##### 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, 2009
 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
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller Reporting Company þ  o þ
  Class
    
    Outstanding as of February 15, 2009Common Stock, par value $0.01 per share
    
    4,308,947




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##### 



TUFCO TECHNOLOGIES, INC.
 Index
 PageNumberPART I:
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of
December 31, 2009 and September 30, 2009
    
    
    3Condensed Consolidated Statements of Income for the three months ended
December 31, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months
ended December 31, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    14Item 4(T).
    
    Controls and Procedures
    
    
    14PART II:
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    14Item 1A.
    
    Risk Factors
    
    
    14Item 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
(Unaudited)
 December 31,
    
    
    September 30,2009
    
    
    2009AssetsCURRENT ASSETS:Cash
    
    $
    6,571
    
    
    $
    4,092Accounts receivable-net
    
    
    11,106,112
    
    
    
    11,077,258Inventories-net
    
    
    12,805,335
    
    
    
    10,645,168Prepaid expenses and other current assets
    
    
    541,191
    
    
    
    245,534Income taxes receivable
    
    
    604,144
    
    
    
    604,144Deferred income taxes
    
    
    381,661
    
    
    
    381,661Total current assets
    
    
    25,445,014
    
    
    
    22,957,857PROPERTY, PLANT AND EQUIPMENT-Net
    
    
    18,452,413
    
    
    
    17,892,453GOODWILL
    
    
    7,211,575
    
    
    
    7,211,575OTHER ASSETS-Net
    
    
    130,730
    
    
    
    128,684TOTAL
    
    $
    51,239,732
    
    
    $
    48,190,569Liabilities and Stockholders EquityCURRENT LIABILITIES:Current portion of long-term debt
    
    $
    3,610,978
    
    
    $
    1,270,099Accounts payable
    
    
    7,794,651
    
    
    
    6,861,167Accrued payroll, vacation and payroll taxes
    
    
    488,053
    
    
    
    542,534Other current liabilities
    
    
    439,339
    
    
    
    463,736Total current liabilities
    
    
    12,333,021
    
    
    
    9,137,536DEFERRED INCOME TAXES
    
    
    2,609,203
    
    
    
    2,611,572COMMITMENTS 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
    
    
    25,427,356
    
    
    
    25,421,007Retained earnings
    
    
    12,980,522
    
    
    
    13,130,824Treasury stock, 399,794 common shares at cost
    
    
    (2,157,457
    )
    
    
    (2,157,457
    )Total stockholders equity
    
    
    36,297,508
    
    
    
    36,441,461TOTAL
    
    $
    51,239,732
    
    
    $
    48,190,569
 3




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TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 THREE MONTHS ENDEDDecember 31,2009
    
    
    2008NET SALES
    
    $
    20,042,056
    
    
    $
    23,185,787COST OF SALES
    
    
    18,997,829
    
    
    
    21,904,180GROSS PROFIT
    
    
    1,044,227
    
    
    
    1,281,607OPERATING EXPENSES:Selling, general & administrative
    
    
    1,276,798
    
    
    
    1,270,889Gain on asset sales
    
    
    
    
    
    
    (37,500
    )OPERATING (LOSS) INCOME
    
    
    (232,571
    )
    
    
    48,218OTHER (EXPENSE) INCOME:Interest expense
    
    
    (22,531
    )
    
    
    (42,606
    )Interest income and other income
    
    
    15,387
    
    
    
    13,439(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (239,715
    )
    
    
    19,051INCOME TAX (BENEFIT) EXPENSE
    
    
    (89,413
    )
    
    
    7,467NET (LOSS) INCOME
    
    $
    (150,302
    )
    
    $
    11,584BASIC EARNINGS PER SHARE:Net (Loss) Income
    
    $
    (0.03
    )
    
    $
    0.00DILUTED EARNINGS PER SHARE:Net (Loss) Income
    
    $
    (0.03
    )
    
    $
    0.00WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:Basic
    
    
    4,308,947
    
    
    
    4,412,242Diluted
    
    
    4,308,947
    
    
    
    4,412,242
  4




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TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 THREE MONTHS ENDEDDecember 31,2009
    
    
    2008OPERATING ACTIVITIESNet (loss) income
    
    $
    (150,302
    )
    
    $
    11,584Noncash items in net (loss) income:Depreciation and amortization of property, plant and
equipment
    
    
    672,674
    
    
    
    568,400Deferred income taxes
    
    
    (2,369
    )
    
    
    (1,521
    )Gain on sale of property, plant and equipment
    
    
    
    
    
    
    (37,500
    )Stock-based compensation expense
    
    
    6,349
    
    
    
    3,879Changes in operating working capital:Accounts receivable
    
    
    (28,854
    )
    
    
    (471,703
    )Inventories
    
    
    (2,160,167
    )
    
    
    667,062Prepaid expenses and other assets
    
    
    (297,703
    )
    
    
    (105,333
    )Accounts payable
    
    
    878,821
    
    
    
    (1,028,610
    )Accrued and other current liabilities
    
    
    10,167
    
    
    
    (199,303
    )Income taxes payable/receivable
    
    
    (89,045
    )
    
    
    6,988Net cash used in operating activities
    
    
    (1,160,429
    )
    
    
    (586,057
    )INVESTING ACTIVITIESAdditions to property, plant and equipment
    
    
    (1,177,971
    )
    
    
    (467,487
    )Proceeds from disposals of property, plant and
equipment
    
    
    
    
    
    
    37,500Net cash used in investing activities
    
    
    (1,177,971
    )
    
    
    (429,987
    )FINANCING ACTIVITIESNet borrowings (repayments) of debt
    
    
    2,340,879
    
    
    
    1,250,000Purchase of treasury stock
    
    
    
    
    
    
    (295,586
    )Net cash provided by financing activities
    
    
    2,340,879
    
    
    
    954,414NET INCREASE (DECREASE) IN CASH
    
    
    2,479
    
    
    
    (61,630
    )CASH:Beginning of period
    
    
    4,092
    
    
    
    68,397End of period
    
    $
    6,571
    
    
    $
    6,767NONCASH SUPPLEMENTAL INFORMATION:Change in construction payable
    
    $
    54,663
    
    
    $
    106,819
 5




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TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended December 31, 2009 and 2008
(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, 2009 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 2009 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, 2009 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, 2009.
 2.
    
    Recently Issued Accounting StandardsOn October 1, 2009, the Company adopted a new accounting standard issued by the FASB that
establishes accounting and reporting standards for noncontrolling interests in a subsidiary
in consolidated financial statements. This standard requires entities to record the
acquisition of noncontrolling interests in subsidiaries initially at fair value. The adoption
of this standard did not have an effect on the Companys financial position, results of
operations or cash flows.On October 1, 2009, the Company adopted a new accounting standard issued by the FASB related
to accounting for business combinations using the acquisition method of accounting
(previously referred to as the purchase method). This standard applies to business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The adoption of this standard did
not have an effect on the Companys financial position, results of operations or cash flows.On October 1, 2009, the Company adopted a new accounting standard issued by the FASB related
to determining whether instruments granted in share-based payment transactions are
participating securities. This standard provides that unvested share-based payment awards
that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of earnings per
share pursuant to the two-class method. The adoption of this standard did not have an effect
on the Companys financial position, results of operations or cash flows.
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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. During the three months ended December 31, 2009
and 2008, options to purchase 310,650 and 300,150 shares, respectively, were excluded from
the diluted earnings per share computation as the effects of including such options would
have been anti-dilutive.
 4.
    
    ReclassificationsCertain prior period amounts have been reclassified to conform to the current year
presentation.
 5.
    
    InventoriesInventories consist of the following:
 December 31,
    
    
    September 30,2009
    
    
    2009Raw materials
    
    $
    9,905,764
    
    
    $
    8,182,736Finished goods
    
    
    2,899,571
    
    
    
    2,462,432Total inventories
    
    $
    12,805,335
    
    
    $
    10,645,168
 6.
    
    Long-Term DebtThe Company has a $10.0 million unsecured revolving line of credit facility that expires in
May 2010. The Company currently intends to extend or replace the
agreement at, or prior to, its expiry.
Borrowings under the current credit facility bear interest at a rate equal to LIBOR plus 2.25%.
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. If the Company fails to meet a
specified funded debt to EBITDA ratio for two consecutive quarters, the Companys lender will have the right to take a
security interest in the Companys accounts receivables and inventory. The credit agreement
contains certain restrictive covenants, including requirements to maintain a minimum tangible
net worth and after tax net income (or loss within specified levels).
 7.
    
    Stock Based CompensationDuring the three months ended December 31, 2009, employees of Tufco Technologies, Inc.
received discretionary grants on November 30, 2009 to acquire 14,000 shares of common stock
under Tufcos 2003 Non-Qualified Stock Option Plan at an exercise price of $3.19 per share,
the closing price of the Companys common stock on the NASDAQ market as of that date. The
grant date fair value of these options was estimated at $2.26 using the Black-Scholes
option-pricing model with the following assumptions: risk-free interest rate of 0.67%,
expected volatility of 121.4%, no dividend yield and an expected life of three years.
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Notes to condensed consolidated financial statements(continued)
 8.
    
    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 (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.As previously disclosed, the Company tests goodwill annually at the reporting unit level for
impairment as of June 30. The operating segments herein also represent the 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.
Management has completed the Companys annual impairment test, Goodwill and Other Intangible
Assets, and determined there were no changes in the carrying amount of goodwill by reporting
unit for the three months ended December 31, 2009. 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. For example, lower than expected growth or an increase to the discount rate due
to changes in risk premiums or other factors may suggest that an impairment has occurred
under Step 1 and require the Company to proceed to Step 2 to
measure the fair value of assets and liabilities of the reporting units. At the annual
measurement date of June 30, 2009, the estimated fair value of Contract Manufacturing
exceeded its carrying value by approximately 59%. The estimated fair value of Business
Imaging exceeded its carrying value by approximately 74% at June 30, 2009.The Company recognizes that its common stock regularly trades below book value per share and
will continue to monitor the relationship of its market capitalization to both its book value
and tangible book value. While management plans to return the Companys business
fundamentals to levels that support the book value per share, there is no assurance that the
plan will be successful, or that the market price of the common stock will increase to such
levels in the foreseeable future.
 8




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Notes to condensed consolidated financial statements(continued)
 Three Months Ended
    
    Contract
    
    Business
    
    CorporateDecember 31, 2009
    
    Manufacturing
    
    Imaging
    
    and Other
    
    ConsolidatedNet sales
    
    $
    13,947,418
    
    
    $
    6,094,638
    
    
    $
    
    
    
    $
    20,042,056Gross profit
    
    
    678,243
    
    
    
    365,984
    
    
    
    
    
    
    
    1,044,227Operating income (loss)
    
    
    322,919
    
    
    
    64,073
    
    
    
    (619,563
    )
    
    
    (232,571
    )Depreciation and
amortization expense
    
    
    619,680
    
    
    
    52,401
    
    
    
    593
    
    
    
    672,674Capital expenditures
    
    
    1,146,158
    
    
    
    31,813
    
    
    
    
    
    
    
    1,177,971
 Three Months Ended
    
    Contract
    
    Business
    
    CorporateDecember 31, 2008
    
    Manufacturing
    
    Imaging
    
    and Other
    
    ConsolidatedNet sales
    
    $
    17,436,202
    
    
    $
    5,749,585
    
    
    $
    
    
    
    $
    23,185,787Gross profit
    
    
    943,249
    
    
    
    338,358
    
    
    
    
    
    
    
    1,281,607Operating income (loss)
    
    
    640,308
    
    
    
    29,212
    
    
    
    (621,302
    )
    
    
    48,218Depreciation and
amortization expense
    
    
    515,141
    
    
    
    52,666
    
    
    
    593
    
    
    
    568,400Capital expenditures
    
    
    467,487
    
    
    
    
    
    
    
    
    
    
    
    467,487
 Contract
    
    
    Business
    
    
    CorporateDecember 31, 2009
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedAssets:Inventories-net
    
    $
    10,208,985
    
    
    $
    2,596,350
    
    
    $
    
    
    
    $
    12,805,335Property, plant and
equipment-net
    
    
    16,550,318
    
    
    
    1,897,812
    
    
    
    4,283
    
    
    
    18,452,413Accounts receivable
and other
(including
goodwill)
    
    
    12,397,362
    
    
    
    6,461,516
    
    
    
    1,123,106
    
    
    
    19,981,984Total assets
    
    $
    39,156,665
    
    
    $
    10,955,678
    
    
    $
    1,127,389
    
    
    $
    51,239,732
 Contract
    
    
    Business
    
    
    CorporateSeptember 30, 2009
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedAssets:Inventories-net
    
    $
    8,642,397
    
    
    $
    2,002,771
    
    
    $
    
    
    
    $
    10,645,168Property, plant and
equipment-net
    
    
    15,969,177
    
    
    
    1,918,400
    
    
    
    4,876
    
    
    
    17,892,453Accounts receivable
and other
(including
goodwill)
    
    
    12,334,332
    
    
    
    6,200,035
    
    
    
    1,118,581
    
    
    
    19,652,948Total assets
    
    $
    36,945,906
    
    
    $
    10,121,206
    
    
    $
    1,123,457
    
    
    $
    48,190,569
 9




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward Looking Statements
  General Information:
    10




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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,
    
    Change2009
    
    2008
    
    $
    
    %Net Sales
    
    $
    20,042
    
    
    $
    23,186
    
    
    $
    (3,144
    )
    
    
    (14
    %)Gross Profit
    
    
    1,044
    
    
    
    1,282
    
    
    
    (238
    )
    
    
    (19
    %)5.2
    %
    
    
    5.5
    %Operating Expenses
    
    
    1,277
    
    
    
    1,234
    
    
    
    43
    
    
    
    3
    %6.4
    %
    
    
    5.3
    %Operating (Loss) Income
    
    
    (233
    )
    
    
    48
    
    
    
    (281
    )
    
    NM(1.2
    %)
    
    
    0.2
    %Interest and
Other-Net
    
    
    7
    
    
    
    29
    
    
    
    (22
    )
    
    
    (76
    %)0.0
    %
    
    
    0.1
    %(Loss) Income Before Income Taxes
    
    
    (240
    )
    
    
    19
    
    
    
    (259
    )
    
    NM1.2
    %
    
    
    0.1
    %Income Tax (Benefit) Expense
    
    
    (90
    )
    
    
    7
    
    
    
    (97
    )
    
    NM(0.4
    %)
    
    
    0.0
    %Net (loss) Income
    
    $
    (l50
    )
    
    $
    12
    
    
    
    (162
    )
    
    NM(0.7
    %)
    
    
    0.1
    %Basic and Diluted (Loss)
Earnings Per Share
    
    $
    (0.03
    )
    
    $
    0.00
  Three Months EndedDecember 31,2009
    
    
    2008% of
    
    
    
    
    
    
    % of
    
    
    Period-to-Period ChangeNet Sales
    
    Amount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    $
    
    
    %Contract Manufacturing and printing
    
    $
    13,947
    
    
    
    70
    %
    
    $
    17,436
    
    
    
    75
    %
    
    $
    (3,489
    )
    
    
    (20
    %)Business Imaging paper products
    
    
    6,095
    
    
    
    30
    %
    
    
    5,750
    
    
    
    25
    %
    
    
    345
    
    
    
    6
    %Net Sales
    
    $
    20,042
    
    
    
    100
    %
    
    $
    23,186
    
    
    
    100
    %
    
    $
    (3,144
    )
    
    
    (14
    %)
 2009
    
    
    2008Margin
    
    
    
    
    
    
    
    
    
    
    Period-to-Period ChangeGross Profit
    
    Amount
    
    
    %
    
    
    Amount
    
    
    Total
    
    
    $
    
    
    %Contract Manufacturing and printing
    
    $
    678
    
    
    
    5
    %
    
    $
    943
    
    
    
    5
    %
    
    $
    (265
    )
    
    
    (28
    %)Business Imaging paper products
    
    
    366
    
    
    
    6
    %
    
    
    339
    
    
    
    6
    %
    
    
    27
    
    
    
    8
    %Gross Profit
    
    $
    1,044
    
    
    
    5
    %
    
    $
    1,282
    
    
    
    6
    %
    
    $
    (238
    )
    
    
    (19
    %)
 11




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##### Table of Contents



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 :
  12




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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:
  13




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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
  
 ITEM 4(T). Controls and Procedures
    
 PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 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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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 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
 15




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SIGNATURES
  TUFCO TECHNOLOGIES, INC.Date: February 15, 2010
    /s/ Louis LeCalsey, IIILouis LeCalsey, IIIPresident and Chief Executive OfficerDate:         February 15, 2010
    /s/ Michael B. WheelerMichael B. WheelerExecutive Vice President,Chief Financial Officer and
Chief Operating Officer 16