<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 31, 1997
OR
[ ] 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: 1-7736
TAB PRODUCTS CO.
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(Exact name of Registrant as specified in its charter)
DELAWARE 94-1190862
- ----------------------------------- ---------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
1400 PAGE MILL ROAD, PALO ALTO, CALIFORNIA 94304
- ------------------------------------------ -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number - including area code (650) 852-2400
-----------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common shares outstanding as
of August 31, 1997 - 5,041,576.
This report, including all exhibits and attachments, contains 12 pages.
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TAB PRODUCTS CO.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
ITEM 1. Financial Statements:
Consolidated Condensed Balance Sheets
August 31, 1997 and May 31, 1997 3
Consolidated Condensed Statements of Earnings
Three months ended August 31, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows
Three months ended August 31, 1997 and 1996 5
Supplemental Financial Data - Notes 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits 10
Signatures 12
2
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PART 1: FINANCIAL INFORMATION
ITEM 1: Financial Statements
TAB PRODUCTS CO.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(000's omitted except share data)
<TABLE>
<CAPTION>
ASSETS August 31, 1997 May 31, 1997
----------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,920 $ 8,568
Short-term investments 4,779 3,586
Accounts receivable, less allowances of
$721 and $769 for doubtful accounts 25,193 25,550
Inventories 12,224 11,381
Prepaid income taxes and other expenses 2,348 2,320
----------------- ---------------
Total current assets 51,464 51,405
Property, plant and equipment, net of accumulated
depreciation of $35,760 and $34,931 20,529 20,567
Goodwill, net 4,139 4,281
Other assets 4,362 4,446
----------------- ---------------
$ 80,494 $ 80,699
----------------- ---------------
----------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,313 $ 3,313
Accounts payable 6,294 6,677
Compensation payable 3,791 4,347
Other accrued liabilities 8,343 8,605
----------------- ---------------
Total current liabilities 21,741 22,942
----------------- ---------------
Long-term debt 10,750 10,828
----------------- ---------------
Deferred taxes and other non-current liabilities 2,370 2,402
----------------- ---------------
Stockholders' equity:
Preferred stock: $.01 par value, authorized -
500,000 shares, issued - none - -
Common stock: $.01 par value, authorized -
25,000,000 shares, issued - August 1997
- 7,473,803 shares and May 1997
- 7,365,803 shares 79 74
Additional paid-in capital 13,952 13,309
Retained earnings 63,109 62,473
Treasury stock: August 1997 and May 1997 -
2,432,227 shares (31,365) (31,365)
Cumulative translation adjustment (142) 36
----------------- ---------------
Total stockholders' equity 45,633 44,527
----------------- ---------------
$ 80,494 $ 80,699
----------------- ---------------
----------------- ---------------
</TABLE>
3
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TAB PRODUCTS CO.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
(000's omitted except share data)
Three Months Ended
August 31
---------------------------
1997 1996
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Revenues $ 39,443 $ 35,012
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Costs and expenses:
Cost of revenues 23,521 20,907
Selling, general and administrative 13,962 12,449
Research and development 224 173
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Total costs and expenses 37,707 33,529
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Operating income 1,736 1,483
Interest, net (168) (281)
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Earnings before income taxes 1,568 1,202
Provision for income taxes 682 523
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Net earnings $ 886 $ 679
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----------- ------------
Earnings per common and equivalent share $ 0.17 $ 0.14
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----------- ------------
Average common and equivalent shares outstanding 5,195,747 4,861,596
4
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TAB PRODUCTS CO.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(000's omitted)
<TABLE>
<CAPTION>
Three Months Ended
August 31
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
Operating Activities:
Net earnings $ 886 $ 679
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,086 987
Other (26) 60
Changes in operating assets and liabilities:
Accounts receivable 272 549
Inventories (922) 72
Prepaid income taxes and other expenses (36) (380)
Other assets 53 359
Accounts payable (356) (153)
Commissions payable (546) (966)
Other accrued liabilities (255) (121)
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Net cash provided by operating activities 156 1,086
---------- ----------
Investing Activities:
Purchase of property, plant and equipment, net (916) (541)
Purchases of short-term investments (2,934) (1,929)
Sales of short-term investments 1,741 479
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Net cash required by investing activities (2,109) (1,991)
---------- ----------
Financing Activities:
Repayment of long-term debt (78) (78)
Proceeds from issuance of common stock 647 -
Dividends paid (250) (243)
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Net cash provided (required) by financing activities 319 (321)
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Effect of exchange rate changes on cash (14) 29
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Decrease in cash and cash equivalents (1,648) (1,197)
Cash and cash equivalents at beginning of period 8,568 9,331
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Cash and cash equivalents at end of period $ 6,920 $ 8,134
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</TABLE>
5
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TAB PRODUCTS CO.
SUPPLEMENTAL FINANCIAL DATA - NOTES (UNAUDITED)
1. Inventories consisted of the following (000's omitted):
August 31, 1997 May 31, 1997
--------------- -------------
Finished goods $ 7,369 $ 6,669
Work in process 987 1,319
Raw materials 3,868 3,393
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$ 12,224 $ 11,381
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2. Earnings per share data are computed using the average number of common and
dilutive common equivalent shares outstanding.
3. Dividends declared for the three month periods ended August 31, 1997 and
1996 were as follows:
RECORD DATE SHARES OUTSTANDING DIVIDEND PER SHARE
----------- ------------------ ------------------
August 25, 1997 5,041,576 $ 0.05
August 26, 1996 4,851,951 $ 0.05
4. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). The
company is required to adopt SFAS 128 in the third quarter of fiscal 1998 and
will restate at that time earnings per share (EPS) data for prior periods to
conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
If SFAS 128 had been in effect during the current and prior year periods,
basic EPS would have been $.18 and $.14 for the quarters ended August 31, 1997
and August 31, 1996, respectively. Diluted EPS under SFAS 128 would not have
been significantly different than fully diluted EPS currently reported for the
periods.
5. The above financial information reflects all adjustments consisting of
normal recurring items which are, in the opinion of management, necessary for a
fair presentation of the results of the interim periods. These financial
statements should be read in conjunction with the company's audited financial
statements for the year ended May 31, 1997.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
At August 31,1997 the company had cash and short-term investments of $11.7
million, a decrease of $0.5 million from the $12.2 million at May 31, 1997. The
company's working capital position at August 31, 1997 was $29.7 million as
compared with $28.5 million at May 31, 1997. The current ratio of 2.4 at August
31,1997 was up from 2.2 reported for May 31, 1997. Inventories at August 31,
1997 were $12.2 million, an increase of $0.8 million compared to the $11.4
million reported at May 31, 1997. The higher inventory value was the result of
planned increases in certain inventory levels to meet peak period demands during
the September to December time frame. Management believes that the company's
cash and cash equivalents, available credit facilities and operational cash flow
will adequately finance anticipated growth, capital expenditures and debt
obligations for the foreseeable future.
Investments in property, plant and equipment, which were primarily focused on
manufacturing equipment and management information systems were $0.9 million
during the three months ended August 31,1997. Capital expenditures to support
operations for fiscal 1998 are expected to be in the range of $4.0 to $4.5
million.
For the three month period ended August 31,1997 the company paid cash dividends
of $250,000 as compared to $243,000 in the prior fiscal year.
The company has an unsecured revolving line of credit of $10 million with a bank
which expires on October 31, 1998. There were no borrowings outstanding under
the line of credit at August 31, 1997.
RESULTS OF OPERATIONS
REVENUES for the first quarter of fiscal 1998 amounted to $39.4 million, up $4.4
million or 12.7% from the $35.0 million reported in the first quarter of fiscal
1997. The increased revenues were realized in both our domestic operations
($3.4 million) and international operations ($1.0 million). Records management
products and services were the primary source of the improved revenues.
COST OF REVENUES, as a percentage of revenues, was 59.6% for the first quarter
of fiscal 1998, a slight improvement from the 59.7% reported in the first
quarter of fiscal 1997. Cost of revenues was $23.5 million for the quarter
ended August 31, 1997 as compared to the $20.9 million reported in the
comparable quarter of fiscal 1997. The increase of $2.6 million is primarily
the result of the higher revenues reported in the quarter.
OPERATING EXPENSES were $14.2 million or 36.0% of total revenues for the first
quarter of fiscal 1998 as compared to $12.6 million or 36.1% of total revenues
for the first quarter of fiscal 1997. The increase in operating expenses during
the first quarter is primarily the result of higher commission expense of
$791,000 as a result of the increased revenues in the quarter. In addition,
operating expenses were higher during the quarter as result of regional
training programs ($284,000), management information systems primarily focused
on sales force automation tools ($153,000) and independent sales channel support
costs ($147,000).
7
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INTEREST EXPENSE, net, was $168,000 in the first quarter of fiscal 1998 as
compared to $281,000 in the first quarter of fiscal 1997. The decrease for the
three months ended August 31, 1997 was primarily due to a $3.8 million reduction
in overall debt level as compared to August 31, 1996 as a result of debt
repayments during fiscal 1998 and fiscal 1997.
EARNINGS PER SHARE for the three months ended August 31,1997 were $.17 per
share, an increase of 21% over the $.14 per share earned in the first quarter
of the prior fiscal year.
BUSINESS ENVIRONMENT AND RISK FACTORS
The company's future operating results may be affected by various trends and
factors which the company must successfully manage in order to achieve favorable
operating results. In addition, there are trends and factors beyond the
company's control which affect its operations. Such trends and factors include,
but are not limited to, adverse changes in economic conditions and risks in
government contracting in the markets for the company's products, governmental
regulation, fluctuations in foreign exchange rates, effectiveness of the
company's various sales channels and the company's ability to attract,
assimilate and retain key senior management, sales and marketing personnel.
8
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PART II: OTHER INFORMATION
ITEM 1 Legal Proceedings
Not applicable.
ITEM 2 Changes in Securities
Not applicable.
ITEM 3 Defaults Upon Senior Securities
Not applicable.
ITEM 4 Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5 Other Information
Not applicable.
9
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ITEM 6. Exhibits
(a) 10.1 Registrants 1981 Incentive Stock Option Plan (Exhibit
(10) of the 1983 10-K)(1,2)
10.2 Amended 1981 Incentive Stock Option Plan (Exhibit (10) of
the 1987 10-K)(1,2)
10.3 1991 Stock Option Plan (Exhibit 10.1 of the 1991 10-K)1,2
10.4 Note Agreement of Tab Products Co. dated as of March 20,
1992 in the aggregate principal amount of $15,000,000
(Exhibit 10.5 of the 1992 10-K)(2)
10.5 Amendment dated July 27, 1993 to Note Agreement of
Tab Products Co. dated as of March 20, 1992 (Exhibit
10.16 filed with Form 10-Q for the quarter ended August
31, 1993)(2)
10.6 Note Agreement of Tab Products Co. dated October 7, 1993
(Exhibit 10.20 filed with Form 10-Q for the quarter ended
August 31, 1993)(2)
10.7 Letter dated October 7, 1993 amending the Note Agreement
dated March 20, 1992 (Exhibit 10.21 filed with Form 10-Q
for the quarter ended August 31, 1993)(2)
10.8 Letter dated October 27, 1993 amending the Prudential
Note Agreement dated March 20, 1992 (Exhibit 10.27 filed
with the 1994 Form 10-K)(2)
10.9 Letter dated June 15, 1995 amending the Prudential Note
Agreement dated March 20, 1992 (Exhibit 10.32 filed with
the 1995 Form 10-K)(2)
10.10 Letter dated July 21, 1995 amending the Prudential Note
Agreement dated March 20, 1992 (Exhibit 10.33 filed with
the 1995 Form 10-K)(2)
10.11 Letter dated December 13, 1995 amending the Prudential
Note Agreement dated March 20, 1992 (Exhibit 10.35
filed with Form 10-Q for the quarter ended November 30,
1995)(2)
10.12 Bank of America Business Loan Agreement dated
August 26, 1996 (Exhibit 10.36 filed with the 1996 Form
10-K)(2)
10.13 Letter dated August 20, 1996 amending the Prudential Note
Agreement dated March 20, 1992 (Exhibit 10.37 filed with
the 1996 Form 10-K)(2)
10.14 Form of Indemnity Agreement between the company and each
of its Executive Officers and Directors (Exhibit 10.38
filed with Form 10-Q for the quarter ended November 30,
1996)(1,2)
10.15 Change of Control Agreement between the company and
Jack Peth (Exhibit 10.39 filed with Form 10-Q for the
quarter ended November 30, 1996)(1,2)
10.16 Form of Change of Control Agreement between the company
and named Executive Officers other than the Chief
Executive Officer (Exhibit 10.40 filed with Form 10-Q for
the quarter ended November 30, 1996)(1,2)
10.17 Outside Directors' Option Plan and Agreement (Exhibit
10.41 filed with Form 10-Q for the quarter ended November
30, 1996)(1,2)
10.18 Employment Agreement between the company and
Philip C. Kantz (Exhibit 10.42 filed with Form 10-Q for
the quarter ended February 28, 1997)(1, 2)
10.19 Nonqualified Stock Option Agreement between the company
and Philip C. Kantz (Exhibit 10.43 filed with Form 10-Q
for the quarter ended February 28, 1997)(1, 2)
10
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10.20 Nonqualified Stock Option Agreement between the company
and Philip C. Kantz (Exhibit 10.44 filed with Form 10-Q
for the quarter ended February 28, 1997)(1,2)
10.21 Nonqualified Stock Option Agreement between the company
and Philip C. Kantz (Exhibit 10.45 filed with Form 10-Q
for the quarter ended February 28, 1997)(1,2)
27 Financial Data Schedule
(1) Compensatory Plan or Arrangement.
(2) Incorporated by reference from the noted previously filed
document.
(b) Reports on Form 8-K
None
11
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TAB PRODUCTS CO.
-----------------------------------
(Registrant)
Date: October 14, 1997 /s/ John M. Palmer .
-----------------------------------
John M. Palmer, Vice President,
Finance and Chief Financial Officer
Date: October 14, 1997 /s/ Michael J. Baker .
-----------------------------------
Michael J. Baker, Controller
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 6920
<SECURITIES> 4779
<RECEIVABLES> 25914
<ALLOWANCES> 721
<INVENTORY> 12224<F1>
<CURRENT-ASSETS> 51464
<PP&E> 56289
<DEPRECIATION> 35760
<TOTAL-ASSETS> 80494
<CURRENT-LIABILITIES> 21741
<BONDS> 10750
0
0
<COMMON> 45775
<OTHER-SE> (142)
<TOTAL-LIABILITY-AND-EQUITY> 80494
<SALES> 36500
<TOTAL-REVENUES> 39443
<CGS> 21060
<TOTAL-COSTS> 23521
<OTHER-EXPENSES> 14186
<LOSS-PROVISION> 64
<INTEREST-EXPENSE> 168
<INCOME-PRETAX> 1568
<INCOME-TAX> 682
<INCOME-CONTINUING> 886
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 886
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
<FN>
<F1>Inventory detail at August 31, 1997 was finished goods $7369; work in process
$987; raw materials $3,868.
</FN>
</TABLE>
