##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, DC
 Form 10-Q
 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended December 31, 2008
 Commission file number 0-21018
 TUFCO TECHNOLOGIES, INC.
 Delaware
    
    39-1723477(State of other jurisdiction 
of incorporation of organization)
    
    (IRS Employer ID No.)
 (Address of principal executive offices)(Zip code)
 (Registrants telephone number, including area code)
  þ o
  o o o þ
  o þ
  Class
    
    Outstanding as of February 13, 2009Common Stock, par value $0.01 per share
    
    4,334,122




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##### 



TUFCO TECHNOLOGIES, INC.
 Index
 PageNumberPART I:
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of
December 31, 2008 and September 30, 2008
    
    
    3Condensed Consolidated Statements of Income for the three months ended
December 31, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the three
months ended December 31, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    9Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    13Item 4.
    
    Controls and Procedures
    
    
    13PART II:
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    13Item 1A.
    
    Risk Factors
    
    
    13Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    14Item 3.
    
    Defaults Upon Senior Securities
    
    
    14Item 4.
    
    Submission of Matters to Vote for Security Holders
    
    
    14Item 5.
    
    Other Information
    
    
    14Item 6.
    
    Exhibits
    
    
    15SIGNATURES
    
    
    16EX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. Condensed Consolidated Financial Statements
 TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 Dec. 31,2008
    
    
    September 30,(Unaudited)
    
    
    2008AssetsCURRENT ASSETS:Cash
    
    $
    6,767
    
    
    $
    68,397Accounts receivablenet
    
    
    12,242,684
    
    
    
    11,770,981Inventories  net
    
    
    14,272,905
    
    
    
    14,939,968Prepaid expenses and other current assets
    
    
    525,319
    
    
    
    420,237Income taxes receivable
    
    
    118,991
    
    
    
    118,991Deferred income taxes
    
    
    571,583
    
    
    
    571,583Total current assets
    
    
    27,738,249
    
    
    
    27,890,157PROPERTY, PLANT AND EQUIPMENTNet
    
    
    18,042,669
    
    
    
    18,036,764GOODWILL
    
    
    7,211,575
    
    
    
    7,211,575OTHER ASSETSNet
    
    
    122,549
    
    
    
    122,297TOTAL
    
    $
    53,115,042
    
    
    $
    53,260,793Liabilities and Stockholders EquityCURRENT LIABILITIES:Accounts payable
    
    $
    7,398,220
    
    
    $
    8,320,011Accrued payroll, vacation and payroll taxes
    
    
    674,240
    
    
    
    562,598Other current liabilities
    
    
    396,137
    
    
    
    700,095Total current liabilities
    
    
    8,468,597
    
    
    
    9,582,704LONG-TERM DEBT
    
    
    4,250,000
    
    
    
    3,000,000DEFERRED INCOME TAXES
    
    
    2,894,481
    
    
    
    2,896,002COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common Stock: $.01 par value: 9,000,000 shares authorized; 4,708,741 shares
issued
    
    
    47,087
    
    
    
    47,087Non-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
    
    
    25,378,090
    
    
    
    25,374,211Retained earnings
    
    
    13,992,615
    
    
    
    13,981,031Treasury stock, 333,743 and 252,037 common shares at cost
    
    
    (1,915,828
    )
    
    
    (1,620,242
    )Total stockholders equity
    
    
    37,501,964
    
    
    
    37,782,087TOTAL
    
    $
    53,115,042
    
    
    $
    53,260,793
 3




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TUFCO TECHNOLOGIEES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 THREE MONTHS ENDEDDecember 31,2008
    
    
    2007NET SALES
    
    $
    23,185,787
    
    
    $
    24,817,953COST OF SALES
    
    
    22,148,474
    
    
    
    23,713,435GROSS PROFIT
    
    
    1,037,313
    
    
    
    1,104,518OPERATING EXPENSES:Selling, general & administrative
    
    
    1,026,595
    
    
    
    969,615Gain on asset sales
    
    
    (37,500
    )
    
    
    OPERATING INCOME
    
    
    48,218
    
    
    
    134,903OTHER INCOME (EXPENSE):Interest expense
    
    
    (42,606
    )
    
    
    (87,111
    )Interest income and other income
(expense)
    
    
    13,439
    
    
    
    17,745INCOME BEFORE INCOME TAXES
    
    
    19,051
    
    
    
    65,537INCOME TAX EXPENSE
    
    
    7,467
    
    
    
    25,691NET INCOME
    
    $
    11,584
    
    
    $
    39,846BASIC EARNINGS PER SHARE:Net Income
    
    $
    0.00
    
    
    $
    0.01DILUTED EARNINGS PER SHARE:Net Income
    
    $
    0.00
    
    
    $
    0.01WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic
    
    
    4,412,242
    
    
    
    4,535,644Diluted
    
    
    4,412,242
    
    
    
    4,552,607
  4




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TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 THREE MONTHS ENDEDDecember 31,2008
    
    
    2007OPERATING ACTIVITIESNet income
    
    $
    11,584
    
    
    $
    39,846Noncash items in net income:Depreciation and amortization of property, plant and
equipment
    
    
    568,400
    
    
    
    548,752Non-monetary reimbursement of cost
    
    
    
    
    
    
    (100,000
    )Deferred income taxes
    
    
    (1,521
    )
    
    
    (4,782
    )Gain on sale of property, plant and equipment
    
    
    (37,500
    )
    
    
    Stock-based compensation expense
    
    
    3,879
    
    
    
    12,199Changes in operating working capital:Accounts receivable
    
    
    (471,703
    )
    
    
    3,656,085Inventories
    
    
    667,062
    
    
    
    (1,155,291
    )Prepaid expenses and other assets
    
    
    (105,333
    )
    
    
    (246,432
    )Accounts payable
    
    
    (1,028,610
    )
    
    
    (2,173,212
    )Accrued and other current liabilities
    
    
    (199,303
    )
    
    
    114,500Income taxes payable/receivable
    
    
    6,988
    
    
    
    (153,929
    )Net cash (used) provided by operating activities
    
    
    (586,057
    )
    
    
    537,736INVESTING ACTIVITIESAdditions to property, plant and equipment
    
    
    (467,487
    )
    
    
    (190,476
    )Proceeds from disposals of property, plant and equipment
    
    
    37,500
    
    
    
    Payment of construction payable
    
    
    
    
    
    
    (25,823
    )Net cash used in investing activities
    
    
    (429,987
    )
    
    
    (216,299
    )FINANCING ACTIVITIESNet borrowings (repayments) of debt
    
    
    1,250,000
    
    
    
    (320,579
    )Purchase of treasury stock
    
    
    (295,586
    )
    
    
    Net cash provided (used) by financing activities
    
    
    954,414
    
    
    
    (320,579
    )NET (DECREASE) INCREASE IN CASH
    
    
    (61,630
    )
    
    
    858CASH:Beginning of period
    
    
    68,397
    
    
    
    6,663End of period
    
    $
    6,767
    
    
    $
    7,521NONCASH SUPPLEMENTAL INFORMATION:Construction payable
    
    $
    106,819
    
    
    
    
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TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 For the three months ended December 31, 2008 and 2007
 (Unaudited)
 1.
    
    Basis of PresentationThe 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, 2008 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 2008 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 September 30, 2008 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, 2008.2.
    
    Recently Issued Accounting StandardsOn October 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, which defines
fair value, establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. However, the FASB issued FSP SFAS No. 157-2 which deferred the
effective date of SFAS No. 157, until the beginning of our 2010 fiscal year, as it relates to
fair value measurement requirements for nonfinancial assets and liabilities that are not
remeasured at fair value on a recurring basis. The Company determined that the adoption of
SFAS No. 157 did not have a material effect on its consolidated financial statements.The fair value framework requires the categorization of assets and liabilities into three
levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1
provides the most reliable measure of fair value, whereas Level 3 generally requires
significant management judgment. The three levels are defined as follows: Level 1:
    Unadjusted quoted prices in active markets for identical assets and
liabilities.Level 2:
    Observable inputs other than those included in Level 1. For example,
quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.Level 3:
    Unobservable inputs reflecting managements own assumptions about the inputs used in pricing the asset or liability. The Company currently does not have any Level 1, Level 2 or Level 3 financial instruments.
Substantially all of the Companys cash and cash equivalents are held in demand deposits with
its bank. The fair value of these assets is determined by deposit values and interest earned
based on stated bank rates.
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##### Table of Contents



Notes to condensed consolidated financial statements(continued)3.
    
    Earnings Per ShareBasic 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 zero and 16,963 shares for
the three months ended December 31, 2008 and 2007, respectively. During the three months
ended December 31, 2008 and 2007, options to purchase 300,150 and 154,350 shares,
respectively, were excluded from the diluted earnings per share computation as the effects of
including such options would have been anti-dilutive.4.
    
    InventoriesInventories consist of the following:
 December 31,
    
    
    September 30,2008
    
    
    2008Raw materials
    
    $
    11,239,365
    
    
    $
    11,407,472Finished goods
    
    
    3,033,540
    
    
    
    3,532,496Total inventories
    
    $
    14,272,905
    
    
    $
    14,939,968
 5.
    
    Stock Repurchase PlanIn February 2008, the Companys Board of Directors approved a program for open market stock
repurchases through December 31, 2008 for up to 100,000 shares of its common stock at
prevailing market prices after concluding that the Companys cash and debt position would
enable these purchases without impairment to the Companys capital. On October 15, 2008, the
Companys Board of Directors approved an extension of its February 2008 stock repurchase
program through June 2009 and an increase in the number of shares from 100,000 to 200,000. A
total of 160,646 shares were purchased under the plan for an aggregate purchase price of $0.8
million from approval of the plan through December 31, 2008. For the three months ended
December 31, 2008, a total of 81,706 shares were purchased under the plan for an aggregate
purchase price of $0.3 million. On January 22, 2009 the Companys Board of Directors
approved a further extension of its February 2008 stock repurchase program through September
2009 and an increase in the number of shares from 200,000 to 300,000.6.
    
    Segment InformationThe 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 Companys products and services. Corporate costs, such as interest income,
interest expense and income tax 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.
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Notes to condensed consolidated financial statements(continued)
 Three Months Ended
    
    Contract
    
    
    Business
    
    
    CorporateDecember 31, 2008
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedNet sales
    
    $
    17,436,202
    
    
    $
    5,749,585
    
    
    $
    
    
    
    $
    23,185,787Gross profit
    
    
    799,116
    
    
    
    238,197
    
    
    
    
    
    
    
    1,037,313Operating income (loss)
    
    
    253,651
    
    
    
    9,695
    
    
    
    (215,128
    )
    
    
    48,218Depreciation and
amortization expense
    
    
    515,141
    
    
    
    52,666
    
    
    
    593
    
    
    
    568,400Capital expenditures
    
    
    467,487
    
    
    
    
    
    
    
    
    
    
    
    467,487Three Months Ended
    
    Contract
    
    
    Business
    
    
    CorporateDecember 31, 2007
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedNet sales
    
    $
    19,098,813
    
    
    $
    5,719,140
    
    
    $
    
    
    
    $
    24,817,953Gross profit
    
    
    729,255
    
    
    
    375,263
    
    
    
    
    
    
    
    1,104,518Operating income (loss)
    
    
    124,224
    
    
    
    199,667
    
    
    
    (188,988
    )
    
    
    134,903Depreciation and amortization expense
    
    
    492,135
    
    
    
    55,044
    
    
    
    1,573
    
    
    
    548,752Capital expenditures
    
    
    165,844
    
    
    
    24,632
    
    
    
    
    
    
    
    190,476Contract
    
    
    Business
    
    
    CorporateDecember 31, 2008
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedAssets:Inventoriesnet
    
    $
    10,798,070
    
    
    $
    3,474,835
    
    
    $
    
    
    
    $
    14,272,905Property, plant and
equipmentnet
    
    
    15,998,206
    
    
    
    2,037,807
    
    
    
    6,656
    
    
    
    18,042,669Accounts receivable
and other
(including
goodwill)
    
    
    14,410,435
    
    
    
    5,569,143
    
    
    
    819,890
    
    
    
    20,799,468Total assets
    
    $
    41,206,711
    
    
    $
    11,081,785
    
    
    $
    826,546
    
    
    $
    53,115,042Contract
    
    
    Business
    
    
    CorporateSeptember 30, 2008
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedAssets:Inventoriesnet
    
    $
    12,209,659
    
    
    $
    2,730,309
    
    
    $
    
    
    
    $
    14,939,968Property, plant and
equipmentnet
    
    
    15,939,041
    
    
    
    2,090,473
    
    
    
    7,250
    
    
    
    18,036,764Accounts receivable
and other
(including
goodwill)
    
    
    13,425,593
    
    
    
    5,977,200
    
    
    
    881,268
    
    
    
    20,284,061Total assets
    
    $
    41,574,293
    
    
    $
    10,797,982
    
    
    $
    888,518
    
    
    $
    53,260,793
 8




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward Looking Statements
  General Information:
    9




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsContinued
 Results of Operations:
 Condensed operating data, percentages of net sales and period-to-period changes in these items are
as follows (dollars in thousands):
 Three Months Ended
    
    Period-to-PeriodDecember 31,
    
    Change2008
    
    2007
    
    $
    
    %Net
Sales
    
    $
    23,186
    
    
    $
    24,818
    
    
    $
    (1,632
    )
    
    
    (7
    )Gross Profit
    
    
    1,037
    
    
    
    1,105
    
    
    
    (68
    )
    
    
    (6
    )4.5
    %
    
    
    4.5
    %Operating Expenses
    
    
    989
    
    
    
    970
    
    
    
    19
    
    
    
    24.3
    %
    
    
    3.9
    %Operating Income
    
    
    48
    
    
    
    135
    
    
    
    (87
    )
    
    
    (64
    )0.2
    %
    
    
    0.5
    %Interest Expense
    
    
    43
    
    
    
    87
    
    
    
    (44
    )
    
    
    (51
    )0.2
    %
    
    
    0.4
    %Income Before Income Taxes
    
    
    19
    
    
    
    66
    
    
    
    (47
    )
    
    
    (71
    )0.1
    %
    
    
    0.3
    %Income Tax Expense
    
    
    7
    
    
    
    26
    
    
    
    (19
    )
    
    
    (73
    )0.0
    %
    
    
    0.1
    %Net Income
    
    $
    12
    
    
    $
    40
    
    
    
    (28
    )
    
    
    (70
    )0.1
    %
    
    
    0.2
    %
 Three Months EndedDecember 31,2008

    
    
    2007% of
    
    
    
    
    
    
    % of
    
    
    Period-to-Period ChangeAmount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    $
    
    
    %Net SalesContract Manufacturing and printing
    
    $
    17,436
    
    
    
    75
    %
    
    $
    19,099
    
    
    
    77
    %
    
    $
    (1,663
    )
    
    
    (9
    %)Business Imaging paper products
    
    
    5,750
    
    
    
    25
    %
    
    
    5,719
    
    
    
    23
    %
    
    
    31
    
    
    
    0.5
    %Net
Sales
    
    $
    23,186
    
    
    
    100
    %
    
    $
    24,818
    
    
    
    100
    %
    
    $
    (1,632
    )
    
    
    (7
    %)
 2008
    
    
    2007Margin
    
    
    
    
    
    
    Margin

    
    

    Period-to-Period ChangeAmount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    $
    
    
    %Gross
ProfitContract Manufacturing and printing
    
    $
    799
    
    
    
    5
    %
    
    $
    729
    
    
    
    4
    %
    
    $
    70
    
    
    
    10
    %Business Imaging paper products
    
    
    238
    
    
    
    4
    %
    
    
    376
    
    
    
    7
    %
    
    
    (138
    )
    
    
    (37
    %)Gross Profit
    
    $
    1,037
    
    
    
    4
    %
    
    $
    1,105
    
    
    
    4
    %
    
    $
    (68
    )
    
    
    (6
    %)
 10




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsContinued
 Net Sales :
    Gross Profit :
   Operating Expenses :
  Interest Expense and Other Income (Expense) net :
  11




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsContinued
 Net Income
  Liquidity and Capital Resources:
         Off Balance Sheet Arrangements:
  12




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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
  
 ITEM 4. Controls and Procedures
    
 PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  13




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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
  Total Number of
    
    
    Maximum NumberShares Purchased
    
    
    Of Shares ThatTotal Number
    
    
    
    
    
    as Part of
    
    
    May Yet BeOf Shares
    
    
    Average Price
    
    
    Publicly
    
    
    Purchased UnderPeriod
    
Purchased
    
    
    Paid per Share
    
    
    Announced Plan
    
    
    The PlanOctober(10/1/08  10/31/08)
    
    34,396
    
    
    $4.14
    
    
    34,396
    
    
    86,664November(11/1/08  11/30/08)
    
    23,520
    
    
    $3.51
    
    
    23,520
    
    
    63,144December(12/1/08  12/31/08)
    
    23,790
    
    
    $2.97
    
    
    23,790
    
    
    39,354Total
    
    81,706
    
    
    $3.62
    
    
    81,706
    
    

39,354(1)
 
 (1)
    
    Does not give effect to the increase in the number of shares approved in January
2009, as described below.  
 ITEM 3. Defaults Upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  
 ITEM 5. Other Information
  14




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##### Table of Contents



ITEM 6.
    
    Exhibits31.1
    
    
    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 200232.2
    
    
    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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##### Table of Contents



SIGNATURES
  TUFCO TECHNOLOGIES, INC.Date:
    
    February 13, 2009
    
    /s/ Louis LeCalsey, IIILouis LeCalsey, IIIPresident and Chief Executive OfficerDate:
    
    February 13, 2009
    
    /s/ Michael B. WheelerMichael B. WheelerExecutive Vice President, Chief Financial Officer and 

Chief Operating Officer
 16