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
For the fiscal year ended December 31, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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 $8,952,802.
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, 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, 1998, 824,125 shares
held by nonaffiliates were outstanding. The registrant's stock is not traded
on any securities exchange. To registrant's knowledge, bid and asked
quotations for registrant's stock are not reported in any newspapers nor
are records kept of any quotations by securities dealers or 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.
10,483,142 shares $.05 par value common stock are outstanding as of
February 28, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the form 10-KSB (e.g., Part I, Part II, etc.)
into which the documents are incorporated: (1) any annual report to security
holders: (2) any proxy or information statement; and (3) any prospectus
filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933
("Securities Act"). The listed documents should be clearly described for
identification.
DOCUMENTS FORM 10-KSB REFERENCE
Annual Report to Shareholders for Part I, Items 1 and 2
the year ended December 31, 1997. 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
<PAGE>
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, 1997, 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 1997 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 1997.
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, 1997, 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 1998 annual meeting of
shareholders or until their successors are elected and qualify.
NAME, AGE, AND YEAR ELECTED DIRECTOR POSITION
Paul J. McCann, Jr., 43, 1995 Director,
President
G. Robert Crotty, Jr., 70, 1995 Director
R. Bruce Robson, 56, 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 92% 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, GNI, Inc.(holding company and
President, Director 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 1997, 1996 and 1995. No officer
or director of the Company or its consolidated subsidiaries received total
cash compensation in excess of $100,000 for 1997, 1996 or 1995.
Summary Compensation Table
Name and Calendar Total Cash
Principal Position Year Compensation
Paul J. McCann, Jr. 1997 $ 0
President, Director 1996 $ 0
1995 $ 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, 1997. The Company has
not adopted a formal plan for the compensation of directors. During 1997 the
Company and its consolidated subsidiaries paid a total of $700 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, 1998.
Amount and Nature
Title of Name and Address of of Beneficial Percent
Class Beneficial Owner Ownership of Class
$.05 Par M Corp 9,647,094 (1) 92.0%
Value Common 110 Second Street South Direct
Stock Great Falls, Montana
(1) At February 28, 1998, GNI, Inc. (a Delaware corporation) owned over
fifty percent of M Corp's outstanding stock. At February 28, 1998,
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, 1998, 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 9 of the notes to consolidated
financial statements in the Annual Report to Shareholders for the year ended
December 31, 1997, which note is incorporated herein by reference. During
1997, the Company and its subsidiaries compensated members of Anne Marie
and Paul J. McCann's family the total amount of $94,645. During 1996, the
Company and its subsidiaries compensated members of Anne Marie and Paul J.
McCann's family the total amount of $77,325.
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, 1997.
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, 1997.
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 27, 1998 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 27, 1998.
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
1997
<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 8, Rental
Property, of the Notes to Consolidated Financial Statements.
The Company is a 92% 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 9, 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 $74,786 (4.6%) in 1997
as compared with 1996 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 $225,639 (57.0%) in 1997 as compared with 1996
due primarily to an increase in interest-bearing deposits.
Rent revenues increased $16,219 (3.3%) in 1997 as compared with 1996. The
increase in rent revenues in 1997 as compared with 1996 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 $5,486,990 (762.5%) in 1997 as compared with 1996.
During 1997 the Company recognized a gain on the merger of Security Bancorp
with and into WesterFed Financial Corporation in the amount of $5,351,471.
Pursuant to the terms of the merger the Company received cash in the
amount of the gain recognized and approximately 275,000 shares of WesterFed
Financial Corporation common stock. The gain recognized on the merger
transaction was the primary reason for the increase in other income in 1997
as compared with 1996 and is also the primary reason for the increase in net
income in 1997 as compared with 1996.
Salaries and other personnel costs increased $37,592 (4.2%) in 1997 as
compared with 1996 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 increased $16,086 (15.5%) in 1997 as compared
with 1996 due primarily to the acquisition of additional furniture and
equipment during 1997.
Other general and administrative expenses increased $368,275 (40.6%) in 1997
as compared with 1996. During 1997 the Company made contributions of
appreciated assets to a private foundation in the total fair value amount
of approximately $525,000. The contributions resulted in an income tax
benefit to the Company in the amount of approximately $203,000.
Transactions with the Company's parent company and other affiliates are
disclosed in Note 9, Related Party Transactions, of the Notes to Consolidated
Financial Statements.
Income tax expense increased $1,915,150 (589.5%) in 1997 as compared with 1996
due primarily to the increase in pre-tax income.
The Company is considering acquisitions which would deplete the Company's
available cash and thus affect the liquidity of the Company.
2
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TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
FINANCIAL REPORT
DECEMBER 31, 1997
CONTENTS
PAGE
AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . 4
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1997 and 1996. . . . . 5-6
Statements of Income and Retained Earnings
for the Years Ended
December 31, 1997 and 1996 . . . . . . . . . . . . . . . 7
Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996. . . . . . . . . . . . . . . 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, 1997 and 1996 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, 1997 and 1996
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 20, 1998
Great Falls, Montana
4
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1997 and 1996
1997 1996
ASSETS
Current Assets
Cash (Note 2) $ 13,084,936 $ 8,525,699
Investment Securities (Note 3) 2,032,576 2,690,620
Trade Accounts Receivable, Less Allowance
for Doubtful Accounts of $8,000 in 1997
and $12,500 in 1996 3,521 29,881
Total Current Assets 15,121,033 11,246,200
Noncurrent Investments (Note 3) 8,522,117 10,442,419
Other Assets 2,238 2,238
Investments In Property, Plant and
Equipment, at Cost (Notes 1 and 8)
Buildings 1,942,706 1,949,700
Furniture, Fixtures and Equipment 402,055 370,270
2,344,761 2,319,970
Less Accumulated Depreciation (1,721,823) (1,607,397)
622,938 712,573
Title Plants 216,715 216,715
Land 80,453 130,153
Net Property, Plant and Equipment 920,106 1,009,741
$ 24,565,494 $ 22,700,598
See Notes to Consolidated Financial Statements.
5
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1997 and 1996
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 92,533 $ 84,346
Accrued Liabilities (Note 4) 122,249 115,219
Due to Parent Company (Note 9) 36,930 547,380
Income Taxes Oayable 4,730 442
Deferred Income Taxes (Notes 1, 3 and 5) 268,100 393,900
Total Current Liabilities 524,542 1,141,287
Provision for Estimated Title and
Escrow Losses (Note 6) 1,005,612 1,069,702
Minority Interests in Consolidated Subsidiaries 355,290 323,858
Deferred Income Taxes (Notes 1, 3 and 5) 1,953,500 2,865,500
Excess of Fair Value of Net Assets
Acquired Over Cost (Note 1) 56,855 65,075
3,371,257 4,324,135
Commitments (Note 7)
Stockholders' Equity
Common Stock, $.05 Par Value,
30,000,000 shares authorized,
10,432,142 shares outstanding in 1997
and 9,423,142 shares in 1996 524,157 471,157
Additional Paid-In Capital 8,665,957 8,082,957
Retained Earnings (Note 10) 8,282,122 3,971,194
Unrealized Gains on Investments (Note 3) 3,197,459 4,709,868
Total Stockholders' Equity 20,669,695 17,235,176
$ 24,565,494 $ 22,700,598
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, 1997 and 1996
1997 1996
Revenues
Title Insurance Premiums and Related Fees $ 1,697,793 $ 1,623,007
Interest 621,171 395,532
Rent 510,696 494,477
Other 6,123,142 636,152
8,952,802 3,149,168
Operating Expenses
Salaries and Other Personnel Costs 934,928 897,336
Depreciation 114,426 103,512
Rent 34,423 36,160
Title and Escrow Losses 15,049 13,966
Other General and Administrative Expenses 1,274,699 906,424
Operating Income 6,579,277 1,191,770
Minority Share of Consolidated Subsidiaries
Net (Income) (28,349) (23,208)
Income Before Income Taxes 6,550,928 1,168,562
Income Taxes (Note 5) (2,240,000) (324,850)
Net Income 4,310,928 843,712
Retained Earnings, Beginning of Year 3,971,194 3,127,482
Retained Earnings, End of Year $ 8,282,122 $ 3,971,194
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, 1997 and 1996
INCREASE (DECREASE) IN CASH
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received From Customers $ 2,265,049 $ 2,127,249
Cash Paid to Suppliers and Employees (1,787,270) (1,766,032)
Interest and Dividends Received in Cash 899,185 759,675
Income Taxes Paid in Cash (2,228,200) (346,109)
Net Cash Provided (Used) By Operating Activities (851,236) 774,783
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Proceeds From Sales and Redemptions
of Property, Plant and Equipment 6,994 6,289
Cash Received on Principal of Notes Receivable - 106,125
Cash Purchases of Minority Interests (304) (150)
Capital Expenditures Paid in Cash (31,785) (18,254)
Cash Received on Dispositions of
Current Investments 68,213 389,220
Cash Received on Dispositions of
Noncurrent Investments 5,351,471 -
Cash Purchases of Current Investments (109,666) (208,204)
Net Cash Provided By Investing Activities 5,284,923 275,026
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Cash Advances From (To) Parent Company (510,450) 385,461
Issuance of Common Stock For Cash 636,000 -
Net Cash Provided By Financing Activities 125,550 385,461
NET INCREASE IN CASH 4,559,237 1,435,270
CASH - BEGINNING OF YEAR 8,525,699 7,090,429
CASH - END OF YEAR $13,084,936 $ 8,525,699
(Continued)
8
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS - Continued
FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
1997 1996
Net Income $ 4,310,928 $ 843,712
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation 114,426 103,512
Provision for Doubtful Accounts Receivable (3,825) (4,926)
Minority Share of Consolidated Subsidiaries Net
Income 28,349 23,208
Amortization of Deferred Credit (8,220) (8,220)
Realized (Gains) Losses on Dispositions
of Investments (5,395,369) (152,480)
Contribution in Kind 116,875 27,877
Changes in Operating Assets and Liabilities
(Increase) Decrease in Accounts Receivable 23,145 (4,047)
(Decrease) in Payables and Accrued
Liabilities (53,853) (72,225)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (851,236) $ 774,783
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. Title plants and land are carried at cost and are not
depreciated.
(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.
10
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cintinued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
(g) Income Taxes
The Company and its subsidiaries file consolidated income tax returns
with the Company's parent company. Income taxes are allocated to the
Company based upon thee ratio of the Company's pre-tax income to total
consolidated income. 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.
(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. 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, 1997, cash balances
totalling $10,563,088 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:
1997 1996
Current Assets:
Cost $ 1,374,728 $ 1,724,198
Gross Unrealized Holding Gains 673,389 984,375
Gross Unrealized Holding Losses (15,541) (17,953)
Fair Value $ 2,032,576 $ 2,690,620
Noncurrent Assets:
Cost $ 3,623,506 $ 3,305,560
Gross Unrealized Holding Gains 4,793,611 7,031,859
Fair Value $ 8,417,117 $10,337,419
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 1997 and 1996, sales proceeds and gross realized
gains and losses were as follows:
1997 1996
Sales Proceeds $5,419,622 $ 389,220
Gross Realized Losses $ - $ -
Gross Realized Gains $5,395,368 $ 152,483
No other gains or losses, realized or unrealized, are included in the
Company's statements of income for 1997 or 1996.
Stockholder's equity at December 31, 1997 has been increased by $3,197,459
which is the difference between the total net unrealized gain at December
31, 1997, and deferred income taxes and minority interests in the net
unrealized gain.
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,:
1997 1996
Property Taxes $ 45,441 $ 44,418
Compensation 36,638 41,328
Payroll Taxes 16,030 5,805
Other 24,140 23,668
$ 122,249 $ 115,219
5. INCOME TAXES
Income tax expense consists of the following:
1997 1996
Federal $1,970,000 $ 273,000
State 270,000 51,850
$2,240,000 $ 324,850
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:
1997 1996
Computed "Expected" Tax Expense $ 2,227,300 $ 397,300
Purchase Accounting Adjustments (2,800) (2,800)
Minority Interest in Income of Subsidiaries 9,600 7,900
Dividends Received Deduction (65,000) (95,100)
Contribution at Fair Value (138,800) (33,100)
State Income Taxes 195,600 38,100
Other 14,100 12,550
$ 2,240,000 $ 324,850
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 $268,100 and
$1,953,500, respectively at December 31, 1997.
6. 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.
7. COMMITMENTS
The Company and its subsidiaries are obligated under various lease agreements
for office space expiring at various dates through 2002. Rental expense for
office space for the years ended December 31, 1997 and 1996, was $32,030 and
$30,840, respectively. Annual rental commitments for the ensuing calendar
years are as follows:
1998 1999 2000 2001 2002
$37,200 $38,400 $35,400 $32,400 $32,400
13
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
8. RENTAL PROPERTY
The Company is the lessor of property under operating leases expiring in
various years through 1999. The following is a summary of property leased or
held for lease at December 31, 1997:
Buildings $ 1,730,967
Land 61,125
1,792,092
Less: Accumulated Depreciation (1,122,009)
$ 670,083
Minimum future rentals to be received on non-cancelable leases as of
December 31, 1997, for the ensuing calendar years are as follows:
1998 1999
$ 73,920 $ 77,280
The consolidated statements of income do not contain any contingent rental
income.
9. RELATED PARTY TRANSACTIONS
The Company maintains a non interest-bearing demand account with its parent
company, M Corp. M Corp owns approximately 92% of the Company's outstanding
stock. During 1997, the Company and its consolidated subsidiaries contributed
assets in kind with a fair market value and a cost basis of $525,000 and
$116,875, 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 $203,000. 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 1997 and 1996, as follows:
1997 1996
Was Charged For Managerial Assistance $ (132,000) $ (132,000)
Net Cash Transfers To 2,095,000 95,289
Was Charged For Property Insurance (43,200) (43,200)
1,060,000 Shares Common Stock Issued To
Parent For Cash 636,000 -
Income Tax Allocation (2,009,350) (305,550)
14
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
10. 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,
1997, $3,932,813 of consolidated retained earnings were subject to such
restrictions. At December 31, 1997, FMTIC's statutory capital ans surplus as
regards policyholders amounted to $9,621,572.
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 1997 or 1996.
There are approximately 3,300 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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