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 JUNE 30, 1997.
Commission File Number 0-2958
TSI INCORPORATED
(Exact name of registrant as specified in its charter)
Minnesota 41-0843524
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
500 Cardigan Road, Shoreview, Minnesota 55126
(Address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 20 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ____
Indicate number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practical date.
Date: July 1, 1997 Number of Common Shares Outstanding: 11,502,686
------------ ----------
<PAGE>
TSI INCORPORATED
FORM 10-Q
For the Quarter Ended June 30, 1997
Page
----
PART I. FINANCIAL INFORMATION 2
Item 1. Financial Statements
Consolidated Statements of Earnings 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Conditions 7-8
PART II. OTHER INFORMATION 9
EXHIBIT 11 Computation of Per Share Earnings
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
THREE MONTHS ENDED JUNE 1997 1996
----------- -----------
Net sales $19,290,167 $19,497,118
Cost of products sold 8,687,550 8,513,589
----------- -----------
GROSS PROFIT 10,602,617 10,983,529
Operating expenses
Research and product development 2,784,364 2,489,987
Selling 4,346,776 4,263,387
Administrative 1,487,081 1,414,417
----------- -----------
8,618,221 8,167,791
----------- -----------
OPERATING INCOME 1,984,396 2,815,738
Other income 295,858 65,208
----------- -----------
EARNINGS BEFORE INCOME TAXES 2,280,254 2,880,946
Provision for income taxes 798,000 1,008,000
----------- -----------
NET EARNINGS $ 1,482,254 $ 1,872,946
=========== ===========
EARNINGS PER COMMON SHARE $ .13 $ .16
=========== ===========
Weighted average number of shares for
computation of earnings per common share 11,807,954 11,669,115
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30 MARCH 31 JUNE 30
1997 1997 1996
(UNAUDITED) (UNAUDITED)
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,345,155 $ 7,694,998 $ 1,821,818
Accounts receivable 13,873,550 14,256,692 14,542,798
Prepaid expenses 381,580 310,276 602,858
Inventories
Finished products 2,894,694 2,908,537 2,635,699
Work-in-process 2,792,995 2,486,856 2,424,232
Materials and supplies 8,212,896 7,906,912 6,614,051
------------ ----------- -----------
13,900,585 13,302,305 11,673,982
------------ ----------- -----------
TOTAL CURRENT ASSETS 35,500,870 35,564,271 28,641,456
INTANGIBLES AND OTHER ASSETS
Goodwill 2,948,035 3,001,796 2,846,883
Note receivable 595,577 595,577 610,000
Deferred income tax benefit 498,020 498,020 721,020
Other assets 2,309,796 2,420,050 2,297,078
------------ ----------- -----------
6,351,428 6,515,443 6,474,981
PROPERTY, PLANT AND EQUIPMENT
Land 128,503 128,503 128,503
Buildings 3,586,992 3,586,992 3,564,863
Construction in progress 118,774 183,229 370,772
Machinery and equipment 18,628,321 18,244,708 16,832,046
------------ ----------- -----------
22,462,590 22,143,432 20,896,184
Less allowance for depreciation 13,682,321 13,344,806 12,234,491
------------ ----------- -----------
8,780,269 8,798,626 8,661,693
------------ ----------- -----------
TOTAL ASSETS $ 50,632,567 $50,878,340 $43,778,130
============ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 4,063,528 $ 4,963,795 $ 3,752,340
Employee compensation 2,907,286 3,904,546 2,489,449
Taxes, other than income taxes 413,140 442,247 588,635
Income taxes payable 994,059 247,354 1,455,706
------------ ----------- -----------
TOTAL CURRENT LIABILITIES 8,378,013 9,557,942 8,286,130
------------ ----------- -----------
TOTAL LIABILITIES 8,378,013 9,557,942 8,286,130
SHAREHOLDERS' EQUITY
Common shares, $.10 par value 1,150,725 1,149,573 1,122,979
Additional paid-in capital 9,788,385 9,724,365 8,385,893
Retained earnings 31,457,713 30,400,007 25,850,780
Equity adjustment from translation (142,269) 46,453 132,348
------------ ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 42,254,554 41,320,398 35,492,000
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 50,632,567 $50,878,340 $43,778,130
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 1,482,254 $ 1,872,946
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for losses on accounts receivable 5,216 --
Depreciation and amortization of property, plant and equipment 427,855 439,555
Amortization of goodwill 53,761 144,339
Gain on sale of assets (3,468) --
Changes in operating assets and liabilities:
Accounts receivable 377,926 990,743
Prepaid expenses (71,304) (292,375)
Inventories (598,280) (793,568)
Other assets 110,254 80,480
Accounts payable and accrued expenses (900,267) (1,111,063)
Employee compensation payable (997,260) (628,968)
Taxes, other than income taxes (29,107) 282,408
Current income taxes payable 746,705 829,567
Foreign currency translation gain (loss) (213,655) 83,643
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 390,630 1,897,707
----------- -----------
INVESTING ACTIVITIES
Additions to property, plant and equipment (445,613) (707,866)
Proceeds from disposal of property, plant and equipment 4,531 --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (441,082) (707,866)
----------- -----------
FINANCING ACTIVITIES
Proceeds from stock options exercised 77,574 148,943
Dividends paid (287,354) (224,202)
Purchases of common stock (117,432) --
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (327,212) (75,259)
----------- -----------
Effect of exchange rate changes on cash and cash equivalents 27,821 19,181
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (349,843) 1,133,763
----------- -----------
Cash and cash equivalents at beginning of year 7,694,998 688,055
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF THREE MONTH PERIOD $ 7,345,155 $ 1,821,818
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
Note 1. Basis of Presentation
The information included in the accompanying interim financial
statements is unaudited. In the opinion of management, all adjustments,
consisting of normal recurring accruals necessary for a fair
presentation of the results of operations, financial position and cash
flows for the interim periods presented have been reflected herein. The
results of operations for the interim periods are not necessarily
indicative of the results to be expected for the entire year.
Note 2. Earnings Per Share
See Exhibit 11, Computation of Per Share Earnings, of this document.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the three-month period ended June 30, 1997, were $19,290,000
compared with $19,497,000 for the same period a year ago.
Sales of products for the Comfort, Safety and Health of People accounted for 63
percent of the Company's total business and experienced a decrease of 7.7
percent in net sales during the first quarter, compared to the same quarter a
year ago. This area accounted for 67 percent of the Company's business in fiscal
1997, ended March 31, 1997. The main cause of this decrease was lower shipments
under military contracts to furnish PORTACOUNT(R) respirator fit testers for
bio-hazard protection, because a contract to furnish these to the German Army
was in process during the first quarter a year ago but completed prior to the
first quarter this year.
Sales of products for Productivity and Quality Improvement were at 37 percent of
total sales for the fiscal 1998 first quarter and net sales increased about 13
percent over last year's first quarter. The increase was mainly due to higher
sales of noncontact process instrumentation.
Sales to U.S. and state government agencies including defense, comprised about
21 percent of the Company's net sales for the fiscal 1998 first quarter, as
compared to 21 percent for the same fiscal 1997 quarter. This is similar to the
rate of 22 percent of sales experienced for all of fiscal 1997. Sales to
government agencies represent a significant portion of the Company's sales. Due
to the Company's diverse line of products, sales normally occur in a wide range
of U.S. and state government agencies and, except for specific significant
contracts, the level of government sales have been quite stable as a percentage
of total sales. Major changes in the level of government spending can affect the
Company's sales in this category.
During the first quarter, backlog of orders decreased from $25.1 million at
March 31, 1997, to $23.1 million at June 30, 1997, compared to backlog of $25.3
million at June 30, 1996. The backlog decrease was mainly due to shipments under
the previously referenced army contracts, which were added to backlog during
fiscal 1997.
Gross profit for this quarter was 55.0 percent of net sales compared to 56.3
percent for the first quarter last year. The lower gross profit percentage for
the first three months this year was due to variations in product mix and both
of these numbers are within the expected range of 54 to 57 percent.
Research and product development expenses were 14.4 percent of net sales for the
three-month period ended June 30, 1997, as compared to 12.8 percent of net sales
for the same period last year. Actual research and product development spending
was up about 12 percent in the quarter. For all of fiscal 1997, research and
development expenses were at 13.7 percent of net sales. Development of new
technologies and products continues to be a significant contribution to the
Company's growth strategies. Fiscal 1998 research and product development
expenses are expected to continue in the Company's historical range of 12 to 15
percent of sales.
Selling expenses were 22.5 percent of net sales for the first three months of
fiscal 1998 compared to 21.9 percent of net sales for the same period in fiscal
1997. Actual expenses
<PAGE>
rose about 2 percent. For all of fiscal 1997, selling expenses were 21.7 percent
of net sales and are expected to be near this level for fiscal 1998.
Administrative expenses were 7.7 percent and 7.3 percent for the quarters ending
June 30, 1997 and 1996, respectively. The Company expects administrative costs
to continue in an operating range of 7 to 9 percent of net sales through the
remainder of fiscal 1998.
Other income was $296,000 in the first quarter of fiscal 1998 compared to
$65,000 in the first quarter of fiscal 1997. This increase was primarily due to
more interest income this year.
The provision for income taxes was at the rate of 35 percent of pre-tax earnings
for the first quarters of both fiscal 1998 and 1997.
Liquidity and Capital Resources
Cash and cash equivalents stayed essentially level at $7,345,000 at June 30,
1997, compared to $7,695,000 at March 31, 1997.
The ratio of current assets to current liabilities was 4.2 as of June 30, 1997,
compared to 3.7 as of March 31, 1997. Working capital increase $1.1 million to
$27.1 million at the end of the first quarter of fiscal 1998, compared to $26.0
million at the end of fiscal 1997.
Management believes internally generated funds and short-term borrowings on
existing credit lines will provide adequate resources for supporting operations
during the remainder of fiscal 1998.
Forward-Looking Statements
The Company believes that this report contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that are subject
to certain risks and uncertainties.
Forward-looking statements represent the Company's expectations or beliefs
concerning future events, including the following: any statements regarding
future sales and gross profit percentages, any statements regarding the
continuation of historical trends, any statements regarding the sufficiency of
the Company's cash balances and cash generated from operating and financing
activities for the Company's future liquidity and capital resource needs, any
statements regarding the effect of regulatory changes, the success of
development and enhancement of the Company's products, the adequacy of the
Company's facilities, potential acquisitions, and any statements regarding the
future of the instrumentation industry and the various parts of the
instrumentation markets in which the Company conducts its business. The Company
cautions that any forward-looking statements made by the Company in this report
or in other announcements made by the Company are further qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements, including, without limitations, the factors set
forth on Exhibit 99 to the Company's report on Form 10K for the fiscal year
ended March 31, 1997.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders.
On July 17, 1997, the Company conducted its annual meeting of
shareholders. Of the 11,487,325 shares of the Company's common stock
entitled to vote at the meeting, 10,156,678 shares were present at the
meeting in person or by proxy.
The three people designated by the Company's Board of Directors as
nominees for director were elected, with voting as follows:
Nominee Total Votes For Total Votes Withheld
------- --------------- --------------------
Frank D. Dorman 10,117,439 39,239
Kenneth J. Roering 10,117,439 39,239
Lawrence J. Whalen 10,117,439 39,239
Stockholders voted to ratify the appointment of KPMG Peat Marwick LLP
as the independent auditors for the Company for the fiscal year ending
March 31, 1998. There were 10,107,636 voted in favor of ratification,
22,265 votes against ratification and 26,777 shares specifically
abstained from voting on the matter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Per Share Earnings
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Registrant
during the quarter for which this report is being filed.
<PAGE>
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
12 August 1997 By: /s/ James E. Doubles
- -------------- ---------------------------------
James E. Doubles
President & CEO
By: /s/ Lowell D. Nystrom
---------------------------------
Lowell D. Nystrom
Vice President & CFO
EXHIBIT 11
TSI Incorporated
Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997
--------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Primary
Average shares outstanding 11,494,354 11,209,850
Net effect of dilutive stock options, based on the
treasury stock method using average market price 313,599 459,265
----------- -----------
Total 11,807,954 11,669,115
Net Earnings $ 1,482,254 $ 1,872,946
Primary per share amounts $ .13 $ .16
Fully Diluted
Average shares 11,494,354 11,209,850
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 313,594 452,467
----------- -----------
Total 11,795,007 11,662,317
Net Earnings $ 1,482,254 $ 1,872,946
Fully diluted per share amounts $ .13 $ .16
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,345,155
<SECURITIES> 0
<RECEIVABLES> 14,118,085
<ALLOWANCES> 280,535
<INVENTORY> 13,900,585
<CURRENT-ASSETS> 35,500,870
<PP&E> 22,462,590
<DEPRECIATION> 13,682,321
<TOTAL-ASSETS> 50,632,567
<CURRENT-LIABILITIES> 8,378,013
<BONDS> 0
0
0
<COMMON> 1,150,725
<OTHER-SE> 42,254,554
<TOTAL-LIABILITY-AND-EQUITY> 50,632,567
<SALES> 19,290,167
<TOTAL-REVENUES> 19,290,167
<CGS> 8,687,550
<TOTAL-COSTS> 8,618,221
<OTHER-EXPENSES> (295,858)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,280,254
<INCOME-TAX> 798,000
<INCOME-CONTINUING> 1,482,254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,482,254
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
