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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 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
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TAB PRODUCTS CO.
(Exact name of Company as specified in its charter)
Delaware 94-ll90862
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1400 Page Mill Rd., Palo Alto, California 94304
- ----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Company's telephone number - including area code (415) 852-2400
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Securities registered pursuant to Section 12(b) of the Act:
Common stock, $.01 par value American Stock Exchange
- ---------------------------- -----------------------
(Title of Each Class) (Name of Exchange On Which Registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
----
Indicate by check mark whether the Company (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 Company 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 Company'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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Company as of June 30, 1997 was approximately $26,250,495. Shares of common
stock held by each officer and director and by each person or group who owns 5%
or more of the outstanding common stock have been excluded in that such persons
or groups may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
The number of shares of the Company's Common Stock outstanding as of June 30,
1997 was 4,985,201.
This report, including all exhibits and attachments, contains 35 pages. The
index to exhibits is located on pages 14-15.
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DOCUMENTS INCORPORATED BY REFERENCE
To the extent stated herein, portions of the Definitive Proxy Statement, which
will be filed within 120 days after the end of the Company's fiscal year, for
the Annual Meeting of Stockholders ("Proxy Statement") to be held on November
11, 1997, are incorporated by reference into Part III.
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PART I
Item 1. BUSINESS
Tab Products Co. (the "Company") is engaged in a single industry segment that
manufactures and markets records management solutions. The Company was
incorporated in February, 1954 and subsequently reorganized as a corporation
under Delaware law in September, 1986.
PRINCIPAL PRODUCTS AND COMPETITION
The Company markets numerous products and services to offices and computer
facilities to support their records management needs. The Company's primary
business approach is to provide records management expertise and, by integrating
all products and services into a systems solution, to solve the particular needs
of each customer. A general description of the Company's major product lines
and services utilized in developing the customer's solution and the related
competitive environment is set forth below.
The Company markets a wide range of services, filing supplies and related
filing systems. These products and services are often sold as complete filing
systems, incorporating records management services, color-coded filing systems
and custom filing solutions. Tab's services business combines records management
consulting with conversion and installation services, all designed to assist
customers in their information management needs. As part of the systems
solution, the company also markets TABQUIK(R), an on-demand color-coded filing
system which uses proprietary software to produce color-coded labels which are
applied to folders using Tab's proprietary automatic applicator. This product
is a PC-based, label-making system which allows customers to generate
color-coded labels on demand. These products and services offer efficient access
to information and a cost effective systems approach for high density filing
applications. The Company's filing systems range from individual filing
cabinets and units to large mobile filing systems marketed under the name
Tab-Trac. In addition, Tab markets Twinfile(R), a double-sided filing cabinet
that rotates on a base. Twinfile provides companies with high density filing
capacity at an employee's workstation. It has been designed to be fully
integrated with either panel systems or modular furniture. Primary competitive
factors in this market are product quality, service and price. The Company
believes that its products' quality, high level of service and systems approach
to its products and services give it a strong competitive position.
The Company markets a line of systems furniture. These products include
wood-trim and designer-trim office panel systems and clustered workcenters with
related hanging components and work surfaces, modular workstations and tables.
These products are directed at the established market for the open office
environment. Primary areas of competition in this market are product design,
quality and price.
The Company maintains a national field service organization which provides
third party maintenance for optical equipment manufactured by other
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companies, and services its installed base of computer-related equipment and
forms equipment.
The Company markets a full range of high speed mailing systems, including
Infoseal(1), a high speed mailing system developed in conjunction with
Transkrit(1) Corp., which uses a proprietary technique for folding and sealing
computer-generated mailing pieces. The Company believes that it is one of the
four primary competitors in this market. Primary competitive factors are
product quality and customer service.
The Company believes that its business is not seasonal.
MARKETING
The Company's products are marketed in the United States, Canada, Europe and
Australia through its sales branches and independent sales offices and
distributors. In other geographic areas, products are sold exclusively through
independent distributors. The company has three foreign subsidiaries which
market their products and services in Canada, Australia and Europe, while
foreign sales in the remainder of the world are conducted through a Foreign
Sales Corporation. Foreign revenues were $32,214,000, $30,132,000 and
$29,383,000 for the years ended May 31, 1997, 1996 and 1995, respectively.
Foreign operating income was $2,240,000, $1,045,000 and $940,000 for the years
ended May 31, 1997, 1996 and 1995, respectively. Total identifiable assets
(excluding cash) and liabilities in foreign countries were $9,216,000 and
$3,151,000, respectively, at May 31, 1997 compared with $8,835,000 and
$2,620,000 at May 31, 1996. Transaction and exchange gains (losses) included in
earnings, amounted to approximately $(18,000), $(225,000) and $191,000 in fiscal
1997, 1996 and 1995, respectively.
CUSTOMERS
The Company sells its products to many diverse customers including government
agencies, health care companies, insurance companies, financial services
companies and industrial companies. The Company's largest customer is the U.S.
Government (including its agencies and GSA subcontractors). Sales to the U.S.
Government, as a percentage of total revenues was 10% for fiscal year 1996. No
single customer accounted for greater than 10% of consolidated revenues in
fiscal 1997 and 1995.
BACKLOG
The backlog of orders at May 31, 1997 and 1996 is not a significant factor in
understanding the business of the Company. The nature of the Company's business
is such that the value of backlog represents only a small portion of the
on-going revenues of the business. No one order would normally account for a
significant value of backlog.
AVAILABILITY OF RAW MATERIALS
There was no significant change during fiscal 1997 in the source and
availability of raw materials for the Company's products. Raw materials are
(1) Infoseal and Transkrit are registered trademarks of Transkrit Corporation.
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considered to be widely available. It is not anticipated that the availability
of raw materials will be a significant factor in the Company's business.
INTELLECTUAL PROPERTY
The Company holds several patents and trademarks in the United States, Canada,
Europe and Australia. The Company does not consider any of its patents to be
material to its business. The Company relies on a combination of patents,
contractual rights, trademarks, trade secrets and copyrights to establish or
protect its proprietary rights.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are primarily related to the
development of new products and the improvement of existing products.
Expenditures for research and development were $.8 million, $.5 million and $.8
million in fiscal years 1997, 1996 and 1995, respectively.
EMPLOYEES
At May 31, 1997, the Company employed approximately 1,075 full-time employees.
None of the company's employees are represented by a collective bargaining unit.
EXECUTIVE OFFICERS
At July 21, 1997 the following individuals were executive officers of the
Company:
Name Age Title
- ---- --- -----
Philip C. Kantz 53(1) Director; President and Chief
Executive Officer
Mr. Kantz has been Director, President and Chief Executive Officer since
January 27, 1997. Previously, he was President and Chief Executive Officer
of The Sandros Enterprise from February 1995 to January 1997; Chief
Executive Officer and a director of Transcisco Industries, Inc. from
February 1994 to January 1995; President and Chief Executive Officer of
Genetrix, Inc. from October 1992 to September 1993 and President and Chief
Executive Officer of Itel Containers International Corporation from 1988
through 1991.
David J. Davis 41(2) Senior Vice President,
Operations
Mr. Davis was named to his current position in June, 1997. Previously, he
was Vice President and Corporate Controller at PLM International, Inc. from
January 1994 to June 1997. Before that he was a consultant for PLM
International, Inc. and Intel Corporation
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(1) Effective January 1997 appointed an executive officer.
(2) Effective June 1997 appointed an executive officer.
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from June 1993 to December 1993 and Chief Financial Officer of LB Credit Corp.
from July 1991 to May 1993.
Wendi A. Hill 39 Vice President, Human
Resources
Ms. Hill was named to her current position in June 1995. Previously, she
was Director, Human Resources at The Upper Deck Co. from August 1993 to
March 1995 and Vice President, Corporate Outplacement at Career Focus from
August 1991 to July 1993.
Joanne P. Grba 37(1) Vice President, Marketing
Ms. Grba was named to her current position in July 1997. Previously, she
was an independent marketing consultant from January 1997 to July 1997.
Before that she was Director of Business Development of Cisco Systems, Inc.
from January 1996 to December 1996; Vice President, Marketing of TGV, Inc.
from October 1995 to January 1996; Director of Marketing of FTP Software,
Inc. from February 1993 to October 1995 and Product Line Manager of The
Wollongong Group, Inc. from February 1991 to February 1993.
John M. Palmer 38 Vice President, Finance and
Chief Financial Officer
Mr. Palmer was named to his current position in July 1994. Previously, he
served the Company as Vice President, Finance, Tab Products of Canada,
Limited from October 1993 to July 1994. Prior to that he was Vice
President, Finance at Wright Line of Canada Ltd. from September 1992 to
October 1993 and Controller at Wright Line of Canada Ltd. from January 1986
to September 1992.
Thomas J. Rauscher 42 Vice President, Manufacturing
and Distribution
Mr. Rauscher was named to his current position in January 1996.
Previously, he was Vice President, Operations at Fisher Hamilton from
October 1980 to January 1996.
Patricia J. Robitaille 46 Vice President and Chief
Information Officer
Ms. Robitaille was named to her current position in March 1994.
Previously, she was Senior Project Manager at B.S.S.I. from November 1993
to February 1994 and President, PJR Systems from March 1992 to October
1993.
Robert J. Sexton 63 Treasurer and Secretary
Mr. Sexton has acted as Secretary since March 1991 and Treasurer since July
1982.
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(1) Effective July 1997 appointed an executive officer.
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Michael J. Baker 49(1) Chief Accounting Officer and
Controller
Mr. Baker was named to his current position in July 1997. Previously, he
served in the positions of Director at Coopers & Lybrand from March 1996 to
July 1997 and Director and Regional Controller at Raychem Corp. from March
1989 to March 1996.
Nancy R. Green 47 Assistant Treasurer and
Assistant Secretary
Ms. Green was named to her current position in July 1991 and previously
served the Company as Director of Treasury from October 1990 to July 1991.
The executive officers of the Company are elected each year at the Annual
Organizational Meeting of the Board of Directors, which will be held this year
on November 11, 1997.
Item 2. PROPERTIES
The Company's Corporate Headquarters are located at 1400 Page Mill Road, Palo
Alto, California. The facility comprises three buildings which total 105,000
square feet. The Company is currently leasing one of these buildings
(approximately 50,000 square feet) to a tenant until January 2004. The
buildings are owned by the Company but are subject to land leases from Stanford
University. The land leases expire in 2011 and 2012, at which time both the
land and improvements will revert to Stanford University.
The Company owns a 356,000 square foot building located on 14 acres of land in
Mayville, Wisconsin. The Mayville facility serves as a central warehousing,
manufacturing and distribution center. Approximately 200,000 square feet of the
facility is used as warehouse space. Approximately 50,000 square feet of the
facility is used for the production of paper products (primarily file folders)
and the attachment of color-coded labeling systems. Approximately 60,000 square
feet is used for the production of panel systems furniture. The Company also
owns 16 acres of undeveloped land near the current facility.
The Company owns a 45,000 square foot building located on 4 acres of land in
Lomira, Wisconsin. The facility is used for the manufacture of TAB-TRAC(R)
mobile filing storage units, plastic injection molded parts and other light
manufacturing and assembly operations. The Company owns a 45,000 square foot
building in Horicon, Wisconsin.
The Company owns two manufacturing buildings located on 16 acres of land in
Turlock, California. One building is a 67,000 square foot paper products plant
which is used for the manufacture of file folders. The other building consists
of 104,000 square feet and is used for the manufacture of the Company's
high-speed mailing systems product line and as the headquarters for the
Company's national field service operations.
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(1) Effective July 1997 appointed an executive officer.
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The Company leases office space for its sales and service branches in numerous
cities throughout the United States, Canada, Europe and Australia, most of which
are in major metropolitan areas. Tab Products of Canada, Limited leases 60,000
square feet of office space in a building in Toronto, Canada which expires in
October 2000. Tab Products (Europa) B.V. leases a 9,000 square foot building in
Amsterdam, Netherlands which expires in August 2001. Tab Products Pty Ltd leases
a 22,000 square foot building in St. Leonards, Australia which expires in June
2000. These buildings serve as general office, sales and warehouse facilities.
In management's opinion, all buildings, machinery and equipment are in good
condition and are maintained and repaired on a basis consistent with sound
operations. The properties and equipment are deemed adequate and suitable for
their purposes.
Item 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceeding.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during the
fourth quarter of the fiscal year ended May 31, 1997.
PART II
Item 5. MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's stock is traded on the American Stock Exchange (AMEX) and its
trading symbol is TBP. Information with respect to per share common stock
dividends paid by the Company and the price ranges per share for each quarter
during the fiscal years ended May 31, 1997 and 1996 are set forth below.
Fiscal Dividends Price Range Per Share
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Quarter 1997 1996 1997 1996
---- ---- ---- ----
Ended High Low High Low
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August 31 $.05 $.05 $ 7 5/8 $6 1/2 $ 6 7/16 $5 1/4
November 30 $.05 $.05 $ 8 $6 1/4 $ 6 3/4 $5 3/8
February 28/29 $.05 $.05 $ 9 13/16 $7 3/8 $ 7 $6 1/4
May 31 $.05 $.05 $11 $8 5/8 $ 7 11/16 $5 7/8
At May 31, 1997, the company had approximately 1,000 holders of record and
approximately 4,000 beneficial owners of Tab Products Co. stock.
The Company's loan covenants contain certain restrictions on the payment of
dividends-see Note 4 of Notes to Consolidated Financial Statements on pages
25-26 of this Form 10-K.
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Item 6. SELECTED FINANCIAL DATA
Tab Products Co.
Selected Financial Data, Five Years Ended May 31
(In thousands of dollars, except share and ratio data)
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1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Revenues $154,451 $152,698 $149,951 $140,122 $126,966
Earnings before
income taxes 6,657 4,887 2,157 3,796 3,333
Earnings before
cumulative effect
of accounting change 3,761 2,761 1,219 2,176 1,868
Net earnings 3,761 2,761 1,219 2,176 1,057
Earnings per share
before cumulative
effect of accounting
change .76 .57 .25 .45 .39
Net earnings per share .76 .57 .25 .45 .22
Book value per share 9.03 8.55 8.21 8.01 7.86
Dividends per share .20 .20 .20 .20 .40
Current assets 51,405 48,715 51,333 53,577 47,593
Working capital 28,463 27,424 30,082 30,879 30,562
Net cash provided by
operating activities 8,167 11,344 8,109 4,257 7,411
Purchases of property
plant and equipment,
net 3,309 2,825 1,946 2,678 3,991
Depreciation and
amortization 4,001 4,065 4,215 3,668 3,638
Long-term debt,
non-current 10,828 14,141 18,733 23,041 16,620
Stockholders' equity 44,527 41,462 39,828 38,652 37,617
Total assets $ 80,699 $ 79,127 $ 81,649 $ 86,161 $ 73,043
Current ratio 2.2 2.3 2.4 2.4 2.8
Return on average equity 9% 7% 3% 6% 3%
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
At May 31, 1997 the company had cash and short-term investments of $12.2
million, an increase of $.5 million from $11.7 million at May 31, 1996. Working
capital at May 31, 1997 was $28.5 million, an increase of $1.1 million from the
working capital of $27.4 million reported a year earlier. The current ratio of
2.2 at May 31, 1997 decreased slightly from the current ratio of 2.3 at May 31,
1996. Management believes that the company's cash and cash equivalents,
available credit facilities and operational cash flows
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will adequately finance anticipated growth, capital expenditures and repayment
of debt obligations for the foreseeable future.
During fiscal 1997 net cash provided from operating activities was $8.2 million,
a decrease of $3.1 million compared to the $11.3 million generated in fiscal
1996. Accounts receivable at May 31, 1997 was $25.6 million, an increase of $1.7
million from the accounts receivable of $23.9 million at May 31, 1996 primarily
due to the record revenues reported in the fourth quarter of fiscal 1997.
Accounts payable at May 31, 1997 was $6.7 million, an increase of $.9 million
from the accounts payable of $5.8 million at May 31, 1996. Compensation payable
at May 31, 1997 was $4.3 million, an increase of $.8 million from the
compensation payable at May 31, 1996 of $3.5 million. Accounts payable and
Compensation payable were higher at May 31, 1997 as a result of higher revenues
in the fourth quarter of fiscal 1997.
During fiscal 1997, the company invested approximately $3.3 million in property,
plant and equipment which primarily represented investments in manufacturing
equipment and management information systems. At May 31, 1997 the company had
no material commitments outstanding for capital expenditures. Capital
expenditures for fiscal 1998, which will consist primarily of investments in
manufacturing equipment and management information systems are expected to be in
the range of $4.0 million to $4.5 million.
At May 31, 1997, the company had $10.8 million of long-term debt outstanding
which bears interest at rates ranging from 6.9% to 9.0%.
In fiscal 1997 the company made $3,813,000 in scheduled debt repayments.
The company also has available an unsecured revolving line of credit of $10
million as of May 31, 1997, which expires October 31, 1998. The credit line
does not require compensating balances and there were no borrowings under the
line at May 31, 1997.
RESULTS OF OPERATIONS
TOTAL REVENUES - Total revenues for fiscal 1997 of $154.5 million were $1.8
million or 1% higher than the $152.7 million in fiscal 1996. The increased
revenues were attributable to price increases and higher unit volumes.
Revenues in fiscal 1996 of $152.7 million were $2.8 million or 2% higher than
the $149.9 million in fiscal 1995. The increased revenues were attributable to
price increases and higher unit volumes.
International revenues were 21%, 20% and 20% of consolidated revenues in fiscal
1997, 1996 and 1995, respectively.
COST OF REVENUES - Cost of revenues, as a percentage of revenues, for fiscal
1997, 1996 and 1995 was 59.7%, 60.9% and 61.7%, respectively. The decrease in
the percentage for fiscal 1997 as compared to fiscal 1996 was due primarily to
increased list prices and continued efforts in reducing product costs.
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OPERATING EXPENSES (SELLING, GENERAL & ADMINISTRATIVE AND RESEARCH AND
DEVELOPMENT) - Operating expenses, as a percentage of revenues, for fiscal 1997,
1996 and 1995 were 35.3%, 34.9% and 35.6%, respectively. Total operating
expenses for fiscal 1997 were $54.6 million, an increase of $1.4 million as
compared to total operating expenses of $53.2 million in fiscal 1996. The
increase in operating expenses was attributable to $.4 million in costs for the
implementation of telesales to all the Company's branch sales operations, $.4
million in increased support and marketing costs for the Company's technology
products, $.3 million in increased support costs for the Company's independent
distribution channel and $.3 million in costs with respect to the search and
replacement of the Company's Chief Executive Officer.
Operating expenses for fiscal 1996 were $53.2 million, a decrease of $.2 million
as compared to total operating expenses of $53.4 million in fiscal 1995. Total
operating expenses decreased as a percentage of revenues primarily as a result
of increased revenues.
INTEREST EXPENSE - Interest expense, net for fiscal 1997 was $584,000 lower than
the net interest expense for fiscal 1996 primarily because of decreased levels
of long-term debt due to normal debt repayments. Net interest expense for
fiscal 1996 was $323,000 lower than net interest expense for fiscal 1995 because
of decreased levels of long-term debt due to normal debt repayments and
prepayment of debt.
INCOME TAXES - Income taxes, as a percentage of pre-tax earnings, were unchanged
for fiscal 1997, 1996 and 1995, at 43.5%.
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. In accordance with
the provisions of the Private Securities Litigation Reform Act of 1995, the
cautionary statements set forth below identify important factors that could
cause actual results to differ materially from those in any forward-looking
statements contained in this report. Such trends and factors include, but
are not limited to, adverse changes in general economic conditions or
conditions in the specific markets for the Company's products, governmental
regulation, fluctuations in foreign exchange rates, and other factors,
including those listed below.
The Company's future performance may depend in significant part upon attracting
and retaining key senior management, sales and marketing personnel. Competition
for such personnel is intense and the inability to retain its current key
personnel or to attract, assimilate or retain other highly qualified personnel
in the future on a timely basis could have a material adverse affect on the
Company's business, results of operations and financial condition.
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Item 7 a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The company's financial statements included with this Form 10-K are set forth
under Item 14.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The section entitled "Election of Directors," which appears in the Company's
Proxy Statement is incorporated herein by reference. For information with
respect to the executive officers of the Company, see "Executive Officers" in
Part I of this report.
Item 11. EXECUTIVE COMPENSATION
The information related to executive compensation which appears in the Company's
Proxy Statement in the section entitled "Executive Compensation and Other
Matters" is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Stock Ownership of Certain Beneficial Owners and
Management" which appears in the Company's Proxy Statement is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Relationships and Related Transactions" which
appears in the Company's Proxy Statement is incorporated herein by reference.
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. The following documents are filed as part of this report:
Page Number
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1. CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report 18
Consolidated Statements of Earnings for the
three years ended May 31, 1997 19
Consolidated Balance Sheets at May 31, 1997
and 1996 20
Consolidated Statements of Stockholders'
Equity for the three years ended May 31, 1997 21
Consolidated Statements of Cash Flows for
the three years ended May 31, 1997 22
Statement of Accounting Policies 23-24
Notes to Consolidated Financial Statements 25-32
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report 33
Schedule for the three years ended May 31, 1997:
II Valuation and Qualifying Accounts 34
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3. EXHIBITS:
2.1 Purchase Agreement By and Among Wright Line Inc., Applied Power
Inc. and Tab Products Co. (Exhibit filed with Form
10-Q for the quarter ended August 31, 1993)(2)
3.1 Certificate of Incorporation (Exhibit 3.1 of 1993 Form
10-K)(2)
3.2 Certificate of Designation, Preferences and Rights of the Terms
of the Series A Preferred Stock (Exhibit 3.2 filed
with Form 10-Q for the quarter ended November 30, 1996)(2)
3.3 Second Amended and Restated Bylaws of the Company dated
October 17, 1996 (Exhibit 4 of Form 8-K dated October 17, 1996)(2)
4.1 Form of Rights Agreement between the Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent (including as Exhibit
A the form of Certificate of Designation, Preferences and Rights of
the Terms of the Series A Preferred Stock, as Exhibit B the form of
Right Certificate, and as Exhibit C the Summary of Terms of Rights
Agreement)(Exhibit 1 of Form 8-K dated October 17, 1996)(2)
10.1 Tab Products Co. 1981 Incentive Stock Option Plan (Exhibit 10 of
the 1983 Form 10-K)(1, 2)
10.2 Amended 1981 Incentive Stock Option Plan (Exhibit 10 of the 1987
Form 10-K)(1, 2)
10.3 1991 Stock Option Plan (Exhibit 10.1 of the 1991 Form
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 Form 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 the 1993
Form 10-K)(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 Prudential 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)
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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 Acting 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 Non-qualified 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)
10.20 Non-qualified 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 Non-qualified 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)
23.1 Independent Auditors' Consent
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:
No reports on Form 8-K were filed during the quarter ended May 31, 1997.
C. EXHIBITS: See Item 14(A)(3) above.
D. FINANCIAL STATEMENT SCHEDULE: See Item 14(A)(2) above.
15
<PAGE>
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Palo Alto, and
State of California, on this first day of August, 1997.
TAB PRODUCTS CO.
/s/ Philip C. Kantz
-----------------------------
Philip C. Kantz
President and 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 Company and in
the capacities and on the dates indicated.
Name and Title Date
- -------------- ----
/s/ Hans A. Wolf August 1, 1997
- ----------------------------------------- --------------
Hans A. Wolf, Chairman of the Board
/s/ Philip C. Kantz August 1, 1997
- ----------------------------------------- --------------
Philip C. Kantz, Director; President and
Chief Executive Officer
/s/ John M. Palmer August 1, 1997
- ----------------------------------------- --------------
John M. Palmer, Vice President, Finance and
Chief Financial Officer
/s/ Michael J. Baker August 1, 1997
- ----------------------------------------- --------------
Michael J. Baker, Controller and Chief
Accounting Officer
/s/ Robert R. Augsburger August 1, 1997
- ----------------------------------------- --------------
Robert R. Augsburger, Director
/s/ Robert S. Cecil August 1, 1997
- ----------------------------------------- --------------
Robert S. Cecil, Director
/s/ Kathryn S. Hanson August 1, 1997
- ----------------------------------------- --------------
Dr. Kathryn S. Hanson, Director
/s/ Jerry K. Myers August 1, 1997
- ----------------------------------------- --------------
Jerry K. Myers, Director
16
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
FORM 10-K ITEM 14
YEARS ENDED MAY 31, 1997, 1996 AND 1995
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Tab Products Co.:
We have audited the accompanying consolidated balance sheets of Tab Products Co.
and its subsidiaries as of May 31, 1997 and 1996 and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended May 31, 1997. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examing, 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Tab Products Co. and its
subsidiaries as of May 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1997 in conformity with generally accepted accounting principles.
San Jose, California
June 26, 1997
18
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended May 31
-------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues $ 154,451,000 $ 152,698,000 $ 149,951,000
--------------- --------------- ---------------
Costs and expenses:
Cost of revenues 92,270,000 93,025,000 92,503,000
Selling, general and administrative 53,765,000 52,726,000 52,561,000
Research and development 785,000 502,000 849,000
--------------- --------------- ---------------
Total costs and expenses 146,820,000 146,253,000 145,913,000
--------------- --------------- ---------------
Operating income 7,631,000 6,445,000 4,038,000
Interest, net (974,000) (1,558,000) (1,881,000)
--------------- --------------- ---------------
Earnings before income taxes 6,657,000 4,887,000 2,157,000
Provision for income taxes 2,896,000 2,126,000 938,000
--------------- --------------- ---------------
Net earnings $ 3,761,000 $ 2,761,000 $ 1,219,000
--------------- --------------- ---------------
--------------- --------------- ---------------
Earnings per common and
equivalent shares $ .76 $ .57 $ .25
Average common and equivalent
shares outstanding 4,976,864 4,853,991 4,845,273
</TABLE>
See accompanying Statement of Accounting Policies and Notes to Consolidated
Financial Statements.
19
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31
----------------------------------
ASSETS 1997 1996
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,568,000 $ 9,331,000
Short-term investments 3,586,000 2,322,000
Accounts receivable, less allowances for doubtful
accounts of $769,000 and $620,000 25,550,000 23,898,000
Inventories 11,381,000 11,313,000
Prepaid income taxes and other expenses 2,320,000 1,851,000
-------------- --------------
Total current assets 51,405,000 48,715,000
Property, plant and equipment, net 20,567,000 20,800,000
Goodwill, net 4,281,000 4,777,000
Other assets 4,446,000 4,835,000
-------------- --------------
$ 80,699,000 $ 79,127,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,313,000 $ 3,813,000
Accounts payable 6,677,000 5,823,000
Compensation payable 4,347,000 3,553,000
Other accrued liabilities 8,605,000 8,102,000
-------------- --------------
Total current liabilities 22,942,000 21,291,000
-------------- --------------
Long-term debt 10,828,000 14,141,000
-------------- --------------
Deferred taxes and other noncurrent liabilities 2,402,000 2,233,000
-------------- --------------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized - 500,000 shares,
issued - none
Common stock, $.01 par value, authorized - 25,000,000 shares,
issued -1997- 7,365,803 shares, 1996 - 7,284,178 shares 74,000 73,000
Additional paid-in capital 13,309,000 12,705,000
Retained earnings 62,473,000 59,689,000
Treasury stock, 1997 and 1996 - 2,432,227 shares (31,365,000) (31,365,000)
Cumulative translation adjustment 36,000 360,000
-------------- --------------
Total stockholders' equity 44,527,000 41,462,000
-------------- --------------
$ 80,699,000 $ 79,127,000
-------------- --------------
-------------- --------------
</TABLE>
See accompanying Statement of Accounting Policies and Notes to Consolidated
Financial Statements.
20
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------
Number of Additional Cumulative
Shares Paid-in Retained Treasury Translation
Outstanding Amount Capital Earnings Stock Adjustment
----------- -------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 1, 1994 4,828,134 $ 73,000 $ 12,504,000 $ 57,649,000 $(31,365,000) $ (209,000)
Net earnings 1,219,000
Dividends, $.20 per share (970,000)
Translation adjustment 726,000
Common stock issued to
company's tax
deferred savings plan 21,317 182,000
Stock options exercised
and tax benefit on disqualified
common stock dispositions 2,500 19,000
---------- -------- ------------- ------------- ------------- -----------
BALANCES, MAY 31, 1995 4,851,951 73,000 12,705,000 57,898,000 (31,365,000) 517,000
Net earnings 2,761,000
Dividends, $.20 per share (970,000)
Translation adjustment (157,000)
---------- -------- ------------- ------------- ------------- -----------
BALANCES, MAY 31, 1996 4,851,951 73,000 12,705,000 59,689,000 (31,365,000) 360,000
Net earnings 3,761,000
Dividends, $.20 per share (977,000)
Translation adjustment (324,000)
Stock options exercised
and tax benefit on disqualified
common stock dispositions 81,625 1,000 604,000
---------- -------- ------------- ------------- ------------- -----------
BALANCES, MAY 31, 1997 4,933,576 $ 74,000 $ 13,309,000 $ 62,473,000 $(31,365,000) $ 36,000
---------- -------- ------------- ------------- ------------- -----------
---------- -------- ------------- ------------- ------------- -----------
</TABLE>
See accompanying Statement of Accounting Policies and Notes to Consolidated
Financial Statements.
21
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31
-----------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 3,761,000 $ 2,761,000 $ 1,219,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 4,001,000 4,065,000 4,215,000
Deferred income taxes and other liabilities 113,000 396,000 67,000
Common stock issued to tax deferred
savings plan - - 182,000
Other 200,000 (12,000) (16,000)
Changes in operating assets and liabilities:
Accounts receivable (2,029,000) 882,000 6,879,000
Inventories (205,000) 3,271,000 (765,000)
Prepaid income taxes and other expenses (490,000) 1,853,000 (278,000)
Other assets 361,000 (1,412,000) 12,000
Accounts payable 895,000 (1,469,000) (2,975,000)
Compensation payable 811,000 635,000 (484,000)
Other accrued liabilities 749,000 374,000 53,000
------------- ------------- -------------
Net cash provided by operating activities 8,167,000 11,344,000 8,109,000
------------- ------------- -------------
INVESTING ACTIVITIES
Purchases of property, plant and
equipment, net (3,309,000) (2,825,000) (1,946,000)
Purchases of short-term investments (7,198,000) (5,998,000) (101,000)
Sales of short-term investments 5,934,000 5,276,000 895,000
------------- ------------- -------------
Net cash required by investing activities (4,573,000) (3,547,000) (1,152,000)
------------- ------------- -------------
FINANCING ACTIVITIES
Repayment of debt (3,813,000) (4,092,000) (2,349,000)
Proceeds from issuance of common stock 491,000 - 18,000
Dividends paid (977,000) (970,000) (970,000)
------------- ------------- -------------
Net cash required by financing activities (4,299,000) (5,062,000) (3,301,000)
------------- ------------- -------------
Effect of exchange rate changes on cash (58,000) (157,000) 726,000
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents (763,000) 2,578,000 4,382,000
Cash and cash equivalents at beginning of year 9,331,000 6,753,000 2,371,000
------------- ------------- -------------
Cash and cash equivalents at end of year $ 8,568,000 $ 9,331,000 $ 6,753,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying Statement of Accounting Policies and Notes to Consolidated
Financial Statements.
22
<PAGE>
TAB PRODUCTS CO.
STATEMENT OF ACCOUNTING POLICIES
The Company's significant accounting policies are summarized below to assist the
reader in reviewing the financial statements and other data contained in this
report.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly-owned.
Intercompany transactions have been eliminated in consolidation.
ESTIMATES The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses as of the dates and for the periods presented. Such estimates
include the allowance for doubtful accounts, warranty and obligations for
postretirement healthcare and pension benefits. Actual results could differ
from those estimates.
TRANSLATION OF FOREIGN CURRENCIES The assets and liabilities of the Company's
Canadian, Australian and European subsidiaries are translated into U.S. dollars
at current exchange rates and revenue and expense items are translated at
average rates of exchange prevailing during the year. Resulting translation
adjustments are accumulated in a separate component of stockholders' equity.
Other foreign currency transaction gains and losses are included in net
earnings.
CASH AND CASH EQUIVALENTS are highly liquid investments purchased with an
original maturity of three months or less.
SHORT-TERM INVESTMENTS represent debt securities which are stated at fair value.
The difference between amortized cost (cost adjusted for amortization of
premiums and accretion of discounts which are recognized as adjustments to
interest income) and fair value representing unrealized holding gains or losses,
if material, are recorded as a separate component of stockholders' equity until
realized. While the company's intent is to hold debt securities to maturity,
they are classified as available-for-sale because the sale of such securities
may be required prior to maturity. Any gains and losses on the sale of debt
securities are determined on a specific identification basis. Unrealized
holding gains and losses were not material for any periods presented.
INVENTORIES are valued at the lower of cost or market. Cost of merchandise
inventories purchased for resale is determined on the last-in, first-out (LIFO)
method for domestic inventories, which was approximately $2,003,000 at May 31,
1997 ($1,977,000 at May 31, 1996). Cost of the remainder of the inventories is
determined on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT, including significant improvements to existing
facilities are stated at cost. Depreciation is provided using the straight-line
method over the estimated useful lives of the related assets, which are as
follows: Field service parts 3-5 years; land improvements 10-30 years;
buildings 20-50 years; machinery and equipment 3-15 years; furniture and
fixtures 3-10 years. Leasehold improvements are amortized over the shorter of
their useful lives or the term of the lease.
23
<PAGE>
GOODWILL represents the excess of the purchase price over the estimated fair
value of net assets of acquired businesses. Goodwill is being amortized on a
straight-line basis over periods not exceeding 25 years. Goodwill amortization
amounted to $496,000, $464,000 and $432,000 in fiscal years 1997, 1996 and 1995,
respectively. The Company evaluates its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable.
RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting
Standards Board adopted Statements of Financial Accounting Standards No. 130
(Reporting Comprehensive Income), which requires that an enterprise report, by
major components and as a single total, the change in its net assets during the
period from nonowner sources; and No. 131 (Disclosures about Segments of an
Enterprise and Related Information), which establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Adoption of these statements will not impact the Company's consolidated
financial position, results of operations or cash flows, and any effect will be
limited to the form and content of its disclosures. Both statements are
effective for the fiscal year beginning June 1, 1998.
REVENUE RECOGNITION Revenues on product sales are recognized upon product
shipment. Related installation revenues are recognized when installation is
complete. Equipment service revenues are recognized ratably over the
contractual period or as the services are performed.
EARNINGS PER SHARE is computed using the average number of common and dilutive
common equivalent shares outstanding (see Note 12).
STOCKHOLDERS' EQUITY Shares of the Company which are repurchased are treated as
Treasury stock and are accounted for under the cost method.
INCOME TAXES Deferred income taxes are provided for temporary differences
between financial statements and income tax reporting, in accordance with SFAS
No. 109.
STOCK-BASED COMPENSATION The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees.
FAIR VALUE OF FINANCIAL INSTRUMENTS The company believes that the carrying
amount for cash and cash equivalents, short-term investments, accounts
receivables, accounts payable and long-term debt approximated fair value as of
May 31, 1997.
CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject
the Company to a concentration of credit risk principally consist of cash and
cash equivalents, short-term investments and trade accounts receivable. The
company places its cash and cash equivalents and short-term investments with
what it believes are high credit quality financial institutions. The company
sells its products primarily to companies in North America, Europe and
Australia. The company maintains reserves for potential credit losses, but
historically has not experienced any significant losses related to individual
customers or groups of customers in any particular industry or geographic area.
24
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Short-Term Investments
The company's short-term investments have been classified as
available-for-sale securities. The amortized cost of available-for-sale
securities at May 31, 1997 and May 31, 1996 are presented in the table which
follows. Available-for-sale securities are classified as current assets and
mature generally within six months. For each category of investment
securities the fair market value approximates amortized cost.
May 31
-------------------------------------
1997 1996
-------------------------------------
Corporate obligations $ 3,320,000
U.S. Government obligations 266,000 $ 2,322,000
-------------------------------------
$ 3,586,000 $ 2,322,000
-------------------------------------
-------------------------------------
2. Inventories May 31
-------------------------------------
1997 1996
-------------------------------------
Finished goods $ 6,669,000 $ 7,421,000
Work in process 1,319,000 516,000
Raw material 3,393,000 3,376,000
-------------------------------------
$ 11,381,000 $ 11,313,000
-------------------------------------
-------------------------------------
If the inventories for which the LIFO method is used were valued under the
FIFO method, such inventories would have been higher by $1,190,000 at May 31,
1997 and $1,410,000 at May 31, 1996. The liquidation of certain LIFO
inventory increased earnings before income tax by $220,000 in 1997 and had no
significant impact on earnings in 1996 and 1995.
3. Property, Plant and Equipment May 31
-------------------------------------
1997 1996
-------------------------------------
Land and improvements $ 990,000 $ 990,000
Buildings and improvements 18,667,000 18,638,000
Machinery and equipment 16,589,000 16,424,000
Furniture and fixtures 16,109,000 15,475,000
Leasehold improvements 276,000 259,000
Field service spare parts 2,867,000 2,264,000
-------------------------------------
55,498,000 54,050,000
Less accumulated depreciation
and amortization (34,931,000) (33,250,000)
-------------------------------------
$ 20,567,000 $ 20,800,000
-------------------------------------
-------------------------------------
4. Long-Term Debt and Credit Line May 31
-------------------------------------
1997 1996
Unsecured term loans $ 12,500,000 $ 16,000,000
Unsecured term loans from bank 1,641,000 1,954,000
-------------------------------------
Total debt 14,141,000 17,954,000
Less current portion (3,313,000) (3,813,000)
-------------------------------------
Long-term debt $ 10,828,000 $ 14,141,000
-------------------------------------
-------------------------------------
The company has $12,500,000 of unsecured term loans outstanding: $8,500,000
at 8.7% with principal payments through fiscal 2001 and $4,000,000 at 6.9%
with principal payments through fiscal 2003. The company also has a
$1,641,000 unsecured term loan outstanding from a bank with principal
payments through fiscal 2003. Interest on the bank loan is at the bank's
reference rate (8.50% at May 31, 1997) plus .50%. The company, at its
discretion, can select other interest rate methods for this bank loan. These
interest rate methods include a fixed rate option, long-term rate option and
an offshore rate option. The term loans contain restrictions with respect to
certain payments (including dividends) additional debt, creation of liens and
guarantees and maintenance of minimum quick assets and stockholders' equity.
The company has an unsecured revolving line of credit of $10 million as of
May 31, 1997 which expires October 31, 1998. Borrowings are available at the
bank's reference rate (8.50% at May 31, 1997) or at certain rate options,
such as fixed rate, long-term rate and offshore rate options which may be
lower. The company had no borrowings outstanding under this line as of May
31, 1997.
25
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Required principal payments of long-term debt are payable as follows: Year
ending May 31, 1998-$3,313,000; 1999-$3,437,000; 2000-$3,437,000; 2001-
$1,937,000; 2002-$1,062,000 and thereafter $955,000.
Cash paid for interest which approximates interest expense was $1,515,000,
$1,850,000 and $2,150,000 for fiscal 1997, 1996 and 1995, respectively.
5. Other Accrued Liabilities May 31
-------------------------------------
1997 1996
-------------------------------------
Payroll and related benefits $ 2,138,000 $ 2,106,000
Deferred service contract income 2,819,000 2,115,000
Dividends 247,000 243,000
Amount due to independent sales reps 943,000 955,000
Other 2,458,000 2,683,000
-------------------------------------
$ 8,605,000 $ 8,102,000
-------------------------------------
-------------------------------------
6. Income Taxes
Earnings before income taxes and the provision for income taxes are comprised of
the following for the years ended May 31:
1997 1996 1995
-------------------------------------------------
Earnings before income
taxes:
Domestic $ 4,648,000 $ 3,785,000 $ 1,479,000
Foreign 2,009,000 1,102,000 678,000
------------ ------------ ------------
$ 6,657,000 $ 4,887,000 $ 2,157,000
-------------------------------------------------
-------------------------------------------------
Provision (credit) for
income taxes:
Current:
Federal $ 1,685,000 $ 942,000 $ (19,000)
State 398,000 229,000 37,000
Foreign 740,000 568,000 239,000
-------------------------------------------------
2,823,000 1,739,000 257,000
-------------------------------------------------
Deferred:
Federal 13,000 354,000 544,000
State 32,000 31,000 145,000
Foreign 28,000 2,000 (8,000)
-------------------------------------------------
73,000 387,000 681,000
-------------------------------------------------
$ 2,896,000 $ 2,126,000 $ 938,000
-------------------------------------------------
-------------------------------------------------
The following is a reconciliation of the effective income tax rates, for
financial statement purposes.
Percentage of Pre-Tax Earnings
----------------------------------------------
1997 1996 1995
-------------- -------------- ------------
United States statutory rate 35.0% 35.0% 34.0%
State income taxes,
net of federal income
tax benefit 4.3 3.5 5.6
Non-deductible goodwill 2.6 3.6 8.1
Foreign tax credit (3.3)
Other 1.6 1.4 (.9)
-------------- -------------- ------------
Effective tax rate 43.5% 43.5% 43.5%
-------------- -------------- ------------
-------------- -------------- ------------
26
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating losses
and tax credit carryforwards. The tax effects of significant items comprising
the company's net deferred tax liabilities are as follows:
May 31
-------------------------
1997 1996
------------ ------------
DEFERRED TAX ASSETS
Postretirement benefit obligation $ 524,000 $ 502,000
Reserves not currently deductible 1,081,000 1,047,000
Vacation accrual 452,000 382,000
Allowance for doubtful accounts 228,000 205,000
Operating loss carry forwards 46,000 120,000
Other 119,000 219,000
------------ ------------
2,450,000 2,475,000
------------ ------------
DEFERRED TAX LIABILITIES
Differences between book and tax basis of
property (1,891,000) (1,737,000)
Pension contribution (1,336,000) (1,439,000)
Other (147,000) (150,000)
------------ ------------
(3,374,000) (3,326,000)
------------ ------------
Net deferred tax liabilities $ (924,000) $ (851,000)
------------ ------------
------------ ------------
May 31
-------------------------
1997 1996
------------ ------------
NET DEFERRED TAX ASSETS (LIABILITIES) WERE
COMPRISED OF THE FOLLOWING:
Current assets $ 410,000 $ 301,000
Non-current liabilities (1,334,000) (1,152,000)
------------ ------------
Net deferred tax liabilities $ (924,000) $ (851,000)
------------ ------------
------------ ------------
The company has not provided for income taxes on undistributed earnings of
certain foreign subsidiaries which the company intends to reinvest
indefinitely. Cash payments for income taxes were: $2,581,000, $700,000 and
$780,000 in 1997, 1996 and 1995, respectively.
7. Employee Benefit Plans
The company maintains a defined benefit pension plan for substantially all
domestic employees. Plan benefits are based on compensation and length of
ervice and provide for normal retirement at age 65. The company's policy is
to make annual contributions to the pension plan between the ERISA minimum
and the maximum tax deductible amount allowed.
The plan's assets are invested in short-term money market instruments,
fixed income securities and common stock.
Net pension cost was $395,000, $782,000 and $603,000 for fiscal 1997, 1996
and 1995, respectively, and included the following components.
1997 1996 1995
-------------- ------------- ------------
Cost of benefits earned $ 729,000 $ 641,000 $ 581,000
Interest cost on projected benefit
obligation 1,537,000 1,378,000 1,256,000
Actual return on plan assets (1,694,000) (4,579,000) (1,042,000)
Amortization of initial
unrecognized net obligation 22,000 22,000 22,000
Unrecognized prior service cost 19,000 19,000 19,000
Deferred gain (loss) (218,000) 3,301,000 (233,000)
-------------- ------------- ------------
Net pension cost $ 395,000 $ 782,000 $ 603,000
-------------- ------------- ------------
-------------- ------------- ------------
27
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the plans funded status:
May 31
--------------------------------
1997 1996
-------------- ----------------
Pension plan assets at market value $ 21,444,000 $ 20,465,000
-------------- ----------------
Less present value of projected
benefit obligation:
Vested 17,657,000 15,635,000
Non-vested 915,000 850,000
Effect of projected future
compensation levels 2,743,000 2,183,000
-------------- ---------------
Projected benefit obligation 21,315,000 18,668,000
-------------- ---------------
Excess of plan assets over projected benefit
obligation 129,000 1,797,000
Prior service cost 229,000 248,000
Unrecognized net obligation at date of initial
application, amortized over 20 years 223,000 245,000
Unrecognized net loss 2,638,000 1,324,000
-------------- ---------------
Prepaid pension expense $ 3,219,000 $ 3,614,000
-------------- ---------------
-------------- ---------------
The weighted average discount rate and long-term rate of compensation
increase used in determining the actuarial present value of the projected
benefit obligations were 8% and 5%, respectively, at year end 1997 and 8.25%
and 5%, respectively, at year end 1996. The expected long-term rate of return
on plan assets for fiscal 1998 is 9.5%, the same as fiscal 1997.
The company also provides a 401(k) Plan (tax deferred savings plan) for its
domestic employees. The plan provides that the company make contributions in
either cash or common stock, at its option, equal to 50% of minimum
contributions made by participating employees. The plan also provides for
additional company contributions up to a maximum of 75% of participating
employees' minimum contributions, for each fiscal year in which net earnings
are 5% or more of revenues. Company contributions charged to earnings were
$445,000, $419,000 and $360,000 for fiscal 1997, 1996 and 1995, respectively.
The company has a plan that provides certain health care benefits for all of
its retired employees who meet certain age and service requirements while
working for the company. Generally, company-provided health care coverage is
coordinated with Medicare upon the retiree reaching the age of 65.
Net postretirement benefit cost was $172,000, $178,000 and $180,000 for
fiscal years 1997, 1996 and 1995, respectively. The company's postretirement
health care plans are not funded.
Accumulated postretirement benefit obligation:
May 31
-------------------------------
1997 1996
-------------- ---------------
Retirees $ 1,078,000 $ 1,259,000
Fully eligible active plan participants 146,000 142,000
Other active plan participants 332,000 218,000
-------------- ---------------
Total accumulated postretirement benefit
obligation 1,556,000 1,619,000
Unrecognized prior service costs 77,000 87,000
Unrecognized net loss (366,000) (439,000)
-------------- ---------------
Accrued postretirement benefit cost $ 1,267,000 $ 1,267,000
-------------- ---------------
-------------- ---------------
Net postretirement benefit costs consisted of the following components:
1997 1996 1995
------------ -------------- ---------------
Service cost $ 38,000 $ 33,000 $ 29,000
Interest cost on accumulated
postretirement benefit
obligation 123,000 132,000 139,000
Net amortization and deferrals 11,000 13,000 12,000
------------ -------------- ---------------
Net postretirement benefit costs $ 172,000 $ 178,000 $ 180,000
------------ -------------- ---------------
------------ -------------- ---------------
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of June 1, 1996 was 10% decreasing linearly
each successive year until it reaches 5% in 2002, after which it will
28
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
remain constant. A one-percentage-point increase in the assumed health care
cost trend rate for each year would increase the accumulated postretirement
benefit obligation as of year end 1997 by approximately 2%. The effect of
this change on net postretirement health care cost for fiscal year 1997 would
be an increase of approximately 2%. The assumed discount rate used in
determining the accumulated postretirement benefit obligation was 8% for
fiscal 1997 and 8.25% for fiscal 1996.
8. Stock Option Plans
Under the 1991 Employee Stock Option Plan (the Option Plan) the company may
grant options to purchase shares of common stock to officers and key employees
at prices not less than the fair market value at date of grant for incentive
stock options and not less than 85% of fair market value for non-statutory stock
options. These options generally expire 10 years from the date of grant and
become exercisable ratably over a 4-year period.
In June, 1995 the company canceled stock options to purchase 776,500 shares of
the company's common stock at prices ranging from $6.38 to $13.50 and exchanged
them for options to purchase 576,500 shares of the company's common stock at the
then current market value of $6.00 per share with new vesting periods. The
vesting for exchanged options was 50% on the first anniversary of the grant, and
25% on each of the second and third anniversaries.
The Tab Products Co. 1996 Outside Directors' Option Plan (the Directors' Plan)
was adopted by the company in fiscal 1996 and approved by stockholders at the
Annual Stockholders' Meeting on October 17, 1996. Under the Directors' Plan, an
initial grant of 10,000 shares was automatically granted to all existing outside
directors at the date of stockholder approval and to all future new outside
directors at the date they are appointed as directors. The options are granted
at the fair market value at date of grant, expire 10 years from the date of
grant and become exercisable ratably over a 4-year period.
Under the Directors' Plan outside directors of the company are automatically
granted additional options annually, to purchase 2,000 shares of common stock of
the company at the fair market value at the date of grant for each year that
such person remains a director of the company. The grant date will be the date
of the annual stockholders' meeting. Annual options granted under the plan are
immediately exercisable and expire 10 years from the date of grant. The total
shares authorized under the plan is 150,000 of which 50,000 shares were granted
in fiscal 1997. All options issued under the Directors' Plan are non-qualified
options.
On January 27, 1997 250,000 shares of common stock were granted to the company's
President and Chief Executive Officer, of which 242,000 shares were granted
under Non-qualified Option Agreements. These shares were granted separate from
the company's 1991 Employee Stock Option Plan. The shares were granted at the
fair market value at the date of grant ($9.25). These options generally expire
10 years from the date of grant and become exercisable in twelve quarterly
installments from the grant date, except for 100,000 shares that become
exercisable in 50,000 share increments four and five years from the grant date
or sooner upon the achievement of certain business milestones.
29
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Option activity under the plans is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
------------- ---------------
<S> <C> <C>
Outstanding, June 1, 1994 868,875 $10.25
Granted 30,000 7.00
Exercised (2,500) 7.38
Canceled (37,875) 10.78
------------- ---------------
Outstanding, May 31, 1995 (620,500 exercisable at
a weighted average price of $10.38) 858,500 10.12
Granted (weighted average fair value of $1.33) 722,000 6.08
Canceled (894,250) 9.96
------------- ---------------
Outstanding, May 31, 1996 (3,750 exercisable at a
weighted average price of $6.38) 686,250 6.08
Granted (weighted average fair value of $2.26) 343,500 8.69
Exercised (81,625) 6.03
Canceled (171,750) 6.00
------------- ---------------
Outstanding, May 31, 1997 (207,125 exercisable at
weighted average price of $6.26) 776,375 7.26
-------------
-------------
Additional information regarding options outstanding
as of May 31, 1997 is as follows:
Options Outstanding Options Exercisable
------------------------------ ------------------------------------
Weighted Avg.
Remaining
Range of Number Contractual Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Life (yrs.) Exercise Price Exercisable Exercise Price
- --------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$6.00 - $6.38 357,875 8.0 $6.02 179,626 $6.02
$6.50 - $7.63 163,500 9.0 6.84 15,000 6.59
$9.25 - $9.50 255,000 9.7 9.25 12,499 9.25
- ------------- ------- --- ---- ------ ----
$6.00 - $9.50 776,375 8.8 $7.26 207,125 $6.26
------- -------
------- -------
</TABLE>
At May 31, 1997 456,031 and 100,000 shares were available for future grants
under the Option Plan and Directors' Plan, respectively.
Additional Stock Plan Information
As discussed in the Statement of Accounting Policies, the company continues to
account for its stock-based awards using the intrinsic value method in
accordance with Accounting Principles Board No. 25, Accounting for Stock Issued
to Employees and its related interpretations. Accordingly, no compensation
expense has been recognized in the financial statements for employee stock
arrangements.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, (SFAS 123) requires the disclosure of pro forma net income and
earnings per share had the company adopted the fair value method as of the
beginning of fiscal 1996. Under SFAS 123, the fair value of stock-based awards
to employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradeable, fully
transferable options without vesting restrictions, which significantly differ
from the company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The company's
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life, 12 months following
vesting; stock volatility, 30.8% in fiscal 1997 and fiscal 1996; risk free
interest rates, 6.25% in fiscal 1997 and fiscal 1996; and a dividend rate of
2.5% in fiscal 1997 and fiscal 1996. The company's calculations are based on a
multiple option valuation approach and forfeitures are recognized as they occur.
If the computed fair values of the awards had been amortized to expense over the
vesting period of the awards, pro forma net income would have been $3,541,000
($.71 per share) in fiscal 1997 and $2,286,000 ($.47 per share) in fiscal 1996.
The impact of outstanding non-vested stock options granted prior to fiscal 1996
has been
30
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
excluded from the pro forma calculation; accordingly, the fiscal 1997 and fiscal
1996 pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock options.
9. Commitments and Contingencies
The company and its subsidiaries are obligated under leases of certain office
and warehouse facilities expiring at various dates through 2012. The future
minimum rental payments under these lease agreements at May 31, 1997 are as
follows:
1998 $1,878,000
1999 1,278,000
2000 1,016,000
2001 531,000
2002 93,000
Thereafter 222,000
----------
$5,018,000
----------
----------
Total rentals charged to expense amounted to $2,632,000 in 1997, $2,802,000 in
1996 and $2,561,000 in 1995.
10. Major Customer
Revenues derived from the U.S. Government were 10% of total revenues in fiscal
year 1996. No single customer accounted for greater than 10% of consolidated
revenues in fiscal 1997 and 1995.
11. Foreign Subsidiaries
The company has three foreign subsidiaries which market their products in
Canada, Australia and Europe, while foreign sales in the remainder of the world
are conducted through a Foreign Sales Corporation.
Foreign revenues were $32,214,000, $30,132,000 and $29,383,000 for the years
ended May 31, 1997, 1996 and 1995, respectively. Foreign operating income was
$2,240,000, $1,045,000 and $940,000 for the years ended May 31, 1997, 1996 and
1995, respectively.
Total identifiable assets (excluding cash) and liabilities in foreign countries
were $9,216,000 and $3,151,000, respectively, at May 31, 1997 compared with
$8,835,000 and $2,620,000 at May 31, 1996.
Transaction and exchange gains (losses) included in earnings, amounted to
approximately $(18,000), $(225,000) and $191,000 in fiscal 1997, 1996 and and
1995, respectively.
12. Earnings Per Share
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 years, basic EPS
would have been $.77 and $.57 for the year ended May 31, 1997 and May 31, 1996,
respectively. Diluted EPS under SFAS 128 would have been the same
31
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as previously reported for the years ended May 31, 1997 and 1996.
13. Selected Quarterly Data (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Gross Net Earnings
Fiscal Quarter Ended Revenues Profit (1) Earnings Per Share
- -------------------- ------------------ --------------------- ----------------------- --------------------
<S> <C> <C> <C> <C>
1997
AUGUST 31 $ 35,012 $14,105 $ 679 $ .14
NOVEMBER 30 40,255 16,185 1,183 .24
FEBRUARY 28 38,761 15,939 1,092 .22
MAY 31 40,423 15,952 807 .16
------------------ --------------------- ----------------------- --------------------
$ 154,451 $62,181 $3,761 $ .76
------------------ --------------------- ----------------------- --------------------
------------------ --------------------- ----------------------- --------------------
1996
AUGUST 31 $ 37,414 $14,591 $ 593 $ .12
NOVEMBER 30 38,862 15,370 826 .17
FEBRUARY 29 37,674 14,678 723 .15
MAY 31 38,748 15,034 619 .13
------------------ --------------------- ----------------------- --------------------
$ 152,698 $59,673 $2,761 $ .57
------------------ --------------------- ----------------------- --------------------
------------------ --------------------- ----------------------- --------------------
</TABLE>
(1) Revenues less cost of revenues.
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Tab Products Co.:
We have audited the consolidated financial statements of Tab Products Co. and
its subsidiaries as of May 31, 1997 and 1996, and for each of the three years in
the period ended May 31, 1997, and have issued our report thereon dated June 26,
1997; such financial statements and report are included in your fiscal 1997
Annual Report to Stockholders. Our audits also included the financial statement
schedule of Tab Products Co., for the years ended May 31, 1997, 1996 and 1995,
listed in Item 14 (A)(2). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
June 26, 1997
33
<PAGE>
TAB PRODUCTS CO. AND SUBSIDIARY COMPANIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions Uncollectible
Balance at Charged to Accounts Balance at
Allowance for Doubtful Beginning Costs and Charged to End
Accounts Receivable of Period Expenses Reserve of Period
- ------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended May 31, 1997 $620,000 $400,000 $251,000 $769,000
Year ended May 31, 1996 $708,000 $187,000 $275,000 $620,000
Year ended May 31, 1995 $711,000 $221,000 $224,000 $708,000
</TABLE>
34
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-11914, 33-11838, 33-45071, 333-20693 and 333-25403 of Tab Products Co. on
Form S-8 of our reports dated June 26, 1997, appearing and incorporated by
reference in this Annual Report on Form 10-K of Tab Products Co. for the fiscal
year ended May 31, 1997.
DELOITTE & TOUCHE LLP
San Jose, California
July 30, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 8,568
<SECURITIES> 3,586
<RECEIVABLES> 26,319
<ALLOWANCES> 769
<INVENTORY> 11,381<F1>
<CURRENT-ASSETS> 51,405
<PP&E> 55,498
<DEPRECIATION> 34,931
<TOTAL-ASSETS> 80,699
<CURRENT-LIABILITIES> 22,942
<BONDS> 10,828
0
0
<COMMON> 44,491
<OTHER-SE> 36
<TOTAL-LIABILITY-AND-EQUITY> 80,699
<SALES> 143,703
<TOTAL-REVENUES> 154,451
<CGS> 82,878
<TOTAL-COSTS> 92,270
<OTHER-EXPENSES> 54,550
<LOSS-PROVISION> 400
<INTEREST-EXPENSE> 974
<INCOME-PRETAX> 6,657
<INCOME-TAX> 2,896
<INCOME-CONTINUING> 3,761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,761
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
<FN>
<F1>Inventory detail at May 31, 1997 was Finished Goods $6,669, Work in Process
$1,319 and Raw Materials $3,393.
</FN>
</TABLE>
