<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 December 2, 2000
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
----------------------------------------------------
(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.
3,840,569 shares of common stock, $.01 par value, were outstanding at
January 15, 2001.
<PAGE> 2
OUTLOOK GROUP CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements 1
Condensed Consolidated Balance Sheets 2
As of December 2, 2000 and May 31, 2000 (Unaudited)
Condensed Consolidated Statements of Operations 3
For the three months and six months ended
December 2, 2000 and November 29, 1999 (Unaudited)
Condensed Consolidated Statements of Cash Flows 4
For the three months and six months ended
December 2, 2000 and November 29, 1999 (Unaudited)
Notes to Condensed Consolidated Financial Statements 5
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matter to a Shareholder Vote 11
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 2000 Form 10-K. The May 31, 2000 Condensed Consolidated Balance
Sheet Data was derived from audited financial statements, but does not
include all disclosures required by Generally Accepted Accounting
Principles.
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 2, May 31,
ASSETS 2000 2000
------------------------------------------------------- --------------- -------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 912 $ 1,981
Accounts receivable , less allowance for 14,698 10,088
doubtful accounts of $1,332 and $774, respectively
Notes receivable-current portion 500 550
Inventories 5,044 6,390
Deferred income taxes 707 707
Other 674 719
---------- ---------
Total current assets 22,535 20,435
Notes receivable-long term, less allowance for 2,472 2,713
doubtful accounts of $777 at both dates
Property, plant, and equipment
Land 803 543
Building and improvements 12,003 11,386
Machinery and equipment 39,439 38,323
---------- --------
52,245 50,252
Less: accumulated depreciation (28,777) (26,984)
---------- ---------
23,468 23,268
Other assets 1,410 1,450
---------- ----------
Total assets $ 49,885 $ 47,866
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------------------------
Current Liabilities
Current maturities of long-term debt $ 800 $ 1,953
Accounts payable 4,333 2,351
Accrued liabilities:
Salaries and wages 2,153 2,120
Other 1,248 1,559
---------- ---------
Total current liabilities 8,534 7,983
Long-term debt, less current maturities 2,400 2,800
Deferred income taxes 4,019 4,019
Shareholders' Equity
Cumulative preferred stock - -
Common stock (5,127,132 shares at both dates) 51 51
Additional paid-in capital 18,549 18,549
Retained earnings 24,568 22,700
Treasury stock (1,246,563 shares at both dates) (8,136) (8,136)
Officer loans (100) (100)
---------- ----------
Total shareholders' equity 34,932 33,064
---------- ----------
Total liabilities and shareholders' equity $ 49,885 $ 47,866
========== ==========
</TABLE>
<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 SIX-MONTH PERIOD ENDED
DECEMBER 2, 2000 NOVEMBER 29, 1999 DECEMBER 2, 2000 NOVEMBER 29, 1999
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 23,749 $ 17,959 $ 41,387 $ 34,002
Cost of goods sold 18,071 14,014 31,654 26,669
-------- -------- -------- --------
Gross profit 5,678 3,945 9,733 7,333
Selling, general, and
administrative expenses 3,407 2,763 6,583 5,617
-------- -------- -------- --------
Operating profit 2,271 1,182 3,150 1,716
Other income (expense):
Interest expense (178) (124) (271) (230)
Interest and other income 60 139 167 278
-------- -------- -------- --------
Earnings from operations
before income taxes 2,153 1,197 3,046 1,764
Income tax expense 832 478 1,178 692
-------- -------- -------- --------
Net earnings $ 1,321 $ 719 $ 1,868 $ 1,072
======== ======== ======== ========
Net earnings per common share - Basic $ 0.34 $ 0.16 $ 0.48 $ 0.24
Net earnings per common share - Diluted $ 0.33 $ 0.16 $ 0.47 $ 0.24
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
OUTLOOK GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
DECEMBER 2, 2000 NOVEMBER 29, 1999
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,868 $ 1,072
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,864 1,955
Provision for doubtful accounts 505 -
Gain on sale of assets (14) -
Change in assets and liabilities:
Accounts and notes receivable (4,611) 294
Inventories 1,399 (1,237)
Other 24 (617)
Accounts payable 1,815 521
Accrued liabilities (323) (11)
Income taxes refundable - (87)
------------ -------------
Net cash provided by operating activities 2,527 1,890
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 49 174
Acquisition of property, plant, and equipment (2,092) (708)
------------ -------------
Net cash used in investing activities (2,043) (534)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in book overdraft - (337)
Payments on long-term borrowings (1,553) (1,142)
Purchase of treasury stock - (1,760)
------------ -------------
Net cash used in financing activities (1,553) (3,239)
Net decrease in cash (1,069) (1,883)
Cash and cash equivalents at beginning of period 1,981 1,940
------------ -------------
Cash and cash equivalents at end of period $ 912 $ 57
============ =============
</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)
December 2, 2000
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>
Three-Month Period Ended Six-Month Period Ended
December 2, 2000 November 29, 1999 December 2, 2000 November 29, 1999
---------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding - Basic 3,880,569 4,443,225 3,880,569 4,546,777
Effect of dilutive securities - stock options 63,967 15,995 64,726 6,242
----------- ------------ ------------ -----------
Weighted average shares outstanding - Diluted 3,944,536 4,459,220 3,945,295 4,553,019
=========== ============ ============ ===========
</TABLE>
2. Inventories:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 2, 2000 May 31, 2000
---------------------- ---------------------
<S> <C> <C>
Raw materials $ 2,343 $ 3,306
Work in process 1,493 1,092
Finished goods 1,208 1,992
------------------- ---------------------
$ 5,044 $ 6,390
=================== =====================
</TABLE>
3. Income Taxes:
The effective income tax rate used to calculate the income tax expense for
the quarters ended December 2, 2000 and November 29, 1999 is based on the
anticipated income tax rate for the entire fiscal year.
4. Debt:
As of December 2, 2000, the Company had no borrowings on its revolving
credit agreement.
5. Reclassifications:
Certain reclassifications have been made to the financial statements of the
prior period to conform to the December 2, 2000 presentation.
<PAGE> 8
6. Accounting Periods:
The Company 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, contract packaging, direct marketing components and services,
and collateral information management 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 the subsequent laminating of flexible packaging films are
manufactured 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 and six-month
periods ending December 2, 2000 and November 29, 1999 are as follows:
<TABLE>
<CAPTION>
INCOME STATEMENT DATA:
----------------------
THREE-MONTH PERIOD ENDED THREE-MONTH PERIOD ENDED
DECEMBER 2, 2000 NOVEMBER 30, 1999
NET SALES NET EARNINGS (LOSS) NET SALES NET EARNINGS (LOSS)
--------- ------------------- --------- -------------------
<S> <C> <C> <C> <C> <C>
GRAPHICS $ 13,813 $ 1,050 GRAPHICS $ 9,402 $ 513
LABEL SYSTEMS 5,657 475 LABEL SYSTEMS 4,594 437
PACKAGING 4,494 (78) PACKAGING 4,075 (69)
ALL OTHER (215) (126) ALL OTHER (112) (162)
-------- ------- -------- --------
TOTAL $ 23,749 $ 1,321 TOTAL $ 17,959 $ 719
======== ======= ======== ========
<CAPTION>
SIX-MONTH PERIOD ENDED SIX-MONTH PERIOD ENDED
DECEMBER 2, 2000 NOVEMBER 30, 1999
NET SALES NET EARNINGS (LOSS) NET SALES NET EARNINGS (LOSS)
--------- ------------------- --------- -------------------
<S> <C> <C> <C> <C> <C>
GRAPHICS $ 22,331 $ 1,463 GRAPHICS $ 18,521 $ 1,040
LABEL SYSTEMS 10,751 742 LABEL SYSTEMS 8,188 620
PACKAGING 8,663 (188) PACKAGING 7,476 (330)
ALL OTHER (358) (149) ALL OTHER (183) (258)
-------- ------- -------- --------
TOTAL $ 41,387 $ 1,868 TOTAL $ 34,002 $ 1,072
======== ======= ======== ========
<CAPTION>
BALANCE SHEET DATA:
-------------------
DECEMBER 2, 2000 MAY 31, 2000
TOTAL ASSETS TOTAL ASSETS
---------------- ------------
<S> <C> <C> <C>
GRAPHICS $ 28,445 GRAPHICS $ 27,333
LABEL SYSTEMS 10,565 LABEL SYSTEMS 8,046
PACKAGING 10,875 PACKAGING 12,487
--------- --------
TOTAL $ 49,885 TOTAL $ 47,866
========= ========
</TABLE>
<PAGE> 9
8. Commitments and Contingencies
The Company has previously reported that it was named as a defendant in an
action captioned Barrier Films Ltd.--New York ("Barrier-NY") versus Outlook
Group Corp., Inc. and Joseph Baksha, in the U.S. District Court for the Eastern
District of New York. This suit alleged various causes of action which arise out
of the acquisition of Barrier Films Corporation ("BFC") by Barrier-NY from the
Company in May 1997. In a separate matter, Outlook Packaging, Inc., a
wholly-owned subsidiary of the Company, commenced an action in the U.S. District
Court for the Eastern District of Wisconsin against BFC. In this suit, which
sought monetary damages, Outlook Packaging alleged misrepresentation, tortuous
interference and breach of warranty against BFC, based upon certain films
produced by BFC for Outlook Packaging. The Wisconsin action was later moved to
New York. Barrier-NY and BFC are corporations controlled by Ronnie Shemesh, who
is a greater-than 10% shareholder of the Company.
In December 2000, the Company and Barrier-NY and their affiliates settled the
aforementioned litigation. Neither party has admitted liability as part of the
settlement.
Pursuant to the settlement, BFC will pay the Company $2,150,000 (plus or minus
interest, credits and other specified payments), through two new promissory
notes and other payments. The payments are due on specified schedules from
January 15, 2001 through February 15, 2004, including $550,000 of payments
scheduled to be received by March 27, 2001 and monthly principal installments of
$39,000 beginning April 15, 2001. Some of these payments are secured and / or
guaranteed by affiliates of BFC. Barrier-NY and its affiliates may be entitled
to certain credits of up to $369,000 against some of these amounts in the event
of various actions specified in the settlement documents. In addition, as part
of the settlement, the Company has agreed to purchase up to 450,000 shares of
Company common stock owned by Mr. Shemesh for $7.00 per share. Mr. Shemesh has
the option, but not an obligation, to tender such shares on specified dates
through July 20, 2001. The settlement was accompanied by specified releases.
Various prior notes and other arrangements between the parties will be
terminated.
At December 2, 2000 the amount recorded on the financial records due from
Barrier-NY was approximately $2.5 million. The Company estimates that the
financial statement impact is expected to be between $500,000 and $700,000.
The Company has sufficient reserves to cover the financial statement impact
of the settlement.
Other than the foregoing, in the opinion of management, the Company is not a
defendant in any legal proceedings other than routine litigation that is not
material to its business.
<PAGE> 10
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 second quarters, and first six months, of
fiscal 2001 and 2000, and its financial condition at December 2, 2000.
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 second quarter of fiscal 2001, net sales were $23.7 million as compared
to $18.0 million for the comparable prior year period, an increase of $5.7
million or 32.2%. For the year-to-date period, sales were $41.4 million in 2001
as compared to $34.0 million for the comparable prior year period, an increase
of $7.4 million or 21.7%. For the year-to-date period, all business units
experienced double digit percentage sales increases. The Label business unit led
with a 31.3% increase in sales, a $2.6 million increase. Both the Graphics and
Packaging business units followed with 19.8%, or $3.6 million, and 15.9%, or
$1.2 million increases, respectively. The increases result primarily from the
timing of several large client projects. The Graphics business unit showed
increases in both the promotional contract packaging and commercial print areas,
while showing decreases in both the paperboard packaging and collateral
management information area. These changes reflect a changing services mix which
can vary significantly from period to period. The Company is significantly
dependent upon the timing of customer orders. The timing and volume of these
projects cannot be assured in the future and the sales growth experienced by the
Company is not necessarily indicative of future results, and can vary
significantly from period to period.
The Company's gross profit margin increased to 23.9% of net sales in the current
quarter, up from 22.0% in fiscal 2000. Year-to-date, gross profit margins are
23.5% of net sales as compared to 21.6% of net sales in fiscal 2000. The
increase of approximately $2.4 million in gross profit is the result of a more
profitable product sales mix, the types of business on which the Company
focused, and from the Company's efforts to increase manufacturing efficiency and
productivity. Many of these factors can vary significantly from quarter to
quarter. 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. This program is
expected to continue throughout fiscal 2001. However, outside consulting costs
in the remaining quarters of fiscal 2001 are not expected to be as large as in
fiscal 2000.
Selling, general, and administrative expense decreased to 14.3% of net sales for
the quarter as compared to 15.4% in the prior year's quarter. Year-to-date,
selling, general, and administrative expenses are 15.9% as compared to 16.5% of
net sales in the prior year. Year-to-date, selling, general and administrative
expenses were $6.6 million, up from $5.6 million, a $1.0 million or 17.9%
increase. This increase reflects the Company's sales, marketing, and product
development efforts, increases to the bad debt reserve, expenses related to the
implementation of new productivity improvements and investments in employee
training programs.
As a result, the operating profit percentage increased to 9.6% of sales in the
current quarter up from 6.6% of net sales in the prior year's quarter or an
increase of $1.1 million over the comparable year-to-date period. Year-to-date,
operating profit was 7.6% of net sales as compared to 5.0% of net sales in
fiscal 2000, an increase of $1.4 million.
Interest expense increased $54,000 over the prior year's quarter to $178,000.
For the first six months, interest expense was $271,000 up $41,000 as compared
to the prior year-to-date period. The increase is a result of borrowings on its
revolving line of credit incurred during the second quarter of fiscal 2001. The
Company repaid the borrowings on its revolving credit facility that had been
temporarily used as an advance payment on equipment that is now being leased.
The Company has no amount outstanding on its revolving credit agreement as of
January 15, 2000. The Company's debt has decreased $2.7 million from November
1999, and the Company has since retired two debt instruments. The Company's
remaining long-term debt consists solely of an Industrial Development Bond
obligation.
Income tax expense is being accrued for the year at the rate of 38.5% although
quarter to quarter fluctuations may occur.
<PAGE> 11
As a result of these factors, quarterly earnings increased to $1.3 million or
$0.33 per share, diluted, compared to $719,000 or $0.16 per share for the
comparable prior year period. As a percentage of net sales, net income is 5.6%
of net sales for the quarter as compared to 4.0% for the comparable quarter last
year. Year-to-date, net earnings increased to $1.9 million or $0.47 per share,
diluted, as compared to $1.1 million or $0.24 per share for the comparable prior
year-to-date period. As a percentage of net sales, year-to-date net income is
4.5% compared to 3.2% for the comparable period last year. The per share
information is affected by the reduced number of shares outstanding in the
fiscal 2001 periods as a result of the Company's share repurchases in the second
half of fiscal 2000.
Liquidity and Capital Resources
Operating activities provided $2.6 million of increased cash during the first
six months of fiscal 2001. Cash from operations before depreciation and
amortization generated $4.4 million. Additional cash of $1.5 million was
generated from increases in accounts payable and other accrued liabilities and
another $1.4 million from decreases in inventory. A $4.1 million increase in
accounts and notes receivable, including the increase in the provision for
doubtful accounts, decreased the cash provided by operating activities.
Investing activities represent the acquisition of $2.1 million in plant and
equipment for the purpose of increasing productivity and increasing capacity of
the core business, including the Troy, Ohio label production facility that was
acquired in June 2000. That acquisition was financed solely by cash generated
from operating activities.
The Company reduced long-term borrowings by $1.6 million and as of quarter end,
the Company had no amounts outstanding on its revolving credit agreement and was
in compliance with all of its loan covenants. As of January 15, 2001 the
revolving line of credit remained unused.
As previously reported, the Company holds notes receivable and other
obligations from the purchasers of its former Barrier operations that total
approximately $2.5 million at December 2, 2000. The Company previously
reported that it was involved in various litigation suits related to the
matter. The Company and Barrier-NY and their affiliates have settled the
litigation. See note 8 to the Company's accompanying financial statements.
The Company believes reserves are adequate to cover the financial impact of the
settlement. Like any other receivable due the Company, the new notes are
subject to the risks of future collection and a failure to collect them in full
could negatively affect future Company results. The first payment was received,
as scheduled, and the first 50,000 shares were repurchased in January 2001.
The Company estimates that the financial statements impact is expected to be
between $500,000 and $700,000. The Company has sufficient reserves to cover the
financial statements impact of the settlement.
The Company maintains a credit facility with a bank that provides for a maximum
revolving credit commitment of $15.0 million less $2.8 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's 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. Long-term Company indebtedness now consists
solely of Industrial Development Bond obligations.
The Company has made acquisitions and capital expenditures of $2.1 million
through November 2000 and has executed $5.6 million in capital leases. The
Company anticipates capital expenditures of approximately $6.3 million in fiscal
2001, excluding any acquisition opportunities that may become available to the
Company. The Company has financed prior capital expenditures, and intends to
finance future expenditures through funds obtained from operations plus its
credit facilities and leasing opportunities.
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 recent fiscal years, and may result in additional
transactions during fiscal 2001 and beyond.
<PAGE> 12
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. No
customer during the first six months of fiscal 2001 accounted for more than 10%
of the Company's net sales. In fiscal 2000, the company's leading customer, AOL,
accounted for 14% of the Company's net sales. Sales to AOL are based largely on
promotional mailings determined by AOL, which have recently decreased. These
activities can vary significantly from period to period. The Company's top
twenty-five customers account for approximately 63% of net sales in the first
half of fiscal 2001 and consists of customers from all respective business
units. As with many of the Company's customers, the timing and volume of
activities can vary significantly from period to period. There is no assurance
that the volume from any particular customer will continue beyond the current
period.
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 is committed
to developing multi-year projects that add value for its clients as part of its
long-range vision.
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. In addition,
equipment sometimes becomes obsolete or surplus because of new technologies or
changes in customer or Company needs. The Company may not be able to efficiently
utilize this equipment or dispose of it at its book value.
The Company has significant accounts receivable or other amounts due from its
customers or other parties. 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, the amounts
due to the Company would affect future profitability. Also, see above regarding
litigation relating to the collection of certain obligations.
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 have been any material changes in the
reported market risks faced by the Company since the end of its most recent
fiscal year, May 31, 2000.
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company has previously reported that it was named as a defendant in an
action captioned Barrier Films Ltd.--New York ("Barrier-NY") versus Outlook
Group Corp., Inc. and Joseph Baksha, in the U.S. District Court for the Eastern
District of New York. This suit alleged various causes of action which arise out
of the acquisition of Barrier Films Corporation ("BFC") by Barrier-NY from the
Company in May 1997. In a separate matter, Outlook Packaging, Inc., a
wholly-owned subsidiary of the Company, commenced an action in the U.S. District
Court for the Eastern District of Wisconsin against BFC. In this suit, which
sought monetary damages, Outlook Packaging alleged misrepresentation, tortuous
interference and breach of warranty against BFC, based upon certain films
produced by BFC for Outlook Packaging. The Wisconsin action was later moved to
New York. Barrier-NY and BFC are corporations controlled by Ronnie Shemesh, who
is a greater-than 10% shareholder of the Company.
In December 2000, the Company and Barrier-NY and their affiliates settled the
aforementioned litigation. Neither party has admitted liability as part of the
settlement.
Pursuant to the settlement, BFC will pay the Company $2,150,000 (plus or minus
interest, credits and other specified payments), through two new promissory
notes and other payments. The payments are due on specified schedules from
January 15, 2001 through February 15, 2004, including $550,000 of payments
scheduled to be received by March 27, 2001 and monthly principal installments of
$39,000 beginning April 15, 2001. Some of these payments are secured and / or
guaranteed by affiliates of BFC. Barrier-NY and its affiliates may be entitled
to certain credits of up to $369,000 against some of these amounts in the event
of various actions specified in the settlement documents. In addition, as part
of the settlement, the Company has agreed to purchase up to 450,000 shares of
Company common stock owned by Mr. Shemesh for $7.00 per share. Mr. Shemesh has
the option, but not an obligation, to tender such shares on specified dates
through July 20, 2001. The settlement was accompanied by specified releases.
Various prior notes and other arrangements between the parties will be
terminated.
Other than the foregoing, in the opinion of management, the Company is not a
defendant in any legal proceedings other than routine litigation that is not
material to its business.
Item 4. Submission of Matters to a Vote of Security Holders.
(a),(c) At the Company's annual meeting of shareholders on October 19,
2000, the three continuing directors who were management's nominees for
re-election were elected to the Outlook Group Board of Directors. The
directors were re-elected with the following votes:
<TABLE>
<CAPTION>
Authority for
Director's Name Votes "For" Voting Withheld
--------------- ----------- ---------------
<S> <C> <C>
Jeffry H. Collier 3,127,403 34,027
A. John Wiley, Jr. 3,129,243 32,187
Pat Richter 3,140,393 21,037
</TABLE>
(b) Joseph Baksha, Harold Bergman, James Dillon and Richard
Fischer continue as Company directors whose terms expire in
2001 or 2002.
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> 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: January 15, 2001 ----------------------------------------------
Richard C. Fischer, 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 December 2, 2000
<TABLE>
<CAPTION>
Exhibit Filed
Number Description Herewith / Incorporated by reference
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.1 Settlement Agreement dated as of December 29, 2000 among
OGC, Outlook Packaging, Inc., Barrier Films Corporation,
Barrier Films Ltd -- New York, Inc. and Ronnie Shemesh, X
and the related Stock Purchase Agreement between OGC and
Mr. Shemesh
</TABLE>
