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, 1999
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: None
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 $3,267,342.
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 29, 2000, 797,921 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 29, 2000.
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, 1999. 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, 1999, 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 1999.
I-1
1.
<PAGE>
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 18, Pages 1 and 2 and Pages 3 to 17,
respectively, of Exhibit 13, TSI, Inc. Annual Report to Shareholders for the
year ended December 31, 1999, 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 2000 annual meeting of
shareholders or until their successors are elected and qualify.
NAME, AGE, AND YEAR ELECTED DIRECTOR POSITION
Paul J. McCann, Jr., 45, 1995 Director,
President
Kathleen Cain, 37, 1999 Director
Miriam A. Arneson, 44, 1998 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. Miriam A.
Arneson is a director of GNI, Inc., UAC, Inc., a subsidiary of the Company,
and Diversified Realty, Inc., an affiliate of the Company.
Family Relationships
Paul J. McCann, Jr., Kathleen Cain and Miriam A. Arneson are children 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
Miriam A. Arneson, Director, Diversified Realty, Inc.
Director Director, UAc, Inc. and GNI, Inc.
Investor,
Billings, 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.
<PAGE>
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 1999, 1998 and 1997. No officer
or director of the Company or its consolidated subsidiaries received total
cash compensation in excess of $10,000 for 1999, 1998 or 1997.
Summary Compensation Table
Name and Calendar Total Cash
Principal Position Year Compensation
Paul J. McCann, Jr. 1999 $ 0
President, Director 1998 $ 0
Chief Executive Officer 1997 $ 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, 1999. The Company has
not adopted a formal plan for the compensation of directors. During 1999 the
Company and its consolidated subsidiaries paid a total of $1,450 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 29, 2000.
Amount and Nature
Title of Name and Address of of Beneficial Percent
Class Beneficial Owner Ownership of Class
$.05 Par M Corp 9,676,826 (1) 92.3%
Value Common 110 Second Street South Direct
Stock Great Falls, Montana
(1) At February 29, 2000, members of the Anne Marie and Paul J. McCann
family, including Paul J. McCann, Jr., Kathleen Cain and Miriam A.
Arneson, children of Anne Marie and Paul J. McCann, indirectly
controlled a majority of the outstanding stock of M Corp.
Members of the Anne Marie and Paul J. McCann family own directly 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.
<PAGE>
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 29, 2000, 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) --
Kathleen Cain None (1) --
Miriam A. Arneson None (1) --
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, 1999, which note is incorporated herein by reference.
III-3
5.
<PAGE>
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, 1999.
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, 1999.
IV-1
6.
<PAGE>
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 29, 2000 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 29, 2000.
Chairman of the Board President
Principal Executive and s/Paul J. McCann, Jr.
Financial Officer Paul J. McCann, Jr.
Director s/Miriam A. Arneson
Miriam A. Arneson
Principal Accountant s/Jerry K. Mohland
Jerry K. Mohland
IV-2
7.
<PAGE>
TSI, INC.
ANNUAL REPORT
1999
<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. A subsidiary
of FMTIC owns real property in Great Falls, Montana.
UAC, Inc., a subsidiary of the Company, through its wholly-owned subsidiary
owns and operates a title plant in Montana. During 1988 through 1991, UAC,
Inc., primarily through its wholly-owned subsidiary, acquired rental units
in Montana.
TSI owns rental property in Helena, Montana and non income-producing
properties located within Cascade County, Montana. A subsidiary of the
Company owns rental property in Polson, 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.
The Company operates in a competitive business environment and is not
dependent upon one or a few major customers. Information concerning the
Company's industry segments is set forth in Note 12 (Information on Segments
of Business) 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 $633,957 (27.50%) in
1999 as compared with 1998 due primarily to a decrease in revenues of one
of the Company's consolidated subsidiaries resulting from the pirating of
key employees by the competition in a manner which the Company considers
unfair.
1
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Interest revenues increased $27,658 (4.2%) in 1999 as compared with 1998
due primarily to an increase in interest-bearing deposits.
Rent revenues increased $6,674 (1.3%) in 1999 as compared with 1998. The
increase in rent revenues in 1999 as compared with 1998 was due primarily
to an decrease in vacancies.
Other income decreased $955,009 (71.6%) in 1999 as compared with 1998.
During 1998 the Company recognized net gains on the disposition of
investments in the total amount of $1,027,794 whereas such gains recognized
during 1999 amounted to $68,206. The decrease in gains recognized on
the disposition of investments from 1998 to 1999 was the primary reason for
the decrease in other income in 1999 as compared with 1998.
Salaries and other personnel costs increased $90,042 (8.8%) in 1999 as
compared with 1998 due primarily to an increase in salary rates and an
increase in the number of personnel employed in the Company's operations.
Other general and administrative expenses decreased $716,910 (46.9%) in
1999 as compared with 1998. During 1998 the Company made contributions of
appreciated assets to a private foundation in the total fair value amount
of approximately $751,417. The contributions resulted in an income
tax benefit to the Company in the amount of approximately $270,000 for
1998. No such contributions were made during 1999.
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 decreased $120,900 (23.2%) in 1999 as compared with
1998 due primarily to the decrease 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
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
FINANCIAL REPORT
DECEMBER 31, 1999
CONTENTS
PAGE
AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . 4
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1999 and 1998. . . . . 5-6
Statements of Income and Comprehensive Income
for the Years Ended
December 31, 1999 and 1998 . . . . . . . . . . . . . . . 7
Statements of Stockholders' Equity
for the Years Ended
December 31, 1999 and 1998 . . . . . . . . . . . . . . . . 8
Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998. . . . . . . . . . . . . . . 9-10
Notes to Consolidated Financial Statements . . . . . . . 11-17
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 18
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, 1999 and 1998 and the related
consolidated statements of income and comprehensive income, stockholders'
equity 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, 1999 and 1998
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 27, 2000
Great Falls, Montana
4
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1999 and 1998
1999 1998
ASSETS
Current Assets
Cash (Note 2) $ 15,765,640 $ 15,043,805
Investment Securities (Note 3) 1,671,238 1,699,672
Trade Accounts Receivable, Less Allowance
for Doubtful Accounts of $17,500
in 1999 and $8,000 in 1998 70,543 82,007
Due From Parent Company (Note 9) - 21,750
Total Current Assets 17,507,421 16,847,234
Noncurrent Investments (Note 3) 4,718,891 5,583,054
Other Assets 2,238 2,238
Investments In Property, Plant and
Equipment, at Cost (Notes 1 and 8)
Buildings 2,010,010 1,934,011
Furniture, Fixtures and Equipment 487,214 464,824
2,497,224 2,398,835
Less Accumulated Depreciation (1,852,146) (1,825,216)
645,078 573,619
Title Plants 216,715 216,715
Land 80,453 80,453
Net Property, Plant and Equipment 942,246 870,787
$ 23,170,796 $ 23,303,313
See Notes to Consolidated Financial Statements.
5
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1999 and 1998
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 94,405 $ 146,636
Accrued Liabilities (Note 4) 131,993 126,999
Due to Parent Company (Note 9) 37,098 -
Deferred Income Taxes (Notes 1, 3 and 5) 226,500 223,000
Total Current Liabilities 489,996 496,635
Provision for Estimated Title and
Escrow Losses (Note 6) 923,531 970,494
Minority Interests in Consolidated Subsidiaries 369,207 376,229
Deferred Income Taxes (Notes 1, 3 and 5) 500,700 852,800
Excess of Fair Value of Net Assets
Acquired Over Cost (Note 1) 40,415 48,635
1,833,853 2,248,158
Commitments (Note 7)
Stockholders' Equity
Common Stock, $.05 Par Value,
30,000,000 shares authorized,
10,483,142 shares issued and outstanding 524,157 524,157
Capital Surplus (Note 11) 16,165,957 16,165,957
Retained Earnings (Notes 10 and 11) 3,106,430 2,318,489
Accumulated Other
Comprehensive Income (Note 3) 1,050,403 1,549,917
Total Stockholders' Equity 20,846,947 20,558,520
$ 23,170,796 $ 23,303,313
See Notes to Consolidated Financial Statements.
6
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 and 1998
1999 1998
Revenues
Title Insurance Premiums and Related Fees $ 1,675,067 $ 2,309,024
Interest 690,554 662,896
Rent 523,779 517,105
Other 377,942 1,332,951
3,267,342 4,821,976
Operating Expenses
Salaries and Other Personnel Costs 1,108,837 1,018,795
Depreciation 101,409 103,394
Rent 50,410 41,582
Title and Escrow Losses 4,129 30,544
Other General and Administrative Expenses 812,448 1,529,358
2,077,233 2,723,673
Operating Income 1,190,109 2,098,303
Minority Share of Consolidated Subsidiaries
Net (Income) (2,168) (41,036)
Income Before Income Taxes 1,187,941 2,057,267
Income Taxes (Note 5) (400,000) (520,900)
Net Income 787,941 1,536,367
Other Comprehensive Income (Loss),
Net of Income Taxes:
Unrealized Holding Gains (Losses):
Gain (Loss) Arising During Year (504,313) (1,103,958)
Reclassification Adjustment 4,799 (543,584)
Other Comprehensive Income (Loss) (499,514) (1,647,542)
Comprehensive Income (loss) $ 288,427 $ (111,175)
See Notes to Consolidated Financial Statements.
7
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 and 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Accumulated
Other
Common Capital Retained Comprehensive
Stock Surplus Earnings Income Total
Balances, January 1, 1998 $ 524,157 $ 8,665,957 $ 8,282,122 $ 3,197,459 $ 20,669,695
Recapitalization 7,500,000 (7,500,000) -
Net Income 1,536,367 1,536,367
Change in Net Unrealized
Holding Gains (1,647,542) (1,647,542)
Balances, December 31, 1998 524,157 16,165,957 2,318,489 1,549,917 20,558,520
Net Income 787,941 787,941
Change in Net Unrealized
Holding Gains (499,514) (499,514)
Balances, December 31, 1999 $ 524,157 $16,165,957 $ 3,106,430 $ 1,050,403 $ 20,846,947
</TABLE>
See Notes to Consolidated Financial Statements.
8
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 and 1998
INCREASE (DECREASE) IN CASH
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received From Customers $ 2,224,260 $ 2,776,756
Cash Paid to Suppliers and Employees (2,041,975) (1,842,951)
Interest and Dividends Received in Cash 945,821 933,396
Income Taxes Paid in Cash (395,750) (530,483)
Net Cash Provided By Operating Activities 732,356 1,336,718
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Proceeds From Redemptions
of Property, Plant and Equipment - 8,695
Cash Purchases of Minority Interests (1,760) (1,873)
Capital Expenditures Paid in Cash (172,868) (62,769)
Cash Received on Dispositions of
Current Investments 200,242 342,656
Cash Received on Dispositions of
Noncurrent Investments - 527,582
Cash Purchases of Current Investments (94,983) (133,460)
Net Cash Provided (Used) By Investing Activities (69,369) 680,831
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Cash Advances From (To) Parent Company 58,848 (58,680)
Net Cash Provided (Used) By Financing Activities 58,848 (58,680)
NET INCREASE IN CASH 721,835 1,958,869
CASH - BEGINNING OF YEAR 15,043,805 13,084,936
CASH - END OF YEAR $15,765,640 $15,043,805
(Continued)
9
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS - Continued
FOR THE YEARS ENDED DECEMBER 31, 1999 and 1998
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
1999 1998
Net Income $ 787,941 $ 1,536,367
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation 101,409 103,394
Provision for Doubtful Accounts Receivable 27,349 -
Minority Share of Consolidated Subsidiaries Net
Income 2,168 41,036
Amortization of Deferred Credit (8,220) (8,220)
Realized (Gains) on Dispositions
of Investments (68,206) (439,559)
Contribution in Kind - 163,182
Changes in Operating Assets and Liabilities
(Increase) in Accounts Receivable (20,835) (75,810)
Increase (Decrease) in Payables and
Accrued Liabilities (89,250) 16,328
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 732,356 $ 1,336,718
See Notes to Consolidated Financial Statements.
10
<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.
11
<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 the 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.
(i) Retirement Plans
The Company adopted an employees' savings plan under Section 401(k) of
the Internal Revenue Code (the "Code") during 1998. The Company allows
eligible employees to contribute the maximum percentage of their
compensation allowed by the Code. The Company matches employee
contributions in an amount equal to fifty percent of the first six
percent of the employee's compensation up to a maximum of $1,080.
Participants are at all times fully vested in their contributions and are
gradually vested in the Company's contributions. The Company's 401(k)
contributions and administrative costs were $9,918 and $7,523 for 1999
and 1998, respectively.
(j) Reclassifications
Certain reclassifications have been made to the prior year amounts to
make them comparable to the 1999 presentation. These changes had no
impact on previously reported results of operations or shareholders'
equity.
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, 1999, cash balances
totalling $13,575,281 were uninsured by either the SIPC or the FDIC.
12
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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 itscurrent 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:
1999 1998
Current Assets:
Cost $ 1,115,651 $ 1,152,704
Gross Unrealized Holding Gains 558,426 551,638
Gross Unrealized Holding Losses (2,839) (4,670)
Fair Value $ 1,671,238 $ 1,699,672
Noncurrent Assets:
Cost $ 3,385,128 $ 3,385,128
Gross Unrealized Holding Gains 1,228,763 2,092,926
Fair Value $ 4,613,891 $ 5,478,054
Realized gains and losses are determined on the basis of specific
identification. During 1999 and 1998, sales proceeds and gross realized
gains and losses were as follows:
1999 1998
Sales Proceeds $ 200,243 $ 870,238
Gross Realized Losses $ 8,099 $ 17,159
Gross Realized Gains $ 76,305 $ 456,718
No other gains or losses, realized or unrealized, are included in the
Company's statements of income for 1999 or 1998.
Stockholder's equity at December 31, 1999 has been increased by $1,050,403,
the difference between the total net unrealized gain at December 31, 1999,
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.
13
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31,:
1999 1998
Property Taxes $ 39,236 $ 43,152
Compensation 68,763 61,884
Payroll Taxes 2,731 -
Other 21,263 21,963
$ 131,993 $ 126,999
5. INCOME TAXES
Income tax expense consists of the following:
1999 1998
Federal $ 340,000 $ 425,000
State 60,000 95,900
$ 400,000 $ 520,900
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:
1999 1998
Computed "Expected" Tax Expense $ 403,900 $ 699,500
Purchase Accounting Adjustments (2,800) (2,800)
Minority Interest in Income of Subsidiaries 800 13,400
Dividends Received Deduction (60,800) (64,400)
Contribution at Fair Value - (200,000)
State Income Taxes 50,800 67,000
Other 8,100 8,200
$ 400,000 $ 520,900
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 $226,500 and
$500,700, respectively at December 31, 1999.
14
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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 insures 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, 1999 and 1998, was $45,690 and
$39,204, respectively. Annual rental commitments for the ensuing calendar
years are as follows: calendar year 2000 - $41,400, calendar year
2001 - $38,400 and calendar year 2002 - $38,400.
8. RENTAL PROPERTY
The Company is the lessor of property under operating leases expiring in
calendar year 2000. The following is a summary of property leased or
held for lease at December 31, 1999:
Buildings $ 1,786,272
Land 61,125
1,847,397
Less: Accumulated Depreciation (1,229,601)
$ 617,796
Minimum future rentals to be received on non-cancelable leases as of
December 31, 1999, for the 2000 calendar year are $79,632. The consolidated
statements of income do not contain any contingent rental income.
15
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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 1998, the Company and its consolidated subsidiaries contributed
assets in kind with a fair market value and a cost basis of $751,417 and
$163,182, 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 $270,200. The Company had
transactions with its parent company or affiliates during 1999 and 1998,
as follows:
1999 1998
Was Charged For Managerial Assistance $ (132,000) $ (132,000)
Net Cash Transfers To 475,452 744,280
Was Charged For Property Insurance (33,600) (33,600)
Income Tax Allocation (368,700) (520,000)
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,
1999, substantially all of consolidated retained earnings were subject to
such restrictions. At December 31, 1999, FMTIC's statutory capital and
surplus as regards policyholders amounted to $8,938,691.
11. RECAPITALIZATION
During 1998, the Company adopted a plan whereby a portion of retained
earnings was capitalized as capital surplus. Adoption of the plan had no
effect on total stockholders' equity.
16
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
12. INFORMATION ON SEGMENTS OF BUSINESS
The Company's operations are classified into three reportable segments that
provide different products or services. The Company's reportable segments,
the title insurance business, ownership and rental of properties and
financial holding company are managed separately because of their differing
operations, customers and requirements. The Company's accounting policies
for segments are the same as those described in the summary of significant
accounting policies. Management evaluates segment performance based on
segment profit or loss before income taxes. Substantially all of the
Company's business is conducted within the state of Montana.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sales To Segment Total Net Expenditures
Outside Interest Operating Segment Depreciation For Segment
Concerns Revenues Profit Assets Expense Assets
Year Ended December 31, 1999:
Financial Holding Company $ 216,360 $ 242,258 $ 464,661 $ 8,815,307 $ 1,488 $ 17,860
Title Insurance Operations 1,836,649 448,296 552,667 13,655,312 42,600 49,783
Rental Properties 523,779 - 172,781 700,177 57,321 105,225
Consolidated $2,576,788 $ 690,554 $1,190,109 $23,170,796 $101,409 $ 172,868
Year Ended December 31, 1998:
Financial Holding Company $ 650,342 $ 245,429 $ 358,258 $ 9,272,020 $ 578 $ -
Title Insurance Operations 2,991,633 417,467 1,572,935 13,369,296 39,520 62,769
Rental Properties 517,105 - 167,110 661,997 63,296 -
Consolidated $4,159,080 $ 662,896 $2,098,303 $23,303,313 $103,394 $ 62,769
17
<PAGE>
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
DIRECTORS AND OFFICERS
NAME OCCUPATION
Paul J. McCann, Jr. Attorney at Law, Investor
Director, Billings, Montana
President
Miriam A. Arneson Investor
Director Billings, Montana
Kathleen Cain Investor, Teacher
Director Livingston, Montana
MARKET INFORMATION
To the Company's knowledge, the Company's common stock is not traded on
any public 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 1999 or 1998.
There are approximately 3,235 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
18
<PAGE>
</TABLE>
TSI, INC.
EXHIBIT #22
SUBSIDIARIES
Percentage
Voting
Securities
State of Owned By
Name of Company Organization Registrant
UAC, Inc. Delaware 87.2
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)
Merritt Properties, Inc. Montana (3)
Miramar, Inc. Montana 100.0
(1) Owned 70% by UAC, Inc.
(2) Owned 100% by UAC, Inc.
(3) Owned 100% by First Montana Title Insurance Company
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 15765640
<SECURITIES> 1671238
<RECEIVABLES> 70543
<ALLOWANCES> 17500
<INVENTORY> 0
<CURRENT-ASSETS> 17507421
<PP&E> 2794392
<DEPRECIATION> 1852146
<TOTAL-ASSETS> 23170796
<CURRENT-LIABILITIES> 489996
<BONDS> 0
0
0
<COMMON> 524157
<OTHER-SE> 20322790
<TOTAL-LIABILITY-AND-EQUITY> 23170796
<SALES> 0
<TOTAL-REVENUES> 3267342
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2077233
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1187941
<INCOME-TAX> 400000
<INCOME-CONTINUING> 787941
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 787941
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
