<PAGE>
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarter period ended February 29, 2000
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.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-1190862
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
1400 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(650) 852-2400
(REGISTRANT'S TELEPHONE NUMBER - INCLUDING AREA CODE)
NOT APPLICABLE
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL
YEAR, IF CHANGED SINCE LAST REPORT.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common shares outstanding as of
February 29, 2000 - 5,207,089.
This report, including all exhibits and attachments, contains 22 pages.
<PAGE>
TAB PRODUCTS CO.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
ITEM 1 FINANCIAL STATEMENTS:
<S> <C>
Consolidated Condensed Balance Sheets
February 29, 2000 and May 31, 1999 3
Consolidated Condensed Statements of Earnings
Three months and Nine months ended February 29,
2000 and February 28, 1999 4
Consolidated Condensed Statements of Cash Flows Nine months
ended February 29, 2000 and February 28, 1999 5
Supplemental Financial Data - Notes 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
ITEM 3 Quantitative and Qualitative Disclosure About
Market Risks 18
PART II. OTHER INFORMATION
ITEM 6 Exhibits 19
Signatures 20
</TABLE>
2
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(000'S OMITTED EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FEBRUARY 29, MAY 31,
2000 1999
------------------------ ------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,819 $ 6,972
Short-term investments 3,574 2,941
Restricted cash 6,000 -
Accounts receivable, less allowances of
$1,043 and $936 for doubtful accounts 26,851 26,397
Inventories 7,367 8,834
Prepaid income taxes and other expenses 6,010 6,210
------------------------ ------------------------
TOTAL CURRENT ASSETS 68,621 51,354
------------------------ ------------------------
Property, plant and equipment, net of accumulated depreciation of
$31,575 and $43,339 11,349 19,642
Goodwill, net 3,004 3,131
Other assets 1,173 1,201
------------------------ ------------------------
TOTAL ASSETS $ 84,147 $ 75,328
======================== ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 5,750 $ 3,437
Accounts payable 8,926 7,648
Compensation payable 2,509 2,086
Other accrued liabilities 10,175 11,221
------------------------ ------------------------
TOTAL CURRENT LIABILITIES 27,360 24,392
------------------------ ------------------------
Long-term debt - 3,953
------------------------ ------------------------
Deferred taxes and other non-current liabilities 3,686 3,855
------------------------ ------------------------
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 2000-
7,611,116 shares and May 1999-7,606,116 shares 76 76
Additional paid-in capital 15,286 15,255
Deferred compensation (1,374) -
Retained earnings 73,808 63,031
TREASURY STOCK: February 2000-2,404,027 shares
and May 1999-2,578,427 shares (31,164) (32,320)
Accumulated other comprehensive loss (3,531) (2,914)
------------------------ ------------------------
TOTAL STOCKHOLDERS' EQUITY 53,101 43,128
------------------------ ------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 84,147 $ 75,328
======================== ========================
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
3
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
(000'S OMITTED EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
------------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
REVENUES $ 32,727 $ 40,061 $ 95,922 $ 116,136
------------------- ------------------ ---------------- -----------------
COSTS AND EXPENSES:
Cost of revenues 20,169 24,690 57,974 72,788
Selling, general and administrative 15,087 14,215 43,335 41,306
Research and development 237 257 634 719
------------------- ------------------ ---------------- -----------------
TOTAL COSTS AND EXPENSES 35,493 39,162 101,943 114,813
------------------- ------------------ ---------------- -----------------
OPERATING INCOME (LOSS) (2,766) 899 (6,021) 1,323
Gain on sale of Field Service Group - - 13,794 -
Gain on sale of Palo Alto facilities 12,623 12,623 -
Interest, net, and other 85 (288) (42) (559)
------------------- ------------------ ---------------- -----------------
Earnings before income taxes 9,942 611 20,354 764
Provision for income taxes 4,432 331 8,805 400
------------------- ------------------ ---------------- -----------------
NET EARNINGS $ 5,510 $ 280 $ 11,549 $ 364
=================== ================== ================ =================
Basic net earnings per share $ 1.06 $ 0.06 $ 2.26 $ 0.07
=================== ================== ================ =================
Shares used in computing basic
net earnings per share 5,212,199 5,045,127 5,117,198 5,110,787
=================== ================== ================ =================
Diluted net earnings per share $ 1.06 $ 0.06 $ 2.25 $ 0.07
=================== ================== ================ =================
Shares used in computing diluted
net earnings per share 5,215,060 5,047,150 5,124,806 5,158,251
=================== ================== ================ =================
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28,
2000 1999
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 11,549 $364
Adjustments to Reconcile Net Earnings to Net Cash
Provided (Required) by Operating Activities:
Depreciation and amortization 3,160 3,839
Gain on sale of Field Service Group (13,794) -
Gain on sale of headquarters facilities (12,623) -
Changes in operating assets and liabilities:
Accounts receivable (394) (3,447)
Inventories (759) 1,601
Prepaid income taxes and other expenses (484) 261
Other assets (391) 188
Accounts payable 1,071 676
Compensation payable 359 (2,138)
Other accrued liabilities 3,782 1,356
----------------- -----------------
NET CASH PROVIDED (REQUIRED) BY OPERATING ACTIVITIES (8,524) 2,700
----------------- -----------------
INVESTING ACTIVITIES:
Sale of Field Service Group 13,405 -
Sale of headquarters facilities 17,505 -
Purchase of property, plant and equipment, net (1,172) (3,899)
Purchases of short-term investments (4,661) (4,464)
Sales of short-term investments 4,028 6,383
----------------- -----------------
NET CASH PROVIDED (REQUIRED) BY INVESTING ACTIVITIES 29,105 (1,980)
----------------- -----------------
FINANCING ACTIVITIES:
Repayment of long-term debt (1,664) (859)
Cash restricted to collateralize loan (6,000) -
Proceeds from issuance of common stock 31 25
Repurchase of Treasury Stock (218) (955)
Dividends paid (772) (764)
----------------- -----------------
NET CASH REQUIRED BY FINANCING ACTIVITIES (8,623) (2,553)
----------------- -----------------
Effect of exchange rate changes on cash (111) 344
----------------- -----------------
Increase (decrease) in cash and cash equivalents 11,847 (1,489)
Cash and cash equivalents at beginning of period 6,972 7,199
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,819 $ 5,710
================= =================
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
5
<PAGE>
TAB PRODUCTS CO.
SUPPLEMENTAL FINANCIAL DATA - NOTES (UNAUDITED)
1. BASIS OF PRESENTATION
The Company's unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles and,
in the opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) considered necessary to fairly state the Company's
financial position, results of operations, and cash flows for the periods
presented. These consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements included in the
Company's Annual Report Form 10-K for the fiscal year ended May 31, 1999. The
results of operations for the nine-month period ended February 29, 2000 are not
necessarily indicative of the results to be expected for any subsequent quarter
or for the entire fiscal year ending May 31, 2000. The May 31, 1999 balance
sheet was derived from audited consolidated financial statements, but does not
include all disclosures required by generally accepted accounting principles.
Certain amounts have been reclassified to conform to the current year
presentation.
2. RESTRICTED CASH
Effective as of June 1, 1999, the Company sold its Field Service Group to Bell &
Howell. In order for the Company to obtain consent for the sale from one of its
lenders, the Company placed a portion of the cash payment received from Bell &
Howell in a restricted bank account and pledged the funds as collateral for the
existing loan and associated fees. The entire outstanding debt collateralized by
the restricted cash was repaid on March 27, 2000.
3. INVENTORY
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 29, 2000 MAY 31, 1999
------------------------ -----------------------
<S> <C> <C>
Finished goods $ 2,453 $ 2,415
Work in process 255 2,538
Raw materials 4,659 3,881
======================== =======================
$ 7,367 $ 8,834
======================== =======================
</TABLE>
4. DIVIDENDS
Dividends declared for the nine month periods ended February 29, 2000 and
February 28, 1999 were as follows:
<TABLE>
<CAPTION>
RECORD DATE SHARES OUTSTANDING DIVIDEND PER SHARE
----------- ------------------ ------------------
<S> <C> <C>
Fiscal 2000:
August 25, 1999 5,024,589 $ .05
November 24, 1999 5,214,589 $ .05
February 25, 2000 5,207,089 $ .05
Fiscal 1999:
August 25, 1998 5,171,514 $ .05
November 25, 1998 5,084,889 $ .05
February 25, 1999 5,027,689 $ .05
</TABLE>
6
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TAB PRODUCTS CO., NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
5. SEGMENT REPORTING
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or chief decision making group, in deciding how
to allocate resources and in assessing performance. The President and Chief
Executive Officer is the Company's chief decision maker. The Company operates
and is managed internally by four geographic operating segments. The operating
segments include the United States, Canada, the Netherlands and Australia.
Outside the United States, each operating segment has a general manager that
reports to the Chief Executive Officer. Within the United States, the Vice
Presidents of Operations, Marketing and Sales report directly to the Chief
Executive Officer.
Information about segments:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
United States $ 25,199 $32,037 $ 75,695 $ 93,863
Canada 5,352 5,347 13,784 13,867
Netherlands 1,434 1,854 3,669 5,617
Australia 742 823 2,774 2,789
--------- -------- --------- ---------
Consolidated Total $ 32,727 $40,061 $ 95,922 $116,136
========= ======== ========= ========
Income (Loss) before income taxes:
United States $ 9,424 $ 68 $ 20,334 $ (33)
Canada 292 298 (356) (238)
Netherlands 335 329 580 1,200
Australia (109) (84) (204) (165)
--------- -------- --------- ---------
Consolidated Total $ 9,942 $ 611 $ 20,354 $ 764
======== ======= ========= ======
Depreciation and amortization:
United States $ 969 $ 1,249 $ 2,811 $ 3,464
Canada 35 110 256 288
Netherlands 14 9 44 38
Australia 17 13 49 49
--------- -------- --------- ---------
Consolidated Total $ 1,035 $ 1,381 $ 3,160 $ 3,839
======== ========== ========= ========
- --------------------------------------------------------------------------------------------------------------------------
FEBRUARY 29, 2000 MAY 31, 1999
----------------- ------------
Long-lived assets:
United States $ 14,384 $ 19,692
Canada 681 786
Netherlands 138 133
Australia 194 232
--------- ---------
Consolidated Total $ 15,397 $ 20,843
========= ========
</TABLE>
Geographic revenues are based on the country from which customers are invoiced.
Income before tax is net sales less operating expenses, interest or other
expenses, but prior to income taxes.
7
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TAB PRODUCTS CO., NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
6. NET EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings by the
weighted average common shares outstanding for the period while diluted earnings
per share also includes the dilutive impact of stock options. Basic and diluted
earnings per share for the three-months and nine-months ended February 29, 2000
and February 28, 1999, respectively, are calculated as follows (in thousands,
except share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NET EARNINGS $ 5,510 $ 280 $ 11,549 $ 364
------------------- ----------------- ----------------- -----------------
BASIC:
Weighted average common shares
outstanding used in computing
basic net earnings per share 5,212,199 5,045,127 5,117,198 5,110,787
------------------- ----------------- ----------------- -----------------
BASIC NET EARNINGS PER SHARE $ 1.06 $ 0.06 $ 2.26 $ 0.07
=================== ================= ================= =================
DILUTED:
Weighted average common shares
outstanding 5,212,199 5,045,127 5,117,198 5,110,787
Dilutive options outstanding 2,861 2,023 7,608 47,464
------------------- ----------------- ----------------- -----------------
Shares used in computing diluted
net earnings per share 5,215,060 5,047,150 5,124,806 5,158,251
------------------- ----------------- ----------------- -----------------
DILUTED NET EARNINGS PER SHARE $ 1.06 $ 0.06 $ 2.25 $ 0.07
=================== ================= ================= =================
7. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss), net of tax, are as
follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
------------------- ------------------ ---------------- -----------------
Net earnings $ 5,510 $ 280 $ 11,549 $ 364
Foreign currency translation (202) 315 (617) (92)
------------------- ------------------ ---------------- -----------------
Comprehensive income $ 5,308 $ 595 $ 10,932 $ 272
=================== ================== ================ =================
</TABLE>
Accumulated other comprehensive income (loss), net of tax, presented on the
accompanying consolidated condensed balance sheets consists of the following (in
thousands):
<TABLE>
<CAPTION>
FEBRUARY 29, MAY 31,
2000 1999
------------------------ ------------------------
<S> <C> <C>
Foreign currency translation $ (1,150) $ (533)
Minimum pension liability (2,381) (2,381)
======================== ========================
Accumulated other comprehensive loss $ (3,531) $ (2,914)
======================== ========================
</TABLE>
8
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TAB PRODUCTS CO., NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
8. STOCK REPURCHASE
During the nine months ended February 29, 2000, the Company repurchased
33,100 shares of Common Stock under the Company's authorized repurchase program
at a cost of $218,000. There were no repurchases for the three months ended
February 29, 2000. As of February 29, 2000, the Company has an open
authorization to repurchase an additional 266,900 shares in the future to the
extent such purchases are consistent with the Company's investment objectives.
9. LEVERAGED STOCK PURCHASE PLAN
In October 1999, the Company implemented a Stock Purchase and Stock Bonus
Plan (Plan) with certain executive officers and key employees of the Company.
The Plan allows an employee to borrow funds from the Company to acquire a
specified number of common shares. An equivalent number of shares of common
stock was also granted to each individual. The stock grant vests after three
years. All of the certificates are held by the Company as collateral against the
note receivable. The note and accrued interest will be forgiven after three
years, if the employee continues employment with the Company during that period.
The Company used 207,500 shares of Treasury Stock to implement the Plan. The
note receivable and deferred compensation related to the stock grant are offset
in Stockholders' Equity.
10. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. Under SFAS No. 133, entities are
required to carry all derivatives on the balance sheet at fair value. The
accounting for changes in the fair value of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, the reason for holding it. This statement will be effective for all
annual and interim periods beginning after June 15, 2000. The effect of adopting
the Standard is currently being evaluated, but is not expected to have a
material effect on the Company's financial position or results of operations.
11. EVENTS SUBSEQUENT TO FEBRUARY 29, 2000
On March 7, 2000, the Company signed a definitive asset purchase agreement
with Docucon, Inc. under which the Company will purchase certain operating
assets and liabilities of Docucon for approximately $3.0 million cash and the
assumption of approximately $2.3 million in certain liabilities. The Company had
previously announced the signing of a letter of intent with Docucon on January
26, 2000. The transaction is subject to approval of Docucon shareholders and
certain other customary closing conditions. Under the definitive asset purchase
agreement, a portion of the cash consideration and all of the liabilities
assumed in the transaction are variable and are based on the book value of
specific operating assets acquired and liabilities assumed, respectively, on the
date of Closing.
On March 20, 2000 the Company made a regularly scheduled debt payment of
$2.5 million which had previously been collateralized.
On March 27, 2000, the Company repaid the remaining outstanding debt of
$3.3 million which had previously been collateralized. As a result of the
repayment, $2.6 million of the debt was reclassified as current portion of
long-term debt as of February 29, 2000. The restricted cash that collateralized
the debt was used to pay both loan payments.
Effective April 11, 2000, the Company has revised the terms of its
revolving line of credit. The facility has been reduced from $15.0 million to
$5.0 million and covenants modified.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report, including without limitation the following section regarding
Management's Discussion and Analysis of Financial Condition and Results of
Operations, contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, regarding the Company and its business,
financial condition, results of operations and prospects. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks,"
"foreseeable," "estimates," and similar expressions or variations of such words
are intended to identify forward-looking statements. Additionally, statements
concerning future matters such as the development of new products, enhancements
or technologies, possible changes in legislation and other statements regarding
matters that are not historical are forward-looking statements.
Although forward-looking statements in this report reflect the good faith
judgment of the Company's management, such statements can only be based on facts
and factors currently known by the Company. Consequently, forward-looking
statements are inherently subject to risks and uncertainties and actual results
and outcomes may differ materially from the results and outcomes discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences in results and outcomes include without limitation those discussed
in "Business Environment and Risk Factors" as well as those discussed elsewhere
in this report. Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report.
Readers are urged to carefully review and consider the various disclosures made
by the Company in this report, which attempt to advise interested parties of the
risks and factors that may affect the Company's business, financial condition,
results of operations and prospects.
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Consolidated Financial
Statements of the Company.
FINANCIAL CONDITION
Pursuant to the Agreement for Purchase and Sale of Assets (the
"Agreement"), by and between the Company and Bell & Howell Document Management
Products Company, a wholly-owned subsidiary of Bell & Howell Company ("Bell &
Howell"), the Company has sold its Field Service Group to Bell & Howell. The
Company's Field Service Group consisted of assets that include existing service
contracts and certain related tangible and intangible assets and certain
liabilities. The price of the Purchased Assets, as defined in the Agreement,
consisted of an initial cash payment from Bell & Howell to the Company of
$11,200,000, the assumption of liabilities and obligations of the Company valued
at $5,900,000 and a final payment of $2,200,000 paid in August 1999 based on
final adjustments to certain accounts attributable to the Field Service Group.
The sale was effective as of June 1, 1999. In order for the Company to obtain
consent for the sale from one of its lenders, the Company placed a portion of
the cash payment received from Bell & Howell in a restricted bank account and
pledged the funds as collateral for the existing loan. In exchange for the
pledge of collateral the lender modified the covenants of the loan and approved
the sale transaction.
On June 22, 1999, the Company announced the consolidation of its paper
manufacturing operations to its main plant located in Mayville, Wisconsin. In
the second quarter of fiscal year 2000, the Company closed its paper
manufacturing facility located in Turlock, California and transferred the
inventory and equipment to Mayville. As a result of the consolidation, the
Company recorded a pre-tax charge of approximately $435,000 in the first quarter
of fiscal year 2000.
On February 23, 2000, the Company sold its corporate headquarters
buildings and the associated land leases at Stanford Research Park to Eagle
Ridge Partners, a real estate investment group. The gross sales price was $18
million and resulted in a pre-tax gain of $12.6 million for the Company.
At February 29, 2000 the Company had unrestricted cash and short-term
investments of $22.4 million, an increase of $12.5 million from the $9.9 million
at May 31, 1999. The increase in cash resulted from the sale of the headquarters
buildings, operating losses, tax payments, capital expenditures, repayment of
debt, repurchase of stock and dividends paid. The Company's working capital
position at February 29, 2000 was $41.3 million as compared with $27.0 million
at May 31, 1999. The current ratio of 2.5 at February 29, 2000 was higher than
the current ratio of 2.1 reported for May 31, 1999. The increase in working
capital and current ratio is the result of the sale of the Field Service Group
and the sale of the corporate headquarters buildings and associated land leases.
Accounts receivable increased $0.5 million from
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
$26.4 million on May 31, 1999 to $26.9 million on February 29, 2000. As part of
the sale of the Field Service Group, the accounts receivable related to that
operation as of the date of the sale of $4.0 million were retained by the
Company and collection of these receivables is the Company's responsibility. As
of February 29, 2000 $3.6 million of that balance had been collected. Accounts
receivable increased $4.1 million due to product shipments associated with
professional services projects which cannot be fully collected until the
services are complete. Inventories at February 29, 2000 were $7.4 million as
compared to $8.8 million at May 31, 1999. The decrease in inventory levels is
due to the elimination of Field Service inventories which were included in the
sale.
In order for the Company to obtain consent for the sale of the Field
Service Group from one of its lenders, the Company chose to place a portion of
the cash payment received from the sale in a restricted bank account and pledge
the funds as collateral for the existing loan. The funds are classified as
restricted cash. In March 2000, the Company repaid debt of $5.8 million which
had previously been collateralized. Other current assets decreased $0.2 million
from $6.2 million at May 31, 1999 to $6.0 million at February 29, 2000 and other
non-current assets remained unchanged at $1.2 million at February 29, 2000.
Current liabilities increased $3.0 million from $24.4 million at May 31,
1999 to $27.4 million at February 29, 2000. Significant transactions which
affect current liabilities include the transfer of deferred revenue to Bell &
Howell of $5.4 million as a result of the sale of the Field Service Group,
reclassification of $2.6 million of long-term debt to current as the result of
the repayment in March 2000, and an increase in taxes payable of $2.9 million
primarily related to the sale of the headquarters facilities. 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 enterprise management information systems and associated
infrastructure investments, were $0.3 million and $1.2 million for the three
months and nine months ended February 29, 2000. Capital expenditures to support
operations for fiscal 2000 are expected to total approximately $2.0 million,
which includes approximately $0.5 million to relocate the Company's
headquarters.
At February 29, 2000, the Company had $5.8 million of debt outstanding
which bears interest at rates ranging from 6.9% to 8.7%. For the nine months
ended February 29, 2000, the Company made $0.8 million in scheduled debt
repayments and $0.8 million in debt repayments related to the sale of the
headquarters facilities.
In July 1999, the Company approved a new authorization to repurchase up
to 300,000 shares of Common Stock from time to time at prevailing market prices.
The authorization is effective until July 2000. During the nine months ended
February 29, 2000, the Company repurchased 33,100 shares of Common Stock under
the Company's authorized repurchase program at a cost of $218,000. There were no
repurchases for the three months ended February 29, 2000. As of February 29,
2000, the Company has an open authorization to repurchase an additional 266,900
shares in the future to the extent such purchases are consistent with the
Company's investment objectives.
For the nine month period ended February 29, 2000 and February 28, 1999,
the Company paid cash dividends of $772,000 and $764,000, respectively.
As of February 29, 2000, the Company had an unsecured revolving line of
credit of $15 million with a bank. The credit line does not require compensating
balances and there were no borrowings outstanding under the line of credit at
February 29, 2000. Effective April 11, 2000, the Company has revised the terms
of its revolving line of credit. The facility has been reset at $5.0 million and
covenants modified.
Effective January 29, 1999, the Company entered into a master lease
agreement with a technology equipment leasing company for a total lease line of
$0.5 million. As of February 29, 2000, the Company utilized the line to lease
computer equipment with a cost of $0.2 million. The lease is classified as an
operating lease.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
For comparative purposes, the following unaudited pro forma consolidated
condensed statement of operations for the three and nine months ended February
28, 1999 is presented as if the sale of the Field Service Group had occurred on
June 1, 1998.
TAB PRODUCTS CO.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28, 1999
---------------------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------------------------------------------------------
<S> <C> <C> <C>
REVENUES $ 40,061 $ (3,703) $ 36,358
------------------- ----------------- ---------------
COSTS AND EXPENSES:
Cost of revenues 24,690 (3,263) 21,427
Selling, general and administrative 14,215 14,215
Research and development 257 257
---------------------------------------------------------
TOTAL COSTS AND EXPENSES 39,162 (3,263) 35,899
------------------- ----------------- -----------------
OPERATING INCOME 899 (440) 459
Interest, net, and other (288) (288)
------------------- ----------------- -----------------
EARNINGS BEFORE INCOME TAXES 611 (440) 171
Provision for income taxes 331 (185) 146
------------------- ----------------- ---------------
NET EARNINGS $ 280 $ (255) $ 25
=================== ================= ===============
NINE MONTHS ENDED FEBRUARY 28, 1999
---------------------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------------------------------------------------------
REVENUES $ 116,136 $ (10,884) $ 105,252
------------------- ----------------- ---------------
COSTS AND EXPENSES:
Cost of revenues 72,788 (9,855) 62,933
Selling, general and administrative 41,306 41,306
Research and development 719 719
------------------- ----------------- ---------------
TOTAL COSTS AND EXPENSES 114,813 (9,855) 104,958
------------------- ----------------- ---------------
OPERATING INCOME 1,323 (1,029) 294
Interest, net, and other (559) (559)
------------------- ----------------- ---------------
EARNINGS (LOSS) BEFORE INCOME TAXES 764 (1,029) (265)
Provision (benefit) for income taxes 400 (432) (32)
------------------- ----------------- ---------------
NET EARNINGS (LOSS) $ 364 $ (597) $ (233)
=================== ================= ===============
</TABLE>
Certain amounts have been reclassified to conform to the current year
presentation.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
REVENUES for the third quarter of fiscal 2000 amounted to $32.7 million, down
$3.7 million or 10.2% from the $36.4 million pro forma revenue reported in the
third quarter of fiscal 1999. Revenues for the nine months ended February 29,
2000 were $95.9 million, down $9.4 million or 8.9% from pro forma revenues of
$105.3 million reported in the first nine months of the prior fiscal year. The
Company experienced a decline in sales of domestic manufactured products only
partially offset by increased revenue for professional services, imaging and
technology products. The Company's international operations also experienced
decreased revenues primarily as a result of changes in distribution in the
European operations.
BACKLOG of orders has historically not been a significant factor in
understanding the business of the Company because the order-to-ship cycle was
primarily completed within 30 to 60 days and revenue is generally recognized
upon product shipment. The Branch channel shift to projects with large customers
has created a lengthening order-to-execution period and a resultant increase in
backlog which is reflected in a lengthening order to revenue period. The
Company's order booking to invoice ratio ("book-to-bill") in the third and
fourth quarters of fiscal year 1999 were below previous quarters at .84:1.0
resulting in declining backlog and product shipments. The book-to-bill ratio in
the first nine months of fiscal 2000 improved to 1.11:1.0, but the carry-over
effect of the lower third and fourth quarter order volumes and the longer order
to revenue cycle impacted revenues and profitability in fiscal 2000.
COST OF REVENUE, as a percentage of revenues, was 61.6% for the third quarter of
fiscal 2000 as compared to the 58.9% pro forma cost of revenue reported in the
third quarter of fiscal 1999. Cost of revenues for the third quarter was $20.2
million as compared to the $21.4 million pro forma amount reported in the
comparable quarter of fiscal 1999. For the nine months ended February 29, 2000,
cost of revenues, as a percentage of revenues, was 60.4% as compared to 59.8%
pro forma cost of revenue in the first nine months of the prior fiscal year. The
increase in cost of revenues as a percentage of revenue was primarily due to
unfavorable manufacturing variances due to lower volume on manufactured products
and higher shipping and handling costs.
OPERATING EXPENSES were $15.3 million or 46.8% of total revenues for the third
quarter of fiscal 2000 as compared to $14.5 million or 39.8% of total pro forma
revenues for the third quarter of fiscal 1999. For the nine months ended
February 29, 2000, operating expenses were $44.0 million or 45.8% of total
revenues as compared to $42.0 million or 39.9% of total pro forma revenues for
the prior fiscal year. The increase in operating expenses as a percentage of
revenues was primarily driven by increased sales compensation programs and
strategic corporate finance expenses.
INTEREST, NET, AND OTHER was $85,000 in net income in the third quarter of
fiscal 2000 as compared to $288,000 in net expense in the third quarter of
fiscal 1999. For the nine months ended February 29, 2000 interest, net, and
other was $42,000 as compared to $559,000 in net expense for the prior fiscal
year. The change for the three and nine months ended February 29, 2000 was
primarily due to interest earned on the cash proceeds from the Field Service
Group sale and reduction of interest expense due to scheduled principal
repayments.
NET INCOME PER SHARE for the three months ended February 29, 2000 was $1.06 for
both basic and diluted shares compared to a pro forma income per share of $0.01
for both basic and diluted shares for the three months ended February 28, 1999.
For the nine months ended February 29, 2000, earnings per share were $2.26 for
basic and $2.25 for diluted shares compared to a pro forma loss per share of
$0.04 for both basic and diluted shares for the nine months ended February 28,
1999.
EVENTS SUBSEQUENT TO FEBRUARY 29, 2000
On March 7, 2000, the Company signed a definitive asset purchase
agreement with Docucon, Inc. under which the Company will purchase certain
operating assets and liabilities of Docucon for approximately $3.0 million cash
and the assumption of approximately $2.3 million in certain liabilities. The
Company had previously announced the signing of a letter of intent with Docucon
on January 26, 2000. The transaction is subject to approval of Docucon
shareholders and certain other customary closing conditions. Under the
definitive asset purchase agreement, a portion of the cash consideration and all
of the liabilities assumed in the transaction are variable and are based on the
book value of specific operating assets acquired and liabilities assumed,
respectively, on the date of Closing.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
On March 20, 2000, the Company made a regularly scheduled debt payment of
$2.5 million which had previously been collateralized.
On March 27, 2000, the Company repaid debt of $3.3 million which had
previously been collateralized. As a result of the repayment, $2.6 million of
the debt was reclassified as current portion of long-term debt as of February
29, 2000. The restricted cash that collateralized the debt was used to pay
the loan.
Effective April 11, 2000, the Company has revised the terms of its
revolving line of credit. The facility has been reduced from $15.0 million to
$5.0 million and covenants modified.
Due to the implementation of its Year 2000 compliance program, the
Company to date has not experienced any significant disruptions to its
operations. Additionally, the Company to date has no reported issues with its
products which could be affected by Year 2000. The Company believes that any
worst case Year 2000 problems could still arise and such problems would probably
relate to the systems of third parties.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. Under SFAS No. 133, entities are
required to carry all derivatives on the balance sheet at fair value. The
accounting for changes in the fair value of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, the reason for holding it. This statement will be effective for all
annual and interim periods beginning after June 15, 2000. The effect of adopting
the Standard is currently being evaluated, but is not expected to have a
material effect on the Company's financial position or results of operations.
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 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.
DISTRIBUTION CHANNELS
The Company is currently pursuing a strategy to refine and expand its
distribution channels. The Branch direct sales strategy has been shifted to
focus on projects with larger customers that bundle products and services as a
way of providing value-added solutions to the Company's customers. This has
resulted in a turnover in the Branch channel and additional training time which
in turn has resulted and may continue to result in lower Branch channel sales.
The Company is also expanding its call center operations and direct
replenishment business through this efficient distribution method. In
conjunction with handling inbound sales activity an initiative is underway to
generate sales through the use of outbound telemarketing.
In June 1998, the Company notified its existing independent distributors
(indirect channel) that effective June 1, 1999 the existing distributor contract
would be canceled. A new contract was offered that eliminated the exclusive
territory rights in the existing contract with other material terms and
conditions remaining substantially the same. The Company believes the removal of
exclusivity is crucial to the Company's ability to serve its larger nationwide
customers where an independent's resources cannot support the customer's
professional services, technology and project management needs. Approximately
98% of the independent distributors signed the revised contract. The signed
distributors represent approximately 99% of the total sales for this channel.
The Company is currently expanding its indirect distribution with the addition
of dealers in Branch territories to focus on small to mid-size customers. As of
April 10, 2000, the Company has 80 independent distributors, up from 61 at the
beginning of fiscal 2000.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
BUSINESS ENVIRONMENT AND RISK FACTORS (CONTINUED)
These changes in distribution may disrupt the selling process of the
Company resulting in lower sales. Additionally, the sales cycle for larger scale
projects is substantially longer than the Company's historical sales-to-delivery
cycle resulting in additional working capital requirements. Market penetration
of larger customers may not happen as quickly as anticipated and may result in
higher selling costs.
RETAINING AND ATTRACTING QUALIFIED PERSONNEL
The Company's future performance may depend in significant part upon
attracting and retaining key senior management, sales, manufacturing, marketing
and technical support 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 effect on the Company's business, results of operations
and financial condition.
THE TREND TOWARD DIGITAL TECHNOLOGIES
Recent market research indicates there may be an accelerated move to
digital technologies, such as imaging, by large paper intensive organizations.
This trend could weaken demand for our paper-based records management supplies
and records storage products. If we fail to match the changing market with new
document management products and services in the digital arena, our business and
prospects could be materially adversely affected.
FLUCTUATIONS IN OPERATING RESULTS
Factors affecting the Company's operating results and gross margins
include the volume of product sales, competitive pricing pressures, the ability
of the Company to match supply with demand, changes in product and customer mix,
market acceptance of new or enhanced versions of the Company's products and
services, changes in the channels through which the Company's products and
services are distributed, timing of new product announcements and introductions
by the Company and its competitors, fluctuations in product costs, variations in
manufacturing cycle times, fluctuations in manufacturing utilization, the
ability of the Company to achieve manufacturing volumes with its new and
existing products, exchange rate fluctuations, a change in the Company's
effective tax rate and changes in general economic conditions. All of these
factors are difficult to forecast and these or other factors can materially
affect the Company's quarterly or annual operating results or gross margins.
Period to period comparisons of our operating results and gross margins may not
be meaningful and you should not rely on them as an indication of future
performance.
COMPETITION
The Company expects competition to increase in the future from existing
competitors and from other companies that may enter the Company's existing or
future markets with similar or alternative document management solutions that
may be less costly or provide additional features. Such competition could result
in lower gross margins in the future, if the Company's average selling prices
decrease faster than its costs and could result in lost sales.
DEPENDENCE ON SOLE SOURCE SUPPLIERS
The Company purchases several critical components from single or sole
source vendors for which alternative sources are not currently developed.
Development of alternative suppliers would require a significant amount of time
to qualify in the case of certain of the Company's components. The Company does
not maintain long-term supply agreements with any of these vendors. The
inability to develop alternative sources for these single or sole source
components or to obtain sufficient quantities of these components could result
in delays or reductions in product shipments.
NEW PROCESSES AND PRODUCTS AND MANUFACTURING VOLUMES
On June 22, 1999, the Company announced the consolidation of its paper
manufacturing operations to its main plant located in Mayville, Wisconsin. In
the second quarter of fiscal year 2000, the Company closed its paper
manufacturing facility located in Turlock, California and transferred the
inventory and equipment to Mayville.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
BUSINESS ENVIRONMENT AND RISK FACTORS (CONTINUED)
NEW PROCESSES AND PRODUCTS AND MANUFACTURING VOLUMES (CONTINUED)
There can be no assurance that the Company's manufacturing facilities
will achieve or maintain acceptable manufacturing volumes in the future. The
inability of the Company to achieve planned volumes from its manufacturing
facilities could have an adverse effect on the Company's business, financial
condition and results of operations. Any problems experienced by the Company in
its current or future transitions to new processes and products or the
consolidation of its manufacturing operations could have a material adverse
effect on the Company's business, financial condition and results of operations.
Recent market research indicates there may be an accelerated move to
digital technologies, such as imaging, by large paper intensive organizations.
This trend could result in a weakening of demand for the Company's paper-based
records management supplies and records storage products. Failure of the Company
to match the changing market with new document management products and services
in the digital arena could materially adversely affect the Company's business,
results of operations, financial condition and prospects.
BACKLOG
The backlog of orders has historically not been a significant factor in
understanding the business of the Company because the order-to-ship cycle was
primarily completed within 30 to 60 days and revenue is generally recognized
upon product shipment. The shift in the branch channel sales strategy to seek
projects with large customers has created a lengthening order-to-execution
period. Additionally, the professional services component of project sales is
recognized as revenue when the project is completed resulting in a longer
order-to-revenue cycle. Due to this shift in Branch sales strategy the Company
may experience the need for additional working capital to support the longer
order-to-collection cycle being experienced.
The Company's order booking to invoice ratio ("book-to-bill") in the
third and fourth quarters of fiscal year 1999 were below previous quarters at
.84:1.0 resulting in declining backlog and product shipments. The book-to-bill
ratio in the nine months ended February 29, 2000 improved to 1.11:1.0; however,
the carry-over effect of the lower third and fourth quarter order volumes and
the longer order to revenue cycle impacted revenues and profitability. Orders
from the independent distributor channel have rebounded with 98% of the dealers
signing the new dealer agreement. The Company cannot assure that it's
book-to-bill ratio will continue at this rate.
GOVERNMENT SALES
Government revenues primarily expose the Company to risks from reductions
in budget allocations to support regulation and administrative offices. The
current reinventing government initiative opens opportunities to help the
government streamline workflow processes, reduce paperwork and increase customer
service which may provide short-term opportunities for the Company. However, the
long-term effect of a government initiative to streamline processes could
negatively impact the Company's revenue.
PATENTS, PROPRIETARY RIGHTS AND RELATED LITIGATION
The Company relies on a combination of patents, trademarks, copyright and
trade secret laws, confidentiality procedures and licensing arrangements to
protect its intellectual property rights. The Company has been notified in the
past and the Company may be notified in the future of claims that they may be
infringing upon patents or other intellectual property rights owned by third
parties. There can be no assurance that in the future any patents held by the
Company will not be invalidated, that patents will be issued for any of the
Company's pending applications or that any claims allowed from existing or
pending patents will be of sufficient scope or strength or be issued in the
primary countries where the Company's products can be sold to provide meaningful
protection or any commercial advantage to the Company. Additionally, competitors
of the Company may be able to design around the Company's patents.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
BUSINESS ENVIRONMENT AND RISK FACTORS (CONTINUED)
EURO CONVERSION
In January 1999, certain member countries of the European Union
established permanent, fixed conversion rates between their existing currencies
and the European Union's common currency (the Euro). The transition period for
the introduction of the Euro is scheduled to phase in over a period ending
January 1, 2002, with the existing currency being completely removed from
circulation on July 1, 2002. The timing of phasing out all uses of the existing
currencies will comply with the legal requirements and also be scheduled to
facilitate optimal coordination with the plans of our vendors, distributors and
customers. Work related to the introduction of the Euro and the phasing out of
the other currencies includes converting information technology systems;
recalculating currency risk; and taking action, if needed, regarding continuity
of contracts; and modifying our processes for preparing tax, accounting, payroll
and customer records. Management believes the introduction of the Euro and the
phasing out of the other currencies will not have a material impact on the
Company's Consolidated Condensed Financial Statements.
RISKS ASSOCIATED WITH INTERNATIONAL SALES
International sales accounted for approximately 21.1% and 19.2%,
respectively, of the Company's total revenues in the third quarter of fiscal
years 2000 and 1999. Fluctuations in currencies could adversely affect the
Company's business, financial condition and results of operations. In addition,
gains and losses on the conversion to United States dollars of accounts
receivable, accounts payable and other monetary assets and liabilities arising
from international operations may contribute to fluctuations in the Company's
results of operations. Because sales of the Company's products have been
denominated to date primarily in United States dollars, increases in the value
of the United States dollar could increase the price of the Company's products
so that they become relatively more expensive to customers in the local currency
of a particular country, leading to a reduction in sales and profitability in
that country. The Company is subject to the risks of conducting business
internationally, including foreign government regulation and general
geopolitical risks such as political and economic instability, potential
hostilities and changes in diplomatic and trade relationships. Manufacturing and
sales of the Company's products may also be materially adversely affected by
factors such as unexpected changes in, or imposition of, regulatory
requirements, tariffs, import and export restrictions and other barriers and
restrictions, longer payment cycles, greater difficulty in accounts receivable
collection, potentially adverse tax consequences, the burdens of complying with
a variety of foreign laws and other factors beyond the Company's control. In
addition, the laws of certain foreign countries in which the Company's products
are or may be developed, manufactured or sold, may not protect the Company's
intellectual property rights to the same extent as do the laws of the United
States and thus make piracy of the Company's products a more likely possibility.
There can be no assurance that these factors will not have a material adverse
effect on the Company's business, financial condition or results of operations.
MANAGEMENT OF GROWTH
The Company has increased its expense levels to support its planned
growth. The Company expects to continue to increase its operating expenses by
hiring additional personnel to support expected growth and increased sales and
marketing efforts. If the Company does not achieve increased levels of revenues
commensurate with these increased levels of operating expenses, or if the
Company's revenues decrease or do not meet the Company's expectations for a
particular period, the Company's business, financial condition and results of
operations will be materially adversely affected.
17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company is exposed to market risk related to fluctuations in interest
rates and in foreign currency exchange rates.
The Company's exposure to market risk due to fluctuations in interest
rates relates primarily to its short-term investment portfolio, which consists
of corporate debt securities, which are classified as available-for-sale and
were reported at an aggregate fair value of $3.6 million as of February 29,
2000. These available-for-sale securities are subject to interest rate risk in
as much as their fair value will fall, if market interest rates increase. If
market interest rates were to increase immediately and uniformly by 10% from the
levels prevailing at February 29, 2000, the fair value of the portfolio would
not decline by a material amount. The Company does not use derivative financial
instruments to mitigate the risks inherent in these securities. However, the
Company does attempt to reduce such risks by typically limiting the maturity
date of such securities to no more than twelve months, placing its investments
with high credit quality issuers and limiting the amount of credit exposure with
any one issuer. In addition, the Company believes that it currently has the
ability to hold these investments until maturity, and therefore, believes that
reductions in the value of such securities attributable to short-term
fluctuations in interest rates would not materially affect the financial
position, results of operations or cash flows of the Company.
The Company's exposure to market risk due to fluctuations in foreign
currency exchange rates relates primarily to the intercompany balance with its
Canadian subsidiary. Although the Company transacts business with various
foreign countries, settlement amounts are usually based on local currency.
Transaction gains or losses have not been significant in the past and there is
no hedging activity on Canadian dollars or other currencies. Based on the
intercompany balance of $1.1 million at February 29, 2000, a hypothetical 10%
adverse change in Canadian dollars against U.S. dollars would not result in a
material foreign exchange loss. Consequently, the Company does not expect that
reductions in the value of such intercompany balances or of other accounts
denominated in foreign currencies, resulting from even a sudden or significant
fluctuation in foreign exchange rates, would have a direct material impact on
the Company's financial position, results of operations or cash flows.
Notwithstanding the foregoing analysis of the direct effects of interest
rate and foreign currency exchange rate fluctuations on the value of certain of
the Company's investments and accounts, the indirect effects of such
fluctuations could have a material adverse effect on the Company's business,
financial condition and results of operations. For example, international demand
for the Company's products could be affected by foreign currency exchange rates.
In addition, interest rate fluctuations may affect the buying patterns of the
Company's customers. Furthermore, interest rate and currency exchange rate
fluctuations have broad influence on the general condition of the U.S., foreign
and global economies, which could materially and adversely affect the Company.
18
<PAGE>
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.
ITEM 6. EXHIBITS
a) 10.1 Bank of America Amendment No. 4 dated January
13, 2000 to Business Loan Agreement dated November 1,
1998
27 Financial Data Schedule
(b) Reports on Form 8-K
None
19
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TAB PRODUCTS CO.
(Registrant)
Date: April 14, 2000 /s/ David J. Davis
---------------------------------------
David J. Davis, Senior Vice
President, Operations and Chief
Financial Officer
Date: April 14, 2000 /s/ William R. Kinzie
---------------------------------------
William R. Kinzie, Corporate
Controller and Chief Accounting
Officer
20
<PAGE>
Exhibit 10.1
BANK OF AMERICA
AMENDMENT TO DOCUMENTS
AMENDMENT NO. 4 TO BUSINESS LOAN AGREEMENT
This Amendment No. 4 (the "Amendment") dated as of January 13, 2000, is
between Bank of America, N.A. (the "Bank"), formerly Bank of America NT & SA and
Tab Products Co. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of November 1, 1998, as previously amended (the "Agreement").
B. The Bank and the Borrower desire to further 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 A new Paragraph 11.16 is added to the Agreement to
read as follows:
"11.16 SALE OF CORPORATE HEADQUARTERS BUILDING. The
Borrower fails to sell its corporate
headquarter's building and receive the
proceeds thereof before February 28, 2000
for a purchase price (net of closing costs)
of more than Fifteen Million Dollars
($15,000,000)."
3. REPRESENTATIONS AND WARRANTIES. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that:
(a) there is no event which is, or with notice or lapse of time or both would
be, a default under the Agreement except those events, if any, that have been
disclosed in writing to the Bank or waived in writing by the Bank, (b) the
representations and warranties in the Agreement are true as of the date of this
Amendment as if made on the date of this Amendment, (c) this Amendment is within
the Borrower's powers, has been duly authorized, and does not conflict with any
of the Borrower's organization papers, and (d) this Amendment does not conflict
with any law, agreement, or obligation by which the Borrower is bound.
4. 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, N.A. Tab Products Co.
X /s/Chris P. Giannotti X /s/ David J. Davis
By: Chris P. Giannotti, Vice President By: David J. Davis, SVP,
Operations and Chief
Financial Officer
X /s/ Robert J. Sexton
By: Robert J. Sexton
Treasurer & Secretary
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 18,819
<SECURITIES> 3,574
<RECEIVABLES> 27,894
<ALLOWANCES> (1,043)
<INVENTORY> 7,367<F1>
<CURRENT-ASSETS> 68,621
<PP&E> 42,924
<DEPRECIATION> (31,575)
<TOTAL-ASSETS> 84,147
<CURRENT-LIABILITIES> 27,360
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0
0
<COMMON> 56,632
<OTHER-SE> (3,531)
<TOTAL-LIABILITY-AND-EQUITY> 84,147
<SALES> 83,516
<TOTAL-REVENUES> 95,922
<CGS> 49,813
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<INCOME-TAX> 8,805
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<FN>
<F1>Finished goods 2,453, work in process 255, raw materials 4,659.
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