<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ -------------
Commission File Number 0-18815
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OUTLOOK GROUP CORP.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1278569
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1180 American Drive
Neenah, Wisconsin 54956
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(920) 722-2333
----------------------------------------------------
(Registrant's telephone number, including area code)
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 twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
4,655,382 shares of common stock, $.01 par value, were
outstanding at October 1, 1997.
<PAGE> 2
OUTLOOK GROUP CORP. AND SUBSIDIARIES
---------------------------------------
INDEX
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<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION:
- -------------------------------
Item 1. Financial Statements 1
Condensed Consolidated Balance Sheets 2
As of August 29, 1997 and May 31, 1997 (Unaudited)
Condensed Consolidated Statements of Operations 3
For the three months ended
August 29, 1997 and August 30, 1996 (Unaudited)
Condensed Consolidated Statements of Cash Flows 4
For the three months ended August 29, 1997 and
August 30, 1996 (Unaudited)
Notes to Condensed Consolidated Financial Statements 5
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
The condensed consolidated financial statements included herein have been
included by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. This information is
unaudited but includes all adjustments (consisting only of normal recurring
accruals) which, in the opinion of Company management, are necessary for a fair
presentation of the Company's financial position and results of operations for
such periods.
The results of operations for interim periods are not necessarily indicative of
the results of operations for the entire year. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's 1997 Form 10-K. The
May 31, 1997 Condensed Consolidated Balance Sheet Data was derived from
audited financial statements, but does not include all disclosures required by
the Generally Accepted Accounting Principles.
<PAGE> 4
OUTLOOK GROUP CORP. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 29, 1997 AND MAY 31, 1997
(UNAUDITED)
--------------------------------------
(in thousands)
<TABLE>
<CAPTION>
AUGUST 29, MAY 31,
ASSETS 1997 1997
- ------ ---------- ----------
CURRENT ASSETS:
<S> <C> <C>
Accounts receivable, less allowance for doubtful
accounts of $979 and $1,124, respectively.............. $ 11,922 $ 12,640
Inventories ............................................ 9,713 9,857
Deferred income taxes .................................. 708 708
Income taxes refundable ................................ 740 725
Other .................................................. 1,271 2,120
--------- ---------
Total current assets .......................... 24,354 26,050
PROPERTY, PLANT AND EQUIPMENT:
Land ................................................... 1,051 1,051
Buildings .............................................. 15,136 15,128
Machinery and equipment ................................ 43,707 43,759
--------- ---------
59,894 59,938
Less accumulated depreciation .......................... (24,513) (23,326)
--------- ---------
35,381 36,612
--------- ---------
Other Assets .............................................. 4,846 4,958
--------- ---------
Total assets .................................. $ 64,581 $ 67,620
========= =========
LIABILITIES AND EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt ................... $ 4,936 $ 6,674
Accounts payable ....................................... 3,065 4,081
Cash overdraft liability ............................... 1,343 1,605
Accrued liabilities:
Salaries and wages .................................... 1,624 1,482
Other ................................................. 902 840
--------- ---------
Total current liabilities ..................... 11,870 14,682
LONG-TERM DEBT ............................................. 15,641 16,156
DEFERRED INCOME TAXES ...................................... 3,311 3,311
SHAREHOLDERS' EQUITY:
Common stock ........................................... 51 51
Paid-in capital ........................................ 18,442 18,415
Retained earnings ...................................... 19,715 19,454
Treasury stock ......................................... (4,449) (4,449)
--------- ---------
Total shareholder's equity .................... 33,759 33,471
--------- ---------
Total liabilities and shareholders' equity .... $ 64,581 $ 67,620
========= =========
</TABLE>
(see accompanying notes) - 2 -
<PAGE> 5
OUTLOOK GROUP CORP. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
---------------------------------------------
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
August 29 August 30
1997 1996
--------- ----------
<S> <C> <C>
Net sales ........................................................... $ 15,311 $ 19,860
Cost of goods sold .................................................. 12,394 17,017
----------- -----------
Gross profit ............................................... 2,917 2,843
Selling, general and administrative expenses ...................... 2,172 2,374
----------- -----------
Operating profit ........................................... 745 469
Other income (expense):
Interest expense ................................................. (490) (713)
Buy out related expense .......................................... (40) --
Interest and other income ........................................ 114 152
----------- -----------
Total other income (expense) ................................... (416) (561)
----------- -----------
Earnings/(loss) from continuing .................................. 329 (92)
operations before income taxes
Provision for income taxes (benefits) .............................. 136 (14)
----------- -----------
Earnings/(loss) from continuing operations .......................... 193 (78)
Discontinued Operations:
- ------------------------
Earnings (loss) from
discontinued operations before
income taxes ........................................................ 112 (545)
Provision for income taxes (benefits) ............................... 43 (186)
----------- -----------
Earnings (loss) from discontinued operations ........................ 69 (359)
----------- -----------
Net earnings (loss) .......................................... $ 262 $ (437)
=========== ===========
Net earnings (loss) per share:
Continuing ................................................... $ 0.04 $ (0.01)
Discontinued ................................................. 0.02 (0.08)
----------- -----------
Total .................................................... $ 0.06 $ (0.09)
=========== ===========
Weighted average number of common shares outstanding ................ 4,653,582 4,649,382
=========== ===========
</TABLE>
(see accompanying notes) - 3 -
<PAGE> 6
OUTLOOK GROUP CORP. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
-----------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended
August 29, August 30,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ..................................................................... $ 262 $ (437)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization ......................................................... 1,292 1,433
Change in assets and liabilities:
Accounts receivable ................................................................. 718 (665)
Inventories ......................................................................... 144 (1,297)
Prepaid expenses and other current assets ........................................... 849 6
Accounts payable ................................................................... (1,016) 852
Accrued liabilities ................................................................. 204 143
Income taxes ........................................................................ (15) 260
----------- -----------
Net cash provided by
operating activities ............................................................. 2,438 295
Cash flows from investing activities:
Acquisition of property, plant and equipment ............................................ (88) (1,640)
Proceeds from sale of equipment ......................................................... 40 242
Other ................................................................................... 99 (179)
----------- -----------
Net cash provided by (used in) investing
activities ...................................................................... 51 (1,577)
Cash flows from financing activities:
Increase (decrease) in revolving credit
arrangement borrowings ............................................................. (1,738) 1,900
Net payments on long-term borrowings ................................................... (515) (863)
Decrease in cash overdraft ............................................................. (263) --
Sale of common stock per stock option plan ............................................. 27 --
----------- -----------
Net cash provided by (used in) financing activities .................................. (2,489) 1,037
----------- -----------
Net change in cash ........................................................................ 0 (245)
Cash at beginning of period ............................................................... -- 298
----------- -----------
Cash at end of period ..................................................................... $ 0 $ 53
=========== ===========
</TABLE>
(see accompanying notes) - 4 -
<PAGE> 7
OUTLOOK GROUP CORP. AND SUBSIDIARIES
------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AUGUST 29, 1997
---------------
1. Net Earnings (Loss) Per Common Share:
Net earnings (loss) per common share is computed using the weighted
average number of common shares outstanding, as shown in the Statements of
Operations.
2. Inventories:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
August 29, 1997 May 31, 1997
--------------- ------------
<S> <C> <C>
Raw materials $ 4,674 $ 4,523
Work in process 1,562 1,666
Finished goods 3,477 3,668
--------- --------
$ 9,713 $ 9,857
========= ========
</TABLE>
3. Income Taxes:
The effective income tax rate used to calculate the income tax expense
(benefit) for the three-month periods ended August 29, 1997 and August 30,
1996, is based on the anticipated income tax rate for the entire fiscal
year.
4. Debt:
As of August 29, 1997 the Company had drawn $3.2 million of the $10.0
million available for working capital under terms of the revolving credit
agreement.
5. Accounting Periods:
The Company has elected to adopt 13 week quarters beginning in fiscal
1997, however it is anticipated that the fiscal year will remain May 31.
- 5 -
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following section presents a discussion and analysis of the Company's
results and operations during the first quarters of fiscal 1998 and 1997, and
its financial condition at quarter end of August 29, 1997. Statements that are
not historical facts (such as statements in the future tense or using terms
such as "believe", "expect" or "anticipate") may be 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 sections, particularly under "General Factors."
In September 1996, the Company announced that it intended to divest its food
processing operations. As a consequence, beginning in the second quarter of
fiscal 1997, the Company began accounting for the food processing segment as a
discontinued operation. Information prior to that time has been restated to
reflect this change in accounting, unless specifically indicated otherwise.
On August 29, 1997, the Company announced the execution of separate letters of
intent providing for the acquisitions of the Company and for the sale of assets
of its food processing segment. Additionally, the Company subsequently entered
into a letter of intent providing for the sale of its Oshkosh, Wisconsin
facility at which it currently conducts its fulfillment operations. All such
transactions remain subject to continuing due diligence reviews, execution of
definitive agreements (which have not yet occurred) and other customary
conditions. Therefor, consummation of any of the transactions cannot be
assured. The Company does not intend to make any further announcements
concerning the status of negotiations as to definitive agreements until they
have been reached, which cannot be assured, or negotiations have terminated.
The financial effects of the proposed transactions, if any, will be reflected
in future periods.
Quarter to quarter comparisons are also affected by the Company's May 1997 sale
of the stock of its former subsidiary, Barrier Films Corporation ("Barrier").
While operations and results of Barrier were included in the first quarter of
fiscal 1997, the operations were divested prior to the commencement of the
first quarter of fiscal 1998.
In the first quarter of fiscal 1998, net sales were $15.3 million as compared
to $19.9 million for the same period in the prior year. Comparative sales by
principal lines of business are shown below:
Net Sales in Millions
First Quarter
<TABLE>
<CAPTION>
1998 1997 % Change
----- ----- ----------
<S> <C> <C> <C>
Graphic Services
Specialty Printing $12.9 $13.6 (5.0)%
Converting & Packaging 1.1 1.9 (42.5)%
Other 1.3 4.4 (69.7)%
----- -----
Total $15.3 $19.9 (22.9)%
</TABLE>
The biggest principal line decline in sales, $3.1 million, occurred in the
company's "Other" line of business which includes direct mailing, fulfillment
and films manufacturing. $2.2 million of this change resulted from the sale of
Barrier prior to the beginning of the current quarter. The company also
experienced declining revenue from its fulfillment business. Converting and
packaging sales decreased in the first quarter of fiscal 1998 by $797,000
compared to the prior year. Converting and packaging includes services related
to sports and picture card converting, paperboard packaging, and packaging of
other promotional and specialty items. Management continues to focus its sales
efforts at market opportunities utilizing its "core" operational competencies
and developing special niches for improved overall profitability.
Gross profit margin improved from 14% of sales in fiscal 1997 to 19% in the
current quarter. Margins improved in each of the operations due to improved
controls and efficiencies as well as cost reductions especially for rent
expense and subcontract services.
<PAGE> 9
Selling, general and administrative expenses were reduced by $202,000 compared
to the first quarter of last year. Most of the improvement was a result of work
force reductions made during the second half of fiscal 1997.
As a result of the above the company improved operating profit on a quarter to
quarter comparative basis from 2.4% to 4.9% of sales.
Interest expense was reduced $223,000 in the first quarter of fiscal 1998 as
compared to the same period for fiscal 1997 resulting from a $12.9 million
reduction in long term debt during the periods.
Buy out related expense in fiscal 1998 accounts for the year to date cost of
selling the company.
Income tax expense (benefit) is being accrued for the year at 39% for
profitable operations and 34% for unprofitable operations although quarter to
quarter fluctuations may occur.
The result of the above is a $271,000 improvement in earnings from continuing
operations.
The food processing segment, now accounted for as a discontinued operation,
posted sales of $4.6 million, an increase of $2.0 million over the prior year's
level. In addition, net income from this division improved $428,000 (from a
loss in fiscal 1997 of $359,000 to a profit of $69,000).
Earnings per share improved for continuing operations to $.04 from a loss of
$0.01 per share in fiscal 1997. Earnings from discontinued operations improved
to $.02 per share in fiscal 1998 from a loss of $0.08 in fiscal 1997.
Liquidity and Capital Resources
As shown in the Condensed Consolidated Statements of Cash Flows, the ending
cash balance did not change from the beginning of this quarter to the end
although cash overdrafts decrease by $262,000.
Operating activities provided $2.4 million of increased cash during the
quarter. Cash from profitable operations and depreciation generated $1.6
million of this amount. Further cash was generated from continuing improvement
of the management of the Company's assets including reductions in the Company's
receivables and inventory, and payments on outstanding notes receivable. These
improvements were partially offset by a $1.0 million reduction of the Company's
trade payables, most of which can be attributed to a reduction in the Company's
fulfillment business and the corresponding balances due to the vendors
supporting that service.
Cash flow from investing activities provided further cash primarily from asset
sales and repayments on notes due to the Company. These receipts were
partially offset by further investment in plant and equipment.
As indicated in the summary of financing activities, cash generated from
Operating activities and Investing activities were utilized to reduce our
outstanding debts including the Revolver, $1.7 million, Term debt, $515,000,
and overdraft, $262,000. As of the quarter end, the company was in compliance
with all of its loan covenants.
General Factors
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, and the
Company is dependent upon its ability to retain, and obtain new, customers.
As previously disclosed, Outlook Foods, which the Company is seeking to divest,
had a contract to blend sauces and gravies for Nestle which expired in December
1995. The contract was not renewed because of Nestle's desire to bring the
work in-house in order to utilize its excess capacity. The Company was able to
extend this contract through the end of fiscal 1996 and no business in fiscal
1997. This represented 61% of sales to Nestle in fiscal 1996 and 65% in fiscal
1995. The Company continues to manufacture malted milk products for Nestle
under a separate contract, which expires in December 1997. The Company and
Nestle have not yet reached a new agreement for malted milk products, and
recent discussions have included the proposed purchaser of the Foods
operations. In addition, Nestle purchases other products on a non-contractual
basis. Discussions have also been
- 6 -
<PAGE> 10
held with Nestle regarding potential new contractual business in the
future. However, there can be no assurances and the announced divestiture of
Outlook Foods could adversely affect the operations of the food segment, as
could a decision by Nestle not to renew the malted milk contract.
Changes in the Company's project mix and timing of projects make predictability
of the Company's future results very difficult. Other than under Nestle's
agreement, 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 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 uses complex and specialized equipment to provide its services.
Therefore, the Company is dependent upon the functioning of such machinery, and
its ability to acquire and maintain appropriate equipment.
As do other companies, the Company has significant accounts receivable or other
amounts due from its customers. From time to time, certain of these accounts
receivable or other amounts due have become unusually large and/or overdue, and
on occasion the Company has taken significant write-offs relating to accounts
receivable. The failure of the Company's customers to pay in full amounts due
to the Company would affect future profitability.
In addition, the Company's business requires it to maintain substantial
inventories. From time to time, changes in customer projects or Company
services can render certain inventories obsolete, and from time to time the
Company has taken substantial write-offs of obsolete inventories. The need to
take such write-offs in the future may affect future profitability and depends
upon changing customer requirements, in the case of Foods on the ultimate
agreement between the Company and the buyer of the Foods operations, and other
factors beyond the Company's control.
- 7 -
<PAGE> 11
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: See attached Exhibit Index, which is incorporated by
reference herein.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which this
report is filed.
- 8 -
<PAGE> 12
SIGNATURES
Pursuant to the requirements 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.
--------------------
(Registrant)
Dated: October 13 , 1997 /s/ David L. Erdmann
----- ----------------------------------------
David L. Erdmann, Chairman & CEO
/s/ Thomas C. Aschenbrenner
----------------------------------------
Thomas C. Aschenbrenner, Chief Financial
Officer
<PAGE> 13
OUTLOOK GROUP CORP.
(the "Company")
EXHIBIT INDEX
to
Report on Form 10-Q for Quarter Ended August 29, 1997
_______________________________
Exhibit Filed
No. Description Herewith
- ------- --------------------------- --------
11 Computation of Earnings per X
Common Share
27 Financial Data Schedule X
<PAGE> 1
OUTLOOK GROUP CORP. AND SUBSIDIARIES
---------------------------------------
EXHIBIT 11 - COMPUTATION OF EARNINGS PER COMMON SHARE
-----------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
August 29, August 30,
1997 1996
----------- -----------
<S> <C> <C>
Primary:
Weighted average shares outstanding ...................... 4,653,582 4,649,382
Equivalent shares--dilutive stock options
based on Treasury stock method using average
market price .......................................... -- --
----------- -----------
4,653,582 4,649,382
=========== ===========
Net earnings (loss) ....................................... $ 262 $ (437)
=========== ===========
Net earnings (loss) per common share ....................... $ .06 $ (.09)
=========== ===========
</TABLE>
There is no significant difference between primary and fully diluted earnings
per common share.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-29-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 11,922
<ALLOWANCES> 1,056
<INVENTORY> 9,713
<CURRENT-ASSETS> 24,354
<PP&E> 59,894
<DEPRECIATION> 24,513
<TOTAL-ASSETS> 64,581
<CURRENT-LIABILITIES> 11,870
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 33,708
<TOTAL-LIABILITY-AND-EQUITY> 64,581
<SALES> 15,311
<TOTAL-REVENUES> 15,311
<CGS> 12,394
<TOTAL-COSTS> 14,567
<OTHER-EXPENSES> 416
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 490
<INCOME-PRETAX> 329
<INCOME-TAX> 136
<INCOME-CONTINUING> 193
<DISCONTINUED> 69
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
