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, 2000
--------------
Commission file number 0-21018
-------
TUFCO TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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
-------------
(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 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 12, 2000
----- ---------------------------
Common Stock, par value $0.01 per share 4,434,024
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, 2000 (Unaudited) and September 30, 1999 3
Condensed Consolidated Statements of Income for the three
months and six months ended March 31, 2000 and 1999 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
six months ended March 31, 2000 and 1999 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II: OTHER INFORMATION 15
SIGNATURES 16
2
3
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, September 30,
2000 1999
------------ -------------
Assets
CURRENT ASSETS:
Cash and cash equivalents ........................................................ $ 1,381,167 $ 692,002
Restricted cash .................................................................. 31,323 20,050
Accounts receivable, net ......................................................... 12,485,389 12,721,698
Inventories ...................................................................... 9,489,280 8,248,876
Prepaid expenses and other current assets ........................................ 1,131,160 763,972
Deferred income taxes ............................................................ 447,096 447,096
Income taxes receivable .......................................................... 167,697 --
------------ ------------
Total current assets ....................................................... 25,133,112 22,893,694
PROPERTY, PLANT AND EQUIPMENT-Net ................................................... 18,481,986 16,636,756
GOODWILL -Net ....................................................................... 17,650,443 17,948,930
OTHER ASSETS- Net ................................................................... 907,748 1,601,409
------------ ------------
TOTAL ............................................................................... $ 62,173,289 $ 59,080,789
============ ============
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Current portion of long-term debt ................................................ $ 1,825,546 $ 1,902,435
Accounts payable ................................................................. 5,885,845 3,764,026
Accrued payroll, vacation and payroll taxes ...................................... 1,387,213 1,537,041
Other current liabilities ........................................................ 1,368,892 1,580,744
Income taxes payable ............................................................. -- 175,001
------------ ------------
Total current liabilities .................................................. 10,467,496 8,959,247
LONG-TERM DEBT- Less current portion ................................................ 11,846,420 12,627,136
DEFERRED INCOME TAXES ............................................................... 2,248,871 2,248,871
STOCKHOLDERS' EQUITY
Voting Common Stock: $.01 par value; 9,000,000 shares authorized;
4,512,521 and 4,498,618 shares issued, respectively .......................... 45,125 44,986
Additional paid-in capital ....................................................... 24,679,620 23,973,017
Retained earnings ................................................................ 13,509,997 11,856,772
Treasury stock at cost, 78,497 voting common shares .............................. (534,045) (534,045)
Stock purchase plan notes ........................................................ (90,195) (95,195)
------------ ------------
Total stockholders' equity .................................................. 37,610,502 32,245,535
------------ ------------
TOTAL ............................................................................ $ 62,173,289 $ 59,080,789
============ ============
See notes to condensed consolidated financial statements.
3
4
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
March 31, March 31,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
NET SALES ............................ $ 19,783,393 $ 18,518,941 $ 40,484,209 $ 36,859,794
COST OF SALES ........................ 16,366,029 15,717,631 33,413,131 31,084,391
------------ ------------ ------------ ------------
GROSS PROFIT ......................... 3,417,364 2,801,310 7,071,078 5,775,403
OPERATING EXPENSES:
Selling, general and
administrative..................... 1,806,389 1,769,976 3,678,470 3,780,948
Amortization and other post-
acquisition expenses .............. 269,391 244,322 514,410 478,887
------------ ------------ ------------ ------------
OPERATING INCOME ..................... 1,341,584 787,012 2,878,198 1,515,568
OTHER INCOME (EXPENSE):
Interest expense .................. (265,764) (304,735) (505,459) (561,992)
Interest and other income (expense) 5,296 7,813 (37,136) 12,127
Gains (loss) on asset sales ....... (6,740) 25,573 288,688 331,314
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ........... 1,074,376 515,663 2,624,291 1,297,017
INCOME TAX EXPENSE ................... 397,558 180,324 971,066 492,866
------------ ------------ ------------ ------------
NET INCOME ........................... $ 676,818 $ 335,339 $ 1,653,225 $ 804,151
============ ============ ============ ============
EARNINGS PER SHARE:
Basic ............................ $ 0.15 $ 0.08 $ 0.37 $ 0.18
Diluted .......................... $ 0.15 $ 0.08 $ 0.36 $ 0.18
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic ............................ 4,428,755 4,417,596 4,425,438 4,417,596
Diluted .......................... 4,595,843 4,440,767 4,583,259 4,447,169
See notes to condensed consolidated financial statements.
4
5
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
March 31,
--------------------------
2000 1999
----------- -----------
OPERATING ACTIVITIES
Net Income ............................................... $ 1,653,225 $ 804,151
Noncash items in net income:
Depreciation and amortization ......................... 1,756,056 1,365,604
Deferred income taxes ................................. -- --
Provision for bad debts ............................... 599,597 18,248
Gains on asset sales .................................. (288,688) (331,314)
Changes in operating working capital:
Accounts receivable ................................... (363,288) (1,205,003)
Inventories ........................................... (1,240,404) (1,473,154)
Prepaid expenses and other assets ..................... 138,973 (355,927)
Accounts payable ...................................... 1,718,508 760,690
Accrued and other current liabilities ................. (361,680) (19,369)
Income taxes payable .................................. (342,698) (23,140)
----------- -----------
Net cash from (used in) operations ....................... 3,269,595 (459,214)
INVESTING ACTIVITIES
Additions to property, plant and equipment ............... (3,124,373) (1,494,967)
Proceeds from disposition of property, plant and equipment 572,820 409,550
(Decrease) increase in advances to shareholders .......... 128,259 (31,822)
Acquisition of Foremost Manufacturing, Inc. .............. -- (142,000)
Increase in restricted cash .............................. (11,273) (100)
----------- -----------
Net cash used in investing activities .................... (2,434,567) (1,259,339)
FINANCING ACTIVITIES
Repayment of long-term debt .............................. (857,605) (837,676)
Issuance of long-term debt ............................... -- 2,500,000
Decrease in stock purchase plan notes .................... 5,000 5,000
Exercise of common stock options ......................... 706,742 --
----------- -----------
Net cash from (used in) financing activities ............. (145,863) 1,667,324
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ................... 689,165 (51,229)
CASH AND CASH EQUIVALENTS:
Beginning of period ........................................ 692,002 1,006,110
----------- -----------
End of period .............................................. $ 1,381,167 $ 954,881
=========== ===========
See notes to condensed consolidated financial statements.
5
6
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
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, 1999
that are included in Form 10-K that was filed with the Securities and
Exchange Commission on December 22, 1999. Operating results for the six
month period are not necessarily indicative of results expected for the
remainder of the year.
2. INVENTORIES
Inventories consist of the following:
March 31, September 30,
2000 1999
------------- -------------
Raw materials ........... $ 5,428,356 $ 4,670,120
Finished goods .......... 4,060,924 3,578,756
------------- -------------
Total inventories ....... $ 9,489,280 $ 8,248,876
============= =============
6
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED).
3. SEGMENT INFORMATION
The Company operates in a single industry since it manufactures and
distributes custom paper-based and woven products, and provides
contract manufacturing, specialty printing and related services on
these types of products. The Company does, however, separate its
operations and prepare information for management use by the market
sectors aligned with the Company's products and services. Such market
sector information is summarized below. The Contract Manufacturing
sector provides services to large national consumer products companies
while the remaining sectors manufacture and distribute products ranging
from paper goods to paint sundries. Accounts receivable and certain
other assets are not assignable to specific sectors and, therefore, are
included in the intersector column below. In June 1999, the Company
sold its equipment and inventory related to its Away-From-Home products
and services, and has ceased selling into this market sector.
THREE MONTHS ENDED CONTRACT BUSINESS PAINT AWAY-
MARCH 31, 2000 MANUFACTURING IMAGING SUNDRIES FROM-HOME INTERSECTOR CONSOLIDATED
Net Sales $ 8,792,269 $6,231,483 $4,759,641 $ -- $ -- $ 19,783,393
Gross Profit 1,843,277 936,572 637,515 -- -- 3,417,364
Operating Income (loss) 1,320,353 577,488 (9,997) -- (546,260) 1,341,584
Assets:
Inventories 893,452 4,870,582 3,725,246 -- -- 9,489,280
Property, plant and
equipment-net 8,334,916 6,962,832 627,454 -- 2,556,784 18,481,986
Accounts receivable
and other
(including goodwill) 34,202,023 34,202,023
------------- ---------- ---------- --------- ----------- ------------
Total assets $ 9,228,368 $11,233,414 $4,352,700 $ -- $37,358,807 $ 62,173,289
============= ========== ========== ========= =========== ============
THREE MONTHS ENDED
MARCH 31, 1999
Net Sales $ 5,245,126 $6,397,258 $4,999,476 $1,877,081 $ -- $ 18,518,941
Gross Profit 762,234 1,185,192 669,930 183,954 -- 2,801,310
Operating Income (loss) 587,658 615,211 (60,236) (53,187) (302,434) 787,012
Assets:
Inventories 1,200,721 3,878,261 4,412,581 938,540 -- 10,430,103
Property, plant and
equipment-net 6,255,007 7,273,391 908,650 1,258,496 2,653,407 18,348,951
Accounts receivable
and other
(including goodwill) 33,177,799 33,177,799
------------- ---------- ---------- --------- ----------- ------------
Total assets $ 7,455,728 $11,151,652 $5,321,231 $2,197,036 $35,831,206 $ 61,956,853
============= ========== ========== ========= =========== ============
7
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED).
SIX MONTHS ENDED CONTRACT BUSINESS PAINT AWAY-
MARCH 31, 2000 MANUFACTURING IMAGING SUNDRIES FROM-HOME INTERSECTOR CONSOLIDATED
Net Sales $ 18,774,216 $ 12,532,121 9,177,872 $ -- $ -- $ 40,484,209
Gross Profit 4,491,759 1,490,087 1,089,232 -- -- 7,071,078
Operating Income (loss) 3,448,561 719,910 (138,806) -- (1,151,467) 2,878,198
Assets:
Inventories 893,452 4,870,582 3,725,246 -- -- 9,489,280
Property, plant and
equipment-net 8,334,916 6,962,832 627,454 -- 2,556,784 18,481,986
Accounts receivable
and other
(including goodwill) 34,202,023 34,202,023
------------- ------------ ------------ ------------ ------------ ------------
Total assets $ 9,228,368 $ 11,233,414 $ 4,352,700 $ -- $ 37,358,807 $ 62,173,289
============= ============ ============ ============ ============ ============
SIX MONTHS ENDED
MARCH 31, 1999
Net Sales $ 10,376,331 $ 12,698,565 $ 10,100,231 $ 3,684,667 $ -- $ 36,859,794
Gross Profit 1,865,097 2,216,904 1,333,028 360,374 -- 5,775,403
Operating Income (loss) 1,546,402 1,133,601 (12,114) (80,503) (1,071,818) 1,515,568
Assets:
Inventories 1,200,721 3,878,261 4,412,581 938,540 -- 10,430,103
Property, plant and
equipment-net 6,255,007 7,273,391 908,650 1,258,496 2,653,407 18,348,951
Accounts receivable
and other
(including goodwill) 33,177,799 33,177,799
------------- ------------ ------------ ------------ ------------ ------------
Total assets $ 7,455,728 $ 11,151,652 $ 5,321,231 $ 2,197,036 $ 35,831,206 $ 61,956,853
============= ============ ============ ============ ============ ============
8
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL INFORMATION:
Tufco Technologies, Inc. has locations in Green Bay, WI, Dallas, TX,
Newton, NC, Manning, SC and St. Louis, MO.
The Company, through its wholly owned subsidiaries, provides
diversified Contract Manufacturing and specialty printing services,
manufactures and distributes Business Imaging paper products 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.
9
10
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)
Three Months Ended Period-to-Period Six Months Ended Period-to-Period
March 31, Change March 31, Change
------------------ ------------------
2000 1999 $ % 2000 1999 $ %
------- ------- ------- ------- ------- ------- ------- -------
Net Sales $19,783 $18,519 1,264 7 $40,484 $36,860 3,624 10
Gross Profit 3,417 2,801 616 22 7,071 5,775 1,296 22
17.3% 15.1% 17.5% 15.7%
Operating Expenses 2,075 2,014 61 3 4,193 4,259 (66) (2)
10.5% 10.9% 10.4% 11.6%
Operating Income 1,342 787 555 71 2,878 1,516 1,362 90
6.8% 4.2% 7.1% 4.1%
Interest Expense 266 305 (39) (13) 505 562 (57) (10)
1.3% 1.6% 1.2% 1.5%
Net Income $ 677 $ 335 342 102 1,653 804 849 106
3.4% 1.8% 4.1% 2.2%
Analysis of net sales and gross profit, percentages of total net sales, and
year-to-year changes in the Company's primary market sectors are as follows
(dollars in thousands):
Three Months Ended
March 31,
--------------------------------------
2000 1999
----------------- -----------------
% of % of Period-to-Period Change
Amount Total Amount Total $ %
----------------- ----------------- ------- -------
Net Sales
---------
Contract manufacturing and printing $ 8,792 45% $ 5,245 28% 3,547 68
Business imaging paper products 6,231 31 6,398 35 (167) (3)
Paint sundry products 4,760 24 4,999 27 (239) (5)
Away-from-home products -- -- 1,877 10 (1,877) (100)
------- ------- ------- ------- ------- -------
Net sales $19,783 100% $18,519 100% 1,264 7
======= ======= ======= ======= ======= =======
Margin Margin Period-to-Period Change
Amount % Amount % $ %
------ ------ ------ ------ ------ ------
Gross Profit
------------
Contract manufacturing and printing $1,843 20% $ 762 15% 1,081 142
Business imaging paper products 937 15 1,185 19 (248) (21)
Paint sundry products 637 13 670 13 (33) (5)
Away-from-home products -- -- 184 10 (184) (100)
------ ------ ------ ------ ------ ------
Gross profit $3,417 17% $2,801 15% 616 22
====== ====== ====== ====== ====== ======
10
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --CONTINUED
Six Months Ended
March 31,
--------------------------------------
2000 1999
----------------- -----------------
% of % of Period-to-Period Change
Amount Total Amount Total $ %
----------------- ----------------- ------- -------
Net Sales
---------
Contract manufacturing and printing $18,774 46% $10,376 28% 8,398 81
Business imaging paper products 12,532 31 12,699 34 (167) (1)
Paint sundry products 9,178 23 10,100 27 (922) (9)
Away-from-home products -- -- 3,685 10 (3,685) (100)
------- ------- ------- ------- ------- -------
Net sales $40,484 100% $36,860 100% 3,624 10
======= ======= ======= ======= ======= =======
Margin Margin Period-to-Period Change
Amount % Amount % $ %
------ ------ ------ ------ ------ ------
Gross Profit
------------
Contract manufacturing and printing $4,492 23% $1,865 18% 2,627 141
Business imaging paper products 1,490 12 2,217 17 (727) (33)
Paint sundry products 1,089 12 1,333 13 (244) (18)
Away-from-home products -- -- 360 10 (360) (100)
------ ------ ------ ------ ------ ------
Gross profit $7,071 17% $5,775 16% 1,296 22
====== ====== ====== ====== ====== ======
11
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --CONTINUED
NET SALES:
Net sales increased $1.3 million (7%) and $3.6 million (10%) for the three and
six month periods respectively, in spite of the fact that the Company had no
sales of Away-From-Home (AFH) products in fiscal 2000, a product line which was
discontinued in June of fiscal 1999 due to insufficient profit margins. Sales of
AFH products totaled $1.9 million and $3.7 million for the three and six month
periods a year ago. If only recurring products and services are considered,
sales increased $3.1 million (19%) and $7.3 million (22%) for the three and six
month periods respectively. The increases were due to strong growth in the
Company's key strategic sector, Contract Manufacturing (CM), where sales
increased $3.0 million (68%) for the quarter and $8.4 million (81%) for the six
month period. Growth in the CM sector resulted from services provided under two
key contracts with a Fortune 500 company, and sales to this customer accounted
for 20% and 25% of the Company's total sales for the three and six month
periods. This customer recently notified Tufco that the larger of these two
production agreements would terminate at the end of March 2000, approximately
120 days earlier than scheduled under the contract. While Tufco has the right to
charge this customer early cancellation penalties under the contract, Company
management plans to heavily discount these penalties in recognition of this
customer's decision to award Tufco four new production agreements which begin in
the summer and fall of 2000. Because of the early contract termination and the
Company's decision to discount the cancellation penalties, and due to the need
to retain and train production crews for the start-up of the four new projects,
the Company will likely report lower earnings in its third fiscal quarter, and
could incur a slight loss for the period. Sales in the Company's Business
Imaging product sector remained virtually flat versus one year ago, as strong
competitive pricing continued to hinder growth in that market. Sales of Paint
Sundry products declined 5% for the most recent three-month period and were down
9% for the six month period. The sales declines are principally the result of
increasing competition in the market from overseas producers of canvas products.
GROSS PROFIT:
Gross profit increased $0.6 million (22%) and $1.3 million (22%) for the three
and six month periods, and gross profit margins increased to 16.8% and 17.2%
respectively. The increase is attributable to the sales growth as well as the
higher gross profit margins in the Contract Manufacturing Sector. The growth in
the CM sector has resulted from manufacturing services which include very little
material cost since the customer provides the base material on which services
are performed. The lower material cost results in a higher gross profit margin.
Additionally, as CM sales have grown, the Company's indirect manufacturing
overhead costs have been spread over a wider base of business, further enhancing
gross profit margins. Conversely, the Company expects to report lower gross
profit and lower margins in the third quarter of fiscal 2000, due to the decline
in sales volume from the early termination of a manufacturing agreement with its
largest customer. Additionally, the Company will incur training and start-up
costs in the third quarter of fiscal 2000 as it prepares to begin manufacturing
operations under two of its four new agreements with its largest customer. Gross
profit in the Business Imaging product sector declined 21% and 33% for the three
and six month periods, primarily due to declining gross profit margins resulting
from increasing raw material costs. Aggressive pricing by several of its
competitors prevented the Company from passing these raw material cost increases
on to its customers. Prospects for near-term sales price increase improved
recently as one of the Company's chief competitors exited the Business Imaging
market. Gross profit in the Paint Sundry sector declined 5% for the quarter and
18% for the six month period due to the declining sales of canvas products.
12
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --CONTINUED
OPERATING EXPENSES:
Operating expenses were basically flat for the three and six month periods as
annual increases in personnel costs were offset by the elimination of costs
expended in fiscal 1999 to support the sale of Away-From-Home products.
Operating costs declined as a percent of net sales for both the three and six
month periods.
OPERATING INCOME:
Operating income increased (71%) to $1.3 million for the quarter and increased
(90%) to $2.9 million for the six month period. Increases in sales and gross
profit margin in the Contract Manufacturing sector, along with management's
ability to hold operating expenses flat resulted in the increase.
INTEREST EXPENSE:
Interest expense declined for the three and six month periods due to lower
average borrowings.
NET INCOME AND EARNINGS PER SHARE:
Net income increased to $0.7 million (up 102%) and to $1.7 million (106%) for
the three and six month periods, respectively due to higher operating income
from Contract Manufacturing services. Earnings per share increased to $0.15
(basic and diluted) and to $0.37 (basic) and $0.36 (diluted) for the three and
six month periods, compared to $0.08 (basic and diluted) and $0.18 (basic and
diluted) in the comparable periods of the prior fiscal year. As noted,
management expects to report reduced net income in the third quarter of fiscal
2000, and cannot rule out the possibility of a slight loss. However, assuming
that new manufacturing agreements start on schedule, management is optimistic
that net income will rebound in the fourth quarter, and income for the fiscal
year will meet expectations.
LIQUIDITY AND CAPITAL RESOURCES:
For the six months ended March 31, 2000, the Company generated $3.3 million in
cash from operations. Net income after adjustment for non-cash items increased
to $3.7 million compared to $1.8 million in the prior year. Accounts payable
increased $1.7 million from September 30, offsetting increases in inventory and
receivables (totaling $1.6 million) and payments of income tax liabilities ($0.3
million). The Company had invested in additional raw materials used in its
Business Imaging sector in advance of announced vendor cost increases, resulting
in increased inventory and accounts payable balances. Additionally, the accounts
payable balance increased due to payments owed for equipment purchases for which
the Company will be reimbursed by its largest customer.
Net cash used in investing activities was $2.4 million for the first six months
of fiscal 2000, resulting from the purchase of production equipment and
improvements to the Green Bay plant (totaling $3.1 million), offset by proceeds
from the sale of production equipment ($0.6 million) and by repayment of
advances to shareholders ($0.1 million).
Net cash used in financing activities totaled $0.1 million for the first six
months of fiscal 2000 resulting from repayment of long-term debt ($0.9 million)
offset by proceeds from the exercise of common stock options ($0.7 million).
13
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --CONTINUED
LIQUIDITY AND CAPITAL RESOURCES -CONTINUED:
In February of fiscal 2000, the Company began construction on a $3.0 million
expansion to its Green Bay manufacturing facility, of which $0.9 million had
been spent at March 31, 2000. The Company's principal lenders have agreed to
finance the plant expansion, and Company management anticipates completing a
supplemental borrowing agreement in May 2000.
As of May 3, 2000, the Company had approximately $1.5 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.
FORWARD LOOKING STATEMENTS:
Management's discussion of the Company's 2000 quarterly periods in comparison to
1999, 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, cancellation of production agreements by significant customers,
material increases 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk- The Company has entered into an interest rate swap
contract as a hedge under which the interest rate on its term debt is fixed at
5.87%, plus a profit spread for the lender of between 100 and 150 basis points,
depending on certain financial ratios achieved by the Company (see Note 7 to the
Company's Financial Statements for its fiscal year ended September 31, 1999). At
March 31, 2000, prevailing market interest rates were higher than the fixed rate
in the Company's swap agreement, and the Company would have received a premium
from its lender if the debt under the swap were to have been paid in full at
that time. Prior to entering into the swap agreement, management had reviewed
the 40-year history of interest rates and had determined, and still believes,
that the Company's risk of potential future liability resulting from a material
decline in interest rates below the fixed level under the swap was not
significant.
Foreign Currency Exchange Risk-The Company had no transactions in
foreign currencies, nor had it entered into any foreign currency futures
contracts as of March 31, 2000.
Commodity Price Risk-The Company had not entered into any forward
buying agreements for the raw materials it uses to produce its goods and
services as of March 31, 2000.
Other Relevant Market Risks-The Company does not own any marketable
securities, and management has not identified any other relevant market risks.
14
15
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
The following summarizes the Annual Meeting highlights:
(a) The Annual Meeting of Shareholders of the Company was held on
March 13, 2000.
(b) At the Annual Meeting, shareholders elected the following
individuals to the Board of Directors for one-year terms:
Director For Withheld
-------- --- --------
Robert J. Simon 4,008,626 12,815
Samuel J. Bero 4,011,026 10,415
C. Hamilton Davison, Jr. 4,009,926 11,515
Louis LeCalsey III 4,010,926 10,515
William J. Malooly 4,010,926 10,515
Seymour S. Preston, III 4,006,926 14,515
(c) The shareholders approved the amendment of the 1992
Non-Qualified Stock Option Plan.
(d) The shareholders approved the amendment of the 1993
Non-Employee Director Stock Option Plan.
(e) The shareholders ratified the selection of Deloitte & Touche
LLP as independent auditors for the fiscal year ending
September 30, 2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
B. Reports on Form 8-K
None.
15
16
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, 2000 /s/ Louis LeCalsey, III
--------------------------------------------
Louis LeCalsey, III
President/Chief Executive Officer
Date: May 12, 2000 /s/ Greg Wilemon
--------------------------------------------
Greg Wilemon
Chief Financial Officer/Chief Operating
Officer,
Secretary, Treasurer and Vice President -
Finance
16
17
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule