1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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, 2001
--------------
Commission file number 0-21018
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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 10, 2001
- --------------------------------------- ---------------------------
Common Stock, par value $0.01 per share 4,684,519
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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, 2001 (Unaudited) and September 30, 2000 3
Condensed Consolidated Statements of Operations for the three
months and six months ended March 31, 2001 and 2000 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
six months ended March 31, 2001 and 2000 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II: OTHER INFORMATION 15
SIGNATURES 16
2
3
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, September 30,
2001 2000
------------ ------------
(UNAUDITED)
Assets
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 1,308,124 $ 930,388
Restricted cash ................................................. 30,752 31,717
Accounts receivable, net ........................................ 12,813,404 12,697,187
Inventories ..................................................... 10,769,481 7,912,482
Prepaid expenses and other current assets ....................... 842,050 740,383
Deferred income taxes ........................................... 796,174 796,174
Income taxes receivable ......................................... 533,026 560,444
------------ ------------
Total current assets ...................................... 27,093,011 23,668,775
PROPERTY, PLANT AND EQUIPMENT-Net .................................. 19,928,783 20,182,838
GOODWILL -Net ...................................................... 17,043,468 17,341,724
OTHER ASSETS- Net .................................................. 834,457 939,811
------------ ------------
TOTAL .............................................................. $ 64,899,719 $ 62,133,148
============ ============
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Current portion of long-term debt ............................... $ 1,771,432 $ 1,771,432
Accounts payable ................................................ 7,257,104 6,964,711
Accrued payroll, vacation and payroll taxes ..................... 1,628,657 1,544,867
Other current liabilities ....................................... 1,387,644 1,435,450
------------ ------------
Total current liabilities ................................. 12,044,837 11,716,460
LONG-TERM DEBT- Less current portion ............................... 13,898,551 11,335,704
DEFERRED INCOME TAXES .............................................. 2,473,533 2,502,223
STOCKHOLDERS' EQUITY
Voting Common Stock: $.01 par value; 9,000,000 shares authorized;
4,684,519 and 4,498,618 shares issued, respectively ......... 46,845 46,750
Additional paid-in capital ...................................... 24,943,276 24,879,246
Retained earnings ............................................... 12,243,079 12,383,489
Treasury stock at cost, 78,497 voting common shares ............. (534,045) (534,045)
Stock purchase plan notes ....................................... (171,484) (196,679)
Accumulated other comprehensive loss ............................ (44,873) --
------------ ------------
Total stockholders' equity ................................. 36,482,798 36,578,761
------------ ------------
TOTAL ........................................................... $ 64,899,719 $ 62,133,148
============ ============
See notes to condensed consolidated financial statements.
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4
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
March 31, March 31,
------------------------------ ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
NET SALES ................................ $ 21,858,024 $ 19,783,393 $ 38,628,016 $ 40,484,209
COST OF SALES ............................ 18,498,652 16,366,029 34,740,214 33,413,131
------------ ------------ ------------ ------------
GROSS PROFIT ............................. 3,359,372 3,417,364 3,887,802 7,071,078
OPERATING EXPENSES:
Selling, general and administrative ...... 1,602,729 1,806,389 3,151,050 3,678,470
Amortization and other post-
acquisition expenses .................. 265,505 269,391 527,508 514,410
(Gain) loss on asset sales ............. (8,562) 6,740 (147,872) (288,688)
------------ ------------ ------------ ------------
OPERATING INCOME ......................... 1,499,700 1,334,844 357,116 3,166,886
OTHER INCOME (EXPENSE):
Interest expense ...................... (273,813) (265,764) (510,208) (505,459)
Interest and other income (expense) ... 19,772 5,296 49,556 (37,136)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ........ 1,245,659 1,074,376 (103,536) 2,624,291
INCOME TAX EXPENSE ....................... 477,026 397,558 36,874 971,066
------------ ------------ ------------ ------------
NET (LOSS) INCOME ........................ $ 768,633 $ 676,818 $ (140,410) $ 1,653,225
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE:
Basic ................................ $ 0.17 $ 0.15 $ (0.03) $ 0.37
Diluted .............................. $ 0.17 $ 0.15 $ (0.03) $ 0.36
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic ................................ 4,606,022 4,428,755 4,604,605 4,425,438
Diluted .............................. 4,616,660 4,595,843 4,604,605 4,583,259
See notes to condensed consolidated financial statements.
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TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
March 31,
------------------------------
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net Income (loss) ............................................ $ (140,410) $ 1,653,225
Noncash items in net income:
Depreciation and amortization .......................... 1,854,888 1,756,056
Provision for bad debts ................................... (24,093) 599,597
Gains on asset sales ...................................... (147,872) (288,688)
Changes in operating working capital:
Accounts receivable ....................................... (92,124) (363,288)
Inventories ............................................... (2,856,999) (1,240,404)
Prepaid expenses and other assets ......................... (2,670) 138,973
Accounts payable .......................................... 292,393 1,718,508
Accrued and other current liabilities ..................... 35,984 (361,680)
Income taxes payable/receivable............................ 27,418 (342,698)
------------ ------------
Net cash from (used in) operations ........................... (1,053,485) 3,269,595
INVESTING ACTIVITIES
Additions to property, plant and equipment ................... (1,303,661) (3,124,373)
Proceeds from disposition of property, plant and equipment ... 167,804 572,820
(Decrease) increase in advances to shareholders .............. (12,491) 128,259
(Increase) decrease in restricted cash ....................... 965 (11,273)
------------ ------------
Net cash used in investing activities ........................ (1,147,383) (2,434,567)
FINANCING ACTIVITIES
Repayment of long-term debt .................................. -- (857,605)
Issuance of long-term debt ................................... 2,489,284 --
Decrease in stock purchase plan notes ........................ 25,195 5,000
Issuance of common stock ..................................... 64,125 706,742
------------ ------------
Net cash from (used in) financing activities ................. 2,578,604 (145,863)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....................... 377,736 689,165
CASH AND CASH EQUIVALENTS:
Beginning of period ............................................ 930,388 692,002
------------ ------------
End of period .................................................. $ 1,308,124 $ 1,381,167
============ ============
See notes to condensed consolidated financial statements.
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TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2001 AND 2000
(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, 2000
that are included in Form 10-K that was filed with the Securities and
Exchange Commission on December 22, 2000. 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,
2001 2000
----------- ------------
Raw materials ........... $ 5,657,672 $ 4,485,263
Finished goods .......... 5,111,809 3,427,219
----------- -----------
Total inventories ....... $10,769,481 $ 7,912,482
=========== ===========
3. COMPREHENSIVE INCOME (Loss)
The components of comprehensive income (loss) are as follows:
Three months Six months
Ended Ended
March 31, 2001 March 31, 2001
-------------- --------------
Net income (loss) $ 768,633 $ (140,410)
Other comprehensive income (loss), net of tax:
Interest rate swap as hedge of future variable
Interest on debt:
Cumulative effective of
Implementing SFAS 133 39,650
Change in fair value (84,523) (84,523)
------------ ------------
Other comprehensive (loss) (84,532) (44,873)
------------ ------------
Comprehensive income (loss) $ 684,110 $ (185,283)
============ ============
Comprehensive income was the same as
net income for the 3 months and 6 months
ended March 31, 2000.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED).
4. 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.
THREE MONTHS ENDED CONTRACT BUSINESS PAINT
MARCH 31, 2001 MANUFACTURING IMAGING SUNDRIES INTERSECTOR CONSOLIDATED
- ------------------ ------------- ------------ ------------ ------------ ------------
Net Sales $ 11,144,538 $ 5,546,168 $ 5,167,318 $ -- $ 21,858,024
Gross Profit 2,460,879 492,224 406,269 -- 3,359,372
Operating Income (loss) 2,000,700 140,116 (147,779) (493,337) 1,499,700
Assets:
Inventories 2,434,798 4,242,554 4,092,129 -- 10,769,481
Property, plant and
equipment-net 9,717,586 6,086,554 1,584,848 2,539,795 19,928,783
Accounts receivable
and other
(including goodwill) 34,201,455 34,201,455
------------ ------------ ------------ ------------ ------------
Total assets $ 12,152,384 $ 10,329,108 $ 5,676,977 $ 36,741,250 $ 64,899,719
============ ============ ============ ============ ============
THREE MONTHS ENDED CONTRACT BUSINESS PAINT
MARCH 31, 2000 MANUFACTURING IMAGING SUNDRIES 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) (553,000) 1,334,844
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 $ 11,833,414 $ 4,352,700 $ 36,758,807 $ 62,173,289
============ ============ ============ ============ ============
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED).
SIX MONTHS ENDED CONTRACT BUSINESS PAINT
MARCH 31, 2001 MANUFACTURING IMAGING SUNDRIES INTERSECTOR CONSOLIDATED
- ---------------- ------------- ------------ ------------ ------------ ------------
Net Sales $ 18,264,713 $ 10,747,637 $ 9,615,666 $ -- $ 38,628,016
Gross Profit 2,257,105 879,355 751,342 -- 3,887,802
Operating Income (loss) 1,380,398 105,941 (319,963) (809,260) 357,116
Assets:
Inventories 2,434,798 4,242,554 4,092,129 -- 10,769,481
Property, plant and
equipment-net 9,717,586 6,086,554 1,584,848 2,539,795 19,928,783
Accounts receivable
and other
(including goodwill) 34,201,455 34,201,455
------------ ------------ ------------ ------------ ------------
Total assets $ 12,152,384 $ 10,329,108 $ 5,676,977 $ 36,741,250 $ 64,899,719
============ ============ ============ ============ ============
SIX MONTHS ENDED CONTRACT BUSINESS PAINT
MARCH 31, 2000 MANUFACTURING IMAGING SUNDRIES 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) (862,779) 3,166,886
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 $ 11,833,414 $ 4,352,700 $ 36,758,807 $ 62,173,289
============ ============ ============ ============ ============
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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.
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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
--------------------- --------------------
2001 2000 $ % 2001 2000 $ %
-------- -------- ----- ----- -------- ------- ------ ------
Net Sales $ 21,858 $ 19,783 2,075 10 $ 38,628 $40,484 (1,856) (5)
Gross Profit 3,359 3,417 (58) (2) 3,888 7,071 (3,184) (45)
15.4% 17.3% 10.1% 17.5%
Operating Expenses 1,859 2,082 (223) (11) 3,531 3,904 (374) (10)
8.5% 10.5% 9.1% 9.6%
Operating Income 1,500 1,335 165 12 357 3,167 (2,810) (89)
6.9% 6.7% 0.9% 7.8%
Interest Expense 274 266 8 3 510 505 5 1
1.3% 1.3% 1.3% 1.2%
Net (Loss) Income $ 769 $ 677 92 14 (140) 1,653 (1,793) (108)
3.5% 3.4% (0.4)% 4.1%
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,
--------------------------------------------
2001 2000
------------------- -------------------
% of % of Period-to-Period Change
Amount Total Amount Total $ %
------- ------- ------- ------- ------- -------
Net Sales
Contract manufacturing and printing $11,145 51% $ 8,792 45% 2,353 27
Business imaging paper products 5,546 25 6,231 31 (686) (11)
Paint sundry products 5,167 24 4,760 24 408 9
------- ------- ------- ------- ------- -------
Net sales $21,858 100% $19,783 100% 2,075 10
======= ======= ======= ======= ======= =======
Margin Margin Period-to-Period Change
Amount % Amount % $ %
------- ------- ------- ------- ------- -------
Gross Profit
Contract manufacturing and printing $ 2,461 22% $ 1,843 21% 618 34
Business imaging paper products 492 9 937 15 (445) (47)
Paint sundry products 406 8 637 13 (231) (36)
------- ------- ------- ------- ------- -------
Gross profit $ 3,359 15% $ 3,417 17% (58) (2)
======= ======= ======= ======= ======= =======
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --CONTINUED
Six Months Ended
March 31,
---------------------------------------------
2001 2000
------------------- ---------------------
% of % of Period-to-Period Change
Amount Total Amount Total $ %
------- ------- ------- ------- ------- -------
Net Sales
Contract manufacturing and printing $18,265 47% $18,774 46% (509) (3)
Business imaging paper products 10,747 28 12,532 31 (1,785) (14)
Paint sundry products 9,616 25 9,178 23 438 5
------- ------- ------- ------ ------- -------
Net sales $38,628 100% $40,484 100% (1,856) (5)
======= ======= ======= ======= ======= =======
Margin Margin Period-to-Period Change
Amount % Amount % $ %
------- ------- ------- ------- ------- -------
Gross Profit
Contract manufacturing and printing $ 2,257 12% $ 4,492 24% 2,235 (50)
Business imaging paper products 880 8 1,490 12 (610) (41)
Paint sundry products 751 8 1,089 12 (338) (31)
------- ------- ------- ------- ------- -------
Gross profit $ 3,888 10% $ 7,071 17% (3,183) (45)
======= ======= ======= ======= ======= =======
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --CONTINUED
NET SALES:
Net sales increased $2.1 million (10%) for the three-month period, partially
offsetting declines from the first quarter. For the fiscal year to date, sales
are down $1.9 million (5%). The increase in the second quarter was primarily the
result of increased sales of Contract Manufacturing services (up 27% for the
quarter) associated with the start-up of two new production lines in support of
products developed and marketed by Tufco's largest customer. As reported
previously, the Company has incurred start-up costs associated with these two
projects in each of the last two quarters, without the benefit of sales volumes
budgeted for the commercial production phases of the manufacturing agreements.
During the second quarter of fiscal 2001, these two projects progressed through
varying stages of start-up, and by March, sales of the Company's services under
these agreements were approaching the levels originally budgeted by Company
management. Based on volume forecasts supplied by the customer for these lines,
sales of Tufco's Contract Manufacturing services in the third and fourth
quarters of fiscal 2001 should easily exceed prior year levels. Sales of the
Company's Paint Sundry products continued to increase with a 9% increase for the
quarter, primarily due to increases in sales to The Home Depot, the sector's
largest customer. Sales of Business Imaging products and services continued to
decline due to decreased sales of private labeled products to the largest
customer in that sector.
GROSS PROFIT:
Gross profit declined slightly for the quarter (down 2%) and is down $3.2
million (45%) for the year to date. The Contract Manufacturing sector reversed
its declines in the first quarter (down $2.2 million or 50%) with an increase of
$0.6 million (34%) for the second quarter. The gross profit increase was the
result of increasing sales volumes associated with the previously noted start-up
of two production agreements with a Fortune 500 customer. As those projects
continue to mature, management anticipates that gross profit in the sector
should increase correspondingly. Gross profit in the Company's Paint Sundry
sector declined $0.2 million (36%) for the quarter, primarily due to increased
freight costs resulting from high fuel surcharges. The Company is in the final
stages of consolidating all of its Paint Sundry operations into one location.
When complete, management expects that operating cost savings, in addition to
continued sales growth in the sector, will result in improved margins and
increased profit. Gross profit in the Business Imaging sector continued to
decline due to decreased sales and lower selling prices resulting from stiff
competition in the sector.
OPERATING EXPENSES:
During the second quarter, operating expenses continued to decline, both in
total (down 11% for the quarter), and as a percent of sales (8.5%, down from
10.5%). Declines in compensation expense and in professional fees account for
the lower costs.
OPERATING INCOME:
Operating income increased 12% to $1.5 million for the second quarter of fiscal
2001, due primarily to reduced selling, general and administrative costs for the
three month period of fiscal 2001. For the six-month period, operating profit
declined from $3.2 million a year ago to $0.4 million for fiscal 2001. The
decline was the result of lower gross profit, offset by reductions in selling,
general and administrative costs.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --CONTINUED
INTEREST EXPENSE:
Interest expense is virtually unchanged from a year ago. In spite of the year to
date operating loss, management has not increased its average borrowings through
the six-month period.
NET INCOME AND EARNINGS PER SHARE:
For the quarter, net income increased to $0.8 million (up 14%) and earnings per
share increased to $0.17 (basic and diluted) compared to $0.15 (basic and
diluted) a year ago. For the six-month period, the Company lost $0.1 million
($-0.03 per share: basic and diluted), compared to income of $1.7 million and
earnings per share of $0.37 (basic) and $0.36 (diluted) in the prior year.
LIQUIDITY AND CAPITAL RESOURCES:
For the six months ended March 31, 2001, the Company used $1.1 million to fund
its operations, compared to the same period in fiscal 2000, in which the Company
generated $3.3 million in cash from operations. Net income, after adjustment for
non-cash items was $1.5 million in 2001, down from $3.7 million in the prior
year. The principal cause for the decline was the decrease in gross profit for
the six-month period of 2001. Additionally, the Company has increased its
inventory levels in its Paint Sundry sector in advance of the consolidation of
the sector's two operating facilities into one operation. The increase in
inventory levels was necessary to ensure timely delivery of product to customers
during the consolidation. Once complete, inventory levels should return to
traditional levels. Additionally, Tufco began purchasing raw materials for one
of the two new production agreements with its largest customer, contributing to
the increase in inventories. The principal raw material supplier for this new
product requires that the Company pay for product purchases in less than 15
days, so accounts payable did not increase in direct correlation with the
increase in inventories.
Net cash used in investing activities was $1.1 million for the first six months
of fiscal 2001, compared to $2.4 million for the same period of fiscal 2000. The
Company incurred capital costs associated with the expansion of its Manning,
South Carolina facility, into which all Paint Sundry operations will be
consolidated during the third fiscal quarter.
Net cash from financing activities totaled $2.6 million, resulting from
increased borrowings under the Company's revolving line of credit toward the end
of the second quarter of fiscal 2001.
As of May 2, 2001, the Company had approximately $2.25 million available under
its revolving credit line.
During the first and second quarter of fiscal 2001, the Company was in violation
of certain covenants involving debt and cash flow (as defined in the agreement).
The Company requested, and the Banks granted, a waiver from these required
covenants for the first and second quarter of fiscal 2001. Management believes
that the Company will be in compliance with all covenants by the end of the
third quarter of fiscal 2001.
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.
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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 2001 quarterly periods in comparison to
2000, 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 30, 2000). At
March 31, 2001, prevailing market interest rates were lower than the fixed rate
in the Company's swap agreement, and the Company would have paid a premium to
its lender if the debt under the swap were to have been paid in full at that
time. Accordingly, the Company has accrued an unrealized loss of approximately
$45,000 at March 31, 2001 as required by SFAS 133. 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, 2001.
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, 2001.
Other Relevant Market Risks-The Company does not own any marketable
securities, and management has not identified any other relevant market risks.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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 23, 2001.
(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 4,206,134 1,025
Samuel J. Bero 4,205,844 1,315
C. Hamilton Davison, Jr. 4,206,094 1,065
Louis LeCalsey III 4,205,984 1,175
William J. Malooly 4,206,094 1,065
Seymour S. Preston, III 4,147,994 59,165
(c) The shareholders ratified the selection of Deloitte & Touche
LLP as independent auditors for the fiscal year ending
September 30, 2001.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
B. Reports on Form 8-K
None.
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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: May 10, 2001 /s/ Louis LeCalsey, III
-----------------------------------
Louis LeCalsey, III
President/Chief Executive Officer
Date: May 10, 2001 /s/ Greg Wilemon
------------------------------------
Greg Wilemon
Chief Financial Officer/Chief
Operating Officer, Secretary,
Treasurer and Vice President -
Finance
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