1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10 - K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended MAY 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission file number 000-18815
OUTLOOK GROUP CORP.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1278569
------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
1180 AMERICAN DRIVE, NEENAH, WISCONSIN 54956
- -------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (920) 722-2333
---------------
Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of July 31, 2001, 3,440,819 shares of Common Stock were outstanding, and the
aggregate market value of the Common Stock (based upon the $4.55 last sale price
on the NASDAQ Stock Market) held by non-affiliates (excludes a total of
1,447,809 shares reported as beneficially owned by directors, executive officers
and greater-than 10% shareholders -- does not constitute an admission as to
affiliate status) was approximately $9.1 million.
DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K INTO WHICH
DOCUMENT PORTIONS OF DOCUMENTS ARE INCORPORATED
-------- --------------------------------------
Proxy Statement for 2001 Annual Part III
Meeting of Shareholders
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PART I
ITEM 1. BUSINESS.
GENERAL
Outlook Group Corp. (the "Company") is a printing, packaging and direct
marketing company offering a variety of related services to clients in markets
including contract packaging, collateral information management and
distribution, direct marketing components and services, packaging and label
materials and specialty print and related services. The Company leverages its
core competencies by cross-selling services to provide a single-source solution
for its clients. Founded as a Wisconsin corporation in 1977, the Company
initially concentrated on bulk mailing and commercial printing projects. Over
the years, the Company's business has expanded to include other related
services.
The Company has considered, and continues to consider, a variety of
options for building its business in order to position the Company for
strengthened future performance. As part of a strategy to focus its business on
three core competencies of packaging, printing, and direct marketing, the
Company also continues to consider divestiture strategies to the extent that the
Company believes such actions would enhance its ability to achieve successful
operations. In addition, the Company will also consider appropriate acquisitions
to strengthen continuing operations. There can be no assurances, however, that
the Company will be able to successfully implement such strategies or complete
those transactions.
The Company offers a broad array of packaging, specialty printing, and
direct marketing services. The Company focuses on contract packaging, collateral
information and distribution, direct marketing components and services,
packaging and label materials (including printing), and specialty print and
related services. The product line includes folding cartons and paperboard
packaging, overwrapping, flexible film printing and laminating, coupons, labels,
recipe cards and promotional materials as well as traditional commercial
printing of booklets, notepads and brochures.
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
Primarily through its Outlook Graphics division ("Outlook Graphics"),
the Company's pre-press staff prepares projects for printing to client
specifications. These services include preparatory camera or computerized
plate-making, layout, typesetting and other related services. Although Outlook
Graphics does not generally perform pre-press design services, it assists
designers in translating a concept into a printed product.
Outlook Graphics' presses generally use the off-set printing process
and can print on a wide range of media from newsprint and coated paper to heavy
board, including paperboard packaging. Outlook Graphics currently utilizes
sheet-fed full-color presses of various sizes, the most sophisticated of which
are capable of six-color printing. Certain presses have interchangeable printing
plates that allow the Company significant flexibility in meeting client needs.
Outlook Graphics also provides finishing services for printed items
(whether or not printed by the Company) such as precision trimming, folding and
gluing, die-cutting, binding, shrink-wrapping, collating and packaging products
for mailing and distribution. Outlook Graphics has also developed paperboard
packaging capabilities to serve its clients' needs and enhance the Company's
single source solution approach. Paperboard packaging consists of utilizing
paperboard stock to print and convert folding cartons, u-boards and other point
of purchase materials.
The Company's contract packaging capabilities include packaging for
many other types of items. Recent examples include promotional CD ROM's for
mailing, wrapping toys and other promotional items for insertion in cereal
boxes, overwrapping packages and packaging items for vending machines.
Custom-designed feeding and in-line overwrapping systems increase the efficiency
of its packaging operations. Outlook Graphics also maintains an environmentally
controlled work area to perform food contact packaging and to provide other
packaging services for which cleanliness and specific quality standards are
required.
Other services provided by the Company include direct marketing and
distribution. Direct marketing involves literature overwrapping, labeling,
personalizing, inserting, sorting and shipping printed items for bulk mailing.
The Company's zip code sorting allows it to minimize client postal charges by,
in many instances, delivering items by common carrier to a post office near the
destination. The Company is also "Alternative Procedures" qualified by the US
Postal Service, which provides it the ability to accelerate the cycle for moving
materials to the end user. Direct mailings in fiscal 2001 included promotional
CD ROM packages, catalogs, coupon packages and promotional materials.
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The collateral information management services provided by the Company
consist of storing and distributing items upon client order. In most cases,
distribution items are materials such as forms and booklets that are printed by
the Company, often under standing orders from its clients to replenish supplies.
Custom designed data systems produce reports to assist the Company's clients in
managing their fulfillment programs. The Company has de-emphasized distribution
operations which do not involve materials printed or packaged by the Company.
OUTLOOK LABEL
The Company's Outlook Label Systems, Inc. subsidiary ("Outlook Label")
complements the Company's other specialty printing operations by using
flexographic and rotary letterpress printing presses and offering manufacturing
capabilities not otherwise available from the Company, enhancing the Company's
ability to cross-sell services. Outlook Label manufactures items such as
coupons, pressure sensitive specialty labels, printed vinyl cards (such as
temporary credit cards and identification cards), cartons, and sweepstakes and
specialty game pieces. Its most sophisticated machinery permits one-pass,
14-color printing and lamination of various substrates using an in-line process.
OUTLOOK PACKAGING
The Company's Outlook Packaging, Inc. subsidiary ("Outlook Packaging")
engages in flexographic printing and laminating of flexible packaging films and
papers. In these processes, Outlook Packaging takes flexible packaging materials
(which are purchased from others) and prints, laminates and/or slits the
material to client specifications. Client orders may include some or all of
Outlook Packaging's services. Outlook Packaging prints and laminates materials
for items such as pouches, bags, vacuum packages, packets, security devices and
card and food overwraps, and provides them to clients in convenient rolls of
film.
The Outlook Packaging operations are being moved to the Neenah,
Wisconsin facility also used by Outlook Label. The Company believes that this
move will rationalize operations and enhance divisional cooperation. The Company
expects to complete the move in the second quarter of fiscal 2002, subject to
receipt of final permits.
RECENT TRANSACTIONS
The Company completed several acquisitions or dispositions of assets
and businesses as a means of enhancing utilization of its facilities and to
increase its service offerings. In June 2000, the Company acquired the business
and assets of Star Label, a division of Docusystems. The Company has since
merged this business into the Outlook Label Systems, Neenah, Wisconsin facility.
In June 2001, the Company sold the Outlook Packaging Oak Creek, Wisconsin
facility. The Company retained Outlook Packaging's business, which is being
transitioned to Neenah, Wisconsin.
CLIENTS AND MARKETING
Due to the project-oriented nature of the Company's business, sales to
particular clients may vary significantly from year to year, and period to
period, depending upon the number and size of their projects. The identity of
those clients may also change. During fiscal 2001, one client, Kimberly Clark
(KC), accounted for 10% of the Company's net sales as compared to 8% in fiscal
2000 and 8% in 1999, respectively. Sales to AOL were less than 5% in fiscal
2001, after having been 12% and 10% in 2000 and 1999, respectively. The Company
had its sales to AOL decreased as a result of changes in AOL's marketing. As
with most of its clients, the Company's sales to KC are pursuant to cancelable
purchase orders. In particular, sales depend upon the timing of marketing
initiatives that can change frequently and vary significantly from period to
period. There is no assurance that these sales will continue in the future.
The Company expects that it may continue to experience significant
sales concentration given the relatively large size of projects undertaken for
certain clients. Furthermore, the Company's largest clients may vary from year
to year depending on
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the number and size of the projects completed for such clients. The loss of
business of one or more principal clients or a change in the number or character
of projects for particular clients could have a material adverse effect on the
Company's sales volume and profitability.
Clients 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 significant period to period changes. Because of
the project-oriented nature of the Company's business, the short-term character
of a substantial portion of its projects and the nature of the orders for the
Company's services, the Company does not believe that backlog is material or
meaningful to its business.
The Company markets its services nationally through certain of its
executive officers and its centralized sales group, which at July 31, 2001
included 21 sales and service employees and 6 manufacturer's representatives.
Sales and marketing activities are centralized and coordinated among the
Company's various operations. The Company generally does not enter into
employment contracts with its employee sales personnel, although it has
agreements with its outside representatives.
RAW MATERIALS
Raw materials necessary to the Company include paper stocks, inks and
plastic films, all of which are readily available from numerous suppliers. The
cost of raw materials represented approximately 46% of the Company's cost of
goods sold during fiscal 2001 as compared to 45% of the Company's cost of goods
sold during fiscal 2000. The Company has not experienced difficulties in
obtaining materials for its continuing operations in the past and does not
consider itself dependent on any particular supplier for raw materials or for
the Company's equipment needs.
COMPETITION
The market for the services provided by the Company is highly
competitive, primarily on the basis of price, quality, production capability,
capacity for prompt delivery and continuing relationships.
The Company's principal competitors, and the scope of the area in which
the Company competes, vary based upon the services offered. With respect to
specialty printing services, its competitors are numerous and range in size from
very large multi-national companies with substantially greater resources than
the Company to many smaller local companies. Numerous competitors also exist for
other services. While there are fewer competitors offering converting and
packaging services, competition is very strong. The Company believes that
relatively few competitors offer the wide range of services provided by the
Company. Because of the substantial capital requirements for graphic services
equipment, larger companies with greater capital resources may have an advantage
in financing state-of-the-art equipment. The Company does not believe foreign
competition is significant at this time.
ENVIRONMENTAL MATTERS
The Company and the industry in which it operates are subject to
environmental laws and regulations concerning emissions into the air, discharges
into waterways and the generation, handling and disposal of waste materials.
These laws and regulations are constantly evolving, and it is impossible to
predict accurately the effect they may have upon the capital expenditures,
earnings and competitive position of the Company in the future. The Company's
past expenditures relating to environmental compliance have not had a material
effect on the Company. Growth in the Company's production capacity with a
resultant increase in discharges and emissions could require significant capital
expenditures for environmental control facilities in the future. Also, the
issuance of an additional environmental permit is needed to complete the move
of the Outlook Packaging operation.
EMPLOYEES
At July 31, 2001, the Company had 563 full-time employees. The Company
contracts for and/or hires temporary employees to increase the number of
personnel in certain operations as project commitments require. The Company
considers its relationship with its employees to be good. Wages and employee
benefits represented approximately 31% of the Company's cost of goods sold
during fiscal 2001 and approximately 30% of cost of goods sold during fiscal
2000.
ITEM 2. PROPERTIES.
The Company's offices and main production and distribution facilities
are located in the Town of Menasha, Wisconsin in a facility owned by the
Company. The 345,000 square foot facility (of which approximately 25,000 square
feet are used for
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offices) was built in stages from 1980 to 1992. The Company also owns
approximately five acres of land adjacent to this facility to provide for future
expansion, if needed.
The Company owns an 83,000 square foot facility in Neenah, Wisconsin in
which Outlook Label's office and production facilities are located. In June
2001, the Company sold the Outlook Packaging Oak Creek, Wisconsin facility. The
Company retained Outlook Packaging's business, which is being transitioned to
Neenah, Wisconsin.
The Company owned an 81,000 square foot facility in Oak Creek,
Wisconsin in which Outlook Packaging's office and production facilities were
located. This property was sold during June 2001, although the Company is
temporarily using a portion of that facility as it transitions Outlook
Packaging's operations to Neenah.
During the fourth quarter of 2001, the Company announced that the
operations of Outlook Label and Outlook Packaging would be merged into the
Neenah, WI facility. This merger will occur during the first and second quarters
of fiscal 2002. When the transfer of equipment and certain personnel is
successfully completed, the Company will have two primary manufacturing
facilities. The "Web facility" will have both narrow web and wide web
capabilities and will produce products for the Outlook Packaging and Outlook
Label business segments at one strategic facility. The "graphics facility" will
continue to produce the various products and services of the Graphics business
segment. In addition, the Company believes it will be able to share resources to
form a strengthened and unified management and operational team for all business
segments.
As part of the purchase of Star Labels in June 2000, the Company
acquired a 42,000 square foot facility in Troy, Ohio. This property has been
vacated as this business was transitioned to Neenah, WI. The land and building
are currently listed for sale.
The Company leases an approximately 75,000 square foot facility in
Neenah, Wisconsin that is currently used for certain mailing operations and
warehouse space. The lease for this facility expires on March 30, 2002. The
Company must provide six months notice of its intention to vacate or the lease
continues on a year-to-year basis. The Company also leases an approximately
37,500 square foot facility in Neenah, Wisconsin for its sheeting operations and
other warehouse space. The lease is for a ten-year term, with one five-year
option to renew.
In addition to land and buildings, the Company maintains significant
complex and specialized equipment to perform its various graphic services. The
equipment includes presses, machinery dedicated to converting and packaging, and
other machinery described above in Item 1. Certain of the equipment is leased by
the Company. The Company is dependent upon the functioning of such machinery and
equipment, and its ability to acquire and maintain appropriate equipment. Among
other factors, the Company may be affected by equipment malfunctions, training
and operational needs relating to the equipment, which may delay its
utilization, maintenance requirements, and technological or mechanical
obsolescence. Because of the substantial capital requirements for graphic
services equipment in particular, larger companies with greater capital
resources may have an advantage in financing state-of-the-art equipment.
The Company believes that all of its facilities are in good condition
and suited for their present purpose. The Company believes that the property and
equipment currently utilized by it is sufficient for its currently anticipated
needs but that expansion of the Company's business or offering new services
could require the Company to obtain additional equipment or facilities. The
Company regularly evaluates its facility and equipment needs and would sell, or
terminate leases to, facilities or equipment if appropriate.
Substantially all of the Company's assets are pledged as collateral
under financing agreements. See Note C of Notes to Consolidated Financial
Statements, which is incorporated herein by reference, for a description of
financing secured by mortgages on the properties and equipment owned by the
Company and its subsidiaries.
ITEM 3. LEGAL PROCEEDINGS.
Outlook Packaging, Inc., a subsidiary of the Company, has been sued by
Health Jet, Inc. d/b/a Chung's Gourmet Foods (Chung's) in the United States
District Court for the Eastern District of Wisconsin (case number OO C 0639).
This suit alleges various causes for action alleging economic damages resulting
from packaging materials produced for Chung's by the Company and claims damages
of $4.9 million. The Company has filed a third party complaint against Mantz &
Associates seeking indemnification in connection with the action.
The Company has answered denying liability and has begun non-binding
mediation with Chung's in an attempt to settle this suit. At this time, a final
agreement has not been formalized and there can be no assurance that a
settlement will be reached or as to the terms of such a 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2001.
EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information as to each of the executive officers of the Company
is set forth in the following table. Officers are elected annually by the Board
of Directors.
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NAME AGE POSITION(S)
---- --- -----------
Richard C. Fischer................ 62 Chairman of the Board and Chief Executive Officer;
Director
Joseph J. Baksha.................. 49 President and Chief Operating Officer; Director
Jeffry H. Collier................. 48 Executive Vice President; General
Manager; Director
Paul M. Drewek.................... 55 Chief Financial Officer and Secretary
- -----------------------
Richard C. Fischer has served as Chairman of the Board and Chief
Executive Officer of the Company since 1997; he has been a director of the
Company since 1995. Mr. Fischer has been an investment banker with Marquette
Capital Partners since 2000. He was previously an investment banker with Fischer
and Associates LLC from 1995 to 1999, and previously with Robert W. Baird & Co.,
Incorporated.
Joseph J. Baksha has served as President and Chief Operating Officer
since 1996, after having served as Vice President of the Company and President
of Outlook Packaging.
Jeffry H. Collier has served as Executive Vice President of the Company
since 1994, and previously served the Company in other capacities. In 2001, Mr.
Collier became General Manager of all manufacturing operations, after previously
having been General Manager of Outlook Graphics.
Paul M. Drewek became the Company's Chief Financial Officer in 1998,
and its Secretary in 1999. Mr. Drewek acted as principal of Drewek & Associates
(accounting and management consulting) from 1997 to 1998. Previously, Mr. Drewek
served as Chief Financial Officer of Allied Computer Group Companies, Inc. (a
computer systems integrator and consulting company) from 1995 to 1997, and prior
thereto as Vice President - Finance and Administration and Treasurer-CFO of
Joiner Employees Incorporated (a consulting and publishing company specializing
in total quality management). Mr. Drewek also is deemed the Company's principal
accounting officer.
* * * * *
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The discussions in this report on Form 10-K, and in the documents
incorporated herein by reference, and oral presentations made by or on behalf of
the Company contain or may contain various forward-looking statements
(particularly those referring to expectations as to possible strategic
alternatives, future business and/or operations, in the future tense, or using
terms such as "believe", "anticipate," "expect" or "intend") that involve risks
and uncertainties. The Company's actual future results could differ materially
from those discussed, due to the factors that are noted in connection with the
statements and other factors. The factors that could cause or contribute to such
differences include, but are not limited to, those further described in Items 1
and 2 above in this report and in the "Management's Discussion and Analysis"
(particularly in "Results of Operations--Fiscal 2001 Compared to Fiscal 2000"
and "General Factors") in Item 7 hereof.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is quoted on the NASDAQ Stock Market. The
following table sets forth high and low closing sales prices as reported on
NASDAQ by quarter for the indicated fiscal years.
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FISCAL 2001
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High Low
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Fourth Quarter $ 5.63 $ 4.13
Third Quarter 6.06 5.50
Second Quarter 6.19 5.63
First Quarter 6.50 5.56
FISCAL 2000
- -----------
High Low
---- ---
Fourth Quarter $ 5.94 $ 3.88
Third Quarter 4.88 3.75
Second Quarter 5.00 3.63
First Quarter 4.75 3.19
The Company has not paid any cash dividends since its inception. The
Company presently intends to employ its earnings in the continued development
and expansion of its business and does not expect to pay any cash dividends in
the foreseeable future. For a description of contractual dividend restrictions,
see Note C of Notes to the Consolidated Financial Statements and the discussion
in Management's Discussion and Analysis.
As of July 31, 2001, the Company had approximately 464 registered
shareholders of record.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data of the Company have been derived
from the Company's audited consolidated financial statements and should be read
in conjunction with the consolidated financial statements, related notes and
Management's Discussion and Analysis contained in this report. Information in
1998 and 1997 has been restated to reflect the Company's subsidiary, Outlook
Foods, Inc., as a discontinued operation.
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FISCAL YEAR ENDED MAY 31,
----------- ----------- ----------- ----------- -----------
2001 2000 1999 1998 1997 (1)
----------- ----------- ----------- ----------- -----------
(in thousands, except share and per share amounts)
EARNINGS STATEMENT DATA:
Net sales $ 70,660 $ 72,744 $ 68,427 $ 68,290 $ 73,495
Cost of goods sold 56,665 57,294 55,583 55,884 62,609
----------- ----------- ----------- ----------- -----------
Gross profit 13,995 15,450 12,844 12,406 10,886
Selling, general and administrative expenses 11,882 12,000 10,554 10,454 9,904
----------- ----------- ----------- ----------- -----------
Operating profit 2,113 3,450 2,290 1,952 982
Other income (expense):
Interest expense (372) (600) (627) (1,968) (2,778)
Interest and other income 497 619 609 1,409 746
Gain on sale of subsidiary -- -- -- -- 556
----------- ----------- ----------- ----------- -----------
Earnings (loss) from continuing operations
before income taxes 2,238 3,469 2,272 1,393 (494)
Income tax expense 942 1,451 877 640 58
----------- ----------- ----------- ----------- -----------
Earnings (loss) from continuing operations 1,296 2,018 1,395 753 (552)
Discontinued Operations
Loss from discontinued
operations before income taxes -- -- -- (916) (1,492)
Income tax expense (benefit) -- -- -- 4 (574)
----------- ----------- ----------- ----------- -----------
Loss from discontinued operations (2) -- -- -- (920) (918)
----------- ----------- ----------- ----------- -----------
Net earnings (loss) $ 1,296 $ 2,018 $ 1,395 $ (167) $ (1,470)
----------- ----------- ----------- ----------- -----------
Net earnings (loss) per common share - Basic
Continuing operations $ 0.34 $ 0.47 $ 0.30 $ 0.16 $ (0.12)
Discontinued operations -- -- -- (0.20) (0.20)
----------- ----------- ----------- ----------- -----------
Total $ 0.34 $ 0.47 $ 0.30 $ (0.04) $ (0.32)
----------- ----------- ----------- ----------- -----------
Net earnings (loss) per common share -Diluted
Continuing operations $ 0.34 $ 0.47 $ 0.30 $ 0.16 $ (0.12)
Discontinued operations -- -- -- (0.20) (0.20)
----------- ----------- ----------- ----------- -----------
Total $ 0.34 $ 0.47 $ 0.30 $ (0.04) $ (0.32)
----------- ----------- ----------- ----------- -----------
Weighted average number of common shares
outstanding - Basic 3,816,386 4,308,382 4,667,132 4,662,460 4,649,382
- Diluted 3,867,530 4,323,834 4,667,542 4,692,522 4,700,551
BALANCE SHEET DATA (AT FISCAL YEAR END):
Working capital $ 13,670 $ 12,452 $ 14,008 $ 14,185 $ 11,368
Total assets $ 43,078 $ 47,866 $ 51,766 $ 53,457 $ 67,620
Long-term debt, less current maturities $ 2,000 $ 2,800 $ 4,753 $ 7,061 $ 16,156
Shareholders' equity, including redeemable equity $ 32,062 $ 33,064 $ 34,678 $ 33,383 $ 33,471
(1) Includes the results of operations of the Company's subsidiary, Barrier
Films Corp. ("Barrier") until May 15, 1997
(2) Represents the Company's former food operations, which were sold in May
1998.
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ITEM 7. 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 past three fiscal years, and its
financial condition at fiscal year end. Statements that are not historical facts
(such as statements in future tense or using terms such as "believe" "expect" or
"anticipate") are 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 "Results of Operations - Fiscal 2001
Compared to Fiscal 2000".
RESULTS OF OPERATIONS
The following table shows, for the fiscal years indicated, certain
items from the Company's consolidated statements of operations expressed as a
percentage of net sales.
PERCENTAGE OF NET SALES
YEAR ENDED MAY 31,
------------------------------------------------------------------------
2001 2000 1999
---------------------- ---------------------- ----------------------
Net sales 100.0 % 100.0 % 100.0 %
Cost of goods sold 80.2 78.8 81.2
---------------------- ---------------------- ----------------------
Gross profit 19.8 21.2 18.8
Selling, general and administrative expenses 16.8 16.5 15.5
---------------------- ---------------------- ----------------------
Operating profit 3.0 4.7 3.3
Other income (expense):
Interest expense (0.5) (0.8) (0.9)
Interest and other income 0.7 0.9 0.9
---------------------- ---------------------- ----------------------
Earnings from operations
before income taxes 3.2 4.8 3.3
Income tax expense 1.4 2.0 1.3
---------------------- ---------------------- ----------------------
Net earnings 1.8 % 2.8 % 2.0 %
====================== ====================== ======================
FISCAL 2001 COMPARED TO FISCAL 2000
The Company's net sales were $70.7 million for fiscal 2001, down 2.7
% or $2.0 million from fiscal 2000 net sales of $72.7 million. While both the
Label and Graphics business units remained relatively flat, the Packaging
business unit had a net sales decrease of $2.1 million or 12.7%. The loss of
sales to AOL in the Graphics operations were substantially replaced by new
sales. The economic slowdown experienced in the last six months of fiscal 2001
negatively affected all business units' sales. Sales and cost of goods sold have
been restated to reflect EITF 00-10, "Accounting for Shipping and Handling
Fees" which requires that shipping costs now be included in that data.
Gross profit as a percentage of net sales decreased to 19.8% in
fiscal 2001 from 21.2% in fiscal 2000. The gross profit margin decreased $1.5
million from fiscal 2000 to $14.0 million. Inventory write-offs were
approximately $300,000 in fiscal 2001 and approximately $100,000 in fiscal 2000.
Management is continuing its programs to further reduce inventory to desired
levels and does not currently believe that additional material costs will be
incurred on the reductions. However, actual results are dependent on the ability
of the Company to find buyers for slower moving materials or to use materials in
the normal course of business. As a result of the implemented inventory
programs, raw material levels are down approximately $1.2 million compared to
last year. At May 31, 2001 work in process and finished goods inventory were
approximately $1.6 million higher than at May 31, 2000. This inventory increase
was done to facilitate the move of the Packaging operations to the Neenah
facility and to insure that clients would have the necessary finished goods
expected to draw upon during this transition time.
Selling, general and administrative expenses decreased approximately
$120,000 during fiscal 2001 and represent 16.8% of net sales as compared to
16.5% of net sales in fiscal 2000. Compared to fiscal 2000, the Company
experienced decreases in administrative wages of $270,000, professional services
of $180,000 and bad debt expense of $300,000. These were offset with increases
of $410,000 in sales wages and commissions, $140,000 in travel related expenses,
and $100,000 in other
10
expenses. These increased expenses reflect the Company's efforts to increase its
sales and marketing concentration given the relatively weak economy.
Interest expense decreased approximately $230,000 or 38.0% during
fiscal 2001. The reduction from fiscal 2000 is due to the nearly $2.0 million
decrease in total debt as well as the Company's increased financial position.
The Company did not have to use its line of credit facility during fiscal 2001.
During fiscal 2001, the Company retired its term note payable and one of its
Industrial Development Bonds. The remaining long-term debt consists solely of
the remaining Industrial Development Bond. The bond is scheduled to be prepaid
on October 1, 2001 when the Company will have vacated the property financed by
the bond.
Fiscal 2001 pretax earnings of $2.2 million represent a decrease of
$1.3 million or 37.1% from the fiscal 2000 level of $3.5 million. Pretax
earnings were 3.2% of net sales in fiscal 2001 as compared to 4.8% of net sales
in fiscal 2000.
Fiscal 2001 yielded net earnings of $0.34 per share. Fiscal 2000
yielded net earnings of $0.47 per share. Net earnings per share were also
affected by the Company's purchase of treasury stock during fiscal 2001. The
Company purchased 350,000 shares of treasury stock during fiscal 2001.
As previously announced, the Company is in the process of merging
its Outlook Packaging operations with its Outlook Label operations at Neenah,
Wisconsin. The merger is the result of the continuing losses in the Packaging
operations and an expected decrease in future contract volume from one of
Packaging's larger customers. The Company expects to have the move completed by
October 2001. The Company believes that this move will strategically position
Label and Packaging, as they will have both narrow web and wide web capabilities
within the same facility. Estimated future costs associated with the move
include relocation and employee stay bonuses estimated to be $300,000 and
start-up costs at the Web facility of approximately $50,000. These costs are
expected to be offset in full by the gain from the sale of the facility and the
potential sale of the Troy facility (although we cannot assure that the Troy
facility will be sold for a profit or at any particular time). The gain or loss
on the facility will be taken when the sale occurs; other charges relating to
the closure of Troy were taken during fiscal 2001.
FISCAL 2000 COMPARED TO FISCAL 1999
The Company's net sales were $72.7 million for fiscal 2000, up from
fiscal 1999 sales of $68.4 million. The Graphics business unit had a net
decrease in sales of $0.4 million; the Label segment and Packaging segments had
net increases of $3.9 million and $0.9 million, respectively. The Graphics
business unit had a gain of $4.0 million in the contract packaging market. This
gain was offset by decreases of $4.0 million in the paperboard packaging market
and $0.4 million in the direct marketing market.
Gross profit as a percentage of net sales improved to 21.2% in
fiscal 2000 from 18.8% in fiscal 1999. Gross profit increased $2.6 million from
1999 to $15.5 million. This improvement is primarily the result of the Company's
continued efforts to increase sales with relatively less material costs as a
percentage of sales. These increases were in the contract packaging and direct
mail businesses. The Company also benefited from its continuing program to more
efficiently use materials and personnel. Surplus equipment that had previously
been used for the sports and collectible picture card market were put to
alternative use or were sold. Inventory write-offs were approximately $100,000
in fiscal 2000 and $250,000 in fiscal 1999.
Selling, general and administrative expenses increased $1.4 million
in fiscal 2000 and represent 16.5% of net sales as compared to 15.4% in fiscal
1999. In fiscal 2000, the Company had increases of $0.6 million in wages and
benefits, $0.8 million in bad debt expense, and $0.4 million in professional
services. These increases were offset by decreases of $0.2 million in broker
commission expense and $0.2 million in other administrative expenses, of which
the majority represented recruiting and contract labor expense.
Interest expense decreased slightly from 1999 due to the decrease in
total debt. Interest expense as a percent of net sales decreased to 0.8% in
fiscal 2000 versus 0.9% in fiscal 1999. Approximately $100,000 of the interest
expense in fiscal 2000 is related to accelerated amortization of loan fees.
Fiscal 2000 pretax earnings of $3.5 million represent a $1.2 million
increase or 52.2% from fiscal 1999 of $2.3 million. Pretax earnings were 4.8% of
net sales in fiscal 2000 as compared to 3.3% of net sales in fiscal 1999.
Fiscal 2000 yielded net earnings of $0.47 per share. Fiscal 1999
yielded net earnings of $0.30 per share.
GENERAL FACTORS
11
Because of the project-oriented nature of the Company's business, the
Company's largest clients have historically tended to vary from year to year
depending on the number and size of the projects completed for these clients.
The loss of one or more principal clients or a change in the number or character
of projects for particular clients could have a material adverse effect on the
Company's sales volume and profitability. For a discussion regarding client
concentration and marketing factors, see Item 1-"Clients and Marketing", which
is incorporated herein by reference. The Company performs various services on
behalf of these clients such as printing, production of labels and contract
packaging. Changes in the Company's project mix and timing of projects make
predictability of the Company's future results very difficult. Changes in the
Company's project mix and client base could affect future sales volume and
profitability.
Even though the Company is looking to increase the volume of longer
term contract work, the Company expects that it will continue to experience
significant sales concentration given the relatively large size of projects
accepted for certain clients.
Clients 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 continues to concentrate its efforts on
increasing the number of clients with long-term contracts.
The Company uses complex and specialized equipment to provide its
services, and manufacture its products; therefore, the Company is dependent upon
the functioning of such machinery, and its ability to acquire and maintain
appropriate equipment.
The Company announced its intentions to merge the Outlook Packaging
facility with its Outlook Label facility in Neenah, Wisconsin in order to have a
Web facility that produced both narrow web and wide web applications within one
facility. That transition began during the fourth quarter of fiscal 2001 and is
expected to take until the second quarter of fiscal 2002 to complete. The
Company cannot assure that any such actions will be successfully implemented or
that they will not have a negative effect on the Company's financial statements.
LIQUIDITY AND CAPITAL RESOURCES
As shown on the Consolidated Statements of Cash Flows, fiscal 2001 cash
provided from operating activities was $5.8 million as compared to $7.1 million
in fiscal 2000. In fiscal 2001, the Company used $3.2 million to acquire
property, plant and equipment. In addition, the Company used cash to pay down an
additional $2.0 million of long-term debt and purchased $2.2 million of treasury
stock. In June 2000, the acquisition of Star Labels by the Company was financed
with cash generated from internal operations.
The Company's operating cash was increased by a $2.3 million decrease
in accounts and notes receivable. The Company's operating cash was reduced by a
$.3 million increase in inventory and a $0.5 million decrease in accounts
payable. During fiscal 2001, the Company provided $0.7 million for additional
reserves of receivables as compared to $1.0 million in fiscal 2000. The Company
continues to monitor its inventory requirements and the credit worthiness of its
clients. Management continues its program to reduce inventory to desired levels.
Raw material inventory at May 31, 2001 decreased $1.2 million from fiscal 2000.
Inventory at May 31, 2001 reflects an approximately $1.6 million increase in
work in process and finished goods inventory as compared to the previous year
end. This inventory increase will help insure that there are no client
interruptions during the transition of Outlook Packaging into the Outlook Label
facility.
Net cash used in financing activities was $4.1 million, of which
approximately $2.0 million represents the Company's net reduction of debt. The
Company has extinguished its term note payable and one of its Industrial
Development Bonds during fiscal 2001. The Company's long-term debt consists
solely of the remaining Industrial Development Bond. The Company plans to pay
off the remaining balance of the Industrial Development Bond in fiscal year 2002
with the proceeds from the sale of the Oak Creek facility. As previously
discussed, the Company also used $2.2 million to purchase treasury stock, which
the Company purchased in connection with the litigation settlement.
The Company maintains a credit facility with a bank, but has no
outstanding balances on the revolver as of May 31, 2001 or at July 31, 2001. The
facility provides for a maximum revolving credit commitment of $15.0 million
less approximately $2.8 million used for standby letters of credit. Interest on
the debt outstanding during the year varied with the Company's selection to have
the debt based upon margins over the bank determined preference 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.
12
In December 2000, the Company settled litigation with the purchaser of
its former Barrier subsidiary. Under that settlement the other party agreed to
pay $2.1 million, plus interest, less certain credits to the Company. The
Company also agreed to buy back 450,000 Company common shares owned by that
purchaser. All payments to the Company and purchases of 350,000 shares, were
made as scheduled in fiscal 2001. The Company has subsequently purchased the
remaining 100,000 shares. In July 2001, the obligor paid early all remaining
indebtedness. Due to the operation of credits and the timing, the Company
charged $200,000 against reserves in the first quarter of 2002.
Notes receivable includes $500,000 from the purchaser of
the Company's former food operations. The balance of those amounts is due in
fiscal 2002, with a payment of $125,000 having been received in August 2001.
The Company anticipates capital expenditures of approximately $3.0
million in fiscal 2002, 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.
The Company expects that the costs associated with the merger of the
Oak Creek facility into the Neenah facility will not have a material cash impact
on the financial statements and any losses will be offset by the gains incurred
on the sale of the building during the first quarter of fiscal 2002.
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 the transactions discussed above during recent fiscal years,
and may result in additional transactions during fiscal 2002 and beyond.
RECENTLY ISSUED FINANCIAL ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) No. 141, "Business
Combinations" and No. 142 , "Goodwill and Other Intangible Assets." The
statements eliminate the pooling of interests method of accounting for business
combinations and require that goodwill and certain intangible assets not be
amortized. Instead, these assets will be reviewed for impairment annually with
any related losses recognized in earnings when incurred. The statements will be
effective for the Company as of July 1, 2002 for existing goodwill and
intangible assets and for business combinations initiated after June 30, 2001.
The Company has the option to early adopt these pronouncements during the first
quarter of fiscal year 2002. The Company is currently assessing whether to early
adopt these pronouncements; however the adoption of these statements are not
expected to have a material effect on the Company's financial position or
results of operations.
OTHER
In general, the Company believes that the effects of inflation on the
Company have not been material in recent years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 last fiscal
year, May 31, 2000.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements (including the notes thereto and the
accountants' report thereon) required by this item are set forth on pages F-1
and following of this Report, and are incorporated herein by reference. See also
"Index to Financial Statements and Financial Statement Schedules" following Item
14 herein.
Quarter
-----------------------------------------------
2001 First Second Third Fourth
- ---- ------ ------ ----- ------
Net sales $24,073 $18,234 $14,484 $13,869
Gross profit 4,055 5,678 1,702 2,560
Net income (loss) 547 1,321 (630) 58
Earnings (loss) per common share:
Basic $0.14 $0.34 ($0.16) $0.02
Diluted $0.14 $0.33 ($0.16) $0.02
Quarter
-----------------------------------------------
2000 First Second Third Fourth
- ---- ----- ------ ----- ------
Net sales $18,162 $16,293 $18,053 $20,236
Gross profit 3,388 3,945 3,485 4,632
Net income (loss) 353 719 303 643
Earnings (loss) per common share:
Basic $0.08 $0.16 $0.07 $0.16
Diluted $0.08 $0.16 $0.07 $0.16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information in response to this item is incorporated herein by
reference to "Election of Directors" and to "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's Proxy Statement to be filed pursuant to
Regulation 14A for its Annual Meeting of Shareholders to be held on or about
October 18, 2001 ("2001 Annual Meeting Proxy Statement") and "Executive Officers
of the Registrant" in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to "Election of Directors -- Directors' Fees"
and "Executive Compensation" in the 2001 Annual Meeting Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information in response to this item is incorporated herein by
reference to "Security Ownership of Certain Beneficial Owners and Management" in
the 2001 Annual Meeting Proxy Statement.
14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this item is incorporated by reference to
"Certain Transactions" in the 2001 Annual Meeting Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED:
1 and 2. Financial Statements and Financial Statement
Schedules. See the following "Index to Financial
Statements and Financial Statement Schedules," which
is incorporated herein by reference.
3. Exhibits. See Exhibit Index included as last part of
this report, which is incorporated herein by
reference.
(b) REPORTS ON FORM 8-K:
None filed during the fourth quarter of fiscal 2001
15
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of the Company and
subsidiaries are included in this Form 10-K Annual Report:
PAGE NUMBER
Report of Independent Accountants.............................................. F-2
Consolidated Balance Sheets as of May 31, 2001 and 2000........................ F-3
Consolidated Statements of Operations for the years ended May 31, 2001, 2000
and 1999 ............................................................. F-4
Consolidated Statements of Shareholders' Equity for the years ended
May 31, 2001, 2000 and 1999........................................... F-5
Consolidated Statements of Cash Flows for the years ended May 31, 2001,
2000 and 1999......................................................... F-6
Notes to Consolidated Financial Statements..................................... F-7
The following financial statement schedule of the Company, and the
accountants' report thereon, appear on the indicated pages in this Form 10-K
Annual Report:
PAGE NUMBER IN 10-K
-------------------
Statement of Management Responsibility
for Financial Statements.............................................. F-17
Report of Independent Accountants on
Financial Statement Schedules......................................... F-18
Schedule II -- Valuation and Qualifying Accounts............................... F-19
F-1
16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Outlook Group Corp. and Subsidiaries
Neenah, Wisconsin
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity, and cash
flows present fairly, in all material respects, the financial position of
Outlook Group Corp. and its subsidiaries at May 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended May 31, 2001, in conformity with accounting principles accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
June 27, 2001, except as to certain
information included in Note G
for which the date is July 24, 2001
F-2
17
OUTLOOK GROUP CORP.
CONSOLIDATED BALANCE SHEETS
MAY 31,
-----------------------------------------
2001 2000
------------------- ------------------
(IN THOUSANDS EXCEPT SHARE AND
ASSETS PER SHARE AMOUNTS)
Current Assets
Cash and cash equivalents $ 757 $ 1,981
Accounts receivable, less allowance for
doubtful accounts of $586 and $774, respectively 8,336 10,088
Notes receivable-current 2,021 550
Inventories 6,754 6,390
Deferred income taxes 695 707
Income taxes refundable 32 -
Other 416 719
------------------- ------------------
Total current assets 19,011 20,435
Notes receivable-non-current, less allowance for
doubtful accounts of $477 and $777, respectively 175 2,713
Property, plant, and equipment
Land 803 543
Building and improvements 12,012 11,386
Machinery and equipment 40,180 38,323
------------------- ------------------
52,995 50,252
Less: accumulated depreciation (30,473) (26,984)
------------------- ------------------
22,522 23,268
Other assets 1,370 1,450
------------------- ------------------
Total assets $ 43,078 $ 47,866
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 800 $ 1,953
Accounts payable 2,044 2,351
Accrued liabilities:
Salaries and wages 1,572 2,120
Other 926 1,559
------------------- ------------------
Total current liabilities 5,342 7,983
Long-term debt, less current maturities 2,000 2,800
Deferred income taxes 3,675 4,019
Commitments and contingencies (Note G) - -
Redeemable equity 641 -
Shareholders' equity
Cumulative preferred stock, $.01 par value - authorized
1,000,000 shares; none issued - -
Common stock, $.01 par value - authorized 15,000,000 shares;
5,137,382 and 5,127,132 shares issued and outstanding, respectively 51 51
Additional paid-in capital 18,187 18,549
Retained earnings 23,996 22,700
Officer loans (228) (100)
------------------- ------------------
42,006 41,200
Less 1,596,563 and 1,246,563 shares of treasury stock at cost, respectively (10,586) (8,136)
------------------- ------------------
Total shareholders' equity 31,421 33,064
------------------- ------------------
Total liabilities and shareholders' equity $ 43,078 $ 47,866
=================== ==================
The accompanying notes are an integral part of these financial statements.
F-3
18
OUTLOOK GROUP CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MAY 31,
----------------------------------------------------
2001 2000 1999
---------------- ---------------- ----------------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE
AMOUNTS)
Net sales $ 70,660 $ 72,744 $ 68,427
Cost of goods sold 56,665 57,294 55,583
---------------- ---------------- ----------------
Gross profit 13,995 15,450 12,844
Selling, general, and
administrative expenses 11,882 12,000 10,554
---------------- ---------------- ----------------
Operating profit 2,113 3,450 2,290
Other income (expense):
Interest expense (372) (600) (627)
Interest and other income 497 619 609
---------------- ---------------- ----------------
Earnings from operations
before income taxes 2,238 3,469 2,272
Income tax expense 942 1,451 877
---------------- ---------------- ----------------
Net earnings $ 1,296 $ 2,018 $ 1,395
================ ================ ================
Net earnings per share - Basic $ 0.34 $ 0.47 $ 0.30
================ ================ ================
Net earnings per share - Diluted $ 0.34 $ 0.47 $ 0.30
================ ================ ================
Weighted average number of shares outstanding
Basic 3,816,386 4,308,382 4,667,132
================ ================ ================
Diluted 3,867,530 4,323,834 4,667,542
================ ================ ================
The accompanying notes are an integral part of these financial statements.
F-4
19
OUTLOOK GROUP CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL
------------------------- PAID-IN RETAINED OFFICER
SHARES AMOUNT CAPITAL EARNINGS LOANS
- -------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
Balance at June 1, 1998 5,117,132 $ 51 $ 18,494 $ 19,287 -
Net earnings - - - 1,395 -
Officer loan - - - - (100)
---------- -------- --------- --------- --------
Balance at May 31, 1999 5,117,132 51 18,494 20,682 (100)
Exercise of employee stock options 10,000 - 55 - -
Purchase of treasury stock - - - - -
Net earnings - - - 2,018 -
---------- -------- --------- --------- --------
Balance at May 31, 2000 5,127,132 51 18,549 22,700 (100)
Exercise of employee stock options 10,250 - 41 - -
Officer loans (128)
Redeemable equity (403)
Purchase of treasury stock - - - - -
Net earnings - - - 1,296 -
---------- -------- --------- --------- --------
Balance at May 31, 2001 5,137,382 $ 51 $ 18,187 $ 23,996 $ (228)
========== ======== ========= ========= ========
- ----------------------------------------------------------------------------------------
TREASURY STOCK
--------------------------
SHARES AMOUNT TOTAL
- ----------------------------------------------------------------------------------------
Balance at June 1, 1998 450,000 $ (4,449) $ 33,383
Net earnings - - 1,395
Officer loan - - (100)
---------- ----------- ----------
Balance at May 31, 1999 450,000 (4,449) 34,678
Exercise of employee stock options 9,312 (55) -
Purchase of treasury stock 787,251 (3,632) (3,632)
Net earnings - - 2,018
---------- ----------- ----------
Balance at May 31, 2000 1,246,563 (8,136) 33,064
Exercise of employee stock options - - 41
Officer loans (128)
Redeemable equity (403)
Purchase of treasury stock 350,000 (2,450) (2,450)
Net earnings - - 1,296
---------- ----------- ----------
Balance at May 31, 2001 1,596,563 $ (10,586) $ 31,420
========== =========== ==========
F-5
20
OUTLOOK GROUP CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31,
-----------------------------------------------------
2001 2000 1999
----------------- ---------------- ----------------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,296 $ 2,018 $ 1,395
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,733 3,820 3,910
Provision for doubtful accounts 710 1,010 188
(Gain) loss on sale of assets (186) 154 93
Deferred income taxes (332) (655) 610
Change in assets and liabilities, net of effects of acquisitions
and disposals of businesses:
Accounts and notes receivable 2,322 790 1,154
Inventories (311) (1,491) 922
Income taxes (671) 1,515 15
Accounts payable (474) (871) (1,481)
Accrued liabilities (588) 741 (580)
Other 262 46 162
----------- ----------- -----------
Net cash provided by operating activities 5,761 7,077 6,388
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (3,237) (1,420) (3,397)
Proceeds from sale of assets 504 661 37
Purchase of businesses - - (2,492)
Loan to officers (128) - (100)
----------- ----------- -----------
Net cash used in investing activities (2,861) (759) (5,952)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in book overdraft - (337) 337
Payments on long-term borrowings (1,953) (2,308) (1,658)
Exercise of stock options 41 - -
Purchase of treasury stock and redeemable equity (2,212) (3,632) -
----------- ----------- -----------
Net cash used in financing activities (4,124) (6,277) (1,321)
----------- ----------- -----------
Net (decrease) increase in cash (1,224) 41 (885)
Cash and cash equivalents at beginning of year 1,981 1,940 2,825
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 757 $ 1,981 $ 1,940
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-6
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES
The following is a summary of Outlook Group Corp. and its wholly owned
subsidiaries ("Company") significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements:
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all the accounts of
Outlook Group Corp. and its wholly owned subsidiaries: Outlook Label Systems,
Inc. ("Outlook Label"); Outlook Foods, Inc. ("Outlook Foods"), which is
inactive, and Outlook Packaging, Inc. ("Outlook Packaging").
All inter-company accounts and transactions have been eliminated in the
preparation of the consolidated financial statements.
REVENUE RECOGNITION
Revenue is recognized by the Company when all of the following criteria
are met: persuasive evidence of an arrangement exists; delivery has occurred;
the seller's price to the buyer is fixed or determinable; and collectibility is
reasonably assured. These criteria are satisfied, and accordingly, revenue is
recognized upon shipment by the Company.
SHIPPING AND HANDLING FEES AND COSTS
During the fourth quarter of fiscal year 2001, the Company adopted the
provisions of the Emerging Issues Task Force ("EITF") Issue No, 00-10
"Accounting for Shipping and Handling Fees and Costs." In accordance with the
provisions of EITF 00-10, certain shipping and handling fees and costs which the
Company had previously recorded on a net basis as a component of net sales are
reflected in costs of goods sold, as appropriate.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, demand deposits, and short-term investments with maturities of
three months or less at the time of purchase.
ACCOUNTS AND NOTES RECEIVABLE
As of May 31, 2001 and 2000, 33% and 13%, respectively, of the accounts
receivable balance relates to three clients.
Notes receivable at May 31, 2001 and 2000 were $2,196,000 and
$3,263,000, respectively. The amounts recorded are net of reserves for potential
uncollectibility of $477,000 and $777,000, respectively. The carrying value of
these notes approximates fair value, as they are interest bearing at rates that
approximate market rates of interest.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
recorded using the straight- line method over the estimated useful lives of the
assets as follows:
F-7
22
Buildings and improvements 10-40 years
Machinery and equipment 5-10 years
Depreciation expense was $3,611,000, $3,701,000, and $3,825,000 for the
years ended May 31, 2001, 2000 and 1999, respectively. Significant additions or
improvements extending the useful lives of assets are capitalized. Repairs and
maintenance are charged to earnings as incurred. Upon retirement or disposal of
assets, the applicable costs and accumulated depreciation are eliminated from
the accounts and the resulting gain or loss is included in income.
Applying the criteria established by FAS 121, the Company determined
that certain assets were impaired and recorded a reserve of $300,000 and
$438,000 as of May 31, 2001 and 2000, respectively, based upon fair market value
of the assets.
INTANGIBLE ASSETS
Intangible assets are included within other assets and include
goodwill, which represents costs in excess of net assets of businesses acquired,
loan costs and capital lease placement fees. These intangible assets are being
amortized over periods ranging from 4 years to 25 years, using the straight-line
method. The Company continually reviews goodwill and other intangible assets to
assess recoverability based upon estimated future results of operations and cash
flows at the aggregate business unit level.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 ("FAS 123"),
Accounting for Stock-Based Compensation," encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has elected to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations.
INCOME TAXES
Deferred tax assets, net of any applicable valuation allowance, and
deferred tax liabilities are established for the future tax effects of temporary
differences between the bases of assets and liabilities for financial and income
tax reporting purposes, as measured by applying current tax laws.
EARNINGS PER SHARE
Basic earnings per share are 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.
The following is a reconciliation of the average shares outstanding
used to compute basic and diluted earnings per share.
2001 2000 1999
----------------- ----------------- -----------------
Basic 3,816,386 4,308,382 4,667,132
Effect of Dilutive Securities -
Stock Options 51,144 15,452 410
----------------- ----------------- -----------------
Diluted 3,867,530 4,323,834 4,667,542
================= ================= =================
F-8
23
RECLASSIFICATIONS
Certain reclassifications have been made in the prior years' financial
statements to conform to the current year's presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards FAS 133 "Accounting for Derivative
Instruments and Hedging Activities." FAS 133 established standards for
accounting for derivatives and hedging activities. The effective application
date of this standard has been deferred by the release of FAS 137 "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133." FAS 133 is effective for the Company on July 1,
2002. The adoption is not expected to have any impact on the Company as it does
not have any derivative financial instruments.
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets." The
statements eliminate the pooling of interests method of accounting for business
combinations and require that goodwill and certain intangible assets not be
amortized. Instead, these assets will be reviewed for impairment annually with
any related losses recognized in earnings when incurred. The statements will be
effective for the Company as of July 1, 2002 for existing goodwill and
intangible assets and for business combinations initiated after June 30, 2001.
The Company has the option to early adopt these pronouncements during the first
quarter of fiscal year 2002. The Company is currently assessing whether to early
adopt these pronouncements; however the adoption of these statements are not
expected to have a material effect on the Company's financial position or
results of operations
NOTE B - INVENTORIES
Inventories consist of the following at May 31
2001 2000
----------------------------
(in thousands)
Raw materials $ 2,078 $ 3,306
Work in process 1,881 1,092
Finished Goods 2,795 1,992
------------ ------------
Total $ 6,754 $ 6,390
============ ============
F-9
24
NOTE C - LONG-TERM DEBT
Long-term debt consists of the following at May 31:
2001 2000
-------------- --------------
(in thousands)
Term note payable, due in quarterly principal installments ranging from $369,327
to $383,334 from June 16, 2000 through September 16, 2000, plus interest at a
weighted average interest rate $ - $ 753
Industrial development bond, due in semi-annual principal installments of
$400,000 from February 1, 2000 through August 1, 2004, plus interest at a
floating rate determined by a remarking agent (3.10% at May 31, 2001) 2,800 3,600
Industrial development bond, due in annual principal installments of $400,000
through September 1, 2000, plus interest at a floating rate determined by a
remarking agent - 400
----------- -----------
2,800 4,753
Less current maturities 800 1,953
----------- -----------
$ 2,000 $ 2,800
============= =============
At May 31, 2001, future maturities of long-term debt were as follows:
(in thousands)
--------------
2002 $ 800
2003 800
2004 800
2005 400
------------
Total $ 2,800
============
On May 12, 1999, the Company entered into an Amended and Restated Loan
and Security Agreement (the "Agreement") with its bank, which provided a revised
credit facility. Under the Agreement, the lender provides a $15,000,000 credit
facility comprised of a revolving line of credit commitment (the "Revolver") and
letters of credit. Borrowings under the Revolver bear interest, at the Company's
option, at a bank determined reference rate or an IBOR based rate. At May 31,
2001 the Company had no borrowings under the Revolver and had outstanding
letters of credit in the amount of $2,800,000 in support of the outstanding
industrial development bond.
Substantially all of the Company's assets have been pledged as
collateral on the Agreement. The creditor party to the revolving credit
arrangement has a priority security interest over the remaining creditors. The
revolving credit agreement and industrial development bond obligation are
subject to the terms of certain agreements which contain provisions setting
forth, among other things, fixed charges restrictions, net worth and
debt-to-equity requirements, and restrictions on property and equipment
additions, loans, investments, other borrowings, and acquisitions and
redemption's of the Company's stock or the issuance of stock except for cash.
Additionally, the Company may not pay cash dividends without the prior consent
of certain of its lenders. The carrying amounts of the Company's long-term debt
approximates its fair value based on rates currently available to the Company
for long-term borrowings with similar terms and remaining maturities.
As a result of the sale of the Outlook Packaging facility in June 2001,
the Company intends to use the proceeds to pay off the remaining long-term debt
associated with the industrial development bond when the facility is vacated.
NOTE D - EMPLOYEE BENEFIT PLANS
The Company offers a 401(k) savings plan for all employees that meet
certain eligibility requirements. Employee contributions to the plan are made
through payroll deductions. In addition, the Company matches 40-50% of the first
6% of each employee's contribution. Employer matching contributions under the
401(k) plan for the years ended May 31, 2001, 2000, and 1999 were $270,000,
$217,000, and $184,000, respectively.
F-10
25
The Company is not obligated to provide any post-retirement medical or
life insurance benefits or any post-employment benefits to its employees.
NOTE E - INCOME TAXES
The reconciliation of income tax computed at the statutory federal income tax
rate to the Company's effective income tax rate, expressed as a percentage of
pre-tax earnings is as follows:
2001 2000 1999
-------------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net 5.4% 4.2% 6.9%
Other 2.7% 3.6% (2.3%)
-------------------------------------
42.1% 41.8% 38.6%
=====================================
The provision for income taxes consist of the following:
2001 2000 1999
-------------------------------------
(in thousands)
Current:
Federal $ 1,047 $ 1,845 $ 138
State 227 261 129
-------------------------------------
1,274 2,106 267
-------------------------------------
Deferred:
Federal (259) (619) 501
State (73) (36) 109
-------------------------------------
(332) (655) 610
-------------------------------------
$ 942 $ 1,451 $ 877
=====================================
The components of the net deferred income tax liability as of May 31, 2001 and
2000 were as follows:
2001 2000
-------------------------
(in thousands)
Deferred tax assets:
Employee benefits $ 216 $ 219
Inventory 98 100
Accounts receivable 214 201
Tax carryforwards 372 362
Other - 26
--------- ---------
900 908
--------- ---------
Deferred tax liabilities:
Property, plant and equipment 3,765 4,072
Barrier installment sale 111 131
Other 4 17
--------- ---------
3,880 4,220
-------------------------
Net deferred income tax liability $ 2,980 $ 3,312
=========================
The Company has certain loss and tax credit carryforwards for state income tax
purposes that, net of related federal income taxes, approximate $372,000. Those
state carryforwards expire in varying amounts through 2016.
F-11
26
NOTE F - STOCK OPTIONS
In 1990, the shareholders approved the 1990 Stock Option Plan (the
"1990 Plan") that provided for the granting of options as an incentive to
officers and certain key salaried employees. The 1990 Plan provided for the
issuance of up to 200,000 shares of common stock at an exercise price not less
than the market price of the common stock on the date of the grant. Options
granted prior to 1996 became exercisable six months after the date of grant.
Options granted during 1996 and 1997 became exercisable one year after the date
of grant. Options granted during 1999 became exercisable six months after grant.
In addition, during fiscal 1997, the Company granted its non-employee directors
stock options for a total of 18,000 shares apart from the 1990 Plan. As of
May 31, 2001 there were 132,500 options outstanding under the 1990 Plan
excluding the directors shares. No additional options can be awarded under the
1990 Plan.
In 1999, the shareholders approved the 1999 Stock Option Plan ("the
1999 Plan") that also provides for the granting of stock as an incentive to
officers, directors and certain key salaried employees. The 1999 Plan provides
for the issuance of options on up to 200,000 shares of common stock at an
exercise price that may not be less than the market price of the common stock on
the date of the grant. Options granted under the 1999 plan become exercisable
over a three-year vesting period from the date of the grant. As of May 31, 2001
there were 100,000 options outstanding under the 1999 Plan.
Transactions under the option plans and the directors options during the years
ended May 31, 2001, 2000, and 1999 are summarized as follows:
2001 2000 1999
---------------------------------------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------- ------------ -------------- ------------ -------------- ------------
Options outstanding, beginning of year 280,750 $ 4.62 161,000 $ 4.46 133,000 $ 6.01
Granted 5,000 5.69 151,750 4.86 86,500 3.94
Exercised (10,250) 4.10 (10,000) 5.50 - -
Expired (25,000) 4.57 (22,000) 4.72 (58,500) 4.47
------------- ------------ -------------- ------------ -------------- ------------
Options outstanding, end of year 250,500 $ 4.66 280,750 $ 4.62 161,000 $ 4.46
============= ============ ============== ============ ============== ============
The outstanding stock options at May 31, 2001 have a range of exercise
prices between $3.94 and $5.81 per share, a weighted average contractual life of
approximately 5 years, and a maximum term of 10 years from the date of grant. At
May 31, 2001, 250,500 options are exercisable at a weighted average exercise
price of $4.66. The weighted average fair value at date of grant for options
granted during 2001 and 2000 was $1.48 and $1.49, respectively. The fair value
of options, at date of grant, for options granted in 2001 and 2000 was estimated
using the Black-Scholes option-pricing model with the following assumptions:
2001 2000
---- ----
Expected life (years) 2 2
Risk -free interest rate 4.79 % 5.77% - 6.77%
Expected volatility 41.1% 45.1%
Expected dividend yield -- --
The Company applies Accounting Principles Board Opinion No. 25, under
which no compensation cost has been recognized in the statement of operations.
Had compensation cost been determined under an alternative method suggested by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the pro forma effect on the 2001, 2000 and 1999 net earnings
would have been $(4,300), ($135,000), and $(95,000), respectively. The pro forma
effect on the 2001, 2000, and 1999 earnings per share for both basic and diluted
would have been $(.00), $(.03), $(.02), respectively.
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company has a number of operating lease agreements primarily
involving manufacturing equipment and warehouse space. These leases are
non-cancelable and expire on various dates through 2007.
F-12
27
The following is a schedule, by fiscal year, of the rental payments due
under non-cancelable operating leases, as of May 31, 2001:
(in thousands)
--------------------
2002 $ 2,462
2003 2,282
2004 2,230
2005 2,230
2006 1,602
Thereafter 2,794
--------------------
Total $13,600
====================
Rent expense for the years ended May 31, 2001, 2000 and 1999, was
$2,196,000, $2,308,000, and $2,318,000 respectively.
Outlook Packaging, Inc., a subsidiary of the Company, has been sued by
Health Jet, Inc. d/b/a Chung's Groumet Foods (Chung's) in the United States
District Court of the Eastern District of Wisconsin (case number OO C 0639).
This suit alleges various causes for action and claims damages of $4.9 million.
The Company has filed a third party complaint against Mantz & Associates seeking
indemnification in connection with the action.
The Company has answered denying liability and has begun non-binding
mediation with Chung's in an attempt to settle this suit. At this time, a final
agreement has not been formalized and there can be no assurance that a
settlement will be reached or as to the terms of such a settlement.
Outlook Group was a defendant in an action captioned Barrier-NY versus
Outlook Group and Joseph Baksha, filed in 1999. This suit alleged various causes
of action which arose out of the acquisition of BFC by Barrier-NY from Outlook
Group in May 1997. Barrier's complaint had multiple counts, with overlapping
claims that can be summarized as: (a) various allegations and causes of action
arising from the alleged failure of Outlook Group to comply with closing
obligations relating to consents by former BFC officers under their employment
agreement; (b) alleged tortuous interference with Barrier-NY's client
relationship with a client of BFC prior to the transaction; (c) various claims
that Outlook Group failed to comply with its obligations under a related Rebate
and Supply Agreement; (d) allegations that Outlook Group either misappropriated
or disclosed certain confidential BFC information, and (e) a request for a
judgment declaring the 1997 promissory note executed by Barrier-NY in the BFC
acquisition unenforceable, null and void. Because the complaint presented
overlapping claims, and requested multiple awards of damages for the same
underlying facts, determining the actual amount at issue was uncertain; however,
all of the claims made totaled $27.65 million, plus elimination of the note,
plus requests for costs and punitive damages, without adjusting the claims for
multiple requests resulting from overlapping causes of action.
Outlook Group denied liability and counterclaimed for more than $2.8
million, plus costs and other damages, as a result of Barrier-NY's failure to
make payments due to Outlook Group under a promissory note and the Purchase
Agreement in connection with the sale of BFC. At May 31, 2000, under the note
and the Purchase Agreement, an aggregate of approximately $2.8 million (plus
costs and expenses of collection) was due to Outlook Group by Mr. Shemesh's
affiliates; unpaid amounts were subject to interest at 12% per annum.
In a separate matter, Outlook Packaging, Inc., a wholly owned
subsidiary of Outlook Group, commenced an action against BFC in early 2000. In
that suit, which sought monetary damages, Outlook Packaging alleged
misrepresentation,
F-13
28
tortuous interference and breach of warranty against BFC, based upon certain
films produced by BFC for Outlook Packaging. BFC answered the complaint making
counterclaims against Outlook Packaging that mirrored Barrier-NY's claims in the
litigations discussed above.
In December 2000, the Company and Barrier-NY and their affiliates
settled this litigation. Neither party admitted liability as part of the
settlement. Pursuant to the settlement agreement, Barrier-NY agreed to pay
Outlook Group $2.15 million (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. The
maximum due during fiscal 2001 was $2.15 million. At May 31, 2001, a total of
$1.52 million remained due, and payments were current at that date. The
remaining principal amounts were due in monthly installments of $39,000. Amounts
due after April 15, 2001, bore interest at 8.3% per annum, although Barrier-NY
was entitled to a credit against, or reduction of, some or all interest due
under circumstances provided in the settlement agreement. A final lump sum
payment of $265,000 was due in 2004. The Company had adequate reserves recorded
for the settlement, thus the settlement did not have a material impact on the
Company's operating results for the fiscal year ended May 21, 2001.
On July 23, 2001, Barrier-NY repaid in full all amounts due to Outlook
Group, net of credits of approximately $220,000 due to Barrier-NY. As a result,
the remaining notes receivable balance due from Mr. Shemesh was reclassified as
a current asset as of May 31, 2001.
In addition, as part of the December 2000 settlement agreement, Outlook
Group agreed to purchase up to 450,000 shares of Outlook Group common stock
owned by Mr. Shemesh, president of Barrier and at the time, a greater than 10%
shareholder of the Company, for $7.00 per share. The 450,000 shares of common
stock owned by Mr. Shemesh have been recorded as redeemable equity based on the
market value of the common stock at the date of the settlement. In addition, Mr.
Shemesh could receive certain credits of up to $0.275 per share sold (partially
included in the amounts stated above) against amounts later due by him under the
settlement agreement. Mr. Shemesh had the option, but not an obligation, to
tender shares on specified dates through July 20, 2001. Through May 31, 2001,
Mr. Shemesh tendered, and Outlook Group repurchased 350,000 shares of common
stock from Mr. Shemesh under these arrangements. On July 24, 2001, Mr. Shemesh
subsequently tendered, and Outlook Group purchased, the remaining 100,000
shares, and Outlook Group paid Mr. Shemesh credits of $104,000, in addition to
those allowed to Barrier-NY, which are included above.
The settlement agreement was accompanied by specified releases. Various
prior promissory notes and other arrangements between the parties have been
terminated.
NOTE H - OPERATING SEGMENTS AND MAJOR CLIENTS
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, and
collateral information management and distribution services. Outlook Label
Systems manufactures items such as coupons, pressure sensitive specialty labels,
printed vinyl cards, cartons, and sweepstakes and specialty game pieces.
Flexographic printing and laminating of flexible packaging films is handled by
the Outlook Packaging business unit.
The accounting policies of the reportable segments are the same as
those described in Note A, Summary of Significant Accounting Policies. 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 years ended May 31, 2001, 2000
and 1999 are as follows:
F-14
29
LABEL
GRAPHICS SYSTEMS PACKAGING ALL OTHER TOTAL
-------- ------- --------- --------- -----
2001
Net sales $ 38,019 $ 18,829 $ 14,627 $ (815) $ 70,660
Depreciation and amortization 1,860 898 947 28 3,733
Interest income 33 1 1 179 214
Interest expense - 2 218 152 372
Income tax expense (benefit) 601 526 (185) - 942
Net earnings (loss) 991 880 (452) (123) 1,296
Total assets $ 25,043 $ 7,009 $ 11,026 $ - $ 43,078
2000
Net sales $ 37,820 $ 18,744 $ 16,760 $ (580) $ 72,744
Depreciation and amortization 1,963 889 938 30 3,820
Interest income 5 - 7 417 429
Interest expense - 39 246 315 600
Income tax expense (benefit) 515 1,085 (353) 204 1,451
Net earnings (loss) 2,185 1,745 (639) (1,273) 2,018
Total assets $ 27,333 $ 8,046 $ 12,487 $ - $ 47,866
1999
Net sales $ 38,261 $ 14,868 $ 15,855 $ (557) $ 68,427
Depreciation and amortization 1,961 917 1,003 29 3,910
Interest income - - 5 439 444
Interest expense - 73 228 326 627
Income tax expense (benefit) 986 505 (643) 29 877
Net earnings (loss) 1,629 890 (1,140) 16 1,395
Total assets $ 31,154 $ 7,516 $ 13,097 $ - $ 51,767
During the years ended May 31, 2001, 2000, and 1999, the Company had
sales to certain clients that accounted for more than 10% of the Company's net
sales as follows:
2001 2000 1999
--------------------------------------------
Kimberly Clark 10% 8% 8%
AOL 5% 12% 10%
F-15
30
NOTE I - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year:
2001 2000 1999
-------------- ------------- ------------
(IN THOUSANDS)
Interest $ 401 $ 621 $ 691
Income taxes, net $1,945 $ 591 $ 242
NOTE J - ACQUISITIONS
In November 1997, the Company acquired selected operations of General
Converting, another flexible packaging company, which Outlook Packaging was able
to continue in its existing Oak Creek facilities. In February 1999, the Company
acquired specified additional business of Plicon Corporation. In October 1998,
the Company acquired selected assets of Precision Paper Converters, Inc., a
paper sheeting company; the acquired assets and operation have been integrated
into Outlook Graphics. In March 1999, the Company acquired certain assets of
Kostner Graphics, a commercial printing company, which the Company has
integrated into its Outlook Graphics operations. In June 2000, the Company
acquired the business and assets of Star Label, a division of Docusystems. The
Company has since merged this business into its Neenah, Wisconsin facility.
These acquisitions included both acquisitions of assets and businesses. The
acquisitions of the business in 1999 resulted in a total purchase price of $2.5
million and the resulting goodwill was $325,000. Pro forma statements of
operations for fiscal 2001, 2000 and 1999 reflecting these acquisitions are not
shown, as they would not differ materially from the reported results.
NOTE K - FOURTH QUARTER RESULTS
Fourth quarter write-offs related to receivables and inventories
decreased the fiscal 2001 fourth quarter earnings before income tax by
approximately $333,000.
F-16
31
STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements and accompanying information were
prepared by and are the responsibility of management. The statements were
prepared in conformity with accounting principles generally accepted in the
United States of America and, as such, include amounts that are based on
management's best estimates and judgments.
The internal control systems are designed to provide reliable financial
information for the preparation of financial statements, to safeguard assets
against loss or unauthorized use and to ensure that transactions are executed
consistent with company policies and procedures. Management believes that
existing internal accounting control systems are achieving their objectives and
that they provide reasonable assurance concerning the accuracy of the financial
statements.
Oversight of management's financial reporting and internal accounting
control responsibilities is exercised by the Board of Directors, through an
Audit Committee that consists solely of outside directors. The committee meets
periodically with financial management to ensure that it is meeting its
responsibilities and to discuss matters concerning auditing, internal accounting
control and financial reporting. The independent accountants have free access to
meet with the Audit Committee without management's presence.
F-17
32
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Shareholders
Outlook Group Corp. and Subsidiaries
Neenah, Wisconsin
Our audits of the consolidated financial statements referred to in our
report dated June 27, 2001 (which report and consolidated financial statements
are included in this Form 10-K) also included an audit of the financial
statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion,
this financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
June 27, 2001
F-18
33
OUTLOOK GROUP CORP. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
ADDITIONS
BALANCE CHARGED TO
BEGINNING COSTS AND BALANCE
OF YEAR EXPENSES DEDUCTIONS END OF YEAR
-------------------------------------------------------------------------------------
Year Ended May 31, 2001
Allowance for doubtful accounts $ 774 $ 710 $ 898 $ 586
Year Ended May 31, 2000
Allowance for doubtful accounts 771 1,010 1,007 774
Year Ended May 31, 1999
Allowance for doubtful accounts 1,575 188 992 771
F-19
34
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
OUTLOOK GROUP CORP.
By /s/ Richard C. Fischer August 8, 2001
---------------------------------------------------- ----
Richard C. Fischer, Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard C. Fischer, Joseph J. Baksha and
Paul M. Drewek, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
to this report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES INDICATED, AS OF AUGUST 8, 2001.
SIGNATURE AND TITLE SIGNATURE AND TITLE
------------------- -------------------
/s/ Richard C. Fischer /s/ Jeffry H. Collier
- -------------------------------------------------------------- -----------------------------------
Richard C. Fischer, Chairman, Chief Jeffry H. Collier, Director
Executive Officer and Director
(principal executive officer)
/s/ Paul M. Drewek /s/ James L. Dillon
- -------------------------------------------------------------- -----------------------------------
Paul M. Drewek James L. Dillon, Director
Chief Financial Officer
(principal financial and accounting officer)
/s/ Joseph J. Baksha /s/ Pat Richter
- -------------------------------------------------------------- -----------------------------------
Joseph J. Baksha, President and Chief Operating Officer; Pat Richter, Director
Director
/s/ Harold J. Bergman /s/ A. John Wiley, Jr.
- -------------------------------------------------------------- -----------------------------------
Harold J. Bergman, Director A. John Wiley, Jr., Director
35
OUTLOOK GROUP CORP.
(THE "COMPANY")
EXHIBIT INDEX
TO
ANNUAL REPORT ON FORM 10-K FOR FISCAL 2001
INCORPORATED HEREIN FILED
EXHIBIT NO. EXHIBIT BY REFERENCE TO HEREWITH
- ----------- ------- ------------------- --------
3(i) Restated Articles of Incorporation of the Exhibit 3(i) to the
Company as amended through November 1, 1994 Company's Annual Report on
Form 10-K for the fiscal
year ended May 31, 1995
("1995 10-K")
3(ii) Restated Bylaws of the Company (as adopted on Exhibit 3(ii) to the
August 19, 1998) Company's Annual Report on
Form 10-K for the fiscal
year ended May 31, 1998
("1998 10-K")
4.1 Articles III, IV and VI of the Restated Articles Contained in Exhibit 3.1
of Incorporation of the Company hereto
4.2 Amended and Restated Loan and Security Agreement Exhibit 4.3 (b) to the
dated May 12, 1999 among the Company and its Company's Annual Report on
subsidiaries and Bank of America National Trust Form 10-K for the fiscal
and Savings Association* year ended May 31, 1999
("1999 10-K")
4.3(a) Reimbursement Agreement dated August 1, 1994 Exhibit 4.4(a) to the
between Outlook Packaging, Inc. ("Packaging") and Company's Annual Report on
Firstar Bank, relating to $4,000,000 City of Oak Form 10-K for the fiscal
Creek Industrial Revenue Bonds* year ended May 31, 1994
("1994 10-K")
4.3(b) Related Corporate Guarantee Agreement dated Exhibit 4.4(b) to the 1994
August 1, 1994 by the Company* 10-K
10.1(a) 1990 Stock Option Plan**(superceded) Exhibit 10.1 to the
Company's Registration
Statement on Form S-1 (No.
33-36641), as amended by
Amendment No. 1 thereof
("S-1")
10.1(b) 1999 Stock Option Plan ** Appendix A to Proxy Statement for
1999 Annual Meeting of Shareholders
36
INCORPORATED HEREIN FILED
EXHIBIT NO. EXHIBIT BY REFERENCE TO HEREWITH
- ----------- ------- ------------------- --------
10.2(a) Employment Agreement dated as of June 1, 1997 Exhibit 10.10 to the
between the Company and Joseph J. Baksha** Company's report on Form
10-K for the fiscal year
ended May 31, 1997 ("the
1997 10-K")
10.2(b) Term Note dated July 22, 1998 of Mr. Baksha to Exhibit 10.3(b) to 1998 10-K
the Company, as contemplated by the Employment
Agreement**
10.2(c) Employment Agreement effective as of June 1, Exhibit 10.2 to the Company's
1999, and approved August 18, 1999, between Report on Form 10-Q for the
the Company and Joseph J. Baksha** quarter ended August 28, 1999
10.2(d) Extension thereof dated June 1, 2001** X
10.3 Change in Control Agreement between the Company X
and Richard C. Fischer dated as of June 1, 2001**
the Company and Joseph J. Baksha**
10.4 Change in control and severance arrangements The description thereof in
between the Company, Jeffry Collier and the Proxy Statement for the
Paul Drewek** Company's 2000 Annual Meeting
of Shareholders
10.5 401(k) Savings Plan (as amended and restated Exhibit 10.11 to S-1
effective as of January 1, 1989) including the
Defined Contribution Regional Prototype Plan
and Trust Document and the Adoption Agreement
thereto**
10.6 Master Lease Agreement dated March 13, 1997 Exhibit 10.6 to 1997 10-K
between the Company and General Electric
Corporation*
10.7 Letter of Credit Agreements No. One and No. Two Exhibit 10.7 to 1997 10-K
dated March 13, 1997 between Outlook Group Corp.
and General Electric Corporation
10.8 Form of the Company's Non-Qualified Stock Option Exhibit 10.15 to Amendment
Agreement (for non-employee directors) No. 1 to 1997 10-K
10.9 Settlement agreement date as of December 29, 2000 Exhibit 10.1 to the
among the Company, Outlook Packaging, Inc., Company's report on Form
Barrier Films Corporation, Barrier Films Ltd.-New 10-Q for the quarter ended
York and Ronnie Shemesh December 2, 2000
10.10 Form on Notes dated April 16, 2001, between the X
Company and Messrs. Baksha, Collier and Drewek
21.1 List of subsidiaries of the Company Exhibit 21.1 to the Company's
report on 10-K for the year
ended May 31, 2000
23.1 Consent of PricewaterhouseCoopers LLP X
24.1 Powers of Attorney Signature Page
to this Report
37
INCORPORATED HEREIN FILED
EXHIBIT NO. EXHIBIT BY REFERENCE TO HEREWITH
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* Excluding exhibits and/or schedules which are identified in the
document. The Company agrees to furnish supplementary a copy of any
omitted exhibit or schedule to the Commission upon request.
** Designates compensatory plans and agreements for executive officers.