-----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, P/C6mq283lrK7uwocHRDTT7adEQ7LQ9vNI3aHvkaDIsu+mzJEp46y8x8MICMzxda FtZSZZUnNwzQDzsaUOapUg== 0000897101-98-000149.txt : 19980218 0000897101-98-000149.hdr.sgml : 19980218 ACCESSION NUMBER: 0000897101-98-000149 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: NASD 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: 98540793 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 DECEMBER 31, 1997. 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: February 9, 1998 Number of Common Shares Outstanding: 11,693,003 TSI INCORPORATED FORM 10-Q For the Quarter Ended December 31, 1997 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 7-9 PART II. OTHER INFORMATION 10 EXHIBIT 11 Computation of Per Share Earnings CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31 DECEMBER 31 1997 1996 1997 1996 - ----------------------------------------- ---------------------------------- ----------------- ---------------- Net sales $ 19,739,440 $ 22,329,666 $ 59,715,549 $ 61,141,510 Cost of products sold 8,365,549 9,926,126 26,068,969 26,914,037 - ----------------------------------------- ---------------- ----------------- ----------------- ---------------- GROSS PROFIT 11,373,891 12,403,540 33,646,580 34,227,473 Operating expenses Research and product development 2,971,105 2,789,140 8,684,206 8,066,926 Selling 4,643,389 4,833,647 13,545,370 13,294,698 Administrative 1,497,508 1,520,823 4,637,485 4,421,760 - ----------------------------------------- ---------------- ----------------- ----------------- ---------------- 9,112,002 9,143,610 26,867,061 25,783,384 - ----------------------------------------- ---------------- ----------------- ----------------- ---------------- OPERATING INCOME 2,261,889 3,259,930 6,779,519 8,444,089 Other income 242,126 114,168 728,367 287,255 - ----------------------------------------- ---------------- ----------------- ----------------- ---------------- EARNINGS BEFORE INCOME TAXES 2,504,015 3,374,098 7,507,886 8,731,344 Provision for income taxes 826,000 1,181,000 2,577,000 3,056,000 - ---------------------------------------------------------- ---------------------------------------------------- NET EARNINGS $ 1,678,015 $ 2,193,098 $ 4,930,886 $ 5,675,344 ================ ================= ================= ================ EARNINGS PER COMMON SHARE $.14 $.19 $.42 $.49 - ----------------------------------------- ================ ================= ================= ================ Weighted average number of shares for computation of earnings per common share 11,925,809 11,713,802 11,868,506 11,690,791
See notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS (Unaudited)
DECEMBER 31 March 31 December 31 1997 1997 1996 (UNAUDITED) (unaudited) - ----------------------------------------------------- ----------------- ----------------- ----------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 10,071,872 $ 7,694,998 $ 3,205,382 Accounts receivable 12,316,089 14,256,692 17,436,596 Prepaid expenses 453,598 310,276 431,638 Inventories Finished products 2,954,924 2,908,537 2,455,016 Work-in-process 3,571,554 2,486,856 2,886,050 Materials and supplies 9,360,250 7,906,912 7,490,468 - ----------------------------------------------------- ----------------- ----------------- ----------------- 15,886,728 13,302,305 12,831,534 - ----------------------------------------------------- ----------------- ----------------- ----------------- TOTAL CURRENT ASSETS 38,728,287 35,564,271 33,905,150 INTANGIBLES AND OTHER ASSETS Goodwill 3,799,300 3,001,796 2,856,179 Note receivable 666,387 595,577 595,577 Deferred income tax benefit 668,815 498,020 721,020 Other assets 3,131,380 2,420,050 2,392,392 - ----------------------------------------------------- ----------------- ----------------- ----------------- 8,265,882 6,515,443 6,565,168 PROPERTY, PLANT AND EQUIPMENT Land 128,503 128,503 128,503 Buildings 3,706,152 3,586,992 3,568,981 Construction in progress 84,690 183,229 439,124 Machinery and equipment 19,900,265 18,244,708 17,912,736 - ----------------------------------------------------- ----------------- ----------------- ----------------- 23,819,610 22,143,432 22,049,344 Less allowance for depreciation 15,034,499 13,344,806 13,105,193 - ----------------------------------------------------- ----------------- ----------------- ----------------- 8,785,111 8,798,626 8,944,151 - ----------------------------------------------------- ----------------- ----------------- ----------------- TOTAL ASSETS $ 55,779,280 $ 50,878,340 $ 49,414,469 ================= ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 4,799,275 $ 4,963,795 $ 5,294,937 Employee compensation 3,652,035 3,904,546 4,020,752 Taxes, other than income taxes 434,934 442,247 634,693 Income taxes payable 831,361 247,354 402,812 - ----------------------------------------------------- ----------------- ----------------- ----------------- TOTAL CURRENT LIABILITIES 9,717,605 9,557,942 10,353,194 - ----------------------------------------------------- ----------------- ----------------- ----------------- TOTAL LIABILITIES 9,717,605 9,557,942 10,353,194 SHAREHOLDERS' EQUITY Common shares, $.10 par value 1,168,437 1,149,573 1,129,767 Additional paid-in capital 10,805,191 9,724,365 8,573,413 Retained earnings 34,298,613 30,400,007 29,146,109 Equity adjustment from translation (210,566) 46,453 211,986 - ----------------------------------------------------- ----------------- ----------------- ----------------- TOTAL SHAREHOLDERS' EQUITY 46,061,675 41,320,398 39,061,275 --------------------------------------------- ----------------- ----------------- ----------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 55,779,280 $ 50,878,340 $ 49,414,469 ================= ================= =================
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED DECEMBER 31 1997 1996 - ------------------------------------------------------------------- ------------------ ------------------ OPERATING ACTIVITIES Net earnings $ 4,930,887 $ 5,675,344 Adjustments to reconcile net earnings to net cash Provided by operating activities: Provision for losses on accounts receivable 33,185 6,994 Depreciation and amortization of property, plant and equipment 1,421,722 1,414,525 Amortization of goodwill 176,359 137,899 Gain on sale of assets (21,039) 4,337 Changes in operating assets and liabilities: Accounts receivable 2,218,214 (1,565,906) Prepaid expenses (80,967) (121,155) Inventories (1,889,404) (1,422,492) Other assets (437,137) 272,361 Accounts payable and accrued expenses (1,277,132) 360,506 Employee compensation payable (317,113) 831,037 Taxes, other than income taxes (7,313) 304,273 Current income taxes payable 584,007 (223,327) Foreign currency translation gain (loss) (284,063) 162,749 - ------------------------------------------------------------------- ------------------ ------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 5,050,206 5,837,145 - ------------------------------------------------------------------- ------------------ ------------------ INVESTING ACTIVITIES Additions to property, plant and equipment (1,368,892) (1,881,813) Proceeds from disposal of property, plant and equipment 22,858 4,526 Purchase of companies, net of cash acquired (1,452,208) (1,081,764) - ------------------------------------------------------------------- ------------------ ------------------ NET CASH USED IN INVESTING ACTIVITIES (2,798,242) (2,959,051) - ------------------------------------------------------------------- ------------------ ------------------ FINANCING ACTIVITIES Proceeds from stock options exercised 1,112,093 343,249 Dividends paid (927,252) (731,269) Purchases of common stock (117,432) --- - ------------------------------------------------------------------- ------------------ ------------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 67,409 (388,020) - ------------------------------------------------------------------- ------------------ ------------------ Effect of exchange rate changes on cash and cash equivalents 57,501 27,253 - ------------------------------------------------------------------- ------------------ ------------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,376,874 2,517,327 - ------------------------------------------------------------------- ------------------ ------------------ Cash and cash equivalents at beginning of year 7,694,998 688,055 - ------------------------------------------------------------------- ------------------ ------------------ CASH AND CASH EQUIVALENTS AT END OF NINE MONTH PERIOD $ 10,071,872 $ 3,205,382 ================== ==================
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 (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 12 of this document. In the fourth quarter of the fiscal year ended March 31, 1998 the Company will implement FAS No. 128, "Earnings Per Share". The Company does not anticipate the impact of this to be material. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net sales for the three-month period ended December 31, 1997, were $19,739,000 which represents a decrease of 12 percent from $22,330,000 for the same period last year. For the first nine months of fiscal 1998, the Company's net sales were $59,716,000, down 2 percent from $61,142,000 for the same nine-month period a year ago. Sales of products for the Safety, Comfort, and Health of People decreased 12 percent and accounted for 66 percent of the Company's total business for the third quarter of both the current and prior fiscal year. For the nine months ended December 31, 1997, sales of Safety, Comfort, and Health of People products decreased 6.7 percent and represented 65 percent of total sales compared with 68 percent for last year's first nine months. This area accounted for 67 percent of the Company's business in fiscal 1997, ended March 31, 1997. While sales of commercial product lines in this market area have continued to increase during the first nine month of fiscal 1998, a decrease in military sales of the Company's PORTACOUNT(R) respirator fit testers caused the year-to-year comparison to show a decrease. The major difference is due to a contract for these devices from the German Army which was shipped during the first three quarters of fiscal 1997. During the first nine months of fiscal 1998, a total of $6.8 million of military PORTACOUNT fit testers were shipped compared with $11.0 million for the prior year. Without the military PORTACOUNT fit tester sales, the Safety, Comfort, and Health market area had about a 3 percent sales decrease for the third quarter and about a 4 percent increase for the nine months of fiscal 1998 compared with the prior year. The fiscal 1998 third quarter sales decline was primarily due to delays in the release of a product. This product will ship in the fourth quarter of fiscal 1998. Sales of products for Productivity and Quality Improvement decreased 11 percent and were at 34 percent of total sales for the third quarter of both the current and prior fiscal year. For the nine months ended December 31, 1997, sales of Productivity and Quality Improvement products increased 7 percent, making up 35 percent of total sales compared with 32 percent for last year's first nine months. For fiscal 1997, ended March 31, 1997, this category accounted for 33 percent of the Company's business. A portion of the sales in this area came from two small acquisitions--Zimmer GmbH in Germany made in October 1996, and Target Systems, Incorporated, made in July 1997. Without these acquisitions, sales of products for Productivity and Quality Improvement would have decreased about 20 percent for the third quarter and about 1 percent for the nine-month period of fiscal 1998 compared with fiscal 1997. The declines were due primarily to: * A slowdown in business in the Pacific Rim region. The Company is uncertain when this business will return to its previous level, but believes it to be six-months or longer. Over the past 5 years, this business has represented between 12 to 14 percent of overall sales. For the third quarter of fiscal 1998 it was about 10 percent of sales. * Turnover at a subsidiary in both the technical and manufacturing areas. This caused a significant decline in our shipment levels. The Company is in the process of replacing key positions and training those replacements that have been hired. Sales to U.S. and state government agencies including defense, comprised about 17 percent of the Company's net sales for the quarter as compared to 20 percent for the same quarter last year. For the nine months ended December 31, 1997 and 1996, sales to the U.S. and state government agencies were at 22 percent for both periods. These changes in the percentage of governmental sales are within the range of normal fluctuations that can occur from quarter-to-quarter. The fourth quarter of fiscal 1998 should show governmental sales to be at a similar percentage compared with the first nine months. Since sales to government agencies represent a significant portion of the Company's sales, it is important to consider the potential effects of changes in government spending. Due to the Company's diverse line of products, sales usually occur in a wide range of U.S. and state government agencies, so total government sales during the past several years have been quite stable as a percentage of total sales. However, shifts have occurred because of changes from quarter-to-quarter and year-to-year in shipments under contracts with the U.S. military agencies for the Company's PORTACOUNT(R) respirator fit testers. Order bookings were reasonable across most of the Company's product lines at $21.5 million in the third quarter ended December 31, 1997 compared to the $20.4 million in the second quarter ended September 30, 1997. During the third quarter, backlog of orders increased to $24.8 million at December 31, 1997, compared with $23.0 million at September 30, 1997, but below the backlog of $26.6 million at December 31, 1996. The lower backlog compared to a year ago is mainly due to shipments on a major contract for PORTACOUNT fit testers with the U.S. Army which had a higher backlog level a year ago. Gross profit for the third quarter ended December 31, 1997, was 57.6 percent of net sales compared with the 55.5 percent gross profit margin in the third quarter last year. Nine-month gross profit margin was 56.3 percent this year compared to 56.0 percent a year ago. These gross profit margin percentages for the third quarter and first nine months fell within what is considered to be a normal range for TSI's business. Research and product development expenses as a percentage of net sales were 15.1 percent for the third quarter and 14.5 percent for the nine-month period ended December 31, 1997, compared to 12.5 percent and 13.2 percent of net sales, respectively, for the same periods last year. Actual research and product development spending was up about 6.5 percent in the third quarter and 7.7 percent in the first nine months. The Company continues its commitment to growth through development of new technologies and products. For all of fiscal 1998, research and development expenses are expected to be in a similar range as the nine-month period ended December 31, 1997. Selling expenses were 23.5 percent of net sales for the third quarter compared to 21.6 percent for the year earlier period. For the first nine months of fiscal 1998, selling expenses were 22.7 percent compared with 21.7 percent for the same period a year ago. The differences between periods as a percentage of sales are considered to be within the range of normal fluctuation. Administrative expenses were 7.6 percent and 7.8 percent of net sales for the three and nine-month periods ended December 31, 1997, respectively. For the same periods ended December 31, 1996, administrative expenses were 6.8 and 7.2 percent of net sales. The Company expects administrative costs to continue in a normal operating range of 7 to 9 percent of net sales through the remainder of fiscal 1998. Other income was $242,000 in the third quarter and $728,000 in the first nine months of fiscal 1998 compared with $114,000 and $287,000, respectively, for the same periods in fiscal 1997. The increase for the third quarter of the current fiscal year is primarily due to higher interest income due to higher cash balances. The provision for income taxes was at the rate of 33 percent and 34 of pre-tax earnings for the three and nine-month periods ended December 31, 1997, respectively. For the same periods ended December 31, 1996, the income tax rate was 35 percent for both the three and nine-month periods. The Company expects the income tax rate to continue in the 33 to 35 percent range for the remainder of fiscal 1998. Liquidity and Capital Resources Cash and cash equivalents increased to $10,072,000 on December 31, 1997, compared with $7,329,000 at September 30, 1997. The increase was attributable to cash generated from operations partially offset by additions to property, plant and equipment and payment of dividends. The ratio of current assets to current liabilities was 4.0 as of December 31, 1997, compared to 3.7 as of March 31, 1997. Working capital increased $3,005,000 to $29,011,000 at the end of the third quarter of fiscal 1998, compared to $26,006,000 at the end of fiscal 1997. Management believes internally generated funds and short-term borrowings on existing credit lines will provide adequate resources for supporting operations during the remainder of fiscal 1998. Forward-Looking Statements The Company believes that this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to certain risks and uncertainties. Forward-looking statements represent the Company's expectations or beliefs concerning future events, including the following: any statements regarding future sales and gross profit percentages, any statements regarding the continuation of historical trends, any statements regarding the sufficiency of the Company's cash balances and cash generated from operating and financing activities for the Company's future liquidity and capital resource needs, any statements regarding the effect of regulatory changes, the success of development and enhancement of the Company's products, the adequacy of the Company's facilities, potential acquisitions, and any statements regarding the future of the instrumentation industry and the various parts of the instrumentation markets in which the Company conducts its business. The Company cautions that any forward-looking statements made by the Company in this report or in other announcements made by the Company are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including, without limitations, the factors set forth on Exhibit 99 to the Company's report on Form 10K for the fiscal year ended March 31, 1997. 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. 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: February 13, 1998 By: /s/ James E. Doubles ------------------------- James E. Doubles President & CEO Date: February 13, 1998 By: /s/ Robert F. Gallagher ------------------------- Robert F. Gallagher Vice President & CFO EX-11 2 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 TSI Incorporated Computation of Per Share Earnings
Three Months Ended Nine Months Ended December 31 December 31 ----------- ----------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- PRIMARY Average shares outstanding 11,659,613 11,276,305 11,587,909 11,245,038 Net effect of dilutive stock options, based on the treasury stock method using average market price 266,196 437,497 280,597 445,753 ----------- ----------- ----------- ----------- Total 11,925,809 11,713,802 11,868,506 11,690,791 =========== =========== =========== =========== Net earnings $ 1,678,015 $ 2,193,098 $ 4,930,886 $ 5,675,344 =========== =========== =========== =========== Primary per share amounts $ .14 $ .19 $ .42 $ .49 =========== =========== =========== =========== FULLY DILUTED Average shares 11,659,613 11,276,305 11,587,909 11,245,038 Net effect of dilutive stock options, based on the treasury stock method using the period-end market price, if higher than the average market price 267,595 491,403 293,858 516,387 ----------- ----------- ----------- ----------- Total 11,927,208 11,767,708 11,881,767 11,761,425 =========== =========== =========== =========== Net earnings $ 1,678,015 $ 2,193,098 $ 4,930,886 $ 5,675,344 =========== =========== =========== =========== Fully diluted per share amounts $ .14 $ .19 $ .41 $ .49 =========== =========== =========== ===========
EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS MAR-31-1998 OCT-01-1997 DEC-31-1997 10,071,872 0 12,624,594 308,505 15,886,728 38,728,287 23,819,610 15,034,499 55,779,280 9,717,605 0 0 0 1,168,437 44,893,238 55,779,280 59,715,549 59,715,549 26,068,969 26,867,061 (728,367) 0 0 7,507,886 2,577,000 4,930,886 0 0 0 4,930,886 .42 .41
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