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10-Q/A 1 a2045348z10-qa.htm 10-Q/A Prepared by MERRILL CORPORATION www.edgaradvantage.com
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q/A

(Mark one)

/x/	Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarter period ended November 30, 2000

/ /	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.)

2130 GOLD STREET
P.O. BOX 649061
SAN JOSE, CALIFORNIA 95164-9061
(Address of principal executive offices)

(408) 586-1600
(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 November 30, 2000 — 5,163,780.

This report, including all exhibits and attachments, contains 26 pages.

TAB PRODUCTS CO.

INDEX

		Page No.
PART I. FINANCIAL INFORMATION
ITEM 1	Financial Statements:
	Consolidated Condensed Balance Sheets November 30, 2000 (Restated) and May 31, 2000	3
	Consolidated Condensed Statements of Earnings Three months and Six months ended November 30, 2000 (Restated) and 1999	4
	Consolidated Condensed Statements of Cash Flows Six months ended November 30, 2000 (Restated) and 1999	5
	Supplemental Financial Data—Notes (Restated)	6
ITEM 2	Management's Discussion and Analysis of Financial Condition and Results of Operations (Restated)	12
ITEM 3	Quantitative and Qualitative Disclosure About Market Risks	18
PART II. OTHER INFORMATION
ITEM 4	Submission of Matters to a Vote of Security Holders	20
ITEM 6	Exhibits	20
	Signatures	21

TAB PRODUCTS CO.

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED as Restated—See Note 9)

(000's omitted except share data)

			November 30, 2000			May 31, 2000
ASSETS
Current assets:
	Cash and cash equivalents		$	2,648		$	5,724
	Short-term investments			4,475			5,170
	Accounts receivable, less allowances of $1,163 and $1,095 for doubtful accounts			26,462			29,685
	Inventories			6,675			6,842
	Prepaid income taxes and other expenses			6,554			3,837

		Total Current Assets		46,814			51,258

Property, plant and equipment, net of accumulated depreciation of $29,922 and $28,845				10,890			12,253
Goodwill, net				6,790			7,387
Other assets				2,514			2,395

Total Assets			$	67,008		$	73,293

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	10,094		$	10,024
	Compensation payable			2,028			2,911
	Other accrued liabilities			6,341			6,099

		Total Current Liabilities		18,463			19,034

Deferred taxes and other non-current liabilities				1,293			1,579

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 2000—7,654,749 shares and May 2000—7,611,116 shares			77			76
	Additional paid-in capital			14,681			15,286
	Deferred compensation			(695	)		(1,374	)
	Retained earnings			65,208			70,573
	Treasury stock: November 2000—2,490,969 shares and May 2000—2,404,027 shares			(31,036	)		(31,164	)
	Accumulated other comprehensive loss			(972	)		(717	)

		Total Stockholders' Equity		47,263			52,680

Total Liabilities and Stockholder's Equity			$	67,020		$	73,293

See Notes to Consolidated Condensed Financial Statements.

TAB PRODUCTS CO.

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(UNAUDITED as Restated—see Note 9)

(000's omitted except share data)

			Three Months Ended November 30,						Six Months Ended November 30,
			2000			1999			2000			1999
Revenues			$	29,962		$	31,201		$	60,192		$	63,195

Costs and Expenses:
	Cost of revenues			18,573			18,561			38,038			37,805
	Selling, general and administrative			14,004			14,591			29,090			28,248
	Research and development			162			204			359			397

		Total Costs and Expenses		32,739			33,356			67,487			66,450

		Operating Loss		(2,777	)		(2,155	)		(7,295	)		(3,255	)
Gain on sale of Field Service Group				—			—			—			13,794
Interest, net, and other				(128	)		16			(15	)		(127	)

		(Loss) earnings before income taxes		(2,905	)		(2,139	)		(7,310	)		10,412
(Benefit) provision for income taxes				(1,177	)		(898	)		(2,759	)		4,373

Net (Loss) Earnings before cumulative change in accounting principle			$	(1,728	)	$	(1,241	)	$	(4,551	)	$	6,039
Cumulative effect of a change in accounting principle				—			—			(330	)		—

Net (Loss) Earnings			$	(1,728	)	$	(1,241	)	$	(4,881	)	$	6,039

Basic net (loss) earnings per share before cumulative effect of a change in accounting principle			$	(0.34	)	$	(0.24	)	$	(0.88	)	$	1.19
Cumulative effect of a change in accounting principle				—			—			(0.06	)		—

Basic net (loss) earnings per share			$	(0.34	)	$	(0.24	)	$	(0.94	)	$	1.19

Shares used in computing basic net (loss) earnings per share				5,134,450			5,113,919			5,170,578			5,069,957

Diluted net (loss) earnings per share before cumulative effect of a change in accounting principle			$	(0.34	)	$	(0.24	)	$	(0.88	)	$	1.19
Cumulative effect of a change in accounting principle				—			—			(0.06	)		—

Diluted net (loss) earnings per share			$	(0.34	)	$	(0.24	)	$	(0.94	)	$	1.19

Shares used in computing diluted net (loss) earnings per share				5,134,450			5,113,919			5,170,578			5,087,374

See Notes to Consolidated Condensed Financial Statements.

TAB PRODUCTS CO.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED as Restated—see Note 9)

(000's omitted)

			Six Months Ended November 30,
			2000			1999
OPERATING ACTIVITIES:
	Net (loss) earnings		$	(4,881	)	$	6,039
	Cumulative effect of a change in accounting principle			330			—
	Adjustments to Reconcile Net (Loss) Earnings to Net Cash Required by Operating Activities:
	Depreciation and amortization			2,198			2,125
	Gain on sale of Field Service Group			—			(13,794	)
	Deferred income taxes and other			369			—
	Loss on sale of fixed assets			181			—
	Changes in operating assets and liabilities:
		Accounts receivable, net		1,814			(1,052	)
		Inventories		648			(870	)
		Prepaid income taxes and other expenses		(2,975	)		(1,720	)
		Other assets		(120	)		570
		Accounts payable		131			1,091
		Compensation payable		(714	)		(6	)
		Other accrued liabilities		181			(412	)

Net Cash Required by Operating Activities				(2,838	)		(8,029	)

INVESTING ACTIVITIES:
	Sale of Field Service Group			—			13,405
	Purchase of property, plant and equipment, net			(668	)		(878	)
	Purchases of short-term investments			(2,997	)		(3,811	)
	Sales of short-term investments			3,692			2,490

Net Cash Provided By Investing Activities				27			11,206

FINANCING ACTIVITIES:
	Repayment of long-term debt			—			(790	)
	Cash restricted to collateralize loan			—			(6,000	)
	Proceeds from issuance of common stock			140			27
	Repurchase of Treasury Stock			62			(218	)
	Dividends paid			(516	)		(511	)

Net Cash Required by Financing Activities				(314	)		(7,492	)

Effect of exchange rate changes on cash				49			(70	)

Decrease in cash and cash equivalents				(3,076	)		(4,385	)
Cash and cash equivalents at beginning of period				5,724			6,972

Cash and Cash Equivalents at End of Period			$	2,648		$	2,587

See Notes to Consolidated Condensed Financial Statements.

TAB PRODUCTS CO.

SUPPLEMENTAL FINANCIAL DATA—NOTES

(UNAUDITED as Restated—see Note 9)

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, 2000. The results of operations for the six-month period ended November 30, 2000 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending May 31, 2001. The May 31, 2000 balance sheet was derived from audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles.

2. INVENTORY (Restated)

Inventories consisted of the following (in thousands):

	November 30, 2000		May 31, 2000
Finished goods	$	2,116	$	2,164
Work in process		329		273
Raw materials		4,230		4,405

	$	6,675	$	6,842

3. DIVIDENDS

Dividends declared for the six-month periods ended November 30, 2000 and 1999 were as follows:

Record Date		Shares Outstanding	Dividend Per Share
Fiscal 2001:
	August 25, 2000	5,120,147	$	.05
	November 24, 2000	5,147,148	$	.05
Fiscal 2000:
	August 25, 1999	5,024,589	$	.05
	November 24, 1999	5,214,589	$	.05

4. SEGMENT REPORTING (Restated)

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 Interim 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 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 individuals responsible for operations, marketing and sales report directly to the Interim Chief Executive Officer.

Information about segments (in thousands):

		Three Months Ended November 30,						Six Months Ended November 30,
		2000			1999			2000			1999
Revenues:
	United States	$	22,840		$	24,736		$	46,117		$	50,496
	Canada		5,171			4,288			10,132			8,432
	Netherlands		965			1,258			1,937			2,235
	Australia		986			919			2,006			2,032

	Consolidated Total	$	29,962		$	31,201		$	60,192		$	63,195

Income (Loss) before income taxes:
	United States	$	(3,147	)	$	(1,812	)	$	(7,849	)	$	10,910
	Canada		121			(432	)		309			(648	)
	Netherlands		173			190			265			245
	Australia		(52	)		(85	)		(35	)		(95	)

	Consolidated Total	$	(2,905	)	$	(2,139	)	$	(7,310	)	$	10,412

Depreciation and amortization:
	United States	$	1,024		$	862		$	2,011		$	1,842
	Canada		56			112			128			221
	Netherlands		21			13			36			30
	Australia		11			20			23			32

	Consolidated Total	$	1,112		$	1,007		$	2,198		$	2,125

		November 30, 2000		May 31, 2000
Long-lived assets:
	United States	$	12,525	$	13,585
	Canada		546		733
	Netherlands		121		151
	Australia		212		179

	Consolidated Total	$	13,404	$	14,648

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.

5. NET EARNINGS (LOSS) PER SHARE (Restated)

Basic earnings (loss) per share is computed by dividing net earnings by the weighted average common shares outstanding for the period while diluted earnings (loss) per share also includes the dilutive impact of stock options. Basic and diluted earnings (loss) per share for the quarters and

six-months ended November 30, 2000 and 1999, respectively, are calculated as follows (in thousands, except share data):

		Three Months Ended November 30,						Six Months Ended November 30,
		2000			1999			2000			1999
Net Earnings (Loss) before cumulative effect of a change in accounting principle		$	(1,728	)	$	(1,241	)	$	(4,551	)	$	6,039
Cumulative effect of a change in accounting principle			—			—			(330	)		—

Net (Loss) Earnings		$	(1,728	)	$	(1,241	)	$	(4,881	)	$	6,039

Basic:
	Weighted average common shares outstanding used in computing basic net earnings (loss) per share		5,134,450			5,113,919			5,170,578			5,069,957

Basic Net (Loss) Earnings Per Share before cumulative effect of a change in accounting principle		$	(0.34	)	$	(0.24	)	$	(0.88	)	$	1.19
Cumulative effect of a change in accounting principle			—			—			(0.06	)		—

Basic Net (Loss) Earnings Per Share		$	(0.34	)	$	(0.24	)	$	(0.94	)	$	1.19

Diluted:
	Weighted average common shares outstanding		5,134,450			5,113,919			5,170,578			5,069,957
	Dilutive options outstanding		—			—			—			17,417

	Shares used in computing diluted net earnings (loss) per share		5,134,450			5,113,919			5,170,578			5,087,374

Diluted Net (Loss) Earnings Per Share before cumulative effect of a change in accounting principle		$	(0.34	)	$	(0.24	)	$	(0.88	)	$	1.19
Cumulative effect of a change in accounting principle			—			—			(0.06	)		—

Diluted Net (Loss) Earnings Per Share		$	(0.34	)	$	(0.24	)	$	(0.94	)	$	1.19

6. COMPREHENSIVE INCOME (LOSS) (Restated)

The components of comprehensive income (loss), net of tax, are as follows (in thousands):

	Three Months Ended November 30,						Six Months Ended November 30,
	2000			1999			2000			1999
Net earnings (loss)	$	(1,728	)	$	(1,241	)	$	(4,881	)	$	6,039
Foreign currency translation		(168	)		(442	)		(255	)		(415	)

Comprehensive income (loss)	$	(1,896	)	$	(1,683	)	$	(5,136	)	$	5,624

Accumulated other comprehensive income (loss), net of tax, presented on the accompanying consolidated condensed balance sheets consists of the following (in thousands):

		November 30, 2000			May 31, 2000
Foreign currency translation		$	(972	)	$	(717	)

7. STOCK REPURCHASE

In July 1999, the Company authorized the repurchase of up to 300,000 shares of Common Stock from time to time at prevailing market prices. The authorization was effective until July 2000. During fiscal 2000 the Company repurchased 33,100 shares of Common Stock under the repurchase program at a cost of $218,000. The Company has not extended the authorization of the stock repurchase program.

8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Restated)

In June 1998, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company anticipates that the adoption of SFAS No. 133 will not have a material impact on its financial position, results of operations or cash flows. The Company will adopt SFAS No. 133 in its fiscal 2002 first quarter.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, which provides guidance related to revenue recognition based on interpretations and practices followed by the SEC and was effective the first fiscal quarter of fiscal years beginning after December 15, 1999 and requires companies to report any changes in revenue recognition as a cumulative change in accounting principal at the time of implementation in accordance with Accounting Principles Board Opinion 20, Accounting Changes. Subsequently, SAB No. 101A and 101B were issued to delay the implementation of SAB No. 101

9. RESTATEMENT OF FINANCIAL RESULTS—CHANGE IN ACCOUNTING PRINCIPLE

After evaluation of the Company's revenue recognition policies compared to the guidance in the Securities and Exchange Commission's Staff Accounting Bulletin No. 101B ("SAB No. 101") the Company has changed its accounting policy for revenue from mobile file storage equipment. Adoption of the change in accounting, in the third quarter of fiscal year 2001, resulted in revenue being recorded only after installation of the equipment on customer premises rather than upon shipment, thus postponing revenue recognition by an average of two months. The change in accounting necessitated the restatement of the first and second quarter 10 Q filings to properly reflect the beginning of the year recording of the cumulative effect of a change in accounting principle.

Details of the impact on the financial statements for FY2001 first quarter are as follows:

Consolidated Condensed Balance Sheets:

	As Reported		Restated
Accounts Receivable	$	27,003	$	26,462
Inventories		6,403		6,675
Compensation Payable		2,061		2,028
Deferred taxes and other non-current liabilities		1,376		1,293
Retained Earnings		65,350		65,208

Consolidated Condensed Statement of Earnings:

	For the Three Months Ended November 30, 2000						For the Six Months Ended November 30, 2000
	As Reported			Restated			As Reported			Restated
Revenues	$	29,765		$	29,962		$	59,490		$	60,192
Cost of revenues		18,459			18,573			37,732			38,038
Selling, general and administrative		13,984			14,004			28,977			29,090
(Loss) earnings before income taxes		(2,968	)		(2,905	)		(7,593	)		(7,310	)
(Benefit) provision for income taxes		(1,192	)		(1,177	)		(2,886	)		(2,759	)
Net (Loss) Earnings before cumulative effect of a change in accounting principle		(1,776	)		(1,728	)		(4,707	)		(4,551	)
Cumulative effect of a change in accounting principle		—			—			—			(330	)
Net (Loss) Earnings		(1,776	)		(1,728	)		(4,707	)		(4,881	)
Basic net (loss) earnings per share before cumulative effect of a change in accounting principle		—		$	(0.34	)		—		$	(0.88	)
Cumulative effect on prior years of a change in accounting principle		—			—			—		$	(0.06	)
Basic net (loss) earnings per share	$	(0.35	)	$	(0.34	)	$	(0.91	)	$	(0.94	)
Diluted net (loss) earnings per share before cumulative effect of a change in accounting principle		—		$	(0.34	)		—		$	(0.88	)
Cumulative effect on prior years of a change in accounting principle		—			—			—		$	(0.06	)
Diluted net (loss) earnings per share	$	(0.35	)	$	(0.34	)	$	(0.91	)	$	(0.94	)

Consolidated Condensed Statement of Cash Flows:

	As Reported			Restated
Net (Loss) Earnings	$	(4,707	)	$	(4,881	)
Cumulative effect of a change in accounting principle		—			330
Deferred income taxes and other		242			369
Accounts receivable		2,516			1,814
Inventories		342			648
Compensation payable		(827	)		(714	)

The effect on the Net Loss before cumulative effect of a change in accounting principle for the three and six months ended November 30, 2000 was a decrease in the loss of $48,000 and $156,000, respectively. The Cumulative effect of the change in accounting principle was a charge of $330,000. The effect on the Net Loss for the second fiscal quarter was a $48,000 reduction of the loss. The effect on the Net loss for the second fiscal quarter was a $48,000 reduction of the loss. The effect on the Net Loss for the six months was a $174,000 increase in the loss.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Restated)

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 (Restated)

At November 30, 2000, the Company had cash and short-term investments of $7.1 million, a decrease of $3.8 million from the $10.9 million at May 31, 2000. The Company's working capital position at November 30, 2000 was $28.4 million as compared with $32.2 million at May 31, 2000. The current ratio of 2.5 at November 30, 2000 was lower than the current ratio of 2.7 reported for May 31, 2000. The decrease in cash and working capital are the result of operational losses, the payment of liabilities assumed as a result of the Docucon asset acquisition, which closed on May 25, 2000, and the payment of compensation accrued in the prior year. Offsetting the decrease in cash was an accounts receivable decrease of $3.2 million from $29.7 million on May 31, 2000 to $26.5 million on November 30, 2000 and a decrease in inventories to $6.7 million at November 30, 2000 as compared to $6.8 million at May 31, 2000.

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 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 an estimated $4,300,000 and up to an additional $3,500,000 payable to the Company subject to certain adjustments for changes in certain accounts attributable to the Field Service Group. The sale was effective as of June 1, 1999. In connection with the sale the Company recorded a pre-tax gain on sale of $13.8 million in the first quarter of fiscal year 2000.

On June 22, 1999, the Company announced the consolidation of its paper manufacturing operations to its main plant located in Mayville, Wisconsin. 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.

Current liabilities decreased $0.5 million from $19.0 million at May 31, 2000 to $18.5 million at November 30, 2000. The decrease is primarily related to the payment of liabilities assumed as a result of the Docucon asset acquisition.

Investments in property, plant and equipment, which were primarily focused on company-wide management information systems and associated infrastructure investments, were $0.6 million and $0.7 million for the three months and six months ended November 30, 2000. Capital expenditures to support operations for fiscal 2001 are expected to total approximately $1.0 million.

For the six-month period ended November 30, 2000 and 1999, the Company paid cash dividends of $516,000 and $511,000, respectively.

The Company currently has no outstanding debt. The Company has entered into a new $5 million secured line of credit with a bank. The line of credit contains covenants related to cash flow and tangible net worth that the Company must maintain. The Company believes that its cash and borrowing capacity will provide sufficient working capital for the next twelve months.

The Company has completed the definitive agreement for the sale of unutilized property and a building for $2.9 million. The Company is in the process of preparing closing documents at this time. Closing is projected for late January 2001.

After evaluation of the Company's revenue recognition policies compared to the guidance in the Securities and Exchange Commission's Staff Accounting Bulletin No. 101B ("SAB No. 101") the Company has changed its accounting policy for revenue from mobile file storage equipment. Adoption of the change in accounting, in the third quarter of fiscal year 2001, resulted in revenue being recorded only after installation of the equipment on customer premises rather than upon shipment, thus postponing revenue recognition by an average of two months. The change in accounting necessitated the restatement of the first and second quarter 10Q filings to properly reflect the beginning of the year recording of the cumulative effect of a change in accounting principle.

Revenues for the second quarter of fiscal 2001 amounted to $30.0 million, down $1.2 million or 3.8% from the $31.2 million revenue reported in the second quarter of fiscal 2000. Revenues for the six months ended November 30, 2000 were $60.2 million, down $3.0 million or 4.7% from revenues of $63.2 million reported in the first six months of the prior fiscal year. The Company experienced lower U.S. sales of file storage equipment, professional services and technology products partially offset by increases in revenues from filing supplies and imaging services. Revenues for TAB's Canadian operations increased.

Backlog The Company's order booking to invoicing ratio ("book-to-bill ratio") was 1:10:1.0 for the second quarter of fiscal 2001, resulting in a small increase in backlog. The ratio was .94:1.0 in the fourth quarter of fiscal 2000 and .98:1.0 in the first quarter of fiscal 2001. There can be no assurance that the Company's book-to-bill ratio will continue to improve.

Cost of Revenue, as a percentage of revenues, was 62.0% for the second quarter of fiscal 2001 as compared to the 59.5% cost of revenue reported in the second quarter of fiscal 2000. Cost of revenues

for the second quarter of fiscal year 2001 was the same as the previous year quarter at $18.6 million. For the six months ended November 30, 2000 cost of revenues was 63.2% as compared to 59.8% cost of revenue in the first six months of the prior fiscal year. The increase in cost of revenues as a percentage of revenue was primarily due to fixed costs not decreasing as sales volume decreased.

Operating Expenses were $14.2 million or 47.3% of total revenues for the second quarter of fiscal 2001 as compared to $14.8 million or 47.4% of total revenues for the second quarter of fiscal 2000. For the six months ended November 30, 2000, operating expenses were $29.4 million or 48.9% of total revenues as compared to $28.6 million for the six-month period or 45.3% of total revenues for the prior fiscal year. The increase in operating expenses as a percentage of revenues for the six month period ended November 30, 2000, was primarily driven by lower revenues, the one-time charge of $1.4 million due to the retirement of the Company's Chief Executive Officer, and increased rent expense for the corporate office due to the sale of the previously owned corporate office partially offset by reduced branch operating expenses and salaries.

Interest, net, and other expenses was a net expense of $128,000 in the second quarter of fiscal 2001 as compared to $16,000 in net income in the second quarter of fiscal 2000. For the six months ended November 30, 2000 interest, net, and other was a net expense of $15,000 as compared to $127,000 in the prior fiscal year. The increased expense for the three and six months ended November 30, 2000 was primarily due to foreign exchange losses and lower interest earned on the cash balances. There was no debt related interest charge in the six months ended November 30, 2000. Fiscal 2000 contained higher cash balances due to proceeds from the sale of the Field Service Group.

Income Tax Benefit Net losses for the six months ended November 30, 2000 have been reduced by the amount of tax refunds available from the carryback of net operating losses to prior years. The effective rate of 38.0% for the six-month period ended November 30, 2000 is lower than the effective rate of 42.2% for the prior fiscal year due to limitation on carrybacks by certain states.

Net Loss Per Share for the three months ended November 30, 2000 was $0.34 for both basic and diluted shares compared to a loss per share of $0.24 for both basic and diluted shares for the three months ended November 30, 1999. The net loss per share for the six months ended November 30, 2000 was $.94 for both basic and diluted shares compared to earnings per share of $1.19 for both basic and diluted shares for the prior year comparable period.

Cumulative Effect of a Change in Accounting Principle Adoption of a change in accounting for the recognition of revenue related to mobile filing systems necessitated a cumulative effect adjustment of $.3 million as of the beginning of the first quarter of fiscal year 2001.

Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company anticipates that the adoption of SFAS No. 133 will not have a material impact on its financial position, results of operations or cash flows. The Company will adopt SFAS No. 133 in its fiscal 2002 first quarter.

implementation in accordance with Accounting Principles Board Opinion 20, Accounting Changes. Subsequently, SAB No. 101A and 101B were issued to delay the implementation of SAB No. 101.

Restatement of Financial Results—Change in Accounting Principle

After evaluation of the Company's revenue recognition policies compared to the guidance in the Securities and Exchange Commission's Staff Accounting Bulletin No. 101B ("SAB No. 101") the Company has changed its accounting policy for revenue from mobile file storage equipment. Adoption of the change in accounting, in the third quarter of fiscal year 2001, resulted in revenue being recorded only after installation of the equipment on customer premises rather than upon shipment, thus postponing revenue recognition by an average of two months. The change in accounting necessitated the restatement of the first and second quarter 10Q filings to properly reflect the beginning of the year recording of the cumulative effect on prior years (to May 31, 2000) of a change in accounting principle.

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 reaches its North American customers through a broad distribution system, which currently includes 24 sales branches in the U.S. and Canada employing approximately 120 account managers who primarily call on large companies and government agencies. The Company currently also has approximately 100 U.S. and Canadian independent Channel Partners who primarily serve medium and smaller size firms. Additional Channel Partners may be appointed in the future. The Company also maintains a call center to receive orders by telephone and intends to expand the call center operation to include outbound solicitation of orders. There can be no assurance that the Company's distribution system will obtain sufficient orders to return the Company to profitability.

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.

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, increased research and development expenses, 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.

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 lost sales and in lower operating results, if the Company's average selling prices decrease faster than its costs.

Professional Services

The Company's Professional Services business requires submitting bids to customers based on estimates of the time and expense needed to meet various project specifications and deadlines. Failure to estimate accurately and execute within proper estimates has had a negative impact on our gross margins and may continue to do so. Management is developing improved cost controls and management oversight to produce better estimates and project execution. There can be no assurance that these improvements will be successful.

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, which could adversely affect the Company's business, financial condition and results of operations.

New Processes and Products and Manufacturing Volumes

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.

Demand for Paper-based Records Management May Decline

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-revenue cycle was typically completed within 30 to 60 days from receipt of an order. In recent periods, however, the orders obtained by the Company have included a

higher percentage of larger projects with a longer order-to-revenue cycle. Revenue from product sales is generally recognized upon product shipment. Professional service projects, some of which include product sales, tend to have a longer order-to-revenue cycle. The Company's working capital needs have increased to support the consequently longer order-to-collection cycle. The Company is currently attempting to achieve a more favorable mix of orders of varying sizes and types. There can be no assurance that these efforts will be successful.

The Company's order booking to invoicing ratio ("book-to-bill ratio") was 1:10:1.0 for the second quarter of fiscal 2001, resulting in a small increase in backlog. The ratio was .94:1.0 in the fourth quarter of fiscal 2000 and .98:1.0 in the first quarter of fiscal 2001. There can be no assurance that the Company's book-to-bill ratio will continue to improve.

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 have a negative impact on the Company's business, financial condition and results of operations.

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.

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 Financial Statements.

Risks Associated with International Sales

International sales accounted for approximately 24% and 21%, respectively of the Company's total revenues in the second quarter of fiscal 2001 and 2000. Fluctuations in currencies negatively impacted

the Company in its second quarter and could adversely affect the Company's business, financial condition and results of operations in the future. 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 increased its expense levels in fiscal 1999 and 2000 to support planned growth. In fiscal 2001 the Company will be focusing on reducing costs since growth has not materialized as planned. If the cost reduction measures do not align with the current revenue levels, the Company's business, financial condition and results of operations will be materially adversely affected.

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 $4.5 million as of November 30, 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 May 31, 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 nine 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 European 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 Netherlands Guilders or other currencies. Based on the intercompany balance of

$0.1 million at November 30, 2000, a hypothetical 10% adverse change in Netherlands Guilders 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.

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 September 21, 2000.
(b): All of management's nominees as listed in the proxy statement were elected. The names of the directors elected are listed and represent the entire Board of Directors as of the annual meeting.
(c): The votes for each Director are indicated below:

Director	For	Withheld Authority
K. S. Hanson	4,339,855	283,706
J. A. Heimbuck	4,337,346	286,215
J. K. Myers	4,344,519	279,042
H. A. Wolf	4,298,088	325,473

(d): The company's appointment of Deloitte & Touche LLP as the independent accountants for the fiscal year ending May 31, 2001 was approved. The vote is indicated below:


For		4,352,320
Against		244,776
Abstain		26,465
Non-Vote		0

ITEM 5. OTHER INFORMATION

Gary Ampulski was appointed as a director of the Company on December 14, 2000 and as President and Chief Executive Officer of the Company January 1, 2001.

ITEM 6. EXHIBITS

(a): 10.1 Business Loan Agreement between Comerica Bank-California and Tab Products Co. dated November 21, 2000
(b): Reports on Form 8-K

Form 8-K filed September 22, 2000

(1): Compensatory Plan or Arrangement

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 16, 2001		/s/ DAVID J. DAVIS David J. Davis, Senior Vice President and Chief Financial Officer
Date: April 16, 2001		/s/ ROBERT J. CRECCA Robert J. Crecca, Corporate Controller and Chief Accounting Officer

QuickLinks

TAB PRODUCTS CO.
INDEX
TAB PRODUCTS CO. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED as Restated—See Note 9) (000's omitted except share data)
TAB PRODUCTS CO. CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED as Restated—see Note 9) (000's omitted except share data)
TAB PRODUCTS CO. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED as Restated—see Note 9) (000's omitted)
TAB PRODUCTS CO. SUPPLEMENTAL FINANCIAL DATA—NOTES (UNAUDITED as Restated—see Note 9)
PART II: OTHER INFORMATION