SECURITIES AND EXCHANGE COMMISSION
Washington, DC 10549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED
SEPTEMBER 30, 1996.
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 preceding 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: November 8, 1996 Number of Common Shares Outstanding: 11,279,442
----------------- -----------
TSI INCORPORATED
FORM 10-Q
For the Quarter Ended September 30, 1996
Page
----
PART I. FINANCIAL INFORMATION 2
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flows 4
Consolidated Statements of Earnings 5
Note to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 7 - 8
PART II. OTHER INFORMATION 9
EXHIBIT 11 Computation of Per Share Earnings
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
SEPT. 30 March 31 Sept. 30
1996 1996 1995
(UNAUDITED) (unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,761,585 $ 688,055 $ 1,094,300
Accounts receivable 12,181,593 15,533,541 9,567,715
Prepaid expenses 559,830 310,483 412,937
Inventories
Finished products 2,817,891 2,462,381 2,179,427
Work-in-process 2,500,940 1,782,462 2,314,136
Materials and supplies 7,067,545 6,635,571 5,055,945
----------- ----------- -----------
12,386,376 10,880,414 9,549,508
----------- ----------- -----------
TOTAL CURRENT ASSETS 29,889,384 27,412,493 20,624,460
INTANGIBLES AND OTHER ASSETS
Goodwill 2,801,257 2,991,222 2,611,461
Note receivable 610,000 610,000 610,000
Deferred income tax benefit 721,020 721,020 289,073
Other assets 2,231,990 2,377,558 2,270,614
----------- ----------- -----------
6,364,267 6,699,800 5,781,148
PROPERTY, PLANT AND EQUIPMENT
Land 128,503 128,503 128,503
Buildings 3,564,863 3,564,863 1,039,070
Construction in progress 567,325 236,747 3,500,027
Machinery and equipment 17,301,013 16,301,710 13,724,044
----------- ----------- -----------
21,561,704 20,231,823 18,391,644
Less allowance for depreciation 12,696,454 11,831,980 10,805,132
----------- ----------- -----------
8,865,250 8,399,843 7,586,512
----------- ----------- -----------
TOTAL ASSETS $45,118,901 $42,512,136 $33,992,120
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 4,297,368 $ 4,863,403 $ 3,718,892
Notes payable -- -- 160,936
Employee compensation 3,285,967 3,118,417 2,338,085
Taxes, other than income taxes 309,420 306,227 178,027
Income taxes payable 349,698 626,139 --
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 8,242,453 8,914,186 6,395,940
----------- ----------- -----------
TOTAL LIABILITIES 8,242,453 8,914,186 6,395,940
SHAREHOLDERS' EQUITY
Common shares, $.10 par value 1,125,287 559,083 526,878
Additional paid-in capital 8,454,374 8,800,846 6,286,979
Retained earnings 27,235,049 24,202,036 20,625,728
Equity adjustment from translation 61,738 35,985 156,595
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 36,876,448 33,597,950 27,596,180
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $45,118,901 $42,512,136 $33,992,120
=========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED SEPTEMBER 30 1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 3,482,246 $ 1,494,946
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for losses on accounts receivable 994 14,204
Depreciation and amortization of property, plant and equipment 903,903 638,534
Amortization of goodwill 189,965 69,999
Loss on sale of assets -- 235
Changes in operating assets and liabilities:
Accounts receivable 3,350,954 (1,192,364)
Prepaid expenses (249,347) (108,851)
Inventories (1,505,962) (2,132,869)
Other assets 145,568 368,515
Accounts payable and accrued expenses (566,035) (274,296)
Employee compensation payable 167,550 (167,188)
Taxes, other than income taxes 3,193 (94,930)
Current income taxes payable (276,441) (179,998)
Foreign currency translation gain (loss) 5,200 (183,519)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,651,788 (1,747,582)
----------- -----------
INVESTING ACTIVITIES
Additions to property, plant and equipment (1,375,819) (2,341,344)
Purchase of companies, net of cash acquired -- (4,510,850)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,375,819) (6,852,194)
----------- -----------
FINANCING ACTIVITIES
Proceeds from note -- 160,936
Proceeds from stock options exercised 219,732 289,879
Dividends paid (449,233) (312,799)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (229,501) 138,016
----------- -----------
Effect of exchange rate changes on cash and cash equivalents 27,062 4,508
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,073,530 (8,457,252)
----------- -----------
Cash and cash equivalents at beginning of year 688,055 9,551,552
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF SIX MONTH PERIOD $ 4,761,585 $ 1,094,300
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $19,314,726 $14,573,940 $38,811,844 $28,343,858
Cost of products sold 8,474,322 6,317,574 16,987,911 12,167,414
----------- ----------- ----------- -----------
GROSS PROFIT 10,840,404 8,256,366 21,823,933 16,176,444
Operating expenses
Research and product development 2,787,799 2,116,825 5,277,786 4,200,406
Selling 4,197,664 3,738,835 8,461,051 7,374,847
Administrative 1,486,520 1,289,835 2,900,937 2,449,382
----------- ----------- ----------- -----------
8,471,983 7,145,495 16,639,774 14,024,635
----------- ----------- ----------- -----------
OPERATING INCOME 2,368,421 1,110,871 5,184,159 2,151,809
Other income 107,879 43,973 173,087 148,137
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 2,476,300 1,154,844 5,357,246 2,299,946
Provision for income taxes 867,000 404,000 1,875,000 805,000
----------- ----------- ----------- -----------
NET EARNINGS $ 1,609,300 $ 750,844 $ 3,482,246 $ 1,494,946
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE $ .14 $ .07 $ .30 $ .14
=========== =========== =========== ===========
Weighted average number of shares
for computation of
earnings per common share 11,806,557 10,886,712 11,673,955 10,825,864
</TABLE>
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the three month period ended September 30, 1996, were $19,315,000,
which represents an increase of 33 percent from $14,574,000 for the same period
last year.
For the first six months of fiscal 1997, the Company's net sales were
$38,812,000, up 37 percent from $28,344,000, for the same six-month period a
year ago.
Sales of products for the Safety, Comfort and Health of People increased 39
percent and accounted for 72 percent of the Company's total business during the
second quarter, compared to 68 percent for the same quarter a year ago. For the
six months ended September 30, 1996, sales of Safety, Comfort and Health
products increased 41 percent and represented 69 percent of total sales compared
with 67 percent for last year's first half. This area accounted for 66 percent
of the Company's business in fiscal 1996, ended March 31, 1996. Contributing to
this growth was shipments of about $6.8 million under contracts with the U.S.
Army and German army to furnish Portacount(R) respirator fit testers for
bio-hazard protection.
Sales of products for Productivity and Quality Improvement increased 19 percent
and were at 28 percent of total sales for the fiscal 1997 second quarter
compared with 32 percent a year ago. For the six months ended September 30,
1996, sales of Productivity and Quality Improvement products increased 29
percent, making up 31 percent of total sales compared with 33 percent for last
year's first half. For fiscal 1996, ended March 31, 1996, this category
accounted for 34 percent of the Company's business. The sales increase in this
category came from the October, 1996 acquisition of Aerometrics, Inc., partially
offset by a decrease in sales of other productivity and quality measuring
instruments. This decrease resulted from year-to-year differences in shipments
of larger orders and some weakness in sales bookings during the summer months
which is not considered to represent any downward trend.
Sales to U.S. and state government agencies including defense, comprised about
26 percent of the Company's net sales for the quarter as compared to 22 percent
for the same quarter last year. For the six months ended September 30, 1996 and
1995, sales to the U.S. and state government agencies were at 23 percent and 20
percent, respectively. A higher percentage of governmental sales was experienced
during the first six months of fiscal 1997, mostly because of shipments on the
U.S. military contract referred to above and there were not such shipments
during the first half of fiscal 1996. The second half of fiscal 1997 should show
governmental sales to be at a percentage similar to the first six 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 and the
typical percentage was lowered due to a normally lower percentage of sales to
government agencies for the two acquisitions made during fiscal 1996.
During the second quarter, backlog of orders increased from $25.3 million at
June 30, 1996 to $25.9 million at September 30, 1996, and compared to backlog of
$22.5 million at September 30, 1996. Order bookings were stronger at $19.9
million in the second quarter ended September 30, 1996 compared to the $15.0
million in the first quarter ended June 30, 1996. The largest single order
during the second quarter was $1.3 million for additional Portacount respirator
fit testers to be used by the U.S. Air Force. Other orders reflected increased
sales bookings across most of the Company's product lines without any dominant
factors.
Gross profit margin for the second quarter ended September 30, 1996 was 56.1
percent of net sales compared with the 56.7 percent gross profit margin in the
second quarter last year. Six-month gross profit margin were 56.2 percent this
year compared to 57.1 percent a year ago. The lower gross profit percentage for
the first six months this year was due to the effect of normally lower gross
profit margins at the companies acquired in fiscal 1996.
Research and product development expenses as a percentage of net sales were 14.4
percent for the second quarter and 13.6 percent for the six month period ended
September 30, 1996, compared to 14.5 percent and 14.8 percent of net sales,
respectively, for the same periods last year. Actual research and product
development spending was up about 26 percent in the first six months and, of
that, about 40 percent was due to the fiscal 1996 acquisitions. The Company
continues its commitment to growth through development of new technologies and
products. For all of fiscal 1997, research and development expenses are expected
to continue near the Company's historical range of 12 to 14 percent of sales.
Selling expenses were 21.7 percent of net sales for the second quarter compared
to 25.7 percent for the year earlier period. For the first six months of fiscal
1997, selling expenses were 21.8 percent compared with 26.0 percent for the same
period in fiscal 1996. Selling expenses for the first six months were up about
15 percent compared to the same period a year ago and about 45 percent of the
increase was due to the fiscal 1996 acquisitions. The decrease in selling
expenses as a percentage of net sales corresponded to higher sales volume in
this year's first half.
Administrative expenses were 7.7 percent and 7.5 percent of net sales for the
three and six-month periods ended September 30, 1996, respectively. For the same
periods ended September 30, 1995, administrative expenses were 8.9 and 8.6
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 1997.
Other income was $108,000 in the second quarter and $173,000 in the first six
months of fiscal 1997 compared with $44,000 and $148,000, respectively, for the
same periods in fiscal 1996. The increase for the second quarter of the current
fiscal year is due to higher interest income due to higher cash balances along
with fluctuations due to foreign currency transactions.
The provision for income taxes was at the rate of 35 percent of pre-tax earnings
for the second quarters and six month periods of both fiscal 1997 and 1996.
Liquidity and Capital Resources
Cash, cash equivalents and investments increased by $4,074,000 to $4,762,000 at
September 30, 1996 from $688,000 at March 31, 1996. The increase is mainly
attributable to increased net earnings and decreased accounts receivable,
partially offset by increases in inventory and property, plant and equipment.
The ratio of current assets to current liabilities was 3.6 as of September 30,
1996, compared to 3.1 as of March 31, 1996. Working capital increased $3,149,000
to $21,647,000 at the end of the second quarter of fiscal 1997, compared to
$18,498,000 at the end of fiscal 1996.
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 1997.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule filed electronically
(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: November 13, 1996 By:__________________
/s/James E. Doubles
President & COO
Date: November 13, 1996 By:____________________
/s/Lowell D. Nystrom
Vice President & CFO
<TABLE>
<CAPTION>
EXHIBIT 11
TSI Incorporated
Computation of Per Share Earnings
Three Months Ended Sept. 30, Six Months Ended Sept. 30
----------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary
Average shares outstanding 11,372,186 10,496,760 11,229,319 10,464,908
Net effect of dilutive stock options,
based on the treasury stock method
using average market price 434,371 389,952 444,637 360,956
----------- ----------- ----------- -----------
Total 11,806,557 10,886,712 11,673,956 10,825,864
Net Earnings $ 1,609,300 $ 750,844 $ 3,482,246 1,494,946
Primary per share amounts $ .14 $ .07 $ .30 $ .14
Fully Diluted
Average shares 11,372,186 10,496,760 11,229,319 10,464,908
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 438,053 448,450 446,748 465,478
----------- ----------- ----------- -----------
Total 11,810,239 10,945,210 11,676,067 10,930,386
Net Earnings $ 1,609,300 $ 750,844 $ 3,482,246 $ 1,494,946
Fully diluted per share amounts $ .14 $ .07 $ .30 $ .14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 4,761,585
<SECURITIES> 0
<RECEIVABLES> 12,446,926
<ALLOWANCES> 265,333
<INVENTORY> 12,386,376
<CURRENT-ASSETS> 29,889,384
<PP&E> 21,561,703
<DEPRECIATION> 12,696,454
<TOTAL-ASSETS> 45,118,901
<CURRENT-LIABILITIES> 8,242,453
<BONDS> 0
0
0
<COMMON> 1,125,287
<OTHER-SE> 36,876,448
<TOTAL-LIABILITY-AND-EQUITY> 45,118,901
<SALES> 38,811,844
<TOTAL-REVENUES> 38,811,844
<CGS> 16,987,911
<TOTAL-COSTS> 16,639,774
<OTHER-EXPENSES> (173,087)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,357,246
<INCOME-TAX> 1,875,000
<INCOME-CONTINUING> 3,482,246
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,482,246
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
