UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2013
¨ | 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 0-21018
TUFCO TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware | | 39-1723477 |
(State or other jurisdiction of
incorporation or organization) | | (IRS Employer
ID No.) |
PO BOX 23500 Green Bay, WI 54305
(Address of principal executive offices)(Zip code)
(920) 336-0054
(Registrant’s telephone number, including area code)
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | | ¨ | | Accelerated filer | | ¨ |
| | | |
Non-accelerated filer | | ¨ (Do not check if a smaller reporting company) | | Smaller Reporting Company | | þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
Indicate the number of shares outstanding of each or the issuer’s classes of common stock, as of the latest practicable date.
Class | | Outstanding as of August 14, 2013 | |
Common Stock, par value $0.01 per share | | | 4,308,947 | |
TUFCO TECHNOLOGIES, INC.
Index
2
PART I. FINANCIAL INFORMATION
ITEM 1. | Condensed Consolidated Financial Statements |
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30,
2013 | | | September 30,
2012 | |
Assets | | | | | | | |
CURRENT ASSETS: | | | | | | | |
Cash | $ | 6,888 | | | $ | 8,320 | |
Accounts receivable-net | | 13,002,551 | | | | 16,456,478 | |
Inventories-net | | 14,554,277 | | | | 17,450,360 | |
Prepaid expenses and other current assets | | 403,538 | | | | 116,257 | |
Income taxes receivable | | 23,359 | | | | 23,359 | |
Deferred income taxes | | 411,658 | | | | 411,658 | |
Total current assets | | 28,402,271 | | | | 34,466,432 | |
PROPERTY, PLANT AND EQUIPMENT–Net | | 15,116,975 | | | | 15,847,460 | |
GOODWILL | | 7,211,575 | | | | 7,211,575 | |
OTHER ASSETS–Net | | 136,558 | | | | 130,422 | |
TOTAL | $ | 50,867,379 | | | $ | 57,655,889 | |
Liabilities and Stockholders’ Equity | | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Revolving line of credit | $ | 2,159,981 | | | $ | 7,279,718 | |
Current portion of note payable | | 286,368 | | | | 274,309 | |
Accounts payable | | 6,664,299 | | | | 10,618,255 | |
Accrued payroll, vacation and payroll taxes | | 494,835 | | | | 614,740 | |
Other current liabilities | | 659,909 | | | | 670,778 | |
Total current liabilities | | 10,265,392 | | | | 19,457,800 | |
LONG-TERM PORTION OF NOTE PAYABLE | | 277,332 | | | | 493,641 | |
DEFERRED INCOME TAXES | | 2,839,031 | | | | 1,988,620 | |
COMMITMENTS AND CONTINGENCIES | | | | | | | |
STOCKHOLDERS’ EQUITY: | | | | | | | |
Common stock, $.01 par value – 9,000,000 shares authorized; 4,708,741 shares issued | | 47,087 | | | | 47,087 | |
Non-voting common stock, $.01 par value – 2,000,000 shares authorized and unissued | | — | | | | — | |
Preferred stock, $.01 par value – 1,000,000 shares authorized and unissued | | — | | | | — | |
Additional paid-in capital | | 25,641,474 | | | | 25,607,867 | |
Retained earnings | | 13,954,520 | | | | 12,218,331 | |
Treasury stock – 399,794 common shares at cost | | (2,157,457 | ) | | | (2,157,457 | ) |
Total stockholders’ equity | | 37,485,624 | | | | 35,715,828 | |
TOTAL | $ | 50,867,379 | | | $ | 57,655,889 | |
3
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| THREE MONTHS ENDED
June 30, | | | NINE MONTHS ENDED
June 30, | |
| 2013 | | | 2012 | | | 2013 | | | 2012 | |
NET SALES | $ | 24,819,861 | | | $ | 28,528,365 | | | $ | 77,335,014 | | | $ | 78,344,052 | |
COST OF SALES | | 21,986,073 | | | | 25,954,772 | | | | 70,149,473 | | | | 74,613,393 | |
GROSS PROFIT | | 2,833,788 | | | | 2,573,593 | | | | 7,185,541 | | | | 3,730,659 | |
| | | | | | | | | | | | | | | |
OPERATING EXPENSES: | | | | | | | | | | | | | | | |
Selling, general & administrative | | 1,449,438 | | | | 1,472,053 | | | | 4,281,084 | | | | 4,263,191 | |
OPERATING INCOME (LOSS) | | 1,384,350 | | | | 1,101,540 | | | | 2,904,457 | | | | (532,532 | ) |
OTHER (EXPENSE) INCOME: | | | | | | | | | | | | | | | |
Interest expense | | (36,768 | ) | | | (69,133 | ) | | | (144,333 | ) | | | (206,397 | ) |
Other income | | 55 | | | | 71 | | | | 8,916 | | | | 8,004 | |
INCOME (LOSS) BEFORE INCOME TAXES | | 1,347,637 | | | | 1,032,478 | | | | 2,769,040 | | | | (730,925 | ) |
INCOME TAX EXPENSE (BENEFIT) | | 502,668 | | | | 385,114 | | | | 1,032,851 | | | | (272,634 | ) |
NET INCOME (LOSS) | $ | 844,969 | | | $ | 647,364 | | | $ | 1,736,189 | | | $ | (458,291 | ) |
BASIC INCOME (LOSS) PER SHARE: | | | | | | | | | | | | | | | |
Net Income (Loss) | $ | 0.20 | | | $ | 0.15 | | | $ | 0.40 | | | $ | (0.11 | ) |
DILUTED INCOME (LOSS) PER SHARE: | | | | | | | | | | | | | | | |
Net Income (Loss) | $ | 0.20 | | | $ | 0.15 | | | $ | 0.40 | | | $ | (0.11 | ) |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | | | | | | | | | | | |
Basic | | 4,308,947 | | | | 4,308,947 | | | | 4,308,947 | | | | 4,308,947 | |
Diluted | | 4,328,894 | | | | 4,309,721 | | | | 4,321,566 | | | | 4,308,947 | |
See notes to condensed consolidated financial statements.
4
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| NINE MONTHS ENDED
June 30, | |
| 2013 | | | 2012 | |
OPERATING ACTIVITIES | | | | | | | |
Net income (loss) | $ | 1,736,189 | | | $ | (458,291 | ) |
Noncash items in net income (loss): | | | | | | | |
Depreciation and amortization of property, plant and equipment | | 2,140,684 | | | | 2,214,658 | |
Deferred income taxes | | 850,411 | | | | (285,690 | ) |
Gain on sale of assets | | (15,897 | ) | | | — | |
Stock-based compensation expense | | 33,607 | | | | 33,023 | |
Changes in operating working capital: | | | | | | | |
Accounts receivable | | 3,453,927 | | | | 501,973 | |
Inventories | | 2,896,083 | | | | (2,603,280 | ) |
Prepaid expenses and other assets | | (293,417 | ) | | | 629,301 | |
Accounts payable | | (3,867,069 | ) | | | 985,282 | |
Accrued and other current liabilities | | (130,774 | ) | �� | | 100,265 | |
Net cash provided by operating activities | | 6,803,744 | | | | 1,117,241 | |
INVESTING ACTIVITIES | | | | | | | |
Additions to property, plant and equipment | | (1,502,083 | ) | | | (1,564,460 | ) |
Proceeds from disposals of assets | | 20,894 | | | | — | |
Net cash used in investing activities | | (1,481,189 | ) | | | (1,564,460 | ) |
FINANCING ACTIVITIES | | | | | | | |
Net (repayments) borrowings of revolving debt | | (5,119,737 | ) | | | 637,067 | |
Principal payments of note payable | | (204,250 | ) | | | (192,864 | ) |
Net cash (used in) provided by financing activities | | (5,323,987 | ) | | | 444,203 | |
| | | | | | | |
NET DECREASE IN CASH | | (1,432 | ) | | | (3,016 | ) |
CASH: | | | | | | | |
Beginning of period | | 8,320 | | | | 8,300 | |
End of period | $ | 6,888 | | | $ | 5,284 | |
NONCASH SUPPLEMENTAL INFORMATION: | | | | | | | |
Accounts payable incurred for the purchase of equipment | $ | 33,794 | | | $ | — | |
5
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months and nine months ended June 30, 2013 and 2012
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared by Tufco Technologies, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of the Company, include all adjustments necessary for a fair statement of results for each period shown (unless otherwise noted herein, all adjustments are of a normal recurring nature). Operating results for the three and nine month periods ended June 30, 2013 are not necessarily indicative of results expected for the remainder of the year. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations. The Company believes that the disclosures made are adequate to prevent the financial information given from being misleading. The Company’s fiscal 2012 Annual Report on Form 10-K contains a summary of significant accounting policies and includes the consolidated financial statements and the notes to the consolidated financial statements. The same accounting policies are followed in the preparation of interim reports. The Company’s condensed consolidated balance sheet at June 30, 2013 was derived from the audited consolidated balance sheet. It is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended September 30, 2012.
2. Financial Instruments
Financial instruments consist of cash, receivables, payables, debt, and letters of credit. Their carrying values are estimated to approximate their fair values unless otherwise indicated due to their short maturities, variable interest rates plus a margin applicable to the credit risk associated with the revolving line of credit and comparable borrowing costs for equipment loans.
3. Earnings Per Share
Basic earnings per share is computed using the weighted average number of common shares outstanding. Diluted earnings per share includes common stock equivalents from dilutive stock options outstanding during the year, the effect of which was 19,947 shares for the three months ended June 30, 2013 and 774 shares for the three months ended June 30, 2012. For the nine months ended June 30, 2013, the common stock equivalents from dilutive stock options outstanding were 12,619 shares. There was no effect for the nine months ended June 30, 2012. During the three months ended June 30, 2013 and 2012, options to purchase 123,650 and 242,725 shares, respectively, were excluded from the diluted earnings per share computation as the effects of including such options would have been anti-dilutive. During the nine months ended June 30, 2013 and 2012, options to purchase 123,650 and 238,725 shares, respectively, were excluded from the diluted earnings per share computation as the effects of including such options would have been anti-dilutive.
4. Inventories
Inventories consist of the following:
| June 30,
2013 | | | September 30,
2012 | |
Raw materials | $ | 11,666,398 | | | $ | 11,857,627 | |
Finished goods | | 2,887,879 | | | | 5,592,733 | |
Total inventories | $ | 14,554,277 | | | $ | 17,450,360 | |
5. Goodwill
As previously disclosed, the Company tests goodwill annually at the reporting unit level for impairment as of July 1. The operating segments herein also represent the Company’s reporting units for goodwill purposes. The Company uses a discounted cash flow analysis to estimate reporting unit fair values and also considers multiples of relevant companies. In determining the fair values of the reporting units, the Company was required to make certain assumptions and cannot predict what future events may occur that could adversely affect the reported value of its goodwill.
The Company saw lower sales volumes in the third quarter and first nine months of fiscal 2013 compared to the same periods of fiscal 2012. The Company achieved improved profitability in the first nine months of fiscal 2013 over the same period in fiscal 2012.
6
Notes to condensed consolidated financial statements – (continued)
Management has an ongoing focus to increase sales and reduce operating costs at both its Green Bay Contract Manufacturing and Newton Business Imaging segment operations. Additionally, the Company continued to reduce borrowings under its credit facility and has reduced bank debt by over $5.0 million in the last nine months.
Management determined that no indicators of impairment existed during the three and nine months ended June 30, 2013 to indicate that the annual goodwill impairment test should be accelerated. However, there can be no assurance that valuation multiples will not decline, growth rates will not be lower than expected, discount rates will not increase, or the projected cash flows of the individual reporting units will not decline.
6. Revolving Line of Credit and Note Payable
The Company amended its credit agreement effective June 24, 2013 to extend its maturity date to December 31, 2013 and modify the required level of after tax net income under its financial covenant in fiscal year 2013. However, there can be no assurances that the Company will be able to extend or refinance its credit facility upon expiration or maintain such a specified minimum level of after tax net income in such year. The amount available for borrowing under the revolving line of credit facility is $10.5 million subject to borrowing base limitations as defined in the agreement. The Company’s revolving line of credit is classified as a current liability on the accompanying balance sheets because provisions in the credit agreement include deposit account requirements and a material adverse effect covenant which is subjective in nature. Borrowings under the credit facility bear interest at a rate equal to LIBOR plus 2.50%. The Company is required to pay a non-usage fee of .50% per annum on the unused portion of the facility.
As of June 30, 2013, the Company had approximately $8.3 million available and $2.2 million outstanding under its revolving credit line pursuant to its credit agreement.
7. Income Taxes
Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due, plus deferred taxes related primarily to differences between the basis of assets and liabilities for financial and income tax reporting. Deferred tax assets include recognition of operating losses that are available to offset future taxable income. Valuation allowances are recorded when, based on an evaluation of the available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax asset will not be realized.
The Company has not recorded a valuation allowance against its deferred tax assets as of June 30, 2013 based on its evaluation of the available evidence, which includes consideration of reversal patterns for long-term deferred tax liabilities and the profit generated in the first nine months of fiscal 2013 as well as the third and fourth quarters of fiscal 2012. During the first nine months of fiscal 2013, the Company generated taxable income which utilized net operating loss carryforwards for the period. The assessment of a valuation allowance is an estimate. Changes in future taxable income or loss can result in change to the assessment of a valuation allowance. In addition, if net operating loss carryforwards will not reverse and be realized over the same long-term period as the difference for depreciation on property and equipment, a change in the assessment of a valuation allowance could occur. The Company’s effective tax rate approximates the statutory tax rates in the jurisdictions in which it files.
8. Segment Information
The Company manufactures and distributes custom paper-based and nonwoven products, and provides contract manufacturing, specialty printing and related services on these types of products. The Company separates its operations and prepares information for management use by the market segment aligned with the Company’s products and services. Corporate costs, such as interest income, interest expense and income tax expense (benefit) are recorded under the Corporate and Other segment. Such market segment information is summarized below. The Contract Manufacturing segment provides a variety of products and services to multinational consumer products companies. The Business Imaging segment manufactures and distributes printed and unprinted business imaging paper products for a variety of business needs.
External customer revenues attributed to foreign countries were approximately 5% and 3% of total sales for the three months ended June 30, 2013 and 2012, respectively and were approximately 3% of total sales for the nine months ended June 30, 2013 and 2012. The revenues are attributed to countries in Europe and to Japan. There are no long-lived assets located outside of the United States at June 30, 2013 and 2012.
7
Notes to condensed consolidated financial statements – (continued)
Three Months Ended June 30, 2013 | | Contract
Manufacturing | | | Business
Imaging | | | Corporate
and Other | | | Consolidated | |
Net sales | | $ | 18,855,375 | | | $ | 5,964,486 | | | $ | — | | | $ | 24,819,861 | |
Gross profit | | | 2,195,472 | | | | 638,316 | | | | — | | | | 2,833,788 | |
Operating income (loss) | | | 1,773,480 | | | | 361,830 | | | | (750,960 | ) | | | 1,384,350 | |
Depreciation and amortization expense | | | 677,510 | | | | 32,013 | | | | — | | | | 709,523 | |
Capital expenditures | | | 223,976 | | | | 0 | | | | — | | | | 223,976 | |
Three Months Ended June 30, 2012 | | Contract
Manufacturing | | | Business
Imaging | | | Corporate
and Other | | | Consolidated | |
Net sales | | $ | 22,084,775 | | | $ | 6,443,590 | | | $ | — | | | $ | 28,528,365 | |
Gross profit | | | 2,161,526 | | | | 412,067 | | | | — | | | | 2,573,593 | |
Operating income (loss) | | | 1,825,022 | | | | 71,748 | | | | (795,230 | ) | | | 1,101,540 | |
Depreciation and amortization expense | | | 704,981 | | | | 36,624 | | | | — | | | | 741,605 | |
Capital expenditures | | | 391,163 | | | | — | | | | — | | | | 391,163 | |
Nine Months Ended June 30, 2013 | | Contract
Manufacturing | | | Business
Imaging | | | Corporate
and Other | | | Consolidated | |
Net sales | | $ | 59,432,465 | | | $ | 17,902,549 | | | $ | — | | | $ | 77,335,014 | |
Gross profit | | | 5,643,378 | | | | 1,542,163 | | | | — | | | | 7,185,541 | |
Operating income (loss) | | | 4,279,645 | | | | 752,114 | | | | (2,127,302 | ) | | | 2,904,457 | |
Depreciation and amortization expense | | | 2,042,385 | | | | 98,299 | | | | — | | | | 2,140,684 | |
Capital expenditures | | | 1,502,083 | | | | 0 | | | | — | | | | 1,502,083 | |
Nine Months Ended June 30, 2012 | | Contract
Manufacturing | | | Business
Imaging | | | Corporate
and Other | | | Consolidated | |
Net sales | | $ | 57,970,798 | | | $ | 20,373,254 | | | $ | — | | | $ | 78,344,052 | |
Gross profit | | | 2,879,419 | | | | 851,240 | | | | — | | | | 3,730,659 | |
Operating income (loss) | | | 1,844,729 | | | | (162,371 | ) | | | (2,214,890 | ) | | | (532,532 | ) |
Depreciation and amortization expense | | | 2,104,203 | | | | 110,210 | | | | 245 | | | | 2,214,658 | |
Capital expenditures | | | 1,559,752 | | | | 4,708 | | | | — | | | | 1,564,460 | |
June 30, 2013 | | Contract
Manufacturing | | | Business
Imaging | | | Corporate
and Other | | | Consolidated | |
Assets: | | | | | | | | | | | | | | | | |
Inventories-net | | $ | 9,310,304 | | | $ | 5,243,973 | | | $ | — | | | $ | 14,554,277 | |
Property, plant and equipment–net | | | 13,311,287 | | | | 1,803,637 | | | | 2,051 | | | | 15,116,975 | |
Accounts receivable and other (including goodwill) | | | 14,868,265 | | | | 5,749,400 | | | | 578,462 | | | | 21,196,127 | |
Total assets | | $ | 37,489,856 | | | $ | 12,797,010 | | | $ | 580,513 | | | $ | 50,867,379 | |
September 30, 2012 | | Contract
Manufacturing | | | Business
Imaging | | | Corporate
and Other | | | Consolidated | |
Assets: | | | | | | | | | | | | | | | | |
Inventories-net | | $ | 12,989,387 | | | $ | 4,460,973 | | | $ | — | | | $ | 17,450,360 | |
Property, plant and equipment–net | | | 13,943,270 | | | | 1,902,139 | | | | 2,051 | | | | 15,847,460 | |
Accounts receivable and other (including goodwill) | | | 17,787,992 | | | | 5,996,318 | | | | 573,759 | | | | 24,358,069 | |
Total assets | | $ | 44,720,649 | | | $ | 12,359,430 | | | $ | 575,810 | | | $ | 57,655,889 | |
8
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
Management’s discussion of the Company’s fiscal 2013 results in comparison to fiscal 2012 contains forward-looking statements regarding current expectations, risks and uncertainties for future periods. The actual results could differ materially from those discussed herein due to a variety of factors such as the Company’s ability to increase sales, changes in customer demand for its products, cancellation or non renewal of production agreements by significant customers including two Contract Manufacturing customers it depends upon for a significant portion of its business, its ability to meet competitors’ prices on products to be sold under these production agreements, the effects of the economy in general, the Company’s inability to benefit from any general economic improvements, react to material increases in the cost of raw materials or competition in the Company’s product areas, the ability of management to successfully reduce operating expenses, the Company’s ability to increase sales and earnings as a result of new projects and services, the Company’s ability to successfully install new equipment on a timely basis and to improve productivity through equipment upgrades, the Company’s ability to continue to produce new products, the Company’s ability to comply with the financial covenants in its credit facility, the Company’s ability to extend or refinance its credit facility upon expiration, the Company’s ability to sustain profitable operations, the Company’s ability to successfully attract new customers through its sales initiatives and strengthening its new business development efforts, the Company’s ability to improve the run rates for its products, and changes to regulations governing its operations or other factors beyond the Company’s control. Therefore, the financial data for the periods presented may not be indicative of the Company’s future financial condition or results of operations.
General Information:
Tufco is a leader in providing diversified contract wet wipe converting and printing, as well as specialty printing and finishing services and business imaging products. The Company works closely with its customers to develop products or perform services, which meet or exceed the customers’ quality standards, and then uses the Company’s operating efficiencies and technical expertise to supplement or replace its customers’ own production and distribution functions.
The Company’s technical proficiencies include wide web flexographic printing, wet wipe converting, hot melt adhesive lamination, folding, integrated downstream packaging, quality and microbiological process management, and the manufacture and distribution of business imaging paper products.
The Company has manufacturing operations in Green Bay, WI, which is ISO certified, and Newton, NC. The Company’s corporate headquarters, including corporate support services, are located in Green Bay, WI.
Results of Operations:
Condensed operating data, percentages of net sales and period-to-period changes in these items are as follows (dollars in thousands):
| Three Months Ended
June 30, | | | Period-to-Period
Change | | | Nine Months Ended
June 30, | | | Period-to-Period
Change | |
| 2013 | | | 2012 | | | $ | | | % | | | 2013 | | | 2012 | | | $ | | | % | |
Net Sales | $ | 24,820 | | | $ | 28,528 | | | $ | (3,708 | ) | | | (13 | %) | | $ | 77,335 | | | $ | 78,344 | | | $ | (1,009 | ) | | | (1 | %) |
Gross Profit | | 2,834 | | | | 2,573 | | | | 261 | | | | 10 | % | | | 7,186 | | | | 3,731 | | | | 3,455 | | | | 93 | % |
| | 11.4 | % | | | 9.0 | % | | | | | | | | | | | 9.3 | % | | | 4.8 | % | | | | | | | | |
Operating Expenses | | 1,449 | | | | 1,472 | | | | (23 | ) | | | (2 | %) | | | 4,281 | | | | 4,263 | | | | 18 | | | | 0.4 | % |
| | 5.8 | % | | | 5.2 | % | | | | | | | | | | | 5.5 | % | | | 5.4 | % | | | | | | | | |
Operating Income (Loss) | | 1,384 | | | | 1,101 | | | | 283 | | | | 26 | % | | | 2,904 | | | | (533 | ) | | | 3,437 | | | | NM | |
| | 5.6 | % | | | 3.9 | % | | | | | | | | | | | 3.8 | % | | | (0.7 | %) | | | | | | | | |
Interest and Other–Net | | 37 | | | | 69 | | | | (32 | ) | | | (46 | %) | | | 135 | | | | 198 | | | | (63 | ) | | | (32 | %) |
| | 0.1 | % | | | 0.2 | % | | | | | | | | | | | 0.2 | % | | | 0.3 | % | | | | | | | | |
Income (Loss) Before Income Taxes | | 1,348 | | | | 1,032 | | | | 316 | | | | 31 | % | | | 2,769 | | | | (731 | ) | | | 3,500 | | | | NM | |
| | 5.4 | % | | | 3.6 | % | | | | | | | | | | | 3.6 | % | | | (0.9 | %) | | | | | | | | |
Income Tax Expense (Benefit) | | 503 | | | | 385 | | | | 118 | | | | 31 | % | | | 1,033 | | | | (273 | ) | | | 1,306 | | | | NM | |
| | 2.0 | % | | | 1.3 | % | | | | | | | | | | | 1.3 | % | | | (0.3 | %) | | | | | | | | |
Net Income (Loss) | $ | 845 | | | $ | 647 | | | | 198 | | | | 31 | % | | $ | 1,736 | | | $ | (458 | ) | | | 2,194 | | | | NM | |
| | 3.4 | % | | | 2.3 | % | | | | | | | | | | | 2.2 | % | | | (0.6 | %) | | | | | | | | |
Basic and Diluted Income (Loss) Per Share | $ | 0.20 | | | $ | 0.15 | | | | | | | | | | | $ | 0.40 | | | $ | (0.11 | ) | | | | | | | | |
NM = Not Meaningful
9
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—(continued)
| | Three Months Ended June 30, | | | Period-to-Period
Change | |
| | 2013 | | | 2012 | | |
Net Sales | | Amount | | | % of
Total | | | Amount | | | % of
Total | | | $ | | | % | |
Contract Manufacturing | | $ | 18,855 | | | | 76 | % | | $ | 22,085 | | | | 77 | % | | $ | (3,230 | ) | | | (15 | %) |
Business Imaging | | | 5,965 | | | | 24 | % | | | 6,443 | | | | 23 | | | | (478 | ) | | | (7 | %) |
Net Sales | | $ | 24,820 | | | | 100 | % | | $ | 28,528 | | | | 100 | % | | $ | (3,708 | ) | | | (13 | %) |
| | 2013 | | | 2012 | | | Period-to-Period
Change | |
Gross Profit | | Amount | | | Margin
% | | | Amount | | | Margin
% | | | $ | | | % | |
Contract Manufacturing | | $ | 2,196 | | | | 12 | % | | $ | 2,161 | | | | 10 | % | | $ | 35 | | | | 2 | % |
Business Imaging | | | 638 | | | | 11 | % | | | 412 | | | | 6 | % | | | 226 | | | | 55 | % |
Gross Profit | | $ | 2,834 | | | | 11 | % | | $ | 2,573 | | | | 9 | % | | $ | 261 | | | | 10 | % |
| | Nine Months Ended June 30, | | | Period-to-Period
Change | |
| | 2013 | | | 2012 | | |
Net Sales | | Amount | | | % of
Total | | | Amount | | | % of
Total | | | $ | | | % | |
Contract Manufacturing | | $ | 59,432 | | | | 77 | % | | $ | 57,971 | | | | 74 | % | | $ | 1,461 | | | | 3 | % |
Business Imaging | | | 17,903 | | | | 23 | % | | | 20,373 | | | | 26 | | | | (2,470 | ) | | | (12 | %) |
Net Sales | | $ | 77,335 | | | | 100 | % | | $ | 78,344 | | | | 100 | % | | $ | (1,009 | ) | | | (1 | %) |
| | 2013 | | | 2012 | | | Period-to-Period
Change | |
Gross Profit | | Amount | | | Margin
% | | | Amount | | | Margin
% | | | $ | | | % | |
Contract Manufacturing | | $ | 5,644 | | | | 9 | % | | $ | 2,880 | | | | 5 | % | | $ | 2,764 | | | | 96 | % |
Business Imaging | | | 1,542 | | | | 9 | % | | | 851 | | | | 4 | % | | | 691 | | | | 81 | % |
Gross Profit | | $ | 7,186 | | | | 9 | % | | $ | 3,731 | | | | 5 | % | | $ | 3,455 | | | | 93 | % |
Net Sales:
Consolidated net sales decreased $3.7 million (13%) in the third quarter of fiscal 2013 when compared to the same period last year. This was due to a decrease of $3.2 million (15%) in the Contract Manufacturing segment and a decrease of $0.5 million (7%) in the Business Imaging segment.
For the nine months ended June 30, 2013, net sales decreased $1.0 million (1%) when compared to the first nine months of fiscal 2012. This was due to an increase of $1.5 million (3%) in the Contract Manufacturing segment offset by a decrease of $2.5 million (12%) in the Business Imaging segment.
The Company depends on two Contract Manufacturing customers for a significant portion of its revenue. One customer accounted for 12% of the Company’s total net sales in the third quarter of fiscal 2013 compared to 16% for the same period in fiscal 2012. This same customer accounted for 10% of the Company’s total net sales in the first nine months of fiscal 2013, compared to 17% for the same period last year. The current manufacturing contract with this customer expired June 2013. The Company is currently negotiating renewal terms with this customer. The other significant customer accounted for 36% of the Company’s total net sales in the third quarter of fiscal 2013 compared to 33% for the same period in fiscal 2012. This customer accounted for 41% of the Company’s total net sales in the first nine months of fiscal 2013 compared to 29% for the same period last year. An extension to the manufacturing contract with this customer expires August 31, 2013. The Company is currently negotiating renewal terms with this customer.
Gross Profit:
Consolidated gross profit increased $261,000 (10%) for the third quarter of fiscal 2013 when compared to the third quarter of fiscal 2012, consisting of an increase of $35,000 (2%) in the Contract Manufacturing segment and an increase of $226,000 (55%) in the Business Imaging segment.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—(continued)
For the nine months ended June 30, 2013, gross profit increased $3.5 million (93%) when compared to the same period last year. This was due to an increase of $2.8 million (96%) in the Contract Manufacturing segment and an increase of $0.7 million (81%) in the Business Imaging segment.
The Company saw lower sales volumes in the third quarter and first nine months of fiscal 2013 compared to the same periods of fiscal 2012. The Company achieved improved profitability in the first nine months of fiscal 2013 over the same period in fiscal 2012. Management has an ongoing focus to increase sales and reduce operating costs at both its Green Bay Contract Manufacturing and Newton Business Imaging segment operations. Additionally, the Company continued to reduce borrowings under its credit facility and has reduced bank debt by over $5.0 million in the last nine months.
Operating Expenses:
Selling, general and administrative expenses decreased $23,000 (2%) for the third quarter of fiscal 2013 when compared to the same period in fiscal 2012, and increased $18,000 (0.4%) when compared to the first nine months of fiscal 2012.
Interest Expense and Other Income net:
Interest expense and other income decreased $32,000 to $37,000 (46%) for the third quarter of fiscal 2013 when compared to the same period in fiscal 2012 and decreased $63,000 to $135,000 (32%) for the first nine months of fiscal 2013 when compared to the same period in fiscal 2012 due to lower average debt outstanding and lower interest rates on borrowings.
Income Tax Expense (Benefit):
Income tax expense for the third quarter of fiscal 2013 was $503,000, compared to income tax expense of $385,000 for the same period of fiscal 2012. For the first nine months of fiscal 2013, the Company had income tax expense of $1,033,000 compared to an income tax benefit of $273,000 for the same period of fiscal 2012. The income tax expense for the three and nine months ended June 30, 2013 and three months ended June 30, 2012 was the result of increased profits which utilized net operating loss carryforwards for the period. The income tax benefit for the nine months ended June 30, 2012 represents a net operating loss carryforward that the Company expects to realize in the future.
Net Income (Loss):
The Company reported net income of $845,000 [per share: $0.20 basic and diluted] for the third quarter of fiscal 2013, versus net income of $647,000 [per share: $0.15 basic and diluted] for the same period in fiscal 2012. For the nine months ended June 30, 2013, net income was $1,736,000 [per share: $0.40 basic and diluted] compared to a net loss of $458,000 [per share: $(0.11) basic and diluted] for the first nine months of fiscal 2012.
Liquidity and Capital Resources:
Cash flows provided by operating activities were $6.8 million through the first nine months of fiscal 2013, compared to $1.1 million for the same period last year. Accounts receivable decreased $3.5 million and inventories decreased $2.9 million offset by a decrease in accounts payable of $3.9 million for the first nine months of fiscal 2013. Depreciation was $2.1 million and $2.2 million for the first nine months of fiscal 2013 and 2012, respectively.
Net cash used in investing activities was $1.5 million for the first nine months of fiscal 2013, primarily related to capital expenditures to support ongoing operational needs.
Net cash used in financing activities was $5.3 million for the first nine months of fiscal 2013. This consisted of $5.1 million paid on the Company’s revolving credit line and $0.2 million used for principal payments on a note related to the purchase of equipment made in June, 2010.
The Company’s primary need for capital resources is to finance inventories, accounts receivable and capital expenditures. As of June 30, 2013, cash recorded on the balance sheet was $6,888.
The Company amended its credit agreement effective June 24, 2013 to extend its maturity date to December 31, 2013 and modify the required level of after tax net income under its financial covenant in fiscal year 2013. However, there can be no assurances that the Company will be able to extend or refinance its credit facility upon expiration or maintain such a specified minimum level of after tax net income in such year. The amount available for borrowing under the revolving line of credit facility is $10.5 million subject to borrowing base limitations as defined in the agreement. The Company’s revolving line of credit is classified as a current liability on
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—(continued)
the accompanying balance sheets because provisions in the credit agreement include deposit account requirements and a material adverse effect covenant which is subjective in nature. It is also the Company’s policy to classify borrowings under the revolving line of credit as current based on how it manages working capital. Borrowings under the credit facility bear interest at a rate equal to LIBOR plus 2.50%. The Company is required to pay a non-usage fee of .50% per annum on the unused portion of the facility. The Commercial Security Agreement grants to the lender a security interest in all of the accounts and inventory of Tufco, L.P., a subsidiary of the Company.
As of August 13, 2013, the Company had approximately $9.3 million available and $1.2 million outstanding under its revolving credit line pursuant to its credit agreement.
Management believes that the Company’s operating cash flow, together with amounts available under its credit agreement, are adequate to service the Company’s current obligations as of June 30, 2013, assuming the Company is able to extend or refinance its credit agreement upon expiration.
The Company intends to retain earnings to finance future operations and expansion and does not expect to pay any dividends within the foreseeable future.
Off Balance Sheet Arrangements:
The Company has no Off Balance Sheet Arrangements (as defined in Item 303(a)(4) of Regulation S-K).
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
ITEM 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) were effective as of the end of the Company’s fiscal quarter ended June 30, 2013.
During the fiscal quarter ended June 30, 2013, there have been no changes in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is subject to lawsuits, investigations, and potential claims arising out of the ordinary conduct of its business. The Company is not currently involved in any material litigation.
ITEM 1A. Risk Factors
A smaller reporting company is not required to provide the information required by this Item.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Mine Safety Disclosures
Not applicable
ITEM 5. Other Information
None
ITEM 6. Exhibits
31.1 | | Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934. |
| | |
31.2 | | Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934. |
| | |
32.1 | | Certification furnished pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
32.2 | | Certification furnished Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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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 14, 2013 | | /S/ JAMES F. ROBINSON |
| | | James F. Robinson |
| | | President and Chief Executive Officer |
| | | |
Date: | August 14, 2013 | | /S/ MICHAEL B. WHEELER |
| | | Michael B. Wheeler |
| | | Executive Vice President, Chief Financial Officer and Chief Operating Officer |
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