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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended November 30, 2002
Commission File No. 0-10823
BCT INTERNATIONAL, INC.
(Exact name of Registrant as specified in its Charter)
Delaware | 22-2358849 | |
(State of Incorporation) | (I.R.S. Employer Identification Number) |
3000 NE 30th Place, 5th Floor, Fort Lauderdale, FL | 33306 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (954) 563-1224
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 ¨.
Number of shares of common stock outstanding as of
January 14, 2003: 5,828,458
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BCT INTERNATIONAL, INC.
PAGE NUMBER | ||||
PART I. | FINANCIAL INFORMATION | |||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
6-7 | ||||
8-9 | ||||
PART II. | OTHER INFORMATION AND SIGNATURES | |||
10 | ||||
11-12 | ||||
13-14 |
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PART I. FINANCIAL STATEMENTS
BCT INTERNATIONAL, INC.
(UNAUDITED)
(000’s omitted)
November 30, 2002 | February 28, 2002 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 4,805 | $ | 4,819 | ||||
Accounts and notes receivable, net | 2,386 | 2,889 | ||||||
Inventory, net | 2,697 | 1,887 | ||||||
Assets held for sale, net | 173 | 105 | ||||||
Prepaid expenses and other current assets | 326 | 154 | ||||||
Deferred income taxes | 419 | 419 | ||||||
Total current assets | 10,806 | 10,273 | ||||||
Accounts and notes receivable, net | 5,186 | 5,170 | ||||||
Property and equipment at cost, net | 963 | 435 | ||||||
Deferred income taxes | 1,001 | 970 | ||||||
Deposits and other assets | 43 | 24 | ||||||
Trademark and other intangible assets, net | 186 | 206 | ||||||
$ | 18,185 | $ | 17,078 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 789 | $ | 432 | ||||
Notes payable | 294 | 560 | ||||||
Accrued liabilities | 938 | 871 | ||||||
Deferred revenue | 125 | 125 | ||||||
Total current liabilities | 2,146 | 1,988 | ||||||
Deferred revenue | 214 | 334 | ||||||
Notes payable | 534 | — | ||||||
Total liabilities | 2,894 | 2,322 | ||||||
Stockholders’ equity: | ||||||||
Common stock, $.04 par value, 25,000 shares authorized, 5,828 shares issued | 233 | 233 | ||||||
Paid in capital | 12,605 | 12,605 | ||||||
Retained earnings | 4,025 | 3,490 | ||||||
16,863 | 16,328 | |||||||
Less: treasury stock, at cost, 707 shares | (1,572 | ) | (1,572 | ) | ||||
Total stockholders’ equity | 15,291 | 14,756 | ||||||
Total liabilities and stockholders’ equity | $ | 18,185 | $ | 17,078 | ||||
See notes to condensed consolidated financial statements.
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BCT INTERNATIONAL, INC.
(UNAUDITED)
(000’s omitted, except per share amounts)
Three Months Ended | Nine Months Ended | |||||||||||
November 30, | November 30, | |||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||
Revenues: | ||||||||||||
Royalties and franchise fees | $ | 1,273 | $ | 1,230 | $ | 3,894 | $ | 3,844 | ||||
Paper and printing sales | 2,935 | 2,912 | 9,080 | 9,297 | ||||||||
Company-owned franchise sales | 452 | — | 528 | — | ||||||||
Sales of franchises | 1 | 67 | 3 | 89 | ||||||||
Interest and other | 181 | 181 | 592 | 493 | ||||||||
4,842 | 4,390 | 14,097 | 13,723 | |||||||||
Expenses: | ||||||||||||
Cost of paper and printing sales | 2,536 | 2,546 | 7,822 | 8,073 | ||||||||
Cost of Company-owned franchise sales | 100 | — | 119 | — | ||||||||
Selling, general and administrative | 1,947 | 1,305 | 5,102 | 4,545 | ||||||||
Depreciation and amortization | 66 | 56 | 177 | 170 | ||||||||
4,649 | 3,907 | 13,220 | 12,788 | |||||||||
Income before provision for | ||||||||||||
income taxes | 193 | 483 | 877 | 935 | ||||||||
Provision for income taxes | 75 | 192 | 342 | 368 | ||||||||
Net income | $ | 118 | $ | 291 | $ | 535 | $ | 567 | ||||
Earnings per share: | ||||||||||||
Basic | $ | 0.02 | $ | 0.06 | $ | 0.10 | $ | 0.11 | ||||
Diluted | $ | 0.02 | $ | 0.06 | $ | 0.10 | $ | 0.11 | ||||
See notes to condensed consolidated financial statements.
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BCT INTERNATIONAL, INC.
NINE MONTHS ENDED NOVEMBER 30, 2002
(UNAUDITED)
(000’s omitted)
Common Stock | Less: | |||||||||||||||||
Number of Shares | Par Value | Paid In Capital | Retained Earnings | Treasury Stock | Total | |||||||||||||
Balance February 28, 2002 | 5,828 | $ | 233 | $ | 12,605 | $ | 3,490 | $ | (1,572 | ) | $ | 14,756 | ||||||
Net income | — | — | — | 535 | — | 535 | ||||||||||||
Balance November 30, 2002 | 5,828 | $ | 233 | $ | 12,605 | $ | 4,025 | $ | (1,572 | ) | $ | 15,291 | ||||||
See notes to condensed consolidated financial statements.
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BCT INTERNATIONAL, INC.
(UNAUDITED)
(000’s omitted)
Nine months ended November 30, | ||||||||
2002 | 2001 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 535 | $ | 567 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Inventory provision | 75 | 75 | ||||||
Depreciation and amortization | 177 | 170 | ||||||
Provision for doubtful accounts | 1,050 | 675 | ||||||
Other adjustments | — | 3 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts and notes receivable | (660 | ) | 1,212 | |||||
Inventory | (885 | ) | (138 | ) | ||||
Assets held for sale | (68 | ) | — | |||||
Prepaid expenses and other assets | (191 | ) | (77 | ) | ||||
Deferred income taxes | 31 | 116 | ||||||
Accounts payable and accrued liabilities | 506 | 357 | ||||||
Deferred revenue | (120 | ) | (231 | ) | ||||
Net cash provided by operating activities | 450 | 2,729 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (124 | ) | (144 | ) | ||||
Net cash (used in) investing activities | (124 | ) | (144 | ) | ||||
Cash flows from financing activities: | ||||||||
Principal payments on notes payable | (340 | ) | (64 | ) | ||||
Exercise of options for common stock | — | 8 | ||||||
Net cash (used in) financing activities | (340 | ) | (56 | ) | ||||
Net (decrease) increase in cash | (14 | ) | 2,529 | |||||
Cash at beginning of period | 4,819 | 1,799 | ||||||
Cash at end of period | $ | 4,805 | $ | 4,328 | ||||
Noncash Activities:
In July 2002, the Company entered into a capital lease in the amouunt of $231 for the equipment acquired to operate the Company-owned franchise in San Carlos, California.
In September 2002, the Company acquired a 37.15% interest in the BCT Tampa franchise, in addition to the 19% interest already held by it. No additional consideration was given in exchange for this acquisition.
See notes to condensed consolidated financial statements.
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BCT INTERNATIONAL, INC.
(UNAUDITED)
(000’s omitted,)
November 30, 2002
1. | In the opinion of management, the foregoing unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position of the Company as of November 30, 2002. |
2. | The results for the three and nine month periods ended November 30, 2002 and 2001, are not necessarily indicative of results that may be expected for the fiscal year. |
3. | For the three and nine months ended November 30, 2002 and 2001, basic earnings per common share are calculated by dividing net earnings applicable to common stock by the weighted average number of shares of common stock outstanding. Diluted earnings per common share are calculated by dividing net earnings applicable to common stock by the weighted average number of shares of common stock outstanding and common stock equivalents which consist of stock options. |
For the three and nine months ended November 30, 2002 and 2001, the number of shares used for both the basic and diluted earnings per share calculations were 5,121 and 5,123 respectively. All of the stock options outstanding for both periods were excluded from the diluted earnings per share calculation as their impact was anti-dilutive. In 2002, and 2001, 885 options and 1,093 options, respectively, were excluded. |
4. | The Company utilizes an asset and liability approach in accounting for income taxes that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax return. In estimating future tax consequences, consideration is given to all expected future events other than enactments of changes in the tax law or rates. |
5. | On September 19, 2002, the Company exercised its option to acquire an additional 37.15% interest in TBDS, Inc., the BCT franchise in Tampa, Florida. After exercising its option, the Company owns 56.15% of TBDS, Inc. Under the option agreement, as a result of the poor performance of the franchise, no further consideration was given for the additional ownership interest . The Company intends to operate the BCT Tampa franchise as a Company-owned franchise. The results of operations of TBDS, Inc. since September 19, 2002, income of $1, are included in the condensed consolidated statement of operations. |
6. | The Company has four reporting segments (1) Franchisor Operations, (2) Pelican Paper Products, (3) Company-owned franchises and (4) Other Operations (consisting primarily of interest income and internet software fees). The Company evaluates the performance of its segments based on earnings before income taxes. |
The Company is organized on the basis of business activity units. The table below presents information about reported segments for the three and nine months ended November 30: |
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BCT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Continued …
(UNAUDITED) (000’s omitted)
November 30, 2002
Franchiser | Pelican Paper | Company owned Franchises | Other | Total | |||||||||||||
For the Three Months Ended November 30, | |||||||||||||||||
2002 | |||||||||||||||||
Revenues | $ | 1,274 | $ | 2,935 | $ | 452 | $ | 181 | $ | 4,842 | |||||||
Cost of sales | — | 2,536 | 100 | — | 2,636 | ||||||||||||
Operating expenses | 1,404 | 152 | 457 | — | 2,013 | ||||||||||||
Income (loss) before income taxes | $ | (130 | ) | $ | 247 | $ | (105 | ) | $ | 181 | $ | 193 | |||||
Depreciation and amortization | $ | 31 | $ | 22 | $ | 13 | $ | — | $ | 66 | |||||||
Income tax (benefit) provision | $ | (51 | ) | $ | 96 | $ | (41 | ) | $ | 71 | $ | 75 | |||||
Capital expenditures | $ | 54 | $ | — | $ | 28 | $ | — | $ | 82 | |||||||
2001 | |||||||||||||||||
Revenues | $ | 1,297 | $ | 2,912 | $ | — | $ | 181 | $ | 4,390 | |||||||
Cost of sales | — | 2,546 | — | — | 2,546 | ||||||||||||
Operating expenses | 1,215 | 146 | — | — | 1,361 | ||||||||||||
Income before income taxes | $ | 82 | $ | 220 | $ | — | $ | 181 | $ | 483 | |||||||
Depreciation and amortization | $ | 31 | $ | 25 | $ | — | $ | — | $ | 56 | |||||||
Income tax provision | $ | 31 | $ | 89 | $ | — | $ | 72 | $ | 192 | |||||||
Capital expenditures | $ | 82 | $ | 11 | $ | — | $ | — | $ | 93 | |||||||
Franchiser | Pelican Paper | Company owned Franchises | Other | Total | |||||||||||||
For the Nine Months Ended November 30, | |||||||||||||||||
2002 | |||||||||||||||||
Revenues | $ | 3,897 | $ | 9,080 | $ | 528 | $ | 592 | $ | 14,097 | |||||||
Cost of sales | — | 7,822 | 119 | — | 7,941 | ||||||||||||
Operating expenses | 4,255 | 461 | 563 | — | 5,279 | ||||||||||||
Income (loss) before income taxes | $ | (358 | ) | $ | 797 | $ | (154 | ) | $ | 592 | $ | 877 | |||||
Depreciation and amortization | $ | 93 | $ | 71 | $ | 13 | $ | — | $ | 177 | |||||||
Income tax (benefit) provision | $ | (140 | ) | $ | 311 | $ | (60 | ) | $ | 231 | $ | 342 | |||||
Capital expenditures | $ | 80 | $ | 16 | $ | 286 | $ | — | $ | 382 | |||||||
2001 | |||||||||||||||||
Revenues | $ | 3,933 | $ | 9,297 | $ | — | $ | 493 | $ | 13,723 | |||||||
Cost of sales | — | 8,073 | — | — | 8,073 | ||||||||||||
Operating expenses | 4,283 | 432 | — | — | 4,715 | ||||||||||||
Income (loss) before income taxes | $ | (350 | ) | $ | 792 | $ | — | $ | 493 | $ | 935 | ||||||
Depreciation and amortization | $ | 91 | $ | 79 | $ | — | $ | — | $ | 170 | |||||||
Income tax (benefit) provision | $ | (138 | ) | $ | 312 | $ | — | $ | 194 | $ | 368 | ||||||
Capital expenditures | $ | 126 | $ | 18 | $ | — | $ | — | $ | 144 | |||||||
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
November 30, 2002
Results of Operations
Total revenues increased $452,000, or 10%, for the three months ended November 30, 2002 as compared to the corresponding period in the prior fiscal year. The increase in revenue is attributable primarily to increases in (i) Company-owned franchise sales ($452,000); (ii) paper and printing sales ($23,000, or 1%) and (iii) royalty revenue ($43,000, or 3%). These increases were offset by a decrease in revenue from sales of franchises ($66,000 or 99%).
The increase in Company-owned franchise sales resulted from the opening of BCT San Carlos, California in July 2002 which succeeded the closing of BCT San Francisco, and the Company taking over majority ownership and operations of BCT Tampa, Florida in September 2002.
In fiscal 2002, the Company recognized deferred revenue from the sale of a franchise in connection with the payoff of the related note receivable. In addition, the Company reached agreement with the franchise in Buenos Aires, Argentina releasing each party of any future contractual obligations, which resulted in the recognition of revenue which was previously deferred due to the uncertainty of related support costs associated with the revenue. The previous two factors resulted in higher revenue related to sales of franchise in the three and nine months ended November 30, 2001.
Total revenues increased $374,000, or 3%, for the nine months ended November 30, 2002, as compared to the corresponding period in the prior fiscal year. The increase in revenue is attributable primarily to (i) the increase in Company-owned franchise sales of $528,000; (ii) an increase in royalty revenue ($50,000 or 1%) and (iii) an increase in interest and other revenue ($99,000 or 20%). These increases were offset by decreases in paper and printing sales ($217,000 or 2%) and revenue from the sales of franchises ($86,000 or 97%).
Cost of paper and printing sales as a percentage of paper and printing sales was 86.4% and 86.1%, respectively, for the three and nine months ended November 30, 2002, as compared to 87.4% and 86.8%, respectively, for the corresponding periods in fiscal 2002. Although the percentage generally remains stable, it does fluctuate due to periodic changes in the revenue mix.
Selling and administrative expenses represented 40% and 36% of gross revenues for the three and nine months ended November 30, 2002 as compared to 30% and 33% for the corresponding periods in fiscal 2002. The year to date fiscal 2003 selling and administrative expense percentage was increased by the additional expenses associated with the Company-owned franchises ($457,000 and $563,000, respectively, for the three and nine months ended November 30, 2002). In addition the Company’s provision for bad debts increased $375,000 for the nine months ended November 30, 2002.
Liquidity and Capital Resources
Cash resources decreased $14,000 during the nine months ended November 30, 2002. The Company made principal payments on debt of $340,000 and capital expenditures of $124,000.
The Company believes current cash reserves and internally generated funds will be sufficient to satisfy the Company’s working capital and capital expenditure requirements for the foreseeable future. The Company has available a $2 million line of credit with a bank. No advances have been made on the line.
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Certain information contained in this report, particularly information regarding future economic performance and finances, plans and objectives of management, constitutes “forward-looking statements” within the meaning of the federal securities laws. In some cases, information regarding certain important factors that could cause actual results to differ materially from any forward-looking statement appear together with such statement. In addition, the following factors, in addition to other possible factors not listed, could affect the Company’s actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include competition within the wholesale printing industry, which is intense; changes in general economic conditions; technological changes; changes in customer tastes; legal claims; the continued ability of the Company and its franchisees to obtain suitable locations and financing for new Franchises as well as expansion of existing Franchises; governmental initiatives, in particular those relating to franchise regulation and taxation; and risk factors detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company had no outstanding balances subject to market risk during the period covered by this report. The Company has a $2 million line of credit with a bank which bears interest at LIBOR + 2.35%. No advances have been made on the line.
Item 4.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of January 14, 2003 and believe that they are effective.
Change in Internal Controls
Not applicable.
Part II OTHER INFORMATION AND SIGNATURES
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
99.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(b) No reports on Form 8-K were filed by the Company during the three month period ended November 30, 2002.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BCT INTERNATIONAL, INC. (Registrant) | ||||||||
Date: | January 14, 2003 | William A.Wilkerson | ||||||
William A.Wilkerson Chairman, President & Chief Executive Officer |
Date: | January 14, 2003 | Michael R. Hull | ||||||
Michael R. Hull Vice President & Chief Financial Officer |
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I, William Wilkerson, Chief Executive Officer of BCT International, Inc., certify that:
(1) | I have reviewed this quarterly report on Form 10-Q of BCT International, Inc; |
(2) | Based on my knowledge, this quarterly report dos not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this quarterly report; and |
(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. |
January 14, 2003 Date | William A. Wilkerson | |||||||
William A. Wilkerson Chief Executive Officer |
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Certification of Chief Financial Officer
I, Michael R. Hull, Chief Financial Officer of BCT International, Inc., certify that:
(1) | I have reviewed this quarterly report on Form 10-Q of BCT International, Inc; |
(2) | Based on my knowledge, this quarterly report dos not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this quarterly report; and |
(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. |
January 14, 2003 Date | Michael R. Hull | |||||||
Michael R. Hull Chief Financial Officer |
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