<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 28, 1998
---------------
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 000-18815
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OUTLOOK GROUP CORP.
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(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
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(Address of principal executive offices, including zip code)
(920) 722-2333
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(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.
4,667,132 shares of common stock, $.01 par value, were outstanding at October
1, 1998.
<PAGE> 2
OUTLOOK GROUP CORP. AND SUBSIDIARIES
-------------------------------------
INDEX
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Page
Number
------
PART I. FINANCIAL INFORMATION:
- -------------------------------
Item 1. Financial Statements 1
Condensed Consolidated Balance Sheets 2
As of August 28, 1998 and May 31, 1998 (Unaudited)
Condensed Consolidated Statements of Operations 3
For the three months ended August 28, 1998
and August 29, 1997 (Unaudited)
Condensed Consolidated Statements of Cash Flows 4
For the three months ended August 28, 1998 and
August 29, 1997 (Unaudited)
Notes to Condensed Consolidated Financial Statements 5
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition 6
and Results of Operations
Item 3. Quantitative and Qualification Disclosure About Market Risk 8
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 9
<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 1998 Form 10-K. The May 31, 1998 Condensed Consolidated Balance
Sheet Data was derived from audited financial statements, but does not
include all disclosures required by Generally Accepted Accounting
Principles.
- 1 -
<PAGE> 4
OUTLOOK GROUP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS AUGUST 28, MAY 31,
Current Assets 1998 1998
<S> <C> <C>
Cash and cash equivalents $ 2,951 $ 2,825
Accounts receivable, less allowance for
doubtful accounts of $1,596 and $1,575,
respectively 10,390 11,427
Notes receivable-current portion 966 1,726
Inventories 5,756 5,707
Deferred income taxes 406 406
Income taxes refundable 757 901
Other 533 433
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Total current assets 21,759 23,425
Notes receivable - less allowance for
doubtful accounts of $477 and $477,
respectively 3,064 3,042
Property, plant, & equipment
Land 589 589
Building and improvements 11,132 11,132
Machinery & equipment 37,616 36,739
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49,337 48,460
Accumulated depreciation (24,267) (23,293)
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25,070 25,167
Other assets 1,470 1,823
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Total assets $51,363 $53,457
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities or long-term debt 1,833 1,658
Accounts payable 2,761 4,703
Accrued liabilities
Salaries and wages 1,447 1,472
Other 1,337 1,407
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Total current liabilities 7,378 9,240
Long-term debt, less current maturities 6,703 7,061
Deferred income taxes 3,762 3,773
Shareholders' equity
Cumulative preferred stock - -
Common stock 51 51
Additional paid-in capital 18,494 18,494
Retained earnings 19,524 19,287
Treasury stock (4,449) (4,449)
Officer loans (100) -
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Total shareholders' Equity 33,520 33,383
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Total Liabilities & Shareholders' Equity $51,363 $53,457
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
OUTLOOK GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three Month Period Ended
August 28, 1998 August 29, 1997
--------------- ---------------
<S> <C> <C>
Net sales $ 16,981 $ 15,311
Cost of goods sold 14,051 12,394
----------- ----------
Gross profit 2,930 2,917
Selling, general, and
administrative expenses 2,572 2,172
----------- ----------
Operating profit 358 745
Other income/(expense):
Interest expense (120) (490)
Other income 153 74
----------- ----------
Earnings from
continuing operations before
income taxes 391 329
Income tax expense 154 136
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Earnings from continuing operations 237 193
Discontinued operations:
Earnings from
discontinued operations before
income taxes - 112
Income tax expense - 43
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Earnings from
discontinued operations - 69
----------- ----------
Net earnings $ 237 $ 262
=========== ==========
Net earnings per common share: - Basic
Continuing $ 0.05 $ 0.04
Discontinued - 0.02
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Total $ 0.05 $ 0.06
=========== ==========
Net earnings per common share: - Diluted
Continuing $ 0.05 $ 0.04
Discontinued - 0.02
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Total $ 0.05 $ 0.06
=========== ==========
Weighted average
number of shares outstanding-Basic 4,667,132 4,653,582
=========== ==========
-Diluted 4,667,132 4,676,875
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
<TABLE>
<CAPTION>
OUTLOOK GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTH PERIOD ENDED
AUGUST 28, 1998 AUGUST 29, 1997
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 237 $ 262
Adjustments to reconcile earnings to net
cash provided by operating activities:
Depreciation and Amortization 995 1,292
Change in assets and liabilities:
Accounts and notes receivable 1,776 718
Inventories (49) 144
Income taxes 133 (15)
Accounts payable (1,942) (1,016)
Accrued liabilities (95) 204
Other 231 849
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Net cash provided by operating activities 1,286 2,438
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets - 40
(Increase)/Decrease in property, plant, and equipment (877) (88)
Loan to officer (100) -
Other - 99
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Net cash provided by (used in) investing activities (977) 51
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (decrease) in revolving credit
arrangement borrowings - (1,738)
Decrease in cash overdraft - (263)
Net payments on long-term borrowings (183) (515)
Exercise of stock options - 27
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Net cash used in financing activities (183) (2,489)
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Net increase in cash $ 126 $ -
Cash and cash equivalents at beginning of period 2,825 -
--------- ---------
Cash and cash equivalents at end of period 2,951 $ -
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
OUTLOOK GROUP CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
August 28, 1998
1. Net Earnings Per Common Share:
Basic earnings per share is computed by dividing net earnings by the
weighted average shares outstanding during each period. Diluted earnings
per share is computed similar to basic earnings per share except that the
weighted average shares outstanding is increased to include the number of
additional shares that would have been outstanding if stock options were
exercised and the proceeds from such exercise were used to acquire shares
of common stock at the average market price during the period.
<TABLE>
<CAPTION>
Quarter Ended
August 28, August 29,
1998 1997
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<S> <C> <C>
Weighted average shares outstanding - Basic. . . . . . . . 4,667,132 4,653,582
Effect of dilutive securities - stock options. . . . . . . -- 23,293
--------- ---------
Weighted average shares outstanding - Dilutive . . . . . . 4,667,132 4,676,875
========= =========
</TABLE>
2. Inventories:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
August 28, 1998 May 31, 1998
--------------- ------------
<S> <C> <C>
Raw materials $ 2,582 $ 2,202
Work in process 1,154 1,160
Finished goods 2,020 2,345
---------- ----------
$ 5,756 $ 5,707
========== ==========
</TABLE>
3. Income Taxes:
The effective income tax rate used to calculate the income tax expense for
the quarters ended August 28, 1998 and August 29, 1997, is based on the
anticipated income tax rate for the entire fiscal year.
4. Loan to Officer:
In July, 1998 the Company executed a $100,000 loan to the President and
Chief Operating Officer of the Company. The term of the loan is five years
at an interest rate of 8% per annum.
5. Debt:
As of August 28, 1998 the Company had not drawn any funds that were
available for working capital under terms of the revolving credit
agreement.
6. Accounting Periods:
The Company has elected to adopt 13 week quarters beginning in fiscal 1997;
however, fiscal year-end remains 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 quarter of fiscal 1999 and 1998, and its
financial condition at the quarter ending August 28, 1998. 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 Outlook
Foods, its food processing operation. As a consequence, beginning in the second
quarter of fiscal 1997, the Company began accounting for the food processing
business as a discontinued operation. On May 1, 1998, Outlook Foods was sold and
therefore is not reported in fiscal 1999 results.
Results of Operations
In the first quarter of fiscal 1999, net sales were $17.0 million as compared to
$15.3 million for the same period in the prior year for a net increase of
approximately 11%. This change of $1.7 million is the net result of
approximately $1.4 million of increases in sales of print, finishing, and
distribution services; approximately $1.0 million of increases in direct mail
services; and approximately $0.6 million of decreases in flexible packaging and
labeling services.
Gross profit margin declined to 17.2% in the current quarter from 19.0% of sales
in fiscal 1998. The reduction reflects increased competition within the market,
changes in the product mix toward lower margins in labeling operations, higher
manufacturing costs due to labor shortages, and additional set-up time for
shorter production runs in the flexible packaging operations.
Selling, general, and administrative expenses increased to 15.1% of sales for
the quarter as compared to 14.2% in the prior year's quarter. This change
reflects increases in the company's sales, marketing, and product development
efforts, increases to the reserves for bad debts and additional expenses related
to employee recruitment and training programs.
As a result of the above, the operating profit percentage decreased to 2.1 % of
sales in the quarter from 4.8% of sales in fiscal 1998.
Interest expense decreased from $490,000 in fiscal 1998 to $120,000 in the
current quarter. The interest reduction reflects a reduced interest rate on
market sensitive loans and a $12.1 million decrease in long-term debt from $20.6
million in fiscal 1998 to $8.5 million as of August 28, 1998. The Company
reduced its debt in fiscal 1998 as a result of cash available from various asset
sales, the sale of a subsidiary and improved management of operations and
working capital.
Other income includes earnings on invested cash balances for the quarter and
gains on the sale of assets.
Income tax expense is being accrued for the year at the rate of 38.5% although
quarter to quarter fluctuations may occur.
As a result of these factors, quarterly earnings from continuing operations
increased to $237,000 or $0.05 per share, compared to $193,000 or $0.04 per
share for the same period last year.
The food processing operations, accounted for as a discontinued operation in
fiscal 1998 and sold in May of 1998, posted net earnings of $69,000 or $0.02 per
share in the first quarter of fiscal 1998.
Liquidity and Capital Resources
As shown in the Condensed Consolidated Statements of Cash Flows, the ending cash
balance increased $126,000 for the current quarter.
Operating activities provided $1.2 million of increased cash during the quarter.
Cash from profitable operations before depreciation generated $1.2 million.
Additional cash of $2.0 million was generated from the collection of outstanding
accounts receivable and decreases in other assets. These improvements were
offset by
<PAGE> 9
a $2.0 million reduction in the company's accounts payable and accrued
liabilities.
Investing activities represent the acquisition of $877,000 in plant and
equipment for the purpose of increasing productivity and increasing capacity of
the core business. Approximately $400,000 relates to expanded capabilities in
direct mail services.
Cash generated from operating activities was also used to reduce long-term
borrowings by $183,000. As of the quarter end, the company was in compliance
with all of its loan covenants.
The Company maintains a credit facility with a bank, but has no outstanding
balances on term loans or the revolver. The facility provides for a maximum
revolving credit commitment of $25.0 million less $5.2 million to be used for
standby letters of credit. Interest on the debt outstanding during the year
varies with the Company's selection to have the debt be based upon margins over
the bank determined preference or a LIBOR rate. The Company's actual rate is
dependent upon the Company's performance against a specific ratio as measured
against a predetermined performance chart. As a result of its improved cash
position, the Company is currently reviewing its line of credit facility, and
may take action to revise or replace the facility to reduce expenses, although
there can be no assurance that the Company can or will do so.
The Company anticipates capital expenditures of approximately $2.75 million in
fiscal 1999, excluding any acquisition opportunities which may become available
to the Company. The Company intends to finance these expenditures through funds
obtained from operations plus its credit facilities and possible leasing
opportunities. In the first quarter of fiscal 1999, the Company made capital
expenditures of $877,000.
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. These reviews resulted
in various transactions during fiscal 1998, and may result in additional
transactions during fiscal 1999 and beyond.
Year 2000 Compliance
The Company has taken, and is continuing to take, actions intended to assure
that its computer systems and other equipment are capable of functioning in, and
processing for, periods for the Year 2000 and beyond. The Company has
implemented a program intended to address, on a timely basis, "Year 2000
Compliance" (the need for computer applications and other systems used by the
Company to function in and after the Year 2000 and to recognize and properly
perform date sensitive functions involving dates after December 31, 1999.)
Based on the current status of the Company's compliance efforts, the costs
associated with identified Year 2000 compliance issues are not expected to have
a material effect on the results of operations or on the financial condition of
the Company. The Company has developed implementation plans with its software
vendors to upgrade to software versions that are Year 2000 compliant. In
addition, the Company has reviewed, or is in process of reviewing, equipment
which includes computerized controls or imbedded processors, to help assure that
they will function properly in the Year 2000 and beyond. The Company has not, to
date, identified deficiencies which it believes cannot be corrected on a timely
basis or which will have a material effect, either financially or operationally,
on the Company. As part of its compliance review at one of its production
locations, the Company is assessing the feasibility of changing rather than
upgrading its existing production and financial reporting systems. The
assessment will be completed in the second quarter and we believe the changes
can be implemented in a timely manner. To the extent it believes appropriate,
the Company has had such discussions as believed appropriate with suppliers of
this equipment and has confirmed Year 2000 compliance with key suppliers and
customers.
At this time, the Company does not expect that the reasonably foreseeable
consequences of Year 2000 Compliance to have material effects on the Company's
business, operations or financial condition. However, Year 2000 compliance has
many elements and potential consequences, some of which may not be foreseeable.
Therefore, there can be no assurance that unforeseen circumstances will not
arise, or that the Company will not in the future identify equipment or systems
which are not Year 2000 compliant.
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
<PAGE> 10
is dependent upon its ability to retain, and obtain new, customers.
Changes in the Company's project mix and timing of projects make predictability
of the Company's future results very difficult. 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 and other factors beyond the Company's control.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The following discussion about the Company's risk-management activities may
include forward-looking statements that involve risk and uncertainties. Actual
results could differ materially from those discussed.
The Company has financial instruments, including notes receivable and long-term
debt, which are sensitive to changes in interest rates. However, the Company
does not use any interest-rate swaps or other types of derivative financial
instruments to limit its sensitivity to changes in interest rates because of the
relatively short-term nature of its notes receivable and variability of interest
rates on certain of its long-term debt.
The Company does not believe there has been any material changes in the reported
market risks faced by the Company since the end of its most recent fiscal year,
May 31, 1998.
<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.
<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)
/s/ Richard C. Fischer
Dated: October 13, 1998 -----------------------------------------
Richard C. Fischer, Chairman and Interim
Chief Executive Officer
/s/ Paul M. Drewek
-----------------------------------------
Paul M. Drewek, Interim Chief Financial
Officer
<PAGE> 13
OUTLOOK GROUP CORP.
(the "Company")
EXHIBIT INDEX
to
Report on Form 10-Q for Quarter ended August 28, 1998
Exhibit Filed
Number Description Herewith
- ------------------------------------------------------------------------
27 Financial Data Schedule X
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-28-1998
<CASH> 2,951
<SECURITIES> 0
<RECEIVABLES> 14,420
<ALLOWANCES> 2,073
<INVENTORY> 5,756
<CURRENT-ASSETS> 21,759
<PP&E> 49,337
<DEPRECIATION> 24,267
<TOTAL-ASSETS> 51,363
<CURRENT-LIABILITIES> 7,378
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 33,469
<TOTAL-LIABILITY-AND-EQUITY> 51,363
<SALES> 16,981
<TOTAL-REVENUES> 16,981
<CGS> 14,051
<TOTAL-COSTS> 16,623
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 21,000
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> 391
<INCOME-TAX> 154
<INCOME-CONTINUING> 237
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 237
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
