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 August 31, 2001
Commission File No. 0-10823
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BCT INTERNATIONAL, INC.
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(Exact name of Registrant as specified in its Charter)
Delaware 22-2358849
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(State of Incorporation) (I.R.S. Employer Identification Number)
3000 NE 30th Place, 5th Floor, Fort Lauderdale, FL 33306
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 563-1224
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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 ___.
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Number of shares of common stock outstanding as of
October 5, 2001: 5,828,458
BCT INTERNATIONAL, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS - August 31, 2001 and February 28,
2001 ....................................................................... 2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - for the three months
ended August 31, 2001 and August 31, 2000 and the six months ended August
31, 2001 and August 31, 2000 ............................................... 3
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - for
the six months ended August 31, 2001 ....................................... 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - for the six months ended
August 31, 2001 and August 31, 2000 ........................................ 5
Notes to Condensed Consolidated Financial Statements ....................... 6-7
Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................. 8-9
PART II. OTHER INFORMATION AND SIGNATURES
Signatures ................................................................. 10
PART I. FINANCIAL STATEMENTS
BCT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000's omitted)
ASSETS August 31, 2001 February 28, 2001
------ ---------------- -----------------
Current assets:
Cash and cash equivalents $ 3,170 $ 1,799
Accounts and notes receivable, net 2,043 3,568
Inventory, net 2,375 2,352
Assets held for sale, net 150 63
Prepaid expenses and other current assets 111 71
Deferred income taxes 321 321
-------- --------
Total current assets 8,170 8,174
Accounts and notes receivable, net 6,511 6,362
Property and equipment at cost, net 423 473
Deferred income taxes 809 925
Deposits and other assets 24 24
Trademark and other intangible assets, net 219 232
-------- --------
Total assets $ 16,156 $ 16,190
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 286 $ 597
Notes payable 86 86
Accrued liabilities 563 403
Deferred revenue 167 167
-------- --------
Total current liabilities 1,102 1,253
Deferred revenue 320 417
Notes payable 194 236
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Total liabilities 1,616 1,906
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Stockholders' equity:
Common stock, $.04 par value, 25,000 shares authorized,
5,828 shares issued (5,822 shares in fiscal 2001) 233 233
Paid in capital 12,605 12,597
Retained earnings 3,274 2,998
-------- --------
16,112 15,828
Less: Treasury stock, at cost, 707 shares (686 shares
in fiscal 2001) (1,572) (1,544)
-------- --------
Total stockholders' equity 14,540 14,284
-------- --------
Total liabilities and stockholders' equity $ 16,156 $ 16,190
======== ========
See notes to condensed consolidated financial statements.
2
BCT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
August 31, August 31,
2001 2000 2001 2000
--------------------- --------------------
Revenues:
Royalties and franchise fees $ 1,266 $ 1,286 $ 2,614 $ 2,757
Paper and printing sales 3,110 3,314 6,385 6,911
Sales of Franchises 9 9 22 24
Interest and other 144 147 312 269
----------- ----------- ---------- -----------
4,529 4,756 9,333 9,961
----------- ----------- ---------- -----------
Expenses:
Cost of paper and printing sales 2,696 2,798 5,527 5,877
Selling, general and administrative 1,434 1,287 3,240 2,553
Depreciation and amortization 57 54 114 101
----------- ----------- ---------- -----------
4,187 4,139 8,881 8,531
----------- ----------- ---------- -----------
Income from continued operations
before income taxes 342 617 452 1,430
Provision for income taxes 133 240 176 557
----------- ----------- ---------- -----------
Income from continued operations 209 377 276 873
Discontinued operations:
Loss from company owned franchises operated
under a plan of disposition net of tax
benefit --- (31) --- (31)
----------- ----------- ---------- -----------
Net income $ 209 $ 346 $ 276 $ 842
=========== =========== ========== ===========
Earnings per share:
Income from continued operations $ .04 $ .07 $ .05 $ .17
Loss from discontinued operations --- (.01) --- (.01)
----------- ----------- ---------- -----------
Basic $ .04 $ .07 $ .05 $ .16
=========== =========== ========== ===========
Income from continued operations $ .04 $ .07 $ .05 $ .17
Loss from discontinued operations --- (.01) --- (.01)
----------- ----------- ---------- -----------
Diluted $ .04 $ .07 $ .05 $ .16
=========== =========== ========== ===========
See notes to condensed consolidated financial statements.
3
BCT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED AUGUST 31, 2001
(UNAUDITED)
000's omitted
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Common Stock Less:
----------------------
Number of Par Paid In Retained Treasury
Shares Value Capital Earnings Stock Total
-----------------------------------------------------------------------------
Balance February 28, 2001 5,822 $ 233 $ 12,597 $ 2,998 $ (1,544) $ 14,284
Other transactions 6 --- 8 --- (28) (20)
Net income --- --- --- 276 --- 276
------- ------- -------- --------- -------- --------
Balance August 31, 2001 5,828 $ 233 $ 12,605 $ 3,274 $ (1,572) $ 14,540
======= ======= ======== ========= ======== ========
See notes to condensed consolidated financial statements.
4
BCT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000's omitted)
Six months ended
August 31,
2001 2000
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Cash flows from operating activities:
Net income $ 276 $ 842
Plus loss from discontinued operations --- 31
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Income from continued operations 276 873
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Depreciation and amortization 114 101
Provision for doubtful accounts 450 50
Provision for inventory obsolescence 50 12
Other adjustments (12) (1)
Changes in operating assets and liabilities:
Accounts and notes receivable 826 (217)
Inventory (73) (304)
Assets held for sale (3) 101
Prepaid expenses and other assets (40) 21
Deferred income taxes 116 (23)
Accounts payable and accrued liabilities (151) (906)
Deferred revenue (97) (81)
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Net cash provided (used) by continued operations 1,456 (374)
Net cash (used) by discontinued operations --- (25)
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Net cash provided (used) by operating activities 1,456 (399)
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Cash flows from investing activities:
Capital expenditures (51) (132)
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Net cash (used in) investing activities (51) (132)
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Cash flows from financing activities:
Principal payments on notes payable (42) (59)
Exercise of options for common stock 8 ---
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Net cash (used in) financing activities (34) (59)
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,371 (590)
Cash and cash equivalents at beginning of period 1,799 1,906
---------- ----------
Cash and cash equivalents at end of period $ 3,170 $ 1,316
========== ==========
See notes to condensed consolidated financial statements.
5
BCT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(000's omitted)
August 31, 2001
---------------
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
August 31, 2001.
2. The results for the three and six month periods ended August 31, 2001 and
2000, are not necessarily indicative of results that may be expected for
the fiscal year.
3. For the three and six months ended August 31, 2001 and 2000, 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.
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 August 15, 2001, the Company's Board of Directors approved an agreement
between the Company and its Chairman, President and Chief Executive Officer
(Chief Executive) to guarantee a $2 million line of credit with a bank. The
Chief Executive obtained the line of credit to finance the purchase of
shares of the Company's common stock through Phoenix Group of Florida,
Inc., a company 100% owned by the Chief Executive. As of September 28,
2001, Phoenix Group of Florida, Inc. has acquired 1,033,738 shares of the
Company's common stock with proceeds from the line of credit. As a result,
the Chief Executive has beneficial ownership of 48% of the Company's common
stock as of September 28, 2001. In exchange for the guarantee, the Chief
Executive's employment agreement with the Company was amended and will now
expire on February 28, 2002 instead of February 28, 2003. In addition,
should the Chief Executive fail to acquire all of the shares of the
Company's outstanding common stock by April 15, 2002, at a price considered
fair by the Special Committee of the Company's Board of Directors, the
Company will have the option to purchase the shares acquired by the Chief
Executive at the prices paid by the Chief Executive, and the Company will
be entitled to reimbursement by the Chief Executive of its expenses
incurred in connection with the proposed acquisition.
6. On August 31, 2001, the Company was informed by the Nasdaq National Market
that the Company's stock would be delisted effective September 10, 2001 for
failure to meet the minimum market value of public float of $5 million as
prescribed by Nasdaq Market Rule 4450 (a) (2). Accordingly, on September
10, 2001 the Company's common stock was delisted and since that date it has
traded on the OTC Bulletin Board.
7. In June 2001, the FASB unanimously voted in favor of SFAS 141, "Business
Combinations," and SFAS 142, "Goodwill and Other Intangible Assets." SFAS
141 requires that the purchase method of accounting be used for all
business combinations completed after June 30, 2001. SFAS 141 also
specifies the types of acquired intangible assets that are required to be
recognized and reported separately from goodwill and those acquired
intangible assets that are required to be included in goodwill. SFAS 142
will require that goodwill no longer be amortized, but instead tested for
impairment at least annually. SFAS 142 will also require recognized
intangible assets be amortized over their respective estimated useful lives
and reviewed for impairment in accordance with SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." Any recognized intangible asset determined to have an
indefinite useful life will not be amortized, but instead tested for
impairment in accordance with the Standard until its life is determined to
no longer be indefinite. SFAS 141 is effective for all business
combinations initiated after June 30, 2001, while the provisions of SFAS
142 are effective for fiscal years beginning after December 15, 2001, and
are effective for interim periods in the initial year of adoption. The
Company is currently analyzing the effect the adoption of these standards
will have on its financial statements
6
BCT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Continued...
(UNAUDITED) (000's omitted)
August 31, 2001
8. The Company has three reporting segments (1) Franchisor Operations, (2)
Pelican Paper Products, and (3) Other Operations. 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 six
months ended August 31:
For the Three Months Ended August 31, Pelican
Franchisor Paper Other Total
----------- ---------- ---------- ----------
2001
Revenues $ 1,275 $ 3,110 $ 144 $ 4,529
Cost of sales --- 2,696 --- 2,696
Operating expenses 1,344 147 --- 1,491
----------- ---------- ---------- ----------
Income (loss) before income taxes $ (69) $ 267 $ 144 $ 342
=========== ========== ========== ==========
Depreciation and amortization $ 30 $ 27 $ --- $ 57
=========== ========== ========== ==========
Income tax (benefit) provision $ (27) $ 104 $ 56 $ 133
=========== ========== ========== ==========
Capital expenditures $ 37 $ 7 $ --- $ 44
=========== ========== ========== ==========
2000
Revenues $ 1,295 $ 3,314 $ 147 $ 4,756
Cost of sales --- 2,798 --- 2,798
Operating expenses 1,023 318 --- 1,341
----------- ---------- ---------- ----------
Income before income taxes $ 272 $ 198 $ 147 $ 617
=========== ========== ========== ==========
Depreciation and amortization $ 33 $ 21 $ --- $ 54
=========== ========== ========== ==========
Income tax provision $ 106 $ 77 $ 57 $ 240
=========== ========== ========== ==========
Capital expenditures $ 8 $ 80 $ --- $ 88
=========== ========== ========== ==========
For the Six Months Ended August 31, Pelican
Franchisor Paper Other Total
----------- ---------- ---------- ----------
2001
Revenues $ 2,636 $ 6,385 $ 312 $ 9,333
Cost of sales --- 5,527 --- 5,527
Operating expenses 3,068 286 --- 3,354
----------- ---------- ---------- ----------
Income (loss) before income taxes $ (432) $ 572 $ 312 $ 452
=========== ========== ========== ==========
Depreciation and amortization $ 60 $ 54 $ --- $ 114
=========== ========== ========== ==========
Income tax (benefit) provision $ (169) $ 223 $ 122 $ 176
=========== ========== ========== ==========
Capital expenditures $ 44 $ 7 $ --- $ 51
=========== ========== ========== ==========
2000
Revenues $ 2,781 $ 6,911 $ 269 $ 9,961
Cost of sales --- 5,877 --- 5,877
Operating expenses 2,199 455 --- 2,654
----------- ---------- ---------- ----------
Income before income taxes $ 582 $ 579 $ 269 $ 1,430
=========== ========== ========== ==========
Depreciation and amortization $ 61 $ 40 $ --- $ 101
=========== ========== ========== ==========
Income tax provision $ 226 $ 226 $ 105 $ 557
=========== ========== ========== ==========
Capital expenditures $ 20 $ 112 $ --- $ 132
=========== ========== ========== ==========
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
August 31, 2001
---------------
Results of Operations
---------------------
Total revenues decreased $227,000, or 5% for the three months ended August 31,
2001 as compared to the corresponding period in the prior fiscal year. The
decrease in revenue is attributable primarily to decreases in (i) royalty
revenue ($20,000 or 1.6%) and (ii) paper and printing sales ($204,000 or 6.2%).
Total revenues decreased $628,000, or 6.3% for the six months ended August 31,
2001 as compared to the corresponding period in the prior fiscal year. The
decrease in revenue is attributable primarily to decreases in (i) royalty
revenue ($143,000 or 5.2%) and (ii) paper and printing sales ($526,000 or 7.6%).
The decrease in royalty revenue is due mainly to the closing of three franchises
in fiscal 2001 and the loss of a national account in Canada. The decrease in
paper and printing sales resulted from the decrease in BCT system sales and the
implementation of stricter collection policies.
Cost of paper and printing sales as a percentage of paper and printing sales was
87% for the three and six months ended August 31, 2001 as compared to 84% and
85%, respectively, for the corresponding periods in fiscal 2001.
Selling and administrative expenses represented 32% and 35% of gross revenues
for the three and six months ended August 31, 2001 as compared to 27% and 26%
for the corresponding periods in fiscal 2001. The selling and administrative
expense percentage is higher in the current fiscal year due mainly to an
additional $400,000 provision for bad debt, as well as severance expenses of
$300,000, incurred related to changes at the President and CEO position.
Liquidity and Capital Resources
-------------------------------
Cash resources increased $1,371,000 during the six months ended August 31, 2001.
The Company used cash to make principal payments on debt of $42,000, to make
capital expenditures of $51,000 and to reduce accounts payable and accrued
liabilities $151,000.
The Company plans to continue to improve its working capital and cash positions
during fiscal 2002 by continuing its efforts to (i) increase cash collections;
and (ii) increase marketing to new customer channels through orderprinting.com,
its proprietary internet based ordering system.
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; however, there can be no assurance that
external financing will not be needed. The Company has available a $2 million
line of credit with a bank. No advances have been made on the line.
8
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.
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.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BCT INTERNATIONAL, INC.
(Registrant)
Date: October 5, 2001 William Wilkerson
------------------ -------------------------------
William Wilkerson
Chairman, President & Chief Executive Officer
Date: October 5, 2001 Michael R. Hull
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Michael R. Hull
Vice President & Chief Financial Officer
10