SECURITIES AND EXCHANGE COMMISSION
Washington, DC 10549
Form 10-Q/A-1
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED
DECEMBER 31, 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: January 31, 1997 Number of Common Shares Outstanding 11,350,249
------------------- ------------
TSI INCORPORATED
FORM 10-Q/A-1
For the Quarter Ended December 31, 1996
Page
PART I. FINANCIAL INFORMATION 2
Item 1. Financial Statements
Consolidated Statement of Earnings 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 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 12
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31 DECEMBER 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $22,329,666 $20,730,421 $61,141,510 $49,074,279
Cost of products sold 9,926,126 9,859,355 26,914,037 22,026,769
----------- ----------- ----------- -----------
GROSS PROFIT 12,403,540 10,871,066 34,227,473 27,047,510
Operating expenses
Research and product development 2,789,140 2,218,232 8,066,926 6,418,638
Selling 4,833,647 4,499,977 13,294,698 11,874,824
Administrative 1,520,823 1,349,419 4,421,760 3,798,801
----------- ----------- ----------- -----------
9,143,610 8,067,628 25,783,384 22,092,263
----------- ----------- ----------- -----------
OPERATING INCOME 3,259,930 2,803,438 8,444,089 4,955,247
Other income 114,168 80,529 287,255 228,666
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 3,374,098 2,883,967 8,731,344 5,183,913
Provision for income taxes 1,181,000 1,009,000 3,056,000 1,814,000
----------- ----------- ----------- -----------
NET EARNINGS $ 2,193,098 $ 1,874,967 $ 5,675,344 $ 3,369,913
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE $ .19 $ .17 $ .49 $ .31
=========== =========== =========== ===========
Weighted average number of shares
for computation of
earnings per common share 11,713,802 11,307,888 11,690,791 10,999,314
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DEC. 31 March 31 Dec. 31
1996 1996 1995
(UNAUDITED) (unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,205,382 $ 688,055 $ 1,200,385
Accounts receivable 17,436,596 15,533,541 14,783,514
Prepaid expenses 431,638 310,483 296,974
Inventories
Finished products 2,455,016 2,462,381 2,108,783
Work-in-process 2,886,050 1,782,462 1,741,381
Materials and supplies 7,490,468 6,635,571 5,687,838
----------- ----------- -----------
12,831,534 10,880,414 9,538,002
----------- ----------- -----------
TOTAL CURRENT ASSETS 33,905,150 27,412,493 25,818,875
INTANGIBLES AND OTHER ASSETS
Goodwill 2,856,179 2,991,222 3,158,611
Note receivable 595,577 610,000 610,000
Deferred income tax benefit 721,020 721,020 289,073
Other assets 2,392,392 2,377,558 2,380,876
----------- ----------- -----------
6,565,168 6,699,800 6,438,560
PROPERTY, PLANT AND EQUIPMENT
Land 128,503 128,503 128,503
Buildings 3,568,981 3,564,863 1,039,070
Construction in progress 439,124 236,747 4,187,556
Machinery and equipment 17,912,736 16,301,710 14,485,686
----------- ----------- -----------
22,049,344 20,231,823 19,840,815
Less allowance for depreciation 13,105,193 11,831,980 11,488,964
----------- ----------- -----------
8,944,151 8,399,843 8,351,851
----------- ----------- -----------
TOTAL ASSETS $49,414,469 $42,512,136 $40,609,286
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 5,294,937 $ 4,863,403 $ 5,743,744
Notes payable -- -- 302,221
Employee compensation 4,020,752 3,118,417 3,099,048
Taxes, other than income taxes 634,693 306,227 376,536
Income taxes payable 402,812 626,139 438,696
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 10,353,194 8,914,186 9,960,245
----------- ----------- -----------
TOTAL LIABILITIES 10,353,194 8,914,186 9,960,245
SHAREHOLDERS' EQUITY
Common shares, $.10 par value 1,129,767 559,083 543,686
Additional paid-in capital 8,573,413 8,800,846 7,654,668
Retained earnings 29,146,109 24,202,036 22,337,169
Equity adjustment from translation 211,986 35,985 113,518
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 39,061,275 33,597,950 30,649,041
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $49,414,469 $42,512,136 $40,609,286
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED DECEMBER 31 1996 1995
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 5,675,344 $ 3,369,913
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for losses on accounts receivable 6,994 14,003
Depreciation and amortization of property, plant and equipment 1,414,525 1,019,077
Amortization of goodwill 137,899 118,443
Gain on sale of assets 4,337 235
Changes in operating assets and liabilities:
Accounts receivable (1,565,906) (4,468,740)
Prepaid expenses (121,155) 78,081
Inventories (1,422,492) (1,226,657)
Other assets 272,361 458,253
Accounts payable and accrued expenses 360,506 1,146,474
Employee compensation payable 831,037 227,997
Taxes, other than income taxes 304,273 103,579
Current income taxes payable (223,327) 258,698
Foreign currency translation gain (loss) 162,749 (239,570)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,837,145 859,786
----------- -----------
INVESTING ACTIVITIES
Additions to property, plant and equipment (1,881,813) (3,294,031)
Proceeds from disposal of property, plant and equipment 4,526 --
Purchase of companies, net of cash acquired (1,081,764) (5,817,721)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,959,051) (9,111,752)
----------- -----------
FINANCING ACTIVITIES
Proceeds from note -- (41,105)
Proceeds from stock options exercised 343,249 401,424
Dividends paid (731,269) (476,326)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (388,020) (116,007)
----------- -----------
Effect of exchange rate changes on cash and cash equivalents 27,253 16,806
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,517,327 (8,351,167)
----------- -----------
Cash and cash equivalents at beginning of year 688,055 9,551,552
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF NINE MONTH PERIOD $ 3,205,382 $ 1,200,385
=========== ===========
</TABLE>
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 December 31, 1996 were $22,330,000,
which was up 8 percent over the $20,730,000 net sales level for the same period
a year ago.
For the first nine months of fiscal 1996, the Company's net sales were
$61,142,000, up 25 percent from $49,074,000, for the same nine-month period a
year ago.
Sales of products for the Safety, Comfort and Health of People increased 14
percent and accounted for 66 percent of the Company's total business during the
third quarter, compared to 62 percent for the same quarter a year ago. For the
nine months ended December 31, 1996, sales of Safety, Comfort and Health
products increased 31 percent and represented 68 percent of total sales compared
with 65 percent for last year's first nine months. 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 $11 million this year
compared to $1 million in the prior year 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 decreased 3 percent
and were at 34 percent of total sales for the fiscal 1997 third quarter compared
with 38 percent a year ago. For the nine months ended December 31, 1996, sales
of Productivity and Quality Improvement products increased 13 percent, making up
32 percent of total sales compared with 35 percent for last year's nine-month
period. For fiscal 1996, ended March 31, 1996, this category accounted for 34
percent of the Company's business. The nine-month sales increase in this
category came from increased sales of LaserSpeed(R) process instruments along
with the partial year effect of 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 some weakness in sales
bookings of fluid mechanics instrumentation during the first half of the year
followed by higher bookings during the third quarter, which should lead to
higher fourth quarter shipments.
Sales to U.S. and state government agencies including defense, comprised about
20 percent of the Company's net sales for the fiscal 1997 third quarter as
compared to 21 percent for the same quarter last year. For the nine months ended
December 31, 1996 and 1995, sales to the U.S. and state government agencies were
at 22 percent and 21 percent, respectively. Since sales to government gencies
represent a significant portion of the Company's sales, it is important to
consider the potential effects of change in government spending. Due to the
Company's diverse line of products, sales of the Company's commerical product
lines usually occur in a wide range of U.S. and state government agencies
resulting in a fairly stable sales rate at about 15 to 20 percent of sales for
the commercial product lines. However, higher sales rates and shifts have
occurred during the last several years 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. Also
the typical percentage was lowered by approximately 3 percent due to a normally
lower percentage of sales to government agencies for the three acquisitions made
during fiscal 1996 and 1997.
During the third quarter, backlog of orders increased from $25.7 million at
September 30, 1996 to $26.6 million at December 31, 1996, and compared to
backlog of $34.6 million at December 31, 1995. The largest single order during
the third quarter this year was for $7.1 million for additional PortaCount
respirator fit testers to be used by the U.S. Army, which will be shipped mostly
during fiscal year 1998, ending March 31, 1998. Of the total backlog at December
31, 1996, about $9 million is for sales of PortaCount fit testers for military
use. This compared with a backlog of about $14 million for military PortaCount
fit testers at December 31, 1995.
Gross profit margin for the third quarter ended December 31, 1996 was 55.5
percent of net sales compared with the 52.4 percent gross profit margin in the
third quarter last year. Nine-month gross profit margin was 56.0 percent this
year compared to 55.1 percent a year ago. The higher gross profit percentage
this year was due to variation in product mix.
Research and product development expenses as a percentage of net sales were 12.5
percent for the third quarter and 13.2 percent for the nine month period ended
December 31, 1996, compared to 10.7 percent and 13.1 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 nine 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 in the Company's historical range of 12 to 14 percent of sales.
Selling expenses were 21.6 percent of net sales for the third quarter compared
to 21.7 percent for the year earlier period. For the first nine months of fiscal
1997, selling expenses were 21.7 percent compared with 24.2 percent for the same
period in fiscal 1996. Selling expenses for the first nine months were up about
12 percent compared to the same period a year ago and about 40 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 nine months.
Administrative expenses were 6.8 percent and 7.2 percent of net sales for the
three and nine-month periods ended December 31, 1996, respectively. For the same
periods ended December 31, 1995, administrative expenses were 6.5 and 7.7
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 $114,000 in the third quarter and $287,000 in the first nine
months of fiscal 1997 compared with $81,000 and $119,000, respectively, for the
same periods in fiscal 1996. The increases for the current fiscal year are due
to higher interest income due to higher cash balance.
The provision for income taxes was at the rate of 35 percent of pre-tax earnings
for the third quarter and nine month periods of both fiscal 1997 and 1996.
Liquidity and Capital Resources
Cash and cash equivalents increased by $2,517,000 to $3,205,000 at December 33,
1996 from $688,000 at March 31, 1996. The increase is mainly attributable to
increased net earnings and partially offset by increases in accounts receivable,
inventory and property, plant and equipment.
The ratio of current assets to current liabilities was 3.3 as of December 31,
1996, compared to 3.1 as of March 31, 1996. Working capital increased $5,053,000
to $23,551,000 at the end of the third 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
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Registrant
during the quarter for which this report is being filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.
Registrant: TSI Incorporated
Date: February 5, 1997 By:s/s________________________________
James E. Doubles
President & COO
Date: February 5, 1997 By:/s/________________________________
Lowell D. Nystrom
Vice President & CFO
<TABLE>
<CAPTION>
EXHIBIT 11
TSI Incorporated
Computation of Per Share Earnings
Three Months Ended Dec. 31, Nine Months Ended Dec. 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary
Average shares outstanding 11,276,305 10,840,844 11,245,038 10,590,676
Net effect of dilutive stock options,
based on the treasury stock method
using average market price 437,497 467,044 445,753 408,638
----------- ----------- ----------- -----------
Total 11,713,802 11,307,888 11,690,791 10,999,314
Net Earnings $ 2,193,098 $ 1,874,967 $ 5,675,344 $ 3,369,913
Primary per share amounts $ .19 $ .17 $ .49 $ .31
Fully Diluted
Average shares 11,276,305 10,840,844 11,245,038 10,590,676
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 491,403 538,518 516,387 576,290
----------- ----------- ----------- -----------
Total 11,767,708 11,379,362 11,761,425 11,166,966
Net Earnings $ 2,193,098 $ 1,874,967 $ 5,675,344 $ 3,369,913
Fully diluted per share amounts $ .19 $ .16 $ .49 $ .30
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 3,205,382
<SECURITIES> 0
<RECEIVABLES> 17,707,723
<ALLOWANCES> 271,127
<INVENTORY> 12,831,534
<CURRENT-ASSETS> 33,920,386
<PP&E> 22,049,344
<DEPRECIATION> 13,105,194
<TOTAL-ASSETS> 49,414,469
<CURRENT-LIABILITIES> 10,353,194
<BONDS> 0
0
0
<COMMON> 1,129,767
<OTHER-SE> 37,931,508
<TOTAL-LIABILITY-AND-EQUITY> 49,414,469
<SALES> 61,141,510
<TOTAL-REVENUES> 61,141,510
<CGS> 26,914,037
<TOTAL-COSTS> 25,783,384
<OTHER-EXPENSES> (287,255)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,731,344
<INCOME-TAX> 3,056,000
<INCOME-CONTINUING> 5,675,344
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,675,344
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
