEX TO DOCUMENT LIST LOCATION
--------
<S> <C> <C>
(1) FINANCIAL STATEMENTS
Among the responses to this Item 14(a)(1) are the following financial statements
which are included in Item 8.
(i) Report of Independent Accountants...................................................12
(ii) Consolidated Balance Sheets, June 30, 2000 and 1999.................................13
(iii) Consolidated Statements of Income and Member's Equity, for the years ended
June 30, 2000, 1999, and 1998.......................................................14
(iv) Consolidated Statements of Cash Flow, for the years ended June 30, 2000,
1999, and 1998.....................................................................15
(v) Notes to the Consolidated Financial Statements......................................16
(2) FINANCIAL STATEMENT SCHEDULES
Schedules are omitted for the reason that they are not required or are not applicable, or the
required information is shown in the financial statements or notes thereto.
(3) THE FOLLOWING REQUIRED EXHIBITS ARE EITHER ATTACHED HERETO OR ARE HEREBY INCORPORATED BY
REFERENCE TO PREVIOUSLY FILED REGISTRATION STATEMENTS OR THE APPLICABLE FORM 10-K FILED AS
SPECIFIED.
3 - ARTICLES OF INCORPORATION
3(a) -Certificate of Incorporation of Telmark Inc. (predecessor to Telmark LLC) dated
June 4, 1964, as amended September 8, 1964; January 15, 1975; and June 16, 1987,
filed by reference to Exhibit 3 of the Registration Statement (Form S-1), File No.
33-70732, dated October 22, 1993.
BY-LAWS
3(b) -By-laws of Telmark Inc. (predecessor to Telmark LLC) as amended September 19,
1995, filed by reference to Exhibit 3 of the Annual Report (Form 10-K) dated
August 23, 1996.
CERTIFICATE OF FORMATION
3(c) -Certificate of formation of Telmark LLC dated June 25, 1998, filed by reference
to Item 14 of the Annual Report (Form 10-K) dated August 21, 1998.
LIMITED LIABILITY COMPANY AGREEMENT
3(d) -Operating agreement of Telmark LLC dated July 1, 1998, filed by reference to Item
14 of the Annual Report (Form 10-K) dated August 21, 1998.
CERTIFICATE OF MERGER
3(e) -Certificate of Merger of Telmark Inc. into Telmark LLC effective July 1, 1998,
filed by reference to Item 14 of the Annual Report (Form 10-K) dated August 21,
1998.
30
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED)
4 - INSTRUMENT DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
4(a) -The Indenture dated as of September 30, 1993, between Telmark Inc. and OnBank
& Trust Co. of Syracuse, New York, Trustee, filed by reference to Exhibit 4 of the
Registration Statement (Form S-1), File No. 33-70732, dated October 22, 1993.
4(b) -Telmark Inc. Board of Directors resolutions dated as of June 21, 1995, authorizing
the issuance of Debentures under the Indenture filed by reference to Exhibit 4 of
the post effective Amendment No. 1 to the Registration Statement (Form S-1), File
No. 33-84442, dated August 28, 1995.
4(c) -Supplemental Indenture dated as of June 30, 1998 between Telmark Inc. and
Manufacturers and Trust Company, filed by reference to Exhibit 4 of the Current
Report (Form 8-K), File No. 33-70732, dated July 6, 1998.
4(d) -Supplemental Indenture dated as of July 1, 1998 between Telmark Inc. and
Telmark LLC and Manufacturers and Traders Trust Company, filed by reference
to Exhibit 4 of the Current Report (Form 8-K), dated July 6, 1998.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K for the three months ended June 30, 2000, have been filed.
</TABLE>
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By DANIEL J. EDINGER
-----------------------------
President
(Principal Executive Officer)
Date 9/11/00
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- -------
/s/ Daniel J. Edinger President 9/11/00
-------------------- (Principal Executive Officer)
/s/ Peter J. O'Neill Senior Vice President, Finance and Control 9/11/00
-------------------- Chairman of the Board and Director
(Principal Financial Officer
& Principal Accounting Officer)
/s/ Andrew J. Gilbert Director 9/11/00
--------------------
/s/ Samuel F. Minor Director 9/11/00
--------------------
/s/ Edwin C. Whitehead Director 9/11/00
--------------------
/s/ William W. Young Director 9/11/00
--------------------
32
