-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VKiTouU91M0rfeogcxY7MCl2nEo0nibnEWajug3ZDhBXpJDGHLbABtxcDwOmNwxZ weVZ1oqA9aNsczLP+lRHzA== 0000897101-98-001097.txt : 19981113 0000897101-98-001097.hdr.sgml : 19981113 ACCESSION NUMBER: 0000897101-98-001097 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TSI INC /MN/ CENTRAL INDEX KEY: 0000100063 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 410843524 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-02958 FILM NUMBER: 98745281 BUSINESS ADDRESS: STREET 1: 500 CARDIGAN ROAD CITY: SHOREVIEW STATE: MN ZIP: 55126 BUSINESS PHONE: 6124830900 MAIL ADDRESS: STREET 1: 500 CARDIGAN ROAD STREET 2: D CITY: ST PAUL STATE: MN ZIP: 55126-3996 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 10549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED SEPTEMBER 30, 1998. Commission File Number 0-2958 TSI INCORPORATED (Exact name of registrant as specified in its charter) Minnesota 41-0843524 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 500 Cardigan Road, Shoreview, Minnesota 55126 (Address of principal executive offices) 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 proceeding 20 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 number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Date: October 23, 1998 Number of Common Shares Outstanding: 11,307,510 TSI INCORPORATED FORM 10-Q For the Quarter Ended September 30, 1998 Page PART I. FINANCIAL INFORMATION 2 Item 1. Financial Statements Consolidated Statements of Earnings 3 Consolidated Balance Sheets 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 7-10 PART II. OTHER INFORMATION 11 EXHIBIT 11 Computation of Per Share Earnings 13 -2- CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1998 1997 1998 1997 - ----------------------------------------- ----------- ----------- ----------- ----------- Net sales $22,945,742 $20,685,942 $41,528,814 $39,976,109 Cost of products sold 10,411,788 9,015,870 18,641,018 17,703,420 - ----------------------------------------- ----------- ----------- ----------- ----------- GROSS PROFIT 12,533,954 11,670,072 22,887,796 22,272,689 Operating expenses Research and product development 2,635,685 2,928,737 5,441,986 5,713,101 Selling 4,703,280 4,555,205 9,252,373 8,901,981 Administrative 1,779,186 1,652,897 3,261,692 3,139,978 - ----------------------------------------- ----------- ----------- ----------- ----------- 9,118,151 9,136,839 17,956,051 17,755,060 - ----------------------------------------- ----------- ----------- ----------- ----------- OPERATING INCOME 3,415,803 2,533,233 4,931,745 4,517,629 Other income 100,254 190,383 259,262 486,241 - ----------------------------------------- ----------- ----------- ----------- ----------- EARNINGS BEFORE INCOME TAXES 3,516,057 2,723,616 5,191,007 5,003,870 Provision for income taxes 1,160,000 953,000 1,713,000 1,751,000 - ----------------------------------------- ----------- ----------- ----------- ----------- NET EARNINGS $ 2,356,057 $ 1,770,616 $ 3,478,007 $ 3,252,870 =========== =========== =========== =========== BASIC EARNINGS PER COMMON SHARE $ .21 $ .15 $ .31 $ .28 - ----------------------------------------- =========== =========== =========== =========== DILUTIVE EARNINGS PER COMMON SHARE $ .20 $ .15 $ .30 $ .28 - ----------------------------------------- =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 11,385,895 11,529,903 11,398,859 11,512,226 =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING AND DILUTIVE SHARES 11,552,975 11,801,018 11,573,952 11,797,713 =========== =========== =========== ===========
See notes to consolidated financial statements. -3- CONSOLIDATED BALANCE SHEETS (Unaudited)
SEPTEMBER 30 March 31 September 30 1998 1998 1997 - --------------------------------------------------- ------------ ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 7,530,169 $ 9,385,509 $ 7,329,414 Accounts receivable 18,111,779 16,508,360 13,934,968 Prepaid expenses 335,794 223,713 477,624 Inventories Finished products 2,980,320 2,883,469 2,535,567 Work-in-process 3,148,620 2,792,730 3,252,865 Materials and supplies 9,638,030 9,840,083 8,879,513 - --------------------------------------------------- ------------ ------------ ------------ 15,766,970 15,516,282 14,667,945 - --------------------------------------------------- ------------ ------------ ------------ TOTAL CURRENT ASSETS 41,744,712 41,633,864 36,409,951 INTANGIBLES AND OTHER ASSETS Goodwill 3,714,339 3,834,903 3,819,011 Note receivable 583,323 632,540 734,255 Deferred income tax benefit 528,180 456,169 668,815 Other assets 2,716289 2,878,348 3,307,758 - --------------------------------------------------- ------------ ------------ ------------ 7,542,131 7,801,960 8,529,839 PROPERTY, PLANT AND EQUIPMENT Land 128,503 128,503 128,503 Buildings 3,713,160 3,713,160 3,586,992 Construction in progress 43,422 51,341 160,354 Machinery and equipment 20,355,763 19,689,035 19,718,473 - --------------------------------------------------- ------------ ------------ ------------ 24,240,848 23,582,039 23,594,322 Less allowance for depreciation 16,165,788 15,183,541 14,620,088 - --------------------------------------------------- ------------ ------------ ------------ 8,075,060 8,398,498 8,974,234 - --------------------------------------------------- ------------ ------------ ------------ TOTAL ASSETS 57,361,903 57,834,322 $ 53,914,024 ============ ============ ============ Liabilities and Shareholders' Equity CURRENT LIABILITIES Accounts payable and accrued expenses $ 4,976,859 $ 4,924,480 $ 5,103,051 Employee compensation 3,297,689 3,918,610 3,500,665 Taxes, other than income taxes 467,266 519,285 458,323 Income taxes payable 960,411 1,028,657 216,326 - --------------------------------------------------- ------------ ------------ ------------ TOTAL CURRENT LIABILITIES 9,702,225 10,391,032 9,278,365 - --------------------------------------------------- ------------ ------------ ------------ TOTAL LIABILITIES 9,702,225 10,391,032 9,278,365 SHAREHOLDERS' EQUITY Common shares, $.10 par value 1,134,931 1,168,138 1,164,490 Additional paid-in capital 11,372,407 11,394,909 10,642,462 Retained earnings 35,223,537 35,164,722 32,970,026 Equity adjustment from translation (71,197) (284,479) (141,319) - --------------------------------------------------- ------------ ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 47,659,678 47,443,290 44,635,659 - --------------------------------------------------- ============ ============ ============ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 57,361,903 $ 57,834,322 $ 53,914,024 ============ ============ ============
See notes to consolidated financial statements. -4- CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED SEPTEMBER 30 1998 1997 - ------------------------------------------------------------------ ----------- ----------- OPERATING ACTIVITIES Net earnings $ 3,478,007 $ 3,252,870 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for losses on accounts receivable 29,923 11,066 Depreciation and amortization of property, plant & equipment 935,161 929,055 Amortization of goodwill 120,564 112,567 Loss (gain) on sale of assets 1,514 (16,539) Provision for deferred income tax (72,011) 0 Changes in operating assets and liabilities: Accounts receivable (1,633,342) 621,454 Prepaid expenses (112,081) (104,993) Inventories (250,688) (812,529) Other assets 211,276 (681,386) Accounts payable and accrued expenses 52,379 (973,356) Employee compensation payable (620,921) (468,483) Taxes, other than income taxes (52,019) 16,076 Current income taxes payable (68,246) (31,028) Foreign currency translation gain (loss) 225,453 (196,895) - ------------------------------------------------------------------ ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,244,969 1,657,879 - ------------------------------------------------------------------ ----------- ----------- INVESTING ACTIVITIES Additions to property, plant and equipment (572,155) (867,343) Proceeds from disposal of property, plant and equipment 213 17,602 Purchase of companies, net of cash acquired 0 (1,452,208) - ------------------------------------------------------------------ ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (571,942) (2,301,949) - ------------------------------------------------------------------ ----------- ----------- FINANCING ACTIVITIES Proceeds from stock options exercised 96,544 945,417 Dividends paid (684,570) (577,822) Purchases of common stock (2,886,875) (117,432) - ------------------------------------------------------------------ ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES (3,474,901) 250,163) - ------------------------------------------------------------------ ----------- ----------- Effect of exchange rate changes on cash and cash equivalents (53,466) 28,323 - ------------------------------------------------------------------ ----------- ----------- DECREASE IN CASH AND CASH EQUIVALENTS (1,855,340) (365,584) - ------------------------------------------------------------------ ----------- ----------- Cash and cash equivalents at beginning of year 9,385,509 7,694,998 - ------------------------------------------------------------------ ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF SIX MONTH PERIOD $ 7,530,169 $ 7,329,414 =========== ===========
See notes to consolidated financial statements. -5- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (Unaudited) Note 1. Basis of Presentation The information included in the accompanying interim financial statements is unaudited. In the opinion of management, all adjustments, consisting of normal recurring accruals necessary for a fair presentation of the results of operations, financial position and cash flows for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year. Note 2. Earnings Per Share See Exhibit 11, Computation of Per Share Earnings, on page 13 of this document. Note 3. Comprehensive Income Effective fiscal 1999, the Company has adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income". This statement requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in-capital in the equity section of the balance sheet, and is effective for the Company's fiscal year ending March 31, 1999. The Company's only item of other comprehensive income is foreign currency translation adjustments. This item is separately displayed in the equity section of the balance sheet. For the three months and six months ended September 30, 1998, comprehensive net income was $109,300 and $142,900, respectively, higher than net income due to the effect of foreign currency translation adjustments, net of income taxes. -6- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statements From time to time, in written and oral statements, TSI Incorporated discusses expectations regarding its future performance, including such things as sales and expense trends, global economic issues, future order potentials and Year 2000 risks. These "forward-looking statements" are based on currently available competitive, financial and economic data and the Company's operating plans. They are inherently uncertain, and investors must recognize that events could turn out to be significantly different from expectations. Results of Operations Quarterly sales rose $2,260,000 or 11% when compared to the prior year. Following is a quarterly sales breakdown: Second Quarter Percent 1998 1997 Change ----------- ----------- Safety Comfort and Health $16,290,000 $13,610,000 20% Productivity and Quality Improvement 6,656,000 7,076,000 (6)% ----------- ----------- ---- 22,946,000 20,686,000 11% =========== =========== ==== The increase in sales was due to strong demand for our safety, comfort and health instruments, particularly the PortaCount fit tester which has benefited from recent changes in OSHA regulations. In addition, we saw strong activity in our meteorological instrumentation. Within the productivity and quality improvement area, the Company is seeing continued weakness in the research products sold into this market. Consequently, in November 1998, we decided to consolidate our California and Minnesota research operations into our corporate headquarters. Year-to-date sales have increased $1,553,000 or 4%. Increases in safety, comfort and health instruments have been substantially offset by slower sales in productivity and quality improvement instruments. Besides slower sales of research instruments sold into this market for the entire six months, we had slow sales into the wire and cable industry during the first quarter. Sales to U.S. and state government agencies, including defense, shown as a percent of total sales, were: September 30, 1998 1997 ---- ---- Quarter 25% 28% Year-to-date 23% 25% While the government percentage to total sales is high, the Company sells many different products to a very diverse range of government agencies. Consequently, government sales -7- during the past several years have been quite stable as a percentage of total sales. We consider the current percentages to be within the normal range. International sales rose $1,062,000 or 19% for the quarter compared with last year. International sales for the quarter were strong across both product lines. However, year-to-date international sales are still $1,172,000 below the prior year. This was due to slow first quarter sales of both our process controls and research instruments for productivity and quality improvement. Both these areas showed improvement in the second quarter. Order bookings were as follows: Second Quarter Percent 1998 1997 Change ----------- ----------- Quarter $21,651,000 $20,332,000 6.5% Year-to-date $39,271,000 $37,751,000 4.0% The increase in order bookings follows a pattern similar to sales. Order backlog has declined from $23.0 million last year to $20.2 million this year. There are two primary reasons for the decline in backlog: 1) Shipments were made on some large individual orders that were previously in backlog. 2) Shipments were made on a $4.8 million military PortaCount contract that was booked in December 1997, but ships throughout fiscal 1999. We had a similar $7.1 million contract booked in November 1996 that shipped over fiscal 1998. Our backlog on these contracts was $2.1 million lower at September 30, 1998 compared with September 30, 1997. As indicated in our annual report, we expect to ship $3.5 million less of military PortaCounts in Fiscal 1999 than in Fiscal 1998. Gross profit has ranged between 55.6% and 56.0% over the last three fiscal years completed. For the quarter it was 54.6%, and 55.1% for the six-months of this fiscal year. Our gross profit percentage varies slightly depending on the product mix. While somewhat lower than previous years, it falls within what is considered to be a normal range for TSI's products. We do not believe the lower gross margin percentage represents a trend. Research and development costs dropped to 11.5% of sales for the quarter, bringing the year-to-date costs to 13.1% of sales. The Company continues its commitment to growth through development of new technologies and products. For all of fiscal 1999, research and development expenses are expected to be near the lower end of the Company's historical range of 13 to15 percent of sales. For the last three years, selling expenses have ranged between 21.6% and 23.3% of sales. Selling expenses were 20.5% of net sales for the second quarter compared to 22.0% last year. For the first six months of both years, selling expenses were 22.3%. The quarter-to-quarter percentage can vary depending on the overall sales volume and such things as -8- what channels we sell through, the timing of trade shows, advertising, etc. For all of fiscal 1999, we would expect selling expenses to be within or near the historical range. Administrative expenses were 7.8% of sales for the quarter compared to 8.0% last year. For the first six months of both fiscal 1999 and 1998, administrative expenses were 7.9%. The Company expects administrative costs to continue within our normal operating range between 7 and 8 percent for the rest of the year. Other income varies depending on foreign currency fluctuations, interest rates and invested cash balances. The first half of last year included significant foreign exchange gains that did not reoccur in the first six months of this fiscal year. Income taxes represent 33% of pre-tax income this year compared to 35% last year. We would expect the rate for the rest of the year to be 32% to 34% depending on our international sales level and the benefit the Company receives from its foreign tax credit. Liquidity and Capital Resources TSI's cash decreased $1,855,000 since March 31, 1998. As shown on the statement of cash flows, the Company generated $2,245,000 of cash from operating activities offset primarily by $572,000 in capital expenditures, $685,000 in dividends, and $2,790,000 used to repurchase stock, net of cash from stock options exercised. At September 30, 1998 the Company had $7,530,000 cash on hand and we believe operations will continue to generate sufficient cash to fund current operating needs. The Company has no long-term debt and a current ratio over 4. The Company believes it has sufficient borrowing capacity should the need arise. Year 2000 Conversion The Company has reviewed most of its critical information technology ("IT") business systems and is in the testing phase. It is expected these systems will be substantially Year 2000 compliant by January 1999. The Company is also identifying all non-IT systems and will test them by January 1999. Management does not believe significant changes will be required to non-IT systems to become Year 2000 compliant. An initial list of key third party providers has been made and some preliminary discussions have been held in order to determine their state of Year 2000 readiness. We will complete our assessment of third party providers during the fiscal year ended March 31, 1999. Our Year 2000 compliance program is being carried out with internal staff without significant additional outside expenditures. However, Year 2000 issues may accelerate approximately 10 to 15 percent of our capital purchases by one to two years. Management does not believe the focus on Year 2000 compliance has caused us to ignore other types of upgrades to any critical systems. Failure to complete upgrades to existing systems, or third party providers being unable to supply us with inventory, could result in the Company being unable to ship certain products. However, management believes the remaining system changes required can be -9- readily implemented well before January 1, 2000 and, therefore, will not subject the Company to significant business risks. We believe alternative suppliers can be identified should our current suppliers fail to become Year 2000 compliant. The Company has not yet established contingency plans, but will continue to monitor the need for such plans. NEW EURO CURRENCY On January 1, 1999, eleven of fifteen members of the European Union are scheduled to establish fixed conversion rates between existing ("legacy currencies") and one common currency - the Euro. The Euro will then trade on currency exchanges and may be used in business transactions. Beginning in January 2002, new euro-denominated bills and coins will be issued, and legacy currencies will be withdrawn from circulation. The Company has a significant number of customers as well as operations located in European Union countries participating in the Euro conversion and, consequently, the Euro conversion may impact the results of our operations. The Euro conversion may have competitive implications for the Company's pricing and marketing strategies, which could be material in nature, however, any such impact is not known at this time. The Company has also begun to analyze its internal systems (such as payroll, accounting and financial reporting) to determine modifications required to deal with the Euro conversion. The Company does not expect the cost of making any required modifications to have a material impact on the Company's results of operations or financial condition. There is no assurance, however, that all problems related to the Euro conversion will be foreseen and corrected, or that no material disruptions of the Company's business will occur. -10- PART II. OTHER INFORMATION Item 6. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 11 - Computation of Per Share Earnings (b) Reports on Form 8-K: No reports on Form 8-K have been filed by the Registrant during the quarter for which this report is being filed. -11- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigned thereunto duly authorized. Registrant: TSI Incorporated Date: November 4, 1998 By: /s/ James E. Doubles ------------------------ James E. Doubles President & CEO Date: November 4, 1998 By: /s/ Robert F. Gallagher ------------------------ Robert F. Gallagher Vice President & CFO -12- EX-11 2 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 TSI Incorporated Computation of Per Share Earnings
Three Months Ended Six Months Ended September 30 September 30 1998 1997 1998 1997 ------------ ----------- ----------- ----------- Basic Weighted average shares outstanding 11,385,895 11,529,903 11,398,859 11,512,226 ============ =========== =========== =========== Net Earnings $ 2,356,057 $ 1,770,616 $ 3,478,007 $ 3,252,870 ============ =========== =========== =========== Basic earnings per common share $ .21 $ .15 $ .31 $ .28 ============ =========== =========== =========== Diluted Weighted average common shares outstanding 11,385,895 11,529,903 11,398,859 11,512,226 Dilutive effect of stock options and purchase awards - based on the treasury stock method 167,080 271,115 175,093 285,487 ------------ ----------- ----------- ----------- Weigthed average common shares outstanding and dilutive shares 11,552,975 11,801,018 11,573,952 11,797,713 ============ =========== =========== =========== Net Earnings $ 2,356,057 $ 1,770,616 $ 3,478,007 $ 3,252,870 ============ =========== =========== =========== Fully diluted per share amounts $ .20 $ .15 $ .30 $ .28 ============ =========== =========== ===========
EX-27 3 FINANCIAL DATA SCHEDULE
5 6-MOS MAR-31-1999 JUL-01-1998 SEP-30-1998 7,530,169 0 18,111,779 279,654 15,766,970 41,744,712 24,240,848 16,165,788 57,361,903 9,702,225 0 0 0 1,134,931 47,659,678 57,361,903 22,945,742 22,945,742 10,411,788 9,118,151 (100,254) 0 0 3,516,057 1,160,000 2,356,057 0 0 0 2,356,057 .21 .20
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