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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, 2012

 

¨ 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 or other jurisdiction of

incorporation or organization)

  (IRS Employer ID No.)

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   þ     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   þ     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   þ

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

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, 2013  

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 (Unaudited)   
   Condensed Consolidated Balance Sheets as of December 31, 2012 and September 30, 2012      3   
   Condensed Consolidated Statements of Operations for the three months ended December 31, 2012 and 2011      4   
   Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2012 and 2011      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.

   Mine Safety Disclosures      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)

 

     December 31,
2012
    September 30,
2012
 
Assets     

CURRENT ASSETS:

    

Cash

   $ 8,825      $ 8,320   

Accounts receivable-net

     11,876,296        16,456,478   

Inventories-net

     16,912,507        17,450,360   

Prepaid expenses and other current assets

     355,509        116,257   

Income taxes receivable

     23,359        23,359   

Deferred income taxes

     411,658        411,658   
  

 

 

   

 

 

 

Total current assets

     29,588,154        34,466,432   

PROPERTY, PLANT AND EQUIPMENT-Net

     15,867,687        15,847,460   

GOODWILL

     7,211,575        7,211,575   

OTHER ASSETS-Net

     132,467        130,422   
  

 

 

   

 

 

 

TOTAL

   $ 52,799,883      $ 57,655,889   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

CURRENT LIABILITIES:

    

Revolving line of credit

   $ 4,688,057      $ 7,279,718   

Current portion of note payable

     278,271        274,309   

Accounts payable

     7,418,403        10,618,255   

Accrued payroll, vacation and payroll taxes

     553,848        614,740   

Other current liabilities

     546,790        670,778   
  

 

 

   

 

 

 

Total current liabilities

     13,485,369        19,457,800   

LONG-TERM PORTION OF NOTE PAYABLE

     422,569        493,641   

DEFERRED INCOME TAXES

     2,426,724        1,988,620   

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

     25,617,461        25,607,867   

Retained earnings

     12,958,130        12,218,331   

Treasury stock—399,794 common shares at cost

     (2,157,457     (2,157,457
  

 

 

   

 

 

 

Total stockholders’ equity

     36,465,221        35,715,828   
  

 

 

   

 

 

 

TOTAL

   $ 52,799,883      $ 57,655,889   
  

 

 

   

 

 

 

 

3


Table of Contents

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     THREE MONTHS ENDED
DECEMBER 31,
 
     2012     2011  

NET SALES

   $ 28,348,148      $ 25,676,600   

COST OF SALES

     25,855,557        25,242,257   
  

 

 

   

 

 

 

GROSS PROFIT

     2,492,591        434,343   

OPERATING EXPENSES:

    

Selling, general & administrative

     1,261,859        1,346,670   
  

 

 

   

 

 

 

OPERATING INCOME (LOSS)

     1,230,732        (912,327

OTHER (EXPENSE) INCOME:

    

Interest expense

     (60,160     (67,591

Interest income and other income

     9,331        7,879   
  

 

 

   

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

     1,179,903        (972,039

INCOME TAX EXPENSE (BENEFIT)

     440,104        (362,570
  

 

 

   

 

 

 

NET INCOME (LOSS)

   $ 739,799      $ (609,469
  

 

 

   

 

 

 

BASIC INCOME (LOSS) PER SHARE:

    

Net Income (Loss)

   $ 0.17      $ (0.14

DILUTED INCOME (LOSS) PER SHARE:

    

Net Income (Loss)

   $ 0.17      $ (0.14

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

    

Basic

     4,308,947        4,308,947   

Diluted

     4,315,872        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,  
     2012     2011  

OPERATING ACTIVITIES

    

Net income (loss)

   $ 739,799      $ (609,469

Noncash items in net income (loss):

    

Depreciation and amortization of property, plant and equipment

     709,837        734,524   

Deferred income taxes

     438,104        (364,471

Gain on sale of assets

     (2,784     —     

Stock-based compensation expense

     9,594        9,183   

Changes in operating working capital:

    

Accounts receivable

     4,580,182        1,764,883   

Inventories

     537,853        (3,565,068

Prepaid expenses and other assets

     (241,297     (135,618

Accounts payable

     (3,126,430     2,936,572   

Accrued and other current liabilities

     (184,880     (170,641
  

 

 

   

 

 

 

Net cash provided by operating activities

     3,459,978        599,895   

INVESTING ACTIVITIES

    

Additions to property, plant and equipment

     (804,702     (585,934

Proceeds from disposals of assets

     4,000        —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (800,702     (585,934

FINANCING ACTIVITIES

    

Net (repayments) borrowings of revolving debt

     (2,591,661     50,852   

Principal payments on note payable

     (67,110     (63,368
  

 

 

   

 

 

 

Net cash used in financing activities

     (2,658,771     (12,516

NET INCREASE IN CASH

     505        1,445   

CASH:

    

Beginning of period

     8,320        8,300   
  

 

 

   

 

 

 

End of period

   $ 8,825      $ 9,745   
  

 

 

   

 

 

 

NONCASH SUPPLEMENTAL INFORMATION:

    

Accounts payable incurred for the purchase of equipment

   $ 47,259      $ —     

 

5


Table of Contents

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended December 31, 2012 and 2011

(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, 2012 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 2012 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, 2012 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, 2012.

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, the effect of which was 6,925 shares for the three months ended December 31, 2012. There was no effect for the three months ended December 31, 2011. During the three months ended December 31, 2012 and 2011, options to purchase 166,350 and 247,800 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,  
     2012      2012  

Raw materials

   $ 12,906,916       $ 11,857,627   

Finished goods

     4,005,591         5,592,733   
  

 

 

    

 

 

 

Total inventories

   $ 16,912,507       $ 17,450,360   
  

 

 

    

 

 

 

 

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.

The Company saw increased sales volumes at the Green Bay Contract Manufacturing segment in the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012, which in combination with the Company’s focus on reducing operating costs, contributed to increased earnings. While the Company will not likely see similar sales volumes in the second quarter, the Company remains focused on increasing sales and reducing costs. The Company’s Newton Business Imaging segment operation showed profit improvement over the first quarter of fiscal 2012. Additionally, during the first fiscal quarter of 2013, the Company reduced its borrowings under its credit facility by almost $2.6 million, down to $4.7 million due to improved operating cash inflows.

Management determined that no indicators of impairment existed during the three months ended December 31, 2012 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

The Company amended its credit agreement effective July 31, 2012 to extend its maturity date to June 30, 2013 and modified the required levels of after tax net income (or loss) under its financial covenants for fiscal years 2012 and 2013. However, there can be no assurances that the Company will be able to maintain such specified minimum levels of after tax net income in such years. The amount available for borrowing under the revolving line of credit facility was increased to $10.5 million subject to borrowing base limitations as defined in the agreement. The amendment also limits capital expenditures as defined in the agreement. 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.

As of December 31, 2012, the Company had approximately $5.8 million available and $4.7 million outstanding under its revolving credit line pursuant to its credit agreement.

 

7


Table of Contents

Notes to condensed consolidated financial statements—(continued)

 

7. Income Taxes

Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due, plus deferred taxes related primarily to differences between the basis of assets and liabilities for financial and income tax reporting. Deferred tax assets include recognition of operating losses that are available to offset future taxable income. Valuation allowances are recorded when, based on an evaluation of the available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax asset will not be realized.

The Company has not recorded a valuation allowance against its deferred tax assets as of December 31, 2012 based on its evaluation of the available evidence, which includes consideration of reversal patterns for long-term deferred tax liabilities and the profit generated in the first quarter of fiscal 2013 as well as the third and fourth quarters of fiscal 2012. During the first quarter of fiscal 2013, the Company generated taxable income which utilized net operating loss carryforwards for the period. The assessment of a valuation allowance is an estimate. Changes in future taxable income or loss can result in change to the assessment of a valuation allowance. In addition, if net operating loss carryforwards will not reverse and be realized over the same long-term period as the difference for depreciation on property and equipment, a change in the assessment of a valuation allowance could occur. The Company’s effective tax rate approximates the statutory tax rates in the jurisdictions in which it files.

8. 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 expense (benefit) are recorded under the Corporate and Other segment. Such market segment information is summarized below. The Contract Manufacturing segment provides a variety of products and services to multinational consumer products companies. The Business Imaging segment manufactures and distributes printed and unprinted business imaging paper products for a variety of business needs.

External customer revenues attributed to foreign countries were approximately 3% of total sales for the first quarter of fiscal 2013 and 2012. The revenues are attributed to countries in Europe and to Japan. There are no long-lived assets located outside of the United States at December 31, 2012 and 2011.

 

8


Table of Contents

Notes to condensed consolidated financial statements—(continued)

 

 

Three Months Ended

December 31, 2012

   Contract
Manufacturing
    Business
Imaging
    Corporate
and Other
    Consolidated  

Net sales

   $ 22,272,565      $ 6,075,583      $ —        $ 28,348,148   

Gross profit

     2,106,330        386,261        —          2,492,591   

Operating income (loss)

     1,758,960        145,061        (673,289     1,230,732   

Depreciation and amortization expense

     676,329        33,508        —          709,837   

Capital expenditures

     804,702        —          —          804,702   

Three Months Ended

December 31, 2011

   Contract
Manufacturing
    Business
Imaging
    Corporate
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   
December 31, 2012    Contract
Manufacturing
    Business
Imaging
    Corporate
and Other
    Consolidated  

Assets:

        

Inventories-net

   $ 11,802,094      $ 5,110,413      $ —        $ 16,912,507   

Property, plant and equipment-net

     13,997,208        1,868,428        2,051        15,867,687   

Accounts receivable and other (including goodwill)

     13,952,245        5,491,135        576,309        20,019,689   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 39,751,547      $ 12,469,976      $ 578,360      $ 52,799,883   
  

 

 

   

 

 

   

 

 

   

 

 

 
September 30, 2012    Contract
Manufacturing
    Business
Imaging
    Corporate
and Other
    Consolidated  

Assets:

        

Inventories-net

   $ 12,989,387      $ 4,460,973      $ —        $ 17,450,360   

Property, plant and equipment-net

     13,943,270        1,902,139        2,051        15,847,460   

Accounts receivable and other (including goodwill)

     17,787,992        5,996,318        573,759        24,358,069   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 44,720,649      $ 12,359,430      $ 575,810      $ 57,655,889   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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 2013 results in comparison to fiscal 2012 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 continuing economic downturn, the Company’s inability to benefit from any general economic improvements, react to material increases in the cost of raw materials or 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 comply with the financial covenants in its credit facility, the Company’s ability to extend or refinance its credit facility upon expiration, the Company’s ability to sustain profitable operations, the Company’s ability to successfully attract new customers through its sales initiatives and strengthening its new business development efforts, the Company’s ability to improve the run rates for its products, and changes to regulations governing its operations or other factors beyond the Company’s control. 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 wipe converting and printing, as well as specialty printing and finishing 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 wipe converting, hot melt adhesive lamination, folding, integrated downstream packaging, 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 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
December 31,
    Period-to-Period
Change
 
     2012     2011     $     %  

Net Sales

   $ 28,348      $ 25,677      $ 2,671        10

Gross Profit

     2,493        434        2,059        NM   
     8.8     1.7    

Operating Expenses

     1,262        1,347        (85     (6 %) 
     4.5     5.2    

Operating Income (Loss)

     1,231        (912     2,143        NM   
     4.3     (3.6 %)     

Interest and Other-Net

     51        60        (9     (15 %) 
     0.2     0.2    

Income (Loss) Before Income Taxes

     1,180        (972     2,152        NM   
     4.2     (3.8 %)     

Income Tax Expense (Benefit)

     440        (363     803        NM   
     1.6     (1.4 %)     

Net Income (Loss)

   $ 740      $ (609     1,349        NM   
     2.6     (2.4 %)     

Basic and Diluted Income (Loss) per Share

   $ 0.17      $ (0.14    

 

NM = Not Meaningful

 

     Three Months Ended
December 31,
             
     2012     2011     Period-to-Period  
            % of            % of     Change  
     Amount      Total     Amount      Total     $     %  

Net Sales

              

Contract Manufacturing

   $ 22,272         79   $ 18,125         71   $ 4,147        23

Business Imaging

     6,076         21     7,552         29     (1,476     (20 %) 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Net Sales

   $ 28,348         100   $ 25,677         100   $ 2,671        10
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   
     2012     2011     Period-to-Period  
            Margin            % of     Change  
     Amount      %     Amount      Total     $     %  

Gross Profit

              

Contract Manufacturing

   $ 2,107         9   $ 169         1   $ 1,938        NM   

Business Imaging

     386         6     265         4     121        46
  

 

 

      

 

 

      

 

 

   

Gross Profit

   $ 2,493         9   $ 434         2   $ 2,059        NM   
  

 

 

      

 

 

      

 

 

   

 

NM = Not Meaningful

 

11


Table of Contents

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Continued

 

Net Sales:

Consolidated net sales increased $2.6 million (10%) to $28.3 million in the first quarter of fiscal 2013, when compared to the same period last year. This was due to an increase of $4.1 million (23%) in the Contract Manufacturing segment and a decrease of $1.5 million (20%) in the Business Imaging segment.

The Company depends on two Contract Manufacturing customers for a significant portion of its business. One customer accounted for 8% of the Company’s total net sales in the first quarter of fiscal 2013 compared to 19% for the same period in fiscal 2012. The current manufacturing contract with this customer expires June 2013. The Company is currently negotiating renewal terms with this customer. The other significant customer accounted for 47% of the Company’s total net sales in the first quarter of fiscal 2013 compared to 26% for the same period in fiscal 2012. The current manufacturing contract with this customer expires June 30, 2013. The Company is currently negotiating renewal terms with this customer.

Gross Profit:

Consolidated gross profit increased $2.1 million for the first quarter of fiscal 2013 when compared to the first quarter of fiscal 2012, consisting of an increase of $2.0 million in the Contract Manufacturing segment and an increase of $0.1 million in the Business Imaging segment.

The Company saw increased sales volumes at the Green Bay Contract Manufacturing segment in the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012, which in combination with the Company’s focus on reducing operating costs, contributed to increased earnings. While the Company will not likely see similar sales volumes in the second quarter, the Company remains focused on increasing sales and reducing costs. The Company’s Newton Business Imaging segment operation showed profit improvement over the first quarter of fiscal 2012. Additionally, during the first fiscal quarter of 2013, the Company reduced its borrowings under its credit facility by almost $2.6 million, down to $4.7 million due to improved operating cash inflows.

Operating Expenses:

Selling, general and administrative expenses decreased $85,000 (6%) for the first quarter of fiscal 2013 when compared to the same period in fiscal 2012 as a result of the Company’s cost reduction efforts.

Interest Expense and Other Income (Expense) net:

Interest expense and other income decreased $9,000 to $51,000 (15%) for the first quarter of fiscal 2013 compared to the same period in fiscal 2012 due to lower average debt outstanding and lower interest rates on borrowings.

Income Tax Benefit:

Income tax expense for the first quarter of fiscal 2013 was $440,000, compared to an income tax benefit of $363,000 for the same period of fiscal 2012. The income tax expense for the first three months of 2013 was the result of increased profits which utilized net operating loss carryforwards for the period. 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.

Net Income:

The Company reported net income of $740,000 [per share: $0.17 basic and diluted] for the first quarter of fiscal 2013, versus a net loss of $609,000 [per share: $(0.14) basic and diluted] for the same period in fiscal 2012.

 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Continued

 

Liquidity and Capital Resources:

Cash flows provided by operations were $3.5 million through the first three months of fiscal 2013, compared to $0.6 million for the same period last year. Cash provided by operations for the first three months of fiscal 2013 resulted primarily from an increase in operating income and a decrease in accounts receivable of $4.6 million offset by a decrease in accounts payable of $3.1 million compared to the same period last year. Depreciation was $0.7 million for the first three months of fiscal 2013 and 2012.

Net cash used in investing activities was $0.8 million for the first three months of fiscal 2013, primarily related to capital expenditures to support ongoing operational needs.

Net cash used in financing activities was $2.7 million for the first three months of fiscal 2013. This consisted of $2.6 million paid on the Company’s revolving credit line and $0.1 million used for principal payments on a note related to the 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, 2012, cash recorded on the balance sheet was $8,825.

The Company amended its credit agreement effective July 31, 2012 to extend its maturity date to June 30, 2013 and modified the required levels of after tax net income (or loss) under its financial covenants for fiscal years 2012 and 2013. However, there can be no assurances that the Company will be able to maintain such specified minimum levels of after tax net income in such years. The amount available for borrowing under the revolving line of credit facility was increased to $10.5 million subject to borrowing base limitations as defined in the agreement. The amendment also limits capital expenditures as defined in the agreement. 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. The Commercial Security Agreement grants to the lender a security interest in all of the accounts and inventory of Tufco, L.P., a subsidiary of the Company.

As of February 8, 2013, the Company had approximately $5.3 million available and $5.2 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, 2012, assuming the Company is able to extend or refinance its credit agreement upon expiration.

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).

 

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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, 2012.

During the fiscal quarter ended December 31, 2012, there have been no changes in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

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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. Mine Safety Disclosures

Not Applicable

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

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    TUFCO TECHNOLOGIES, INC.
Date: February 14, 2013    

/s/ James F. Robinson        

    James F. Robinson
    President and Chief Executive Officer

 

Date: February 14, 2013    

/s/ Michael B. Wheeler        

    Michael B. Wheeler
    Executive Vice President, Chief Financial Officer and Chief Operating Officer

 

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