U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
XX ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-2054
TSI, INC.
(Name of small business issuer in its charter)
Montana
(State or other jurisdiction of incorporation or organization)
81-0267738
(I.R.S. Employer Identification Number)
128 Second Street South, Great Falls, Montana 59405
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (406) 727-2600
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange On Which Registered
NONE N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $.05 Par Value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 XX No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year $2,667,441
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within the past 60 days. (See definition
of affiliate in Rule 12b-2 of the Exchange Act). As of February 28, 1996,
843,503 shares held by nonaffiliates were outstanding. The registrant's stock
is not traded on any securities exchange. To registrant's knowledge, neither
bid nor asked quotations for registrant's stock have appeared in any
established quotation system during the past sixty business days. To
registrant's knowledge, neither bid nor asked quotations for registrant's
stock are reported in any newspapers nor are records kept by the National
Quotation Bureau, Inc. There exists no public market for registrant's stock.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
9,423,142 shares $.05 par value common stock are outstanding as of
February 28, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS FORM 10-KSB REFERENCE
Annual Report to Shareholders for Part I, Items 1 and 2
the year ended December 31, 1995. Part II, Items 5, 6 and 7
Part III, Item 12
Part IV, Item 13
Transitional Small Business Disclosure Format (check one): Yes ; No X
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TSI, INC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS AND
ITEM 2. DESCRIPTION OF PROPERTY
A description of the Company's business and property ownership is set forth
on Page 1 of Exhibit 13, the Annual Report to Shareholders for the year
ended December 31, 1995, which description is incorporated herein by
reference.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings presently pending by or against TSI, Inc., are
described herein as management believes that the outcome of such litigation
should not have a material adverse effect on the financial position of the
Company and its subsidiaries taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
I-1
1.
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TSI, INC.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS;
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ITEM 7. FINANCIAL STATEMENTS
Items 5, 6 and 7 are set forth on Page 16, Pages 1 and 2 and Pages 3 to 15,
respectively, of Exhibit 13, TSI, Inc. Annual Report to Shareholders for the
year ended December 31, 1995, which report is incorporated herein by
reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no disagreements concerning accounting principles or
practices or financial statement disclosures between the Company and the
Company's independent auditor during the two most recent years.
II-1
2.
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TSI, INC.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT.
The following are the directors and executive officers of the Company. All
directors and officers serve as such until the 1996 annual meeting of
shareholders or until their successors are elected and qualify.
NAME, AGE, AND YEAR ELECTED DIRECTOR POSITION
Paul J. McCann, Jr. 41, 1995 Director,
President
G. Robert Crotty, Jr. 68, 1995 Director
R. Bruce Robson 54, 1994 Director
R. Bruce Robson is the secretary-treasurer and a director of Medical
Information Processing Systems, Inc. and a director of M Corp.
G. Robert Crotty, Jr. is a director M Corp.
Family Relationships
Paul J. McCann, Jr. is a son of Anne Marie and Paul J. McCann. Members of the
Anne Marie and Paul J. Mccann family control, directly or indirectly, a
majority of the outstanding common stock of M Corp. M Corp owns
approximately 91% of the Company's issued and outstanding common stock. There
are no other family relationships among the individuals listed above nor are
there any arrangements or understandings pursuant to which any of them were
elected as officers or directors.
Following are the executive officers of the Company and a description of
their principal business experience.
Name and Position Principal Business Experience
Paul J. McCann, Jr., Director and President, TSI, Inc.(1995 to present)
President, Director Attorney at Law; Investor,
Billings, Montana
G. Robert Crotty, Jr., Director, TSI, Inc. (1995 to present).
Attorney at Law;
Great Falls, Montana
R. Bruce Robson, Director, M Corp; Secretary-Treasurer
Director and Director, Medical Information
Processing Systems, Inc.; Data Processing
Manager, Sletten Construction Co.;
Great Falls, Montana
Based solely on its review of reports of persons subject to Section 16 of
the Securities and Exchange Act, the Company believes that required reports
were filed in a timely manner disclosing transactions involving the
Company's common stock.
III-1
3.
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TSI, INC.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table shows the cash compensation
paid by the Company and its consolidated subsidiaries to the Company's
President and Chief Executive Officer for 1995, 1994 and 1993. No officer
or director of the Company or its consolidated subsidiaries received total
cash compensation in excess of $100,000 for 1995, 1994 or 1993.
Summary Compensation Table
Name and Calendar Total Cash
Principal Position Year Compensation
Paul J. McCann, Jr. 1995 $ 0
President, Director
S. M. McCann 1995 $ 0
President, Director 1994 $ 0
1993 $ 0
The Company has no pension plan, no stock option or stock appreciation
rights plans and no long-term incentive plans and there was no other material
compensation paid during the year ended December 31, 1995. The Company has
not adopted a formal plan for the compensation of directors. During 1995 the
Company and its consolidated subsidiaries paid a total of $750 for director
fees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning persons who are known
by the Company to own beneficially more than 5% of the Company's voting
shares on February 28, 1996.
Amount and Nature
Title of Name and Address of of Beneficial Percent
Class Beneficial Owner Ownership of Class
$.05 Par M Corp 8,574,894 (1) 90.9%
Value Common 110 Second Street South Direct
Stock Great Falls, Montana
(1) At February 28, 1996, GNI, Inc. (a Delaware corporation) owned over
fifty percent of M Corp's outstanding stock. At February 28, 1996,
members of the Anne Marie and Paul J. McCann family, including
Paul J. McCann, Jr., son of Anne Marie and Paul J. McCann,
controlled a majority of the outstanding stock of GNI, Inc.
Members of the Anne Marie and Paul J. McCann family own a total
of 4,745 shares of the Company's outstanding stock. Paul J. McCann
owns no shares of stock in TSI, Inc. and disclaims beneficial
ownership in any stock of TSI, Inc.
III-2
4.
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TSI, INC.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
Continued
(b) Security Ownership of Management
The following table sets forth as of February 28, 1996, information
concerning the beneficial ownership of the Company's common stock by each
director, each executive officer named in the Company's Summary Compensation
Table and by all directors and executive officers of the Company as a group:
Amount and Nature
Name of Beneficial Owner of Beneficial Ownership Percent
Paul J. McCann, Jr. None (1) --
G. Robert Crotty, Jr. None --
R. Bruce Robson None --
All Directors and Officers None (1) --
as a Group
(1) See Note (1) item 11(a) on preceding page.
(c) Changes In Control
The Company knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the Company's parent company, its subsidiaries and
other related parties are disclosed in Note 10 of the notes to consolidated
financial statements in the Annual Report to Shareholders for the year ended
December 31, 1995, which note is incorporated herein by reference. During
1995, the Company compensated members of the Anne Marie and Paul J. McCann
family, the total amount of $40,754. During 1994, the Company and its
subsidiaries compensated Paul J. McCann the total amount of $13,501.
III-3
5.
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TSI, INC.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. 13 - TSI, Inc. Annual Report to Shareholders for the year ended
December 31, 1995.
No. 22 - Subsidiaries.
No. 27 - Financial Data Schedule.
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the Company during the
three months ended December 31, 1995.
IV-1
6.
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TSI, INC.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TSI, INC.
Date: February 28, 1996 By: s/Paul J. McCann, Jr.
Paul J. McCann, Jr., President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in
the capacities indicated on February 28, 1996.
Chairman of the Board President
Principal Executive and s/Paul J. McCann, Jr.
Financial Officer Paul J. McCann, Jr.
Director s/R. Bruce Robson
R. Bruce Robson
Principal Accountant s/Jerry K. Mohland
Jerry K. Mohland
IV-2
7.
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TSI, INC.
ANNUAL REPORT
1995
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
ANNUAL REPORT
DESCRIPTION AND LINES OF BUSINESS
TSI, Inc. (herein referred to as "TSI" or the "Company") was incorporated
in 1958. A wholly-owned subsidiary of the Company, First Montana Title
Insurance Company (FMTIC), is a title insurance company operating in that
business in the State of Montana only. Through wholly-owned subsidiaries,
FMTIC owns and operates title plants in two Montana counties. FMTIC also
owns real property in Great Falls, Montana.
UAC, Inc. a subsidiary of the Company, through a wholly-owned subsidiary
owns and operates a title plant in Montana. During 1988 through 1991, UAC,
Inc., primarily through a wholly-owned subsidiary, acquired rental units in
Montana.
TSI owns rental property in Helena, Montana, and in Polson, Montana and
non income-producing properties located within Cascade County, Montana. The
Company's investments in rental properties is set forth in Note 9, Rental
Property, of the Notes to Consolidated Financial Statements.
The Company is a 91% owned subsidiary of M Corp, a financial holding
company located in Great Falls, Montana. Transactions with the Company's
parent company and its affiliates are set forth in Note 10, Related Party
Transactions, of the Notes to Consolidated Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Title insurance premiums and related fees decreased $375,753 (20.3%) in 1995
as compared with 1994 due primarily to a decrease in the real estate economies
within which the Company operates. The Company believes that the decrease in
the real estate economies within which the Company operates was due in part to
increased mortgage interest rates.
Interest revenues increased $144,822 (73.2%) in 1995 as compared with 1994
due primarily to an increase in interest rates and an increase in amounts
maintained by the Company in interest-bearing deposits.
Rent revenues decreased $31,850 (6.2%) in 1995 as compared with 1994. The
decrease in rent revenues in 1995 as compared with 1994 was due primarily to an
increase in vacancies partially offset by an
1
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
increase in rental rates.
Other income decreased $172,747 (31.7%) in 1995 as compared with 1994.
During 1994 the Company realized a net gain on the sales of investments in the
amount of $195,651. During 1995 the Company realized a net loss on the sales
of investments in the amount of $4,783. The decrease in other income in 1995 as
compared with 1994 was due primarily to the decrease in gains realized on the
sales of investments partially offset by increases in miscellaneous income and
dividend income.
Salaries and other personnel costs decreased $141,929 (15.7%) in 1995 as
compared with 1994 due primarily to a decrease in the number of personnel
employed in the Company's title insurance operations.
The provision for depreciation decreased $16,917 (12.8%) in 1995 as
compared with 1994 due primarily to certain assets being fully depreciated in
1995 and 1994.
Other general and administrative expenses decreased $125,501 (13.9%) in 1995
as compared with 1994. During 1995 the Company was charged $132,000 for
managerial assistance and other services by the Company's parent company
whereas, during 1994, the Company was charged $275,000 for such assistance and
services. Transactions with the Company's parent company and other affiliates
are disclosed in Note 10, Related Party Transactions, of the Notes to
Consolidated Financial Statements.
During 1995 the Company sold a percel of real property at a net gain of
$47,329. During 1994 the Company incurred a net loss on the sale of equipment
in the amount of $1,016.
Income tax expense decreased $51,800 (14.6%) in 1995 as compared with 1994
due primarily to the decrease in pre-tax income.
The Company is involved on an on going basis in examining and
investigating investment opportunities available to the Company which could
possibly result in a change in the liquidity of the Company. The Company
knows of no existing trends, demands, commitments or uncertainties that could
result in a material change in the Company's liquidity. However, the Company
intends to seek approval from the Office Of Thrift Supervision to acquire
additional stock of Security Bancorp of Billings, Montana, for cash which
would result in a change in liquidity of the Company. The Company knows of
no material trends, favorable or unfavorable, in the Company's capital
resources.
2
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TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
FINANCIAL REPORT
DECEMBER 31, 1995
CONTENTS
PAGE
AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . 4
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1995 and 1994. . . . . 5-6
Statements of Income and Retained Earnings
for the Years Ended
December 31, 1995 and 1994 . . . . . . . . . . . . . . . 7
Statements of Cash Flows for the Years Ended
December 31, 1995 and 1994. . . . . . . . . . . . . . . 8-9
Notes to Consolidated Financial Statements . . . . . . .10-15
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . 16
3
<PAGE>
Report of Independent Auditors
To The Board of Directors
TSI, Inc.
Great Falls, MT 59405
We have audited the accompanying balance sheets of TSI, Inc. and
consolidated subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of income and retained earnings and cash flows for
the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of TSI, Inc. and consolidated subsidiaries as of December 31, 1995 and 1994
and the consolidated results of their operations and their consolidated cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
DWYER & KEITH, CPA's, P.C.
March 7, 1996
Great Falls, Montana
4
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1995 and 1994
1995 1994
ASSETS
Current Assets
Cash (Note 2) $ 7,090,429 $ 6,181,974
Investment Securities (Note 3) 2,516,999 2,246,781
Trade Accounts and Notes Receivable,
Less Allowance for Doubtful Accounts
of $12,500 in 1995 and 1994 15,815 37,277
Current Portion of Long-Term
Receivable (Note 6) 2,244 2,161
Total Current Assets 9,625,487 8,468,193
Other Assets
Noncurrent Investments (Note 3) 7,553,091 6,934,342
Note Receivable, Excluding Current
Portion (Note 6) 98,955 99,199
Other Assets 2,238 3,238
Total Other Assets 7,654,284 7,036,779
Investments In Property, Plant and Equipment,
at Cost (Notes 1 and 9)
Buildings 1,905,000 1,949,255
Furniture, Fixtures and Equipment 364,666 378,767
2,269,666 2,328,022
Less Accumulated Depreciation (1,515,246) (1,441,483)
754,420 886,539
Title Plants 216,715 216,715
Land 130,153 130,153
Net Property, Plant and Equipment 1,101,288 1,233,407
$18,381,059 $16,738,379
See Notes to Consolidated Financial Statements.
5
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1995 and 1994
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 69,381 $ 68,238
Accrued Liabilities (Note 4) 102,170 115,100
Due to Parent Company (Note 10) 161,919 110,333
Income Taxes 14,189 3,800
Deferred Income Taxes (Notes 1, 3 and 5) 311,500 177,400
Total Current Liabilities 659,159 474,871
Provision for Estimated Title and
Escrow Losses (Note 7) 1,127,804 1,198,459
Deferred Income Taxes (Notes 1, 3 and 5) 1,676,700 1,433,000
Minority Interests in Consolidated
Subsidiaries 293,372 268,841
Excess of Fair Value of Net Assets
Acquired Over Cost (Note 1) 73,295 81,515
3,171,171 2,981,815
Commitments (Note 8)
Stockholders' Equity (Note 1)
Common Stock, $.05 Par Value,
30,000,000 shares authorized,
9,423,142 shares outstanding 471,157 471,157
Additional Paid-In Capital 8,082,957 8,082,957
Retained Earnings (Note 11) 3,127,482 2,428,546
Unrealized Gains on Investments (Note 3) 2,869,133 2,299,033
Total Stockholders' Equity 14,550,729 13,281,693
$18,381,059 $16,738,379
See Notes to Consolidated Financial Statements.
6
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 and 1994
1995 1994
Revenues
Title Insurance Premiums and Related Fees $ 1,472,756 $ 1,848,509
Interest 342,786 197,964
Rent 479,382 511,232
Other 372,517 545,264
2,667,441 3,102,969
Operating Expenses
Salaries and Other Personnel Costs 764,094 906,023
Depreciation 115,557 132,474
Rent 35,089 31,884
Title and Escrow Losses - 875
Other General and Administrative Expenses 777,678 903,179
1,692,418 1,974,435
Operating Income 975,023 1,128,534
Net Gain (Loss) on Sales of Noncurrent Assets 47,239 (1,016)
Minority Share of Consolidated Subsidiaries
Net (Income) (21,326) (17,560)
Income Before Income Taxes 1,000,936 1,109,958
Income Taxes (Note 5) (302,000) (353,800)
Net Income 698,936 756,158
Retained Earnings, Beginning of Year 2,428,546 1,672,388
Retained Earnings, End of Year $ 3,127,482 $ 2,428,546
EARNINGS PER COMMON SHARE (Note 1)
Net Income Per Share $ .07 $ .08
See Notes to Consolidated Financial Statements.
7
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TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 and 1994
INCREASE (DECREASE) IN CASH
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received From Customers $ 2,002,651 $ 2,428,969
Cash Paid to Suppliers and Employees (1,659,475) (1,935,493)
Interest and Dividends Received in Cash 682,135 531,184
Interest Paid in Cash - (2)
Income Taxes Paid in Cash (291,611) (350,000)
Net Cash Provided By Operating Activities 733,700 674,658
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Proceeds From Sales of Property, Plant
and Equipment 93,762 4,877
Cash Received on Principal of Notes Receivable 2,161 2,233
Cash Purchases of Minority Interests (500) (1,302)
Capital Expenditures Paid in Cash (29,960) (34,319)
Cash Received on Dispositions of
Current Investments 100,472 824,837
Cash Purchases of Current Investments (42,766) (149,230)
Cash Received on Disposition of
Noncurrent Investments - 2,777
Net Cash Provided By Investing Activities 123,169 649,873
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Cash Advances From Parent Company 51,586 330,308
Net Cash Provided By Financing Activities 51,586 330,308
NET INCREASE IN CASH 908,455 1,654,839
CASH - BEGINNING OF YEAR 6,181,974 4,527,135
CASH - END OF YEAR $ 7,090,429 $ 6,181,974
(Continued)
8
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TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS - Continued
FOR THE YEARS ENDED DECEMBER 31, 1995 and 1994
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
1995 1994
Net Income $ 698,936 $ 756,158
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation 115,557 132,474
Provision for Doubtful Accounts Receivable - (592)
(Gain) Loss on Sales of Noncurrent Assets (47,239) 1,016
Minority Share of Consolidated Subsidiaries Net
Income 21,326 17,560
Amortization of Deferred Credit (8,220) (8,220)
Realized (Gains) Losses on Dispositions of
Marketable Securities 4,783 (195,651)
Changes in Operating Assets and Liabilities
Decrease in Accounts Receivable 20,782 61,055
(Decrease) in Payables and Accrued
Liabilities (72,225) (89,142)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 733,700 $ 674,658
See Notes to Consolidated Financial Statements.
9
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly and majority owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation.
(b) Depreciation and Amortization
Depreciation and amortization, computed using various methods are
provided over the useful lives of the various classes of property, plant
and equipment.
(c) Earnings Per Share
The computation of earnings per share in the accompanying statements is
based on the weighted average number of shares outstanding, as follows:
Year Ended December 31, 1995 - 9,423,142 shares
Year Ended December 31, 1994 - 9,423,142 shares
(d) Fiduciary Assets and Liabilities
The assets and liabilities of the escrows administered by the Company are
not included in the consolidated balance sheets.
(e) Title Insurance Income and Related Fees
The Company follows the practice of recording title insurance premiums as
income upon the issuance of the title insurance policy or the collection
of payment for the title insurance preliminary commitment, whichever
occurs first. All other fees and charges are recognized as income upon
the rendering of services.
(f) Policy of Cash Equivalents
For purposes of the statements of cash flows, cash equivalents include
time deposits, certificates of deposit and money market accounts, all
with original maturities of three months or less.
(g) Income Taxes
The Company and its subsidiaries file consolidated income tax returns
with the Company's parent company. The Company follows the practice of
recording deferred income taxes resulting from timing differences between
financial reporting and income tax reporting. Investment tax credits, if
any, are accounted for as a reduction of income tax expense in the years
they are available for use under the flow-through method.
10
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
(h) Excess of Fair Value of Net Assets of Acquired Subsidiaries Over Cost
The excess of fair value of the net assets of acquired subsidiaries over
cost is amortized over a twenty year period using the straight-line method.
2. CONCENTRATED CASH BALANCES
The Company maintains accounts with various financial institutions and stock
brokerage firms. Cash balances are insured up to $100,000 by either the
Securities Investor Protection Corporation ("SIPC") or the Federal Deposit
Insurance Corporation ("FDIC"). At December 31, 1995, cash balances
totalling $5,312,141 were uninsured by either the SIPC or the FDIC.
3. INVESTMENT SECURITIES AND OTHER INVESTMENTS
The Company adopted Statement of Financial Accounting Standards No. 115
("SFAS No. 115"), "Accounting For Investments in Certain Debt and Equity
Securities" effective January 1, 1994. In accordance with SFAS No. 115, the
Company has classified all of its current and noncurrent investments, except
for restricted investments, as available for sale.
Following is a summary of the Company's investments, all of which consist of
equity securities:
1995 1994
Current Assets
Cost $1,752,734 $1,814,223
Gross Unrealized Holding Gains 780,871 511,801
Gross Unrealized Holding Losses (16,606) (79,243)
Fair Value $2,516,999 $2,246,781
Noncurrent Assets
Cost $3,333,437 $3,334,585
Gross Unrealized Holding Gains 4,114,654 3,494,757
Fair Value $7,448,091 $6,829,342
11
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TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
3. INVESTMENT SECURITIES AND OTHER INVESTMENTS - CONTINUED
Realized gains and losses are determined on the basis of specific
identification. During 1995 and 1994, sales proceeds and gross realized
gains and losses were as follows:
1995 1994
Sales Proceeds $ 100,471 $ 827,614
Gross Realized Losses $ 20,586 $ 28,883
Gross Realized Gains $ 15,803 $ 224,534
No other gains or losses, realized or unrealized, are included in the
Company's statements of income for 1995 or 1994.
Stockholder's equity at December 31, 1995 has been increased by $2,869,133
which is the difference between the total net unrealized gain at
December 31, 1995, and deferred income taxes and minority interests in the
net unrealized gain.
At December 31, 1995, the Company owned approximately twenty-four percent of
the issued and outstanding common stock of Security Bancorp ("Security").
The Company's investment in Security is classified as a noncurrent
investment. In its unaudited quarterly report as of and for the six months
ended December 31, 1995, Security reported total assets of $365,307,389,
total stockholders' equity of $32,180,745 and net income of $1,275,042. At
December 31, 1995, the Company's portion of the underlying equity in
Security's net assets exceeded the Company's carrying value by approximately
$252,400.The excess is not being amortized. Other noncurrent investments
consist of certificates of deposit in the amount of $105,000 which are on
deposit with the State of Montana Commissioner of Insurance and are
restricted as to use by law.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31,:
1995 1994
Property Taxes $ 40,669 $ 42,033
Compensation 32,396 44,551
Payroll Taxes 7,944 8,675
Other 21,161 19,841
$ 102,170 $ 115,100
5. INCOME TAXES
Income tax expense consists of the following:
1995 1994
Federal $ 258,000 $ 300,000
State 44,000 53,800
$ 302,000 $ 353,800
12
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
5. INCOME TAXES - Continued
The income tax expense reflected in the financial statements differs from the
amounts that would normally be expected by applying the U.S. Federal income
tax rates to income before income taxes. The reasons for these differences
are as follows:
1995 1994
Computed "Expected" Tax Expense $ 340,300 $ 377,400
Purchase Accounting Adjustments (2,800) (3,100)
Minority Interest in Income of Subsidiaries 7,300 6,000
Dividends Received Deduction (88,400) (86,300)
Tax Exempt Income - (600)
State Income Taxes 44,000 53,800
Other 1,600 6,600
$ 302,000 $ 353,800
The Company and its wholly and eighty percent or more owned subsidiaries file
consolidated income tax returns with the Company's parent company.
The Company has established deferred income tax liabilities for net
unrealized gains on investments in the current and noncurrent amounts of
$311,500 and $1,676,700, respectively.
6. NOTE RECEIVABLE
Note receivable has resulted from the sale of certain assets and is
summarized as follows as of December 31:
1995 1994
14.9% Note Receivable, due in monthly
installments of $1,492, including interest,
until June, 1998 $ 106,125 $ 108,286
Allowance for doubtful note receivable (4,926) (6,926)
101,199 101,360
Less Current Portion of Long-Term Receivable 2,244 2,161
Long-Term Note Receivable $ 98,955 $ 99,199
The above receivable is secured by property, the sale of which resulted in
the receivable. In the event the receivable becomes uncollectible and the
underlying collateral is completely worthless, the Company would incur a loss
in the amount of the receivable.
13
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
7. PROVISION FOR ESTIMATED TITLE AND ESCROW LOSSES
The Company's wholly-owned subsidiary, First Montana title Insurance Company
(FMTIC) issues title insurance policies in the State of Montana. The terms
of policies issued are indefinite and premiums are not refundable. FMTIC is
a party to various lawsuits wherein, among other things, plaintiffs generally
claim defects in insured titles, unreported liens or improper practices.
FMTIC is also required under many of its policies issued to provide defense
for its insureds in litigation founded upon alleged defects or other matters
insured against by the policy. Such litigation and claims are normal
occurrences within the title insurance industry. In accordance with
generally accepted accounting practices, FMTIC has established a provision
for estimated title and escrow losses which appears on the consolidated
balance sheets under the same title. FMTIC has established the provision
for estimated losses on (1) claims known to FMTIC and (2) claims unknown
to FMTIC but incurred upon issuance of policies as well as for estimated
external settlement expenses to be incurred. The provision has been reduced
for estimated recoveries.
8. COMMITMENTS
The Company and its subsidiaries are obligated under various lease agreements
for office space expiring at various dates through 2000. Rental expense for
office space for the years ended December 31, 1995 and 1994, was $30,340 and
$29,340, respectively. Annual rental commitments for the ensuing calendar
years are as follows:
1996 1997 1998 1999 2000
$30,840 $30,840 $ 7,200 $ 7,200 $ 3,000
9. RENTAL PROPERTY
The Company is the lessor of property under operating leases expiring in 1996.
The following is a summary of property leased or held for lease at
December 31, 1995:
Buildings $ 1,688,261
Land 110,825
1,799,086
Less: Accumulated Depreciation (983,965)
$ 815,121
Minimum future rentals to be received on non-cancelable leases as of
December 31, 1995, for the next calendar year is $66,720.
The consolidated statements of income do not contain any contingent rental
income.
14
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
10. RELATED PARTY TRANSACTIONS
The Company maintains a non interest-bearing demand account with its parent
company, M Corp. M Corp owns approximately 91% of the Company's outstanding
stock. The Company had transactions with its parent company or affiliates
during 1995 and 1994, as follows:
1995 1994
Was Charged For Managerial Assistance $ (132,000) $ (275,000)
Net Cash Transfers To (From) 423,764 331,425
Was Charged For Property Insurance (55,200) (49,200)
Income Tax Allocation (288,150) (337,533)
11. DIVIDEND RESTRICTIONS
TSI, Inc., the parent company, depends in part upon cash dividends from its
subsidiaries for the funding of its cash requirements. Dividends paid to TSI,
Inc. by its subsidiary, First Montana Title Insurance Company (FMTIC), are
restricted by statutes of the State of Montana. FMTIC is required to obtain
regulatory approval before making any dividend distributions. At December 31,
1995, the amount of consolidated retained earnings subject to subject to such
restrictions was $1,602,822.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosure for financial instruments. The carrying amounts
reported in the balance sheet for cash and accounts receivable approximate
those assets' fair value. Fair values for investment securities and
noncurrent investments are based upon quoted market prices. The Company
believes that the fair value of its contract receivable, which has a stated
interest rate of 14.9%, approximates carrying value due to the credit risk
involved.
13. NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES
The Company is engaged in the title insurance business within the state of
Montana, in the title insurance agency business in Yellowstone, Rosebud and
Cascade Counties, Montana and in the ownership and rental of properties
located in Montana. The Company's primary business, based on revenues,
is title insurance.
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the reported amounts of certain types of assets, liabilities,
revenues and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Actual
results could differ from those estimates.
15
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
DIRECTORS AND OFFICERS
NAME OCCUPATION
Paul J. McCann, Jr. Attorney at Law, Investor
Director, Billings, Montana
President
G. Robert Crotty, Jr. Attorney at Law, Investor
Director Great Falls, Montana
R. Bruce Robson Data Processing Manager,
Director Sletten Construction Co.
Great Falls, Montana
Adjunct Professor of Accounting,
College of Great Falls
Great Falls, Montana
MARKET INFORMATION
The Company's common stock is not traded on any securities exchange, nor
are records kept of any quotations by securities dealers or the National
Quotation Bureau, Inc. To the best knowledge of the Company, bid and asked
quotations for TSI, Inc. common stock are not reported in any newspapers.
No dividends were paid in 1995 or 1994.
There are approximately 3,370 holders of record of the Company's common
stock.
A copy of the Form 10-KSB Annual Report may be obtained upon written
request to the Company.
TSI, INC.
P.O. Box 2249
110 Second Street South
Great Falls, MT 59403-2249
16
<PAGE>
TSI, INC.
EXHIBIT #22
SUBSIDIARIES
Percentage
Voting
Securities
State of Owned By
Name of Company Organization Registrant
UAC, Inc. Delaware 87.0
TSI Business Systems, Inc. Montana 100.0
TSI Leasing, Inc. Montana 100.0
First Mortgage Investors, Inc. North Dakota (1)
First Montana Title Company
of Great Falls Montana (2)
First Montana Title Insurance
Company Montana 100.0
First Montana Title Company
of Billings Montana (3)
First Montana Title Company
of Cut Bank (Inactive) Montana (3)
First Montana Title Company
of Forsyth Montana (3)
Consulting Associates, Inc. Montana (2)
(1) Owned 70% by UAC, Inc.
(2) Owned 100% by UAC, Inc.
(3) Owned 100% by First Montana Title Insurance Company
<PAGE>
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