10-K405 1 d82820e10-k405.txt FORM 10-K FOR FISCAL YEAR END SEPTEMBER 30, 2000 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended September 30, 2000. Commission file number 0-21018. TUFCO TECHNOLOGIES, INC. ------------------------ (Exact name of registrant as specified in its charter) Delaware 39-1723477 --------------------------------- -------------------- (State of other jurisdiction (IRS Employer ID No.) of incorporation or organization) 4800 Simonton Road, Dallas, Texas 75244 ---------------------------------------- (Address of principal executive offices) (972) 789-1079 -------------- (Registrant's telephone number) 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 --------------------------------------- (Title of Class) 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. [X] The aggregate market value of the Common Stock of Tufco Technologies, Inc. held by non-affiliates, as of December 14, 2000, was approximately $11,042,293. Such aggregate market value was computed by reference to the closing price of the Common Stock as reported on the NASDAQ National Market on December 14, 2000. 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 14, 2000 was 4,675,019. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for its Annual Meeting of Stockholders to be held in 2001 are incorporated by reference into Part III of this report. 2 PART I ITEM 1 - BUSINESS GENERAL Tufco Technologies, Inc. ("Tufco" or the "Company") provides diversified contract manufacturing and specialty printing services, manufactures and distributes business imaging paper products, and distributes paint sundry products used in home improvement projects. 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 $.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 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 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 Nevada limited partnership, in which Tufco Tech, Inc. is the sole managing general partner and is 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 and 25,907 shares of Common Stock. Tufco offers a wide array of contract manufacturing services including thermal laminating, coating, folding, precision slitting and rewinding, precision sheeting and custom packaging for delivery to the end user. Its specialty printing services provide wide web, multi-color flexographic and letterpress printing and adhesive laminations to industrial users and resale distributors. Tufco also manufactures a wide range of printed and unprinted business imaging paper products for a variety of business needs, and the Company's Paint Sundry sector manufactures and distributes products used by professional painters and do-it-yourself home owners. 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, and it has the most complete line of paint sundry products in the industry. The Company's principal executive offices are located at 4800 Simonton Road, Dallas, Texas 75244, and its telephone number is (972) 789-1079. PRODUCTS AND SERVICES The Company markets its products and services through three market sectors: Contract Manufacturing services, Business Imaging paper products, and Paint Sundry products. Until its exit from the market place in June of fiscal 1999, the Company also produced and distributed a line of Away-From-Home tissue and towel products. Tufco conducts operations from five manufacturing and distribution locations in Green Bay, Wisconsin, Manning, South Carolina, Dallas, Texas, Newton, North Carolina and St. Louis, Missouri. Contract Manufacturing Market Sector Tufco Technologies has contract manufacturing capability at three locations: Green Bay, Wisconsin, Dallas, Texas and Newton, North Carolina. The Company's capabilities at its Green Bay facilities include custom packaging, coating, cutting, folding, thermal and adhesive laminating, embossed bonding, slitting and rewinding. These facilities custom convert a wide array of materials, including polyethylene films, non-woven materials (coated and uncoated), paper, and tissue. Products include household cleaning wipes, facial wipes, various health care products, reinforced towels (towels with a polyethylene or polypropylene mesh to provide strength and durability), medical drapes, adult hygiene components and polyethylene and paper dropcloths. The Company has invested in equipment to perform thermal lamination to bond various material substrates up to 120 inches wide, such as multiply dropcloths, reinforced material and breathable moisture barrier wraps. Machinery and equipment at the Green Bay 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. 1 3 Contract Manufacturing Market Sector (continued) The Company's Green Bay facility offers value-added specialty printing and related graphic arts services, including pre-press work, sheeting, calendering, printing, finishing, and thermal and adhesive laminating. The Company provides multi-color printing that uses computerized control to maintain a high level of print quality. The Company focuses on specialty printing projects such as paper and poly tablecovers, food and gift-wraps, flexible packaging, adult hygiene components, and printed release liners. The cornerstone of the Company's printing operation is its fully automated, state-of-the-art Windmoeller & Hoelscher (W&H) Astroflex printing press which has the capability to print up to 54 inches in width at speeds up to 1500 feet per minute. Green Bay's pre-press staff prepares projects for printing to customer specifications. The Company uses the customer's preliminary artwork and arranges or performs all preparatory processses for camera-ready art, video plate making, layout, and other related services. The Green Bay presses use flexographic and letterpress processes and can print on a wide range of media from lightweight tissue or non-wovens to heavyweight paperboard, films and foils. The Company utilizes four wide-web presses of various sizes, three of which are capable of six-color printing with the new W&H press at eight colors. The Company uses water-based and oil-based inks. The presses can accommodate widths up to 82 inches for one-sided printing and are capable of simultaneous two-sided printing for widths up to 51 inches. The presses have a variety of print cylinders that provide the Company with the flexibility to meet customer needs, utilizing lower cost rubber printing plates that allow the Company to maintain quality and achieve a competitive pricing advantage for low volume jobs relative to printers using engraved printing cylinders. The Company's Dallas facility has capabilities that include precision slitting, rewinding, sheeting, specialty packaging, folding, perforating, and trimming. These capabilities are directed toward converting fine paper materials including specialty and fine printing papers and paperboards, thermal papers, polyester films, and coated products. The Dallas facility's contract manufacturing services include final packaging of products, including items on which the Company has performed other converting or specialty printing services. Packaging capabilities include high quality bulk skid wrapping, vacuum-sealed carton packed sheets, poly-paper and poly-film wrapping, and shrink-film packaging. The flexibility of the equipment at the Dallas facility and the packaging alternatives that the Company can provide its customers produce finished products that meet and exceed a varied range of customer specifications and requirements. The Company's Dallas custom converting services have grown due to the addition of a state-of-the-art Jagenberg sheeter with specialty paper and paperboard sheeting capabilities and the investment in a custom designed rewinder for thermal papers and films. The Company's Newton facility has capabilities which include precision slitting and rewinding of paper rolls in a large variety of sizes which include variables in width, diameter, core size, single or multiply, and color. All of the rolls can be printed on one side or both, providing the customer with advertising, promotional or security features. The Company's Newton facility also produces a full range of papers for use in bank proof or teller machines, including fan-fold forms, cards 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. Business Imaging Market Sector The Company produces and distributes a wide variety of printed and unprinted paper products used in business imaging equipment in market sectors including architectural and engineering design, high speed data processing, point of sale, automatic teller machines and a variety of office equipment. The Company's products include roll products ranging in length from 150 feet to 3500 feet and in widths from 1 inch to 54 inches. Additionally, the Company produces precision-sheeted products ranging in size from 11 by 17 inches to 65 by 65 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. 2 4 Paint Sundry Market Sector The Company's Manning and St. Louis facilities manufacture and distribute home improvement products that are sold to paint and hardware distributors, home centers, and retail paint stores. To provide its customers with the industry's most complete line of paint sundry products, the Company supplements the products it manufactures by distributing products manufactured for the Company by others. Consumer disposable products include polyethylene, paper and canvas dropcloths, painters' apparel, latex and vinyl gloves, paint strainers, and other allied items. These products are often used by homeowners performing do-it-yourself home improvement projects, contractors and painting professionals. The Company also sells a line of masking paper products and shop towels for the automotive aftermarket. The Company has increased sales of consumer disposables by continually broadening and improving its product line, thereby allowing customers to consolidate their orders with a single vendor. In addition, the Company has attracted large buying groups through various volume incentives. Away From Home Market Sector Until June of 1999, the Company produced and distributed its own line of tissues, towels and wipes for use in public washrooms. Additionally, the Company provided converting services for large manufacturers in the Away-From-Home (AFH) market place. In fiscal 1999, Company management chose to exit the AFH market due to intense price competition and due to the lack of strategic emphasis which management placed on that market. On June 28, 1999, the Company sold all of the fixed assets and inventory related to the AFH product line to a company located in Green Bay, Wisconsin. MANUFACTURING AND OPERATIONS 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. With regard to its Contract Manufacturing operations, the Company either utilizes product specifications provided by its customers or teams with its customers to develop specifications which meet customer requirements. Generally, the product begins with a flexible substrate, which is a base material such as a non-woven material, paper, or polyethylene. The Company applies one or more of its custom 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. The Company's growth has been supported by its substantial capital investment in new facilities and machinery and equipment. During the past three years, the Company spent over $12 million on capital expenditures at its five locations. Through the Company's expenditures on new equipment, it has increased both its manufacturing capacity and the range of its capabilities. Principle capital additions include equipment which expand the Company's custom folding and packaging capabilities, and presses which enable the Company to print poly-laminate and thermal coated substrates. The Company has also expanded and modernized its roll-to-roll winding capacity. The Company believes it has sufficient capacity to meet its growth expectations. The Company's equipment can produce a wide range of sizes of production output to meet unique customer specifications. The custom converting equipment can accommodate web widths from 3 inches to 132 inches. Its folding equipment can fold from 6 inches to 120 inches by 240 inches, in one-inch increments. The Company's printing presses perform flexographic and letterpress processes and print from one to eight colors on webs as wide as 82 inches. Its fine printing paper and paperboard converting equipment includes state-of-the-art rewinders, sheeters, folders, perforators, and equipment that performs extensive packaging functions. SALES AND MARKETING Tufco markets its products and services nationally through its 30 full-time sales and service employees and 114 manufacturer's representatives and distributors. The Company's sales and service personnel are compensated on a base salary plus incentive bonus. The Company generally utilizes referrals and its industry reputation and presence to attract customers, and 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; however, beginning in fiscal 1998, management shifted its strategic 3 5 Sales and Marketing - continued focus in Contract Manufacturing away from overflow converting towards longer-term cooperative manufacturing projects which usually include a multi-year contract. The Company reached agreements with several companies including Procter & Gamble Manufacturing, Amoco Fabrics and Fibers, and Amscan, Inc. for specialized contract converting services focused on printing, coating, cutting, folding, and packing. The Company's sales volume by quarter is subject to a limited amount of seasonal fluctuation. Generally, Tufco's sales volume and operating income are at their lowest levels in the first and second fiscal quarters and are generally higher in the third and fourth fiscal quarters, however, seasonal fluctuations are diminishing as the Company shifts its emphasis to longer-term manufacturing agreements. The customer base consists of approximately 1,000 companies, including large consumer products companies, dealers and distributors of business imaging papers, and resellers of paint sundry products. In fiscal 2000, two customers, both Fortune 500 companies accounted for more than 10% of consolidated sales each. A Paint Sundry customer accounted for 12%, and a Contract Manufacturing customer accounted for 20% of fiscal 2000 net sales. 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. COMPETITION The Company believes the primary areas of competition for its goods and services are quality, production capacity and capability, capacity for prompt and consistent delivery, service, continuing relationships and price. The Company believes that its key competitive advantages are product quality, quick response, rapid equipment set-up and turnaround time, long-standing customer relationships, broad customer base, highly engineered machinery and processes, production diversity and capacity, continuity of management, and experienced personnel. Management believes that there is no single competitor that offers the breadth and variety of products and services offered by the Company. In addition, customers benefit from the Company's ability to perform its multiple services and distribute from its national asset base, which reduces freight costs and increases product and service reliability through use of single source supplier on a national basis. Competitors for the Company'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 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 Business Imaging Products, raw materials are inexpensive and readily available, and converting equipment is easily purchased. As a result, competition for Business Imaging customers is very strong, primarily from small regional suppliers and a few large national companies. Based on management's assessment of the market, no single firm offers the breadth of products offered by Tufco on a national basis. There is strong domestic competition and a modest amount of foreign competition in the manufacturing and Paint Sundry products. 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 forecast declines in sales. However, volume requirements 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 in its success has been its willingness and distinctive technical competency to help customers experiment with various flexible substrates to develop materials with different attributes such as strength, flexibility, absorbency, breathability, moisture-resistance, and appearance. As a result, the Company's capabilities enable it to develop certain laminated substrates at lower costs than if the customers developed these products themselves. For example, a customer 4 6 PRODUCT DEVELOPMENT AND QUALITY CONTROL (CONTINUED) may request certain physical tests during trial runs that are performed by the Company's quality control personnel, often with the customer on site. Customers are charged for machine time use, materials, and operator time in the new product development process. 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. The Company maintains multiple quality control laboratories that constantly monitor its production using statistical process controls (SPC) to observe and measure quality effectiveness of its production processes, such as temperature, speed, tension, and pressure. The Company's rigid standards and use of SPC have allowed it to qualify for the GMP (Good Manufacturing Practices) designation from several customers, a quality control standard that these companies require before they will use a company for outsourcing. In addition, several of the Company's customers perform periodic audits at the Company's Green Bay and Dallas facilities to ensure that adequate quality control practices are in place at all times. In fiscal 2000, the Company achieved ISO 2002 certification for its Green Bay facility The Company's Dallas quality control laboratory is part of a collaborative of 33 laboratories sponsored by a large original equipment manufacturer that utilizes the Dallas facility for its production. The collaborative is utilized by that company to help set quality standards and ensure that its suppliers, like the Dallas facility, have in places the process reviews and controls necessary to ensure that quality products are being manufactured consistently. RAW MATERIALS AND SUPPLIERS The Company is not dependent on any particular supplier or group of affiliated suppliers for raw materials or for equipment needs. The Company believes it has excellent relationships with its primary suppliers, and the Company has not experienced difficulties in obtaining raw materials in the past. The Company's raw materials fall into four general groups: various paper stocks, inks for specialty printing, non-woven materials, and polyethylene films. There are numerous suppliers of all of these materials. To ensure quality control and consistency of its raw material supply, the Company's Dallas and Newton facilities receive fine paper stock primarily from three major paper companies instead of a greater number of companies. The Company's primary raw material, base paper, is subject to periodic price fluctuations. In the past, the Company has been 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. ENVIRONMENTAL MATTERS The Company is subject to 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 that it complies with these laws and regulations in all material respects. The Company does not maintain environmental impairment insurance. The Company's past expenditures relating to environmental compliance have not had a material effect on the Company, nor does the Company expect that such expenditures relating to the Company's recently completed addition to its manufacturing facility will be material. Further growth in the Company's production capacity with a resultant increase in discharges and emissions may require capital expenditures for environmental control facilities in the future. The Company does not expect such expenditures to be material. 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. EMPLOYEES At September 30, 2000, the Company had approximately 675 employees, of whom 350 were employed at its Green Bay facility, 100 at its Manning facility, 80 at its Dallas facility, 95 at its Newton facility, and 50 at its St. Louis facility. The Company has a non-union workforce and believes that its relationship with its employees is good. 5 7 ITEM 2 - PROPERTIES The Company's main production and distribution facilities for Contract Manufacturing and specialty printing are located in Green Bay, Wisconsin. The 220,000 square foot facility (of which approximately 15,000 square feet are used for offices) 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 44,000 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, 2003. The Company has an option to renew this lease for an additional three years. The Company's corporate headquarters are located in facilities which it leases in Dallas, Texas, in the same building in which the Company produces and distributes Business Imaging products and provides custom converting of various fine paper and board grade papers. The lease for the 173,000 square foot facility expires in February, 2003. The Company owns a 120,000 square foot facility in Newton, North Carolina, used in the production and distribution of Business Imaging products and in the printing of custom forms. In June 1996, the Company leased for five years and in October of 1996 occupied a new 62,000 square foot facility in Clarendon County, South Carolina, which was designed and constructed to house the production and distribution operations for the Company's Paint Sundry business. The Company has guaranteed to the lessor that, if the lease is not renewed, the residual market value of the building which was constructed at a cost of $1.5 million, will be at least $0.9 million. Management expects the building value will be at least $0.9 million; however, the Company cannot provide assurances as to the impact of future economic factors influencing the future value of the building. In August of fiscal 2000, the Company began a 55,000 square foot expansion of the Manning facility. When complete in February 2001, the Company will close its St. Louis Paint Sundry facility and consolidate those operations into the expanded Manning building. The Company also owns a 42,000 square foot facility in Manning, South Carolina which is not used in operations. In fiscal 1998, the Company decreased its carrying value of this facility and in fiscal 2000 the Company reached an agreement to sell this building for a nominal price. The Company leases a 60,000 square foot building in St. Louis, Missouri from the former owners of Foremost Manufacturing Company in which it packages and distributes paint sundry products. This lease will be vacated as the Manning consolidation is complete. 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 and planned for acquisition 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, which are not anticipated to have a material adverse effect on the Company's results of operations or financial condition. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 6 8 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Since the Company's initial public offering 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 Close ---- --- ----- Fiscal 1999: Quarter ended December 31, 1998 $ 7.500 $4.125 $ 5.000 Quarter ended March 31, 1999 $ 6.375 $3.250 $ 6.000 Quarter ended June 30, 1999 $ 8.500 $5.500 $ 8.000 Quarter ended September 30, 1999 $ 8.250 $7.000 $ 7.500 Fiscal 2000: Quarter ended December 31, 1999 $10.500 $7.000 $10.375 Quarter ended March 31, 2000 $12.000 $8.375 $ 9.500 Quarter ended June 30, 2000 $11.250 $8.625 $10.000 Quarter ended September 30, 2000 $10.250 $8.750 $10.125
As of December 14, 2000, there were approximately 114 holders of record of the Common Stock. On December 14, 2000, the last reported sale price of the Common Stock as reported on the NASDAQ National Market was $7.44 per share. The Company has never paid dividends on its Common Stock. All notes except the Industrial Development Revenue Bonds are supported by loan agreements which contain 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 9 ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended September 30, ----------------------------------------------------------- 2000 1999 1998(1) 1997 1996 -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Net sales ............................................. $ 78,952 $ 76,331 $ 76,973 $ 65,750 $ 68,374 Cost of sales ......................................... 68,041 63,225 65,903 53,835 56,042 -------- -------- -------- -------- -------- Gross profit .......................................... 10,911 13,106 11,070 11,915 12,332 Selling, general, and administrative expenses .......................... 6,564 7,317 7,661 6,396 6,753 Amortization and other post-acquisition expenses ...... 1,150 1,010 1,025 706 724 Facility closing cost ................................. 831 -- -- -- -- Employee severance cost ............................... 660 -- 142 -- -- Property write-downs .................................. 74 -- 250 -- -- (Gain) loss on asset sales ............................ (327) (1,048) 37 (101) (5) -------- -------- -------- -------- -------- Operating income ................................. 1,959 5,827 1,955 4,914 4,860 Interest expense ................................. (974) (1,086) (1,177) (889) (1,134) Interest and other income ........................ 35 40 66 266 41 -------- -------- -------- -------- -------- Income before income taxes and extraordinary item ...................... 1,020 4,781 844 4,291 3,767 Income tax expense ............................... 493 1,803 452 1,638 1,507 -------- -------- -------- -------- -------- Income before extraordinary item ...................... 527 2,978 392 2,653 2,260 Extraordinary item-loss from early repayment of debt, net of income tax benefit of $32........................... -- -- 62 -- -- -------- -------- -------- -------- -------- Net income ....................................... $ 527 $ 2,978 $ 330 $ 2,653 $ 2,260 ======== ======== ======== ======== ======== Earnings per share: Income before extraordinary item Basic .................................. $ .12 $ .67 $ .09 $ .61 $ .52 Diluted ................................ $ .11 $ .67 $ .09 $ .60 $ .51 Net income Basic .................................. $ .12 $ .67 $ .07 $ .61 $ .52 Diluted ................................ $ .11 $ .67 $ .07 $ .60 $ .51 Weighted average common shares outstanding: Basic .................................. 4,499 4,419 4,420 4,384 4,386 Diluted ................................ 4,622 4,475 4,518 4,448 4,438 OTHER DATA: Depreciation and amortization(2) ...................... $ 3,535 $ 3,090 $ 2,605 $ 2,363 $ 2,279 Capital expenditures .................................. $ 7,073 $ 3,130 $ 2,629 $ 3,234 $ 2,371 BALANCE SHEET DATA: (AT SEPTEMBER 30) Working capital ....................................... $ 11,952 $ 13,934 $ 12,630 $ 10,225 $ 10,553 Total assets .......................................... 62,133 59,081 58,767 49,045 50,038 Total-current and long-term debt ...................... 13,107 14,530 17,697 10,498 13,350 Stockholders' equity .................................. 36,579 35,246 32,250 31,368 28,719
FOOTNOTES (1) Includes Foremost Manufacturing Company since its acquisition in November 1997. (2) Includes depreciation and amortization of goodwill and organizational expenses. 8 10 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS Management's discussion of the Company's 2000 fiscal year in comparison to fiscal 1999, contains forward-looking statements regarding current expectations, risks and uncertainties for 2001 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, 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 performs contract manufacturing and specialty printing services, manufactures and distributes business imaging paper products and paint sundry products. The Company's strategy is to provide services, manufacture and distribute products in niche markets relying on close customer contact and high levels of quality and service. The Company works closely with its contract manufacturing clients to develop products or perform services which meet or exceed the customers' quality standards, and to then use 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 folding, packaging, coating, slitting and rewinding, sheeting, multi-color printing and laminating. In January 1994, the Company completed an initial public offering of its stock and concurrently purchased substantially all of the assets of ECC. The Company issued 900,000 shares of its Common Stock on the NASDAQ Market at $9.00 per share, resulting in net proceeds of $6.8 million. The total cost of the ECC acquisition was $8.7 million consisting of $7.5 million in cash and 127,778 shares of Common Stock. In August 1995, the Company purchased substantially all of the assets of Hamco for a total cost of $14.2 million funded by the issuance of 1.2 million shares of Common Stock and additional bank borrowings. In November 1997, the Company purchased all of the outstanding common stock of Foremost Manufacturing Company, Inc. for a total cost of $6.2 million, including transaction costs, funded by the issuance of 25,907 shares of common stock and additional bank borrowings. RESULTS OF OPERATIONS The following discussion relates to the financial statements of the Company for the fiscal year ended September 30, 2000 ("current year" or "fiscal 2000"), in comparison to the fiscal year ended September 30, 1999 ("prior year" or "fiscal 1999"), as well as the fiscal year ended September 30, 1998 ("fiscal 1998"). 9 11 RESULTS OF OPERATIONS (CONTINUED) The following table sets forth, for the years ended September 30 (i) the percentage relationship of certain items from the Company's statements of income to net sales and (ii) the year-to-year changes in these items:
PERCENTAGE OF NET SALES YEAR-TO-YEAR CHANGE ---------------------------------------------- ----------------------------- 1999 TO 1998 TO 2000 1999 1998 2000 1999 ------------ ------------ ------------ ------------ ------------ Net sales ................................... 100.0% 100.0% 100.0% 3% (1)% Cost of sales ............................... 86.2 82.8 85.6 8 (4) ------------ ------------ ------------ ------------ ------------ Gross margin ....................... 13.8 17.2 14.4 (17) 18 Selling and administrative expenses ......... 8.3 9.6 9.9 (10) (4) Amortization and post-acquisition expenses .. 1.5 1.3 1.4 14 (1) Facility closing cost ....................... 1.0 -- -- -- -- Employee severance cost ..................... 0.8 -- 0.2 -- -- Property write-downs ........................ 0.1 -- 0.3 -- -- (Gain) loss on asset sales .................. (0.4) (1.4) 0.1 (69) -- ------------ ------------ ------------ ------------ ------------ Operating income ................... 2.5 7.6 2.5 (66) 198 Interest expense ............................ (1.2) (1.4) (1.5) (10) (8) Interest and other income ................... 0.0 0.0 .1 (13) (39) ------------ ------------ ------------ ------------ ------------ Income before income taxes and extraordinary item .......... 1.3 6.3 1.1 (79) 466 Income tax expense .......................... 0.6 2.4 0.6 (73) 299 ------------ ------------ ------------ ------------ ------------ Net income before extraordinary item ........ 0.7 3.9 0.5 (82) 660 Extraordinary item .......................... -- -- 0.1 -- -- ------------ ------------ ------------ ------------ ------------ Net income .................................. 0.7% 3.9% 0.4% (82)% 660% ============ ============ ============ ============ ============
The components of net sales and gross profit are summarized in the table below:
2000 1999 1998 ------------------- ------------------- ------------------- % of % of % of Amount Total Amount Total Amount Total -------- -------- -------- -------- -------- -------- (Dollars in millions) Net Sales Contract manufacturing and printing $ 34.2 43% $ 26.0 34% $ 19.2 25% Business imaging paper products 25.9 33 24.9 33 32.5 42 Paint sundry products 18.8 24 21.0 27 18.0 24 Away-from-home products 0.0 -- 4.4 6 7.3 9 -------- -------- -------- -------- -------- -------- Net sales $ 78.9 100% $ 76.3 100% $ 77.0 100% ======== ======== ======== ======== ======== ========
Margin Margin Margin Amount % Amount % Amount % -------- -------- -------- -------- -------- -------- Gross Profit Contract manufacturing and printing $ 7.1 21% $ 6.4 25% $ 2.2 11% Business imaging paper products 2.9 11 3.5 14 5.0 15 Paint sundry products .9 5 2.8 13 3.2 18 Away-from-home products 0.0 -- 0.4 9 0.7 10 -------- -------- -------- -------- -------- -------- Gross profit $ 10.9 14% $ 13.1 17% $ 11.1 14% ======== ======== ======== ======== ======== ========
10 12 FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO SEPTEMBER 30, 1999 NET SALES for fiscal 2000 increased $2.6 million or 3% primarily due to increased sales of Contract Manufacturing and printing services, which increased $8.2 million or 32% over the prior year. The increased contract manufacturing sales were the result of two new service agreements with a Fortune 500 consumer products company, under which the Company manufactured and packaged a household cleaning product and a facial wipe. Sales under these two agreements began in the first quarter of fiscal 2000, and ended abruptly in the second quarter of fiscal 2000. Based on customer forecasts, Company management had expected sales under the larger of these two agreements to continue through July of fiscal 2000, and the early termination had a negative impact on gross profit margins in the Contract Manufacturing sector. In addition to these two agreements, the Company also began converting paper products for a large manufacturer of wide-format printers and copiers. Volumes under this agreement are based on month-to-month purchase orders placed by the customer, and monthly sales can vary widely. Sales of the Company's Business Imaging paper products increased $1.0 million (4%) due to a combination of increased selling prices and a smaller increase in unit volume. Raw material costs increased an average of 19% for the sector, and the Company passed on a portion of those costs to its customers resulting in an increase in net sales. However, due to the frequency with which paper costs increased, and to agreements with customers under which the Company must provide advance notice of sales price increases, the Company was unable to pass through all cost increases on a timely basis resulting in diminished gross profit margins. Sales in the Company's Paint Sundry sector declined $2.2 million (10%) due primarily to lower sales to a major national paint retailer, as that customer chose to purchase its products from Asian suppliers beginning in October of 1999. Finally, no sales of Away-From-Home (AFH) products were recorded in fiscal 2000, compared to sales of $4.4 million in fiscal 1999. The Company discontinued marketing AFH products in June of fiscal 1999, and sold the assets previously used to support that sector. The manufacturing resources previously used to support production of AFH inventory were reallocated to support new Contract Manufacturing agreements which were in start-up phase at the end of fiscal 2000. GROSS PROFIT declined $2.2 million (17%) and margins declined to 13.8% in fiscal 2000 from 17.2% in the prior year. Several factors contributed to the decline. The most significant decline occurred in the Paint Sundry sector where gross profit was down $1.9 million and margins declined from 13% in the prior year to 5% in fiscal 2000. As discussed earlier, the loss of a major customer contributed heavily to the declining gross profit. In the fourth quarter of fiscal 2000, management announced its intent to close its St. Louis facility and consolidate all Paint Sundry operations into the Company's expanded Manning, South Carolina plant. Management believes that this consolidation will provide almost $1 million in annual cost savings when completed in March 2001, which will help to increase gross profit respectively. Gross profit from the sale of Business Imaging paper products declined $0.6 million (17%) due to the aforementioned increases in raw material costs which were not entirely passed through to customers. Management has planned price increases for December 2000 which should result in improved gross profit margins in the final three quarters of fiscal 2001, assuming raw material cost stability. Finally, gross profit from Contract Manufacturing services increased $0.7 million, though the gross profit margin declined from 25% in fiscal 1999 to 21% in fiscal 2000. As noted earlier, the Company's largest customer cancelled a major manufacturing agreement in the second quarter of fiscal 2000, approximately five months ahead of the scheduled termination date. The customer's internal production line was operational earlier than planned, negating their need for Tufco's services. While the Company had the right to impose financial penalties for the early termination, management elected to waive those penalties in recognition of three new manufacturing agreements which were under negotiation with this customer. The Company was eventually awarded all three of the new production agreements, and two of the three will enter commercial production in the second quarter of fiscal 2001. The sudden decline in sales from the discontinued contract, combined with the high costs for training and start-up which the Company incurred for the three new agreements resulted in low gross profit margins in the third and fourth quarters of fiscal 2000. Margins in the Contract Manufacturing sector should improve in the second quarter of fiscal 2001 when these agreements begin commercial operations. Until these agreements are operational, management projects that gross profit margins will remain lower than in fiscal 1999. SELLING AND ADMINISTRATIVE EXPENSES for fiscal 2000 were down $0.8 million or 10%, principally due to costs eliminated from the discontinuance of the AFH sales and marketing sector. GOODWILL AMORTIZATION AND POST-ACQUISITION EXPENSES increased $0.1 million (14%) due to costs accrued relating to potential liability under an indemnification agreement to Bradford Venture Partners, Ltd. a related party. 11 13 FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO SEPTEMBER 30, 1999 (CONTINUED) FACILITY CLOSING EXPENSE is a one-time charge associated with the closing of the Company's St. Louis distribution facility and the moving of the related inventory, equipment and personnel to Manning. SEVERANCE EXPENSE was $0.7 million in fiscal 2000, and relates to payments due to a former executive of the Company pursuant to an employment agreement with an acquired company. GAINS ON ASSET SALES were $0.3 million in fiscal 2000 resulting from the sale of certain under-utilized printing equipment in the Green Bay facility. In the prior year, most of the $1.0 million gain was the result of the sale of assets formerly used to support the AFH business sector. NET INTEREST EXPENSE decreased $0.1 million due to lower average borrowings during the current fiscal year. INCOME TAXES were 48% of pre-tax earnings in fiscal 2000, compared to 38% for the prior year. The increased rate was the result of the impact that certain non-deductible expenses, such as goodwill amortization, on the relatively low level of pre-tax income. BASIC AND DILUTED EARNINGS PER SHARE were 12 cents and 11 cents respectively in fiscal 2000. Adjusted for the after tax effects of the plant costing costs and executive severance, basic and diluted earnings per share would have been 32 cents. FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO SEPTEMBER 30, 1998 NET SALES for fiscal 1999 decreased $0.6 million, or 1%, in part due to the discontinuance of the Company's Away From Home (AFH) product line in June of fiscal 1999. Sales in the Company's remaining market sectors increased 3%. The Company discontinued its AFH sales efforts because management believed that the Company's relatively small market share, the lack of a reliable long term source of base paper and the frequency of heavy price discounting in the market sector made AFH products a poor fit with the Company's chosen strategic direction. Instead, management has reallocated plant space and personnel previously allocated to the AFH sector toward expanding its Contract Manufacturing services, the Company's primary strategic focus for the future. Sales of Contract Manufacturing services increased $6.8 million (35%) over the prior year, primarily due to new agreements to provide contract folding, packaging and printing services for large consumer products companies. Management identified Contract Manufacturing as its key growth sector during development of its strategic plan in fiscal 1998 and began allocating capital and personnel resources toward growth in that sector. To further its capabilities in the sector, the Company installed a new eight color flexographic printing press in its Green Bay facility. The total value of the press exceeded $4 million, for which the Company entered into a long term operating lease in December 1999. Management believes that the expanded services made possible by the new press will enable the Company to further grow its specialty printing services. Sales in the Company's Business Imaging sector declined $7.6 million (23%) primarily due to continued deep discounts in the selling price of its engineering and point-of-sale (POS) roll products as a result of increased competition, as well as the loss of several large POS national account customers which were at lower profit margins. Finally, sales of the Company's Paint Sundry products increased $3.0 million (17%) over the prior year. A portion of the increase ($0.9 million) results from the timing of the Foremost acquisition for which only eleven months of sales were recognized in fiscal 1998. Adjusted for this fact, sales in this sector increased 12%, primarily due to increased sales to large do-it-yourself home centers. GROSS PROFIT increased $2.0 million, or 18%, to $13.1 million in fiscal 1999, and gross profit margins increased to 17% in the current year from 14% in the prior year. The Company was able to increase gross profit primarily due to the growth in sales of Contract Manufacturing services, for which the Company is generally able to earn higher margins due to the high levels of capital investment, project management skills and technical competence required by customers in that sector. Strong competition continued to depress gross profit margins in the Company's Business Imaging sector, as the Company continued to lower its selling prices in response to market conditions. While management believes it is effectively retaining its key customer base, profitability is still depressed and management cannot provide assurance that Business Imaging selling prices will rebound in the near term. Opportunities exist to provide contract manufacturing services for several large companies in the Business Imaging sector, and management is pursuing some of those opportunities. Margins in the Company's Paint Sundries sector declined during the year due to costs incurred to consolidate operations and absorb the Foremost acquisition. 12 14 FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO SEPTEMBER 30, 1998 (CONTINUED) SELLING AND ADMINISTRATIVE EXPENSES decreased $0.5 million or 6% from fiscal 1998. The decrease was the result of lower selling expenses resulting from the elimination of the AFH marketing group as well as reductions in certain costs which were higher than normal in the prior year, including severance and health insurance costs. GOODWILL AMORTIZATION AND POST-ACQUISITION EXPENSES were relatively unchanged from the prior year, as the Company did not complete any acquisitions during the current fiscal year. GAINS ON ASSET SALES totaled $1.0 million in fiscal 1999 resulting primarily from the discontinuance of the AFH business sector and the sale of production equipment and inventory which were previously dedicated to that sector. Additionally, the Company sold two other pieces of production equipment which had limited ongoing production value to the Company. NET INTEREST EXPENSE decreased $0.1 million due to lower average borrowings during the current fiscal year. INCOME TAXES were 38% of pretax earnings for fiscal 1999 compared to 54% for the prior year. Fiscal 1998 was an anomaly because the low level of pre-tax income served to accentuate the effect that non-deductible goodwill amortization expense had on the overall tax rate. By comparison, income taxes for fiscal year 1997 were 38% of pre-tax earnings as well. BASIC AND DILUTED EARNINGS PER SHARE after the effect of the extraordinary item were both 67 cents in fiscal 1999 compared to 7 cents in fiscal 1998. Adjusted for the gains from the sale of equipment and other assets, basic and diluted earnings per share were both 53 cents per share in fiscal 1999. 13 15 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. FISCAL 2000 (Dollars in thousands, except per share amounts)
First Second Third Fourth Quarter Quarter Quarter Quarter Net sales ................................... $ 20,701 $ 19,783 $ 19,392 $ 19,076 Gross profit ................................ 3,654 3,417 2,038 1,802 Operating expenses .......................... 1,822 2,082 1,545 3,503 Operating income (loss) ..................... 1,832 1,335 493 (1,701) Income (loss) before income taxes ........... 1,550 1,075 237 (1,842) Income tax expense (benefit) ................ 574 398 151 (630) Net income (loss) ........................... 976 677 86 (1,212) Earnings (loss) per share: Basic .............................. .22 .15 .02 (.26) Diluted ............................ .21 .15 .02 (.26)
FISCAL 1999 (Dollars in thousands, except per share amounts)
First Second Third Fourth Quarter Quarter Quarter Quarter Net sales ................................... $ 18,341 $ 18,519 $ 19,416 $ 20,055 Gross profit ................................ 2,974 2,801 3,493 3,838 Operating expenses .......................... 1,940 1,988 1,250 2,101 Operating income ............................ 1,034 813 2,243 1,737 Income before income taxes .................. 781 516 1,960 1,524 Income tax expense (benefit) ................ 312 181 714 596 Net income .................................. 469 335 1,246 928 Earnings per share: Basic .............................. .11 .08 .28 .21 Diluted ............................ .11 .08 .28 .21
As noted in the fiscal 2000 full-year sales and gross profit discussion, the Company's largest customer cancelled a major Contract Manufacturing agreement 5 months ahead of its scheduled termination. This cancellation, combined with high start-up costs incurred for three new production agreements, resulted in lower sales and gross profit in the third and fourth quarters of fiscal 2000. Additionally, the company accrued approximately $1.5 million in total costs for executive severance and the closing of the St. Louis distribution operation. These costs are reflected in the operating expenses in the fourth quarter of fiscal 2000. In the first and third quarters of fiscal 1999, the Company sold equipment resulting in pre-tax gains of $0.3 million (per share: $0.05 basic and diluted) and $0.7 million (per share: $0.09 basic and diluted) respectively. These gains are reflected in the operating expenses. LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations increased $4.9 million to $6.9 million in fiscal 2000. Cash generated from net income adjusted for non-cash expenses and gains was $4.0 million compared to $5.7 million in the prior year. Offsetting this decline, accounts receivable grew at a slower rate than in the prior year due to more timely payments 14 16 LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) from the Company's largest customer, resulting in a $2.2 million improvement in cash flow. Additionally, accounts payable increased $3.2 million due to payments due on customer owned equipment associated with the new production agreements, which were in start-up phase, and to the timing of payment due dates relative to the last day of the fiscal year. The Company has an arrangement with its largest customer whereby the Company purchases and installs the customer's production equipment, and is later reimbursed by the customer, and the balance of these payments due on the last day of fiscal 2000 was $1.0 million. Cash used in investing activities totaled $6.1 million in fiscal 2000 resulting from costs incurred to expand the Company's Green Bay production facility and to purchase and install production equipment. These expenditures were partially offset by proceeds from the sale of under-utilized production equipment. Cash used in financing activities totaled $0.6 million resulting from the repayment of long-term debt offset by cash received from the exercise of stock options. The Company's primary need for capital resources is to finance inventories, accounts receivable, capital expenditures, and acquisitions. On August 28, 1998, the Company entered into a syndicated financing arrangement with First Union National Bank (First Union) and Chase Bank of Texas, N.A. with First Union acting as agent. Under the agreement, as amended in fiscal 2000, the Company has $ 5.1 million of term debt at September 30, 2000, repayable in equal quarterly payments maturing in August 2005 and up to $12.0 million under a revolving credit agreement through June 2002. In fiscal 1998, the Company paid approximately $0.1 million to its former lender to exit the prior credit agreement, principally in the form of prepayment penalties on the early repayment of term debt. Simultaneous with the refinancing, the Company entered into an interest rate swap arrangement with First Union which had the effect of creating a fixed rate of interest on the Company's term debt. As a result of this arrangement, the rate of interest on the term debt is fixed at 5.87%, plus a profit spread for the syndicated banks of between 100 and 150 basis points, depending on certain financial ratios achieved by the Company. Management believes that this hedge arrangement creates a desirable stability of future interest payments. At December 12, 2000, the Company had approximately $12.1 million in total borrowings outstanding under this agreement, with $4.7 million available under the revolving credit agreement. Management believes its operating cash flow is adequate to service its long-term obligations as of September 30, 2000, and any budgeted capital expenditures. The credit facility is secured by substantially all of the Company's assets and contains certain restrictive covenants, including minimum required net worth, minimum required cash flow, maximum allowable indebtedness and maximum allowable capital expenditures. At September 30, 2000, the Company was in compliance with all of its debt covenants. The Company had previously obtained a waiver from the banks permitting it to sell various production assets during fiscal 1999. During the first quarter of fiscal 2000, the Company entered into a lease to own and operate a Windmoeller and Hoelscher eight color flexographic printing press. The lease is structured as an operating lease over ten years with payments totaling approximately $0.5 million annually. The Company will have 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, the Company's primary lender must approve the payment of any dividends. The Company's allowance for uncollectible accounts receivable was $0.6 million at December 12, 2000. Management believes that this allowance is adequate to provide for losses inherent in its accounts receivable. Sharp increases or decreases in the costs of key commodities, such as paper or polyethylene, periodically impact the Company's inventory values and net income. This was the case in fiscal 2000 as rising paper costs had a negative impact on the Company's profit. In fiscal years 1998 and 1999, the impact of inflation was minimal on the Company's inventory and net income. 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. 15 17 RECENTLY ISSUED ACCOUNTING STANDARDS SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" will be effective for the Company's year beginning October 1, 2000; this Statement establishes standards for the valuation, classification and accounting of derivative instruments. The Company expects that the implementation of these standards will have no material effect on the financial statements. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk - The Company has entered into an interest rate swap contract as a hedge under which the interest rate on its term debt is 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 (see Note 7 to the Company's Financial Statements). At September 30, 2000, prevailing market interest rates were higher than the fixed rate in the Company's swap agreement, and the Company would have received a premium of $61,000 from its lender if the debt under the swap were to have been paid in full at that time. Prior to entering into the swap agreement, management had reviewed the 40-year history of interest rates and had determined, and still believes, that the Company's risk of potential future liability resulting from a material decline in interest rates below the fixed level under the swap was not significant. 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, 2000. 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, 2000. The Company presents its assessment of the risks of short-term commodity price fluctuations in the section entitled Raw materials and Supplies under Part I, Item 1 of this document. Other Relevant Market Risks - The Company does not own any marketable securities, and management has not identified any other relevant market risks. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements are attached as Appendix to this report. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 16 18 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers, directors, and key employees of the Company are:
Name Age Positions With the Company ---- --- -------------------------- Louis LeCalsey, III 61 President and Chief Executive Officer Gregory L. Wilemon 40 Chief Financial Officer, Chief Operating Officer and Secretary/Treasurer Robert J. Simon(1)(2)(3) 42 Chairman of the Board of Directors Samuel J. Bero(1)(3) 65 Director C. Hamilton Davison, Jr.(3) 41 Director William J. Malooly(2) 58 Director Seymour S. Preston III(2) 67 Director
---------- (1) Member of the Executive Committee (2) Member of the Audit Committee (3) Member of the Compensation Committee Each director holds office until the next annual meeting of stockholders of the Company and until his successor has been elected and qualified. Each director with the exception of Mr. Bero and Mr. LeCalsey has served on the Board of Directors since Tufco's inception in February 1992. Mr. Bero was elected to the Board in 1994 and Mr. LeCalsey was elected in 1996. 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 or directors of the Company. EXECUTIVE OFFICERS, DIRECTORS, AND KEY EMPLOYEES Louis LeCalsey, III -- Mr. LeCalsey assumed the positions of President and Chief Executive Officer of Tufco in September 1996. Previously he was President of Tufco Industries, Inc. since April 1996 and 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, Inc., as well as a member of the Advisory group for Bradford Equities Fund LLC. Gregory L. Wilemon -- Mr. Wilemon has been Chief Financial Officer since September 18, 1995 and was appointed Secretary/Treasurer by the board effective November 12, 1995 and Chief Operating Officer in September 1996. Mr. Wilemon had been Chief Operating Officer at Executive Roll Manufacturing from 1991 until May of 1993. From 1993 until he rejoined the Company, Mr. Wilemon was Vice President of Finance at Great North American Companies. Prior to his earlier tenure with the Company, Mr. Wilemon was a Senior Business Planner with PepsiCo from 1987 to 1991. Robert J. Simon -- Mr. Simon has 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 Chairman of the Board of Foilmark, Inc., a public company. Mr. Simon is either Chairman of the Board or a director of Ampco Metal Inc., Parmarco Technologies, Inc., TriMark, Inc., Mexican Accent, Inc., Overseas Equity Investors Ltd., Overseas Private Investors Ltd., and Overseas Callander Fund, Ltd. and several other privately held companies. Samuel J. Bero -- Mr. Bero had been President and Chief Executive Officer from November 1993 until he retired in July 1995, Executive Vice President since November 1992, and General Manager of Tufco since 1974, when he co-founded the Predecessor. Mr. Bero has over 33 years of experience in the converting industry. 17 19 EXECUTIVE OFFICERS, DIRECTORS, AND KEY EMPLOYEES (CONTINUED) C. Hamilton Davison, Jr. -- 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 (AMEX:VR) 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. William J. Malooly -- Mr. Malooly has been the Chairman and Chief Executive Officer of Bank One, Green Bay since 1977. Mr. Malooly retired from Bank One in September 1999 and is currently engaged in consulting and investing. Seymour S. Preston, III -- Mr. Preston is the Chairman and Chief Executive Officer of AAC Engineered Systems, Inc. a manufacturer of deburring and metal finishing equipment. From 1990 to 1993, Mr. Preston was President and Chief Executive Officer 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 is a Director of Albemarle Corporation, Scott Specialty Gases, Inc., The Barra Foundation, and is the Interim President of 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. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT The information called for by Item 10 with respect to compliance with Section 16(a) of the Securities Exchange Act is incorporated by reference from the Proxy Statement relating to the Company's annual meeting to be held in 1999 (the "Proxy Statement"), which Proxy Statement is to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days of the end of the fiscal year covered by this report. ITEM 11 - EXECUTIVE COMPENSATION The information called for by Item 11 is incorporated by reference from the Proxy Statement. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by Item 12 is incorporated by reference from the Proxy Statement. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by Item 13 is incorporated by reference from the Proxy Statement. 18 20 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (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. (a) 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. (a) 3. Exhibits. See Exhibit Index in part (c), below. (b) The Company did not file any reports on Form 8-K during the quarter ended September 30, 2000. (c) Exhibit Number 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). 3.1 Restated Certificate of Incorporation(1) (Exhibit 3.1) 3.2 Bylaws(1) (Exhibit 3.2) 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.(1) (Exhibit 10.1) 10.2 Amended and Restated Consulting Agreement with Bradford Investment Partners, L.P.(3) (Exhibit 10) 10.3 Loan Agreement, dated May 1, 1992, between the Village of Ashwaubenon, Wisconsin, and the Company.(1) (Exhibit 10.11) 10.4 1992 Non-Qualified Stock Option Plan(1) (Exhibit 10.12) 10.5 Form of Employee Stock Purchase Agreement between the Company and certain key employees of the Company.(1) (Exhibit 10.17) 10.6 1993 Non-Employee Director Stock Option Plan.(2) (Exhibit 10.19) 10.7 Amended Employment Agreement with Greg Wilemon, dated September 18, 1995.(4) (Exhibit 10.11) 10.8 Lease Agreement, dated as of March 1, 1995, between Bero, Garland, Gebhardt and McClure, a Wisconsin partnership, and Tufco.(4) (Exhibit 10.13) 10.9 Lease Agreement dated as of April 1, 1996, between Bero, Garland, Gebhardt and McClure, a Wisconsin partnership, and Tufco.(5) (Exhibit 10.15) 10.10 Employment Agreement with Louis LeCalsey, III dated September 19, 1996.(5) (Exhibit 10.18) 10.11 Credit Agreement among Tufco L.P. as Borrower, the Company as the Parent First Union National Bank as agent and the banks named herein dated August 28, 1998.(6) 10.12 ISDA Master Agreement and Schedule to the Master Agreement dated as of July 30, 1998 between First Union National Bank and Tufco, L.P.(6) 10.13 First Amendment to Credit Agreement.(6) 10.14 Second Amendment to Credit Agreement.(7) 21.1 Subsidiaries of the Company.(6) 27.1* Financial Data Schedule 99.1* Employee Stock Purchase Agreement executed by Greg Wilemon in favor of the Company dated September 30, 2000. (Exhibit 99.1) * Filed herewith (1) Incorporated by reference to the Company's Registration Statement on Form S-1 (Reg. No. 33-55828) (the "Registration Statement") as filed with the Commission on December 16, 1992. (2) Incorporated by reference to Amendment No. 1 to the Registration Statement as filed with the Commission on November 23, 1993. (3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1995. 19 21 (4) Incorporated by reference to the Company's Annual Report on Form 10-K for the period ended September 30, 1995. (5) Incorporated by reference to the Company's Annual Report on Form 10-K for the period ended September 30, 1997. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the period ended September 30, 1998. (7) Incorporated by reference to the Company's Annual Report of Form 10-Q for the period ended June 30, 2000. (c) See (a)(3) above for the list of exhibits required to be filed as part of the Annual Report on Form 10-K. 20 22 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 15, 2000. Tufco Technologies, Inc. By: /s/ Louis LeCalsey, III ------------------------------------- Louis LeCalsey, III President 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 President, Chief Executive Officer December 15, 2000 ------------------------------------ and Director (Principal Executive Louis LeCalsey, III Officer) /s/ Robert J. Simon Chairman of the Board December 15, 2000 ------------------------------------ Robert J. Simon /s/ Gregory L. Wilemon Chief Financial Officer, Chief December 15, 2000 ------------------------------------ Operating Officer and Secretary Gregory L. Wilemon (Principal Financial and Accounting Officer) /s/ Samuel J. Bero Director December 15, 2000 ------------------------------------ Samuel J. Bero /s/ C. Hamilton Davison Jr. Director December 15, 2000 ------------------------------------ C. Hamilton Davison, Jr. /s/ William J. Malooly Director December 15, 2000 ------------------------------------ William J. Malooly /s/ Seymour S. Preston, III Director December 15, 2000 ------------------------------------ Seymour S. Preston, III
23 TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS - ITEM 8 OF FORM 10-K --------------------------------------------------------------------------------
PAGE INDEPENDENT AUDITORS' REPORT..........................................................................................F-2 FINANCIAL STATEMENTS AND NOTES: Consolidated Balance Sheets as of September 30, 2000 and 1999......................................................F-3 Consolidated Statements of Income for the Years Ended September 30, 2000, 1999 and 1998...........................................................F-4 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 2000, 1999 and 1998...........................................................F-5 Consolidated Statements of Cash Flows for the Years Ended September 30, 2000, 1999 and 1998...........................................................F-6 Notes to Consolidated Financial Statements.........................................................................F-7
F-1 24 INDEPENDENT AUDITORS' REPORT To the Directors and Stockholders of Tufco Technologies, Inc.: We have audited the accompanying consolidated balance sheets of Tufco Technologies, Inc. and subsidiaries (the "Company") as of September 30, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 30, 2000. 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 auditing standards generally accepted in the United States of America. 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 Tufco Technologies, Inc. and subsidiaries at September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Dallas, Texas December 1, 2000 F-2 25 TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2000 AND 1999 --------------------------------------------------------------------------------
ASSETS 2000 1999 CURRENT ASSETS (Note 7): Cash and cash equivalents $ 930,388 $ 692,002 Restricted cash (Note 9) 31,717 20,050 Accounts receivable - net (Note 3) 12,697,187 12,721,698 Inventories (Note 4) 7,912,482 8,248,876 Prepaid expenses and other current assets 740,383 763,972 Income taxes receivable 560,444 Deferred income taxes (Note 8) 796,174 447,096 ------------ ------------ Total current assets 23,668,775 22,893,694 PROPERTY, PLANT AND EQUIPMENT - Net (Notes 5 and 7) 20,182,838 16,636,756 GOODWILL - Net (Notes 1 and 2) 17,341,724 17,948,930 OTHER ASSETS - Net (Note 6) 939,811 1,601,409 ------------ ------------ TOTAL $ 62,133,148 $ 59,080,789 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt (Note 7) $ 1,771,432 $ 1,902,435 Accounts payable 6,964,711 3,764,026 Accrued payroll, vacation and payroll taxes 1,544,867 1,537,041 Other current liabilities 1,435,450 1,580,744 Income taxes payable 175,001 ------------ ------------ Total current liabilities 11,716,460 8,959,247 LONG-TERM DEBT - Less current portion (Note 7) 11,335,704 12,627,136 DEFERRED INCOME TAXES (Note 8) 2,502,223 2,248,871 COMMITMENTS AND CONTINGENCIES (Note 9) STOCKHOLDERS' EQUITY (Note 11): Voting common stock; $.01 par value; 9,000,000 shares authorized; 4,675,019 and 4,498,618 shares issued, respectively 46,750 44,986 Additional paid-in capital 24,879,246 23,973,017 Retained earnings (Note 7) 12,383,489 11,856,772 Treasury stock at cost, 78,497 voting common shares (534,045) (534,045) Stockholder notes receivable (196,679) (95,195) ------------ ------------ Total stockholders' equity 36,578,761 35,245,535 ------------ ------------ TOTAL $ 62,133,148 $ 59,080,789 ============ ============
See notes to consolidated financial statements. F-3 26 TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998 --------------------------------------------------------------------------------
2000 1999 1998 NET SALES $ 78,952,268 $ 76,330,563 $ 76,972,776 COST OF SALES 68,041,438 63,224,285 65,902,280 ------------ ------------ ------------ GROSS PROFIT 10,910,830 13,106,278 11,070,496 OPERATING EXPENSES: Selling, general and administrative (Note 10) 6,564,378 7,317,325 7,661,463 Amortization and other postacquisition expenses 1,149,697 1,009,868 1,024,620 Facility closing costs (Note 14) 831,305 Employee severance costs 659,950 142,030 Property write-downs 74,000 250,000 (Gain) loss on asset sales (Note 5) (327,331) (1,047,591) 36,925 ------------ ------------ ------------ Total 8,951,999 7,279,602 9,115,038 ------------ ------------ ------------ OPERATING INCOME 1,958,831 5,826,676 1,955,458 OTHER INCOME (EXPENSE): Interest expense (973,583) (1,085,511) (1,176,623) Interest and other income 34,894 39,370 65,096 ------------ ------------ ------------ Total (938,689) (1,046,141) (1,111,527) ------------ ------------ ------------ INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 1,020,142 4,780,535 843,931 INCOME TAX EXPENSE (Note 8) 493,425 1,802,216 451,790 ------------ ------------ ------------ INCOME BEFORE EXTRAORDINARY ITEM 526,717 2,978,319 392,141 EXTRAORDINARY ITEM - Loss from early repayment of debt, net of income tax benefit of $32,059 (Note 7) 62,231 ------------ ------------ ------------ NET INCOME $ 526,717 $ 2,978,319 $ 329,910 ============ ============ ============ EARNINGS PER SHARE: Income before extraordinary item: Basic $ .12 $ .67 $ .09 ============ ============ ============ Diluted $ .11 $ .67 $ .09 ============ ============ ============ Net income: Basic $ .12 $ .67 $ .07 ============ ============ ============ Diluted $ .11 $ .67 $ .07 ============ ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 4,499,391 4,418,859 4,419,763 ============ ============ ============ Diluted 4,622,318 4,474,802 4,517,849 ============ ============ ============
See notes to consolidated financial statements. F-4 27 TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998 --------------------------------------------------------------------------------
COMMON STOCK -------------------------------------------------------- VOTING NONVOTING ADDITIONAL -------------------------- -------------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT CAPITAL BALANCES AT OCTOBER 1, 1997 3,733,830 $ 37,338 709,870 $ 7,099 $23,539,420 Exercise of employee stock options 26,486 265 172,140 Issuance of common stock - Foremost acquisition (Note 2) 25,907 259 249,741 Repayment of stockholder notes receivable Purchase of treasury stock, 18,693 shares Net income ----------- ----------- ----------- ----------- ----------- BALANCES AT SEPTEMBER 30, 1998 3,786,223 37,862 709,870 7,099 23,961,301 Exercise of employee stock options 2,525 25 11,716 Conversion of nonvoting to voting common stock 709,870 7,099 (709,870) (7,099) Repayment of stockholder notes receivable Net income ----------- ----------- ----------- ----------- ----------- BALANCES AT SEPTEMBER 30, 1999 4,498,618 44,986 -- -- 23,973,017 Exercise of employee stock options 176,401 1,764 906,229 Repayment of stockholder notes receivable Net income ----------- ----------- ----------- ----------- ----------- BALANCES AT SEPTEMBER 30, 2000 4,675,019 $ 46,750 -- $ -- $24,879,246 =========== =========== =========== =========== =========== STOCKHOLDER TOTAL RETAINED TREASURY NOTES STOCKHOLDERS' EARNINGS STOCK RECEIVABLE EQUITY BALANCES AT OCTOBER 1, 1997 $ 8,548,543 $ (349,371) $ (415,052) $31,367,977 Exercise of employee stock options 172,405 Issuance of common stock - Foremost acquisition (Note 2) 250,000 Repayment of stockholder notes receivable 314,857 314,857 Purchase of treasury stock, 18,693 shares (184,674) (184,674) Net income 329,910 329,910 ----------- ----------- ----------- ----------- BALANCES AT SEPTEMBER 30, 1998 8,878,453 (534,045) (100,195) 32,250,475 Exercise of employee stock options 11,741 Conversion of nonvoting to voting common stock -- Repayment of stockholder notes receivable 5,000 5,000 Net income 2,978,319 2,978,319 ----------- ----------- ----------- ----------- BALANCES AT SEPTEMBER 30, 1999 11,856,772 (534,045) (95,195) 35,245,535 Exercise of employee stock options (106,484) 801,509 Repayment of stockholder notes receivable 5,000 5,000 Net income 526,717 526,717 ----------- ----------- ----------- ----------- BALANCES AT SEPTEMBER 30, 2000 $12,383,489 $ (534,045) $ (196,679) $36,578,761 =========== =========== =========== ===========
See notes to consolidated financial statements. F-5 28 TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998 --------------------------------------------------------------------------------
2000 1999 1998 OPERATING ACTIVITIES: Net income $ 526,717 $ 2,978,319 $ 329,910 Noncash items in net income: Depreciation and amortization of property, plant and equipment 2,928,108 2,473,370 2,057,458 Amortization of goodwill and other assets 607,206 617,069 547,322 Deferred income taxes (95,726) 512,800 127,975 Increase in allowance for doubtful accounts 321,900 121,270 36,957 (Gain) loss on asset sales (327,331) (1,047,591) 36,925 Property write-downs 153,350 250,000 Changes in operating working capital: Accounts receivable (313,857) (2,491,228) (1,641,425) Inventories 311,055 (864,788) 424,124 Prepaid expenses and other assets 477,231 (453,678) (60,076) Accounts payable 3,200,685 (795,315) 541,150 Accrued and other current liabilities (137,468) 807,030 372,939 Income taxes payable/receivable (735,445) 110,634 (626,841) ----------- ----------- ------------ Net cash from operations 6,916,425 1,967,892 2,396,418 ----------- ----------- ----------- INVESTING ACTIVITIES: Acquisition of Foremost - net of cash acquired (142,000) (5,985,019) Additions to property, plant and equipment (7,072,967) (3,129,687) (2,628,927) Deposits (made on) applied to purchases of equipment 144,853 (1,068,286) Advances to directors and former owners (16,581) (45,513) (22,221) Collection of advances to directors and former owners 140,750 Proceeds from asset sales, net of transaction costs 898,352 4,040,363 26,103 (Increase) decrease in restricted cash (11,667) 278 39,800 ----------- ----------- ----------- Net cash from (used in) investing activities (6,062,113) 868,294 (9,638,550) ----------- ----------- ------------ FINANCING ACTIVITIES: Issuance of long-term debt 8,797,280 Repayment of long-term debt (1,422,435) (3,167,035) (1,599,030) Proceeds from issuance of common stock 801,509 11,741 172,405 Purchase of treasury stock (184,674) Repayment of stockholder notes receivable 5,000 5,000 314,857 ----------- ----------- ----------- Net cash from (used in) financing activities (615,926) (3,150,294) 7,500,838 ----------- ------------ ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 238,386 (314,108) 258,706 CASH AND CASH EQUIVALENTS: Beginning of year 692,002 1,006,110 747,404 ----------- ----------- ----------- End of year $ 930,388 $ 692,002 $ 1,006,110 =========== =========== ===========
SUPPLEMENTAL INFORMATION (Note 13) See notes to consolidated financial statements. F-6 29 TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998 -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Tufco Technologies, Inc. and its wholly owned subsidiaries (the "Company"). Significant intercompany transactions and balances are eliminated in consolidation. The Company markets its own line of business imaging paper products, tissues, towels and wipes for public-use facilities, and performs specialty printing, custom converting and packaging. The Company also manufactures and distributes a wide variety of consumer disposables that are sold in the home improvement and paint retailing industries. 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. Differences from those estimates are recognized in the period they become known. CASH EQUIVALENTS represent 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 lease term or the asset's useful life for leasehold improvements. Management periodically reviews asset carrying values for recoverability and, where appropriate, provides for write-downs to estimated fair value. GOODWILL represents the excess of cost over fair value of net assets acquired in business combinations, is amortized on a straight-line basis over 25 to 40 years and is stated net of accumulated amortization of $3,276,953 and $2,669,747 at September 30, 2000 and 1999, respectively. Management continues to review the carrying values of goodwill for recoverability using estimated future cash flows of related operations. FINANCIAL INSTRUMENTS consist of cash, receivables, payables, debt and letters of credit. Their carrying values or disclosed values are estimated to approximate their fair values unless otherwise indicated due to their short maturities, variable interest rates or fixed rates approximating current rates available for similar instruments. OTHER ASSETS include loan origination fees, which are amortized on a straight-line basis (approximating the interest method) over the terms of the related long-term debt. DEFERRED INCOME TAXES are provided under the asset and liability method for temporary differences in the recognition of certain revenues and expenses for tax and financial reporting purposes. F-7 30 REVENUES are recognized as sales when goods are shipped and title transfers to the customer. STOCK-BASED COMPENSATION arising from stock option grants is accounted for by the intrinsic value method under Accounting Principles Board ("APB") Opinion No. 25. Statement of Financial Accounting Standards ("SFAS") No. 123 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. As permitted by SFAS No. 123, the Company applies APB Opinion No. 25 to its stock-based compensation awards to employees and discloses in Note 11 the required pro forma effect on net income and earnings per share. BASIC EARNINGS PER SHARE is based on the weighted average number of common voting and nonvoting shares outstanding. Diluted earnings per share includes common equivalent shares from dilutive stock options outstanding during the year, the effect of which was 122,927, 55,943 and 98,086 shares in fiscal 2000, 1999 and 1998, respectively. RECLASSIFICATIONS of certain 1998 and 1999 amounts have been made to conform to the 2000 presentation. 2. ACQUISITION Effective November 13, 1997, the Company acquired all of the outstanding stock of Foremost Manufacturing Company, Inc. in St. Louis, Missouri, which is engaged primarily in the manufacture and distribution of paint sundry products. The Foremost stock was acquired for $5,250,000 in cash, which the Company financed with additional bank borrowings, and 25,907 common shares of the Company valued at $250,000. During fiscal 1999, the Company paid $500,000 as additional purchase price consideration under an earn-out provision, of which the Company had accrued $400,000 in 1998. The total cost of the acquisition, $6,183,208, including transaction costs, exceeded the fair value of the net assets acquired by $5,341,248, which was recorded as goodwill. F-8 31 This acquisition was accounted for under the purchase method. The results of the acquired operations are included in the consolidated financial statements from the acquisition date. The unaudited consolidated results of operations on a pro forma basis as though Foremost were acquired and the related common shares were issued as of the beginning of the Company's fiscal year 1998 is as follows: Net sales $ 77,702,435 ============== Income before extraordinary item $ 401,070 ============== Net income $ 338,839 ============== Earnings per share: Income before extraordinary item: Basic $ .09 ============== Diluted $ .09 ============== Net income: Basic $ .08 ============== Diluted $ .08 ============== Weighted average common shares outstanding: Basic 4,421,922 ============== Diluted 4,520,000 ==============
3. ACCOUNTS RECEIVABLE Accounts receivable are stated net of allowances for doubtful accounts of $661,530 and $339,630 at September 30, 2000 and 1999, respectively. Amounts due from two customers represent 49% and 45% of total accounts receivable at September 30, 2000 and 1999, respectively. Accounts receivable at September 30, 2000 and 1999, include $1.8 million for the cost of equipment to be reimbursed by one of these customers. 4. INVENTORIES Inventories at September 30 consist of the following:
2000 1999 Raw materials $ 4,485,263 $ 4,670,120 Finished goods 3,427,219 3,578,756 ------------ ------------ Total inventories $ 7,912,482 $ 8,248,876 ============ ============
F-9 32 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at September 30 consist of the following:
2000 1999 Land and land improvements $ 517,928 $ 517,928 Buildings 8,232,844 6,942,036 Leasehold improvements 1,555,615 1,433,497 Machinery and equipment 18,790,803 17,357,747 Computer equipment and software 4,607,865 4,052,167 Furniture and fixtures 885,334 690,748 Vehicles 78,280 97,255 ------------- ------------- 34,668,669 31,091,378 Less accumulated depreciation and amortization 16,833,108 14,678,060 ------------- ------------- Net depreciated value 17,835,561 16,413,318 Construction in progress 2,347,277 223,438 ------------- ------------- Property, plant and equipment - net $ 20,182,838 $ 16,636,756 ============= =============
Gains on asset sales in fiscal 1999 include $699,000 realized from the sale of equipment and inventory related to the Away-From-Home ("AFH") product line (see Note 14) and $349,000 from the sale of other equipment, primarily in the Green Bay facility. 6. OTHER ASSETS Other assets at September 30 consist of the following:
2000 1999 Loan origination and other fees $ 424,323 $ 372,281 Less accumulated amortization 231,344 110,110 ------------ ------------ Subtotal 192,979 262,171 Note receivable bearing interest at 7% to 10%, due in variable monthly installments through 2005 55,601 10,495 Prepaid rent on leased equipment 362,440 Deposits on equipment to be acquired and other 127,391 1,024,253 Advances to certain directors and former owners 172,005 296,174 Maintenance contract 21,079 Cash value of life insurance 8,316 8,316 ------------ ------------ Other assets - net $ 939,811 $ 1,601,409 ============ ============
F-10 33 7. LONG-TERM DEBT
Long-term debt at September 30 consists of the following: 2000 1999 Note payable to bank, collateralized by substantially all assets of the Company, bearing a variable interest of 7.93% and 6.74% at September 30, 2000 and 1999, respectively, fixed at 7.12% under an interest rate swap arrangement discussed below, installments are due quarterly at $380,358, with final payment due on August 1, 2005 $ 5,107,136 $ 6,628,568 Notes payable to bank, under a revolving line-of-credit agreement (not to exceed maximum borrowings of $12 million, reduced by outstanding letters of credit - see Note 9), collateralized by substantially all assets of the Company, bearing interest at a combination of 100 basis points over LIBOR or .75% below the bank's reference rate (effective rate of 8.08% and 6.99% at September 30, 2000 and 1999, respectively), payable quarterly, due on June 1, 2002 6,500,000 6,020,000 Variable rate (5.75% and 3.95% at September 30, 2000 and 1999, respectively) note payable underlying Industrial Development Revenue Bonds, collateralized by substantially all assets of the Company, due in annual installments of $250,000 beginning 2000 through 2006, interest payable monthly 1,500,000 1,750,000 Capital lease obligation, payable in monthly installments through 2000 131,003 ------------- ------------- Total 13,107,136 14,529,571 Less current portion 1,771,432 1,902,435 ------------- ------------- Long-term debt - less current portion $ 11,335,704 $ 12,627,136 ============= ============= Long-term debt - less current portion matures as follows: 2002 $ 8,271,432 2003 1,771,432 2004 792,840 2005 250,000 2006 250,000 ------------- Total $ 11,335,704 =============
In connection with term debt, the Company paid $94,000 in 1998 to its former lender to exit the prior credit agreement, principally in the form of prepayment penalties on the early repayment of term debt. These costs are reflected as an extraordinary item in the consolidated statements of income. With the refinancing, the Company entered into an interest rate swap agreement, as a hedge under which the interest rate on the term debt is 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. The fair value of this F-11 34 swap agreement is estimated to be a net receivable position of $61,000 and $45,000 at September 30, 2000 and 1999, respectively. Loan agreements for all notes except those underlying the Industrial Development Revenue Bonds contain certain restrictive covenants, including requirements to maintain minimum fixed charge coverage, minimum tangible net worth, and restrictions on maximum allowable debt, capital purchases, stock purchases, mergers and payment of dividends. The Company has a standby letter of credit for the outstanding balance associated with the Industrial Development Revenue Bonds. 8. INCOME TAXES The tax effects of significant items composing the Company's net deferred tax liability as of September 30 are as follows:
2000 1999 Current deferred tax asset: Valuation allowances for accounts receivable and inventories, not currently deductible $ 569,298 $ 227,068 Inventory costs capitalized for tax purposes 28,399 29,064 Vacation and severance accruals, not currently deductible 64,711 64,711 Other accruals, not currently deductible 65,659 60,640 Other 68,107 65,613 ------------- ------------- Total 796,174 447,096 Noncurrent deferred tax liability: Accelerated tax depreciation on property and equipment (1,753,675) (1,571,859) Accelerated tax amortization of goodwill (868,640) (734,206) Other 120,092 57,194 ------------- ------------- Total (2,502,223) (2,248,871) ------------- ------------- Net deferred tax liability $ (1,706,049) $ (1,801,775) ============= =============
F-12 35 The resulting components of income tax expense (benefit) are as follows:
2000 1999 1998 Current tax expense: Federal $ 561,766 $ 1,213,557 $ 301,474 State 27,385 75,859 22,341 ----------- ------------ ----------- Total 589,151 1,289,416 323,815 Deferred tax expense (benefit): Federal (89,599) 480,011 119,210 State (6,127) 32,789 8,765 ----------- ------------ ----------- Total (95,726) 512,800 127,975 ----------- ------------ ----------- Income tax expense $ 493,425 $ 1,802,216 $ 451,790 =========== ============ ===========
Income tax expense varies from the amount determined by applying the applicable statutory income tax rates to pretax income as follows:
2000 1999 1998 Federal income taxes computed at statutory rates $ 346,850 $ 1,625,382 $ 286,937 State income taxes, net of federal tax benefit 14,030 71,708 20,530 Certain goodwill amortization and other nondeductibles 161,329 157,641 114,182 Other (28,784) (52,515) 30,141 ------------ ------------- ------------ Income tax expense $ 493,425 $ 1,802,216 $ 451,790 ============ ============ ============
9. 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 2003, is classified as an operating lease and requires monthly rental payments of $9,255. The Company has the option of renewing the lease for a three-year period with rental amounts renegotiated. Rental expense for the lease totaled $111,060 annually for fiscal 2000, 1999 and 1998. The Company entered into an agreement with a third party to construct and lease a 62,000-square-foot facility in Manning, South Carolina, which the Company occupied in October 1996. The five-year agreement is an operating lease with rental payments of $11,489 per month. The Company has three contiguous options to renew the lease for successive five-year terms beginning at the end of the fifth year. The Company also has the option of purchasing the building for $1,100,000. If the purchase and renewal options are not exercised, the Company may be required to pay the lessor a residual amount of up to $900,000, depending upon the extent, if any, that the facility's value has diminished during the lease term. A portion of the scheduled lease payments is placed in escrow and is included in restricted cash of $31,717 and $20,050 at September 30, 2000 and 1999, respectively. The Company has a standby letter of credit with its bank for the payment of the future lease obligations. F-13 36 The Company also leases other facilities and equipment under operating leases. Office and warehouse leases expire in November 2000 and February 2003. 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, 2000, are as follows: 2001 $ 1,560,117 2002 2,253,035 2003 853,581 2004 505,549 2005 470,681 ------------ Total $ 5,642,963 ============
Net rental expense for all operating leases totaled $1,675,915, $1,270,833 and $1,123,912 for fiscal 2000, 1999 and 1998, respectively. The Company charges its customers for storage, which is netted against rental expense. COMMERCIAL LETTERS OF CREDIT - The Company has outstanding commercial import letters of credit of $105,067 and $0 as of September 30, 2000 and 1999, respectively. These letters of credit collateralize the Company's obligations to third parties for the purchase of inventory. The Company has unused letters of credit of $644,933 and $750,000 available at September 30, 2000 and 1999, respectively. LITIGATION - The Company is subject to lawsuits, investigation 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. 10. PROFIT SHARING PLANS The 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 employees' contributions. Profit sharing plan expense relating to the defined contribution profit sharing 401(k) plan totaled $201,131, $268,657 and $209,215 for fiscal 2000, 1999 and 1998, respectively. 11. STOCKHOLDERS' EQUITY NONVOTING COMMON STOCK AND PREFERRED STOCK - Each record holder of nonvoting common stock was entitled at any time to convert any or all of such shares into the same number of shares of voting common stock. During fiscal 1999, the holders of all 709,870 shares of nonvoting common stock exercised their right to convert the shares to voting common stock. At September 30, 2000, the Company has authorized and unissued 2,000,000 shares of $.01 par value nonvoting common stock and 1,000,000 shares of $.01 par value preferred stock. STOCK COMPENSATION ARRANGEMENTS - The Non-Qualified Stock Option Plan currently reserves 650,000 shares of common stock for grants to selected employees through April 30, 2002, and provides that the price and exercise period be determined by the board of directors. Options vest primarily over three years and expire five years from date of grant. During fiscal 2000, 1999 and 1998, options to purchase 200,000, 70,000 and 86,000 shares, respectively, of voting common stock were granted. F-14 37 The Non-Employee Director Stock Option Plan for nonemployee members of the board of directors reserves 200,000 shares of common stock for grants through March 2004 and provides that the purchase price be fair market value at the date of grant. Options are exercisable immediately and for a period of 10 years. During fiscal 2000, 1999 and 1998, options to purchase 15,000, 8,000 and 12,000 shares, respectively, of voting common stock were granted. The following information summarizes the shares subject to options:
WEIGHTED AVERAGE EXERCISE NUMBER OF SHARES PRICE PER SHARE ---------------------------------- ----------------------------- 2000 1999 1998 2000 1999 1998 Options outstanding, beginning of year 445,306 412,441 364,127 $6.63 $6.69 $ 6.01 Granted 215,000 78,000 98,000 8.91 6.92 9.62 Exercised (176,401) (2,525) (37,396) 5.15 4.65 6.50 Terminated (7,100) (42,610) (12,290) 8.55 7.41 10.07 -------- -------- -------- Options outstanding, end of year 476,805 445,306 412,441 8.20 6.63 6.69 ======== ======= ======== Options exercisable, end of year 281,138 311,639 261,332 7.74 6.14 5.89 ======== ======== ======== Reserved for future options at September 30, 2000 373,195 ========
The following table summarizes additional information about stock options outstanding and exercisable at September 30, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------ ------------------------ WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE $4.50 - 7.00 174,405 2.5 years $6.78 153,738 $6.75 7.00 - 10.00 302,400 4.4 years 8.98 127,400 8.94 ------- ------- 4.50 - 10.00 476,805 3.7 years 8.18 281,138 7.74 ======= =======
The Company applies APB No. 25 and related Interpretations in accounting for its stock option plans. No compensation cost has been recognized for the Company's stock option plans because the quoted market price of the common stock at the date of grant was not in excess of the option exercise price. SFAS No. 123 prescribes a method to record compensation cost at the fair value of the options granted. Pro forma disclosures as if the Company had adopted the cost recognition requirements under SFAS No. 123 in fiscal 2000, 1999 and 1998 are presented below. Because the SFAS No. 123 method F-15 38 of accounting has not been applied to options granted prior to October 1, 1995, the resulting pro forma compensation cost may not be representative of that expected in future years.
2000 1999 1998 Net income: As reported $526,717 $ 2,978,319 $329,910 Pro forma 248,235 2,807,000 129,000 Basic earnings per share: As reported .12 .67 .07 Pro forma .06 .63 .03 Diluted earnings per share: As reported .11 .67 .07 Pro forma .05 .63 .03
In the pro forma calculations, the weighted average fair value of options granted during 2000, 1999 and 1998 was estimated at $3.55, $3.18 and $4.40 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 2000, 1999 and 1998: risk-free interest rates of 5% for all years; dividend yield of 0.0% for all years; expected lives of four to five years; and expected volatility of 50% for all years, based on the historical weekly trading ranges of the Company's stock since its initial public offering in January 1994. The Company sold shares to management employees under various stock purchase agreements, which included 16,937 shares at $4.80 to $6.75 per share in 1996. The purchases are financed by the Company through notes with the employees at 5% interest payable annually. In 2000, the Company received notes from various employees to facilitate the exercise of employee stock options. The notes receivable with recourse bear interest at 8.5% interest payable annually. All notes receivable outstanding at September 30, 2000, are due to be repaid in 2001. The outstanding balances of $196,679 and $95,195 at September 30, 2000 and 1999, respectively, are presented as a reduction of stockholders' equity. 12. RELATED-PARTY TRANSACTIONS The 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 will be automatically renewed unless 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 $357,353, $251,161 and $236,440 for fiscal 2000, 1999 and 1998, respectively. F-16 39 13. SUPPLEMENTAL CASH FLOW INFORMATION The following is provided as supplemental information to the consolidated statements of cash flows:
2000 1999 1998 Interest paid $ 965,823 $ 1,125,346 $ 1,098,538 =========== =========== =========== Income taxes paid $ 1,324,596 $ 1,178,782 $ 927,431 =========== =========== =========== Noncash investing and financing activities: Issuance of common stock - Foremost acquisition $ $ -- $ 250,000 =========== =========== =========== Conversion of nonvoting to voting common stock $ $ 7,099 $ -- =========== =========== =========== Purchase of treasury stock by reduction in stockholder notes receivable $ -- $ -- $ 160,962 =========== =========== ===========
14. MAJOR CUSTOMER AND SEGMENT INFORMATION In fiscal 2000, the Company had two significant customers that accounted for approximately 20% and 12% of total sales. In fiscal 1999, each accounted for approximately 10% of total sales. Both customers are Fortune 500 companies, one of which was related to the Contract Manufacturing sector, and the other was primarily concentrated in the Paint Sundries sector. No customers accounted for greater than 10% of sales in fiscal 1998. 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 prepare information for management use by the market sectors aligned with the Company's products and services. Such market sector information is summarized below. The Contract Manufacturing sector provides services to large national consumer products companies while the remaining sectors manufacture and distribute products ranging from paper goods to paint sundries. Accounts receivable and certain other assets are not assignable to specific sectors and, therefore, are included in the intersector column below. In June 1999, the Company sold its equipment and inventory related to its AFH products and services, and has ceased selling into this market sector.
CONTRACT BUSINESS PAINT AWAY FISCAL 2000 MANUFACTURING IMAGING SUNDRIES FROM HOME INTERSECTOR CONSOLIDATED Net sales $34,242,390 $25,899,580 $18,810,298 $ $ -- $78,952,268 Gross profit 7,136,712 2,923,252 850,866 10,910,830 Operating income (loss) 5,795,483 1,229,916 (2,237,357) (2,829,211) 1,958,831 Assets: Inventories 884,335 3,764,341 3,263,806 7,912,482 Property, plant and equipment - net 9,917,431 6,526,344 827,470 2,911,593 20,182,838 Accounts receivable and other (including goodwill) 34,037,828 34,037,828 ----------- ----------- ----------- -------- ----------- ----------- Total assets $10,801,766 $10,290,685 $ 4,091,276 $ $36,949,421 $62,133,148 =========== =========== =========== ======== =========== ===========
F-17 40
CONTRACT BUSINESS PAINT AWAY FISCAL 1999 MANUFACTURING IMAGING SUNDRIES FROM HOME INTERSECTOR CONSOLIDATED Net sales $25,987,095 $24,965,919 $20,955,389 $4,422,160 -- $76,330,563 Gross profit 6,393,221 3,499,667 2,781,787 431,603 13,106,278 Operating income (loss) 5,636,946 1,272,918 195,474 429,979 $(1,708,641) 5,826,676 Assets: Inventories 1,013,403 3,781,685 3,453,788 8,248,876 Property, plant and equipment - net 7,167,498 7,076,601 644,440 1,748,217 16,636,756 Accounts receivable and other (including goodwill) 34,195,157 34,195,157 ----------- ----------- ----------- ---------- ------------ ----------- Total assets $ 8,180,901 $10,858,286 $ 4,098,228 $ -- $ 35,943,374 $59,080,789 =========== =========== =========== ========== ============ ===========
In fiscal 2000, the Company announced its intent and began to consolidate the Paint Sundries operations in Manning, South Carolina, and has accrued at September 30, 2000, the estimated asset write-downs and other costs of approximately $831,000 to close its St. Louis facility and move the related inventory, equipment and personnel to Manning. ****** F-18 41 INDEX TO EXHIBITS
EXHIBIT NUMBER 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). 3.1 Restated Certificate of Incorporation (1) (Exhibit 3.1) 3.2 Bylaws (1) (Exhibit 3.2) 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. (1) (Exhibit 10.1) 10.2 Amended and Restated Consulting Agreement with Bradford Investment Partners, L.P. (3) (Exhibit 10) 10.3 Loan Agreement, dated May 1, 1992, between the Village of Ashwaubenon, Wisconsin, and the Company. (1) (Exhibit 10.11) 10.4 1992 Non-Qualified Stock Option Plan (1) (Exhibit 10.12) 10.5 Form of Employee Stock Purchase Agreement between the Company and certain key employees of the Company. (1) (Exhibit 10.17) 10.6 1993 Non-Employee Director Stock Option Plan. (2) (Exhibit 10.19) 10.7 Amended Employment Agreement with Greg Wilemon, dated September 18, 1995. (4) (Exhibit 10.11) 10.8 Lease Agreement, dated as of March 1, 1995, between Bero, Garland, Gebhardt and McClure, a Wisconsin partnership, and Tufco. (4) (Exhibit 10.13) 10.9 Lease Agreement dated as of April 1, 1996, between Bero, Garland, Gebhardt and McClure, a Wisconsin partnership, and Tufco. (3) (Exhibit 10.15) 10.10 Employment Agreement with Louis LeCalsey, III dated September 19, 1996. (5) (Exhibit 10.18) 10.11 Credit Agreement among Tufco L.P. as Borrower, the Company as the Parent First Union National Bank as agent and the banks named herein dated August 28, 1998. (4) 10.12 ISDA Master Agreement and Schedule to the Master Agreement dated as of July 30, 1998 between First Union National Bank and Tufco, L.P. (5) 10.13 First Amendment to Credit Agreement. (5) 10.14 Second Amendment to Credit Agreement. (6) 21.1 Subsidiaries of the Company. (5) 27.1* Financial Data Schedule 99.1* Employee Stock Purchase Agreement executed by Greg Wilemon in favor of the company dated September 30, 2000. (Exhibit 99.1)
* Filed herewith (1) Incorporated by reference to the Company's Registration Statement on Form S-1 (Reg. No. 33-55828) (the "Registration Statement") as filed with the Commission on December 16, 1992. (2) Incorporated by reference to Amendment No. 1 to the Registration Statement as filed with the Commission on November 23, 1993. (3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1995. (3) Incorporated by reference to the Company's Annual Report on Form 10-K for the period ended September 30, 1995. (4) Incorporated by reference to the Company's Annual Report on Form 10-K for the period ended September 30, 1997. (5) Incorporated by reference to the Company's Annual Report on Form 10-K for the period ended September 30, 1998. (6) Incorporated by reference to the Company's Annual Report of Form 10-Q for the period ended June 30, 2000.