##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended September 30, 2005
 or
 o
    
    Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
 For
the transition period from ___ to ___.
 Commission file number 0-21018
 TUFCO TECHNOLOGIES, INC.
  Delaware
    
    39-1723477(State or other jurisdiction
of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 PO Box 23500, Green Bay, WI
    
    54305(Address of principal executive offices)
    
    (Zip Code)
 920-336-0054
 None
  Common Stock, par value $0.01 per share
 o þ
 o þ
  þ o
 o
 o þ
 o þ




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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) (1)ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A  CONTROLS AND PROCEDURESITEM 9B  OTHER INFORMATIONPART IIIITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11  EXECUTIVE COMPENSATIONITEM 12   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14  PRINCIPAL ACCOUNTING FEES AND SERVICESPART IVITEM 15- EXHIBITS, FINANCIAL STATEMENT SCHEDULESSIGNATURESConsent of Deloitte & Touche LLPCertification Pursuant to Rule 13a-14(a)Certification Pursuant to Rule 13a-14(a)Certification Pursuant to Section 906Certification Pursuant to Section 906    Table of Contents  
 PART I
 
 ITEM 1  BUSINESS
 General
     Products and Services
  1




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##### Table of Contents



Contract Manufacturing
     
  Business Imaging
    2




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Business Imaging (Continued)
   Manufacturing and Operations
      3




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Sales and Marketing
     Competition
   4




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Competition (Continued)
   Product Development and Quality Control
  rd
 Raw Materials and Suppliers
   5




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Environmental Matters
    Employees
  Working Capital
   6




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ITEM 2  PROPERTIES
     
 ITEM 3  LEGAL PROCEEDINGS
  
 ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  7




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PART II
 
 ITEM 5  MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES
OF EQUITY SECURITIES
  High
    
    Low
    
    CloseFiscal 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
    
    
    $
    7.890Fiscal 2005:Quarter ended December 31, 2004
    
    $
    8.850
    
    
    $
    5.000
    
    
    $
    8.760Quarter ended March 31, 2005
    
    $
    9.100
    
    
    $
    6.060
    
    
    $
    6.450Quarter ended June 30, 2005
    
    $
    6.650
    
    
    $
    5.550
    
    
    $
    6.200Quarter ended September 30, 2005
    
    $
    6.940
    
    
    $
    5.300
    
    
    $
    6.300
   Issuer Purchases of Equity Securities
  Maximum NumberTotal Number of
    
    Of Shares ThatTotal Number
    
    
    
    
    
    Shares Purchased as
    
    May Yet BeOf Shares
    
    Average Price
    
    Part of Publicly
    
    Purchased UnderPeriod
    
    Purchased
    
    Paid per Share
    
    Announced Plan
    
    The PlanAugust
(8/1/05-8/31/05)
    
    
    3,000
    
    
    $
    5.64
    
    
    
    3,000
    
    
    
    262,800
  8




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ITEM 6  SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data) (1)
 Years Ended September 30,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Statement of Operations Data:Net sales
    
    $
    79,781
    
    
    $
    77,854
    
    
    $
    55,207
    
    
    $
    50,434
    
    
    $
    60.071Cost of sales
    
    
    74,447
    
    
    
    70,164
    
    
    
    47,465
    
    
    
    43,981
    
    
    
    51,515Gross profit
    
    
    5,334
    
    
    
    7,690
    
    
    
    7,742
    
    
    
    6,453
    
    
    
    8,502Selling, general and administrative
expenses
    
    
    4,587
    
    
    
    4,998
    
    
    
    4,885
    
    
    
    3,962
    
    
    
    3,811Amortization of goodwill (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    381Facility restructuring cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    233
    
    
    
    Facility closing cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    435
    
    
    
    Employee severance cost
    
    
    
    
    
    
    
    
    
    
    333
    
    
    
    209
    
    
    
    10Asset write-downs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    548
    
    
    
    (Gain) loss on asset sales
    
    
    (442
    )
    
    
    3
    
    
    
    109
    
    
    
    (10
    )
    
    
    (147
    )Operating income
    
    
    1,189
    
    
    
    2,689
    
    
    
    2,415
    
    
    
    1,076
    
    
    
    4,447Interest expense
    
    
    (63
    )
    
    
    (48
    )
    
    
    (202
    )
    
    
    (461
    )
    
    
    (960
    )Interest income and other income (expense)
    
    
    26
    
    
    
    (3
    )
    
    
    (49
    )
    
    
    24
    
    
    
    277Income from continuing operations before
income taxes
    
    
    1,152
    
    
    
    2,638
    
    
    
    2,164
    
    
    
    639
    
    
    
    3,764Income tax expense
    
    
    452
    
    
    
    1,076
    
    
    
    916
    
    
    
    281
    
    
    
    1,514Income from continuing operations
    
    
    700
    
    
    
    1,562
    
    
    
    1,248
    
    
    
    358
    
    
    
    2,250Gain (loss) from discontinued operationsLoss from operations of discontinued segment,
net of tax
    
    
    
    
    
    
    
    
    
    
    (225
    )
    
    
    (1,111
    )
    
    
    (825
    )Gain (loss) from sale of discontinued operations,
net of tax
    
    
    
    
    
    
    400
    
    
    
    (244
    )
    
    
    
    
    
    
    Income (loss) before accounting change
    
    
    700
    
    
    
    1,962
    
    
    
    779
    
    
    
    (753
    )
    
    
    1,425Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,652
    )
    
    
    Net income (loss)
    
    $
    700
    
    
    $
    1,962
    
    
    $
    779
    
    
    $
    (5,405
    )
    
    $
    1,425Basic Earnings (Loss) Per Share:Income from continuing operations
    
    $
    0.15
    
    
    $
    0.34
    
    
    $
    0.27
    
    
    $
    0.08
    
    
    $
    0.49Loss from operations of discontinued segment
    
    
    
    
    
    
    
    
    
    
    (0.05
    )
    
    
    (0.24
    )
    
    
    (0.18
    )Gain (loss) from sale of discontinued operations
    
    
    
    
    
    
    0.09
    
    
    
    (0.05
    )
    
    
    
    
    
    
    Income before accounting change
    
    $
    0.15
    
    
    $
    0.43
    
    
    
    0.17
    
    
    
    (0.16
    )
    
    
    0.31Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.01
    )
    
    
    Net income (loss)
    
    $
    0.15
    
    
    $
    0.43
    
    
    $
    0.17
    
    
    $
    (1.17
    )
    
    $
    0.31Diluted Earnings (Loss) Per Share:Income from continuing operations
    
    $
    0.15
    
    
    $
    0.34
    
    
    $
    0.27
    
    
    $
    0.08
    
    
    $
    0.48Loss from operations of discontinued segment
    
    
    
    
    
    
    
    
    
    
    (0.05
    )
    
    
    (0.24
    )
    
    
    (0.18
    )Gain (loss) from sale of discontinued operations
    
    
    
    
    
    
    0.09
    
    
    
    (0.05
    )
    
    
    
    
    
    
    Income before accounting change
    
    $
    0.15
    
    
    $
    0.43
    
    
    
    0.17
    
    
    
    (0.16
    )
    
    
    0.31Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.01
    )
    
    
    Net income (loss)
    
    $
    0.15
    
    
    $
    0.43
    
    
    $
    0.17
    
    
    $
    (1.17
    )
    
    $
    0.31Weighted average common shares outstanding:Basic
    
    
    4,565
    
    
    
    4,582
    
    
    
    4,616
    
    
    
    4,628
    
    
    
    4,614Diluted
    
    
    4,583
    
    
    
    4,608
    
    
    
    4,626
    
    
    
    4,631
    
    
    
    4,642Other Data:Depreciation and amortization (3)
    
    $
    2,019
    
    
    $
    2,401
    
    
    $
    2,812
    
    
    $
    2,928
    
    
    $
    3,301Capital expenditures
    
    $
    1,626
    
    
    $
    4,374
    
    
    $
    2,373
    
    
    $
    1,099
    
    
    $
    1,037Balance Sheet Data (at September 30):Working capital
    
    $
    15,409
    
    
    $
    14,422
    
    
    $
    12,035
    
    
    $
    11,303
    
    
    $
    6,692Total assets
    
    
    44,486
    
    
    
    46,983
    
    
    
    38,026
    
    
    
    47,167
    
    
    
    58,944Total  current and long-term debt
    
    
    1,113
    
    
    
    2,500
    
    
    
    750
    
    
    
    6,157
    
    
    
    12,460Stockholders equity
    
    
    35,917
    
    
    
    35,449
    
    
    
    33,487
    
    
    
    32,808
    
    
    
    38,054
  9




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ITEM 6  SELECTED CONSOLIDATED FINANCIAL DATA (Continued)
 (1)
    
    Financial data for fiscal 2001 through 2005 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 2005, 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. Had
goodwill not been amortized for the year ended September 30, 2001, basic and diluted
earnings per share would have been $0.05 higher.(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
  General
   Results of Operations
  10




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Results of Operations (continued)
  Year-to-YearPercentage of Net Sales
    
    
    Percentage Change2005
    
    
    2004
    
    
    2003
    
    
    2005 to 2004
    
    
    2004 to 2003Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    2
    %
    
    
    41
    %Cost of sales
    
    
    93.3
    
    
    
    90.1
    
    
    
    86.0
    
    
    
    6
    
    
    
    48Gross profit
    
    
    6.7
    
    
    
    9.9
    
    
    
    14.0
    
    
    
    -31
    
    
    
    -1Selling, general and administrative
expenses
    
    
    5.7
    
    
    
    6.4
    
    
    
    8.8
    
    
    
    -8
    
    
    
    2Employee severance cost
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.6
    
    
    
    
    
    
    
    -100Loss (gain) on asset sales
    
    
    -0.6
    
    
    
    0.0
    
    
    
    0.2
    
    
    NM
    
    
    
    -97Operating income
    
    
    1.5
    
    
    
    3.5
    
    
    
    4.4
    
    
    
    -56
    
    
    
    11Interest expense
    
    
    -0.1
    
    
    
    -0.1
    
    
    
    -0.4
    
    
    NM
    
    
    
    -76Interest income and other income (expense)
    
    
    0.0
    
    
    
    0.0
    
    
    
    -0.1
    
    
    NM
    
    
    
    -94Income from continuing operations before
income taxes and accounting change
    
    
    1.4
    
    
    
    3.4
    
    
    
    3.9
    
    
    
    -56
    
    
    
    22Income tax expense
    
    
    0.6
    
    
    
    1.4
    
    
    
    1.7
    
    
    
    -58
    
    
    
    17Income from continuing operations
    
    
    0.9
    
    
    
    2.0
    
    
    
    2.2
    
    
    
    -55
    
    
    
    25Gain from discontinued operations
    
    
    0.0
    
    
    
    0.5
    
    
    
    0.8
    
    
    
    -100
    
    
    
    -185Income before accounting change
    
    
    0.9
    
    
    
    2.5
    
    
    
    1.4
    
    
    
    -64
    
    
    
    152Net income
    
    
    0.9
    %
    
    
    2.5
    %
    
    
    1.4
    %
    
    
    -64
    %
    
    
    152
    %
  2005
    
    
    2004
    
    
    2003% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofNet Sales
    
    Amount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    Amount
    
    
    Total(Dollars in millions)Contract manufacturing and printing
    
    $
    55.2
    
    
    
    69
    %
    
    $
    53.7
    
    
    
    69
    %
    
    $
    30.0
    
    
    
    54
    %Business imaging paper products
    
    
    24.6
    
    
    
    31
    %
    
    
    24.2
    
    
    
    31
    %
    
    
    25.3
    
    
    
    46
    %Net sales
    
    $
    79.8
    
    
    
    100
    %
    
    $
    77.9
    
    
    
    100
    %
    
    $
    55.3
    
    
    
    100
    %
 Margin
    
    
    
    
    
    
    Margin
    
    
    
    
    
    
    MarginGross Profit
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Contract manufacturing and printing
    
    $
    3.4
    
    
    
    6
    %
    
    $
    5.1
    
    
    
    9
    %
    
    $
    5.0
    
    
    
    17
    %Business imaging paper products
    
    
    1.9
    
    
    
    8
    %
    
    
    2.6
    
    
    
    11
    %
    
    
    3.0
    
    
    
    11
    %Gross profit
    
    $
    5.3
    
    
    
    7
    %
    
    $
    7.7
    
    
    
    10
    %
    
    $
    8.0
    
    
    
    14
    %
 11




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Fiscal Year Ended September 30, 2005 Compared to September 30, 2004
 Net Sales
  Gross profit
 Selling, general and administrative expenses
 (Gain) loss on asset sales
 Interest expense
 Income taxes
 Gain (loss) from sale of discontinued operations
 Basic and diluted net earnings per share
 12




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Fiscal Year Ended September 30, 2004 Compared to September 30, 2003
 Net Sales
  Gross profit
 Selling, general and administrative expenses
 Amortization of goodwill
 Severance expense
 (Gain) loss on asset sales
 Interest expense
 Income taxes
 Loss from operations of discontinued segment
 13




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Fiscal Year Ended September 30, 2004 Compared to September 30, 2003 (Continued)
 Gain (loss) from sale of discontinued operations
 Basic and diluted net earnings per share
 Selected Quarterly Financial Data
  14




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Selected Quarterly Financial Data (Continued)
 Fiscal 2005 (
 First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterNet sales
    
    $
    20,004
    
    
    $
    21,215
    
    
    $
    18,612
    
    
    $
    19,949Gross profit
    
    
    1,451
    
    
    
    1,391
    
    
    
    1,199
    
    
    
    1,292Operating expenses
    
    
    762
    
    
    
    1,158
    
    
    
    1,115
    
    
    
    1,111Operating income
    
    
    689
    
    
    
    234
    
    
    
    85
    
    
    
    181Income before income taxes
    
    
    690
    
    
    
    231
    
    
    
    67
    
    
    
    164Income tax expense
    
    
    282
    
    
    
    91
    
    
    
    14
    
    
    
    64Income from continuing operations
    
    
    408
    
    
    
    140
    
    
    
    53
    
    
    
    100Net income
    
    
    408
    
    
    
    140
    
    
    
    53
    
    
    
    100Income from continuing operations per share:Basic
    
    
    0.09
    
    
    
    0.03
    
    
    
    0.01
    
    
    
    0.02Diluted
    
    
    0.09
    
    
    
    0.03
    
    
    
    0.01
    
    
    
    0.02Net income per share:Basic
    
    
    0.09
    
    
    
    0.03
    
    
    
    0.01
    
    
    
    0.02Diluted
    
    
    0.09
    
    
    
    0.03
    
    
    
    0.01
    
    
    
    0.02
 Fiscal 2004
 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
  15




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Liquidity and Capital Resources
       16




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##### Table of Contents



Liquidity and Capital Resources (Continued)
        17




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##### Table of Contents



Off Balance Sheet Arrangements
  Contractual Obligation Data
  Payments Due By PeriodLess
    
    
    
    
    
    
    
    
    
    
    MoreThan 1
    
    
    2-3
    
    
    4-5
    
    
    ThanTotal
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    5 YearsLong Term Debt (1)
    
    
    1,112,636
    
    
    
    
    
    
    
    1,112,636
    
    
    
    
    
    
    
    Capital Lease Obligations and Other
Long Term Liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases
    
    
    4,920,119
    
    
    
    1,238,464
    
    
    
    2,185,429
    
    
    
    1,496,226
    
    
    
    Unconditional Purchase Obligations (2)
    
    
    997,175
    
    
    
    997,175
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Cash Obligations
    
    
    7,029,930
    
    
    
    2,235,639
    
    
    
    3,298,065
    
    
    
    1,496,226
    
    
    
    
 
 (1)
    
    Based on the rates and the current amount of debt outstanding at September 30, 2005, cash payments for
interest on long-term debt would be approximately $110,922 for 2006 and 2007.(2)
    
    As of December 16, 2005 the Company had unconditional purchase obligations of approximately $1.4
million for two new wipe converting lines related to the capital equipment expansion program announced by the
Company on June 8, 2005. Critical Accounting Policies
    18




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##### Table of Contents



Critical Accounting Policies (Continued)
    Goodwill and Other Intangible Assets
 Accounting for the Impairment for Disposal of Long-Lived Assets,
  Recently Issued Accounting Standards
 
 19




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##### Table of Contents



Recently Issued Accounting Standards (Continued)
  20




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##### Table of Contents



ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Currency Exchange Risk
 Commodity Price Risk
 Other Relevant Market Risks-
 
 ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A  CONTROLS AND PROCEDURES
   21




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##### Table of Contents



ITEM 9A  CONTROLS AND PROCEDURES (Continued)
  
 ITEM 9B  OTHER INFORMATION
  
 PART III
 
 ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 THE DIRECTORS OF THE COMPANY
  Name
    
    Age
    
    Position HeldRobert J. Simon
    
    
    47
    
    
    Chairman of the Board of DirectorsSamuel J. Bero
    
    
    70
    
    
    DirectorC. Hamilton Davison, Jr.
    
    
    46
    
    
    DirectorLouis LeCalsey, III
    
    
    66
    
    
    Director, President and Chief Executive OfficerWilliam J. Malooly
    
    
    63
    
    
    DirectorSeymour S. Preston, III
    
    
    72
    
    
    Director
 Mr. Simon
 Mr. Bero
 Mr. Davison
 Mr. LeCalsey
 22




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##### Table of Contents



ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
 Mr. Malooly
 Mr. Preston
  THE EXECUTIVE OFFICERS OF THE COMPANY
 Name
    
    Age
    
    Positions With the CompanyLouis LeCalsey, III
    
    
    66
    
    
    Director, President and Chief Executive OfficerMichael B. Wheeler
    
    
    60
    
    
    Vice President/Chief Financial OfficerMadge J. Joplin
    
    
    58
    
    
    Vice President, Sales and OperationsMichele M. Corrigan
    
    
    37
    
    
    Vice President, Sales and Marketing
  Executive Officers
 Louis LeCalsey, III
 Michael B. Wheeler,
 Madge J. Joplin
 Michele
M. Corrigan
 23




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##### Table of Contents



Audit Committee
  Code of Ethics
  Compliance with Section 16(a) of the Securities Exchange Act
   
 ITEM
11  EXECUTIVE COMPENSATION
 Director Compensation
  
    
    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.
  24




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##### Table of Contents



Compensation of Executive Officers
  Annual Compensation
 Long TermCompensationSecuritiesName and
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Annual
    
    
    Underlying
    
    
    All OtherPrincipal Position
    
    Fiscal Year
    
    
    Salary
    
    
    Bonus
    
    
    Compensation(1)
    
    
    Options
    
    
    Compensation(2)Louis LeCalsey, III
    
    
    2005
    
    
    $
    273,021
    
    
    $
    0
    
    
    
    0
    
    
    
    12,000
    
    
    $
    6,111Director, President
    
    
    2004
    
    
    
    269,500
    
    
    
    72,000
    
    
    
    0
    
    
    
    15,000
    
    
    
    4,556and CEO
    
    
    2003
    
    
    
    262,500
    
    
    
    60,000
    
    
    
    0
    
    
    
    16,500
    
    
    
    4,346Michael B. Wheeler
    
    
    2005
    
    
    $
    187,708
    
    
    $
    0
    
    
    
    0
    
    
    
    9,000
    
    
    $
    0Vice President, CFO
    
    
    2004
    
    
    
    185,000
    
    
    
    48,000
    
    
    
    0
    
    
    
    11,000
    
    
    
    0Secretary and Treasurer
    
    
    2003
    
    
    
    173,500
    
    
    
    40,000
    
    
    
    0
    
    
    
    12,500
    
    
    
    0Madge Joplin
    
    
    2005
    
    
    $
    128,760
    
    
    $
    0
    
    
    
    0
    
    
    
    3,000
    
    
    $
    3,319Vice President, Sales
    
    
    2004
    
    
    
    122,500
    
    
    
    19,600
    
    
    
    0
    
    
    
    4,000
    
    
    
    2,573and Operations
    
    
    2003
    
    
    
    118,500
    
    
    
    23,700
    
    
    
    0
    
    
    
    4,500
    
    
    
    2,370Michele M. Corrigan
    
    
    2005
    
    
    $
    157,424
    
    
    $
    0
    
    
    
    0
    
    
    
    3,000
    
    
    $
    4,095Vice President, Sales
    
    
    2004
    
    
    
    159,500
    
    
    
    38,625
    
    
    
    0
    
    
    
    4,000
    
    
    
    3,627and Marketing
    
    
    2003
    
    
    
    154,500
    
    
    
    30,900
    
    
    
    0
    
    
    
    4,500
    
    
    
    3,090
 
 (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. Employment Contracts, Termination of Employment and Change-In-Control Arrangements
   25




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##### Table of Contents



Employment Contracts, Termination of Employment and Change-In-Control Arrangements (Continued)
   Option Tables
  Fiscal Year 2005 Option Grants
 Potential RealizableValue at AssumedNumber of
    
    Individual Option Grants
    
    
    
    
    
    Annual Rates of StockShares
    
    % of Total
    
    
    
    
    
    
    
    
    
    Price Appreciation atUnderlying
    
    Options Granted to
    
    Exercise
    
    
    
    End of Ten YearOptions
    
    Employees in
    
    Price Per
    
    Expiration
    
    Option Term(2)NAME
    
    Granted(1)
    
    Fiscal Year 2005
    
    Share
    
    Date
    
    5%
    
    10%Louis LeCalsey, III
    
    
    12,000
    
    
    
    27%
    
    
    $
    7.87
    
    
    
    11/18/2014
    
    
    
    59,393
    
    
    
    150,513Michael B. Wheeler
    
    
    9,000
    
    
    
    20%
    
    
    $
    7.87
    
    
    
    11/18/2014
    
    
    
    44,545
    
    
    
    112,885Madge Joplin
    
    
    3,000
    
    
    
    7%
    
    
    $
    7.87
    
    
    
    11/18/2014
    
    
    
    14,848
    
    
    
    37,628Michele M. Corrigan
    
    
    3,000
    
    
    
    7%
    
    
    $
    7.87
    
    
    
    11/18/2014
    
    
    
    14,848
    
    
    
    37,628
 
 (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. 26




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##### Table of Contents



Option Exercises And Fiscal Year-End Option Values
  Aggregate Option Exercises In Fiscal Year 2005 And
Fiscal 2005 Year-End Option Values
 NUMBER OF SHARESSHARES
    
    
    
    
    
    UNDERLYING UNEXERCISED
    
    VALUE OF UNEXERCISEDACQUIRED
    
    
    
    
    
    OPTIONS AT FISCAL 2005
    
    IN-THE-MONEY OPTIONS ATON
    
    VALUE
    
    YEAR-END
    
    FISCAL 2005 YEAR-END1NAME
    
    EXERCISE(#)
    
    REALIZED($)
    
    EXERCISABLE
    
    UNEXERCISABLE
    
    EXERCISABLE
    
    UNEXERCISABLELouis LeCalsey, III
    
    
    
    
    
    
    
    
    
    
    235,000
    
    
    
    27,500
    
    
    $
    18,130
    
    
    $
    13,490Michael B. Wheeler
    
    
    
    
    
    
    
    
    
    
    27,000
    
    
    
    20,500
    
    
    
    22,663
    
    
    
    10,077Madge Joplin
    
    
    
    
    
    
    
    
    
    
    27,833
    
    
    
    7,167
    
    
    
    4,926
    
    
    
    3,644Michele M. Corrigan
    
    
    
    
    
    
    
    
    
    
    46,833
    
    
    
    7,167
    
    
    
    4,926
    
    
    
    3,644
 
 1
    
    Represents the value of unexercised, in-the-money stock options at September 30, 2005, using
the $6.30 per share closing price on that date. 27




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##### Table of Contents



REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
      Respectfully submitted,Compensation Committee:Samuel J. BeroC. Hamilton Davison, Jr.Robert J. Simon
 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
  28




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##### Table of Contents



PERFORMANCE GRAPH
  COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG TUFCO TECHNOLOGIES, INC.,
NASDAQ MARKET INDEX AND HEMSCOTT GROUP INDEX
 
  
 2000
    
    
    
    2001
    
    
    
    2002
    
    
    
    2003
    
    
    
    2004
    
    
    
    2005TUFCO TECHNOLOGIES, INC.
    
    
    
    100.00
    
    
    
    
    74.07
    
    
    
    
    48.59
    
    
    
    
    63.60
    
    
    
    
    77.93
    
    
    
    
    62.22HEMSCOTT GROUP INDEX (1)
    
    
    
    100.00
    
    
    
    
    105.50
    
    
    
    
    128.88
    
    
    
    
    157.72
    
    
    
    
    186.48
    
    
    
    
    198.72NASDAQ MARKET INDEX
    
    
    
    100.00
    
    
    
    
    40.97
    
    
    
    
    32.96
    
    
    
    
    50.52
    
    
    
    
    53.56
    
    
    
    
    60.93
 (1)
    
    Formerly named Coredata Group Index  29




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##### Table of Contents



ITEM
12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 Security Ownership of Certain Beneficial Owners
   AMOUNT AND NATURE OF
    
    
    PERCENT OF CLASSBENEFICIAL OWNERSHIPOver 5% StockholdersRobert J. Simon(1)(3)(4)(14)
    
    
    2,659,543
    
    
    
    58.1
    %Barbara M. Henagan(1)(3)
    
    
    2,621,661
    
    
    
    57.7
    %Bradford Venture Partners, L. P. (1)(2)
    
    
    2,619,740
    
    
    
    57.6
    %Overseas Equity Investors Partners(3)(6)
    
    
    2,619,740
    
    
    
    57.6
    %Other Directors And Executive OfficersSamuel J. Bero(7)
    
    
    216,000
    
    
    
    4.7
    %Louis LeCalsey III(8)
    
    
    361,767
    
    
    
    7.5
    %C. Hamilton Davison, Jr. (5)
    
    
    33,842
    
    
    
    *Seymour S. Preston III(9)
    
    
    23,000
    
    
    
    *William J. Malooly(5)
    
    
    33,000
    
    
    
    *Michael B. Wheeler(10)
    
    
    38,833
    
    
    
    *Madge Joplin(11)
    
    
    44,787
    
    
    
    *Michele M. Corrigan (12)
    
    
    59,667
    
    
    
    1.3
    %Directors and Executive Officers as a Group (9 persons)(1)(3)(13)
    
    
    3,470,439
    
    
    
    68.3
    %
 
 *
    
    Less than one percent(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 (Overseas Equity), 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
for purposes of SEC rules.(3)
    
    The amounts shown for Mr. Simon and Ms. Henagan includes the shares owned of record by
Overseas Equity 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. 30




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##### Table of Contents



Security Ownership of Certain Beneficial Owners (Continued)
 (4)
    
    The stockholder is also one of our directors.(5)
    
    The amount shown includes 30,000 shares that may be acquired under options exercisable within
60 days of December 16, 2005.(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 26,000 shares that may be acquired under options exercisable within
60 days of December 16, 2005.(8)
    
    The amount shown includes 249,500 shares that may be acquired under options exercisable
within 60 days of December 16, 2005.(9)
    
    The amount shown includes 18,000 shares that may be acquired under options exercisable within
60 days of December 16, 2005.(10)
    
    The amount shown includes 37,833 shares that may be acquired under options exercisable within
60 days of December 16, 2005.(11)
    
    The amount shown includes 31,667 shares that may be acquired under options exercisable within
60 days of December 16, 2005.(12)
    
    The amount shown includes 50,667 shares that may be acquired under options exercisable within
60 days of December 16, 2005.(13)
    
    The amount shown includes an aggregate of 501,667 shares that may be acquired under options
exercisable within 60 days of December 16, 2005.(14)
    
    The amount shown includes 28,000 shares that may be acquired under options exercisable
within 60 days of December 16, 2005.
 Equity Compensation Plan Information
  (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)
    
    
    541,800
    
    
    $
    7.40
    
    
    
    353,200Equity 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, which expires April 2013 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. 31




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##### Table of Contents



ITEM
13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
 ITEM 14  PRINCIPAL ACCOUNTING FEES AND SERVICES
  FY 2005
    
    
    FY 2004Audit Fees
    
    $
    187,000
    
    
    $
    170,000Audit-Related Fees
    
    $
    8,400
    
    
    $
    12,000Tax Fees
    
    $
    48,100
    
    
    $
    97,428All Other Fees
    
    $
    
    
    
    $
    
    32




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##### Table of Contents



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(b), below.
 (b)
    
    ExhibitNumber
    
    Description3.1
    
    
    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).10.8
    
    
    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).10.9
    
    
    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).10.10
    
    
    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).
 33




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##### Table of Contents



ITEM 15- EXHIBITS, FINANCIAL STATEMENT SCHEDULES (Continued
 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 34




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##### Table of Contents



Tufco Technologies, Inc.By:
    /s/ Louis LeCalsey, IIILouis LeCalsey, IIIPresident and Chief Executive Officer  Signature
    
    Title
    
    Date/s/ Louis LeCalsey, III
Louis LeCalsey, III
    
    President, Chief Executive
Officer and Director 
(Principal Executive Officer)
    
    December 29, 2005/s/ Robert J. Simon
Robert J. Simon
    
    Chairman of the Board
    
    December 29, 2005/s/ Michael B. Wheeler
Michael B. Wheeler
    
    VP/Chief Financial Officer 
(Principal Financial Officer and Principal Accounting Officer)
    
    December 29, 2005/s/ Samuel J. Bero
Samuel J. Bero
    
    Director
    
    December 29, 2005/s/ C. Hamilton Davison, Jr.
C. Hamilton Davison, Jr.
    
    Director
    
    December 29, 2005/s/ William J. Malooly
William J. Malooly
    
    Director
    
    December 29, 2005/s/ Seymour S. Preston, III
Seymour S. Preston, III
    
    Director
    
    December 29, 2005
 35




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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:Balance Sheets as of September 30, 2005 and 2004
    
    
    F-2Statements of Income and Comprehensive Income for the
Years Ended September 30, 2005, 2004, and 2003
    
    
    F-3Statements of Stockholders Equity for the
Years Ended September 30, 2005, 2004, and 2003
    
    
    F-4Statements of Cash Flows for the
Years Ended September 30, 2005, 2004, and 2003
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F6F18




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
 F-1




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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY
 CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2005 AND 2004
 2005
    
    
    2004ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    5,672
    
    
    $
    7,692Accounts receivablenet
    
    
    9,728,418
    
    
    
    12,639,389Inventories
    
    
    10,137,771
    
    
    
    9,624,963Prepaid expenses and other current assets
    
    
    170,555
    
    
    
    158,856Income tax receivable
    
    
    585,390Deferred income taxes
    
    
    499,947
    
    
    
    618,588Total current assets
    
    
    21,127,753
    
    
    
    23,049,488PROPERTY, PLANT, AND EQUIPMENTnet
    
    
    15,657,028
    
    
    
    16,329,335GOODWILL
    
    
    7,211,575
    
    
    
    7,211,575OTHER ASSETSnet
    
    
    489,662
    
    
    
    392,154TOTAL
    
    $
    44,486,018
    
    
    $
    46,982,552LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    4,688,887
    
    
    $
    5,917,351Accrued payroll, vacation, and payroll taxes
    
    
    367,336
    
    
    
    863,368Other current liabilities
    
    
    662,963
    
    
    
    865,923Income taxes payable
    
    
    
    
    
    
    981,077Total current liabilities
    
    
    5,719,186
    
    
    
    8,627,719LONG-TERM DEBT
    
    
    1,112,636
    
    
    
    2,500,000DEFERRED INCOME TAXES
    
    
    1,737,317
    
    
    
    405,640STOCKHOLDERS EQUITY:Common stock, $.01 par value9,000,000 shares authorized;
4,708,341 and 4,706,341 shares issued
    
    
    47,083
    
    
    
    47,063Additional paid-in capital
    
    
    25,097,911
    
    
    
    25,088,631Retained earnings
    
    
    11,845,152
    
    
    
    11,144,884Treasury stock161,197 and 123,997 common shares at cost
    
    
    (1,073,267
    )
    
    
    (831,385
    )Total stockholders equity
    
    
    35,916,879
    
    
    
    35,449,193TOTAL
    
    $
    44,486,018
    
    
    $
    46,982,552
  F-2




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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 2005, 2004, AND 2003
 2005
    
    
    2004
    
    
    2003NET SALES
    
    $
    79,780,793
    
    
    $
    77,854,495
    
    
    $
    55,206,658COST OF SALES
    
    
    74,447,053
    
    
    
    70,164,338
    
    
    
    47,465,108GROSS PROFIT
    
    
    5,333,740
    
    
    
    7,690,157
    
    
    
    7,741,550OPERATING EXPENSES:Selling, general, and administrative
    
    
    4,586,999
    
    
    
    4,997,675
    
    
    
    4,885,178Employee severance costs
    
    
    
    
    
    
    
    
    
    
    333,114(Gain) loss on asset sales
    
    
    (441,670
    )
    
    
    3,218
    
    
    
    108,636Total
    
    
    4,145,329
    
    
    
    5,000,893
    
    
    
    5,326,928OPERATING INCOME
    
    
    1,188,411
    
    
    
    2,689,264
    
    
    
    2,414,622OTHER (EXPENSE) INCOME:Interest expense
    
    
    (62,965
    )
    
    
    (48,520
    )
    
    
    (202,454
    )Interest income and other income (expense)
    
    
    26,310
    
    
    
    (3,021
    )
    
    
    (48,696
    )Total
    
    
    (36,655
    )
    
    
    (51,541
    )
    
    
    (251,150
    )INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    1,151,756
    
    
    
    2,637,723
    
    
    
    2,163,472INCOME TAX EXPENSE
    
    
    451,488
    
    
    
    1,075,948
    
    
    
    915,425INCOME FROM CONTINUING OPERATIONS
    
    
    700,268
    
    
    
    1,561,775
    
    
    
    1,248,047GAIN (LOSS) FROM DISCONTINUED OPERATIONS:Loss from operations of discontinued segmentnet of income taxes
    
    
    
    
    
    
    
    
    
    
    (224,644
    )Gain (loss) from sale of discontinued segmentnet of income taxes of $163,325 in 2003
    
    
    
    
    
    
    400,000
    
    
    
    (244,406
    )NET INCOME
    
    
    700,268
    
    
    
    1,961,775
    
    
    
    778,997OTHER COMPREHENSIVE INCOME:Interest rate swap as hedge of future variable interest on debtChange in fair value,
net of income taxes of $25,717
    
    
    
    
    
    
    
    
    
    
    40,224Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    40,224TOTAL COMPREHENSIVE INCOME
    
    $
    700,268
    
    
    $
    1,961,775
    
    
    $
    819,221EARNINGS (LOSS) PER SHARE:Basic:Income from continuing operations
    
    $
    0.15
    
    
    $
    0.34
    
    
    $
    0.27Loss from operations of discontinued segment
    
    
    
    
    
    
    
    
    
    
    (0.05
    )Gain (loss) from sale of discontinued segment
    
    
    
    
    
    
    0.09
    
    
    
    (0.05
    )Net income
    
    $
    0.15
    
    
    $
    0.43
    
    
    $
    0.17Diluted:Income from continuing operations
    
    $
    0.15
    
    
    $
    0.34
    
    
    $
    0.27Loss from operations of discontinued segment
    
    
    
    
    
    
    
    
    
    
    (0.05
    )Gain (loss) from sale of discontinued segment
    
    
    
    
    
    
    0.09
    
    
    
    (0.05
    )Net income
    
    $
    0.15
    
    
    $
    0.43
    
    
    $
    0.17WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic
    
    
    4,564,664
    
    
    
    4,582,344
    
    
    
    4,616,331Diluted
    
    
    4,582,716
    
    
    
    4,608,222
    
    
    
    4,626,204
  F-3




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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2005, 2004, AND 2003
 AccumulatedCommon Stock
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    Stockholder
    
    
    Other
    
    
    TotalVoting
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury
    
    
    Notes
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Receivable
    
    
    Income (Loss)
    
    
    EquityBALANCES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
    )
    
    
    
    
    
    
    
    
    
    
    35,449,193Exercise of director stock option
    
    
    2,000
    
    
    
    20
    
    
    
    9,280
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,300Purchase of treasury stock37,200
common shares at cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (241,882
    )
    
    
    
    
    
    
    
    
    
    
    (241,882
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    700,268
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    700,268BALANCESSeptember 30, 2005
    
    
    4,708,341
    
    
    $
    47,083
    
    
    $
    25,097,911
    
    
    $
    11,845,152
    
    
    $
    (1,073,267
    )
    
    $
    
    
    
    $
    
    
    
    $
    35,916,879
  F-4




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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2005, 2004, AND 2003
 2005
    
    
    2004
    
    
    2003OPERATING ACTIVITIES:Income from continuing operations
    
    $
    700,268
    
    
    $
    1,561,775
    
    
    $
    1,248,047Noncash items in income from continuing operations:Depreciation and amortization of property, plant, and equipment
    
    
    1,998,146
    
    
    
    2,330,847
    
    
    
    2,539,704Amortization
    
    
    21,145
    
    
    
    69,756
    
    
    
    272,767Deferred income taxes
    
    
    1,450,318
    
    
    
    249,575
    
    
    
    (290,236
    )(Gain) loss on asset salesnet
    
    
    (441,670
    )
    
    
    3,218
    
    
    
    108,636Changes in operating working capital:Accounts receivable
    
    
    2,910,971
    
    
    
    (4,345,536
    )
    
    
    (2,376,045
    )Inventories
    
    
    (512,808
    )
    
    
    (5,733,880
    )
    
    
    (225,134
    )Prepaid expenses and other assets
    
    
    (130,352
    )
    
    
    306,675
    
    
    
    97,982Accounts payable
    
    
    (1,228,464
    )
    
    
    4,087,937
    
    
    
    (2,180,601
    )Accrued and other current liabilities
    
    
    (603,992
    )
    
    
    353,280
    
    
    
    (473,729
    )Income taxes payable/receivable
    
    
    (1,566,467
    )
    
    
    451,556
    
    
    
    826,087Net cash provided by (used in) operating activities from
continuing operations
    
    
    2,597,095
    
    
    
    (664,797
    )
    
    
    (452,522
    )INVESTING ACTIVITIES:Additions to property, plant, and equipment
    
    
    (1,626,211
    )
    
    
    (4,373,694
    )
    
    
    (2,372,546
    )Proceeds from disposition of property, plant and equipment
    
    
    647,042
    
    
    
    29,201Collection of advances to directors and former owners
    
    
    
    
    
    
    
    
    
    
    20,060Proceeds from asset salesnet of transaction costs
    
    
    
    
    
    
    
    
    
    
    74,454Decrease in restricted cash
    
    
    
    
    
    
    
    
    
    
    100,000Net cash used in investing activities
    
    
    (979,169
    )
    
    
    (4,344,493
    )
    
    
    (2,178,032
    )FINANCING ACTIVITIES:Repayment of long-term debt
    
    
    (1,387,364
    )
    
    
    (750,000
    )
    
    
    (5,840,667
    )Borrowings of long-term debt
    
    
    
    
    
    
    2,500,000
    
    
    
    500,000Debt issuance costs
    
    
    
    
    
    
    (63,434
    )Purchase of treasury stock
    
    
    (241,882
    )
    
    
    
    
    
    
    (297,340
    )Net settlement of interest rate swap
    
    
    
    
    
    
    
    
    
    
    (25,716
    )Repayment of stockholder notes receivable
    
    
    
    
    
    
    
    
    
    
    157,246Issuance of common stock
    
    
    9,300Net cash (used in) provided by financing activities
    
    
    (1,619,946
    )
    
    
    1,686,566
    
    
    
    (5,506,477
    )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
    )Net cash provided by (used in) discontinued operations
    
    
    
    
    
    
    400,000
    
    
    
    10,816,101NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (2,020
    )
    
    
    (2,922,724
    )
    
    
    2,679,070CASH AND CASH EQUIVALENTS:Beginning of year
    
    
    7,692
    
    
    
    2,930,416
    
    
    
    251,346End of year
    
    $
    5,672
    
    
    $
    7,692
    
    
    $
    2,930,416NONCASH SUPPLEMENTAL INFORMATION:Deferred gain on sale of equipment
    
    $
    95,000
    
    
    $
    
    
    
    $
    
  F-5




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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005 AND 2004, AND FOR THE YEARS ENDED
SEPTEMBER 30, 2005, 2004, AND 2003
 1.
    
    SIGNIFICANT ACCOUNTING POLICIESConsolidated Financial Statements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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Cash and cash equivalents represents liquid investments with
maturities at acquisition of three months or less.Inventories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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Impairment of long-lived assets is reviewed in accordance with
Statement of Financial Accounting Standards (SFAS) SFAS 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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##### Table of Contents



GoodwillGoodwill represents the excess of cost over fair value of net assets acquired in
business combinations. 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 No. 142, Goodwill and Other Intangible Assets. 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.There were no changes in the carrying amount of goodwill by segment for the years ended
September 30, 2005 and 2004. Goodwill by segment is:
 Contract
    
    
    
    BusinessManufacturing
    
    
    
    Imaging
    
    
    
    Total$
4,281,759
    
    
    
    $2,929,816
    
    
    
    $7,211,575
 Financial Instruments
 Derivatives
 Other Assets
 Income Taxes
 Revenues
 Stock-Based Compensation Accounting for Stock-Based Compensation
 F-7




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##### Table of Contents



2005
    
    
    2004
    
    
    2003Income from continuing operations as reported
    
    $
    700,268
    
    
    $
    1,561,775
    
    
    $
    1,248,047DeductTotal stock-based employee
compensation expense determined under
fair value based method for all awardsnet
of related tax effects
    
    
    (164,406
    )
    
    
    (128,693
    )
    
    
    (72,483
    )Pro forma income from continuing operations
    
    $
    535,862
    
    
    $
    1,433,082
    
    
    $
    1,175,564Earnings per share:Basicas reported
    
    $
    0.15
    
    
    $
    0.34
    
    
    $
    0.27Basicpro forma
    
    
    0.12
    
    
    
    0.31
    
    
    
    0.25Dilutedas reported
    
    
    0.15
    
    
    
    0.34
    
    
    
    0.27Dilutedpro forma
    
    
    0.12
    
    
    
    0.31
    
    
    
    0.25
  Share-Based Payment
 Earnings Per Share
 Recently Issued Accounting Standards Inventory
Costs
 F-8




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##### Table of Contents



2.
    
    ACCOUNTS RECEIVABLEAccounts receivable are stated net of allowances for doubtful accounts of $345,448 and $403,830
at September 30, 2005 and 2004, respectively. For the years ended September 30, 2005, 2004, and
2003, the Company recorded bad debt expense (income) of $139,146, $217,496, and $(76,356)
respectively, and had write-offs of $197,528, $202,987, and $69,336 respectively. Amounts due
from two multinational consumer products customers represent 48% and 44% of total accounts
receivable at September 30, 2005 and 2004, respectively. Accounts receivable include $86,512
and $726,815 for the cost of equipment to be reimbursed by one of these customers at September
30, 2005 and 2004, respectively.3.
    
    INVENTORIESInventories at September 30, 2005 and 2004, consist of the following:
 2005
    
    
    2004Raw materials
    
    $
    7,470,774
    
    
    $
    7,941,894Finished goods
    
    
    2,666,997
    
    
    
    1,683,069Total inventories
    
    $
    10,137,771
    
    
    $
    9,624,963
  F-9




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##### Table of Contents



4.
    
    PROPERTY, PLANT, AND EQUIPMENTProperty, plant, and equipment at September 30, 2005 and 2004, consist of the following:
 2005
    
    
    2004Land and land improvements
    
    $
    619,850
    
    
    $
    645,751Buildings
    
    
    9,766,723
    
    
    
    10,304,654Leasehold improvements
    
    
    708,516
    
    
    
    705,410Machinery and equipment
    
    
    16,251,175
    
    
    
    17,956,245Computer equipment and software
    
    
    5,355,105
    
    
    
    5,487,856Furniture and fixtures
    
    
    542,855
    
    
    
    546,105Vehicles
    
    
    44,206
    
    
    
    44,20633,288,430
    
    
    
    35,690,227Less accumulated depreciation and amortization
    
    
    18,869,996
    
    
    
    19,767,049Net depreciated value
    
    
    14,418,434
    
    
    
    15,923,178Construction in progress
    
    
    1,238,594
    
    
    
    406,157Property, plant, and equipmentnet
    
    $
    15,657,028
    
    
    $
    16,329,335
 5.
    
    OTHER ASSETSOther assets at September 30, 2005 and 2004, consist of the following:
 2005
    
    
    2004Loan origination and other fees
    
    $
    138,267
    
    
    $
    138,267Less accumulated amortization
    
    
    101,264
    
    
    
    80,119Subtotal
    
    
    37,003
    
    
    
    58,148Note receivable bearing interest at 7% to 10%, due in
variable monthly installments through 2009
    
    
    176,653
    
    
    
    64,253Prepaid rent on leased equipment
    
    
    24,019
    
    
    
    31,427Deposits on equipment to be acquired and other
    
    
    72,805
    
    
    
    72,805Cash surrender value of life insurance
    
    
    179,182
    
    
    
    165,521Other assetsnet
    
    $
    489,662
    
    
    $
    392,154
 F-10




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##### Table of Contents



6.
    
    LONG-TERM DEBTLong-term debt at September 30, 2005 and 2004, consists of the following:
 2005
    
    
    2004Long-term note payable to banks, under a $10 million
unsecured credit agreement
    
    $
    1,112,636
    
    
    $
    2,500,000Total
    
    
    1,112,636
    
    
    
    2,500,000Long term debt
    
    $
    1,112,636
    
    
    $
    2,500,000
   F-11




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##### Table of Contents



7.
    
    INCOME TAXESThe tax effects of significant items composing the Companys net deferred tax asset as of
September 30, 2005 and 2004, are as follows:
 2005
    
    
    2004Current deferred tax asset:Valuation allowances for accounts receivable
and inventoriesnot currently deductible
    
    $
    193,929
    
    
    $
    297,768Inventory costs capitalized for tax purposes
    
    
    30,582
    
    
    
    47,081Vacation and severance accrualsnot currently deductible
    
    
    69,855
    
    
    
    82,919Other accrualsnot currently deductible
    
    
    205,581
    
    
    
    190,820Total current assets
    
    
    499,947
    
    
    
    618,588Noncurrent deferred tax liability:Accelerated tax depreciation on property and equipment
    
    
    (1,571,942
    )
    
    
    (1,029,090
    )Accelerated tax amortization of goodwill
    
    
    (164,695
    )
    
    
    623,450Other
    
    
    (680
    )Total noncurrent liabilitynet
    
    
    (1,737,317
    )
    
    
    (405,640
    )Net deferred tax (liability) asset
    
    $
    (1,237,370
    )
    
    $
    212,948
  2005
    
    
    2004
    
    
    2003Current tax (benefit) expense:Federal
    
    $
    (809,147
    )
    
    $
    681,600
    
    
    $
    968,973State
    
    
    (189,683
    )
    
    
    172,816
    
    
    
    236,688Total
    
    
    (998,830
    )
    
    
    854,416
    
    
    
    1,205,661Deferred tax expense (benefit):Federal
    
    
    1,191,332
    
    
    
    177,446
    
    
    
    (232,478
    )State
    
    
    258,986
    
    
    
    44,086
    
    
    
    (57,758
    )Total
    
    
    1,450,318
    
    
    
    221,532
    
    
    
    (290,236
    )Income tax expense
    
    $
    451,488
    
    
    $
    1,075,948
    
    
    $
    915,425
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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:
 2005
    
    
    2004
    
    
    2003Federal income taxes computed at
statutory rates
    
    $
    391,597
    
    
    $
    923,203
    
    
    $
    757,215State income taxesnet of federal tax benefit
    
    
    45,740
    
    
    
    140,986
    
    
    
    116,074Certain goodwill amortization and other
nondeductibles
    
    
    17,780
    
    
    
    14,895
    
    
    
    24,050Other
    
    
    (3,629
    )
    
    
    (3,136
    )
    
    
    18,086Income tax expense
    
    $
    451,488
    
    
    $
    1,075,948
    
    
    $
    915,425
 8.
    
    COMMITMENTS AND CONTINGENCIESLeases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
twelve months through the duration of the lease term. Rental expense for the lease totaled
$124,861 for fiscal 2005, $121,816 for fiscal 2004, and $111,060 for fiscal 2003, 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, 2005, are as follows:
 2006
    
    $
    1,238,4642007
    
    
    1,151,0322008
    
    
    1,034,3972009
    
    
    960,6192010
    
    
    535,607Total
    
    $
    4,920,119
 Rental expense for all operating leases related to continuing operations totaled $1,342,829,
$1,319,664, and $1,143,594 for fiscal 2005, 2004, and 2003, respectively.Commercial Letters of CreditThe Company has no amounts outstanding under commercial import
letters of credit as of September 30, 2005 and 2004. 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, available at September 30, 2005 and 2004, which is included in
the availability under the unsecured credit agreement at September 30, 2005.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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##### Table of Contents



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 $188,184, $240,861, and $209,132 for fiscal 2005, 2004, and 2003,
respectively.10.
    
    STOCKHOLDERS EQUITYNon-voting Common Stock and Preferred StockAt September 30, 2005 and 2004, 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 2005, 2004, and 2003, options
to purchase 30,000, 37,000, and 51,200 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 2005, 2004, and 2003, 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:
 Number of Shares
    
    

Weighted
Average Exercise 
Price per share2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Options outstanding
beginning of year
    
    
    500,400
    
    
    
    453,700
    
    
    
    454,400
    
    
    $
    7.39
    
    
    $
    7.51
    
    
    $
    7.87Granted
    
    
    45,000
    
    
    
    52,000
    
    
    
    66,200
    
    
    
    7.39
    
    
    
    6.24
    
    
    
    5.27Exercised
    
    
    (2,000
    )
    
    
    
    
    
    
    
    
    
    
    4.65Terminated
    
    
    (1,600
    )
    
    
    (5,300
    )
    
    
    (66,900
    )
    
    
    9.38
    
    
    
    7.70
    
    
    
    7.82Options outstandingend of year
    
    
    541,800
    
    
    
    500,400
    
    
    
    453,700
    
    
    
    7.40
    
    
    
    7.39
    
    
    
    7.51Options exercisableend of year
    
    
    421,167
    
    
    
    409,700
    
    
    
    395,367
    
    
    
    7.71
    
    
    
    7.71
    
    
    
    7.77Reserved for future options
at September 30
    
    
    353,200
    
    
    
    398,200
    
    
    
    300,000
 F-14




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##### Table of Contents



The following table summarizes additional information about stock options outstanding and
exercisable at September 30, 2005:
 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
    
    
    285,550
    
    
    4.5 years
    
    $
    6.28
    
    
    
    194,917
    
    
    $
    6.507.0010.00
    
    
    256,250
    
    
    2.2 years
    
    
    8.64
    
    
    
    226,250
    
    
    
    8.764.5010.00
    
    
    541,800
    
    
    3.4 years
    
    
    7.40
    
    
    
    421,167
    
    
    
    7.71
 In the pro forma calculations as included in Note 1, the weighted average fair value of options
granted during 2005, 2004, and 2003 was estimated at $4.55, $4.02, and $3.30 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 2005, 2004, and 2003:
 2005
    
    
    2004
    
    
    2003Risk-free interest rate
    
    
    3.9%4.4
    %
    
    
    3.5%3.7
    %
    
    
    3.5%5.0
    %Expected volatility
    
    
    89.0
    %
    
    
    70.0
    %
    
    
    70.0
    %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. In fiscal 2005, 2,000 shares of 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 $336,643, $319,320, and
$304,114 for fiscal 2005, 2004 and 2003, respectively.As discussed in footnote 8 Commitments and Contingencies, the Company leases facilities from
a partnership composed of current and former stockholders.
 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:
 2005
    
    
    2004
    
    
    2003Interest paid
    
    $
    68,050
    
    
    $
    44,460
    
    
    $
    234,103Income taxes paidnet of refunds
    
    $
    567,637
    
    
    $
    200,000
    
    
    $
    250,695
 13.
    
    MAJOR CUSTOMER AND SEGMENT INFORMATIONTwo significant customers of the Contract Manufacturing segment, which are large multi-national
consumer products companies with whom the Company has confidentiality and non-disclosure
agreements, accounted for the following percentage of total sales:
 2005
    
    
    2004
    
    
    2003Customer A
    
    
    5
    %
    
    
    13
    %
    
    
    33
    %Customer B
    
    
    51
    
    
    
    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 discussed in Note
14.
 Contract
    
    
    Business
    
    
    CorporateFiscal 2005
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedNet sales
    
    $
    55,209,396
    
    
    $
    24,571,397
    
    
    $
    
    
    
    $
    79,780,793Gross profit
    
    
    3,415,012
    
    
    
    1,918,728
    
    
    
    
    
    
    
    5,333,740Operating income (loss)
    
    
    1,543,470
    
    
    
    1,142,732
    
    
    
    (1,497,791
    )
    
    
    1,188,411Depreciation and amortization
expense
    
    
    1,405,474
    
    
    
    316,856
    
    
    
    296,961
    
    
    
    2,019,291Capital expenditures
    
    
    1,520,022
    
    
    
    95,415
    
    
    
    10,774
    
    
    
    1,626,211Assets:Inventories
    
    $
    7,905,186
    
    
    $
    2,232,585
    
    
    $
    
    
    
    $
    10,137,771Property, plant, and
equipmentnet
    
    
    12,932,529
    
    
    
    2,518,305
    
    
    
    206,194
    
    
    
    15,657,028Accounts receivable and other
(including goodwill)
    
    
    11,235,327
    
    
    
    5,704,666
    
    
    
    1,751,226
    
    
    
    18,691,219Total assets
    
    $
    32,073,042
    
    
    $
    10,455,556
    
    
    $
    1,957,420
    
    
    $
    44,486,018
 F-16




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##### Table of Contents



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
    
    
    $
    46,982,552Contract
    
    
    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
 
 (1)
    
    Amount includes employee severance costs of $333,114. F-17




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##### Table of Contents



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 costs also included costs related to the elimination of
several salary positions. Severance costs incurred and paid for the fiscal year 2003 were
$333,114. There were no employee related severance costs in 2004 or 2005.
 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. 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:
 2003Net sales
    
    $
    9,698,802Loss before income taxes
    
    $
    (379,240
    )Income tax benefit
    
    
    154,596Loss from discontinued operations
    
    $
    (224,644
    )
  F-18