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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10 - K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended MAY 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-18815
OUTLOOK GROUP CORP.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1278569
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(State of incorporation) (I.R.S. Employer Identification No.)
1180 AMERICAN DRIVE, NEENAH, WISCONSIN 54956
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 722-2333
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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]
As of August 22, 1996, 4,649,382 shares of Common Stock were outstanding, and
the aggregate market value of the Common Stock (based upon the $4.50 last sale
price on that date on The NASDAQ Stock Market) held by non-affiliates (excludes
a total of 606,470 shares reported as beneficially owned by directors and
executive officers -- does not constitute an admission as to affiliate status)
was approximately $18.2 million.
DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K INTO WHICH
DOCUMENT PORTIONS OF DOCUMENTS ARE INCORPORATED
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Annual Report to Shareholders for Parts I and II
fiscal year ended May 31, 1996
Proxy Statement for Annual Meeting of Part III
Shareholders on October 10, 1996
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
Outlook Group Corp. (the "Company") is a graphic services and food
products packaging company offering a variety of related services including
specialty printing, converting and packaging, food products production, and
distribution. Founded in 1977, the Company initially concentrated on bulk
mailing, principally for Banta Corporation, and commercial printing projects.
Over the years, the Company's business has expanded to include printing related
services, particularly converting and packaging, and in fiscal 1993 expanded to
include food products production and packaging.
In 1984, the Company began offering converting services to produce
cards for board games. During 1986, the Company first offered packaging
services by overwrapping in plastic recipe cards printed by the Company. Such
services were subsequently expanded to collectible sports picture cards.
Management believes that the Company's historical success was largely
attributable to its entry into these more profitable converting and packaging
services. These services in turn developed customer demand for higher quality
specialty printing, and at the same time reduced the Company's dependence on
commercial printing.
Beginning in fiscal 1993, the Company began taking steps toward
diversifying and reducing the Company's significant dependence on the sports
and other picture card business. During fiscal 1995, the Company's sports and
collectable picture card business was negatively affected by the unexpectedly
lengthy duration of the national baseball strike, which reduced the demand for
and production of collectable cards. The baseball strike not only reduced
demand for baseball cards, but also negatively affected the sports card
industry in general. During fiscal 1996, such business was further negatively
affected by the continuing weakness of the sports card industry and the
decision of Fleer/Skybox Corp. ("Fleer"), a major Company customer, to reduce
its use of the Company as a supplier and outsource primarily to another
supplier. (See "Customers and Marketing" below.) In fiscal 1996, approximately
11% of the Company's net sales related to sports picture cards, as compared to
27%, 27% and 51% in fiscal 1995, 1994 and 1993, respectively. The Company
expects the percentage of its business related to the collectible cards to
remain constant, or be somewhat reduced in fiscal 1997 and future years as a
result of the above and other factors. (See "Converting and Packaging".)
In December 1992, the Company purchased certain assets of the
Oconomowoc, Wisconsin manufacturing facility of Nestle Beverage Company (with
its affiliated companies, "Nestle"). The assets that were purchased formed the
nucleus of the Company's wholly-owned subsidiary Outlook Foods, Inc. ("Foods")
(f/k/a Outlook Packaging, Inc.) and the Company's food processing segment,
which currently produces dry food products, such as malted milk powder,
powdered sauces and gravies, and cocoa mix. In 1995, Nestle indicated to the
Company that the Company's contract to produce sauces and gravies for Nestle
would not be renewed because of Nestle's desire to bring the work in-house
beginning in July, 1996, and is likely to affect the food processing segment in
fiscal 1997 and future years. (See "Customers and Marketing".)
In October 1993, the Company acquired certain assets of Sunrise
Packaging, Inc. ("Sunrise"), an Oak Creek, Wisconsin based company engaged in
manufacturing and printing on flexible packaging materials. These assets were
purchased by Outlook Packaging, Inc. ("Packaging"), a wholly-owned subsidiary
of the Company formed to effect the acquisition.
In February 1995, the Company purchased all of the outstanding stock
of Barrier Films Corporation ("Barrier"), a Sparks, Nevada based manufacturer
of multi-layer packaging films. Barrier complements the Company's flexible
packaging and printing operations by producing certain of the flexible
packaging materials used in those operations. Barrier's technology adds to the
Company's diversification strategy, expanding capabilities and customer service
in a new product line. Barrier's operations are included in the "other" class
of services within the Company's graphics services segment.
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As a result of its performance during fiscal 1995 and 1996, the
Company has considered, and continues to consider, a variety of options for
restructuring its business and operations in order to position the Company for
strengthened future performance. The Company has divested itself of its
publishing operations, as it determined that those operations did not
complement its other continuing market lines. In addition, the Company also
entered into a letter of intent (which was subsequently terminated) to sell its
Outlook Label operations. The Company is continuing to consider strategies for
possible divestiture of certain operations to the extent that the Company
believes such actions would strengthen its ability to achieve successful
operations. In addition, the Company will also consider appropriate
acquisitions to strengthen continuing operations. There can be no assurances,
however, that the Company will be able to successfully implement such
strategies.(*)
The following table sets forth the approximate amount and percentage
of net sales contributed by each segment and principal class of service during
the last three fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
------------------------------------------------------------------
1996 1995 1994
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(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Graphic Services Segment
Specialty Printing . . . . . . $ 56,055 50% $ 66,817 55% $ 52,316 47%
Converting and Packaging . . . 10,506 9% 19,141 16% 18,018 16%
Other . . . . . . . . . . . . 12,744 12% 5,662 5% 3,686 3%
-------- ---- -------- ----- -------- -----
Total Graphic Services Segment . $ 79,305 71% $91,620 76% $ 74,020 66%
Food Processing Segment . . . . . 32,051 29% 29,122 24% 38,631 34%
-------- ---- -------- ----- -------- -----
Total . . . . . . . . . . $111,356 100% $120,742 100% $112,651 100%
======== ==== ======== ===== ======== =====
</TABLE>
See Note I of Notes to Consolidated Financial Statements on page 19 of the
Company's Annual Report to Shareholders for the fiscal year ended May 31, 1996
(the "1996 Annual Report"), which is incorporated herein by reference, for a
further discussion of the Company's operating segments.
GRAPHIC SERVICES SEGMENT
SPECIALTY PRINTING
The Company offers a broad array of specialty printing and related
graphic arts services, including pre-press work, sheeting, printing and
finishing. The Company provides full-color printing and color enhancement,
application of specialized coatings, simultaneous two-sided printing, enhanced
drying and computerized control. The Company focuses on specialty printing
projects such as picture cards, recipe cards, folding cartons, food coupons and
labels, vinyl cards, continuous forms and promotional materials rather than
traditional commercial printing of books, magazines and catalogs. The
specialty printing operations enhance the Company's ability to cross-sell its
other graphic services.
Outlook Graphics. The Company's pre-press staff prepares projects for
printing to customer specifications. These services include preparatory camera
plate-making, layout, typesetting and other related services. Although the
Company does not generally perform design services, it assists designers in
translating a concept into a printed product.
The Company's presses generally use off-set printing processes and can
print on a wide range of media from newsprint and coated paper to heavy
cardboard, including paperboard packaging. The Company currently utilizes
sheet-fed full-color presses of various sizes, the most sophisticated of which
is capable of six-color printing. Certain presses have interchangeable printing
plates which allow the Company significant flexibility in meeting customer
needs. In 1993, the Company established sheeting capacity, whereby it can cut
paper for printing to particular job size requirements, providing an additional
service to offer customers.
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(*) Cautionary statement. See page 10, "Cautionary Statement Regarding Forward
- -Looking Statements.
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Additionally, the Company provides finishing services for printed
items (whether or not printed by the Company) such as precision trimming,
folding, die-cutting, binding, shrink-wrapping, collating and packaging
products for distribution and fulfillment.
Outlook Label. The Company's Outlook Label Systems, Inc. subsidiary
("Outlook Label") complements the Company's other specialty printing operations
by using different technologies and offering manufacturing capabilities not
otherwise available from the Company, enhancing the Company's ability to
cross-sell services. Outlook Label manufactures items such as coupons,
pressure sensitive specialty labels, printed vinyl cards (such as temporary
credit cards and identification cards), continuous forms, cartons, and
sweepstakes and specialty game pieces. Outlook Label's narrow web presses
generally utilize continuous-feed rolls of paper and flexo- or letter-press
processes. Its most sophisticated machinery permits one-pass, ten-color
printing and lamination of various substrates using an in-line process.
Outlook Packaging. Packaging engages in flexographic printing and
laminating of flexible packaging films. In these processes, Packaging takes
plastic and other flexible packaging materials (which are purchased from
others) and prints and/or laminates to customer specifications and slits the
material. Customer orders may include some or all of Packaging's services.
Packaging specializes in printing packaging materials for the food industry and
is expanding in the industrial and consumer packaging markets. Packaging prints
and laminates materials for pouches, bags, vacuum packages, packets, security
devices and card and food overwraps, and provides them to customers in
convenient rolls of film. The establishment of Packaging, including the
acquisition of Sunrise assets, was part of the Company's diversification
strategy, and was intended to complement the Company's other specialty printing
operations by allowing the Company to offer additional technologies,
capabilities and customer services, although factors at Outlook Packaging
including pricing which has failed to yield sufficient recovery of costs,
waste and operating efficiencies have affected its performance.(*)
CONVERTING AND PACKAGING
The Company's converting and packaging services grew rapidly through
fiscal 1992, primarily due to the substantial increase in business relating to
sports picture card converting. Card converting includes cutting, trimming,
collating, and wrapping the cards and preparing them for distribution. The
Company does not have licenses from the various professional sports leagues or
their related players' associations but depends upon its customers (or other
appropriate parties) to obtain the necessary licenses for production and
distribution of the sports picture cards.
Due to the project-oriented nature of the Company's business, the
maturity of the collectible picture card industry, increased competition, and
changes in customer relationships, however, these services declined in fiscal
1994, and further significantly declined in fiscal 1996 (after having leveled
in fiscal 1995). During fiscal 1996, approximately 11% of the Company's net
sales related to collectible picture cards, as compared to 27%, 27% and 51% in
fiscal 1995, 1994 and 1993, respectively. (The percentages include services in
both the specialty printing and packaging lines of services.) Collectible
picture card services contributed significantly to the Company's earnings in
fiscal 1993 and prior years, and the reduction in these services was a factor in
reduced earnings in fiscal 1994 and 1995, and losses in fiscal 1996. The market
for these items depends upon consumer tastes and preferences, which change
frequently. The Company's collectible picture card services also depend upon
customers maintaining required licenses and continuing to use outside vendors.
A decrease in demand for sports picture cards (which occurred, for example, as a
result of the lengthy baseball strike in fiscal 1995), a change in a customer's
licensing or production arrangements (for example, Fleer's decision to outsource
primarily to another supplier) or other events causing a further decline in the
Company's collectible picture card production could have a material adverse
effect on the Company's sales volume and profitability, as occurred in fiscal
1996, 1995 and 1994. The Company expects the percentage of its business related
to the collectible cards to remain constant, or be somewhat reduced, in fiscal
1997 and future years as a result of the above and other factors.(*)
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Card converting expertise evolved from the Company's work on cards
used in board games. In addition to collectible picture cards, the Company
converts game cards, recipe cards, children's picture cards and educational
flashcards. The Company maintains specialized equipment for cutting, trimming,
sorting, collating and packaging cards, some of which it has designed or
modified to accommodate customer needs.
The Company also has developed paperboard packaging capabilities to
serve its customers' needs and enhance the Company's one-stop marketing
approach. Paperboard packaging consists of utilizing paperboard stock to print
and convert folding cartons, blister cards, pocket folders and other point of
purchase materials. (Certain of these operations are considered by the Company
to be "specialty printing" and are included in that line of business.)
The Company packages numerous other types of items. Examples have
included wrapping toys and other promotional items for insertion in cereal
boxes, overwrapping multiple packages for sale as a single unit, and packaging
fabric softener sheets for laundry room vending machines. Custom designed
feeding and in-line overwrapping systems increase the efficiency of its
packaging operations. The Company also maintains an environmentally controlled
work area to perform food contact packaging and to provide other packaging
services for which cleanliness and specific quality standards are required.
OTHER
The Company's other services include direct mailing, fulfillment and
films manufacturing. Direct mailing involves inserting, literature
overwrapping, labeling, sorting and shipping printed items for bulk mailing.
The Company's zip code sorting allows it to minimize customer postal charges
by, in many instances, delivering items by common carrier to a post office near
the destination. Direct mailings in fiscal 1996 included catalogs, coupon
packages, federal income tax forms and promotional materials.
The fulfillment services provided by the Company consist of storing
and distributing items upon customer order. In many cases, fulfillment items
include materials such as forms and booklets that are printed by the Company,
often under standing orders from its customers to replenish supplies. Custom
designed data systems produce reports to assist the Company's customers in
managing their fulfillment programs. In fiscal 1996, the Company opened a new
fulfillment center to better handle these operations.
Through Barrier, the Company manufactures flexible plastic film used
for food, medical and electronics packaging. The Company manufactures its
products through a process called coextruded blown film. Films are produced
for the Company's use in other operations, and for outside customers. Barrier
specializes in barrier packaging which optimizes the shelf life and integrity
of the packaged product. Barrier uses a wide selection of polymers. Through
proper polymer selection, it can offer its customers products to optimize
storage and transport of the goods. Barrier also can offer products that
maximize seal strength and integrity and gives the product optimal strength and
optical characteristics for the application. Through its three and five layer
capability and large size equipment, Barrier is able to tailor the product to
the customers' exact needs. Each layer of the process offers a unique function
to the products. The functions typically are barrier properties, seals and
optical qualities.
The introduction of new products such as Barrier's extruded packaging
films is subject to various risks, including the risk of market acceptance,
production difficulties and delays, pricing pressure, cost overruns, unforeseen
or under-estimated competition or other similar factors. These and other
factors can affect the ultimate success and profitability of such products. In
addition, the Company uses complex and specialized equipment in the manufacture
of extruded films. Barrier has had start-up difficulties in areas and certain
lines of various equipment, and such difficulties have affected past operations
and may continue to affect future operations.(*)
Publishing services were added in March 1994 with the acquisition of
assets of Willow Creek Press, which published and marketed nature and
outdoors-oriented books. Subsequently, Musky Hunter and Walleye
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magazines also were acquired. However, the Company's publishing operations
were sold in July 1995, as the Company determined that they were not consistent
with its long-term direction.
FOOD PROCESSING SEGMENT
Since December 30, 1992, the Company has conducted (through its Foods
subsidiary) a portion of its business in the food processing segment, formed as
a result of the acquisition of assets from Nestle. This line of business
currently consists of dry-blended food processing and packaging. In this
segment, Foods mixes and blends various raw materials in accordance with
customers' formulas. The resulting products (generally dry mixes or powders)
are then packaged according to customer specifications. The Company has begun
to produce products to its own specifications and engage in the consumer
marketing of these products.
Food products produced and packaged by Foods include malted milk
powder and cocoa mix, and previously included powdered sauce and gravy mixes.
Foods entered into two agreements to produce and package certain Nestle
products (specified sauces and gravy mixes and malted milk powder) over the two
to five years from December 1992; see "Customers and Marketing" below regarding
the termination of the agreements relating to sauces and gravies which are
likely to adversely affect fiscal 1997 and future operations. Sales to
Nestle, including sales in addition to those covered by the production
agreements, represented approximately 94% of this segment's net sales in fiscal
1996, as compared to 90% and 96% in fiscal 1995 and 1994, respectively.(*)
The Company has recently introduced several new proprietary food
products. In late 1995, the Company introduced "Fresh Aroma" bread mix and in
fiscal 1996 introduced Outlook Hot Cocoa mix. (These products have not yet
represented a material portion of the segment's sales.) Introduction of new
products such as these is subject to various risks, including the risk of market
acceptance, production difficulties and delays, pricing pressures, cost
overruns, unforeseen or under-estimated competition or other similar factors.
These and other factors can affect the ultimate success and profitability of
such products.(*)
CUSTOMERS AND MARKETING
During fiscal 1996, the Company's services were sold to over 1,000
customers, although five customers accounted for approximately 51% of the
Company's net sales (as compared to the five largest customers accounting for
approximately 54% of fiscal 1995 net sales and 59% of fiscal 1994 net sales).
Due to the project-oriented nature of the Company's business, sales to
particular customers may vary significantly from year to year depending upon
the number and size of their projects, and the identity of those customers may
change.
During fiscal 1996, sales (primarily in the food processing segment)
to Nestle accounted for 26% of the Company's total net sales for the period.
Sales to Nestle were 22%, 33% and 13% of the Company's total net sales in
fiscal 1995, 1994 and 1993. During fiscal 1996, sales (all in the graphic
services segment) to Fleer accounted for approximately 7% of the Company's
total net sales for the period; sales to Fleer were 15%, 15% and 25% of the
Company's total net sales in fiscal 1995, 1994 and 1993, respectively.
In connection with the Company's December 1992 acquisition of certain
Nestle assets, Foods and Nestle entered into operational agreements including
(1) a five-year agreement under which Foods packages malted milk products for
Nestle; and (2) a two-year agreement by which Foods packaged certain sauces and
gravies for Nestle. In fiscal 1994, the sauces and gravies agreement was
extended for an additional year. The agreements do not preclude Foods or the
Company from producing or packaging similar products for other customers, and
Foods is producing and packaging for other customers in the food service
industry. The Company's contract to blend sauces and gravies for Nestle
expired at the end of calendar 1995, and was not renewed because of Nestle's
desire to bring the work in-house (beginning in July 1996) to utilize its
excess capacity. That contract represented approximately 61% and 65% of the
Company's sales to Nestle in fiscal 1996 and 1995, respectively. While Nestle
has indicated to the Company that at least some of such work may be replaced
with additional Nestle non-contract projects, there can be no assurances.(*)
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The Company has also performed services for Nestle beyond those
covered by the operational agreements. In fiscal 1996, approximately 17% of
the sales to Nestle were outside of these agreements, as compared to 7% in
fiscal 1995 and 28% in fiscal 1994.
During fiscal 1995, Fleer indicated to the Company that Fleer had
determined to utilize its internal capacity when possible rather than
outsourcing projects, principally as a result of the overall reduction in
demand for sports picture cards. Later, in fiscal 1996, Fleer determined that
it would not, in fact, utilize its internal capacity, but would enter into an
agreement with a preferred outside contractor. Fleer ultimately determined to
select a company other than the Company as the preferred outside vendor. The
decision reduced the Company's sales to Fleer in fiscal 1996, and that
reduction is expected to continue to affect future operations. The
Company has continued to produce projects for Fleer on a limited basis.(*)
The Company expects that it will continue to experience significant
sales concentration given the relatively large size of projects undertaken for
certain customers. Furthermore, the Company's largest customers may vary from
year to year depending on the number and size of the projects completed for
such customers. The loss of business of one or more principal customers or a
change in the number or character of projects for particular customers could
have a material adverse effect on the Company's sales volume and
profitability.(*)
Other than the Nestle agreements described above, customers generally
purchase the Company's services under cancelable purchase orders rather than
long-term contracts, although exceptions sometimes occur when the Company is
required to purchase substantial inventories or special machinery to meet
orders. In past years, the Company rarely experienced cancellations of
purchase orders, although it recently has increasingly experienced such delays
and cancellations. The Company believes that operating without long-term
contracts is consistent with industry practices, although it increases the
Company's vulnerability to significant period to period changes. Because of
the project-oriented nature of the Company's business, the short-term character
of a substantial portion of its projects and the nature of the orders for the
Company's services, the Company does not believe that backlog is material or
meaningful to its business.(*)
The Company markets its services nationally through certain of its
executive officers, 53 sales and service employees and a total of 20
manufacturer's representatives and other outside consultants. The Company
generally does not enter into employment contracts with its officers and
employee sales personnel, although it has agreements with its outside
representatives.
RAW MATERIALS
In the graphic services segment, raw materials necessary to the
Company include paper stocks, inks and plastic films, all of which are readily
available from numerous suppliers. In the food processing segment, raw
materials include cheese solids, milk, sugar, barley, flour and starch. The
cost of raw materials represented approximately 54% of the Company's cost of
goods sold during fiscal 1996 and in fiscal 1995. The Company has not
experienced difficulties in obtaining materials for the graphic services
segment in the past and does not consider itself dependent on any particular
supplier for raw materials, or for the Company's equipment needs. The Company
has not experienced difficulties in obtaining materials for the food processing
segment since its inception.
COMPETITION
The market for the services provided by the Company is highly
competitive, primarily on the basis of price, quality, production capability,
capacity for prompt delivery and continuing relationships.(*)
The Company's principal competitors, and the scope of the areas in
which the Company competes, vary based upon the services offered. With respect
to specialty printing services, its competitors are numerous and range in size
from very large multi-national companies with substantially greater resources
than the Company to many smaller local companies. Numerous competitors also
exist for other services. While there are fewer competitors offering
converting and packaging services, competition is very strong, particularly
relating to
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collectible picture cards. Numerous competitors also perform services in the
food processing segment. The Company believes that relatively few competitors
offer the wide range of services provided by the Company. Because of the
substantial capital requirements for graphic services equipment, larger
companies with greater capital resources may have an advantage in financing
state-of-the-art equipment. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Liquidity and Capital Resources"
in the 1996 Annual Report, which is incorporated herein by reference, for a
discussion of the Company's current capital needs for equipment. The Company
does not believe foreign competition is significant at this time.(*)
ENVIRONMENTAL MATTERS
The Company and the industry in which it operates are subject to
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's
past expenditures relating to environmental compliance have not had a material
effect on the Company. Further growth in the Company's production capacity with
a resultant increase in discharges and emissions could require significant
capital expenditures for environmental control facilities in the future.(*)
EMPLOYEES
At July 31, 1996, the Company had 922 employees, substantially all of
whom were employed on a full-time basis. The Company contracts for and/or
hires temporary and intermittent employees to increase the number of personnel
in certain operations as project commitments require; approximately 60 of the
employees at July 31, 1996 were intermittent. Approximately 100 production and
maintenance employees of Foods are covered by two union contracts. The Company
considers its relationship with its employees to be good. In January 1994,
employees of Outlook Graphics and Outlook Label voted against union
representation. To date, the Company has not experienced difficulty in hiring
employees at required skill levels. Wages and employee benefits represented
approximately 22% of the Company's cost of goods sold during fiscal 1996 as
compared to 23% in fiscal 1995.
ITEM 2. PROPERTIES.
The Company's offices and main production and distribution facilities
are located in the Town of Menasha, Wisconsin in a facility owned by the
Company. The 345,000 square foot facility (of which approximately 25,000
square feet are used for offices) was built in stages from 1980 to 1992. The
Company also owns approximately five acres of land adjacent to this facility to
provide for future expansion.
The Company owns an 83,000 square foot facility in Neenah, Wisconsin
in which Outlook Label's office and production facilities are located; this
facility includes a 63,000 square foot addition completed in December 1990.
This addition provides capacity for future expansion of Outlook Label as well
as for other operations of the Company.
The Company owns a 164,000 square foot facility in Oconomowoc,
Wisconsin in which Foods' office and production facilities are located. The
several adjacent buildings constituting this facility were built from
approximately 1916 to 1918, with additions constructed in 1963 and 1981. These
buildings were purchased from Nestle in 1992.
The Company owns an 81,000 square foot facility in Oak Creek,
Wisconsin in which Packaging's office and production facilities are located,
and an additional 38,000 square foot facility in Wichita, Kansas in which
additional Packaging production facilities are located. These buildings were
constructed in 1990 and 1970, respectively, and were purchased from Sunrise and
its affiliates in 1993.
The Company leases an approximately 166,000 square foot facility in
Neenah, Wisconsin which is currently used for certain mailing operations and
warehouse space. The lease for this facility expires on March
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30, 2002. The Company must provide six months notice of its intention to
vacate or the lease shall continue on a year-to-year basis.
The Company also leases an approximately 37,500 square foot facility
in Neenah, Wisconsin for its sheeting operations and other warehouse space.
The Company occupied the facility in 1993. The lease is for a ten year term,
with one five year option to renew.
The Company, through Barrier, also leases approximately 23,000 square
feet of manufacturing and office space in Sparks, Nevada for Barrier's
operations. The as renewed lease expires in 1999.
In July 1995, the Company occupied a newly-constructed 150,000 square
foot facility in Oshkosh, Wisconsin for fulfillment and distribution services.
This Company-owned facility is designed specifically for the Company's
fulfillment operations, and includes facilities distribution of items ordered
by third parties, replenishing standing orders, warehousing customer materials
and direct customer fulfillment of "800-number" orders including credit card and
check processing.
In addition to land and buildings, the Company maintains significant
equipment to perform its various graphic services. The equipment includes
presses, machinery dedicated to converting and packaging, and other machinery
described above in Item 1. Certain of the equipment is leased by the Company;
see Note H of Notes to Consolidated Financial Statements in the 1996 Annual
Report, which is incorporated herein by reference, for a description of
equipment lease transactions.
The Company uses complex and specialized equipment in the provision of
its services, and the manufacture of its products. Therefore, the Company is
dependent upon the functioning of such machinery and equipment, and its ability
to acquire and maintain appropriate equipment. Among other factors, the
Company may be affected by equipment malfunctions, training and operational
needs relating to the equipment, which may delay the utilization, maintenance
requirements, and technological or mechanical obsolescence. The Company has
had start-up difficulties in certain lines of equipment, and such difficulties
have affected past operations, and may affect future operations.
Because of the substantial capital requirements for graphic services equipment
in particular, larger companies with greater capital resources may have an
advantage in financing state-of-the-art equipment.(*)
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 utilized by it is sufficient for its currently
anticipated needs but that expansion of the Company's business or offering new
services could require the Company to obtain additional equipment or
facilities.
Substantially all of the Company's assets are pledged as collateral
under certain financing agreements. See Note D of Notes to Consolidated
Financial Statements in the 1996 Annual Report, which is incorporated herein by
reference, for a description of financing secured by mortgages on the
properties and equipment owned by the Company and its subsidiaries.
ITEM 3. LEGAL PROCEEDINGS.
In the opinion of management, the Company is not a party to any legal
proceedings other than routine litigation which is not material to its
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1996.
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<PAGE> 10
EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information as to each of the executive officers of the
Company is set forth in the following table. Officers are elected annually by
the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
David L. Erdmann . . . . . . . 53 Chairman of the Board and President; Director
Jeffry H. Collier . . . . . . . 43 Executive Vice President; President of Graphics Group; Director
Larry E. Driscoll . . . . . . . 48 Vice President of Finance and Chief Financial Officer
Joseph J. Baksha . . . . . . . 43 Vice President; President of Packaging Group
Charles E. Thompson . . . . . . 52 Vice President
</TABLE>
- -----------------------
David L. Erdmann has served as President of the Company since its
inception in 1977, and as Chairman of the Board since 1990.
Jeffry H. Collier has served as Executive Vice President of the Company
since 1994, President of the Company's Graphics Group since 1996 and a Vice
President of the Company since 1990. Previously, Mr. Collier was employed by
the Company as its plant manager and General Manager of Outlook Label. (The
Company's Graphics Group consists of the printing, converting, packaging,
mailing and distribution operations of Outlook Graphics, a division of Outlook
Group Corp., but does not include operations of the Packaging and Label
subsidiaries.)
Larry E. Driscoll has served as Vice President-Finance and Chief
Financial Officer of the Company since September 1995. Previously, Mr.
Driscoll was employed by Association Mutual Insurance Company as Vice President
and Chief Financial Officer from 1990 to 1995.
Joseph J. Baksha has served as a Vice President of the Company and
President of the Company's Packaging Group since June 1996. Previously, Mr.
Baksha served as Executive Vice President and Chief Operating Officer of
Washburn International -- (a manufacturer and distributor of musical
instruments) from 1994 to 1996, and previously as Executive Vice President and
Chief Operating Officer of Alusuisse Flexible Packaging ( a flexible packaging
company). The Company's Packaging Group consists of Outlook Packaging, Outlook
Label and Barrier.
Charles E. Thompson has served as Vice President of the Company since
June 1996. Previously, he served as President of Outlook Packaging, Inc. from
1994 to 1996, as Special Projects Coordinator of the
Company from 1993 to 1994, and as the Company's Executive Vice President prior
thereto.
The Company is highly dependent on the services of its President,
David L. Erdmann. Although the Company has an employment agreement with Mr.
Erdmann, the loss of Mr. Erdmann's services could have a material adverse
effect on the Company's business and operations. The Company's success also
depends upon its ability to attract and retain other qualified management and
technical personnel.(*)
-9-
<PAGE> 11
* * * * *
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The discussions in this report on Form 10-K, and in the documents
incorporated herein by reference, and oral presentations made by or on behalf
of the Company contain or may contain various forward-looking statements
(particularly those referring to expectations as to future business and/or
operations, or using terms such as "believe", "anticipate" or "expect") that
involve risks and uncertainties. The Company's actual future results could
differ materially from those discussed, due to the factors which are noted in
connection with the statements and other factors. The factors that could cause
or contribute to such differences include, but are not limited to, those in the
paragraphs indicated with an "(*)" in Items 1, 2 and 4 above in this report and
in the "Management's Discussion and Analysis" (particularly in "Results of
Operations--Fiscal 1996 Compared to Fiscal 1995") incorporated by reference in
Item 7 hereof.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information in response to this item is incorporated by reference to
"Market Prices and Dividends" on page 8 of the 1996 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference to "Selected Financial Information" on page
8 of the 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Incorporated by reference to "Management's Discussion and Analysis" on
pages 9 through 12 of the 1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements (including the notes thereto and the
accountants' report thereon) required by this item are set forth on pages 13
through 20 of the 1996 Annual Report, and are incorporated herein by reference.
See also "Index to Financial Statements and Financial Statement Schedules" on
page 12 herein. Supplementary data is not required to be presented, as the
Company does not meet the criteria for mandatory filing.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-10-
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information in response to this item is incorporated herein by
reference to "Election of Directors" and to "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's Proxy Statement to be filed pursuant to
Regulation 14A for its Annual Meeting of Shareholders to be held on October 10,
1996 ("1996 Annual Meeting Proxy Statement") and "Executive Officers of the
Registrant" in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to "Election of Directors -- Directors'
Fees" and "Executive Compensation" in the 1996 Annual Meeting Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information in response to this item is incorporated herein by
reference to "Security Ownership of Certain Beneficial Owners and Management"
in the 1996 Annual Meeting Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this item is incorporated by reference to
"Certain Transactions" in the 1996 Annual Meeting Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) DOCUMENTS FILED:
1 and 2. Financial Statements and Financial Statement
Schedules. See the following "Index to Financial
Statements and Financial Statement Schedules," which
is incorporated herein by reference.
3. Exhibits. See Exhibit Index included as last part of
this report, which is incorporated herein by
reference.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
-11-
<PAGE> 13
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of the Company and
subsidiaries, appearing on pages 13 through 20 of the 1996 Annual Report, are
incorporated in this Form 10-K Annual Report by reference:
<TABLE>
<CAPTION>
PAGE NUMBER IN 1996
ANNUAL REPORT
-------------------
<S> <C>
Consolidated Balance Sheets as of May 31, 1996 and 1995 . . . . . . . . . . . 13
Consolidated Statements of Operations for the years ended May 31, 1996, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Consolidated Statements of Shareholders' Equity for the years ended
May 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . 14
Consolidated Statements of Cash Flows for the years ended May 31, 1996,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 16
Report of Independent Certified Public Accountants . . . . . . . . . . . . . 20
</TABLE>
The following financial statement schedule of the Company, and the
accountants' report thereon, appear on the indicated pages in this Form 10-K
Annual Report:
<TABLE>
<CAPTION>
PAGE NUMBER IN 10-K
-------------------
<S> <C>
Report of Independent Certified Public Accountants on Financial Statement
Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Schedule II -- Valuation and Qualifying Accounts . . . . . . . . . . . . . . . F-2
</TABLE>
-12-
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Outlook Group Corp. and Subsidiaries
Our report on the consolidated financial statements of Outlook Group Corp. and
Subsidiaries has been incorporated by reference in the Form 10-K from page 20
of the 1996 Annual Report to Shareholders of Outlook Group Corp. In connection
with our audits of such financial statements, we have also audited the related
consolidated financial statement schedule listed in the index of page 12 of
this Form 10-K.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
July 12, 1996
F-1
<PAGE> 15
OUTLOOK GROUP CORP. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Additions
Balance, charged to
Beginning of costs and Balance,
Year Ended May 31, 1996 Year expenses Deductions End of Year
- ----------------------- ------------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 725 $ 3,030 $ 2,859 $ 896
Accumulated amortization of goodwill 210 55 - 265
Accumulated amortization of deferred
financing costs 428 141 - 569
Year Ended May 31, 1995
Allowance for doubtful accounts 676 2,491 2,442 725
Accumulated amortization of goodwill 161 49 - 210
Accumulated amortization of deferred
financing costs 311 117 - 428
Year Ended May 31, 1994
Allowance for doubtful accounts 516 387 227 676
Accumulated amortization of goodwill 122 39 - 161
Accumulated amortization of deferred
financing costs 244 67 - 311
</TABLE>
F-2
<PAGE> 16
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.
OUTLOOK GROUP CORP.
By /s/ David L. Erdmann August 29, 1996
---------------------------------------
David L. Erdmann, President
-------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David L. Erdmann, Jeffry H. Collier and
Larry E. Driscoll, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments to this report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
-------------------------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED, AS OF AUGUST 29, 1996.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE SIGNATURE AND TITLE
------------------- -------------------
<S> <C>
/s/ David L. Erdmann /s/ Richard C. Fischer
- --------------------------------------------------- ---------------------------------------------------
David L. Erdmann, Chairman, President Richard C. Fischer, Director
and Director (principal executive officer)
/s/ Larry E. Driscoll /s/ Roger G. Hathaway
- --------------------------------------------------- ---------------------------------------------------
Larry E. Driscoll, Vice President of Finance Roger G. Hathaway, Director
and Chief Financial Officer
(and principal accounting officer)
/s/ Wayne G. Beattie /s/ Pat Richter, Director
- --------------------------------------------------- ---------------------------------------------------
Wayne G. Beattie, Director Pat Richter, Director
/s/ Harold J. Bergman /s/ Charles E. Thompson
- --------------------------------------------------- ---------------------------------------------------
Harold J. Bergman, Director Charles E. Thompson, Director
/s/ Jeffry H. Collier /s/ A. John Wiley Jr.
- --------------------------------------------------- ---------------------------------------------------
Jeffry H. Collier, Director A. John Wiley, Jr., Director
/s/ James L. Dillon
- ---------------------------------------------------
James L. Dillon, Director
</TABLE>
<PAGE> 17
OUTLOOK GROUP CORP.
(THE "COMPANY")
EXHIBIT INDEX
TO
ANNUAL REPORT ON FORM 10-K FOR FISCAL 1996
<TABLE>
<CAPTION>
INCORPORATED HEREIN FILED
EXHIBIT NO. EXHIBIT BY REFERENCE TO HEREWITH
- ----------- ------- ------------------- --------
<S> <C> <C> <C>
3(i) Restated Articles of Incorporation of the Exhibit 3(i) to the
Company (effective August 3, 1990), as Company's Annual Report
amended through November 1, 1994 on Form 10-K for the
fiscal year ended May 31,
1995 ("1995 10-K")
3(ii) Bylaws of the Company (as amended and Exhibit 3.2 to the
restated July 5, 1990) Company's Registration
Statement on Form S-1
(No. 33-36641), as
amended by Amendment No.
1 thereto ("S-1")
4.1 Articles III, IV and VI of the Restated Contained in Exhibit 3.1
Articles of Incorporation of the Company hereto
4.2(a) Note Purchase Agreement dated June 16, Exhibit 4.1 to the
1994 among the Company, Firstar Bank and Company's Current Report
State of Wisconsin Investment Board* on Form 8-K dated June
16, 1994 ("6/16/94 8-K")
4.2(b) Waiver and Amendment dated April 26, 1996 X
but effective as of February 28, 1996
relating thereto
4.3(a) Amended and Restated Credit Agreement Exhibit 4.2 to 6/16/94
dated June 16, 1994 among the Company, 8-K
Firstar Bank and M&I Bank Fox Valley*
4.3(b) Waiver and Amendment dated August 1, 1995 Exhibit 4.3(b) to 1995
relating thereto 10-K
4.3(c) Waiver and Amendment dated April 26, 1996 X
but effective as of February 28, 1996
relating thereto.
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
INCORPORATED HEREIN FILED
EXHIBIT NO. EXHIBIT BY REFERENCE TO HEREWITH
- ----------- ------- ------------------- --------
<S> <C> <C> <C>
4.4(a) Reimbursement Agreement dated August 1, Exhibit 4.4(a) to the
1994 between Outlook Packaging, Inc. Company's Annual Report
("Packaging") and Firstar Bank, relating on Form 10-K for the
to $4,000,000 City of Oak Creek Industrial fiscal year ended May 31,
Revenue Bonds* 1994 ("1994 10 K")
4.4(b) Related Corporate Guarantee Agreement Exhibit 4.4(b) to the
dated August 1, 1994 by the Company* 1994 10-K
4.5 Loan Agreement dated as of September 1, Exhibit 4.6 to S-1
1990 by and between City of Neenah,
Wisconsin and Olympic Label Systems, Inc.
(n/k/a Outlook Label Systems, Inc.)
("Outlook Label"), relating to $4,000,000
Industrial Development Revenue Bonds
4.6 Loan Agreement dated as of June 1, 1989 by Exhibit 4.4 to S-1
and between Town of Menasha, Wisconsin and
the Company, as assigned to Valley Trust
Company, relating to $835,000 Series A
Industrial Development Revenue Bonds
10.1 1990 Stock Option Plan** Exhibit 10.1 to S-1
10.2 Management Incentive Plan (current for Exhibit 10.2(a) to 1994
fiscal 1996 and 1995)** 10-K
10.3 Employment Agreement dated June 1, 1994 Exhibit 10.4 to 1994 10-K
between David L. Erdmann and the Company**
10.4(a) Lease Agreement dated November 7, 1990 Exhibit 10.10(b) to S-1
between the Company and a joint venture
relating to the lease of City of Neenah
property*
10.4(b) Lease Amendment #1 thereto dated March 31, Exhibit 10.7(b)(ii) to
1992 the Company's Annual
Report on Form 10-K for
the fiscal year ended May
31, 1992 ("1992 10-K")
</TABLE>
EI-2
<PAGE> 19
<TABLE>
<CAPTION>
INCORPORATED HEREIN FILED
EXHIBIT NO. EXHIBIT BY REFERENCE TO HEREWITH
- ----------- ------- ------------------- --------
<S> <C> <C> <C>
10.5 401(k) Savings Plan (as amended and Exhibit 10.11 to S-1
restated effective as of January 1, 1989)
including the Defined Contribution
Regional Prototype Plan and Trust Document
and the Adoption Agreement thereto**
10.6 Equipment Lease dated August 27, 1990 by Exhibit 10.12 to S-1
and between Valley Bank and the Company*
10.7 Equipment Lease dated December 21, 1989 by Exhibit 10.13 to S-1
and between First Wisconsin Leasing
Services and the Company*
10.8(a) Master Lease Purchase Agreement and Exhibit 10.14 to S-1
Amendment No. 1 thereto, all dated March
20, 1991 by and between Metlife Capital
Corporation and the Company
10.8(b) Lease Purchase Addendum No. 2 dated March Exhibit 19.1(a) to the
26, 1993, and related Cross Company's Quarterly
Collateralization Agreement Report on Form 10-Q for
the Quarter Ended
February 28, 1993
10.9 Contract Manufacturing Agreement dated Exhibit 10.1 to the
December 30, 1992, by and between Nestle Company's Current Report
Beverage Company ("NBC") and Outlook on Form 8-K dated
Foods, Inc. ("Foods") (f/k/a Oconomowoc December 30, 1992
Packaging, Inc.)* ("12/30/92 8-K")
10.10 Contract Manufacturing Agreement dated Exhibit 10.2 to 12/30/92
December 30, 1992, by and between Foods 8-K
and Nestle Brands Foodservice Company
division of Nestle Foods, Inc.* [expired]
10.11 Equipment Lease dated December 30, 1992 Exhibit 10.3 to 12/30/92
between NBC and Foods 8-K
10.12 Assignment and Assumption dated as of Exhibit 10.3 to the
October 15, 1993 among Packaging, Sunrise Company's Current Report
and Fleet Credit Corporation, and related on Form 8-K dated
Company guaranty October 18, 1993
</TABLE>
EI-3
<PAGE> 20
<TABLE>
<CAPTION>
INCORPORATED HEREIN FILED
EXHIBIT NO. EXHIBIT BY REFERENCE TO HEREWITH
- ----------- ------- ------------------- --------
<S> <C> <C> <C>
10.13 Master Lease Agreement dated December 13, Exhibit 10 to the
1993 between the Company and Firstar Company's Quarterly
Leasing Services Corporation and related Report on Form 10-Q for
lease schedule the quarter ended
November 30, 1993
10.14 Stock Purchase Agreement by and among the Exhibit 2 to the
Company, Barrier Films Corporation and all Company's Quarterly
of the shareholders of Barrier Films Report on Form 10-Q for
Corporation dated as of February 10, 1995* the quarter ended
February 28, 1995
10.15(a) Purchase and Sale Agreement dated as of Exhibit 10.15 to 1995
July 14, 1995 between the Company and 10-K
Willow Creek Press, LLC ("Willow Creek")*
(b) Replacement Promissory Note of Willow Creek X
dated May 31, 1996
13.1 Annual Report to Shareholders for the X
fiscal year ended May 31, 1996
21.1 List of subsidiaries of the Company X
23.1 Consent of Coopers & Lybrand L.L.P. X
24.1 Powers of Attorney Signature Page
to this Report
27.1 Financial Data Schedule
- ------------------
</TABLE>
* Excluding exhibits and/or schedules which are identified in the
document. The Company agrees to furnish supplementally a copy of any
omitted exhibit or schedule to the Commission upon request.
** Designates compensatory plans and agreements for executive officers.
EI-4
<PAGE> 1
EXHIBIT 4.2(b)
1996 10-K
Waiver and Amendment
Re: Note Purchase Agreement
WAIVER AND AMENDMENT
Dated as of April 26, 1996 but
effective as of February 28, 1996
David L. Erdmann, President
Outlook Group Corp.
1180 American Drive
Neenah, Wisconsin 54956
Reference is hereby made to that certain Note Purchase Agreement, dated as of
June 16, 1994 (the "Note Purchase Agreement") between Outlook Graphics Corp.
(n/k/a Outlook Group Corp.) (the "Company") and the undersigned Firstar Bank
Milwaukee, N.A. and State of Wisconsin Investment Board (collectively referred
to hereinafter as the "Lenders"), as amended on August 1, 1995 and January 26,
1996. All capitalized terms used but not otherwise defined herein shall have
the meanings given to such terms by the Note Purchase Agreement, as amended.
Recitals
The Company has requested that the Lenders waive certain defaults under the
Note Purchase Agreement, as amended, which existed prior to the date of this
Waiver and Amendment. The Lenders have agreed to do so on the condition that
the Company comply with the terms and conditions set forth herein.
1. WAIVER The Note Purchase Agreement, as amended, provides, under
Section 6.8(b), that the Company shall maintain at all times, a ratio of Funded
Debt to Consolidated Total Capitalization for the period between June 1, 1995
and May 31, 1996 in the amount of not more than 0.54 to 1.00. The Company is
currently in default under the Note Purchase Agreement, as amended. The
Lenders hereby agree to waive the default under Section 6.8(b) of the Note
Purchase Agreement, as amended, which existed as of February 28, 1996.
The Note Purchase Agreement, as amended, also provides, under Section
6.8(c)(ii), that the Company shall maintain for the two most recently completed
quarterly periods ending February 28, 1996, a Pretax Consolidated Net Income of
$5,500,000. The Company is
<PAGE> 2
David L. Erdmann
Page 2
currently in default under Section 6.8(c)(ii) of the Note Purchase Agreement,
as amended. The Lenders hereby agree to waive the default under Section
6.8(c)(ii) of the Note Purchase Agreement, as amended, which existed as of
February 28, 1996.
The Note Purchase Agreement, as amended, also provides, under Section 7.1(b),
that the Company will not, and will not permit any Subsidiary to, create,
incur, assume or become or remain liable with respect to any Indebtedness other
than, with regard to the Company only, additional secured and unsecured Current
Debt; provided, however, that during any twelve month period there shall have
been a period of 30 consecutive days during which the Company's Current Debt
for borrowed money, when added to its Funded Debt then outstanding, did not
exceed the amount of Funded Debt permitted pursuant to subsection 6.8(b), and
also provided that one of the Lenders is the Lender for such additional Current
Debt. The Company is currently in default under Section 7.1(b) of the Note
Purchase Agreement, as amended. The Lenders hereby agree to waive the default
under Section 7.1(b) of the Note Purchase Agreement, as amended, which existed
as of February 28, 1996.
The Note Purchase Agreement, as amended, further provides, under Section
7.7(g), that the Company will not, and will not permit any Subsidiary to, make
any investments in or loans, advances or extensions of credit to, any Person
except receivables arising from the sale of goods and services in the ordinary
course of business of the Company and its Subsidiaries due within one year, but
not in any case credit to customers intended to enable, or in fact used by,
customers to finance their accounts receivable. The Company is currently in
default under Section 7.7(g) of the Note Purchase Agreement, as amended, due to
its transactions with its account debtor, Collect A Card, Inc. The Lenders
hereby agree to waive the default under Section 7.7(g) of the Note Purchase
Agreement, as amended, which existed as of February 28, 1996 on the condition
that the Company not increase the amount of (i) the account receivable owing by
Collect A Card, Inc. to the Company above $3,400,000; and (ii) its equity
interest in Collect A Card, Inc. above $2,195.
2. AMENDMENT
Upon execution of this Waiver and Amendment, the Lenders and the Company
hereby agree that the Note Purchase Agreement, as amended, shall be amended
further as follows:
(a) All references to the Note Purchase Agreement in the Note Purchase
Agreement and the other documents and agreements relating thereto shall
refer to the Note Purchase Agreement as previously amended and as amended
hereby.
(b) Section 6.2(a) of the Note Purchase Agreement shall be restated as
follows:
<PAGE> 3
David L. Erdmann
Page 3
6.2 Financial Statements. Furnish to Lenders:
(a) Monthly Statements. As soon as available and in any event within
30 days after the end of each month of each fiscal year, copies
of:
(i) Consolidated and consolidating
balance sheets of the Company
and its Subsidiaries as of
the close of such month
setting forth in comparative
form the amount for the end
of the preceding fiscal year,
(ii) Consolidated and consolidating
statements of income and
retained earnings of the
Company and its Subsidiaries
for such monthly period,
setting forth in comparative
form the amount for the
corresponding period of the
preceding fiscal year, and
(iii) Consolidated statements of
cash flow of the Company and
its Subsidiaries for the
portion of the fiscal year
ending with such month,
setting forth in comparative
form the amount of the
corresponding period of the
preceding fiscal year,
all in reasonable detail and certified as
complete and correct by a Responsible Officer;
3. This Waiver and Amendment does not constitute a waiver or
amendment of any term, condition or covenant in the Note Purchase Agreement, as
amended, other than as specifically set forth above. Nothing contained in this
Waiver and Amendment or in any other document, or any course of dealing with
the Company, shall be construed to imply that there is any agreement by the
Lenders to provide any waiver in the future. This Waiver and Amendment shall
not release, discharge, or satisfy any present or future debts, obligations or
liabilities of the Company to the Lenders or any mortgage, security interest,
lien or other collateral or security for any of such debts, obligations or
liabilities of the Company. Except as expressly provided herein, the Lenders
reserve all rights and remedies under the Note Purchase Agreement, as amended,
the Notes, and the collateral documents delivered in connection therewith and
specifically identified in Section 5.1 of the Note Purchase Agreement,
<PAGE> 4
David L. Erdmann
Page 4
as amended, the Notes, and the collateral documents delivered in connection
therewith and specifically identified in Section 5.1 of the Note Purchase
Agreement, as amended, (the "Collateral Documents") and all such mortgages,
security interests, liens and other collateral and security. THIS IS AN
AMENDMENT AND NOT A NOVATION.
4. The Company acknowledges and agrees that the obligations under
the Note Purchase Agreement, as amended, and the Notes exist and are owing with
no offset, defense or counterclaim assertable by the Company and that the Note
Purchase Agreement, as amended, Notes and Collateral Documents are valid,
binding and fully enforceable according to their respective terms.
5. The Company shall be responsible for the payment of all fees
and out-of-pocket disbursement incurred by the Lenders in connection with the
administration and enforcement of this Waiver and Amendment, including all
costs of collection, and including without limitation the reasonable fees and
disbursements of counsel for the Lenders, whether or not any transaction
contemplated by this Waiver and Amendment is consummated.
6. The provisions of this Waiver and Amendment shall insure to
the benefit of and be binding upon any successor to any of the parties hereto.
7. All agreements, representations and warranties made herein
shall survive the execution of this Waiver and Amendment, and the making of the
loans under the Note Purchase Agreement, as amended.
8. This Waiver and Amendment shall be governed by and construed
in accordance with the internal laws of the State of Wisconsin.
9. This waiver and Amendment may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
<PAGE> 5
David L. Erdmann
Page 5
If the foregoing is satisfactory to you, please sign and return the
form of acceptance below.
FIRSTAR BANK MILWAUKEE, N.A.
By:/s/ Donald A. Morell
--------------------
Donald A. Morell, Vice President
STATE OF WISCONSIN INVESTMENT
BOARD
By:/s/ Robert L. Zobel
---------------------
Robert L. Zobel, Investment
Director
Accepted and agreed to
this 30 day of April, 1996
OUTLOOK GROUP CORP.
(f/k/a Outlook Graphics
Corp.)
By:/s/ David L. Erdmann
--------------------
David L. Erdmann,
President
<PAGE> 6
David L. Erdmann
Page 6
ACKNOWLEDGMENT OF GUARANTORS
The undersigned acknowledge and agree to all of the foregoing and
agree that their Guarantee Agreements, each dated as of June 16, 1994, continue
to guarantee the obligations of the Company to the Lenders as amended hereby
and by any prior amendments.
Dated as of April 30, 1996.
OUTLOOK PACKAGING, INC.
By:/s/ David L. Erdmann
-----------------------
David L. Erdmann, President
OCONOMOWOC PACKAGING, INC.
By:/s/ David L. Erdmann
-----------------------
David L. Erdmann, President
OUTLOOK LABEL SYSTEMS, INC.
By:/s/ David L. Erdmann
-----------------------
David L. Erdmann, President
<PAGE> 1
EXHIBIT 4.3(c)
1996 10-K
Waiver and Amendment
Re: Amended and Restated Credit Agreement
WAIVER AND AMENDMENT
Dated as of April 26, 1996 but
effective as of February 28, 1996
David L. Erdmann, President
Outlook Group Corp.
1180 American Drive
Neenah, Wisconsin 54956
Reference is hereby made to that certain Amended and Restated Credit
Agreement, dated as of June 16, 1994 (the "Credit Agreement") between Outlook
Graphics Corp. (n/k/a/ Outlook Group Corp.) (the "Company") and the undersigned
Firstar Bank Milwaukee, N.A. ("Firstar") and M&I Bank Fox Valley ("M&I", and,
together with Firstar, sometimes collectively referred to hereinafter as the
"Lenders"), as amended on August 1, 1995 and January 26, 1996, pursuant to
which the Company has issued its Promissory Notes, dated June 16, 1994, each in
the amount of $10,000,000 and payable, respectively, to Firstar and M&I, as
amended and restated on August 1, 1995 (the "Existing Notes"). All capitalized
terms used but not otherwise defined herein shall have the meanings given to
such terms by the Credit Agreement, as amended.
Recitals
The Company has requested that the Lenders waive certain defaults
under the Credit Agreement which existed prior to the date of this Waiver and
Amendment. The Lenders have agreed to do so on the condition that the
"Commitment" of each of the Lenders is reduced to $7,500,000 and the Company
comply with certain other terms and conditions set forth herein. The Company's
obligation to pay to each Lender the amount of the reduced Commitment of each
Lender will be evidenced by new promissory notes of the Company in the form of
Exhibits A and B annexed hereto (the "New Notes") to be dated as of April 30,
1996, which will be executed by the Company and delivered to each Lender
against the return of the Existing Notes to Company. Accrued interest on the
Existing Notes outstanding on the date of issuance of the New Notes will be
included in interest due on the New Notes on the first interest payment date
specified therein.
1. WAIVER The Credit Agreement, as amended, provides, under Section
6.8(b), that the Company shall maintain at all times, a ratio of Funded Debt to
Consolidated Total
<PAGE> 2
Mr. David L. Erdmann
Page 2
Capitalization for the period between June 1, 1995 and May 31, 1996 in the
amount of not more than 0.54 to 1.00. The Company is currently in default
under the Credit Agreement, as amended. The Lenders hereby agree to waive the
default under Section 6.8(b) of the Credit Agreement, as amended, which existed
as of February 28, 1996.
The Credit Agreement, as amended, also provides, under Section
6.8(c)(ii), that the Company shall maintain for the two most recently completed
quarterly periods ending February 28, 1996, a Pretax Consolidated Net Income in
the amount of $5,500,000. The Company is currently in default under Section
6.8(c)(ii) of the Credit Agreement, as amended. The Lenders hereby agree to
waive the default under Section 6.8(c)(ii) of the Credit Agreement, as amended,
which existed as of February 28, 1996.
Section 5.5 of the Credit Agreement, as amended, also provides that
neither the Company nor any Subsidiary shall make a loan or extension of credit
to any other person, corporation or other entity. The Company is currently in
default under the Credit Agreement, as amended, due to its transactions with
its account debtor, Collect A Card, Inc. The Lenders hereby agree to waive the
default under Section 5.5 of the Credit Agreement, as amended, which existed as
of February 28, 1996 on the condition that the Company not increase the amount
of (i) the account receivable owing by Collect A Card, Inc. to the Company
above $3,400,000; and (ii) its equity interest in Collect A Card, Inc. above
$2,195.
2. AMENDMENT
Upon execution of this Waiver and Amendment and issuance of the
New Notes, the Lenders and the Company hereby agree that the Credit
Agreement shall be amended as follows:
(a) All references to the Credit Agreement in the Credit
Agreement and the other documents and agreements relating thereto
shall refer to the Credit Agreement as previously amended and as
amended hereby.
(b) The first paragraph of the Credit Agreement shall be
amended to restate the Commitment of the Lenders as follows:
<TABLE>
<CAPTION>
"Name of Bank Amount Percent of Total
<S> <C> <C>
Firstar Bank Milwaukee $7,500,000 50%
National Association
M & I Bank Fox Valley $7,500,000 50%"
</TABLE>
(c) Section 6.2 of the Credit Agreement, as amended, shall be
restated as follows:
<PAGE> 3
Mr. David L. Erdmann
Page 3
6.2 Financial Statements. Furnish to the Banks:
(a) Monthly Statements. As soon as available and in
any event within 30 days after the end of each
month of each fiscal years, copies of:
(i) Consolidated and consolidating balance
sheets of the Company and its Subsidiaries as
of the close of such month setting forth in
comparative form the amount for the end of
the preceding fiscal year,
(ii) Consolidated and consolidating statements of
income and retained earnings of the Company
and its Subsidiaries for such monthly period,
setting forth in comparative form the amount
for the corresponding period of the preceding
fiscal year, and
(iii) Consolidated statements of cash flow of the
Company and its Subsidiaries for the portion
of the fiscal year ending with such month,
setting forth in comparative form the amount
of the corresponding period of the preceding
fiscal year,
all in reasonable detail and certified as complete and correct by
a Responsible Officer;
3. This Waiver and Amendment does not constitute a waiver or
amendment of any term, condition or covenant in the Credit Agreement, as
amended, other than as specifically set forth above. Nothing contained in this
Waiver and Amendment or in any other document, or any course of dealing with
the Company, shall be construed to imply that there is any agreement by the
Lenders to provide any waiver in the future. This Waiver and Amendment shall
not release, discharge, or satisfy any present or future debts, obligations or
liabilities of the Company to the Lenders or any mortgage, security interest,
lien or other collateral or security for any of such debts, obligations or
liabilities of the Company. Except as expressly provided herein, the Lenders
reserve all rights and remedies under the Credit Agreement, as amended, the
Notes, and the collateral documents delivered in connection therewith and
specifically identified in Section 5.1 of the Credit Agreement, as amended,
(the "Collateral Documents") and all such mortgages, security interests, liens
and other collateral and security. THIS IS AN AMENDMENT AND NOT A NOVATION.
4. The Company repeats and reaffirms the representations and
warranties set forth in Article IV of the Credit Agreement, as amended.
<PAGE> 4
Mr. David L. Erdmann
Page 4
5. The Company also represents and warrants that the execution,
delivery and performance of this Waiver and Amendment, and the documents
required herein, have been duly authorized by all necessary action and do not
and will not (i) require any consent or approval of the stockholders of the
Company; (ii) violate any provision of the Company's Articles of Incorporation
or Bylaws or of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability to the
Company; (iii) require the consent or approval of, or filing a registration
with, any governmental body, agency or authority; or (iv) result in any breach
of or constitute a default under, or result in the imposition of any lien upon
any property of the Company pursuant to, any indenture or other agreement or
instrument under which the Company is a party or by which it or its properties
may be bound or affected. This Waiver and Amendment constitutes, and each of
the documents required herein when executed and delivered hereunder will
constitute, legal, valid and binding obligations of the Company enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy or similar laws affecting the enforceability of creditors' rights
generally.
6. The Company acknowledges and agrees that the obligations under the
Credit Agreement, as amended, and the Notes exist and are owing with no offset,
defense or counterclaim assertable by the Company and that the Credit
Agreement, as amended, Existing Notes, Notes and Collateral Documents are
valid, binding and fully enforceable according to their respective terms.
7. The Company shall be responsible for the payment of all fees and
out-of-pocket disbursements incurred by the Lenders in connection with the
administration and enforcement of this Waiver and Amendment and the New Notes,
including all costs of collection, and including without limitation the
reasonable fees and disbursements of counsel for the Lenders, whether or not
any transaction contemplated by this Waiver and Amendment is consummated.
8. The provisions of this Waiver and Amendment shall inure to the
benefit of any holder of the New Notes and shall inure to the benefit of and be
binding upon any successor to any of the parties hereto.
9. All agreements, representation and warranties made herein shall
survive the execution of this Waiver and Amendment, and the making of the loans
under the Credit Agreement, as amended, and the execution and delivery of the
New Notes.
10. This Waiver and Amendment shall be governed by and construed in
accordance with the internal laws of the State of Wisconsin.
11. This Waiver and Amendment may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
<PAGE> 5
Mr. David L. Erdmann
Page 5
If the foregoing is satisfactory to you, please sign and return the
form of acceptance below.
FIRSTAR BANK MILWAUKEE, N.A.
By:/s/ Donald A. Morell
-------------------------
Donald A. Morell, Vice President
M&I BANK FOX VALLEY
By:/s/ Daniel J. Nisler
---------------------------
Daniel J. Nisler,
Executive Vice President
Accepted and agreed to
this 30 day of April, 1996
OUTLOOK GROUP CORP.
(f/k/a/ Outlook Graphics Corp.)
By:/s/ David L. Erdmann
-----------------------
David L. Erdmann, President
<PAGE> 6
Mr. David L. Erdmann
Page 6
ACKNOWLEDGMENT OF GUARANTORS
The undersigned acknowledge and agree to all of the foregoing and
agree that their Guarantee Agreements, each dated as of June 16, 1994, continue
to guarantee the obligations of the Company to the Lenders as amended hereby
and by any prior amendments.
Dated as of April 30, 1996.
OUTLOOK PACKAGING, INC.
By:/s/ David L. Erdmann
--------------------------
David L. Erdmann, President
OCONOMOWOC PACKAGING, INC.
By:David L. Erdmann
--------------------------
David L. Erdmann, President
OUTLOOK LABEL SYSTEMS, INC.
By:/s/ David L. Erdmann
--------------------------
David L. Erdmann, President
<PAGE> 1
Exhibit 10.15(b)
Fiscal 1996 10-K
PROMISSORY NOTE
$1,000,000.00
May 31, 1996
For Value Received, Willow Creek Press, LLC ("Maker"), a Wisconsin limited
liability Company agrees to pay to the order of Outlook Group Corp.
("Holder"), a Wisconsin corporation, the principal sum of one million and
no/100 ($1,000,000.00) plus interest of 1% over the prime rate on the remaining
balance payable as follows:
a. Interest of 1% over the prime rate at M&I Bank Fox Valley on
the remaining balance during the period from May 30, 1996
until May 31, 2000, to be paid on the fifteenth (15th) day of
each month for the prior month with the first payment due July
15, 1996.
b. Fourteen quarterly principal installments, as follows,
beginning February 28, 1997 and ending May 31, 2000:
1997 FEB 28 $ 50,000
MAY 31 125,000
AUG 31 50,000
NOV 30 50,000
1998 FEB 28 50,000
MAY 31 125,000
AUG 31 50,000
NOV 30 50,000
1999 FEB 28 50,000
MAY 31 125,000
AUG 31 50,000
NOV 30 50,000
2000 FEB 29 125,000
MAY 31 50,000
----------
TOTAL $1,000,000
The Maker shall have the right to prepay this note at any time before maturity
without penalty.
Maker agrees that its debt from banks or other financial institutions shall not
exceed $1,000,000 during the term of this promissory note without the express
written agreement of the Holder.
<PAGE> 2
Promissory Note
$1,000,000/May 31, 1996
Page 2
In the event of default in payment of interest or any installment of principal
when due, the entire principal and accrued interest, at the option of the
Holder of this note, shall become immediately due and payable without notice
(notice being hereby waived). This option may be exercised at any time after
default and failure to exercise this option shall not constitute a waiver of
the right to exercise this option at any time.
The indebtedness evidenced by this note is subject to the provisions in the
Debt Subordination Agreement dated May 30, 1996 among Norwest Bank Wisconsin,
N.A., Holder and Maker.
Nothing contained in this note shall be construed to prohibit the assignment of
this note by the Holder or Maker.
This note shall be governed and interpreted under the laws of Wisconsin.
In the event any one or more of the provisions contained in this note for any
reason shall be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality, or unenforceability shall not effect any other
provision of this note, but this note shall be construed as if such invalid,
illegal or unenforceable provision had never been contained in this note.
The Maker agrees to pay for all costs of collection, including reasonable
attorneys' fees.
Signed and delivered this 31st day of May , 1996 at Neenah, Wisconsin.
WILLOW CREEK PRESS, LLC
By: /s/ Thomas C. Petrie
-----------------------
Thomas C. Petrie
President
<PAGE> 1
EXHIBIT 13.1
1996 Annual Report
Sharpening
Our Focus
Customers
Service
Performance
Outlook Group Corp.
<PAGE> 2
[OUTLOOK GROUP CORP. LOGO]
Outlook Group Corp.
1180 American Drive - P.O. Box 748
Neenah, Wisconsin 54957-0748
<PAGE> 3
CONTENTS
1 Financial Highlights
2 President's Letter
4 Operations Review
8 Selected Financial Information
8 Market Prices and Dividends
9 Management's Discussion and Analysis
13 Financial Statements
16 Notes to Financial Statements
20 Statement of Management Responsibility
20 Report of Independent Certified
Public Accountants
21 Corporate Information
<PAGE> 4
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
(dollars in thousands, except share and per share amounts) 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
EARNINGS STATEMENTS
Net sales $ 111,356 $ 120,742
Operating profit (loss) (8,293) 3,092
Net earnings (loss) (5,558) 1,285
- ---------------------------------------------------------------------------------------
BALANCE SHEETS (at fiscal year-end)
Working capital $ 23,700 $ 24,206
Total assets 77,853 83,373
Long-term debt, less current maturities 30,859 24,991
Shareholders' equity 34,941 41,386
- ---------------------------------------------------------------------------------------
PER SHARE
Net earnings (loss) per common share $ (1.19) $ .26
Weighted average number of common
shares outstanding 4,661,882 4,884,607
- ---------------------------------------------------------------------------------------
</TABLE>
PROFILE
Outlook Group Corp. is a graphic services and packaging company which offers an
array of related services including specialty printing, converting, food
products production, packaging and distribution.
1
<PAGE> 5
PRESIDENT'S LETTER
DEAR SHAREHOLDERS:
During the past year, we continued the difficult task of transitioning Outlook
Group from a company dependent upon the trading card market to a more
diversified graphics and packaging organization. This process has been painful
in its impact on financial results and its implications for our employees and
shareholders.
1996 RESULTS
By any standard, fiscal 1996 was a disappointment. Net sales were $111,356,000,
a decrease from sales of $120,742,000 in fiscal 1995. We reported a net loss of
$5,558,000 or $1.19 per share for fiscal 1996, compared to net earnings of
$1,285,000 or $0.26 per share in the prior year. The loss includes one-time
charges of $4,700,000 or $0.63 per share for write-offs and reserves on
receivables, obsolete inventory and employee severance. More than $3,000,000 of
this charge relates to the trading card market. Sales to this market declined
by over $20,000,000 in fiscal 1996.
In addition to the significant impact of the trading card market on our
graphics business, our packaging operations also experienced problems. Both
Outlook Packaging and Barrier Films suffered substantial operating losses due to
poor price management and other operating issues. The foods group experienced
declining margins during the year but was able to remain profitable. Our label
subsidiary also recorded a profit but fell short of its operating goals. When
you put all of these market factors and internal difficulties together, you have
a very disappointing year.
[Photo]
David L. Erdmann
Chairman and President
FUTURE STRATEGY
So where do we go from here? With 20-20 hindsight we know that the
strategy to diversify from a dependency on trading cards was the right
decision, but the move into packaging has been a costly learning experience.
Our objectives at this point are two-fold: first, to improve financial
performance, and second, to implement a strategy that builds on the strengths
of each operating group while at the same time actively addresses problem
areas. Each division has established specific goals and a strategy to attain
them. These strategies are discussed in more detail in the Operations Review
section beginning on page four of this report.
In the packaging group, all activities are now under the direction of its
new president, Joseph J. Baksha. Joe, who joined Outlook Group in May 1996, is
the former chief operating officer of Alusuisse Flexible Packaging. A strong
manager, Joe brings extensive industry experience to Outlook. He has total
responsibility for our Outlook Packaging, Barrier Films and Outlook Label
subsidiaries. Under Joe's leadership we are already experiencing improvements
in the group's operations and look for a continuing positive trend toward
increased growth and improved profitability.
2
<PAGE> 6
"EACH DIVISION HAS ESTABLISHED SPECIFIC GOALS AND A STRATEGY TO ATTAIN THEM."
With Joe Baksha on board, Jeffry H. Collier, executive vice president of
Outlook Group, and I will focus our attention on rebuilding the graphics group
into the dynamic, growing organization it was in the late 1980s and early
1990s. This division will focus on paperboard packaging, fulfillment,
distribution, direct mail, contract packaging and commercial printing. Of
particular interest is our involvement with National Graphics, of Brookfield,
Wisconsin, in a patented process called Extreme Vision(TM). This high-tech
printing process, which creates a three-dimensional look, is being
well-received in Europe and is expected to grow in the domestic U.S. market as
well.
Outlook Foods in Oconomowoc, Wisconsin, will be led by Michael J. Thomas,
president, and Richard H. Boehm, chief operating officer, who has over 30 years
of experience in the food industry. Together, Mike and Dick plan to expand
Outlook Foods into the food service and exporting areas, as well as continuing
to increase the number of contract manufacturing customers.
OUTLOOK'S STRENGTHS
As you can see, we have expanded our management team during the past year,
adding several experienced leaders with solid industry backgrounds. Outlook
Group has other strengths as well. These include our strong balance sheet,
well-maintained equipment and investments in technology. And we have a strategy
that focuses on building our customer base and increasing both revenues and
profitability, specifically in the graphics and packaging areas.
I know that everyone involved in Outlook Group wants it to succeed. The
frustration that we all face is the knowledge that a turnaround of this scope
takes time. As much as we would like to see it happen in the next few quarters,
it may take a year or two to fully complete our strategic program, make the
improvements needed in our operations and achieve our financial goals.
As we move forward, the most important factor in achieving our goals is
our people. We have many excellent customer relationships that give us a
foundation for future growth. We have a nucleus of outstanding, hard working
employees and a talented board of directors with a broad range of experience.
We are also fortunate to have many loyal, and patient, shareholders who have
stayed with us through some difficult times.
I am grateful for the dedication of all of our people as we face the
challenges and opportunities ahead. I would like to personally thank everyone
involved with Outlook Group for their continuing confidence and support.
/s/ David L. Erdmann
David L. Erdmann
Chairman and President
3
<PAGE> 7
1996 OPERATIONS REVIEW
GRAPHICS GROUP
Outlook Graphics is Outlook Group's largest service area, offering paperboard
packaging, contract packaging, commercial printing, direct mail, fulfillment
and distribution, and sports and entertainment products. It is also the service
area that received the full impact of the decline in trading card business in
fiscal 1996.
"A major emphasis is on expanding our paperboard packaging business."
"The decline in our trading card business is due in large part to the
downturn in the industry as a whole. The trading card business never fully
recovered from the baseball strike several years ago, impacting both card
companies and their suppliers. To overcome the decrease in trading card sales,
we have been working hard to strengthen the other areas of our business. We
made progress in 1996, but we're going to step up this effort even more in
fiscal 1997," said Jeffry H. Collier, senior vice president of Outlook Group
and president of the graphics group.
"A major emphasis in 1997 is on expanding our paperboard packaging
business, which produces cartons for a wide variety of consumer products. Our
expertise is small- to medium-sized runs with value-added enhancements such as
foil stamping, embossing and UV coating," Collier says.
[Photo]
Outlook Graphics' new direct-to-plate equipment reduces production time. Shown
are Cal Vesely, printing superintendent (seated), and Veronica Stelzer,
electronic imaging specialist.
Other areas targeted for growth in 1997 include commercial printing,
fulfillment and contract packaging. "In the commercial printing area, our sales
force is actively pursuing new projects for brochures, flyers and direct mail
pieces, which are well-suited for our existing equipment. Our year-old
fulfillment and distribution center in Oshkosh, Wisconsin, is a state-of-the-art
facility that gives us the capability to not only produce products for our
customers, but store and ship them as well. Contract packaging is another
value-added service for customers
[Photo]
Jeff Collier
4
<PAGE> 8
who need to have promotional items, coupons and premiums packaged and inserted
into their products," Collier explains.
"Internally, we're in a good position to increase sales and strengthen
customer service. Product managers have been assigned to each area and a new
inside sales department has been created to supplement our outside sales
activities, maintain customer relationships and generate sales leads," he adds.
New technology has also been added. The "direct-to-plate" process
installed at the group's Neenah facility in July 1996 will increase efficiency
and reduce production time by eliminating the films traditionally used in
making printing plates. And a new relationship with Image I.T., a sophisticated
pre-press firm in Appleton, Wisconsin, assures Outlook customers of the latest
technology in electronic design and imaging.
"Our goal is to increase sales and improve profitability. We have
excellent relationships with our current customers. Our strategy is to maintain
this base and build on it by cross-selling services where possible and
expanding our geographic reach for new business," Collier concludes.
[Photo]
Joe Baksha
PACKAGING GROUP
The packaging group is comprised of three subsidiary companies. Outlook
Packaging offers flexographic printing and laminating services, Barrier Films
produces multi-layer extruded films for food packaging, and Outlook Label
manufactures labels, coupons and vinyl cards. Under the direction of its new
president, Joseph J. Baksha, the group has two priorities. The first is a
short-term effort to immediately improve performance and the second is to
develop a strategic marketing, sales and profit plan to optimize the group's
operations going forward.
"We're currently evaluating our customer base to align ourselves with
those customers that can benefit the most from our services. For example, it's
unusual for even the largest companies to offer capabilities such as specialty
labels, multi-layer films and other services in addition to flexographic
printing and laminating for packaging. This is a unique asset for Outlook that
we want to maximize to the fullest," Baksha says.
"Our goal is to create a unique selling proposition by satisfying customer
needs."
5
<PAGE> 9
1996 OPERATIONS REVIEW
Reorganizing the customer service function is another goal. The group has
established an operations support center focused on making it "easy to do
business" with the packaging group. The support center brings all customer
service functions into a single operation with one empowered account manager
assigned to each customer. "The customer now has just one contact for all
aspects of the project, from estimating through production and billing. We want
our customers to know that we are totally focused on their needs and are
committed to providing the quality products and service that are the foundation
of a long-term relationship. Our goal is to create a unique selling proposition
by satisfying customer needs," Baksha explains.
A third focus for the group is developing a sophisticated profit
management system that will provide estimating and job costing capabilities to
better monitor profitability by customer, item and product.
Products and systems are also being evaluated to determine the best route
for profitability. "By making some minor modifications in our finishing
equipment, we believe we can continue to produce quality products, but from a
stronger competitive position," Baksha says.
"We're looking at virtually every aspect of our operations. This is a very
extensive process designed to make us a strong, and profitable, competitor," he
adds.
[Photo]
The packaging group's new operations support center brings together all
customer service functions. Standing are Dennis Grabski, vice president sales
and marketing, and Vickie Smith, operations support manager.
Seated are account managers Carl Mayer and Stacy Gronseth.
FOODS GROUP
From its facility in Oconomowoc, Wisconsin, Outlook Foods, formerly
Oconomowoc Packaging, produces dry-blended and instantized products. These
include malted milk, gravies, sauces, cocoa mix and fruit drinks, as well as
potatoes, dry milk, starches and coffee creamers. The company packages these
and other products into pouches, cartons, jars, bags and canisters.
6
<PAGE> 10
During fiscal 1996, Outlook Foods moved forward with the development of
private label products for retail and food service customers.
"Fresh Aroma, our new bread mix introduced last year, has been well
received by customers in its Wisconsin test markets," says Michael J. Thomas,
president of the foods group. The bread mix comes in six varieties: country
white, German rye, honey whole wheat, English muffin, sourdough and beer. Its
popularity reflects the continuing interest of consumers who like the
convenience of electric bread machines for making oven-fresh bread
at home.
[Photo]
Improvements in the equipment that produces malted milk are designed to further
strengthen Outlook Foods' specialized market niche. Dave Saxby, production
associate, checks a batch in process.
Other new beverage and bakery products will be introduced in fiscal 1997.
A network of food brokers is being formed to market the new products to food
service, institutional and grocery customers.
"Increasing sales of private label and selected branded products can help
to lessen the impact of swings in our contract manufacturing products,"
explains Thomas.
"Contract manufacturing is a mainstay of our business and one that
continues to be a growth area for us," Thomas emphasizes. In addition to
contracts with Nestle, a long-term customer, Outlook Foods has added several
other large food companies to its customer list, with plans to broaden this
base in the future.
"In our market niche, our capabilities and experience are among the best
in the country. For example, there are only two or three companies in the
United States that have the specialized equipment to produce malt products.
This is a unique process developed over many years. We plan to leverage this
expertise, along with our other food production capabilities, to improve our
operating performance during the next year," Thomas adds.
"In our market niche, our capabilities and experience are among the best in
the country."
[Photo]
Mike Thomas
7
<PAGE> 11
OUTLOOK GROUP CORP.
SELECTED FINANCIAL INFORMATION
The following selected financial data of Outlook Group Corp. (the "company")
has been derived from the company's audited consolidated financial statements
and should be read in conjunction with the consolidated financial statements,
related notes and Management's Discussion and Analysis contained in this
report.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED MAY 31,
(in thousands, except share and per share amounts) 1996 1995(1) 1994(2) 1993(3) 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net sales $ 111,356 $ 120,742 $ 112,651 $ 88,122 $ 64,328
Cost of goods sold 104,220 102,368 94,506 69,923 48,796
- ----------------------------------------------------------------------------------------------------------------------------------
Gross profit 7,136 18,374 18,145 18,199 15,532
Selling, general and administrative expenses 15,429 15,282 10,857 8,389 6,317
- ----------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) (8,293) 3,092 7,288 9,810 9,215
Other income (expense):
Interest expense (2,506) (1,945) (749) (885) (473)
Other income 1,835 982 1,023 465 684
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (8,964) 2,129 7,562 9,390 9,426
Income tax expense (benefit) (3,406) 844 2,774 3,922 3,620
- ----------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ (5,558) $ 1,285 $ 4,788 $ 5,468 $ 5,806
- ----------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) PER COMMON SHARE $ (1.19) $ .26 $ .95 $ 1.07 $ 1.14
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number
of common shares outstanding 4,661,882 4,884,607 5,039,799 5,097,371 5,094,200
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (AT FISCAL YEAR END):
Working capital $ 23,700 $ 24,206 $ 23,109 $ 17,042 $ 15,133
Total assets 77,853 83,373 70,582 57,270 53,932
Long-term debt, less current maturities 30,859 24,991 14,762 7,748 11,980
Shareholders' equity 34,941 41,386 42,574 38,875 33,306
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes the results of operations of the company's subsidiary, Barrier
Films Corp. ("Barrier"), from February 11, 1995.
(2) Includes the results of operations of the company's subsidiary, Outlook
Packaging, Inc. ("Outlook Packaging"), from October 18, 1993.
(3) Includes the results of operations of the company's subsidiary, Outlook
Foods, Inc. ("Outlook Foods"), formerly known as Oconomowoc Packaging, Inc.,
from December 30, 1992.
MARKET PRICES AND DIVIDENDS
The company's common stock is quoted on the NASDAQ Stock Market. The following
table sets forth high and low sales prices as reported on NASDAQ for the
indicated fiscal year.
<TABLE>
<CAPTION>
-------------------------------------
FISCAL 1996 HIGH LOW
-------------------------------------
<S> <C> <C>
First quarter $ 9 1/2 $ 7 3/4
Second quarter 8 1/2 6 3/4
Third quarter 7 7/8 4 3/4
Fourth quarter 5 3/4 4 1/4
<CAPTION>
-------------------------------------
FISCAL 1995
-------------------------------------
<S> <C> <C>
First quarter $11 3/4 $ 9 1/4
Second quarter 12 3/4 10 1/2
Third quarter 12 1/2 8 3/4
Fourth quarter 10 3/8 8 7/8
</TABLE>
The company has not paid any cash dividends since its inception. The
company presently intends to employ its earnings in the continued development
and expansion of its business and does not expect to pay any cash dividends in
the foreseeable future. For a description of contractual dividend restrictions,
see Note D of Notes to Consolidated Financial Statements and the discussion in
Management's Discussion and Analysis.
As of August 5, 1996, there were 663 shareholders of record.
8
<PAGE> 12
OUTLOOK GROUP CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following section presents a discussion and analysis of the company's
results and operations during the past three fiscal years, and its financial
condition at fiscal year end. It also includes certain forward-looking
statements that involve risks and uncertainties. The company's actual future
results could materially differ from those discussed. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in the following section.
RESULTS OF OPERATIONS
The following table shows, for the fiscal years indicated, certain items from
the company's consolidated statements of operations expressed as a percentage
of net sales.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, Percentage of Net Sales
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 93.6 84.8 83.9
- --------------------------------------------------------------------------------
Gross profit 6.4 15.2 16.1
Selling, general and
administrative expenses 13.9 12.6 9.6
- --------------------------------------------------------------------------------
Operating profit (loss) (7.5) 2.6 6.5
Other income (expense):
Interest expense (2.2) (1.6) (.7)
Other income 1.7 .8 .9
- --------------------------------------------------------------------------------
(.5) (.8) .2
- --------------------------------------------------------------------------------
Earnings (loss) before income taxes (8.0) 1.8 6.7
Income tax expense (benefit) (3.0) .7 2.5
- --------------------------------------------------------------------------------
Net earnings (loss) (5.0)% 1.1% 4.2%
================================================================================
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
Outlook Group net sales for fiscal 1996 were $111.4 million, a decrease of $9.3
million, or 7.7% from fiscal 1995 sales of $120.7 million. Net sales from the
company's graphic services segment declined $12.3 million to $79.3 million in
fiscal 1996. The major factor in this decline was a $20.1 million reduction in
sales to the sports and collectible picture card market. In total, sales to
this market declined to 11% of Outlook Group total sales versus 27% in 1995 and
1994 and 51% in 1993. This is reflected in sales reductions for the specialty
printing and the converting and packaging classes of services. During fiscal
1996, Fleer Corp., the company's largest customer in this market, reversed
direction from the prior year and decided that it would not, in fact, utilize
its internal capabilities to convert and package sports cards. Instead, Fleer
sought an outside vendor to become their primary supplier. Ultimately, Fleer
selected a vendor other than the company for this work. The company also
experienced the continuing effects of the downward trend in overall demand in
the sports and collectible picture card market which results from factors
including the 1994-1995 major league baseball strike. There also continues to
be strong competition for collectible card projects and competitive pricing
pressures affecting both the volume and pricing of the company's services
relating to collectible cards. Thus, the company experienced a significant
reduction in sports and collectible picture card business, especially in the
third and fourth fiscal quarters of 1996. The company continues as a supplier
to Fleer and several other companies in this market, however at a reduced level
as the company shifts its focus to other markets with greater growth potential.
Net sales in the "other" category in the graphic services segment
increased by $7.0 million to $12.7 million in fiscal 1996. Gains were posted in
the company's mailing and fulfillment centers. In addition, the company
reflected the first full year of sales activity at Barrier Films ("Barrier")
which was acquired in February 1995. Outlook Publishing, sold in the first
month of fiscal 1996, had posted sales of $0.7 million in fiscal 1995.
The food processing segment posted sales of $32.1 million, an increase of
$3.0 million, or 10.3% over prior year levels. In total, 94% of fiscal 1996
sales in this segment were to Nestle Beverage Company and its affiliates
("Nestle"), as compared to 90% in fiscal 1995. As previously disclosed, the
company's contract to blend sauces and gravies for Nestle expired in
December 1995 and was not renewed because of Nestle's desire to bring the work
in-house (beginning July 1, 1996) to utilize its excess capacity. The company
was able to extend this contract through the end of fiscal 1996. In total,
sauces and gravies yielded $18.5 million in sales in fiscal 1996. This
represented 61% of sales to Nestle versus 65% in fiscal 1995. The company
continues to manufacture malted milk products for Nestle under a separate
contract which expires in December 1997.
In addition, Nestle purchases other products on a non-contractual basis.
Discussions have also been held with Nestle regarding potential new contractual
business in the future. It is anticipated that this new Nestle business will
help absorb much of the overhead which was previously allocated to the sauces
and gravies contract, thereby precluding the need to allocate additional
overhead and raise the prices on the malted milk contract. However, there can
be no assurances and the loss of the sauces and gravies contract could
adversely affect the profit of the food segment.
The company continues to progress in its development of non-Nestle
business including bread mixes, hot cocoa mix and cold drink mixes. These, and
other new products, may be marketed as branded or private-label products.
Gross profit as a percent of net sales declined to 6.4% in fiscal 1996
from 15.2% in fiscal 1995. Several factors contributed to this decline,
including significantly lower sales volumes at Outlook Graphics; numerous
operating issues at Outlook Packaging including pricing,
9
<PAGE> 13
OUTLOOK GROUP CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
waste and operating inefficiencies; high development costs at Barrier; reduced
margins on the Nestle gravies and sauces contract at Outlook Foods; and fourth
quarter provisions totalling $1.8 million for inventory obsolesence.
Selling, general and administrative expenses increased to 13.9% of net
sales for fiscal 1996 as compared to 12.6% in the prior year. Significant
savings were achieved through administrative staffing reductions and the sale
of Outlook Publishing. However, increases were generated primarily by $2.7
million in accounts receivable write-offs and reserves of which $2.5 million
related to one customer in the trading card market. Generally, lower sales
levels also contributed to the increased percentage.
Interest expense as a percent of sales increased to 2.2% in fiscal 1996
versus 1.6% in fiscal 1995. The increase primarily resulted from increased
borrowings.
Other income increased to 1.7% of net sales versus 0.8% in the prior year.
Additional income was generated by the gains on the sale of Outlook Publishing
as well as sales of numerous items of non-strategic equipment.
The above mentioned factors combined to generate a pre-tax loss of 8.0% of
net sales. As a result, the company recorded an income tax benefit equal to
3.0% of net sales. This will generate a tax refund as nearly half of the tax
losses are carried back. The balance will be carried forward.
In summary, fiscal 1996 yielded a net loss of $5,558,000, or $1.19 per
share. This included fourth quarter adjustments totalling $0.63 per share,
primarily relating to the write-offs and reserves for accounts receivable and
inventory. Fiscal 1995 results produced net income of $1,285,000, or $0.26 per
share. Average shares outstanding declined due to stock repurchases of 250,000
in fiscal 1995 and an additional 100,000 shares in fiscal 1996.
Because of the project-oriented nature of the company's business, the
company's largest customers have historically tended to vary from year to year
depending on the number and size of the projects completed for these customers;
however, during the past three fiscal years, the company has substantially
depended upon sales to Fleer and Nestle. As indicated above, both of those
customers have taken actions which reduced the project volume in fiscal 1995
and 1996 and which are expected to affect fiscal 1997 and beyond.
In prior years, the company's sales have been concentrated in
the sports and other picture card business. However, in fiscal 1994, the
significance of this business declined, remained level in fiscal 1995 and then
significantly dropped in fiscal 1996, as a result of a reduction in these sales
resulting from the maturation and competition in the collectible card industry,
the effects of the baseball strike, Fleer's decisions with the respect to its
work, and the company's diversification into other areas. The company
expects the percentage of its business related to picture cards to remain
constant, or be somewhat reduced, in fiscal 1997 as a result of these factors.
Changes in the company's project mix and timing of projects make
predictability of the company's future results very difficult. Additional
changes in the company's project mix and customer base, or the demand for the
company's services relating to sports and other picture cards, could affect
future sales volume and profitability.
Other than under Nestle agreements, customers generally purchase the
company's services under cancelable purchase orders rather than long-term
contracts, although exceptions sometimes occur when the company is required to
purchase substantial inventories or special machinery to meet orders. The
company has increasingly experienced project delays and cancellations. The
company believes that operating without long-term contracts is consistent with
industry practices, although it increases the company's vulnerability to losses
of business and significant period-to-period changes.
The company has recently introduced several new proprietary products, in
its food segment and other products such as Barrier films. The introduction of
new products such as these is subject to various risks, including market
acceptance, production difficulties and delays, pricing pressure, cost
overruns, unforeseen or under estimated competition and other similar factors.
These and other factors affect the ultimate success and profitability of such
products.
The company uses complex and specialized equipment in the provision of its
services, and the manufacture of its products. Therefore, the company is
dependent upon the functioning of such machinery, and its ability to acquire
and maintain appropriate equipment. The company has had start up
difficulties in certain lines of equipment, and such difficulties may continue
to affect future operations. Among other factors, the company may be affected
by equipment malfunctions, training and operational needs relating to the
equipment which may delay utilization, maintenance requirements, and
technological or mechanical obsolescence.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for fiscal 1995 were $120.7 million, an increase of $8.0 million, or
7.2% over fiscal 1994 net sales of $112.7 million. Net sales from the company's
graphic services segment increased $17.6 million, or 23.8%, during fiscal 1995.
The graphics services segment includes sales from Outlook Packaging, which
acquired certain assets of Sunrise Packaging, Inc., ("Sunrise") in the second
quarter of fiscal 1994 in a transaction accounted for using the purchase method
of accounting. It also includes sales from Barrier, which was acquired by the
company in February 1995 in a transaction accounted for using the purchase
method of accounting. Therefore, Outlook Packaging's and Barrier's results of
operations are included
10
<PAGE> 14
OUTLOOK GROUP CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
only from the respective acquisition dates. Outlook Packaging provided net
sales of $21.2 million during fiscal 1995, as compared to $12.2 million in
fiscal 1994; those sales are included in the "specialty printing" class of
services. Barrier provided net sales of $1.3 million during fiscal 1995, which
are included in the "other" class of services. Other printing sales as well as
converting and packaging sales also increased during fiscal 1995.
During fiscal 1995 the company's sports and collectible picture card
business was negatively impacted by the unexpectedly lengthy duration of the
national baseball strike, which reduced the demand for and production of
collectible cards. The baseball strike not only reduced demand for baseball
cards, but also negatively affected the sports card industry in general. In
addition, Fleer Corp., a major customer, determined to utilize its internal
capacity when possible rather than outsourcing projects, principally as a
result of the overall reduction in demand for sports picture cards. Fleer's
decision reduced the services provided by the company during fiscal 1995.
The operation of Outlook Publishing, which was begun during the fourth
quarter of fiscal 1994, provided net sales of $717,000 during fiscal 1995. In
July 1995, the company sold the assets relating to its publishing business as
the company decided to focus its efforts on its other lines of business.
Net sales during fiscal 1995 from the food processing segment were $29.1
million, which represented a $9.5 million, or 24.6% decrease as compared to
fiscal 1994. Food processing sales in fiscal 1994 included significant revenues
from non-contract projects from Nestle. Sales to Nestle represented
approximately 90% of the company's net sales in the food processing segment in
fiscal 1995, as compared to 96% in fiscal 1994.
Gross profit as a percentage of sales decreased to 15.2% for fiscal 1995
from 16.1% for fiscal 1994. In the graphic services segment, the gross profit
percentage was unchanged at 16% for both years. In the food processing segment,
the gross profit percentage decreased as a result of generally lower sales
volume as well as the costs of bringing new projects on board.
Selling, general and administrative expenses as a percentage of net sales
increased to 12.6% during fiscal 1995 as compared to 9.6% during fiscal 1994.
In addition, selling, general and administrative expenses increased $4.4
million to $15.3 million for fiscal 1995. Approximately half of the increase
related to an increase in the provision for potentially uncollectible
receivables. The increase in the provision related primarily to one customer
which, as previously disclosed by the company, was in bankruptcy proceedings,
which were converted to Chapter 7 liquidation proceedings during fiscal 1995.
The remaining increase was primarily a result of the additional expenses
relating to the operations of Outlook Packaging for the entire year and the
addition of Barrier.
Interest expense as a percentage of net sales increased to 1.6% during
fiscal 1995 from .7% during fiscal 1994. The increase resulted from additional
borrowings under the company's credit facilities and higher interest rates. The
additional borrowings resulted from the Sunrise and Barrier acquisitions and
the financing of capital expenditures.
Income tax expense as a percentage of net sales decreased to .7% for
fiscal 1995 from 2.5% for fiscal 1994. The decrease was a result of decreased
earnings before income taxes, partially offset by an estimated refund of past
taxes of $227,000 in fiscal 1994 related to a change in the apportionment of
taxable income for state income tax purposes.
As a result of the factors discussed above, net earnings as a percentage
of sales decreased to 1.1% for fiscal 1995 from 4.2% in fiscal 1994. Also as a
result of the above factors, and the company's repurchase of 250,000 shares of
stock during fiscal 1995, net earnings per share decreased to $.26 per share in
fiscal 1995 from $.95 per share in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
As shown in the Consolidated Statements of Cash Flows, cash increased to
$298,000 at May 31, 1996, from $82,000 one year prior. In summary, the company
used $1,894,000 of cash to support operating activities and another $2,875,000
was used in investing activities. Financing activities provided $4,985,000
during the year to fund the above outflows.
Operating activities were most greatly affected by the net loss of
$5,558,000 reported for the year. Net deferred income tax liabilities declined
by $1.6 million because of tax loss carryforwards. At May 31, 1996, 10% of the
accounts receivable balance related to the company's largest customer, Nestle,
which maintains a current balance. No other customer accounted for 10% or
more of the receivables balance. Inventories declined by $2.8 million, of which
$1.8 million reflected fourth quarter write-downs and reserves. Accounts
payable decreases primarily reflect timing and activity levels.
Investing activities, which utilized a net $2.9 million, included cash
outlays for capital expenditures of over $4.9 million. Major projects in
fiscal 1996 included the completion of the new graphics fulfillment center in
Oshkosh, Wisconsin, and the addition of a third co-extrusion line at Barrier
Films. During the year the company also sold several items of non-strategic
equipment plus its publishing operation, yielding $1.8 million in proceeds.
Net cash provided by financing activities included $7.4 million of
increased borrowings under a revolving line of credit. Long-term borrowings
were paid down by $1.5 million and a fiscal 1995 stock repurchase program was
completed, utilizing $887,000.
The company has a bank agreement with an available revolving credit
facility. As of May 31, 1996, 1995 and 1994, $12.0, $4.6 and $11.7 million,
respectively, had been drawn under the credit facility.
11
<PAGE> 15
OUTLOOK GROUP CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
At year end, the agreement provided a total commitment of $15.0 million with
interest at the defined prime rate.
Recent financial performance of the company has created debt covenant
violations for which current creditors have provided waivers. However, due to
the company's need for greater flexibility in the future, alternative financing
sources have been sought and a commitment has been received for a new credit
facility. The new credit facility would include a term loan of $2.75 million,
standby letters of credit of $6.3 million and a revolving line of credit
totalling $18.7 million. Interest on the revolving line of credit would be
LIBOR rate plus 2.75% or reference rate plus 0.75%, while the term loan rate
would be LIBOR plus 3.25% or reference rate plus 1.25%. A performance grid
provides increased or reduced interest rates depending upon the Company's
financial performance. This new credit facility is expected to begin in the
second quarter of fiscal 1997 upon completion of the formal loan documentation,
and covers a three-year period. The commitment contemplates various ongoing
financial covenants. Although the company has received a commitment, the
financing remains subject to various conditions and contingencies.
Further, the existing $11 million term note which runs through 2004
will remain in place through the existing creditors.
The company anticipates capital expenditures of approximately $4.5 million
in fiscal 1997. The company intends to finance these expenditures through funds
obtained from operations plus its credit facilities and possible leasing
opportunity. The company also intends to extend, pursuant to renewal options,
current operating leases which otherwise would conclude in fiscal 1997. Such a
renewal will defer (and ultimately reduce the amount of) guaranteed residual
values, but will extend the period for which lease payments will be due.
The company regularly reassesses how its various operations complement the
company as a whole and considers strategic decisions to acquire new operations
or expand, terminate or sell certain existing operations.
The company completed a stock repurchase program during the first quarter
of fiscal 1996. No further repurchases have been approved as of August 6, 1996.
RECENTLY ISSUED FINANCIAL ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation." The Statement allows
companies to measure compensation cost in connection with employee stock option
compensation plans using a fair value based method or to continue to use an
intrinsic value based method, which generally does not result in compensation
cost. The company currently plans to continue using the intrinsic value based
method.
OTHER
In general, the company believes that the effects of inflation on the company
have not been material in recent years.
SEGMENTS AND PRINCIPAL CLASSES OF SERVICES
The following table sets forth the approximate amount and percentage of net
sales contributed by each principal segment and class of the company's services
during the last three fiscal years:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
(dollars in thousands) Net Sales by Segment
- ----------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Graphic services segment
Specialty printing $ 56,055 50% $ 66,817 55% $ 52,316 47%
Converting and packaging 10,506 9 19,141 16 18,018 16
Other 12,744 12 5,662 5 3,686 3
- ----------------------------------------------------------------------------------------------------------------------------
79,305 71 91,620 76 74,020 66
- ----------------------------------------------------------------------------------------------------------------------------
Food processing segment 32,051 29 29,122 24 38,631 34
- ----------------------------------------------------------------------------------------------------------------------------
Total $111,356 100% $120,742 100% $112,651 100%
============================================================================================================================
</TABLE>
12
<PAGE> 16
OUTLOOK GROUP CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
(in thousands except share and per share amounts) 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 298 $ 82
Accounts receivable, less allowance for doubtful
accounts of $896 and $725, respectively 14,785 17,642
Inventories 12,127 15,334
Deferred income taxes 1,181 1,563
Income taxes refundable 1,964 --
Other 1,935 2,085
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 32,290 36,706
PROPERTY, PLANT AND EQUIPMENT
Land 1,051 1,072
Buildings and improvements 15,196 12,702
Machinery and equipment 46,191 42,872
Machinery and equipment deposits 227 4,273
- --------------------------------------------------------------------------------------------------------------------------------
62,665 60,919
Less accumulated depreciation 19,882 16,131
- --------------------------------------------------------------------------------------------------------------------------------
42,783 44,788
OTHER ASSETS
Equipment acquisition trust fund -- 401
Other 2,780 1,478
- --------------------------------------------------------------------------------------------------------------------------------
2,780 1,879
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 77,853 $ 83,373
================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,532 $ 1,528
Accounts payable 4,147 6,930
Accrued liabilities
Salaries and wages 1,737 2,162
Other 1,174 905
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 8,590 11,525
LONG-TERM DEBT, less current maturities 30,859 24,991
DEFERRED INCOME TAXES 3,463 5,471
SHAREHOLDERS' EQUITY
Cumulative Preferred Stock, $.01 par value -- authorized
1,000,000 shares; none issued -- --
Common Stock, $.01 par value -- authorized 15,000,000 shares;
issued 5,099,382 shares 51 51
Additional paid-in capital 18,415 18,415
Retained earnings 20,924 26,482
- --------------------------------------------------------------------------------------------------------------------------------
39,390 44,948
Less 450,000 and 350,000 shares, respectively, of treasury
stock at cost 4,449 3,562
- --------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 34,941 41,386
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 77,853 $ 83,373
================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 17
OUTLOOK GROUP CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
(in thousands except share and per share amounts) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 111,356 $ 120,742 $ 112,651
Cost of goods sold 104,220 102,368 94,506
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit 7,136 18,374 18,145
Selling, general and administrative expenses 15,429 15,282 10,857
- -------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) (8,293) 3,092 7,288
Other income (expense):
Interest expense (2,506) (1,945) (749)
Other income 1,835 982 1,023
- -------------------------------------------------------------------------------------------------------------------------------
(671) (963) 274
- -------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (8,964) 2,129 7,562
Income tax expense (benefit) (3,406) 844 2,774
- -------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ (5,558) $ 1,285 $ 4,788
- -------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) PER COMMON SHARE $ (1.19) $ 0.26 $ 0.95
- -------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 4,661,882 4,884,607 5,039,799
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained Treasury Stock
(in thousands except share amounts) Shares Amount Capital Earnings Shares Amount Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1993 5,099,382 $51 $18,415 $20,409 -- $ -- $38,875
Acquisition of treasury stock -- -- -- -- 100,000 (1,089) (1,089)
Net earnings for 1994 -- -- -- 4,788 -- -- 4,788
- -------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1994 5,099,382 51 18,415 25,197 100,000 (1,089) 42,574
Acquisition of treasury stock -- -- -- -- 250,000 (2,473) (2,473)
Net earnings for 1995 -- -- -- 1,285 -- -- 1,285
- -------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1995 5,099,382 51 18,415 26,482 350,000 (3,562) 41,386
Acquisition of treasury stock -- -- -- -- 100,000 (887) (887)
Net loss for 1996 -- -- -- (5,558) -- -- (5,558)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1996 5,099,382 $51 $18,415 $20,924 450,000 $(4,449) $34,941
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 18
OUTLOOK GROUP CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
(in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(5,558) $ 1,285 $ 4,788
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,655 4,413 3,897
Gain on sale of assets (948) -- --
Deferred income taxes (1,626) (147) 616
Changes in assets and liabilities:
Accounts receivable 2,684 (1,766) (2,530)
Inventories 2,807 (2,647) (1,296)
Income taxes refundable (1,964) -- --
Accounts payable (2,810) 2,237 1,580
Accrued liabilities (328) 205 305
Other 194 (606) (98)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (1,894) 2,974 7,262
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (4,942) (12,586) (5,563)
Decrease in equipment acquisition trust fund 401 701 303
Proceeds from sale of assets 1,755 773 2,276
Purchase of business -- (1,368) (7,160)
Other (89) (503) (849)
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,875) (12,983) (10,993)
- ------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in revolving credit arrangement borrowings 7,400 (7,050) 8,450
Proceeds from long-term borrowings -- 19,350 --
Payments on long-term borrowings (1,528) (2,361) (1,432)
Acquisition of treasury stock (887) (2,473) (1,089)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,985 7,466 5,929
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 216 (2,543) 2,198
Cash and cash equivalents at beginning of year 82 2,625 427
- ------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 298 $ 82 $ 2,625
============================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 19
OUTLOOK GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
A summary of the company's significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial statements
follows.
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires managment to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all the accounts of Outlook Group
Corp. and its wholly-owned subsidiaries: Outlook Label Systems, Inc. ("Outlook
Label"); Outlook Foods, Inc. ("Outlook Foods"), formerly known as Oconomowoc
Packaging, Inc.; Outlook Packaging, Inc. ("Packaging"); and in 1995, Barrier
Films Corporation ("Barrier") -- see Note K.
All intercompany accounts and transactions have been eliminated in the
preparation of the consolidated financial statements.
REVENUE RECOGNITION
Revenue is recognized when services have been completed and the product has
been shipped.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, demand deposits and short-term investments with maturities of three
months or less at time of purchase.
ACCOUNTS RECEIVABLE
As of May 31, 1996 and 1995, 18% and 37% of the accounts receivable balance
relates to two customers.
Approximately 11%, 27%, and 27% of the company's sales for the years ended
May 31, 1996, 1995 and 1994, respectively, relate to the production of sports
and other collectible picture cards. In addition, 14% and 27% of the company's
receivables as of May 31, 1996 and 1995, respectively, were concentrated in
this market. Bad debt expense was $3,030,000, $2,491,000, and $387,000 for the
years ended May 31, 1996, 1995 and 1994, respectively.
At May 31, 1996, the company has recorded an allowance for doubtful
accounts of $896,000. The company has estimated this amount based on
information currently available. Due to uncertainties inherent in the
estimation process it is reasonably possible that this estimate will change in
the near term.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
At May 31, 1996, a portion of the company's inventory is in excess of
current requirements. Management has developed a program to reduce inventory to
desired levels over the near term and believes no additional loss will be
incurred on its disposition.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is recorded
using the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Buildings and improvements 10-40 years
Machinery and equipment 5-10 years
</TABLE>
Significant additions or improvements extending the useful lives of assets
are capitalized. Repairs and maintenance are charged to earnings as incurred.
Upon retirement or disposal of assets, the applicable costs and accumulated
depreciation are eliminated from the accounts and the resulting gain or loss is
included in income.
INCOME TAXES
Income taxes are recorded in accordance with Statement of Financial Accounting
Standards No. 109 ("SFAS 109"). Under SFAS 109, deferred tax assets, net of any
applicable valuation allowance, and liabilities are established for the future
tax effects of temporary differences between the bases of assets and
liabilities for financial and income tax reporting purposes, as measured by
applying current tax laws.
EARNINGS PER SHARE
Net earnings per share is computed based on the weighted average number of
shares of common stock outstanding during each year. Options outstanding under
the company's stock option plans have been considered in the computation of the
weighted average number of shares outstanding.
RECLASSIFICATIONS
Certain reclassifications have been made in the prior years' financial
statements to conform to the current year's presentation.
NOTE B -- INVENTORIES
Inventories consist of the following at May 31:
<TABLE>
<CAPTION>
(in thousands)
- --------------------------------------------------------
1996 1995
- --------------------------------------------------------
<S> <C> <C>
Raw materials $ 7,543 $ 9,091
Work-in-process 1,658 2,437
Finished goods 2,926 3,806
- --------------------------------------------------------
$12,127 $15,334
========================================================
</TABLE>
NOTE C - EQUIPMENT ACQUISITION TRUST FUND
Proceeds from the sale of industrial development bonds (See Note D) were held
by a bank under a trust agreement until used to purchase new machinery and
equipment. These funds were expended during the year ended May 31, 1996.
16
<PAGE> 20
OUTLOOK GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following at May 31:
<TABLE>
<CAPTION>
(in thousands)
- ----------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Note payable, due in semiannual principal
installments ranging from $366,667 to
$867,667 from June 16, 1997 through
June 16, 2004, plus interest at 8.25% $ 11,000 $ 11,000
Note payable, due in semiannual principal
installments of $543,750 through
June 16, 1998, plus interest at 7% 2,719 3,807
Industrial development bond, due in annual
principal installments ranging from
$100,000 to $1,600,000 from August 1,
1999, through August 1, 2004, plus
interest at a floating rate determined
by a remarketing agent
(5.13% at May 31, 1996) 4,000 4,000
Revolving credit arrangement due September
1997, with interest at prime
(8.25% at May 31, 1996); a total of
$3,000,000 was available at May 31, 1996 12,000 4,600
Industrial development bond, due in annual
principal installments of $400,000 through
September 1, 2000, plus interest at a
floating rate determined by a remarketing
agent (5.15% at May 31, 1996) 2,000 2,400
Industrial development bond, due in annual
principal installments ranging from $44,000
to $522,000 through June 1, 1999, plus
interest at 98% of prime 672 712
- ----------------------------------------------------------------------------
32,391 26,519
Less current maturities 1,532 1,528
- ----------------------------------------------------------------------------
$30,859 $24,991
============================================================================
</TABLE>
Substantially all of the company's assets have been pledged as collateral
on the various debt agreements. The industrial development bond obligations,
term notes and revolving credit agreement are subject to the terms of certain
loan agreements which contain provisions setting forth, among other things,
working capital, net worth and debt to equity requirements, and restrictions on
property and equipment additions, loans, investments, other borrowings, and
acquisitions and redemptions of the company's stock or the issuance of stock
except for cash. Additionally, the company may not pay cash dividends without
the prior consent of certain of its lenders. The company has obtained
unconditional waivers for certain actions, which otherwise would have
constituted violations of covenants under the loan agreements, or has arranged
for alternative financing as discussed below. Certain operating leases with
remaining payments of $8,707,000 contain cross-default provisions relating to
the revolving credit agreement and the industrial development bonds.
The carrying amount of the company's long-term debt approximates its fair
value based on rates currently available to the company for long-term
borrowings with similar terms and remaining maturities or quotes obtained
from financial institutions.
At May 31, 1996, future maturities of long-term debt, excluding the
revolving credit arrangement, were as follows:
<TABLE>
<CAPTION>
(in thousands)
- ----------------------------------------------------
<S> <C>
1997 $ 1,532
1998 2,271
1999 2,183
2000 2,705
2001 2,459
Thereafter 9,241
- ----------------------------------------------------
Total maturities $20,391
====================================================
</TABLE>
On August 27, 1996 the company received a commitment from a new financial
institution to provide long-term debt financing to replace most of the existing
financing arrangements. The commitment includes a $25.0 million revolving
credit facility with a three year term and a $2.75 million term loan. The
revolving credit facility is intended to fund standby letters of credit of
approximately $6.3 million, which guarantee the company's industrial
development bonds, and to replace the existing revolving credit agreement,
with the balance available for working capital and operating needs. Under the
revolving credit facility the company may borrow up to the lesser of $25.0
million less the amount drawable under the letters of credit or the sum of 80%
of eligible accounts receivable and 60% of eligible raw materials and finished
goods inventory. The term loan is due in 35 equal installments of $33,000 with
a final installment of $1.6 million due on the maturity date, which will
replace the existing note payable which had a carrying amount of $2.72 million
at May 31, 1996. The final financing agreement will contain financial and
other covenants which are to be negotiated. Interest rates on the term loan
are reference rate plus 1.25% of LIBOR plus 3.25% and the revolving line of
credit is reference rate plus 0.75% or LIBOR plus 2.75%. A performance grid
may reduce or increase interest rates by up to 0.50% based on financial
performance of the company. The standby letters of credit fee is 1.75%. A
commitment fee of 0.375% is payable on the unutilized portion of the facility.
NOTE E - EMPLOYEE BENEFIT PLANS
The company offers a 401(k) savings plan for all employees that meet certain
eligibility requirements. Employee contributions to the plan are made through
payroll deductions. In addition, the company matches 40-50% of the first 6% of
each employee's contribution. Employer matching contributions under the 401(k)
plan for the years ended May 31, 1996, 1995 and 1994 totaled $308,000,
$261,000, and $129,000, respectively.
The company is not obligated to provide any postretirement medical or life
insurance benefits or any postemployment benefits to employees.
Note F -- Income Taxes
The provision (benefit) for income taxes consists of the following:
(in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable (receivable):
Federal $(1,784) $ 845 $ 2,011
State 4 146 147
- ------------------------------------------------------------------------------------------
(1,780) 991 2,158
- ------------------------------------------------------------------------------------------
Deferred:
Federal (1,071) (121) 523
State (555) (26) 93
- ------------------------------------------------------------------------------------------
(1,626) (147) 616
- ------------------------------------------------------------------------------------------
$(3,406) $ 844 $ 2,774
==========================================================================================
</TABLE>
The variation between the effective rate and the statutory federal income
tax rate is a result of the following, expressed as a percentage of pre-tax
earnings (loss):
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate (34.0)% 34.0% 34.0%
State income taxes, net (4.1) 3.7 4.2
Prior years taxes -- -- (2.1)
Other .1 1.9 .6
- ------------------------------------------------------------------------
(38.0)% 39.6% 36.7%
========================================================================
</TABLE>
17
<PAGE> 21
OUTLOOK GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net deferred income tax liability
as of May 31, 1996 and 1995 were as follows :
<TABLE>
<CAPTION>
(in thousands)
- ----------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Employee benefits $ 201 $ 191
Inventory 507 410
Accounts receivable 421 278
Tax carryforwards 2,259 684
Other 82 --
- ----------------------------------------------------------------------------------------
3,470 1,563
- ----------------------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment 3,770 3,580
Capital lease-tax 1,825 1,879
Other 157 12
- ----------------------------------------------------------------------------------------
5,752 5,471
- ----------------------------------------------------------------------------------------
Net deferred income tax liability $2,282 $3,908
========================================================================================
</TABLE>
As of May 31, 1996, the company has $1,839,000 of alternative minimum tax
credit carryforwards, which are available to reduce future regular federal
income tax liabilities. The company also has certain loss and tax credit
carryforwards for state income tax purposes, which, net of related federal
taxes, approximate $420,000.
NOTE G -- STOCK OPTIONS
On August 2, 1990, the shareholders approved the 1990 Stock Option Plan (the
"1990 Plan"). Options may be granted under the 1990 Plan through May 31, 2000,
to key salaried employees, including officers. The 1990 Plan provides for a
maximum issuance of 200,000 shares of Common Stock. The exercise price for
options granted may not be less than the quoted market price on the date of the
grant. Options granted in 1996 and options prior to 1996 may not be exercised
for at least one year and six months, respectively, after the date of grant
except in the event of death or disability and terminate five years
and three years, respectively, from date of grant.
Transactions under the 1990 Plan and predecessor plans during the years
ended May 31, 1996, 1995 and 1994, are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding,
beginning of year 70,250 142,750 81,000
Granted 77,500 10,000 69,000
Expired (60,250) (82,500) (7,250)
- ------------------------------------------------------------------------------
Options outstanding,
end of year 87,500 70,250 142,750
- ------------------------------------------------------------------------------
Options exercisable 10,000 60,250 74,500
- ------------------------------------------------------------------------------
Option price $4.437-9.75 $9.75-11.375 $11.375-18.875
==============================================================================
</TABLE>
Of the 77,500 options granted in 1996 at $4.437, a total of 60,250 replaced
1994 options granted at $11.375 which have now been cancelled.
In June 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation". The Statement allows companies
to measure compensation cost in connection with employee stock compensation
plans using a fair value based method or to continue to use an intrinsic value
based method, which generally does not result in compensation cost. The company
currently plans to continue using the intrinsic value based method.
NOTE H -- COMMITMENTS AND CONTINGENCIES
The company has a number of operating lease agreements primarily involving
manufacturing equipment and warehouse space. These leases are noncancelable and
expire on various dates through 2002.
In fiscal year 1994 and prior years, the company entered into certain sale
and leaseback transactions with a financial institution relating to equipment
originally purchased by the company. The company did not realize any
significant gains or losses from these transactions and has accounted for the
resulting leases as operating leases in the consolidated financial statements.
The original cost of equipment acquired by the company and later involved in
these transactions totaled $1,865,000 for the year ended May 31, 1994.
The following is a schedule, by fiscal year, of the rental payments due
under noncancelable operating leases, as of May 31, 1996:
<TABLE>
<CAPTION>
(in thousands)
- ---------------------------------------------------
<S> <C>
1997 $ 9,589
1998 538
1999 538
2000 538
2001 633
Thereafter 284
- ---------------------------------------------------
Total $12,120
===================================================
</TABLE>
Included in 1997 minimum lease payments is $6,397,000 which represents
guaranteed residual values under certain leases. The company currently intends
to extend these leases under renewal options through 1999. Giving effect to
such renewal options, the aggregate rental payments would be $3,534,000 in
fiscal 1997, $3,944,000 in fiscal 1998 (including $809,000 of guaranteed
residual value) and $5,009,000 in fiscal 1999 (including $2,786,000 of
guaranteed residual values).
Rent expense for the years ended May 31, 1996, 1995 and 1994, was
$4,219,000, $4,402,000, and $4,004,000, respectively.
NOTE I -- INDUSTRY SEGMENT INFORMATION
The company conducts its operations principally in two segments -- graphic
services and food processing. The graphic services segment offers an array of
related services including specialty printing, converting and packaging, and
distribution. The food processing segment involves dry-blended food processing
and packaging.
18
<PAGE> 22
OUTLOOK GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized financial information by industry segment is as follows:
<TABLE>
<CAPTION>
(in thousands)
- -----------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Graphic services $ 79,305 $ 91,620 $ 74,020
Food processing 32,051 29,122 38,631
- -----------------------------------------------------------------------
$111,356 $120,742 $ 112,651
- -----------------------------------------------------------------------
Operating profit (loss)
Graphic services $ (8,725) $ 1,272 $ 2,710
Food processing 432 1,820 4,578
- -----------------------------------------------------------------------
$ (8,293) $ 3,092 $ 7,288
- -----------------------------------------------------------------------
Total assets
Graphic services $ 69,925 $ 72,508 $ 62,185
Food processing 7,928 10,865 8,397
- -----------------------------------------------------------------------
$ 77,853 $ 83,373 $ 70,582
- -----------------------------------------------------------------------
Depreciation and amortization
Graphic services $ 5,067 $ 3,949 $ 3,520
Food processing 588 464 377
- -----------------------------------------------------------------------
$ 5,655 $ 4,413 $ 3,897
- -----------------------------------------------------------------------
Capital expenditures
Graphic services $ 8,471 $ 12,689 $ 10,423
Food processing 467 1,299 226
- -----------------------------------------------------------------------
$ 8,938 $ 13,988 $ 10,649
=======================================================================
</TABLE>
During the years ended May 31, 1996, 1995 and 1994, the company had sales
to certain customers that accounted for more than 10% of the company's net
sales, as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
Graphic services
Fleer Corp. * 15% 15%
Food processing
Nestle Beverage Company 26% 22% 33%
=============================================================
</TABLE>
* Less than 10%
NOTE J -- SUPPLEMENTAL CASH FLOW INFORMATION
In fiscal 1996, the company sold certain assets related to its publishing
division and accepted a note for $1,000,000 in partial consideration for the
sale.
The company also sold certain equipment in fiscal 1996, with $395,000 of
the sales proceeds included in other current assets at May 31, 1996.
Cash paid during the year:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------
<S> <C> <C> <C>
Interest $2,493 $1,712 $ 733
Income taxes 150 1,615 2,201
============================================================
</TABLE>
NOTE K -- ACQUISITIONS
In February 1995, the company purchased 100% of the issued
and outstanding capital stock of Barrier Films Corporation for approximately
$1.4 million. The acquisition was accounted for using the purchase method of
accounting; therefore the results of operations are included only from the
acquisition date. Pro forma results of this acquisition, assuming it had been
made at the beginning of each fiscal year presented, would not be materially
different from the results reported.
In October 1993, the company purchased substantially all of the machinery,
equipment and inventory of Sunrise Packaging, Inc. In addition, land and
buildings were purchased in Oak Creek, Wisconsin, and Wichita, Kansas. The
acquisition was accounted for using the purchase method of accounting;
therefore the results of operations are included only from the acquisition
date. The following represents the unaudited pro forma results of operations as
if the acquisition had occurred at the beginning of the fiscal year indicated:
(in thousands except per share amounts)
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1994
- -----------------------------------------------------------
<S> <C>
Net sales $120,189
Net earnings 4,547
Net earnings per common share .90
===========================================================
</TABLE>
NOTE L -- RELATED PARTY TRANSACTIONS
At May 31, 1996, 1995 and 1994, the company held an 18% equity interest in one
of its customers. This equity interest is reported under the cost method, with
no carrying value reflected in the balance sheet. Sales to this customer during
the years ended May 31, 1996, 1995 and 1994 were approximately $2,765,000,
$7,500,000, and $3,200,000, respectively. During 1996, the company wrote off
$2,500,000 of accounts receivable from this customer, based on management's
estimate of potential losses on recovery. The remaining accounts receivable
from this customer were $1,121,000 and $2,600,000 at May 31, 1996 and 1995,
respectively. The company earned fees for consultation services of $145,000,
$1,094,000, and $600,000 during the years ended May 31, 1996, 1995 and 1994,
respectively. Interest income of $153,000, $59,000, and $97,000 on accounts
receivable was recognized during the years ended May 31, 1996, 1995 and 1994,
respectively.
During the first quarter of 1996 the company sold certain assets
of its Outlook Publishing division to a company partially owned by an officer
of Outlook Group Corp. The assets were sold for $1,100,000 with $100,000
payable at closing and $1,000,000 in periodic payments through May 2000. In
addition, the company agreed to provide the purchaser with a revolving line of
credit through July 14, 1996. At May 31, 1996, the line of credit balance was
$657,000, which was subsequently paid off in June 1996.
NOTE M -- FOURTH QUARTER RESULTS
Fourth quarter provisions for losses on receivables and inventories and
provisions for employee severance and recruitment increased the fiscal 1996
fourth quarter loss before income tax benefit by approximately $4.7 million.
19
<PAGE> 23
OUTLOOK GROUP CORP.
STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements and accompanying information were
prepared by and are the responsibility of management. The statements were
prepared in conformity with generally accepted accounting principles and, as
such, include amounts that are based on management's best estimates and
judgments.
The internal control systems are designed to provide reliable financial
information for the preparation of financial statements, to safeguard assets
against loss or unauthorized use and to ensure that transactions are executed
consistent with company policies and procedures. Management believes that
existing internal accounting control systems are achieving their objectives and
that they provide reasonable assurance concerning the accuracy of the financial
statements.
Oversight of management's financial reporting and internal accounting
control responsibilities is exercised by the Board of Directors, through an
Audit Committee which consists solely of outside directors. The committee meets
periodically with financial management to ensure that it is meeting its
responsibilities and to discuss matters concerning auditing, internal
accounting control and financial reporting. The independent accountants have
free access to meet with the Audit Committee without management's presence.
David L. Erdmann Larry E. Driscoll
David L. Erdmann Larry E. Driscoll
Chairman and President Vice President - Finance/CFO
and Secretary
Report of Independent Certified Public Accountants
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OUTLOOK GROUP CORP. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Outlook Group
Corp. and Subsidiaries as of May 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended May 31, 1996. 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 generally accepted auditing
standards. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Outlook Group
Corp. and Subsidiaries as of May 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended May 31, 1996, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Milwaukee, Wisconsin
July 12, 1996, except as to the information
in Note D, for which the date is August 29, 1996.
20
<PAGE> 24
OUTLOOK GROUP CORP.
Corporate Information
DIRECTORS
WAYNE G. BEATTIE, 48 (1)
Retired Salesperson
Outlook Group Corp.
HAROLD J. BERGMAN, 60 (1) (2)
President
Riverside Paper Corp.
(Specialty paper manufacturer)
JEFFRY H. COLLIER, 43 (3)
Senior Vice President
Outlook Group Corp.
JAMES L. DILLON, 52 (1) (2)
Accountant
DiRenzo, Simonis & Miller,
Certified Public Accountants
DAVID L. ERDMANN, 53
Chairman and President
Outlook Group Corp.
RICHARD C. FISCHER, 57
Independent Consultant
ROGER G. HATHAWAY, 68 (1) (2)
Retired Vice President--Human Resources
Neenah Foundry Company
(Manufacturer of construction
and industrial castings)
PAT RICHTER, 54 (1) (2)
Director of Athletics
University of Wisconsin Madison
CHARLES E. THOMPSON, 52 (3)
Vice President
Outlook Group Corp.
A. JOHN WILEY, JR., 54 (3)
President
Elipticon Wood Products, Inc.
DIRECTOR EMERITUS
GEORGE P. MUELLER, 75
Chairman
Integrated Paper Services, Inc.
(Pulp and paper making services)
OFFICERS
DAVID L. ERDMANN, 53
Chairman and President
JEFFRY H. COLLIER, 43
Executive Vice President
President, Graphics Group
JOSEPH J. BAKSHA, 43
Vice President
President, Packaging Group
LARRY E. DRISCOLL, 48
Vice President - Finance/CFO
and Secretary
CHARLES E. THOMPSON, 52
Vice President
COMMITTEES OF THE BOARD
(1) Audit (2) Compensation (3) Nominating
Other Corporate Information
CORPORATE HEADQUARTERS
OUTLOOK GROUP CORP.
1180 American Drive
P.O. Box 748
Neenah, Wisconsin 54957-0748
(414) 722-2333
SUBSIDIARY LOCATIONS
OUTLOOK GRAPHICS, INC.
1180 American Drive
P.O. Box 748
Neenah, Wisconsin 54957-0748
(414) 722-2333
OUTLOOK PACKAGING, INC.
2025 W. Southbranch Blvd.
Oak Creek, Wisconsin 53154-4948
(414) 761-2600
BARRIER FILMS CORP.
555 Dermody Way
Sparks, Nevada 89431
(702) 331-1179
OUTLOOK LABEL SYSTEMS, INC.
2411 Industrial Drive
P.O. Box 775
Neenah, Wisconsin 54957-0775
(414) 722-1666
OUTLOOK FOODS, INC.
140 S. Concord Road
P.O. Box 87
Oconomowoc, Wisconsin 53066-0087
(414) 567-5521
INTERNET HOME PAGE
http://www.outlookgroup.com
STOCK EXCHANGE LISTING
Nasdaq National Market System
Symbol: OUTL
Newspaper Abbreviation: Outlk Grp
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P.
Milwaukee, Wisconsin
LEGAL COUNSEL
Quarles & Brady
Milwaukee, Wisconsin
TRANSFER AGENT AND REGISTRAR
FIRSTAR TRUST COMPANY
615 E. Michigan Street
P.O. Box 2077
Milwaukee, Wisconsin 53201-2077
(414) 276-3737
(800) 637-7549
FORM 10-K REPORT
Single copies of the annual report on Form 10-K
as filed with the Securities and Exchange Commission are available to
shareholders without charge. To obtain a copy, contact the shareholder services
department at the company address.
SHAREHOLDER/INVESTOR INFORMATION CONTACT
For additional information on the company, please contact the shareholder
services department at the company address.
ANNUAL MEETING
The annual meeting of shareholders of Outlook Group Corp. will be held on
Thursday, October 10, 1996, at 2:00 p.m. at the Valley Inn, 105 Walnut Street,
Neenah, Wisconsin.
21
<PAGE> 1
Exhibit 21.1
Fiscal 1996 10-K
OUTLOOK GROUP CORP.
List of Subsidiaries*
Outlook Foods, Inc. (f/k/a Oconomowoc Packaging, Inc.), a Wisconsin
corporation
Outlook Label Systems, Inc., a Wisconsin corporation
Outlook Packaging, Inc., a Wisconsin corporation
Barrier Films Corporation, a Nevada corporation
(All are wholly-owned by Outlook Group Corp.)
* Represents all companies at to which Outlook Group Corp. holds 50% or
more of the outstanding securities.
<PAGE> 1
EXHIBIT 23.1
1996 10-K
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Outlook Group Corp. on Forms S-8 (File Nos. 33-44491 and 33-44075) of our
reports dated July 12, 1996, except as to the information in Note D, for which
the date is August 29, 1996, and July 12, 1996 on our audits of the
consolidated financial statements and financial statement schedule,
respectively, of Outlook Group Corp. and Subsidiaries as of May 31, 1996, 1995
and 1994, and for each of the years then ended, which reports are incorporated
by reference and included, respectively, in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
August 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AS OF MAY 31, 1996 AND ITS STATEMENT OF OPERATIONS FOR
THE YEAR ENDED MAY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH STATEMENTS INCORPORATED BY REFERENCE IN ITS ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED MAY 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 298
<SECURITIES> 0
<RECEIVABLES> 14,785
<ALLOWANCES> 896
<INVENTORY> 12,127
<CURRENT-ASSETS> 32,290
<PP&E> 62,665
<DEPRECIATION> 19,882
<TOTAL-ASSETS> 77,853
<CURRENT-LIABILITIES> 8,590
<BONDS> 30,859
0
0
<COMMON> 51
<OTHER-SE> 34,890
<TOTAL-LIABILITY-AND-EQUITY> 77,853
<SALES> 111,356
<TOTAL-REVENUES> 113,191
<CGS> 104,220
<TOTAL-COSTS> 104,220
<OTHER-EXPENSES> 15,429
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,506
<INCOME-PRETAX> (8,964)
<INCOME-TAX> (3,406)
<INCOME-CONTINUING> (5,558)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,558)
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</TABLE>
