<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, 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>
Class Outstanding at February 13, 1998
----- --------------------------------
<S> <C>
Common Stock, par value $0.01 per share 3,716,281
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>
PART I: CONDENSED FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1997 (Unaudited) and September 30, 1997 3
Condensed Consolidated Statements of Income for the three
months ended December 31, 1997 and 1996 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the three
months ended December 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 12
SIGNATURES 13
</TABLE>
2
<PAGE> 3
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------ ------------
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 699,356 $ 747,404
Restricted cash ............................................................ 80,178 60,128
Accounts receivable, net ................................................... 8,241,022 7,637,121
Inventories ................................................................ 10,801,245 8,550,888
Prepaid expenses and other current assets .................................. 330,475 320,109
Deferred income taxes ...................................................... 419,000 419,000
------------ ------------
Total current assets ................................................. 20,571,276 17,734,650
PROPERTY, PLANT AND EQUIPMENT-Net ............................................. 17,296,923 16,990,227
GOODWILL -Net ................................................................. 18,234,811 13,732,074
OTHER ASSETS- Net ............................................................. 615,200 588,414
------------ ------------
TOTAL ......................................................................... $ 56,718,210 $ 49,045,365
============ ============
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Current portion of long-term debt .......................................... $ 1,935,357 $ 1,910,357
Accounts payable ........................................................... 4,413,663 3,137,177
Accrued payroll, vacation and payroll taxes ................................ 398,087 824,995
Other current liabilities .................................................. 1,076,772 987,290
Income taxes payable ....................................................... 232,638 649,570
------------ ------------
Total current liabilities ............................................ 8,056,517 7,509,389
LONG-TERM DEBT- Less current portion .......................................... 14,766,012 8,587,999
DEFERRED INCOME TAXES ......................................................... 1,580,000 1,580,000
STOCKHOLDERS' EQUITY
Voting Common Stock; $.01 par value; 9,000,000 shares authorized;
3,783,723 and 3,733,830 shares issued, respectively .................... 37,837 37,338
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 ................................................. 23,938,825 23,539,420
Retained earnings .......................................................... 8,880,851 8,548,543
Treasury stock at cost, 67,422 and 59,804 voting common shares, respectively (423,741) (349,371)
Stock purchase plan notes .................................................. (125,190) (415,052)
------------ ------------
Total stockholders' equity ............................................ 32,315,681 31,367,977
------------ ------------
TOTAL ...................................................................... $ 56,718,210 $ 49,045,365
============ ============
</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,
---------------------------------
1997 1996
---- ----
<S> <C> <C>
NET SALES .............................................. $ 16,690,216 $ 15,696,723
COST OF SALES .......................................... 14,020,278 12,694,344
------------ ------------
GROSS PROFIT ........................................... 2,669,938 3,002,379
OPERATING EXPENSES:
Selling, general and administrative .................... 1,703,051 1,635,603
Amortization and other post-
acquisition expenses ................................ 205,572 177,898
------------ ------------
OPERATING INCOME ....................................... 761,315 1,188,878
OTHER INCOME (EXPENSE):
Interest expense .................................... (222,747) (223,127)
Interest and other income ........................... 14,584 13,429
------------ ------------
INCOME BEFORE INCOME TAXES ............................. 553,152 979,180
INCOME TAX EXPENSE ..................................... 220,844 383,228
------------ ------------
NET INCOME ............................................. $ 332,308 $ 595,952
============ ============
EARNINGS PER SHARE:
Basic .............................................. $ 0.08 $ 0.14
Diluted ............................................ $ 0.07 $ 0.13
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common stocks ...................................... 4,408,300 4,393,418
Adjusted shares-assuming exercise of stock options.. 4,563,399 4,442,818
</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,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income .................................................... $ 332,308 $ 595,952
Noncash items net income:
Depreciation and amortization ........................... 612,304 560,955
Deferred income taxes ................................... -- --
Provision for bad debts ................................. 9,000 4,500
Gain on sale of property and equipment .................. (623) (4,242)
Changes in operating working capital:
Accounts receivable ................................... 503,250 1,278,336
Inventories ........................................... (1,420,171) (794,613)
Prepaid expenses and other assets ..................... (5,741) (210,937)
Accounts payable ...................................... 307,575 1,021,852
Accrued and other current liabilities ................. (534,872) (429,348)
Income taxes payable .................................. (446,497) (395,810)
----------- -----------
Net cash provided by (used in) operations .................. (643,467) 1,626,645
INVESTING ACTIVITIES
Additions to property, plant and equipment ................. (702,319) (484,056)
Proceeds from disposition of property, plant and equipment.. 4,935 7,200
Increase in advances to stockholders ....................... (5,556) (9,456)
Acquisition of Foremost Manufacturing, Inc. ................ (5,500,000) --
Increase in restricted cash ................................ (20,050) --
----------- -----------
Net cash used in investing activities ...................... (6,222,990) (486,312)
FINANCING ACTIVITIES
Principal payments on long-term debt ....................... (476,825) (1,275,821)
Proceeds from issuance of notes payable .................... 6,679,838 --
Decrease in stock purchase plan notes ...................... 289,862 39,998
Purchase of treasury stock ................................. (74,370) (85,099)
Net proceeds from issuance of common stock ................. 399,904 17,743
----------- -----------
Net cash provided by (used in) financing activities ........ 6,818,409 (1,303,179)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ..................... (48,048) (162,846)
CASH AND CASH EQUIVALENTS:
Beginning of period ......................................... 747,404 844,615
----------- -----------
End of period .............................................. $ 699,356 $ 681,769
=========== ===========
</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, 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, 1997
that are included in Form 10-K that was filed with the Securities and
Exchange Commission on December 23, 1997. 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,
1997 1997
------------ ------------
<S> <C> <C>
Raw materials...................... $ 6,303,976 $ 4,711,780
Finished products.................. 4,497,269 3,839,108
------------ ------------
Total ............................. $ 10,801,245 $ 8,550,888
============ ============
</TABLE>
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) which was incorporated in Wisconsin in 1974.
Executive Converting Corporation (located in Dallas, TX) was acquired
in 1994, Hamco, Industries, Inc. (located in Newton, NC) was acquired
in 1995, and Foremost Manufacturing, Inc. was acquired November 13,
1997.
The Company manufactures and distributes Business Imaging paper
products, Away-From-Home towels and wipes, and Paint Sundry products.
In addition to its product offering, the Company also provides
diversified Custom Converting and Specialty Printing services.
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 Change
December 31,
------------------------
1997 1996 $ %
----- ---- ----- ----
<S> <C> <C> <C> <C>
Net Sales $16,690 $15,697 993 6
Gross Profit 2,670 3,002 (332) (11)
16.0% 19.1%
Operating Expenses 1,909 1,813 96 5
11.4% 11.5%
Operating Income 761 1,189 (428) (36)
4.6% 7.6%
Interest Expense 223 223 -- --
1.3% 1.4%
Net Income $ 332 $ 596 (264) (44)
2.0% 3.8%
</TABLE>
ANALYSIS OF NET SALES, PERCENTAGE 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 Change
December 31,
--------------------------
1997 1996 $ %
---- ---- ---- ----
<S> <C> <C> <C> <C>
Business Imaging $ 7,756 $ 8,104 (348) (4)
Products 46% 52%
Custom Converting 3,907 5,057 (1150) (23)
& Specialty Printing 23% 32%
Paint Sundry Products 3,747 1,891 1856 98
22% 12%
Away-From-Home Products 1,280 645 635 98
8% 4%
------- -------
Total Net Sales 16,690 15,697 993 6
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CONTINUED
ACQUISITION OF FOREMOST MANUFACTURING, INC.:
On November 13, 1997, the Company purchased all of the outstanding stock of
Foremost Manufacturing, Inc. (Foremost) for $5.25 million in cash and $0.25
million in the Company's common stock (25,907 shares). The $5.25 million interim
loan matures on March 31, 1998; the Company has a commitment from its principal
lender to refinance this loan at that time. Foremost manufactures and
distributes products similar to those produced and distributed by the Company in
its Paint Sundries market sector. The results of operation for Foremost have
been included since the date of acquisition.
NET SALES:
Net sales increased $1.0 million (6%) to $16.7 million due primarily to the
additive impact of Foremost which generated net sales of $1.4 million from the
date of acquisition to December 31, 1997. Adjusted for this impact, net sales
decreased $0.5 million or 3%. The Company's Custom Converting market sector
continued to experience sharp declines in net sales due to the loss of revenue
from outsourced tissue converting due to the consolidation of the large
integrated companies which develop and market these products. Tufco intends to
continue its strategy of replacing sales from tissue converting services with
sales of its own tissue and towel products sold for Away-From-Home use. Sales in
the Away-From-Home market sector were up $0.6 million or 98% for the quarter.
Adjusted for the impact of Foremost, sales of Paint Sundry products increased
$0.5 million or 25% due to new products sold to Tufco's existing customer base.
Finally, sales of Business Imaging products decreased $0.3 million or 4% due to
uncertainty over the near-term cost of base paper stock. Costs for the grades of
paper used to produce the Company's Business Imaging products increased 23% from
August to October of 1997, but began falling back to original levels in November
and December. Company management believes that demand for Business Imaging
products declined in November and December as customers waited for prices to
return to mid-summer levels.
GROSS PROFIT:
Gross profit declined $0.3 million, or 11%, and adjusted for the Foremost
acquisition, gross profit on the Company's base business actually declined $0.6
million or 21% from the first quarter of fiscal 1997. Margins declined from
19.1% in fiscal 1997 to 16.0% in fiscal 1998. The principal cause for the
decline was the sharp reduction in Custom Converting sales which primarily
affected the Company's Green Bay operation. The Company was unable to decrease
Green Bay operating costs to compensate for the decline in sales for that
division. Additionally, higher costs for paper used to produce the Company's
Business Imaging products resulted in lower margins as the Company was unable to
pass the full impact of the temporary increase on it its customers.
OPERATING EXPENSES:
Operating expenses increased $0.1 million or 5% versus the same period of fiscal
1997. Adjusted for the impact of Foremost, operating expenses actually declined
$0.1 million for the quarter. The primary cause for the decline is lower
compensation expense due to reduced incentive compensation and to lower
headcount.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CONTINUED
OPERATING INCOME:
Operating income declined $0.4 million or 36%, to $0.8 million for the first
quarter of fiscal 1998 due primarily to lower sales and gross profit from tissue
converting services, and from lower gross profit from Business Imaging products
due to higher raw material costs during the first quarter of fiscal 1998.
INTEREST EXPENSE:
Interest expense showed no change from fiscal year 1997, remaining at $0.2
million for the period ended December 31, 1998. However, the debt incurred to
facilitate the Foremost acquisition ($5.25 million) resulted in interest expense
of $55,000 in the first quarter of fiscal 1998. Adjusted for this fact, interest
expense decreased 25% from the first quarter of fiscal 1997 due to reduced
borrowings.
NET INCOME AND EARNINGS PER SHARE:
For the quarter ended December 31, 1997, net income decreased $0.3 million (44%)
compared to fiscal 1997 and fully diluted earnings per share decreased $0.06 or
46%. The decline is the result of lower sales of Custom Converting services
combined with lower Business Imaging gross margins due to raw material cost
increases.
LIQUIDITY AND CAPITAL RESOURCES:
For the quarter ended December 31,1997, the Company used $0.6 million to fund
operating activities. The principal use of cash for the first quarter of fiscal
1998 was for the purchase of inventories. The Company's Business Imaging
inventories were approximately $1.0 million higher at September 30, 1997 due to
uncertainties over the near term cost of raw materials. As raw materials costs
stabilize, management plans to reduce inventories.
Net cash used in investing activities was $6.2 million for the quarter ended
December 31, 1997, of which $5.5 million was attributable to the acquisition of
Foremost, and $0.7 million was used to acquire production equipment.
Net Cash provided by financing activities was $6.8 million for the first quarter
of fiscal 1997. The Company borrowed $5.25 million and issued $0.25 million in
the Company's common stock to finance the acquisition of Foremost. In addition,
the Company borrowed funds under its working capital line of credit to
facilitate the purchase of inventory.
Management projects that, with the exception of the Foremost acquisition, cash
flow from operations will be sufficient to fund its capital needs for fiscal
1998 and does not anticipate any significant increase in borrowings during the
year.
As of February 10, 1998, the Company had approximately $2.4 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
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CONTINUED
FORWARD LOOKING STATEMENTS:
Management's discussion of the Company's 1998 quarterly periods in comparison to
1997, contains forward-looking statements regarding current expectations, risks
and uncertainties for future periods. The actual results could differ materially
from those discussed here. As well as those factors discussed in this report,
other factors that could cause or contribute to such differences include, among
other items, significant changes in the cost of base paper stock, competition in
the Company's product areas, or an inability of management to successfully
reduce operating expenses in relation to net sales without damaging the
long-term direction of the Company. Therefore, the condensed financial data for
the periods presented may not be indicative of the Company's future financial
condition or results of operations.
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
The Company filed a Form 8-K dated November 13, 1997 with the Commission on
November 26, 1997, which Form 8-K related to the acquisition of all of the
stock of Foremost Manufacturing, Inc.
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: February 16, 1997 /s/ Louis LeCalsey, III
---------------------------------------
Louis LeCalsey, III
Chief Executive Officer
Date: February 16, 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
NUMBER EXHIBIT
- ------- -------
<S> <C>
27 Financial Date Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 779,534
<SECURITIES> 0
<RECEIVABLES> 8,241,022
<ALLOWANCES> 0
<INVENTORY> 10,801,245
<CURRENT-ASSETS> 20,571,276
<PP&E> 17,296,923
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,718,210
<CURRENT-LIABILITIES> 8,056,517
<BONDS> 0
0
0
<COMMON> 44,936
<OTHER-SE> 32,270,745
<TOTAL-LIABILITY-AND-EQUITY> 56,718,210
<SALES> 16,690,216
<TOTAL-REVENUES> 16,690,216
<CGS> 14,020,278
<TOTAL-COSTS> 14,020,278
<OTHER-EXPENSES> 1,908,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 222,747
<INCOME-PRETAX> 553,152
<INCOME-TAX> 220,844
<INCOME-CONTINUING> 332,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 332,308
<EPS-PRIMARY> .08
<EPS-DILUTED> .07
</TABLE>
