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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 March 31, 2005 Commission file number
0-21018 TUFCO TECHNOLOGIES, INC. Delaware
    
    39-1723477(State of other jurisdiction
of incorporation of organization)
    
    (IRS Employer ID No.)
 PO BOX 23500 Green Bay, WI 54305 
  (920) 336-0054 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Exchange Act). Yes o 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 May 13, 2005Common Stock, par value $0.01 per share
    
    4,555,144
   1




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TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES Index PageNumberPART I:
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2005 and September 30, 2004
    
    
    3Condensed Consolidated Statements of Income for the three months and six months ended March 31, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4.
    
    Controls and Procedures
    
    
    15PART II:
    
    OTHER INFORMATIONItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 6.
    
    Exhibits
    
    
    16SIGNATURES
    
    
    17Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a)Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a)Certification Pursuant to Section 906Certification Pursuant to Section 906
  2




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PART I. FINANCIAL INFORMATION 
 ITEM 1. Condensed Consolidated Financial Statements TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,2005
    
    
    September 30,(Unaudited)
    
    
    2004*AssetsCURRENT ASSETS:Cash and cash equivalents
    
    $
    5,897
    
    
    $
    7,692Accounts
receivable - net
    
    
    9,728,768
    
    
    
    12,639,389Inventories
    
    
    10,970,087
    
    
    
    9,624,963Prepaid expenses and other current assets
    
    
    281,364
    
    
    
    158,856Deferred income taxes
    
    
    618,588
    
    
    
    618,588Total current assets
    
    
    21,604,704
    
    
    
    23,049,488PROPERTY, PLANT AND EQUIPMENT-Net
    
    
    15,649,402
    
    
    
    16,329,335GOODWILL
    
    
    7,211,575
    
    
    
    7,211,575OTHER ASSETS-Net
    
    
    331,345
    
    
    
    392,154TOTAL
    
    $
    44,797,026
    
    
    $
    46,982,552Liabilities and Stockholders EquityCURRENT LIABILITIES:Accounts payable
    
    $
    5,875,739
    
    
    $
    5,917,351Accrued payroll, vacation and payroll taxes
    
    
    584,250
    
    
    
    863,368Other current liabilities
    
    
    519,825
    
    
    
    865,923Income taxes payable
    
    
    1,014,606
    
    
    
    981,077Total current liabilities
    
    
    7,994,420
    
    
    
    8,627,719LONG-TERM DEBT-Less current portion
    
    
    500,000
    
    
    
    2,500,000DEFERRED INCOME TAXES
    
    
    487,466
    
    
    
    405,640STOCKHOLDERS EQUITY:Common Stock: $.01 par value: 9,000,000 shares authorized; 4,706,341
shares issued
    
    
    47,063
    
    
    
    47,063Additional paid-in capital
    
    
    25,088,631
    
    
    
    25,088,631Retained earnings
    
    
    11,692,383
    
    
    
    11,144,884Treasury stock, 151,197 and 123,997 common shares at cost,
respectively
    
    
    (1,012,937
    )
    
    
    (831,385
    )Total stockholders equity
    
    
    35,815,140
    
    
    
    35,449,193TOTAL
    
    $
    44,797,026
    
    
    $
    46,982,552
 See notes to condensed consolidated financial statements.

* Condensed from audited
financial statements 3




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TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004NET SALES
    
    $
    21,215,449
    
    
    $
    20,198,871
    
    
    $
    41,219,438
    
    
    $
    33,244,481COST OF SALES
    
    
    19,823,989
    
    
    
    18,333,277
    
    
    
    38,376,874
    
    
    
    29,804,948GROSS PROFIT
    
    
    1,391,460
    
    
    
    1,865,594
    
    
    
    2,842,564
    
    
    
    3,439,533OPERATING EXPENSES:Selling, general & administrative
    
    
    1,157,932
    
    
    
    1,298,241
    
    
    
    2,335,916
    
    
    
    2,417,250(Gain) loss on sale of property, plant
and equipment
    
    
    
    
    
    
    (1,681
    )
    
    
    (415,781
    )
    
    
    1,348OPERATING INCOME
    
    
    233,528
    
    
    
    569,034
    
    
    
    922,429
    
    
    
    1,020,935OTHER INCOME (EXPENSE):Interest expense
    
    
    (8,058
    )
    
    
    (14,022
    )
    
    
    (21,578
    )
    
    
    (28,907
    )Interest income and other income
    
    
    5,324
    
    
    
    7,871
    
    
    
    19,508
    
    
    
    7,494INCOME BEFORE INCOME TAXES
    
    
    230,794
    
    
    
    562,883
    
    
    
    920,359
    
    
    
    999,522INCOME TAX EXPENSE
    
    
    91,293
    
    
    
    241,086
    
    
    
    372,860
    
    
    
    425,335NET INCOME
    
    $
    139,501
    
    
    $
    321,797
    
    
    $
    547,499
    
    
    $
    574,187BASIC EARNINGS PER SHARE:Net Income
    
    $
    0.03
    
    
    $
    0.07
    
    
    $
    0.12
    
    
    $
    0.13DILUTED EARNINGS PER SHARE:Net Income
    
    $
    0.03
    
    
    $
    0.07
    
    
    $
    0.12
    
    
    $
    0.12WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic
    
    
    4,573,277
    
    
    
    4,582,344
    
    
    
    4,577,811
    
    
    
    4,582,344Diluted
    
    
    4,598,096
    
    
    
    4,604,783
    
    
    
    4,606,707
    
    
    
    4,597,317
 See notes to condensed consolidated financial statements. 4




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TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited) SIX MONTHS ENDEDMarch 31,2005
    
    
    
    2004OPERATING ACTIVITIESNet income
    
    
    $
    547,499
    
    
    
    $
    574,187Noncash items in net incomeDepreciation and amortization of property, plant and
equipment
    
    
    
    1,018,122
    
    
    
    
    1,122,273Amortization
    
    
    
    10,572
    
    
    
    
    46,738Deferred income taxes
    
    
    
    81,826
    
    
    
    
    (Gain) loss on sale of property, plant and equipment
    
    
    
    (415,781
    )
    
    
    
    1,348Changes in operating working capital:Accounts receivable
    
    
    
    2,910,621
    
    
    
    
    (3,718,122
    )Inventories
    
    
    
    (1,345,124
    )
    
    
    
    (3,123,619
    )Prepaid expenses and other assets
    
    
    
    (72,271
    )
    
    
    
    (119,983
    )Accounts payable
    
    
    
    (41,612
    )
    
    
    
    3,919,168Accrued and other current liabilities
    
    
    
    (530,216
    )
    
    
    
    16,170Income taxes payable
    
    
    
    33,529
    
    
    
    
    223,022Net cash provided (used) by operating activities
    
    
    
    2,197,165
    
    
    
    
    (1,058,818
    )INVESTING ACTIVITIESAdditions to property, plant and equipment
    
    
    
    (479,450
    )
    
    
    
    (2,314,097
    )Proceeds from disposals of property, plant and equipment
    
    
    
    462,042
    
    
    
    
    19,701Net cash used by investing activities
    
    
    
    (17,408
    )
    
    
    
    (2,294,396
    )FINANCING ACTIVITIESBorrowings of short-term debt
    
    
    
    
    
    
    
    
    1,421,554Increase in restricted cash
    
    
    
    
    
    
    
    
    (750,096
    )Repayment of long-term debt
    
    
    
    (2,500,000
    )
    
    
    
    Borrowings of long-term debt
    
    
    
    500,000
    
    
    
    
    Purchase of common stock
    
    
    
    (181,552
    )
    
    
    
    Net cash (used) provided by financing activities
    
    
    
    (2,181,552
    )
    
    
    
    671,458NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    
    (1,795
    )
    
    
    
    (2,681,756
    )CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    
    7,692
    
    
    
    
    2,930,416End of period
    
    
    $
    5,897
    
    
    
    $
    248,660NONCASH SUPPLEMENTAL INFORMATION:Deferred gain on sale of equipment
    
    
    $
    95,000
    
    
    
    
    
 See notes to condensed consolidated financial statements. 5




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TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES 
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
 For the three months and six months ended March 31, 2005 and 2004
 (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 and six-month period ended March 31, 2005 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 2004
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, 2004 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, 2004.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 24,819 and 22,439 shares
for the three months ended March 31, 2005 and 2004, respectively. For the six months ended
March 31, 2005 and 2004, the common stock equivalents from dilutive stock options outstanding
were 28,896 and 14,973, respectively. During the three months ended March 31, 2005 and 2004,
options to purchase 257,200 and 223,700 shares, respectively, were excluded from the diluted
earnings per share computation as the effects of including such options would have been
anti-dilutive. For the six months ended March 31, 2005 and 2004, options to purchase 206,975
and 294,333 shares, respectively, were excluded from the diluted earnings per share
computation.Stock Based CompensationStock option grants to employees are accounted for by the intrinsic value method under
Accounting Principles Board (APB) Opinion No. 25 and related interpretations. Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation,
encourages (but does not require) the cost of stock options and other stock-based
compensation arrangements with employees to be measured based on the fair value of the equity
instrument awarded. The following table illustrates the effect on net income and related
earnings per share if the Company had applied the fair value recognition provisions of SFAS
No. 123 to stock-based compensation, for the three months and six months ended March 31, 2005
and 2004. 6




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Notes to condensed consolidated financial statements(continued) Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income as reported
    
    $
    139,501
    
    
    $
    321,797
    
    
    $
    547,499
    
    
    $
    574,187Less total stock-based employee compensation
expense determined under fair value based
method of all awards, net of related tax
effects
    
    
    (77,268
    )
    
    
    (68,628
    )
    
    
    (96,354
    )
    
    
    (88,650
    )Pro forma net income
    
    $
    62,233
    
    
    $
    253,169
    
    
    $
    451,145
    
    
    $
    485,537Earnings per share:Basic - as reported
    
    $
    0.03
    
    
    $
    0.07
    
    
    $
    0.12
    
    
    $
    0.13Basic - pro forma
    
    $
    0.01
    
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    0.11Diluted - as reported
    
    $
    0.03
    
    
    $
    0.07
    
    
    $
    0.12
    
    
    $
    0.12Diluted - pro forma
    
    $
    0.01
    
    
    $
    0.05
    
    
    $
    0.10
    
    
    $
    0.11
 Pro forma net income for the three and six months ended March 31, 2005 includes $58,182 after tax of
compensation expense for retirement eligible stock option participants. Stock compensation expense
for retirement eligible participants is reported in pro forma net income when the options are
granted in accordance with the provisions of the Plan. Previously, we reported compensation
expense for these participants over the vesting period. 2. Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (FASB) issued the revised SFAS No. 123,
Share-Based Payment (SFAS 123(R)). SFAS 123(R) requires compensation costs related to share-based
payment transactions to be recognized in the financial statements. Generally, compensation cost
will be measured based on the grant-date fair value of the equity or liability instruments issued.
In addition, liability awards will be remeasured each reporting period. Compensation cost will be
recognized over the requisite service period, generally as the award vests. The Company is required
to adopt SFAS 123(R) in the first quarter of 2006. SFAS 123(R) applies to all awards granted after
October 1, 2005 and to previously-granted awards unvested as of the adoption date. The Company is
currently evaluating the effect of SFAS 123(R) on its financial statements and related disclosures. In November 2004, the FASB issued SFAS No. 151, Inventory Costs (SFAS 151). SFAS 151 requires that
abnormal amounts of idle facility expense, freight, handling costs and spoilage be recognized as
current-period charges. Further, SFAS 151 requires the allocation of fixed production overheads to
inventory based on the normal capacity of the production facilities. Unallocated overheads must be
recognized as an expense in the period in which they are incurred. SFAS 151 is effective for
inventory costs incurred beginning in the first quarter of 2006. The Company is currently
evaluating the effect of SFAS 151 on its financial statements and related disclosures. 7




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Notes to condensed consolidated financial statements(continued)  3.
    InventoriesInventories consist of the following: March 31,
    
    
    September 30,2005
    
    
    2004Raw materials
    
    $
    9,207,851
    
    
    $
    7,941,894Finished goods
    
    
    1,762,236
    
    
    
    1,683,069Total inventories
    
    $
    10,970,087
    
    
    $
    9,624,963
  4.
    Stock Repurchase PlanIn March 2005, the Companys Board of Directors approved the purchase by the Company of up to
300,000 of its shares of common stock given that the cash and debt position would enable
these purchases without impairment to the Companys capital. The purchase plan will
terminate in December, 2005. A total of 27,200 shares were purchased under the plan as of
March 31, 2005.5.
    Segment InformationThe Company manufactures and distributes business forms, custom paper-based non-woven
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 segments aligned with the Companys products and
services. Such market information is summarized below. The Contract Manufacturing segment
provides services to large national consumer products companies while the Business Imaging
segment manufactures and distributes printed and unprinted business imaging paper products
for a variety of business needs. 8




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Notes to condensed consolidated financial statements(continued) Three Months Ended
    
    Contract
    
    
    Business
    
    
    CorporateMarch 31, 2005
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedNet sales
    
    $
    15,328,405
    
    
    $
    5,887,044
    
    
    $
    
    
    
    $
    21,215,449Gross profit
    
    
    890,690
    
    
    
    500,770
    
    
    
    
    
    
    
    1,391,460Operating income (loss)
    
    
    723,168
    
    
    
    421,890
    
    
    
    (911,530
    )
    
    
    233,528Depreciation and
amortization expense
    
    
    358,035
    
    
    
    81,816
    
    
    
    73,425
    
    
    
    513,276Capital expenditures
    
    
    317,610
    
    
    
    76,027
    
    
    
    
    
    
    
    393,637Assets:Inventories
    
    
    8,922,483
    
    
    
    2,047,604
    
    
    
    
    
    
    
    10,970,087Property, plant and
equipment-net
    
    
    12,503,477
    
    
    
    2,820,528
    
    
    
    325,397
    
    
    
    15,649,402Accounts receivable
and other
(including goodwill)
    
    
    11,183,038
    
    
    
    5,734,047
    
    
    
    1,260,452
    
    
    
    18,177,537Total assets
    
    $
    32,608,998
    
    
    $
    10,602,179
    
    
    $
    1,585,849
    
    
    $
    44,797,026
 Three Months Ended
    
    Contract
    
    
    Business
    
    
    CorporateMarch 31, 2004
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedNet sales
    
    $
    14,151,617
    
    
    $
    6,047,254
    
    
    $
    
    
    
    $
    20,198,871Gross profit
    
    
    1,180,098
    
    
    
    685,496
    
    
    
    
    
    
    
    1,865,594Operating income (loss)
    
    
    552,293
    
    
    
    303,334
    
    
    
    (286,593
    )
    
    
    569,034Depreciation and
amortization expense
    
    
    277,989
    
    
    
    129,029
    
    
    
    181,838
    
    
    
    588,856Capital expenditures
    
    
    1,489,726
    
    
    
    14,355
    
    
    
    
    
    
    
    1,504,081Assets:Inventories
    
    
    4,787,451
    
    
    
    2,227,251
    
    
    
    
    
    
    
    7,014,702Property, plant and
equipment-net
    
    
    11,703,318
    
    
    
    2,959,153
    
    
    
    827,211
    
    
    
    15,489,682Accounts receivable
and other
(including goodwill)
    
    
    13,211,453
    
    
    
    6,070,322
    
    
    
    2,393,701
    
    
    
    21,675,476Total assets
    
    $
    29,702,222
    
    
    $
    11,256,726
    
    
    $
    3,220,912
    
    
    $
    44,179,860
 9




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Notes to condensed consolidated financial statements(continued) Six Months Ended
    
    Contract
    
    
    Business
    
    
    CorporateMarch 31, 2005
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedNet sales
    
    $
    29,555,874
    
    
    $
    11,663,564
    
    
    $
    
    
    
    $
    41,219,438Gross profit
    
    
    1,964,830
    
    
    
    877,734
    
    
    
    
    
    
    
    2,842,564Operating income (loss)
    
    
    1,182,742
    
    
    
    479,233
    
    
    
    (739,546
    )
    
    
    922,429Depreciation and
amortization expense
    
    
    708,920
    
    
    
    162,860
    
    
    
    156,914
    
    
    
    1,028,694Capital expenditures
    
    
    394,918
    
    
    
    84,532
    
    
    
    
    
    
    
    479,450
 Six Months Ended
    
    Contract
    
    
    Business
    
    
    CorporateMarch 31, 2004
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedNet sales
    
    $
    21,133,812
    
    
    $
    12,110,669
    
    
    $
    
    
    
    $
    33,244,481Gross profit
    
    
    2,007,201
    
    
    
    1,432,333
    
    
    
    
    
    
    
    3,439,533Operating income (loss)
    
    
    933,711
    
    
    
    732,446
    
    
    
    (645,222
    )
    
    
    1,020,935Depreciation and
amortization expense
    
    
    538,566
    
    
    
    258,556
    
    
    
    371,889
    
    
    
    1,169,011Capital expenditures
    
    
    2,231,138
    
    
    
    82,959
    
    
    
    
    
    
    
    2,314,097
 10




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations General Information: The Company, which is ISO certified, has manufacturing operations in Green Bay, WI and Newton, NC.
The Companys corporate headquarters, including corporate support services, are located in Green
Bay, WI. Tufco performs contract manufacturing and specialty printing services and manufactures and
distributes business imaging paper products. The Companys strategy is to provide services and
manufacture and distribute products in niche markets, relying on close customer contact and high
levels of quality and service. The Company works closely with its contract manufacturing clients
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 provides integrated production services including wide web flexographic printing, wet
and dry wipe converting, hot melt adhesive laminating, folding, integrated downstream packaging and
on-site quality and microbiological process management, and manufactures and distributes business
imaging paper products. Results of Operations: Condensed operating data, percentages of net sales and period-to-period changes in these items are
as follows (dollars in thousands): Three Months Ended
    
    
    Period-to-Period
    
    
    Six Months Ended
    
    
    Period-to-PeriodMarch 31,
    
    
    Change
    
    
    March 31,
    
    
    Change2005
    
    
    2004
    
    
    $
    
    
    %
    
    
    2005
    
    
    2004
    
    
    $
    
    
    %Net Sales
    
    $
    21,215
    
    
    $
    20,199
    
    
    
    1,016
    
    
    
    5
    
    
    $
    41,219
    
    
    $
    33,244
    
    
    
    7,975
    
    
    
    24Gross Profit
    
    
    1,391
    
    
    
    1,866
    
    
    
    (475
    )
    
    
    (25
    )
    
    
    2,843
    
    
    
    3,440
    
    
    
    (597
    )
    
    
    (17
    )6.6
    %
    
    
    9.2
    %
    
    
    
    
    
    
    
    
    
    
    6.9
    %
    
    
    10.3
    %Operating Expenses
    
    
    1,158
    
    
    
    1,297
    
    
    
    (139
    )
    
    
    (11
    )
    
    
    1,920
    
    
    
    2,419
    
    
    
    (499
    )
    
    
    (21
    )5.5
    %
    
    
    6.4
    %
    
    
    
    
    
    
    
    
    
    
    4.7
    %
    
    
    7.3
    %Operating Income
    
    
    234
    
    
    
    569
    
    
    
    (335
    )
    
    
    (59
    )
    
    
    922
    
    
    
    1,021
    
    
    
    (99
    )
    
    
    (10
    )1.1
    %
    
    
    2.8
    %
    
    
    
    
    
    
    
    
    
    
    2.2
    %
    
    
    3.1
    %Interest Expense
    
    
    8
    
    
    
    14
    
    
    
    (6
    )
    
    
    (43
    )
    
    
    22
    
    
    
    29
    
    
    
    (7
    )
    
    
    (24
    )0.04
    %
    
    
    0.1
    %
    
    
    
    
    
    
    
    
    
    
    0.1
    %
    
    
    0.1
    %Income Before Income Taxes
    
    
    231
    
    
    
    563
    
    
    
    (332
    )
    
    
    (59
    )
    
    
    920
    
    
    
    1,000
    
    
    
    (80
    )
    
    
    (8
    )1.1
    %
    
    
    2.8
    %
    
    
    
    
    
    
    
    
    
    
    2.2
    %
    
    
    3.0
    %Income Tax Expense
    
    
    91
    
    
    
    241
    
    
    
    (150
    )
    
    
    (62
    )
    
    
    373
    
    
    
    425
    
    
    
    (52
    )
    
    
    (12
    )0.4
    %
    
    
    l.2
    %
    
    
    
    
    
    
    
    
    
    
    0.9
    %
    
    
    1.3
    %Net Income
    
    $
    140
    
    
    $
    322
    
    
    
    (182
    )
    
    
    (57
    )
    
    $
    547
    
    
    $
    574
    
    
    
    (27
    )
    
    
    (5
    )0.7
    %
    
    
    1.6
    %
    
    
    
    
    
    
    
    
    
    
    1.3
    %
    
    
    1.7
    %
 11




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsContinued Three Months EndedMarch 31,2005
    
    
    2004% of
    
    
    
    
    
    
    % of
    
    
    Period-to-Period ChangeAmount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    $
    
    
    %Net SalesContract Manufacturing and printing
    
    $
    15,328
    
    
    
    72
    %
    
    $
    14,152
    
    
    
    70
    %
    
    $
    1,176
    
    
    
    8
    %Business Imaging paper products
    
    
    5,887
    
    
    
    28
    
    
    
    6,047
    
    
    
    30
    
    
    
    (160
    )
    
    
    (3
    %)Net Sales
    
    $
    21,215
    
    
    
    100
    %
    
    $
    20,199
    
    
    
    100
    %
    
    $
    1,016
    
    
    
    5
    %
 2005
    
    
    2004Margin
    
    
    
    
    
    
    Margin
    
    
    Period-to-Period ChangeAmount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    $
    
    
    %Gross ProfitContract Manufacturing and printing
    
    $
    891
    
    
    
    6
    %
    
    $
    1,180
    
    
    
    8
    %
    
    $
    (289
    )
    
    
    (24
    %)Business Imaging paper products
    
    
    501
    
    
    
    9
    %
    
    
    685
    
    
    
    11
    %
    
    
    (184
    )
    
    
    (27
    %)Gross Profit
    
    $
    1,392
    
    
    
    7
    %
    
    $
    1,865
    
    
    
    9
    %
    
    $
    (473
    )
    
    
    (25
    %)
 Six Months EndedMarch 31,2005
    
    
    2004% of
    
    
    
    
    
    
    % of
    
    
    Period-to-Period ChangeAmount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    $
    
    
    %Net SalesContract Manufacturing and printing
    
    $
    29,556
    
    
    
    72
    %
    
    $
    21,134
    
    
    
    64
    %
    
    $
    8,422
    
    
    
    40
    %Business Imaging paper products
    
    
    11,663
    
    
    
    28
    
    
    
    12,110
    
    
    
    36
    
    
    
    (447
    )
    
    
    (4
    %)Net Sales
    
    $
    41,219
    
    
    
    100
    %
    
    $
    33,244
    
    
    
    100
    %
    
    $
    7,975
    
    
    
    24
    %
 2005
    
    
    2004Margin
    
    
    
    
    
    
    Margin
    
    
    Period-to-Period ChangeAmount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    $
    
    
    %Gross ProfitContract Manufacturing and printing
    
    $
    1,965
    
    
    
    7
    %
    
    $
    2,007
    
    
    
    9
    %
    
    $
    (42
    )
    
    
    (2
    %)Business Imaging paper products
    
    
    878
    
    
    
    8
    %
    
    
    1,432
    
    
    
    12
    %
    
    
    (554
    )
    
    
    (39
    %)Gross Profit
    
    $
    2,843
    
    
    
    7
    %
    
    $
    3,439
    
    
    
    10
    %
    
    $
    (596
    )
    
    
    (17
    %)
 12




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
OperationsContinued Net Sales: Consolidated net sales increased $1.0 million (5%) to $21.2 million in the second quarter of fiscal
2005, when compared to the same period last year. This is due to an increase of $1.2 million (8%)
in the Contract Manufacturing segment and a decrease of $0.2 million (3%) in the Business Imaging
segment. In Contract Manufacturing, some customers furnish raw materials and others request the Company to
purchase raw materials and pass the cost through the sales price. In the second quarter of fiscal
2005, more customers requested that the Company purchase raw materials and, in comparison to the
second quarter of fiscal 2004, this resulted in an increase of $2.2 million in revenue. The
decrease in revenue in the Business Imaging segment was primarily due to the loss of several
significant national accounts which represented approximately $0.5 million for the first six months
of fiscal 2004. For the six months ended March 31, 2005, sales increased $7.9 million, of which $6.9 million
occurred in the first quarter. Gross Profit: Consolidated gross profit decreased $475,000 (25%) for the second quarter of fiscal 2005 when
compared to the second quarter of fiscal 2004. The Contract Manufacturing segment decreased $0.3
million (24%) due to lower toll revenue of $1.0 million, offset by decreases in labor costs of $0.6
million and manufacturing supplies of $0.1 million. Tolls are revenue which do not include a pass
through of material costs. Gross profit declined $0.2 million (27%) in Business Imaging primarily
due to increased raw material costs and competitive pricing pressures. For the six months ended March 31, 2005, gross profit decreased $597,000 (17%) when compared to the
same period last year. Contract Manufacturing was relatively flat when comparing the two periods
and Business Imaging decreased $554,000 (39%), primarily due to the inability to pass along
increased raw material costs to customers due to competitive pricing pressures. Operating Expenses: Operating expenses decreased $139,000 (11%) for the second quarter of fiscal 2005 when compared to
the same period of fiscal 2004, primarily related to decreases in depreciation of $86,000, and
salaries and wages of $52,000. For the first six months of fiscal 2005, operating expenses
decreased $499,000 (21%) compared to the first six months of fiscal 2004, due to the gain on sale
of the Companys thermal bond laminator of $416,000, decreases in office and computer supplies of
$47,000 and maintenance contracts of $28,000. Interest Expense and Other Income (Expense) net: Interest expense decreased $6,000 to $8,000 for the second quarter of fiscal 2005 compared to last
year and decreased $7,000 in comparing the six months, due to lower average debt outstanding. Net Income: The Company reported net income of $0.1 million (per share: $0.03 basic and diluted) for the second
quarter of fiscal 2005, versus net income of $0.3 million (per share: $0.07 basic and diluted) for
the same period one year ago. For the six months ended March 31, 2005, net income was $0.5 million (per share: $0.12 basic and
diluted) compared to net income of $0.6 million (per share: $0.13 basic and $0.12 diluted) for the
first six months of fiscal 2004. 13




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
OperationsContinued Liquidity and Capital Resources: The Company generated $2.2 million in cash from operations through the first six months of fiscal
2005, compared to cash used by operations of $1.1 million for the same period last year.
Increases in inventories ($1.3 million) primarily represented inventory builds based on anticipated
customer requirements. More customers are requesting the Company purchase materials rather than
the customer supplying them. Increased cash resulted from a reduction of accounts receivable ($2.9
million). Accounts Payable decreased ($42,000) in the first six months of fiscal 2005, compared to
the same period last year. During the third quarter of fiscal 2004, the Company announced it had entered into a definitive
agreement to sell its thermal bond laminator for $475,000. In connection with such agreement, the
Company received a $95,000 non-refundable deposit. The sale was completed in the first quarter of
fiscal 2005. Consistent with accounting principles for revenue recognition, the Company accounted
for and reported a gain of approximately $416,000 (which includes the non-refundable deposit) from
this sale when it was completed in the first quarter of fiscal 2005. Net cash used by investing activities was $17,000 for the first six months of fiscal 2005,
resulting from additions to property, plant and equipment of $479,000, offset by the sale of the
thermal bond laminator mentioned above. On December 4, 2003 the Company announced it had signed
significant contracts with new and existing customers for both printing and contract manufacturing.
To satisfy the manufacturing requirements of the new contracts, in fiscal 2004 the Company
completed a capital equipment expansion program aggregating approximately $3.6 million. Net cash used in financing activities was $2.2 million for the first six months of fiscal
2005, resulting primarily from repayments of outstanding indebtedness. In March 2005, the
Companys Board of Directors approved the purchase by the Company of up to 300,000 of its shares of
common stock. The purchase plan will terminate in December, 2005. A total of 27,200 shares were
purchased for $0.2 million under the plan as of March 31, 2005. The Companys prior credit facility expired June 1, 2004. The Company replaced this facility with
a new unsecured, $10.0 million facility (the Credit Facility). This transaction was completed in
May 2004 and is effective through May 2007. As of May 13, 2005, the Company had approximately $9.5 million available under the revolving
credit line pursuant to the Credit Facility. According to the terms of the Credit Facility, the
Company is required to maintain certain financial and operational covenants. As of March 31, 2005,
the Company was in compliance with all of its debt covenants under the Credit Facility. The Company intends to retain earnings to finance future operations and expansion and does
not expect to pay any dividends within the foreseeable future. Stock Repurchase Plan: In March 2005, the Companys Board of Directors approved the purchase by the Company of up to
300,000 of its shares of common stock given that the cash and debt position would enable these
purchases without impairment to the Companys capital. The purchase plan will terminate in
December, 2005. A total of 27,200 shares were purchased under the plan as of March 31, 2005. See
Part II, Item 2 of this Report. 14




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
OperationsContinued Critical Accounting Policies: The condensed consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America which require the Company to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the condensed consolidated financial statements and revenues and expenses during the periods
reported. Actual results could differ from those estimates. Information with respect to the
Companys critical accounting policies which the Company believes could have the most significant
effect on the Companys reported results and require subjective or complex judgments by management
is contained on pages 17-18 in Item 7, Managements Discussion and Analysis of Financial Condition
and Results of Operations, of the Companys Annual Report on Form 10-K, filed with the SEC for the
fiscal year ended September 30, 2004. The Company has not made any changes in estimates or
assumptions that have had a significant effect on the reported amounts. Off Balance Sheet Arrangements: The Company has no Off Balance Sheet Arrangements (as defined in Item 303(a)(4) of Regulation S-K). Forward Looking Statements: Managements discussion and analysis of financial condition and results of operations, including
managements discussion of the Companys 2005 quarterly periods in comparison to fiscal 2004
contains forward-looking statements regarding current expectations, risks and uncertainties for
fiscal 2005 and beyond. The actual results could differ materially from those discussed here. As
well as those factors discussed in this report, other factors that could cause or contribute to
such differences include, among other items, the general economic and business conditions affecting
the contract manufacturing, specialty printing services, imaging paper products, significant
changes in the cost of base paper stock, competition in the Companys product areas, changes in
demand for customer products, or an inability of management to successfully reduce operating
expenses in relation to net sales without damaging the long-term direction of the Company.
Therefore, the selected financial data for the periods presented may not be indicative of the
Companys future financial condition or results of operations. 
 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk Information with respect to the Companys exposure to interest rate risk, foreign currency risk,
commodity price risk and other relevant market risks is contained on page 19 in Item 7A, Quantative
and Qualitative Disclosure About Market Risk, of the Companys Annual Report on Form 10-K, filed
with the Securities and Exchange Commission for the year ended September 30, 2004. Management
believes that as of March 31, 2005, there has been no material change to this information. 
 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, is recorded, processed, summarized, and reported within the time periods
specified in the SEC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. 15




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##### Table of Contents



ITEM 4. Controls and ProceduresContinued 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 March
31, 2005. There have been no changes in the Companys internal control over financial reporting during the
second fiscal quarter ended March 31, 2005 that have materially affected, or are reasonably likely
to materially affect the Companys internal control over financial reporting. 
 PART II. OTHER INFORMATION 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Issuer Purchases of Equity Securities The following table presents the number of shares purchased monthly under the Companys stock
repurchase program for the three-month period ended March 31, 2005. 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 PlanMarch(3/14/05  3/31/05)
    
    
    27,200
    
    
    $
    6.66
    
    
    
    27,200
    
    
    
    272,800Total
    
    
    27,200
    
    
    $
    6.66
    
    
    
    27,200
 In March 2005, the Companys Board of Directors approved the purchase by the Company of up to
300,000 of its shares of common stock given that the cash and debt position would enable these
purchases without impairment to the Companys capital. The purchase plan will terminate in
December, 2005. A total of 27,200 shares were purchased under the plan as of March 31, 2005. 
 ITEM 6. EXHIBITS 31.1
    
    
    Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 193431.2
    
    
    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
 16




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##### 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: May 13, 2005
    /s/ Louis LeCalsey, IIILouis LeCalsey, IIIPresident and Chief Executive Officer Date: May 13, 2005
    /s/ Michael B. WheelerMichael B. WheelerVice President and Chief Financial Officer 17