<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 March 31, 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.
Class Outstanding at May 14, 1997
----- ---------------------------
Common Stock, par value $0.01 per share 3,727,345
Non-Voting Common Stock, par value $.01 per share 709,870
Page 1 of 12
<PAGE> 2
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
Page
Number
------
PART I: CONDENSED FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1997 (Unaudited) and September 30, 1996 3
Condensed Consolidated Statements of Income for the three
months and six months ended March 31, 1997 and 1996
(Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
six months ended March 31, 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 11
SIGNATURES 12
2
<PAGE> 3
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
------------ -------------
Assets
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ..................................................... $ 695,283 $ 844,615
Accounts receivable, net ...................................................... 6,991,566 8,360,911
Inventories ................................................................... 10,461,484 9,556,023
Prepaid expenses and other current assets ..................................... 465,593 212,072
Deferred income taxes ......................................................... 616,498 616,498
Income tax receivable ......................................................... 14,011
------------ ------------
Total current assets .................................................... 19,244,435 19,590,119
PROPERTY, PLANT AND EQUIPMENT-Net ................................................ 15,434,418 15,746,729
GOODWILL -Net .................................................................... 13,922,704 14,112,390
OTHER ASSETS- Net ................................................................ 586,417 588,995
------------ ------------
TOTAL ............................................................................ $ 49,187,974 $ 50,038,233
============ ============
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Current portion of long-term debt ............................................. $ 2,172,820 $ 2,866,654
Accounts payable .............................................................. 2,986,564 2,356,305
Accrued payroll, vacation and payroll taxes ................................... 889,653 1,729,956
Other current liabilities ..................................................... 1,289,764 1,471,875
Income taxes payable .......................................................... 612,674
------------ ------------
Total current liabilities ............................................... 7,338,801 9,037,464
LONG-TERM DEBT- Less current portion ............................................. 10,315,905 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 ............................................................. 6,938,242 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 ............................................... 29,735,022 28,719,395
------------ ------------
TOTAL ......................................................................... $ 49,187,974 $ 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 SIX MONTHS ENDED
March 31, March 31,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES ............................ $ 15,031,841 16,391,705 $ 30,728,564 32,758,981
COST OF SALES ........................ 12,239,813 14,169,044 24,934,158 27,694,699
------------ ------------ ------------ ------------
GROSS PROFIT ......................... 2,792,028 2,222,661 5,794,406 5,064,282
OPERATING EXPENSES:
Selling, general and
administrative .................... 1,694,242 1,307,247 3,329,845 2,975,253
Amortization and other post-
acquisition expenses .............. 213,816 178,525 391,714 314,371
------------ ------------ ------------ ------------
OPERATING INCOME ..................... 883,970 736,889 2,072,847 1,774,658
OTHER INCOME (EXPENSE):
Interest expense .................. (213,040) (279,083) (436,167) (611,252)
Interest and other income ......... 81,525 18,226 94,954 61,901
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ........... 752,455 476,032 1,731,634 1,225,307
INCOME TAX EXPENSE ................... 305,421 180,961 688,649 479,133
------------ ------------ ------------ ------------
NET INCOME ........................... $ 447,034 $ 295,071 $ 1,042,985 $ 746,174
============ ============ ============ ============
EARNINGS PER SHARE ................... $ 0.10 $ 0.07 $ 0.23 $ 0.17
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING ....................... 4,434,815 4,420,977 4,438,817 4,427,925
</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>
SIX MONTHS ENDED
March 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ........................................................ $ 1,042,985 $ 746,174
Noncash items net income:
Depreciation and amortization ............................... 1,139,535 1,115,500
Deferred income taxes ....................................... -- 2,817
Increase (decrease)in allowance for doubtful accounts ....... 20,640 (23,712)
Gain on disposition of property and equipment ............... (100,567) (11,850)
Changes in operating working capital:
Accounts receivable ....................................... 1,348,705 155,251
Inventories ............................................... (905,461) 578,297
Prepaid expenses and other assets ......................... (234,133) (377,481)
Accounts payable .......................................... 630,259 (205,259)
Accrued and other current liabilities ..................... (1,022,414) (358,878)
Income taxes payable ...................................... (626,685) (261,400)
----------- -----------
Net cash from operations ....................................... 1,292,864 1,359,459
INVESTING ACTIVITIES
Additions to property, plant and equipment ..................... (665,770) (1,280,976)
Proceeds from disposition of property, plant and equipment ..... 128,800 65,850
Increase in other assets ....................................... (16,811) (3,662)
----------- -----------
Net cash used in investing activities .......................... (553,781) (1,218,788)
FINANCING ACTIVITIES
Repayment of long-term debt .................................... (861,057) (2,560,039)
Issuance of common stock ....................................... 17,743 17,743
Purchase of treasury stock ..................................... (85,099) (79,592)
Repayment of stock purchase plan notes ......................... 39,998 46,961
----------- -----------
Net cash used in financing activities .......................... (888,415) (2,574,927)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ......................... (149,332) (2,434,256)
CASH AND CASH EQUIVALENTS:
Beginning of period .............................................. 844,615 2,972,600
----------- -----------
End of period .................................................... $ 695,283 $ 538,344
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 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>
March 31, September 30,
1997 1996
----------- -------------
<S> <C> <C>
Raw materials ....... $ 5,855,906 $ 5,631,189
Finished products ... 4,605,578 3,924,834
----------- -----------
Total ............... $10,461,484 $ 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 Six Months Ended Period-to-Period
March 31, Change March 31, Change
------------------ -----------------
1997 1996 $ % 1997 1996 $ %
---- ---- - -- ---- ---- - --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $15,032 $16,392 -1360 -8 $30,729 $32,759 -2030 -6
Gross Profit 2,792 2,223 569 26 5,794 5,064 730 14
18.6% 13.6% 18.9% 15.5%
Operating Expenses 1,908 1,486 422 28 3,722 3,290 432 13
12.7% 9.1% 12.1% 10.0%
Operating Income 884 737 147 20 2,073 1,775 298 17
5.9% 4.5% 6.7% 5.4%
Interest Expense 213 279 -66 -24 436 611 -175 -29
1.4% 1.7% 1.4% 1.9%
Net Income $ 447 $ 295 152 52 1,043 746 297 40
3.0% 1.8% 3.4% 2.3%
</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 Six Months Ended Period-to-Period
March 31, Change March 31, Change
------------------ -----------------
1997 1996 $ % 1997 1996 $ %
---- ---- - -- ---- ---- - --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Business Imaging
Products $ 8,056 $ 8,780 -724 -8 16,159 17,608 -1449 -8
54% 54% 53% 54%
Custom Converting
& Specialty
Printing $ 4,065 5,120 -1055 -21 9,123 10,434 -1311 -13
27% 31% 30% 32%
Paint Sundry
Products $ 2,359 2,143 216 10 4,250 3,980 270 7
16% 13% 14% 12%
Away-From-Home
Products $ 552 349 203 58 1,197 737 460 62
4% 2% 4% 2%
Total Net Sales $15,032 $16,392 -1360 -8 30,729 32,759 -2030 -6
</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 and six month periods decreased 8% and 6%, or $1.4
million and $2.0 million respectively compared to fiscal 1996. The most
significant decrease occurred in the Business Imaging Products sector where net
sales decreased $0.7 million for the quarter and $1.4 million for the six month
period. During the second quarter of fiscal year 1996, the average price which
the Company paid for fine paper grades decreased 35%, and a portion of this
reduction in cost was passed through to the Company's customers in the form of
lower selling prices. Adjusted for this fact, sales of comparably priced units
in the Business Imaging Products sector increased $0.5 million (6%) and $1.1
million (6%) for the three and six month periods respectively. Sales in the
Company's Custom Converting market sector decreased $1.1 million (21%) and $1.3
million (13%) for the respective three and six month periods. 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 have elected not to renew their converting arrangements with
the Company. Management intends to shift production capacity for these accounts
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 $0.2 million (58%) and
$0.5 million (62%) for the three month and six month periods respectively,
reflecting management's intentions to emphasize growth in the sector. However,
the replacement of the reduced sales in the Custom Converting sector will not
be immediate, and as a result, management anticipates that sales growth, in the
near term, will trail earnings growth.
GROSS PROFIT:
Gross profit for the quarter increased $0.6 million (26%) to $2.8 million, in
spite of the reduction in net sales, with the gross profit margin improving by
5.0 points to 18.6%. For the six month period, gross profit increased $0.7
million (14%) to $5.8 million on gross profit margin of 18.9%, 3.4 points
better than the same period of fiscal 1996. The primary reason for the margin
improvement is the reduction in the cost which the Company paid for certain
grades of paper in January and March of 1996. Management anticipates that paper
costs will remain at or near current levels for the remainder of fiscal 1997.
OPERATING EXPENSES:
Operating expenses increased $0.4 million (28%) for the second quarter and $0.4
million (13%) for the six month period compared to the same periods of fiscal
1996. Three factors accounted for the increase, the most significant of which
is the hiring of personnel for positions in division management and sales which
were not staffed for comparable periods in fiscal 1996. Additionally, incentive
compensation for senior management, which is tied to Company profits, has
increased. Finally, management elected to upgrade the quality of the Company's
annual report to its shareholders and incurred higher printing costs and
professional fees as a result.
OPERATING INCOME:
Operating income increased $0.1 million (20%) and $0.3 million (17%) over
fiscal 1996 levels for the three and six month intervals. Improvement in gross
margin, offset by additional operating costs, accounted for the increase.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS --CONTINUED
INTEREST EXPENSE:
Interest expense decreased by $66,000 (24%) and $175,000 (29%) for the
respective three and six month periods. The improvement is the result of a
decrease of $3.2 million and $3.7 million for the three and six month periods
respectively in average outstanding debt, in addition to a reduction in the
average rate of interest which the Company pays for borrowings.
NET INCOME AND EARNINGS PER SHARE:
For the three and six month periods, net income increased $152,000 (52%) to
$447,000 and $297,000 (40%) to $1.0 million respectively. The increase is
primarily the result of higher gross margin and reduced interest expense.
Earnings per share were 10 cents for the quarter, up 3 cents (43%) from fiscal
1996, and 23 cents for the six months, an increase of 6 cents (35%) from the
same period a year ago.
LIQUIDITY AND CAPITAL RESOURCES:
Net cash provided by operating activities was $1.3 million through six months
of fiscal 1997 compared to $1.4 million for the same period of fiscal 1996. The
slight reduction in cash flow from operations was the result of 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 $0.5 million for the six months
period compared to $1.2 million for the same period of last year. The
expenditures in fiscal 1997 were primarily for equipment used in the Company's
Green Bay facility whereas the 1996 expenditures were primarily associated with
the renovation of the Green Bay plant and office space.
The Company has reduced its borrowings by $0.9 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 May 7, 1997 under the revised agreement were
$3.8 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.
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
None.
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: May 12, 1997 /s/ Louis LeCalsey, III
------------------------------
Louis LeCalsey, III
Chief Executive Officer
Date: May 12, 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
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 695,283
<SECURITIES> 0
<RECEIVABLES> 6,991,566
<ALLOWANCES> 0
<INVENTORY> 10,461,484
<CURRENT-ASSETS> 19,244,435
<PP&E> 15,434,418
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,187,974
<CURRENT-LIABILITIES> 7,338,801
<BONDS> 0
0
0
<COMMON> 44,372
<OTHER-SE> 29,690,650
<TOTAL-LIABILITY-AND-EQUITY> 49,187,974
<SALES> 30,728,564
<TOTAL-REVENUES> 30,728,564
<CGS> 24,934,158
<TOTAL-COSTS> 24,934,158
<OTHER-EXPENSES> 3,721,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 436,167
<INCOME-PRETAX> 1,731,634
<INCOME-TAX> 688,649
<INCOME-CONTINUING> 1,042,985
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,042,985
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.23
</TABLE>
