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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 November 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number: 1-7736
TAB PRODUCTS CO.
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(Exact name of Registrant as specified in its charter)
DELAWARE 94-1190862
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(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
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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 November 30, 1997 - 5,103,014.
This report, including all exhibits and attachments, contains 13 pages.
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TAB PRODUCTS CO.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
ITEM 1. Financial Statements:
Consolidated Condensed Balance Sheets
November 30, 1997 and May 31, 1997 3
Consolidated Condensed Statements of Earnings
Three and six months ended November 30,
1997 and 1996 4
Consolidated Condensed Statements of Cash Flows
Six months ended November 30,
1997 and 1996 5
Supplemental Financial Data - Notes 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 9
ITEM 6. Exhibits 10
Signatures 11
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)
November 30, May 31,
ASSETS 1997 1997
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Current assets:
Cash and cash equivalents $ 6,679 $ 8,568
Short-term investments 4,748 3,586
Accounts receivable, less allowances of
$827 and $769 for doubtful accounts 27,163 25,550
Inventories 12,404 11,381
Prepaid income taxes and other expenses 2,643 2,320
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Total current assets 53,637 51,405
Property, plant and equipment, net of accumulated
depreciation of $36,685 and $34,931 20,421 20,567
Goodwill, net 3,933 4,281
Other assets 4,412 4,446
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$ 82,403 $ 80,699
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,438 $ 3,313
Accounts payable 6,909 6,677
Compensation payable 4,939 4,347
Other accrued liabilities 7,874 8,605
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Total current liabilities 23,160 22,942
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Long-term debt 10,047 10,828
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Deferred taxes and other non-current liabilities 2,371 2,402
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Stockholders' equity:
Preferred stock: $.01 par value, authorized -
500,000 shares, issued - none - -
Common stock: $.01 par value, authorized -
25,000,000 shares, issued - November 1997
- 7,535,241 shares and May 1997
- 7,365,803 shares 80 74
Additional paid-in capital 14,322 13,309
Retained earnings 64,256 62,473
Treasury stock: November 1997 and May 1997 -
2,432,227 shares (31,365) (31,365)
Cumulative translation adjustment (468) 36
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Total stockholders' equity 46,825 44,527
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$ 82,403 $ 80,699
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3
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TAB PRODUCTS CO.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
(000's omitted except share data)
Three Months Ended
November 30
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1997 1996
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Revenues $ 41,573 $ 40,255
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Costs and expenses:
Cost of revenues 24,057 24,070
Selling, general and administrative 14,644 13,630
Research and development 224 207
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Total costs and expenses 38,925 37,907
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Operating income 2,648 2,348
Interest, net (163) (254)
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Earnings before income taxes 2,485 2,094
Provision for income taxes 1,081 911
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Net earnings $ 1,404 $ 1,183
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Earnings per common and equivalent share $ 0.27 $ 0.24
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Average common and equivalent shares outstanding 5,252,974 4,874,025
Six Months Ended
November 30
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1997 1996
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Revenues $ 81,016 $ 75,267
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Costs and expenses:
Cost of revenues 47,578 44,977
Selling, general and administrative 28,606 26,079
Research and development 448 380
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Total costs and expenses 76,632 71,436
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Operating income 4,384 3,831
Interest, net (331) (535)
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Earnings before income taxes 4,053 3,296
Provision for income taxes 1,763 1,434
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Net earnings $ 2,290 $ 1,862
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Earnings per common and equivalent share $ 0.44 $ 0.38
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Average common and equivalent shares outstanding 5,224,096 4,873,323
4
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TAB PRODUCTS CO.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(000's omitted)
Six Months Ended
November 30,
---------------------------
1997 1996
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Operating Activities:
Net earnings $ 2,290 $ 1,862
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 2,114 1,965
Other 81 59
Changes in operating assets and liabilities:
Accounts receivable (1,818) (4,594)
Inventories (1,207) 131
Prepaid income taxes and other expenses (353) (416)
Other assets 24 408
Accounts payable 112 1,837
Commissions payable 730 (94)
Other accrued liabilities (666) (277)
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Net cash provided by operating
activities 1,307 881
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Investing Activities:
Purchase of property, plant and equipment,
net (1,753) (1,175)
Purchases of short-term investments (4,885) (3,875)
Sales of short-term investments 3,723 2,860
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Net cash required by investing
activities (2,915) (2,190)
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Financing Activities:
Repayment of long-term debt (656) (657)
Proceeds from issuance of common stock 1,019 66
Dividends paid (507) (486)
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Net cash required by financing
activities (144) (1,077)
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Effect of exchange rate changes on cash (137) 169
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Decrease in cash and cash equivalents (1,889) (2,217)
Cash and cash equivalents at beginning of period 8,568 9,331
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Cash and cash equivalents at end of period $ 6,679 $ 7,114
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5
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TAB PRODUCTS CO.
SUPPLEMENTAL FINANCIAL DATA - NOTES (UNAUDITED)
1. Inventories consisted of the following (000's omitted):
November 30, 1997 May 31, 1997
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Finished goods $ 7,830 $ 6,669
Work in process 892 1,319
Raw materials 3,682 3,393
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$ 12,404 $ 11,381
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2. Earnings per share data are computed using the average number of common and
dilutive common equivalent shares outstanding.
3. Dividends declared for the six month periods ended November 30, 1997 and
1996 were as follows:
Record Date Shares Outstanding Dividend Per Share
----------- ------------------ ------------------
November 25, 1997 5,103,014 $ 0.05
August 25, 1997 5,041,576 $ 0.05
November 25, 1996 4,862,951 $ 0.05
August 26, 1996 4,851,951 $ 0.05
4. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The
company is required to adopt SFAS 128 in the third quarter of fiscal 1998 and
will restate at that time earnings per share (EPS) data for prior periods to
conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
If SFAS 128 had been in effect during the current and prior year periods,
basic EPS would have been $.28 and $.24 for the quarters ended November 30, 1997
and November 30, 1996, respectively, and $.45 and $.38 for the year to date
periods, respectively. Diluted EPS under SFAS 128 would not have been
significantly different than fully diluted EPS currently reported for the
periods.
5. The above financial information reflects all adjustments consisting of
normal recurring items which are, in the opinion of management, necessary for a
fair presentation of the results of the interim periods. These financial
statements should be read in conjunction with the company's audited financial
statements for the year ended May 31, 1997.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
At November 30, 1997 the company had cash and short-term investments of $11.4
million, a decrease of $0.7 million from the $12.2 million at May 31, 1997. The
company's working capital position at November 30, 1997 was $30.5 million as
compared with $28.5 million at May 31, 1997. The current ratio of 2.3 at
November 30,1997 was up slightly from the 2.2 reported for May 31, 1997.
Accounts receivable at November 30, 1997 was $27.2 million, an increase of $1.6
million compared to the $25.6 million reported at May 31, 1997. The increased
accounts receivable is primarily the result of higher revenues. Inventories at
November 30, 1997 were $12.4 million, an increase of $1 million compared to the
$11.4 million reported at May 31, 1997. The higher inventory value was the
result of planned increases in certain inventory levels to meet peak period
demands during the September to December time frame. Management believes that
the company's cash and cash equivalents, available credit facilities and
operational cash flow will adequately finance anticipated growth, capital
expenditures and debt obligations for the foreseeable future.
Investments in property, plant and equipment, which were primarily focused on
manufacturing equipment and management information systems were $1.8 million
during the six months ended November 30, 1997. Capital expenditures to support
operations for fiscal 1998 are expected to be in the range of $4.0 to $4.5
million.
For the six month period ended November 30, 1997 the company paid cash dividends
of $507,000 as compared to $486,000 in the prior fiscal year.
The company has an unsecured revolving line of credit of $10 million with a bank
which expires on October 31, 1998. There were no borrowings outstanding under
the line of credit at November 30, 1997.
RESULTS OF OPERATIONS
REVENUES for the second quarter of fiscal 1998 amounted to $41.6 million, up
$1.3 million or 3.3% from the $40.3 million reported in the second 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 six months ended
November 30, 1997 were $81.0 million, up $5.7 million or 7.6% from revenues of
$75.3 million reported in the first six months of the prior fiscal year.
Document management related products and services were the primary source of the
improved revenues for the six months ended November 30, 1997.
COST OF REVENUES, as a percentage of revenues, was 57.9% for the second quarter
of fiscal 1998, an improvement from the 59.8% reported in the second quarter of
fiscal 1997. This improvement was primarily the result of product cost
reductions (1.6%) and sales mix (.3%). For the six months ended November 30,
1997 cost of revenues was 58.7% as
7
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compared to 59.8% in the first six months in the prior fiscal year. The six
month improvement is a result of product cost reductions.
OPERATING EXPENSES were $14.9 million or 35.8% of total revenues for the second
quarter of fiscal 1998 as compared to $13.8 million or 34.4% of total revenues
for the second quarter of fiscal 1997. The increase in operating expenses for
the second quarter of fiscal 1998 is primarily the result of higher commission
expense ($341,000) as a result of increased revenues, independent sales channel
support costs ($157,000) and management information systems primarily focused on
sales force automation tools ($170,000). For the six months ended November 30,
1997 operating expenses were $29.1 million or 35.9% as compared to $26.5 million
or 35.2% for the six months ended November 30, 1996. The increase in operating
expenses for the six months ended November 30, 1997 is partially the result of
higher commission expense ($1,132,000) as a result of the increased revenues.
In addition, operating expenses were higher as a result of regional training
programs ($284,000), management information systems primarily focused on sales
force automation tools ($323,000) and independent sales channel support costs
($300,000).
INTEREST EXPENSE, net, was $163,000 in the second quarter of fiscal 1998 as
compared to $254,000 in the second quarter of fiscal 1997. For the six months
ended November 30, 1997 interest expense, net, was $331,000 as compared to
$535,000 in the prior fiscal year. The decrease for the three and six months
ended November 30, 1997 was primarily due to reductions in overall debt level as
compared to November 30, 1996.
EARNINGS PER SHARE for the three months ended November 30, 1997 were $.27 per
share, an increase of 13% over the $.24 per share earned in the second quarter
of the prior fiscal year. For the six months ended November 30, 1997 earnings
per share were $.44 per share, an increase of 16% over the $.38 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.
8
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PART II: OTHER INFORMATION
ITEM 1 Legal Proceedings
Not applicable.
ITEM 2 Changes in Securities
Not applicable.
ITEM 3 Defaults Upon Senior Securities
Not applicable.
ITEM 4 Submission of Matters to a Vote of Security Holders
(a) The company held its annual meeting of stockholders
on November 11, 1997.
(b) All of management's nominees as listed in the proxy
statement were elected.
(c) The votes for each Director are indicated below:
Director For Withheld Authority
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R. R. Augsburger 4,206,278 17,325
R. S. Cecil 4,202,864 20,739
K. S. Hanson 4,202,611 20,992
P. C. Kantz 4,205,343 18,260
J. K. Myers 4,205,496 18,107
H. A. Wolf 4,205,859 17,444
(d) The company's appointment of Deloitte & Touche LLP as the
independent accountants for the fiscal year ending May 31, 1998
was approved. The vote is indicated below:
For 4,189,270
Against 13,550
Abstain 20,783
Non-Vote 0
ITEM 5 Other Information
Not applicable.
9
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ITEM 6. Exhibits
(a) 10 Bank of America Amendment No. 1 dated November 4, 1997
to Business Loan Agreement dated August 26, 1996
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: January 14, 1998 /s/ John M. Palmer
----------------------------------
John M. Palmer, Vice President,
Finance and Chief Financial Officer
Date: January 14, 1998 /s/ Michael J. Baker
----------------------------------
Michael J. Baker, Controller
11
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[LOGO] BANK OF AMERICA AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO BUSINESS LOAN AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of November 4, 1997, is
between Bank of America National Trust and Savings Association (the "Bank") and
Tab Products Co. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of August 26, 1996 (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 In Paragraph 7.10, the amount "Five Million Dollars ($5,000,000)"
is substituted for the amount "Three Million Five Hundred Thousand Dollars
($3,500,000)."
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and
effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION
TAB PRODUCTS CO.
X /s/ C.P. Giannotti
------------------------------------
By: Chris P. Giannotti, Vice President X R.J. Sexton
-------------------------------
By: TREASURER
X John M. Palmer
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By: VICE PRESIDENT, FINANCE
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-1-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 6679
<SECURITIES> 4748
<RECEIVABLES> 27990
<ALLOWANCES> 827
<INVENTORY> 12404<F1>
<CURRENT-ASSETS> 53637
<PP&E> 57106
<DEPRECIATION> 36685
<TOTAL-ASSETS> 82403
<CURRENT-LIABILITIES> 23160
<BONDS> 10047
0
0
<COMMON> 47293
<OTHER-SE> (468)
<TOTAL-LIABILITY-AND-EQUITY> 82403
<SALES> 74957
<TOTAL-REVENUES> 81016
<CGS> 42516
<TOTAL-COSTS> 47578
<OTHER-EXPENSES> 29054
<LOSS-PROVISION> 256
<INTEREST-EXPENSE> 331
<INCOME-PRETAX> 4053
<INCOME-TAX> 1763
<INCOME-CONTINUING> 2290
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2290
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
<FN>
<F1>Inventory detail at November 30, 1997 was finished goods $7830; work in
process $892; raw materials $3682.
</FN>
</TABLE>
