SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR QUARTER ENDED DECEMBER 31, 1995
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
incorporation or organization) Identification Number)
500 Cardigan Road, Shoreview, Minnesota 55126
(Address of principal executive offices)
612/483-0900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the proceeding 20 months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
Indicate number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Date: February 1, 1996 Number of Common Shares Outstanding: 5,535,106
TSI INCORPORATED
Form 10-Q
For the Quarter Ended December 31, 1995
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
PART II. OTHER INFORMATION
EXHIBIT 11 Computation of Per Share Earnings
EXHIBIT 27 Financial Data Schedule
TSI Incorporated and Subsidiaries
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
1995 1994 1995 1994
_______________________________ ____________ ____________ ____________ ____________
<S> <C> <C> <C> <C>
Net sales $20,730,421 $13,715,960 $49,074,279 $37,858,328
Cost of products sold 9,859,355 5,795,137 22,026,769 15,416,202
_______________________________ ____________ ____________ ____________ ____________
Gross Profit 10,871,066 7,920,823 27,047,510 22,442,126
Operating expenses:
Research & product development 2,218,232 1,786,254 6,418,638 5,268,024
Selling 4,499,977 3,273,709 11,874,824 9,750,971
Administrative 1,349,419 1,011,727 3,798,801 2,933,546
_______________________________ ____________ ____________ ____________ ____________
8,067,628 6,071,690 22,092,263 17,952,541
_______________________________ ____________ ____________ ____________ ____________
Operating Income 2,803,438 1,849,133 4,955,247 4,489,585
Other income 80,529 79,956 228,666 239,696
_______________________________ ____________ ____________ ____________ ____________
Earnings Before Income Tax 2,883,967 1,929,089 5,183,913 4,729,281
Provision for income taxes 1,009,000 639,000 1,814,000 1,561,000
___________ ____________ ____________ ____________
Net Earnings $1,874,967 $1,290,089 $3,369,913 $3,168,281
=========== ============ ============ ============
Net earnings per common share: $0.33 $0.24 $0.61 $0.60
=========== ============ ============ ============
Weighted average number of shares
computation of earnings per
common share 5,653,944 5,292,961 5,499,657 5,289,041
=========== ============ ============ ============
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
TSI Incorporated and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Dec. 31 March 31 Dec. 31
1995 1995 1994
(unaudited) (unaudited)
________________________________________ ____________ ____________ ____________
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $1,200,385 $9,551,552 $7,698,888
Investments 0 0 1,621,288
Accounts receivable 14,783,514 6,732,602 8,315,455
Prepaid expenses 296,974 222,629 280,409
Inventories:
Finished products 2,108,783 1,699,460 1,544,374
Work in process 1,741,381 1,124,753 1,352,557
Materials and supplies 5,687,838 3,349,073 2,924,725
________________________________________ ____________ ____________ ____________
9,538,002 6,173,286 5,821,656
________________________________________ ____________ ____________ ____________
Total Current Assets 25,818,875 22,680,069 23,737,696
Intangibles and Other Assets
Goodwill 3,158,611 1,726,915 1,755,979
Note receivable 610,000 610,000 0
Deferred income tax benefit 289,073 289,073 119,130
Other assets 2,380,876 1,389,129 1,326,762
________________________________________ ____________ ____________ ____________
6,438,560 4,015,117 3,201,871
Property, Plant and Equipment
Land 128,503 128,503 438,983
Building 1,039,070 1,039,070 1,039,070
Construction in Progress 4,187,556 1,819,482 813,139
Machinery and equipment 14,485,686 12,310,360 11,985,414
________________________________________ ____________ ____________ _____________
19,840,815 15,297,415 14,276,606
Less allowances for depreciation 11,488,964 9,825,402 9,545,637
________________________________________ ____________ ____________ ____________
8,351,851 5,472,013 4,730,969
________________________________________ ____________ ____________ ____________
Total Assets $40,609,286 $32,167,199 $31,670,536
============ ============ ============
Liabilities & Shareholders' Equity
Current Liabilities
Accounts payable & accrued expense $5,743,744 $2,867,214 $2,769,344
Notes payable 302,221 0 0
Employee compensation 3,099,048 2,505,273 1,978,967
Taxes, other than income taxes 376,536 272,957 359,198
Income taxes payable 438,696 179,998 510,325
________________________________________ ____________ ____________ ____________
Total Current Liabilities 9,960,245 5,825,442 5,617,834
Deferred Income Taxes 0 0 0
________________________________________ ____________ ____________ ____________
Total Liabilities 9,960,245 5,825,442 5,617,834
Shareholders' Equity
Common Shares, $.10 par value 543,686 521,206 520,371
Additional paid-in capital 7,654,668 6,002,771 5,894,855
Retained Earnings 22,337,169 19,471,422 19,363,861
Equity adjustment from translation 113,518 346,358 273,615
________________________________________ ____________ ____________ ____________
Total Shareholders' Equity 30,649,041 26,341,757 26,052,702
________________________________________ ____________ ____________ ____________
Total Liabilities & Shareholders' Equity $40,609,286 $32,167,199 $31,670,536
============ ============ ============
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
TSI Incorporated and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Dec 31, 1995 1994
________________________________________________________ ____________ ____________
<S> <C> <C>
Operating Activities:
Net earnings $3,369,913 $3,168,281
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for losses on accounts receivable 14,003 32,720
Depreciation and amortization of property, plant
and equipment 1,019,077 820,630
Amortization of goodwill 118,443 87,193
(Gain) loss on sale of assets 235 (12,315)
Changes in operating assets & liabilities:
Accounts receivable (4,468,740) (58,102)
Prepaid expenses 78,081 (21,500)
Inventories (1,226,657) 200,323
Other assets 458,253 (324,985)
Accounts payable and accrued expenses 1,146,474 59,348
Employee compensation payable 227,997 (63,463)
Taxes, other than income taxes 103,579 34,783
Current income taxes payable 258,698 (23,697)
Foreign currency transaction gain (239,570) (47,794)
________________________________________________________ ____________ ____________
Net Cash Provided by Operating Activities 859,786 3,851,422
Investing Activities:
Increase in current investments 0 (2,517)
Additions to property, plant and equipment (3,294,031) (1,446,495)
Proceeds from disposal of property, plant and equipment 0 19,676
Purchase of companies, net of cash acquired (5,817,721) 0
________________________________________________________ ____________ ____________
Net Cash Used in Investing Activities (9,111,752) (1,429,336)
Financing Activities:
Payment on short term notes (41,105) 0
Proceeds from stock options exercised 401,424 188,482
Proceeds from employee stock purchases 0 308,143
Dividends paid (476,326) (446,013)
________________________________________________________ ____________ ____________
Net Cash Used in Financing Activities (116,007) 50,612
Effect of exchange rate change on cash and
cash equivalents 16,806 21,689
________________________________________________________ ____________ ____________
Increase in Cash and Cash Equivalents (8,351,167) 2,494,387
________________________________________________________ ____________ ____________
Cash and cash equivalents at beginning of year 9,551,552 5,204,501
________________________________________________________ ____________ ____________
Cash and Cash Equivalents at End of Nine Months $1,200,385 $7,698,888
============ ============
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(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
or 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 OPERATION
Results of Operations
Net sales for the three-month period ended December 31, 1995, were $20,730,000,
which was up 51 percent over the $13,716,000 net sales level for the same
period a year ago.
For the first nine months of fiscal 1995, the Company's net sales were
$49,074,000, up 30 percent from $37,858,000, for the same nine-month period a
year ago.
The Environmental Instrumentation market area, which accounted for 59 percent
of the Company's business in fiscal 1995, increased about 43 percent from the
same quarter a year ago and was up about 28 percent for the nine-month
comparison. While sales have continued to increase year-to-year on the
commercial product lines in this market area, significant events have occurred
which affect year-to-year comparisons. Increased sales this year in the third
quarter of about $2.3 million and for the nine-month period of about
$6.5 million were due to the May, 1995 acquisition of Alnor Instrument
Company (Alnor). For the third quarter comparison the Alnor acquisition added
28 percent while sales of other Environmental Instrumentation products
increased 15 percent. For the nine-month period comparison, the sales
increase from the Alnor acquisition accounted for the total sales increase.
For the third quarter of the current year sales of $1 million occurred under a
U.S. Army contract for TSI's Portacount(R) respirator fit testers for
bio-hazard protection, while $1.5 million was shipped under a similar contract
in last year's third quarter. The apparent lack of sales increases besides
the increase due to the Alnor acquisition for the first nine-months of fiscal
1996 can be explained by noting that sales of $4.7 million occurred under the
referenced U.S. Army contract during the first nine months of fiscal 1995
while $1 million in sales occurred for the first nine months of fiscal 1996.
Hence, sales increases of about $3.7 million or 16 percent did come from other
product lines.
The Research and Analytical Instrumentation market niches, which accounted for
about 30 percent of fiscal 1995 net sales, increased about $4.6 million or
114 percent in the third quarter this year and increased $5.5 million or
50 percent for the nine-month period this year compared with last year. Sales
increases this year in the third quarter of $2.3 million due to the
October, 1995 acquisition of Aerometrics, Inc. accounts for about half of the
$4.6 million sales increase over the same period a year ago. The remaining
increases occurred in other Research/Analytical products. For the nine months
comparison this acquisition accounted for a sales increase of 21 percent while
sales of ongoing products went up 29 percent. Both fluid mechanics
instrumentation and particle instrumentation contributed to the sales increase
of ongoing products in this category.
Process Instrumentation, representing about 11 percent of fiscal 1995 net
sales, showed a decrease in net sales of approximately 58 percent for the
third quarter comparison and a decrease of about 11 percent for the nine-month
comparison. Sales for the current fiscal year of LaserSpeed(R) non-contact,
speed and length measuring instruments for materials processes were down
compared to a year ago when a $1.2 million order was shipped for a steel plant
in Korea. Third quarter sales this year were also lower otherwise due to the
timing of orders and shipments for LaserSpeed Process Instruments and not due
to any known downward trend.
Sales to U.S. and state government agencies including defense, comprised about
21 percent of the Company's net sales for the quarter as compared to 31 percent
for the same quarter last year. For the nine months ended December 31, 1995
and 1994, sales to the U.S. and state government agencies were at 21 percent
and 35 percent, respectively. A higher percentage of governmental sales
was experienced during fiscal 1995, mostly because of shipments on the U.S.
Army contract referred to above. Because of a new U.S. Army contract the fourth
quarter of fiscal 1996 should show governmental sales to be at a higher
percentage than during the first nine months. The acquisition of Alnor lowers
the overall percentage of sales to governmental customers because less than 3%
of Alnor sales are to governmental customers. Aerometrics which was acquired
in October, 1995, is expected to have sales to governmental customers at a rate
which is close to the Company's historical range overall. 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 have been quite stable as a percentage of total sales,
with the exceptions due to specific larger contracts or acquisitions.
At December 31, 1995, backlog of orders was $34.6 million compared to $8.9
million at December 31, 1994 and $11.4 million as of March 31, 1995. About
$6.5 million of backlog was added from the Alnor and Aerometrics acquisitions.
Orders of TSI's Portacount fit testers for about $12.4 million were received
during this year's third quarter from the U.S. Army ($5.6 million) and the
German Army ($6.8 million) and these orders will be shipped during fiscal 1997.
Of the total backlog at December 31, 1995, about $13.9 million is for sales of
Portacount devices for military use and about $1.5 million of that will be
shipped during the fourth quarter ending March 31, 1995. New order bookings
in the third quarter this year were $28.4 million, up from $11.9 million booked
in the third quarter a year ago. New order bookings for the nine months this
year were $64.2 million, up about 87 percent when compared with new order
bookings of $34.4 million for the same nine-month period last year.
Gross profit margin for the third quarter ended December 31, 1995 was 52.4
percent of net sales, down from the 57.7 percent gross profit margin in the
third quarter last year. Gross profit margins for the nine-month comparisons
show 55.1 percent for fiscal 1996 and 59.3 percent for fiscal 1995.
Historically, TSI's gross profit percentage range has been from 57 to 60
percent. The lower margins this year were mostly due to product mix changes
and the effect of the Alnor and Aerometrics acquisitions. Gross profit margins
at Alnor and Aerometrics have been lower than the Company's historical range
and TSI's historical range can be expected to be lowered by as much as 3
percentage points because of these acquisitions. The third quarter this year
was more than 3 percentage points below 57 percent and that was due to product
mix fluctuations that occurred during that quarter which are not expected to
continue ongoing.
Research and product development expenses as a percentage of net sales were
10.7 percent for the third quarter and 13.1 percent for the nine-month period
ended December 31, 1995, compared to 13.0 percent and 13.9 percent of net
sales, respectively, for the same periods last year. Actual research and
product development spending was up about 24 percent in this year's third
quarter and, of that, about 75 percent was due to the Alnor and Aerometric
acquisitions. For the nine-month period this fiscal year, research and
product development spending increased about 22 percent and, of, that increase,
about 60 percent came from these two acquisitions. The Company continues its
commitment to growth through development of new technologies and products.
For the remainder of fiscal 1996, research and development expenses are
expected to continue below the Company's historical range of 12 to 14 percent
of sales.
Selling expenses were 21.7 percent of net sales for the third quarter compared
to 23.9 percent for the year earlier period. For the first nine months of
fiscal 1996, selling expenses were 24.2 percent compared with 25.8 percent for
the same period in fiscal 1995. Selling expenses for the third quarter were
up about 37 percent compared to the same period a year ago and about 60 percent
of the increase was due to the addition of Alnor and Aerometrics. For the
nine-month period comparison, selling expenses were up about 22 percent and the
two acquisitions accounted for about 65 percent of this increase.
Administrative expenses were 6.5 percent and 7.7 percent of net sales for the
three and nine-month periods ended December 31, 1995, respectively. For the
same periods ended December 31, 1994, administrative expenses were 7.4 and 7.7
percent of net sales. The Company expects administrative costs to continue
near the lower end or below the normal operating range of 7 to 9 percent of net
sales through the remainder of fiscal 1996.
The provision for income taxes was based on an estimated rate of 35 percent of
pre-tax earnings for the third quarter and the nine-month period of fiscal
1996 compared with the actual rate of 33 percent for the third quarter and
first nine months of fiscal 1995.
Liquidity and Capital Resources Cash, cash equivalents and investments
decreased by $8.4 million to $1.2 million at December 31, 1995, from
$9,552,000 at March 31, 1995. The decrease is mainly attributable to the
acquisitions and the building addition at the Shoreview headquarters facility
plus increases in accounts receivable and inventories.
The ratio of current assets to current liabilities was 2.6 as of December 31,
1995 compared to 3.9 as of March 31, 1995. Working capital decreased $997,000
to $15,858,000 at the end of the third quarter of fiscal 1996, compared to
$16,855,000 at the end of fiscal 1995, due mainly to the acquisitions and
purchases of property, plant and equipment.
Management believes internally-generated funds and short-term borrowings on
existing credit lines will provide adequate resources for supporting project
growth during the remainder of fiscal 1996.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibits 11 -- Computation of Per Share Earnings.
(b) Reports on Form 8-K:
On October 18, 1995 an 8-K report was filed pursuant to
Item 2 of form 8-K reporting the acquisition of Aerometrics,
Inc. An amendment to this report was filed on December 19,
1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Registrant: TSI Incorporated
14 February 1996 By:/s/Leroy M. Fingerson
Leroy M. Fingerson
Chairman & CEO
14 February 1996 By:/s/Lowell D. Nystrom
Lowell D. Nystrom
Vice President & CFO
EXHIBIT 11
TSI Incorporated
Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31
1995 1994 1995 1994
____________ ____________ ____________ ____________
<S> <C> <C> <C> <C>
Primary
Average shares outstanding 5,420,422 5,155,343 5,295,338 5,132,520
Net effect of dilutive stock
options, based on the
treasury stock method
using average market price 233,522 137,618 204,319 156,521
____________ ____________ ____________ ____________
Total 5,653,944 5,292,961 5,499,657 5,289,041
Net Earnings $1,874,967 $1,290,089 $3,369,913 $3,168,281
Primary per share amounts $.33 $.24 $.61 $.60
Fully Diluted
Average shares 5,420,422 5,155,343 5,295,338 5,132,520
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 269,259 147,733 288,145 156,521
____________ ____________ ____________ ____________
Total 5,689,681 5,303,076 5,583,483 5,289,041
Net Earnings $1,874,967 $1,290,089 $3,369,913 $3,168,281
Fully diluted per share
amounts $.33 $.24 $.60 $.60
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Mar-31-1996
<PERIOD-START> Apr-01-1995
<PERIOD-END> Dec-31-1995
<CASH> 1,200,385
<SECURITIES> 0
<RECEIVABLES> 15,005,322
<ALLOWANCES> 221,808
<INVENTORY> 9,538,002
<CURRENT-ASSETS> 25,818,875
<PP&E> 19,840,815
<DEPRECIATION> 11,488,964
<TOTAL-ASSETS> 40,609,286
<CURRENT-LIABILITIES> 9,960,245
<BONDS> 0
<COMMON> 543,686
0
0
<OTHER-SE> 30,105,355
<TOTAL-LIABILITY-AND-EQUITY> 40,609,286
<SALES> 49,074,279
<TOTAL-REVENUES> 49,074,279
<CGS> 22,026,769
<TOTAL-COSTS> 22,092,263
<OTHER-EXPENSES> (228,666)
<LOSS-PROVISION> 35,829
<INTEREST-EXPENSE> 16,099
<INCOME-PRETAX> 5,183,913
<INCOME-TAX> 1,814,000
<INCOME-CONTINUING> 3,369,913
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,369,913
<EPS-PRIMARY> .61
<EPS-DILUTED> .60
</TABLE>
