Attached files
file | filename |
---|---|
EX-31.2 - EX-31.2 - TUFCO TECHNOLOGIES INC | d79537exv31w2.htm |
EX-32.2 - EX-32.2 - TUFCO TECHNOLOGIES INC | d79537exv32w2.htm |
EX-32.1 - EX-32.1 - TUFCO TECHNOLOGIES INC | d79537exv32w1.htm |
EX-31.1 - EX-31.1 - TUFCO TECHNOLOGIES INC | d79537exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2010
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-21018
TUFCO TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 39-1723477 | |
(State of other jurisdiction of incorporation of organization) |
(IRS Employer ID No.) |
PO BOX 23500 Green Bay, WI 54305
(Address of principal executive offices)(Zip code)
(Address of principal executive offices)(Zip code)
(920) 336-0054
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller Reporting Company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each or the issuers classes of common stock, as of
the latest practicable date.
Class | Outstanding as of February 14, 2011 | |
Common Stock, par value $0.01 per share | 4,308,947 |
TUFCO TECHNOLOGIES, INC.
Index
2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, | September 30, | |||||||
2010 | 2010 | |||||||
Assets |
||||||||
CURRENT ASSETS: |
||||||||
Cash |
$ | 6,842 | $ | 7,899 | ||||
Accounts receivable-net |
13,350,519 | 14,211,275 | ||||||
Inventories-net |
17,410,815 | 14,329,857 | ||||||
Prepaid expenses and other current assets |
363,731 | 157,269 | ||||||
Income taxes receivable |
16,343 | 16,430 | ||||||
Deferred income taxes |
364,680 | 364,680 | ||||||
Total current assets |
31,512,930 | 29,087,410 | ||||||
PROPERTY, PLANT AND EQUIPMENT-Net |
18,308,721 | 18,640,263 | ||||||
GOODWILL |
7,211,575 | 7,211,575 | ||||||
OTHER ASSETS-Net |
136,411 | 135,865 | ||||||
TOTAL |
$ | 57,169,637 | $ | 55,075,113 | ||||
Liabilities and Stockholders Equity |
||||||||
CURRENT LIABILITIES: |
||||||||
Revolving line of credit |
$ | 6,645,701 | $ | 4,476,736 | ||||
Current portion of note payable |
248,110 | 244,577 | ||||||
Accounts payable |
10,304,131 | 9,974,560 | ||||||
Accrued payroll, vacation and payroll taxes |
541,706 | 554,967 | ||||||
Other current liabilities |
382,831 | 435,167 | ||||||
Total current liabilities |
18,122,479 | 15,686,007 | ||||||
LONG-TERM PORTION OF NOTE PAYABLE |
963,598 | 1,026,966 | ||||||
DEFERRED INCOME TAXES |
2,151,051 | 2,257,071 | ||||||
COMMITMENTS AND CONTINGENCIES |
||||||||
STOCKHOLDERS EQUITY: |
||||||||
Common stock, $.01 par value - 9,000,000 shares
authorized; 4,708,741 shares issued |
47,087 | 47,087 | ||||||
Non-voting common stock, $.01 par value 2,000,000
shares authorized and unissued |
| | ||||||
Preferred stock, $.01 par value 1,000,000
shares authorized and unissued |
| | ||||||
Additional paid-in capital |
25,503,472 | 25,497,814 | ||||||
Retained earnings |
12,539,407 | 12,717,625 | ||||||
Treasury stock 399,794 common shares at cost |
(2,157,457 | ) | (2,157,457 | ) | ||||
Total stockholders equity |
35,932,509 | 36,105,069 | ||||||
TOTAL |
$ | 57,169,637 | $ | 55,075,113 | ||||
3
Table of Contents
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED | ||||||||
DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
NET SALES |
$ | 24,161,110 | $ | 20,042,056 | ||||
COST OF SALES |
23,058,234 | 18,997,829 | ||||||
GROSS PROFIT |
1,102,876 | 1,044,227 | ||||||
OPERATING EXPENSES: |
||||||||
Selling, general & administrative |
1,339,916 | 1,276,798 | ||||||
OPERATING LOSS |
(237,040 | ) | (232,571 | ) | ||||
OTHER (EXPENSE) INCOME: |
||||||||
Interest expense |
(64,365 | ) | (22,531 | ) | ||||
Interest income and other income |
17,166 | 15,387 | ||||||
LOSS BEFORE INCOME TAXES |
(284,239 | ) | (239,715 | ) | ||||
INCOME TAX BENEFIT |
(106,021 | ) | (89,413 | ) | ||||
NET LOSS |
$ | (178,218 | ) | $ | (150,302 | ) | ||
BASIC LOSS PER SHARE: |
||||||||
Net Loss |
$ | (0.04 | ) | $ | (0.03 | ) | ||
DILUTED LOSS PER SHARE: |
||||||||
Net Loss |
$ | (0.04 | ) | $ | (0.03 | ) | ||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
||||||||
Basic |
4,308,947 | 4,308,947 | ||||||
Diluted |
4,308,947 | 4,308,947 |
See notes to condensed consolidated financial statements.
4
Table of Contents
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
OPERATING ACTIVITIES |
||||||||
Net loss |
$ | (178,218 | ) | $ | (150,302 | ) | ||
Noncash items in net loss: |
||||||||
Depreciation and amortization of property, plant and
equipment |
715,875 | 672,674 | ||||||
Deferred income taxes |
(106,020 | ) | (2,369 | ) | ||||
Stock-based compensation expense |
5,658 | 6,349 | ||||||
Changes in operating working capital: |
||||||||
Accounts receivable |
860,756 | (28,854 | ) | |||||
Inventories |
(3,080,958 | ) | (2,160,167 | ) | ||||
Prepaid expenses and other assets |
(207,008 | ) | (297,703 | ) | ||||
Accounts payable |
212,913 | 878,821 | ||||||
Accrued and other current liabilities |
(65,597 | ) | 10,167 | |||||
Income taxes receivable |
87 | (89,045 | ) | |||||
Net cash used in operating activities |
(1,842,512 | ) | (1,160,429 | ) | ||||
INVESTING ACTIVITIES |
||||||||
Additions to property, plant and equipment |
(267,675 | ) | (1,177,971 | ) | ||||
Net cash used in investing activities |
(267,675 | ) | (1,177,971 | ) | ||||
FINANCING ACTIVITIES |
||||||||
Net borrowings of revolving debt |
2,168,965 | 2,340,879 | ||||||
Principal payments on note payable |
(59,835 | ) | | |||||
Net cash provided by financing activities |
2,109,130 | 2,340,879 | ||||||
NET (DECREASE) INCREASE IN CASH |
(1,057 | ) | 2,479 | |||||
CASH: |
||||||||
Beginning of period |
7,899 | 4,092 | ||||||
End of period |
$ | 6,842 | $ | 6,571 | ||||
NONCASH SUPPLEMENTAL INFORMATION: |
||||||||
Change in construction payable |
$ | 116,658 | $ | 54,663 |
5
Table of Contents
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended December 31, 2010 and 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended December 31, 2010 and 2009
(Unaudited)
1. | Basis of Presentation |
The accompanying condensed consolidated financial statements have been prepared by Tufco Technologies, Inc. (the Company) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in the opinion of the Company, include all adjustments necessary for a fair statement of results for each period shown (unless otherwise noted herein, all adjustments are of a normal recurring nature). Operating results for the three month period ended December 31, 2010 are not necessarily indicative of results expected for the remainder of the year. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations. The Company believes that the disclosures made are adequate to prevent the financial information given from being misleading. The Companys fiscal 2010 Annual Report on Form 10-K contains a summary of significant accounting policies and includes the consolidated financial statements and the notes to the consolidated financial statements. The same accounting policies are followed in the preparation of interim reports. The Companys condensed consolidated balance sheet at September 30, 2010 was derived from the audited consolidated balance sheet. It is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended September 30, 2010. |
2. | Financial Instruments |
Financial instruments consist of cash, receivables, payables, debt, and letters of credit. Their carrying values are estimated to approximate their fair values unless otherwise indicated due to their short maturities, variable interest rates and comparable borrowing costs for equipment loans. |
3. | Earnings Per Share |
Basic earnings per share is computed using the weighted average number of common shares outstanding. Diluted earnings per share includes common stock equivalents from dilutive stock options outstanding during the year. During the three months ended December 31, 2010 and 2009, options to purchase 331,150 and 310,650 shares, respectively, were excluded from the diluted earnings per share computation as the effects of including such options would have been anti-dilutive. |
4. | Inventories |
Inventories consist of the following: |
December 31, | September 30, | |||||||
2010 | 2010 | |||||||
Raw materials | $ | 13,386,786 | $ | 11,368,089 | ||||
Finished goods | 4,024,029 | 2,961,768 | ||||||
Total inventories | $ | 17,410,815 | $ | 14,329,857 | ||||
6
Table of Contents
Notes to condensed consolidated financial statements(continued)
5. | Goodwill |
As previously disclosed, the Company tests goodwill annually at the reporting unit level for impairment as of June 30. The operating segments herein also represent the Companys reporting units for goodwill purposes. The Company uses a discounted cash flow analysis to estimate reporting unit fair values and also considers multiples of relevant companies. In determining the fair values of the reporting units, the Company was required to make certain assumptions and cannot predict what future events may occur that could adversely affect the reported value of its goodwill. Management noted no indicators of impairment during the three months ended December 31, 2010 to indicate that the annual goodwill impairment test should be accelerated. However, there can be no assurance that valuation multiples will not decline, growth rates will not be lower than expected, discount rates will not increase, or the projected cash flows of the individual reporting units will not decline. |
6. | Revolving Line of Credit and Note Payable |
On March 15, 2010, the Company entered into an $8.0 million amended and restated unsecured revolving line of credit facility with a termination date of January 31, 2011. On December 28, 2010, the Company further amended its credit agreement to increase the revolving credit availability from $8.0 million to $10.0 million, extend its termination date to January 31, 2012 and modify the required levels of after tax net income (or loss) under its financial covenants for periods commencing December 31, 2010 and thereafter. The Companys revolving line of credit is classified as a current liability on the accompanying balance sheets because provisions in the credit agreement include deposit account requirements and a material adverse effect covenant which is subjective in nature. Borrowings under the new credit facility bear interest at a rate equal to LIBOR plus 2.50%. The Company is required to pay a non-usage fee of .50% per annum on the unused portion of the facility. |
Availability under the facility is based upon specified percentages of eligible accounts receivable and inventory. The credit agreement is unsecured. The credit agreement contains certain covenants, including requirements to maintain a minimum tangible net worth and net income (or net loss) within specified levels. |
As of December 31, 2010, the Company had approximately $3.4 million available and $6.6 million outstanding under its revolving credit line pursuant to its credit agreement. |
7. | Stock Based Compensation |
During the three months ended December 31, 2009 employees of Tufco Technologies Inc. received discretionary grants on November 30, 2009 to acquire 14,000 shares of common stock under Tufcos 2003 Non-Qualified Stock Option Plan at an exercise price of $3.19 per share, the closing price of the Companys common stock on the Nasdaq market as of that date. The grant date fair value of these options was estimated at $2.26 using the Black-Sholes option-pricing model with the following assumptions: risk-free interest rate of 0.67%, expected volatility of 121.4%, no dividend yield and an expected life of three years. No options were granted to employees during the three months ended December 31, 2010. |
8. | Segment Information |
The Company operates in a single industry since it manufactures and distributes custom paper-based and nonwoven products, and provides contract manufacturing, specialty printing and related services on these types of products. The Company does, however, separate its operations and prepares information for management use by the market segment aligned with the Companys products and services. Corporate costs, such as interest income, interest expense and income tax (benefit) expense are recorded under the Corporate and Other segment. Such market segment information is summarized below. The Contract Manufacturing segment provides services to multinational consumer products companies while the Business Imaging segment manufactures and distributes printed and unprinted business imaging paper products for a variety of business needs. |
Substantially all of the Companys revenues are attributed to domestic external customers. There are no long-lived assets located outside of the United States. |
7
Table of Contents
Notes to condensed consolidated financial statements(continued)
Three Months Ended | Contract | Business | Corporate | |||||||||||||
December 31, 2010 | Manufacturing | Imaging | and Other | Consolidated | ||||||||||||
Net sales |
$ | 18,596,760 | $ | 5,564,350 | $ | | $ | 24,161,110 | ||||||||
Gross profit |
815,935 | 286,941 | | 1,102,876 | ||||||||||||
Operating income (loss) |
417,093 | (6,960 | ) | (647,173 | ) | (237,040 | ) | |||||||||
Depreciation and
amortization expense |
685,737 | 29,938 | 200 | 715,875 | ||||||||||||
Capital expenditures |
142,500 | 125,175 | | 267,675 |
Three Months Ended | Contract | Business | Corporate | |||||||||||||
December 31, 2009 | Manufacturing | Imaging | and Other | Consolidated | ||||||||||||
Net sales |
$ | 13,947,418 | $ | 6,094,638 | $ | | $ | 20,042,056 | ||||||||
Gross profit |
678,243 | 365,984 | | 1,044,227 | ||||||||||||
Operating income (loss) |
322,919 | 64,073 | (619,563 | ) | (232,571 | ) | ||||||||||
Depreciation and
amortization expense |
619,680 | 52,401 | 593 | 672,674 | ||||||||||||
Capital expenditures |
1,146,158 | 31,813 | | 1,177,971 |
Contract | Business | Corporate | ||||||||||||||
December 31, 2010 | Manufacturing | Imaging | and Other | Consolidated | ||||||||||||
Assets: |
||||||||||||||||
Inventories-net |
$ | 13,526,436 | $ | 3,884,379 | $ | | $ | 17,410,815 | ||||||||
Property, plant and
equipment-net |
16,368,170 | 1,937,887 | 2,664 | 18,308,721 | ||||||||||||
Accounts receivable
and other (including
goodwill) |
14,861,637 | 6,064,188 | 524,276 | 21,450,101 | ||||||||||||
Total assets |
$ | 44,756,243 | $ | 11,886,454 | $ | 526,940 | $ | 57,169,637 | ||||||||
Contract | Business | Corporate | |||||||||||||||
September 30, 2010 | Manufacturing | Imaging | and Other | Consolidated | |||||||||||||
Assets: |
|||||||||||||||||
Inventories-net |
$ | 11,096,525 | $ | 3,233,332 | $ | | $ | 14,329,857 | |||||||||
Property, plant and
equipment-net |
16,798,025 | 1,839,374 | 2,864 | 18,640,263 | |||||||||||||
Accounts receivable
and other (including
goodwill) |
15,333,831 | 6,246,288 | 524,874 | 22,104,993 | |||||||||||||
Total assets |
$ | 43,228,381 | $ | 11,318,994 | $ | 527,738 | $ | 55,075,113 | |||||||||
8
Table of Contents
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
Managements discussion of the Companys fiscal 2011 results in comparison to fiscal 2010 contains
forward-looking statements regarding current expectations, risks and uncertainties for future
periods. The actual results could differ materially from those discussed herein due to a variety
of factors such as the Companys ability to increase sales, changes in customer demand for its
products, cancellation of production agreements by significant customers including two Contract
Manufacturing customers it depends upon for a significant portion of its business, its ability to
meet competitors prices on products to be sold under these production agreements, the effects of
the economy in general, including the current economic downturn, the Companys ability to refinance
or replace its line of credit, which expires January 31, 2012, the Companys inability to benefit
from any general economic improvements, material increases in the cost of raw materials,
competition in the Companys product areas, the ability of management to successfully reduce
operating expenses including labor and waste costs in relation to net sales, the Companys ability
to increase sales and earnings as a result of new projects, including its canister line introduced
in fiscal 2009, the Companys ability to successfully install new equipment on a timely basis, the
Companys ability to continue to produce new products, the Companys ability to return to
profitability and then continue to improve profitability, the Companys ability to successfully
attract new customers through its sales initiatives and strengthening its new business development
efforts and the Companys ability to improve the run rates for its products. Therefore, the
financial data for the periods presented may not be indicative of the Companys future financial
condition or results of operations.
General Information:
Tufco is a leader in providing diversified contract wet and dry wipes converting and printing, as
well as specialty printing services and business imaging products. The Companys business strategy
is to continue to place its converting at the leading edge of existing and emerging growth
opportunities. The Company works closely with its customers to develop products or perform
services which meet or exceed the customers quality standards, and then uses the Companys
operating efficiencies and technical expertise to supplement or replace its customers own
production and distribution functions.
The Companys technical proficiencies include wide web flexographic printing, wet and dry wipe
converting, hot melt adhesive lamination, folding, integrated downstream packaging and quality and
microbiological process management and the manufacture and distribution of business imaging paper
products.
The Company has manufacturing operations in Green Bay, WI, which is ISO certified, and Newton, NC.
The Companys corporate headquarters, including corporate support services, are located in Green
Bay, WI.
9
Table of Contents
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations-Continued
Results of Operations:
Condensed operating data, percentages of net sales and period-to-period changes in these items are
as follows (dollars in thousands):
Three Months Ended | Period-to-Period | |||||||||||||||
December 31, | Change | |||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
Net Sales |
$ | 24,161 | $ | 20,042 | $ | 4,119 | 21 | % | ||||||||
Gross Profit |
1,103 | 1,044 | 59 | 6 | % | |||||||||||
4.6 | % | 5.2 | % | |||||||||||||
Operating Expenses |
1,340 | 1,277 | 63 | 5 | % | |||||||||||
5.5 | % | 6.4 | % | |||||||||||||
Operating Loss |
(237 | ) | (233 | ) | (4 | ) | 2 | % | ||||||||
(1.0 | %) | (1.2 | %) | |||||||||||||
Interest and Other-Net |
47 | 7 | 40 | NM | ||||||||||||
0.2 | % | 0.0 | % | |||||||||||||
Loss Before Income Taxes |
(284 | ) | (240 | ) | (44 | ) | 18 | % | ||||||||
(1.2 | %) | (1.2 | %) | |||||||||||||
Income Tax Benefit |
(106 | ) | (90 | ) | (16 | ) | 18 | % | ||||||||
(0.4 | %) | (0.4 | %) | |||||||||||||
Net Loss |
$ | (178 | ) | $ | (l50 | ) | (28 | ) | 19 | % | ||||||
(0.7 | %) | (0.7 | %) | |||||||||||||
Basic and Diluted Loss per
Share |
$ | (0.04 | ) | $ | (0.03 | ) |
NM | = Not Meaningful |
Three Months Ended | ||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
% of | % of | Period-to-Period Change | ||||||||||||||||||||||
Amount | Total | Amount | Total | $ | % | |||||||||||||||||||
Net Sales |
||||||||||||||||||||||||
Contract Manufacturing and printing |
$ | 18,597 | 77 | % | $ | 13,947 | 70 | % | $ | 4,650 | 33 | % | ||||||||||||
Business Imaging paper products |
5,564 | 23 | % | 6,095 | 30 | % | (531 | ) | (9 | %) | ||||||||||||||
Net Sales |
$ | 24,161 | 100 | % | $ | 20,042 | 100 | % | $ | 4,119 | 21 | % | ||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Margin | % of | Period-to-Period Change | ||||||||||||||||||||||
Amount | % | Amount | Total | $ | % | |||||||||||||||||||
Gross Profit |
||||||||||||||||||||||||
Contract Manufacturing and printing |
$ | 816 | 4 | % | $ | 678 | 5 | % | $ | 138 | 20 | % | ||||||||||||
Business Imaging paper products |
287 | 5 | % | 366 | 6 | % | (79 | ) | (22 | %) | ||||||||||||||
Gross Profit |
$ | 1,103 | 5 | % | $ | 1,044 | 5 | % | $ | 59 | 6 | % | ||||||||||||
10
Table of Contents
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
OperationsContinued
Net Sales:
Consolidated net sales increased $4.1 million (21%) to $24.2 million in the first quarter of fiscal
2011, when compared to the same period last year. This was due to an increase of $4.6 million (33%)
in the Contract Manufacturing segment partially offset by a decrease of $0.5 million (9%) in the
Business Imaging segment.
The Company depends on two Contract Manufacturing customers for a significant portion of its
business. One customer accounted for 21% of the Companys total net sales in the first quarter of
fiscal 2011 compared to 21% for the same period in fiscal 2010. The other significant customer
accounted for 38% of the Companys total net sales in the first quarter of fiscal 2011 compared to
25% for the same period in fiscal 2010.
In Contract Manufacturing,
though it is showing significant sales growth, that number is impacted as the segments
product mix has a larger materials content and the pass through of these material costs, while
increasing sales, does not increase profitability. The Company does see demand increasing in
Contract Manufacturing from both existing customers and new customers. Its expanded product and
service offerings as well as its targeted new market channels are showing positive results.
In Business Imaging, the segment is concentrating on, and executing the expansion of its customer base.
The segment is seeing an increase in paper pricing coupled with competitive supply
increases, creating pricing pressure in the face of higher cost.
Both segments have been
affected by the overall slowdown in the economic environment.
Gross Profit:
Consolidated gross profit increased $59,000 (6%) for the first quarter of fiscal 2011 when compared
to the first quarter of fiscal 2010. This was due to an increase of $138,000 (20%) in the Contract
Manufacturing segment, which was partially offset by a decrease of $79,000 (22%) in the Business
Imaging segment.
In Contract Manufacturing, the increase in gross profit in the first quarter of fiscal 2011 was
primarily due to the increase in sales mentioned above. In Business Imaging, the decrease in gross
profit for the first three months of fiscal 2011 was largely due to the decrease in sales volume
combined with a slight increase in material costs. The effect of the overall economic slowdown had
a negative impact on both segments.
Operating Expenses:
Selling, general and administrative expenses increased $63,000 (5%) for the first quarter of fiscal
2011 when compared to the same period in fiscal 2010 as a result of additional sales personnel and
marketing initiatives.
Interest Expense and Other Income (Expense) net:
Interest expense increased $42,000 to $64,000 for the first quarter of fiscal 2011 compared to the
same period in fiscal 2010 due to higher average debt outstanding as a result of the Company
borrowing from its revolving credit line
and obtaining a note payable
to fund a portion of its increased working capital and
equipment needs.
Net Income:
The Company reported a net loss of $178,000 [per share: $(0.04) basic and diluted] for the first
quarter of fiscal 2011, versus a net loss of $150,000 [per share: $(0.03) basic and diluted] for
the same period in fiscal 2010. The income tax benefit represents a net operating loss
carryforward that the Company expects to realize in the future.
11
Table of Contents
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
OperationsContinued
Liquidity and Capital Resources:
Cash flows used in operations were $1.8 million through the first three months of fiscal 2011,
compared to cash used in operations of $1.2 million for the same period last year. Accounts
receivable decreased $0.9 million for the first three months of fiscal 2011 while accounts payable
increased $0.2 million in the first three months of fiscal 2011 compared to the same period last
year, largely due to an increase in materials purchased. Inventories increased $3.1 million,
primarily in support of upcoming new product offerings by our customers, promotional runs and
purchases in advance of anticipated significant raw material price increases. Depreciation was
$0.7 million for the first three months of fiscal 2011.
Net cash used in investing activities was $0.3 million for the first three months of fiscal 2011,
primarily related to capital expenditures to support ongoing operational needs.
Net cash provided by financing activities was $2.1 million for the first three months of fiscal
2011, consisting of $2.2 million related to the Company borrowing from its revolving credit line to
fund a portion of its increased working capital and equipment needs.
The Companys primary need for capital resources is to finance inventories, accounts
receivable and capital expenditures. As of December 31, 2010, cash recorded on the balance sheet
was $6,842.
On March 15, 2010, the Company entered into an $8.0 million amended and restated unsecured
revolving line of credit facility with a termination date of January 31, 2011. On December 28,
2010, the Company further amended its credit agreement to increase the revolving credit
availability from $8.0 million to $10.0 million, extend its termination date to January 31, 2012
and modify the required levels of after tax net income (or loss) under its financial covenants for
periods commencing December 31, 2010 and thereafter. The Companys revolving line of credit is classified as a current
liability on the accompanying balance sheets because provisions in the credit agreement include deposit account requirements
and a material adverse effect covenant which is subjective in nature. It is also the Companys policy to classify borrowings
under the revolving line of credit as current based on how it manages working capital.
Borrowings under the new credit facility bear
interest at a rate equal to LIBOR plus 2.50%. The Company is required to pay a non-usage fee of
.50% per annum on the unused portion of the facility.
Availability under the facility is based upon specified percentages of eligible accounts receivable
and inventory. The credit agreement is unsecured. The credit agreement contains certain covenants,
including requirements to maintain a minimum tangible net worth and net income (or net loss) within
specified levels. As of December 31, 2010, the Company was in compliance with all of its covenants
under the credit agreement, as amended.
As of
February 11, 2011, the Company had approximately $3.1 million
available and $6.9 million
outstanding under its revolving credit line pursuant to its credit agreement, as amended.
Management believes that the Companys operating cash flow, together with amounts available under
its credit agreement, are adequate to service the Companys current obligations as of December 31,
2010 and any budgeted capital expenditures, assuming the Company meets its business plan.
The Company intends to retain earnings to finance future operations and expansion and does
not expect to pay any dividends within the foreseeable future.
Off Balance Sheet Arrangements:
The Company has no Off Balance Sheet Arrangements (as defined in Item 303(a)(4) of Regulation S-K).
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
12
Table of Contents
ITEM 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in its reports filed pursuant to the Securities Exchange Act
of 1934, as amended (the Securities Exchange Act), is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commissions rules and
forms, and that such information is accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
The Company carried out an evaluation, under the supervision and with the participation of its
management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of the Companys disclosure controls and procedures. Based on the
foregoing, the Companys Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act) were effective as of the end of the Companys fiscal quarter ended
December 31, 2010.
There have been no changes in the Companys internal control over financial reporting during the
fiscal quarter ended December 31, 2010, that have materially affected, or are reasonably likely to
materially affect the Companys internal control over financial reporting.
13
Table of Contents
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is subject to lawsuits, investigations, and potential claims arising out of the
ordinary conduct of its business. The Company is not currently involved in any material
litigation.
ITEM 1A. Risk Factors
A smaller reporting company is not required to provide the information required by this Item.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. [Removed and Reserved]
ITEM 5. Other Information
None
ITEM 6. Exhibits
31.1 | Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934. |
31.2 | Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934. |
32.1 | Certification furnished pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2 | Certification furnished Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
14
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TUFCO TECHNOLOGIES, INC. |
||||
Date: February 14, 2011 | /s/ Louis LeCalsey, III | |||
Louis LeCalsey, III | ||||
President and Chief Executive Officer | ||||
Date: February 14, 2011 | /s/ Michael B. Wheeler | |||
Michael B. Wheeler | ||||
Executive Vice President, Chief Financial Officer and Chief Operating Officer |
||||
15