<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 February 28,1998
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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.
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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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number - including area code (650) 852-2400
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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
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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 February 28, 1998 - 5,161,764.
This report, including all exhibits and attachments, contains 12 pages.
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TAB PRODUCTS CO.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
ITEM 1. Financial Statements:
Consolidated Condensed Balance Sheets
February 28, 1998 and May 31, 1997 3
Consolidated Condensed Statements of Earnings
Three and nine months ended February 28,
1998 and 1997 4
Consolidated Condensed Statements of Cash Flows
Nine months ended February 28,
1998 and 1997 5
Supplemental Financial Data - Notes 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
ITEM 3. Quantitative and Qualitative Disclosure
About Market Risks 9
PART II. OTHER INFORMATION
ITEM 6. Exhibits 10
Signatures 11
</TABLE>
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 February 28, 1998 May 31, 1997
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,174 $ 8,568
Short-term investments 4,755 3,586
Accounts receivable, less allowances of
$905 and $769 for doubtful accounts 25,693 25,550
Inventories 12,622 11,381
Prepaid income taxes and other expenses 2,619 2,320
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Total current assets 55,863 51,405
Property, plant and equipment, net of accumulated
depreciation of $37,684 and $34,931 21,485 20,567
Goodwill, net 3,822 4,281
Other assets 4,040 4,446
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$ 85,210 $ 80,699
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,438 $ 3,313
Accounts payable 7,585 6,677
Compensation payable 4,474 4,347
Other accrued liabilities 9,014 8,605
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Total current liabilities 24,511 22,942
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Long-term debt 9,969 10,828
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Deferred taxes and other non-current liabilities 2,372 2,402
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Stockholders' equity:
Preferred stock: $.01 par value, authorized -
500,000 shares, issued - none - -
Common stock: $.01 par value, authorized -
25,000,000 shares, issued - February 1998
- 7,593,991 shares and May 1997
- 7,365,803 shares 76 74
Additional paid-in capital 14,692 13,309
Retained earnings 65,400 62,473
Treasury stock: February 1998 and May 1997 -
2,432,227 shares (31,365) (31,365)
Cumulative translation adjustment (445) 36
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Total stockholders' equity 48,358 44,527
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$ 85,210 $ 80,699
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</TABLE>
3
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TAB PRODUCTS CO.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
(000's omitted except share data)
<TABLE>
<CAPTION>
Three Months Ended
February 28
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1998 1997
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<S> <C> <C>
Revenues $ 41,096 $ 38,761
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Costs and expenses:
Cost of revenues 23,807 22,822
Selling, general and administrative 14,463 13,570
Research and development 215 204
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Total costs and expenses 38,485 36,596
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Operating income 2,611 2,165
Interest, net (130) (233)
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Earnings before income taxes 2,481 1,932
Provision for income taxes 1,079 840
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Net earnings $ 1,402 $ 1,092
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Earnings per share:
Basic $ 0.27 $ 0.22
Diluted $ 0.26 $ 0.22
Average common shares outstanding 5,135,156 4,880,448
Average common and equivalent shares outstanding 5,315,576 5,053,226
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
February 28
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1998 1997
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<S> <C> <C>
Revenues $122,112 $114,028
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Costs and expenses:
Cost of revenues 71,385 67,799
Selling, general and administrative 43,069 39,649
Research and development 663 584
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Total costs and expenses 115,117 108,032
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Operating income 6,995 5,996
Interest, net (461) (768)
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Earnings before income taxes 6,534 5,228
Provision for income taxes 2,842 2,274
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Net earnings $ 3,692 $ 2,954
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Earnings per share:
Basic $ 0.73 $ 0.61
Diluted $ 0.70 $ 0.59
Average common shares outstanding 5,079,793 4,866,969
Average common and equivalent shares outstanding 5,269,782 4,984,885
</TABLE>
4
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TAB PRODUCTS CO.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(000's omitted)
<TABLE>
<CAPTION>
Nine Months Ended
February 28
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1998 1997
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<S> <C> <C>
Operating Activities:
Net earnings $ 3,692 $ 2,954
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 3,211 2,950
Other 21 90
Changes in operating assets and liabilities:
Accounts receivable (143) (2,055)
Inventories (1,241) (336)
Prepaid income taxes and other expenses (299) (867)
Other assets 406 503
Accounts payable 908 1,989
Compensation payable 127 145
Other accrued liabilities 379 637
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Net cash provided by operating activities 7,061 6,010
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Investing Activities:
Purchase of property, plant and equipment, net (3,691) (1,944)
Purchases of short-term investments (6,848) (4,361)
Sales of short-term investments 5,679 3,347
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Net cash required by investing activities (4,860) (2,958)
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Financing Activities:
Repayment of long-term debt (734) (735)
Proceeds from issuance of common stock 1,385 181
Dividends paid (765) (730)
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Net cash required by financing activities (114) (1,284)
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Effect of exchange rate changes on cash (481) (112)
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Increase in cash and cash equivalents 1,606 1,656
Cash and cash equivalents at beginning of period 8,568 9,331
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Cash and cash equivalents at end of period $ 10,174 $ 10,987
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</TABLE>
5
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TABS PRODUCTS CO.
SUPPLEMENTAL FINANCIAL DATA-NOTES (UNAUDITED)
1. Inventories consisted of the following (000's omitted):
<TABLE>
<CAPTION>
February 28, 1998 May 31, 1997
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<S> <C> <C>
Finished goods $ 7,897 $ 6,669
Work in process 893 1,319
Raw materials 3,832 3,393
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$ 12,622 $ 11,381
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</TABLE>
2. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). The company has adopted SFAS 128 in the current quarter of
fiscal 1998 and restated earnings per share (EPS) data for prior periods to
conform with SFAS 128.
SFAS 128 replaces previous 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.
3. Dividends declared for the nine month periods ended February 28, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
Record Date Shares Outstanding Dividend Per Share
----------- ------------------ ------------------
<S> <C> <C>
February 25, 1998 5,161,764 $ 0.05
November 25, 1997 5,103,014 $ 0.05
August 25, 1997 5,041,576 $ 0.05
February 25, 1997 4,881,826 $ 0.05
November 25, 1996 4,862,951 $ 0.05
August 26, 1996 4,851,951 $ 0.05
</TABLE>
4. 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
This section contains forward-looking statements, which reflect the company's
current views with respect to future events which may impact the company's
results of operations and financial condition. These statements are subject to
risks and uncertainties, including those set forth below under the caption
"Business Environment and Risk Factors" which could cause actual future results
to differ materially from historical results.
FINANCIAL CONDITION
At February 28, 1998 the company had cash and short-term investments of $14.9
million, an increase of $2.7 million from the $12.2 million at May 31, 1997.
The company's working capital position at February 28, 1998 was $31.4 million
as compared with $28.5 million at May 31, 1997. The current ratio of 2.3 at
February 28, 1998 was up slightly from the 2.2 reported for May 31, 1997.
Inventories at February 28, 1998 were $12.6 million, an increase of $1.2
million compared to the $11.4 million reported at May 31, 1997. The higher
inventories were the result of planned increases in certain inventories to
meet peak period demands. 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 $3.7 million
during the nine months ended February 28, 1998. Capital expenditures to support
operations for fiscal 1998 are expected to approximate $5.0 million.
For the nine month period ended February 28, 1998 the company paid cash
dividends of $765,000 as compared to $730,000 in the prior fiscal year. The
increase was due to the exercise of common stock options.
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 February 28, 1998. The company intends to renew the line
of credit at substantially the same terms as the existing agreement.
RESULTS OF OPERATIONS
REVENUES for the third quarter of fiscal 1998 amounted to $41.1 million, up $2.3
million or 6% from the $38.8 million reported in the third quarter of fiscal
1997. The increased quarterly revenues were primarily from North America
document management related products and services, partially offset by a decline
in revenues from furniture related products consistent with our focus on
delivering document management solutions. In addition, revenues outside of
North America declined primarily as a result of transitions in sales
distribution partners in several key markets. Revenues for the nine months
ended February 28, 1998 were $122.1 million, up $8.1 million or 7% from revenues
of $114.0 million reported in the first nine months of the prior fiscal year.
Document management related products and services were the primary source of the
improved revenues for the nine months ended February 28, 1998.
7
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COST OF REVENUES, as a percentage of revenues, was 57.9% for the third quarter
of fiscal 1998, an improvement from the 58.9% reported in the third quarter of
fiscal 1997. This improvement was primarily the result of product cost
reductions and sales mix. For the nine months ended February 28, 1998 cost of
revenues was 58.5% as compared to 59.5% in the first nine months in the prior
fiscal year. The nine month improvement was also due to product cost reductions
and sales mix.
OPERATING EXPENSES were $14.7 million or 35.8% of total revenues for the third
quarter of fiscal 1998 as compared to $13.8 million or 35.6% of total revenues
for the third quarter of fiscal 1997. The increase in operating expenses for
the third quarter of fiscal 1998 is primarily due to higher commission expense
($426,000) incurred to achieve increased revenues and sales support costs and
management information systems ($478,000) focused on improved access and sales
force automation. For the nine months ended February 28, 1998 operating
expenses were $43.7 million or 35.8% as compared to $40.2 million or 35.3% for
the nine months ended February 28, 1997. The increase in operating expenses for
the nine months ended February 28, 1998 is partially due to higher commission
expense ($1,558,000) due to increased revenues. In addition, operating expenses
were higher ($1,941,000) as a result of increased sales activity, general
support costs and continuous product development.
INTEREST EXPENSE, net, was $130,000 in the third quarter of fiscal 1998 as
compared to $233,000 in the third quarter of fiscal 1997. For the nine months
ended February 28, 1998 interest expense, net, was $461,000 as compared to
$768,000 in the prior fiscal year. The decrease for the three and nine months
ended February 28, 1998 was primarily due to reductions in overall debt levels
and increases in cash and cash equivalents and short-term investments as
compared to the prior year periods.
DILUTED EARNINGS PER SHARE for the three months ended February 28, 1998 were
$.26 per share, an increase of 18% over the $.22 per share earned in the third
quarter of the prior fiscal year. For the nine months ended February 28, 1998
diluted earnings per share were $.70 per share, an increase of 19% over the $.59
per share in 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 in the geographic
markets for the company's products, market acceptance of new products and
services, product mix, governmental regulation and risks in government
contracting, 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.
YEAR 2000 COMPLIANCE
Although the company believes that its products do not have Year 2000 problems,
the company is currently reviewing its payroll, billing, accounting and other
informational service functions to determine the nature and extent of any Year
2000 issues related to such functions. In addition, Year 2000 issues may also
arise with respect to products furnished by third-party suppliers that may
result in unforeseen costs or delays to the company and therefore may have a
material adverse effect on the company.
8
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Not applicable.
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) 27 Financial Data Schedule
(b) Reports on Form 8-K
None
10
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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: April 13, 1998 /s/ David J. Davis
--------------------------------------------
David J. Davis, Senior Vice President,
Operations and Acting Chief Financial Officer
Date: April 13, 1998 /s/ Michael J. Baker
--------------------------------------------
Michael J. Baker, Controller
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 10,174
<SECURITIES> 4,755
<RECEIVABLES> 26,598
<ALLOWANCES> 905
<INVENTORY> 12,622<F1>
<CURRENT-ASSETS> 55,863
<PP&E> 59,169
<DEPRECIATION> 37,684
<TOTAL-ASSETS> 85,210
<CURRENT-LIABILITIES> 24,511
<BONDS> 9,969
0
0
<COMMON> 48,803
<OTHER-SE> (445)
<TOTAL-LIABILITY-AND-EQUITY> 85,210
<SALES> 112,746
<TOTAL-REVENUES> 122,112
<CGS> 63,426
<TOTAL-COSTS> 71,385
<OTHER-EXPENSES> 43,732
<LOSS-PROVISION> 311
<INTEREST-EXPENSE> 461
<INCOME-PRETAX> 6,534
<INCOME-TAX> 2,842
<INCOME-CONTINUING> 3,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,692
<EPS-PRIMARY> .73
<EPS-DILUTED> .70
<FN>
<F1>INVENTORY DETAIL AT FEBRUARY 28, 1998 WAS FINISHED GOODS $7,897; WORK IN
PROCESS $893; RAW MATERIALS $3,832.
</FN>
</TABLE>
