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, 1996
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 $3,149,168.
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, 1997,
837,878 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, 1997.
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, 1996. 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, 1996, 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
A meeting of security holders was held during the fourth quarter of 1996
at which the Company's entire Board of Directors was elected. The Company's
security holders also authorized the Board of Directors to select an
independent certified public accounting firm to audit the Company's
financial statements for 1996.
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, 1996, 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 1997 annual meeting of
shareholders or until their successors are elected and qualify.
NAME, AGE, AND YEAR ELECTED DIRECTOR POSITION
Paul J. McCann, Jr. 42, 1995 Director,
President
G. Robert Crotty, Jr. 69, 1995 Director
R. Bruce Robson 55, 1994 Director
Paul J. McCann, Jr. is the president and a director of GNI, Inc., the parent
company of M Corp. M Corp is the parent company of the Company. G. Robert
Crotty, Jr. is a director of M Corp. R. Bruce Robson is the secretary-
treasurer and a director of Medical Information Processing Systems, Inc. and
a director of 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, GNI, Inc.(holding company
President, Director and parent company of M Corp); Attorney at Law;
Business Owner: Investor
Billings, Montana
G. Robert Crotty, Jr., Director, TSI, Inc. (1995 to present).
Director 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 1996, 1995 and 1994. No officer
or director of the Company or its consolidated subsidiaries received total
cash compensation in excess of $100,000 for 1996, 1995 or 1994.
Summary Compensation Table
Name and Calendar Total Cash
Principal Position Year Compensation
Paul J. McCann, Jr. 1996 $ 0
President, Director 1995 $ 0
S. M. McCann 1994 $ 0
President, Director
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, 1996. The Company has
not adopted a formal plan for the compensation of directors. During 1996 the
Company and its consolidated subsidiaries paid a total of $100 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, 1997.
Amount and Nature
Title of Name and Address of of Beneficial Percent
Class Beneficial Owner Ownership of Class
$.05 Par M Corp 8,577,644 (1) 90.9%
Value Common 110 Second Street South Direct
Stock Great Falls, Montana
(1) At February 28, 1997, GNI, Inc. (a Delaware corporation) owned over
fifty percent of M Corp's outstanding stock. At February 28, 1997,
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, 1997, 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, 1996, which note is incorporated herein by reference. During
1996, the Company compensated members of the Anne Marie and Paul J. McCann
family, the total amount of $77,325. During 1995, the Company and its
subsidiaries compensated members of Paul J. McCann's family the total
amount of $40,754.
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, 1996.
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, 1996.
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, 1997 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, 1997.
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
1996
<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 increased $150,251 (10.2%) in 1996
as compared with 1995 due primarily to an increase in the real estate
economies within which the Company operates. The Company believes that the
increase in the real estate economies within which the Company operates was
due in part to decreased mortgage interest rates.
Interest revenues increased $52,746 (15.4%) in 1996 as compared with 1995
due primarily to an increase in interest rates and an increase in amounts
maintained by the Company in interest-bearing deposits.
Rent revenues increased $15,095 (3.1%) in 1996 as compared with 1995. The
increase in rent revenues in 1996 as compared with 1995 was due primarily to a
decrease in vacancies.
1
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Other income increased $263,635 (70.8%) in 1996 as compared with 1995.
During 1996 the Company realized a net gain on the sales of investments in the
amount of $152,480. During 1995 the Company realized a net loss on the sales
of investments in the amount of $4,783. The increase in other income in 1996
as compared with 1995 was due primarily to the increase in gains realized on
the sales of investments along with increases in miscellaneous income and
dividend income.
Salaries and other personnel costs increased $133,242 (17.4%) in 1996 as
compared with 1995 due primarily to an increase in salary rates and an
increase in the number of personnel employed in the Company's title
insurance operations.
The provision for depreciation decreased $12,045 (10.4%) in 1996 as
compared with 1995 due primarily to certain assets being fully depreciated in
1996 and 1995.
Other general and administrative expenses increased $128,746 (16.6%) in
1996 as compared with 1995. During 1996 the Company made contributions of
appreciated assets to a private foundation in the amount of $125,375.
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 parcel of real property at a net gain of
$47,329. During 1996 no such gains or losses were incurred.
Income tax expense increased $22,850 (7.6%) in 1996 as compared with 1995
due primarily to the increase 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 adverse change in the Company's liquidity. The Company knows of no
material trends, favorable or unfavorable, in the Company's capital resources.
2
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
FINANCIAL REPORT
DECEMBER 31, 1996
CONTENTS
PAGE
AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . 4
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1996 and 1995. . . . . 5-6
Statements of Income and Retained Earnings
for the Years Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . 7
Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995. . . . . . . . . . . . . . . 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, 1996 and 1995 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, 1996 and 1995
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 21, 1997
Great Falls, Montana
4
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1996 and 1995
1996 1995
ASSETS
Current Assets
Cash (Note 2) $ 8,525,699 $ 7,090,429
Investment Securities (Note 3) 2,690,620 2,516,999
Trade Accounts and Notes Receivable,
Less Allowance for Doubtful Accounts
of $12,500 in 1996 and 1995 29,881 15,815
Current Portion of Long-Term
Receivable (Note 6) - 2,244
Total Current Assets 11,246,200 9,625,487
Other Assets
Noncurrent Investments (Note 3) 10,442,419 7,553,091
Note Receivable, Excluding Current
Portion (Note 6) - 98,955
Other Assets 2,238 2,238
Total Other Assets 10,444,657 7,654,284
Investments In Property, Plant and Equipment,
at Cost (Notes 1 and 9)
Buildings 1,949,700 1,905,000
Furniture, Fixtures and Equipment 370,270 364,666
2,319,970 2,269,666
Less Accumulated Depreciation (1,607,397) (1,515,246)
712,573 754,420
Title Plants 216,715 216,715
Land 80,453 130,153
Net Property, Plant and Equipment 1,009,741 1,101,288
$ 22,700,598 $ 18,381,059
See Notes to Consolidated Financial Statements.
5
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1996 and 1995
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 84,346 $ 69,381
Accrued Liabilities (Note 4) 115,219 102,170
Due to Parent Company (Note 10) 547,380 161,919
Income Taxes 442 14,189
Deferred Income Taxes (Notes 1, 3 and 5) 393,900 311,500
Total Current Liabilities 1,141,287 659,159
Provision for Estimated Title and
Escrow Losses (Note 7) 1,069,702 1,127,804
Deferred Income Taxes (Notes 1, 3 and 5) 2,865,500 1,676,700
Minority Interests in Consolidated
Subsidiaries 323,858 293,372
Excess of Fair Value of Net Assets
Acquired Over Cost (Note 1) 65,075 73,295
4,324,135 3,171,171
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) 3,971,194 3,127,482
Unrealized Gains on Investments (Note 3) 4,709,868 2,869,133
Total Stockholders' Equity 17,235,176 14,550,729
$ 22,700,598 $ 18,381,059
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, 1996 and 1995
1996 1995
Revenues
Title Insurance Premiums and Related Fees $ 1,623,007 $ 1,472,756
Interest 395,532 342,786
Rent 494,477 479,382
Other 636,152 372,517
3,149,168 2,667,441
Operating Expenses
Salaries and Other Personnel Costs 897,336 764,094
Depreciation 103,512 115,557
Rent 36,160 35,089
Title and Escrow Losses 13,966 -
Other General and Administrative Expenses 906,424 777,678
1,957,398 1,692,418
Operating Income 1,191,770 975,023
Net Gain (Loss) on Sales of Noncurrent Assets - 47,239
Minority Share of Consolidated Subsidiaries
Net (Income) (23,208) (21,326)
Income Before Income Taxes 1,168,562 1,000,936
Income Taxes (Note 5) (324,850) (302,000)
Net Income 843,712 698,936
Retained Earnings, Beginning of Year 3,127,482 2,428,546
Retained Earnings, End of Year $ 3,971,194 $ 3,127,482
EARNINGS PER COMMON SHARE (Note 1)
Net Income Per Share $ .09 $ .07
See Notes to Consolidated Financial Statements.
7
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 and 1995
INCREASE (DECREASE) IN CASH
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received From Customers $ 2,127,249 $ 2,002,651
Cash Paid to Suppliers and Employees (1,766,032) (1,659,475)
Interest and Dividends Received in Cash 759,675 682,135
Income Taxes Paid in Cash (346,109) (291,611)
Net Cash Provided By Operating Activities 774,783 733,700
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Proceeds From Sales of Property, Plant
and Equipment 6,289 93,762
Cash Received on Principal of Notes Receivable 106,125 2,161
Cash Purchases of Minority Interests (150) (500)
Capital Expenditures Paid in Cash (18,254) (29,960)
Cash Received on Dispositions of
Current Investments 389,220 100,472
Cash Purchases of Current Investments (208,204) (42,766)
Net Cash Provided By Investing Activities 275,026 123,169
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Cash Advances From Parent Company 385,461 51,586
Net Cash Provided By Financing Activities 385,461 51,586
NET INCREASE IN CASH 1,435,270 908,455
CASH - BEGINNING OF YEAR 7,090,429 6,181,974
CASH - END OF YEAR $ 8,525,699 $ 7,090,429
(Continued)
8
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS - Continued
FOR THE YEARS ENDED DECEMBER 31, 1996 and 1995
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
1996 1995
Net Income $ 843,712 $ 698,936
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation 103,512 115,557
Provision for Doubtful Accounts Receivable (4,926) -
(Gain) Loss on Sales of Noncurrent Assets - (47,239)
Minority Share of Consolidated Subsidiaries Net
Income 23,208 21,326
Amortization of Deferred Credit (8,220) (8,220)
Realized (Gains) Losses on Dispositions of
Marketable Securities (152,480) 4,783
Contribution in Kind 27,877 -
Changes in Operating Assets and Liabilities
(Increase) Decrease in Accounts Receivable (4,047) 20,782
(Decrease) in Payables and Accrued
Liabilities (53,853) (72,225)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 774,783 $ 733,700
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) 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.
(b) 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.
(c) 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.
(d) 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, 1996 - 9,423,142 shares
Year Ended December 31, 1995 - 9,423,142 shares
(e) Fiduciary Assets and Liabilities
The assets and liabilities of the escrows administered by the Company are
not included in the consolidated balance sheets.
(f) 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.
10
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cintinued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
(g) 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.
(h) 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.
(i) 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. 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, 1996, cash balances
totalling $6,274,185 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:
1996 1995
Current Assets
Cost $ 1,724,198 $ 1,752,734
Gross Unrealized Holding Gains 984,375 780,871
Gross Unrealized Holding Losses (17,953) (16,606)
Fair Value $ 2,690,620 $ 2,516,999
11
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TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
3. INVESTMENT SECURITIES AND OTHER INVESTMENTS - Continued
Noncurrent Assets
Cost $ 3,305,560 $ 3,334,585
Gross Unrealized Holding Gains 7,031,859 4,113,506
Fair Value $10,337,419 $ 7,448,091
Realized gains and losses are determined on the basis of specific
identification. During 1996 and 1995, sales proceeds and gross realized
gains and losses were as follows:
1996 1995
Sales Proceeds $ 389,220 $ 100,471
Gross Realized Losses $ - $ 20,586
Gross Realized Gains $ 152,480 $ 15,803
No other gains or losses, realized or unrealized, are included in the
Company's statements of income for 1996 or 1995.
Stockholder's equity at December 31, 1996 has been increased by $4,709,868
which is the difference between the total net unrealized gain at December
31, 1996, and deferred income taxes and minority interests in the net
unrealized gain. At December 31, 1996, 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 February, 1997, the shareholders of Security
approved an agreement and plan of merger whereby Security was merged with
and into WesterFed Financial Corporation ("WesterFed") which has its home
office in Missoula, Montana. Pursuant to the merger, in March, 1997,
the Company and its consolidated subsidiaries received approximately 289,500
shares of WesterFed plus cash in the amount of approximately $5,632,000 in
exchange for all of its holdings in Security. 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.
12
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31,:
1996 1995
Property Taxes $ 44,418 $ 40,669
Compensation 41,328 32,396
Payroll Taxes 5,805 7,944
Other 23,668 21,161
$ 115,219 $ 102,170
5. INCOME TAXES
Income tax expense consists of the following:
1996 1995
Federal $ 273,000 $ 258,000
State 51,850 44,000
$ 324,850 $ 302,000
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:
1996 1995
Computed "Expected" Tax Expense $ 397,300 $ 340,300
Purchase Accounting Adjustments (2,800) (2,800)
Minority Interest in Income of Subsidiaries 7,900 7,300
Dividends Received Deduction (95,100) (88,400)
State Income Taxes 38,100 44,000
Other (20,550) 1,600
$ 324,850 $ 302,000
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 $393,900 and
$2,865,500, respectively.
6. NOTE RECEIVABLE
Note receivable has resulted from the sale of certain assets. The note was
paid in full during 1996. The note is summarized as follows at
December 31, 1995:
14.9% Note Receivable, due in monthly
installments of $1,492, including interest,
until June, 1998 $ 106,125
Allowance for doubtful note receivable (4,926)
101,199
Less Current Portion of Long-Term Receivable 2,244
Long-Term Note Receivable $ 98,955
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, 1996 and 1995, was $30,840 and
$30,340, respectively. Annual rental commitments for the ensuing calendar
years are as follows:
1997 1998 1999 2000
$30,840 $ 7,200 $ 7,200 $ 3,000
9. RENTAL PROPERTY
The Company is the lessor of property under operating leases expiring in
various years through 2001. The following is a summary of property leased or
held for lease at December 31, 1996:
Buildings $ 1,737,961
Land 61,125
1,799,086
Less: Accumulated Depreciation (1,051,222)
$ 747,864
14
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
9. RENTAL PROPERTY - Continued
Minimum future rentals to be received on non-cancelable leases as of
December 31, 1996, for the ensuing calendar years are as follows:
1997 1998 1999 2000 2001
$121,461 $53,795 $55,947 $58,186 $14,687
The consolidated statements of income do not contain any contingent rental
income.
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. During 1996, the Company and its consolidated subsidiaries contributed
assets in kind with a fair market value and a cost basis of $125,375 and
$27,877, respectively, to a charitable foundation established by a controlling
shareholder of the Company's parent company. The contribution in kind
resulted in an income tax benefit to the Company and its consolidated
subsidiaries in the amount of approximately $51,000. The Company had
transactions with its parent company or affiliates during 1996 and 1995, as
follows:
1996 1995
Was Charged For Managerial Assistance $ (132,000) $ (132,000)
Net Cash Transfers To 95,289 423,764
Was Charged For Property Insurance (43,200) (55,200)
Income Tax Allocation (305,500) (288,150)
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,
1996, substantially all consolidated retained earnings were subject to such
restrictions.
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.
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
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 1996 or 1995.
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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