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| TFCO > SEC Filings for TFCO > Form 10-Q on 14-Aug-2009 | All Recent SEC Filings |
14-Aug-2009
Quarterly Report
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Results of Operations:
Condensed operating data, percentages of net sales and period-to-period changes
in these items are
as follows (dollars in thousands):
Three Months Ended Period-to-Period Nine Months Ended Period-to-Period
June 30, Change June 30, Change
2009 2008 $ % 2009 2008 $ %
Net Sales $ 22,026 $ 30,674 $ (8,648 ) (28 ) $ 64,667 $ 85,096 $ (20,429 ) (24 )
Gross Profit 1,249 1,919 (670 ) (35 ) 2,801 4,962 (2,161 ) (44 )
5.7 % 6.3 % 4.3 % 5.8 %
Operating
Expenses 1,249 1,326 (77 ) (6 ) 3,808 3,837 (29 ) (0.8 )
5.7 % 4.3 % 5.9 % 4.5 %
Operating (Loss)
Income - 594 (594 ) (100 ) (1,006 ) 1,125 (2,131 ) NM
0 % 1.9 % (1.6 %) 1.3 %
Interest Expense 23 50 (27 ) (54 ) 92 219 (127 ) (58 )
0.1 % 0.2 % 0.1 % 0.3 %
(Loss) Income
Before Income
Taxes (24 ) 544 (568 ) NM (1,085 ) 925 (2,010 ) NM
(0.1 %) 1.8 % (1.7 %) 1.1 %
Income Tax
(Benefit)
Expense (9 ) 213 (222 ) NM (425 ) 363 (788 ) NM
0 % 0.7 % (0.7 %) 0.4 %
Net (Loss)
Income $ (14 ) $ 331 (345 ) NM $ (660 ) $ 562 (1,222 ) NM
(0.1 %) 1.1 % (1.0 %) 0.7 %
Basic and
Diluted (Loss)
Earnings Per
Share $ 0.00 $ 0.07 $ (0.15 ) $ 0.12
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NM = Not Meaningful
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Three Months Ended
June 30,
2009 2008 Period-to-Period
% of % of Change
Amount Total Amount Total $ %
Net Sales
Contract
Manufacturing and
printing $ 16,597 75 % $ 24,314 79 % $ (7,717 ) (32 %)
Business Imaging
paper products 5,429 25 6,360 21 % (931 ) (15 %)
Net Sales $ 22,026 100 % $ 30,674 100 % $ (8,648 ) (28 %)
2009 2008 Period-to-Period
Margin Margin Change
Amount % Amount % $ %
Gross Profit
Contract
Manufacturing and
printing $ 946 6 % $ 1,539 6 % $ (593 ) (39 %)
Business Imaging
paper products 303 6 % 381 6 % (78 ) (20 %)
Gross Profit $ 1,249 6 % $ 1,920 6 % $ (671 ) (35 %)
Nine Months Ended
June 30,
2009 2008 Period-to-Period
% of % of Change
Amount Total Amount Total $ %
Net Sales
Contract
Manufacturing and
printing $ 48,263 75 % $ 67,141 79 % $ (18,878 ) (28 %)
Business Imaging
paper products 16,404 25 % 17,955 21 % (1,551 ) (9 %)
Net Sales $ 64,667 100 % $ 85,096 100 % $ (20,429 ) (24 %)
2009 2008 Period-to-Period
Margin Margin Change
Amount % Amount % $ %
Gross Profit
Contract
Manufacturing and
printing $ 1,902 4 % $ 3,665 5 % $ (1,763 ) (48 %)
Business Imaging
paper products 899 5 % 1,297 7 % (398 ) (31 %)
Gross Profit $ 2,801 4 % $ 4,962 6 % $ (2,161 ) (44 %)
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Net Sales:
Consolidated net sales decreased $8.6 million (28%) to $22.0 million in the
third quarter of fiscal 2009, when compared to the same period last year. This
was due to a decrease of $7.7 million (32%) in the Contract Manufacturing
segment and a decrease of $0.9 million (15%) in the Business Imaging segment.
For the nine months ended June 30, 2009, net sales decreased $20.4 million (24%)
when compared to the first nine months of fiscal 2008. This was due to a
decrease of $18.9 million (28%) in the Contract Manufacturing segment and a
decrease of $1.5 million (9%) in the Business Imaging segment.
The Company depends on two Contract Manufacturing customers for a significant
portion of its business. One customer accounted for 24% of the Company's total
net sales in the third quarter of fiscal 2009 compared to 30% for the same
period in fiscal 2008. This same customer accounted for 25% of the Company's
total net sales in the first nine months of fiscal 2009, compared to 34% for the
same period last year. The second customer accounted for 37% of the Company's
total net sales in the third quarter of fiscal 2009 compared to 40% for the same
period in fiscal 2008. This customer accounted for 36% of the Company's total
net sales in the first nine months of fiscal 2009, compared to 35% for the same
period last year.
In Contract Manufacturing, the decrease in revenues for the three and nine
months continued to be a difficult consumer environment for our customers and
the Company expects continuing difficulty in the fourth quarter. While the
Company did generate new business during the third quarter, the new business,
along with cost reductions and productivity improvements, was not enough to
offset the drop in demand. The Company is pursuing many opportunities to grow
revenue. For example, the Company expects its new canister line to become
operational late in the fourth fiscal quarter. There can be no assurance that
there will be sustained revenues from the Company's new canister line or that
the new line will be profitable or that the general business climate will
improve or whether the Company will benefit from such improvement. The Business
Imaging segment's sales decrease for the first nine months was primarily due to
continued competitive pricing resulting in decreased sales to several of the
segment's Hamco brand distributors as well as several of its large retail
customers. Both segments were affected by the overall slowdown in the economic
environment.
Gross Profit:
Consolidated gross profit decreased $0.7 million (35%) for the third quarter of
fiscal 2009 when compared to the third quarter of fiscal 2008. This was due to a
decrease of $0.6 million (39%) in the Contract Manufacturing segment and a
decrease of $0.1 million (20%) in the Business Imaging segment.
For the nine months ended June 30, 2009, gross profit decreased $2.2 million
(44%) when compared to the same period last year. This was due to a decrease of
$1.8 million (48%) in the Contract Manufacturing segment and a decrease of
$0.4 million (31%) in the Business Imaging segment.
In Contract Manufacturing, the decrease in gross profit for the three and nine
months was primarily due to a substantial decline in demand from our consumer
products customers. This was partially offset by an increase in business from
new customers, along with reductions in direct labor and overhead costs as a
result of the Company's continuing Lean Manufacturing, Six Sigma and cost
cutting initiatives. In Business Imaging, the decrease in gross profit for the
three and nine months was largely due to strong price competition for the
segment's products. The effect of the overall economic slowdown had a negative
impact on both segments.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Operating Expenses:
Selling, general and administrative expenses increased $9,000 (0.2%) for the
first nine months of fiscal 2009 when compared to the same period in fiscal
2008, consistent with cost increases in general. Operating expenses were reduced
by $37,500, reflecting the gain on the sale of a bag sealer and case packer that
was completed in the first quarter of fiscal 2009.
Interest Expense and Other Income (Expense) net:
Interest expense decreased $27,000 to $23,000 for the third quarter of fiscal
2009 compared to the same period in fiscal 2008 and decreased $127,000 in
comparing the nine months due to lower average debt outstanding and lower
interest rates on borrowings.
Net Income:
The Company reported a net loss of ($14,000) [per share: $0.00 basic and
diluted] for the third quarter of fiscal 2009, versus net income of $331,000
[per share: $0.07 basic and diluted] for the same period in fiscal 2008. For the
nine months ended June 30, 2009, the net loss was $(660,000) [per share: $(0.15)
basic and diluted] compared to net income of $562,000 [per share: $0.12 basic
and diluted] for the first nine months of fiscal 2008.
Liquidity and Capital Resources:
Cash flows provided by operations were $4.0 million through the first nine
months of fiscal 2009, compared to cash provided by operations of $3.9 million
for the same period last year. Cash provided by operations for the first nine
months of fiscal 2009 resulted from a decrease in accounts receivable of
$0.9 million. Accounts payable decreased $1.0 million in the first nine months
of fiscal 2009 compared to the same period last year, primarily due to the
decrease in materials purchased. Inventories decreased $3.2 million as a result
of efforts to reduce average on hand inventory levels for major raw material
components in relation to decreases in net sales. Depreciation was $1.8 million
for the first nine months.
Net cash used in investing activities was $1.6 million for the first nine months
of fiscal 2009, primarily related to capital expenditures to support ongoing
operational needs and for payments on a canister line which is expected to
become operational late in the fourth fiscal quarter and associated packaging
equipment to support the Company's growth in the expanding disposable nonwovens
wipes market.
Net cash used by financing activities was $2.5 million for the first nine months
of fiscal 2009, primarily due to the Company paying down its revolving credit
line. In February 2008, the Company's Board of Directors approved a program for
open market stock repurchases through December 31, 2008 for up to 100,000 shares
of its common stock at prevailing market prices after concluding that the
Company's cash and debt position would enable these purchases without impairment
to the Company's capital. On October 15, 2008, the Company's Board of Directors
approved an extension of its February 2008 stock repurchase program through
June 2009 and an increase in the number of shares from 100,000 to 200,000. On
January 22, 2009 the Company's Board of Directors approved a further extension
of its February 2008 stock repurchase program through September 2009 and an
increase in the number of shares from 200,000 to 300,000. A total of 222,909
shares were purchased under the plan for an aggregate purchase price of
$1.0 million from approval of the plan through June 30, 2009. For the three
months ended June 30, 2009, a total of 4,187 shares were purchased under the
plan for an aggregate purchase price of $15,103. For the nine months ended
June 30, 2009 and 2008, a total of 143,969 and 67,000 shares were purchased
under the plan for an aggregate purchase price of $0.5 million and $0.4 million,
respectively.
The Company's primary need for capital resources is to finance inventories,
accounts receivable and capital expenditures. As of June 30, 2009, cash recorded
on the balance sheet was $4,881.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
The Company replaced its credit agreement on May 13, 2009 with a new
$10.0 million unsecured revolving line of credit facility that expires in May,
2010. Borrowings under the new credit facility bear interest at a rate equal to
LIBOR plus 2.25%. The Company is required to pay a non-usage fee of .50% per
annum on the unused portion of the facility.
Availability under the facility is based upon specified percentages of eligible
accounts receivable and inventory. The credit agreement is unsecured, but if the
Company fails to meet a specified funded debt to EBITDA ratio, it will be
required to pledge its accounts receivables and inventory. The credit agreement
contains certain restrictive covenants, including requirements to maintain a
minimum tangible net worth and after tax net income (loss within specified
levels). As of June 30, 2009, the Company was in compliance with all of its
covenants under the credit agreement.
As of August 14, 2009, the Company had approximately $9.0 million available and
$1.0 million outstanding under the revolving credit line pursuant to its credit
agreement.
Management believes that the Company's operating cash flow, together with
amounts available under its credit agreement, are adequate to service the
Company's long term obligations as of June 30, 2009 and any budgeted capital
expenditures.
The Company intends to retain earnings to finance future operations and
expansion and does not expect to pay any dividends within the foreseeable
future.
Off Balance Sheet Arrangements:
The Company has no Off Balance Sheet Arrangements (as defined in Item 303(a)(4)
of Regulation S-K).
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required
by this Item.
ITEM 4(T). Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in its reports filed pursuant
to the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized, and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
The Company carried out an evaluation, under the supervision and with the
participation of its management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act) were effective as of the end of the
Company's fiscal quarter ended June 30, 2009.
There have been no changes in the Company's internal control over financial
reporting during the fiscal quarter ended June 30, 2009 that have materially
affected, or are reasonably likely to materially affect the Company's internal
control over financial reporting.
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