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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended September 30, 2002. Commission file number 0-21018.
TUFCO TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 39-1723477
--------------------------------- ---------------------------------
(State of other jurisdiction (IRS Employer ID No.)
of incorporation or organization)
PO Box 23500, Green Bay, WI 54305
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(Address of principal executive offices)
(920) 336-0054
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(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock of Tufco Technologies, Inc. held
by non-affiliates, as of December 26, 2002, was approximately $6,981,425. Such
aggregate market value was computed by reference to the closing price of the
Common Stock as reported on the NASDAQ National Market on December 26, 2002. For
purposes of making this calculation only, the registrant has defined affiliates
as including all directors and beneficial owners of more than ten percent of the
Common Stock of the Company. The number of shares of the registrant's Common
Stock outstanding as of December 26, 2002 was 4,627,844.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its Annual Meeting
of Stockholders to be held in 2003 are incorporated by reference into Part III
of this report.
1
PART I
ITEM 1 - BUSINESS
GENERAL
Tufco Technologies, Inc. ("Tufco" or the "Company") provides diversified
contract manufacturing and specialty printing services, manufactures and
distributes business imaging paper products, and paint sundry products used in
home improvement projects. Since 1992 and until its organizational restructuring
on February 7, 1997, the Company operated as three wholly owned subsidiaries,
Tufco Industries, Inc., Executive Converting Corporation ("ECC") and Hamco
Industries, Inc. ("Hamco"). On January 28, 1994, the Company completed an
initial public offering in which the Company issued and sold 900,000 shares of
its Common Stock, par value $0.01 per share ("Common Stock"), and certain
stockholders of the Company sold 50,000 shares of Common Stock.
Contemporaneously with the closing of the Company's public offering, the Company
acquired, through ECC, substantially all of the assets of Executive Roll
Manufacturing, Inc., d/b/a Executive Converting Corporation for $7.5 million in
cash and 127,778 shares of Common Stock. On August 23, 1995, the Company
acquired, through Hamco, substantially all of the assets of Hamco, Inc. for
approximately $12.9 million net in cash. On February 7, 1997, the Company
reorganized its corporate structure to better serve its business needs. Through
this restructuring, the net assets of Tufco Industries, Inc., ECC and Hamco were
transferred to Tufco, L.P., a Delaware limited partnership, in which Tufco Tech,
Inc. is the sole managing general partner and is wholly owned by the Company. On
November 13, 1997 the Company purchased all of the outstanding common stock of
Foremost Manufacturing Company, Inc. for $5.9 million in cash and 25,907 shares
of Common Stock.
Tufco offers a wide array of contract manufacturing services including
thermal and adhesive laminating, coating, folding, precision slitting and
rewinding, precision sheeting and custom packaging for delivery to the end user.
Its specialty printing services provide wide web, multi-color flexographic and
letterpress printing and adhesive laminations to industrial users and resale
distributors. Tufco also manufactures a wide range of printed and unprinted
business imaging paper products for a variety of business needs, and the
Company's Paint Sundry sector manufactures and distributes products used by
professional painters and do-it-yourself home owners.
The Company was incorporated in the state of Delaware in 1992 to acquire
Tufco Industries, Inc. Although the Company was organized in 1992, the business
conducted by Tufco Industries, Inc. has been in continuous operation since 1974.
The Company has become a leading provider of contract manufacturing and
specialty printing services, and supplier of value-added custom paper products,
and the Company believes that it has the most complete line of paint sundry
products in the industry. The Company's principal executive offices are located
at PO Box 23500, Green Bay, WI 54305-3500, and its telephone number is (920)
336-0054.
PRODUCTS AND SERVICES
The Company markets its products and services through three market
sectors: Contract Manufacturing services, Business Imaging paper products, and
Paint Sundry products. Tufco conducts operations from three manufacturing and
distribution locations in Green Bay, Wisconsin, Manning, South Carolina, and
Newton, North Carolina. Until April 2001, the company had a manufacturing and
distribution operation in St. Louis, Missouri and until September 2002, in
Dallas, Texas. The company continues to maintain a sales office in St Louis,
Missouri and accounting and information technology support services in Dallas,
Texas.
2
CONTRACT MANUFACTURING MARKET SECTOR
Tufco has contract manufacturing capability at two locations: Green Bay,
Wisconsin, and Newton, North Carolina. Until September 2002 Tufco had contract
manufacturing capabilities at Dallas, Texas.
The Company's capabilities at its Green Bay, Wisconsin facility include
custom packaging, coating, cutting, folding, thermal and adhesive laminating,
embossed bonding, slitting and rewinding. These facilities custom convert a wide
array of materials, including polyethylene films, non-woven materials (coated
and uncoated), paper, and tissue. Products include household cleaning wipes,
facial wipes, various health care products, reinforced towels (towels with a
polyethylene or polypropylene mesh to provide strength and durability), and
adult hygiene components. The Company has invested in equipment to perform
thermal lamination to bond various material substrates up to 120 inches wide,
such as reinforced material and breathable moisture barrier wraps. Machinery and
equipment at the Green Bay, Wisconsin facility have the capability, developed by
the Company's in-house engineers and technical personnel, to combine or modify
various substrates through the use of precise temperature and pressure control.
The Company's Green Bay, Wisconsin facility offers value-added specialty
printing and related graphic arts services, including pre-press work, sheeting,
calendaring, printing, finishing, and thermal and adhesive laminating. The
Company provides multi-color printing that uses computerized control to maintain
a high level of print quality. The Company focuses on specialty printing
projects such as paper and poly table covers, food and gift-wraps, flexible
packaging, adult hygiene components, and printed release liners. The cornerstone
of the Company's printing operation is its fully automated, state-of-the-art
Windmoeller & Hoelscher (W&H) Astraflex printing press which has the capability
to print up to 62 inches in width at speeds up to 1500 feet per minute. As of
September 30, 2002, the Company had a $3.2 million commitment to lease another
W&H flexographic printing press scheduled for delivery in May 2003.
Green Bay's pre-press staff prepares projects for printing to customer
specifications. The Company uses the customer's preliminary artwork and arranges
or performs all preparatory processes for camera-ready art, video plate making,
layout, and other related services.
The Green Bay presses use flexographic and letterpress processes and can
print on a wide range of media from lightweight tissue or non-wovens to
heavyweight paperboard, films and foils. The Company utilizes wide-web presses
of various sizes, some of which are capable of six-color printing with the W&H
press at eight colors. The Company uses solvent-based, water-based and oil-based
inks. The presses can accommodate widths up to 82 inches for one-sided printing
and are capable of simultaneous two-sided printing for widths up to 62 inches.
The presses have a variety of print cylinders that provide the Company with the
flexibility to meet customer needs, utilizing lower cost rubber printing plates
that allow the Company to maintain quality and achieve a competitive pricing
advantage for low volume jobs relative to printers using engraved printing
cylinders.
The Company's Newton, North Carolina facility has capabilities which
include precision slitting, rewinding specialty packaging, folding, perforating,
and trimming of paper rolls in a large variety of sizes which include variables
in width, diameter, core size, single or multi-ply, and color. All of the rolls
can be printed on one side or both, providing the customer with advertising,
promotional or security features. These capabilities are directed toward
converting fine paper materials including specialty and fine printing papers and
paperboards, thermal papers, inkjet papers, polyester films, and coated
products.
The Company's Newton, North Carolina facility also produces a full range
of papers for use in bank proof or teller machines, including fan-fold forms,
cards and printed rolls of various sizes and types. Additionally, the Company
produces an extensive selection of standard and customized guest checks for use
in the restaurant industry, and the Company's Newton facility owns equipment
which enables the Company to produce a wide variety of multi-part business
forms.
3
BUSINESS IMAGING MARKET SECTOR
The Company produces and distributes a wide variety of printed and
unprinted paper products used in business imaging equipment in market sectors
including architectural and engineering design, high speed data processing,
point of sale, automatic teller machines and a variety of office equipment. The
Company's products include roll products ranging in length from 150 feet to 3500
feet and in widths from 1 inch to 54 inches. The Company's products are
available in a wide range of paper grades including a variety of weights of bond
paper, thermal imaging papers, fine vellums and films and multi-part forms. In
the Business Imaging sector the Company has two primary components, one of which
markets engineering and data processing papers and the other primarily markets
printed and unprinted point of sale and automatic teller machine papers.
Products for both components are produced in the Company's Newton plant.
PAINT SUNDRY MARKET SECTOR
The Company's Manning, South Carolina facility manufactures and
distributes home improvement products that are sold to paint and hardware
distributors, home centers, and retail paint stores. To provide its customers
with the industry's most complete line of paint sundry products, the Company
supplements the products it manufactures by distributing products manufactured
for the Company by others. Consumer disposable products include polyethylene,
paper and canvas drop cloths, painters' apparel, latex and vinyl gloves, paint
strainers, and other allied items. These products are often used by homeowners
performing do-it-yourself home improvement projects, contractors and painting
professionals. The Company also sells a line of masking paper products and shop
towels for the automotive aftermarket. The Company has increased sales of
consumer disposables by continually broadening and improving its product line,
thereby allowing customers to consolidate their orders with a single vendor. In
addition, the Company has attracted buying groups through various volume
incentives. In April of 2001, the Company completed its consolidation of its St.
Louis, Missouri operations into the expanded Manning, South Carolina plant.
MANUFACTURING AND OPERATIONS
With regard to its contract manufacturing operations, the Company either
utilizes product specifications provided by its customers or teams with its
customers to develop specifications which meet customer requirements. Generally,
the product begins with a flexible substrate, which is a base material such as a
non-woven material, paper, or polyethylene. In most cases the customers of the
Contract Manufacturing sector provide the base material used in the product. The
Company applies one or more of its custom converting or specialty printing
services that it has developed over a period of years through its distinctive
technical knowledge to add value to these materials. In producing and
distributing its line of Business Imaging Products, the Company works closely
with various Original Equipment Manufacturers (OEMs) to develop products which
meet or exceed the requirements of the imaging equipment. The Company then
produces and stocks a full line of paper products to meet the needs of the users
of the imaging equipment. The Company's Paint Sundry sector manufactures a wide
variety of canvas drop cloth and other disposable products using cutting and
sewing equipment. The Company has invested in equipment to perform adhesive
lamination to bond various material substrates up to 120 inches wide, such as
multi-ply drop cloths.
The Company's growth has been supported by capital investment in new
facilities and machinery and equipment. During the past three years, the Company
spent over $10 million on capital expenditures. Through the Company's
expenditures on new equipment, it has increased both its manufacturing capacity
and the range of its capabilities. Principal capital improvements include
equipment which has expanded the Company's custom folding and packaging
capabilities, and presses which have enabled the Company to print poly-laminate
and thermal coated substrates. The Company has also expanded and modernized its
roll-to-roll winding capacity. The Company believes it has sufficient capacity
to meet its growth expectations.
4
MANUFACTURING AND OPERATIONS-CONTINUED
The Company's equipment can produce a wide range of sizes of production
output to meet unique customer specifications. The custom converting equipment
can accommodate web widths from 3 inches to 132 inches. Its folding equipment
can fold from 6 inches to 120 inches by 240 inches, in one-inch increments. The
Company's printing presses perform flexographic and letterpress processes and
print from one to eight colors on webs as wide as 82 inches. Its fine printing
paper and paperboard converting equipment includes state-of-the-art rewinders,
folders, perforators, and equipment that performs extensive packaging functions.
SALES AND MARKETING
Tufco markets its products and services nationally through its 29
full-time sales and service employees and 139 manufacturer's representatives and
distributors. The Company's sales and service personnel are compensated with a
base salary plus an incentive bonus. The Company generally utilizes referrals
and its industry reputation and presence to attract customers, and advertises on
a limited basis in industry periodicals and through cooperative advertising
arrangements with its suppliers and customers.
Prior to fiscal 1999, customers generally purchased the Company's goods
and services under project-specific purchase orders rather than long-term
contracts. Beginning in fiscal 1999, management shifted its strategic focus in
contract manufacturing away from serving as a temporary manufacturer for the
customers' outsourced overflow needs towards longer-term cooperative
manufacturing projects which usually include multi-year contracts.
The Company's sales volume by fiscal quarter is subject to a limited
amount of seasonal fluctuation. Generally, Tufco's sales volume and operating
income are at their lowest levels in the first and second fiscal quarters and
are generally higher in the third and fourth fiscal quarters; however, the
Company believes that such seasonal fluctuations are diminishing as the Company
shifts its emphasis to longer-term manufacturing agreements.
The Company's customer base consists of approximately 600 companies,
including large consumer products companies, dealers and distributors of
business imaging papers and resellers of paint sundry products. In fiscal 2002,
two customers, both Fortune 500 companies, accounted for more than 10% of
consolidated sales each. A Paint Sundry customer accounted for 22%, and a
Contract Manufacturing customer accounted for 25%, of fiscal 2001 net sales.
Sales to such customers are made pursuant to project -specific purchase orders
as well as multi-year contracts of varying lengths. As a result, there can be no
assurance that sales to such customers will continue in the future at current
levels. Sales are generally made on a credit basis within limits set by the
Company's executive management. The Company generally requires payment to be
made within 30 days following shipment of goods or completion of services.
COMPETITION
The Company believes the primary areas of competition for its goods and
services are quality, production capacity and capability, capacity for prompt
and consistent delivery, service, continuing relationships and price. The
Company believes that its key competitive advantages are relatively broad
product offering, product quality, quick response, rapid equipment set-up and
turnaround time, long-standing customer relationships, broad customer base,
highly engineered machinery and processes, production diversity and capacity,
continuity of management, and experienced personnel. Management believes that
there is no single competitor that offers the breadth and variety of products
and services offered by the Company. In addition, customers benefit from the
Company's ability to perform its multiple services and distribute from its
national asset base, which reduces freight costs and increases product and
service reliability through use of single source supplier on a national basis.
5
COMPETITION-CONTINUED
Competitors for the Company's products and services vary based upon the
products and services offered. In the Company's contract manufacturing services,
the Company believes that relatively few competitors offer a wider range of
services or can provide them from a single source. With respect to the Company's
specialty printing services and fine paper converting products, the competition
consists primarily of numerous small regional companies. Management believes
that the Company's capabilities in Contract Manufacturing and specialty printing
give it the flexibility, diversity, and capacity to compete effectively on a
national basis with large companies and locally with smaller regional companies.
The Company does not believe foreign competition is significant at this time in
the contract manufacturing and specialty printing lines. In Business Imaging
Products, raw materials are inexpensive and readily available, and converting
equipment is easily purchased. As a result, competition for Business Imaging
customers is very strong, primarily from small regional suppliers and a few
large national companies. Based on management's assessment of the market, no
single firm offers the breadth of products offered by Tufco on a national basis.
The Company believes that there is strong domestic competition and a growing
amount of foreign competition in Paint Sundry products.
Historically, the Company has been subject to surges and declines in sales
due to the short-term nature of its converting projects with large integrated
paper products companies. Since the Company began emphasizing longer-term
contractual arrangements, management believes that it is now better able to
anticipate fluctuations in sales. However, volume requirements in contract
manufacturing arrangements are ultimately controlled by the Company's customers,
and a certain amount of short-term fluctuation is expected.
PRODUCT DEVELOPMENT AND QUALITY CONTROL
The Company works with its customers to develop new products and
applications. The Company believes that a key factor in its success has been its
willingness and distinctive technical competency to help customers experiment
with various flexible substrates to develop materials with different attributes
such as strength, flexibility, absorbency, breathability, moisture-resistance,
and appearance. As a result, the Company has been able to develop certain
laminated substrates at lower costs than if the customers developed these
products themselves. For example, a customer may request certain physical tests
during trial runs that are performed by the Company's quality control personnel,
often with the customer on site. Customers are charged for machine time use,
materials, and operator time in the new product development process. After
completing the development process, the Company prices a new product or service
and designs an ongoing program that provides information to the customer such as
quality checks, inventory reports, materials data, and production reports.
The Company maintains multiple quality control laboratories that
constantly monitor production using statistical process controls (SPC) to
observe and measure quality effectiveness of its production processes, such as
temperature, speed, tension, and pressure. The Company's rigid standards and use
of SPC have allowed it to qualify for the GMP (Good Manufacturing Practices)
designation from several customers, a quality control standard that these
companies require before they will use a company for outsourcing. In addition,
several of the Company's customers perform periodic audits at the Company's
Green Bay, Wisconsin facility to ensure that adequate quality control practices
are in place at all times. In fiscal 2000, the Company achieved ISO 9002
certification for its Green Bay, Wisconsin facility. ISO, which stands for
"same" in Greek, is the standard issued by the International Organization of
Standardization, to promote the development of international standards and
facilitate the exchange of goods and services worldwide. In fiscal 2001 the
Green Bay, Wisconsin facility achieved ISO 9001:2000.
6
RAW MATERIALS AND SUPPLIERS
The Company is not dependent on any particular supplier or group of
affiliated suppliers for raw materials or for equipment needs. The Company
believes that it has excellent relationships with its primary suppliers, and the
Company has not experienced difficulties in obtaining raw materials during the
last five years. The Company's raw materials fall into four general groups:
various paper stocks, inks for specialty printing, non-woven materials, and
polyethylene films. There are numerous suppliers of all of these materials. To
ensure quality control and consistency of its raw material supply, the Company's
Dallas, Texas facility received and Newton, North Carolina facility continues to
receive fine paper stock primarily from three major paper companies instead of a
greater number of companies.
The Company's primary raw material, base paper, is subject to periodic
price fluctuations. In the past, the Company has been generally successful in
eventually passing most of the price increases on to its customers, but
management cannot guarantee that the Company will be able to do this in the
future.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state, and local environmental
laws and regulations concerning emissions into the air, discharges into
waterways, and the generation, handling, and disposal of waste materials. These
laws and regulations are constantly evolving, and it is impossible to predict
accurately the effect they may have upon the capital expenditures, earnings, and
competitive position of the Company in the future. The Company believes that it
complies with these laws and regulations in all material respects.
The Company's past expenditures relating to environmental compliance have
not had a material effect on the Company. Further growth in the Company's
production capacity with a resulting increase in discharges and emissions may
require additional capital expenditures for environmental control facilities in
the future. No assurance can be given that future changes to environmental laws
or their application will not have a material adverse effect on the Company's
business or results of operations.
EMPLOYEES
At September 30, 2002, the Company had approximately 454 employees, of
whom 212 were employed at its Green Bay, Wisconsin facility, 152 at its Manning,
South Carolina facility, 14 accounting and information technology support
personnel located at Dallas, Texas, 67 at its Newton, North Carolina facility
and 9 at its St. Louis, Missouri sales office. The Company has a non-union
workforce and believes that its relationship with its employees is good.
WORKING CAPITAL
Information regarding the Company's working capital position and practices
is set forth in Item 7 of this Form 10-K under the caption "Liquidity and
Capital Resources".
Financial information for the Contract Manufacturing services, Business
Imaging paper products, and Paint Sundries products sectors is set forth in Note
13 to the Consolidated Financial Statements included in Item 8 herein.
7
ITEM 2 - PROPERTIES
The Company's main production and distribution facilities for contract
manufacturing and specialty printing are located in Green Bay, Wisconsin. The
220,000 square foot facility (of which approximately 15,000 square feet are used
for offices for the facility and the Company's corporate headquarters) was built
in stages from 1980 to 2000 and is owned by the Company. The Company has
approximately seven additional acres on which to expand in the future.
The Company leases 44,000 square feet of space in a facility contiguous to
its Green Bay, Wisconsin, facility, which is currently used for certain contract
manufacturing, warehousing, and distribution operations. This facility is leased
from a partnership of which Samuel Bero, a director of the Company, is one of
several partners. The lease for this facility expires March 2008. The Company
has an option to renew this lease for an additional five years.
The Company's accounting and information technology services are located
in facilities which it leases in Dallas, Texas, in the same building in which
the Company produced and distributed Business Imaging products until September
2002. The lease for the 173,000 square foot facility expires in February 2003.
The Company owns a 120,000 square foot facility in Newton, North Carolina,
used in the production and distribution of Business Imaging products and in the
printing of custom forms.
In June 1996, the Company leased for five years and in October of 1996
occupied a new 62,000 square foot facility in Manning, South Carolina, which was
designed and constructed to house the production and distribution operations for
the Company's Paint Sundry business. In March of fiscal 2001, the Company
completed a 62,000 square foot expansion of the Manning, South Carolina
facility. In April of fiscal 2001, the Company consolidated its St. Louis Paint
Sundry operations into the expanded Manning, South Carolina building. In
December 2002, upon lease termination, the Company exercised its option to
purchase the building for $1.1 million. The Company also owns a 42,000 square
foot facility in Manning, South Carolina which is not used in operations.
The Company, through April of fiscal 2001, leased a 60,000 square foot
building in St. Louis, Missouri from the former owners of Foremost Manufacturing
Company in which it packaged and distributed paint sundry products. This lease
was vacated as the Manning, South Carolina consolidation was completed. The
Company currently leases 2,300 square feet in St. Louis from the former owners
of Foremost Manufacturing Company for is Paint Sundry market sector sales
offices. The lease will expire in September 2005.
The Company believes that all of its facilities are in good condition and
suited for their present purpose. The Company believes that the property and
equipment currently used and planned for acquisition is sufficient for its
current and anticipated short-term needs, but that the expansion of the
Company's business or the offering of new services could require the Company to
obtain additional equipment or facilities.
ITEM 3 - LEGAL PROCEEDINGS
The Company is involved in various legal proceedings in the ordinary
course of its business, none of which are anticipated to have a material adverse
effect on the Company's results of operations or financial condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
THE EXECUTIVE OFFICERS OF THE COMPANY
Name Age Positions With the Company
- ---- --- --------------------------
Louis LeCalsey, III 63 Director, President and Chief Executive Officer
Michael B. Wheeler (2) 57 Vice President/Chief Financial Officer
Drew W. Cook (1) 40 Chief Accounting Officer, Corporate Controller
Charlie Cobaugh 58 Vice President
Madge J. Joplin 55 Vice President
Robert J. Simon 44 Chairman of the Board of Directors
- ----------
(1) Mr. Cook replaced Greg Wilemon as acting Chief Financial Officer on
December 19, 2001.
(2) Mr. Wheeler replaced Drew W. Cook as Chief Financial Officer on March
27, 2002.
Executive officers of the Company are elected by the Board of Directors
and serve at the discretion of the Board. There are no family relationships
between any executive officers of the Company.
EXECUTIVE OFFICERS
Louis LeCalsey, III--Mr. LeCalsey assumed the positions of President and
Chief Executive Officer of Tufco in September 1996. Previously he was President
of Tufco Industries, Inc. since April 1996 and prior to that he served as Vice
President of Worldwide Logistics for Scott Paper Company, the culmination of a
23-year career with Scott in various leadership positions. Mr. LeCalsey serves
as a director for TriMark USA, Inc., as well as a member of the Advisory group
for Bradford Equities Fund L.P.
Michael B. Wheeler, CPA--Mr. Wheeler has been with Tufco as Vice President
and Chief Financial Officer since March 27, 2002. From 1999 to 2001, Mr. Wheeler
consulted for several companies as a senior financial consultant. Prior to that,
Mr. Wheeler was with Stone Container Corporation for twenty-five years serving
as Vice President and Treasurer from 1983 to 1998.
Charlie Cobaugh-- Mr. Cobaugh assumed the position of Vice President and
Paint Sundries Sector Leader of Tufco on November 13, 1997. Previously he was
President of Foremost Manufacturing Company, which was acquired by Tufco on the
above date. Mr. Cobaugh serves as a Director and Board Member of numerous
charitable and welfare agencies in St. Louis, Missouri.
Madge J. Joplin-- Mrs. Joplin assumed the position of Vice President for
the Business Imaging sector of Tufco in 1998. She began her career in 1965 with
Hamco Inc. and served in various positions until Hamco was acquired by Tufco in
1995. While with Hamco Mrs. Joplin's more recent positions included Comptroller,
Vice President of Operations and Chief Operating Officer.
Drew W. Cook--Mr. Cook has been Corporate Controller since January 1,
1997, and Chief Accounting Officer since December 19, 2001. Mr. Cook served as
the interim Chief Financial Officer from December 19, 2001 to March 27, 2002.
Previously, Mr. Cook was Controller at the Company's Newton plant from September
1995 to December 1997 and served in various positions with Medipack Management
Corporation from October 1987 to September 1995, as Assistant Vice President and
Controller from 1992 to 1995 and Controller from 1989 to 1992.
Robert J. Simon--Mr. Simon has been Chairman of the Board of Directors of
Tufco since February 1992. Mr. Simon has been a Senior Managing Director of
Bradford Ventures, Ltd., a private investment firm, since 1992 and a General
Partner of Bradford Associates since 1989, having started at the firm in 1984.
Mr. Simon is either Chairman of the Board or a director of Wolverine Brass,
Parmarco Technologies, Inc., TriMark USA, Inc., Overseas Equity Investors Ltd.,
and Overseas Callander Fund, Ltd. and several other privately held companies.
9
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since the Company's initial public offering of Common Stock on January 28,
1994 at $9.00 per share, the Common Stock of Tufco has been traded on the NASDAQ
National Market under the trading symbol "TFCO." The following table sets forth
the range of high and low closing prices for the Common Stock, as reported on
the NASDAQ National Market for the periods indicated:
High Low Close
------- ------- -------
Fiscal 2001:
Quarter ended December 31, 2000 $10.125 $ 6.000 $ 7.000
Quarter ended March 31, 2001 $ 8.750 $ 5.250 $ 7.625
Quarter ended June 30, 2001 $ 9.600 $ 6.000 $ 9.000
Quarter ended September 30, 2001 $ 9.000 $ 6.150 $ 7.500
Fiscal 2002:
Quarter ended December 31, 2001 $ 8.000 $ 5.900 $ 6.890
Quarter ended March 31, 2002 $ 7.990 $ 5.250 $ 5.990
Quarter ended June 30, 2002 $ 6.910 $ 5.100 $ 6.750
Quarter ended September 30, 2002 $ 6.750 $ 4.110 $ 4.920
As of December 26, 2002, there were approximately 105 holders of record of
the Common Stock. On December 26, 2002, the last reported sale price of the
Common Stock as reported on the NASDAQ National Market was $4.15 per share.
The Company has never paid dividends on its Common Stock. All of the
Company's outstanding notes except the Industrial Development Revenue Bonds are
supported by loan agreements which contain certain restrictive covenants,
including requirements to maintain certain levels of cash flow and restriction
on the payment of dividends. The Company does not intend to pay any cash
dividends in the foreseeable future.
10
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE
DATA)
Years Ended September 30,
----------------------------------------------------------------
2002 2001 2000 1999 1998(1)
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Net sales $ 75,657 $ 82,127 $ 78,952 $ 76,331 $ 76,973
Cost of sales 66,978 71,742 68,041 63,225 65,903
-------- -------- -------- -------- --------
Gross profit 8,679 10,385 10,911 13,106 11,070
Selling, general, and
administrative expenses 7,497 6,770 7,107 7,710 8,128
Amortization of goodwill (4) -- 597 607 617 558
Facility restructuring cost 233 -- -- -- --
Facility closing cost 435 -- 831 -- --
Employee severance cost 209 10 660 -- 142
Property and inventory write-downs 735 -- 74 -- 250
Gain (loss) on asset sales (3) 9 147 327 1,048 (37)
-------- -------- -------- -------- --------
Operating income (loss) (421) 3,155 1,959 5,827 1,955
Interest expense (460) (960) (974) (1,086) (1,177)
Interest and other income 24 277 35 40 66
-------- -------- -------- -------- --------
Income (loss) before income taxes (857) 2,472 1,020 4,781 844
Income tax expense (benefit) (104) 1,047 493 1,803 452
-------- -------- -------- -------- --------
Income (loss) before extraordinary
item and accounting change (953) 1,425 527 2,978 392
Extraordinary item-loss from early repayment
of debt, net of income tax benefit of $32 -- -- -- -- 62
Cumulative effect of accounting change (4,652) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) $ (5,405) $ 1,425 $ 527 $ 2,978 $ 330
======== ======== ======== ======== ========
Basic Earnings (Loss) Per Share:
Income (loss) before extraordinary
items and accounting change $ (0.16) $ 0.31 $ 0.12 $ 0.67 $ 0.09
Extraordinary items -- -- -- -- --
Cumulative effect of accounting change (1.01) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) (4) $ (1.17) $ 0.31 $ 0.12 $ 0.67 $ 0.09
-------- -------- -------- -------- --------
Diluted Earnings (Loss) Per Share:
Income (Loss) before extraordinary
items and accounting change $ (0.16) $ 0.31 $ 0.11 $ 0.67 $ 0.07
Extraordinary items -- -- -- -- --
Cumulative effect of accounting change (1.01) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) (4) $ (1.17) $ 0.31 $ 0.11 $ 0.67 $ 0.07
-------- -------- -------- -------- --------
Weighted average common shares outstanding:
Basic 4,628 4,614 4,499 4,419 4,420
Diluted 4,628 4,642 4,622 4,475 4,518
OTHER DATA:
Depreciation and amortization (2) $ 3,070 $ 3,624 $ 3,535 $ 3,090 $ 2,605
Capital expenditures $ 1,196 $ 2,071 $ 7,073 $ 3,130 $ 2,629
BALANCE SHEET DATA (AT SEPTEMBER 30):
Working capital $ 11,021 $ 6,692 $ 11,952 $ 13,934 $ 12,630
Total assets 46,886 58,944 62,133 59,081 58,767
Total - current and long-term debt 6,157 12,460 13,107 14,530 17,697
Stockholders' equity 32,808 38,054 36,579 35,246 32,250
(Footnotes 1-4 on next page)
11
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA- CONTINUED
1) Includes Foremost Manufacturing Company since its acquisition in November
1997.
2) Includes depreciation and amortization of goodwill and other assets.
3) In June 1999, the Company sold its equipment and inventory related to its
Away-From-Home sector products and services, and has ceased selling into
this market sector.
4) Amortization of goodwill was not recorded for fiscal 2002 as the result of
implementation of Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets" in which the Company no longer
records goodwill amortization expense. Goodwill amortization expense was
$0.6 million in fiscal 2001, 2000, 1999 and 1998. Had goodwill not been
amortized for the years ended September 30, 2001, 2000, 1999 and 1998,
basic and diluted earnings per share would have been $0.11, $0.11, $0.12,
and $0.07 higher, respectively.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
Management's discussion of the Company's 2002 fiscal year in comparison to
fiscal 2001, contains forward-looking statements regarding current expectations,
risks and uncertainties for fiscal 2003 and beyond. The actual results could
differ materially from those discussed here. As well as those factors discussed
in the section entitled "Business" in this report, other factors that could
cause or contribute to such differences include, among other items, the general
economic and business conditions affecting the contract manufacturing, specialty
printing services, imaging paper products and paint sundry products industries,
significant changes in the cost of base paper stock, competition in the
Company's product areas, or an inability of management to successfully reduce
operating expenses in relation to net sales without damaging the long-term
direction of the Company. Therefore, the selected financial data for the periods
presented may not be indicative of the Company's future financial condition or
results of operations.
GENERAL
Tufco performs contract manufacturing and specialty printing services,
manufactures and distributes business imaging paper products and paint sundry
products. The Company's strategy is to provide services, manufacture and
distribute products in niche markets relying on close customer contact and high
levels of quality and service. The Company works closely with its contract
manufacturing clients to develop products or perform services which meet or
exceed the customers' quality standards, and to then use 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 folding, packaging, coating,
slitting and rewinding, sheeting, multi-color printing and laminating.
RESULTS OF OPERATIONS
The following discussion relates to the financial statements of the
Company for the fiscal year ended September 30, 2002 ("current year" or "fiscal
2002"), in comparison to the fiscal year ended September 30, 2001 ("prior year"
or "fiscal 2001"), as well as the fiscal year ended September 30, 2000 ("fiscal
2000").
12
RESULTS OF OPERATIONS (CONTINUED)
The following table sets forth, for the fiscal years ended September 30
(i) the percentage relationship of certain items from the Company's statements
of operations to net sales and (ii) the year-to-year changes in these items:
PERCENTAGE OF NET SALES YEAR-TO-YEAR CHANGE
------------------------------ -------------------
2002 TO 2001 TO
2002 2001 2000 2001 2000
------ ------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% -8% 4%
Cost of sales 88.5 87.4 86.2 -6 5
------ ------ ------
Gross margin 11.5 12.6 13.8 -16 -5
Selling and administrative expenses 9.9 8.3 9.0 11 -5
Amortization of goodwill 0.0 0.7 0.8 -100 -2
Facility restructuring cost 0.3 -- -- 100 --
Facility closing cost 0.6 -- 1.0 100 --
Employee severance cost 0.3 -- 0.8 100 --
Property write-downs 1.0 -- 0.1 100 --
Gain on asset sales 0.0 0.2 0.4 -94 -55
------ ------ ------ ------ ------
Operating income (loss) -0.6 3.8 2.5 -113 61
Interest expense -0.6 -1.2 -1.2 -167 -1
Interest and other income 0.1 0.4 0.0 -91 691
------ ------ ------ ------ ------
Income (loss) before income
taxes and accounting change -1.1 3.0 1.3 -135 142
Income tax expense (benefit) -0.1 1.3 0.6 -110 112
------ ------ ------ ------ ------
Income (loss) before accounting change -1.0 1.7 0.7 -153 171
Cumulative effect of accounting change -6.1 -- -- 100 --
------ ------ ------ ------ ------
Net income (loss) -7.1% 1.7% 0.7% -479% 171%
====== ====== ====== ====== ======
The components of net sales and gross profit are summarized in the table
below:
2002 2001 2000
--------------- --------------- ---------------
% of % of % of
Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ -----
(Dollars in millions)
Net Sales
Contract manufacturing and printing $30.4 40% $40.7 50% $34.2 43%
Business imaging paper products 21.6 29 20.8 25 25.9 33
Paint sundry products 23.7 31 20.6 25 18.8 24
----- ----- ----- ----- ----- -----
Net sales $75.7 100% $82.1 100% $78.9 100%
===== ===== ===== ===== ===== =====
Margin Margin Margin
Amount % Amount % Amount %
------ ------ ------ ------ ------ ------
Gross Profit
Contract manufacturing and printing $ 4.3 14% $ 6.6 16% $ 7.1 21%
Business imaging paper products 2.0 9 1.6 8 2.9 11
Paint sundry products 2.4 10 2.2 11 .9 5
----- ----- ----- ----- ----- -----
Gross profit $ 8.7 11% $10.4 13% $10.9 14%
===== ===== ===== ===== ===== =====
13
FISCAL YEAR ENDED SEPTEMBER 30, 2002 COMPARED TO SEPTEMBER 30, 2001
NET SALES for fiscal 2002 decreased $6.5 million or 8% related to lower
sales at the Contract Manufacturing sector (down $10.3 million or 25%) offset by
an increases of $3.1 million or 15% in the Paint Sundry sector and $0.8 million
(4%) from the Business Imaging sector. The most significant decline in Contract
Manufacturing sector was related to reduced product demand from a major customer
for which the Company manufactures and packages a variety of consumer products
as well as unit price adjustments to the customer. The Company has service
agreements with this major customer to manufacture and package a baby care
product and two cleaning products. For the Contract Manufacturing sector the
Company is dependent on unit volume projections provided by its customers and
demand generated by the customers' consumer base. Contract Manufacturing also
declined due to strong competition from numerous suppliers of converting
services to produce branded sheeting, copier papers and engineering rolls for
OEM customers and who compete primarily on low pricing for a declining market of
available sales. In the second quarter of fiscal 2001, this sector received its
last significant order from a large manufacturer of wide-format printers and
copiers before the customer's decision to reassess its inventory stocking
program and change suppliers. Printing and laminating services offered by the
Contract Manufacturing sector were down slightly from the prior year as well.
The increase in the Paint Sundry sector was the result of higher demand for
certain new products launched in fiscal 2001 sold mostly to the sector's largest
customer, a large do-it-yourself home center as well as volume increases to this
customer. The Company's Business Imaging sector continued to experience strong
competition from numerous suppliers continued to have a negative impact on sales
volume in the engineering and data processing products from the sector. The
decline in sales for those products in the Business Imaging sector were more
than offset by an increase in receipt roll sales to the sector's network of
products distributors. Additionally, in March 2002, the Company made a strategic
decision to exit the contract sheeting market and reached an agreement to sell
its most significant production assets and sublease a portion of its facility.
Later in fiscal 2002 the Company closed its Dallas, Texas manufacturing and
distribution facility to control costs in order to remain competitive with its
engineering products.
GROSS PROFIT declined $1.7 million (16%) and margins declined to 11.5% in
fiscal 2002 from 12.6% in fiscal 2001. The largest factor contributing to the
decline in margin percentages was the pass through of raw material costs in
certain Contract Manufacturing agreements which basically contribute additional
sales dollars with little or no margin dollar contributions. For this sector,
reductions in volume as well as unit price adjustments to a major customer also
contributed to the $2.3 million (35%) decline in gross profit. The decline in
sales due to strong competition from numerous suppliers of converting services
to produce branded sheeting, copier papers and engineering rolls mentioned
earlier accounted for part of the decline in gross profit. Business Imaging
gross profit increased $0.4 million or 22% due to growth in receipt roll sales
to the sector's network of products distributors discussed previously. Also the
sector improved margins by shedding overhead from underutilized production
assets and reducing its Dallas, Texas manufacturing facility size when it exited
from the contract sheeting market mentioned earlier. The Paint Sundry sector
gross profit increased $0.2 million, with margins decreasing to 10.3% in fiscal
2002 from 10.7% in fiscal 2001. The improvement in gross profit for the Paint
Sundry sector came from increased sales mentioned earlier and cost savings from
the consolidation of the Company's St. Louis operations into the expanded
Manning, South Carolina plant in April of fiscal 2001 offset by higher than
expected freight cost. Additionally, the Paint Sundry sector gross profits
declined as a result of unit price adjustments to a major customer of the sector
offset by sales volume growth to this customer mentioned earlier.
SELLING AND ADMINISTRATIVE EXPENSES for fiscal 2002 were up $0.7 million
or 11%, compared to $6.8 million for 2001, primary due to increased expenses for
outside professional services, rising health care costs, increases to the sales
force late in fiscal 2001 and employee recruiting costs. Additionally, the
Company increased its bad debt reserves following the bankruptcy of a large
discount retail store chain.
14
FISCAL YEAR ENDED SEPTEMBER 30, 2002 COMPARED TO SEPTEMBER 30, 2001-CONTINUED
AMORTIZATION OF GOODWILL was not recorded for fiscal 2002 as the result of
implementation of Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets" in which the Company no longer records
goodwill amortization expense which was $0.6 million for fiscal 2001. Had
goodwill not been amortized for the year ended September 30, 2001, the income
per share would have been $0.42 per share instead of the $0.31 per share as
reported.
See cumulative effect of accounting change below.
FACILITY RESTRUCTURING COSTS of $0.2 million for fiscal 2002 was recorded
following the Company's decision to exit the contract sheeting market in March
2002, mentioned above. These costs are mostly related building lease
abandonment.
FACILITY CLOSING EXPENSE of $0.4 million for fiscal 2002 was recorded as a
result of a strategic decision to close the Dallas, Texas manufacturing and
distribution facility in September 2002 to control costs in order to remain
competitive with the Company's engineering products by moving the decreased
production to its Newton, North Carolina facility. Also, certain assets used to
produce Paint Sundry products were moved to the Company's Manning, South
Carolina facility. This expense mostly includes costs to move equipment and
inventory, employee severances, building and equipment lease abandonment. The
Company expects to reduce ongoing costs at an annual rate of approximately $0.7
million through this closing and consolidation.
SEVERANCE EXPENSE was $0.2 million in fiscal 2002, and relates primarily
to payments by the Company pursuant to an employment agreement with a former
executive.
PROPERTY AND INVENTORY WRITE-DOWNS of $0.7 million includes $0.2 million
for an adjustment related to misappropriation of inventory by former employees
of a supplier in Mexico to which the Paint Sundry sector outsourced production.
Property write-downs of $0.5 million are related to the restructuring and
eventual closing of the Dallas, Texas facility mentioned and includes
adjustments to leasehold improvements and production equipment.
GAINS ON ASSET SALES were nominal in fiscal 2002, compared to $0.1 million
for 2001. The gain was related to the sale of sheeting equipment from its
Dallas, Texas facility mentioned above which was mostly offset by disposals of
unutilized equipment at the Company's Green Bay, Wisconsin facility.
INTEREST AND OTHER INCOME decreased $0.2 million to $0.4 million in fiscal
2002. The decline was due to a decrease in interest expense of $0.5 million from
fiscal 2001 as a result of debt elimination of $6.2 million throughout fiscal
2002 and reductions in the interest rate on borrowings. Additionally, other
income decreased $0.2 million in fiscal 2002, from the settlement of a lawsuit
under which the Company had been required to indemnify a related party in fiscal
2001. The actual settlement was less than the liability previously accrued by
the Company resulting in this gain in fiscal 2001.
INCOME TAXES decreased $1.2 million as a result of declines in gross
profit, increases in selling and administrative expenses and other expenses
mentioned above. Income tax benefit for fiscal 2002 was 12% of pre-tax losses
compared to income tax expense of 42% of pre-tax earnings in fiscal 2001. The
decreased rate was the result of the impact that certain non-deductible
expenses, such as meal and entertainment expense, on the pre-tax losses incurred
in fiscal 2002 as well as the mix of tax rates from the various jurisdictions in
which the Company operates.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE is the result of the Company
adopting certain provisions of SFAS No. 142, effective October 1, 2001. Under
SFAS No. 142, goodwill and certain other intangible assets are no longer
systematically amortized but instead are reviewed for impairment and any excess
in carrying value over the estimated fair value is charged to results of
operations. In connection with the adoption of SFAS No. 142, the Company
completed the transitional goodwill
15
FISCAL YEAR ENDED SEPTEMBER 30, 2002 COMPARED TO SEPTEMBER 30, 2001-CONTINUED
impairment test during the second quarter of fiscal 2002. As a result, an
impairment charge of $ 6.4 million ($4.7 million after tax, or $1.01 per diluted
share) was recorded related to goodwill at certain Business Imaging and Paint
Sundry reporting units. The fair value of the reporting units was estimated
using a combination of valuation techniques including the expected present value
of future cash flows and prices of comparable businesses. For the year ended
September 30, 2001, amortization of goodwill was $512,340, net of tax, or $0.11
per share.
BASIC AND DILUTED LOSS PER SHARE was $1.17 for fiscal 2002 compared to
basic and diluted earnings per share of $0.31 in fiscal 2001.
FISCAL YEAR ENDED SEPTEMBER 30, 2001 COMPARED TO SEPTEMBER 30, 2000
NET SALES for fiscal 2001 increased $3.2 million or 4% primarily due to
increased sales in the Company's Contract Manufacturing sector, which increased
$6.5 million or 19% over fiscal 2000. The increase in Contract Manufacturing
sales were the result of three service agreements with a Fortune 500 consumer
products company, under which the Company manufactured and packaged a baby care
product and two cleaning products. Unlike other agreements the Company has with
its Contract Manufacturing customers, the agreement for the baby care product
requires the Company to purchase the primary raw materials used in the
manufacturing process and pass through this raw material cost, plus a small
handling charge, to the customer in addition to the revenue from typical
manufacturing services. This arrangement results in higher sales but lower
effective margins. Manufacturing of the cleaning products began late in third
quarter of fiscal 2000 and reached a peak in the second and third quarter of
fiscal 2001. Sales of the baby care product began in the second quarter of
fiscal 2001. Offsetting these increases, Contract Manufacturing sales to a large
manufacturer of wide-format printers and copiers decreased during fiscal 2001
due to decisions by that customer's management to reassess its
inventory-stocking program. The Company's Business Imaging sales decreased $5.1
million or 20% during fiscal 2001 as strong competition from numerous suppliers
continued to have a negative impact on sales volume in the sector, especially in
the engineering, data processing and contract sheeting products. In addition,
during fiscal 2001 the Company was unsuccessful in retaining existing business
including sales of receipt rolls to a large retail video rental company and
three large retail grocers, all of which were lost during annual competitive bid
processes. Sales in the Company's Paint Sundry sector rose $1.8 million (9%) in
fiscal 2001 over fiscal 2000, primarily due to increased sales to a large
do-it-yourself home center. In addition, during fiscal 2001, the Paint Sundry
sector was successful in launching two new product portfolios.
GROSS PROFIT declined $0.5 million (5%) and margins declined to 12.6% in
fiscal 2001 from 13.8% in fiscal 2000. The largest factor contributing to the
decline in margins was the pass through of raw material costs in the new
Contract Manufacturing agreement to manufacture and package a baby care product
discussed earlier. Gross profit for Contract Manufacturing declined $0.6 million
or 8% in fiscal 2001 from fiscal 2000 due to a decline in sales to a large
manufacturer of wide-format printers and copiers mentioned earlier. Gross profit
in the Paint Sundry sector increased $1.3 million or 158% increasing margins to
11% in fiscal 2001. This was primarily due to the aforementioned increase in
sales to a large do-it-yourself home center and the consolidation of the
Company's two Paint Sundry plants. In April of fiscal 2001, the Company
completed its consolidation of its St Louis, Missouri operations into the
expanded Manning, South Carolina plant. Management believes that this
consolidation will provide almost $1 million in annual cost savings, most of
which will help to increase gross profit. Business Imaging sector gross margins
decreased $1.3 million (44%) during fiscal 2001. As discussed earlier, the
Company's Business Imaging sales decreased during fiscal 2001 due to loss of
customers from strong competition in the Company's engineering, contract
sheeting and data processing product groups and the loss of business as a result
of competitive bid processes for sales receipt business during fiscal 2001 and
fiscal 2000.
16
FISCAL YEAR ENDED SEPTEMBER 30, 2001 COMPARED TO SEPTEMBER 30, 2000-CONTINUED
SELLING AND ADMINISTRATIVE EXPENSES for fiscal 2001 were down $0.3 million
or 5%, compared to $7.1 million for fiscal 2000, primary due to reductions in
cost for outside professional services. Additionally telephone expenses were
down in fiscal 2001 from installation of communications hardware which reduced
long distance telephone costs and internal network communication costs.
FACILITY CLOSING EXPENSE was a one-time charge in fiscal 2000 associated
with the closing of the Company's St. Louis distribution facility and the moving
of the related inventory equipment and personnel to Manning, South Carolina.
SEVERANCE EXPENSE was $0.7 million in fiscal 2000, and relates to payments
due to a former executive of the Company pursuant to an employment agreement
with an acquired company.
GAINS ON ASSET SALES were $0.1 million in fiscal 2001, compared to $0.3
million for fiscal 2000, resulting from the sale of certain under-utilized
equipment in the Green Bay, Wisconsin facility.
INTEREST AND OTHER INCOME increased $0.2 million in fiscal 2001 due to the
settlement of a lawsuit under which the Company had been required to indemnify a
related party. The actual settlement was less than the liability previously
accrued by the Company resulting in this gain.
INCOME TAXES were 42% of pre-tax earnings in fiscal 2001, compared to 48%
for fiscal 2000. The decreased rate was the result of the impact that certain
non-deductible expenses, such as goodwill amortization, on the relatively low
level of pre-tax income in fiscal 2000.
BASIC AND DILUTED EARNINGS PER SHARE were $0.31 for fiscal 2001 compared
to $0.12 and $0.11, respectively, in fiscal 2000. Adjusted for the after tax
effects of the plant costing costs and executive severance, basic and diluted
earnings per share would have been $0.32 in fiscal 2000.
17
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth selected quarterly financial information.
This information is derived from unaudited consolidated financial statements of
the Company and includes, in the opinion of management, all normal and recurring
adjustments that management considers necessary for a fair statement of results
for such periods. The operating results for any quarter are not necessarily
indicative of results for any future period.
FISCAL 2002 (Dollars in thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales ...................................... $17,264 $18,407 $20,548 $19,438
Gross profit ................................... 1,359 2,360 3,405 1,556
Operating expenses ............................. 1,832 2,681 1,870 2,717
Operating income (loss) ........................ (474) (321) 1,535 (1,161)
Income (loss) before income taxes and accounting
change ....................................... (598) (433) 1,428 (1,254)
Income tax expense (benefit) ................... (191) (84) 650 (480)
Change in accounting principle ................. (4,652) -- -- --
Net income (loss) .............................. (5,059) (349) 778 (774)
Earnings (loss) per share:
Basic ...................................... (1.10) (0.07) .17 (.17)
Diluted .................................... (1.10) (0.07) .17 (.17)
FISCAL 2001 (Dollars in thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales ....................................... $16,770 $21,858 $22,421 $21,078
Gross profit .................................... 528 3,359 3,436 3,062
Operating expenses .............................. 1,671 1,859 1,836 1,864
Operating income (loss) ......................... (1,143) 1,500 1,600 1,198
Income (loss) before income taxes ............... (1,349) 1,246 1,515 1,060
Income tax expense (benefit) .................... (440) 477 585 425
Net income (loss) ............................... (909) 769 930 635
Earnings (loss) per share:
Basic ....................................... (.20) .17 .20 .14
Diluted ..................................... (.20) .17 .20 .14
In the fourth quarter of fiscal 2002, sales declined $1.6 million or 8% as
compared to fourth quarter of fiscal 2001. The Contract Manufacturing sector
sales were down $3.0 million or 28% in fourth quarter fiscal 2002 when compared
to the same period last year as a result of reduced product demand from a major
customer for which the Company manufactures and packages a variety of consumer
products as well as unit price adjustments to the customer. Contract
Manufacturing also declined due to strong competition from numerous suppliers of
converting services to produce branded sheeting, copier papers and engineering
rolls for OEM customers and who compete primarily on low pricing for a declining
market of available sales offset slightly by printing and laminating services
which were up from fiscal 2001. For fourth quarter fiscal 2002, Business Imaging
sector sales were up $0.7 million (14%) in fourth quarter of fiscal 2002 when
compared to the same quarter of fiscal 2001 due to increased sales of receipt
roll sales to the sector's network of products distributors. The Paint Sundry
sector sales were up $0.7 million or 12% for fourth quarter fiscal 2002 when
compared to the same quarter last year mostly due to sales to a large
18
SELECTED QUARTERLY FINANCIAL DATA-CONTINUED
do-it-yourself home center in the Paint Sundry sector. Gross profit for the
Company decreased $1.5 million (49%) and margin percentages declined to 8% from
15% in fourth quarter of fiscal 2002 compared to the same quarter of fiscal
2001. Gross profit for the Contract Manufacturing sector declined $1.6 million.
The largest factor contributing to the decline in gross profit was the decline
is sales volume discussed earlier. Also for this sector, unit price adjustments
to a major customer contributed to the gross profit decline. Business Imaging
gross profit increased $0.3 million due to growth in receipt roll sales to the
sector's network of products distributors discussed previously. Also the sector
improved margins by shedding overhead from underutilized production assets and
reducing its Dallas, Texas manufacturing facility size when it exited from the
contract sheeting market mentioned earlier. The Paint Sundry sector gross profit
increased $0.3 million, with margins decreasing to 8% in fourth quarter of
fiscal 2002 from 14% in the same quarter of fiscal 2001. The decrease in margin
percent for the Paint Sundry sector came from higher than expected freight cost
discussed earlier. Additionally, the Paint Sundry sector gross profits increased
as a result of sales growth to a large do-it-yourself home center mentioned
earlier offset partially by unit price adjustments to this same customer.
Operating income declined from $1.2 million in fourth quarter of fiscal 2001 to
an operating loss of $1.2 million in fourth quarter of fiscal 2002. This decline
in fourth quarter of fiscal 2002 included property and inventory write-downs of
$0.4 million related to an inventory misappropriation discussed earlier and $0.4
million related to the closing of the Company's Dallas, Texas facility in
September 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations increased to $6.6 million in fiscal 2002 from
$2.2 million in fiscal 2001. Cash generated from net income adjusted for
non-cash expenses and gains was $3.1 million in fiscal 2002 compared to $4.7
million in the prior year. In addition, inventories were $2.3 million lower in
fiscal 2002 compared with fiscal 2001 due to working capital improvement
strategies undertaken by the Company's management and completion of the product
launch of two new Paint Sundry products started late during fiscal 2001.
Accounts payable increased $1.9 million due to timing of payment due dates
relative to the last day of fiscal 2002. The Company has an arrangement with its
largest customer whereby the Company purchases and installs the customer's
production equipment, and is later reimbursed by the customer. The balance of
these reimbursement payments due were $0.1 million and $1.0 million on the last
day of fiscal 2002 and 2001, respectively.
Cash used in investing activities totaled $0.7 million in fiscal 2002 and
was related to cost to purchase and install production or office equipment. Cash
used in investing activities totaled $1.9 million in fiscal 2001 resulting from
cost to expand the Manning, South Carolina plant ($1.2 million) and purchase and
install production and office equipment. These expenditures were partially
offset by proceeds from the sale of sheeting equipment in fiscal 2002 mentioned
above and other under-utilized production equipment in the current and prior
years.
Cash used in financing activities totaled $6.1 million and $0.6 million in
fiscal 2002 and fiscal 2001 respectively, resulting from the repayment of
long-term debt offset by repayment of shareholder notes receivable in fiscal
2002 and proceeds from the issuance of common stock in fiscal 2001.
The Company's primary need for capital resources is to finance
inventories, accounts receivable, capital expenditures, and acquisitions. As of
September 30, 2002, the Company had commitments for the purchase of a
flexographic printing press for $3.2 million and a wet wipe converting machine
for $2.2 million. The Company plans to enter into an operating lease for a
flexographic printing press during fiscal 2003. The company anticipates making
capital expenditures in fiscal 2003 of approximately $4.0 million and expects
such amounts to be funded by cash from operations, bank and other financing
sources.
19
LIQUIDITY AND CAPITAL RESOURCES-CONTINUED
On August 15, 2002, the Company entered into an amended and restated
financing arrangement with JPMorgan Chase Bank (the "Credit Facility"). Under
the Credit Facility, the Company had $3.4 million of term debt outstanding at
September 30, 2002, repayable in equal quarterly payments maturing in May 2007,
and availability up to $10.0 million under a revolving credit agreement through
June 2004. On July 30, 1998, the Company entered into an interest rate swap
arrangement with Wachovia Bank, NA (formerly First Union) which had the effect
of creating a fixed interest rate on the Company's term debt, expiring August
2003. As a result of this arrangement, the interest rate on the term debt is
fixed at 5.87%, plus a profit spread for the bank. Management believes that this
hedge arrangement creates a desirable stability of future interest payments. At
December 26, 2002, the Company had approximately $8.1 million in total
borrowings outstanding under this agreement, with $5.6 million available under
the revolving credit agreement. Management believes its operating cash flow is
adequate to service its long-term obligations as of September 30, 2002, and any
budgeted capital expenditures.
The Credit Facility is secured by substantially all of the Company's
assets and contains certain restrictive covenants, including, minimum required
cash flow, maximum allowable indebtedness and maximum allowable capital
expenditures. In December 2002, the Company received a waiver by its principal
lender as of September 30, 2002, in connection with the Company's failure to
achieve the required fixed charge coverage ratio, as defined in the Credit
Facility. Management believes its failure to achieve this ratio was the result
of facility closing cost, and property and inventory write-downs experienced
late in fourth quarter of fiscal 2002. Other than the fixed charge coverage
ratio described above, at September 30, 2002 the Company was in compliance with
all of its debt covenants under the credit facility. At September 30, 2001, the
Company was in compliance with all of its debt covenants under its prior credit
facility.
The Company has a $1.0 million standby letter of credit with its former
senior lender for amounts payable in connection with certain Village of
Ashwaubenon Industrial Development Revenue Bonds. Pursuant to the terms of the
Village of Ashwaubenon Industrial Development Revenue Bonds, the Company is
required to replace the standby letter of credit in May 2003. The Company
expects to replace this standby letter of credit with a substitute letter of
credit issued under the Credit Facility.
The Company entered into an agreement with a third party to construct and
lease for an initial 5-year term a 62,000 square foot facility in Manning, South
Carolina, which the Company occupied in October 1996. The facility was financed
pursuant to a $1.5 million industrial revenue bond for which the Company was
indirectly liable pursuant to a lease backed by a letter of credit issued by its
former senior lenders. As a result of the refinancing with JPMorgan Chase Bank,
the Company was required to replace this letter of credit with a substitute
letter of credit issued under the Credit Facility. On December 5, 2002 the
Company caused the prepayment of the $1.1 million principal amount and related
accrued interest on the industrial revenue bonds and in connection therewith
purchased the building for $1.1 million. This transaction was funded by
additional borrowings under the Credit Facility.
During the first quarter of fiscal 2000, the Company entered into a lease
to own and operate a Windmoeller and Hoelscher eight color flexographic printing
press. The lease is structured as an operating lease over ten years with
payments totaling approximately $0.5 million annually. The Company will have the
right to purchase the asset at varying points during the lease.
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 pursuant to the Credit Facility.
CONTRACTUAL OBLIGATION DATA
The following table sets forth obligations and commitments to make future
payments of debt, operating lease agreements, and future payments under
contracts:
Payments Due By Period
----------------------------------------------------------------------
Less
Than 1 1-3 4-5 After
Total Year Years Years 5 Years
---------- ---------- ---------- ---------- ----------
Long-Term Debt 6,156,608 922,726 3,638,430 1,595,452
Operating Leases 5,547,137 1,070,261 1,616,428 1,327,463 1,532,985
Unconditional Purchase Obligations (1) 6,500,000 6,500,000
---------- ---------- ---------- ---------- ----------
Total Contractual Cash Obligations 18,203,745 8,492,987 5,254,858 2,922,915 1,532,985
========== ========== ========== ========== ==========
(1) The unconditional purchase obligations includes $3.2 million for a
flexographic printing press which the Company ultimately plans to finance
through an operating lease, $2.2 million for a wet wipe converting machine and
$1.1 million for the Company to exercise its option to purchase a building in
Manning, South Carolina.
The Company's allowance for uncollectible accounts receivable was $0.5
million at November 30, 2002. Management believes that this allowance is
adequate to provide for losses inherent in its accounts receivable.
20
LIQUIDITY AND CAPITAL RESOURCES-CONTINUED
Sharp increases or decreases in the costs of key commodities, such as
paper or polyethylene, periodically impact the Company's inventory values and
net income. This was the case in fiscal 2000 as rising paper costs had a
negative impact on the Company's profit. In fiscal years 2002 and 2001, the
impact of inflation was minimal on the Company's inventory and net income.
Management believes that the Company is generally successful in eventually
passing these fluctuations in raw material prices to its customers through
increases or decreases in the selling price of the Company's products, although
the timing of selling price increases may lag behind cost increases. Prior to
these periods, the impact of inflation has been minimal on the Company's
inventory and net income.
CRITICAL ACCOUNTING POLICIES
Our financial statements are prepared in accordance with accounting
principals generally accepted in the United States of America. The reported
financial results and disclosures were determined using significant accounting
policies, practices and estimates as described below. We believe the reported
financial disclosures are reliable and present fairly, in all material respects,
the financial position and results of the Company.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Significant intercompany
transactions and balances are eliminated in consolidation. Certain items in
prior periods have been reclassified to conform with the current presentation.
Financial statement preparation requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses for the period. Differences from those
estimates are recognized in the period they become known.
Revenue Recognition- The Company recognizes revenue in accordance with
revenue terms, typically revenues are recognized as sales when goods are shipped
and title transfers to the customer.
Trade Accounts and Notes Receivable- Management estimates allowances for
collectibility related to its trade accounts and note receivables. These
allowances are based on the customer relationships, the aging and turns of
accounts receivable, credit worthiness of customers, credit concentrations and
payment history. Although management monitors collections and credit worthiness,
the inability of a particular customer to pay its debts could impact
collectibility of receivables and could have an impact on future revenues if the
customer is unable to arrange other financing. Management does not believe these
conditions are reasonably likely to have a material impact on the collectibility
of its receivables or future revenues.
Management estimates sales returns and allowances by analyzing historical
returns and credits, and applies these trend rates to the most recent 12 months'
sales data to calculate estimated reserves for future credits. Management
estimates the allowance for doubtful accounts by analyzing accounts receivable
balances by age, applying historical trend rates to the most recent 12 months'
sales, less actual write-offs to date. Management's estimates include providing
for 100 percent of specific customer balances when it is deemed probable that
the balance is uncollectible. Actual results could differ from these estimates
under different assumptions.
Inventories- Inventories are carried at the lower of cost or market, with
cost determined under the first-in, first-out (FIFO) method of inventory
evaluation. The Company estimates reserves for inventory obsolescence and
shrinkage based on its judgment of future realization. A large portion of the
Company's inventory is saleable to multiple customers and a portion of the
inventory is manufactured to specifications provided by original equipment
manufacturers and is not subject to rapid technological change.
Management does not believe changes are reasonably likely to have a
material impact on the valuation of its inventories.
Goodwill- Goodwill represents the excess of cost over fair value of net
assets acquired in business combinations in fiscal 1998 and prior years and,
before October 1, 2001, was amortized on a straight-line basis over 25 to 40
years and is stated net of accumulated amortization of $3,873,464 at September
30, 2001. Management has continued to review the carrying values of goodwill for
recoverability using estimated future cash flows (see Recently Issued Accounting
Standards, SFAS No. 142, below).
The Company adopted SFAS No. 142 effective October 1, 2001. Under SFAS No.
142, goodwill and certain other intangible assets are no longer systematically
amortized but instead are reviewed for impairment, and any excess in carrying
value over the estimated fair value is charged to results of operations. The
previous method for determining impairment prescribed by SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, utilized an undiscounted cash flow approach for the initial
impairment assessment, while SFAS No. 142 utilizes a fair value approach. The
goodwill impairment charge discussed below is the result of the change in the
accounting method for determining the impairment of goodwill.
In connection with the adoption of SFAS No. 142, the Company allocated
goodwill to each of its reporting units and tested this goodwill for impairment
as of the beginning of fiscal 2002. The Company completed the transitional
goodwill impairment test during the second quarter of fiscal 2002. As a result,
an impairment charge of $6.4 million ($4.7 million after tax, or $1.01 per
diluted share) was recorded related to goodwill at certain Business Imaging and
Paint Sundry reporting units. The fair value of the reporting units was
estimated using a combination of valuation techniques, including the expected
present value of future cash flows and prices of comparable businesses.
21
CRITICAL ACCOUNTING POLICIES-CONTINUED
The charges have been recorded as the cumulative effect of accounting
change in the amount of $6.4 million ($4.7 million after tax, or $1.01 per
diluted share) as of October 1, 2001, in the accompanying condensed consolidated
statements of operations.
Financial Statements are attached as an Appendix to this report. The index
to the financial statements is found on F-1 of the Appendix. Note 1 to the
Consolidated Financial Statements contain additional information on the
Company's accounting policies.
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 142, "Goodwill and Other Intangible Assets", became effective for
the Company October 1, 2001 as discussed earlier. Under SFAS No. 142, goodwill
and certain other intangible assets are no longer systematically amortized but
instead are reviewed for impairment and any excess in carrying value over the
estimated fair value is charged to results of operations. In connection with the
adoption of SFAS No. 142, the Company completed the transitional goodwill
impairment test during the second quarter of fiscal 2002. As a result, an
impairment charge of $6.4 million ($4.7 million after tax) was recorded related
to goodwill at certain Business Imaging and Paint Sundry reporting units. The
fair value of the reporting units was estimated using a combination of valuation
techniques including the expected present value of future cash flows and prices
of comparable businesses.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," which was issued by the FASB in August 2001, is effective for fiscal
years beginning after December 15, 2001. SFAS 144 supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS 144 provides a single method of accounting for long-lived
assets to be disposed of and retains requirements found in SFAS 121 with regard
to the impairment of long-lived assets. The Company is in the process of
evaluating the impact of the provisions of SFAS 144.
SFAS No. 146, "Accounting for Costs Associated with Exit of Disposal
Activities", which was issued by the FASB in July 2002, requiring companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 146 supercedes EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Cost Incurred in a Restructuring)". Statement SFAS No. 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. Management does not believe that adoption of SFAS No. 146 will have a
material impact on the Company's financial position or results of operations.
22
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk- In August 1998, the Company entered into an interest
rate swap contract as a hedge under which the interest rate on its term debt
under the credit facility is fixed at 5.87%, plus a profit spread for the lender
(see Note 6 to the Company's Financial Statements). At September 30, 2002 and
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 of $65,941
and $124,713, respectively, to its lender if the swap were to have been
terminated and paid at those times. Prior to entering into the swap agreement,
management had reviewed the 40-year history of interest rates and had determined
that the Company's risk of liability resulting from a material decline in
interest rates over the life of the swap 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
September 30, 2002.
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
September 30, 2002. An assessment of the risks of short-term commodity price
fluctuations is set forth in Part I, Item 1 of this Form 10-K under the caption
"Raw Materials and Suppliers".
Other Relevant Market Risks- The Company does not own any marketable
securities, and management is not aware of any other relevant market risks.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements are attached as an
Appendix to this report. In addition, Selected Quarterly Financial Data is set
forth in Item 7 of this Form 10-K under the caption "Selected Quarterly
Financial Data".
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
23
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information to be included under the caption "Nominees" in the
Company's definitive proxy statement relating to the Company's annual meeting to
be held in 2003 (the "Proxy Statement"), which Proxy Statement is to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A within
120 days of the end of the fiscal year covered by this report. In addition, the
information called for by Item 10 with respect to Executive Officers is set
forth under Part I of this report.
COMPLIANCE WITH SECTION 16 (A) OF THE SECURITIES EXCHANGE ACT
The information called for by Item 10 with respect to compliance with Section 16
(a) of the Securities Exchange Act is incorporated by reference from the Proxy
Statement.
ITEM 11 - EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated by reference from
the Proxy Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is incorporated by reference from
the Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated by reference from
the Proxy Statement.
ITEM 14 - 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, 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.
Within 90 days prior to the date of this report, 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 were effective.
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect the internal controls
subsequent to the date the Company completed its evaluation.
24
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. Financial statements are attached as an
Appendix to this report. The index to the financial statements is
found on F-1 of the Appendix.
2. Financial Statement Schedules. All schedules are omitted since the
required information is not present or is not present in amounts
sufficient to require a submission of the schedules, or because the
information required is included in the financial statements and
notes thereto.
3. Exhibits. See Exhibit Index in item 14 (c), below.
(b) The Company did not file any reports on Form 8-K during the quarter ended
September 30, 2002.
(c) Exhibit
Number Description
------- -----------
2.1 Stock Purchase Agreement dated as of November 12, 1997 by and
among Tufco Technologies, Inc. (the "Company"), Charles
Cobaugh and James Barnes (filed as exhibit 2.1 to the
Company's Form 8-K dated November 13, 1997 filed with the
Commission on November 26, 1997 file number 0-21018,
incorporated by reference herein).
3.1 Restated Certificate of Incorporation (1) (Exhibit 3.1)
3.2 Bylaws (1) (Exhibit 3.2)
10.1 Stock Purchase and Contribution Agreement, dated as of
February 25, 1992, among the Company, Tufco Industries, Inc.
("Tufco"), and the Stockholders of Tufco. (1) (Exhibit 10.1)
10.2 Amended and Restated Consulting Agreement with Bradford
Investment Partners, L.P. (3) (Exhibit 10)
10.3 Loan Agreement, dated May 1, 1992, between the Village of
Ashwaubenon, Wisconsin, and the Company. (1) (Exhibit 10.11)
10.4 1992 Non-Qualified Stock Option Plan (1) (Exhibit 10.12)
10.5 Form of Employee Stock Purchase Agreement between the Company
and certain key employees of the Company. (1) (Exhibit 10.17)
10.6 1993 Non-Employee Director Stock Option Plan. (2) (Exhibit
10.19)
10.7 Amended Employment Agreement with Greg Wilemon, dated
September 18, 1995. (4) (Exhibit 10.11)
25
10.8 *Lease between Bero and McClure Partnership and Tufco, L.P.,
dated October 15, 2002. (Exhibit 10.8)
10.9 Employment Agreement with Louis LeCalsey, III dated September
19, 1996. (5) (Exhibit 10.18)
10.10 Credit Agreement among Tufco L.P. as Borrower, the Company as
the Parent First Union National Bank as agent and the banks
named herein dated August 28, 1998. (6) (Exhibit 10.13)
10.11 ISDA Master Agreement and Schedule to the Master Agreement
dated as of July 30, 1998 between First Union National Bank
and Tufco, L.P. (6) (Exhibit 10.14)
10.12 First Amendment to Credit Agreement. (6) (Exhibit 10.15)
10.13 Second Amendment to Credit Agreement. (7) (Exhibit 10.16)
10.14 Waiver, Consent and Fourth Amendment. (8) (Exhibit 10.15)
10.15 Fifth Amendment to Credit Agreement. (9) (Exhibit 10.16)
10.16 Sixth Amendment to Credit Agreement. (10) (Exhibit 10.17)
10.17 *Amended and Restated Credit Agreement dated August 15, 2002.
10.18 *First Amendment to the Amended and Restated Credit Agreement.
21.1 Subsidiaries of the Company. (6) (Exhibit 21.1)
99.1 Employee Stock Purchase Agreement executed by Greg Wilemon in
favor of the Company dated September 30, 2000. (11) (Exhibit 99.1)
- ----------
* Filed herewith
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Reg. No. 33-55828) (the "Registration Statement") as filed
with the Commission on December 16, 1992.
(2) Incorporated by reference to Amendment No. 1 to the Registration
Statement as filed with the Commission on November 23, 1993.
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1995. (Commission file
#0-21018)
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended September 30, 1995. (Commission file #0-21018)
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended September 30, 1997. (Commission file #0-21018)
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended September 30, 1998.
(7) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2000.
(8) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2002.
(9) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2002.
(10) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2002.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended September 30, 2000.
(d) See Item 14(a)(3) above for the list of exhibits required to be filed as
part of the Annual Report on Form 10-K.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Green Bay, Wisconsin,
on December 27, 2002.
Tufco Technologies, Inc.
By: /s/ Louis LeCalsey, III
--------------------------------
Louis LeCalsey, III
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Louis LeCalsey, III President, Chief Executive Officer December 27, 2002
- ------------------------------ and Director (Principal Executive
Louis LeCalsey, III Officer)
/s/ Robert J. Simon Chairman of the Board December 27, 2002
- ------------------------------
Robert J. Simon
/s/ Michael B. Wheeler VP/Chief Financial Officer, December 27, 2002
- ------------------------------
Michael B. Wheeler
/s/ Drew W. Cook Chief Accounting Officer, December 27, 2002
- ------------------------------ Corporate Controller
Drew W. Cook
/s/ Samuel J. Bero Director December 27, 2002
- ------------------------------
Samuel J. Bero
/s/ C. Hamilton Davison Jr. Director December 27, 2002
- ------------------------------
C. Hamilton Davison, Jr.
/s/ William J. Malooly Director December 27, 2002
- ------------------------------
William J. Malooly
/s/ Seymour S. Preston, III Director December 27, 2002
- ------------------------------
Seymour S. Preston, III
27
I, Louis LeCalsey, III, President and Chief Executive Officer of Tufco
Technologies, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Tufco Technologies,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 27, 2002
/s/ Louis LeCalsey, III
- -------------------------------------
President and Chief Executive Officer
28
I, Michael B. Wheeler, Vice President and Chief Financial Officer of Tufco
Technologies, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Tufco Technologies,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 27, 2002
/s/ Michael B. Wheeler
- ------------------------------------------
Vice President and Chief Financial Officer
29
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Financial Statements as of
September 30, 2002 and 2001, and for
Each of the Three Years in the Period Ended
September 30, 2002, and
Independent Auditors' Report
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS - ITEM 8 OF FORM 10-K
- --------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT..........................................................F-2
FINANCIAL STATEMENTS AND NOTES:
Consolidated Balance Sheets as of September 30, 2002 and 2001......................F-3
Consolidated Statements of Operations and Comprehensive Income
for the Years Ended September 30, 2002, 2001, and 2000..........................F-4
Consolidated Statements of Stockholders' Equity
for the Years Ended September 30, 2002, 2001, and 2000..........................F-5
Consolidated Statements of Cash Flows
for the Years Ended September 30, 2002, 2001, and 2000..........................F-6
Notes to Consolidated Financial Statements.........................................F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Directors and Stockholders of
Tufco Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Tufco
Technologies, Inc. and subsidiaries (the "Company") as of September 30, 2002 and
2001, and the related consolidated statements of operations and comprehensive
income, stockholders' equity and cash flows for each of the three years in the
period ended September 30, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Tufco Technologies, Inc. and
subsidiaries at September 30, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 2002, in conformity with accounting principles generally accepted in the
United States of America.
Dallas, Texas
December 6, 2002
F-2
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND 2001
- --------------------------------------------------------------------------------
2002 2001
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 251,346 $ 521,453
Restricted cash 100,000 32,739
Accounts receivable - net 11,121,227 11,231,668
Inventories 6,585,100 9,063,426
Prepaid expenses and other current assets 743,281 806,388
Income taxes receivable 133,242
Deferred income taxes 832,927 633,729
------------ ------------
Total current assets 19,767,123 22,289,403
PROPERTY, PLANT, AND EQUIPMENT - Net 16,304,848 19,203,899
GOODWILL - Net 10,345,213 16,745,213
OTHER ASSETS - Net 749,959 705,951
------------ ------------
TOTAL $ 47,167,143 $ 58,944,466
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 922,726 $ 9,271,432
Accounts payable 5,279,556 3,395,364
Accrued payroll, vacation, and payroll taxes 935,973 1,347,706
Other current liabilities 1,326,075 1,166,225
Income taxes payable 416,328
------------ ------------
Total current liabilities 8,464,330 15,597,055
LONG-TERM DEBT - Less current portion 5,233,882 3,188,985
DEFERRED INCOME TAXES 660,640 2,104,882
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 9,000,000 shares authorized;
4,706,341 shares issued 47,063 47,063
Additional paid-in capital 25,088,631 25,088,631
Retained earnings 8,404,112 13,808,727
Treasury stock, 78,497 common shares at cost (534,045) (534,045)
Stockholder notes receivable (157,246) (280,757)
Accumulated other comprehensive loss, net of tax (40,224) (76,075)
------------ ------------
Total stockholders' equity 32,808,291 38,053,544
------------ ------------
TOTAL $ 47,167,143 $ 58,944,466
============ ============
See notes to consolidated financial statements.
F-3
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
YEARS ENDED SEPTEMBER 30, 2002, 2001, AND 2000
- --------------------------------------------------------------------------------
2002 2001 2000
NET SALES $ 75,656,939 $ 82,126,744 $ 78,952,268
COST OF SALES 66,977,915 71,741,853 68,041,438
------------ ------------ ------------
GROSS PROFIT 8,679,024 10,384,891 10,910,830
OPERATING EXPENSES:
Selling, general and administrative 7,497,277 6,770,424 7,106,869
Amortization of goodwill 596,511 607,206
Facility restructuring costs 232,958
Facility closing costs 434,882 831,305
Employee severance costs 209,324 10,218 659,950
Property and inventory write-downs 734,153 74,000
Gain on asset sales (8,727) (147,359) (327,331)
------------ ------------ ------------
Total 9,099,867 7,229,794 8,951,999
------------ ------------ ------------
OPERATING INCOME (LOSS) (420,843) 3,155,097 1,958,831
OTHER INCOME (EXPENSE):
Interest expense (460,532) (960,529) (973,583)
Interest and other income 24,179 277,345 34,894
------------ ------------ ------------
Total (436,353) (683,184) (938,689)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (857,196) 2,471,913 1,020,142
INCOME TAX EXPENSE (BENEFIT) (104,172) 1,046,675 493,425
------------ ------------ ------------
INCOME (LOSS) BEFORE ACCOUNTING CHANGE (753,024) 1,425,238 526,717
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (4,651,591)
------------ ------------ ------------
NET INCOME (LOSS) (5,404,615) 1,425,238 526,717
------------ ------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS) - Net of tax:
Interest rate swap as hedge of future variable interest on debt:
Cumulative effect of implementing SFAS No. 133 39,650
Change in fair value 35,851 (115,725)
------------ ------------ ------------
Other comprehensive gain (loss) 35,851 (76,075) --
------------ ------------ ------------
TOTAL COMPREHENSIVE INCOME (LOSS) $ (5,368,764) $ 1,349,163 $ 526,717
============ ============ ============
EARNINGS (LOSS) PER SHARE:
Basic:
Income (loss) before accounting change $ (0.16) $ 0.31 $ 0.12
Cumulative effective of accounting change (1.01)
------------ ------------ ------------
Net income (loss) $ (1.17) $ 0.31 $ 0.12
Diluted:
Income (loss) before accounting change $ (0.16) $ 0.31 $ 0.11
Cumulative effective of accounting change (1.01)
------------ ------------ ------------
Net income (loss) $ (1.17) $ 0.31 $ 0.11
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 4,627,844 4,613,731 4,499,391
============ ============ ============
Diluted 4,627,844 4,641,693 4,622,318
============ ============ ============
See notes to consolidated financial statements.
F-4
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2002, 2001, AND 2000
- --------------------------------------------------------------------------------
COMMON STOCK
VOTING ADDITIONAL
--------------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK
BALANCES AT OCTOBER 1, 1999 4,498,618 $ 44,986 $ 23,973,017 $ 11,856,772 $ (534,045)
Exercise of employee stock options 176,401 1,764 906,229
Repayment of stockholder notes receivable
Net income 526,717
------------ ------------ ------------ ------------ ------------
BALANCES AT SEPTEMBER 30, 2000 4,675,019 46,750 24,879,246 12,383,489 (534,045)
Exercise of employee stock options 31,322 313 209,385
Repayment of stockholder notes receivable
Unrealized loss on interest rate hedge
contract, net of tax
Net income 1,425,238
------------ ------------ ------------ ------------ ------------
BALANCES AT SEPTEMBER 30, 2001 4,706,341 47,063 25,088,631 13,808,727 (534,045)
Repayment of stockholder notes receivable
Unrealized gain on interest rate
hedge contract, net of tax
Net income (loss) (5,404,615)
------------ ------------ ------------ ------------ ------------
BALANCES AT SEPTEMBER 30, 2002 4,706,341 $ 47,063 $ 25,088,631 $ 8,404,112 $ (534,045)
============ ============ ============ ============ ============
ACCUMULATED
STOCKHOLDER OTHER TOTAL
NOTES COMPREHENSIVE STOCKHOLDERS'
RECEIVABLE GAIN (LOSS) EQUITY
BALANCES AT OCTOBER 1, 1999 $ (95,195) $ -- $ 35,245,535
Exercise of employee stock options (106,484) 801,509
Repayment of stockholder notes receivable 5,000 5,000
Net income 526,717
------------ ------------ ------------
BALANCES AT SEPTEMBER 30, 2000 (196,679) -- 36,578,761
Exercise of employee stock options (109,273) 100,425
Repayment of stockholder notes receivable 25,195 25,195
Unrealized loss on interest rate hedge
contract, net of tax (76,075) (76,075)
Net income 1,425,238
------------ ------------ ------------
BALANCES AT SEPTEMBER 30, 2001 (280,757) (76,075) 38,053,544
Repayment of stockholder notes receivable 123,511 123,511
Unrealized gain on interest rate
hedge contract, net of tax 35,851 35,851
Net income (loss) (5,404,615)
------------ ------------ ------------
BALANCES AT SEPTEMBER 30, 2002 $ (157,246) $ (40,224) $ 32,808,291
============ ============ ============
See notes to consolidated financial statements.
F-5
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2002, 2001, AND 2000
- --------------------------------------------------------------------------------
2002 2001 2000
OPERATING ACTIVITIES:
Net income (loss) $ (5,404,615) $ 1,425,238 $ 526,717
Noncash items in net income:
Depreciation and amortization of property, plant, and equipment 2,974,042 3,027,625 2,928,108
Amortization 95,961 596,511 607,206
Change in accounting principle, net of tax 4,651,591
Deferred income taxes 104,172 (186,258) (95,726)
Net increase (decrease) in allowance for doubtful accounts 38,723 (165,240) 321,900
Gain on asset sales - net (8,727) (147,359) (327,331)
Property and inventory write-downs 734,153 153,350
Changes in operating working capital:
Accounts receivable 71,718 1,630,759 (313,857)
Inventories 2,291,735 (1,150,944) 311,055
Prepaid expenses and other assets (57,999) 184,436 477,231
Accounts payable 1,884,192 (3,569,347) 3,200,685
Accrued and other current liabilities (274,803) (466,386) (137,468)
Income taxes payable/receivable (548,773) 976,772 (735,445)
------------ ------------ ------------
Net cash from operations 6,551,370 2,155,807 6,916,425
------------ ------------ ------------
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (1,195,543) (2,071,022) (7,072,967)
Advances to directors and former owners (18,863) (16,581) (16,581)
Collection of advances to directors and former owners 140,750
Proceeds from asset sales, net of transaction costs 581,716 169,695 898,352
Increase in restricted cash (67,261) (1,022) (11,667)
------------ ------------ ------------
Net cash used in investing activities (699,951) (1,918,930) (6,062,113)
------------ ------------ ------------
FINANCING ACTIVITIES:
Repayment of long-term debt (7,745,037) (771,432) (1,422,435)
Borrowings of long-term debt 1,500,000
Proceeds from issuance of common stock 100,425 801,509
Repayment of stockholder notes receivable 123,511 25,195 5,000
------------ ------------ ------------
Net cash used in financing activities (6,121,526) (645,812) (615,926)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (270,107) (408,935) 238,386
CASH AND CASH EQUIVALENTS:
Beginning of year 521,453 930,388 692,002
------------ ------------ ------------
End of year $ 251,346 $ 521,453 $ 930,388
============ ============ ============
SUPPLEMENTAL INFORMATION (Note 12)
See notes to consolidated financial statements.
F-6
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2002, 2001, AND 2000
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Tufco
Technologies, Inc. and its wholly owned subsidiaries (the "Company").
Significant intercompany transactions and balances are eliminated in
consolidation. The Company markets its own line of business imaging paper
products and performs specialty printing, custom converting, and
packaging. The Company also manufactures and distributes a wide variety of
consumer disposables that are sold in the home improvement and paint
retailing industries.
FINANCIAL STATEMENT PREPARATION requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingencies at the date of the financial statements, and
the reported amounts of revenues and expenses for the period. Differences
from those estimates are recognized in the period they become known.
CASH EQUIVALENTS represent liquid investments with maturities at
acquisition of three months or less.
INVENTORIES are stated at the lower of cost or market. Cost is determined
by the first-in, first-out ("FIFO") method.
PROPERTY, PLANT, AND EQUIPMENT are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided
using the straight-line method over the following estimated useful lives:
20 to 40 years for buildings, 3 to 10 years for machinery and equipment, 3
to 5 years for computer equipment and software, 5 to 7 years for furniture
and fixtures, or the lease term if shorter for leasehold improvements.
Management periodically reviews asset carrying values for recoverability
and, where appropriate, provides for write-downs to estimated fair value.
GOODWILL represents the excess of cost over fair value of net assets
acquired in business combinations in fiscal 1998 and prior years and,
before October 1, 2001, was amortized on a straight-line basis over 25 to
40 years and is stated net of accumulated amortization of $3,873,464 at
September 30, 2001. Management has continued to review the carrying values
of goodwill for recoverability using estimated future cash flows.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, Goodwill and Other Intangible Assets, effective October 1, 2001.
Under SFAS No. 142, goodwill and certain other intangible assets are no
longer systematically amortized but instead are reviewed for impairment,
and any excess in carrying value over the estimated fair value is charged
to results of operations. The previous method for determining impairment
prescribed by SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, utilized an
undiscounted cash flow approach for the initial impairment assessment,
while SFAS No. 142 utilizes a fair value approach. The goodwill impairment
charge discussed below is the result of the change in the accounting
method for determining the impairment of goodwill.
In connection with the adoption of SFAS No. 142, the Company allocated
goodwill to each of its reporting units and tested this goodwill for
impairment as of the beginning of fiscal 2002. The Company
F-7
completed the transitional goodwill impairment test during the second
quarter of fiscal 2002. As a result, an impairment charge of $6.4 million
($4.7 million after tax, or $1.01 per diluted share) was recorded related
to goodwill at certain Business Imaging and Paint Sundry reporting units.
The fair value of the reporting units was estimated using a combination of
valuation techniques, including the expected present value of future cash
flows and prices of comparable businesses.
The charges have been recorded as the cumulative effect of accounting
change in the amount of $6.4 million ($4.7 million after tax, or $1.01 per
diluted share) as of October 1, 2001, in the accompanying condensed
consolidated statements of operations.
The changes in the carrying amount of goodwill for the year ended
September 30, 2002, are as follows:
CONTRACT BUSINESS PAINT
MANUFACTURING IMAGING SUNDRIES TOTAL
Balance as of October 1, 2001 $ 4,281,759 $ 7,925,269 $ 4,538,185 $ 16,745,213
Impairment charge 4,995,453 1,404,547 6,400,000
------------- ------------ ------------ -------------
Balance as of September 30, 2002 $ 4,281,759 $ 2,929,816 $ 3,133,638 $ 10,345,213
============= ============ ============ =============
As required by SFAS No. 142, the results for periods prior to its adoption
have not been restated. The following table reconciles the reported net
income (loss) and basic and diluted earnings (loss) per share to that
which would have resulted for the years ended September 30, 2001 and 2000,
if SFAS No. 142 had been adopted effective October 1, 1999:
2001 2000
Net income as reported $ 1,425,238 $ 526,717
Goodwill amortization, net of tax 512,339 523,034
------------- -------------
Adjusted net income $ 1,937,577 $ 1,049,751
============= =============
Basic earnings per share:
As reported $ 0.31 $ 0.12
Add back goodwill amortization 0.11 0.11
------------- -------------
Adjusted basic earnings per share $ 0.42 $ 0.23
============= =============
Diluted earnings per share:
As reported $ 0.31 $ 0.11
Add back goodwill amortization 0.11 0.11
------------- -------------
Adjusted diluted earnings per share $ 0.42 $ 0.22
============= =============
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, or fixed rates approximating current
rates available for similar instruments.
F-8
DERIVATIVES consist of an interest rate swap as a hedge of variable
interest on debt. This cash flow hedge is stated at its estimated fair
value at September 30, 2002 and 2001, and changes in fair value are
reported as a component of other comprehensive income.
OTHER ASSETS include loan origination fees, which are amortized on a
straight-line basis (approximating the interest method) over the terms of
the related long-term debt.
DEFERRED INCOME TAXES are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due,
if any, plus net deferred taxes related primarily to differences between
the basis of assets and liabilities for financial and income tax
reporting. Deferred tax assets and liabilities represent the future tax
return consequences of those differences that will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Deferred tax assets include recognition of operating losses that are
available to offset future taxable income and tax credits that are
available to offset future income taxes. Valuation allowances are
recognized to limit recognition of deferred tax assets where appropriate.
Such allowances may be reversed when circumstances provide evidence that
the deferred tax assets will more likely than not be realized.
REVENUES are recognized as sales when goods are shipped and title
transfers to the customer.
STOCK-BASED COMPENSATION arising from stock option grants is accounted for
by the intrinsic value method under Accounting Principles Board ("APB")
Opinion No. 25 and related interpretations. SFAS No. 123, Accounting for
Stock-Based Compensation, encourages (but does not require) the cost of
stock options and other stock-based compensation arrangements with
employees to be measured based on the fair value of the equity instrument
awarded. As required by SFAS No. 123, the Company discloses in Note 10 the
pro forma effect on net income and earnings per share.
BASIC EARNINGS PER SHARE is based on the weighted average number of common
voting and nonvoting shares outstanding. Diluted earnings per share
includes common equivalent shares from dilutive stock options outstanding
during the year, the effect of which was 0, 27,962, and 122,927 shares in
fiscal 2002, 2001, and 2000, respectively.
RECLASSIFICATIONS of certain 2001 and 2000 amounts have been made to
conform to the 2002 presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS - SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which was issued by the FASB
in August 2001, is effective for fiscal years beginning after December 15,
2001. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No.
144 provides a single method of accounting for long-lived assets to be
disposed of and retains requirements found in SFAS No. 121 with regard to
the impairment of long-lived assets. The Company is in the process of
evaluating the impact of the provisions of SFAS No. 144.
SFAS No. 146, Accounting for Costs Associated With Exit of Disposal
Activities, which was issued by the FASB in July 2002, requiring companies
to recognize costs associated with exit or disposal activities when they
are incurred rather than at the date of a commitment to an exit or
disposal plan. SFAS No. 146 supersedes Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Cost Incurred in a
Restructuring. SFAS No. 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. Management does not
believe that adoption of SFAS No. 146 will have a material impact on the
Company's financial position or results of operations.
F-9
2. ACCOUNTS RECEIVABLE
Accounts receivable are stated net of allowances for doubtful accounts of
$535,013 and $496,290 at September 30, 2002 and 2001, respectively. For
the years ended September 30, 2002, 2001 and 2000, the Company recorded
bad debt expense of $64,066, $1,243, and $412,567, respectively, and had
write-offs of $25,343, $166,483 and $90,667, respectively. Amounts due
from two Fortune 500 customers represent 45% and 47% of total accounts
receivable at September 30, 2002 and 2001, respectively. Accounts
receivable include $101,338 and $1,011,777 for the cost of equipment to be
reimbursed by one of these customers at September 30, 2002 and 2001,
respectively.
3. INVENTORIES
Inventories at September 30 consist of the following:
2002 2001
Raw materials $ 4,838,569 $ 6,102,979
Finished goods 1,746,531 2,960,447
------------ ------------
Total inventories $ 6,585,100 $ 9,063,426
============ ============
Finished goods inventories are stated net of allowance for inventory
obsolescence and shrinkage of $1,061,121 and $936,470 at September 30,
2002 and 2001, respectively. For the years ended September 30, 2002, 2001
and 2000, the Company recorded obsolescence and shrinkage expense of
$301,661, $(120,743), and $575,545, respectively, and had write-offs of
$177,010, $100,253 and $18,079, respectively.
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at September 30 consist of the following:
2002 2001
Land and land improvements $ 631,057 $ 517,928
Buildings 11,069,273 11,060,162
Leasehold improvements 1,399,453 1,414,650
Machinery and equipment 15,847,822 17,885,785
Computer equipment and software 6,167,633 5,467,495
Furniture and fixtures 788,768 890,208
Vehicles 78,280 78,280
------------ ------------
35,982,286 37,314,508
Less accumulated depreciation and amortization 20,089,950 18,642,274
------------ ------------
Net depreciated value 15,892,336 18,672,234
Construction in progress 412,512 531,665
------------ ------------
Property, plant, and equipment - net $ 16,304,848 $ 19,203,899
============ ============
Gains on asset sales in fiscal 2002 and 2001 represent disposals occurring
in the normal course of business.
F-10
5. OTHER ASSETS
Other assets at September 30 consist of the following:
2002 2001
Loan origination and other fees $ 702,991 $ 446,182
Less accumulated amortization 380,745 284,783
---------- ----------
Subtotal 322,246 161,399
Note receivable bearing interest at 7% to 10%, due in
variable monthly installments through 2005 27,792 42,388
Prepaid rent on leased equipment 46,244 189,821
Deposits on equipment to be acquired and other 146,228 114,175
Advances to certain directors and former owners 207,449 188,586
Maintenance contract 9,582
---------- ----------
Other assets - net $ 749,959 $ 705,951
========== ==========
F-11
6. LONG-TERM DEBT
Long-term debt at September 30 consists of the following:
2002 2001
Note payable to bank, collateralized by substantially all assets of the
Company bearing a variable interest of 3.82% and 5% at September 30,
2002 and 2001, respectively ($2,114,272 fixed at 5.87% plus a profit
spread for the bank under an interest rate swap arrangement discussed
below), installments are due quarterly at $168,182 with final payment
due on August 15, 2007 $ 3,429,571 $ 3,710,417
Note payable to bank, under a revolving line-of-credit agreement (not to
exceed maximum borrowings of $10 million, reduced by outstanding letters
of credit - see Note 8) collateralized by substantially all assets of
the Company, bearing interest at a combination of 200 basis points over
LIBOR or 0.50% above the bank's reference rate (effective rate of 5.25%
at September 30, 2002, payable quarterly, due on June 1, 2004) 1,727,037
Notes payable to bank, under a revolving line-of-credit agreement (not
to exceed maximum borrowings of $12 million, reduced by outstanding
letters of credit - see Note 8), collateralized by substantially all
assets of the Company, bearing interest at a combination of 150 basis
points over LIBOR or .75% below the bank's reference rate (effective
rate of 4.71% at September 30, 2001), payable quarterly, due on June 1,
2002, discussed below 7,500,000
Variable rate (2.00% and 2.55% at September 30, 2002 and 2001,
respectively) note payable underlying Industrial Development Revenue
Bonds, collateralized by substantially all assets of the Company, due in
annual installments of $250,000 beginning 2000 through 2006, interest
payable monthly 1,000,000 1,250,000
------------- -------------
Total 6,156,608 12,460,417
Less current portion 922,726 9,271,432
------------- -------------
Long-term debt - less current portion $ 5,233,882 $ 3,188,985
============= =============
F-12
Long-term debt - less current portion matures as follows:
2004 $ 2,715,704
2005 922,726
2006 922,726
2007 672,726
------------
Total $ 5,233,882
============
In 1998, the Company entered into an interest rate swap agreement, as a
hedge under which the interest rate on the notional amount of $2,114,272
of 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. The fair value of this cash flow hedge is
estimated to be a net payable position (unrealized loss) of $65,941 and
$124,713 at September 30, 2002 and 2001, respectively. It is recorded as a
component of long-term debt. The Company adopted SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, effective October 1,
2000, and recognized the unrealized gain at that date of $39,650, net of
income tax effects, as other comprehensive income. Also, the unrealized
loss of $76,075, net of income tax effects, was accrued at September 30,
2001, and the decrease in fair value of $115,725, net of income tax
effects, was reported as other comprehensive loss during fiscal 2001. The
unrealized gain of $35,851, net of income tax effects, was accrued at
September 30, 2002, and the increase in fair value of $111,926, net of
income tax effects, was reported as other comprehensive gain during fiscal
2002.
Loan agreements for all notes except those underlying the Industrial
Development Revenue Bonds contain certain restrictive covenants, including
requirements to maintain minimum fixed charge coverage and restrictions on
maximum allowable debt, capital purchases, stock purchases, mergers, and
payment of dividends. In December 2002, the Company received a waiver by
its principal lender as of September 30, 2002, because the Company failed
to achieve the required fixed charge coverage ratio, as defined by the
bank. Management believes that its failure to achieve this ratio was the
result of facility closing costs, and property and inventory write-downs
experienced late in the fourth quarter of fiscal 2002. Aside from the
fixed charge coverage ratio described previously, at September 30, 2002,
the Company was in compliance with all of its debt covenants under the
credit facility. At September 30, 2001, the Company was in compliance with
all of its debt covenants under the credit facility. The Company has a
standby letter of credit for the outstanding balance associated with the
Industrial Development Revenue Bonds.
F-13
7. INCOME TAXES
The tax effects of significant items composing the Company's net deferred
tax liability as of September 30 are as follows:
2002 2001
Current deferred tax asset:
Valuation allowances for accounts receivable and inventories,
not currently deductible $ 606,361 $ 402,130
Inventory costs capitalized for tax purposes 20,391 32,978
Vacation and severance accruals, not currently deductible 81,650 64,711
Other accruals, not currently deductible 124,525 133,910
-------------- -------------
Total current assets 832,927 633,729
Noncurrent deferred tax liability:
Accelerated tax depreciation on property and equipment (2,256,225) (1,354,506)
Accelerated tax amortization of goodwill 529,493 (1,015,589)
Operating loss carryforwards 946,658
Other 142,355 216,575
-------------- -------------
(637,719) (2,153,520)
Unrealized loss on interest rate swap arrangement, not currently
deductible (the change in this component of deferred taxes is
included in other comprehensive loss - see Note 6) (22,921) 48,638
-------------- -------------
Total noncurrent liability - net (660,640) (2,104,882)
-------------- -------------
Net deferred tax liability $ 172,287 $ (1,471,153)
============== =============
The resulting components of income tax expense (benefit) are as follows:
2002 2001 2000
Current tax expense:
Federal $ (1,023,704) $ 1,154,498 $ 561,766
State (60,536) 78,435 27,385
------------- ------------- -----------
Total (1,084,240) 1,232,933 589,151
Deferred tax expense (benefit):
Federal 930,498 (174,336) (89,599)
State 49,570 (11,922) (6,127)
------------- ------------- -----------
Total 980,068 (186,258) (95,726)
------------- ------------- -----------
Income tax expense $ (104,172) $ 1,046,675 $ 493,425
============= ============= ===========
F-14
Income tax expense varies from the amount determined by applying the
applicable statutory income tax rates to pretax income as follows:
2002 2001 2000
Federal income taxes computed at statutory rates $ (291,447) $ 840,450 $ 346,850
State income taxes, net of federal tax benefit 7,238 43,899 14,030
Certain goodwill amortization and other
nondeductibles 51,057 155,777 161,329
Other 128,980 6,549 (28,784)
------------- ------------- ----------
Income tax expense $ (104,172) $ 1,046,675 $ 493,425
============= ============= ==========
The Company has NOL's of $2,606,840 expiring in 2020. However, it is the
Company's intent to apply these to historical operating income generated
in prior years.
8. COMMITMENTS AND CONTINGENCIES
LEASES - The Company leases facilities in Green Bay, Wisconsin, from a
partnership composed of certain current and former stockholders. The lease
expires in 2003, is classified as an operating lease and requires monthly
rental payments of $9,255. The Company has the option of renewing the
lease for a three-year period with rental amounts renegotiated. Rental
expense for the lease totaled $111,060 annually for fiscal 2002, 2001, and
2000.
The Company entered into an agreement with a third party to construct and
lease under an initial five-year lease agreement a 62,000-square-foot
facility in Manning, South Carolina, which the Company occupied in October
1996. The agreement is an operating lease with rental payments of $11,856
per month. The Company had three contiguous options to renew the lease for
successive five-year terms beginning at the end of the fifth year. The
Company also had the option of purchasing the building for $1,100,000. If
the purchase and renewal options were not exercised, the Company may have
been required to pay the lessor a residual amount of up to $900,000,
depending upon the extent, if any, that the facility's value has
diminished during the lease term. A portion of the scheduled lease
payments was placed in escrow and was included in restricted cash in 2001.
However, this escrow payment is no longer required at September 30, 2002.
The Company has a standby letter of credit with its bank for the payment
of the future lease obligations. On December 5, 2002, the Company
exercised its option to purchase the building for $1,100,000. The exercise
of this option was funded by additional borrowings under the Company's
existing revolving credit agreement.
The Company also leases other facilities and equipment under operating
leases. Office and warehouse leases expire in February 2003 and March
2008. Beginning in March 2002, the Company subleased part of its Dallas,
Texas, facility and received $129,239 in fiscal 2002, which was offset
against rental expense. The equipment leases expire on varying dates over
the next five years.
Future minimum rental commitments under operating leases with initial or
remaining terms in excess of one year at September 30, 2002, are as
follows:
2003 $ 1,070,261
2004 825,364
2005 791,064
2006 700,779
2007 626,684
Thereafter 1,532,985
------------
Total $ 5,547,137
============
F-15
Rental expense for all operating leases totaled $1,538,541, $1,944,590,
and $1,675,915, for fiscal 2002, 2001, and 2000, respectively.
COMMERCIAL LETTERS OF CREDIT - The Company has no outstanding commercial
import letters of credit as of September 30, 2002 and 2001. Letters of
credit collateralize the Company's obligations to third parties for the
purchase of inventory. The Company has unused letters of credit of
$750,000 available at September 30, 2002 and 2001.
LITIGATION - The Company is subject to lawsuits, investigation, and
potential claims arising out of the ordinary conduct of its business.
Management believes the outcome of these matters will not materially
affect the financial position, results of operations, or cash flows of the
Company.
9. PROFIT SHARING PLANS
The Company has a defined contribution profit sharing 401(k) plan covering
substantially all employees. The Company makes annual contributions at the
discretion of the board of directors. In addition, the Company matches
certain amounts of employees' contributions. Profit sharing plan expense
relating to the defined contribution profit sharing 401(k) plan totaled
$148,448, $175,585, and $200,131, for fiscal 2002, 2001, and 2000,
respectively.
10. STOCKHOLDERS' EQUITY
NONVOTING COMMON STOCK AND PREFERRED STOCK - At September 30, 2002 and
2001, the Company has authorized and unissued 2,000,000 shares of $.01 par
value nonvoting common stock and 1,000,000 shares of $.01 par value
preferred stock.
STOCK COMPENSATION ARRANGEMENTS - The Non-Qualified Stock Option Plan
currently reserves 650,000 shares of common stock for grants to selected
employees through April 30, 2002, and provides that the price and exercise
period be determined by the board of directors. Options vest primarily
over three years and expire 5 to 10 years from date of grant. During
fiscal 2002, 2001, and 2000, options to purchase 95,500, 0, and 200,000
shares, respectively, of voting common stock were granted.
The Non-Employee Director Stock Option Plan for nonemployee members of the
board of directors reserves 200,000 shares of common stock for grants
through March 2004 and provides that the purchase price be fair value at
the date of grant. Options are exercisable immediately and for a period of
10 years. During fiscal 2002, 2001, and 2000, options to purchase 15,000
shares of voting common stock were granted.
The following information summarizes the shares subject to options:
WEIGHTED AVERAGE EXERCISE
NUMBER OF SHARES PRICE PER SHARE
---------------------------------- ---------------------------
2002 2001 2000 2002 2001 2000
Options outstanding, beginning of year 443,400 476,805 445,306 $8.23 $8.20 $6.63
Granted 105,500 15,000 215,000 6.64 7.38 8.91
Exercised (31,322) (176,401) 6.78 5.15
Terminated (94,500) (17,083) (7,100) 8.14 8.60 8.55
-------- -------- --------
Options outstanding, end of year 454,400 443,400 476,805 7.87 8.23 8.20
======== ======== ========
Options exercisable, end of year 328,233 335,067 281,138 7.97 7.94 7.74
======== ======== ========
Reserved for future options at
September 30, 2002 395,600
========
F-16
The following table summarizes additional information about stock options
outstanding and exercisable at September 30, 2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICES SHARES LIFE PRICE SHARES PRICE
$4.50 - 7.00 208,900 1.1 years $6.69 135,400 $6.67
7.00 - 10.00 245,500 3.4 years 8.88 192,833 8.89
------- -------
4.50 - 10.00 454,400 2.3 years 7.87 328,233 7.97
======= =======
The Company applies APB No. 25 and related interpretations in accounting
for its stock option plans. No compensation cost has been recognized for
the Company's stock option plans because the quoted market price of the
common stock at the date of grant was not in excess of the option exercise
price. SFAS No. 123 prescribes a method to record compensation cost at the
fair value of the options granted. Pro forma disclosures as if the Company
had adopted the cost recognition requirements under SFAS No. 123 in fiscal
2002, 2001, and 2000 are presented below.
2002 2001 2000
Net income (loss):
As reported $ (5,404,615) $ 1,425,238 $ 526,717
Pro forma (5,637,313) 1,212,817 248,235
Basic earnings per share:
As reported (1.17) .31 .12
Pro forma (1.22) .27 .06
Diluted earnings per share:
As reported (1.17) .31 .11
Pro forma (1.22) .27 .05
In the pro forma calculations, the weighted average fair value of options
granted during 2002, 2001, and 2000 was estimated at $3.32, $4.18, and
$3.55 per share, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants in
2002, 2001, and 2000: risk-free interest rates of 5% for all years;
dividend yield of 0.0% for all years; expected lives of four to seven
years; and expected volatility of 50% for all years, based on the
historical weekly trading ranges of the Company's stock since its initial
public offering in January 1994.
In fiscal 2002 and 2001, the Company received notes from various employees
to facilitate the exercise of employee stock options. The notes receivable
with recourse bear interest at 5% to 8.5% interest payable annually. All
notes receivable outstanding at September 30, 2002, are due to be repaid
in 2003. The
F-17
outstanding balances of $157,247 and $280,757 at September 30, 2002 and
2001, respectively, are presented as a reduction of stockholders' equity.
11. RELATED-PARTY TRANSACTIONS
The Company has an agreement with Bradford Ventures, Ltd., an affiliate of
the two largest stockholders of the Company, under which Bradford
Ventures, Ltd. provides various financial and management consulting
services until January 2004, when the agreement will be automatically
renewed unless terminated by either party. The agreement calls for an
annual fee of $210,000 with annual increases of 5% plus reimbursement of
reasonable out-of-pocket expenses. The Company believes the terms of its
consulting agreement are comparable to those available from unaffiliated
third parties for similar services. Consulting expense was $289,633,
$275,841, and $357,353 for fiscal 2002, 2001, and 2000, respectively.
12. SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows:
2002 2001 2000
Interest paid $ 461,226 $ 1,005,357 $ 965,823
=========== ============ ===========
Income taxes paid, net of refunds $ 363,350 $ 256,161 $ 1,324,596
=========== ============ ===========
13. MAJOR CUSTOMER AND SEGMENT INFORMATION
Two significant customers, which are Fortune 500 companies, accounted for
the following percentages of total sales:
2002 2001 2000
Customer A - related to the Contract Manufacturing sector 25% 30% 20%
Customer B - related to the Paint Sundry sector 22 16 12
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. Prior to fiscal 2002, accounts receivable, goodwill and certain
other assets historically have not been assigned to specific sectors and,
therefore, are included in the intersector column below. However, the
Company allocated goodwill to each of its market sectors as of the
beginning of fiscal 2002 in connection with the adoption of SFAS No. 142.
F-18
CONTRACT BUSINESS PAINT
FISCAL 2002 MANUFACTURING IMAGING SUNDRY INTERSECTOR CONSOLIDATED
Net sales $ 30,413,925 $21,587,761 $23,655,253 $ -- $ 75,656,939
Gross profit 4,243,355 2,000,555 2,435,114 8,679,024
Operating income (loss) 2,833,582 (728,286) (130,710) (2,395,429) (420,843)
Assets:
Inventories 1,388,516 2,175,432 3,021,152 6,585,100
Property, plant and
equipment - net 8,950,575 3,775,801 1,773,803 1,804,669 16,304,848
Accounts receivable and other
(including goodwill) 4,281,759 2,929,816 3,133,638 13,931,982 24,277,195
------------- ----------- ----------- ----------- ------------
Total assets $ 14,620,850 $ 8,881,049 $ 7,928,593 $15,736,651 $ 47,167,143
============= =========== =========== =========== ============
CONTRACT BUSINESS PAINT
FISCAL 2001 MANUFACTURING IMAGING SUNDRY INTERSECTOR CONSOLIDATED
Net sales $ 40,756,337 $20,799,093 $20,571,314 $ -- $ 82,126,744
Gross profit 6,545,221 1,641,415 2,198,255 10,384,891
Operating income (loss) 5,027,165 107,511 (62,297) (1,917,282) 3,155,097
Assets:
Inventories 867,410 3,374,511 4,821,505 9,063,426
Property, plant and
equipment - net 9,222,346 5,655,760 1,802,220 2,523,573 19,203,899
Accounts receivable and other
(including goodwill) 30,677,141 30,677,141
------------- ----------- ----------- ----------- ------------
Total assets $ 10,089,756 $ 9,030,271 $ 6,623,725 $33,200,714 $ 58,944,466
============= =========== =========== =========== ============
CONTRACT BUSINESS PAINT
FISCAL 2000 MANUFACTURING IMAGING SUNDRY INTERSECTOR CONSOLIDATED
Net sales $ 34,242,390 $25,899,580 $18,810,298 $ -- $ 78,952,268
Gross profit 7,136,712 2,923,252 850,866 10,910,830
Operating income (loss) 5,795,483 1,229,916 (2,237,357) (2,829,211) 1,958,831
Assets:
Inventories 884,335 3,764,341 3,263,806 7,912,482
Property, plant and
equipment - net 9,917,431 6,526,344 827,470 2,911,593 20,182,838
Accounts receivable and other
(including goodwill) 34,037,828 34,037,828
------------- ----------- ----------- ----------- ------------
Total assets $ 10,801,766 $10,290,685 $ 4,091,276 $36,949,421 $ 62,133,148
============= =========== =========== =========== ============
In fiscal 2002, the Company announced plans to close its Dallas, Texas,
operations and, at September 30, 2002, accrued the estimated property
write-downs, building and equipment abandonment, and other related costs.
F-19
In fiscal 2000, the Company announced its intent and began to consolidate
the Paint Sundry operations in Manning, South Carolina, and accrued at
September 30, 2000, the estimated asset write-downs and other costs of
approximately $831,000 to close its St. Louis facility as part of that
consolidation. In fiscal 2001, the consolidation was completed, the
estimated liabilities were paid substantially as accrued, and there is no
remaining liability at September 30, 2001.
******
F-20
Exhibit Index
Exhibit
Number Description
------- -----------
2.1 Stock Purchase Agreement dated as of November 12, 1997 by and
among Tufco Technologies, Inc. (the "Company"), Charles
Cobaugh and James Barnes (filed as exhibit 2.1 to the
Company's Form 8-K dated November 13, 1997 filed with the
Commission on November 26, 1997 file number 0-21018,
incorporated by reference herein).
3.1 Restated Certificate of Incorporation (1) (Exhibit 3.1)
3.2 Bylaws (1) (Exhibit 3.2)
10.1 Stock Purchase and Contribution Agreement, dated as of
February 25, 1992, among the Company, Tufco Industries, Inc.
("Tufco"), and the Stockholders of Tufco. (1) (Exhibit 10.1)
10.2 Amended and Restated Consulting Agreement with Bradford
Investment Partners, L.P. (3) (Exhibit 10)
10.3 Loan Agreement, dated May 1, 1992, between the Village of
Ashwaubenon, Wisconsin, and the Company. (1) (Exhibit 10.11)
10.4 1992 Non-Qualified Stock Option Plan (1) (Exhibit 10.12)
10.5 Form of Employee Stock Purchase Agreement between the Company
and certain key employees of the Company. (1) (Exhibit 10.17)
10.6 1993 Non-Employee Director Stock Option Plan. (2) (Exhibit
10.19)
10.7 Amended Employment Agreement with Greg Wilemon, dated
September 18, 1995. (4) (Exhibit 10.11)
10.8 *Lease between Bero and McClure Partnership and Tufco, L.P.,
dated October 15, 2002. (Exhibit 10.8)
10.9 Employment Agreement with Louis LeCalsey, III dated September
19, 1996. (5) (Exhibit 10.18)
10.10 Credit Agreement among Tufco L.P. as Borrower, the Company as
the Parent First Union National Bank as agent and the banks
named herein dated August 28, 1998. (6) (Exhibit 10.13)
10.11 ISDA Master Agreement and Schedule to the Master Agreement
dated as of July 30, 1998 between First Union National Bank
and Tufco, L.P. (6) (Exhibit 10.14)
10.12 First Amendment to Credit Agreement. (6) (Exhibit 10.15)
10.13 Second Amendment to Credit Agreement. (7) (Exhibit 10.16)
10.14 Waiver, Consent and Fourth Amendment. (8) (Exhibit 10.15)
10.15 Fifth Amendment to Credit Agreement. (9) (Exhibit 10.16)
10.16 Sixth Amendment to Credit Agreement. (10) (Exhibit 10.17)
10.17 *Amended and Restated Credit Agreement dated August 15, 2002.
10.18 *First Amendment to the Amended and Restated Credit Agreement.
21.1 Subsidiaries of the Company. (6) (Exhibit 21.1)
99.1 Employee Stock Purchase Agreement executed by Greg Wilemon in
favor of the Company dated September 30, 2000. (11) (Exhibit 99.1)
- ----------
* Filed herewith
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Reg. No. 33-55828) (the "Registration Statement") as filed
with the Commission on December 16, 1992.
(2) Incorporated by reference to Amendment No. 1 to the Registration
Statement as filed with the Commission on November 23, 1993.
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1995. (Commission file
#0-21018)
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended September 30, 1995. (Commission file #0-21018)
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended September 30, 1997. (Commission file #0-21018)
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended September 30, 1998.
(7) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2000.
(8) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2002.
(9) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2002.
(10) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2002.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended September 30, 2000.
(d) See Item 14(a)(3) above for the list of exhibits required to be filed as
part of the Annual Report on Form 10-K.