FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.
Commission File Number 0-2958.
TSI INCORPORATED
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(Exact name of registrant as specified in its charter)
Minnesota 41-0843524
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(State or other jurisdiction of (I.R.S. Employee Identification No.)
incorporated or organization)
500 Cardigan Road, Shoreview, Minnesota 55126
- ---------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 483-0900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
National Association of Securities Dealers
Automated Quotation System (Nasdaq) Common Stock, $10 par Value
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(Name of each exchange on which registered) (Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 __X__ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of registrant
as of June 2, 1997: $87,023,920.
Number of shares outstanding as of June 2, 1997: 11,487,325 shares of Common
Stock, $.10 par value.
Documents incorporated by reference: See Index of Exhibits, Financial Statement
Schedules and Reports on Form 8-K, located at pages 19 and F-1 of this report.
Total number of pages including cover - 36
PART I
Item 1. BUSINESS
DEVELOPMENT OF THE BUSINESS
The Company was founded in 1961 as a manufacturer of scientific
measuring instruments for research applications. In 1968, the Company went
public under the name Thermo-Systems Inc. and in 1976 became TSI Incorporated.
In recent years, the Company has applied its research instrumentation technology
to industrial applications and has acquired or developed additional technologies
in order to address the needs of several markets to become a diversified,
precision instrumentation company.
Recent Corporate Developments
On October 31, 1996 the Company acquired Zimmer GmbH of Rossdorf,
Germany, a $1.8 million manufacturer of instruments for non-contact dimensional
measurement. This addition enhances the capabilities of the Company by adding
product lines to its instrumentation for materials manufacturing and quality
improvement instrumentation.
As of December 31, 1996, the operations of Transducer Research, Inc. at
Aurora, Illinois were closed with the electro-chemical sensor development and
manufacturing moved and integrated into operations at the Company's Shoreview,
Minnesota headquarters facilities. This was done to improve efficiency but costs
aggregating about $400,000 were incurred in the third and fourth quarters of
fiscal 1997.
PRODUCTS
The Company develops, manufactures and markets measuring and/or control
instruments for a variety of market applications. The Company's business
operates under one segment which is referred to as precision instrumentation for
industry and research. This business is characterized by many "niche" markets,
where one of the Company's many basic measuring technologies fits the
measurement needs in different industrial and research applications.
The applications for the Company's products can best be described by
considering two general market areas or drivers. These are the Safety, Comfort
and Health of People (the working environment) and Productivity and Quality
Improvement (industrial processes). Both of these cross numerous industries.
When outlining the Company's business in prior 10-K reports, two
classes of products have been described. As more technologies, sensor types and
applications have been acquired, developed and pursued, these two classes - flow
measuring and surface motion instruments and particle and gas measuring
instruments - no longer serve to clearly describe the Company's products. Hence,
the description for this fiscal 1997 10-K report has been restructured. The
discussion that follows describes the business and product lines under the two
general market drivers - Safety, Comfort & Health of People and Productivity and
Quality Improvement.
The percentage contribution to net sales under these two major market
drivers for the periods indicated was as follows:
Year Ended March 31,
Major Market Drivers 1997 1996 1995
-------------------- ---- ---- ----
Instruments for the Safety, Comfort & Health of People 67% 66% 68%
Instruments for Productivity and Quality Improvement 33% 34% 32%
---- ---- ----
100% 100% 100%
Safety, Comfort and Health instruments recorded a 19 percent increase in net
sales in fiscal 1997 as compared with fiscal 1996, while net sales of
Productivity and Quality Improvement instruments increased 9 percent during the
same period. This caused a small shift in fiscal 1997 in the percentage of total
net sales toward the Safety, Comfort and Health area, mainly due to increased
sales of PORTACOUNT(R) fit testers for military applications. There was a shift
in fiscal 1996 from fiscal 1995, in the percentage of total net sales toward the
Productivity and Quality Improvement market area due mostly to increased sales
of fluid mechanics instrumentation and adding one of the two major acquisitions
made during fiscal 1996. Refer to Management's Discussion and Analysis of
Results of Operations and Financial Condition on pages 12 and 15 of the
Company's 1997 Annual Report to Shareholders for further discussion about
changes in net sales under each of these two market drivers.
INSTRUMENTS FOR THE SAFETY, COMFORT AND HEALTH OF PEOPLE
TSI instruments that enhance the Safety, Comfort and Health of People
are described under four headings or categories:
Analytical and Research Instruments
This category is being described first because the Company's earliest
products for this area starting in 1966 were for research applications. The
development of many of the basic technologies occurred in research instruments
and the categories that follow often describe instruments that use these
technologies to make instruments packages for more specific industrial
applications.
The Company has developed a line of analytical and research instruments
which are used for measurement and characterization of very small particles,
usually referred to as sub-micron particles or aerosols. These instruments are
designed to monitor contamination levels, to make measurements in aerosol
generation studies, to study air pollution levels in buildings or in outside air
and to measure the size distribution of various aerosols. Many of the Company's
particle measuring instruments are used in conjunction with computers
(manufactured by others) which compile and interpret the data obtained. Also,
the Company has continued to develop and sell a variety of user-friendly
software packages to expand and enhance the applications of these instruments.
Specifically, this line of instruments includes the following key
products:
- - Scanning Mobility Particle Sizer (SMPS) - to measure size distributions
of sub-micron particles using electrostatic and optical technology.
- - Aerodynamic Particle Sizer(R) (APS) Spectrometer - for size
distribution of airborne particles in larger size ranges using
electro-optics technology.
- - Condensation Particle Counter (CPC) - for detecting and counting
extremely small particles using optics and condensation technology.
- - Nephelometer - an instrument used for research on global warming and
effects of particles in the atmosphere using optical technology.
- - Vibrating Orifice (and other) Particle Generators - for making
controlled samples of aerosols for further research and testing using
vibration and atomizers.
During fiscal 1995, 1996 and 1997, the Company received contracts to
develop and produce APS instruments for the U.S. Army and Canadian Army, adding
the use of fluorescence sensors to indicate composition. This is for detecting
the presence of bio-hazard material in the air. Work has continued during fiscal
1997 and there are expectations for a U.S. Army production contract to be
received in fiscal 1998 to manufacture this instrument - called the UV-APS
detector.
The Company introduced a new commercial version of the APS during
fiscal 1997 and continues to expand research and development funding to enhance
other existing instruments and develop new instruments to maintain its
leadership in this market category.
Monitoring and Control Instruments for Heating, Ventilating and Air Conditioning
(HVAC)
These instruments are used to measure or control air flow, air
distribution, relative humidity, pressure, dew point, temperature, particle
concentration and concentration of gases for purposes of enhancing HVAC system
performance. Some applications in this category are also referred to as "Indoor
Air Quality" instrumentation.
The key instruments in this line include:
- - VelociCalc(TM), VelociCheck(TM), CompuFlow(TM)and Velometer(TM) -
portable monitors for air velocity. Various models also measure flow
rates, temperature, humidity and pressure.
- - Sureflow(TM), PresSura(TM), EverWatch(TM) and AirGard(TM) - monitors
and controllers to measure and control the air velocity and flow rate
in fume hoods and room pressure in laboratories and hospital rooms.
- - Balometer(TM) and AccuBalance - monitors are used to measure air flow
to balance the distribution of air within and between rooms.
- - DP-CALC(TM), Prezzurgard(TM) and MicroManometer are electronic pressure
measuring instruments used for a variety of applications from air
distribution to filter testing.
The fiscal 1996 acquisition of Alnor Instrument Company added to the
Company's measurement technologies in the area of velocity using small
propellers and pressure differential meters, temperature with thermocouples and
pyrometers, dew-point with condensation detectors and micromanometers for
pressure measurements. Alnor velocity and fume hood control products expanded
the Company's product lines and marketing channels for HVAC applications, making
the Company more competitive globally.
In fiscal 1997 the Company introduced a new line of PresSura room
pressure controllers, the DP-CALC pressure monitor, enhanced AccuBalance air
distribution monitor and improved performance of several other products.
Additional development and new product introductions are expected in fiscal 1998
adding gas monitoring instruments and new air velocity meters.
Instruments for Industrial Hygiene and Safety
The Company's instruments in this category are mainly for monitoring
potential problems in the air people breathe. This application is also sometimes
referred to as part of "Indoor Air Quality". Product lines for this category
have expanded in the last few years as the Company has applied its basic
technologies in the areas of air velocity measurement and fine particle
measurement. Also, applications have expanded with the addition of gas detecting
sensors through the acquisition of Transducer Research, Inc. in fiscal 1993.
During fiscal 1995, 1996 and 1997, portable instruments were introduced to
measure various indoor air quality parameters including levels of carbon dioxide
to indicate the "sick building" syndrome. Instruments were also added for
measuring dust concentrations, carbon monoxide in industrial settings and high
concentrations of carbon dioxide encountered in food and beverage industries.
Development work is continuing to add other gas detecting instruments to these
product lines.
The major instruments in this category are:
- - PortaCount(TM) - an instrument that uses particle sensing techniques to
measure for leaks in face masks and respirators that result from
inadequate fit. The products are used in commercial applications where
people may be at risk from exposure to hazardous environments. This
product has been fully developed and successfully marketed
commercially, starting in fiscal 1987. During fiscal 1993, the product
was packaged for military use for the U.S. Army and U.S. Marines for
fit testing of their gas masks and production of the military version
has continued through fiscal 1997. Shipments for fiscal 1998 are
continuing under additional contracts from German and U.S. defense
agencies. Work is continuing to extend the applications of the
PortaCount device to more commercial users such as health care workers,
firefighters, etc.
- - Q-Trac(TM) - a monitor for diagnosing inadequate ventilation commonly
referred to at the "sick building" syndrome. It measures carbon
dioxide, carbon monoxide, humidity and temperature.
- - DustTrac(TM) - a monitor for measuring dust concentrations in working
environments using optical techniques.
- - RespiCon(TM) - a personal monitor for detecting exposure to respirable
particles in the size ranges that could represent health hazards. This
product was introduced in May, 1997.
The Company's air velocity and air distributor products are also sold
to customers in this category.
Meteorological and Hydrological Instruments
With the acquisition in 1986 of Handar, in Sunnyvale, California, many
measurement techniques were added to the Company's outdoor environmental
measurement capabilities used globally to monitor atmospheric parameters such as
wind, humidity, temperature, visibility, cloud height, soil moisture, snow,
rain, etc., for reporting aviation weather, forecasting wildfires and floods,
monitoring the impact of pollution on natural resources and various other
applications. Complete systems measure, collect, store, and transmit data via
telephone, radio, and satellite. In fiscal 1996, a major new flow sensing
technology was introduced to improve on the widely-used cup-and-vane anemometer
for measuring speed and direction in outdoor environments. This patented sensor
utilizes ultrasonic technologies, involves no moving parts and can be heated to
prevent ice buildup when used at low temperatures.
A new generation data collection platform or Datalogger used to collect
and transmit meteorological and environmental data was introduced during fiscal
1992. During the past year additional software capability has been added to the
Datalogger to enhance performance and to broaden applications to other than
meteorological and hydrological data collections.
While these products have been manufactured and sold for a number of
years, additional engineering work is continuing to improve and add new sensors,
data collection platforms and communication devices to enhance performance and
broaden applicability.
OEM Products
Commonly referred to as "original equipment manufacturer" (OEM) this
category includes sensors and devices sold to other manufacturers to be
incorporated in their products. TSI has for several years supplied flow sensors
to monitor flow in medical products used for respiratory assistance. The main
product in which these sensors are used is referred to as a "ventilator" used to
assist breathing in intensive care units. This category has been a small part of
the Company's business (about 2% in fiscal 1997), but is expanding because more
customers have adopted the Company's sensors for health-care applications in
respiratory devices.
OEM type sales are also being made to customers for the
electro-chemical sensors that were acquired in 1993 with Transducer Research
Inc. (TRI). These are mainly being pursued for a few applications where the
unique capability of the TRI sensors provides an advantage. Otherwise these
sensors are built for use in the Company's own gas detecting instruments.
Through its Alnor subsidiary, fume hood and room pressure monitors are
being sold on an OEM basis to manufacturers of fume hood cabinets and HVAC
control companies.
While there is no assurance that significant growth will occur, the
Company plans to continue developing OEM type sales for its sensors when they
can be applied in the products of other manufacturers. This often requires
engineering development work to adapt to customer requirements.
INSTRUMENTS FOR PRODUCTIVITY AND QUALITY IMPROVEMENT
TSI instruments for Productivity and Quality Improvement help customers
worldwide to enchance the competitive position of their processes and products.
Research Instruments
As with the safety, comfort and health products, the first products
to describe are those used for research and testing because these were the
Company's first technologies, actually starting with the founding of the Company
in 1961. Since then, many industrial products have grown out of technology
developed for research and this is expected to continue.
Fluid mechanics (or flow related) measuring instruments represent the
main product line for research applications. Fluid mechanics measurements are
mostly used for productivity and quality improvement of customers' products and
processes. Examples are imaging of velocity and turbulence in wind tunnels,
duct, pipes and imaging in engines and automotive exhaust gases to improve
efficiency or lower pollution and noise.
The Company's flow measuring instruments utilize several measurement
techniques including thermal anemometry, laser-Doppler velocimetry,
phase-Doppler particle analysis, particle-image velocimetry used in research
products as outlined below:
- Thermal Anemometers - Thermal technology has been used in the
Company's flow measuring instruments since its earliest products were developed.
A probe containing a small electrically heated element is exposed to a flow. The
cooling effect of the flow on the element provides a measure of the velocity
and/or flow rate in a gas or liquid. The instrument can then portray the flow
rate in an analog display or convert it into a digital signal for further
processing by a computer. The output signal can be used to monitor, analyze or
control the flow or velocity within a flow channel or process. The Company
maintains an ongoing development program to further enhance this technology and
add companion products and software for convenient signal analysis and data
interpretation.
- Laser-Doppler Velocimeters - For over 20 years, the Company has been
developing and producing various flow measuring instruments which utilize a
laser based technology, generally called laser-Doppler velocimetry (using lasers
manufactured by others). These instruments use a laser beam and optical
measurement techniques to measure velocity and movement, rather than a probe as
used with the thermal instruments. The laser instruments are used to obtain
measurements in locations where a probe would be destroyed or is undesirable
because it would disturb the flow of the liquid or gas being measured. This
technology continues to be enhanced in a variety of ways to meet new
applications. Reducing the size, increasing the ruggedness of instruments,
improving accuracy, improving signal processing techniques and allowing for more
than one measurement to be taken at a point in time are some of these
enhancements. Also, the Company has developed and is selling a variety of
user-friendly software packages to expand and enhance the application of these
instruments.
- Particle Image Velocimetry - Through engineering development work,
licensing and acquisition of product lines, the Company has added the capability
of providing instruments and software packages that measure or map flow patterns
over an area providing users with a visual output of the flow speed and
direction around an object in, for example, a wind tunnel. These products are
referred to as particle-image velocimeters because the technique is based on the
simultaneous tracking of the movement of numerous particles in the flow stream.
Optical techniques are used to show images of the flow patterns. This area has
been emerging as an important addition of flow measuring and analysis capability
which the Company expects to continue growing over the next few years.
- Phase-Doppler Particle Analysis - During fiscal 1996 the Company
acquired Aerometrics, Inc. which added significant capability in the area of
measuring characteristics of droplets such as in fuel sprays, inhalants, water
sprays, etc. This technology, which expands on laser-Doppler Velocimetry
technology, is referred to as phase-Doppler particle analysis.
Non-Contact Monitoring and Control in Materials Processing
Under the trade name LaserSpeed(TM), the Company produces an instrument
line using lasers and optical techniques to measure surface speed and length of
aluminum, steel and similar materials in manufacturing processes. This product
line performs well for measurements in rolling mills and similar metals forming
operations. Applications to other materials processing have also been developed.
The LaserSpeed instruments measure very precisely with no physical contact with
the materials, providing customers with savings in material cost by reducing
scrap and improvements in quality through better process control. Additional
engineering work was done during fiscal 1996 and 1997 to develop the LaserSpeed
CB100 and CB 150 instruments to measure speed and length of fiber, wire and
cable during manufacturing. Further development work is continuing to enhance
these devices, lower product costs and expand to other materials manufacturing
processes.
In fiscal 1997, a German company, Zimmer GmbH, was acquired which added
new non- contact measuring techniques for diameter, width and alignment
measurement in industrial processes.
Instruments For Quality Control Testing
The Company's line of automated test stands sold under the trade name
CertiTest(TM) are products used to determine the efficiencies of filters and
media using particle sensing techniques to measure for leaks. This product line
is used for quality control by filter manufacturers and has been manufactured
and marketed for several years. Development work occurred in fiscal 1997 to
enhance and broaden the filter testing product line.
Instruments were added with the Aerometrics acquisition in fiscal 1996
to measure the speed and concentration of droplets in industrial sprays to
assure uniform quality of manufacturing of devices such as fuel injectors. A
quality control automated test stand called the Patternator(TM) was introduced
during fiscal 1997 and engineering work is continuing to deliver the first units
during fiscal 1998.
OEM Products
In fiscal 1994, some of the Company's product lines for monitoring
contamination levels in clean rooms were sold to Particle Measuring Systems,
Inc. (PMS) of Boulder, Colorado. The Company is continuing to manufacture some
of the products for PMS on an OEM basis until December, 1998 or longer, subject
to options. These instruments monitor the particle contamination levels in air
and other gases in industrial clean room applications and residue in ultra-clean
water using particle sensors that incorporate light scattering optical
techniques and are used by manufacturers of semiconductor devices,
pharmaceutical products and other products which require very low contamination
levels during critical manufacturing processes. Continued engineering
development in fiscal 1997 added to performance capabilities of these instrument
lines.
RAW MATERIALS AND PARTS
The Company purchases most of its electronic components and materials
from suppliers in the United States and, generally, has not experienced problems
with availability. Some materials such as laser diodes and fibers for fiber
optics are imported. Import restrictions could impair availability of some of
these materials. Engineering design of the Company's products does not require
exotic parts or materials and the selection of readily available materials has
been an important design goal. The Company utilizes a vendor certification
program to help maintain the quality and timeliness on incoming parts. The
Company continues to seek and maintain alternative vendors and has generally
been able to locate alternative sources for materials during past periods of
short supply. A severe shortage of electronic parts could impair the Company's
ability to produce certain products but a broad and diversified product line
helps to alleviate this risk.
CUSTOMERS
The Company sells to a broad range of customers throughout the world.
These customers include many industrial companies, educational institutions,
research organizations and agencies of the United States and foreign
governments.
Sales to U.S. defense customers accounted for about 12 percent of total
net sales in fiscal 1997, 10 percent in fiscal 1996 and 15 percent in fiscal
1995, but accounted for no more than 10 percent of total sales for each of the
prior nine years. The increases in fiscal 1995 and fiscal 1997 were mainly due
to sales of PortaCount respirator fit testers under U.S. military contracts. The
decrease in fiscal 1996 was due to a lower level of defense sales in the two
companies acquired during fiscal 1996 and a lower level of sales of the
PortaCount fit testers to military customers.
Reduction or changes in federal spending may adversely affect the
Company's governmental and, to some extent, educational sales. While there are
some developmental contracts and sales made to many different U.S. government
agencies of many different products, the Company's major government sales in
recent years have been products related to protection of military personnel from
bio-hazard materials. These sales are made on a contractual basis one year at a
time. There is no assurance that these sales will continue or that the
government will not cancel such contracts if they should decide to do so
(however, incurred costs would normally be reimbursed). As of March 31, 1997 the
Company's backlog included orders of about $8.5 million for PortaCount fit
testers for U.S. military services, all of which is scheduled to be shipped
during fiscal 1998.
Sales to international customers under the Company's two major market
drivers, as a percentage of the Company's net sales, were as follows for the
periods indicated:
Year Ended March 31
Major Market Drivers 1997 1996 1995
-------------------- ---- ---- ----
Instruments for the Safety, Comfort & Health of People 22% 17% 13%
Instruments for Productivity and Quality Improvement 16% 19% 18%
--- --- ---
38% 36% 31%
Overall, the Company's fiscal 1997 international net sales increased about 21
percent compared to fiscal 1996, with international sales of Safety, Comfort and
Health products increasing 49 percent and international sales of Productivity
and Quality Improvement products decreasing 1 percent. The increase in fiscal
1997 for Safety, Comfort and Health products was mainly due to a $6.8 million
German Army contract for the Company's PortaCount fit testers. Sales increases
of other product lines were offset by a decrease in shipments of meteorological
instruments by the Company's Handar subsidiary because in fiscal 1996, shipments
of approximately $2.5 million were made to Brazil which were not repeated in
fiscal 1997. The decrease in fiscal 1997 for Productivity and Quality
Improvement products was attributable to lower sales of the Company's fluid
mechanics research instruments, mostly in Asian markets, which decrease was
almost offset by increased sales of the other product lines under this market
driver, leaving the 1 percent decrease. Fluid mechanics research product line
sales are not expected to experience any continuing downward trend but could
continue to fluctuate from year-to-year corresponding with buying patterns in
this mature market niche.
From fiscal 1995 to fiscal 1996 international sales increased about
65 percent. The Company's fiscal 1996 export sales increased in part from two
acquisitions mentioned before. Without these two acquisitions the international
sales increase would have been 45 percent, with sales of Safety, Comfort and
Health instruments increasing 68 percent (with the largest factor coming from
increased international sales at Handar, along with increases in all the other
major product lines); and with sales of Productivity and Quality Improvement
instruments increasing 28 percent (most of which came from increases in sales of
fluid mechanics products).
Further segment information about domestic vs foreign operations is
included under Note I of the Notes to Consolidated Financial Statements on page
23 of the Company's 1997 Annual Report to Shareholders (Exhibit 13, page F-8).
Refer to page 13 of the Management's Discussion and Analysis of Results of
Operations and Financial Condition for added discussion regarding international
sales.
Marketing
The Company markets its products through Company-employed sales
engineers who operate out of offices located in the United States and
international sales offices located in Europe. In addition, independent sales
representatives and distributors represent the Company in other domestic and
international markets. The Company uses promotional catalogs, technical
bulletins, seminars, displays, trade shows, insertions in catalogs of others and
advertising in trade journals to promote its products. The Company's sales
consist primarily of standard products as listed in its catalogs, although the
Company also sells specialized products designed to meet specific customer
requirements.
The nature of the Company's products requires a marketing approach that
is customer application oriented. Accordingly, sales engineers and independent
representatives are technically competent in a variety of engineering and
scientific disciplines as well as trained in the market niches and product lines
on which they concentrate. The sales force provides the Company with information
for development of new products and identification of new markets. In addition
to direct sales efforts and after-sales servicing, the Company provides its
customers with technical support, advice, training and application information
related to the Company's products.
At March 31, 1997, the Company's backlog of orders was approximately
$25,122,000 compared to $30,007,000 at March 31, 1996 and $11,364,000 at March
31, 1995. The Company estimates that over 95% of the 1997 backlog will be
shipped by March 31, 1998.
As of March 31, 1997, about $8.5 million of the Company's backlog was
due to the aforementioned military contracts for PortaCount fit testers,
compared with $12 million as of March 31, 1996.
COMPETITION
The Company's products compete with products utilizing difference
technologies as well as directly competitive products. For example, the
Company's fluid flow measuring instruments which use thermal measurement
techniques compete with instruments utilizing differential pressure or other
measurement techniques. New technologies and products could be introduced by
competitors that would make existing Company products obsolete. The Company's
ability to compete is dependent upon its ability to develop or license products
in a changing technological environment. The Company's competitive strength
often comes from its ability to fit instruments to new applications on an
ongoing basis such that new applications or markets replace those where needs
have changed, as well as its ability to grow by adding more markets.
Competitive forces vary in accordance with the various markets into
which the Company sells products. Competition can best be described by starting
with the two major market drivers and further categorizing product types in each
area as shown in the table that follows. In the table, when "significant market
share" is indicated, it is due to the Company's long term presence in a market
niche or because the product is so unique that it may, essentially, be the only
product available to make the measurement required, thus creating its own niche.
The exact number of international competitors is not always known, particularly
in cases where the Company does not have international experience with that
product type. The Company typically confronts the same group of competitors in
about 20% of its total sales.
COMPANY'S
COMPETITORS MARKET SHARE
Major Minor Significant Minor
Product Type Int'l Domestic Int'l Domestic Share Share
- ------------------------------------------------------------------------------------------------------------
Instruments for the Safety, Comfort & Health of People
ANALYTICAL AND
RESEARCH 2 2 more more X*
than 6 than 6
HVAC
Air Distribution 3 2 more more X*
than 6 than 6
Lab/Room Air
Flow Control - 3 2 3 X*
INDUSTRIAL HYGIENE
& SAFETY
Respirator Fit Test 1 - - 2 X
Indoor Air Quality 2 4 more more X*
than 6 than 6
METEOROLOGY/
ENVIRONMENTAL
MONITORING 4 3 more more X*
than 6 than 6
OEM** ** - - X*
Instruments for Productivity & Quality Improvement
RESEARCH 1 - 4 2 X
NON-CONTACT MATERIAL
PROCESSING 3 - 2 1 X*
QUALITY CONTROL
Filter Testing - 1 2 - X
Spray Measurements 1 - 2 2 X
OEM** ** X*
*Market share varies considerably by specific product within the market category
**OEM sales are normally made under specific contracts mainly in areas where the
Company has unique applicable technology so competition is not usually the
major issue.
RESEARCH AND PRODUCT DEVELOPMENT
The Company is engaged in research and development activities
principally for the development of proprietary products. These activities, which
occur in all aspects of the Company's business, generally consist of the
development, design and testing of potential new products with emphassis on
applied (as distinct from basic) research. Approximately 75% of the Company's
engineering and technical staff are engaged in research and development
activities on a full-time basis. The Company also engages in some contract
research work for others that varies form time to time. This type of contract
work generally related to the development of a future instrument or product
enhancements to better meet market needs and applications. In addition, the
Company utilizes various outside consultants in the research and development
area. In fiscal year 1997, the Company spent approximately $10,939,000 (13.6% of
net sales) in research and product development activities, compared to
$8,993,000 (13.0% of net sales) and $7,196,000 (14.7% of net sales) in fiscal
1996 and 1995, respectively.
Patents and Licenses
One or more aspects of several products currently marketed by the
Company are covered by patents owned by the Company or licensed to the Company
by outside inventors. While the Company believes that patent protection is
important to its business, it does not believe that the expiration or
invalidation of any particular patent would have a materially adverse effect
upon its business. All licenses held with respect to technology used by the
company are believed to be fully enforceable. The loss of any one of several
licenses held by the Company would probably not have significant adverse effect
upon the Company.
Employees
As of March 31, 1997, the Company had 516 employees. The company's employees are
not represented by a union, except at Alnor Instrument Company, a wholly owned
subsidiary acquired in fiscal 1996, where about 35 production employees are
represented by an in-house union. There has never been a work stoppage due to
labor difficulties and the Company considers its relations with employees to be
satisfactory at all locations.
Item 2. PROPERTIES
The Company's general offices and main manufacturing facilities are
located at 500 Cardigan Road, Shoreview, Minnesota 55126. This building contains
approximately 140,000 square fee. It was constructed for , and has been in use
by the Company since 1976 and is well suited to the Company's operations. This
building was built in three parts, the first being completed in fiscal 1977, the
second part in fiscal 1981 and the third part, which added 58,000 square feet of
space in fiscal 1996. The project for the third part along with related
furnishings, product equipment and improvements in the existing space had a
total cost of about $4 million during fiscal years 1995 and 1996. The expansion
and remodeling project resulted in a facility that is ideally suited for the
Company's diversified product lines and markets. As of March 31, 1997, the
productive capacity of this building is estimated to be from 30 to 50 percent
higher than fiscal 1997 levels, depending on the type of increased business
encountered. This is because growth of analytical and research products sales
requires more engineering support, making second shift production less feasible
than for higher volume industrially oriented products. The Company owns
additional land at the same location on which to build as much as 80,000 square
feet of additional space in the future as required.
The Company also leases space for subsidiary operations which has in
each case been modified to suit requirements.
Item 3. LEGAL PROCEEDINGS
No material legal proceedings were pending or threatened against the
Company or its subsidiaries as of March 31, 1997.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended
March 31, 1997, for a vote by the shareholders.
PART II
Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY & RELATED MATTERS
The information in the sections titled "Stock and Dividend Data" and
"Stock Data" on page 11 of the Company's 1997 Annual Report to Shareholders is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
The information in the section titled "Eleven-Year Financial data
Summary" for the years 1993 through 1997 on page 10 of the Company's 1997 Annual
Report to Shareholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information in the section titled "Management Discussion and
Analysis of Results of Operations and Financial Condition" on pages 12 through
15 of the Company's 1997 Annual Report to Shareholders is incorporated herein by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and notes thereto on pages 16
through 23 of the Company's 1997 Annual Report to Shareholders is incorporated
herein by reference.
The following supplemental financial data are included herein and
should be read in conjunction with the consolidated financial statements in the
Company's 1997 Annual Report to Shareholders:
Schedule VIII: Valuation and Qualifying Accounts, page F-4.
Schedule X: Supplementary Income Statement Information, page F-5.
Item 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information concerning the Company's directors set forth
in the Company's Proxy Statement for 1997, is incorporated by
reference herein.
(b) The executive officers of the Company are:
Position with the Company
Name Age and Business Experience
---- --- -----------------------
Leroy M. Fingerson 64 Chairman of the Board of Directors and
Chief Executive Officer. Dr. Fingerson
has been Chief Executive Officer of the
Company since 1961 and Chairman of the
Board since 1986.
James E. Doubles 56 President and Chief Operating Officer
since 1992 and a Director. Executive
Vice President and Chief Operating
Officer from 1989 to 1992.
Lowell D. Nystrom 61 Vice President, Treasurer and Chief
Financial Officer and a Director. Mr.
Nystrom has been Vice President,
Treasurer and Chief Financial Officer of
the Company since 1961.
(c) Section 16(a). See the Company's Proxy Statement for 1997
Annual Meeting of Shareholders, dated June 20, 1997, which is
incorporated herein by reference.
(d) There are no family relationships between and among directors
or officers.
(e) Business experience of Directors may be found in the Company's
Proxy Statement for 1997 Annual Meeting of Shareholders, dated
June 20, 1997, which is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
from Proxy Statement for 1997 Annual Meeting of Shareholders, dated June 20,
1997, under the caption "Executive Compensation".
Item 12. PRINCIPAL SHAREHOLDERS
The information required by Item 12 is incorporated herein by reference
from the Company's Proxy Statement for 1997 Annual Meeting of Shareholders,
dated June 20, 1997, under the caption "Principal Shareholders".
Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) See accompanying Index to Financial Statements on page F-1.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of
fiscal 1997.
(c) Exhibits included herein:
Exhibit 3a: Restated Articles of Incorporation as
amended in November, 1984, October, 1986 and
July, 1996, hereby incorporated by
reference.
Exhibit 3b: Restated Bylaws adopted June, 1987, hereby
incorporated by reference
Exhibit 10.a* TSI Incorporated Incentive Stock Option Plan
of 1982, incorporated by reference from Form
S-8, File No. 1-91697, July 25, 1988.
Exhibit 10.b* TSI Incorporated Stock Option Plan of 1988,
incorporated by reference from Form S-8,
File No. 33-20627, August 22, 1989.
Exhibit 10.c* TSI Incorporated Stock Option Plan of 1992,
incorporated by reference from Form S-8,
File No. 33-66194, July 19, 1993.
Exhibit 10.d* TSI Incorporated Stock Purchase Plan of
1994, incorporated by reference from Form
S-8, File No. 33-86468, November 17, 1994.
Exhibit 10.e Registration Statement No. 333-19049 on Form
S-3, filed with the Securities and Exchange
Commission on December 31, 1996, for sale of
TSI shares by a certain shareholder.
Exhibit 11: Computation of Per Share Earnings.
Exhibit 13: The Company's 1997 Annual Report to
Shareholders for the fiscal year ended March
31, 1997.
Exhibit 21: Subsidiaries of the Company
Exhibit 23: Consent of Independent Auditors
Exhibit 27: Financial Data Table
Exhibit 99: Forward Looking Statements
- ----------------
*Indicates management contract or compensation plan or arrangement required to
be filed as an exhibit.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: June 26, 1997 TSI INCORPORATED
/s/ Leroy M. Fingerson
---------------------------------
Leroy M. Fingerson, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Title Date
/s/ Leroy M. Fingerson Chief Executive Officer and a Director June 26, 1997
- ------------------------ (Principal Executive Officer) -------------
Leroy M. Fingerson
/s/ Lowell D. Nystrom Vice President, Chief Financial Officer June 26, 1997
- ------------------------ and a Director (Principal Financial and -------------
Lowell D. Nystrom Accounting Officer)
/s/ James E. Doubles President, Chief Operating Officer and June 26, 1997
- ------------------------ Director -------------
James E. Doubles
/s/ Robert F. Gallagher Controller and Corporate Officer June 26, 1997
- ------------------------ (Principal Accounting Officer) -------------
Robert F. Gallagher
/s/ John F. Carlson Director June 26, 1997
- ------------------------ -------------
John F. Carlson
/s/ Frank D. Dorman Director June 26, 1997
- ------------------------ -------------
Frank D. Dorman
/s/ Joseph C. Levesque Director June 26, 1997
- ------------------------ -------------
Joseph C. Levesque
/s/ Donald M. Sullivan Director June 26, 1997
- ------------------------ -------------
Donald M. Sullivan
/s/ Kenneth J. Roering Director June 26, 1997
- ------------------------ -------------
Kenneth J. Roering
/s/ Lawrence J. Whalen Director June 26, 1997
- ------------------------ -------------
Lawrence J. Whalen
page F-1
TSI INCORPORATED 10-K
TSI INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
A. STATEMENTS OF REGISTRANT
No separate financial statements of the Registrant are included herein
as the Registrant is primarily an operating company. All subsidiary
companies are wholly owned, and their indebtedness to any person other
than the Registrant or its consolidated subsidiaries is in the
aggregate, less than 5% of consolidated assets at March 31, 1997. The
financial statements of the Registrant and all subsidiaries are
included in the consolidated financial statements.
B. CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to the consolidated financial statements in the
Company's 1997 Annual Report to Shareholders which are incorporated
herein by reference in accordance with Rule 12b-23 under the Securities
Exchange Act of 1934 and attached hereto.
Annual Report Page 10-K Page
------------------ ---------
Quarterly Financial Information (Unaudited) 16 -
Consolidated Statements of Earnings for the Years Ended -
March 31, 1997, 1996 and 1995 16
Consolidated Balance Sheets - March 31, 1997 and 1996 17 -
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1997, 1996 and 1995 18 -
Consolidated Statements of Shareholders' Equity for Years
Ended March 31, 1997, 1996 and 1995 19 -
Notes to Consolidated Financial Statements 19 -
Independent Auditors' Report 24 -
C. INDEPENDENT AUDITORS' REPORT ON - F-3
SCHEDULES
page F-2
D. CONSOLIDATED SCHEDULES
Schedule Description 10-K Page
- -------- ----------- ---------
VIII Valuation and Qualifying Accounts F-4
X Supplementary Income Statement Information F-5
All schedules except those listed above have been omitted as not required, not
applicable, or the information required therein is contained in the financial
statements or the footnotes thereto.
page F-3
Independent Auditors' Report
The Board of Directors and Shareholders
TSI Incorporated:
Under date of May 16, 1997, we reported on the consolidated balance sheets of
TSI Incorporated and subsidiaries as of March 31, 1997 and 1996 and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the years in the three-year period ended March 31, 1997 as contained in
the 1997 annual report to shareholders. These consolidated financial statement
and our report thereon are incorporated in the annual report on Form 10-K for
the year 1997. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedules as listed in the accompanying index (see Item 8). These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
Minneapolis, Minnesota /s/ KPMG Peat Marwick LLP
May 16, 1997
page F-4
SCHEDULE VIII; VALUATION AND QUALIFYING ACCOUNTS
TSI INCORPORATED AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------
COL. A. COL. B COL. C COL D COL. E
===========================================================================================================
Additions
(1) (2) Bad debts
Description Balance Charged to Charged to charged Balance of
beginning cost and to other against end of
of period expenses accounts reserve period
- -----------------------------------------------------------------------------------------------------------
Year ended
March 31, 1997
Deducted from
Asset Accounts:
Allowance for
doubtful accounts: $267,000 $ 17,000 $ 4,000* $ 13,000 $275,000
Year ended
March 31, 1996
Deducted from
Asset Accounts:
Allowance for
doubtful accounts $142,000 $ 59,000 $ 96,000* $ 30,000 $267,000
Year ended
March 31, 1995
Deducted from
Asset Accounts
Allowance for
doubtful accounts: $183,000 $ 27,000 $ 34,000 $102,000 $142,000
- -------------
*Added in acquisitions
page F-5
Schedule X: SUPPLEMENTARY INCOME STATEMENT INFORMATION
TSI INCORPORATED AND SUBSIDIARIES
- --------------------------------------------------------------------------------
COL. A COL. B
================================================================================
Charged to Costs and Expenses
Item Year Ended March 31
1997 1996 1995
- --------------------------------------------------------------------------------
Advertising $1,568,000 $1,664,000 $1,086,000
- --------------------------------------------------------------------------------
Amounts for royalties, amortization on intangible assets, taxes other than
payroll and income, and maintenance and repairs are not presented as such
amounts are less than 1% of net sales.
page F-6
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
11 Computation of Per Share Earnings F-7
13 Annual Report to Shareholders for the F-8
fiscal year ended March 31, 997
21 Subsidiaries of the Company F-9
23 Auditors' Consent F-10
27 Financial Data Table
99 Forward Looking Statement F-11