FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1995.
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 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 No.)
incorporation or organization)
500 Cardigan Road, Shoreview, Minnesota 55126
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 483-0900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
National Association of Securities Dealers
Automated Quotations System (NASDAQ) Common Stock, $10 par value
(Name of each exchange on which registered) (Title of each class)
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 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 definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of registrant
as of June 1, 1995: $37,174,576.
Number of shares outstanding as of June 1, 1995: 5,218,033 shares of Common
Stock, $.10 par value.
Documents incorporated by reference: See Index of Exhibits, Financial Statement
Schedules and Reports on Form 8-K, located at pages 19 and F-1 of this report.
Total number of pages including cover - 31
PART I
Item 1. BUSINESS
Development of the Business
The Company was founded in 1961 as a manufacturer of scientific measuring
instruments for research applications. In 1968, the Company went public under
the name Thermo-Systems Inc. and later became TSI Incorporated. In recent years,
the Company has applied its research instrumentation technology to industrial
applications in order to address the needs of a variety of market niches.
Products
The Company develops, manufactures and markets measuring instruments for
two types of phenomena. The first involves the measurements of surface motion
and fluid flow characteristics of gases and liquids. The second involves
measuring the presence of and certain characteristics of small particles and/or
gases in fluids or fluid flows, such as those found in air pollution studies,
workplace environments, or clean rooms. The Company's business is characterized
by many "niche" markets, wherein the applications of a few basic measuring
technologies can satisfy the measurement needs in many different industrial and
research situations.
The percentage contribution to net sales for these two classes of products
for the periods indicated was as follows:
Year Ended March 31,
Classes of Products 1995 1994 1993
Flow measuring instruments 61% 64% 64%
Particle & gas measuring instruments 39% 36% 36%
100% 100% 100%
Particle and gas measuring instruments recorded a 21 percent increase in net
sales in fiscal 1995 as compared with fiscal 1994, while net sales of fluid flow
instruments increased 6 percent during the same period. There was a shift in
fiscal 1995 in the percentage of total net sales toward particle measuring
instruments, mainly due to the sale of Portacount fit testers under a U.S. Army
contract.
Flow Measuring Instruments
On May 1, 1995, the Company acquired Alnor Instrument Company, located in
Skokie, Illinois. As part of the Company, Alnor products will fall under the
Flow Measuring Instruments class of products in fiscal 1996 and beyond. These
products will add capability and market share in applications to monitor and
control air flow, pressure and other safety and comfort factors in rooms and
balancing of air flow and temperature between rooms.
The Company's flow measuring instruments utilize several measurement
techniques, including thermal anemometry, laser Doppler velocimetry, particle
image velocimetry and several other techniques used in certain types of
products. Thermal technology has been used in the Company's flow measuring
instruments since its earliest products were developed. A probe containing a
small electrically heated element is exposed to a flow. The cooling effect of
the flow on the element provides a measure of the velocity and/or flow rate in
gas or liquid. The instrument can then portray the flow rate in an analog
display or convert it into a digital signal for further processing by a
computer. The output signal can be used to monitor, analyze or control the flow
or velocity within a flow channel or process. The Company has developed
companion products and software for convenient signal analysis and data
interpretation.
For over 20 years, the Company has been developing and producing various
flow measureing instruments which utilize a laser based technology (using
lasers manufactured by others). These instruments use a laser beam and optical
measurement technique to measure velocity and movement, rather than a probe as
used with the thermal instruments. The laser instruments are used to obtain
measurements in locations where a probe would be destroyed or is undesirable
because it would disturb the flow of the liquid or gas being measured. This
technology has been enhanced in a variety of ways to meet new applications.
Reducing the size, increasing the ruggedness of instruments and allowing for
more than one measurement to be taken at a point in time are some of these
enhancements. Also, the Company has developed and is selling a variety of user-
friendly software packages to expand and enhance the applications of these
instruments. The Company's laser instruments are used in conjunction with
computers (manufactured by others) which compile and interpret the data obtained
by the laser measurement devices.
Through engineering development work, licensing and acquisition of product
lines, the Company has added the capability of providing instruments and
software packages that measure or map flow patterns over an area of flow around
objects, ect., by visual means. This area is referred to as particle-image
velocimetry because the technique is based on the simultaneous tracking of the
movement of numerous particles in the flow stream. Optical techniques are used
to show images of the flow patterns. This area has been emerging as an important
addition to flow measuring and analysis capability which the Company expects to
grow over the next few years.
Another research application of laser based technology has been developed
and added during the last two years, called adaptive phase-Doppler velocimetry.
These instruments add the capability of measuring in two-phase flows where there
are liquid or solid particles or droplets in air (or other gas) as well as
gaseous particles in liquids. Specific applications are for simultaneous flow
and particle size distribution in sprays such as fuel sprays or inhalers.
With the acquisition in 1986 of Handar, in Sunnyvale, California, other
measurement techniques were added to the Company's capabilities, including "cup
and vane" and propeller-type wind speed measuring devices, for measuring the
characteristics of air and air flow.
Applications for flow measuring instruments include measurement and imaging
of velocity and turbulence in wind tunnels, ducts, pipes and in the atmosphere;
measurements of air speed or flow in building spaces for heating,
air-conditioning and ventilation work; measurements and imaging in gas turbine
engines and automotive exhaust gas pulses to improve efficiency or lower
pollution and noise, measurements of speed and length of solid surfaces, such as
steel, aluminum, fibers, paper and other materials; and as a part of closed loop
systems to control the velocity of flow or movement.
In addition to general research applications, several industrially oriented
flow measuring niches have been pursued by the Company over the years using the
Company's basic technologies. These products and niches are changing with time
as continuing product improvements and new applications are found. An outline of
these product lines and niches include the following:
- - Air flow sensors using thermal sensing techniques to monitor and/or control
air flow through laboratory fume hoods. A similar device measures and
controls static pressure in laboratories and other controlled rooms like
hospital isolation rooms by controlling the air flow through the space.
Engineering development work has continued during the past year in order to
improve performance of energy saving and safety enhancement devices for
hospital isolation rooms as well as laboratories.
- - An instrument using laser and optical techniques to measure surface speed
and length of aluminum, steel and similar materials for industrial process
control. This product line is performing well for measurements in rolling
mills and similar metals forming operations. Additional engineering work
has been done during the past year to adapt these instruments to
measurement of speed, length, diameter, etc., of fibers and film in process
applications such as textiles, paper, rubber and optical fibers.
- - Instruments that determine cloud height and visibility in moving air masses
using laser and optical techniques. These products are used for
meteorological applications at airports and other open areas. While these
products have been manufactured and sold for a number of years, additional
engineering work to enhance performance and broaden applicability continued
during fiscal 1995.
- - A new generation data collection platform used to collect and transmit
meteorological and environmental data was introduced during fiscal 1992.
This platform is used in conjunction with the Company's meteorology and
related monitoring systems for environmental measurements. During the past
year additional software capability has been added to enhance performance
and to broaden applications to other than meteorological and hydrological
data collections. Development continues to further enhance performance and
software applicability.
Particle and Gas Measuring Instruments
The Company's particle and gas measuring instruments utilize a number of
different techniques to analyze various characteristics of small particles in
gases and liquids as well as the presence and amount of various gases in air. A
variety of instruments are offered to detect, measure, sample, generate and
count small particles and to detect and measure other gases in air.
With the acquisition of Transducer Research, Incorporated in fiscal 1993,
the Company added to its particle measuring product lines the capability for
detection of gases that are important in measuring indoor air quality and
various toxic or polluting gases in outdoor environments.
In fiscal 1994, the Company's product lines for monitoring contamination
levels in clean rooms were sold to Particle Measuring Systems, Inc. (PMS) of
Boulder, Colorado. The Company is continuing, until December, 1998 or longer,
subject to options, to manufacture some of the products for PMS on an Original
Equipment Manufacturer (OEM) basis.
During fiscal 1994, based on licensed technology, a new analytical
instrument, called a nephelometer, was introduced for measuring the presence of
particles in the atmosphere that affect the penetration of the sun's rays,
related to global warming research.
During fiscal 1995, the Company received contracts to produce its
Aerodynamic Particle Sizer (APS) for the U.S. Army and U.S. Navy to be used as
an early detection device for sensing the presence of bio-hazard material in the
air. These contracts have included funding for development work to further
enhance the capabilities of the APS for these applications.
Applications for particle measuring instruments include a variety of
research and testing instruments designed to measure the size distribution of
extremely small particles; to collect and classify the particles into size
ranges for further analysis; to detect and count particles in a fluid at a given
location; and to generate known, uniform particles in a wide variety of types
and sizes. Gas measuring instruments are designed to detect the presence and
levels of various polluting gases or abnormal levels of gases in air. The
measurements obtained through these processes are then used to monitor
contamination levels; to make measurements in aerosol generation studies; to
measure air pollution levels in buildings or in outside air; to measure the size
distribution of various powders; to measure toxic gases at waste sites; to
measure indoor air quality and to test for leaks in filters and similar media.
Many of the Company's particle and gas measuring instruments are also used in
conjunction with computers (manufactured by others) which compile and interpret
the data obtained. Also, the Company has developed and sells a variety of
user-friendly software packages to expand and enhance the applications of these
instruments.
Like the flow measuring instruments, the Company has expanded on the
general research applications of its particle and gas measuring instruments by
pursuing industrially oriented niches over the past several years. Using the
Company's basic technologies, the product lines have expanded into industrial
niches where new applications are found. An outline of these product lines and
niches include the following:
- - An instrument that uses particle sensing techniques to measure for leaks in
face masks and respirators that result from inadequate fit, called the
PORTACOUNT(R) fit tester. The products are used in industrial hygiene
applications where people may be at risk from exposure to hazardous
environments. This product has been fully development and has been marketed
for about seven years. During fiscal 1993, the product was packaged for
military use by the U.S. Army and U.S. Marines for fit testing of their gas
masks and during fiscal 1994, production of the military version commenced
under a contract that extended through most of fiscal 1995. Additional
contracts are expected from U.S. defense agencies and from other allied
nations. Instruments that determine the efficiencies of filters and filter
media using particle sensing techniques to measure for leaks. This product
line is used for quality control by filter manufacturers and has been
manufactured and marketed for several years. Additional development work
occurred in fiscal 1994 to enhance and broaden the filter product line.
- - With the addition of gas detecting sensors and instruments to this product
classification through the acquisition of Transducer Research Inc. in
fiscal 1993, potential applications have expanded. During fiscal 1995,
instruments were introduced to measure various indoor air quality
parameters including levels of carbon dioxide to indicate the "sick
building syndrome" levels; and early in fiscal 1996 this product line was
expanded to also measure carbon monoxide. Development work is continuing to
add other gas detecting instrument to these product lines.
- - Manufacturing, as an OEM supplier, instruments for monitoring the particle
contamination levels in air and other gases in industrial clean room
applications and residue in ultra-clean water, using particle sensors that
incorporate light scattering optical techniques. These instruments are used
by manufacturers of semiconductor devices, pharmaceutical products and
other products which require very low contamination levels during critical
manufacturing processes. Continued engineering development in fiscal 1995
added to the performance capabilities of these instrument lines.
Raw Materials and Parts
The Company purchases most of its electronic components and materials from
suppliers in the United States and, generally, has not experienced problems with
availability. Some materials such as laser diodes and fibers for fiber optics
are imported. Import restrictions could impair availability of some of these
materials. Engineering design of the Company's products does not require exotic
parts or materials and the selection of readily available materials has been an
important design goal. The Company's vendor certification program, which has
been in operation for several years, has been and is expected to continue being
a positive step toward increased quality and timeliness on incoming parts. The
Company continues to seek and maintain alternative vendors and has generally
been able to locate alternative sources for materials during past periods of
short supply. A severe shortage of electronic parts could impair the Company's
ability to produce certain products but a broad and diversified product line
helps to alleviate this risk.
Customers
The Company sells to a broad range of customers throughout the world. These
customers include many industrial companies, educational institutions, research
organizations and agencies of the United States and foreign governments.
The Company's sales can be divided into market categories based upon
customer classification as follows: (i) environmental instrumentation customers,
(ii) research and analytical instrumentation customers, including universities,
colleges and technical schools as well as governmental and non-governmental
research institutes and (iii) process instrumentation customers. Some
educational and non-governmental research sales are funded in whole or in part
by government.
Sales to defense customers accounted for about 15 percent of total net
sales in fiscal 1995 and 12 percent in fiscal 1994, but have accounted for no
more than 10 percent of total sales for each of the prior eight years. The
increases in fiscal 1995 and fiscal 1994 were mainly due to PortaCount fit
testers under the aforementioned U.S. military contract.
Reduction or changes in federal spending may adversely affect the Company's
governmental and, to some extent, educational sales. United States governmental
sales may be canceled at the government's convenience.
Approximately 69 percent of the Company's sales during fiscal 1995 were to
domestic customers, with the balance to international customers, mainly in
Europe and the Pacific basin. Sales to international customers consist
principally of products manufactured in the United States.
Sales to international customers by classes of products, as a percentage of
the Company's net sales were as follows for the periods indicated.
Year Ended March 31
Classes of Products 1995 1994 1993
Flow measuring instruments 23% 22% 24%
Particle & gas measuring instruments 8% 9% 14%
31% 31% 38%
Overall, the Company's fiscal 1995 international net sales increased about 9
percent compared to fiscal 1994 and sales of both flow measuring and particle
and gas measuring instruments increased at about the same rate. From fiscal 1993
to fiscal 1994, international sales decreased in particle and gas measuring
instruments, mostly in the product line of microcontamination monitoring
instruments for clean rooms that was divested in fiscal 1994. The Company's
export markets improved for most product lines during fiscal 1995, as global
economic conditions improved.
Further segment information about domestic vs foreign operations is
included under Note I of the Notes to Consolidated Financial Statements on page
19 of the Company's 1995 Annual Report to Shareholders (Exhibit 13, page F-8).
The decreases in net sales from fiscal 1993 to 1994 and 1994 to 1995 through
foreign operations do not reflect changes in total foreign sales, but rather a
shift toward more of the foreign sales going through independent distributors.
Refer to page 10 of the Management's Discussion and Analysis of Results of
Operations and Financial Condition for added discussion regarding international
sales.
Marketing
The Company markets its products through Company-employed sales engineers
who operate out of offices located in the United States and international sales
offices located in Europe. In addition, independent sales representatives and
distributors represent the Company in other domestic and international markets.
The Company uses promotional catalogs, technical bulletins, seminars, displays,
trade shows and advertising in trade journals to promote its products. The
Company's sales consist primarily of products listed in its catalogs, although
the Company also sells specialized products designed to meet specific customer
requirements.
The nature of the Company's products requires a marketing approach that is
customer application oriented. Accordingly, sales engineers and independent
representatives are technically competent in a variety of engineering and
scientific disciplines as well as trained in the market niches and product lines
on which they concentrate. The sales force provides the Company with information
for development of new products and identification of new markets. In addition
to direct sales efforts and after-sales servicing, the Company provides its
customers with technical support, advice, training and application information
related to the Company's products.
At March 31, 1995, the Company's backlog of orders was approximately
$11,364,000 compared to $12,514,000 at March 31, 1994 and $6,109,000 at March
31, 1993. The Company estimates that approximately 90% of the 1995 backlog will
be shipped by March 31, 1996.
As of March 31, 1994, about $5 million of the Company's backlog was due to
the aforementioned U.S. Army contract for fit testers, which was shipped prior
to March 31, 1995, so a major part of the backlog decrease from that contract
was replaced during fiscal 1995 by other orders and contracts.
Competition
The Company's products compete with products utilizing different
technologies as well as directly competitive products. For example, the
Company's fluid flow measuring instruments which use thermal measurement
techniques compete with instruments utilizing differential pressure or ultra-
sonic sound wave measurement techniques. New products could be introduced by
competitors that would make existing Company products obsolete. The Company's
ability to compete is dependent upon its ability to develop or license products
in a changing technological environment. The Company's competitive strength
often comes from its ability to fit instruments to new applications on an
ongoing basis such that new applications or market niches replace those where
needs have changed, as well as its ability to grow by adding more niches.
Competitive forces vary in accordance with the various market niches into
which the Company sells products. Competition can best be described by starting
with the two product classes and further categorizing product types in each
class, as shown in the table that follows. In the table, when "significant
market share" is indicated, it is due to the Company's long term presence in a
niche or because the product is so unique that it may, essentially, be the only
product available to make the measurement required, thus creating its own niche
The exact number of international competitors is not always known, particularly
in cases where the Company does not have international experience with that
product type. The Company typically confronts the same group of competitors in
about 20% of its total sales.
<TABLE>
<CAPTION>
COMPETITORS COMPANY'S MARKET SHARE
Major Minor Significant Minor
Product Type Int'l Domestic Int'l Domestic Share Share
Flow Measuring Instruments
<S> <C> <C> <C> <C> <C> <C>
Flow Research 1 1 4 2 X
Industrial Flow 3 2 more more X*
than 6 than 6
Lab/Room Air
Flow Control - 3 - 3 X*
Surface Motion 1 - 1 - X
Meteorology/
Environmental
Monitoring 4 3 more more X*
than 6 than 6
Particle & Gas Measuring Instruments
Particle Research 2 2 more more X*
than 6 than 6
Clean Room
Monitoring 3 3 more more X*
than 6 than 6
Respirator
Fit Test 1 - - 2 X
Indoor Air
Quality 2 4 more more X*
than 6 than 6
Filter Testing - 1 2 - X
</TABLE>
- ------
*Market share varies considerably by specific product within the product type
Research and Product Development
The Company is engaged in research and development activities principally
for the development of proprietary products. These activities, which occur in
all aspects of the Company's business, generally consist of the development,
design and testing of potential new products with emphasis on applied (as
distinct from basic) research. Approximately 75% of the Company's engineering
and technical staff are engaged in research and development activities on a
full-time basis. The Company also engages in some contract research work for
others that varies from time to time. This type of contract work generally
relates to the development of a future instrument or product enhancements to
better meet market needs and applications. In addition, the Company utilizes
various outside consultants in the research and development area. In fiscal year
1995, the Company spent approximately $7,196,000 (14.7% of net sales) in
research and product development activities, compared to $6,360,000 (14.5% of
net sales) and $5,874,000 (14.4% of net sales) in fiscal 1994 and 1993,
respectively.
Patents and Licenses
One or more aspects of several products currently marketed by the Company
are covered by patents owned by the Company or licensed to the Company by
outside inventors. While the Company believes that patent protection is
important to its business, it does not believe that the expiration or
invalidation of any particular patent would have a materially adverse effect
upon its business. All licenses held with respect to technology used by the
Company are believed to be fully enforceable. The loss of any one of several
licenses held by the Company would probably not have significant adverse effect
upon the Company.
Employees
As of March 31, 1995, the Company had 362 employees. The Company's
employees are not represented by a union, there has never been a work stoppage
due to labor difficulties and the Company considers its relationship with
employees to be satisfactory.
Item 2. PROPERTIES
The Company's general offices and main manufacturing facilities are located
at 500 Cardigan Road, Shoreview, Minnesota 55126. This building contains
approximately 83,000 square feet. The building is basically one story of about
71,000 square feet, with a mezzanine area of about 12,000 square feet, and
primarily of masonry construction. It was constructed for, and has been in use
by the Company since 1976 and is well suited to the Company's operations. This
building was built in two parts, the first being built in 1976 and the second
part in 1980. The Company has been utilizing all of the floor space in this
facility during the past few years, and due to process improvements has been
able to grow without additional space. During fiscal 1995 the Company began a
project to build 58,000 square feet of space as a two story addition, providing
a total of about 140,000 square feet of space at the Shoreview facility. This
project along with improvements in the existing space, will be completed in the
fall of calendar year 1995 at a total project cost of about $3.5 million. The
Company owns additional land at the same location on which to build about 80,000
square feet of additional space in the future as required.
Handar, a subsidiary located in Sunnyvale, California, leases approximately
22,000 square feet of space under a five year lease commenced in January 1994.
This space was modified to suit Handar's operations.
TSI GmbH, a subsidiary located in Aachen, Germany, leases about 10,000
square feet of space which was constructed for TSI GmbH and occupied under a ten
year lease (with options) entered into in 1985.
The Company also leases space for subsidiary operations and several sales
offices.
Item 3. LEGAL PROCEEDINGS
See Notes C and G of the Notes to Consolidated Financial Statements (pages
20 and 22) in the Company's 1995 Annual Report to Shareholders for information
regarding disqualification of The Company's Domestic International Sales
Corporation ("DISC") by the Internal Revenue Service (IRS), and the favorable
settlement of private civil litigation relating to the disqualification of the
DISC during fiscal 1993.
No material legal proceedings were pending or threatened against the
Company or its subsidiaries as of March 31, 1995.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended March
31, 1995, for a vote by the shareholders.
PART II
Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY & RELATED MATTERS
The information in the sections titled "Stock and Dividend Data" and "Stock
Data" on page 8 of the Company's 1995 Annual Report to Shareholders is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
The information in the section titled "Eleven-Year Financial Data Summary"
for the year 1991 through 1995 on page 8 of the Company's 1995 Annual Report to
Shareholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information in the section titled "Management Discussion and Analysis
of Results of Operations and Financial Condition" on pages 9 through 11 of the
Company's 1995 Annual Report to Shareholders is incorporated herein by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and notes thereto on pages 12 through
20 of the Company's 1995 Annual Report to Shareholders are incorporated herein
by reference.
The following supplemental financial data are included herein and should be
read in conjunction with the consolidated financial statements in the Company's
1995 Annual Report to Shareholders:
Schedule VIII: Valuation and Qualifying Accounts, page F-4.
Schedule X: Supplementary Income Statement Information, page F-5.
Item 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information concerning the Company's directors set forth
in the Company's Proxy Statement for 1995 Annual Meeting of
Shareholders, dated June 21, 1995, is incorporated by
reference herein.
(b) The executive officers of the Company are:
<TABLE>
<CAPTION>
Position with the Company
Name Age and Business Experience
<S> <C> <C>
Leroy M. Fingerson 62 Chairman of the Board of Directors and Chief
Executive Officer. Dr. Fingerson has been Chief
Executive Officer of the Company since 1961 and
Chairman of the Board since 1986.
James E. Doubles 54 President and Chief Operating Officer since 1992 and
a Director. Executive Vice President and Chief
Operating Officer from 1989 to 1992.
Lowell D. Nystrom 59 Vice President, Treasurer and Chief Financial Officer
and a Director. Mr. Nystrom has been Vice President,
Treasurer and Chief Financial Officer of the Company
since 1961.
</TABLE>
(c) Section 16(a). See the Company's Proxy Statement for 1995
Annual Meeting of Shareholders, dated June 21, 1995, which
is incorporated herein by reference, referring to the
caption "Compliance with Section 16(a) of the Securities
Exchange Act of 1934".
(d) There are no family relationships between and among
directors or officers.
(e) Business experience of Directors may be found in the
Company's Proxy Statement for 1995 Annual Meeting of
Shareholders, dated June 21, 1995, which is incorporated
herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
from Proxy Statement for 1995 Annual Meeting of Shareholders, dated June 21,
1995, under the caption "Executive Compensation".
Item 12. PRINCIPAL SHAREHOLDERS
The information required by Item 12 is incorporated herein by reference
from the Company's Proxy Statement for 1995 Annual Meeting of Shareholders,
dated June 21, 1995, under the caption "Principal Shareholders".
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) See accompanying Index to Financial Statements on page F-1.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of
fiscal 1995.
(c) Exhibits included herein:
Exhibit 3a: Restated Articles of Incorporation as
amended in November, 1984 and October, 1986,
hereby incorporated by reference.
Exhibit 3b. Restated Bylaws adopted June, 1987, hereby
incorporated by reference.
Exhibit 10.a* TSI Incorporated Incentive Stock
Option Plan of 1982, incorporated by
reference from Form S-8, File No. 1-91697,
June 14, 1984.
Exhibit 10.b:* TSI Incorporated Employee Stock
Purchase Plan of 1987, incorporated by
reference from Form S-8, File No. 33-23247,
July 25, 1988.
Exhibit 10.c:* TSI Incorporated Stock Option Plan of
1988, incorporated by reference from Form
S-8, File No. 33-20627, August 22, 1989.
Exhibit 10.d:* TSI Incorporated Stock Option Plan of
1992, incorporated by reference from Form
S-8, File No. 33-66194, July 19, 1993.
Exhibit 10.e:* TSI Incorporated Stock Purchase Plan
of 1994, incorporated by reference from Form
S-8, File No. 33-86468, November 17, 1994.
Exhibit 11: Computation of Per Share Earnings
Exhibit 13: The Company's 1995 Annual Report to
Shareholders for the fiscal year ended March
31, 1995.
Exhibit 21: Subsidiaries of the Company
Exhibit 23: Consent of Independent Auditors
Exhibit 27: Financial Data Schedule for SEC use only.
- -------
* Indicates management contract or compensation plan or arrangement required
to be filed as an exhibit.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: June 22, 1995 TSI INCORPORATED
/s/ Leroy M. Fingerson
Leroy M. Fingerson, Chief Executive Officer
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 dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Leroy M. Fingerson Chief Executive Officer and a Director June 22, 1995
Leroy M. Fingerson (Principal Executive Officer)
/s/ Lowell D. Nystrom Vice President, Chief Financial Officer June 22, 1995
Lowell D. Nystrom and a Director (Principal Financial and
Accounting Officer)
/s/ James E. Doubles President, Chief Operating Officer and June 22, 1995
James E. Doubles Director
/s/ John F. Carlson Director June 22, 1995
John F. Carlson
/s/ Frank D. Dorman Director June 22, 1995
Frank D. Dorman
/s/ Kenneth J. Roering Director June 22, 1995
Kenneth J. Roering
/s/ Donald M. Sullivan Director June 22, 1995
Donald M. Sullivan
/s/ Lawrence J. Whalen Director June 22, 1995
Lawrence J. Whalen
</TABLE>
TSI INCORPORATED 10-K
TSI INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
A. STATEMENTS OF REGISTRANT
No separate financial statements of the Registrant are included herein
as the Registrant is primarily an operating company. All subsidiary
companies are wholly owned, and their indebtedness to any person other
than the Registrant or its consolidated subsidiaries is, in the
aggregate, less than 5% of consolidated assets at March 31, 1995. The
financial statements of the Registrant and all subsidiaries are
included in the consolidated financial statements.
B. CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to the consolidated financial statements in the
Company's 1995 Annual Report to Shareholders which are incorporated
herein by reference in accordance with Rule 12b-23 under the Securities
Exchange Act of 1934 and attached hereto.
<TABLE>
<CAPTION>
Annual
Report
Page
<S> <C>
Quarterly Financial Information (Unaudited) 12
Consolidated Statements of Earnings for the Years Ended 12
March 31, 1995,1994 and 1993
Consolidated Balance Sheets - March 31, 1995 and 1994 13
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1995, 1994, and 1993. 14
Consolidated Statements of Shareholders' Equity for Years
Ended March 31, 1995, 1994 and 1993. 15
Notes to Consolidated Financial Statements 15
Report of Independent Public Accountants 20
</TABLE>
C. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULES
D. CONSOLIDATED SCHEDULES
Schedule Description
VIII Valuation and Qualifying Accounts
X Supplementary Income Statement Information
All schedules except those listed above have been omitted as not required, not
applicable, or the information required therein is contained in the financial
statements or the footnotes thereto.
Independent Auditors' Report
The Board of Directors and Shareholders
TSI Incorporated:
Under date of May 19, 1995, we reported on the consolidated balance sheets of
TSI Incorporated and subsidiaries as of March 31, 1995 and 1994, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the years in the three-year period ended March 31, 1995 as contained in
the 1995 annual report to shareholders. These consolidated financial statements
and our report thereon are incorporated in the annual report on Form 10-K for
the year 1995. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedules as listed in the accompanying index (see Item 8). These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
Minneapolis, Minnesota
May 19, 1995
/s/ KPMG Peat Marwick LLP
<TABLE>
<CAPTION>
Schedule VIII: VALUATION AND QUALIFYING ACCOUNTS
TSI INCORPORATED AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------
Additions
(1) (2) Bad debts
Description Balance Charged to Charged charged Balance of
beginning cost and to other against end of
of Period expenses accounts reserve Period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended
March 31, 1995
Deducted from
asset account:
Allowance for
doubtful accounts: $183,000 $27,000 $34,000 $102,000 $142,000
Year ended
March 31, 1994
Deducted from
asset accounts:
Allowance for
doubtful accounts: $133,000 $50,000 - - $183,000
Year ended
March 31, 1993
Deducted from
asset accounts:
Allowance for
doubtful accounts: $109,000 $24,000 $14,000 $ 14,000 $133,000
</TABLE>
Schedule X: SUPPLEMENTARY INCOME STATEMENT INFORMATION
TSI INCORPORATED AND SUBSIDIARIES
COL. A COL. B
Charged to Costs and Expenses
Item Year Ended March 31,
1995 1994 1993
Advertising $1,086,000 $897,000 $892,000
Amounts for royalties, amortization on intangible assets, taxes other than
payroll and income, and maintenance and repairs are not presented as such
amounts are less than 1% of net sales.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
11 Computation of Per Share Earnings
13 Annual Report to Shareholders for the fiscal
year ended March 31, 1995
21 Subsidiaries of the Company
23 Consent of Auditors
27 Financial Data Schedule
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
TSI INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended March 31
Primary 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average shares outstanding 5,151,012 5,083,462 5,173,433
Net effect of dilutive stock options, based
on the treasury stock method using average
market price 157,159 98,700 93,009
TOTAL 5,308,170 5,182,162 5,266,442
Net Earnings $3,432,079 $3,199,093 $2,344,303
Per Share Amounts $.65 $.62 $.45
Full Diluted
Average shares outstanding 5,151,012 5,083,462 5,173,433
Net effect of dilutive stock options,
based on the treasury stock method
using the year-end market price, if
higher than the average market price 175,795 182,451 62,968
TOTAL 5,326,807 5,265,913 5,236,401
Net Earnings $3,432,079 $3,199,093 $2,344,303
Per Share Amounts $.64 $.61 $.45
</TABLE>
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS FOR THE
FISCAL YEAR ENDED MARCH 31, 1995
INVESTOR INFORMATION
Eleven-Year Financial Data Summary*
(000s omitted)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $48,903 43,979 40,589 40,293 39,660 35,916 33,733 29,293 23,080 19,377 16,516
Gross Profit 28,566 25,301 22,877 22,880 23,491 21,402 19,444 17,047 13,399 11,282 9,257
R&D 7,195 6,360 5,847 6,112 5,538 4,535 4,461 4,813 3,551 3,417 3,776
Selling &Admin. 16,657 15,077 14,884 14,493 14,167 13,548 12,068 10,308 7,587 6,439 5,382
Operating Income 4,714 3,864 2,145 2,275 3,786 3,319 2,915 1,926 2,261 1,426 99
Earnings from
Continuing Operations 3,432 3,199 2,344 1,830 2,660 2,295 1,927 1,518 1,620 1,359 761
Net Earnings 3,432 3,199 2,344 1,903 2,660 2,072 1,872 1,414 1,390 1,090 791
Earnings Per Share:
Continuing Operations .65 .62 .45 .33 .48 .41 .35 .27 .29 .25 .14
Net Earnings .65 .62 .45 .34 .48 .37 .33 .25 .25 .19 .15
Dividends Per Share .120 .107 .107 .107 .083 .067 .049 .045 .035 .035 .035
Working Capital 16,855 15,783 13,365 14,615 13,275 12,461 12,609 10,969 9,892 10,517 9,204
Total Assets 32,167 28,450 25,661 25,894 26,681 24,900 23,675 21,361 20,300 16,946 15,678
Shareholders' Equity 26,342 22,839 20,335 19,918 18,943 17,800 16,073 14,562 13,344 11,937 10,978
Capital Expenditures 3,124 1,204 1,138 1,204 1,057 1,439 782 871 708 715 608
</TABLE>
Stock and Dividend Data*
TSI common stock is traded in the National Market System of the NASDAQ
over-the-counter market under the symbol TSII. Stock price quotations are
printed daily in The Wall Street Journal and other major newspapers. During the
fiscal year ended March 31, 1995, average trading volume of TSI common stock was
113,900 shares per month, based on NASDAQ records.
There were 5,218,033 shares of TSI common stock outstanding as of June 1,
1995 of which 20 percent were owned by officers and directors of TSI. There were
576 shareholders of record on that date and an additional number of about 1,190
shareholders for whom securities firms acted as nominees.
The range of market prices as reported by NASDAQ, dividends declared and
the trailing 12-month closing price/earnings ratio for each quarterly period are
shown in the table below. TSI has a policy of paying dividends quarterly in May,
August, November and February. Dividends have been paid each year since 1975. As
of July 21, 1994, the quarterly dividend rate was $.03 per share.
STOCK DATA*
Trailing
Market Range Dividend 12-Month
Fiscal 1995 High Low Close Declared P/E Ratio
Fourth Quarter $9 1/2 7 3/4 9 1/8 $.030 14.0
Third Quarter 9 7 8 1/4 .030 10.0
Second Quarter 9 1/4 5 1/4 8 3/4 .030 10.0
First Quarter 9 1/8 5 8 1/8 .030 9.5
Fiscal 1994
Fourth Quarter $9 7 1/2 8 21/64 $.027 13.4
Third Quarter 8 11/64 5 21/64 7 43/64 .027 12.5
Second Quarter 6 11/64 5 5 27/64 .027 15.9
First Quarter 6 5 11/64 5 21/64 .027 17.8
*Data are based on results from continuing operations where applicable.
Applicable earnings, stock and dividends declared per share data for all prior
years shown have been retroactively adjusted to reflect the three-for-two stock
splits effective August 17, 1994 and May 28, 1991.
[graph]
Dividends Per Share *
(dollars)
1991 .083
1992 .107
1993 .107
1994 .107
1995 .120
FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
INTRODUCTION
The following discussion supplements the information presented in the
consolidated financial statements beginning on page 12. This information may be
better understood in several instances by referring to the accompanying graphs.
Additional data are given in the Eleven-Year Financial Data Summary on page 8.
The Company's Board of Directors declared a three-for-two stock split in the
form of a stock dividend, effective August 17, 1994. Earnings per share data for
all prior years have been restated to reflect this split.
RESULTS OF OPERATIONS
NET SALES Net sales totaled $48,903,000 in fiscal 1995, an increase of 11.2
percent from $43,979,000 in 1994. Sales in fiscal 1993 were $40,589,000. The Net
Sales graph on this page shows how sales in the Company's major market areas
have varied over the past five years. In fiscal 1995, Environmental
Instrumentation sales increased 24 percent, becoming 59 percent of sales;
Research/Analytical Instrumentation decreased 9 percent, accounting for 30
percent of total sales; and Process Instrumentation increased 18 percent,
representing 11 percent of sales. In fiscal 1994, these three areas were 53
percent, 37 percent and 10 percent of net sales, respectively.
Fiscal 1995 showed continued growth in the Environmental Instrumentation area as
well as a resumption of growth in the Process Instrumentation area. About $5.0
million in sales in the environmental area came from a contract with the U.S.
Army and Marines for PORTACOUNT(R) fit testers for respirators and gas masks, up
from $3.5 million in fiscal 1994. Added to this increase was continuing sales
growth of indoor air distribution and air quality measuring instruments. The
increase in Process Instrumentation sales was due to increased sales of
LaserSpeed(R) instruments for non-contact measurement of speed and length in
process industries. Unlike fiscal 1994, this continuing increase in sales of
non-contact, process measuring instruments was no longer affected by the
decrease in sales of the clean room product line that was divested in fiscal
1994.
The decrease in Research/Analytical Instrumentation sales was due to a decline
in sales of fluid mechanics instruments, partially offset by an increase in
particle research instrument sales. This decrease is considered to be due to
some shifting of government supported research along with timing of shipment
dates on some orders. The Company has reduced expense levels and has added new
products and enhancements to compensate for these shifts, and further declines
in research sales are not expected.
<TABLE>
<CAPTION>
[graph]
NET SALES
1991 1992 1993 1994 1995
(millions of dollars) $39.7 $40.3 $40.6 $44.0 $48.9
<S> <C> <C> <C> <C> <C>
Environmental Instrumentation 46% 46% 50% 53% 59%
Research/Analytical Instrumentation 38% 40% 36% 37% 30%
Process Instrumentation 16% 14% 14% 10% 11%
</TABLE>
[graph]
R&D EXPENDITURES
(percent of sales)
1991 1992 1993 1994 1995
14.0% 15.2% 14.4% 14.5% 14.7%
[graph]
INTERNATIONAL SALES
(percent of sales)
1991 1992 1993 1994 1995
35% 40% 38% 31% 31%
[graph]
GROSS PROFIT MARGIN
(percent of sales)
1991 1992 1993 1994 1995
69.2% 56.8% 56.4% 57.5% 58.4%
[graph]
SELLING & ADMINISTRATIVE EXPENDITURES
(percent of sales)
1991 1992 1993 1994 1995
35.7% 36.0% 36.7% 34.3% 34.1%
[graph]
OPERATING INCOME
(millions of dollars)
1991 1992 1993 1994 1995
$3.79 $2.27 $2.15 $3.86 $4.71
The Company's international net sales increased 9 percent, or $1,265,000 to
$14,965,000, which was 31 percent of sales in fiscal 1995 compared to
$13,700,000, or 31 percent, in fiscal 1994 and $15,626,000, or 38 percent, in
fiscal 1993. Domestic net sales increased 12 percent, or $3,659,000, during
fiscal 1995. Higher international sales during fiscal 1995 came in the areas of
environmental and process instruments.
As the accompanying graph shows, the Company has a strong ongoing commitment to
long-term growth through research and product development, which has continued
to enhance product offerings in most of the Company's market niches during the
past five years, and is expected to result in stronger sales growth in future
years.
Sales to federal and state agencies, including defense, comprised 32 percent of
the Company's net sales for fiscal 1995, compared with 29 and 19 percent for
fiscal 1994 and 1993, respectively. This increase was primarily due to sales of
respirator fit testers under the $8.6 million contract with the U.S. Army and
Marines. 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 occur in a wide range of U.S. and state government agencies, so total
government sales during the past several years, excluding the contract, have
been quite stable as a percent of total sales. A higher percentage of government
sales occurred during fiscal 1995 and 1994, because of shipments on the
previously mentioned military contract. With that contract completed in January
1995, sales to government agencies could return to a lower percentage of the
total for fiscal 1996.
GROSS PROFIT Gross Profit was $28,566,000 in fiscal 1995, or 58.4 percent of net
sales, compared with $25,301,000, or 57.5 percent of net sales, in 1994 and
$22,877,000, or 56.4 percent, in 1993. Over the past several years, the
Company's gross profit rate has generally been in a range of about 57 to 60
percent. In fiscal 1995, gross profit fell within the range, with some
improvement due to several factors, including product mix variation and shipment
volume resulting in manufacturing efficiencies.
OPERATING EXPENSES Research and product development expenses were 14.7 percent
of net sales in fiscal 1995 as compared to 14.5 percent for 1994 and 14.4
percent in fiscal 1993. Historically, the Company's research and product
development expenses have ranged from 12 to 15 percent of net sales. Fiscal 1996
research and development expenses are expected to again be in this range as the
Company continues a commitment to growth through new products in promising
markets.
Selling expenses were 26.4 percent of net sales in fiscal 1995, 26.1 percent in
fiscal 1994 and 28.1 percent in fiscal 1993. Fiscal 1996 selling expenses, as a
percentage of sales, are expected to be near fiscal 1995 levels.
Administrative expenses decreased to 7.7 percent of net sales in fiscal 1995,
from 8.1 and 8.6 percent in fiscal 1994 and 1993, respectively. The Company
expects administrative costs to continue in a normal range of 7 to 9 percent.
OTHER INCOME Other income totaled $409,000 in fiscal 1995, compared with
$835,000 in 1994 and $969,000 in 1993. The major element of other income in
fiscal 1995 was investment income, while the major factor in fiscal 1994 was the
divestiture of the Company's product line for clean room monitoring. In fiscal
1993, the major factor was the favorable resolution of litigation involving the
Company's Domestic International Sales Corporation (DISC) (also see Note C on
page 16 and Note G on page 18).
PROVISION FOR INCOME TAXES The provision for income taxes was $1,691,000, or 33
percent of pretax earnings in fiscal 1995. This compares to provisions of
$1,500,000, or 32 percent of pretax earnings in fiscal 1994, and $770,000, or 25
percent of pretax earnings in fiscal 1993. The fiscal 1993 provision was lower
than the other years mainly because of the litigation settlement being
excludable from taxable income (see "Other Income" discussion above). The fiscal
1996 effective tax rate is expected to be in the range of 32 to 34 percent of
pretax earnings, assuming no significant changes in the tax laws. See Note G on
page 18 for additional information.
[graph]
NET EARNINGS*
(millions of dollars)
1991 1992 1993 1994 1995
$2.66 $1.83 $2.34 $3.20 $3.43
*Data are based on results from continuing operations, as applicable, for fiscal
years prior to fiscal 1993.
[graph]
CURRENT RATIO
1991 1992 1993 1994 1995
3.19 3.95 3.62 3.81 3.89
[graph]
LONG-TERM DEBT-TO-EQUITY RATIO
1991 1992 1993 1994 1995
.051 .044 0 0 0
NET EARNINGS Net earnings were $3,432,000, or $.65 per share, in fiscal 1995.
This was an increase of 7.3 percent from $3,199,000, or $.62 per share, in 1994
and $2,344,000, or $.45 per share in 1993.
Both fiscal 1994 and 1993 were effected by one-time events as outlined under
Other Income . If these events were removed, the net earnings would have been
about $.53 per share in fiscal 1994 and about $.31 per share in fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
CASH AND CASH EQUIVALENTS Cash and cash equivalents increased by $4,347,000
during fiscal 1995 to $9,552,000 at March 31, 1995. The major factor in the
increase was the cash generated by net earnings. Other significant contributions
from operating activities were decreased receivables and depreciation and
amortization. Other major items affecting cash and cash equivalents were
$3,124,000 in capital additions, reduced by a $1,619,000 drop in current
investments. Items are classified as investments rather than cash equivalents
when maturities exceed three months. Capital additions were higher than prior
years due to a building expansion.
Net cash provided by operating activity
totaled $5,841,000 in fiscal 1995, compared with $4,503,000 in fiscal 1994 and
$3,553,000 in fiscal 1993.
Management believes internally-generated funds and short-term borrowings on
existing credit lines will provide adequate resources to support operations
through fiscal 1996.
CURRENT ASSETS AND LIABILITIES Accounts receivable decreased by $1,557,000 to
$6,733,000 at March 31, 1995. This decrease corresponded with lower shipments in
February and March of 1995 compared to 1994 when shipments were occurring under
the major U.S. Army contract previously discussed. Also, the fiscal 1994 total
included $500,000 to be received from the product line divestiture.
Working capital rose $1,072,000 to $16,855,000 at March 31, 1995. The current
ratio was 3.89 compared to 3.81 at the end of fiscal 1994.
The Company has two short-term lines of credit totaling $2,500,000 and had no
outstanding loans on either during fiscal 1995 or 1994. The Company had no
long-term debt at March 31, 1995 or 1994.
STOCK REPURCHASE As of March 31, 1995, the Company has authority to repurchase a
total of 223,300 shares under plans previously approved by its Board of
Directors. No shares were repurchased during fiscal 1995. There are no plans to
acquire all or a portion of the authorized shares or to repurchase shares at any
prescribed rate over time.
ACQUISITION On May 1, 1995 the Company acquired the operating assets and
business operations of Alnor Instrument Company (Alnor) of Skokie, Illinois, a
maker of air flow, safety and indoor environmental monitoring instruments.
Alnor, which had revenues of about $8.7 million and profitable operations in
calendar year 1994, is continuing to operate in Illinois as a wholly owned
subsidiary. Alnor fits into the Company's Environmental Instrumentation
category, particularly enhancing market share in heating, ventilating and air
conditioning applications for indoor environmental monitoring.
The transaction was for a cash amount of about $4.5 million, net of cash
acquired.
IMPACT OF ACCOUNTING STANDARDS
The Company was not required to nor chose to adopt any new accounting standard
during fiscal 1995. No new accounting standards were issued during fiscal 1995
that will have a significant impact on the Company.
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS
CONSOLIDATED STATEMENTS OF EARNINGS
TSI Incorporated and Subsidiaries
YEAR ENDED MARCH 31 1995 1994 1993
<S> <C> <C> <C>
Net sales $ 48,902,605 $ 43,978,899 $ 40,589,082
Cost of products sold 20,336,422 18,678,155 17,712,128
GROSS PROFIT 28,566,183 25,300,744 22,876,954
Operating expenses
Research and product development 7,195,547 6,360,384 5,846,778
Selling 12,907,365 11,494,774 11,409,139
Administrative 3,749,488 3,581,515 3,475,603
23,852,400 21,436,673 20,731,520
OPERATING INCOME 4,713,783 3,864,071 2,145,434
Other income -- Note C 409,296 835,022 968,869
EARNINGS BEFORE INCOME TAXES 5,123,079 4,699,093 3,114,303
Provision for income taxes -- Note G 1,691,000 1,500,000 770,000
NET EARNINGS $ 3,432,079 $ 3,199,093 $ 2,344,303
EARNINGS PER COMMON SHARE $.65 $ .62 $ .45
Weighted average number of shares for
computation of earnings per common share 5,308,170 5,182,163 5,266,442
</TABLE>
See notes to consolidated financial statements.
QUARTERLY FINANCIAL INFORMATION
TSI Incorporated and Subsidiaries (Unaudited)
Following is a summary of unaudited quarterly results. Due to the nature of the
weighted average number of shares calculation, the sum of earnings per share for
the four fiscal 1994 quarters does not equal the fiscal 1994 total earnings per
share amount (see Note D).
<TABLE>
<CAPTION>
FISCAL 1995 1ST QTR 2ND QTR 3RD QTR 4TH QTR TOTAL
<S> <C> <C> <C> <C> <C>
NET SALES $11,983,020 $12,159,348 $13,715,960 $11,044,277 $48,902,605
GROSS PROFIT 7,297,019 7,224,284 7,920,823 6,124,057 28,566,183
NET EARNINGS 936,015 942,177 1,290,089 263,798 3,432,079
NET EARNINGS PER SHARE .18 .18 .24 .05 .65
Fiscal 1994
Net sales $8,740,032 $11,322,778 $12,311,803 $11,604,286 $43,978,899
Gross profit 4,643,626 6,488,761 7,141,578 7,026,779 25,300,744
Net earnings (loss) (322,958) 849,780 1,472,252 1,200,019 3,199,093
Net earnings (loss) per share (.06) .17 .29 .23 .62
</TABLE>
BALANCE SHEETS
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
TSI Incorporated and Subsidiaries
MARCH 31 1995 1994
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 9,551,552 $ 5,204,501
Investments -- 1,618,771
Accounts receivable, less allowance of
$142,000 and $183,000, respectively 6,732,602 8,290,073
Prepaid expenses 222,629 258,909
Inventories
Finished products 1,699,460 1,422,634
Work-in-process 1,124,753 1,182,136
Materials and supplies 3,349,073 3,417,209
6,173,286 6,021,979
TOTAL CURRENT ASSETS 22,680,069 21,394,233
INTANGIBLES AND OTHER ASSETS
Goodwill, net of accumulated amortization
of $566,000 and $449,000, respectively 1,726,915 1,843,172
Note receivable 610,000 --
Deferred income tax benefit 289,073 119,130
Other assets 1,389,129 1,001,777
4,015,117 2,964,079
PROPERTY, PLANT AND EQUIPMENT
Land 128,503 259,730
Buildings 1,039,070 1,039,070
Construction in progress 1,819,482 --
Machinery and equipment 12,310,360 11,591,237
15,297,415 12,890,037
Less allowance for depreciation 9,825,402 8,798,336
5,472,013 4,091,701
TOTAL ASSETS $32,167,199 $28,450,013
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses -- Note H $ 2,867,214 $ 2,709,996
Employee compensation 2,505,273 2,042,430
Taxes, other than income taxes 272,957 324,415
Income taxes payable 179,998 534,022
TOTAL CURRENT LIABILITIES 5,825,442 5,610,863
DEFERRED INCOME TAXES -- Note G -- --
TOTAL LIABILITIES 5,825,442 5,610,863
SHAREHOLDERS' EQUITY -- Notes D and E
Common shares, $.10 par value-authorized
8,000,000 shares, issued and
outstanding 1995--5,212,058 shares;
1994--5,108,581 shares 521,206 340,572
Additional paid-in capital 6,002,771 5,578,029
Retained earnings 19,471,422 16,641,594
Equity adjustment from translation 346,358 278,955
TOTAL SHAREHOLDERS' EQUITY 26,341,757 22,839,150
Commitments and contingencies -- Note B
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $32,167,199 $28,450,013
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
TSI Incorporated and Subsidiaries
YEAR ENDED MARCH 31 1995 1994 1993
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net earnings $ 3,432,079 $ 3,199,093 $ 2,344,303
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for losses on accounts receivable 40,696 49,934 (6,383)
Depreciation and amortization of property, plant and equipment 1,165,923 1,157,575 1,082,953
Amortization of goodwill 116,257 116,257 59,999
(Gain) loss on sale of assets 1,286 (5,274) (1,746)
Provision for deferred income taxes (169,943) (346,342) (169,530)
Income tax benefit from stock plans 67,060 55,333 27,358
Changes in operating assets and liabilities:
Accounts receivable 1,516,775 543,709 (1,176,324)
Prepaid expenses 36,280 (47,545) (10,901)
Income taxes receivable -- -- 25,587
Inventories (151,307) (908,808) 969,412
Other assets (387,352) 127,588 431,243
Accounts payable and accrued expenses 157,218 27,422 (337,017)
Employee compensation 462,843 298,056 (11,518)
Taxes, other than income taxes (51,458) 17,862 (48,082)
Current income taxes payable (354,024) 168,621 365,401
Foreign currency transaction (gain) loss (41,431) 49,035 8,190
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,840,902 4,502,516 3,552,945
INVESTING ACTIVITIES
Decrease (increase) in current investments 1,618,771 (1,618,771) --
Additions to property, plant and equipment (3,124,261) (1,204,113) (1,138,020)
Proceeds from disposal of property, plant and equipment 23,610 56,715 30,551
Purchase of TRI, net of cash acquired -- -- (510,049)
NET CASH USED IN INVESTING ACTIVITIES (1,481,880) (2,766,169) (1,617,518)
FINANCING ACTIVITIES
Principal payments on long-term liabilities -- -- (965,000)
Proceeds from stock options exercised 230,173 211,589 58,101
Proceeds from employee stock purchases 308,143 300,327 315,343
Dividends paid (602,251) (543,931) (554,339)
Purchases of common stock -- (744,937) (2,498,900)
NET CASH USED IN FINANCING ACTIVITIES (63,935) (776,952) (3,644,795)
Effect of exchange rate changes on cash and cash equivalents 51,964 (10,496) 12,977
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,347,051 948,899 (1,696,391)
Cash and cash equivalents at beginning of year 5,204,501 4,255,602 5,951,993
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,551,552 $ 5,204,501 $ 4,255,602
Interest paid $ 75,000 $ 5,000 $ 102,000
</TABLE>
See notes to consolidated financial statements.
SHAREHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
TSI Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Equity
Additional Adjustment
Common Shares Paid-In Retained from
Shares Amount Capital Earnings Translation
<S> <C> <C> <C> <C> <C>
Balance March 31, 1992 3,575,630 $ 357,563 $ 4,397,542 $ 14,937,552 $ 224,990
Net earnings for year ended March 31, 1993 2,344,303
Cash dividends paid ($.107 per share) (554,339)
Current year translation adjustment 27,424
Stock issued in merger 72,998 7,300 690,898
Employee stock purchases 40,120 4,012 311,331
Stock options exercised 8,250 825 57,276
Income tax benefit from stock plans 27,358
Shares repurchased and retired (258,800) (25,880) (332,862) (2,140,158)
Stock split adjustment (10,021) (1,002) 1,002
Balance March 31, 1993 3,428,177 342,818 5,152,545 14,587,358 252,414
Net earnings for year ended March 31, 1994 3,199,093
Cash dividends paid ($.107 per share) (543,931)
Current year translation adjustment 26,541
Employee stock purchases 34,284 3,428 296,899
Stock options exercised 32,760 3,276 208,313
Income tax benefit from stock plans 55,333
Shares repurchased and retired (89,500) (8,950) (135,061) (600,926)
Balance March 31, 1994 3,405,721 340,572 5,578,029 16,641,594 278,955
Net earnings for year ended March 31, 1995 3,432,079
Cash dividends paid ($.120 per share) (602,251)
Current year translation adjustment 67,403
Employee stock purchases 52,706 5,271 302,872
Stock options exercised 42,979 4,298 225,875
Income tax benefit from stock plans 67,060
Stock split adjustment--Note D 1,710,652 171,065 (171,065)
BALANCE MARCH 31, 1995 5,212,058 $ 521,206 $ 6,002,771 $ 19,471,422 $ 346,358
</TABLE>
See notes to consolidated financial statements.
NOTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TSI Incorporated and Subsidiaries March 31, 1995
NOTE A -SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of TSI and its wholly-owned subsidiaries after elimination of
significant intercompany accounts and transactions.
CASH EQUIVALENTS AND INVESTMENTS: Cash equivalents of $9,321,000 and
$1,935,000 at March 31, 1995 and 1994, respectively, consist of short-term
highly liquid investments with maturity periods of less than three months from
date of purchase. Investments of $1,619,000 at March 31, 1994 consist of
government securities with maturities between three and six months. These
investments are carried at the lower of cost or market.
INVENTORIES: Inventories are valued at cost which is not in excess of market.
Inventories valued under the last-in, first-out (LIFO) method were $4,702,000
and $4,885,000 at March 31, 1995 and 1994, respectively. Inventories valued
under the first-in, first-out (FIFO) method were $1,471,000 and $1,137,000 at
March 31, 1995 and 1994, respectively. If the first-in, first-out (FIFO) method
of inventory valuation had been used by the Company, inventories would have been
approximately $1,661,000 and $1,720,000 higher than reported at March 31, 1995
and 1994, respectively.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is carried at
cost. Expenditures for improvements that add materially to the productive
capacity or extend the useful life of an asset are capitalized. Depreciation
includes amortization of capitalized lease obligations on the Company's
manufacturing plant and related components of equipment and fixtures, provided
on the straight line method for book purposes. Depreciation on other machinery
and equipment is provided using accelerated methods for the first half of the
asset life and the straight line method for the second half of the asset life.
At March 31, 1995, the Company is constructing an addition to its building in
Shoreview, Minnesota. A portion of the cost is being funded through Tax
Increment Financing (TIF). The estimated portion to be funded through the TIF
has been reflected as a note receivable offsetting the project costs.
INTANGIBLE ASSETS: Goodwill represents the excess of cost of businesses
acquired over the fair market value of net tangible and identifiable intangible
assets. The carrying value of goodwill is periodically evaluated based on
forecasts of future operations. Goodwill and other intangible assets are being
amortized on a straight line basis over periods of up to forty years.
REVENUE RECOGNITION: The Company recognizes sales when the product is shipped
and revenue on research and development contracts using the
percentage-of-completion method of accounting.
INCOME TAXES: The provision for income taxes is based on earnings before
income taxes reported for financial statement purposes. Included in the
provision are deferred taxes which result from transactions that are reported in
different periods for financial statement and income tax purposes. The Company
adopted the asset and liability method for computing its deferred taxes as
specified by Financial Accounting Standard No. 109 (FAS 109) "Accounting for
Income Taxes." Under the asset and liability method, deferred taxes are based on
the difference between the financial statement and tax basis of assets and
liabilities and the enacted tax rates that will be in effect when these
differences reverse. Deferred tax expense represents the change in the deferred
tax liability during the year.
EARNINGS PER COMMON SHARE: Earnings per common share is primary earnings per
share, computed by dividing net earnings by the weighted average number of
shares outstanding during the year, including any dilutive effect of shares
issuable under terms of the stock option or the employee stock purchase plans.
Primary and fully diluted earnings per share are substantially the same.
Earnings per share data for fiscal 1994 and 1993 have been adjusted to reflect
the stock split discussed in Note D.
FOREIGN CURRENCY: Foreign currency assets and liabilities are translated into
U.S. dollars using the exchange rates in effect at the balance sheet date.
Results of operations are generally translated using the average exchange rates
in effect throughout the period. The effects of exchange rate fluctuations on
translation of assets and liabilities are reported as an equity adjustment from
translation in shareholders' equity.
Foreign currency transaction gains (losses) are included in other income as
set forth in Note C.
The Company hedges foreign receivables and backlog against fluctuations in
currency values. Hedge transactions involve the purchase of forward and option
contracts for the delivery of foreign currencies in exchange for U.S. dollars at
a future date which corresponds to the collection of the related receivables.
Gains and losses on forward and option contracts and the related foreign
receivables are recognized simultaneously in other income. Market value changes
of forward and option contracts hedging backlog are deferred until the sale
transaction is complete.
At March 31, 1995, the Company had outstanding forward contracts of
$2,150,000 and had no outstanding option contracts. These contracts have
maturity dates of less than a year. Deferred market value changes on forward
contracts hedging backlog were not significant at March 31, 1995.
NOTE B - LONG-TERM LIABILITIES AND LEASE COMMITMENTS
The Company paid the full balance on the industrial development revenue bonds
and the 1979 loan and mortgage agreement during fiscal 1993. The Company leases
office, plant facilities and equipment under operating leases ranging from two
to ten years.
Rental expense for all operating leases was $394,000, $489,000 and $575,000
in 1995, 1994 and 1993, respectively. Future minimum lease obligations each
fiscal year under noncancelable operating leases are $348,000 in 1996, $156,000
in 1997, $148,000 in 1998, $132,000 in 1999; all lease obligations will be
fulfilled in 1999.
The Company has unsecured short-term lines of credit totaling $2,500,000
available under two agreements. The interest rate on the $2,000,000 line is the
lesser of either the reference rate or 1.15% over the Federal Funds rate. The
rate on the $500,000 line of credit is the lesser of the reference rate or 1.50%
over the Federal Funds rate. As of March 31, 1995 neither credit line had an
outstanding balance, however, the total available funds were reduced by
outstanding standby letters of credit totaling $291,000 issued against these two
facilities. Additionally, the Company had contingent liabilities of $427,000 in
the form of performance and foreign customs guarantees.
NOTE C - OTHER INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1995 1994 1993
<S> <C> <C> <C>
Settlement--Note G $ -- $ -- $ 676,000
Gain on disposal of product line -- 704,000 --
Provision for loss on long-term note -- (167,000) --
Interest income 426,000 137,000 263,000
Foreign currency transaction gains (losses) (9,000) (10,000) (168,000)
Other (8,000) 171,000 198,000
$ 409,000 $ 835,000 $ 969,000
</TABLE>
In December, 1993 the Company sold its microcontamination product line to
Particle Measuring Systems (PMS), adding approximately $479,000 ($.09 per share)
to fiscal 1994 net earnings. The Company has a five year agreement with PMS
whereby it will continue to manufacture certain of these products.
Fiscal 1993 other income includes a settlement of approximately $676,000 from
the resolution of litigation which the Company pursued following the Internal
Revenue Service's disqualification of TSI's Domestic International Sales
Corporation (see Note G). The total effect of this settlement on fiscal 1993
earnings was approximately $710,000 ($.14 per share), net of income taxes.
NOTE D - SHAREHOLDERS' EQUITY
On July 21, 1994, the Board of Directors declared a three-for-two stock split
in the form of a stock dividend paid to shareholders of record on August 1,
1995, distributed August 17, 1995. For each share issued in connection with the
stock split, an amount equal to the par value of $.10 was transferred to the
common shares amount from additional paid-in capital in fiscal 1995. This
transfer is reflected in the Consolidated Statements of Shareholders' Equity.
All other references in the financial statements and related notes to per share
information, stock options, weighted average number of shares, as well as the
number of common shares outstanding for all prior years presented, have been
retroactively adjusted to reflect this stock split.
NOTE E - STOCK OPTIONS AND STOCK PURCHASE PLAN
Stock options have been granted to employees, officers and directors under
incentive stock option plans adopted in 1982, 1988, and 1992. No new options
will be granted under the 1982 or 1988 plans. Under all plans, incentive stock
options are generally granted at prices not less than fair market value at date
of grant. Options granted under the 1982 and 1988 plans become exercisable 40%
after two years and increase 20% per year until exercisable in full after five
years. Options granted under the 1992 plan become exercisable one-third after
one year and increase one-third per year until exercisable in full after three
years. Stock options and shares reserved for grant are as follows (see Note D):
<TABLE>
<CAPTION>
1982 Plan 1988 Plan 1992 Plan
Shares Shares Shares
Available Shares Available Shares Available Shares
for Grant Granted for Grant Granted for Grant Granted Price Per Share
<S> <C> <C> <C> <C> <C> <C> <C>
Balance March 31, 1992 -- 80,438 42,525 294,975 -- -- $2.52 to $7.25
Reserved (45,525) 150,000
Granted (123,659) 123,659 2.77 to 6.59
Exercised (4,725) (7,650) 3.86 to 6.00
Canceled (675) (13,125) 3.86 to 7.00
Balance March 31, 1993 -- 75,038 -- 274,200 26,341 123,659
Reserved 102,845
Granted (119,476) 119,476 5.33 to 8.59
Exercised (26,625) (22,050) (465) 3.39 to 7.00
Canceled (3,375) (22,875) 3,000 (3,000) 3.86 to 7.00
Balance March 31, 1994 -- 45,038 -- 229,275 12,710 239,670
Reserved 102,172
Granted (46,324) 46,324 8.58 to 9.00
Exercised (13,613) (27,000) (10,266) 2.77 to 7.25
Canceled (5,925) 4,525 (4,525) 6.33 to 8.58
BALANCE MARCH 31, 1995 -- 31,425 -- 196,350 73,083 271,203
Exercisable:
March 31, 1994 45,038 175,950 71,603 $2.77 to $7.25
March 31, 1995 31,425 166,995 158,893 2.77 to 8.67
</TABLE>
On July 21, 1994, the Company adopted the Employee Stock Purchase Plan of
1994. This Plan authorized the issuance of a total of 450,000 shares over the
life of the Plan. Shares may be purchased at 85% of market value. As of March
31, 1995, 390,257 shares remain reserved for grant and 59,743 shares are
subscribed but unissued under this plan. There are no shares issued or
subscribed under the Employee Stock Purchase Plan of 1987 adopted on July 16,
1987. No further shares will be sold under the 1987 plan. An aggregate of
1,022,061 shares are reserved for issuance under stock option and Employee Stock
Purchase Plans.
NOTE F - PROFIT SHARING PLAN
The Company has trusteed profit sharing and 401(k) plans which cover
substantially all of its employees. The profit sharing plan calls for a minimum
contribution of 4% in fiscal 1995 and 3% in fiscals 1994 and 1993 of credited
compensation for all eligible participants so long as sufficient profits are
generated in that year. In addition, if average return on assets exceeds 12%, an
additional 15% of pretax profits above this level are paid to eligible
participants. The expense relating to these plans, based on return on assets and
credited compensation, was $1,104,000, $838,000 and $554,000 in 1995, 1994 and
1993, respectively.
NOTE G - INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1995 1994 1993
<S> <C> <C> <C>
Provision for Income Taxes
Federal
Current $ 1,900,481 $ 1,666,342 $ 861,080
Research and development credit (39,538) (10,000) (12,550)
1,860,943 1,656,342 848,530
Deferred (federal and state) (169,943) (346,342) (169,530)
State -- 190,000 91,000
$ 1,691,000 $ 1,500,000 $ 770,000
Deferred Income Tax Provisions:
Depreciation $ (55,487) $ (45,824) $ (419)
Inventory obsolescence (15,722) (78,282) 10,459
Safe harbor leases (155,297) (87,893) (70,776)
Deferred research and development costs 54,587 4,137 13,472
Reserve on note receivable -- (87,164) (70,781)
Net operating loss--foreign subsidiary (225,732) -- --
Valuation allowance 225,732 -- --
Other 1,976 (51,316) (51,485)
$ (169,943) $ (346,342) $ (169,530)
Reconciliation of the Statutory Federal
Income Tax Rate to the Company's
Effective Tax Rate:
Statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State income tax, net of federal tax benefit -- 2.7 2.0
Foreign Sales Corporation tax exempt income (1.4) (4.0) (6.3)
Research and development credit (.8) (.6) (.4)
Settlement of private civil litigation relating to the .
DISC disqualification -- -- (8.5)
Net operating loss--foreign subsidiary (4.4) -- --
Valuation allowance 4.4 -- --
Other 1.2 (.2) 3.9
Effective Tax Rate 33.0% 31.9% 24.7%
Earnings Before Income Taxes:
Domestic $ 5,698,030 $ 3,901,855 $ 2,912,050
Foreign (574,951) 797,238 202,253
$ 5,123,079 $ 4,699,093 $ 3,114,303
Income Taxes Paid
(net of refunds received) $ 2,187,703 $ 1,633,378 $ 506,829
</TABLE>
As of March 31, 1995, the Company had a deferred tax benefit of $289,073,
including such items as depreciation, inventory valuation adjustments, safe
harbor leases, deferred research and development costs and vacation pay
accruals.
The Internal Revenue Service (IRS) had disqualified the Company's Domestic
International Sales Corporation (DISC) for fiscal years 1983, 1984 and 1985.
Because of carryover computations, fiscal years 1981 through 1990 were affected
by the disqualification. The Company unsuccessfully challenged the IRS's
disqualification of the DISCthrough the Eighth Circuit Court of Appeals. As a
result of the Court's action, in fiscal 1992 $1,030,000 was paid in taxes.
In March 1993, the Company settled private civil litigation relating to the
disqualification of the DISC (see Note C).
NOTE H - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
YEAR ENDED MARCH 31 1994 1995
Trade accounts payable $ 1,259,089 $ 1,704,276
Deferred revenue 93,429 73,484
Commissions and royalties payable 635,705 457,133
Other accounts payable and accrued expenses 721,773 632,321
$ 2,709,996 $ 2,867,214
NOTE I - SEGMENT INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1995 1994 1993
<S> <C> <C> <C>
Net Sales
Domestic operations
Unaffiliated domestic customers $ 33,937,713 $ 30,278,773 $ 24,962,966
Unaffiliated foreign customers 12,415,020 9,763,496 10,836,159
Intercompany 1,133,602 1,778,942 2,701,997
47,486,335 41,821,211 38,501,122
Foreign operations
Unaffiliated customers 2,664,364 3,936,630 4,789,957
Intercompany 400,426 660,442 571,391
3,064,790 4,597,072 5,361,348
Eliminations (1,648,520) (2,439,384) (3,273,388)
Net Sales $ 48,902,605 $ 43,978,899 $ 40,589,082
Net Earnings
Domestic operations $ 6,496,066 $ 5,549,945 $ 4,446,180
Foreign operations (971,852) (26,281) (627,576)
Eliminations (401,135) (824,571) (704,301)
Earnings Before Income Taxes 5,123,079 4,699,093 3,114,303
Income taxes (1,691,000) 1,500,000 770,000
Net Earnings $ 3,432,079 $ 3,199,093 $ 2,344,303
Assets
Domestic operations $ 35,993,803 $ 31,107,195 $ 26,887,489
Foreign operations 2,603,633 2,515,474 2,937,409
Eliminations (6,430,237) (5,172,656) (4,163,649)
Total Assets $ 32,167,199 $ 28,450,013 $ 25,661,249
</TABLE>
The Company's domestic operations export products to unaffiliated foreign
customers in many countries, including exports to the Pacific Basin which
represented approximately 14%, 12%, and 16% of net sales in 1995, 1994, and
1993, respectively. The Company's foreign operations are located and primarily
sell to unaffiliated customers in Western Europe. Intercompany sales are set at
the standard price to unaffiliated customers less a discount based upon
marketing effort.
Sales to educational, research and defense customers, which are heavily
reliant on U.S. government funding, accounted for approximately 36%, 36% and 24%
of net sales in 1995, 1994 and 1993, respectively. Sales directly to federal and
state agencies, including defense, during the same three years were 32%, 29% and
19% of net sales.
NOTE J - SUBSEQUENT EVENT
Effective May 1, 1995, the Company purchased the assets and liabilities of
Alnor Instruments Company (Alnor) of Skokie, Illinois for cash. Alnor is a maker
of airflow, safety and indoor environmental monitoring products. The acquisition
will be accounted for by the purchase method of accounting. The following
represent summary proforma unaudited results of operations for the twelve months
ended March 31, 1995, for the combined operations.
(UNAUDITED)
Sales $57,555,605
Net earnings $3,677,000
Earnings per share $.69
REPORTS
REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
The Board of Directors
and Shareholders
TSI Incorporated:
We have audited the accompanying consolidated balance sheets of TSI
Incorporated and subsidiaries as of March 31, 1995 and 1994, and the related
consolidated statements of earnings, cash flows and shareholders' equity for
each of the years in the three-year period ended March 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TSI
Incorporated and subsidiaries as of March 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 1995 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 19, 1995
MANAGEMENT'S REPORT
Management is responsible for the accuracy and objectivity of the data
included in this report. The financial statements have been prepared in
accordance with generally accepted accounting principles using management's best
estimates and judgements where appropriate.
Established accounting procedures and related systems of internal control
provide reasonable assurance that assets are protected, that the accounting
books and records properly reflect all transactions, and that policies and
procedures are implemented by qualified personnel.
The Audit Committee, composed of two members of the Board of Directors who
are not employees of the Company, meets regularly with representatives of
management and the independent auditors to monitor the functioning of the
accounting and control systems and to review the results of the auditing
activities. The Audit Committee recommends independent auditors for appointment
by the Board. The independent auditors have full and free access to the Audit
Committee.
The independent public accounting firm,KPMGPeat Marwick LLP, is retained to
conduct an objective, independent audit of the
financial statements.
/s/ Lowell D. Nystrom
Lowell D. Nystrom
Vice President and
Chief Financial Officer
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Company Jurisdiction Ownership
- ----------------------------------------------------------------------
Handar California 100%
TSI Foreign Sales Barbados, West Indies 100%
Corporation
TSI France Inc. Minnesota 100%
TSI GmbH Germany 100%
TSI/TPM Minnesota 100%
Transducer Research Inc. Minnesota 100%
EXHIBIT 23
AUDITORS' CONSENT
The Board of Directors
TSI Incorporated:
We consent to incorporation by reference in Registration Statement No. 1-91697
on Form S-8 filed with the Securities and Exchange Commission on June 14, 1984
for the TSI Incorporated Incentive Stock Option Plan of 1982, Registration
Statement No. 33-23247 on Form S-8, filed with the Security and Exchange
Commission on July 25, 1988 for the TSI Incorporated Employee Stock Purchase
Plan of 1987, Registration Statement No. 33-20627 on Form S-8 filed with the
Securities and Exchange Commission on August 22, 1989 for the TSI Incorporated
Stock Option Plan of 1988, Registration Statement No. 33-66194 on Form S-8,
filed with the Securities and Exchange Commission on July 19, 1993 for the TSI
Incorporated Stock Option Plan of 1992, and Registration Statement No. 33-86468
on Form S-8, filed with the Securities and Exchange Commission on November 17,
1994 for the TSI Incorporated Employee Stock Purchase Plan of 1994 of our report
dated May 19, 1995, relating to the consolidated balance sheets of TSI
Incorporated and subsidiaries as of March 31, 1995 and 1994 and the related
consolidated statements of earnings, cash flows and shareholders' equity for
each of the years in the three-year period ended March 31, 1995, which reports
appear in or are incorporated by reference in the March 31, 1995 annual report
on Form 10-K of TSI Incorporated.
Minneapolis, Minnesota
June 23, 1995
/s/ KPMG Peat Marwick LLP
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 9,551,552
<SECURITIES> 0
<RECEIVABLES> 6,874,602
<ALLOWANCES> 142,000
<INVENTORY> 6,173,286
<CURRENT-ASSETS> 22,680,069
<PP&E> 15,297,415
<DEPRECIATION> 9,825,402
<TOTAL-ASSETS> 32,167,199
<CURRENT-LIABILITIES> 5,825,442
<BONDS> 0
<COMMON> 521,206
0
0
<OTHER-SE> 25,820,551
<TOTAL-LIABILITY-AND-EQUITY> 32,167,199
<SALES> 48,902,605
<TOTAL-REVENUES> 48,902,605
<CGS> 20,336,422
<TOTAL-COSTS> 23,852,400
<OTHER-EXPENSES> 409,296
<LOSS-PROVISION> 40,696
<INTEREST-EXPENSE> 74,845
<INCOME-PRETAX> 5,123,079
<INCOME-TAX> 1,691,000
<INCOME-CONTINUING> 3,432,079
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,432,079
<EPS-PRIMARY> .65
<EPS-DILUTED> .64
</TABLE>
