UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the quarterly period ended September 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 charter)
Delaware 16-1551523
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Butternut Drive, DeWitt, New York 13214
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
315-449-7935
--------------------------------------------------------------------------------
(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 November 6, 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, September 30, 2000 and June 30, 2000....................... 3
Condensed Consolidated Statements of Income and Member's Equity, for the three months
ended September 30, 2000 and 1999................................................................. 4
Condensed Consolidated Statements of Cash Flows for the three months ended
September 30, 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>
September 30, June 30,
2000 2000
--------------- ---------------
(Unaudited)
<S> <C> <C>
Restricted Cash..........................................................$ 9,286 $ 10,103
Leases and notes......................................................... 911,617 886,251
Unearned interest and finance charges.................................... (243,839) (240,745)
Net deferred origination costs........................................... 13,773 13,568
--------------- ---------------
Net investment..................................................... 681,551 659,074
Allowance for credit losses............................................. (32,641) (32,536)
--------------- ---------------
Leases and notes, net.............................................. 648,910 626,538
Receivables from Agway Inc. and Subsidiaries............................. 862 0
Investments.............................................................. 13,606 13,606
Equipment, net........................................................... 397 483
Other assets............................................................. 1,902 1,753
--------------- ---------------
Total Assets.......................................................... $ 674,963 $ 652,483
=============== ===============
LIABILITIES AND MEMBER'S EQUITY
Accounts payable..................................................... 8,101 9,666
Payable to Agway Inc. and subsidiaries .............................. 0 5,114
Accrued expenses, including interest of
$8,147 - September 30, 2000 and $4,020 - June 30, 2000 ........ 12,112 8,061
Deferred Income Taxes................................................ 2,737 39
Borrowings under short term lines of credit.......................... 85,664 75,176
Borrowings under revolving line of credit............................ 177,600 164,500
Term debt............................................................ 235,609 240,256
Subordinated debentures.............................................. 38,396 37,398
--------------- ---------------
Total liabilities.............................................. 560,219 540,210
Commitments & contingencies
Member's equity...................................................... 114,744 112,273
--------------- ---------------
Total liabilities and member's equity.......................... $ 674,963 $ 652,483
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 1. FINANCIAL STATEMENTS (continued)
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS of INCOME and MEMBER'S EQUITY
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999
------------- -------------
<S> <C> <C>
Revenues:
Interest and finance charges..................$ 20,175 $ 17,924
Service fees and other income................. 369 347
------------- -------------
Total revenues............................ 20,544 18,271
Expenses:
Interest expense.............................. 9,369 7,701
Provision for credit losses................... 1,739 1,869
Selling, general and administrative........... 5,224 4,859
------------- -------------
Total expenses............................ 16,332 14,429
------------- -------------
Income before income taxes......................... 4,212 3,842
Provision for income taxes......................... 1,741 1,593
------------- -------------
Net income......................................... 2,471 2,249
Member's equity, beginning of period............... 112,273 105,566
------------- -------------
Member's equity, end of period.....................$114,744 $107,815
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 1. FINANCIAL STATEMENTS (continued)
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS of CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999
------------- -------------
<S> <C> <C>
Net cash flow provided by operating activities:............................... $ 8,385 $ 8,746
------------- -------------
Cash flows from investing activities:
Leases originated........................................................ (76,727) (68,426)
Leases repaid............................................................ 52,616 47,450
------------- -------------
Net cash flow used in investing activities........................... (24,111) (20,976)
------------- -------------
Cash flows from financing activities:
Net increase (decrease) in borrowings under short term lines of credit... 10,488 35,000
Net increase (decrease) in borrowings under revolving line of credit..... 13,100 (10,000)
Repayment of term debt................................................... (4,647) (1,129)
Net increase (decrease) payable to Agway Inc. and subsidiaries........... (5,030) (13,744)
Proceeds from sale of debentures......................................... 998 1,541
------------- -------------
Net cash flow provided by financing activities....................... 14,909 11,668
------------- -------------
Net change in restricted cash............................................ (817) (562)
Restricted cash at beginning of period .................................. 10,103 4,480
------------- -------------
Restricted cash at end of period......................................... $ 9,286 $ 3,918
------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 1. FINANCIAL STATEMENTS (continued)
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Thousands of Dollars)
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Telmark have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
our management, we have included all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation. Operating
results for the three-month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year
ended June 30, 2001. 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, 2000.
NOTE 2 - RESTRICTED CASH
Cash related to securitized leases is held in segregated accounts pending
distribution to the lease backed note holders and is restricted in its use.
On September 30, 2000 restricted cash was $9,300 compared to $10,100 on
June 30, 2000.
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 conditions 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 period ended September 30, 2000 compared
to the corresponding period of 1999 are as follows:
<TABLE>
<CAPTION>
This Year Last Year $ Increase % Increase
--------- --------- ---------- ----------
<S> <C> <C> <C>
$20,500 $18,300 2,200 12.0%
</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 which was partly offset by a slightly lower income rate on new and
replacement leases and notes. Average net investment in leases and notes for the
three-month period ended September 30, 2000 compared to the corresponding period
of the prior year are as follows:
<TABLE>
<CAPTION>
This Year Last Year $ Increase % Increase
--------- --------- ---------- ----------
<S> <C> <C> <C>
$670,300 $591,500 78,800 13.3%
</TABLE>
Increases in our expenses for the three-month period ended September 30, 2000
compared to the corresponding period in the prior year are as follows:
<TABLE>
<CAPTION>
This Year Last Year $ Increase % Increase
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Interest expense $ 9,400 7,700 1,700 22.1%
Selling, general, and
administrative expenses 5,200 4,900 300 6.1%
Provision for credit losses 1,700 1,900 (200) (10.5%)
--------- --------- ---------- ----------
Total expenses $16,300 14,500 $1,800 12.4%
========= ========= ========== ==========
</TABLE>
The change in interest expense is due to an increase in the amount of debt
required to finance the increase in the amount of net leases and notes
outstanding, and by higher interest rates on new and replacement debt than the
same period last year.
Selling, general and administrative expense increased due to incentives paid to
certain employees relating to overall profitability, retention of business, and
profitability of new business.
7
<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)
RESULTS OF OPERATIONS (continued)
The quarterly provision for credit losses is based on our analysis of the
allowance 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 $32,600 at September 30, 2000. During 2000 and 1999, the
general economy remained strong and the total value of non-earning accounts
increased from $5,600 at September 30, 1999 to $5,700 at September 30, 2000 and
as a percentage of the lease portfolio remained unchanged at 0.9%. Reserves are
established at a level management believes is sufficient to cover estimated
losses in the portfolio.
Net income for the three-months ended September 30, 2000 was $2,500, an increase
of $300 (13.6%) from the corresponding period last 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 $ 8,400 $ 8,700
Cash flows from financing 14,900 11,700
--------- ---------
Total cash in flows $ 23,300 $ 20,400
========= =========
Cash Out Flows
Cash flows from investing $(24,100) $(21,000)
Cash flows to restricted cash 800 600
--------- ---------
Total cash out flows (23,300) (20,400)
========= =========
</TABLE>
The net cash flows from both operations and financing activities were invested
in growth of the lease portfolio and payout of restricted cash to note holders.
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. Telmark has been
successful in arranging its past financing needs and believes that its current
financing arrangements are adequate to meet its forseeable operating
requirements. There can be no assurance, however, that Telmark will be able to
obtain future financing in amounts or on terms that are favorable to Telmark.
As of September 30, 2000, we had credit facilities available from banks which
allow us to borrow up to an aggregate of $386,700 which reflects an increase in
the revolving line of credit of $50,000 since June 30, 2000. Uncommitted
short-term line of credit agreements permit us to borrow up to $86,700 on an
unsecured basis with interest paid upon maturity. The lines bear interest at
money market variable rates. A committed $300,000 partially collateralized (by
$13,600 book value in stock of 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
September 30, 2000, our total outstanding debt under the short-term lines of
credit and the revolving term loan facility was $85,700 and $177,600,
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 $86,700 of lines of credit all have terms expiring
at various times during the next 12 months. The $300,000 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 both June 30, 2000 and September 30, 2000. The principal
bears interest at fixed annual rates ranging form 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.
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)
Through three wholly owned special purpose subsidiaries, we have lease-backed
notes outstanding totaling $113,600 and $118,300 at September 30, 2000 and June
30, 2000, respectively, payable to insurance companies. Interest rates on these
classes of notes range from 6.54% to 9.05%. The notes are collateralized by
leases, which were sold to those subsidiaries, having an aggregate present value
of contractual lease payments equal to or greater than the principal balance of
the notes. The final scheduled maturity of these notes is December 2008.
We offer subordinated debentures to the public. The debentures are unsecured and
subordinated to all of our senior debt. The interest on the subordinated
debentures 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 interim funding
needs.
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, 2000. 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, 2000.
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 September 30, 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 November 6, 2000 By /s/ Daniel J. Edinger
-------------------- ----------------------
Daniel J. Edinger, President
(Principal Executive Officer)
Date November 6, 2000 By /s/ Peter J. O'Neill
-------------------- ----------------------
Peter J. O'Neill, Senior Vice President,
Finance and Control
(Principal Accounting Officer)
12
<PAGE>
