<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, 1999
---------------
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 000-18815
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
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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.
4,555,885 shares of common stock, $.01 par value,
were outstanding at October 1, 1999.
<PAGE> 2
OUTLOOK GROUP CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
------
PART I. FINANCIAL INFORMATION:
<S> <C> <C>
Item 1. Financial Statements 1
Condensed Consolidated Balance Sheets 2
As of August 28, 1999 and May 31, 1999 (Unaudited)
Condensed Consolidated Statements of Operations 3
For the three months ended August 28, 1999
and August 28, 1998 (Unaudited)
Condensed Consolidated Statements of Cash Flows 4
For the three months ended August 28, 1999 and
August 28, 1998 (Unaudited)
Notes to Condensed Consolidated Financial Statements 5
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
Item 3. Quantitative and Qualification Disclosure About Market Risk 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
</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 1999 Form 10-K. The May 31, 1999 Condensed Consolidated Balance
Sheet Data was derived from audited financial statements, but does not
include all disclosures required by Generally Accepted Accounting
Principles.
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<PAGE> 4
OUTLOOK GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
AUGUST 28, MAY 31,
ASSETS 1999 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 3,209 $ 1,940
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR 9,108 10,713
DOUBTFUL ACCOUNTS OF $1,010 AND $771, RESPECTIVELY
NOTES RECEIVABLE-CURRENT PORTION 2,679 2,805
INVENTORIES 5,333 4,899
DEFERRED INCOME TAXES 203 203
INCOME TAXES REFUNDABLE 692 876
OTHER 889 738
--------- ----------
TOTAL CURRENT ASSETS 22,113 22,174
NOTES RECEIVABLE-LONG TERM, LESS ALLOWANCE FOR 1,595 1,633
DOUBTFUL ACCOUNTS OF $477 IN BOTH YEARS
PROPERTY, PLANT, AND EQUIPMENT
LAND 589 589
BUILDING AND IMPROVEMENTS 11,297 11,290
MACHINERY AND EQUIPMENT 41,269 40,973
--------- ----------
53,155 52,852
LESS: ACCUMULATED DEPRECIATION (27,395) (26,488)
--------- ----------
25,760 26,364
OTHER ASSETS 1,683 1,596
--------- ----------
TOTAL ASSETS $ 51,151 $ 51,767
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------
CURRENT LIABILITIES
CURRENT MATURITIES OF LONG-TERM DEBT $ 2,733 $ 2,308
ACCOUNTS PAYABLE 2,929 3,222
BOOK OVERDRAFT - 337
ACCRUED LIABILITIES:
SALARIES AND WAGES 1,687 1,509
OTHER 811 790
--------- ----------
TOTAL CURRENT LIABILITIES 8,160 8,166
LONG-TERM DEBT, LESS CURRENT MATURITIES 3,969 4,753
DEFERRED INCOME TAXES 4,170 4,170
SHAREHOLDERS' EQUITY
CUMULATIVE PREFERRED STOCK - -
COMMON STOCK (5,117,132 SHARES IN BOTH YEARS) 51 51
ADDITIONAL PAID-IN CAPITAL 18,494 18,494
RETAINED EARNINGS 21,035 20,682
TREASURY STOCK (493,700 AND 450,000 SHARES, RESPECTIVELY) (4,628) (4,449)
OFFICER LOANS (100) (100)
--------- ----------
TOTAL SHAREHOLDERS' EQUITY 34,852 34,678
--------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 51,151 $ 51,767
========= ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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<PAGE> 5
OUTLOOK GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
AUGUST 28, 1999 AUGUST 28, 1998
--------------- ---------------
<S> <C> <C>
NET SALES $ 16,043 $ 16,981
COST OF GOODS SOLD 12,655 14,051
------------------------ ---------------------------
GROSS PROFIT 3,388 2,930
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 2,854 2,572
------------------------ ---------------------------
OPERATING PROFIT 534 358
OTHER INCOME (EXPENSE):
INTEREST EXPENSE (106) (120)
INTEREST AND OTHER INCOME 139 153
------------------------ ---------------------------
EARNINGS FROM OPERATIONS
BEFORE INCOME TAXES 567 391
INCOME TAX EXPENSE 214 154
------------------------ ---------------------------
NET EARNINGS $ 353 $ 237
======================== ===========================
NET EARNINGS PER COMMON SHARE - BASIC $ 0.08 $ 0.05
NET EARNINGS PER COMMON SHARE - DILUTED $ 0.08 $ 0.05
WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING - BASIC 4,650,300 4,667,132
======================== ===========================
WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING - DILUTED 4,650,300 4,667,132
======================== ===========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
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<PAGE> 6
OUTLOOK GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
AUGUST 28, 1999 AUGUST 28, 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS $ 353 $ 237
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 976 995
LOSS ON SALE OF ASSETS 14 -
CHANGE IN ASSETS AND LIABILITIES:
ACCOUNTS AND NOTES RECEIVABLE 1,769 1,776
INVENTORIES (434) (49)
OTHER (267) 231
ACCOUNTS PAYABLE (293) (1,942)
ACCRUED LIABILITIES 199 (95)
INCOME TAXES REFUNDABLE 184 133
----------------------- ---------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,501 1,286
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF ASSETS 21 -
ACQUISITION OF PROPERTY, PLANT, AND EQUIPMENT (378) (877)
LOAN TO OFFICER - (100)
----------------------- ---------------------------
NET CASH USED IN INVESTING ACTIVITIES (357) (977)
CASH FLOWS FROM FINANCING ACTIVITIES:
DECREASE IN BOOK OVERDRAFT (337) -
PAYMENTS ON LONG-TERM BORROWINGS (359) (183)
PURCHASE OF TREASURY STOCK (179) -
----------------------- ---------------------------
NET CASH USED IN FINANCING ACTIVITIES (875) (183)
NET INCREASE IN CASH 1,269 126
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,940 2,825
----------------------- ---------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,209 $ 2,951
======================= ===========================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
-4-
<PAGE> 7
OUTLOOK GROUP CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
August 28, 1999
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 28,
1999 1998
------------- -------------
<S> <C> <C>
Weighted average shares outstanding - Basic . . . . . 4,650,300 4,667,132
Effect of dilutive securities - stock options . . . . -- --
------------- -------------
Weighted average shares outstanding - Dilutive. . . . 4,650,300 4,667,132
============= =============
</TABLE>
2. Inventories:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
August 28, 1999 May 31, 1999
--------------- ------------
<S> <C> <C>
Raw materials $ 2,402 $ 2,305
Work in process 1,234 1,107
Finished goods 1,697 1,487
---------- ----------
$ 5,333 $ 4,899
========== ==========
</TABLE>
3. Income Taxes:
The effective income tax rate used to calculate the income tax expense
for the quarters ended August 28, 1999 and August 28, 1998, 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, 1999 the Company had not drawn any funds that were
available for working capital under terms of the revolving credit
agreement.
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<PAGE> 8
6. Accounting Periods:
The Company has elected to adopt 13 week quarters beginning in fiscal
1997; however, fiscal year-end remains May 31.
7. Segment Reporting:
The Company has three reportable segments that are strategic business
units that offer different products and services. These business units
are: Outlook Graphics, Outlook Label Systems, and Outlook Packaging.
Outlook Graphics produces custom printed products on a wide range of
media including newsprint, coated paper, and heavy board, including
paperboard packaging. Outlook Graphics also provides finishing
services, promotional contract packaging, direct mailing, and
distribution services. Outlook Label Systems manufactures items such as
coupons, pressure sensitive specialty labels, printed vinyl cards,
continuous forms, cartons, and sweepstakes and specialty game pieces.
Flexographic printing and laminating of flexible packaging films is
handled by the Outlook Packaging business unit.
The Company evaluates the performance of its reportable segments based
on the income from operations of the respective business units.
Summarized financial information for the three month periods ending
August 28, 1999, and 1998 are as follows:
<TABLE>
<CAPTION>
LABEL
AUGUST 28, 1999 GRAPHICS SYSTEMS PACKAGING ALL OTHER TOTAL
-------- ------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
Net sales $ 9,119 $ 3,594 $ 3,401 $ (71) $ 16,043
Net earnings (loss) 527 183 (261) (96) 353
Total assets 36,452 7,763 13,375 (6,439) 51,151
LABEL
AUGUST 28, 1999 GRAPHICS SYSTEMS PACKAGING ALL OTHER TOTAL
-------- ------- --------- --------- -----
Net sales $ 9,474 $ 3,287 $ 4,274 $ (54) $ 16,981
Net earnings (loss) 438 2 (203) - 237
Total assets 36,477 7,500 14,093 (6,707) 51,363
</TABLE>
8. Commitments and Contingencies
The Company is a defendant in litigation filed by Barrier Films
Ltd.-New York ("Barrier-NY"). This litigation, which was reported in
the Company's May 31, 1999 financial statements, alleges various causes
of action generally arising out of the acquisition of Barrier Films
Corporation from the Company by Barrier-NY. Because the complaint
presents overlapping claims, and requests multiple awards of damages or
cancellations of obligations for the same underlying facts, determining
the actual amount at issue is uncertain. However, all of the claims
made total approximately $28 million, plus elimination of payments
under Barrier-NY's promissory note to the Company, plus requests for
costs and punitive damages, without any attempt to adjust the claims
for multiple requests resulting from overlapping causes of action.
In August 1999, the Company answered the claim denying liability and
filed a counterclaim for more than $2.6 million, plus costs and other
damages, as a result of Barrier-NY's failure to make payments due the
Company under the 1997 promissory note and under the Purchase and Sale
Agreement in connection with the sale of BFC. At the present time, the
litigation is at a very early stage. No discovery yet has been taken.
However, the Company believes that Barrier-NY's claims are without
merit, and intends to defend the matter, and to pursue its
counterclaim, vigorously and aggressively.
Because of the early stages of this claim and counterclaim, the
ultimate resolution of this matter cannot be determined. In the event
of an unanticipated adverse final judgement in this claim, the
Company's consolidated financial position and results of operations
could be materially affected.
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<PAGE> 9
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 2000 and 1999, and its
financial condition at August 28, 1999. 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."
Results of Operations
In the first quarter of fiscal 2000, net sales were $16.0 million as compared to
$17.0 million for the same period in the prior year for a net decrease of
approximately 6%. The graphics business segment had a net decrease in sales of
approximately $0.4 million, the Label segment had a net increase of
approximately $0.3 million, and the Packaging segment had a net decrease of
approximately $0.9 million in sales. In the Graphics segment, the Company had
decreases of approximately $1.8 million in the print and specialty print markets
and $0.4 million in the collateral management markets. These decreases within
the Graphics segment were offset by increases of approximately $1.1 million in
direct mail markets and approximately $0.7 million in contract packaging
markets. The changes in the Graphics segment reflect a changing services mix,
and in particular a focus on several large mailing related projects in the
quarter. Approximately $0.8 million of the decrease in the Packaging segment was
in the produce and snack foods markets.
Gross profit margin increased to 21.1% in the current quarter from 17.3% of
sales in fiscal 1999. The increase of approximately $0.5 million in gross profit
is the result of a more profitable product sales mix resulting from the
discontinuation of unprofitable business, the types of business on which the
Company focused, and from the Company's efforts to increase manufacturing
efficiency and productivity. During the first quarter of fiscal 2000, the
Company began a personnel development and process improvement program designed
to enhance quality, reduce costs and strengthen the Company's competitive
position.
Selling, general, and administrative expenses increased to 17.8% of sales for
the quarter as compared to 15.1% 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 the commencement of new productivity improvement and employee training
programs.
As a result of the above, the operating profit percentage increased to 3.3% of
sales in the quarter from 2.1% of net sales in fiscal 1999.
Interest expense decreased from $120,000 in fiscal 1999 to $106,000 in the
current quarter. The decrease is the result of reduced debt. The Company's
average interest rate is below the prime interest rate.
Other income includes earnings on invested cash balances for the quarter, scrap
recycling revenues, and interest earned on notes receivable.
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 increased to $353,000 or $0.08
per share, compared to $237,000 or $0.05 per share for the same period last
year.
Liquidity and Capital Resources
As shown in the Condensed Consolidated Statements of Cash Flows, the ending cash
balance increased $1.3 million for the current quarter.
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<PAGE> 10
Operating activities provided $2.5 million of increased cash during the quarter.
Cash from profitable operations before depreciation generated $1.4 million.
Additional cash of $2.0 million was generated from the collection of outstanding
accounts receivable and increases in accrued liabilities. These improvements
were offset by a $0.4 million increase in inventory, a $.3 million reduction in
the company's accounts payable, and a $.2 million increase in other assets.
Investing activities represent the acquisition of $378,000 in plant and
equipment for the purpose of increasing productivity and increasing capacity of
the core business. Cash generated from operating activities was also used to
reduce long-term borrowings by $359,000 and to purchase treasury stock in the
amount of $179,000. As of the quarter end, the company was in compliance with
all of its loan covenants. In September 1999, an additional 67,547 shares were
purchased for $276,101.
As previously reported, the Company holds notes receivable from the purchasers
of its former Barrier operations that total approximately $2.4 million. The
Company is currently in litigation to collect those amounts; the other party is
making claims against the Company, including seeking termination of the note.
The Company is also in litigation to collect another note that totals
approximately $.7 million. Failure of the Company to collect these amounts, or
amounts due under other notes or accounts receivable in excess of reserves would
adversely affect the Company's balance sheet and results of operations.
The Company maintains a credit facility with a bank, but has no outstanding
balances on the revolver. The facility provides for a maximum revolving credit
commitment of $15.0 million less $4.8 million used for standby letters of
credit. Interest on the debt outstanding varies with the Company's selection to
have the debt be based upon margins over the bank determined preference rate or
an IBOR rate. The Company's actual rate is dependent upon the Company's
performance against a specific ratio as measured against a predetermined
performance chart.
The Company anticipates capital expenditures of approximately $2.75 million in
fiscal 2000, excluding any acquisition opportunities that 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 2000, the Company made capital
expenditures of $378,000.
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 1999, and may result in additional
transactions during fiscal 2000 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.)
During the first quarter of fiscal 2000, the Company tested additional equipment
for compliance, met with certain key customers and suppliers to discuss
potential issues, continued to monitor whether contingency plans are needed, and
developed contingency plans in areas that were considered appropriate.
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 worked with its software vendors to upgrade to
software versions that are Year 2000 compliant and has tested the programs. In
addition, the Company has reviewed, or is in process of reviewing, equipment
that 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 or which
will have a material effect, either financially or operationally, on the
Company. The Company believes that the upgrades that have been installed will
allow it to address Year 2000 related issues on these systems on a timely basis;
however, successful implementation is subject to future
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<PAGE> 11
events, including third party performance of these agreements. 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.
Given its present understanding of potential Year 2000 problems, the Company
believes that if compliance is not achieved, the Company believes that the
largest problem it might experience is a delay in obtaining production and
financial reporting information. Since computer software vendors have not
indicated potential problems and the Company has not experienced deficiencies
with the software upgrades already implemented, the Company has not yet
developed specific contingency plans, but may do so later in calendar 1999 if
circumstances would require. The Company has tested the upgrades during recent
quarters and nothing has come to the Company's attention to indicate the
upgrades will not be compliant. In the event that any automated production
equipment cannot be upgraded to achieve Year 2000 compliance, the Company
believes that the internal clocks on the equipment can, and will be set back to
the year 1980. The Company believes that the equipment then will function
properly, but utilization reports would have an incorrect date.
At this time, the Company does not expect that the reasonably foreseeable
consequences of Year 2000 Compliance will have a material effect 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 is dependent upon its ability to retain, and obtain new customers.
During the first quarter of fiscal 2000, approximately 14% of the Company's net
sales (all in the Graphics segment) were to America Online. The Company's AOL
projects were primarily related to promotional mailings. The timing of these
promotional mailings is determined by AOL and the volume of activities can vary
significantly from period to period. There is no assurance that the volume of
these promotional mailings will continue.
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. Also, see above regarding
litigation relating to the collection of certain notes receivable.
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.
-9-
<PAGE> 12
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, 1999.
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<PAGE> 13
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.
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<PAGE> 14
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 11, 1999
------------------------------------------------
Richard C. Fishcer Chairman
and Chief Executive Officer
/s/ Paul M. Drewek
------------------------------------------------
Paul M. Drewek, Chief Financial Officer
<PAGE> 15
OUTLOOK GROUP CORP.
(the "Company")
EXHIBIT INDEX
to
Report on Form 10-Q for Quarter ended August 28, 1999
<TABLE>
<CAPTION>
Exhibit Filed
Number Description Herewith / Incorporated by reference
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.1 Outlook Group Corp. 1999 Stock Incorporated by reference to Exhibit A to
Option Plan (subject to shareholder the Company's 1999 Annual Meeting Proxy
approval) Statement ("1999 Proxy Statement")
10.2 Employment agreement as of June 1, 1999, X
and approved August 18, 1999, between the
Company and Joseph J. Baksha
10.3 Change in control severance arrangements Incorporated by reference to the description
Between the Company, Jeffry Collier, and thereof in the 1999 Proxy Statement.
Paul Drewek
27 Financial Data Schedule X
</TABLE>
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made on the 18th day of August, 1999, and effective as
of the 1st day of June, 1999, by and between OUTLOOK GROUP CORP., a Wisconsin
corporation (hereinafter referred to as "Employer"), and Joseph J. Baksha
(hereinafter referred to as "Employee").
EMPLOYER AND EMPLOYEE AGREE, for the consideration of the mutual
promises and agreements hereinafter set forth, as follows:
1. EMPLOYMENT. Employer agrees to employ Employee as President and Chief
Operating Officer to perform the duties related to said positions, and
Employee hereby accepts and agrees to such employment. Employee shall
perform the duties as are customarily performed by one holding such
positions in a business such as Employer's. Employee shall also
unconditionally render other and related services and duties as
Employer may assign to him or ask of him from time to time. Employer
reserves the right to change from time to time the nature and scope of
Employee's duties and position.
2. COMPENSATION. Employer agrees to pay Employee during the term of this
Agreement, a compensation consisting of a salary, along with an
incentive earnings opportunity, also to be determined annually, as
provided in "Exhibit A," attached, which is a part of this Agreement.
All compensation shall be subject to the customary withholding tax and
other employment taxes as required with respect to compensation paid by
a corporation to an employee. Employee shall not be entitled to any
other compensation except as expressly provided for in this Agreement,
or as provided for by the Compensation Committee of the Board of
Directors.
3. SERVICES AND BEST EFFORTS OF EMPLOYEE. Employee agrees that he will at
all times faithfully, industriously, and to the best of his ability,
experience, and talent perform all the duties that may be required of
him pursuant to the express and implicit terms hereof, to the
reasonable satisfaction of Employer. Employee agrees to devote his
entire working time and attention to the performance of his duties for
the Employer, except for authorized vacation periods or periods of
illness.
The expenditure of reasonable amounts of time for personal business,
charitable, and professional business, charitable, and professional
activities shall not be deemed a breach of this Agreement provided such
activities do not materially interfere with the services to be rendered
for Employer hereunder.
4. TERM AND TERMINATION. The term of employment is for two (2) years,
beginning June 1, 1999, and is renewable June 1, 2001. However, the
agreement may be terminated
<PAGE> 2
by either party, at any time, with or without cause or reason, upon
thirty (30) calendar days written notice being given to the other party
of such termination. In the event of Employer initiated termination for
any reason, other than dishonesty, fraud which has an adverse impact on
the Employer in excess of Ten Thousand Dollars ($10,000.00) in the
aggregate, or violation of paragraphs 8 or 9 of this agreement, the
Employee shall be entitled to receive his bi-weekly salary each two
weeks for a period of twenty-six (26) two-week periods following the
termination date. Also, employee will receive any bonus earned through
the last day of active employment.
In the event there is a change of control of the employer and one of
the below listed events occurs, said employee will then be entitled to
continue in the Corporate Benefit Programs as addressed in Point #7
plus receive his bi-weekly salary each two weeks for a period of
fifty-two (52) two-week periods following the date in which the below
listed event occurs. (Also, employee will receive any bonus earned
through the last day of active employment.)
Referred to events as mentioned above:
a. The employee is terminated by employer for reasons other
than dishonesty, fraud which has an adverse impact on the
employee of ten-thousand dollars ($10,000) in aggregate or
violation of paragraph 8 or 9 of this agreement.
b. Change in employment status as it relates to relocation,
authority or compensation and said employee terminates his
employment.
c. An employment agreement is not renewed within ninety (90)
days prior to the listed expiration date of this agreement
and said employee terminates his employment.
5. VACATION. Employee shall be entitled to the number of vacation days
authorized from time to time by Employer. If vacation is not taken, the
same shall not become cumulative, nor shall the Employee draw extra
compensation if he does not take his vacation. The time of Employee's
vacation shall be determined by the Employee, with provision for
on-going business responsibilities during his absence arranged by the
Employee.
6. EXPENSE REIMBURSEMENT. During the period of his employment, Employee
shall be reimbursed for all of his reasonable and necessary expenses
actually incurred in the performance of service and duties for
Employer, in accordance with the general policy of Employer, authorized
and adopted from time to time. Employee's expenses shall be recorded on
an itemized expense account.
2
<PAGE> 3
7. EMPLOYEE BENEFITS. During the period of his employment, Employee shall
be entitled to participate in Employee benefit plans authorized and
adopted from time to time by Employer, and any other benefits
authorized by the Compensation Committee of the Board of Directors.
8. COVENANT NOT TO COMPETE. In connection with the employment of Employee
pursuant to this Agreement, Employee hereby agrees, acknowledges, and
recognizes that the following are important to Employer and that one or
more of the following are expected to be or become applicable to this
employment relationship: (a) on account of this employment, Employee
will acquire important business information about Employer including
but not limited to Employer's products and method of doing business,
which information if used, disclosed, or applied other than for
Employer's benefit can be expected to cause serious and substantial
damage to Employer; (b) Employee's service with Employer may result in
frequent contact with customers of Employer which may result in close
relationships and the association of Employer's good will with
Employee; (c) Employer's business information and customer
relationships are significant assets owned by Employer which are
developed by substantial investment of time and effort; Employer's
business information and the identity of Employer's customers are not
meant to be generally or specifically known by or disclosed to actual
or potential competitor(s) of Employer; (d) Employer has a legitimate
interest in protecting its business information and relationships; (e)
Employee's skills and knowledge of Employer's business information and
relationships are of a unique nature which will be further developed
and acquired during Employee's employment with Employer; and (f)
Employer has a legitimate interest in protecting its good will,
customer lists and relationships, products, method of doing business,
and other business information, by means of enforcement of this
Covenant Not to Compete set forth in this Paragraph.
Employee further acknowledges that in the course of his employment with
Employer, Employee is placed in a position of trust and confidence by
Employer with respect to Employer's methods of doing business and with
respect to Employer's customers. This Covenant Not to Compete is an
inducement to cause Employer to execute this Agreement and as a
condition and in consideration of such employment, and continued
employment, raises, promotions and/or other benefits to Employee by
Employer.
Employee covenants and agrees with Employer that at all times during
the term of his employment with Employer and for a period of six (6)
months after the termination of his employment with Employer for any
reason whatsoever, with or without cause, Employee shall not, either
directly or indirectly, engage in or participate in any capacity,
whether as an employee, independent contractor, owner, partner,
stockholder, officer, director, consultant, sole proprietor,
co-venturer, agent, or otherwise, with or without compensation, in or
with any business enterprises, of any kind, which is competitive with
the business in which the Employer was engaged at any time during the
one (1) year period immediately prior to termination of Employee's
employment with Employer.
3
<PAGE> 4
Notwithstanding the foregoing, this Covenant Not to Compete is not
intended to prohibit the Employee from working for an employer having
multiple divisions, one or more of which divisions is engaged in a
business which is competitive with Employer's business, so long as the
Employee is not employed by or does not provide services to or perform
work for any competing division and so long as Employee does not
disclose confidential information to the other employer, or any of its
divisions, regarding any aspect of Employer's business.
This Covenant Not to Compete shall be limited to the geographical areas
within the field or area of Employer's activities during the course of
Employee's employment with Employer. This Covenant Not to Compete
applies to all competition occurring within the geographical area
specified, even though the headquarters or office of the competitor may
be outside of the area specified.
9. CONFIDENTIAL INFORMATION AND RECORDS. Employer is engaged or will
engage in a very competitive industry and marketplace. Employer expects
to accumulate substantial know-how and other information, at much
effort and cost, all of which is not generally known, relating to all
or some of the following: its existing and contemplated products,
services, procedures, methods of doing business, machinery and
equipment, compositions, technology, formulas, know-how, methods of
production and providing services, research and development programs
and plans, sales and marketing methods, existing and prospective
customers and suppliers, customer lists, customer usages and
requirements, financial matters, contractual and other agreements or
business relationships, and other confidential business information,
trade secrets and data (all hereinafter referred to as "Confidential
Information"). This Confidential Information is essential to the
well-being and success of Employer.
Employee acknowledges that his employment entails a position of trust,
and that employee has or will have access to Confidential Information.
Employee further acknowledges that such Confidential Information is
vital to the personal development, advancement, and economic security
of each person who looks to Employer as the principal means for
providing continuing opportunities for personal growth and promotion,
and that the acquisition of such Confidential Information by a
competitor of Employer would not only injure Employer, but would also
put Employer's personnel and their jobs in jeopardy.
For the above reasons, as an inducement to cause Employer to execute
this Agreement, and in further consideration of Employee's employment
and continued employment, raises, promotions, and/or other benefits
provided to Employee by Employer, Employee agrees as follows: (i)
except as required by Employee's duties to Employer, not to at any time
directly or indirectly disclose to or use for others or appropriate for
his own personal use or cause to be used by others any Confidential
Information without first obtaining the written consent of Employer to
do so; (ii) all records and other writings of Confidential
4
<PAGE> 5
Information prepared by Employee, or which come into his possession or
control, or which he has access to, are and shall remain the exclusive
property of Employer, and upon termination of Employee's employment,
Employee will not remove any such records or copies thereof, but all
shall be left with Employer, and any such records or copies not with
Employer and in Employee's possession or control, shall be, upon
termination of employment, immediately returned to Employer along with
any other property of Employer.
The requirements of this Paragraph shall apply during the time of
Employee's employment with Employer and thereafter unless it can be
conclusively demonstrated that such Confidential Information (i) has
through no act or fault of Employee become part of the public domain,
or (ii) is no longer important or to be kept confidential for the
protection or well-being of Employer.
10. INJUNCTIVE RELIEF; EMPLOYEE'S ACKNOWLEDGMENT. Employee acknowledges
that any actual or threatened breach of (i) the Covenant Not to Compete
set forth herein or (ii) the provisions regarding Confidential
Information and records set forth herein, is likely to result in
immediate and irreparable harm to Employer. Employee also acknowledges
and admits that there may be no adequate remedy at law for his breach
or a threatened breach and therefore Employer shall be entitled to
immediate equitable relief by way of both temporary and permanent
injunctions, (including compensatory injunctions prohibiting Employee
from engaging in the restricted activity for the full period of the
agreed time plus the additional period of time equal to the term of any
violation of such restrictive covenant) and also money damages insofar
as can be determined under the circumstances, and such further relief
as any court with jurisdiction may deem just and proper.
Furthermore, Employee shall be responsible to pay to Employer all
Employer's actual and reasonable attorneys' fees and other legal costs
occasioned by and successful enforcement of this Agreement. Nothing
contained in this Agreement shall prevent Employer from availing itself
from any other right or remedy to which Employer is entitled under this
Agreement or otherwise, and the parties agree that all rights and
remedies available to Employer are cumulative including but not limited
to injunctive relief, money damages from Employee.
Employee further acknowledges that the restrictions (including as to
time and geography) contained in the provisions for the Covenant Not to
Compete and relating to the Confidential Information of Employer are
reasonable and are not now (and are not expected to be in the future)
onerous, harsh, or oppressive. Employee further acknowledges that these
restrictions do not, and are not expected to in the future, create or
result in a hardship to Employee in pursuit of a livelihood or in the
support of himself or his dependents, whether or not he is employed by
Employer. Employee further acknowledges that after termination of his
employment with Employer, he will be
5
<PAGE> 6
reasonably able to earn a livelihood without violating this Covenant
Not to Compete and the provisions relating to Confidential Information.
Employee hereby agrees that the Covenant Not To Compete and the
provisions relating to Confidential Information of Employer shall
survive Employee's termination of employment with or without cause.
Employee agrees to notify any prospective employer of the existence of
this Agreement.
11. EMPLOYER'S AUTHORITY. Employee agrees to observe and comply with the
rules and regulations of Employer, as adopted, created, or implemented
from time to time by Employer's Board of Directors, respecting the
performance of his duties. Although Employee may be an officer or
director of Employer, he shall have no authority whatsoever to act
unilaterally on behalf of the Employer under this Agreement regarding
Employer's relationship with Employee.
12. PERSONAL CONTRACT. Employer is entering into this Agreement on account
of the skills and knowledge of Employee, and this Agreement is personal
as to Employee. Employee may not assign or delegate his rights and/or
duties under this Agreement. This Agreement shall automatically
terminate in the event that Employee is unable or unwilling to perform,
or does not perform, his duties of employment hereunder.
13. MISCELLANEOUS.
a. No waiver or modification of this Agreement or of any covenant,
condition, or limitation herein contained shall be valid unless in
writing and duly executed by all parties to this Agreement; and no
evidence of any waiver or modification shall be offered or
received in evidence in any proceeding, arbitration, or litigation
between the parties hereto arising out or affecting this
Agreement, or the rights or obligations of the parties hereunder,
unless such waiver or modification is in writing, duly executed as
aforesaid, and the parties further agree that the provisions of
this section may not be waived except as herein set forth.
b. The failure of Employer at any time to require performance by
Employee of any provision expressed herein shall in no way affect
or prejudice Employer's right thereafter to enforce such provision
or any other provision; nor shall the waiver by Employer of any
breach of any provision expressed herein be taken or held to be a
waiver of such provision itself.
c. All agreements and covenants contained herein are severable, and
in the event any of them shall be held to be invalid by any
competent court, this contract shall be interpreted as if such
invalid agreements or covenants were not contained herein.
d. The captions which are underlined at the beginning of the
paragraphs of this Agreement are chiefly for the purpose of
convenience and if the same be in conflict with the text, the text
shall control.
6
<PAGE> 7
e. It is the intention of the parties hereto that this Agreement
shall be governed by its terms and construed in accordance with
and under and pursuant to the internal laws of the state of
Wisconsin.
f. As used in this Agreement, words in the singular may mean the
plural number and words used in the plural number may mean the
singular number; and words used in any gender may mean any other
gender.
g. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, assigns, heirs
and legal representatives subject to the paragraph above entitled
"Personal Contract."
h. All notices required under this Agreement shall be duly given if
delivered to the other party or mailed postage prepaid to the
respective party's last known address. Notices shall be effective
when personally delivered, or when sent by telegram, or by mail
when sent by certified, registered, or regular mail and deposited
in the United States mail, postage prepaid, and sent to the
respective address of the other party.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written and by so executing, the parties acknowledge
that they have read and fully understand all the terms and conditions included
in this Agreement and acknowledge receipt of an executed copy of this Agreement.
Enclosure: Exhibit "A"
EMPLOYEE: OUTLOOK GROUP CORP.:
By:
- ---------------------------- -------------------------------
Joseph J. Baksha Richard C. Fischer, Chairman
7
<PAGE> 8
EXHIBIT "A"
TO EMPLOYMENT AGREEMENT BETWEEN
OUTLOOK GROUP CORP. AND
JOSEPH J. BAKSHA
EFFECTIVE JUNE 1, 1999
COMPENSATION
1. SALARY EFFECTIVE JUNE 1, 1999
Employer agrees to pay Employee bi-weekly salary, effective June 1,
1999, of $8,653.85 each two (2) weeks ($225,000 per year equivalent)
on its regular payroll. That salary will be in effect each of fiscal
2000 and fiscal 2001.
2. INCENTIVE EARNINGS OPPORTUNITY EFFECTIVE JUNE 1, 1999
EBIT Level Incentive
$0 to $2,500,000 None
$2,500,001 to above 5% of the amount over $2,500,000
This is a quarterly program that is annualized. Payments will be made
quarterly with the fourth quarter distribution subject to the year end
audit. Annual plan payment is maximized at 75% of participant's salary.
This incentive payment opportunity shall be in effect in each of fiscal
2000 and 2001.
3. CAR ALLOWANCE
Monthly reimbursement rate is set at $550, which includes all auto
related expenses including gas.
8
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-28-1999
<CASH> 3,209
<SECURITIES> 0
<RECEIVABLES> 13,382
<ALLOWANCES> 1,487
<INVENTORY> 5,333
<CURRENT-ASSETS> 22,113
<PP&E> 53,155
<DEPRECIATION> 27,395
<TOTAL-ASSETS> 51,151
<CURRENT-LIABILITIES> 8,160
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 34,801
<TOTAL-LIABILITY-AND-EQUITY> 51,151
<SALES> 16,043
<TOTAL-REVENUES> 16,043
<CGS> 12,655
<TOTAL-COSTS> 15,509
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<INTEREST-EXPENSE> (106)
<INCOME-PRETAX> 567
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