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, 1998.
[ ] 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
(Exact name of registrant as specified in its charter)
Minnesota 41-0843524
(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
(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, 1998: $75,174,840
Number of shares outstanding as of June 2, 1998: 11,409,858 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 18 and F-1 of this report.
Total number of pages including cover -- 35
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
to address the needs of several markets in order to become a diversified,
precision instrumentation company.
RECENT CORPORATE DEVELOPMENTS
In July 1997, the Company acquired Target Systems, Inc. of Salt Lake
City, Utah, a manufacturer of diameter gauges for the wire and cable industry.
It had sales of approximately $2,900,000 in the twelve months prior to
acquisition. This addition enhances the capabilities of the Company by adding
products to its instrumentation for non-contact monitoring and control in
materials processing.
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.
The discussion that follows describes the business and product lines
under these two market drivers and shows the percentage contribution to net
sales:
Year Ended March 31
-------------------
Major Market Drivers 1998 1997 1996
-------------------- ---- ---- ----
Instruments for the Safety, Comfort & Health of People 64% 67% 66%
Instruments for Productivity and Quality Improvement 36% 33% 34%
---- ---- ----
100% 100% 100%
INSTRUMENTS FOR THE SAFETY, COMFORT AND HEALTH OF PEOPLE
TSI instruments that enhance the Safety, Comfort and Health of People
are described under five headings or categories:
Analytical and Research Instruments
The Company's earliest products, starting in 1966, were for research
applications. The development of many of the basic technologies used in TSI
products occurred in research instruments, and the following often describes
products that apply these technologies to specific industrial applications.
The Company has developed a line of analytical and research instruments
which are used to measure and characterize very small particles, usually
referred to as submicron 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. During fiscal 1998, the
Company introduced an Ultraviolet Aerodynamic Particle Sizer(R) Spectrometer
(UV-APS) for early warning of biohazards. The Company received a $1.8 million
contract for this device from the US Army with delivery scheduled in early
fiscal 1999. The contract includes options to purchase $4.6 million of
additional instruments for delivery before October 1999.
Many of the Company's particle measuring instruments are used in
conjunction with computers (manufactured by others) which compile and interpret
the data obtained. The Company develops and sells a variety of user-friendly
software packages to expand and enhance the applications of these instruments.
Technologies developed within this area are used in industrial instruments for
industrial hygiene and safety as well as instruments for quality control and
testing.
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 fall into the area of "Indoor
Air Quality" measurements. These instruments use technology originally developed
in various research instruments and applications. In early fiscal 1999, a line
of instruments for measuring combustion gases in furnaces, water heaters and
boilers was introduced.
Instruments for Industrial Hygiene and Safety
The Company's instruments in this category are mainly to monitor for
potential problems in the air people breathe and to help protect people from
toxic airborne substances. The PortaCount (R) Respirator Fit Tester helps
protect workers and military personnel by testing for the proper fit of
respirators and gas masks. The Company markets the PortaCount in both commercial
and military versions.
Much of this area of application is often referred to as "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. The addition of a line of gas
detection sensors obtained in the acquisition of Transducer Research, Inc. in
fiscal 1993 led to additional product offerings.
This area includes portable instruments that measure various indoor air
quality parameters, including levels of carbon dioxide, a parameter that has
been linked to the "sick building" syndrome. It
also includes instruments for measuring dust concentrations, carbon monoxide in
industrial settings and the high concentrations of carbon dioxide used in food
and beverage manufacturing. A portable personal gas monitor for use in confined
spaces was introduced in early fiscal 1999. Development work is continuing to
add other gas detection sensors and instruments to these product lines.
Meteorological and Hydrological Instruments
With the 1986 acquisition of Handar, in Sunnyvale, California, an
extensive line of measuring instruments were added to the Company's outdoor
environmental measurement capabilities. They are used globally to monitor
atmospheric parameters such as wind, humidity, temperature, visibility, cloud
height, soil moisture, snow, rain, and many others. Applications include
monitoring weather conditions in remote locations, monitoring aviation weather,
forecasting wildfires and floods, measuring the impact of pollution on natural
resources and various other applications. Complete systems measure, collect,
store, and transmit data via telephone, radio, and satellite. Handar's products
include an ultrasonic wind sensor, an improvement on the cup-and-vane
anemometers widely used to measure wind speed and direction. This patented
sensor utilizes ultrasonic technologies, involves no moving parts and can be
heated to prevent ice buildup when used at low temperatures.
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 for
incorporation into their products. TSI has for several years supplied flow
sensors to monitor flow in medical products used for respiratory assistance.
Ventilators used to assist breathing in intensive care units are the main
product in which these sensors are used.
Through TSI's Alnor subsidiary, fume hood and room pressure monitors
are sold on an OEM basis to manufacturers of fume hood cabinets and to HVAC
control companies.
INSTRUMENTS FOR PRODUCTIVITY AND QUALITY IMPROVEMENT
TSI instruments for Productivity and Quality Improvement help customers
worldwide to enhance the competitive position of their processes and products.
They are described here under four headings or categories.
Research Instruments
As with the safety, comfort and health products, the first products
described are those used for research and testing, since they 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 include the imaging of flow velocity and turbulence in wind
tunnels, ducts and 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, and particle image velocimetry. These are used in
research products as described below:
--Thermal Anemometers -- Thermal anemometry 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 as it passes the element provides a
measure of the velocity and/or flow rate of the fluid. The instrument provides
the flow rate in an analog display or converts 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. Thermal Anemometry is used in many of the
instruments sold into TSI's industrial markets. The technique is used in many
HVAC instruments, for example, as well as instruments for industrial hygiene and
safety.
--Laser-Doppler Velocimeters -- For over 20 years, the Company has
developed and produced 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. They are used to obtain measurements in
locations where a probe would be destroyed or would disturb the flow of the
fluid 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. The Company also has developed and is selling a variety
of user-friendly software packages to expand and enhance the application of
these instruments. Laser Doppler velocimetry techniques are used in other TSI
instruments for non-contact monitoring and control in material production
processes.
--Particle Image Velocimeters -- Through engineering design, licensing
of technologies and acquisition of product lines, the Company has developed a
line of instruments and software that measure or map flow patterns over an area.
This provides users with a visual output of flow speed and direction, for
example, around an object in a wind tunnel. These products are referred to as
particle-image velocimeters because the technique is based on tracking,
simultaneously, 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 to TSI's flow measuring and analysis
capabilities, which the Company expects to continue growing over the next few
years.
--Phase-Doppler Particle Analysis -- During fiscal 1996, the Company's
acquisition of Aerometrics, Inc. added significant capability for measuring the
characteristics of spray droplets, such
as those in fuel injector sprays, personal inhalers, 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(R), the Company produces an instrument
line that employs diode lasers and optical techniques to measure the surface
speed and length of aluminum, steel and similar materials during manufacturing.
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 give precise measurements without
physical contact with the materials. Customers realize savings in material cost
by reducing scrap and in quality improvements through better process control.
LaserSpeed CB100 and CB150 instruments measure the speed and length of extruded
materials such as fiber, wire and cable during manufacturing. Further
development work is continuing to enhance these devices, lower product costs and
expand their use to other materials manufacturing processes.
In fiscal 1998 and 1997, two small acquisitions, one in Germany and one
in the United States, added new non-contact techniques for measuring diameter,
width and materials alignment in industrial processes. These products can be
sold to the same customers and through the same distribution channels as the
LaserSpeed instruments.
Instruments For Quality Control Testing
The Company's line of automated test stands, sold under the trade name
CertiTest(TM), are used to determine the efficiencies of filters and filter
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.
This category also includes instruments for measuring the speed and
concentration of droplets in industrial sprays to assure uniform manufacturing
quality of devices such as fuel injectors. A quality
control automated test stand called the Optical Patternator(TM) was introduced
during fiscal 1997, with the first units delivered 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 continues 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 measure residue in
ultra-clean water using particle sensors that incorporate light scattering
optical techniques. They are used by manufacturers of semiconductor devices,
pharmaceutical products and other products which require very low contamination
levels during critical manufacturing processes.
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 of incoming parts. The
Company continues to seek and maintain alternative vendors and has generally
been able to locate alternative sources for materials during 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 14 percent of total
net sales in fiscal 1998, 12 percent in fiscal 1997 and 10 percent in fiscal
1996, but accounted for no more than 10 percent of total sales for each of the
prior ten years. The increases in fiscal 1998 and fiscal 1997 were mainly due to
sales of PortaCount respirator fit testers under U.S. military contracts.
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 protecting military personnel from
bio-hazard materials. These sales are made on a contractual basis one year at a
time or less. There is no assurance that these sales will continue or that the
government will not cancel such contracts (however, incurred costs would
normally be reimbursed). As of March 31, 1998 the Company's backlog included
orders of about $4.8 million for PortaCount fit testers and $1.8 million for
Ultraviolet Aerodynamic Particle Sizer Spectrometers for U.S. military services,
all scheduled to be shipped during fiscal 1999.
Sales to international customers under the Company's two major market
drivers for the periods indicated were as follows:
Year Ended March 31
-------------------
1998 1997 1996
-------------- --------------- --------------`
Int'l. % of Int'l % of Int'l. % of
Sales Total Sales Total Sales Total
(000) Sales (000) Sales (000) Sales
----- ----- ----- ----- ----- -----
Major Market Drivers
--------------------
Instruments for the Safety,
Comfort & Health of People $13,266 16% $17,379 22% $11,647 17%
Instruments for Productivity
and Quality Improvement 13,863 17% 12,941 16% 13,106 19%
------ --- ------ --- ------ ---
Total 27,129 33% 30,320 38% 24,753 36%
Overall, the Company's fiscal 1998 international sales were 11 percent less than
fiscal 1997 international sales. Fiscal 1997 international sales increased 22
percent compared to fiscal 1996. The significant fluctuation between the years
is due primarily to sales of Safety, Comfort and Health products.
Included in fiscal 1997 sales of Safety, Comfort and Health products
was a $6.8 million contract for the PortaCount(R) respirator fit tester to the
German Army. There was no similar international contract in either fiscal 1998
or 1996. Consequently, for Safety, Comfort and Health products, international
sales increased 49 percent between fiscal 1997 and 1996 but decreased 24 percent
between fiscal 1998 and 1997.
Productivity and Quality Improvement products increased 7 percent from
fiscal 1997 to 1998 after experiencing a 1 percent decline from fiscal 1996 to
1997. The increase in fiscal 1998 was attributable primarily to higher sales of
LaserSpeed(R) instruments. The decline in international sales in fiscal 1997 was
due to a decline in research product sales. Research product sales fluctuate
year-to-year depending on buying trends in this mature market niche.
Both Safety, Comfort and Health instruments and Productivity and
Quality Improvement instruments have experienced a decline in sales to the
Pacific Rim region, primarily due to a weakening of the economies in that
region. Sales to the Pacific Rim represented 10 percent, 12 percent and 14
percent of sales in fiscal years 1998, 1997 and 1996, respectively. It is
uncertain what impact the weakening of the Asian currencies will have on fiscal
1999.
Further segment information about domestic and foreign operations is
included under Note I of the Notes to Consolidated Financial Statements on page
23 of the Company's 1998 Annual Report to Shareholders (Exhibit 13, page F-8).
Refer to page 12 of the Management's Discussion and Analysis of Results of
Operations and Financial Condition for additional discussion regarding
international sales.
MARKETING
The Company markets its products through Company-employed sales
engineers operating from 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 developing new products and identifying 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, 1998, the Company's backlog of orders was approximately
$22,408,000 compared to $25,122,000 at March 31, 1997 and $30,007,000 at March
31, 1996. The Company estimates that over 95% of the 1998 backlog will be
shipped by March 31, 1999.
As of March 31, 1998, about $4.8 million of the Company's backlog was
due to the afore-mentioned military contracts for PortaCount fit testers,
compared with $8.5 million and $12 million as of March 31, 1997 and 1996,
respectively. The March 31, 1998 backlog also includes a $1.8 million U.S.
military contract for the Company's Ultraviolet Aerodynamic Particle Sizer(R)
Spectrometer. There was no similar contract in backlog at March 31, 1997 or
1996.
COMPETITION
The Company's products compete with products utilizing different
technologies as well as directly competitive products. For example, certain of
the Company's measuring instruments which use thermal anemometry 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 on
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. Also important
is an ability to grow by adding new 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.
COMPETITORS COMPANY'S
----------- 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 - - - 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 developing 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 emphasis 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 from time to time. This type of contract work generally
relates 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
1998, the Company spent approximately $11,554,000 (14.3% of net sales) in
research and product development activities, compared to $10,939,000 (13.6% of
net sales) and $8,993,000 (13.0% of net sales) in fiscal 1997 and 1996,
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 material adverse effect on
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 on the
Company.
EMPLOYEES
As of March 31, 1998, the Company had 512 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 feet. Constructed for the Company, it 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 in fiscal 1981 and the third, 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, 1998, the
productive capacity of this building is estimated to be from 30 to 50 percent
higher than fiscal 1996 levels, depending on the type of increased business
encountered. The increased production capacity was necessary because of higher
sales of analytical and research products which require 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 it can build up to 80,000 square feet of additional space if
necessary.
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, 1998.
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, 1998, 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 1998 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 1988 through 1998 on pages 10 and 11 of the Company's
1998 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 1998 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 1998 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 1998 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 1998, 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 65 Chairman of the Board of Directors . Dr.
Fingerson was Chief Executive Officer of
the Company from 1961 until July 1997
and Chairman of the Board since 1986.
Dr. Fingerson has announced he will
retire effective at the July 1998 Annual
Meeting.
James E. Doubles 57 President and Chief Executive Officer
since July 1997 and a Director. Mr.
Doubles was President and Chief
Operating Officer of the Company from
July 1992 to July 1997.
Lowell D. Nystrom 62 Senior Vice President since December
1997 and a Director. Mr. Nystrom was
Vice President, Treasurer and Chief
Financial Officer of the Company from
1961 to December 1997.
Robert F. Gallagher 43 Vice President and Chief Financial
Officer since December 1997. Mr.
Gallagher was Controller for the Company
from October 1989 to December 1997.
(c) Section 16(a). See the Company's Proxy Statement for 1998
Annual Meeting of Shareholders, dated June 18, 1998, 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 1998 Annual Meeting of Shareholders, dated
June 18, 1998, 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 1998 Annual Meeting of Shareholders, dated June 18,
1998, 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 1998 Annual Meeting of Shareholders,
dated June 18, 1998, 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 1998.
(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 11: Computation of Per Share Earnings.
Exhibit 13: The Company's 1998 Annual Report to
Shareholders for the fiscal year ended March
31, 1998.
Exhibit 21: Subsidiaries of the Company.
Exhibit 23: Auditors' Consent.
Exhibit 99: Forward Looking Statements
Exhibit 27: Financial Data Table.
- --------------
*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 25,1998 TSI INCORPORATED
/s/James E. Doubles
-------------------
James E. Doubles, 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 Chairman of the Board and a Director June 25,1998
- ------------------------
Leroy M. Fingerson
/s/ James E. Doubles President, Chief Executive Officer and June 25,1998
- ------------------------ Director (Principal Executive Officer)
James E. Doubles
/s/ Lowell D. Nystrom Senior Vice President and a Director June 25,1998
- ------------------------
Lowell D. Nystrom
/s/ Robert F. Gallagher Vice President and Chief Financial June 25,1998
- ------------------------ Officer (Principal Financial and
Robert F. Gallagher Accounting Officer)
/s/ John F. Carlson Director June 25,1998
- ------------------------
John F. Carlson
/s/ Frank D. Dorman Director June 25,1998
- ------------------------
Frank D. Dorman
/s/ Joseph C. Levesque Director June 25,1998
- ------------------------
Joseph C. Levesque
/s/ Donald M. Sullivan Director June 25,1998
- ------------------------
Donald M. Sullivan
/s/ Kenneth J. Roering Director June 25,1998
- ------------------------
Kenneth J. Roering
/s/ Lawrence J. Whalen Director June 25,1998
- ------------------------
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, 1998. 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 1998 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 16 -
March 31, 1998, 1997 and 1996
Consolidated Balance Sheets - March 31, 1998 and 1997 17 -
Consolidated Statements of Cash Flows for the Years Ended 18 -
March 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for Years 19 -
Ended March 31, 1998, 1997 and 1996
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 14, 1998, we reported on the consolidated balance sheets of
TSI Incorporated and subsidiaries as of March 31, 1998 and 1997 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, 1998 as contained in
the 1998 annual report to shareholders. These consolidated financial statements
and our report thereon are incorporated in the annual report on Form 10-K for
the year 1998. 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 14, 1998
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
beginning cost and to other against at end of
of period expenses accounts reserve period
- ----------------------------------------------------------------------------------------------
Year ended
March 31, 1998
Deducted from
Asset Accounts:
Allowance for
doubtful accounts: $275,000 $ 29,000 $ 0 $24,000 $280,000
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
- -------------
*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
1998 1997 1996
- --------------------------------------------------------------------------------
Advertising $1,555,000 $1,568,000 $1,664,000
- --------------------------------------------------------------------------------
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, 1998
21 Subsidiaries of the Company F-9
23 Auditors' Consent F-10
99 Forward Looking Statement F-11
27 Financial Data Table