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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 1, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to__________
Commission file number 000-18815
OUTLOOK GROUP CORP.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1278569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1180 American Drive
Neenah, Wisconsin 54956
(Address of principal executive offices, including zip code)
(920) 722-2333
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
3,363,319 share of common stock, $.01 par value, were outstanding at March 31,
2003.
OUTLOOK GROUP CORP. AND SUBSIDIARIES
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets
As of March 1, 2003 and May 31, 2002 4
Condensed Consolidated Statements of Operations
For the three-months and nine-months ended
March 1, 2003 and March 2, 2002 5
Condensed Consolidated Statements of Cash Flows
For the nine-months ended March 1, 2003 and
March 2, 2002 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosure About Market
Risk 20
Item 4. Controls and Procedures 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein, have
been prepared by the Company and have not been audited. However, the
foregoing statements contain all adjustments (consisting only of normal
recurring accruals) that are, in the opinion of Company management,
necessary to present fairly the financial position of the Company at
March 1, 2003, the results of operations for the three and nine-month
period ended March 1, 2003 and March 2, 2002, and the results of cash
flows for the nine-month period ended March 1, 2003 and March 2, 2002.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations of the Securities and Exchange Commission,
although the Company believes that the disclosures are adequate to make
the information presented not misleading.
The results of operations for interim periods are not necessarily
indicative of the results of operations for the entire year. It is
suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto
included in the Company's 2002 Form 10-K.
OUTLOOK GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
March 1, May 31,
ASSETS 2003 2002
- ---------------------------------------------------- -------- --------
Current Assets
Cash and cash equivalents $ 764 $ 3,021
Accounts receivable, less allowance for
doubtful accounts of $425 and $459, respectively 7,150 7,575
Notes receivable-current portion 12 85
Inventories 6,915 5,411
Deferred income taxes 847 847
Other 545 500
-------- --------
Total current assets 16,233 17,439
Notes receivable long-term, less allowance for
doubtful accounts of $652 and $477, respectively 4 187
Property, plant, and equipment
Land 583 583
Building and improvements 10,613 10,088
Machinery and equipment 39,746 37,642
-------- --------
50,942 48,313
Less: accumulated depreciation (29,859) (28,340)
-------- --------
21,083 19,973
Other assets 2,263 1,274
-------- --------
Total assets $ 39,583 $ 38,873
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------
Current Liabilities
Accounts payable $ 3,399 $ 1,977
Accrued liabilities:
Salaries and wages 1,301 1,925
Other 120 397
-------- --------
Total current liabilities 4,820 4,299
Deferred income taxes 3,209 3,209
Shareholders' Equity
Cumulative preferred stock - -
Common stock (5,142,382 and 5,137,382 shares issued,
respectively) 51 51
Additional paid-in capital 18,848 18,828
Retained earnings 24,829 24,660
Treasury stock (1,789,063 shares at both dates) (11,739) (11,739)
Officers' loans (435) (435)
-------- --------
Total shareholders' equity 31,554 31,365
-------- --------
Total liabilities and shareholders' equity $ 39,583 $ 38,873
======== ========
The accompanying notes are an integral part of these financial statements.
OUTLOOK GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three-Month Period Ended Nine-Month Period Ended
----------------------------- ---------------------------
March 1, March 2, March 1, March 2,
2003 2002 2003 2002
Net sales $ 12,596 $ 15,813 $ 46,914 $ 51,513
Cost of goods sold 11,195 13,271 38,368 42,765
----------- ----------- ----------- -----------
Gross profit 1,401 2,542 8,546 8,748
Selling, general, and administrative
expenses 2,429 2,367 7,733 7,734
Facility relocation and legal
settlement (recovery) expenses - (500) - 955
----------- ----------- ----------- -----------
Operating (loss) profit (1,028) 675 813 59
Other income (expense):
Interest expense - - - (61)
Interest and other income (expense) 33 (42) 31 263
----------- ----------- ----------- -----------
(Loss) earnings from operations
before income taxes (995) 633 844 261
Income tax (benefit) expense (357) 247 340 109
----------- ----------- ----------- -----------
Net (loss) earnings $ (638) $ 386 $ 504 $ 152
=========== =========== =========== ===========
Net (loss) earnings per common
share-Basic $ (0.19) $ 0.12 $ 0.15 $ 0.04
Net (loss) earnings per common
share-Diluted $ (0.19) $ 0.11 $ 0.15 $ 0.04
Weighted average number of shares
outstanding-Basic 3,353,319 3,348,319 3,351,726 3,411,172
=========== =========== =========== ===========
Weighted average number of shares
outstanding-Diluted 3,407,812 3,369,219 3,397,339 3,434,147
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
OUTLOOK GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine-Month Period Ended
March 1, 2003 March 2, 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 504 $ 152
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,454 2,533
Provision for doubtful accounts 37 385
Loss (gain) on sale of assets 81 (29)
Change in assets and liabilities:
Accounts and notes receivable 1,024 1,004
Inventories (1,482) 894
Other (286) (544)
Accounts payable 1,296 795
Accrued liabilities (978) (400)
Income taxes refundable - (574)
------- -------
Net cash provided by operating activities 2,650 4,216
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business-net of cash acquired (1,247) -
Proceeds from sale of assets 523 2,584
Acquisition of property, plant, and equipment (3,868) (2,527)
Loan to officers - (207)
------- -------
Net cash used in investing activities (4,592) (150)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings - (2,800)
Exercise of stock options 20 -
Purchase of treasury stock and redeemable equity - (1,152)
Dividends paid to shareholders (335) -
------- -------
Net cash used in financing activities (315) (3,952)
Net (decrease) increase in cash (2,257) 114
Cash and cash equivalents at beginning of period 3,021 757
------- -------
Cash and cash equivalents at end of period $ 764 $ 871
======= =======
The accompanying notes are an integral part of these financial statements.
OUTLOOK GROUP CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Net Earnings (Loss) Per Common Share:
Basic earnings (loss) per share are computed by dividing net
earnings (loss) by the weighted average shares outstanding
during each period. Diluted earnings (loss) per share is
computed similar to basic earnings (loss) 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.
Three-Month Period Ended Nine-Month Period Ended
March 1, March 2, March 1, March 2,
2003 2002 2003 2002
--------- --------- --------- ---------
Weighted average shares
outstanding-Basic 3,353,319 3,348,319 3,351,726 3,411,172
Effect of dilutive securities -
Stock options 54,493 20,900 45,613 22,975
--------- --------- --------- ---------
Weighted average shares outstanding
- Diluted 3,407,812 3,369,219 3,397,339 3,434,147
========= ========= ========= =========
2. Inventories:
Inventories consist of the following (in thousands):
March 1, 2003 May 31, 2002
------------- ------------
Raw materials $3,018 $2,316
Work in process 1,018 697
Finished goods 2,879 2,398
------ ------
$6,915 $5,411
====== ======
3. Income Taxes:
The effective income tax rate used to calculate the income tax
expense for the quarters ended March 1, 2003 and March 2, 2002 is
based on the anticipated income tax rate for the entire fiscal year.
4. Reclassifications:
Certain reclassifications have been made to the financial statements
of the prior period to conform to the March 1, 2003 presentation.
5. Accounting Periods:
The Company has adopted 13-week quarters; however, fiscal year-end
remains May 31.
6. Outlook Packaging:
The Company merged the operations of its Outlook Packaging, Inc. Oak
Creek, Wisconsin facility with its Outlook Label Systems, Inc. facility
of Neenah, Wisconsin during the second quarter of fiscal 2002. During
the first quarter of fiscal 2002, the Company sold its Oak Creek
facility and certain equipment for approximately $2.4 million and also
incurred approximately $900,000 of costs related to the merger
including approximately $300,000 of costs associated with the facility
relocation and related severance costs, and approximately $600,000
associated with equipment renovations and start-up costs. The Company
is not anticipating any further costs related to the merger during
fiscal 2003 and beyond.
7. Segment Reporting:
The Company has two reportable segments, Graphics and Web. Each are
strategic operations that offer different products and services. The
Graphics operation produces custom printed products on a wide range of
media including newsprint, coated paper, and heavy board, including
paperboard packaging. It also provides finishing services, promotional
contract packaging, direct mailing and distribution services. The Web
operation manufactures items such as coupons, pressure sensitive
specialty labels, printed vinyl cards, continuous forms, cartons,
sweepstakes and specialty game pieces, and printed film for meat,
coffee, snack food and non-food industries. The Web operation has
flexographic, rotary letterpress, laminating and slitting capabilities.
The Company evaluates the performance of its reportable segments
based on the net earnings (loss) of the respective operations.
Summarized financial information for the three-month and nine-month
periods ending March 1, 2003 and March 2, 2002 are as follows:
INCOME STATEMENT DATA:
Three-Month Period Ended Three-Month Period Ended
March 1, 2003 March 2, 2002
(in thousands) (in thousands)
Net Earnings Net Earnings
Net Sales (Loss) Net Sales (Loss)
------------ ---------------- ------------ ---------------
Graphics $ 6,099 $ (791) Graphics $ 7,647 $ (117)
Web 6,704 153 Web 8,301 503
All Other (207) - All Other (135) -
----------- --------------- ---------- -------------
Total $ 12,596 $ (638) $ 15,813 $ 386
=========== =============== ========== =============
Nine-Month Period Ended Nine-Month Period Ended
March 1, 2003 March 2, 2002
(in thousands) (in thousands)
Net Earnings Net Earnings
Net Sales (Loss) Net Sales (Loss)
------------ ---------------- ------------ ---------------
Graphics $ 25,089 $ (441) Graphics $ 27,622 $ 543
Web 22,550 945 Web 24,319 (391)
All Other (725) - All Other (428) -
----------- --------------- ---------- -------------
Total $ 46,914 $ 504 $ 51,513 $ 152
=========== =============== ========== =============
BALANCE SHEET DATA:
Total Assets March 1, 2003 May 31, 2002
(in thousands) (in thousands)
-------------- --------------
Graphics $ 21,857 $ 22,091
Web 17,726 16,782
---------- ----------
Total $ 39,583 $ 38,873
========== ==========
8. Related Party Transactions
As previously reported, the Company has agreed to make loans to certain
officers and key employees to purchase the common stock of the Company.
Through March 1, 2003, the Company had loans totaling $435,000. The
loans bear an interest rate of 4.9% and are for five-year terms. It is
the Company's policy that all material transactions between the
Company, its officers, directors or principal shareholders, or
affiliates of any of them, shall be on terms no less favorable to the
Company than those which could have been obtained if the transactions
had been with unaffiliated third parties on an arm's length basis, and
such transactions are approved by a majority of the members of the
Audit Committee of the Board of Directors, or a majority of the
directors who are independent and not financially interested in the
transactions.
As a result of legislation enacted on July 30, 2002, the Company will
no longer make loans to its officers; however, outstanding amounts at
that date may continue until paid in accordance with their terms.
9. Acquisitions
During June 2002, the Company purchased selected assets of Paragon
Direct, Inc. for $1.4 million in cash plus assumed liabilities.
Included in the assets purchased were approximately $200,000 in
property, plant and equipment, $500,000 in cash and receivables and
$200,000 in assumed liabilities. The excess of cost over the fair value
of the tangible net assets acquired is approximately $800,000. Of this
excess cost, approximately $600,000 was allocated to finite lived
intangible assets with lives ranging from 4 to 10 years. The resulting
amortization expense for the intangible assets recorded in the first
nine months of fiscal 2003 was approximately $60,000. The remaining
$200,000 was allocated to goodwill, which is not expensed over a
particular period of time, but rather, it is reviewed periodically and
written off as an expense if found to be impaired. Pro forma results
would not materially change the results of operations as presented in
the financial statements.
10. Goodwill and other Intangibles
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("FAS") No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets."
These statements eliminate the pooling of interest 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. Any remaining intangible assets will be
amortized over their estimated useful lives.
The Company adopted the new rules on accounting for goodwill and other
intangible assets on June 1, 2002. Application of the non-amortization
provisions of FAS No. 142 resulted in an increase in net income of
approximately $54,000 or $0.02 per diluted share, for the nine months
ended March 1, 2003. Under the transitional provisions of FAS No. 142,
the Company has completed the initial impairment tests on the net
goodwill and other intangible assets associated with each of the
Company's reporting units, using a valuation date of June 1, 2002. The
Company expects that it will recognize a goodwill impairment charge
during fiscal 2003. The Company currently has $1.3 million of goodwill
recorded on its books; it anticipates that the goodwill impairment
charge will likely be between 30% and 50% of the value of goodwill. The
impairment will be recorded as a cumulative effect of change in
accounting principle on the consolidated statements of earnings in
accordance with the transitional provisions of FAS No. 142. The Company
expects to record this during the fourth quarter of fiscal 2003.
The following set forth a reconciliation of net income and earnings per
share information for the three month and nine-month period ended March
1, 2003 and March 2, 2002, respectively adjusted for the
non-amortization provisions of FAS No. 142.
(Dollars in thousands, except per share data)
Three-Month Period Ended Nine-Month Period Ended
March 1, 2003 March 2, 2002 March 1, 2003 March 2, 2002
-------------- ------------- ------------- -------------
Reported net earnings (loss) $ (638) $ 386 $ 504 $ 152
Add: Goodwill amortization
(net of income taxes of $11
and $34 respectively) - 18 - 54
------- ------- ------- -------
Adjusted net earnings (loss) $ (638) $ 404 $ 504 $ 206
======= ======= ======= =======
Reported basic earnings
(loss) per share $ (.19) $ .12 $ .15 $ .04
Add: Goodwill amortization
(net of income taxes of $11
and $34 respectively) - .01 - .02
------- ------- ------- -------
Adjusted basic earnings
(loss) per share $ (.19) $ .13 $ .15 $ .06
======= ======= ======= =======
Reported diluted earnings
(loss) per share $ (.19) $ .11 $ .15 $ .04
Add: Goodwill amortization
(net of income taxes of $11
and $34 respectively) - .01 - .02
------- ------- ------- -------
Adjusted diluted earnings
(loss) per share $ (.19) $ .12 $ .15 $ .06
======= ======= ======= =======
11. Commitments and Contingencies
The Company has previously reported litigation against it by Health
Jet, Inc., d/b/a Chung's Gourmet Foods ("Chung's"), seeking damages of
$4.9 million. In August 2001, the Company and Chung's entered into a
settlement agreement solely for the purpose of avoiding the burden,
expense and uncertainty of litigation. Although neither party has
admitted any liability in the settlement agreement, the Company paid
Chung's $500,000 pursuant to the agreement. The Company recognized the
$500,000 legal settlement expense in the first quarter of fiscal year
2002 along with approximately $55,000 of associated legal expense. The
Company continued to proceed on an action against a third party seeking
indemnification in connection with the Chung's action. In March 2002,
the Company and the third party entered into a settlement agreement,
and the Company negotiated a settlement with its insurance carrier. The
settlement recoveries totaled $500,000 and were recognized during the
third quarter of fiscal 2002.
12. Recently Issued Accounting Standards:
In July 2001, the FASB issued FAS No. 143, "Accounting for Asset
Retirement Obligations. "This statement addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs.
This statement is effective for the Company in fiscal year 2004. This
rule is not expected to have a material effect on the Company's
financial statements.
In December 2002, SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure--an amendment of FASB Statement
No. 123" was issued. SFAS No. 148 amends FASB Statement No. 123,
"Accounting for Stock-Based Compensation," to provide alternative
methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the effects on reported
net income of an entity's method of accounting for stock-based employee
compensation. SFAS No. 148 is effective for the Company in its fourth
quarter of fiscal 2003. The Company does not intend to effect a
voluntary change in accounting to the fair value method, and,
accordingly, does not anticipate the adoption of SFAS No. 148 to have a
significant impact on the Company's future results of operations or
financial position.
13. Subsequent Events
On March 31, 2003 the Company declared a quarterly cash dividend of
$0.05 per common share outstanding. The dividend is payable on April
18, 2003 to shareholders of record on April 11, 2003. Based on the
current number of shares outstanding, the payment will be approximately
$168,000.
On March 25, 2003 the Company announced that it had signed a long-term
contract to provide supply chain management services to International
Masters Publishers Inc. of New York City. The five-year contract is
expected to provide annual revenues to Outlook Group of $15.0 million,
for a total contract value of $75.0 million.
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following section presents a discussion and analysis of the Company's
results and operations during the first nine months of fiscal 2003 and 2002, and
its financial condition at March 1, 2003. Statements that are not historical
facts, that relate to the Company's future performance, anticipated financial
position, or results of operations for fiscal 2003 or any other future period,
are forward-looking statements within the Safe Harbor Provision of the Private
Securities Litigation Reform Act of 1995. Such statements which are generally
indicated by words or phrases such as "plan," "estimate," "project,"
"anticipate," "the Company believes," "management expects," "currently
anticipates," "remains optimistic," and similar phrases are based on current
expectations and involve risks, uncertainties and assumptions. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual future results could differ materially from
those anticipated, projected or estimated. The factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this section, particularly in "Results of Operations," "Liquidity and Capital
Resources," and "Disclosures Concerning Liquidity and Capital Resources
Including `Off-Balance Sheet' Arrangements." The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
The dollars amounts in the tables in this section are presented in thousands,
except for per share amounts or where otherwise indicated.
RESULTS OF OPERATIONS
The Company's net sales for the third quarter of fiscal 2003 were $12.6 million,
down 20.3% from the third quarter of fiscal 2002. The Graphics business segment
had third quarter sales of $6.1 million, down 20.2% from the third quarter of
fiscal 2002. The Web business segment had third quarter sales of $6.7 million,
down 19.2% from the third quarter of fiscal 2002. The Company's net sales
performance for the third quarter of fiscal 2003 is summarized in the following
chart:
Net Sales Quarter 3 Quarter 3 Quarter 3 Quarter 3
Fiscal 2003 Fiscal 2002 $ Change % Change
----------- ----------- -------- --------
Graphics $ 6,099 $ 7,647 $ (1,548) -20.2%
Web 6,704 8,301 (1,597) -19.2%
All Other (207) (135) (72) 53.3%
-------- -------- -------- ------
Total $ 12,596 $ 15,813 $ (3,217) -20.3%
The Company's net sales for the first nine months of fiscal 2003 were $46.9
million, down 8.9% from the first nine months of fiscal 2002. The Graphics
business segment had sales of $25.1 million, down 9.2% from the previous year.
The Web business segment had sales of $22.6 million, down 7.3% from the previous
year. The Company's net sales performance for the first nine months of fiscal
2003 is summarized in the following chart:
Net Sales Year-to-date Year-to-date Year-to-date Year-to-date
Fiscal 2003 Fiscal 2002 $ Change % Change
----------- ----------- -------- --------
Graphics $ 25,089 $ 27,622 $ (2,533) -9.2%
Web 22,550 24,319 (1,769) -7.3%
All Other (725) (428) (297) 69.4%
-------- -------- -------- -----
Total $ 46,914 $ 51,513 $ (4,599) -8.9%
For the year-to-date period, the Company's sales are comprised as follows:
Sales Breakdown Fiscal Fiscal
2003 2002
---- ----
Graphics 54% 54%
Web 48% 47%
All Other -2% -1%
----- -----
Total 100% 100%
The continuing and sustained decline in general economic conditions continue to
negatively impact the Company and the industry in which it operates. In
addition, during the third quarter, two customers with recurring business
(together representing $4.0 million in sales during fiscal 2002 and $2.2 million
in sales to date in fiscal 2003) reduced ongoing projects with the Company;
these actions both further reduced third quarter sales and will continue to
affect sales going forward. The lower sales reflect continued weakness in the
promotional projects market, especially direct mail. Increased competitive
pressures have also had a negative impact on prices. The potential for future
terrorist attacks, the national and international responses to terrorist
attacks, war with Iraq and other acts of war or hostility have created many
economic and political uncertainties. These events could adversely affect
business and operating results in other ways that presently cannot be predicted.
On March 25, 2003, the Company announced that it had signed a five-year supply
chain agreement with International Masters Publishers Inc. The IMP contract
provides for total net sales by the Company for the period of approximately $75
million, although that amount cannot be assured and actual sales under this
agreement will depend upon the actual level of orders and activity, and other
factors in the future which cannot be predicted. Assuming the net sales under
the IMP contract occur as anticipated, they would substantially affect the
Company's sales and costs. The contract includes printing, finishing and
fulfillment services. The Company will incur capital expenditures of
approximately $2.5 million in acquiring machinery to support the agreement and
additional expenditures of approximately $500,000 for start-up costs.
The Company's gross profit margin for the third quarter of fiscal 2003 was 11.1%
of net sales, down from 16.1% in the prior year. For the year-to-date period,
gross margins were 18.2% of net sales, up slightly from 17.0% in the prior year.
Year-to-date gross profit margins were impacted by management's decision to
forego some lower margin projects. In addition, gross profit margins were
directly improved by the Company's decision to reduce operating costs, gains
achieved in increased productivity, and the merger of the Outlook Label and
Outlook Packaging subsidiaries. The Company also benefited from its decision to
realign staffing levels to be consistent with its current and anticipated level
of business activity and to eliminate staffing for marginal projects. As a
consequence of the downturn in sales and termination of certain relationships
during the third quarter, the Company was overstaffed for its remaining
business; however, it decided to retain certain employees in excess of current
needs in anticipation of the execution of the IMP contract (which occurred after
the end of the quarter). That decision increased employee-related costs during
the quarter because the Company did not take certain steps to lower labor costs
than it otherwise would have taken. The Company currently believes that it has
sufficient personnel to carry on its current and anticipated business needs, but
will occasionally contract for and / or hire temporary employees to increase the
number of personnel in certain operations, as project commitments require.
The Company continues its efforts related to continuous process improvement and
is committed to increasing efforts to provide defect-free products and services,
all of which have contributed to the overall reduction of costs. However, two
events occurred during the third quarter of fiscal 2003, which further
negatively affected expenses. The Company experienced quality issues in
materials supplied by certain vendors. The Company lost revenue of approximately
$400,000 and incurred costs of approximately $300,000 during the quarter to
remedy these issues to its customer's satisfaction. Although the Company is
pursuing the reimbursement from the third party vendors, it cannot assure that
it will receive reimbursement for any of these costs. In addition, one of the
Company's presses required unexpected maintenance and repair during the quarter.
Although certain sales of products printed on this press were only postponed to
the fourth quarter, the stoppage period for this press resulted in a loss of net
sales and increased expense for the Company in the third quarter.
Selling, general and administrative expenses were 19.3% of net sales for the
third quarter of fiscal 2003, or $2.4 million. During the third quarter of
fiscal 2002, the Company had selling, general and administrative costs of $1.9
million, including $0.5 million for the recovery of legal settlement costs. For
the first nine months of fiscal 2003, selling, general and administrative
expenses were $7.7 million or 16.5% of net sales. During the first nine months
of fiscal 2002, the Company had selling, general and administrative costs of
$8.7 million, including $1.0 million for facility relocation and legal
settlement costs.
The Company adopted the new rules on accounting for goodwill and other
intangible assets on June 1, 2002. Under the transitional provisions of FAS No.
142, the Company has completed the initial impairment tests on the net goodwill
and other intangible assets associated with each of the Company's reporting
units, using a valuation date of June 1, 2002. The Company expects that it will
recognize a goodwill impairment charge during fiscal 2003. The Company currently
has $1.3 million of goodwill recorded on its books; it anticipates that the
goodwill impairment charge will likely by between 30% and 50% of the value of
goodwill. The impairment will be recorded as a cumulative effect of change in
accounting principle on the consolidated statements of earnings in accordance
with the transitional provisions of FAS No. 142 in the fourth quarter.
The Company continues to focus on reducing its operating expenses; in particular
those that do not contribute to increased sales or increased profit margins. The
Company is deploying additional resources into marketing strategies in an
attempt to increase the Company's sales and marketing concentrations.
The Company's operating loss for the third quarter of fiscal 2003 was $1.0
million or 8.2% of net sales. The Company had an operating profit during the
third quarter of fiscal 2002 of $675,000, which included a $500,000 recovery of
legal costs. For the first nine months of fiscal 2003, the Company had an
$813,000 operating profit. For the comparable period in fiscal 2002, the Company
had an operating profit of $59,000, including $1.0 million for the facility
relocation and legal settlement costs.
The Company had no interest expense during the first nine months of fiscal 2003.
The Company paid off its remaining long-term debt during fiscal 2002 in
conjunction with the sale of its manufacturing facility in Oak Creek, Wisconsin.
The Company does, however, maintain a revolving credit facility. The Company did
not use its revolving credit facility during fiscal 2002 or the first nine
months of fiscal 2003, but pays an unused credit facility charge to maintain its
line of credit. The Company expects that it will begin using its line of credit
facility in the upcoming months as it prepares for production as a result of
increased working capital needs related to the IMP contract and increased
capital expenditures.
The Company's effective tax rate for fiscal 2002 was 33.0%. The Company is
currently accruing income tax expense at the expected annual rate of 38.0%,
although quarter-to-quarter fluctuations may occur. The fiscal 2002 rate was
lower due to benefits realized as a result of the merger of the Company's
Outlook Packaging, Inc. and Outlook Label Systems, Inc. subsidiaries, and
certain state income tax credits.
The Company reported a net loss for the third quarter of fiscal 2003 of $638,000
or ($0.19) per diluted common share. The Company reported a net profit for the
third quarter of fiscal 2002 of $386,000 or $0.11 per diluted common share,
including $308,000 (net of taxes) for the recovery of legal settlement costs.
The Company reported year-to-date net earnings of $504,000 or $0.15 per diluted
common share. The Company reported net earnings of $152,000 or $0.04 per diluted
common share for the comparable year-to-date period last year, including
$587,000 (net of taxes) for facility relocation and legal settlement costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities, as shown on the Condensed Consolidated
Statements of Cash Flows, was approximately $2.7 million for the first nine
months of fiscal 2003, as compared to $4.2 million during the first nine months
of fiscal 2002. The Company experienced a $1.5 million increase in inventory
during the first nine months of fiscal 2003. This increase was primarily in raw
materials as the Company adjusted its inventory to meet client forecasts and
production schedules. Accounts and notes receivable decreased by approximately
$1.0 million during the first nine months of fiscal 2003. The Company increased
its provision for doubtful accounts by approximately $37,000 as compared to an
increase of $385,000 during the first nine months of fiscal 2002. Depreciation
and amortization for the first nine months of fiscal 2003 was approximately $2.5
million as compared to $2.5 million during the first nine months of fiscal 2002.
The Company used approximately $3.9 million of cash in acquiring and upgrading
existing machinery and equipment during the first nine months of fiscal 2003, in
addition to the $1.2 million associated with the acquisition of Paragon Direct.
The Company expects that it will invest approximately $6.0 million during fiscal
2003 in capital expenditures, including expenditures to support the IMP
arrangement, but excluding any acquisition opportunities that become available.
The Company intends to finance these expenditures through funds obtained from
operations plus its credit facilities and possible leasing opportunities. During
the first quarter of fiscal 2003, the Company refinanced one of its existing
machinery and equipment leases to obtain a rate more favorable to the Company.
Although there were upfront costs, the refinancing results in lower lease rental
payments in future months. The Company has approximately $11.4 million in
minimum lease payments under existing operating leases as of March 1, 2003; the
majority are for production related machinery and equipment. The Company does
not currently have any capital lease obligations. Cash used in financing
activities decreased substantially, due to the Company's repayment of debt and
stock purchases in fiscal 2002.
Outlook Group's board of directors has determined to begin paying quarterly cash
dividends. The Company recently announced its third consecutive quarterly cash
dividend payment. The cash dividend of $0.05 per share will result in a total
payment of approximately $168,000 during the fourth quarter of fiscal 2003.
Through the third quarter of fiscal 2003, the Company has paid out approximately
$335,000 in cash dividends. A continuation of dividends at that level in future
quarters would require similar resources in future periods.
During June 2002, the Company purchased selected assets of Paragon Direct, Inc.
for $1.2 million in cash plus assumed liabilities. The Paragon Direct business
was combined into the Company's Graphics division. Paragon Direct provides
computer-based information management services for clients in the direct
marketing industry. This acquisition opportunity was financed from operating
cash flows.
As previously reported, the Company holds a single note receivable that is
overdue. The Company has obtained a favorable judgment in excess of the value of
the note and the Company continues to pursue collection. Although the Company
has previously established a reserve, and currently believes the remaining
balance is collectible, the Company may be required to write-off the remaining
balance of the note if collection efforts prove ineffective and payments are not
received. The Company is fully reserved for this possibility and no impact on
current earnings would result if the remaining balance of the note were written
off.
The Company maintains a credit facility with a bank that provides for a maximum
revolving credit commitment of $15.0 million. Interest on the debt outstanding
can vary 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. The Company's failure to meet
specified performance measures could adversely affect the Company's ability to
acquire future capital to meet its needs. The Company has not used its facility
during fiscal 2002 or the first nine months of fiscal 2003; however, the Company
is subject to an unused line fee of .25% to maintain its credit facility. As of
April 1, 2003, the Company has $1,000,000 outstanding on its revolving credit
line, as a result of increased working capital needs and increased capital
expenditures, and is in compliance with all of its loan covenants.
The Company regularly reassesses how its various operations complement the
Company as a whole and considers strategic decisions to acquire new operations,
expand, terminate, or sell certain existing operations. These reviews resulted
in various transactions during recent fiscal years and may result in additional
transactions during fiscal 2003 and beyond.
The Company continues to pursue the sale of its Troy, Ohio facility. Although
the Company has not yet received an acceptable offer, the facility is being
leased to a third party on a month-to-month basis. It is unclear whether the
continuing economic slowdown or other factors will continue to affect the
Company's ability to sell that facility on terms acceptable or profitable to the
Company, or whether the Company will continue to successfully lease the
facility.
The Company's primary source of liquidity has been, and continues to be, cash
flows. The Company's future cash flows are dependent upon and affected by many
factors, including but not limited to the following:
- The ability of the Company to attract new and retain existing
clients
- The number and size of the projects completed for these
customers
- The effects of any loss of business of one or more primary
customers
- Cancellations or delays of customer orders
- Changes in sales mix
- Changes in general economic conditions and world events
- Management's effectiveness in managing the manufacturing
process
- The ability to collect in full and in a timely manner, amounts
due the Company
- The ability to acquire and maintain appropriate machinery and
equipment
- The ability to hire, train and retain a suitable work force
- Acquisitions or divestiture activities
- Capital asset additions or disposals
- Environmental matters
The Company is dependent upon its ability to retain its existing client base,
and additionally, obtain new clients. It's success will depend upon the
Company's ability to use existing technical and manufacturing capabilities and
knowledge in the development and introduction of new value-added products and
services targeted at new markets and clients through increased marketing
initiatives that allow the Company to differentiate its products and services
from that of its competitor's. The failure to utilize its capabilities or
properly identify and address the evolving needs of targeted customers and
markets, will limit the Company's ability to capture and develop new business
opportunities. In addition, the Company's success is dependent on its ability to
manufacture products at a competitive cost and subsequently price them
competitively. The Company's failure to do this could significantly affect the
future profitability of the Company.
Due to 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. As with many of
the Company's clients, the timing and volume of activities can vary
significantly from period to period. There can be no assurance that the volume
from any one particular client will continue beyond the current period. The
Company had no clients during fiscal 2002 or the first nine months of fiscal
2003 that accounted for more than 10% of net sales.
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. As previously announced, a fulfillment
client ceased using the Company's services. The termination eliminates a client
that represented $1.0 million in fiscal 2002 sales. During the third quarter of
fiscal 2003, the Company was notified of reductions in volume by two of its
major clients with ongoing projects. These clients represented approximately
$4.0 million of sales during fiscal 2002, and approximately $2.2 million of
sales to date during fiscal 2003.
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. While the Company believes that operating without long-term
contracts is consistent with industry practices, it is committed to developing
multi-year projects that can add stability to its business, like the
International Masters Publishing Inc. multi-year contract announced March 25,
2003. The Company continues to concentrate its efforts on increasing the number
of clients with long-term contracts; however, the failure of the Company to add
multi-year projects would mean that the Company would remain significantly
dependent on project-by-project business, thus increasing the Company's
vulnerability to losses of business and significant period-to-period changes.
This would continue to make prediction of the Company's future results very
difficult. 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.
Due to the range of services that the Company provides, the product sales mix
can produce a range of profit margins. Some business in which the Company
operates, produce lower profit margins than others. A substantial change in the
mix of product sales, could materially affect profit margins. The profit margin
experienced for the current period, is not indicative of future profit margins.
The Company believes that while there may be several competitors for individual
services that it offers, few competitors offer the single source solution that
the Company can provide. The Company cannot assure the levels of its sales under
its longer-term contracts, including the IMP contract, due to many factors that
could cause its actual results to differ. These factors include contract
disputes, performance problems, customer financial difficulties or changes in
business strategies, changes in demand for the customer's products and/or future
negotiated change to the agreements.
On September 11, 2001, New York City and Washington D.C. suffered serious
terrorist attacks and there is the risk that the United States may suffer
additional attacks in the future. Furthermore, tensions between the United
States and Iraq have recently escalated resulting in war. The ultimate cost
associated with terrorism and the war with Iraq may place significant burdens on
the United States economy as a whole. The potential for future terrorist
attacks, the national and international responses to terrorist attacks, war with
Iraq and other acts of war or hostility have created many economic and political
uncertainties. These events could adversely affect the Company's business and
operating results in other ways that presently cannot be predicted and for an
undeterminable period of time. Promotional mailings by the Company's clients
were significantly reduced as a result of the terrorist attacks and the
subsequent anthrax mailings. Technologies such as the Internet will continue to
affect the demand for printing services in general and the continuing increases
in postal rates will likely impact the direct mail business.
Management's effectiveness in managing its manufacturing process will have a
direct impact on its future profitability. The Company regularly makes decision
that affect production schedules, shipping schedules, employee levels, and
inventory levels. The Company's ineffectiveness in managing these areas could
have an effect on future profitability.
From time to time, the Company has had significant accounts receivable or other
amounts due from its customers or other parties. On occasion, certain of these
accounts receivable or other amounts due have become unusually large and / or
overdue, and the Company has written off significant accounts receivable
balances. The failure of the Company's customers to pay in full amounts due to
the Company could affect future profitability. As previously reported, the
Company holds a single note receivable (from an unaffiliated party) that is
overdue. The Company has obtained a favorable judgment in excess of the value of
the note and the Company continues to pursue collection. Although the Company
has previously established a reserve, and currently believes the remaining
balance is collectible, the Company may be required to write-off the remaining
balance of the note if collection efforts prove ineffective and payments are not
received. The Company is fully reserved for this possibility and no impact on
current earnings would result if the remaining balance of the note were written
off. Declining general economic conditions also increase the risk for the
Company, as many of its clients could negatively be impacted by the depressed
economy.
The Company uses complex and specialized equipment to provide its services and
manufacture its products; therefore, the Company depends upon the functioning of
such machinery and its ability to acquire and maintain appropriate equipment.
Among other factors, the Company may be affected by equipment malfunctions,
training and operational needs related to the equipment, which may delay its
utilization, maintenance requirements and technological or mechanical
obsolescence. In addition, larger companies with greater capital resources may
have an advantage in financing state of the art equipment.
The Company is dependent upon its ability to hire, train, and retain a skilled
work force. On occasion, the Company will contract for and / or hire temporary
employees to increase the number of personnel in certain operations as project
commitments require. In May 2002, the Company announced a workforce reduction of
approximately 12% of its workforce. The Company currently believes that it has
appropriately aligned its staffing to be consistent with its current and
anticipated levels of business activity. The failure of the Company to properly
align and maintain skilled staffing levels could affect the future profitability
of the Company. In addition, as occurred in the third quarter of fiscal 2003,
the Company may in the future again incur additional employee expenses because
of the need to maintain a work force in excess of current needs to service
anticipated customer products; such a decision would increase expenses in the
short term.
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. There can be no
assurance that any decisions to acquire new operations, expand, terminate or
sell certain existing operations will be implemented successfully. Acquisitions,
in particular, are subject to potential problems and inherent risks, including:
- Difficulties in identifying, financing and completing viable
acquisitions
- Difficulties in integrating the acquired company, retaining
the acquired company's customers and achieving the expected
benefits of the acquisition, such as expected revenue
increases and cost savings
- Loss of key employees of the acquired company
- The resulting diversion of managements' attention away from
current operations
- The assumption of undisclosed liabilities
The Company's failure to successfully implement any initiatives could affect
future profitability.
From time to time, the Company may sell or dispose of assets, which it feels are
under-performing or are no longer needed in the businesses in which the Company
operates. There can be no assurance that the Company will be able to sell or
dispose of the assets in a manner, which is profitable to the Company. In
addition, the Company will make investments in assets that it feels are needed
to acquire and maintain the businesses in which the Company operates. Again,
there can be no assurance that the Company will be able to acquire the necessary
assets, or that the Company can obtain a reasonable return on the investments.
The Company and the industry in which it operates are subject to environmental
laws and regulation concerning emissions into the air, discharges into waterways
and the generation, handling and disposal of waste materials. These laws and
regulations are constantly evolving, making it difficult to predict the effect
they may have upon the future capital expenditures, profitability and
competitive position of 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.
The Company has no "off balance sheet" arrangements, which would otherwise
constitute balance sheet liabilities. See below, however, for information
regarding the Company's operating leases.
DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The SEC believes that investors would find it beneficial if aggregated
information about contractual obligations and commercial commitments were
provided in a single location such that a total picture of obligations would be
readily available. In addition, the SEC had suggested the use of a least one
additional aid to present the total picture of a registrant's liquidity and
capital resource and the integral role of on and off balance sheet arrangements
may be schedules of contractual obligations and commercial commitments as of the
latest balance sheet date.
The Company has disclosed information pertaining to these events in its fiscal
2002 Report on Form 10-K. In addition, the Company has prepared schedules
suggested by the SEC for the period ending March 1, 2003. The Company had no
commercial commitments to report as of the latest balance sheet date.
Contractual Less than 1 - 3 4 - 5 After 5
Obligations Total 1 year years years years
(Dollars in thousands)
----------- ------- ------- ------- ------- -------
Long-term debt $ 0 $ 0 $ 0 $ 0 $ 0
Capital lease obligation 0 0 0 0 0
Operating leases 11,400 2,161 6,661 2,578 0
Unconditional purchase
obligations 0 0 0 0 0
Other long-term
obligations 0 0 0 0 0
------- ------- ------- ------- -------
Total contractual cash
obligations $11,400 $ 2,161 $ 6,661 $ 2,578 $ 0
======= ======= ======= ======= =======
DISCLOSURES ABOUT CERTAIN TRADING ACTIVITIES THAT INCLUDE NON-EXCHANGE TRADED
CONTRACTS ACCOUNTED FOR AT FAIR VALUE
The Company does not have any trading activities that include non-exchange
traded contracts accounted for at fair value.
DISCLOSURES ABOUT EFFECTS OF TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES
As previously reported, the Company agreed to make loans to certain officers and
key employees to purchase the common stock of the Company. At March 1, 2003, the
Company had loans totaling $435,000. The loans bear an interest rate of 4.9% and
are for a five-year term. It is the Company's policy that all material
transactions between the Company, its officers, directors or principal
shareholders, or affiliates of any of them, shall be on terms no less favorable
to the Company than those which could have been obtained if the transaction had
been with unaffiliated third parties on an arm's length, and such transactions
are approved by a majority of the members of the Audit Committee of the Board of
Directors, or a majority of the directors who are independent and not
financially interested in the transactions.
As a result of legislation enacted on July 30, 2002, the Company will no longer
make loans to its officers; however, outstanding amounts at that date may
continue until paid in accordance with their terms.
DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES
On December 12, 2001, the SEC issued FR-60 "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies." FR-60 is an intermediate step to
alert companies to prepare adequate disclosure that will facilitate an
understanding of the Company's financial status, and the possibility, likelihood
and implications of changes in its financial and operating status. It encourages
companies to aid awareness in its "critical accounting policies, the judgments
and uncertainties affecting the application of those policies, and the
likelihood that materially different amounts would be reported under different
conditions or using different assumptions."
The Company's accounting policies are disclosed in its fiscal 2002 Report on
Form 10-K. The more critical of these policies include revenue recognition and
the use of estimates (which inherently involve judgment and uncertainties) in
valuing inventory, accounts receivable, and fixed assets. Management has
discussed the development, selection and disclosure of these estimates and
assumptions with the audit committee and its board of directors.
REVENUE RECOGNITION
Revenue is recognized by the Company when all of the following criteria are met:
persuasive evidence of a selling arrangement exists; the Company's price to the
customer is fixed; collectibility is reasonably assured; and title has
transferred to the customer. Generally, these criteria are met at the time of
shipment. The Company also offers certain of its customers the right to return
products that do no meet the standards agreed upon. The Company continuously
monitors and tracks such product returns, and while such returns have
historically been minimal, the Company cannot guarantee that it will continue to
experience the same return rates that it has in the past. Any significant
increase in product quality failure rates and the resulting credit returns could
have a material adverse impact on the Company's operating results.
ACCOUNTS AND NOTES RECEIVABLE
The Company performs ongoing credit evaluations of its customers and adjusts
credit limits based upon payment history and the customer's current credit
worthiness, as determined by the review of the customer's current credit
information. The Company continuously monitors collections and payments from its
customers and maintains a provision for estimated credit losses based upon the
Company's historical experience and any specific customer collection issues that
have been identified. The Company values accounts and notes receivable, net of
an allowance for uncollectible accounts. The allowance is calculated based upon
the Company's evaluation of specific customer accounts where the Company has
information that the customer may have an inability to meet its financial
obligations (bankruptcy, etc.). In these cases, the Company uses its judgment,
based on the best available facts and circumstances, and records a specific
reserve for the customer against amounts due, to reduce the receivable to the
amount that is expected to be collected. These specific reserves are
re-evaluated and adjusted as additional information is received that impacts the
amount reserved. The same technique used to compute this allowance at May 31,
2002 has been used during the first nine months of fiscal 2003. However, the
ultimate collectibility of a receivable is dependent upon the financial
condition of an individual customer, which could change rapidly and without
advance warning.
INVENTORY
The Company values inventory at the lower of cost or market. Cost is determined
using the first-in, first-out method. Valuing inventories at the lower of cost
or market requires the use of estimates and judgment. As discussed under
"Further Disclosures Concerning Liquidity and Capital Resources, Including
`Off-Balance Sheet' Arrangements," customers may cancel their order, change
production quantities or delay production for a number of reasons. Any of these,
or certain additional actions, could create excess inventory levels, which would
impact the valuation of inventory. The Company continues to use the same
techniques to value inventory as have been used in the past. Any actions taken
by the Company's customers that could impact the value of inventory are
considered when determining the lower of cost or market valuations. The Company
regularly reviews inventory quantities on hand and records a provision for
excess and obsolete inventory based on its forecast of product demand and
production requirements. Generally, the Company does not experience issues with
obsolete inventory due to the nature of its products. If the Company were not
able to achieve its expectations of the net realizable value of the inventory at
its current value, the Company would have to adjust its reserves accordingly.
FIXED ASSETS AND GOODWILL
The Company continues to apply the criteria established in evaluating and
establishing a reserve for long-lived assets determined to be impaired under
Statement of Financial Accounting Standards ("FAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." At March 1, 2003 the Company had
recorded an impairment reserve of $317,000 associated with certain machinery and
equipment. On June 1, 2002, the Company adopted the provision of FAS No. 142
"Goodwill and Other Intangible Assets" for evaluating and establishing any
reserves for intangible assets determined to be impaired. Going forward the
Company will need to review goodwill periodically to determine whether it has
become impaired and thus must be written off as an expense.
Under the transitional provisions of FAS No. 142, the Company has completed the
initial impairment tests on the net goodwill and other intangible assets
associated with each of the Company's reporting units, using a valuation date of
June 1, 2002. The Company expects that it will recognize a goodwill impairment
charge during fiscal 2003. The Company currently has $1.3 million of goodwill
recorded on its books; it anticipates that the goodwill impairment charge will
likely be between 30% and 50% of the value of goodwill. The impairment will be
recorded as a cumulative effect of change in accounting principle on the
consolidated statements of earnings in accordance with the transitional
provisions of FAS No. 142. The Company expects to record this during the fourth
quarter of fiscal 2003.
ITEM 3. 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, consisting of notes receivable, 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.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. In response
to the Sarbanes-Oxley Act of 2002, the Company and its
certifying officers have implemented disclosure controls and
procedures, building upon the Company's pre-existing practices
and procedures, to ensure that material information relating
to the Company is made known by the signing officers, so as to
be reflected in periodic SEC reports. The Company and those
officers regularly evaluate the effectiveness of those
disclosure controls and procedures, including within 90 days
prior to the filing of any periodic SEC report. The Company
believes that these disclosure controls and procedures are
effective, based upon an evaluation made within the past 90
days.
(b) Changes in internal controls. During the period covered by
this report, there were not any significant changes in the
Company's internal controls or in other factors, which could
significantly affect these internal controls subsequent to the
date of their evaluation, including any corrective actions
with respect to significant deficiencies and material
weaknesses.
(c) Asset-backed issuers. Not applicable.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
99.1 Sarbanes-Oxley Section 906 Certification by the CEO
99.2 Sarbanes-Oxley Section 906 Certification by the CFO
(b) Reports on Form 8-K.
None during the period covered by this report.
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.
------------------
(Registrant)
Dated: April 14, 2003
/s/ Richard C. Fischer
--------------------------------------------------------
Richard C. Fischer, Chairman and Chief Executive Officer
/s/ Paul M. Drewek
--------------------------------------------------------
Paul M. Drewek, Chief Financial Officer
Exhibit Index
99.1 Sarbanes-Oxley Section 906 Certification by the CEO
99.2 Sarbanes-Oxley Section 906 Certification by the CFO
Reports on Form 8-K.
None during the period covered by this report.
CERTIFICATIONS
I, Richard C. Fischer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Outlook Group
Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made know to us by
others within those entities, particularly during the period
in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies in the design or operation of
internal control which could adversely affect the registrant's
ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 14, 2003
/s/ Richard C. Fischer
------------------------------------------------
Richard C. Fischer
Chairman and Chief Executive Officer
I, Paul M. Drewek, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Outlook Group
Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made know to us by
others within those entities, particularly during the period
in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies in the design or operation of
internal control which could adversely affect the registrant's
ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 14, 2003
/s/ Paul M. Drewek
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Paul M. Drewek
Chief Financial Officer