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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended September 30, 2004
or [   ] 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.  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 920-336-0054 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ]   No [     ] Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [   ]   No [ X ] The aggregate market value of the Common Stock of Tufco Technologies, Inc.
held by non-affiliates, as of March 31, 2004, was approximately $15,134,208.
Such aggregate market value was computed by reference to the closing price of
the Common Stock as reported on the NASDAQ National Market on March 31, 2004.
For purposes of making this calculation only, the registrant has defined
affiliates as including all directors and beneficial owners of more than ten
percent of the Common Stock of the Company. The number of shares of the
registrants Common Stock outstanding as of December 15, 2004 was 4,582,344. DOCUMENTS INCORPORATED BY REFERENCE None.




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TABLE OF CONTENTS  PART IITEM 1  BUSINESSITEM 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)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 PROCEDURESPART 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 SCHEDULESSIGNATURESConsent of Deloitte & Touche LLPCertification of Louis LeCalsey, IIICertification of Michael B. WheelerCertification of Louis LeCalsey, IIICertification of Michael B. Wheeler    Table of Contents  
 PART I 
 ITEM 1  BUSINESS General Tufco Technologies, Inc. (Tufco or the Company) provides integrated
production services including wide web flexographic printing, wet and dry wipe
converting, hot melt adhesive laminating, folding, integrated downstream
packaging and on-site quality and microbiological process management and manufactures and distributes
business imaging paper products. Since 1992 and until its organizational
restructuring on February 7, 1997, the Company operated as three wholly owned
subsidiaries, Tufco Industries, Inc., Executive Converting Corporation (ECC)
and Hamco Industries, Inc. (Hamco). On January 28, 1994, the Company
completed an initial public offering in which the Company issued and sold
900,000 shares of its Common Stock, par value $0.01 per share (Common Stock),
and certain stockholders of the Company sold 50,000 shares of Common Stock.
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 Executive Converting 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.
for approximately $12.9 million net in cash. On February 7, 1997, the Company
reorganized its corporate structure to better serve its business needs. Through
this restructuring, the net assets of Tufco Industries, Inc., ECC and Hamco
were transferred to Tufco, L.P., a Delaware limited partnership, in which 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 Foremost Manufacturing 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 for approximately $12.2 million in cash to Trimaco, LLC and
its affiliate. The sale included all Paint Sundries segment assets, including
the stock of Foremost Manufacturing, Inc. and the Companys Manning, South
Carolina manufacturing facility. Concurrently with the sale of the Paint
Sundries segment, the Company reorganized its corporate structure by merging
certain of its wholly-owned subsidiaries with and into the Company, with the
Company as the surviving entity, and merging the Companys wholly-owned
subsidiary Tufco Tech, Inc. with and into Tufco LLC, a newly-formed
wholly-owned subsidiary, with Tufco LLC as the surviving entity. As a result
of this reorganization, Tufco LLC became the sole managing general partner of
Tufco, L.P. Tufco offers a wide array of contract manufacturing services including
wide web flexographic printing, wet and dry wipe converting, hot melt adhesive
laminating, integrated downstream packaging and on-site quality and
microbiological process management. Tufco also manufactures a wide range of
printed and unprinted business imaging paper products for a variety of business
needs. 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 contract manufacturing
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, WI 54304/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:
Contract Manufacturing services and Business Imaging paper products. Tufco
conducts operations from two manufacturing and distribution locations in Green
Bay, Wisconsin, and Newton, North Carolina. Until September 2002, the Company
had a manufacturing and distribution facility in Dallas, Texas. In fiscal
2002, certain assets and business from this operation were transferred to the
Newton, North Carolina facility. 1




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Contract Manufacturing Tufco has Contract Manufacturing capability at two locations: Green Bay,
Wisconsin, and Newton, North Carolina. The Companys products and services at its Green Bay, Wisconsin facility
include wide web flexographic printing, wet and dry wipe converting, hot melt
adhesive laminating, folding, integrated downstream packaging, on-site quality
and microbiological process management. The facility custom converts
a wide array of materials, including polyethylene films, nonwovens, paper and
tissue. Products include disposable wet and dry wipes for home,
personal/baby/medical care use, 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 technical
personnel, to combine or modify various substrates through the use of precise
temperature and pressure control. The Company invested in its first wet wipes converting asset in December
2002. In fiscal year 2004 the Company invested an additional $3.6 million in
capital to expand the capabilities of its wet wipes equipment. These assets
can convert a variety of nonwoven materials and includes a wide variety of
folding options, count versatility ranging from ten (10) to sixty (60) wipes
per package and integrated downstream flow wrapping and finished packaging
design. The Companys Green Bay, Wisconsin facility also offers value-added wide
web flexographic toll printing services. The Company offers 8-color, high
resolution, wide web flexographic printing and focuses on products such as
paper and poly table covers, gift wrap and flexible packaging. In March 2000,
the Company made its first capital investment in a state-of-the-art 8-color
flexographic printing press capable of printing solvent and water-based inks, a
62 print width at speeds up to 1,500 feet per minute and offering repeat sizes
ranging from 15-3/4 to 47-1/4. A second $3.2 million sister 8-color press
was leased in April 2003, and brought on line for production in June 2003. The
Company uses the customers preliminary artwork and outsources all preparatory
processes for camera-ready art, layout, and other related services, and then
internally mounts the plates. The Green Bay flexographic presses can print on
a wide range of media from lightweight tissue or nonwoven to heavyweight
paperboard, films and foils. Down stream converting equipment also includes folding and packaging of
finished printed goods such as poly and paper table covers into finished
product. In addition, materials can be printed roll-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 precision slitting, rewinding, specialty packaging, folding,
perforating, and trimming of paper rolls in a large 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 with advertising, promotional or security features. These capabilities
are directed toward converting fine paper materials including specialty and
fine printing papers, thermal papers, inkjet papers, polyester films, and
coated products. The Companys Newton, North Carolina facility also produces a full range
of papers for use in bank proof or automated teller machines, including
fan-fold forms, and printed rolls of various sizes and types. Additionally, the
Company produces an extensive selection of standard and customized guest checks
for use in the restaurant industry, and the Companys Newton facility owns
equipment which enables the Company to produce a wide variety of multi-part
business forms. The Company also produces and distributes from its Newton facility a wide
variety of printed and unprinted paper products used in business imaging
equipment in market segments including architectural and engineering design,
high speed data processing, point of sale, automatic teller machines and a
variety of office 2




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Business Imaging (Continued) equipment. The Companys products include roll products ranging in length from
150 feet to 3,500 feet and in widths from 1 inch to 54 inches. The Companys
products are available in a wide range of paper grades including a variety of
weights of bond paper, thermal imaging papers, fine vellums and films and
multi-part forms. Manufacturing and Operations With regard to its Contract Manufacturing operations, the Company either
utilizes product specifications provided by its customers or works with its
customers to develop specifications which meet customer requirements.
Generally, the product begins with base materials such as nonwovens, papers, or
polyethylene films. In Contract Manufacturing, some customers furnish raw
materials and others request the Company purchase raw materials and pass the
cost through the sales price. The Company applies one or more of its contract
converting or specialty printing services that it has developed over a period
of years through its distinctive technical knowledge to add value to these
materials. In producing and distributing its line of Business Imaging Products,
the Company works closely with various Original Equipment Manufacturers (OEMs)
to develop products which meet or exceed the requirements of the imaging
equipment. The Company then produces and stocks 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 machinery and equipment. During the past three years, the
Company spent over $7.8 million on capital expenditures. Through the Companys
expenditures on new 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
Company to print on a variety of substrates. The Company believes it has
sufficient capacity to meet its growth expectations. The Company also plans to
combine microbiological and chemical lab capabilities with the addition of
equipment and building modifications. In fiscal year 2004 Tufco reached an agreement to sell its thermal
laminating equipment to a customer as a result of a strategic decision to exit
this business and focus on printing services and the converting of nonwovens. The Companys equipment can produce a wide range of sizes of production
output to meet unique customer specifications. The Companys printing presses
perform flexographic processes and print from one to eight colors on webs as
wide as 64 inches. Its fine printing paper and paperboard converting equipment
includes state-of-the-art rewinders, folders, and equipment that performs
extensive 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 from August 2000 through September 2004. In
September 2004, the Newton facility experienced a lost time accident. Tufcos
Green Bay plant had seen similar success, working over 1.6 million man-hours
before suffering its first lost time injury in over two years. Fiscal 2004
brought a string of three lost time injuries to our Green Bay plant. Even
with the increase in lost time injuries, Tufcos overall OSHA recordable injury
rates are well below industry standards. The Tufco-Green Bay plant is ISO
9001:2000 certified and has been recertified four consecutive years with no
findings. Sales and Marketing Tufco markets its products and services nationally through its 20
full-time sales and customer service employees and 51 manufacturers
representatives and distributors. The Companys sales and service personnel are
compensated with a base salary plus an incentive bonus. The Company generally
utilizes referrals and its industry reputation to attract customers. It also
advertises on a limited basis in industry periodicals and through cooperative
advertising arrangements with its suppliers and customers. Prior to fiscal 1999, customers generally purchased the Companys goods
and services under 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 temporary manufacturer for the
customers 3




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Sales and Marketing (Continued) outsourced overflow needs towards longer-term cooperative manufacturing
projects, which usually include multi-year contracts. The Companys sales volume by fiscal quarter is subject to a limited
amount of seasonal fluctuation. Generally, Tufcos sales volume and operating
income are lowest in the first and second fiscal quarters and are generally
higher in the third and fourth fiscal quarters; however, the Company believes
that such seasonal fluctuations are diminishing as the Company shifts its
emphasis to longer-term manufacturing agreements. The Companys customer base consists of approximately 350 companies,
including large consumer products companies and dealers and distributors of
business imaging papers. Sales to such customers are made pursuant to project
specific purchase orders as well as contract service agreements with terms of
12 months to three years. Sales under such contract service agreements are
typically derived from customer directed purchase orders based on unit volume
projections supplied by the customers and demand generated by the customers
consumer base. As a result, there can be no assurance that sales to such
customers will continue in the future at current levels. Sales are generally
made on a credit basis within limits set by the Companys executive management.
The Company generally requires payment to be made within 30 days following
shipment of goods or completion of services. In fiscal 2003, products produced
under contracts with a Contract Manufacturing customer that is a Fortune 500
company accounted for more than 33% of consolidated sales. During fiscal 2003,
the Company announced that this customer had decided to take certain products
from the Company for manufacture at their own facility in 2004, leaving other
existing products under contract with the Company. Those products removed
accounted for approximately 20% of fiscal 2003 revenues. On December 4, 2003
the Company announced it had signed significant contracts with new and existing
customers for both printing and Contract Manufacturing. One of these
customers, a large consumer products company, accounted for approximately 41%
of total sales in fiscal 2004. See Managements Discussion and Analysis of
Financial Condition and Results of Operations  Liquidity and Capital
Resources, as included in Item 7 of this Report. Competition In order to continue growth based on an outstanding service reputation,
the Company has established and continues to provide customers with innovative,
full service solutions. The Company 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 offers key competitive advantages such as customized
Contract Manufacturing options all under one roof: dedicated customer service
and support personnel, outstanding product quality, speed to market,
uncompromised security and confidentiality, ISO 9001:2000 quality
certification, the addition of Six Sigma as a fiscal year 2005 quality
initiative, in-house microbiological management, technical expertise and lower
overall costs. Competitors for the Companys Contract Manufacturings products and
services vary based upon the products and services offered. In the Companys
Contract Manufacturing services, the Company believes that relatively few
competitors offer a wider range of services or can provide them from a single
source. With respect to the Companys specialty printing and converting
services and fine paper converting products, the competition consists primarily
of numerous small regional companies. Management believes that the Companys
capabilities in Contract Manufacturing and specialty printing give it the
flexibility, diversity, and capacity to compete effectively on a national basis
with large companies and locally with smaller regional companies. The Company
does not believe foreign competition is significant at this time in the
Contract Manufacturing and specialty printing lines. In the wet wipe market,
the Company has built a strong reputation with nationally recognized consumer
and industrial products market leaders. The Company strongly abides by
stringent security and confidentiality practices and provides turn-key
solutions to introduce new and innovative products that respond to consumer
demands for applications that are easy to use, disposable, convenient and cost
effective. The Company operates highly technical manufacturing processes to meet a
variety of customer needs. By virtue of being a customized contract
manufacturer, the Company continually engineers and proposes 4




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Competition (Continued) systems to customers and potential customers to solve their manufacturing needs
in new product rollouts. The Company offers full, value added services such as
on-site microbiology assessment and management, and wet
wipe, lotion and concentrate testing services and equipment that allow the
Company to maintain and assure high product integrity. In the products made at
Newton, North Carolina, raw materials are generally inexpensive and readily
available, and converting equipment is generally easily purchased. As a result,
competition for engineering and transaction papers customers is relatively very
strong, primarily from small regional suppliers and a few large national
companies. Historically, the Company has been subject to surges and declines in sales
due to the short-term nature of its converting projects with large integrated
paper products companies. Since the Company began emphasizing longer-term
contractual arrangements, management believes that it is now better able to
anticipate fluctuations in sales. However, customer volume needs in Contract
Manufacturing arrangements are ultimately controlled by the Companys
customers, and a certain amount of short-term fluctuation is expected. Product Development and Quality Control The Company works with its customers to develop new products and
applications. The Company believes that a key factor is its willingness and
distinctive technical competency to help customers experiment with a variety of
substrates to develop materials with different attributes such as strength,
flexibility, absorbency, breathability, moisture-resistance, and appearance. As
a result, the Company has been able to develop certain laminated substrates at
lower costs than if the customers developed these products themselves.
Customers may request certain physical tests during trial runs that are
performed by the Companys quality control personnel, often with the customer
on site. After completing the development process, the Company prices a new
product or service and designs an ongoing program that provides information to
the customer such as quality checks, inventory reports, materials data, and
production reports. In fiscal 2000, the Company achieved ISO certification for its Green Bay,
Wisconsin facility. ISO is the standard issued by the International
Organization of Standardization to promote the development of international
standards and facilitate the exchange of goods and services worldwide. In
fiscal 2001 the Green Bay, Wisconsin facility achieved certification to the
updated standard ISO 9001:2000. During fiscal 2004, the Green Bay plant
maintained its ISO quality certification through two third party surveillance
audits. Several of the Companys customers also perform periodic audits at the
Companys Green Bay, Wisconsin facility to ensure that adequate quality control
practices are in place at all times. Additionally in 2004, the Company began
to focus efforts on building its Six Sigma capabilities. Six Sigma is an
industry proven initiative for driving improvement in quality, service and cost
reduction. The Company maintains three quality control laboratories at its
Green Bay plant that are able to support both standard production and customer
trials. On-line testing, with Statistical Process Control (SPC) tracking,
allows rapid response in measuring the quality effectiveness of its production
processes. The Companys rigid standards and use of SPC have allowed it to
qualify for the Good Manufacturing Practices (GMP) designation from several
customers. The Company is not dependent on any particular supplier or group of
affiliated suppliers for raw materials or for equipment needs. In the Contract
Manufacturing sector the customer selects which supplier of equipment or raw
material the Company is to use. The Company believes that it has excellent
relationships with its primary suppliers, and the Company has not experienced
difficulties in obtaining raw materials during the last five years. The
Companys raw materials fall into five general groups: various paper stocks,
inks for specialty printing, nonwoven materials, polyethylene films and
packaging. There are numerous suppliers of all of these materials. To ensure
quality control and consistency of its raw material supply, the Newton, North
Carolina facility continues to receive fine paper stock primarily from five
major paper companies instead of a greater number of companies. The Companys primary raw materials, base paper and nonwovens materials,
are subject to periodic price fluctuations. In the past, the Company has been
generally successful in eventually passing most of the price increases on to
its customers, but management cannot guarantee that the Company will be able to
do this in the future. 5




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Environmental Matters The Company is subject to various federal, state, and local environmental
laws and regulations concerning emissions into the air, discharges into
waterways, and the generation, handling, and disposal of waste materials. These
laws and regulations are constantly evolving, and it is impossible to predict
accurately 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 complete compliance with all environmental regulations and is current on
all applicable permitting and reporting requirements with federal, state and
local jurisdictions. The Company has continuous air emissions monitoring
systems and effluent monitoring procedures regulated by the Environmental
Protection Agency/Department of Natural Resources and maintains a strong,
active relationship with the controlling agencies and a principle based
commitment to stewardship in the community. The Companys past expenditures relating to environmental compliance have
not had a material effect on the Company. Further growth in the Companys
production capacity with a resulting increase in discharges and emissions may
require additional capital expenditures for environmental control equipment in
the future. No assurance can be given that future changes to environmental laws
or their application will not have a material adverse effect on the Companys
business or results of operations. Each manufacturing line is unique and can generate various types of waste.
The Company takes into account all considerations for environmental impact on
all waste streams that occur. The Company follows a strict waste minimization
plan to reduce, recycle or eliminate waste from all of our manufacturing
processes. All processes are reviewed during initial start-up or annually to
make sure that the Company is in compliance with all applicable federal, state
and local laws and regulations. Employees At September 30, 2004, the Company had 348 employees, of whom 267 were
employed at its Green Bay, Wisconsin facility and 81 at its Newton, North
Carolina facility. The Company has a non-union workforce and believes that its
relationship with its employees is good. Working Capital Information regarding the Companys working capital position and practices
is set forth in Item 7 of this Report under the caption Liquidity and Capital
Resources. Financial information for the Contract Manufacturing services and the
Business Imaging paper products segment is set forth in Note 13 to the
Consolidated Financial Statements included in Item 8 of this Report, as
referenced to the Appendix to the Report. 
 ITEM 2  PROPERTIES The Companys main production and distribution facilities for Contract
Manufacturing and specialty printing are located in Green Bay, Wisconsin. The
243,800 square foot facility (of which approximately 20,700 square feet are
used for offices for the facility and the Companys corporate headquarters) was
built in stages from 1980 to 2000 and is owned by the Company. The Company has
approximately 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, and distribution operations. This facility is
leased from a partnership of which Samuel Bero, a director of the Company, is
one of several partners. The lease for this facility expires March 2008. The
Company has an option to renew this lease for an additional five years. 6




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ITEM 2  PROPERTIES (Continued) The Company also owns a 120,000 square foot facility in Newton, North
Carolina, used in the production and distribution of point of sale rolls,
transaction paper products, wide format rolls and in the printing of custom
forms and rolls. The Company believes that all of its facilities are in good condition and
suited for their present purpose. The Company believes that the property and
equipment currently used is sufficient for its current and anticipated
short-term needs, but that the expansion of the Companys business or the
offering of new services could require the Company to obtain additional
equipment or facilities. 
 ITEM 3  LEGAL PROCEEDINGS The Company is involved in various legal proceedings in the ordinary
course of its business, none of which are anticipated to have a material
adverse effect on the Companys financial condition or results of operations. 
 ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 
 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 per share, the Common Stock of Tufco has been traded on the
NASDAQ National Market under the trading symbol TFCO. The following table
sets forth the range of high and low closing prices for the Common Stock, as
reported on the NASDAQ National Market for the periods indicated: High
    
    Low
    
    CloseFiscal 2003:Quarter ended December 31, 2002
    
    $
    5.170
    
    
    $
    3.900
    
    
    $
    4.470Quarter ended March 31, 2003
    
    $
    6.990
    
    
    $
    4.120
    
    
    $
    6.330Quarter ended June 30, 2003
    
    $
    8.000
    
    
    $
    6.000
    
    
    $
    6.500Quarter ended September 30, 2003
    
    $
    6.900
    
    
    $
    5.150
    
    
    $
    6.440Fiscal 2004:Quarter ended December 31, 2003
    
    $
    7.200
    
    
    $
    5.500
    
    
    $
    7.050Quarter ended March 31, 2004
    
    $
    8.250
    
    
    $
    6.310
    
    
    $
    7.750Quarter ended June 30, 2004
    
    $
    8.650
    
    
    $
    6.750
    
    
    $
    8.200Quarter ended September 30, 2004
    
    $
    8.500
    
    
    $
    6.900
    
    
    $
    7.890
 As of December 15, 2004, there were approximately 102 holders of record of
the Common Stock. On December 15, 2004, the last reported sale price of the
Common Stock as reported on the NASDAQ National Market was $7.00 per share. The Company has never paid dividends on its Common Stock. The Companys
revolving credit agreement contains certain restrictive covenants, including
requirements to maintain certain levels of cash flow and restriction on the
payment of dividends. The Company does not intend to pay any cash dividends in
the foreseeable future. 7




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ITEM 6  SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share
data) Years Ended September 30,2004
    
    2003
    
    2002
    
    2001
    
    2000Statement of Operations Data:Net sales
    
    $
    77,854
    
    
    $
    55,207
    
    
    $
    50,434
    
    
    $
    60,071
    
    
    $
    59,570Cost of sales
    
    
    70,164
    
    
    
    47,465
    
    
    
    43,981
    
    
    
    51,515
    
    
    
    49,409Gross profit
    
    
    7,690
    
    
    
    7,742
    
    
    
    6,453
    
    
    
    8,502
    
    
    
    10,161Selling, general and administrative
expenses
    
    
    4,998
    
    
    
    4,885
    
    
    
    3,962
    
    
    
    3,811
    
    
    
    3,694Amortization of goodwill (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    381
    
    
    
    381Facility restructuring cost
    
    
    
    
    
    
    
    
    
    
    233
    
    
    
    
    
    
    
    Facility closing cost
    
    
    
    
    
    
    
    
    
    
    435
    
    
    
    
    
    
    
    831Employee severance cost
    
    
    
    
    
    
    333
    
    
    
    209
    
    
    
    10
    
    
    
    660Asset write-downs
    
    
    
    
    
    
    
    
    
    
    548
    
    
    
    
    
    
    
    74Loss (gain) on asset sales
    
    
    3
    
    
    
    109
    
    
    
    (10
    )
    
    
    (147
    )
    
    
    (327
    )Operating income
    
    
    2,689
    
    
    
    2,415
    
    
    
    1,076
    
    
    
    4,447
    
    
    
    4,847Interest expense
    
    
    (48
    )
    
    
    (202
    )
    
    
    (461
    )
    
    
    (960
    )
    
    
    (974
    )Interest income and other income (expense)
    
    
    (3
    )
    
    
    (49
    )
    
    
    24
    
    
    
    277
    
    
    
    35Income from continuing operations before
income taxes
    
    
    2,638
    
    
    
    2,164
    
    
    
    639
    
    
    
    3,764
    
    
    
    3,908Income tax expense
    
    
    1,076
    
    
    
    916
    
    
    
    281
    
    
    
    1,514
    
    
    
    1,762Income from continuing operations
    
    
    1,562
    
    
    
    1,248
    
    
    
    358
    
    
    
    2,250
    
    
    
    2,146Gain (loss) from discontinued operationsLoss from operations of discontinued segment,
net of tax
    
    
    
    
    
    
    (225
    )
    
    
    (1,111
    )
    
    
    (825
    )
    
    
    (1,619
    )Gain (loss) from sale of discontinued operations,
net of tax
    
    
    400
    
    
    
    (244
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before accounting change
    
    
    1,962
    
    
    
    779
    
    
    
    (753
    )
    
    
    1,425
    
    
    
    527Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    (4,652
    )
    
    
    
    
    
    
    Net income (loss)
    
    $
    1,962
    
    
    $
    779
    
    
    $
    (5,405
    )
    
    $
    1,425
    
    
    $
    527Basic Earnings (Loss) Per Share:Income from continuing operations
    
    $
    0.34
    
    
    $
    0.27
    
    
    $
    0.08
    
    
    $
    0.49
    
    
    $
    0.48Loss from operations of discontinued segment
    
    
    
    
    
    
    (0.05
    )
    
    
    (0.24
    )
    
    
    (0.18
    )
    
    
    (0.36
    )Gain (loss) from sale of discontinued operations
    
    
    0.09
    
    
    
    (0.05
    )
    
    
    
    
    
    
    
    
    
    
    Income before accounting change
    
    $
    0.43
    
    
    
    0.17
    
    
    
    (0.16
    )
    
    
    0.31
    
    
    
    0.12Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    (1.01
    )
    
    
    
    
    
    
    Net income (loss)
    
    $
    0.43
    
    
    $
    0.17
    
    
    $
    (1.17
    )
    
    $
    0.31
    
    
    $
    0.12Diluted Earnings (Loss) Per Share:Income from continuing operations
    
    $
    0.34
    
    
    $
    0.27
    
    
    $
    0.08
    
    
    $
    0.48
    
    
    $
    0.46Loss from operations of discontinued segment
    
    
    
    
    
    
    (0.05
    )
    
    
    (0.24
    )
    
    
    (0.18
    )
    
    
    (0.35
    )Gain (loss) from sale of discontinued operations
    
    
    0.09
    
    
    
    (0.05
    )
    
    
    
    
    
    
    
    
    
    
    Income before accounting change
    
    $
    0.43
    
    
    
    0.17
    
    
    
    (0.16
    )
    
    
    0.31
    
    
    
    0.11Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    (1.01
    )
    
    
    
    
    
    
    Net income (loss)
    
    $
    0.43
    
    
    $
    0.17
    
    
    $
    (1.17
    )
    
    $
    0.31
    
    
    $
    0.11Weighted average common shares outstanding:Basic
    
    
    4,582
    
    
    
    4,616
    
    
    
    4,628
    
    
    
    4,614
    
    
    
    4,499Diluted
    
    
    4,608
    
    
    
    4,626
    
    
    
    4,631
    
    
    
    4,642
    
    
    
    4,622Other Data:Depreciation and amortization (3)
    
    
    2,401
    
    
    $
    2,812
    
    
    $
    2,928
    
    
    $
    3,301
    
    
    $
    3,125Capital expenditures
    
    
    4,374
    
    
    $
    2,373
    
    
    $
    1,099
    
    
    $
    1,037
    
    
    $
    6,705Balance Sheet Data (at September 30):Working capital
    
    
    14,422
    
    
    $
    12,035
    
    
    $
    11,303
    
    
    $
    6,692
    
    
    $
    11,952Total assets
    
    
    46,983
    
    
    
    38,026
    
    
    
    47,167
    
    
    
    58,944
    
    
    
    62,133Total  current and long-term debt
    
    
    2,500
    
    
    
    750
    
    
    
    6,157
    
    
    
    12,460
    
    
    
    13,107Stockholders equity
    
    
    35,449
    
    
    
    33,487
    
    
    
    32,808
    
    
    
    38,054
    
    
    
    36,579
 (Footnotes 1-3 on next page) 8




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##### Table of Contents



ITEM 6  SELECTED CONSOLIDATED FINANCIAL DATA (Continued)  (1)
    
    Financial data for fiscal 2000 through 2004 reflects the sale of the
Paint Sundries segment on March 31, 2003, effective for
financial purposes as of February 28, 2003. See Footnote 14  Discontinued
Operations to the Companys
Consolidated Financial Statements attached as an Appendix to this Report.(2)
    
    Amortization of goodwill was not recorded for fiscal 2004, 2003, and
2002 as the result of implementation of Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets in which the Company no longer records goodwill amortization
expense. Goodwill amortization expense was $0.4 million in fiscal 2001
and 2000. Had goodwill not been amortized for the years ended September
30, 2001, and 2000, basic and diluted earnings per share would have been
$0.05 higher for each year.(3)
    
    Includes depreciation and amortization of goodwill and other assets. 
 ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS Forward Looking Statements Managements discussion and analysis of financial condition and results of
operations, including managements discussion of the Companys 2004 fiscal year
in comparison to fiscal 2003 contains forward-looking statements regarding
current expectations, risks and uncertainties for fiscal 2005 and beyond. The
actual results could differ materially from those discussed here. As well as
those factors discussed in the section entitled Business in this Report,
other factors that could cause or contribute to such differences include, among
other items, the general economic and business conditions affecting the
Contract Manufacturing, specialty printing services, imaging paper products,
significant changes in the cost of base paper stock, competition in the
Companys product areas, or an inability of management to successfully reduce
operating expenses in relation to net sales without damaging the long-term
direction of the Company. Therefore, the selected financial data for the
periods presented may not be indicative of the Companys future financial
condition or results of operations. 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
business strategy is to continue to place our wipes converting at the leading
edge of existing and emerging wipes growth opportunities. The Company works closely with its Contract Manufacturing clients to
develop products or perform services, which meet or exceed the customers
quality standards, and then uses the Companys operating efficiencies and
technical expertise to supplement or replace its customers own production and
distribution functions. The Companys technical proficiencies include wide web flexographic
printing, wet and dry wipe converting, hot melt adhesive lamination, folding
and integrated downstream packaging. Results of Operations The following discussion relates to the financial statements of the
Company for the fiscal year ended September 30, 2004 (current year or fiscal
2004), in comparison to the fiscal year ended September 30, 2003 (prior
year or fiscal 2003), as well as the fiscal year ended September 30, 2002
(fiscal 2002). 9




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##### Table of Contents



Results of Operations (continued) The following table sets forth, for the fiscal years ended September 30,
(i) the percentage relationship of certain items from the Companys statements
of operations to net sales, and (ii) the year-to-year changes in these items: Percentage of Net Sales
    
    Year-to-Year Change2004
    
    2003
    
    2002
    
    2004 to 2003
    
    2003 to 2002Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    41
    %
    
    
    10
    %Cost of sales
    
    
    90.1
    
    
    
    86.0
    
    
    
    87.2
    
    
    
    48
    
    
    
    8Gross profit
    
    
    9.9
    
    
    
    14.0
    
    
    
    12.8
    
    
    
    -1
    
    
    
    20Selling, general and administrative
expenses
    
    
    6.4
    
    
    
    8.8
    
    
    
    7.9
    
    
    
    2
    
    
    
    23Facility restructuring cost
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.5
    
    
    
    
    
    
    
    -100Facility closing cost
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.9
    
    
    
    
    
    
    
    -100Employee severance cost
    
    
    0.0
    
    
    
    0.6
    
    
    
    0.4
    
    
    
    -100
    
    
    
    59Asset write-downs
    
    
    0.0
    
    
    
    0.0
    
    
    
    1.1
    
    
    
    
    
    
    
    -100Loss (gain) on asset sales
    
    
    0.0
    
    
    
    0.2
    
    
    
    0.0
    
    
    
    -97
    
    
    
    -1,244Operating income
    
    
    3.5
    
    
    
    4.4
    
    
    
    2.1
    
    
    
    11
    
    
    
    124Interest expense
    
    
    -0.1
    
    
    
    -0.4
    
    
    
    -1.0
    
    
    
    -76
    
    
    
    -56Interest income and other income (expense)
    
    
    0.0
    
    
    
    -0.1
    
    
    
    0.1
    
    
    
    -94
    
    
    
    -304Income from continuing operations before
income taxes and accounting change
    
    
    3.4
    
    
    
    3.9
    
    
    
    1.3
    
    
    
    22
    
    
    
    238Income tax expense (benefit)
    
    
    1.4
    
    
    
    1.7
    
    
    
    0.6
    
    
    
    17
    
    
    
    225Income from continuing operations
    
    
    2.0
    
    
    
    2.2
    
    
    
    0.7
    
    
    
    25
    
    
    
    248Gain (loss) from discontinued operations
    
    
    0.5
    
    
    
    0.8
    
    
    
    2.2
    
    
    
    -185
    
    
    
    -58Income (loss) before accounting change
    
    
    2.5
    
    
    
    1.4
    
    
    
    -1.5
    
    
    
    152
    
    
    
    -203Cumulative effective of accounting change
    
    
    0.0
    
    
    
    0.0
    
    
    
    -9.2
    
    
    
    
    
    
    
    -100Net income (loss)
    
    
    2.5
    %
    
    
    1.4
    %
    
    
    -10.7
    %
    
    
    152
    %
    
    
    -114
    %
 The components of net sales and gross profit are summarized in the table below: 2004
    
    2003
    
    2002% of
    
    
    
    
    
    % of
    
    
    
    
    
    % ofNet Sales
    
    Amount
    
    Total
    
    Amount
    
    Total
    
    Amount
    
    Total(Dollars in millions)Contract manufacturing and printing
    
    $
    53.7
    
    
    
    69
    %
    
    $
    30.0
    
    
    
    54
    %
    
    $
    27.8
    
    
    
    54
    %Business imaging paper products
    
    
    24.2
    
    
    
    31
    %
    
    
    25.3
    
    
    
    46
    %
    
    
    23.2
    
    
    
    46
    %Net sales
    
    $
    77.9
    
    
    
    100
    %
    
    $
    55.3
    
    
    
    100
    %
    
    $
    51.0
    
    
    
    100
    %
 Margin
    
    
    
    
    
    Margin
    
    
    
    
    
    MarginGross Profit
    
    Amount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %Contract manufacturing and printing
    
    $
    5.1
    
    
    
    9
    %
    
    $
    5.0
    
    
    
    17
    %
    
    $
    4.7
    
    
    
    17
    %Business imaging paper products
    
    
    2.6
    
    
    
    11
    %
    
    
    3.0
    
    
    
    11
    %
    
    
    1.9
    
    
    
    8
    %Gross profit
    
    $
    7.7
    
    
    
    10
    %
    
    $
    8.0
    
    
    
    14
    %
    
    $
    6.6
    
    
    
    13
    %
 10




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##### Table of Contents



Fiscal Year Ended September 30, 2004 Compared to September 30, 2003 Net Salesfor fiscal 2004 increased $22.6 million due primarily to a $23.7
million (79%) increase in the Contract Manufacturing segment offset by a $1.1
million (4.3%) decrease in the Business Imaging paper products segment. The
increase in Contract Manufacturing related primarily to the start-up of new
contracts in the wet and dry converting markets. Several new production lines
were brought on line during the year as well as the wet wipe folding line, which
was utilized in production for the entire year. The Contract Manufacturing
segment purchases materials for some of its customers and in other situations
has materials supplied by customers. In 2004, purchases of materials
increased $20.8 million, which increase was passed through to customers,
generating additional sales revenue. The Business Imaging segment sales decrease resulted from the loss of
several large retail customers and declining sales to several of its Hamco
brand distributorships. Sales of wide format and data processing products also
declined during the year. This segment continues to experience strong
competition from numerous suppliers in point of sale and wide format goods
creating negative impacts on sales volume. Gross profitdecreased $0.1 million (0.7%) and gross profit percentage
decreased to 9.9% from 14.0% in 2003. The margin in the Contract Manufacturing
segment decreased to 9% in 2004 compared to 17% in 2003 on a gross profit
increase of $0.1 million. The Contract Manufacturing segment purchases
materials for some of its customers and in other situations has materials
supplied by customers. In 2004, purchases of materials increased $20.8
million, which increase was passed through to customers, generating additional sales
revenue. These additional material purchases were the major factor in the
margin percentage decline of 8%. The gross profit increase in Contract
Manufacturing was primarily due to the increase in net sales offset by higher
costs associated with the start-up of new projects. The Business Imaging
segment experienced a decrease of $0.4 million in gross profit and a slight
decrease in margin to 10.7% from 11% in 2003. This decrease is primarily
related to increased raw material costs and increasing price competition from
numerous suppliers in the segments major product lines. Selling, general and administrative expensesincreased $0.1 million in
2004 from 2003. Reductions in salaries and benefits of $378,000, resulting
primarily from the move of Corporate Services from Dallas, TX to Green Bay, WI,
and depreciation of $327,000 were offset by increases in legal and audit fees
of $159,000, bad debt expense of $294,000 and selling expenses of $212,000. Amortization of goodwillwas not recorded for fiscal 2004, 2003 or 2002 as
the result of implementation of Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets in which the Company no
longer records goodwill amortization expense. Severance expenseof $0.3 million in 2003 relates primarily to severance
paid to employees at the Dallas corporate services and IT location. Those
services were moved to Green Bay during 2003. There was no severance expense
for 2004. Loss (gain) on asset saleswas not material in 2004 and was a loss of $0.1
million in 2003 due to the Company selling various pieces of equipment which
were no longer used in the manufacturing process at amounts less than book
value. In 2004, the Company reached an agreement to sell its LA-2 thermal
laminating asset, with an expected gain of $0.4 million. The sale was
completed in November. Interest expensedecreased $0.2 million in fiscal 2004 as a result of
lower average debt outstanding. Effective with the sale of the Paint Sundries
segment, during the second quarter of fiscal 2003, the Company repaid
approximately $5.4 million of outstanding debt on which interest was being
paid. Income taxesincreased $0.2 million as a result of increased profits. The
effective tax rate was 41% in 2004 compared to 42% in 2003. The decreased rate
results from the mix of tax rates from the various state jurisdictions in which
the Company operates. 11




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##### Table of Contents



Fiscal Year Ended September 30, 2004 Compared to September 30, 2003 (Continued) Loss from operations of discontinued segmentnet of tax was zero for 2004
and $0.2 million for 2003. During the second quarter of fiscal 2003, the
Company sold the Paint Sundries segment. The loss from discontinued operations
reflects the short period results for fiscal 2003. Gain (loss) from sale of discontinued operationsnet of tax was a gain of
$0.4 million in 2004 and a loss of $0.2 million in 2003. In the fourth quarter
of 2004, the Company changed its estimate of income taxes payable in
relationship to its sale of the Paint Sundries segment in 2003. That change
was recorded in the fourth quarter of 2004 when the tax return was filed. In
2003, the Company recorded a $0.4 million loss ($0.2 million after tax) on the
sale of the Paint Sundries segment, which included a $0.1 million gain on the
sale of assets offset by $0.5 million of fees and expenses associated with the
sale. Basic and diluted net earnings per sharewere $0.43 for 2004 compared to
$0.17 for 2003. Fiscal Year Ended September 30, 2003 Compared to September 30, 2002 Net salesfor fiscal 2003 increased $4.8 million due primarily to a $2.2
million (7.9%) increase in the Contract Manufacturing segment and a $2.1
million (9.1%) increase in the Business Imaging paper products segment. The
increase in Contract Manufacturing related primarily to increases in printing
as the new flexographic press started commercial production midway through the
year and also increases in contract manufacturing from new contracts brought on
line during the year as the wet wipe folding line began commercial production
during the third quarter. The Contract Manufacturing segment purchases
materials for some of its customers and in other situations has materials
supplied by customers. In 2003, purchases of materials increased $1.5 million
and this was passed through to customers, generating additional sales revenue. The Business Imaging segment sales increase resulted primarily from an
increase in point of sale rolls to a major discount retail customer and through
its network of distributors. This segment continues to experience strong
competition from numerous suppliers creating negative impacts on sales volume
in the engineering and data processing products manufactured in this segment.
The segment manufactured and sold engineering paper from its Newton facility,
following the close of its Dallas operation at the end of fiscal year 2002. Gross profitincreased $1.3 million (20.0%) and gross profit percentage
increased to 14.0% from 12.8% in 2002. The gross profit percentage in the
Contract Manufacturing segment remained at 17% compared to 2002 on a gross
profit increase of $0.3 million. The Business Imaging segment increased gross
profit by $1.1 million and increased gross profit percentage to 11% from 8% in
2002. This increase is primarily related to reduced overhead following the
closure of the Dallas, Texas manufacturing operations at the end of fiscal 2002
and moving that production to the Newton facility. Selling, general and administrative expensesincreased $0.9 million in
2003 compared to 2002. This increase was primarily due to increases in legal
and other fees, costs relating to the relocation of corporate services and IT
from Dallas, Texas to Green Bay, Wisconsin (exclusive of severance costs),
increases in the number of sales personnel, sales and administrative bonuses
paid in 2003 which were not paid for in 2002 and increased health care costs. Amortization of goodwillwas not recorded for fiscal 2003 or 2002 as the
result of implementation of Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets in which the Company no longer
records goodwill amortization expense. Facility restructuring costsof $0.2 million for fiscal 2002 was recorded
following the Companys decision to exit the contract sheeting market in March
2002. These costs are mostly related to building lease abandonment. There were
no facility restructuring costs in 2003. Facility closing expenseof $0.4 million for fiscal 2002 was recorded as a
result of a strategic decision to close the Dallas, Texas manufacturing and
distribution facility in September 2002 to control costs in order to
remain competitive with the Companys engineering paper products by moving the
decreased production to its Newton, North Carolina facility. Certain assets
used to produce Paint Sundries products were moved to the 12




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##### Table of Contents



Fiscal Year Ended September 30, 2003 Compared to September 30, 2002 (Continued) Companys Manning, South Carolina facility. This expense mostly includes costs
to move equipment and inventory, employee severances, building and equipment
lease abandonment. There was no facility closing expense for 2003. Severance expenseof $0.3 million in 2003 relates primarily to severance
paid to employees at the Dallas corporate services and IT location. Those
services were moved to Green Bay during 2003. Severance
expense of $0.2 million for 2002 relates primarily to payments made by the
Company to a former executive pursuant to an employee agreement with such
former executive. Asset write-downsof $0.5 million in 2002 includes $0.2 million for an
adjustment related to misappropriation of inventory by former employees of a
supplier in Mexico to which the Paint Sundries segment outsourced production.
Property write-downs of $0.3 million are related to the restructuring and
eventual closing of the Dallas, Texas facility mentioned and includes
adjustments to leasehold improvements and production equipment. There were no
asset write-downs for 2003. Loss (gain) on asset saleswas a loss of $0.1 million in 2003 due to the
Company selling various pieces of equipment, which were no longer used in the
manufacturing process, at amounts less than book value. Interest expensedecreased $0.3 million to $0.2 million in fiscal 2003 due
to decreased borrowings. Effective with the sale of the Paint Sundries segment
sale, the Company repaid approximately $5.4 million of outstanding debt on
which interest was being paid. Income taxesincreased $0.6 million as a result of increased profits. The
effective tax rate was 42% in 2003 compared to 44% in 2002. The decreased rate
results from the impact of certain non-deductible expenses, as well as the mix
of tax rates from the various jurisdictions in which the Company operates. Loss from discontinued operations,net of tax was $0.2 for 2003 and $1.1
million for 2002. During the second quarter of fiscal 2003, the Company sold
the Paint Sundries segment. The loss from discontinued operations reflects the
short period results for fiscal 2003. Basic and diluted net earnings per sharewere $0.17 for 2003 compared to a
net loss of $1.17 for 2002. Selected Quarterly Financial Data The following table sets forth selected quarterly financial information.
This information is derived from unaudited consolidated financial statements of
the Company and includes, in the opinion of management, all normal and
recurring adjustments that management considers necessary for a fair statement
of results for such periods. The operating results for any quarter are not
necessarily indicative of results for any future period. 13




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##### Table of Contents



Selected Quarterly Financial Data (Continued) Fiscal 2004(Dollars in thousands, except per share amounts) First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterNet sales
    
    $
    13,046
    
    
    $
    20,199
    
    
    $
    20,262
    
    
    $
    24,348Gross profit
    
    
    1,574
    
    
    
    1,866
    
    
    
    1,798
    
    
    
    2,452Operating expenses
    
    
    1,122
    
    
    
    1,297
    
    
    
    1,209
    
    
    
    1,373Operating income
    
    
    452
    
    
    
    569
    
    
    
    589
    
    
    
    1,079Income before income taxes
    
    
    437
    
    
    
    563
    
    
    
    566
    
    
    
    1,072Income tax expense
    
    
    184
    
    
    
    241
    
    
    
    243
    
    
    
    407Income from continuing operations
    
    
    252
    
    
    
    322
    
    
    
    323
    
    
    
    665Gain from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400Net income
    
    
    252
    
    
    
    322
    
    
    
    323
    
    
    
    1,065Income from continuing operations per share:Basic
    
    
    0.05
    
    
    
    0.07
    
    
    
    0.07
    
    
    
    0.15Diluted
    
    
    0.05
    
    
    
    0.07
    
    
    
    0.07
    
    
    
    0.14Net income per share:Basic
    
    
    0.05
    
    
    
    0.07
    
    
    
    0.07
    
    
    
    0.24Diluted
    
    
    0.05
    
    
    
    0.07
    
    
    
    0.07
    
    
    
    0.23
 Fiscal 2003(Dollars in thousands, except per share amounts)(1) First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterNet sales
    
    $
    12,529
    
    
    $
    12,794
    
    
    $
    14,272
    
    
    $
    15,612Gross profit
    
    
    1,489
    
    
    
    1,552
    
    
    
    2,353
    
    
    
    2,348Operating expenses
    
    
    1,078
    
    
    
    1,249
    
    
    
    1,581
    
    
    
    1,419Operating income
    
    
    411
    
    
    
    303
    
    
    
    772
    
    
    
    929Income from continuing operations before
income taxes
    
    
    317
    
    
    
    227
    
    
    
    737
    
    
    
    883Income tax expense
    
    
    134
    
    
    
    91
    
    
    
    309
    
    
    
    382Income from continuing operations
    
    
    183
    
    
    
    136
    
    
    
    428
    
    
    
    501Loss from discontinued operations
    
    
    (16
    )
    
    
    (391
    )
    
    
    (58
    )
    
    
    (4
    )Net income (loss)
    
    
    167
    
    
    
    (255
    )
    
    
    370
    
    
    
    497Income from continuing operations per share:Basic
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.09
    
    
    
    0.11Diluted
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.09
    
    
    
    0.11Net income (loss) per share:Basic
    
    
    0.04
    
    
    
    (0.06
    )
    
    
    0.08
    
    
    
    0.11Diluted
    
    
    0.04
    
    
    
    (0.06
    )
    
    
    0.08
    
    
    
    0.11
 In the fourth quarter of fiscal 2004, sales increased $8.7 million or 56%
as compared to fourth quarter of fiscal 2003. The Contract Manufacturing
segment sales were up $9.9 million or 121% in fourth quarter fiscal 2004 when
compared to the same period last year as a result of increased product demand
from a major customer for which the Company manufactures and packages a variety
of consumer products. This increase in Contract Manufacturing in 2004 relates
primarily to the start-up of new contracts in the wet and dry converting
markets. Several new production lines were brought on line during the year as
well as the wet wipe folding line and the second press, both of which were
utilized in production for the entire year. The Contract Manufacturing
segment purchases materials for some of its customers and in other situations has materials supplied by customers. For fourth quarter fiscal 2004,
Business Imaging segment sales were down $1.3 million (18%) compared to the
same quarter of fiscal year 2003 due to the loss of several large retail
customers, declining sales to several Hamco brand distributorships and lower
sales of wide format rolls. For the fourth quarter of 2003, results included
$0.2 million for severance costs, primarily relating to the transfer of
corporate services and IT services, from Dallas, Texas. During the second
quarter of fiscal 2003, the Company sold the assets and business of its Paint
Sundries segment (See note 1 below) and incurred a loss of $0.2 million (net of
tax) from that sale. 14




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##### Table of Contents



Selected Quarterly Financial Data (Continued) (1) Reflects the sale of the Paint Sundries segment on March 31, 2003,
effective for financial purposes as of February 28, 2003. See Footnote 14 
Discontinued Operations to the Companys Consolidated Financial Statements
attached as an Appendix to this Report. Liquidity and Capital Resources Cash flow used in or provided by continuing operations was ($0.7) million
for fiscal 2004, ($0.5) million in 2003 and $6.6 million in 2002. Accounts
Receivable increased $4.3 million in 2004 resulting from increased revenues
compared to 2003. Accounts Payable increased $4.1 million in 2004, compared to
2003, primarily due to materials purchased for new customer projects. This
increase reflects a trend of more customers requesting that the Company
purchase materials rather than supplying them. Cash used in investing activities was $4.3 million in 2004 as the Company
completed its $3.6 million capital equipment expansion program announced by the
Company on December 4, 2003. In addition, Contract Manufacturing spent
approximately $0.4 million on capital expenditures for various equipment
upgrades. In Business Imaging, the amount spent on capital expenditures was $0.3 million. Cash used in investing activities for 2003 was
$2.2 million as the Company completed the purchase and start-up of its wet
wipes converting line. Cash provided by financing activities was $1.7 million in 2004 as a result
of the Company borrowing from its revolving credit line to fund a portion of
its increased working capital needs. Cash used in financing activities was
$5.5 million in 2003 resulting primarily from repayments of outstanding
indebtedness. In 2003, the Company repaid all of its outstanding term loan
debt and cancelled that portion of its credit facility. In March 2003, the
Companys Board of Directors approved the purchase by the Company of up to
100,000 of its shares of common stock after concluding that the cash 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, the Company purchased 45,500 shares of its common stock on
the open market for an aggregate of $0.3 million pursuant to the purchase plan. The Companys primary need for capital resources is to finance
inventories, accounts receivable, capital expenditures, and acquisitions. At
September 30, 2004, cash recorded on the balance sheet was $7,692. The Contract Manufacturing segments sales are made pursuant to
project-specific purchase orders as well as contract service agreements with
terms of 12 months to three years. Sales under such contract service
agreements are typically derived from customer directed purchase orders based
on unit volume projections supplied by the customers and demand generated by
the customers consumer bases. During fiscal 2003, the Company was informed by
a customer, which accounted for more than 33% of consolidated sales during
fiscal 2003, that at the end of the contract term (December 31, 2003), the
customer had decided to stop ordering certain products from the Company and
would manufacture those products at its own facility. Those products accounted
for approximately 20% of fiscal 2003 revenues. Subsequently, the Company
announced it had signed significant contracts with new and existing customers
for both printing and contract manufacturing which have more than replaced the
lost contracts as evident in year-to-date performance. One of these customers,
a large consumer products company, accounted for 41% of total sales in fiscal
2004, which more than offset the loss of the contract described above.
However, because the Companys contract revenue agreements described above
generally do not have minimum purchase requirements, there can be no assurances
that the revenues attributable to the new contracts will be without normal
business fluctuations. To satisfy the manufacturing requirements of the new contracts discussed
above, the Company undertook a capital equipment expansion program aggregating
approximately $3.6 million for fiscal 2004. Included in that expansion program
was doubling the capacity for wet wipes production, a new flat pack folder, and
a rebuild of an existing quarter folder. The Company funded such amounts by
cash generated from the sale of the Paint Sundries segment, cash from
operations and bank borrowings. 15




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##### Table of Contents



Liquidity and Capital Resources (Continued) On March 31, 2003, the Company sold its Paint Sundries segment for
approximately $12.2 million in cash to Trimaco, LLC and its affiliate. The
sale included all Paint Sundries segment assets, including the stock of
Foremost, Inc. and the Companys Manning, South Carolina facility. The
effective date for the closing of the
sale of the Paint Sundries segment for financial purposes was February 28,
2003, with the purchasers being entitled to the revenues attributable to the
Paint Sundries segment from and after February 28, 2003, and being obligated to
reimburse the Company for the expenses incurred and liabilities satisfied by
the Company in connection with the operation of the Paint Sundries segment from
and after February 28, 2003. The net proceeds from this sale were used to
repay outstanding indebtedness consisting of term and revolving loans in the
aggregate of $7.9 million outstanding under the Companys Amended and Restated
Credit Agreement, dated as of August 15, 2002, with JP Morgan Chase Bank (the
Prior Credit Facility), and for general corporate purposes. On June 1, 2004, the Prior Credit Facility expired. In
May 2004, the Company replaced this credit facility with a new unsecured, $10
million facility comprised of three bank lenders (the Credit Facility). The
Credit Facility expires in May, 2007. As of September 30, 2004, the Company had approximately $7.5 million
available under its revolving credit line under the Credit Facility. According
to the terms of its Credit Facility, the Company is required to maintain
certain financial and operational covenants. As of September 30, 2004, the
Company was in compliance with all of its debt covenants under the Credit
Facility. On December 15, 2004, the Company had approximately $9.25 million
available under its revolving credit line. Management believes its operating cash flow, together with amounts
available under its Credit Facility, are adequate to service the Companys
long-term obligations as of September 30, 2004 and any budgeted capital
expenditures. On May 6, 2004, the Company redeemed $0.75 million of outstanding
Industrial Development Revenue Bonds with the Village of Ashwaubenon. These
bonds paid variable rates of interest, which was 1.35% at September 2003. During fiscal 2003, the Company entered into a lease to own and operate an
eight color flexographic printing press. The lease is structured as an
operating lease over 7 years with payments totaling approximately $0.5 million
annually. The Company has the right to purchase the asset at varying points
during the lease. The Company intends to retain earnings to finance future operations and
expansion and does not expect to pay any dividends within the foreseeable
future. In addition, pursuant to the Credit Facility, the Companys primary
lenders must approve the payment of any dividends over $2.0 million. 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 2004 and 2003, the impact of inflation was
minimal on the Companys inventory and net income. Management believes that the
Company is generally successful in eventually passing these fluctuations in raw
material prices to its customers through increases or decreases in the selling
price of the Companys products, although the timing of selling price increases
may lag behind cost increases. Prior to these periods, the impact of inflation
has been minimal 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 Regulation S-K). 16




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##### Table of Contents



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 PeriodLess
    
    
    
    
    
    
    
    
    
    MoreThan 1
    
    2-3
    
    4-5
    
    ThanTotal
    
    Year
    
    Years
    
    Years
    
    5 YearsLong Term Debt (1)
    
    
    2,500,000
    
    
    
    
    
    
    
    2,500,000
    
    
    
    
    
    
    
    Capital Lease Obligations and Other
Long Term Liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases
    
    
    6,166,276
    
    
    
    1,276,127
    
    
    
    2,361,027
    
    
    
    1,993,515
    
    
    
    535,607Unconditional Purchase Obligations (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Cash Obligations
    
    
    8,666,276
    
    
    
    1,276,127
    
    
    
    4,861,027
    
    
    
    1,993,915
    
    
    
    535,607
   (1)
    
    Based on the rates and the current amount of debt outstanding at September
30, 2004, cash payments for interest on long-term debt would be
approximately $102,150 for 2005 and 2006 and $68,100 for 2007.(2)
    
    The Company had no unconditional purchase obligations at September 30, 2004. Critical Accounting Policies Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. The
reported financial results and disclosures were determined using significant
accounting policies, practices and estimates as described below. We believe the
reported financial disclosures are reliable and present fairly, in all material
respects, the financial position and results of operations for the Company. Financial statement preparation requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of 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 are
recognized in the period they become known. Revenue Recognition- The Company recognizes revenue when title and risk of
loss transfers to the customer and there is evidence of an agreement and
collectibility of consideration to be received is reasonably assured, all of
which generally occur at the time of shipment. Sales are recorded net of sales
returns and allowances. Shipping and handling fees billed to customers are
recorded as revenue and costs incurred for shipping and handling are recorded
in cost of sales. Amounts related to raw materials provided by customers are
excluded from revenue and cost of sales. Accounts Receivable- Management estimates allowances for collectibility
related to its accounts receivable balances. These allowances are based on the
customer relationships, the aging and turns of accounts receivable, credit
worthiness of customers, credit concentrations and payment history. Although
management monitors collections and credit worthiness, the inability of a
particular customer to pay its debts could impact collectibility of receivables
and could have an impact on future revenues if the customer is unable to
arrange other financing. Management does not believe these conditions are
reasonably likely to have a material impact on the collectibility of its
receivables or future revenues. 17




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##### Table of Contents



Critical Accounting Policies (Continued) 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 estimated reserves for future credits.
Management estimates the allowance for doubtful accounts by analyzing accounts
receivable balances by age, applying historical trend rates to the most recent
12 months sales, less actual write-offs to date. Managements estimates
include providing for 100 percent of specific customer balances when it is
deemed probable that the balance is uncollectible. Actual results could differ
from these estimates under different assumptions. Inventories- Inventories are carried at the lower of cost or market, with
cost determined under the first-in, first-out (FIFO) method of inventory
valuation. The Company estimates reserves for inventory obsolescence and
shrinkage based on its judgment of future realization. A large portion of the
Companys inventory is saleable to multiple customers and a portion of the
inventory is manufactured to specifications provided by original equipment
manufacturers and is not subject to rapid technological change. Management does not believe changes are reasonably likely to have a
material impact on the valuation of its inventories. Goodwill- Goodwill represents the excess of cost over fair value of net
assets acquired in business combinations. In order to calculate goodwill,
management applies judgment in determining the reporting units, which represent
distinct parts of the business. The annual goodwill impairment analysis
involves estimating the fair value of a reporting unit and comparing it with
its 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 value of the reporting unit requires significant
estimates and long-term assumptions. Any changes in key assumptions about the
business and its prospects, or any changes in market conditions, interest rates
or other externalities, could result in an impairment charge. Goodwill represents the excess of cost over fair value of net assets
acquired in business combinations. Prior to October 1, 2001, the Company
amortized goodwill on a straight-line basis over 25 to 40 years. Management
has continued to review the carrying values of goodwill for recoverability
based on fair market value estimated using estimated future cash flows and
prices of comparable companies. In accordance with SFAS 144, Accounting for the Impairment for Disposal of
Long-Lived Assets,we evaluate the recoverability of the recorded amount of
long-lived assets whenever events or changes in circumstances indicate that the
recorded amount of an asset may not be fully recoverable. An impairment is
assessed when the undiscounted expected future cash flows derived from an asset
are less than its carrying amount. If an asset is determined to be impaired,
the impairment to be recognized is measured as the amount by which the recorded
amount of the asset exceeds its fair value. Assets to be disposed of are
reported at the lower of the recorded amount or fair value less cost to sell.
We determine fair value using discounted future cash flow analysis or other
accepted valuation techniques. Additional information on the Companys accounting policies is set forth
in Note 1 to the Consolidated Financial Statements included in Item 8 of this
Report as referenced to the Appendix to this Report. Recently Issued Accounting Standards In December, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-
Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for
Stock-Based Compensation,and provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require disclosures in interim financial
statements of the effects of stock-based compensation. The interim disclosure
requirements of SFAS No. 148 are effective
for periods beginning after December 15, 2002. The Companys stock-based
compensation related to employees and non-employee directors is recognized
using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and thus there is no compensation expense for options granted with
exercise prices equal to the fair value of the Companys common stock on the
date of the grant. 18




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##### Table of Contents



ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk- In August 1998, the Company entered into an interest
rate swap contract as a cash flow hedge under which the interest rate on its
term debt under the then-existing credit facility was fixed at 5.87%, plus a
profit spread for the lender. Prior to entering into the swap agreement,
management had reviewed the 40-year history of interest rates and had
determined that the Companys risk of liability resulting from a material
decline in interest rates over the life of the swap below the fixed level under
the swap was not significant. In May 2003, the Company paid $26,000 to cancel
the swap, as there was no longer any outstanding term debt. Because of the level of variable interest rate debt in the Companys capital
structure, the Company is exposed to earnings or cash flow fluctuations due to
changes in interest rates. At September 30, 2004, the Company had $2.5 million
of variable rate debt outstanding with a weighted average interest rate of
4.09%. This debt exposes the Company to changes in interest expense brought
about by changes in interest rates. If the weighted average interest rate were
to increase by 10.0% for fiscal 2004, net income would have decreased by
approximately $0.4 million. Foreign Currency Exchange Risk-The Company had no transactions in foreign
currencies, nor had it entered into any foreign currency futures contracts as
of September 30, 2004. Commodity Price Risk-The Company had not entered into any forward buying
agreements for the raw materials it uses to produce its goods and services as
of September 30, 2004. An assessment of the risks of short-term commodity price
fluctuations is set forth in Part I, Item 1 of this Form 10-K under the caption
Raw Materials and Suppliers. Other Relevant Market Risks-The Company does not own any marketable
securities, and management is 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 to this Report. In addition, Selected Quarterly Financial Data is set
forth in Item 7 of this Form 10-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 that information required to be disclosed in its reports filed
pursuant to the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms, and that such information
is accumulated and communicated to the Companys management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognized that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. The Company carried out an evaluation, under the supervision and with the
participation of its management, including its Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
the Companys disclosure controls and procedures. Based on the foregoing, the
Companys Chief Executive Officer and Chief Financial Officer concluded that
the Companys disclosure 19




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##### Table of Contents



ITEM 9A  CONTROLS AND PROCEDURES (Continued) controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act) were effective as of the end of the Companys 2004
fiscal year. There have been no changes in the Companys internal control over
financial reporting during the fiscal quarter ended September 30, 2004, that
have materially affected, or are reasonably likely to materially affect the
Companys internal control over financial reporting. ITEM 9B - OTHER INFORMATION Not applicable. 
 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 executive officers as of December 15, 2004: Name
    
    Age
    
    Position HeldRobert J. Simon
    
    
    46
    
    
    Chairman of the Board of DirectorsSamuel J. Bero
    
    
    69
    
    
    DirectorC. Hamilton Davison, Jr.
    
    
    45
    
    
    DirectorLouis LeCalsey, III
    
    
    65
    
    
    Director, President and Chief Executive OfficerWilliam J. Malooly
    
    
    62
    
    
    DirectorSeymour S. Preston, III
    
    
    71
    
    
    Director
 Mr. Simonhas been Chairman of the Board of Directors of Tufco since
February 1992. Mr. Simon has been a Senior Managing Director of Bradford
Ventures, Ltd., a private investment firm, since 1992 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., Parmarco Technologies, Inc., TriMark USA, Inc., Overseas Equity Investors
Ltd., Overseas Callander Fund, Ltd., Portuguese Baking Company, Eagle
Solutions, LLC and Independent Printing Company, Inc. as well as several other
privately held companies. Mr. Berohad been President and Chief Executive Officer from November 1993
until he retired in July 1995, Executive Vice President since November 1992,
and our General Manager since 1974, when he co-founded Tufco Industries, Inc.,
our predecessor. Mr. Bero has been a director since 1992 and has over 33 years
of experience in the converting industry. Mr. Davisonhas been a director since 1992. Mr. Davison has been the
President and a director of Paramount Cards, Inc., a manufacturer and retailer
of greeting cards, since 1988 and Chief Executive Officer since 1995. Prior to
that time, Mr. Davison was Vice President, International and Marketing of
Paramount Cards, Inc. Mr. Davison is also a director and former President of
the greeting card industry trade association. In addition to other private
companies and not-for-profit boards, he served as a director and member of the
audit committee of Valley Resources until 2000 when the company was sold to
Southern Union (NYSE:SUG). Mr. Davison received a Bachelors Degree from
Vanderbilt University and a masters degree from the University of Texas. Mr. LeCalseyassumed the position of President and Chief Executive Officer
in October 1996. Previously he was President of Tufco Industries, Inc., our
predecessor, from April 1996 through September 1996. Prior to that he served
as Vice President of Worldwide Logistics for Scott Paper Company, the
culmination of a 23-year career with Scott in various leadership positions.
Mr. LeCalsey serves as a director for TriMark USA, Inc., Independent Printing
Company, Inc., and as a member of the Advisory group for Bradford Equities
Management LLC. 20




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##### Table of Contents



ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued) Mr. Maloolyhas been a director since 1992. Mr. Malooly was the Chairman
and Chief Executive Officer of Bank One, Green Bay from 1997 until he retired
from Bank One in September 1999. Mr. Malooly serves as a director of Paper
Converting Machine Corp., CMM Group LTD, and White Clover Dairy Inc. Mr. Prestonhas been a director since September 1999. From 1994 until
August 2003 when he sold the company, Mr. Preston was Chairman, CEO and sole
owner of AAC Engineering Systems, 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 of plastics and
specialty chemicals. Prior to 1990, Mr. Preston was President, Chief Operating
Officer and director of Pennwalt Corporation. Mr. Preston is currently a
director of Albemarle Corporation, Scott Specialty Gases, Inc., Ocean Power
Technologies, Inc., Independent Publications, Inc., The Barra Foundation, The
Wistar Institute, and The Academy of Natural Sciences of Philadelphia. Mr.
Preston received a BA in chemistry from Williams College and an MBA from the
Harvard Business School. None of the directors listed herein is related to any other director or
executive officer of the Company. THE EXECUTIVE OFFICERS OF THE COMPANY Name
    
    Age
    
    Positions With the CompanyLouis LeCalsey, III
    
    
    65
    
    
    Director, President and Chief Executive OfficerMichael B. Wheeler
    
    
    59
    
    
    Vice President/Chief Financial OfficerMadge J. Joplin
    
    
    57
    
    
    Vice President, Sales and OperationsMichele M. Corrigan
    
    
    36
    
    
    Vice President, Sales and Marketing
 Executive officers of the Company are elected by the Board of Directors
and serve at the discretion of the Board. There are no family relationships
between any executive officers of the Company. Executive Officers Louis LeCalsey, IIIMr. LeCalsey assumed the positions of President and
Chief Executive Officer of Tufco in October 1996. Previously he was President
of Tufco Industries, Inc. since April 1996. Prior to that he served as Vice
President of Worldwide Logistics for Scott Paper Company, the culmination of a
23-year career with Scott in various leadership positions. Mr. LeCalsey serves
as a director for TriMark USA, Inc. and Independent Printing Company, Inc., as
well as a member of the Advisory Group for Bradford Equities Fund L.P. Michael B. Wheeler,CPAMr. Wheeler has been with Tufco as Vice President
and Chief Financial Officer since March 27, 2002. From 1999 to 2001, Mr.
Wheeler consulted for several companies as a senior financial consultant.
Prior to that, Mr. Wheeler was with Stone Container Corporation for twenty-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 for
the Business Imaging segment of Tufco in 1998. She began her career in 1965
with Hamco, Inc. and served 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 Chief Operating Officer. Michele M. Corrigan Ms. Corrigan assumed the position of Vice President,
Sales & Marketing for the Contract Manufacturing business segment in 1999. She
began her career with Tufco in 1996 as a Marketing Manager in the Sales
Department. Prior to joining Tufco, Ms. Corrigan was in sales and marketing
for Bay West Paper from 1989 until 1996. 21




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##### Table of Contents



Audit Committee The Audit Committee of the Board of Directors of Tufco Technologies, Inc.
is composed of three non-employee directors who meet the independence standards
of the NASDAQ Stock Market. The Audit Committee is currently composed of Mr.
C. Hamilton Davison, Jr., Mr. William J. Malooly, and Mr. Seymour S. Preston,
III. The Audit Committee operates under a written charter adopted by the Board
of Directors. The Board of Directors of the Company has determined that
William J. Malooly is an Audit Committee Financial Expert (as defined in Item
401(h) of Regulation S-K). Mr. Malooly is independent (as such term is used
in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act). Code of Ethics In December of 2003, the Audit Committee adopted a Code of Ethics
applicable to senior financial officers of the Company. This Code of Ethics
constitutes a code of ethics applicable to senior financial officers within the
meaning of the Sarbanes-Oxley Act of 2002 and SEC rules. The Code of Ethics was filed
as an exhibit to the Companys Form 10-K for its fiscal year ended September
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, and persons who own more than 10% of a registered class of our
equity securities, to file reports of ownership and changes in ownership of
such securities with the SEC. Officers, directors and greater than 10%
beneficial owners are required by applicable regulations to furnish us with
copies of all Section 16(a) forms they file. Based solely upon a review of the copies of the forms furnished to the
Company, or written representations from certain reporting persons that no
Forms 4 or 5 were required, the Company believes that during the 2004 fiscal
year all Section 16(a) filing requirements were complied with. 
 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, each non-employee director will receive an option to acquire
3,000 shares of common stock under Tufcos 2004 Non-Employee Director Stock
Option Plan. The options are exercisable immediately at an exercise price
equal to the fair market value of the common stock on the date of the annual
meeting. On March 9, 2004, Messrs. Bero, Davison, Malooly, Preston and Simon
each received options to acquire 3,000 shares of common stock under Tufcos
2004 Non-Employee Director Stock Option Plan, as amended, with an exercise
price of $7.56 per share. 22




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##### Table of Contents



Compensation of Executive Officers The following table summarizes the compensation for each of the fiscal
years ended September 30, 2004, 2003, and 2002 of the Chief Executive Officer
and the other most highly compensated executive officers who earned a total
annual salary and bonus in excess of $100,000 in fiscal year 2004. Annual Compensation Long TermCompensationSecuritiesName and
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Annual
    
    Underlying
    
    All OtherPrincipal Position
    
    Fiscal Year
    
    Salary
    
    Bonus
    
    Compensation(1)
    
    Options
    
    Compensation(2)Louis LeCalsey, III
    
    
    2004
    
    
    $
    269,500
    
    
    $
    72,000
    
    
    
    0
    
    
    
    15,000
    
    
    $
    4,556Director, President
    
    
    2003
    
    
    
    262,500
    
    
    
    60,000
    
    
    
    0
    
    
    
    16,500
    
    
    
    4,346and CEO
    
    
    2002
    
    
    
    262,500
    
    
    
    0
    
    
    
    0
    
    
    
    30,000
    
    
    
    5,437Michael B. Wheeler(3)
    
    
    2004
    
    
    $
    185,000
    
    
    $
    48,000
    
    
    
    0
    
    
    
    11,000
    
    
    $
    0Vice President, CFO
    
    
    2003
    
    
    
    173,500
    
    
    
    40,000
    
    
    
    0
    
    
    
    12,500
    
    
    
    0Secretary and Treasurer
    
    
    2002
    
    
    
    82,500
    
    
    
    2,000
    
    
    
    0
    
    
    
    15,000
    
    
    
    0Madge Joplin
    
    
    2004
    
    
    $
    122,500
    
    
    $
    19,600
    
    
    
    0
    
    
    
    4,000
    
    
    $
    2,573Vice President, Sales
    
    
    2003
    
    
    
    118,500
    
    
    
    23,700
    
    
    
    0
    
    
    
    4,500
    
    
    
    2,370and Operations
    
    
    2002
    
    
    
    118,500
    
    
    
    11,850
    
    
    
    0
    
    
    
    4,000
    
    
    
    1,681Michele M. Corrigan
    
    
    2004
    
    
    $
    159,500
    
    
    $
    38,625
    
    
    
    0
    
    
    
    4,000
    
    
    $
    3,627Vice President, Sales
    
    
    2003
    
    
    
    154,500
    
    
    
    30,900
    
    
    
    0
    
    
    
    4,500
    
    
    
    3,090and Marketing
    
    
    2002
    
    
    
    154,500
    
    
    
    0
    
    
    
    0
    
    
    
    4,000
    
    
    
    2,518
   (1)
    
    Perquisites and other personal benefits for Louis LeCalsey, III, Michael
B. Wheeler, Madge Joplin and Michele M. Corrigan did not exceed the level
of $50,000 or 10% of their total annual salary plus bonus.(2)
    
    Includes employer matching contributions to the Companys 401(k) plan,
and in addition to the amounts set forth below, the Company contributes to
a self funded insurance plan on behalf of the named executive officers.(3)
    
    Mr. Wheeler became Chief Financial Officer on March 27, 2002. Employment Contracts, Termination of Employment and Change-In-Control
Arrangements Mr. LeCalsey entered into an employment agreement with us effective
September 19, 1996, as amended, under which he serves as the President and
Chief Executive Officer for an initial term of three years with successive
one-year renewal terms. If we terminate his employment for cause, or as a
result of his death or disability, our obligation to compensate him immediately
terminates. If we terminate his employment without cause, we are obligated to
compensate him for the remaining term of the agreement or for a period of one
year, whichever is greater. If his employment is terminated within 180 days
following a
change in control of the Company (as defined in the employment agreement), then
we (or our successor) will be obligated to pay him his base salary (subject to
certain deductions) for a period of two years following the
occurrence of the change in control. The employment agreement prohibits him
from competing with us while employed by us and for one year after termination
of his employment with us. The employment agreement provides for an initial
annual base salary of $200,000, an annual bonus and various fringe benefits.
The bonus is based upon a budget for pre-tax income determined by the board of
directors. Mr. Wheeler entered into an employment agreement with us effective March
27, 2002, under which he serves as Vice President, Chief Financial Officer,
Secretary and Treasurer for an initial term of one year with successive
one-year renewal terms. If we terminate his employment for cause, or as a
result of his death or disability, our obligation to compensate him immediately
terminates. If we terminate his employment without cause, we will be obligated
to compensate him for a period of one year (and if such termination occurs in
the fourth quarter of any year, a pro-rated portion of his bonus, if
applicable). The employment agreement prohibits him from competing with us
while employed by us and for one year after termination of 23




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##### Table of Contents



Employment Contracts, Termination of Employment and Change-In-Control
Arrangements (Continued) his employment by us. The employment agreement provides for an initial annual
base salary of $165,000, an annual bonus and various fringe benefits. The
bonus is based upon a budget for pre-tax income determined by the board of
directors. Ms. Corrigan entered into an employment agreement with us effective
October 1, 1997, under which she serves as Vice President Sales and Marketing
for an initial term of one year with successive one-year renewal terms. If we
terminate her employment for cause, or as a result of her death or disability,
our obligation to compensate her immediately terminates. If she is terminated
without cause, we will be obligated to compensate her for the remaining term of
the agreement or for a period of one year, whichever is greater. The
employment agreement prohibits her from competing with us while employed by us
and for one year after the later of her termination of employment or the
termination of severance pay. The employment agreement provides for an initial
annual base salary of $75,000, an annual bonus and various fringe benefits.
The bonus is based upon a budget for pre-tax income determined by the board of
directors. Ms. Joplin entered into an employment agreement with us effective October
1, 1996, under which she serves as Vice President Sales and Operations for an
initial term of one year with successive one-year renewal terms. If we
terminate her employment for cause, or as a result of her death or disability,
our obligation to compensate her immediately terminates. If she is terminated
without cause, we will be obligated to compensate her for the remaining term of
the agreement or for a period of one year, whichever is greater. The
employment agreement prohibits her from competing with us while employed by us
and for one year after the later of her termination of employment or the
termination of severance pay. The employment agreement provides for an initial
annual base salary of $75,000, an annual bonus and various fringe benefits.
The bonus is based upon a budget for pre-tax income determined by the board of
directors. Option Tables The following table sets forth the stock options grants made by the Company during
fiscal year 2004 to each of our executive officers described above in the Summary Compensation Table.  The following table also sets forth
the hypothetical gains that would exist for the options at the end of the five-year terms after vesting, assuming compound rates of stock appreciation of
5% and 10%.  The actual future value of the options will depend on the market value of Tufcos common stock.  All option exercise prices are based on
market price on the grant date. Fiscal Year 2004 Option Grants Potential RealizableValue at AssumedAnnual Rates of StockIndividual Option GrantsNumber of
    
    
    
    
    
    
    
    Price Appreciation atShares
    
    % of Total
    
    
    
    
    
    
    
    
    
    End of Ten YearUnderlying
    
    Options Granted to
    
    Exercise
    
    
    
    
    
    Option Term(2)Options
    
    Employees in
    
    Price Per
    
    ExpirationNAME
    
    Granted(1)
    
    Fiscal Year 2004
    
    Share
    
    Date
    
    5%
    
    10%Louis LeCalsey, III
    
    
    15,000
    
    
    
    29
    %
    
    $
    5.71
    
    
    
    11/25/2013
    
    
    
    53,865
    
    
    
    136,504Michael B. Wheeler
    
    
    11,000
    
    
    
    21
    %
    
    $
    5.71
    
    
    
    11/25/2013
    
    
    
    39,501
    
    
    
    100,103Madge Joplin
    
    
    4,000
    
    
    
    8
    %
    
    $
    5.71
    
    
    
    11/25/2013
    
    
    
    14,364
    
    
    
    36,401Michele M. Corrigan
    
    
    4,000
    
    
    
    8
    %
    
    $
    5.71
    
    
    
    11/25/2013
    
    
    
    14,364
    
    
    
    36,401
   (1)
    
    Stock option grants vest in equal increments on each of the first three
anniversaries of their date of grant(2)
    
    Potential Realizable Value is disclosed in response to Securities and
Exchange Commission rules, which require such disclosure for illustrative
purposes only, and is based on the difference between the potential market
value of shares issuable (based upon assumed appreciation rates) upon
exercise of such options and the exercise price of such options. The
values disclosed are not intended to be, and should not be interpreted as,
representations or projections of future value of Tufcos stock or of the
stock price. 24




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##### Table of Contents



Option Exercises And Fiscal Year-End Option Values The following table sets forth certain information concerning the value of
the unexercised options as of September 30, 2004, held by the named executive
officers. In fiscal year 2004 no named executive officers of the Company exercised
options to acquire the Companys common stock. Aggregate Option Exercises In Fiscal Year 2004 And
Fiscal 2004 Year-End Option Values SHARESACQUIREDON
    
    VALUE
    
    NUMBER OF SHARESUNDERLYING UNEXERCISEDOPTIONS AT FISCAL 2004YEAR-END
    
    VALUE OF UNEXERCISEDIN-THE-MONEY OPTIONS ATFISCAL 2004 YEAR-END2NAME
    
    EXERCISE(#)
    
    REALIZED($)1
    
    EXERCISABLE
    
    UNEXERCISABLE
    
    EXERCISABLE
    
    UNEXERCISABLELouis LeCalsey, III
    
    
    
    
    
    
    
    
    
    
    214,500
    
    
    
    36,000
    
    
    $
    122,545
    
    
    $
    74,270Michael B. Wheeler
    
    
    
    
    
    
    
    
    
    
    14,167
    
    
    
    24,333
    
    
    
    34,275
    
    
    
    59,680Madge Joplin
    
    
    
    
    
    
    
    
    
    
    23,667
    
    
    
    8,333
    
    
    
    9,223
    
    
    
    18,817Michele M. Corrigan
    
    
    
    
    
    
    
    
    
    
    42,667
    
    
    
    8,333
    
    
    
    16,528
    
    
    
    18,817
  1.
    
    The fair market value on September 30, 2004, of the common stock
underlying the options was $7.89 per share.  2.
    
    Represents the difference between the exercise price and the last sales
price of the Common Stock on the date of exercise. 25




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##### Table of Contents



REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION Our executive compensation is supervised by our compensation committee.
The functions of the compensation committee are to review general compensation
policies and to review recommendations made regarding the salaries of executive
officers. We seek to provide executive compensation that will support the
achievement of our financial goals while attracting and retaining talented
executives and rewarding superior performance. In performing this function,
the compensation committee reviews executive compensation surveys and other
available information and may from time to time consult with independent
compensation consultants. In general, we compensate our executive officers through base salary, cash
bonuses and long-term incentive compensation. In addition, executive officers
participate in benefit plans that are generally available to our employees. The compensation committees compensation policies for executive officers
follow our compensation policy for all employees. This policy emphasizes the
principle that compensation should be commensurate with performance of the
individual and the company. With regard to the chief executive
officer, the compensation committee considers a broad array of factors in
establishing his base salary and bonus, including the salary and bonus payments
for chief executive officers at companies in similar businesses. For fiscal
year 2004, our chief executive officer had an employment agreement that
provided for a minimum base salary of $200,000. Section 162(m) of the Internal Revenue Code of 1986, as amended, limits
the deduction that may be claimed by a public company for total compensation in
excess of $1 million paid to the chief executive officer or to any of the other
four most highly compensated officers except to the extent that any
compensation in excess of $1 million is paid pursuant to a performance-based
plan. This provision became effective with respect to us on January 1, 1994.
After considering the application of Section 162(m) to its compensation
policies, the committee has determined that the provisions of Section 162(m)
would not affect the compensation of any of the officers named above. To the
extent that this might not continue to be the case, the committee would
consider any changes necessary to conform to the provisions of Section 162(m). The compensation committee determined the salary for our chief executive
officer for fiscal year 2004 based on the foregoing factors. Respectfully submitted,Compensation Committee:Samuel J. BeroC. Hamilton Davison, Jr.Robert J. Simon
 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Bero and Mr. Simon serve on our compensation committee. Mr. Bero was
an officer from November 1993, until his retirement in July 1995, and Mr. Simon
currently is a general partner of Bradford Associates. PERFORMANCE GRAPH SEC rules require the presentation of a line graph comparing, over a
period of five years, the cumulative total stockholder return to a performance
indicator of a broad equity market index and either a nationally recognized
industry index or a peer group index constructed by us. 26




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##### Table of Contents



PERFORMANCE GRAPH (continued) COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG TUFCO TECHNOLOGIES, INC.,
NASDAQ MARKET INDEX AND COREDATA GROUP INDEX (PERFORMANCE GRAPH) 1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004TUFCO TECHNOLOGIES, INC.
    
    
    100.00
    
    
    
    135.00
    
    
    
    100.00
    
    
    
    65.60
    
    
    
    85.87
    
    
    
    105.20COREDATA
GROUP INDEX(1)
    
    
    100.00
    
    
    
    72.99
    
    
    
    77.00
    
    
    
    94.06
    
    
    
    115.11
    
    
    
    136.11NASDAQ MARKET INDEX
    
    
    100.00
    
    
    
    136.79
    
    
    
    56.05
    
    
    
    45.09
    
    
    
    69.11
    
    
    
    73.27(1)    Formerly named MG Paper Products Group Index.
 The graph above compares the performance of our common stock with the
performance of the NASDAQ Market Index and the CoreData Industry Group 325 
Packing and Containers Group Index from October 1, 1999, through September 30,
2004. The comparison assumes $100 was invested on October 1, 1999, in our
common stock and in each of the aforementioned indices and assumes reinvestment
of dividends. 27




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##### Table of Contents



ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners The following table sets forth certain information regarding the
beneficial ownership of our common stock as of December 15, 2004, by (1) each
person known by us to own beneficially more than 5% of our outstanding common
stock, (2) each current director, (3) each named executive officer, and (4) all
current directors and named executive officers as a group. Unless otherwise
indicated, the shares listed in the table are owned directly by the individual
or entity, or by both the individual and the individuals spouse. The
individual or entity has sole voting and investment power as to shares shown
or, in the case of the individual, such power is shared with the individuals
spouse. Certain of the shares listed below are deemed to be owned beneficially by
more than one stockholder under SEC rules. Accordingly, the sum of the
ownership percentages listed exceeds 100%. AMOUNT AND NATURE OF
    
    PERCENT OFBENEFICIAL OWNERSHIP
    
    CLASSOver 5% StockholdersRobert J. Simon(1)(3)(4)(5)
    
    
    2,656,543
    
    
    
    57.6
    %Barbara M. Henagan(1)(3)
    
    
    2,621,661
    
    
    
    57.2
    %Bradford Venture Partners, L. P. (1)(2)
    
    
    2,619,740
    
    
    
    57.2
    %Overseas Equity Investors Partners(3)(6)
    
    
    2,619,740
    
    
    
    57.2
    %Other Directors And Executive OfficersSamuel J. Bero(7)
    
    
    213,000
    
    
    
    4.6
    %Louis LeCalsey III(8)
    
    
    344,709
    
    
    
    7.2
    %C. Hamilton Davison, Jr. (5)
    
    
    30,842
    
    
    
    *Seymour S. Preston III(9)
    
    
    20,000
    
    
    
    *William J. Malooly(5)
    
    
    30,000
    
    
    
    *Michael B. Wheeler(10)
    
    
    23,000
    
    
    
    *Madge Joplin(11)
    
    
    40,953
    
    
    
    *Michele M. Corrigan (12)
    
    
    54,633
    
    
    
    1.2
    %Directors and Executive Officers as a Group (9 persons)(1)(3)(13)
    
    
    3,413,680
    
    
    
    67.8
    %
  *
    
    Less than one percent 28




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##### Table of Contents



Security Ownership of Certain Beneficial Owners (Continued)  (1)
    
    The amounts shown for Mr. Simon and Ms. Henagan include the shares owned
of record by Bradford Venture Partners, L.P., as to which they may be
deemed to share beneficial ownership due to their having voting and
dispositive power over such shares. Bradford Associates, a general
partnership of which such two persons are the partners, is the sole
general partner of Bradford Venture Partners, L.P. and, as such, holds a
1% interest in that partnership. The business address of each of Mr.
Simon and Ms. Henagan is 92 Nassau Street, Princeton, New Jersey, 08542.(2)
    
    The address of the stockholder is 92 Nassau Street, Princeton, New Jersey
08542. The amount shown for the stockholder includes 709,870 shares owned
of record by Overseas Equity Investors Partners, as to which the
stockholder may be deemed to share beneficial ownership due to the
formation of a group comprised of the stockholder and Overseas Equity
Investors Partners for purposes of SEC rules.(3)
    
    The amounts shown for Mr. Simon and Ms. Henagan includes the shares
owned of record by Overseas Equity Investors Partners as to which they may
be deemed to share beneficial ownership due to their having voting power
over such shares. Mr. Simon serves as chairman of the board of directors
of the corporation that acts as the managing partner of Overseas Equity.
Bradford Associates holds a 1% partnership interest in Overseas Equity,
which may increase upon the satisfaction of certain contingencies related
to the overall performance of Overseas Equitys investment portfolio, and
also acts as an investment advisor for Overseas Equity.(4)
    
    The stockholder is also one of our directors.(5)
    
    The amount shown includes 27,000 shares that may be acquired under
options currently exercisable.(6)
    
    The address of the stockholder is Clarendon House, Church Street,
Hamilton 5-31, Bermuda. The amount shown for the stockholder includes
1,909,870 shares owned of record by Bradford Venture Partners, L.P., as to
which the stockholder may be deemed to share beneficial ownership due to
the information of a group comprised of the stockholder and Bradford
Venture Partners, L.P. for purposes of SEC rules.(7)
    
    The amount shown includes 23,000 shares that may be acquired under
options currently exercisable.(8)
    
    The amount shown includes 235,000 shares that may be acquired under
options currently exercisable.(9)
    
    The amount shown includes 15,000 shares that may be acquired under
options currently exercisable.(10)
    
    The amount shown includes 22,000 shares that may be acquired under
options currently exercisable.(11)
    
    The amount shown includes 27,833 shares that may be acquired under
options currently exercisable.(12)
    
    The amount shown includes 46,833 shares that may be acquired under
options currently exercisable.(13)
    
    The amount shown includes an aggregate of 450,666 shares that may be
acquired under options currently exercisable. Equity Compensation Plan Information The following table sets forth information concerning the equity
compensation plans of the Company as of September 30, 2004. (C)(A)
    
    
    
    
    
    Number of SecuritiesNumber of
    
    (B)
    
    Remaining Available forSecurities to be Issued
    
    Weighted Average
    
    Future Issuance underUpon Exercise of
    
    Exercise Price of
    
    Equity Compensation PlansOutstanding Options,
    
    Outstanding Options,
    
    (Excluding SecuritiesPlan Category
    
    Warrants and Rights
    
    Warrants and Rights
    
    Reflected in Column (A))Equity compensation plans approved
by security holders (1)
    
    
    500,400
    
    
    $
    7.39
    
    
    
    398,200Equity compensation plans not
approved by security holders (2)
  (1)
    
    Plans represent (i) the 1992 Non-Qualified Stock Option Plan, which
expired in April 2002 , (ii) the 2003 Non-Qualified
Stock Option Plan and the 1993 Non-Employee Director Stock Option Plan,
which expired March 2004, and (iii) the
2004 Non-Employee Director Stock Option Plan, which expires March 2014.  (2)
    
    There are no equity compensation plans not approved by security holders. 
 ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS We lease one of our facilities from a partnership in which Samuel J. Bero
is a partner. The lease has a five-year term that expires March 2008. We have
options to renew the lease for an additional five-year term at a negotiable
rental rate. We paid total rent of $121,816 to the partnership that is the
lessor of this facility for fiscal year 2004. We believe that the terms of
this lease are at least as favorable to us as could have been obtained from an
unaffiliated party. As one of the terms of our purchase of Tufco Industries, Inc., in February
1992, we entered into agreements with Mr. Bero and one other former stockholder
of Tufco Industries, Inc. pursuant to which we are required to make
interest-free advances for premiums on life insurance on their lives. The
policies are collectively assigned to us as security for the repayment of such
amounts. During fiscal year 2004, we paid 29




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##### Table of Contents



ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued) $8,400 in premiums for Mr. Beros policy. As of September 30, 2004,
outstanding advances to Mr. Bero were $115,029. In 1994, the Company entered into a consulting agreement with Bradford
Ventures, Ltd., an affiliate of Bradford Venture Partners, L.P., and Overseas
Equity Investors Partners, two of our largest stockholders, under which
Bradford Ventures provides various financial consulting services to us for an
initial term of 10
years, with successive automatic renewal terms of one year each unless
terminated by either party. Under this agreement, Bradford Ventures has
assisted us in structuring our initial public offering, various acquisitions
and divestitures and restructuring our long-term obligations. In addition,
Bradford Ventures provides general business consulting and advice. We expect
to use the services of Bradford Ventures in the
future for similar services as well as in any major transaction, such as loans,
subsequent public offerings and acquisitions and divestitures. We are
obligated to pay Bradford Ventures an annual fee of $210,000 under the
agreement, subject to a 5% annual increase, plus reasonable out-of-pocket
expenses. During fiscal year 2004, we paid Bradford Ventures $319,319 in fees.
We believe that the terms of the agreement with Bradford Ventures are
customary and are at least as favorable to us as could be obtained from an
unaffiliated party. 
 ITEM 14  PRINCIPAL ACCOUNTING FEES AND SERVICES The following table shows the fees paid or accrued by the Company for the
audit and other services provided by Deloitte & Touche LLP for fiscal years
2003 and 2004: FY 2004
    
    FY2003Audit Fees
    
    $
    170,000
    
    
    $
    184,140Audit-Related Fees
    
    $
    12,000
    
    
    $
    Tax Fees
    
    $
    97,428
    
    
    $
    114,433All Other Fees
    
    $
    
    
    
    $
    20,570
 Audit services of Deloitte & Touche LLP for fiscal 2004 consisted of the
examination of the consolidated financial statements of the Company and
quarterly reviews of consolidated financial statements and review of SEC
filings. Audit-Related Fees include charges primarily related to the
services rendered in connection with the filing of Forms S-8 with the SEC.
Tax Fees includes charges primarily related to tax return preparation and tax
consulting services. There were no Other Fees during fiscal 2004. The Audit
Committee approved all of the services described above. Audit services of Deloitte & Touche LLP for fiscal 2003 consisted of the
examination of the consolidated financial statements of the Company and
quarterly reviews of consolidated financial statements and review of SEC
filings. There were no Audit-Related Fees during fiscal 2003. Tax Fees
includes charges primarily related to tax return preparation and tax consulting
services. All Other Fees include charges primarily related to the sale of
the Paint Sundries segment. The Audit Committee approved all of the services
described above. The Audit Committees policy is to pre-approve all auditing and permitted
non-audit services other than deminimus non-audit services as defined in
Section 10A(i)(1) of the Exchange Act which will be approved prior to the
completion of the independent auditors audit. The Audit Committee has
reviewed summaries of the services provided and the related fees and has
determined that the provision of non-audit services is compatible with
maintaining the independence of Deloitte & Touche LLP. 30




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PART IV 
 ITEM 15-EXHIBITS, FINANCIAL STATEMENT SCHEDULES  (a)
    
    1.
    
    Financial Statements. Financial statements are attached as an Appendix to this Report. The
index to the financial statements is found on F-1 of the Appendix.2.
    
    Financial Statement Schedules. All schedules are omitted since the
required information
is not present or is not present in amounts sufficient to require
a submission of the schedules, or because the information required
is included in the financial statements and notes thereto.3.
    
    Exhibits. See Exhibit Index in Item 15(c), below.


(b)
    
    ExhibitNumber
    
    Description
  2.1
    
    Stock Purchase Agreement dated as of November 12, 1997 by and among Tufco
Technologies, Inc. (the Company), Charles Cobaugh and James Barnes (filed as
exhibit 2.1 to the Companys Form 8-K dated November 13, 1997 filed with the
Commission on November 26, 1997, file number 0-21018, incorporated by reference
herein).2.2
    
    Amended and Restated Asset and Stock Purchase Agreement, dated as of
March 31, 2003, by and among Tufco Technologies, Inc., Tufco, L.P., and Trimaco, LLC
(filed as Exhibit 2.1 to the Companys Current Report on Form 8-K filed on
April 15, 2003, file number 0-21028, incorporated by reference herein).3.1
    
    Restated Certificate of Incorporation (filed as Exhibit 3.1 to the
Companys Registration Statement as filed with the Commission on December 16, 1992,
incorporated by reference herein).3.2
    
    Bylaws (filed as Exhibit 3.2 to the Companys Registration Statement as
filed with the Commission on December 16, 1992, incorporated by reference herein).10.1
    
    Stock Purchase and Contribution Agreement, dated as of February 25, 1992,
among the Company, Tufco Industries, Inc. (Tufco), and the Stockholders of Tufco
(filed as Exhibit 10.1 to the Companys Registration Statement as filed with the
Commission on December 16, 1992, incorporated by reference herein).10.2
    
    Amended and Restated Consulting Agreement with Bradford Investment Partners,
L.P. (filed as Exhibit 10 to the Companys Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1995, incorporated by reference herein).10.3
    
    1992 Non-Qualified Stock Option Plan (filed as Exhibit 10.12 to the Companys
Registration Statement as filed with the Commission on December 16, 1992, incorporated
by reference herein).10.4
    
    1993 Non-Employee Director Stock Option Plan (filed as Exhibit 10.19 to the
Companys Amendment No. 1 to the Registration Statement as filed with the Commission
on November 23, 1993, incorporated by reference herein).10.5
    
    Lease between Bero and McClure Partnership and Tufco, L.P, dated
October 15, 2002 (filed as Exhibit 10.8 to the Companys Annual Report on Form 10-K
for the period ended September 30, 2002, incorporated by reference herein).10.6
    
    Employment Agreement with Louis LeCalsey, III dated September 19,
1996 (filed as Exhibit 10.18 to the Companys Report on Form 10-K for the period ended
September 30, 1997, incorporated by reference herein).10.7
    
    Amended and Restated Credit Agreement dated August 15, 2002
(filed as Exhibit 10.17 to the Companys Current Report on Form 8-K filed on April 15,
2003, incorporated by reference herein).10.8
    
    First Amendment to the Amended and Restated Credit Agreement (filed as
Exhibit 10.18 to the Companys Current Report on Form 8-K filed on April 15, 2003,
incorporated by reference herein).10.9
    
    2003 Non-Qualified Stock Option Plan (filed as Exhibit 10.19 to the Companys
Annual Report on Form 10-K for the period ended September 30, 2003, incorporated by
reference herein).10.10
    
    Second Amended and Restated Credit Agreement dated March 31, 2003 among
Tufco L.P., as Borrower, Tufco Technologies, Inc. as the Parent, JP Morgan Chase Bank,
as Agent, and the banks named therein (filed as Exhibit 10.19 to the Companys Current
Report on Form 8-K filed on April 15, 2003, incorporated by reference herein).10.11
    
    Credit Agreement dated as of May 20, 2004, among Tufco Technologies, Inc.,
each of the banks or other lending institutions which is or which may from time to
time become a signatory thereto or assigned thereof and BankOne, N.A. (filed as
Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004, incorporated by reference herein).10.12
    
    2004 Non-Employee Director Stock Option Plan (incorporated by reference to
the Companys definitive proxy statement filed on January 29, 2004).14.1
    
    Code of Ethics (filed as Exhibit 14.1 to the Companys Annual Report on Form
10-K for the period ended September 30, 2003, incorporated by reference herein).21.1
    
    Subsidiaries of the Company (filed as Exhibit 21.1 to the Companys Annual
Report on Form 10-K for the period ended September 30, 2003, incorporated by reference
herein).23.1
    
    *Consent of Deloitte & Touche LLP31.1
    
    *Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934 of Louis LeCalsey, III31.2
    
    *Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934 of Michael B. Wheeler32.1
    
    **Certification furnished pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Louis LeCalsey, III32.2
    
    **Certification furnished pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Michael B. Wheeler * Filed herewith ** Furnished herewith 31




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Green Bay, Wisconsin,
on December 29, 2004. Tufco Technologies, Inc.By:
    
    /s/ Louis LeCalsey, IIILouis LeCalsey, IIIPresident and Chief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated. Signature
    
    Title
    
    Date/s/ Louis LeCalsey, III
Louis LeCalsey, III
    
    President, Chief Executive
Officer and Director
(Principal Executive Officer)
    
    December 29, 2004/s/ Robert J. Simon

Robert J. Simon
    
    Chairman of the Board
    
    December 29, 2004/s/ Michael B. Wheeler
Michael B. Wheeler
    
    VP/Chief Financial Officer
    
    December 29, 2004/s/ Samuel J. Bero
Samuel J. Bero
    
    Director
    
    December 29, 2004/s/ C. Hamilton Davison, Jr.
C. Hamilton Davison, Jr.
    
    Director
    
    December 29, 2004/s/ William J. Malooly
William J. Malooly
    
    Director
    
    December 29, 2004/s/ Seymour S. Preston, III
Seymour S. Preston, III
    
    Director
    
    December 29, 2004
 32




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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY TABLE OF CONTENTS PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    F-1CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002:Consolidated Balance Sheets
    
    
    F-2Consolidated Statements of Operations and Comprehensive Income (Loss)
    
    
    F-3Consolidated Statements of Stockholders Equity
    
    
    F-4Consolidated Statements of Cash Flows
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6-F-19




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Directors and Stockholders
Tufco Technologies, Inc. We have audited the accompanying consolidated balance sheets of Tufco
Technologies, Inc. and subsidiary (the Company) as of September 30, 2004 and
2003, and the related consolidated statements of operations and comprehensive
income (loss), stockholders equity and cash flows for each of the three years
in the period ended September 30, 2004. These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at September 30,
2004 and 2003, and the results of their operations and their cash flows for
each of the three years in the period ended September 30, 2004, in conformity
with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, effective
October 1, 2001, the Company adopted statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. /s/ Deloitte & Touche LLP Deloitte & Touche LLP
Milwaukee, Wisconsin
December 3, 2004 F-1




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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2004 AND 2003
 2004
    
    2003ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    7,692
    
    
    $
    2,930,416Accounts receivable  net
    
    
    12,639,389
    
    
    
    8,293,853Inventories
    
    
    9,624,963
    
    
    
    3,891,083Prepaid expenses and other current assets
    
    
    158,856
    
    
    
    388,319Deferred income taxes
    
    
    618,588
    
    
    
    515,918Total current assets
    
    
    23,049,488
    
    
    
    16,019,589PROPERTY, PLANT AND EQUIPMENT  Net
    
    
    16,329,335
    
    
    
    14,318,907GOODWILL
    
    
    7,211,575
    
    
    
    7,211,575OTHER ASSETS  Net
    
    
    392,154
    
    
    
    475,688TOTAL
    
    $
    46,982,552
    
    
    $
    38,025,759LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    5,917,351
    
    
    $
    1,829,414Accrued payroll, vacation and payroll taxes
    
    
    863,368
    
    
    
    844,330Other current liabilities
    
    
    865,923
    
    
    
    531,681Income taxes payable
    
    
    981,077
    
    
    
    529,521Current portion of long-term debt
    
    
    
    
    
    
    250,000Total current liabilities
    
    
    8,627,719
    
    
    
    3,984,946LONG-TERM DEBT  Less current portion
    
    
    2,500,000
    
    
    
    500,000DEFERRED INCOME TAXES
    
    
    405,640
    
    
    
    53,395STOCKHOLDERS EQUITY:Common stock, $.01 par value - 9,000,000 shares authorized;
4,706,341 shares issued
    
    
    47,063
    
    
    
    47,063Additional paid-in capital
    
    
    25,088,631
    
    
    
    25,088,631Retained earnings
    
    
    11,144,884
    
    
    
    9,183,109Treasury stock - 123,997 common shares at cost
    
    
    (831,385
    )
    
    
    (831,385
    )Total stockholders equity
    
    
    35,449,193
    
    
    
    33,487,418TOTAL
    
    $
    46,982,552
    
    
    $
    38,025,759
 See notes to consolidated financial statements. F-2




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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
 2004
    
    2003
    
    2002NET SALES
    
    $
    77,854,495
    
    
    $
    55,206,658
    
    
    $
    50,434,029COST OF SALES
    
    
    70,164,338
    
    
    
    47,465,108
    
    
    
    43,980,787GROSS PROFIT
    
    
    7,690,157
    
    
    
    7,741,550
    
    
    
    6,453,242OPERATING EXPENSES:Selling, general and administrative
    
    
    4,997,675
    
    
    
    4,885,178
    
    
    
    3,961,851Facility closing costs
    
    
    
    
    
    
    
    
    
    
    434,882Facility restructuring costs
    
    
    
    
    
    
    
    
    
    
    232,958Employee severance costs
    
    
    
    
    
    
    333,114
    
    
    
    209,324Asset write-downs
    
    
    
    
    
    
    
    
    
    
    547,562Loss (gain) on asset sales
    
    
    3,218
    
    
    
    108,636
    
    
    
    (9,500
    )Total
    
    
    5,000,893
    
    
    
    5,326,928
    
    
    
    5,377,077OPERATING INCOME
    
    
    2,689,264
    
    
    
    2,414,622
    
    
    
    1,076,165OTHER (EXPENSE) INCOME:Interest expense
    
    
    (48,520
    )
    
    
    (202,454
    )
    
    
    (460,532
    )Interest income and other (expense) income
    
    
    (3,021
    )
    
    
    (48,696
    )
    
    
    24,179Total
    
    
    (51,541
    )
    
    
    (251,150
    )
    
    
    (436,353
    )INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    2,637,723
    
    
    
    2,163,472
    
    
    
    639,812INCOME TAX EXPENSE
    
    
    1,075,948
    
    
    
    915,425
    
    
    
    281,450INCOME FROM CONTINUING OPERATIONS
    
    
    1,561,775
    
    
    
    1,248,047
    
    
    
    358,362GAIN (LOSS) FROM DISCONTINUED OPERATIONS:Loss from operations of discontinued segment, net of income taxes
    
    
    
    
    
    
    (224,644
    )
    
    
    (1,111,386
    )Gain (loss) from sale of discontinued segment, net of income taxes of $163,325 in 2003
    
    
    400,000
    
    
    
    (244,406
    )INCOME (LOSS) BEFORE ACCOUNTING CHANGE
    
    
    1,961,775
    
    
    
    778,997
    
    
    
    (753,024
    )CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    (4,651,591
    )NET INCOME (LOSS)
    
    
    1,961,775
    
    
    
    778,997
    
    
    
    (5,404,615
    )OTHER COMPREHENSIVE INCOME:Interest rate swap as hedge of future variable interest on debt:Change in fair value, net of income taxes of $25,717 and $22,921, respectively
    
    
    
    
    
    
    40,224
    
    
    
    35,851Other comprehensive income
    
    
    
    
    
    
    40,224
    
    
    
    35,851TOTAL COMPREHENSIVE INCOME (LOSS)
    
    $
    1,961,775
    
    
    $
    819,221
    
    
    $
    (5,368,764
    )EARNINGS (LOSS) PER SHARE:Basic:Income from continuing operations
    
    $
    0.34
    
    
    $
    0.27
    
    
    $
    0.08Loss from operations of discontinued segment
    
    
    
    
    
    
    (0.05
    )
    
    
    (0.24
    )Gain (loss) from sale of discontinued segment
    
    
    0.09
    
    
    
    (0.05
    )Cumulative effective of accounting change
    
    
    
    
    
    
    
    
    
    
    (1.01
    )Net income (loss)
    
    $
    0.43
    
    
    $
    0.17
    
    
    $
    (1.17
    )Diluted:Income from continuing operations
    
    $
    0.34
    
    
    $
    0.27
    
    
    $
    0.08Loss from operations of discontinued segment
    
    
    
    
    
    
    (0.05
    )
    
    
    (0.24
    )Gain (loss) from sale of discontinued segment
    
    
    0.09
    
    
    
    (0.05
    )Cumulative effective of accounting change
    
    
    
    
    
    
    
    
    
    
    (1.01
    )Net income (loss)
    
    $
    0.43
    
    
    $
    0.17
    
    
    $
    (1.17
    )WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic
    
    
    4,582,344
    
    
    
    4,616,331
    
    
    
    4,627,884Diluted
    
    
    4,608,222
    
    

    
    4,626,204
    
    
    
    4,630,621
 See notes to consolidated financial statements. F-3




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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
 Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedVoting
    
    AdditionalPaid-In
    
    Retained
    
    Treasury
    
    StockholderNotes
    
    OtherComprehensive
    
    TotalStockholdersShares
    
    Amount
    
    Capital
    
    Earnings
    
    Stock
    
    Receivable
    
    Income (Loss)
    
    EquityBALANCES  September 30, 2001
    
    
    4,706,341
    
    
    $
    47,063
    
    
    $
    25,088,631
    
    
    $
    13,808,727
    
    
    $
    (534,045
    )
    
    $
    (280,757
    )
    
    $
    (76,075
    )
    
    $
    38,053,544Repayment of stockholder notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123,511
    
    
    
    
    
    
    
    123,511Unrealized gain on interest rate hedge
contract  net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,851
    
    
    
    35,851Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,404,615
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,404,615
    )BALANCES  September 30, 2002
    
    
    4,706,341
    
    
    
    47,063
    
    
    
    25,088,631
    
    
    
    8,404,112
    
    
    
    (534,045
    )
    
    
    (157,246
    )
    
    
    (40,224
    )
    
    
    32,808,291Repayment of stockholder notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157,246
    
    
    
    
    
    
    
    157,246Elimination of interest rate hedge
contract -
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,224
    
    
    
    40,224Purchase of treasury stock - 45,500
common shares at cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (297,340
    )
    
    
    
    
    
    
    
    
    
    
    (297,340
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    778,997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    778,997BALANCES  September 30, 2003
    
    
    4,706,341
    
    
    
    47,063
    
    
    
    25,088,631
    
    
    
    9,183,109
    
    
    
    (831,385
    )
    
    
    
    
    
    
    
    
    
    
    33,487,418Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,961,775
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,961,775BALANCES  September 30, 2004
    
    
    4,706,341
    
    
    $
    47,063
    
    
    $
    25,088,631
    
    
    $
    11,144,884
    
    
    $
    (831,385
    )
    
    $
    
    
    
    $
    
    
    
    $
    35,449,193
 See notes to consolidated financial statements. F-4




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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
 2004
    
    2003
    
    2002OPERATING ACTIVITIES:Income from continuing operations
    
    $
    1,561,775
    
    
    $
    1,248,047
    
    
    $
    358,362Noncash items in income from continuing operations:Depreciation and amortization of property, plant and equipment
    
    
    2,330,847
    
    
    
    2,539,704
    
    
    
    2,832,027Amortization
    
    
    69,756
    
    
    
    272,767
    
    
    
    95,961Deferred income taxes
    
    
    249,575
    
    
    
    (290,236
    )
    
    
    104,172Loss (gain) on asset sales, net
    
    
    3,218
    
    
    
    108,636
    
    
    
    (9,500
    )Property and inventory write-downs
    
    
    
    
    
    
    
    
    
    
    547,562Changes in operating working capital:Accounts receivable
    
    
    (4,345,536
    )
    
    
    (2,376,045
    )
    
    
    1,680,750Inventories
    
    
    (5,733,880
    )
    
    
    (225,134
    )
    
    
    593,381Prepaid expenses and other assets
    
    
    306,675
    
    
    
    97,982
    
    
    
    (242,674
    )Accounts payable
    
    
    4,087,937
    
    
    
    (2,180,601
    )
    
    
    1,527,474Accrued and other current liabilities
    
    
    353,280
    
    
    
    (473,729
    )
    
    
    (308,849
    )Income taxes payable/receivable
    
    
    451,556
    
    
    
    826,087
    
    
    
    (548,773
    )Net cash (used in) provided by operating activities from
continuing operations
    
    
    (664,797
    )
    
    
    (452,522
    )
    
    
    6,629,893INVESTING ACTIVITIES:Additions to property, plant, and equipment
    
    
    (4,373,694
    )
    
    
    (2,372,546
    )
    
    
    (1,099,363
    )Proceeds from disposition of PP&E
    
    
    29,201Advances to directors and former owners
    
    
    
    
    
    
    
    
    
    
    (18,863
    )Collection of advances to directors and former owners
    
    
    
    
    
    
    20,060Proceeds from asset sales, net of transaction costs
    
    
    
    
    
    
    74,454
    
    
    
    581,716Decrease (increase) in restricted cash
    
    
    
    
    
    
    100,000
    
    
    
    (67,261
    )Net cash used in investing activities
    
    
    (4,344,493
    )
    
    
    (2,178,032
    )
    
    
    (603,771
    )FINANCING ACTIVITIES:Repayment of long-term debt
    
    
    (750,000
    )
    
    
    (5,840,667
    )
    
    
    (7,745,037
    )Borrowings of long-term debt
    
    
    2,500,000
    
    
    
    500,000
    
    
    
    1,500,000Debt issuance costs
    
    
    (63,434
    )Purchase of treasury stock
    
    
    
    
    
    
    (297,340
    )Net settlement of interest rate swap
    
    
    
    
    
    
    (25,716
    )Repayment of stockholder notes receivable
    
    
    
    
    
    
    157,246
    
    
    
    123,511Net cash provided by (used in) financing activities
    
    
    1,686,566
    
    
    
    (5,506,477
    )
    
    
    (6,121,526
    )NET CASH FLOWS FROM DISCONTINUED OPERATIONS:Proceeds from sale of discontinued operations net of transaction costs
    
    
    
    
    
    
    11,660,603Net cash provided by (used in) activities of discontinued operations
    
    
    400,000
    
    
    
    (844,502
    )
    
    
    (174,703
    )Net cash provided by (used in) discontinued operations
    
    
    400,000
    
    
    
    10,816,101
    
    
    
    (174,703
    )NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (2,922,724
    )
    
    
    2,679,070
    
    
    
    (270,107
    )CASH AND CASH EQUIVALENTS:Beginning of year
    
    
    2,930,416
    
    
    
    251,346
    
    
    
    521,453End of year
    
    $
    7,692
    
    
    $
    2,930,416
    
    
    $
    251,346
 See notes to consolidated financial statements. F-5




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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
  1.
    
    SIGNIFICANT ACCOUNTING POLICIES  Consolidated Financial Statements include the accounts of Tufco
Technologies, Inc. and its wholly owned subsidiary (the Company).
Significant intercompany transactions and balances are eliminated in
consolidation. The Company markets its own line of business imaging paper
products and performs specialty printing, custom converting and packaging.Financial Statement Preparation requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingencies at the date of 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
are recognized in the period they become known.Cash and cash equivalents represents liquid investments with maturities at
acquisition of three months or less.Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method.Property, Plant and Equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided
using the straight-line method over the following estimated useful lives:
20 to 40 years for buildings, 3 to 10 years for machinery and equipment, 3
to 5 years for computer equipment and software, 5 to 7 years for furniture
and fixtures, and the shorter of the actual useful life or the lease term
for leasehold improvements. Management periodically reviews asset carrying
values for recoverability based on undiscounted cash flows. When
appropriate, the Company provides for any write-downs based on estimated
fair value.Impairment of Long-Lived Assets is reviewed in accordance with Statement of
Financial Accounting Standards (SFAS) SPAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets. The Company evaluates the
recoverability of the recorded amount of long-lived assets whenever events
or changes in circumstances indicate that the recorded amount of an asset
may not be fully recoverable. An impairment is assessed when the
undiscounted expected future cash flows derived from an asset are less than
its carrying amount. If an asset is determined to be impaired, the
impairment to be recognized is measured as the amount by which the recorded
amount of the asset exceeds its fair value. Assets to be disposed of are
reported at the lower of the recorded amount or fair value less cost to
sell. The Company determines fair value using discounted future cash flow
analysis or other accepted valuation techniques.The sale and discontinued operations of the Paint Sundries segment in the
second quarter of 2003 have been recorded in accordance with SFAS No. 144. F-6




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Goodwill represents the excess of cost over fair value of net assets
acquired in business combinations. Prior to October 1, 2001, the Company
amortized goodwill on a straight-line basis over 25 to 40 years. Management
has continued to review the carrying values of goodwill for recoverability
based on fair market value estimated using estimated future cash flows and
prices of comparable companies.The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
effective October 1, 2001. Under SFAS No. 142, goodwill and certain other
intangible assets are no longer systematically amortized but instead are
reviewed for impairment, and any excess in carrying value over the estimated
fair value is charged to results of operations. The previous method for
determining impairment utilized an undiscounted cash flow approach for the
initial impairment assessment, while SFAS No. 142 utilizes a fair value
approach. The goodwill impairment charge in fiscal 2002 discussed below was
the result of the change in the accounting method for determining impairment
of goodwill.In connection with the adoption of SFAS No. 142, the Company allocated
goodwill to each of its reporting units and tested this goodwill for
impairment as of the beginning of fiscal 2002. The Company completed the
transitional goodwill impairment test during the first quarter of fiscal
2002. As a result, an impairment charge of $6.4 million ($4.7 million after
tax, or $1.01 per diluted share) was recorded related to goodwill allocated
to the Business Imaging and Paint Sundry reporting units. The fair value of
the reporting units was estimated using a combination of valuation
techniques, including the expected present value of future cash flows and
prices of comparable businesses. The impairment charge was recorded as the
cumulative effect of an accounting change in the fiscal 2002 consolidated
statement of operations.The changes in the carrying amount of goodwill by segment for the years
ended September 30, 2004 and 2003 are as follows: Contract
    
    Business
    
    PaintManufacturing
    
    Imaging
    
    Sundries
    
    TotalBalance as of September 30, 2002
    
    $
    4,281,759
    
    
    $
    2,929,816
    
    
    $
    3,133,638
    
    
    $
    10,345,213Sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    (3,133,638
    )
    
    
    (3,133,638
    )Balance as of September 30, 2003
    
    
    4,281,759
    
    
    
    2,929,816
    
    
    
    
    
    
    
    7,211,575Balance as of September 30, 2004
    
    $
    4,281,759
    
    
    $
    2,929,816
    
    
    $
    
    
    
    $
    7,211,575
  Financial Instrumentsconsist of cash, receivables, payables, debt, and
letters of credit. Their carrying values are estimated to approximate their
fair values unless otherwise indicated due to their short maturities and
variable interest rates or fixed rates approximating current rates available
for similar instruments.DerivativesDuring fiscal 2004 and at September 30, 2004 and 2003, the
Company did not hold any derivatives. In prior years, derivatives consisted
of an interest rate swap as a cash flow hedge of variable interest rate
debt. This cash flow hedge was stated at its estimated fair value based on
market quotes at September 30, 2002 and changes in fair value were reported
as a component of other comprehensive income (loss).Other Assetsinclude loan origination fees, which are amortized on a
straight-line basis (approximating the interest method) over the terms of
the related long-term debt. F-7




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Income Taxes are provided for the tax effects of transactions reported in
the consolidated financial statements and consist of taxes currently due, if
any, plus deferred taxes related primarily to differences between the basis
of assets and liabilities for financial and income tax reporting. Deferred
tax assets and liabilities represent the future tax return consequences of
those differences that will either be deductible or taxable when the assets
and liabilities are recovered or settled. Deferred tax assets include
recognition of operating losses that are available to offset future taxable
income and tax credits that are available to offset future income taxes.
Valuation allowances are recognized to limit recognition of deferred tax
assets where appropriate. Such allowances may be reversed when
circumstances provide evidence that the deferred tax assets will more likely
than not be realized.  Revenues are recognized as sales when title and risk of loss transfers to
the customer and there is evidence of an agreement and collectibility of
consideration to be received is reasonably assured, all of which generally
occur at the time of shipment. Sales are recorded net of sales returns and
allowances. Shipping and handling fees billed to customers are recorded as
revenue and costs incurred for shipping and handling are recorded in cost of
sales. Amounts related to raw materials provided by customers are excluded
from revenue and cost of sales.  Stock-Based Compensation Stock option grants to employees are accounted for
by the intrinsic value method under Accounting Principles Board (APB)
Opinion No. 25 and related interpretations. SFAS No. 123, Accounting for
Stock-Based Compensation, encourages (but does not require) the cost of
stock options and other stock-based compensation arrangements with employees
to be measured based on the fair value of the equity instrument awarded.
The following table illustrates the effect on income from continuing
operations and related earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123 to stock-based
compensation. 2004
    
    2003
    
    2002Income from continuing operations as reported
    
    $
    1,561,775
    
    
    $
    1,248,047
    
    
    $
    358,362Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects
    
    
    (128,693
    )
    
    
    (72,483
    )
    
    
    (232,698
    )Pro forma income from continuing operations
    
    $
    1,433,082
    
    
    $
    1,175,564
    
    
    $
    125,664Earnings per share:Basic  as reported
    
    $
    0.34
    
    
    $
    0.27
    
    
    $
    0.08Basic  pro forma
    
    $
    0.31
    
    
    $
    0.25
    
    
    $
    0.03Diluted  as reported
    
    $
    0.34
    
    
    $
    0.27
    
    
    $
    0.08Diluted  pro forma
    
    $
    0.31
    
    
    $
    0.25
    
    
    $
    0.03
 Earnings Per Share Basic earnings per share is computed using the weighted
average number of common shares outstanding. Diluted earnings per share
includes common equivalent shares from dilutive stock options outstanding
during the year, the effect of which was 25,878; 9,873 and 2,737 shares in
fiscal 2004, 2003, and 2002, respectively. During 2004, 2003 and 2002,
options to purchase 215,971 shares, 376,700 shares and 448,400 shares, respectively, were
excluded from the diluted earnings per share computation as the effects of
such options would have been anti-dilutive. F-8




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Asset write-downsinclude a $200,000 adjustment related to misappropriation
of inventory by former employees of a supplier in Mexico and $300,000
related to property write-downs at the Dallas, Texas facility.Reclassificationsof certain 2003 and 2002 amounts have been made to conform
to the 2004 presentation.Recently Issued Accounting StandardsIn December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure.
SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation,
and provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation.
In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123
to require disclosures in interim financial statements of the effects of
stock-based compensation. The interim disclosure requirements of SFAS No.
148 are effective for periods beginning after December 15, 2002. The
Companys stock-based compensation related to employees and non-employee
directors is recognized using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and thus there is no compensation expense for options granted
with exercise prices equal to the fair value of the Companys common stock
on the date of the grant.2.
    
    ACCOUNTS RECEIVABLEAccounts receivable are stated net of allowances for doubtful accounts of
$403,830 and $389,321 at September 30, 2004 and 2003, respectively. For the
years ended September 30, 2004, 2003 and 2002, the Company recorded bad debt
expense (income) of $217,496, $(76,356), and $64,066, respectively, and had
write-offs of $202,987, $69,336 and $25,343, respectively. Amounts due from
two multi-national consumer products customers represent 44% and 30% of
total accounts receivable at September 30, 2004 and 2003, respectively.
Accounts receivable include $726,815 for the cost of equipment to be
reimbursed by one of these customers at September 30, 2004.3.
    
    INVENTORIESInventories at September 30 consist of the following: 2004
    
    2003Raw materials
    
    $
    7,941,894
    
    
    $
    3,042,120Finished goods
    
    
    1,683,069
    
    
    
    848,963Total inventories
    
    $
    9,624,963
    
    
    $
    3,891,083
  Finished goods inventories are stated net of allowance for inventory
obsolescence and shrinkage of $336,886 and $413,900 at September 30, 2004
and 2003, respectively. For the years ended September 30, 2004, 2003 and
2002, the Company recorded obsolescence and shrinkage expense (income) of
$(4,737), $(587,551), and 301,661, respectively, and had write-offs of
$72,277, $58,670 and $177,010, respectively. F-9




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4.
    
    PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment at September 30 consist of the following: 2004
    
    2003Land and land improvements
    
    $
    645,751
    
    
    $
    604,756Buildings
    
    
    10,304,654
    
    
    
    9,990,856Leasehold improvements
    
    
    705,410
    
    
    
    693,163Machinery and equipment
    
    
    17,956,245
    
    
    
    14,009,437Computer equipment and software
    
    
    5,487,856
    
    
    
    5,460,368Furniture and fixtures
    
    
    546,105
    
    
    
    546,105Vehicles
    
    
    44,206
    
    
    
    44,20635,690,227
    
    
    
    31,348,891Less accumulated depreciation and amortization
    
    
    19,767,049
    
    
    
    17,565,839Net depreciated value
    
    
    15,923,178
    
    
    
    13,783,052Construction in progress
    
    
    406,157
    
    
    
    535,855Property, plant and equipment  net
    
    $
    16,329,335
    
    
    $
    14,318,907
  Gains or losses on asset sales in fiscal 2004, 2003 and 2002 represent
disposals occurring in the normal course of business.5.
    
    OTHER ASSETSOther assets at September 30 consist of the following: 2004
    
    2003Loan origination and other fees
    
    $
    138,267
    
    
    $
    621,529Less accumulated amortization
    
    
    80,119
    
    
    
    551,773Subtotal
    
    
    58,148
    
    
    
    69,756Note receivable bearing interest at 7% to 10%, due in
variable monthly installments through 2005
    
    
    64,253
    
    
    
    106,902Prepaid rent on leased equipment
    
    
    31,427
    
    
    
    38,836Deposits on equipment to be acquired and other
    
    
    72,805
    
    
    
    72,805Cash surrender value of life insurance
    
    
    165,521
    
    
    
    187,389Other assets  net
    
    $
    392,154
    
    
    $
    475,688
 F-10




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6.
    
    LONG-TERM DEBTLong-term debt at September 30 consists of the following: 2004
    
    2003Long-term note payable to banks, under a $10 million
unsecured credit agreement
    
    $
    2,500,000Variable rate (1.35% at September 30, 2003)
note payable underlying Industrial Development Revenue
Bonds, collateralized by substantially all
assets of the Company, outstanding amount was
redeemed by the Company in May 2004.
    
    
    
    
    
    $
    750,000Total
    
    
    2,500,000
    
    
    
    750,000Less  current portion
    
    
    
    
    
    
    250,000Long term debt  less current portion
    
    $
    2,500,000
    
    
    $
    500,000
  In 1998, the Company entered into an interest rate swap agreement, as a
hedge under which the interest rate on the notional amount of $2,114,272 of
term debt was fixed at 5.87%, plus a profit spread for the lender of between
100 and 150 basis points, depending on certain financial ratios achieved by
the Company. In May 2003, the Company repaid the associated debt and
settled the interest rate swap agreement. The net settlement value of the
interest rate swap agreement was recorded within the statement of
operations.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 for overdrafts. The agreement
expires on May 18, 2007. Borrowings under the line of credit are made under
the base rate account or the Eurodollar account. Interest on amounts
borrowed under the base rate account is calculated based on the greater of
the Federal Funds Effective Rate plus 1/2 of 1% or the Prime Rate on the
date of the borrowing. Interest on amounts borrowed under the Eurodollar
account is calculated based on LIBOR. As of September 30, 2004, the Company
had $1,500,000 outstanding under the base rate account at a rate of 4.75%
and $1,000,000 outstanding under the Eurodollar account at a rate of 3.09%.
The revolving line of credit also includes a commitment to issue commercial
and standby letters of credit not to exceed $1,000,000. There were no
amounts outstanding under the letter of credit commitment as of September
30, 2004. The Company has $7,500,000 available under the line of credit as
of September 30, 2004. The revolving line-of-credit agreement contains
certain restrictive covenants, including requirements to maintain a minimum
tangible net worth and restrictions on maximum allowable debt, stock
purchases, mergers, and payment of dividends. At September 30, 2004, the
Company was in compliance with all of its debt covenants under the
line-of-credit agreement. F-11




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7.
    
    INCOME TAXESThe tax effects of significant items composing the Companys net deferred
tax asset as of September 30 are as follows: 2004
    
    2003Current deferred tax asset:Valuation allowances for accounts receivable and inventories  not currently deductible
    
    $
    297,768
    
    
    $
    334,532Inventory costs capitalized for tax purposes
    
    
    47,081
    
    
    
    5,940Vacation and severance accruals  not currently deductible
    
    
    82,919
    
    
    
    74,878Other accruals  not currently deductible
    
    
    190,820
    
    
    
    100,568Total current assets
    
    
    618,588
    
    
    
    515,918Noncurrent deferred tax liability:Accelerated tax depreciation on property and equipment
    
    
    (1,029,090
    )
    
    
    (1,164,184
    )Accelerated tax amortization of goodwill
    
    
    623,450
    
    
    
    949,587Other
    
    
    
    
    
    
    161,202Total noncurrent liability  net
    
    
    (405,640
    )
    
    
    (53,395
    )Net deferred tax asset
    
    $
    212,948
    
    
    $
    462,523
  The components of income tax expense (benefit) of continuing operations are
as follows: 2004
    
    2003
    
    2002Current tax expense:Federal
    
    $
    681,600
    
    
    $
    968,973
    
    
    $
    141,822State
    
    
    172,816
    
    
    
    236,688
    
    
    
    35,456Total
    
    
    854,416
    
    
    
    1,205,661
    
    
    
    177,278Deferred tax expense (benefit):Federal
    
    
    177,446
    
    
    
    (232,478
    )
    
    
    83,338State
    
    
    44,086
    
    
    
    (57,758
    )
    
    
    20,834Total
    
    
    221,532
    
    
    
    (290,236
    )
    
    
    104,172Income tax expense
    
    $
    1,075,948
    
    
    $
    915,425
    
    
    $
    281,450
 F-12




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Income tax expense varies from the amount determined by applying the
applicable statutory income tax rates to pretax income as follows: 2004
    
    2003
    
    2002Federal income taxes computed at
statutory rates
    
    $
    923,203
    
    
    $
    757,215
    
    
    $
    223,934State income taxes, net of federal tax benefit
    
    
    140,986
    
    
    
    116,074
    
    
    
    36,589Certain goodwill amortization and other
nondeductibles
    
    
    14,895
    
    
    
    24,050
    
    
    
    30,260Other
    
    
    (3,136
    )
    
    
    18,086
    
    
    
    (9,333
    )Income tax expense
    
    $
    1,075,948
    
    
    $
    915,425
    
    
    $
    281,450
  8.
    
    COMMITMENTS AND CONTINGENCIES  LeasesThe Company leases facilities in Green Bay, Wisconsin, from a
partnership composed of certain current and former stockholders. The lease
expires in April 2008, is classified as an operating lease and requires
monthly rental payments of $10,276 which increase 2.5% every six months
through the duration of the lease term. Rental expense for the lease
totaled $121,816 for fiscal 2004 and $111,060 for fiscal 2003 and 2002,
respectively. On the expiration date there is an option for an additional
five year term to be negotiated.  The Company also leases other facilities and equipment under operating
leases. Office and warehouse leases expire in  March 2008.
The equipment leases expire on varying dates over the next five years.Future minimum rental commitments under operating leases with initial or
remaining terms in excess of one year at September 30, 2004 are as follows: 2005
    
    $
    1,276,1272006
    
    
    1,213,1872007
    
    
    1,147,8402008
    
    
    1,032,8972009
    
    
    960,618Thereafter
    
    
    535,607Total
    
    $
    6,166,276
  Rental expense for all operating leases related to continuing operations
totaled $1,319,664, $1,143,594 and $1,380,792 for fiscal 2004, 2003 and
2002, respectively.Commercial Letters of CreditThe Company has no amounts outstanding under
commercial import letters of credit as of September 30, 2004 and 2003.
Letters of credit collateralize the Companys obligations to third parties
for the purchase of inventory. The Company has unused letters of credit of
$1,000,000 and $750,000, available at September 30, 2004 and 2003,
respectively, which is included in the availability under the unsecured
credit agreement at September 30, 2004.LitigationThe Company is subject to lawsuits, investigations, and potential
claims arising out of the ordinary conduct of its business. Management
believes the outcome of these matters will not materially affect the
financial position, results of operations, or cash flows of the Company. F-13




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9.
    
    PROFIT SHARING PLANSThe Company has a defined contribution profit sharing 401(k) plan covering
substantially all employees. The Company makes annual contributions at the
discretion of the board of directors. In addition, the Company matches
certain amounts of an employees contribution. Profit sharing plan expense
relating to the defined contribution profit sharing 401(k) plan related to
continuing operations totaled $240,861, $209,132 and $122,158 for fiscal
2004, 2003 and 2002, respectively.10.
    
    STOCKHOLDERS EQUITYNon-voting Common Stock and Preferred StockAt September 30, 2004 and 2003,
the Company has authorized and unissued 2,000,000 shares of $.01 par value
non-voting common stock and 1,000,000 shares of $.01 par value preferred
stock.Stock Compensation ArrangementsThe 2003 Non-Qualified Stock Option Plan
currently reserves 300,000 shares of common stock for grants to selected
employees through April 30, 2013 and provides that the price and exercise
period be determined by the board of directors which should be at least
equal to fair value at the date of grant. Options vest primarily over three
years and expire 5 to 10 years from date of grant. During fiscal 2004, 2003
and 2002, options to purchase 37,000, 51,200 and 90,500 shares,
respectively, of voting common stock were granted.The 2004 Non-Employee Director Stock Option Plan (2004 Plan) for
non-employee members of the board of directors reserves 150,000 shares of
common stock for grants through March 2014 and provides that the exercise
price be at least equal to fair value at the date of grant. Options are
exercisable immediately and for a period of 10 years. Prior to the 2004
Plan, the Company had a similar plan that was created in 1993 (1993 Plan)
that expired in March 2004. During each of the fiscal years 2004, 2003 and
2002, options to purchase 15,000 shares of voting common stock were granted
under the 1993 and 2004 plan.The following information summarizes the shares subject to options: Weighted Average ExerciseNumber of Shares
    
    Price per share2004
    
    2003
    
    2002
    
    2004
    
    2003
    
    2002Options
outstanding beginning of year
    
    
    453,700
    
    
    
    454,400
    
    
    
    443,400
    
    
    $
    7.51
    
    
    $
    7.87
    
    
    $
    8.23Granted
    
    
    52,000
    
    
    
    66,200
    
    
    
    105,500
    
    
    
    6.24
    
    
    
    5.27
    
    
    
    6.64Terminated
    
    
    (5,300
    )
    
    
    (66,900
    )
    
    
    (94,500
    )
    
    
    7.70
    
    
    
    7.82
    
    
    
    8.14Options outstanding  end of year
    
    
    500,400
    
    
    
    453,700
    
    
    
    454,400
    
    
    
    7.39
    
    
    
    7.51
    
    
    
    7.87Options exercisable  end of year
    
    
    409,700
    
    
    
    395,367
    
    
    
    328,233
    
    
    
    7.71
    
    
    
    7.77
    
    
    
    7.97Reserved for future options
at September 30
    
    
    398,200
    
    
    
    300,000
 F-14




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The following table summarizes additional information about stock options
outstanding and exercisable at September 30, 2004: Number of Shares
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageRange of
    
    Number of
    
    Contractual
    
    Exercise
    
    Number of
    
    ExerciseExercise Prices
    
    Shares
    
    Life
    
    Price
    
    Shares
    
    Price$4.50 - 7.00
    
    
    182,850
    
    
    3.6 years
    
    $
    6.65
    
    
    
    162,017
    
    
    $
    6.677.00 - 10.00
    
    
    317,550
    
    
    4.1 years
    
    
    7.82
    
    
    
    247,683
    
    
    
    8.404.50 - 10.00
    
    
    500,400
    
    
    3.9 years
    
    
    7.39
    
    
    
    409,700
    
    
    
    7.71
  In the pro forma calculations as included in Note 1, the weighted average
fair value of options granted during 2004, 2003 and 2002 was estimated at
$4.02, $3.30 and $3.32 per share, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used
for grants in 2004, 2003 and 2002: 2004
    
    2003
    
    2002Risk-free interest rate
    
    
    3.5%-3.7
    %
    
    
    3.5%-5.0
    %
    
    
    4.3%-5.2
    %Expected volatility
    
    
    70.0
    %
    
    
    70.0
    %
    
    
    50.0
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected option life, standard option (years)
    
    
    7.0
    
    
    
    7.0
    
    
    
    7.0
  In fiscal 2001, the Company received notes from various employees to
facilitate the exercise of employee stock options. The notes receivable
with recourse included interest at 5% to 8.5% payable annually. The notes
were repaid in 2003. In fiscal 2004, no employee stock options were
exercised.11.
    
    RELATED-PARTY TRANSACTIONSThe Company has an agreement with Bradford Ventures, Ltd., an affiliate of
the two largest stockholders of the Company, under which Bradford Ventures,
Ltd. provides various financial and management consulting services until
January 2004, when the agreement was automatically renewed as it was not
terminated by either party. The agreement calls for an annual fee of
$210,000 with annual increases of 5% plus reimbursement of reasonable
out-of-pocket expenses. The Company believes the terms of its consulting
agreement are comparable to those available from unaffiliated third parties
for similar services. Consulting expense was $319,320, $304,114 and
$289,633 for fiscal 2004, 2003 and 2002, respectively.As discussed in footnote 8 Commitments and Contingencies, the Company
leases facilities from a partnership composed of current and former
shareholders. F-15




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##### Table of Contents



12.
    
    SUPPLEMENTAL CASH FLOW INFORMATIONThe following is provided as supplemental information to the consolidated
statements of cash flows: 2004
    
    2003
    
    2002Interest paid
    
    $
    44,460
    
    
    $
    234,103
    
    
    $
    461,226Income taxes paid, net of refunds
    
    $
    200,000
    
    
    $
    250,695
    
    
    $
    363,350
  13.
    
    MAJOR CUSTOMER AND SEGMENT INFORMATIONTwo significant customers, which are large multi-national consumer products
companies, accounted for the following percentage of total sales: 2004
    
    2003
    
    2002Contract manufacturing segment:Customer A
    
    
    13
    %
    

    
    33
    %
    
    
    39
    %Customer B
    
    
    41
    %
    
    
    3
    %
  The Company operates in a single industry since it manufactures and
distributes custom paper-based and woven products, and provides contract
manufacturing, specialty printing and related services on these types of
products. The Company does, however, separate its operations and prepares
information for management use by the market segment aligned with the
Companys products and services. Such market segment information is
summarized below. The Contract Manufacturing segment provides services to
large national consumer products companies while the Business Imaging
segment manufactures and distributes printed and unprinted business imaging
paper products for a variety of business needs. During fiscal 2003, the
Company sold the Paint Sundries segment. The assets associated with the
discontinued operations are included in the corporate and other segment for
fiscal 2002. Contract
    
    Business
    
    CorporateFiscal 2004
    
    Manufacturing
    
    Imaging
    
    and Other
    
    ConsolidatedNet sales
    
    $
    53,688,358
    
    
    $
    24,166,137
    
    
    
    
    
    
    $
    77,854,495Gross profit
    
    
    5,099,202
    
    
    
    2,590,955
    
    
    
    
    
    
    
    7,690,157Operating income (loss)
    
    
    2,275,640
    
    
    
    1,288,326
    
    
    $
    (874,702
    )
    
    
    2,689,264Depreciation and amortization
expense
    
    
    1,226,933
    
    
    
    495,590
    
    
    
    678,080
    
    
    
    2,400,603Capital expenditures
    
    
    4,089,369
    
    
    
    284,325
    
    
    
    
    
    
    
    4,373,694Assets:Inventories
    
    $
    7,209,879
    
    
    $
    2,415,084
    
    
    
    
    
    
    $
    9,624,963Property, plant and
equipment  net
    
    
    12,878,285
    
    
    
    2,902,613
    
    
    $
    548,437
    
    
    
    16,329,335Accounts receivable and other
(including goodwill)
    
    
    13,861,673
    
    
    
    5,989,291
    
    
    
    1,177,290
    
    
    
    21,028,254Total assets
    
    $
    33,949,837
    
    
    $
    11,306,988
    
    
    $
    1,725,727
    
    
    $
    46,982,552
 F-16




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##### Table of Contents



Contract
    
    Business
    
    CorporateFiscal 2003
    
    Manufacturing
    
    Imaging
    
    and Other
    
    ConsolidatedNet sales
    
    $
    30,005,732
    
    
    $
    25,344,795
    
    
    $
    (143,869
    )
    
    $
    55,206,658Gross profit
    
    
    4,977,156
    
    
    
    2,981,962
    
    
    
    (217,568
    )
    
    
    7,741,550Operating income (loss)
    
    
    2,277,014
    
    
    
    911,188
    
    
    
    (773,579
    )(1)
    
    
    2,414,622Depreciation and
amortization expense
    
    
    1,077,267
    
    
    
    554,733
    
    
    
    1,180,471
    
    
    
    2,812,471Capital expenditures
    
    
    2,269,674
    
    
    
    102,872
    
    
    
    
    
    
    
    2,372,546Assets:Inventories
    
    $
    1,975,398
    
    
    $
    1,915,685
    
    
    
    
    
    
    $
    3,891,083Property, plant and
equipment  net
    
    
    10,031,794
    
    
    
    3,134,751
    
    
    $
    1,152,362
    
    
    
    14,318,907Accounts receivable and
other (including goodwill)
    
    
    8,932,255
    
    
    
    6,565,306
    
    
    
    4,318,208
    
    
    
    19,815,769Total assets
    
    $
    20,939,447
    
    
    $
    11,615,742
    
    
    $
    5,470,570
    
    
    $
    38,025,759
 Contract
    
    Business
    
    CorporateFiscal 2002
    
    Manufacturing
    
    Imaging
    
    and Other
    
    ConsolidatedNet sales
    
    $
    27,848,224
    
    
    $
    23,161,145
    
    
    $
    (575,340
    )
    
    $
    50,434,029Gross profit
    
    
    4,695,116
    
    
    
    1,872,380
    
    
    
    (114,254
    )
    
    
    6,453,242Operating income (loss)
    
    
    2,271,070
    
    
    
    (1,929,724
    )(2)
    
    
    734,819
    (1)
    
    
    1,076,165Depreciation and
amortization expense
    
    
    1,093,244
    
    
    
    804,144
    
    
    
    1,030,600
    
    
    
    2,927,988Capital expenditures
    
    
    839,848
    
    
    
    35,203
    
    
    
    224,312
    
    
    
    1,099,363Assets:Inventories
    
    $
    1,490,516
    
    
    $
    2,175,432
    
    
    $
    3,021,152
    
    
    $
    6,687,100Property, plant and
equipment  net
    
    
    8,950,575
    
    
    
    3,775,801
    
    
    
    3,578,472
    
    
    
    16,304,848Accounts receivable and
other (including goodwill)
    
    
    7,240,292
    
    
    
    5,930,757
    
    
    
    11,004,146
    
    
    
    24,175,195Total assets
    
    $
    17,681,383
    
    
    $
    11,881,990
    
    
    $
    17,603,770
    
    
    $
    47,167,143
  (1)
    
    Amounts include employee severance costs of $333,114 and
$209,324 for fiscal years 2003 and 2002, respectively.(2)
    
    Amount includes facility closing costs of $434,882, facility
restructuring costs of $232,958, and asset write-downs of $547,562.  Pursuant to authorization by the Board of Directors, the Company formalized
a plan in March 2003 to relocate the accounting and information technology
departments from the Dallas, Texas location to the Green Bay, Wisconsin
Corporate office. As a result, the Company provided one-time termination
benefits payable August 31, 2003 for employees in the Dallas office. The
liability for the termination benefits was recognized ratably over the
future service period as required by SFAS No. 146. Severance F-17




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##### Table of Contents



costs also
included costs related to the elimination of several salary positions. The
2002 expense relates primarily to severance pursuant to an employment
agreement with a former executive. Severance costs incurred and paid for
the fiscal year 2003 were $333,114. There were no employee related
severance costs in 2004.In fiscal 2002, the Company announced plans to close its Dallas, Texas
operations and, at September 30, 2002, accrued the estimated property
write-downs, building and equipment abandonment, and other related costs.
In fiscal 2003, the closure was completed, the estimated liabilities were
paid substantially as accrued, and there is no remaining liability as of
September 30, 2003. There were no facility closing costs during 2004.14.
    
    DISCONTINUED OPERATIONSOn January 27, 2003, the Companys Board of Directors approved a plan to
dispose of the operations of the Paint Sundries segment. The Company sold
the assets and business of the Paint Sundries segment for approximately
$12.2 million in cash to Trimaco, LLC and its affiliate. The sale included
all Paint Sundries segment assets, including the stock of Foremost
Manufacturing Company and the Manning, South Carolina manufacturing
facility. Accordingly, the operating results of the Paint Sundries segment
have been reported separately from continuing operations and reported as a
separate line item in the consolidated statement of operations. The
Company has also restated its 2002 consolidated statements of operations to
present the earnings of the Paint Sundries segment as a discontinued
operation. Interest expense was not allocated to the discontinued segment.
The Company recorded a $0.4 million loss ($0.2 million after tax) on the
sale of the Paint Sundries segment which includes a $0.1 million gain on
the sale of assets offset by $0.5 million of fees and expenses associated
with the sale. The Company provided certain accounting and information
technology services to Trimaco, LLC from the date of the sale to October
15, 2003 for an agreed upon fee.In finalizing the income taxes applicable to the disposition of the Paint
Sundries segment in connection with the filing of the tax return, the
Company changed estimates regarding income taxes payable related to the
sale. The change in estimate is reflected in discontinued operations as a
reduction of income tax expense of $0.4 million all of which was recorded
in the fourth fiscal quarter when the tax return was filed.Operating results from discontinued operations were as follows: 2003
    
    2002Net sales
    
    $
    9,698,802
    
    
    $
    25,222,910Loss before income taxes
    
    
    (379,240
    )
    
    
    (1,497,008
    )Income tax benefit
    
    
    154,596
    
    
    
    385,622Loss from discontinued operations
    
    $
    (224,644
    )
    
    $
    (1,111,386
    )
 F-18




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The components of disposed assets and liabilities were as follows: Accounts receivable  net
    
    $
    4,872,707Inventory  net
    
    
    3,122,830Equipment  net
    
    
    328,090Building  net
    
    
    2,448,916Goodwill
    
    
    3,133,638Other assets
    
    
    292,500Accounts payable
    
    
    (1,848,388
    )Other accruals
    
    
    (281,959
    )Total net book value of disposed assets
    
    $
    12,068,334
 * * * * * * F-19