U.S. Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen,
We are transmitting herewith Form 10-KSB for the year ended December 31,
2002 for TSI, Inc.
TSI, Inc.
s/D. Mellinger
D. Mellinger
Accountant
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
XX ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2002
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-2054
TSI, INC.
(Name of small business issuer in its charter)
Montana
(State or other jurisdiction of incorporation or organization)
81-0267738
(I.R.S. Employer Identification Number)
128 Second Street South, Great Falls, Montana 59405
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (406) 727-2600
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $.05 Par Value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes XX No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year $2,452,563.
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as
of a specified date within the past 60 days. (See definition of affiliate in
Rule 12b-2 of the Exchange Act). As of February 28, 2003, 765,904 shares
held by nonaffiliates were outstanding. The aggregate market value of the
Registrant's common stock held by non-affiliates of the Registrant as of
February 28, 2003 was approximately $76,590 based pon the aaverage
bid price as reported by Nasdaq.com.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
10,468,976 shares $.05 par value common stock are outstanding as of
February 28, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the form 10-KSB (e.g., Part I, Part II, etc.)
into which the documents are incorporated: (1) any annual report to security
holders: (2) any proxy or information statement; and (3) any prospectus
filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933
("Securities Act"). The listed documents should be clearly described for
identification.
DOCUMENTS FORM 10-KSB REFERENCE
Annual Report to Shareholders for Part I, Items 1 and 2
the year ended December 31, 2002. Part II, Items 5, 6 and 7
Part III, Item 12
Part IV, Item 13
Transitional Small Business Disclosure Format (check one): Yes ; No X
TSI, INC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS AND
ITEM 2. DESCRIPTION OF PROPERTY
A description of the Company's business and property ownership is set forth
on Page 1 of Exhibit 13, the Annual Report to Shareholders for the year
ended December 31, 2002, which description is incorporated herein by
reference.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings presently pending by or against TSI, Inc., are
described herein as management believes that the outcome of such litigation
should not have a material adverse effect on the financial position of the
Company and its subsidiaries taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2002.
I-1
1.
TSI, INC.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS;
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ITEM 7. FINANCIAL STATEMENTS
Items 5, 6 and 7 are set forth on Page 18, Pages 1 and 2 and Pages 3 to 17,
respectively, of Exhibit 13, TSI, Inc. Annual Report to Shareholders for the
year ended December 31, 2002, which report is incorporated herein by
reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no disagreements concerning accounting principles or
practices or financial statement disclosures between the Company and the
Company's independent auditor during the two most recent years.
II-1
2.
TSI, INC.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT.
The following are the directors and executive officers of the Company. All
directors and officers serve as such until the 2003 annual meeting of
shareholders or until their successors are elected and qualify.
NAME, AGE, AND YEAR ELECTED DIRECTOR POSITION
Paul J. McCann, Jr., 48, 1995 Director,
President
John Ross, 49, 2000 Director
Miriam A. Arneson, 47, 1998 Director
Paul J. McCann, Jr. is the president and a director of GNI, Inc.
Miriam A. Arneson is a director of GNI, Inc., UAC, Inc.,
and Diversified Realty, Inc.
Family Relationships
Paul J. McCann, Jr. and Miriam A. Arneson are children of
Anne Marie and Paul J. McCann. Members of the Anne Marie and Paul J. McCann
family control, directly or indirectly, a majority of the outstanding common
stock of M Corp. M Corp owns approximately 92% of the Company's issued and
outstanding common stock. There are no other family relationships among the
individuals listed above nor are there any arrangements or understandings
pursuant to which any of them were elected as officers or directors.
Following are the executive officers of the Company and a description of
their principal business experience.
Name and Position Principal Business Experience
Paul J. McCann, Jr., Attorney at Law
President, Director Business Owner, Investor
Billings, Montana
Miriam A. Arneson, Director, Diversified Realty, Inc.
Director Director, UAc, Inc. and GNI, Inc.
Investor,
Billings, Montana
Based solely on its review of reports of persons subject to Section 16 of
the Securities and Exchange Act, the Company believes that required reports
were filed in a timely manner disclosing transactions involving the
Company's common stock.
III-1
3.
TSI, INC.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table shows the cash compensation
paid by the Company and its consolidated subsidiaries to the Company's
President and Chief Executive Officer for 2002, 2001 and 2000.
Summary Compensation Table
Name and Calendar Total Cash
Principal Position Year Compensation
Paul J. McCann, Jr. 2002 $ 0
President, Director 2001 $ 0
2000 $ 0
Paul J. McCann 2002 $198,000
2001 $436,862
2000 $ 0
The Company has no pension plan, no stock option or stock appreciation
rights plans and no long-term incentive plans and there was no other material
compensation paid during the year ended December 31, 2002. The Company has
not adopted a formal plan for the compensation of directors. During 2002 the
Company and its consolidated subsidiaries paid a total of $13,750 to
directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning persons who are known
by the Company to own beneficially more than 5% of the Company's voting
shares on February 28, 2003.
Amount and Nature
Title of Name and Address of of Beneficial Percent
Class Beneficial Owner Ownership of Class
$.05 Par M Corp 9,694,877 (1) 92.6%
Value Common 110 Second Street South Direct
Stock Great Falls, Montana
(1) At February 28, 2003, members of the Anne Marie and Paul J. McCann
family, including Paul J. McCann, Jr. and Miriam A.
Arneson, children of Anne Marie and Paul J. McCann, indirectly
controlled a majority of the outstanding stock of M Corp.
Members of the Anne Marie and Paul J. McCann family own directly a
total of 4,745 shares of the Company's outstanding stock. Neither
Paul J. McCann or Anne Marie McCann own any shares of stock in TSI,
Inc. Anne Marie McCann and Paul J. McCann disclaim beneficial
ownership in any stock of TSI, Inc.
III-2
4.
TSI, INC.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
Continued
(b) Security Ownership of Management
The following table sets forth as of February 28, 2003, information
concerning the beneficial ownership of the Company's common stock by each
director, each executive officer named in the Company's Summary Compensation
Table and by all directors and executive officers of the Company as a group:
Amount and Nature
Name of Beneficial Owner of Beneficial Ownership Percent
Paul J. McCann, Jr. None (1) --
John R. Ross None (1) --
Miriam A. Arneson None (1) --
All Directors and Officers None (1) --
as a Group
(1) See Note (1) item 11(a) on preceding page.
(c) Changes In Control
The Company knows of no contractual arrangements which may at a subsequent
date result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the Company's parent company, its subsidiaries and
other related parties are disclosed in Note 9 of the notes to consolidated
financial statements in the Annual Report to Shareholders for the year ended
December 31, 2002, which note is incorporated herein by reference.
III-3
5.
TSI, INC.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. 13 - TSI, Inc. Annual Report to Shareholders for the year ended
December 31, 2002.
No. 22 - Subsidiaries.
No. 27 - Financial Data Schedule.
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the Company during the
three months ended December 31, 2002.
IV-1
6.
TSI, INC.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TSI, INC.
Date: April 14, 2003 By: s/Paul J. McCann, Jr.
Paul J. McCann, Jr.,
President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in
the capacities indicated on April 14, 2003.
President s/Paul J. McCann, Jr.
Paul J. McCann, Jr.
Director s/Miriam A. Arneson
Miriam A. Arneson
Principal Accountant s/D. Mellinger
D. Mellinger
IV-2
7.
TSI, INC.
ANNUAL REPORT
2002
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
ANNUAL REPORT
DESCRIPTION AND LINES OF BUSINESS
TSI, Inc. (herein referred to as "TSI" or the "Company") was incorporated
in 1958. A wholly-owned subsidiary of the Company, First Montana Title
Insurance Company (FMTIC), is a title insurance company operating in that
business in the State of Montana only. Through wholly-owned subsidiaries,
FMTIC owns and operates title plants in two Montana counties. A subsidiary
of FMTIC owns real property in Great Falls, Montana.
During 2001 UAC, Inc., a subsidiary of the Company, through its
wholly-owned subsidiary sold the title agency assets it owned
and operated in Montana. During 1988 through 1991, UAC, Inc.,
primarily through its wholly-owned subsidiary, acquired rental units
in Montana.
TSI owns rental property in Helena, Montana and non income-producing
properties located within Cascade County, Montana. A subsidiary of the
Company owns rental property in Polson, Montana. The Company's investments
in rental properties is set forth in Note 8, Rental Property, of the Notes
to Consolidated Financial Statements.
The Company is a 92% owned subsidiary of M Corp, a financial holding company
located in Great Falls, Montana. Transactions with the Company's parent
company and its affiliates are set forth in Note 9, Related Party
Transactions, of the Notes to Consolidated Financial Statements.
The Company operates in a competitive business environment and is not
dependent upon one or a few major customers. Information concerning the
Company's industry segments is set forth in Note 12 (Information on Segments
of Business) of the Notes to Consolidated Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Title insurance premiums and related fees decreased $451,933 (26.9%) in
2002 as compared with 2001 due to the sale of the Great Falls title
operation in 2001.
1
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Interest revenues decreased $93,607 (29.5%) in 2002 as compared with 2001
due primarily to a decrease in interest-bearing deposits and a decrease
in interest rates earned on such deposits.
Rent revenues decreased $12,914 (3.2%) in 2002 as compared with 2001 due
primarily to an increase in vacancies.
Other income decreased $3,289,468 (84.5%) in 2002 as compared with 2001.
During 2001 the Company recognized net gains on the disposition of
investments in the total amount of $3,302,297 whereas 2002 dispositions
of such resulted in a gain of only $6,357. The decrease in gains
recognized on the disposition of investments in 2002 was the primary
reason for the decrease in other income in 2002 as compared with 2001.
Salaries and other personnel costs decreased $427,235 (30.7%) in 2002 as
compared with 2001 due primarily to a decrease in compensation paid to
to personnel.
The provision for depreciation decreased $9,219 (10.6%) in 2002 as compared
to 2001.
Transactions with the Company's parent company and other affiliates are
disclosed in Note 9, Related Party Transactions, of the Notes to
Consolidated Financial Statements.
Income tax expense decreased $1,130,500 (89.1%) in 2002 as compared with
2001 due primarily to the decrease in pre-tax income.
The Company is considering acquisitions which would deplete the Company's
available cash and thus affect the liquidity of the Company.
2
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
FINANCIAL REPORT
DECEMBER 31, 2002
CONTENTS
PAGE
AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . 4
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 2002 and 2001. . . . . 5-6
Statements of Income and Comprehensive Income
for the Years Ended
December 31, 2002 and 2001 . . . . . . . . . . . . . . . 7
Statements of Stockholders' Equity
for the Years Ended
December 31, 2002 and 2001 . . . . . . . . . . . . . . . . 8
Statements of Cash Flows for the Years Ended
December 31, 2002 and 2001. . . . . . . . . . . . . . . 9-10
Notes to Consolidated Financial Statements . . . . . . . 11-17
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 18
3
Report of Independent Auditors
To The Board of Directors
TSI, Inc.
Great Falls, MT 59405
We have audited the accompanying consolidated balance sheets of
TSI, Inc. and consolidated subsidiaries as of December 31, 2002 and
2001 and the related consolidated statements of income and
comprehensive income, stockholders'equity and cash flows for the
years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of TSI, Inc. and consolidated subsidiaries as of December 31, 2002 and 2001
and the consolidated results of their operations and their consolidated cash
flows for the years then ended, in conformity with accounting priniciples
accepted in the United States of America.
DWYER & Company, CPA, P.C.
May 9, 2003
Great Falls, Montana
4
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 2002 and 2001
2001 2002
ASSETS
Current Assets
Cash (Note 2) $ 22,140,919 $ 23,337,149
Investment Securities (Note 3) 2,215,222 1,011,648
Trade Accounts Receivable, Less Allowance
for Doubtful Accounts
$11,500 in 2001 and $11,500
in 2002 (Note 9) 85,127 102,513
Deferred Tax Asset -- 14,800
Prepaid Expenses 1,800 --
Total Current Assets 24,443,068 24,466,110
Noncurrent Investments (Note 3) 482,702 586,580
Other Assets 2,238 2,238
Investments In Property, Plant and
Equipment, at Cost (Notes 1 and 8)
Buildings 2,031,873 2,047,260
Furniture, Fixtures and Equipment 433,377 473,924
2,465,250 2,521,184
Less Accumulated Depreciation (1,961,920) (2,039,769)
503,330 481,415
Title Plants 117,865 117,865
Land 80,453 80,453
Net Property, Plant and Equipment 701,648 679,733
$ 25,629,656 $ 25,734,661
See Notes to Consolidated Financial Statements.
5
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 2002 and 2001
2001 2002
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable (Note 9) $ 215,730 $ 208,629
Accrued Liabilities (Note 4) 110,110 126,563
Due to Parent Company (Note 9) 103,718 206,764
Income Taxes Payable 267,747 137,297
Deferred Income Taxes (Notes 1, 3 and 5) 98,700 --
Total Current Liabilities 796,005 679,253
Provision for Estimated Title and
Escrow Losses (Note 6) 847,225 815,013
Minority Interests in Consolidated Subsidiaries 387,491 391,503
Deferred Income Taxes (Notes 1, 3 and 5) 86,100 128,500
Excess of Fair Value of Net Assets
Acquired Over Cost (Note 1) 23,975 15,755
1,345,241 1,350,771
Commitments (Note 7)
Stockholders' Equity
Common Stock, $.05 Par Value,
30,000,000 shares authorized,
10,483,142 shares issued and outstanding 524,157 524,157
Capital Surplus (Note 11) 19,165,957 22,165,957
Retained Earnings (Notes 10 and 11) 3,540,191 868,992
Accumulated Other
Comprehensive Income (Note 3) 269,323 166,323
Less:
Cost of Common Shares in Treasury (11,218) (20,792)
Total Stockholders' Equity 23,488,410 23,704,637
$ 25,629,656 $ 25,734,661
See Notes to Consolidated Financial Statements.
6
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002 and 2001
2001 2002
Revenues
Title Insurance Premiums and Related Fees $ 1,681,592 $ 1,229,659
Interest 317,075 223,468
Rent 409,189 396,275
Other 3,892,629 603,161
6,300,485 2,452,563
Operating Expenses
Salaries and Other Personnel Costs 1,391,712 964,477
Depreciation 87,068 77,849
Rent 49,260 49,048
Title and Escrow Losses 3,796 12,612
Other General and Administrative Expenses 799,243 879,791
2,324,079 1,983,777
Operating Income 3,976,406 468,786
Minority Share of Consolidated Subsidiaries
Net (Income)Loss (27,154) (4,185)
Income Before Income Taxes 3,949,252 464,601
Income Taxes (Note 5) (1,268,200) (135,800)
Net Income 2,681,052 328,801
Other Comprehensive Income (Loss),
Net of Income Taxes:
Unrealized Holding Gains (Losses):
Gain (Loss) Arising During Year 307,729 (105,892)
Reclassification Adjustment (2,012,392) 2,892
Other Comprehensive Income (Loss) (1,704,663) (103,000)
Comprehensive Income (loss) $ 976,389 $ 225,801
See Notes to Consolidated Financial Statements.
7
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002 and 2001
Accumulated
Other
Common Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
Balances, January 1, 2001 $ 524,157 $19,165,957 $ 859,139 $ 1,973,986 $ (300) $ 22,522,939
Net Income 2,681,052 2,681,052
Purchase Treasury Stock (10,918) (10,918)
Change in Net Unrealized
Holding Gains (1,704,663) (1,704,663)
Balances, December 31, 2001 524,157 19,165,957 3,540,191 269,323 (11,218) 23,488,410
Net Income 328,801 328,801
Purchase Treasury Stock (9,574) (9,574)
Change in Net Unrealized
Holding Gains (103,000) (103,000)
Reclassification 3,000,000 (3,000,000)
Balances,
December 31, 2002 $524,157 $22,165,957 $868,992 $166,323 $ (20,792) $23,704,637
See Notes to Consolidated Financial Statements.
8
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 and 2001
INCREASE (DECREASE) IN CASH
2001 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received From Customers $ 2,062,142 $ 2,133,095
Cash Paid to Suppliers and Employees (2,147,292) (1,925,007)
Interest and Dividends Received in Cash 709,451 285,524
Income Taxes Paid in Cash (1,000,000) (266,250)
Net Cash Provided (Used) By Operating Activities (375,699) 227,362
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Proceeds From Redemptions
of Property, Plant and Equipment 280,000 -
Cash Purchases of Minority Interests - (228)
Capital Expenditures Paid in Cash (37,923) (55,934)
Cash Received on Dispositions of
Investments 10,610,276 1,320,479
Cash Purchases of Current Investments (4,868,774) (388,921)
Net Cash Provided (Used) By Investing Activities 5,983,579 875,396
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Cash Advances From (To) Parent Company (323,400) 103,046
Cash Purchases of Treasury Stock (10,918) (9,574)
Net Cash Provided (Used) By Financing Activities (334,318) 93,472
NET INCREASE IN CASH 5,273,562 1,196,230
CASH - BEGINNING OF YEAR 16,867,357 22,140,919
CASH - END OF YEAR $22,140,919 $23,337,149
(Continued)
9
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS - Continued
FOR THE YEARS ENDED DECEMBER 31, 2002 and 2001
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
2001 2002
Net Income $ 2,681,051 $ 328,801
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation 87,068 77,849
Provision for Doubtful Accounts Receivable (5,000) -
Minority Share of Consolidated Subsidiaries Net
Income (Loss) 27,154 4,185
Amortization of Deferred Credit (8,220) (8,220)
Realized (Gains) on Dispositions
of Investments (3,485,433) (6,357)
Changes in Operating Assets and Liabilities
(Increase)Decrease in Accounts Receivable (31,916) (17,386)
Decrease in Prepaid Income Taxes 453 -
(Increase) in Prepaid Expenses (1,800) 1,800
Increase (Decrease) in Payables and
Accrued Liabilities 93,197 (22,860)
Increase in Income Taxes Payable 267,547 (130,450)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (375,699) $ 227,362
See Notes to Consolidated Financial Statements.
10
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations, Risks and Uncertainties
The Company is engaged in the title insurance business within the state of
Montana, in the title insurance agency business in Yellowstone and Rosebud
Counties, Montana and in the ownership and rental of properties located in
Montana. The Company's primary business based on revenues is title
insurance.
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the reported amounts of certain types of assets,
liabilities, revenues and expenses. Such estimates primarily relate to
unsettled transactions and events as of the date of the financial
statements. Actual results could differ from those estimates.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly and majority owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation.
(c) Depreciation and Amortization
Depreciation and amortization, computed using various methods are
provided over the useful lives of the various classes of property, plant
and equipment. Title plants and land are carried at cost and are not
depreciated.
(d) Fiduciary Assets and Liabilities
The assets and liabilities of the escrows administered by the Company are
not included in the consolidated balance sheets.
(e) Title Insurance Income and Related Fees
The Company follows the practice of recording title insurance premiums as
income upon the issuance of the title insurance policy or the collection
of payment for the title insurance preliminary commitment, whichever
occurs first. All other fees and charges are recognized as income upon
the rendering of services.
(f) Policy of Cash Equivalents
For purposes of the statements of cash flows, cash equivalents include
time deposits, certificates of deposit and money market accounts, all
with original maturities of three months or less.
11
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cintinued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
(g) Income Taxes
The Company and its subsidiaries file consolidated income tax returns
with the Company's parent company. Income taxes are allocated to the
Company based upon the ratio of the Company's pre-tax income to total
consolidated income. The Company follows the practice of recording
deferred income taxes resulting from timing differences between
financial reporting and income tax reporting. Investment tax credits, if
any, are accounted for as a reduction of income tax expense in the years
they are available for use under the flow-through method.
(h) Excess of Fair Value of Net Assets of Acquired Subsidiaries Over Cost
The excess of fair value of the net assets of acquired subsidiaries over
cost is amortized over a twenty year period using the straight-line method.
(i) Retirement Plans
The Company adopted an employees' savings plan under Section 401(k) of
the Internal Revenue Code (the "Code") during 1998. The Company allows
eligible employees to contribute the maximum percentage of their
compensation allowed by the Code. The Company matches employee
contributions in an amount equal to fifty percent of the first six
percent of the employee's compensation up to a maximum of $1,080.
Participants are at all times fully vested in their contributions and are
gradually vested in the Company's contributions. The Company's 401(k)
contributions and administrative costs were $6,160 and $8,332 for 2002
and 2001, respectively.
(j) Reclassifications
Certain reclassifications have been made to the prior year amounts to
make them comparable to the 2001 presentation.
2. CASH BALANCES
The Company maintains accounts with various financial institutions and stock
brokerage firms. Cash balances are insured up to $100,000 by either the
Securities Investor Protection Corporation ("SIPC") or the Federal Deposit
Insurance Corporation ("FDIC"). At December 31, 2002, cash balances
totalling $21,216,906 were uninsured by either the SIPC or the FDIC. The
Board of Directors of the Company has approved the Company's participation
with its subsidiaries and M Corp in the purchase of all, or substantially
all, the outstanding stocks of a bank, which if sucessfully accomplished
would significantly affect the liquidity of the Company, the cash available
to pay dividends and the cash available for other purposes and acquisitions.
Subsequent to the balance sheet ending December 31, 2002, the bank was
purchased by another company.
12
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
3.INVESTMENT SECURITIES AND OTHER INVESTMENTS
The Company adopted Statement of Financial Accounting Standards No. 115
("SFAS No. 115"), "Accounting For Investments in Certain Debt and Equity
Securities" effective January 1, 1994. In accordance with SFAS No. 115, the
Company has classified all of itscurrent and noncurrent investments, except
for restricted investments, as available for sale. Following is a summary of
the Company's investments, all of which consist of equity securities:
2001 2002
Current Assets:
Cost $ 1,973,013 $ 1,047,811
Gross Unrealized Holding Gains 250,972 62,037
Gross Unrealized Holding Losses (8,763) (98,200)
Fair Value $ 2,215,222 $ 1,011,648
Noncurrent Assets:
Cost $ 166,443 $ 166,443
Gross Unrealized Holding Gains 211,259 315,137
Fair Value $ 377,702 $ 481,580
Realized gains and losses are determined on the basis of specific
identification. During 2002 and 2001, sales proceeds and gross realized
gains and losses were as follows:
2001 2002
Sales Proceeds $10,610,276 $1,320,479
Gross Realized Losses $ 3,319,653 $ -
Gross Realized Gains $ 17,356 $ 4,888
No other gains or losses, realized or unrealized, are included in the
Company's statements of income for 2002 or 2001. Glacier Bancrop, Inc.
merged with WesterFed Financial Corportaion during the first quarter of 2001.
Pursuant to the terms of the merger agreement the Company and its subsidiaries
received approximately $6,530,400 in exchange for all of their holdings in
WesterFed Financial Corporation resuting in a net gain of approximately
$2,859,500 after deducting a fee of 7 per cent of gross proceeds to
Paul J. McCann, a member of the controlling shareholders group, who
played an active part in connection therewith.
Stockholder's equity at December 31, 2002 has been increased by $166,323,
the difference between the total net unrealized gain at December 31, 2002,
and deferred income taxes and minority interests in the net unrealized gain.
Other noncurrent investments consist of certificates of deposit in the amount
of $105,000 which are on deposit with the State of Montana Commissioner of
Insurance and are restricted as to use by law.
13
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31,:
2001 2002
Property Taxes $ 39,757 $ 43,904
Compensation 45,054 46,274
Payroll Taxes (212) -
Other 25,511 36,385
$ 110,110 $ 126,563
5. INCOME TAXES
Income tax expense consists of the following:
2001 2002
Federal $1,093,250 $ 96,100
State 174,950 39,700
$1,268,200 $ 135,800
The income tax expense reflected in the financial statements differs from the
amounts that would normally be expected by applying the U.S. Federal income
tax rates to income before income taxes. The reasons for these differences
are as follows:
2001 2002
Computed "Expected" Tax Expense $1,349,540 $ 159,387
Purchase Accounting Adjustments (2,795) (2,795)
Nontaxable Income (89,162) (47,420)
Minority Interest in Subsidiaries'
Income (Loss) 9,232 1,423
Dividends Received Deduction (32,924) (21,099)
Contributions (87,959) (251)
State Income Taxes 174,950 39,700
Other (52,682) 6,855
$1,268,200 $ 135,800
The Company and its wholly and eighty percent or more owned subsidiaries file
consolidated income tax returns with the Company's parent company. The
Company has established deferred income tax liabilities for net unrealized
gains on investments in the current and noncurrent amounts of $47,800 and
$65,900, respectively at December 31, 2002.
14
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
6.PROVISION FOR ESTIMATED TITLE AND ESCROW LOSSES
The Company's wholly-owned subsidiary, First Montana Title Insurance Company
(FMTIC) issues title insurance policies in the State of Montana. The terms
of policies issued are indefinite and premiums are not refundable. FMTIC is
a party to various lawsuits wherein, among other things, plaintiffs
generally claim defects in insured titles, unreported liens or improper
practices. FMTIC is also required under many of its policies issued to
provide defense for its insures in litigation founded upon alleged defects or
other matters insured against by the policy. Such litigation and claims are
normal occurrences within the title insurance industry. In accordance with
generally accepted accounting practices, FMTIC has established a provision
for estimated title and escrow losses which appears on the consolidated
balance sheets under the same title. FMTIC has established the provision for
estimated losses on (1) claims known to FMTIC and (2) claims unknown to
FMTIC but incurred upon issuance of policies as well as for estimated
external settlement expenses to be incurred. The provision has been reduced
for estimated recoveries.
7. COMMITMENTS
The Company and its subsidiaries are obligated under various lease agreements
for office space expiring at various dates through 2003. Rental expense for
office space for the years ended December 31, 2002 and 2001, was $38,904 and
$46,554, respectively. Annual rental commitments for the ensuing calendar
years are as follows: calendar year 2003 - $47,004 and calendar year 2004 -
$47,004.
The Board of Directors has approved the Company's participation with M Corp,
its parent, in an attempt to purchase a bank. Should the purchase take
place, the liquidity of the Company will be significantly affected.
Subsequent to the December 31, 2002 balance sheet, the bank was purchased by
another company.
8. RENTAL PROPERTY
The Company is the lessor of property under operating leases expiring in
calendar year 2002. The following is a summary of property leased or
held for lease at December 31, 2002:
Buildings $ 1,808,134
Land 61,125
1,869,259
Less: Accumulated Depreciation (1,380,298)
$ 488,961
There are no minimum future rentals to be received on non-cancelable leases
as of December 31, 2002. The consolidated statements of income do not contain
any contingent rental income.
15
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
9. RELATED PARTY TRANSACTIONS
The Company maintains a non interest-bearing demand account with its parent
company, M Corp. M Corp owns approximately 92% of the Company's outstanding
stock. Included in accounts payable is $135,129 due to Jefferson Management
Company. Jefferson Management Company owns 44.7% of the Company's parent,
M Corp. Included in accounts receivable is $14,082 in miscellaneous
receivables due from indirectly related companies. The Company had
transactions with its parent company or affiliates during 2002 and 2001,
as follows:
2001 2002
Was Charged For Managerial Assistance $ (132,000) $ (132,000)
Net Cash Transfers To 1,459,090 182,584
Was Charged For Property Insurance (33,600) (43,880)
Income Tax Allocation (970,000) (109,750)
10. DIVIDEND RESTRICTIONS
TSI, Inc., the parent company, depends in part upon cash dividends from its
subsidiaries for the funding of its cash requirements. Dividends paid to TSI,
Inc. by its subsidiary, First Montana Title Insurance Company (FMTIC) are
restricted by statutes of the State of Montana. FMTIC is required to obtain
regulatory approval before making any dividend distributions. At December 31,
2002, substantially all of consolidated retained earnings were subject to
such restrictions. At December 31, 2002, FMTIC's statutory capital and
surplus as regards policyholders amounted to $9,375,314.
The Board of Directors has approved the Company's participation with M Corp,
it's parent, in an attempt to purchase a bank. Should the purchase take place,
the liquidity of the Company will be significantly affected. Subsequent to
December 31, 2002 balance sheet, the bank was purchased by another company.
16
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
11. RECAPITALIZATION
During 2002, a portion of the Company's retained earnings totaling
$3,000,000 were reclassified as capital surplus.
12. INFORMATION ON SEGMENTS OF BUSINESS
The Company's operations are classified into three reportable segments that
provide different products or services. The Company's reportable segments,
the title insurance business, ownership and rental of properties and
financial holding company are managed separately because of their differing
operations, customers and requirements. The Company's accounting policies
for segments are the same as those described in the summary of significant
accounting policies. Management evaluates segment performance based on
segment profit or loss before income taxes. Substantially all of the
Company's business is conducted within the state of Montana.
Sales To Segment Total Net Expenditures
Outside Interest Operating Segment Depreciation For Segment
Concerns Revenues Profit Assets Expense Assets
Year Ended December 31, 2001:
Financial Holding Company $1,929,584 $ 95,018 $1,791,631 $10,838,352 $ - $ -
Title Insurance Operations 3,644,637 222,057 2,065,358 14,096,937 15,134 -
Rental Properties 409,189 - 112,246 648,196 71,934 30,752
Consolidated $5,983,410 $ 317,075 $3,969,235 $25,583,485 $ 87,068 $ 30,752
Year Ended December 31, 2002:
Financial Holding Company $ 29,175 $ 101,528 $ (99,977) $10,146,581 $ - $ -
Title Insurance Operations 1,795,425 121,940 598,942 14,975,868 9,110 20,824
Rental Properties 396,275 - (30,179) 597,412 68,739 35,112
Consolidated $2,220,875 $ 223,468 $ 468,786 $25,719,861 $ 77,849 $ 55,936
17
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
DIRECTORS AND OFFICERS
NAME OCCUPATION
Paul J. McCann, Jr. Attorney at Law, Investor
Director, Billings, Montana
President
Miriam A. Arneson Investor
Director Billings, Montana
John R. Ross Manufacturers Representative
Director Billings, Montana
MARKET INFORMATION
The company's common stock is listed on the OTC Bulletin Board
under the symbol "TSIA". Accourding to Nasdaq.com and Pinks Sheets, LLC,
the reange of high and low bid prices and the trading volume of the
Company's common stock for each quarter during 2001 and 2002 were as
indicated below accouringly. Such over-the-counter market quotations
reflect inter-dealer prices without retail markup, markdown or commission
and may not necessarily represent actual trancsactions.
2001 2002
Quarter High Low Volume High Low Volume
First 1.50 1.50 None .10 .10 None
Second 1.50 1.13 1,000 .10 .10 None
Third 1.13 1.00 200 .10 .10 None
Fourth 1.00 .10 None .10 .00 1,000
No dividends were paid in 2001 or 2002.
There are approximately 3,087 holders of record of the Company's common
stock.
A copy of the Form 10-KSB Annual Report may be obtained upon written
request to the Company.
TSI, INC.
P.O. Box 2249
110 Second Street South
Great Falls, MT 59403-2249
18
TSI, INC.
EXHIBIT #22
SUBSIDIARIES
Percentage
Voting
Securities
State of Owned By
Name of Company Organization Registrant
UAC, Inc. Delaware 87.2
TSI Business Systems, Inc. Montana 100.0
TSI Leasing, Inc. Montana 100.0
First Mortgage Investors, Inc. North Dakota (1)
Personnel Services Company
(Formally First Montana
Title Company of Great Falls)
Montana (2)
First Montana Title Insurance
Company Montana 100.0
First Montana Title Company
of Billings Montana (3)
First Montana Title Company
of Cut Bank (Inactive) Montana (3)
First Montana Title Company
of Forsyth Montana (3)
Consulting Associates, Inc. Montana (2)
Merritt Properties, Inc. Montana (3)
Lake Place, Inc. Montana (4)
Miramar, Inc. Montana 100.0
(1) Owned 70% by UAC, Inc.
(2) Owned 100% by UAC, Inc.
(3) Owned 100% by First Montana Title Insurance Company
(4) Owned 100% by Miramar, Inc.