<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
-------------
Commission file number 0-21018
-------
TUFCO TECHNOLOGIES, INC.
Delaware 39-1723477
- --------------------------------- ---------------------
(State of other jurisdiction (IRS Employer ID No.)
of incorporation of organization)
4800 Simonton Road, Dallas, Texas 75244
----------------------------------------
(Address of principal executive offices)
(972)789-1079
-------------
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 or the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class August 11,1997
----- --------------
<S> <C>
Common Stock, par value $0.01 per share 3,728,580
Non-Voting Common Stock, par value $.01 per share 709,870
</TABLE>
Page 1 of 13
<PAGE> 2
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I: CONDENSED FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheets as of
June 30,1997 (Unaudited) and September 30, 1996 3
Condensed Consolidated Statements of Income for the three
months ended June 30, 1997 and 1996 (Unaudited) and
for the nine months ended June 30, 1997 and 1996 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended June 30, 1997 and 1996 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II: OTHER INFORMATION 12
SIGNATURES 13
</TABLE>
2
<PAGE> 3
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
----------- -----------
Assets
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................... $ 843,229 $ 844,615
Accounts receivable, net .................................................... 7,890,154 8,360,911
Inventories ................................................................. 9,839,193 9,556,023
Prepaid expenses and other current assets ................................... 587,092 212,072
Deferred income taxes ....................................................... 616,498 616,498
------------ ------------
Total current assets .................................................. 19,776,166 19,590,119
PROPERTY, PLANT AND EQUIPMENT-Net .............................................. 15,765,552 15,746,729
GOODWILL -Net .................................................................. 13,827,389 14,112,390
OTHER ASSETS- Net .............................................................. 610,178 588,995
------------ ------------
TOTAL .......................................................................... $ 49,979,285 $ 50,038,233
============ ============
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Current portion of long-term debt ........................................... $ 1,741,659 $ 2,866,654
Accounts payable ............................................................ 2,790,651 2,356,305
Accrued payroll, vacation and payroll taxes ................................. 1,065,218 1,729,956
Other current liabilities ................................................... 1,251,953 1,471,875
Income taxes payable ........................................................ 291,080 612,674
------------ ------------
Total current liabilities ............................................. 7,140,561 9,037,464
LONG-TERM DEBT- Less current portion ........................................... 10,379,771 10,483,128
DEFERRED INCOME TAXES .......................................................... 1,798,246 1,798,246
STOCKHOLDERS' EQUITY
Voting Common Stock; $.01 par value; 9,000,000 shares authorized;
3,728,580 and 3,723,585 shares issued, respectively ..................... 37,286 37,236
Nonvoting Common Stock; $.01 par value; 2,000,000 shares authorized;
709,870 shares issued and outstanding ................................... 7,099 7,099
Additional paid-in capital .................................................. 23,514,812 23,491,130
Retained earnings ........................................................... 7,846,907 5,895,257
Treasury stock at cost, 55,789 and 43,632 voting common
shares, respectively .................................................... (325,140) (236,074)
Stock purchase plan notes ................................................... (420,257) (475,253)
------------ ------------
Total stockholders' equity ............................................. 30,660,707 28,719,395
------------ ------------
TOTAL ....................................................................... $ 49,979,285 $ 50,038,233
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES.......................... $17,233,621 16,999,882 $47,962,185 49,758,863
COST OF SALES....................... 13,864,882 13,674,836 38,799,040 41,369,535
----------- ---------- ----------- ----------
GROSS PROFIT........................ 3,368,739 3,325,046 9,163,145 8,389,328
OPERATING EXPENSES:
Selling, general and administrative
.................................... 1,743,749 1,837,461 5,073,594 4,812,713
Amortization and other post-
acquisition expenses.............. 162,066 232,909 553,780 547,280
----------- ---------- ----------- ----------
OPERATING INCOME..................... 1,462,924 1,254,676 3,535,771 3,029,335
OTHER INCOME (EXPENSE):
Interest expense.................. (245,359) (333,076) (681,526) (944,328)
Interest and other income......... 238,799 46,981 333,753 108,882
----------- ---------- ----------- ----------
INCOME BEFORE INCOME TAXES........... 1,456,364 968,581 3,187,998 2,193,889
INCOME TAX EXPENSE................... 547,699 374,940 1,236,348 855,072
----------- ---------- ----------- ----------
NET INCOME .......................... $ 908,665 $ 593,641 $ 1,951,650 $1,338,817
=========== ========== =========== ==========
EARNINGS PER SHARE................... $ 0.20 $ 0.13 $ 0.44 $ 0.30
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING...................... 4,437,489 4,446,068 4,438,374 4,437,061
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
June 30,
---------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ................................................................ $ 1,951,650 $ 1,338,816
Noncash items net income:
Depreciation and amortization ....................................... 1,723,041 1,646,867
Deferred income taxes ............................................... -- (7,537)
Increase (decrease)in allowance for doubtful accounts ............... 29,640 (34,607)
Gain on disposition of property and equipment ....................... (101,167) (21,895)
Changes in operating working capital:
Accounts receivable ............................................... 441,117 (211,054)
Inventories ....................................................... (283,170) (1,113,497)
Prepaid expenses and other assets ................................. (381,638) (17,806)
Accounts payable .................................................. 434,346 725,526
Accrued and other current liabilities ............................. (884,661) 285,330
Income taxes payable .............................................. (321,594) (133,328)
---------- ----------
Net cash from operations ............................................... 2,607,564 2,456,815
INVESTING ACTIVITIES
Additions to property, plant and equipment ............................. (1,484,494) (1,792,121)
Proceeds from disposition of property, plant and equipment ............. 128,800 59,395
Increase in other assets ............................................... (14,566) (21,934)
---------- ----------
Net cash used in investing activities .................................. (1,370,260) (1,754,660)
FINANCING ACTIVITIES
Repayment of long-term debt ............................................ (1,228,352) (3,087,761)
---------- ----------
Issuance of common stock ............................................... 23,732 116,187
Purchase of treasury stock ............................................. (89,066) (108,381)
Repayment of stock purchase plan notes ................................. 54,996 7,494
---------- ----------
Net cash used in financing activities .................................. (1,238,690) (3,072,461)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ................................. (1,386) (2,370,306)
CASH AND CASH EQUIVALENTS:
Beginning of period ...................................................... 844,615 2,972,600
---------- ----------
End of period ............................................................ $ 843,229 $ 602,344
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
1. INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and Rule 10-01 of Regulation S-X. In the opinion
of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Some adjustments involve estimates which may require
revision in subsequent interim periods or at year end. The unaudited
financial statements and footnotes should be read in conjunction with
the Company's financial statements for the year ended September 30,
1996 that are included in Form 10-K that was filed with the Securities
and Exchange Commission on December 17, 1996. Operating results for
the three month period are not necessarily indicative of results
expected for the remainder of the year.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
------------ -------------
<S> <C> <C>
Raw materials .......................... $ 5,471,338 $ 5,631,189
Finished products ...................... 4,367,855 3,924,834
------------ ------------
Total .................................. $ 9,839,193 $ 9,556,023
============ ============
</TABLE>
In the first quarter of fiscal 1997, the Company's management has
elected to conform the valuation of all of the Company's inventories
to the FIFO method which is used predominantly for its recently
acquired subsidiaries. The FIFO method, in management's opinion, is
preferable to facilitate inventory transfers and the integration of
all locations, and to minimize the effects of temporary paper price
fluctuations (which to date have been offsetting). This change has no
material effect on the results of operations for the prior years and
the current quarter and is currently not expected to have a material
effect in future periods.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL INFORMATION:
Tufco Technologies, Inc. (formerly Tufco Holding Company, the
"Company") was organized in 1992 to acquire Tufco Industries, Inc.
(located in Green Bay, WI) Tufco Industries, Inc. was incorporated in
Wisconsin in 1974. Executive Converting Corporation (located in
Dallas, TX) was acquired January 28, 1994. Hamco, Industries,
Inc.(located in Newton, NC) was acquired August 23, 1995.
The Company, through its wholly owned subsidiaries, manufactures and
distributes business imaging paper products and Away-From-Home towels
and wipes, provides diversified custom converting and specialty
printing services, and distributes paint sundry products used in home
improvement projects.
The Company normally operates at lower operating levels during the
first and second quarters of its fiscal year which ends September 30.
This occurs because of the seasonal demand for certain printed
products displaying a holiday theme as well as products which are used
by customers in conjunction with end-of-year activities. These
products are normally shipped during the Company's third and fourth
fiscal quarters. Demand for its paint sundry products is generally
lower during the first and second fiscal quarters as cold weather
restricts the amount of new construction and remodeling projects that
require the Company's products.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --CONTINUED
RESULTS OF OPERATIONS:
CONDENSED OPERATING DATA, PERCENTAGES OF NET SALES AND YEAR-TO-YEAR CHANGES IN
THESE ITEMS ARE AS FOLLOWS:
($000s)
<TABLE>
<CAPTION>
Three Months Ended Period-to-Period Nine Months Ended Period-to-Period
June 30, Change June 30, Change
-------------------- -------------------
1997 1996 $ % 1997 1996 $ %
---- ---- - - ---- ---- - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $17,234 $17,000 234 1 $47,962 $49,759 -1797 -4
Gross Profit 3,369 3,325 44 1 $ 9,163 8,389 774 9
19.5% 19.6% 19.1% 16.9%
Operating Expenses 1,906 2,070 -164 -8 5,627 5,360 267 5
11.1% 12.2% 11.7% 10.8%
Operating Income 1,463 1,255 208 17 3,536 3,029 506 17
8.5% 7.4% 7.4% 6.1%
Interest Expense 245 333 -88 -26 682 944 -263 -28
1.4% 2.0% 1.4% 1.9%
Net Income $ 909 $ 594 315 53 1,952 1,339 613 46
5.3% 3.5% 4.1% 2.7%
</TABLE>
ANALYSIS OF NET SALES, PERCENTAGES OF TOTAL NET SALES, AND YEAR-TO-YEAR CHANGES
IN THE COMPANY'S PRIMARY MARKET SECTORS ARE AS FOLLOWS:
($000s)
<TABLE>
<CAPTION>
Three Months Ended Period-to-Period Nine Months Ended Period-to-Period
June 30, Change June 30, Change
-------------------- -------------------
1997 1996 $ % 1997 1996 $ %
---- ---- - - ---- ---- - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Business Imaging
Products $ 8,655 $ 8,780 -125 -1 24,815 26,388 -1573 -6
50% 52% 52% 53%
Custom Converting
& Specialty
Printing $ 4,899 4,485 414 9 14,020 14,919 -899 -6
28% 26% 29% 30%
Paint Sundry
Products $ 2,563 3,025 -462 -15 6,813 7,005 -192 -3
15% 18% 14% 14%
Away-From-Home
Products $ 1,117 710 407 57 2,314 1,447 867 60
7% 4% 5% 3%
Total Net Sales $17,234 $17,000 234 1 47,962 49,759 -1797 -4
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --CONTINUED
NET SALES:
Net sales for the three month period increased 1% or $0.2 million, while sales
for the nine month period decreased 4% or $1.8 million.
Business Imaging Products: During the second quarter of fiscal year 1996, the
average price which the Company paid for paper grades converted and sold in its
Business Imaging Products sector decreased 27%, and a portion of this reduction
in cost was passed through to the Company's customers in the form of lower
selling prices. These products account for just over 50% of the Company's
revenue, and lower selling prices in the sector resulted in a $1.6 million
decrease in revenue for the nine months compared to 1996. Adjusted for the
impact of lower paper costs and the resulting lower selling prices, sales of
comparably priced units in the Business Imaging Products sector increased $0.3
million (2%) and $1.4 million (5%) for the three and nine month periods
respectively.
Custom Converting: Sales in the Company's Custom Converting market sector
increased $0.4 million (9%) for the quarter due to new contracts for custom
printing of seasonal products. Additionally, production for a large seasonal
contract began one month earlier in 1997 than it had in 1996. For the nine
month period, revenue in the Custom Converting sector is down $0.9 million
(6%). As discussed in earlier quarters, this market sector has historically
produced the lowest profit margins for the Company, and management has
established minimum margin thresholds which are now applied as contract
renewals are negotiated. As a result of this policy several large revenue
accounts had elected not to renew their converting arrangements with the
Company. Management has shifted its marketing efforts in this sector toward
specialty printing and other value-added services, and away from price
sensitive non-technical contract converting.
Away-From-Home Products: Much of the production capacity formerly devoted to
contract custom converting is now dedicated to the Away-From-Home market sector
(tissues, towels and wipes used in the workplace or in hotels, motels and
restaurants) where margins are historically higher. The net sales in the
Away-From-Home sector grew $0.4 million (57%) and $0.9 million (60%) for the
three month and nine month periods respectively, reflecting management's
intentions to emphasize growth in the sector.
Paint Sundries: Sales of Paint Sundry products decreased $0.5 million (15%) and
$0.2 million (3%) for the three and nine month periods respectively. This
market sector is largely driven by the timing of promotional trade shows, and
the 1997 spring show was three weeks later than in 1996, resulting in less
third quarter revenue in 1997 than in 1996. Management expects this timing
difference to reverse in the fourth quarter.
GROSS PROFIT:
Gross profit for the quarter increased $44,000 (1%) to $3.4 million,
corresponding to the increase in net sales, with the gross profit margin
relatively unchanged at 19.5%. For the nine month period, gross profit
increased $0.8 million (9%) to $9.2 million on gross profit margin of 19.1%,
2.2 points better than the same period of fiscal 1996. The primary reason for
the margin improvement is the sustained reduction in the cost which the Company
paid for certain grades of paper since January and March of 1996. Management
anticipates that paper costs will remain at or near current levels for the
remainder of fiscal 1997.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --CONTINUED
OPERATING EXPENSES:
Operating expenses decreased $0.2 million (8%) for the three month period due
primarily to reduced incentive compensation paid to sales and management
personnel as well as a reduction in recruiting and relocation fees paid in the
quarter. For the nine month period, expenses have increased $0.3 million (5%)
due to the hiring of personnel for positions which were vacant during the first
six months of 1996. Additionally, the Company incurred higher printing costs
and professional fees in 1997 in conjunction with the preparation of its 1996
annual report.
OPERATING INCOME:
Operating income increased $0.2 million (17%) and $0.5 million (17%) for the
three and nine month intervals. For the quarter, higher revenue along with
reduced operating expenses accounted for the increase. For the nine month
period, improved gross margin in the first six months of 1997 offset by the
higher operating expenses accounted for the improved operating income.
OTHER INCOME AND EXPENSE:
Interest expense decreased by $88,000 (26%) and $263,000 (28%) for the
respective three and nine month periods. The improvement is the result of a
decrease of $3.7 million for the three and nine month periods respectively in
average outstanding debt, in addition to a reduction in the average rate of
interest which the Company pays for borrowings. Additionally, during the
quarter the Company recognized a $200,000 benefit from an arbitration
settlement which eliminated a liability established from a prior acquisition.
NET INCOME AND EARNINGS PER SHARE:
For the three and nine month periods, net income increased $0.3 million (53%)
to $0.9 million and $0.6 million (46%) to $2.0 million respectively. The three
month increase is attributable to decreased operating costs in addition to an
increase in non-operating income due to a favorable ruling in an arbitration
hearing. The nine month increase is primarily the result of higher gross margin
and reduced interest expense. Earnings per share were 20 cents for the quarter,
up 7 cents (53%) from fiscal 1996, and 44 cents for the nine months, an
increase of 14 cents (46%) from the same period a year ago.
LIQUIDITY AND CAPITAL RESOURCES:
Net cash provided by operating activities was $2.6 million through nine months
of fiscal 1997 compared to $2.5 million for the same period of fiscal 1996. The
increase was the result of higher net income offset by higher inventory levels
at the Company's Green Bay facility where the Company purchased large
quantities of raw materials used to manufacture the products for the
Away-From-Home (AFH) market sector. Management anticipates that inventory will
return to historical levels by the end of the fiscal year as the initial
stocking levels for the AFH sector are depleted.
Net cash used in investing activities was $1.4 million for the nine month
period compared to $1.8 million for the same period of last year. The capital
expenditures for fiscal 1996 were primarily associated with the renovation of
the Green Bay manufacturing plant and administrative offices. The 1997
expenditures were primarily for equipment at the Green Bay facility.
Additionally, the Company has begun a project to develop a consolidated
information system for centralized resource planning and management. The total
capital cost of the project will be $1.5 million over a three year period, of
which $0.3 million is included in the nine month capital expenditures at June
30, 1997 and the purchase and development of a new consolidated information
system for the Company.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --CONTINUED
LIQUIDITY AND CAPITAL RESOURCES CONTINUED:
The Company has reduced its borrowings by $1.2 million since the beginning of
the year. Management projects that cash flow from operations will be sufficient
to fund its capital needs for fiscal 1997 and does not anticipate any
significant increase in borrowings during the year.
In January, 1997, the Company requested and received a reduction in funds
committed for its revolving credit line, thereby reducing the minimum
commitment fees paid to the Company's principal lender on the unused portion of
the line. Funds available as of August 1, 1997 under the revised agreement were
$4.3 million, with a maximum commitment of $6,750,000.
The Company intends to retain earnings to finance future operations and
expansion and does not expect to pay any dividends within the foreseeable
future. In addition, the Company's primary lender must approve the payment of
any dividends.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
12
<PAGE> 13
SIGNATURES
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.
TUFCO TECHNOLOGIES, INC.
Date: August 11, 1997 /s/ Louis LeCalsey, III
----------------------------------
Louis LeCalsey, III
President, Chief Executive Officer
Date: August 11, 1997 /s/ Greg Wilemon
-----------------------------------
Greg Wilemon
Chief Financial Officer/Chief
Operating Officer,
Secretary, Treasurer and Vice
President - Finance
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000895329
<NAME> 0
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 843,229
<SECURITIES> 0
<RECEIVABLES> 7,890,154
<ALLOWANCES> 0
<INVENTORY> 9,839,193
<CURRENT-ASSETS> 19,776,166
<PP&E> 15,765,552
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,979,285
<CURRENT-LIABILITIES> 7,140,561
<BONDS> 0
0
0
<COMMON> 44,385
<OTHER-SE> 30,616,322
<TOTAL-LIABILITY-AND-EQUITY> 49,979,285
<SALES> 47,962,185
<TOTAL-REVENUES> 47,962,185
<CGS> 38,799,040
<TOTAL-COSTS> 38,799,040
<OTHER-EXPENSES> 5,293,621
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 681,526
<INCOME-PRETAX> 3,187,998
<INCOME-TAX> 1,236,348
<INCOME-CONTINUING> 1,951,650
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,951,650
<EPS-PRIMARY> 0
<EPS-DILUTED> .44
</TABLE>
