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  **UNITED STATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549****FORM 10-K**   þ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934****For the fiscal year ended September 30, 2006****or**   o **Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934****For the transition period from                      to                     .****Commission file number****0-21018****TUFCO TECHNOLOGIES, INC.**(Exact name of registrant as specified in its charter)   Delaware 39-1723477   (State or other jurisdiction (I.R.S. Employer Identification No.)of incorporation or organization)     PO Box 23500, Green Bay, WI 54305   (Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code 920-336-0054Securities registered pursuant to Section 12(b) of the Act:   Title of Class Name of Each Exchange on Which RegisteredCommon Stock, Par Value $0.01 per share NASDAQ Global MarketSecurities registered pursuant to Section 12(g) of the Act: None     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule405 of the Securities Act. Yes o No þ     Indicate by check mark if the registrant is not required to file reports pursuant to Section13 or Section 15(d) of the Act . Yes o No þ     Indicate by check mark whether the registrant: (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.Yes þ No o     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationsS-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. o     Indicate by check mark whether the registrant is a large accelerated filer, an acceleratedfiler or a non-accelerated filer (see definition of “Accelerated Filer and Large AcceleratedFiler”in Rule 12b-2 of the Exchange Act).Large Accelerated Filer o     Accelerated Filer o     Non-Accelerated Filer þ     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 ofthe Exchange Act). Yes o No þ     The aggregate market value of the Common Stock of Tufco Technologies, Inc. held bynon-affiliates, as of March 31, 2006, was approximately $13,306,870. Such aggregate market valuewas computed by reference to the closing price of the Common Stock as reported on the NASDAQ GlobalMarket on March 31, 2006. For purposes of making this calculation only, the registrant has definedaffiliates as including all directors and beneficial owners of more than ten percent of the CommonStock of the Company. The number of shares of the registrant’s Common Stock outstanding as ofDecember 18, 2006 was 4,535,244.DOCUMENTS INCORPORATED BY REFERENCE: None.  
 

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PART IITEM 1 — BUSINESSITEM 1A — RISK FACTORSITEM 2 — PROPERTIESITEM 3 — LEGAL PROCEEDINGSITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6 — SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data)(1)ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A — CONTROLS AND PROCEDURESITEM 9B — OTHER INFORMATIONPART IIIITEM 10 — DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11 — EXECUTIVE COMPENSATIONITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14 — PRINCIPAL ACCOUNTING FEES AND SERVICESPART IVITEM 15- EXHIBITS, FINANCIAL STATEMENT SCHEDULESSIGNATURESSubsidiaries of the CompanyConsent of Deloitte & Touche LLPCertification Pursuant to Rule 13a-14(a)Certification Pursuant to Rule 13a-14(a)Certification Pursuant to Section 906Certification Pursuant to Section 906

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**PART I****ITEM 1 — BUSINESS****General**     Tufco Technologies, Inc. (“Tufco” or the “Company”) provides integrated manufacturing servicesincluding wet and dry wipe converting, wide web flexographic printing,  hot melt adhesivelaminating, folding, integrated downstream packaging and on-site quality and microbiologicalprocess management and manufactures and distributes business imaging paper products. Since 1992and until its organizational restructuring on February 7, 1997, the Company operated as threewholly owned subsidiaries, Tufco Industries, Inc., Executive Converting Corporation (“ECC”) andHamco Industries, Inc. (“Hamco”). On January 28, 1994, the Company completed an initial publicoffering in which the Company issued and sold 900,000 shares of its Common Stock, par value $0.01per share (“Common Stock”), and certain stockholders of the Company sold 50,000 shares of CommonStock. Contemporaneously with the closing of the Company’s public offering, the Company acquired,through ECC, substantially all of the assets of Executive Roll Manufacturing, Inc., d/b/a ExecutiveConverting Corporation for $7.5 million in cash and 127,778 shares of Common Stock. On August 23,1995, the Company acquired, through Hamco, substantially all of the assets of Hamco, Inc. forapproximately $12.9 million net in cash. On February 7, 1997, the Company reorganized its corporatestructure to better serve its business needs. Through this restructuring, the net assets of TufcoIndustries, Inc., ECC and Hamco were transferred to Tufco, L.P., a Delaware limited partnership, inwhich Tufco Tech, Inc. was the sole managing general partner and was wholly owned by the Company.On November 13, 1997, the Company purchased all of the outstanding common stock of ForemostManufacturing Company, Inc. for $5.9 million in cash and 25,907 shares of Common Stock.     On March 31, 2003, the Company sold the assets and business of the Paint Sundries segment forapproximately $12.2 million in cash to Trimaco, LLC and its affiliate. The sale included all PaintSundries segment assets, including the stock of Foremost Manufacturing, Inc. and the Company’sManning, South Carolina manufacturing facility. Concurrently with the sale of the Paint Sundriessegment, the Company reorganized its corporate structure by merging certain of its wholly-ownedsubsidiaries with and into the Company, with the Company as the surviving entity, and merging theCompany’s wholly-owned subsidiary Tufco Tech, Inc. with and into Tufco LLC, a newly-formedwholly-owned subsidiary, with Tufco LLC as the surviving entity. As a result of thisreorganization, Tufco LLC became the sole managing general partner of Tufco, L.P.     EffectiveJanuary 1, 2007, Tufco L.P. will transfer all of the assets andliabilities of the Company’sBusiness Imaging operation to Hamco Manufacturing and Distributing LLC, a newly-formed limitedliability company, which will be a wholly-owned subsidiary of Tufco L.P.     The Company was incorporated in the state of Delaware in 1992 to acquire Tufco Industries,Inc. Although the Company was organized in 1992, the business conducted by Tufco Industries, Inc.has been in continuous operation since 1974. The Company has become a leading provider of contractmanufacturing and specialty printing services, and supplier of value-added custom paper products.The Company’s principal executive offices are located at 3161 South Ridge Road, Green Bay, WI54304/PO Box 23500, Green Bay, WI 54305-3500, and its telephone number is (920) 336-0054.**Products and Services**     The Company markets its products and services through two market segments: ContractManufacturing services and Business Imaging paper products. Tufco conducts operations from twomanufacturing and distribution locations in Green Bay, Wisconsin, and Newton, North Carolina. TheCompany also leases warehouse space in Las Vegas, Nevada, used primarily for distribution ofBusiness Imaging products in the Western United States.
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**Contract Manufacturing**     Tufco has contract manufacturing capability at its Green Bay, Wisconsin location.     The Company’s products and services at its Green Bay, Wisconsin facility include wet and drywipe converting , wide web flexographic printing, hot melt adhesive laminating, folding, integrateddownstream packaging, on-site quality and microbiological process management. The facility custommanufactures a wide array of materials, including polyethylene films, a variety of nonwovens, paperand tissue. Products include disposable wet and dry wipes for home, personal/baby/medical careuse, flexible packaging and disposable table covers. Machinery and equipment at the Green Bay,Wisconsin facility have the capability, developed by the Company’s in-house engineers and technicalpersonnel, to combine or modify various substrates through the use of precise temperature andpressure control.     The Company invested in its first wipes converting asset in December 2002. It has now grownto be the largest provider of branded contract wet and dry wipes in North America. In fiscal year2004, the Company invested an additional $3.6 million to expand the capabilities of its wipesequipment and in fiscal 2006 acquired additional converting equipment for $4.5 million, whichstarted up in the second quarter. These wet and dry wipe assets can convert a variety of nonwovenmaterials and include a wide variety of folding options, count versatility ranging from ten (10) toeighty (80) wipes per package and integrated downstream flow wrapping and finished packagingdesign.     The Company’s Green Bay, Wisconsin facility also offers value-added wide web flexographicprinting services. The Company offers 8-color, high resolution, wide web flexographic printing andfocuses on products such as paper and poly table covers and flexible packaging used in retailproducts such as food, soda and overwraps. The Company has two state-of-the-art 8-colorflexographic printing presses capable of printing solvent and water-based inks, 62” print width atspeeds up to 1,500 feet per minute and offers repeat sizes ranging from 15-3/4” to 47-1/4”. TheCompany uses the customers’ preliminary artwork and outsources all preparatory processes forcamera-ready art, layout, and other related services, and then internally mounts the plates. TheGreen Bay flexographic presses can print on a wide range of media from lightweight tissue ornonwoven to heavyweight paperboard, films and foils.     Downstream converting equipment also includes folding and packaging of finished printed goodssuch as poly and paper table covers into finished product. In addition, materials can be printedroll-to-roll at the Company and then sent back to the customer for converting.**Business Imaging**     The Company’s Newton, North Carolina facility has capabilities which include precisionslitting, rewinding, specialty packaging, folding, perforating, and trimming of paper rolls in alarge variety of sizes which include variables in width, diameter, core size, single or multi-ply,and color. All of the rolls can be printed on one side or both, providing the customer withadvertising, promotional or security features. These capabilities are directed toward convertingfine paper materials including specialty and fine printing papers, thermal papers, inkjet papers,polyester films, and coated products.     The Company’s Newton, North Carolina facility produces a full range of papers for use in bankproof or automated teller machines, including fan-fold forms, and printed rolls of various sizesand types. Additionally, the Company’s Newton facility produces an extensive selection of standard and customizedguest checks for use in the restaurant industry, and  owns equipmentwhich enables this facility to produce a wide variety of multi-part business forms.     The Company leased a 1,200 square foot warehouse facility in Las Vegas, Nevada in April of2005 for the distribution of Business Imaging products in the Western United States. In April of2006, the Company signed a three-year lease on a 2,022 sq. ft. facility in Las Vegas to replace thesmaller facility. The Company distributes from both its Newton and Las Vegas facilities a widevariety of printed and unprinted paper products used in business imaging equipment in marketsegments including architectural and engineering design, high speed data processing, point of sale,automatic teller machines and a variety of office equipment. The Company’s products include rollproducts ranging in length from 150 feet to 3,500 feet and in widths from 1 inch to 54 inches. TheCompany’s products are available in a wide range of paper grades including a variety of weights ofbond paper, thermal imaging papers, fine vellums and films, and multi-part forms.
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**Business Imaging (Continued)**     Late in 2005, the Company introduced a line of products for the restaurant market, includingchildren’s placemats, crayons and guest checks. Many of the Company’s Hamco brand distributorsprovide point of sale (POS) rolls and other products to individual restaurants as well as majorchain restaurants. This new line provides complementary products that can be sold to restaurantsat competitive prices while offering higher margins to the Company than POS sales alone. TheCompany believes that the Las Vegas warehouse facility has opened opportunities for marketing ofthe Company’s products in the Western United States that were not previously available due toprohibitive shipping costs. See “Management’s Discussion and Analysis of Financial Condition andResults of Operations — Results of Operations”, as included in Item 7 of this Report, which setsforth a breakdown by percentage of the Company’s net sales by class for fiscal 2004 through fiscal2006.**Manufacturing and Operations**     With regard to its Contract Manufacturing operations, the Company either utilizes productspecifications provided by its customers or works with its customers to develop specificationswhich meet customer requirements. Generally, the product begins with base materials such asnonwovens, papers, or polyethylene films. In Contract Manufacturing, some customers furnish rawmaterials and others request that the Company purchase raw materials and pass the cost through thesales price. The Company applies one or more of its contract converting or specialty printingservices that it has developed over a period of years through its technical knowledge to add valueto these materials. In producing and distributing its line of Business Imaging Products, theCompany works closely with various Original Equipment Manufacturers (OEMs) to develop productswhich meet or exceed the requirements of the imaging equipment. The Company then produces andstocks a full line of paper products to meet the needs of the users of the imaging equipment.     The Company’s growth has been supported by capital investment in new facilities and machineryand equipment. During the past three years, the Company spent $10.9 million on capitalexpenditures and has budgeted $0.9 million for fiscal 2007. Through the Company’s expenditures onnew equipment, it has increased both its manufacturing capacity and the range of its capabilities.Principal capital improvements include equipment which has expanded the Company’s custom folding,dry and wet wipes converting and packaging capabilities, and presses which have enabled the Companyto print on a variety of substrates. The Company believes it has sufficient capacity to meet itsgrowth expectations.     In fiscal year 2004, Tufco entered into an agreement to sell its thermal laminating equipmentto a customer as a result of a strategic decision to exit this business and focus on printingservices and the converting of nonwovens, which was completed in the first quarter of fiscal 2005.     The Company’s equipment can produce a wide range of sizes of production output to meet uniquecustomer specifications. The Company’s printing presses perform flexographic processes and printfrom one to eight colors on webs as wide as 64 inches. Its fine printing paper and paperboardconverting equipment includes state-of-the-art rewinders, folders, and equipment that performsextensive packaging functions.     Tufco has received numerous safety awards at both its Newton, North Carolina and Green Bay,Wisconsin plants. At Newton, the workforce achieved 4 years without a lost time accident fromAugust 2000 through August 2004. Two lost time accidents were recorded at Newton during fiscalyear 2005. Newton is now working toward a goal of two years without a lost time accident to bereached in April of 2007.      Tufco’s Green Bay plant has seen similar success. Fiscal 2004 broughtthree lost time injuries to our Green Bay plant, with the last occurring in early September 2004.No lost time injuries occurred in fiscal 2005 or 2006.**Sales and Marketing**     Tufco markets its products and services nationally through its 14 full-time sales and customerservice employees and 41 manufacturer’s representatives and distributors. The Company’s sales andservice personnel are compensated with a base salary plus an incentive bonus. The Companygenerally utilizes referrals and its industry reputation to attract customers. It also advertises on a limited basis in industry periodicals,
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**Sales and Marketing (Continued)**at trade shows and through cooperative advertising arrangements with its suppliers and customers andat times conducts direct mailings.     Prior to fiscal 1999, customers generally purchased the Company’s goods and servicesunder project-specific purchase orders rather than long-term contracts. Beginning in fiscal 1999,management shifted its strategic focus in Contract Manufacturing away from serving as a temporarymanufacturer for the customers’ outsourced surge capacity overflow needs toward longer-termcooperative manufacturing projects, which usually include multi-year contracts.     The Company’s sales volume by fiscal quarter is subject to a limited amount of seasonalfluctuation. Tufco’s sales volume and operating income are generally lower in the first and secondfiscal quarters and are then higher in the third and fourth fiscal quarters. However, the Companybelieves that such seasonal fluctuations are diminishing as the Company shifts its emphasis tolonger-term manufacturing agreements.     The Company’s customer base consists of approximately 195 companies, including multinationalconsumer products companies and dealers and distributors of business imaging papers. Sales to suchcustomers are made pursuant to project specific purchase orders as well as contract serviceagreements with multi-year terms. Sales under such contract service agreements are typicallyderived from customer directed purchase orders based on unit volume projections supplied by thecustomers and demand generated by the customer’s consumer base. As a result, there can be noassurance that sales to such customers will continue in the future at current levels. Sales aregenerally made on a credit basis within limits set by the Company’s executive management. TheCompany generally requires payment to be made within 30 days following shipment of goods orcompletion of services. In fiscal 2004, the Company announced it had signed significant contractswith new and existing customers for both printing and Contract Manufacturing. One of thesecustomers, a multinational consumer products company, accounted for approximately 41% of totalsales in fiscal 2004, 51% in fiscal 2005, and 45% in fiscal 2006. In fiscal 2006, the Companystarted up two new production lines producing over 50 SKU’s under a new contract. This was thesingle largest and most complex start-up ever undertaken by Tufco. This customer accounted forapproximately 5% of total sales in fiscal 2005 and 17% in fiscal 2006. See “Management’sDiscussion and Analysis of Financial Condition and Results of Operations — Liquidity and CapitalResources”, as included in Item 7 of this Report.**Competition**     In order to continue growth based on an outstanding service reputation, the Company hasestablished and continues to provide customers with innovative, full service solutions. TheCompany believes the primary areas of competition for its goods and services are quality,production capacity and capability, prompt and consistent delivery, service, flexibility,continuing relationships and price. The Company believes that it offers key competitive advantagessuch as customized Contract Manufacturing options all under one roof: dedicated customer serviceand support personnel, outstanding product quality, speed to market, uncompromised security andconfidentiality, ISO 9001:2000 quality certification, the addition of Lean/Six Sigma as a fiscalyear 2005 quality initiative, microbiological management, technical expertise and lower overallcosts.     Competitors for the Company’s Contract Manufacturing products and services vary based upon theproducts and services offered. In the Company’s Contract Manufacturing services, the Companybelieves that relatively few competitors offer a wider range of services or can provide them from asingle source. The Company believes it is the largest contract manufacturer of branded wipes inNorth America. With respect to the Company’s specialty printing and converting services and finepaper converting products, the competition consists primarily of numerous small regional companies.Management believes that the Company’s capabilities in Contract Manufacturing and specialtyprinting give it the flexibility, diversity, and capacity to compete effectively on a nationalbasis with large companies and locally with smaller regional companies. The Company does notbelieve foreign competition is significant at this time in the Contract Manufacturing and specialtyprinting lines. In the wet wipe market, the Company believes it has built a strong reputation withnationally recognized consumer and industrial products market leaders. The Company strongly abidesby stringent security and confidentiality practices and provides turn-key solutions to introducenew and innovative products that respond to consumer demands for applications that are easy to use,disposable, convenient and cost effective.
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**Competition (Continued)**     The Company operates highly technical manufacturing processes to meet a variety of customerneeds. By virtue of being a customized contract manufacturer, the Company continually engineersand proposes systems to customers and potential customers to solve their manufacturing needs in newproduct rollouts. The Company offers full, value added services such as microbiology assessmentand management, and wet wipe, lotion and concentratetesting services and equipment that allow the Company to maintain and assure high productintegrity. In the products made at Newton, North Carolina, raw materials are readily available,and converting equipment is generally easily purchased. As a result, competition for engineeringand transaction papers customers is very strong, primarily from small regional suppliers and a fewlarge national companies.     Historically, the Company has been subject to surges and declines in sales due to theshort-term nature of its converting projects with large integrated paper products companies. Sincethe Company began emphasizing longer-term contractual arrangements, management believes that it isnow better able to anticipate fluctuations in sales. However, customer volume needs in ContractManufacturing arrangements are ultimately controlled by the Company’s customers, and a certainamount of short-term fluctuation is expected.**Product Development and Quality Control**     The Company works with its customers to develop new products and applications. The Companybelieves that a key factor is its willingness and distinctive technical competency to helpcustomers experiment with a variety of substrates to develop materials with different attributessuch as strength, flexibility, absorbency, breathability, moisture-resistance, and appearance. As aresult, the Company has been able to develop certain laminated substrates at lower costs than ifthe customers developed these products themselves. Customers may request certain physical testsduring trial runs that are performed by the Company’s quality control personnel, often with thecustomer on site. After completing the development process, the Company prices a new product orservice and designs an ongoing program that provides information to the customer such as qualitychecks, inventory reports, materials data, and production reports.     The Company’s Green Bay, Wisconsin facility has now operated under an ISO 9000 certificationfor over six years. ISO 9000 is an internationally recognized quality management system (QMS)standard. In fiscal 2001, the Green Bay facility upgraded its QMS to meet the revised ISO9001:2000 standard. The Green Bay facility has numerous wet converting lines that requireadditional care to prevent microbial contamination. To meet the stringent requirements of theseprocesses the facility has incorporated current Good Manufacturing Practices (as mandated by theFood and Drug Administration) into its QMS. Each year the site’s QMS is audited by multiplecustomers and undergoes two 3rd party ISO surveillance audits. In 2005, Green Bay beganthe implementation process for their Lean/Six Sigma initiative by training Green/Black Belts andLean Manufacturing practitioners, and is now starting its third year under these initiatives.**Raw Materials and Suppliers**     The Company is not dependent on any particular supplier or group of affiliated suppliers forraw materials or for equipment needs. In the Contract Manufacturing sector the customer, in mostinstances, selects which supplier of equipment or raw material the Company is to use. The Companybelieves that it has excellent relationships with its primary suppliers, and the Company has notexperienced significant difficulties in obtaining raw materials during the last five years. TheCompany’s raw materials fall into five general groups: various paper stocks, inks for specialtyprinting, nonwoven materials, polyethylene films and packaging. There are numerous suppliers ofall of these materials. To ensure quality control and consistency of its raw material supply, theNewton, North Carolina facility continues to receive fine paper stock primarily from six majorpaper companies instead of a greater number of companies.     The Company’s primary raw materials, base paper and nonwovens materials, are subject toperiodic price fluctuations. In the past, the Company has generally been successful in eventuallypassing most of the price increases on to its customers, but management cannot guarantee that theCompany will be able to do this in the future. Under contracts at Green Bay, changes in materialprices are passed on to our customers.
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**Environmental Matters**     The Company is subject to various federal, state, and local environmental laws and regulationsconcerning emissions into the air, discharges into waterways, and the generation, handling, anddisposal of waste materials. These laws and regulations are constantly evolving, and it isimpossible to accurately predict the effect they may have upon the capital expenditures, earnings,and competitive position of the Company in the future. The Company believes it is in compliancewith all environmental regulations and is current on all applicable permitting and reportingrequirements with federal, state and local jurisdictions. The Company has continuous air emissionsmonitoring systems and effluent monitoring procedures regulated by the Environmental ProtectionAgency/Department of Natural Resources and maintains a strong, active relationship with thecontrolling agencies and a principle based commitment to stewardship in the community.     The Company’s past expenditures relating to environmental compliance have not had a materialeffect on the Company. Further growth in the Company’s production capacity with a resultingincrease in discharges and emissions may require additional capital expenditures for environmentalcontrol equipment in the future. No assurance can be given that future changes to environmentallaws or their application will not have a material adverse effect on the Company’s business orresults of operations.     Each manufacturing line is unique and can generate various types of waste. The Company takesinto account all considerations for environmental impact on all waste streams that occur. TheCompany follows a strict waste minimization plan to reduce, recycle or eliminate waste from all ofour manufacturing processes. All processes are reviewed during initial start-up or annually tomake sure that the Company is in compliance with all applicable federal, state and local laws andregulations.**Employees**     At September 30, 2006, the Company had 395 employees, of whom 320 were employed at its GreenBay, Wisconsin facility, 72 at its Newton, North Carolina facility, 2 at its Las Vegas, NVwarehouse and 1 in Dallas, TX. The Company has a non-union workforce and believes that itsrelationship with its employees is good.**Working Capital**     Information regarding the Company’s working capital position and practices is set forth inItem 7 of this Report under the caption “Liquidity and Capital Resources”.     Financial information for the Contract Manufacturing services and the Business Imaging paperproducts segment is set forth in Note 13 to the Consolidated Financial Statements included in Item8 of this Report, as referenced to the Appendix to the Report.
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**ITEM 1A — RISK FACTORS****The Company depends on two customers for a significant portion of its business.**     One customer accounted for approximately 45% of the total sales for the Company in fiscal2006, while the same customer accounted for approximately 51% of the Company’s total sales infiscal 2005. Another customer, which awarded the Company a new contract in 2006, accounted for 17%of total sales in fiscal 2006 and 5% of total sales in fiscal 2005. The loss of, or significantadverse change in, our relationship with these customers could cause the Company’s net sales,income from operations and cash flow to decrease. The loss of, or reduction in, orders from anysignificant customer, losses arising from customer disputes regarding shipments, fees, merchandisecondition or related matters, or the Company’s inability to collect accounts receivable from anymajor customer could reduce its income from operations and cash flow.The Company has long term contractswith these two customers; however, sales are made pursuant to projectspecific purchase orders.**Additional increases in the Company’s costs of goods sold, including the costs of raw materials orlabor expenses, could have an adverse effect on the Company’s financial condition**.     The Company’s business places heavy reliance on raw materials being readily available.Although the Company believes that there are a number of suppliers that can provide it with the rawmaterials necessary to conduct its business, any significant decreases in supplies, or any increasein costs or a greater increase in delivery costs for these materials, could result in a decrease inthe Company’s margins, which would harm its financial condition. Under contracts at Green Bay, thecustomer typically selects the material suppliers and material cost changes are passed on to thecustomer.     In addition, the Company has recently experienced exceedingly high energy and transportationexpenses. Any further increases in these costs will continue to have an adverse effect on theCompany’s financial results. Moreover, in connection with a new wipes converting contract thatbegan production in the second quarter of fiscal 2006 and the installation of related equipment,the Company experienced increased direct labor and material cost. The Company’s inability to lowerthese costs could further negatively impact its results of operations.**Competition in the Company’s industries may hinder its ability to execute its business strategy,maintain profitability, or maintain relationships with existing customers**.     The Company operates in highly competitive industries. The Company competes against numerousother companies, some of which are more established in their industries and have substantiallygreater revenue or resources than the Company does. To compete effectively, among other things, theCompany must: **•** maintain its relationships with key customers;  **•** maintain strict quality standards; and  **•** deliver products on a reliable basis at competitive prices     Competition could cause lower sales volumes, price reductions, reduced profits, losses, orloss of market share. The Company’s inability to compete effectively could have a material adverseeffect on the Company’s business, results of operations and financial condition.**Unexpected equipment failures may lead to production curtailments or shutdowns.**     The Company’s manufacturing processes depend on critical pieces of equipment, which may, onoccasion, be out of service as a result of unanticipated failures. Interruptions in the Company’sproduction capabilities will inevitably increase its production costs and reduce its sales andearnings for the affected period. In addition to equipment failures, the Company’s facilities aresubject to the risk of catastrophic loss due to unanticipated events, such as fires, explosions orviolent weather conditions. Moreover, any interruption in production capability may require theCompany to make significant capital expenditures, which could have a negative effect on theCompany’s profitability and cash
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**ITEM 1A — RISK FACTORS (Continued)**flows. The Company may also sustain revenue losses in excess of anyrecoveries the Company makes under any applicable business interruption insurance coverage it mayhave. In addition to such revenue losses, longer-term business disruption could result in a loss ofcustomers, which could adversely affect the Company’s business, financial condition, results ofoperations and cash flows.**The loss of key senior management personnel could negatively affect the Company’s business.**     The Company is dependent on the continued services and performance of its senior managementand other key personnel, many of whom are subject to employmentagreements that have one year terms. The Company does not have “key person” life insurance policies. The lossof any of the Company’s executive officers or other key employees could harm its business.**The Company’s business is subject to many regulations and noncompliance could be costly.**     The manufacture, marketing and sale of the Company’s products are subject to the rules andregulations of various federal, provincial, and state agencies, including, without limitation,regulations governing emissions into the air, discharges into the water, generation, handling,storage, transportation, treatment, and disposal of waste materials. The Company is also subject toother federal and state laws and regulations regarding health and safety matters.     If the Company does not obtain all material licenses and permits required by government, itmay be subject to regulatory action by government authorities. Moreover, if the Company’s policiesand procedures do not comply in all respects with existing laws and regulations, the Company’sactivities may violate such laws and regulations. Even if the Company’s policies and procedures docomply, but its employees fail or neglect to follow them in all respects, the Company might incursimilar liability. For example, if a regulatory authority finds that a current or future product orproduction run is not in compliance with any of these regulations, the Company may be fined,production may be stopped or a product may be pulled from the shelves, any of which could adverselyaffect the Company’s financial conditions and operations.     Furthermore, the rules and regulations are subject to change from time to time and while theCompany closely monitors developments in this area, it has no way of anticipating whether changesin these rules and regulations will be made that would impact its business adversely. Additional orrevised regulatory requirements, whether labeling, environmental, health and safety, tax orotherwise, could have a material adverse effect on the Company’s financial condition and results ofoperations.**If the Company fails to achieve and maintain effective internal controls, it could have a materialadverse effect on the Company’s business in the future.**     Although the Company currently is not subject to the requirements of Section 404 of theSarbanes-Oxley Act, and will not be until fiscal 2008, it may be required to satisfy theserequirements in the future. In that event, certain adjustments to the Company’s internal controlprocedures could be required. This process may be time consuming or costly. Failure to achieve andmaintain an effective internal control environment as required under Section 404 could have amaterial adverse effect on the Company’s financial condition and results of operations.**The products that the Company manufactures could expose it to product liability claims, andits manufacturing process may pose additional risks.**     The Company’s business exposes it to potential product liability risks that are inherent inthe manufacture and distribution of certain of its products. Although the Company generally seeksto insure against such risks, there can be no assurance that such coverage is adequate or that theCompany will be able to maintain such insurance on acceptable terms. A successful product liabilityclaim in excess of the Company’s insurance coverage could have a material adverse effect on theCompany and any successful material product liability claim could prevent the Company fromobtaining adequate product liability insurance in the future on commercially reasonable terms.     Moreover, as part of the Company’s manufacturing process, the Company uses complex and heavymachinery and equipment that can pose severe safety hazards, especially if not properly andcarefully used.
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**ITEM 1A — RISK FACTORS (Continued)****Insiders continue to have substantial control over the Company.**     As of September 30, 2006, Bradford Venture Partners, L.P. and Overseas Equity Investors ownedapproximately 58% of the Company’s outstanding common stock. Accordingly, Bradford has the abilityto exert significant influence over the Company’s management and policies, such as the election ofthe Company’s directors, the appointment of new management and the approval of any other actionrequiring the approval of the Company’s stockholders, including any amendments to the Company’scertificate of incorporation, a sale of all or substantially all of the Company’s assets or amerger.
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**ITEM 2 — PROPERTIES**     The Company’s main production and distribution facilities for Contract Manufacturing andspecialty printing are located in Green Bay, Wisconsin. The 243,800 square foot facility (of whichapproximately 20,700 square feet is used for offices for the facility and the Company’s corporateheadquarters) was built in stages from 1980 to 2000 and is owned by the Company. The Company hasapproximately seven additional acres on which to expand in the future.     The Company leases 42,600 square feet of space in a facility contiguous to its Green Bay,Wisconsin facility, which is currently used for certain Contract Manufacturing, warehousing, anddistribution operations. This facility is leased from a partnership of which Samuel Bero, adirector of the Company, is one of several partners. In November 2006, we entered into a new leasewith the partnership, which expires in March 2013. The rent under this lease is $17,070 per monthbeginning in April 2007 and increases by 1.65% each succeeding year. In exchange for the Company’sentering into the new lease, the partnership agreed to pay for up to $300,000 of improvements tothe facility. We believe that the terms of this lease are at least as favorable to us as couldhave been obtained from an unaffiliated party.     The Company also owns a 120,000 square foot facility in Newton, North Carolina, used in theproduction and distribution of point of sale rolls, transaction paper products, wide format rollsand in the printing of custom forms and rolls. In April of 2005, the Company leased a 1,200 squarefoot warehouse facility in Las Vegas, Nevada, for the distribution of Business Imaging products inthe Western United States. In April of 2006, the Company signed a three-year lease on a 2,022 sq.ft. facility in Las Vegas to replace the smaller facility.     The Company believes that all of its facilities are in good condition and suited for theirpresent purpose. The Company believes that the property and equipment currently used is sufficientfor its current and anticipated short-term needs, but that the expansion of the Company’s businessor the offering of new services could require the Company to obtain additional equipment orfacilities.**ITEM 3 — LEGAL PROCEEDINGS**     The Company is subject to lawsuits, investigations, and potential claims arising out of theordinary conduct of its business. The Company is not currently involved in any materiallitigation.**ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**     None.
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**PART II****ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES**     Since the Company’s initial public offering of Common Stock on January 28, 1994, at $9.00 pershare, the Common Stock of Tufco has been traded on the NASDAQ Global Market (formerly known asNASDAQ National Market) under the trading symbol “TFCO.” The following table sets forth the rangeof high and low selling prices for the Common Stock, as reported on the NASDAQ Global Market forthe periods indicated:               High Low CloseFiscal 2005:            Quarter ended December 31, 2004 $8.850  $5.000  $8.760 Quarter ended March 31, 2005 $9.100  $6.060  $6.450 Quarter ended June 30, 2005 $6.650  $5.550  $6.200 Quarter ended September 30, 2005 $6.940  $5.300  $6.300 Fiscal 2006:            Quarter ended December 31, 2005 $7.560  $5.500  $5.650 Quarter ended March 31, 2006 $7.200  $5.540  $6.990 Quarter ended June 30, 2006 $7.850  $5.600  $7.040 Quarter ended September 30, 2006 $7.200  $6.000  $6.830      As of December 18, 2006, there were approximately 98 holders of record of the Common Stock.On December 18, 2006, the last reported sale price of the Common Stock as reported on the NASDAQGlobal Market was $7.10 per share.The Company has never paid dividends on its Common Stock. The Company’s revolving credit agreementcontains certain restrictive covenants, including requirements to maintain certain levels of cashflow and restriction on the payment of dividends. The Company does not intend to pay any cashdividends in the foreseeable future.**Issuer Purchases of Equity Securities**     In March 2005, the Company’s Board of Directors approved the purchase by the Company of up to300,000 of its shares of common stock given that the Company’s cash and debt position would enablethese purchases without impairment to the Company’s capital. On December 16, 2005, the Company’sBoard of Directors extended the plan through June 30, 2006, at which time it expired. A total of49,100 shares were purchased under the plan from approval of the plan through June 30, 2006.
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**ITEM 6 — SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data)(1)**                       Years Ended September 30,   2006  2005  2004  2003  2002 **Statement of Operations Data:**                    Net sales $100,284  $79,781  $77,854  $55,207  $50,434 Cost of sales  95,240   74,447   70,164   47,465   43,981                                      Gross profit  5,044   5,334   7,690   7,742   6,453 Selling, general and administrativeexpenses  3,977   4,587   4,998   4,885   3,962 Facility restructuring cost  —   —   —   —   233 Facility closing cost  —   —   —   —   435 Employee severance cost  —   —   —   333   209 Asset write-downs  —   —   —   —   548 (Gain) loss on asset sales  —   (442)  3   109   (10)                                     Operating income  1,067   1,189   2,689   2,415   1,076 Interest expense  (309)  (63)  (48)  (202)  (461)Interest income and other income (expense)  59   26   (3)  (49)  24                 Income from continuing operations beforeincome taxes  817   1,152   2,638   2,164   639 Income tax expense  254   452   1,076   916   281                 Income from continuing operations  563   700   1,562   1,248   358                      Gain (loss) from discontinued operations                    Loss from operations of discontinued segment,net of tax  —   —   —   (225)  (1,111)Gain (loss) from sale of discontinued operations,net of tax  —   —   400   (244)  —                                      Income (loss) before accounting change  563   700   1,962   779   (753)                     Cumulative effect of accounting change  —   —   —   —   (4,652)                Net income (loss) $563  $700  $1,962  $779  $(5,405)                                     Basic Earnings (Loss) Per Share:                    Income from continuing operations $0.12  $0.15  $0.34  $0.27  $0.08 Loss from operations of discontinued segment  —   —   —   (0.05)  (0.24)Gain (loss) from sale of discontinued operations  —   —   0.09   (0.05)  —                 Income before accounting change $0.12  $0.15  $0.43   0.17   (0.16)Cumulative effect of accounting change  —   —   —   —   (1.01)                Net income (loss) $0.12  $0.15  $0.43  $0.17  $(1.17)                     Diluted Earnings (Loss) Per Share:                    Income from continuing operations $0.12  $0.15  $0.34  $0.27  $0.08 Loss from operations of discontinued segment  —   —   —   (0.05)  (0.24)Gain (loss) from sale of discontinued operations  —   —   0.09   (0.05)  —                 Income before accounting change $0.12  $0.15  $0.43   0.17   (0.16)Cumulative effect of accounting change  —   —   —   —   (1.01)                Net income (loss) $0.12  $0.15  $0.43  $0.17  $(1.17)                     Weighted average common shares outstanding:                    Basic  4,538   4,565   4,582   4,616   4,628 Diluted  4,550   4,583   4,608   4,626   4,631 **Other Data:**                    Depreciation and amortization (2) $2,006  $2,019  $2,401  $2,812  $2,928 Capital expenditures $5,177  $1,502  $4,189  $2,373  $1,099                      **Balance Sheet Data (at September 30):**                    Working capital $19,409  $15,409  $14,422  $12,035  $11,303 Total assets  56,689   44,486   46,983   38,026   47,167 Total — current and long-term debt  7,073   1,113   2,500   750   6,157 Stockholders’ equity  36,540   35,917   35,449   33,487   32,808 (Footnotes 1-2 on next page)
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**ITEM 6 — SELECTED CONSOLIDATED FINANCIAL DATA (Continued)** (1) Financial data for fiscal 2002 through 2006 reflects the sale of the Paint Sundriessegment on March 31, 2003, effective for financial purposes as of February 28, 2003. (2) Includes depreciation and amortization of other assets.**ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS****Forward Looking Statements**     Management’s discussion of the Company’s fiscal 2006 results in comparison to fiscal 2005contains forward-looking statements regarding current expectations, risks and uncertainties forfuture periods. The actual results could differ materially from those discussed herein due to avariety of factors such as changes in customer demand for its products, cancellation of productionagreements by significant customers, material increases in the cost of base paper stock,competition in the Company’s product areas, an inability of management to successfully reduceoperating expenses including labor and waste costs in relation to net sales without damaging thelong-term direction of the Company, the Company’s ability to increase sales and earnings as aresult of new projects, the Company’s ability to successfully install new equipment on a timelybasis, the Company’s ability to produce new products, the Company’s ability to continue to improveprofitability, and the Company’s ability to improve the run rates for its products. Therefore, theselected financial data for the periods presented may not be indicative of the Company’s futurefinancial condition or results of operations.**General**     Tufco is a leader in providing diversified contract wet and dry wipes converting and printing,as well as specialty printing services and business imaging products. The Company’s businessstrategy is to continue to place our wipes converting at the leading edge of existing and emergingwipes growth opportunities. The Company works closely with its Contract Manufacturing clients todevelop products or perform services, which meet or exceed the customers’ quality standards, andthen uses the Company’s operating efficiencies and technical expertise to supplement or replace itscustomers’ own production and distribution functions.     The Company’s technical proficiencies include wide web flexographic printing, wet and dry wipeconverting, hot melt adhesive lamination, folding, integrated downstream packaging and on-sitequality and microbiological process management and manufactures and distributes business imagingpaper products.**Results of Operations**     The following discussion relates to the financial statements of the Company for the fiscalyear ended September 30, 2006 (“current year” or “fiscal 2006”), in comparison to the fiscal yearended September 30, 2005 (“prior year” or “fiscal 2005”), as well as the fiscal year endedSeptember 30, 2004 (“fiscal 2004”).
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**Results of Operations (continued)**     The following table sets forth, for the fiscal years ended September 30, (i) the percentagerelationship of certain items from the Company’s statements of income to net sales, and (ii) theyear-to-year changes in these items:                                   **Year-to-Year**  **Percentage of Net Sales** **Percentage Change**  **2006** **2005** **2004** **2006 to 2005** **2005 to 2004**Net sales  100.0%  100.0%  100.0%  26%  2%Cost of sales  95.0   93.3   90.1   28   6                      Gross profit  5.0   6.7   9.9   -5   -31                      Selling, general and administrativeexpenses  4.0   5.7   6.4   -13   -8 Loss (gain) on asset sales  0.0   -0.6   0.0   -100  NM                                          Operating income  1.0   1.6   3.5   -10   -56 Interest expense  -0.3   -0.1   -0.1  NM NMInterest income and other income (expense)  0.1   0.0   0.0  NM NM                     Income from continuing operations beforeincome taxes  0.8   1.5   3.4   -29   -56 Income tax expense  0.3   0.6   1.4   -44   -58                      Income from continuing operations  0.5   0.9   2.0   -20   -55                      Gain from discontinued operations  0.0   0.0   0.5   0   -100                                           Net income  0.5%  0.9%  2.5%  -20%  -64%                          The components of net sales and gross profit are summarized in the table below:                           2006  2005  2004       % of      % of      % of   Amount  Total  Amount  Total  Amount  Total   (Dollars in millions) Net Sales                        Contract manufacturing and printing $74.1   74% $55.2   69% $53.7   69%Business imaging paper products  26.2   26%  24.6   31%  24.2   31%                   Net sales $100.3   100% $79.8   100% $77.9   100%                                                  Margin      Margin      Margin   Amount  %  Amount  %  Amount  % Gross Profit                        Contract manufacturing and printing $2.6   4% $3.4   6% $5.1   9%Business imaging paper products  2.4   9%  1.9   8%  2.6   11%                      Gross profit $5.0   5% $5.3   7% $7.7   10%                      
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**Fiscal Year Ended September 30, 2006 Compared to September 30, 2005**     **Net Sales**for fiscal 2006 increased $20.5 million due primarily to a $18.9 million (34%)increase in the Contract Manufacturing segment and a $1.6 million (7%) increase in the BusinessImaging paper products segment. The increase in Contract Manufacturing related primarily to a newwipes converting contract that began production in the second quarter of fiscal 2006. The BusinessImaging segment sales increase was primarily due to increased sales to several of its Hamco branddistributorships, as well as several of its larger retail customers. This segment continues toexperience strong competition from numerous suppliers in point of sale and wide format goodscreating negative impacts on sales volume.     **Gross profit**decreased$0.3 million (5%) and gross profit percentage decreased to 5% from 7%in 2005. The margin in the Contract Manufacturing segment decreased to 4% in 2006 compared to 6%in 2005 on a gross profit decrease of $0.8 million. The decline in gross profit was primarily dueto higher than expected direct labor and material cost related to the start-up of the new wipesconverting contract mentioned above. The Company currently hasprograms in place that it believes will lead to lower labor and material waste costs, but cannot assure that it will be successful in theimplementation of these programs. The Business Imaging segment experienced an increase of $0.5million in gross profit and an increase in margin to 9% from 8% in 2005. This increase wasprimarily related to some stabilization in raw material prices compared to 2005 and improvedsuccess in passing along raw material cost increases to customers during the year.     **Selling, general and administrative expenses**decreased $0.6 million in 2006 from 2005 due toreductions in legal and audit of $0.3 million, depreciation of $0.1 million and bad debt expenseof $0.2 million.     **(Gain) loss on asset sales**was zero in 2006 and a gain of $0.4 million in 2005. In 2004, theCompany reached an agreement to sell its LA-2 thermal laminating asset, with an expected gain of$0.4 million. The sale was completed in the first quarter of fiscal 2005.     **Interest expense**increased $0.2 million in 2006 from 2005 due to higher average debtoutstanding as a result of the Company borrowing from its revolving credit line to fund a portionof its increased working capital and equipment needs, as well as an overall increase in theinterest charged on outstanding borrowing.     **Income taxes**decreased $0.2 million as a result of decreased profits. The effective tax ratewas reduced to 31.1% following completion of IRS audits for fiscal years 2003 and 2004.     **Basic and diluted net earnings per share**were $0.12 for 2006 compared to $0.15 for 2005.
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**Fiscal Year Ended September 30, 2005 Compared to September 30, 2004**     **Net Sales**for fiscal 2005 increased $1.9 million due primarily to a $1.5 million (3%) increasein the Contract Manufacturing segment and a $0.4 million (2%) increase in the Business Imagingpaper products segment. The increase in Contract Manufacturing related primarily to theutilization of wet and dry production lines for the entire year which started up in late fiscal2004. These increases were partially offset by reduction in demand for certain dry wipe productlines. These increases were further offset by revenues lost through the sale of the Company’s LA-2thermal laminating asset, which generated $2.5 million in fiscal 2004. In 2005, the Companycompleted the transition to being the primary provider of raw materials for its customers. Rawmaterials are passed through in customer prices. Material costs in revenues for fiscal 2005 were$2.2 million higher than 2004.     The Business Imaging segment sales increase was primarily due to increased sales to several ofits Hamco brand distributorships, as well as several of its retail customers. This segmentcontinues to experience strong competition from numerous suppliers in point of sale and wide formatgoods creating negative impacts on sales volume.     **Gross profit**decreased $2.4 million (31%) and gross profit percentage decreased to 6.7% from9.9% in 2004. The margin in the Contract Manufacturing segment decreased to 6% in 2005 compared to9% in 2004 on a gross profit decrease of $1.7 million. The decline in gross profit was primarilydue to lower non-material revenues of $2.9 million compared to 2004. The Business Imaging segmentexperienced a decrease of $0.7 million in gross profit and a decrease in margin to 8% from 11% in2004. This decrease was primarily related to increased raw material costs and the inability toquickly pass along these increases due to price competition from numerous suppliers in thesegment’s major product lines.     **Selling, general and administrative expenses**decreased $0.4 million in 2005 from 2004.Reductions in salaries of $237,000 and depreciation of $327,000 were offset by an increase inemployee benefits of $102,000.     **(Gain) loss on asset sales**was a gain of $0.4 million in 2005 and not material in 2004. In2004, the Company reached an agreement to sell its LA-2 thermal laminating asset, with an expectedgain of $0.4 million. The sale was completed in the first quarter of fiscal 2005.     **Interest expense**remained relatively unchanged in fiscal 2005 as a result of lower averagedebt outstanding.     **Income taxes**decreased $0.6 million as a result of decreased profits. The effective tax ratewas 39% in 2005 compared to 41% in 2004. The decreased rate relates to a change in the federal andstate tax bracket more in line with the Company’s earnings level.     **Gain (loss) from sale of discontinued operations**net of tax was zero in 2005 and a gain of$0.4 million in 2004. In the fourth quarter of 2004, the Company changed its estimate of incometaxes payable in relationship to its sale of the Paint Sundries segment in 2003. That change wasrecorded in the fourth quarter of 2004 when the tax return was filed.     **Basic and diluted net earnings per share**were $0.15 for 2005 compared to $0.43 for 2004.
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**Selected Quarterly Financial Data**     The following table sets forth selected quarterly financial information. This information isderived from unaudited consolidated financial statements of the Company and includes, in theopinion of management, all normal and recurring adjustments that management considers necessary fora fair statement of results for such periods. The operating results for any quarter are notnecessarily indicative of results for any future period.**Fiscal 2006 (**Dollars in thousands, except per share amounts)                   First Second Third Fourth  Quarter Quarter Quarter QuarterNet sales $21,313  $23,089  $27,428  $28,454 Gross profit  1,000   1,360   1,651   1,033 Operating expenses  967   1,044   1,101   865 Operating income  33   316   551   168 Income before income taxes  38   292   440   47 Income tax expense  15   95   126   18 Net income  23   198   314   28 Net income per share:                Basic  0.01   0.04   0.07   0.01 Diluted  0.01   0.04   0.07   0.01 **Fiscal 2005 (**Dollars in thousands, except per share amounts)                   First Second Third Fourth  Quarter Quarter Quarter QuarterNet sales $20,004  $21,215  $18,612  $19,949 Gross profit  1,451   1,391   1,199   1,292 Operating expenses  762   1,158   1,115   1,111 Operating income  689   234   85   181 Income before income taxes  690   231   67   164 Income tax expense  282   91   14   64 Net income  408   140   53   100 Net income per share:                Basic  0.09   0.03   0.01   0.02 Diluted  0.09   0.03   0.01   0.02      In the fourth quarter of fiscal 2006, sales increased $8.5 million or 43% as compared to thefourth quarter of fiscal 2005. The Contract Manufacturing segment sales were up $8.7 million or66% in the fourth quarter of fiscal 2006 when compared to the same period last year as a result ofa new wipes converting contract that began production in the second quarter of fiscal 2006. Forthe fourth quarter of fiscal 2006, Business Imaging segment sales were down $0.2 million (3%) whencompared to the same quarter of fiscal year 2005, primarily due to decreased sales to severalretail customers.
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**Liquidity and Capital Resources**     Cash flows (used in) provided by continuing operations were ($0.7) million for fiscal 2006,$2.5 million in 2005 and ($0.8) million in 2004. Inventories increased $4.0 million in 2006,representing inventory builds primarily related to the support of increased wet wipes business thatbegan during the second quarter of fiscal 2006. Accounts receivable increased $5.3 million in 2006resulting from increased sales compared to 2005. Accounts payable increased $5.1 million in 2006compared to 2005, primarily due to an increase in materials andequipment purchased. The Company’s working capital position for the years ended September 30, 2006 and 2005 was $19.4 million and $15.4 million, respectively, as a result of the change in components discussed above.     During the third quarter of fiscal 2004, the Company announced it had entered into adefinitive agreement to sell its thermal bond laminator for $475,000. In connection with suchagreement, the Company received a $95,000 non-refundable deposit. The sale was completed in thefirst quarter of fiscal 2005. Consistent with accounting principles for revenue recognition, theCompany accounted for and reported a gain of approximately $414,000 from this sale when it wascompleted in the first quarter of fiscal 2005.     Cash used in investing activities was $5.2 million in 2006. Contract Manufacturing spentapproximately $5.1 million on capital expenditures primarily related to the purchase of two newwipe converting lines to support its growth in the expanding disposable nonwovens wipes market.The two new wipe converting lines were financed through cash flow generated by operatingactivities, short term borrowing from the Company’s line of credit, and a $575,000 long-term notewith a specific customer. Other equipment was purchased throughout the year to support ongoingoperations. In Business Imaging, the amount spent on capital expenditures was $0.1 million. Cashused in investing activities was $0.9 million in 2005 and in2004 was $4.2 million as the Companycompleted its $3.6 million capital equipment expansion program announced by the Company on December4, 2003.     Cash provided by financing activities was $5.9 million in 2006 as a result of the Companyborrowing from its revolving credit line to fund a portion of its increased working capital andequipment needs. Cash used in financing activities was $1.6 million in 2005, resulting primarilyfrom repayment of outstanding indebtedness. Cash provided by financing activities was $1.7 millionin 2004 as a result of the Company borrowing from its revolving credit line to fund a portion ofits increased working capital needs. In March 2003, the Company’s Board of Directors approved thepurchase by the Company of up to 100,000 of its shares of common stock after concluding that thecash and debt position would enable these purchases without impairment to the Company’s capital.The purchase plan began in April 2003, and expired in January 2004. During that period, theCompany purchased 45,500 shares of its common stock on the open market for an aggregate of $0.3million pursuant to the purchase plan. In March 2005, the Company’s Board of Directors approvedthe purchase by the Company of up to 300,000 of its shares of common stock, and on December 16,2005, the Board extended the plan through June 30, 2006. A total of 49,100 shares were purchasedfor an aggregate purchase price of $0.3 million from approval of the plan through June 30, 2006,at which time the plan expired.     The Company’s primary need for capital resources is to finance inventories, accountsreceivable, and capital expenditures. At September 30, 2006, cash recorded on the balance sheetwas $5,267.     The Contract Manufacturing segment’s sales are made pursuant to project-specific purchaseorders as well as contract service agreements with multi-year terms. Sales under such contractservice agreements are typically derived from customer directed purchase orders based on unitvolume projections supplied by the customers and demand generated by the customers’ consumer bases.In fiscal 2004, the Company announced it had signed significant contracts with new and existingcustomers for both printing and contract manufacturing. One of these customers, a multinationalconsumer products company, accounted for 41% of total sales in fiscal 2004, 51% of the total salesin fiscal 2005 and 45% of total sales in fiscal 2006. In fiscal 2006, the Company started up two newproduction lines producing over 50 SKU’s under a new contract. This was the single largest andmost complex start-up ever undertaken by Tufco. This customer accounted for approximately 5% of totalsales in fiscal 2005 and 17% in fiscal 2006. However, because the Company’s contract revenueagreements described above generally do not have minimum purchase requirements, the revenuesattributable to the new contracts are subject to normal business fluctuations.
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**Liquidity and Capital Resources (Continued)**     On May 20, 2004, the Company signed a new credit agreement. The credit agreement includes a$9.0 million revolving line of credit facility as well as a $1.0 million swing line available foroverdrafts. The agreement as amended on June 20, 2006, expires on May 18, 2008. Borrowingsunder the line of credit are made under the base rate account or the Eurodollar account. Intereston amounts borrowed under the base rate account is calculated based on the greater of the FederalFunds Effective Rate plus 1/2 of 1% or the Prime Rate on the date of the borrowing. Interest onamounts borrowed under the Eurodollar account is calculated based on LIBOR. As of September 30,2006, the Company had $3.2 million outstanding under the base rate account and $3.5 millionoutstanding under the Eurodollar account at a rate of 8.25% and 6.83%, respectively. The creditagreement also includes a commitment to issue commercial and standby letters of credit not toexceed $1.0 million. The Company had no amounts outstanding under the letter of credit commitmentas of September 30, 2006. The Company has $3.3 million available under the line of credit as ofSeptember 30, 2006. The credit agreement contains certain restrictive covenants, includingrequirements to maintain a minimum tangible net worth and restrictions on maximum allowable debt,stock purchases, mergers, and payment of dividends. At September 30, 2006, the Company was incompliance with all of its debt covenants under the credit agreement. On December 18, 2006, theCompany had approximately $4.1 million available under its revolving credit line.     Consistent with the sales concentration previously discussed, amounts due from twomultinational consumer products customers represent 69% and 48% of total accounts receivable atSeptember 30, 2006 and 2005, respectively.     Management believes that the Company’s operating cash flow, together with amounts availableunder its credit agreement, are adequate to service the Company’s long-term obligations as ofSeptember 30, 2006 and any budgeted capital expenditures.     On May 6, 2004, the Company redeemed $0.75 million of outstanding Industrial DevelopmentRevenue Bonds with the Village of Ashwaubenon. These bonds paid variable rates of interest.     The Company intends to retain earnings to finance future operations and expansion and does notexpect to pay any dividends within the foreseeable future. In addition, pursuant to the creditagreement, the Company’s primary lenders must approve the payment of any dividends over $2.0million.     Sharp increases or decreases in the costs of key commodities, such as paper or polyethylene,could periodically impact the Company’s inventory values and net income. In fiscal years 2006, 2005and 2004, the impact of inflation was minimal on the Company’s inventory and net income. Managementbelieves that the Company is generally successful in eventually passing these fluctuations in rawmaterial prices to its customers through increases ordecreases in the selling price of the Company’s products, although the timing of selling priceincreases may lag behind cost increases. Prior to these periods, the impact of inflation has beenminimal on the Company’s inventory and net income.**Off Balance Sheet Arrangements**     The Company has no Off Balance Sheet Arrangements (as defined in Item 303 (a)(4) of RegulationS-K).
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**Contractual Obligation Data**     The following table sets forth obligations and commitments to make future payments of debt,operating lease agreements, and future payments under purchase contracts:                       Payments Due By Period      Less         More      Than 1 2-3 4-5 Than  Total Year Years Years 5 YearsLong Term Debt (1)  7,073,011   —   7,073,011   —   —                      Capital Lease Obligations and OtherLong Term Liabilities  —   —   —   —   —                      Operating Leases  5,160,054   1,304,566   2,477,132   1,039,349   339,007                      Unconditional Purchase Obligations (2)  154,206   154,206   —   —   —                         Total Contractual Cash Obligations  12,387,271   1,458,772   9,550,143   1,039,349   339,007     (1) Based on the rates and the current amount of debt outstanding at September 30, 2006, cash payments forinterest on long-term debt would be approximately $455,356 for 2007 and 2008. (2) As of December 18, 2006 the Company had unconditionalpurchase obligations of approximately $0.4million relating to the automation of the two new wipe convertinglines which were purchased to support the Company’s growth in theexpanding disposable nonwovens wipes market.**Critical Accounting Policies**     Our consolidated financial statements are prepared in accordance with accounting principlesgenerally accepted in the United States of America. The reported financial results and disclosureswere determined using significant accounting policies, practices and estimates as described below.We believe the reported financial disclosures are reliable and present fairly, in all materialrespects, the financial position and results of operations for the Company.     Financial statement preparation requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure of contingencies at the dateof the financial statements and the reported amounts of revenues and expenses for the period.Actual amounts could differ from the amounts estimated. Differences from those estimates arerecognized in the period they become known.     Revenue Recognition- The Company recognizes revenue when title and risk of loss transfers tothe customer and there is evidence of an agreement and collectability of consideration to bereceived is reasonably assured, all ofwhich generally occur at the time of shipment. Sales are recorded net of sales returns andallowances. Shipping and handling fees billed to customers are recorded as revenue and costsincurred for shipping and handling are recorded in cost of sales. Amounts related to raw materialsprovided by customers are excluded from revenue and cost of sales.
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**Critical Accounting Policies (Continued)**     Accounts Receivable- Management estimates allowances for collectability related to itsaccounts receivable balances. These allowances are based on the customer relationships, the agingand turns of accounts receivable, credit worthiness of customers, credit concentrations and paymenthistory. Management’s estimates include providing for 100 percent of specific customer balanceswhen it is deemed probable that the balance is uncollectable. Management estimates theallowance for doubtful accounts by analyzing accounts receivable balances by age, applyinghistorical trend rates to the most recent 12 months’ sales, less actual write-offs to date.Although management monitors collections and credit worthiness, the inability of a particularcustomer to pay its debts could impact collectability of receivables and could have an impact onfuture revenues if the customer is unable to arrange other financing. Management does not believethese conditions are reasonably likely to have a material impact on the collectability of itsreceivables or future revenues.     Management estimates sales returns and allowances by analyzing historical returns and credits,and applies these trend rates to the most recent 12 months’ sales data to calculate estimatedreserves for future credits. Actual results could differ from these estimates under differentassumptions.     Inventories- Inventories are carried at the lower of cost or market, with cost determinedunder the first-in, first-out (FIFO) method of inventory valuation. The Company estimates reservesfor inventory obsolescence and shrinkage based on its judgment of future realization. A largeportion of the Company’s inventory is saleable to multiple customers and a portion of the inventoryis manufactured to specifications provided by original equipment manufacturers and is not subjectto rapid technological change.     Goodwill- Goodwill represents the excess of cost over fair value of net assets acquired inbusiness combinations. In order to calculate goodwill, management applies judgment in determiningthe reporting units, which represent distinct parts of the business. The annual goodwillimpairment analysis involves estimating the fair value of a reporting unit and comparing it withits carrying amount. If the carrying value of the reporting unit exceeds its fair value,additional steps are required to calculate a potential impairment loss. Calculating the fair valueof the reporting unit requires significant estimates and long-term assumptions. Any changes in keyassumptions about the business and its prospects, or any changes in market conditions, interestrates or other externalities, could result in an impairment charge. Management has continued toreview the carrying values of goodwill for recoverability based on fair market value estimatedusing estimated future cash flows and prices of comparable companies in accordance with SFAS No.142, *Goodwill and Other Intangible Assets*. The fair value of the reporting units was estimatedusing a combination of valuation techniques, including the expected present value of future cashflows and prices of comparable businesses.     In accordance with SFAS 144, *Accounting for the Impairment for Disposal of Long-Lived Assets,*the Company evaluates the recoverability of the recorded amount of long-lived assets wheneverevents or changes in circumstances indicate that the recorded amount of an asset may not be fullyrecoverable. An impairment is assessed when the undiscounted expected future cash flows derivedfrom an asset are less than its carrying amount. If an asset is determined to be impaired, theimpairment to be recognized is measured as the amount by which the recorded amount of the assetexceeds its fair value. Assets to be disposed of are reported at the lower of the recorded amountor fair value less cost to sell. We determine fair value using discounted future cash flowanalysis or other accepted valuation techniques.     Additional information on the Company’s accounting policies is set forth in Note 1 to theConsolidated Financial Statements included in Item 8 of this Report as referenced to the Appendixto this Report.**Recently Issued Accounting Standards**     In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No.48, *Accounting For Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109*(“FIN48”), which clarifies the accounting for uncertainty in tax positions. This Interpretationrequires that the Company recognize in its financial statements, the impact of a tax position, ifthat position is more likely than not of being sustained on audit, based on the technical merits ofthe position. The accounting provisions of FIN 48 will be effective for the Company beginningOctober 1, 2007, with the cumulative effect of the change in accounting principle recorded as anadjustment to opening retained earnings. The Company is in the process of determining the effect,if any, the adoption of FIN 48 will have on its consolidated financial statements.
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**Recently Issued Accounting Standards (Continued)**     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “FairValue Measurements” (“SFAS No. 157”). SFAS No. 157 clarifies the principle that fair value shouldbe based on the assumptions market participants would use when pricing an asset or liability andestablishes a fair value hierarchy that prioritizes the information used to develop thoseassumptions. Under the standard, fair value measurements would be separately disclosed by levelwithin the fair value hierarchy. SFAS 157 is effective for the Company beginning October 1, 2008,with early adoption permitted. The Company is in the process ofevaluating SFAS No. 157.
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**ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**     Because of the level of variable interest rate debt in the Company’s capital structure, theCompany is exposed to earnings or cash flow fluctuations due to changes in interest rates. AtSeptember 30, 2006, the Company had $6.7 million of variable rate debt outstanding with a weightedaverage interest rate of 7.41%. This debt exposes the Company to changes in interest expensebrought about by changes in interest rates. If the weighted average interest rate were to increaseby 10.0% for fiscal 2006, the impact on net income would be $0.1 million.     *Foreign Currency Exchange Risk*-The Company has not entered into any foreign currency futurescontracts as of September 30, 2006. The Company does enter into transactions denominated inforeign currency for inventory purchases as required by a specific customer. The foreign currencyfluctuations are either credited back to or paid by the customer, the impact of which is notsignificant to the consolidated financial statements as of September 30, 2006.     *Commodity Price Risk*-The Company had not entered into any forward buying agreements for theraw materials it uses to produce its goods and services as of September 30, 2006. An assessment ofthe risks of short-term commodity price fluctuations is set forth in Part I, Item 1 of this Form10-K under the caption “Raw Materials and Suppliers”. Under contracts at Green Bay, most materialcost price changes are passed on to customers.     *Other Relevant Market Risks-*The Company does not own any marketable securities, and managementis not aware of any other relevant market risks.**ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**     The Company’s Consolidated Financial Statements are attached as an Appendix tothis Report. In addition, Selected Quarterly Financial Data is set forth in Item 7 of this Form10-K under the caption “Selected Quarterly Financial Data”.**ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**     None.**ITEM 9A — CONTROLS AND PROCEDURES**     The Company maintains disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in its reports filed pursuant to the Securities Exchange Actof 1934, as amended, is recorded, processed, summarized and reported within the time periodsspecified in the Securities and Exchange Commission’s rules and forms, and that such information isaccumulated and communicated to the Company’s management, including its Chief Executive Officer andChief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.In designing and evaluating the disclosure controls and procedures, management recognized that anycontrols and procedures, no matter how well designed and operated, can provide only reasonableassurance of achieving the desired control objectives, and management necessarily was required toapply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.     The Company carried out an evaluation, under the supervision and with the participation of itsmanagement, including its Chief Executive Officer and Chief Financial Officer, of the effectivenessof the design and operation of the Company’s disclosure controls and procedures. Based on theforegoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that theCompany’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act) were effective as of the end of the Company’s 2006 fiscal year.     There have been no changes in the Company’s internal control over financial reporting duringthe fiscal quarter ended September 30, 2006, that have materially affected, or are reasonablylikely to materially affect the Company’s internal control over financial reporting.**ITEM 9B — OTHER INFORMATION**     Not applicable.
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**PART III****ITEM 10 — DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT****THE DIRECTORS OF THE COMPANY**     Set forth below is certain biographical information concerning our directors and executiveofficers as of December 18, 2006:       **Name** **Age** **Position Held**Robert J. Simon  48  Chairman of the Board of Directors       Samuel J. Bero  71  Director       C. Hamilton Davison, Jr.  47  Director       Brian Kelly  63  Director       Louis LeCalsey, III  67  Director, President and Chief Executive Officer       William J. Malooly  64  Director       Seymour S. Preston, III  73  Director     *Mr. Simon*has been Chairman of the Board of Directors of Tufco since February 1992. Mr. Simonhas been a Senior Managing Director of Bradford Ventures, Ltd., a private investment firm, since1992 and a General Partner of Bradford Associates since 1989, having started at the firm in 1984.Mr. Simon is either Chairman of the Board or a director of Professional Plumbing Group, Inc.,Overseas Equity Investors Ltd., Overseas Callander Fund, Ltd., Portuguese Baking Company, EagleSolutions, LLC, Alkota Cleaning Systems, Inc., Amtex Corporation, Atlantic-Meeco, Inc., ElectronBeam Technologies and Independent Printing Company, Inc. as well as several other privately heldcompanies.     *Mr. Bero*had been President and Chief Executive Officer from November 1993 until he retired inJuly 1995, Executive Vice President since November 1992, and General Manager since 1974, when heco-founded Tufco Industries, Inc., our predecessor. Mr. Bero has been a director since 1992 andhas over 33 years of experience in the converting industry.     *Mr. Davison*has been a director since 1992. Mr. Davison had been President and a director ofParamount Cards, Inc., a manufacturer and retailer of greeting cards, since 1988 and ChiefExecutive Officer from 1995 to 2006. Prior to that time, Mr. Davison was Vice President,International and Marketing of Paramount Cards, Inc. In addition to other private companies andnot-for-profit boards, he served as a director and member of the audit committee of ValleyResources until 2000 when the company was sold to Southern Union (NYSE:SUG). Mr. Davison receiveda Bachelors Degree from Vanderbilt University and a masters degree from the University of Texas.     *Mr. Kelly*became a director in November of 2006. He founded Waverly Partners, Inc., a company thatprovides assistance in the acquisition and operation of niche metals component manufacturingbusinesses, in 1994 and has been President since its inception. Prior to starting Waverly, Mr.Kelly was President of Fitchburg Coated Products. From 1984 to 1989 he served as Chief FinancialOfficer of Technographics, Inc. Mr. Kelly is a CPA, received an AB in Political Science fromProvidence College and an MBA from McGill University.     *Mr. LeCalsey*assumed the position of President and Chief Executive Officer in October 1996.Previously he was President of Tufco Industries, Inc., our predecessor, from April 1996 throughSeptember 1996. Prior to joining Tufco, he served as Vice President of Worldwide Logistics forScott Paper Company, the culmination of a 23-year career with Scott in various leadershippositions. Mr. LeCalsey serves as a director of Independent PrintingCompany, Inc., and as a member of the Advisory Board for Bradford Equities Management LLC.
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**ITEM 10 — DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)**     *Mr. Malooly*has been a director since 1992. Mr. Malooly was the Chairman and Chief ExecutiveOfficer of Bank One, Green Bay from 1997 until he retired from Bank One in September 1999. Mr.Malooly serves as a director of CMM Group LTD, and White Clover Dairy Inc.     *Mr. Preston*has been a director since September 1999. From 1994 until August 2003 when hesold the company and retired, Mr. Preston was Chairman, CEO and sole owner of AAC EngineeringSystems, Inc., a manufacturer of deburring and metal finishing equipment. From 1990 to 1993, Mr.Preston was President and CEO of Elf Atochem North America, Inc., a manufacturer and marketer ofplastics and specialty chemicals. Prior to 1990, Mr. Preston was President, Chief OperatingOfficer and director of Pennwalt Corporation. Mr. Preston is currently a director of AlbemarleCorporation, Scott Specialty Gases, Inc., Ocean Power Technologies, Inc., Independent Publications,Inc., The Barra Foundation, The Wistar Institute, and The Academy of Natural Sciences ofPhiladelphia. Mr. Preston received a BA in chemistry from Williams College and an MBA from theHarvard Business School.     None of the directors listed herein is related to any other director or executive officer ofthe Company.**THE EXECUTIVE OFFICERS OF THE COMPANY**       Name Age Positions With the CompanyLouis LeCalsey, III  67  Director, President and Chief Executive OfficerMichael B. Wheeler  61  Executive Vice President, Chief Financial Officer andChief Operating OfficerMadge J. Joplin  59  Vice President, Sales and OperationsMichele M. Corrigan  38  Sr. Vice President, Sales and Marketing     Executive officers of the Company are elected by the Board of Directors and serve at thediscretion of the Board. There are no family relationships between any executive officers of theCompany.**Executive Officers**     *Louis LeCalsey, III*—Mr. LeCalsey assumed the positions of President and Chief ExecutiveOfficer of Tufco in October 1996. Previously he was President of Tufco Industries, Inc. sinceApril 1996. Prior to joining Tufco, he served as Vice President of Worldwide Logistics for ScottPaper Company, the culmination of a 23-year career with Scott in various leadership positions. Mr.LeCalsey serves as a director of Independent Printing Company, Inc., as wellas a member of the Advisory Board for Bradford Equities Management, LLC.     *Michael B. Wheeler,*CPA—Mr. Wheeler assumed the position of Executive Vice President, ChiefFinancial Officer and Chief Operating Officer in June of 2006, retaining his position as Secretaryand Treasurer. He had served as Vice President, Chief Financial Officer, Secretary and Treasurersince March 27, 2002. From 1999 to 2001, Mr. Wheeler consulted for several companies as a seniorfinancial consultant. Prior to that, Mr. Wheeler was with Stone Container Corporation fortwenty-five years serving as Vice President and Treasurer from 1983 to 1998.     *Madge J. Joplin—*Ms. Joplin assumed the position of Vice President, Sales and Operations forthe Business Imaging segment of Tufco in 1998. She began her career in 1965 with Hamco, Inc. andserved in various positions until Hamco was acquired by Tufco in 1995. While with Hamco, Ms.Joplin’s more recent positions included Comptroller, Vice President of Operations and ChiefOperating Officer.     *Michele M. Corrigan*— Ms. Corrigan assumed the position of Sr. Vice President, Sales &Marketing for the Contract Manufacturing business segment in June of 2006. She had been VicePresident, Sales & Marketing for the Contract Manufacturing business segment since 1999. She beganher career with Tufco in 1996 as a Marketing Manager in the Sales Department. Prior to joiningTufco, Ms. Corrigan was in sales and marketing for Bay West Paper, a division of Mosinee Paper,from 1989 until 1996. Ms. Corrigan is a Director of INDA (Association of the Nonwoven FabricsIndustry).
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**Audit Committee**     The Audit Committee of the Board of Directors of Tufco Technologies, Inc. is composed of threenon-employee directors who meet the independence standards of the NASDAQ Stock Market, Inc. TheAudit Committee is currently composed of Mr. C. Hamilton Davison, Jr., Mr. William J. Malooly, andMr. Seymour S. Preston, III. The Audit Committee operates under a written charter adopted by theBoard of Directors. The Board of Directors of the Company has determined that William J. Maloolyis an Audit Committee Financial Expert (as defined in Item 401(h) of Regulation S-K).**Code of Ethics**     In December of 2003, the Audit Committee adopted a Code of Ethics applicable to seniorfinancial officers of the Company. This Code of Ethics constitutes a code of ethics applicable tosenior financial officers within the meaning of the Sarbanes-Oxley Act of 2002 and SEC rules. TheCode of Ethics was filed as an exhibit to the Company’s Form 10-K for its fiscal year endedSeptember 30, 2003. The Code of Ethics was ratified by the Board of Directors on January 13, 2004.**Compliance with Section 16(a) of the Securities Exchange Act**     Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, andpersons who own more than 10% of a registered class of our equity securities, to file reports ofownership and changes in ownership of such securities with the SEC. Officers, directors andgreater than 10% beneficial owners are required by applicable regulations to furnish us with copiesof all Section 16(a) forms they file.     Based solely upon a review of the copies of the forms furnished to the Company, or writtenrepresentations from certain reporting persons that no Forms 4 or 5 were required, the Companybelieves that during the 2006 fiscal year all Section 16(a) filing requirements were complied with,except that Brian Kelly did not file a Form 3 within 10 days of his becoming a director of theCompany on November 16, 2006. The Form 3 was filed onDecember 21, 2006.**ITEM 11 — EXECUTIVE COMPENSATION****Director Compensation**     Our directors who are not employees receive: **•** an annual fee of $8,000  **•** a payment of $1,500 for each board meeting attended, and  **•** a payment of $1,500 for each committee meeting attended.     In addition, upon election or reelection to the Board of Directors at the annual meeting, eachnon-employee director will receive an option to acquire 3,000 shares of common stock under Tufco’s2004 Non-Employee Director Stock Option Plan. The options are exercisable immediately at anexercise price equal to the fair market value of the common stock on the date of the annualmeeting. On May 16, 2006, Messrs. Bero, Davison, Malooly, Preston and Simon each received optionsto acquire 3,000 shares of common stock under Tufco’s 2004 Non-Employee Director Stock Option Plan,as amended, with an exercise price of $6.60 per share. In addition,on December 14, 2006, Mr. Kelly received a discretionary grantto acquire 2,000 shares of common stock under Tufco’s 2004Non-Employee Director Stock Option Plan at an exercise price of$6.76 per share.
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**Compensation of Executive Officers**     The following table summarizes the compensation for each of the fiscal years ended September30, 2006, 2005 and 2004 of the Chief Executive Officer and the executive officers who earned atotal annual salary and bonus in excess of $100,000 in fiscal year 2006.Annual Compensation                                           Long Term                    Compensation                    Securities  Name and             Other Annual Underlying All OtherPrincipal Position Fiscal Year Salary Bonus Compensation(1) Options Compensation(2)Louis LeCalsey, III  2006  $271,125  $0   0   0  $4,840 Director, President  2005   273,021   0   0   12,000   6,111 and CEO  2004   269,500   72,000   0   15,000   4,556                          Michael B. WheelerExecutive Vice President,