<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 December 31, 1996
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>
Class Outstanding at February 14, 1997
----- --------------------------------
<S> <C>
Common Stock, par value $0.01 per share 3,727,345
Non-Voting Common Stock, par value $.01 per share 709,870
</TABLE>
Page 1 of 12
<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
December 31, 1996 (Unaudited) and September 30, 1996 3
Condensed Consolidated Statements of Income for the three
months ended December 31, 1996 and 1995 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the three
months ended December 31, 1996 and 1995 (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 11
SIGNATURES 12
</TABLE>
2
<PAGE> 3
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ ------------
Assets
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 681,769 $ 844,615
Accounts receivable, net . . . . . . . . . . . . . . . . . 7,078,075 8,360,911
Inventories . . . . . . . . . . . . . . . . . . . . . . . 10,350,636 9,556,023
Prepaid expenses and other current assets . . . . . . . . 342,346 212,072
Deferred income taxes . . . . . . . . . . . . . . . . . . 616,498 616,498
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . 19,069,324 19,590,119
PROPERTY, PLANT AND EQUIPMENT-Net . . . . . . . . . . . . . . . 15,761,243 15,746,729
GOODWILL -Net . . . . . . . . . . . . . . . . . . . . . . . . . 14,018,020 14,112,390
OTHER ASSETS- Net . . . . . . . . . . . . . . . . . . . . . . . 563,316 588,995
------------ ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,411,903 $ 50,038,233
============ ============
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Current portion of long-term debt . . . . . . . . . . . . $ 2,153,620 $ 2,866,654
Accounts payable . . . . . . . . . . . . . . . . . . . . . 3,378,157 2,356,305
Accrued payroll, vacation and payroll taxes . . . . . . . 1,383,894 1,729,956
Other current liabilities . . . . . . . . . . . . . . . . 1,272,792 1,471,875
Income taxes payable . . . . . . . . . . . . . . . . . . . 216,864 612,674
------------ ------------
Total current liabilities . . . . . . . . . . . . . . 8,405,327 9,037,464
LONG-TERM DEBT- Less current portion . . . . . . . . . . . . . 9,920,341 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; 3,727,345 and 3,723,585 shares issued,
respectively . . . . . . . . . . . . . . . . . . . . . . . 37,273 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 . . . . . . . . . . . . . . . . 23,508,836 23,491,130
Retained earnings . . . . . . . . . . . . . . . . . . . . 6,491,209 5,895,257
Treasury stock at cost, 55,789 and 43,632 voting common
shares, respectively . . . . . . . . . . . . . . . . . (321,173) (236,074)
Stock purchase plan notes . . . . . . . . . . . . . . . . (435,255) (475,253)
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . 29,287,989 28,719,395
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,411,903 $ 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
DECEMBER 31,
----------------------------------
1996 1995
----------- -----------
<S> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,696,723 $16,367,276
COST OF SALES . . . . . . . . . . . . . . . . . . . . . . . . . 12,694,344 13,525,655
----------- -----------
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . 3,002,379 2,841,621
OPERATING EXPENSES:
Selling, general and administrative . . . . . . . . . . . . . . 1,635,603 1,668,006
Amortization and other post-
acquisition expenses . . . . . . . . . . . . . . . . . . . 177,898 135,846
----------- -----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . 1,188,878 1,037,769
OTHER INCOME (EXPENSE):
Interest expense . . . . . . . . . . . . . . . . . . . . . (223,127) (332,169)
Interest and other income . . . . . . . . . . . . . . . . 13,429 43,675
----------- -----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . 979,180 749,275
INCOME TAX EXPENSE . . . . . . . . . . . . . . . . . . . . . . 383,228 298,172
----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 595,952 $ 451,103
=========== ===========
EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . . . . $ 0.134 $ 0.102
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . 4,442,818 4,434,873
</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>
THREE MONTHS ENDED
December 31,
-----------------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 595,952 $ 451,103
Noncash items net income:
Depreciation and amortization . . . . . . . . . . . . . . 560,955 538,092
Deferred income taxes . . . . . . . . . . . . . . . . . . ---- 5,784
Provision for bad debts . . . . . . . . . . . . . . . . . 4,500 4,500
Gain on sale of property and equipment . . . . . . . . . . (4,242) (28,870)
Changes in operating working capital:
Accounts receivable . . . . . . . . . . . . . . . . . 1,278,336 654,974
Inventories . . . . . . . . . . . . . . . . . . . . . (794,613) (682,903)
Prepaid expenses and other assets . . . . . . . . . . (210,937) 268,843
Accounts payable . . . . . . . . . . . . . . . . . . . 1,021,852 (406,858)
Accrued and other current liabilities . . . . . . . . (429,348) 151,343
Income taxes payable . . . . . . . . . . . . . . . . . (395,810) 21,729
------------ ------------
Net cash from operations . . . . . . . . . . . . . . . . . 1,626,645 977,737
INVESTING ACTIVITIES
Additions to property, plant and equipment . . . . . . . . (484,056) (444,247)
Proceeds from disposition of property, plant and equipment 7,200 28,870
Increase in advances to stockholders . . . . . . . . . . . (9,456) (7,312)
------------ ------------
Net cash used in investing activities . . . . . . . . . . (486,312) (422,689)
FINANCING ACTIVITIES
Principal payments on long-term debt . . . . . . . . . . . (1,275,821) (3,317,578)
Decrease in stock purchase plan notes . . . . . . . . . . 39,998 14,444
Purchase of treasury stock . . . . . . . . . . . . . . . . (85,099) ---
Net proceeds from issuance of common stock . . . . . . . . 17,743 ---
------------ ------------
Net cash used in financing activities . . . . . . . . . . (1,303,179) (3,303,134)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . (162,846) (2,748,086)
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . . . . . . . . . 844,615 2,972,600
------------ ------------
End of period . . . . . . . . . . . . . . . . . . . . $ 681,769 $ 224,514
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
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>
December 31, September 30,
1996 1996
------------ -----------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . $ 6,316,925 $ 5,631,189
Finished products . . . . . . . . . . . . . . . . . . 4,033,711 3,924,834
------------ -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 10,350,636 $ 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 consumer disposable 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 Change
December 31,
------------------------
1996 1995 $ %
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $15,697 $16,367 -670 -4
Gross Profit 3,002 2,842 160 6
19.1% 17.4%
Operating Expenses 1,813 1,804 9 1
11.6% 11.0%
Operating Income 1,189 1,038 151 15
7.6% 6.3%
Interest Expense 223 332 -109 -33
1.4% 2.0%
Net Income $596 $451 145 32
3.8% 2.8%
</TABLE>
NET SALES:
Net sales decreased 4%, or $0.7 million to $15.7 million due primarily to
decreases in the price which the Company paid for paper in the last half of
fiscal 1996. During the second quarter of 1996, the average price which the
Company paid for fine paper grades decreased by 35%, and a portion of this
reduction in cost was passed through to the Company's customers in the form of
lower selling prices which resulted in a $1.3 million reduction in sales in the
business imaging products sector in the first quarter of fiscal 1997 as
compared to the same period of 1996. Adjusted for this fact, sales of
comparably priced units increased $0.6 million or 4%. The relatively small
growth in deflation adjusted sales is the result of a conscious effort on the
part of management to increase gross margin through selective non- renewal of
low margin sales relationships. Management anticipates that sales growth, in
the near term, will trail earnings growth as Management continues to place a
heavy emphasis on gross profit margin improvement with sales growth as a
secondary goal.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS --CONTINUED
GROSS PROFIT:
Gross profit increased $0.2 million, or 6%, to $3.0 million, and gross profit
margin increased 1.7 points to 19.1% in the first quarter of 1997. As discussed
previously, the cost which the Company paid for certain grades of paper
decreased in January and March of 1996, and this decrease contributed to the
improvement in gross margin for the first quarter. Management anticipates that
paper prices will remain at current levels and that the effect of the paper cost
decrease will continue to provide comparatively favorable margins through the
second quarter of fiscal 1997.
OPERATING EXPENSES:
Operating expenses remained relatively unchanged at $1.8 million for the first
quarter of 1997 and 1996. The executive management of the Company was
restructured in September of 1996 resulting in the elimination of one
vice-president position. Additionally, restructuring of the operational
management at the Company's Green Bay facility has resulted in additional
personnel reductions. These savings were offset by the addition of sales
personnel for the Company's Business Imaging Products market sector. Management
anticipates hiring additional sales personnel to lead the Away-From-Home and
Paint Sundries market sectors as the year progresses.
OPERATING INCOME:
Operating income increased $0.2 million or 15%, to $1.2 million for the first
quarter of 1997. Improvement in gross profit margin accounted for the increase
over the prior year.
INTEREST EXPENSE:
For the first quarter of 1997, interest expense decreased by $109,000 to
$223,000 from $332,000 last year. This reduction is due to a $4.1 million
reduction in average outstanding debt, combined with a reduction in the average
rate of interest which the Company pays for borrowings.
NET INCOME AND EARNINGS PER SHARE:
For the quarter ended December 31, 1996, net income increased $145,000 to
$596,000 compared to $451,000 last year. The increase was primarily
attributable to higher gross margin and lower interest expense. Earnings per
share were 13.4 cents for the three month period of fiscal 1997 compared to
10.2 cents for 1996, an improvement of 31%.
LIQUIDITY AND CAPITAL RESOURCES:
Net cash provided by operating activities was $1.6 million for the three months
ended December 31, 1996 compared to $1.0 million for the same period of fiscal
1996. The primary reason for the improved cash flow is the collection of
accounts receivable from sales in the fourth quarter of fiscal 1996 which were
at record levels. The Company's inventory levels and trade payable balance were
at high levels at December 31, 1996 due to the bulk purchase of certain grades
of paper at reduced prices during November and December.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS --CONTINUED
LIQUIDITY AND CAPITAL RESOURCES CONTINUED:
Net cash used in investing activities was $0.5 million for the three months
ended December 31, 1996, compared to $0.4 million for the same period in fiscal
1996. Investment in property, plant and equipment, primarily equipment
purchases at the Company's Green Bay facility, accounts for the increase.
The Company has reduced its borrowings by $1.3 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.
As of February 5, 1997, the Company had approximately $6.4 million available
under its revolving credit line.
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.
10
<PAGE> 11
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
Exhibit 18.1 - Letter regarding change in accounting principles.
Exhibit 27 - Financial Data Schedule
11
<PAGE> 12
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: February 14, 1997 /s/ Louis LeCalsey, III
--------------------------------------
Louis LeCalsey, III
Chief Executive Officer
Date: February 14, 1997 /s/ Greg Wilemon
--------------------------------------
Greg Wilemon
Chief Financial Officer/Chief Operating
Officer, Secretary, Treasurer and
Vice President - Finance
12
<PAGE> 13
INDEX TO EXHIBITS
Exhibit 18.1 -- Letter regarding change in accounting principles.
Exhibit 27 -- Financial Data Schedules
<PAGE> 1
EXHIBIT 18.1
[DELOITTE & TOUCHE LLP LETTERHEAD]
February 13, 1997
Tufco Technologies, Inc.
4800 Simonton Road
Dallas, Texas 75244
Dear Sirs,
At your request, we have read the description included in your Quarterly Report
on Form 10-Q to the Securities and Exchange Commission for the quarter ended
December 31, 1996, of the facts relating to the change in method of accounting
for certain inventories from the last-in, first-out basis to the first-in,
first-out basis. We believe, on the basis of the facts so set forth and other
information furnished to us by appropriate officials of the Company, that the
accounting change described in your Form 10-Q is to an alternative accounting
principle that is preferable under the circumstances.
We have not audited any consolidated financial statements of Tufco
Technologies, Inc. and its consolidated subsidiaries as of any date or for any
period subsequent to September 30, 1996. Therefore, we are unable to express,
and we do not express, an opinion on the facts set forth in the
above-mentioned Form 10-Q, on the related information furnished to us by
officials of the Company, or on the financial position, results of operations,
or cash flows of Tufco Technologies, Inc. and its consolidated subsidiaries as
of any date or for any period subsequent to September 30, 1996.
Yours truly,
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 681,769
<SECURITIES> 0
<RECEIVABLES> 7,078,075
<ALLOWANCES> 0
<INVENTORY> 10,350,636
<CURRENT-ASSETS> 19,069,324
<PP&E> 15,761,243
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,411,903
<CURRENT-LIABILITIES> 8,405,327
<BONDS> 0
0
0
<COMMON> 44,372
<OTHER-SE> 29,243,617
<TOTAL-LIABILITY-AND-EQUITY> 49,411,903
<SALES> 15,696,723
<TOTAL-REVENUES> 15,696,723
<CGS> 12,694,344
<TOTAL-COSTS> 12,694,344
<OTHER-EXPENSES> 1,813,501
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 223,127
<INCOME-PRETAX> 979,180
<INCOME-TAX> 383,228
<INCOME-CONTINUING> 595,952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 595,952
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.134
</TABLE>
