Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - TUFCO TECHNOLOGIES INCFinancial_Report.xls
EX-32.1 - EX-32.1 - TUFCO TECHNOLOGIES INCd294224dex321.htm
EX-31.2 - EX-31.2 - TUFCO TECHNOLOGIES INCd294224dex312.htm
EX-32.2 - EX-32.2 - TUFCO TECHNOLOGIES INCd294224dex322.htm
EX-31.1 - EX-31.1 - TUFCO TECHNOLOGIES INCd294224dex311.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

Form 10-Q

 

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2011

 

¨

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   (IRS Employer ID No.)
of incorporation of organization)  

PO BOX 23500 Green Bay, WI 54305

(Address of principal executive offices)(Zip code)

(920) 336-0054

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x        No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x        No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller Reporting Company

 

x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each or the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding as of February 14, 2012

Common Stock, par value $0.01 per share   4,308,947

 

 

 


Table of Contents

TUFCO TECHNOLOGIES, INC.

Index

 

         Page  
         Number  

PART I.

  FINANCIAL INFORMATION   

Item 1.

  Condensed Consolidated Financial Statements   
  Condensed Consolidated Balance Sheets as of December 31, 2011 and September 30, 2011      3   
  Condensed Consolidated Statements of Operations for the three months ended December 31, 2011 and 2010      4   
  Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2011 and 2010      5   
  Notes to Condensed Consolidated Financial Statements      6   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      10   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      14   

Item 4

  Controls and Procedures      14   

PART II:

  OTHER INFORMATION   

Item 1

  Legal Proceedings      15   

Item 1A.

  Risk Factors      15   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      15   

Item 3.

  Defaults Upon Senior Securities      15   

Item 4.

  [Removed and Reserved]      15   

Item 5.

  Other Information      15   

Item 6.

  Exhibits      15   

SIGNATURES

     16   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. Condensed Consolidated Financial Statements

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

September 30, September 30,
       December 31,      September 30,  
       2011      2011  

Assets

       

CURRENT ASSETS:

       

Cash

     $ 9,745       $ 8,300   

Accounts receivable-net

       13,597,827         15,362,710   

Inventories-net

       17,765,644         14,200,576   

Prepaid expenses and other current assets

       969,073         831,000   

Deferred income taxes

       503,683         503,683   
    

 

 

    

 

 

 

Total current assets

       32,845,972         30,906,269   

PROPERTY, PLANT AND EQUIPMENT-Net

       16,878,416         17,027,006   

GOODWILL

       7,211,575         7,211,575   

OTHER ASSETS-Net

       133,592         136,047   
    

 

 

    

 

 

 

TOTAL

     $ 57,069,555       $ 55,280,897   
    

 

 

    

 

 

 

Liabilities and Stockholders’ Equity

       

CURRENT LIABILITIES:

       

Revolving line of credit

     $ 6,499,985       $ 6,449,133   

Current portion of note payable

       262,758         259,017   

Accounts payable

       11,904,794         8,968,222   

Accrued payroll, vacation and payroll taxes

       544,508         571,319   

Other current liabilities

       308,356         452,186   

Income taxes payable

       17,858         17,858   
    

 

 

    

 

 

 

Total current liabilities

       19,538,259         16,717,735   

LONG-TERM PORTION OF NOTE PAYABLE

       700,841         767,950   

DEFERRED INCOME TAXES

       1,720,961         2,085,432   

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

       25,558,422         25,549,239   

Retained earnings

       11,661,442         12,270,911   

Treasury stock—399,794 common shares at cost

       (2,157,457      (2,157,457
    

 

 

    

 

 

 

Total stockholders’ equity

       35,109,494         35,709,780   
    

 

 

    

 

 

 

TOTAL

     $ 57,069,555       $ 55,280,897   
    

 

 

    

 

 

 

 

3


Table of Contents

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

September 30, September 30,
       THREE MONTHS ENDED
DECEMBER 31,
 
       2011      2010  

NET SALES

     $ 25,676,600       $ 24,161,110   

COST OF SALES

       25,242,257         23,058,234   
    

 

 

    

 

 

 

GROSS PROFIT

       434,343         1,102,876   

OPERATING EXPENSES:

       

Selling, general & administrative

       1,346,670         1,339,916   
    

 

 

    

 

 

 

OPERATING LOSS

       (912,327      (237,040

OTHER (EXPENSE) INCOME:

       

Interest expense

       (67,591      (64,365

Interest income and other income

       7,879         17,166   
    

 

 

    

 

 

 

LOSS BEFORE INCOME TAXES

       (972,039      (284,239

INCOME TAX BENEFIT

       (362,570      (106,021
    

 

 

    

 

 

 

NET LOSS

     $ (609,469    $ (178,218
    

 

 

    

 

 

 

BASIC LOSS PER SHARE:

       

Net Loss

     $ (0.14    $ (0.04

DILUTED LOSS PER SHARE:

       

Net Loss

     $ (0.14    $ (0.04

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)

 

September 30, September 30,
       THREE MONTHS ENDED
December 31,
 
       2011      2010  

OPERATING ACTIVITIES

       

Net loss

     $ (609,469    $ (178,218

Noncash items in net loss:

       

Depreciation and amortization of property, plant and equipment

       734,524         715,875   

Deferred income taxes

       (364,471      (106,020

Stock-based compensation expense

       9,183         5,658   

Changes in operating working capital:

       

Accounts receivable

       1,764,883         860,756   

Inventories

       (3,565,068      (3,080,958

Prepaid expenses and other assets

       (135,618      (207,008

Accounts payable

       2,936,572         212,913   

Accrued and other current liabilities

       (170,641      (65,597

Income taxes receivable

       —           87   
    

 

 

    

 

 

 

Net cash provided by (used in) operating activities

       599,895         (1,842,512

INVESTING ACTIVITIES

       

Additions to property, plant and equipment

       (585,934      (267,675
    

 

 

    

 

 

 

Net cash used in investing activities

       (585,934      (267,675

FINANCING ACTIVITIES

       

Net borrowings of revolving debt

       50,852         2,168,965   

Principal payments on note payable

       (63,368      (59,835
    

 

 

    

 

 

 

Net cash (used in) provided by financing activities

       (12,516      2,109,130   

NET INCREASE (DECREASE) IN CASH

       1,445         (1,057

CASH:

       

Beginning of period

       8,300         7,899   
    

 

 

    

 

 

 

End of period

     $ 9,745       $ 6,842   
    

 

 

    

 

 

 

NONCASH SUPPLEMENTAL INFORMATION:

       

Change in construction payable

     $ —         $ 116,658   

 

5


Table of Contents

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended December 31, 2011 and 2010

(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, 2011 are not necessarily indicative of results expected for the remainder of the year. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations. The Company believes that the disclosures made are adequate to prevent the financial information given from being misleading. The Company’s fiscal 2011 Annual Report on Form 10-K contains a summary of significant accounting policies and includes the consolidated financial statements and the notes to the consolidated financial statements. The same accounting policies are followed in the preparation of interim reports. The Company’s condensed consolidated balance sheet at December 31, 2011 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, 2011.

 

2.

Financial Instruments

Financial instruments consist of cash, receivables, payables, debt, and letters of credit. Their carrying values are estimated to approximate their fair values unless otherwise indicated due to their short maturities, variable interest rates plus a margin applicable to the credit risk associated with the revolving line of credit and comparable borrowing costs for equipment loans.

 

3.

Earnings Per Share

Basic earnings per share is computed using the weighted average number of common shares outstanding. Diluted earnings per share includes common stock equivalents from dilutive stock options outstanding during the year. During the three months ended December 31, 2011 and 2010, options to purchase 247,800 and 331,150 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:

 

September 30, September 30,
       December 31,
2011
       September 30,
2011
 

Raw materials

     $ 13,810,825         $ 10,908,178   

Finished goods

       3,954,819           3,292,398   
    

 

 

      

 

 

 

Total inventories

     $ 17,765,644         $ 14,200,576   
    

 

 

      

 

 

 

 

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 July 1. The operating segments herein also represent the Company’s reporting units for goodwill purposes. The Company uses a discounted cash flow analysis to estimate reporting unit fair values and also considers multiples of relevant companies. In determining the fair values of the reporting units, the Company was required to make certain assumptions and cannot predict what future events may occur that could adversely affect the reported value of its goodwill.

At Contract Manufacturing, reduced sales volume and shifts in the segment’s product sales mix and related operating inefficiencies resulted in reduced gross margin. Also, Green Bay relocated its warehouse operation from a third party warehouse to a self-operated warehouse. Savings from this move are expected to begin in the second quarter and continue thereafter. The Business Imaging segment experienced escalating paper and operating costs, which resulted in reduced gross margin. The Company is focused on increasing sales volume, improving sales product mix, new product development and cost reduction activities. Some activities will result in one-time expenses, but increased profitability in the long-term is expected.

Management noted no indicators of impairment during the three months ended December 31, 2011 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.

 

7


Table of Contents

Notes to condensed consolidated financial statements–(continued)

 

6.

Revolving Line of Credit and Note Payable

The Company amended its credit agreement effective September 30, 2011 to extend its termination date to January 31, 2013 and modified the required levels of after tax net income (or loss) under its financial covenants for periods commencing September 30, 2011 and thereafter. The amount available for borrowing under the revolving line of credit facility is $10.0 million. The Company’s revolving line of credit is classified as a current liability on the accompanying balance sheets because provisions in the credit agreement include deposit account requirements and a material adverse effect covenant which is subjective in nature. Borrowings under the 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.

For the fiscal quarter ended December 31, 2011, the Company received a waiver from its lender of compliance with a covenant under its credit agreement requiring it to maintain a specified level of after tax net income. In consideration of the waiver, the Company has agreed to grant a security interest to the lender in its receivables and inventory in a form reasonably acceptable to the lender. The Company is in discussions with its lender to modify financial covenants for future quarters. If the Company is unable to obtain a modification of its covenants for future periods, the Company may require future waivers and there can be no assurance that any such future waivers can be obtained.

As of December 31, 2011, the Company had approximately $3.5 million available and $6.5 million outstanding under its revolving credit line pursuant to its credit agreement.

 

7.

Segment Information

The Company manufactures and distributes custom paper-based and nonwoven products, and provides contract manufacturing, specialty printing and related services on these types of products. The Company separates its operations and prepares information for management use by the market segment aligned with the Company’s products and services. Corporate costs, such as interest income, interest expense and income tax (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 Company’s revenues are attributed to domestic external customers. There are no long-lived assets located outside of the United States.

 

8


Table of Contents

Notes to condensed consolidated financial statements–(continued)

 

 

September 30, September 30, September 30, September 30,
Three Months Ended      Contract      Business      Corporate         

December 31, 2011

     Manufacturing      Imaging      and Other      Consolidated  

Net sales

     $ 18,124,609       $ 7,551,991       $ —         $ 25,676,600   

Gross profit

       169,519         264,824         —           434,343   

Operating (loss)

       (179,574      (55,578      (677,175      (912,327

Depreciation and amortization expense

       697,429         36,972         123         734,524   

Capital expenditures

       585,934         —           —           585,934   

 

September 30, September 30, September 30, September 30,
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   

 

September 30, September 30, September 30, September 30,
       Contract        Business        Corporate           

December 31, 2011

     Manufacturing        Imaging        and Other        Consolidated  

Assets:

                   

Inventories-net

     $ 13,552,642         $ 4,213,002         $ —           $ 17,765,644   

Property, plant and equipment-net

       14,866,398           2,009,844           2,174           16,878,416   

Accounts receivable and other (including goodwill)

       15,132,655           6,645,821           647,019           22,425,495   
    

 

 

      

 

 

      

 

 

      

 

 

 

Total assets

     $ 43,551,695         $ 12,868,667         $ 649,193         $ 57,069,555   
    

 

 

      

 

 

      

 

 

      

 

 

 

 

September 30, September 30, September 30, September 30,
       Contract        Business        Corporate           

September 30, 2011

     Manufacturing        Imaging        and Other        Consolidated  

Assets:

                   

Inventories-net

     $ 11,010,125         $ 3,190,451         $ —           $ 14,200,576   

Property, plant and equipment-net

       14,977,893           2,046,816           2,297           17,027,006   

Accounts receivable and other (including goodwill)

       16,837,134           6,568,152           648,029           24,053,315   
    

 

 

      

 

 

      

 

 

      

 

 

 

Total assets

     $ 42,825,152         $ 11,805,419         $ 650,326         $ 55,280,897   
    

 

 

      

 

 

      

 

 

      

 

 

 

 

9


Table of Contents
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

Management’s discussion of the Company’s fiscal 2012 results in comparison to fiscal 2011 contains forward-looking statements regarding current expectations, risks and uncertainties for future periods. The actual results could differ materially from those discussed herein due to a variety of factors such as the Company’s ability to increase sales, changes in customer demand for its products, cancellation 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 slow economic recovery from the recent economic downturn, the Company’s ability to comply with the financial covenants in its credit facility, the Company’s inability to benefit from any general economic improvements, material increases in the cost of raw materials, competition in the Company’s product areas, the ability of management to successfully reduce operating expenses, the Company’s ability to increase sales and earnings as a result of new projects and services, the Company’s ability to successfully install new equipment on a timely basis and to improve productivity through equipment upgrades, the Company’s ability to continue to produce new products, the Company’s ability to return to profitability and then continue to improve profitability, the Company’s ability to successfully attract new customers through its sales initiatives and strengthening its new business development efforts, and the Company’s ability to improve the run rates for its products. Therefore, the financial data for the periods presented may not be indicative of the Company’s future financial condition or results of operations.

General Information:

Tufco is a leader in providing diversified contract wet and dry wipes converting, as well as specialty printing services and business imaging products. The Company works closely with its customers to develop products or perform services which meet or exceed the customers’ quality standards, and then uses the Company’s operating efficiencies and technical expertise to supplement or replace its customers’ own production and distribution functions.

The Company’s technical proficiencies include wide web flexographic printing, wet 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 Company’s corporate headquarters, including corporate support services, are located in Green Bay, WI.

 

10


Table of Contents
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Result 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):

 

September 30, September 30, September 30, September 30,
       Three Months Ended     Period-to-Period  
       December 31,     Change  
       2011     2010     $      %  

Net Sales

     $ 25,677      $ 24,161      $ 1,516         6

Gross Profit

       434        1,103        (669      (61 %) 
       1.7     4.6     

Operating Expenses

       1,347        1,340        7         1
       5.2     5.5     

Operating Loss

       (912     (237     (675      NM   
       (3.6 %)      (1.0 %)      

Interest and Other-Net

       60        47        13         28
       0.2     0.2     

Loss Before Income Taxes

       (972     (284     (688      NM   
       (3.8 %)      (1.2 %)      

Income Tax Benefit

       (363     (106     (257      NM   
       (1.4 %)      (0.4 %)      

Net Loss

     $ (609   $ (l78     (431      NM   
       (2.4 %)      (0.7 %)      

Basic and Diluted Loss per Share

     $ (0.14   $ (0.04     

 

 

NM = Not Meaningful

 

September 30, September 30, September 30, September 30, September 30, September 30,
       Three Months Ended               
       December 31,               
       2011     2010     Period-to-Period  
                % of              % of     Change  
       Amount        Total     Amount        Total     $      %  

Net Sales

                     

Contract Manufacturing and printing

     $ 18,125           71   $ 18,597           77   $ (472      (3 %) 

Business Imaging paper products

       7,552           29     5,564           23     1,988         36
    

 

 

      

 

 

   

 

 

      

 

 

   

 

 

    

Net Sales

     $ 25,677           100   $ 24,161           100   $ 1,516         6
    

 

 

      

 

 

   

 

 

      

 

 

   

 

 

    

 

September 30, September 30, September 30, September 30, September 30, September 30,
       2011     2010     Period-to-Period  
                Margin              % of     Change  
       Amount        %     Amount        Total     $      %  

Gross Profit

                     

Contract Manufacturing and printing

     $ 169           1   $ 816           4   $ (647      (79 %) 

Business Imaging paper products

       265           4     287           5     (22      (8 %) 
    

 

 

        

 

 

        

 

 

    

Gross Profit

     $ 434           2   $ 1,103           5   $ (669      (61 %) 
    

 

 

        

 

 

        

 

 

    

 

11


Table of Contents
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Result of Operations-continued

 

Net Sales:

Consolidated net sales increased $1.5 million (6%) to $25.7 million in the first quarter of fiscal 2012, when compared to the same period last year. This was due to an increase of $2.0 million (36%) in the Business Imaging segment, partially offset by a decrease of $0.5 million (3%) in the Contract Manufacturing segment.

The Company depends on two Contract Manufacturing customers for a significant portion of its business. One customer accounted for 19% of the Company’s total net sales in the first quarter of fiscal 2012 compared to 21% for the same period in fiscal 2011. The other significant customer accounted for 26% of the Company’s total net sales in the first quarter of fiscal 2012 compared to 38% for the same period in fiscal 2011.

The major contributor to the Company’s sales growth was increased seasonal demand within its Newton Business Imaging segment. In Contract Manufacturing, the decrease in sales was the result of reduced sales volume and shifts in the segment’s product sales mix.

Gross Profit:

Consolidated gross profit decreased $669,000 (61%) for the first quarter of fiscal 2012 when compared to the first quarter of fiscal 2011. This was primarily due to a decrease of $647,000 (79%) in the Contract Manufacturing segment and a slight decrease of $22,000 (8%) in the Business Imaging segment.

At Contract Manufacturing, reduced sales volume and shifts in the segment’s product sales mix and related operating inefficiencies resulted in reduced gross margin. Also, Green Bay relocated its warehouse operation from a third party warehouse to a self-operated warehouse. Savings from this move are expected to begin in the second quarter and continue thereafter. The Business Imaging segment experienced escalating paper and operating costs, which resulted in reduced gross margin. The Company is focused on increasing sales volume, improving sales product mix, new product development and cost reduction activities. Some activities will result in one-time expenses, but increased profitability in the long-term is expected.

Operating Expenses:

Selling, general and administrative expenses remained relatively unchanged with a slight increase of $7,000 (1%) for the first quarter of fiscal 2012 when compared to the same period in fiscal 2011.

Interest Expense and Other Income (Expense) net:

Interest expense increased $4,000 to $68,000 for the first quarter of fiscal 2012 compared to the same period in fiscal 2011 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.

Income Tax Benefit:

Income tax benefit for the first quarter of fiscal 2012 was $363,000, compared to an income tax benefit of $106,000 for the same period of fiscal 2011. The income tax benefit for the first three months of 2012 represents a net operating loss carryforward that the Company expects to realize in the future as the deferred tax liabilities reverse.

Net Income:

The Company reported a net loss of $609,000 [per share: $(0.14) basic and diluted] for the first quarter of fiscal 2012, versus a net loss of $178,000 [per share: $(0.04) basic and diluted] for the same period in fiscal 2011.

 

12


Table of Contents
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Result of Operations-continued

 

Liquidity and Capital Resources:

Cash flows provided by operations were $0.6 million through the first three months of fiscal 2012, compared to cash used in operations of $1.8 million for the same period last year. Accounts receivable decreased $1.8 million for the first three months of fiscal 2012 while accounts payable increased $2.9 million in the first three months of fiscal 2012 compared to the same period last year, largely due to an increase in the volume of raw materials purchased. Inventories increased $3.6 million, primarily related to a planned build-up in inventory to cover the change out period during the startup of a new component for the canister line in the second quarter and to support customer demand. Depreciation was $0.7 million for the first three months of fiscal 2012.

Net cash used in investing activities was $0.6 million for the first three months of fiscal 2012, primarily related to capital expenditures to support ongoing operational needs.

Net cash used in financing activities was $13,000 for the first three months of fiscal 2012, consisting of $51,000 of cash provided to the Company from borrowing under its revolving credit line to fund a portion of its increased working capital and equipment needs and $63,000 of cash used to make principal payments on a note payable related to a purchase of equipment made in June, 2010.

The Company’s primary need for capital resources is to finance inventories, accounts receivable and capital expenditures. As of December 31, 2011, cash recorded on the balance sheet was $9,745.

The Company amended its credit agreement effective September 30, 2011 to extend its termination date to January 31, 2013 and modified the required levels of after tax net income (or loss) under its financial covenants for periods commencing September 30, 2011 and thereafter. The amount available for borrowing under the revolving line of credit facility is $10.0 million. The Company’s revolving line of credit is classified as a current liability on the accompanying balance sheets because provisions in the credit agreement include deposit account requirements and a material adverse effect covenant which is subjective in nature. It is also the Company’s policy to classify borrowings under the revolving line of credit as current based on how it manages working capital. Borrowings under the 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. For the fiscal quarter ended December 31, 2011, the Company received a waiver from its lender of compliance with a covenant under its credit agreement requiring it to maintain a specified level of after tax net income. In consideration of the waiver, the Company has agreed to grant a security interest to the lender in its receivables and inventory in a form reasonably acceptable to the lender. The Company is in discussions with its lender to modify financial covenants for future quarters. If the Company is unable to obtain a modification of its covenants for future periods, the Company may require future waivers and there can be no assurance that any such future waivers can be obtained. As of December 31, 2011, the Company was otherwise in compliance with all of its covenants under the credit agreement, as amended.

As of February 10, 2012, the Company had approximately $1.7 million available and $8.3 million outstanding under its revolving credit line pursuant to its credit agreement.

Management believes that the Company’s operating cash flow, together with amounts available under its credit agreement, are adequate to service the Company’s current obligations as of December 31, 2011.

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).

 

13


Table of Contents
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.

 

ITEM 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) were effective as of the end of the Company’s fiscal quarter ended December 31, 2011.

There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

14


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

 

15


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, 2012     /s/ James F. Robinson
   

James F. Robinson

President and Chief Executive Officer

Date: February 14, 2012     /s/ Michael B. Wheeler
    Michael B. Wheeler
   

Executive Vice President, Chief Financial Officer and

Chief Operating Officer

 

16