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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year
ended February 28, 1998 Commission file no. 0-10823
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BCT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 22-2358849
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(State or other jurisdiction of incorporation of organization) (I.R.S. Employer Identification No.)
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3000 NE 30th Place, Fifth Floor, Fort Lauderdale, Florida 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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Securities registered pursuant to Section 12 (b) of the Act:
NONE
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Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, par value $.04 per share
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ] .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Registrant's voting stock held by non-
affiliates of the Registrant, at May 15, 1998 was approximately $10,444,976.
The number of shares outstanding of Registrant's Common Stock, par value
$.04 per share, at May 15, 1998 was 5,573,589.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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This document consists of 36 pages.
The Index to exhibits appears on page 16.
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Item 1. Business
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(a) General
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BCT International, Inc. (the "Company") is a holding company with one
direct wholly-owned subsidiary: Business Cards Tomorrow, Inc., a Florida
corporation ("BCT"). BCT operates the Business Cards Tomorrow franchise system,
the world's largest wholesale franchise printing chain. Since its founding in
1975, the system has grown to include 88 "Business Cards Tomorrow Franchises"
(the "Franchises") specializing in thermography products for resale by retail
printing providers in 38 states and Canada. One Franchise -- located in Delray
Beach, Florida, is owned by BCT through wholly-owned subsidiaries. Another
subsidiary of BCT owns 70% of the Louisville, Kentucky, Franchise and the
remaining 30% is owned by third parties who manage day to day operations.
BCT's operations also include the Pelican Paper Products Division ("PPP")
which supplies paper products, press supplies and press parts to the BCT
Franchises. The Company operates in a single industry segment: the
franchising, ownership and operation of and sale of paper products to the BCT
Franchises.
(b) Narrative description of the business
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Business Cards Tomorrow, Inc.
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General
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The Franchises typically operate through the placement of business card,
stationery, rubber stamp and labels catalogs with commercial and retail "quick"
printers, office superstores, forms brokers, office supply companies and
stationers in the Franchises' trade areas (collectively, "Dealers"). The
Dealers secure orders from their customers for thermographed printed products
and other printed matter which are normally picked up daily by the Franchises'
route drivers, who also deliver products previously ordered. The Franchises
specialize in the "fast turnaround" of their products, delivering many items,
such as business cards, in one business day, with most products being delivered
within two days of the date of order. While most Franchises receive at least
some orders by mail, fax and electronic communication, this normally does not
constitute a major portion of a Franchise's business.
Thermography is a specialized printing process that gives a raised printing
effect similar to engraving and requires specialized equipment and operating
techniques. Most commercial and "quick" printers and office superstores and
other Dealers choose not to invest in this specialized equipment, preferring to
subcontract this type of work to wholesale "trade" printing companies such as
Business Cards Tomorrow Franchises that specialize in thermography.
BCT supplies business card, stationery, rubber stamp and label catalogs to
its Franchises and also sells them the paper products featured in the catalogs
through PPP.
PPP is a supplier of paper products for the BCT Franchises. PPP purchases
raw paper directly from paper mills and paper brokers and utilizes the services
of converters to convert the raw material to finished paper products. In
addition, certain conversion functions are performed "in house". PPP utilizes
three public storage facilities located strategically throughout the United
States to house and ship out paper products to the Franchises.
BCT markets its franchise operations to potential franchisees through major
business newspapers as well as printing trade publications. The development of
a specific market is determined by a number of different criteria, including
resources available, customer base and operating efficiencies. BCT has
developed the BCT network primarily through the sale of franchises to third
parties. BCT indirectly owns and operates two Franchises described in Item 1(a)
above (the "Company Franchises"). BCT Franchises are located throughout the
Continental U.S., Hawaii and Canada.
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BCT derives revenues from six principal sources: (i) royalties, which are
based on a percentage of sales from the BCT Franchises; (ii) franchise fees from
newly franchised Franchises and resale fees from the resale of operating
Franchises; (iii) sales of paper products to franchisees; (iv) catalog and
miscellaneous equipment and parts sales classified as printing sales; (v) gross
revenue from the Company Franchises; and (vi) sales of additional Territories to
existing franchisees.
As of May 15, 1998, 88 BCT Franchises are in operation in 38 states and
Canada. The current number of Franchises compares with 98 and 100 Franchises in
operation on May 1, 1997 and 1996, respectively. The decrease in the number of
franchises is the result of several instances of Franchises combining the
operations of multiple Franchises into one Franchise. Total BCT system sales
reached approximately $96,000,000 and $91,000,000 for the years ended December
31, 1997 and 1996, an average of $1,057,000 and $919,000, respectively, per
Franchise. Total and average sales were $84,000,000 and $853,000, respectively,
for fiscal 1996. On April 6, 1998, BCT entered into an agreement for a
Franchise to be located in Buenos Aires, Argentina.
BCT receives either a 5% or 6% royalty fee based on gross BCT Franchisee
sales for original 15 - 25 year contracts. The royalty fee is dependent on the
initial franchise agreement date. Generally, agreements dated through mid-1986
carry 5% royalties. Thereafter, the 6% royalty applies. Certain franchise
agreements are up for renewal. For fiscal years ended 1998, 1997, and 1996,
continuing franchise royalties comprised approximately 25%, 27% and 27% of total
revenue, respectively. PPP sales to the franchisees for fiscal years ended
1998, 1997, and 1996 were approximately 60%, 53%, and 47% of total revenue,
respectively.
Raw Materials
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The primary raw materials of the BCT Franchises are paper products which
are readily available from numerous industry suppliers. It is common practice
within the paper industry to place minimum order levels when ordering specific
materials. In addition, the need to maintain a complete stock of raw materials
for all items listed in BCT's catalogs requires significant continuing inventory
investment. Consequently, PPP frequently carries higher levels of inventory
than what is required according to PPP's customer demands. While BCT, through
PPP, sells paper products to its Franchises and the Company Franchises, the
Franchises are under no obligation to purchase these products from BCT and all
such products are available from other suppliers.
The paper industry does suffer periodic shortages of specific paper
products as well as price fluctuations caused by supply and demand changes, but
these shortages and price fluctuations typically affect all similar types of
printers in an industry such as "trade" thermographers and can generally be
mitigated through the use of alternate supply sources in the industry and
substitution with similar products. Any increases in the cost of paper from the
mills is generally passed on to the Franchises. It is not considered by BCT as
very likely that any of its Franchises would be out of operation for any
significant period of time due to an unavailability of raw materials resulting
from major supply or price changes in the paper industry.
Franchises
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BCT's franchise agreements with individual Franchises are typically for a
15-to-25 year period and are renewable for additional 10-year periods. The
right to renew is contingent upon the Franchise not being in default under any
material term of the franchise agreement. BCT may terminate a franchise
agreement under certain circumstances where the franchisee is in material
default under the franchise agreement and has not cured such default(s) after
notice from BCT. BCT's existing franchise agreements with individual Franchises
have an average remaining term of approximately 17 years. One Franchise comes
up for renewal in fiscal 1999, and in the subsequent 10 years, 18 Franchises
come up for renewal.
The Company does not expect to generate significant revenues from the sale
of new Franchises in the foreseeable future. The Company intends to focus its
growth strategy on increasing sales by existing Franchises.
Competition
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The Company and its franchisees compete with other franchisors, franchisees
and independent operators in the graphic arts industry. While the Company
believes that its BCT franchise system is the leading supplier of thermographed
business cards to printers throughout the United States (supported by the May
1993 Quick Print Magazine "Supply and Services Survey," indicating a 23% market
share in the brokered printing category for business cards), there can be no
assurance that competitors will not imitate
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or improve upon the Company's business strategy. BCT's major national
competitors are Regency Thermographers and Carlson Craft, and American Wholesale
Thermographers, Inc.; however, BCT's franchisees also compete with numerous
local and regional operations. BCT's franchisees compete primarily on the basis
of turnaround time, quality and close customer contact.
Trade and Service Marks
-----------------------
The Company has received federal registration of the names "Business Cards
Tomorrow" and "BCT International, Inc." and the BCT commercial logo, as well as
the names and commercial marks for "Typesetting Express", "Engraving Tomorrow",
"Thrift-T-Cards", "Thermo-Rite", and "Rubber Stamps Tomorrow".
Research and Development
------------------------
The Company performs ongoing research and development, seeking improvements
in the operating procedures and products of its Franchises and development of
proprietary software. These activities are primarily done at the Company
Franchises and at the Company's corporate headquarters. Also, the Company
often requests individual franchisees to perform tests of various equipment,
materials or techniques in an actual production environment. The Company has
done extensive research and development in the use of an internet based order
entry and distribution system.
Government Regulation
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The Federal Trade Commission has adopted rules relating to the sales of
franchises and disclosure requirements to potential franchise purchasers.
Additionally, various states have adopted laws regulating franchise sales and
operations. As a franchisor, the Company is required to comply with these
federal and state regulations and believes that it is not operating in violation
of any of these regulations.
Employees
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The Company has 90 employees, all of whom are located at either (i) the
Company's corporate headquarters in Fort Lauderdale, Florida, or (ii) the
Company Franchises in Delray Beach, Florida and Louisville, Kentucky.
Financial Information Relating to Foreign and Domestic Operations
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February 28, February 28, February 29,
1998 1997 1996
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Revenue:
Foreign operations $ 924,000 $ 969,000 $ 922,000
Domestic operations $18,481,000 $16,776,000 $16,668,000
Operating Profit (Loss):
Foreign operations $ 118,000 $ (22,000) $ 123,000
Domestic operations $ 2,300,000 $ (385,000) $ 823,000
Identifiable Assets:
Foreign operations $ 355,000 $ 356,000 $ 312,000
Domestic operations $13,802,000 $10,873,000 $10,426,000
</TABLE>
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Item 2. Properties
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The Company's corporate headquarters are located at 3000 NE 30th Place,
Fifth Floor, Fort Lauderdale, Florida, and occupy approximately 7,500 square
feet. The lease on this facility continues to October 2002 at a monthly rental
of approximately $9,800.
The Delray Beach, Florida, Company Franchise utilizes a 6,000 square foot
facility, which is leased for a monthly rental of $3,700. The lease on this
facility continues through April 2000.
The Louisville, Kentucky, Company Franchise utilizes a 5,000 square foot
facility, which is leased for a monthly rental of $1,400. The lease on this
facility continues through September 1999.
The Woburn, Massachusetts location, formerly occupied by a Company
Franchise, is currently being marketed for sublease. The monthly rental of
$3,300 on this 4,500 square foot facility continues through February 2001.
Management believes that existing facilities are adequate for the
foreseeable future.
Item 3. Legal Proceedings
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No material matters.
Item 4. Submission of Matters to a Vote of Securities Holders
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No matters were submitted to a vote of securities holders, through the
solicitation of proxies or otherwise, during the fiscal quarter ended February
28, 1998.
Item 5. Market for Registrant's Common Stock and Related Security Holder
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Matters
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The Company's Common Stock is traded on the National Market tier of the
NASDAQ Stock Market under the symbol "BCTI".
The following table sets forth, for the quarters indicated, the high and
low closing price for the Common Stock as reported on the NASDAQ National
Market.
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Fiscal Quarters High Low
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1997 First Quarter $4.38 $3.00
Second Quarter $3.62 $2.75
Third Quarter $4.38 $3.12
Fourth Quarter $5.00 $2.50
1998 First Quarter $3.80 $2.00
Second Quarter $3.75 $2.50
Third Quarter $3.62 $2.62
Fourth Quarter $3.43 $2.37
1999 First Quarter (through May 15, 1998) $3.75 $2.68
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On May 15, 1998, the closing price per share of common stock, as reported
by NASDAQ, was $3.06.
There is currently no established public trading market for any securities
of the Company other than the common stock.
The approximate number of holders of record of the Company's common stock
as of May 15, 1998 was 835.
During the fiscal years ended February 28, 1998 and 1997 and February 29,
1996, no cash dividends were declared on the outstanding Common Stock. The
Company has no plans to pay any dividends on the common stock.
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Item 6. Selected Financial Data (000's omitted)
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OPERATIONS
for the fiscal year ended: FEB. 28, 1998 FEB. 28, 1997 FEB. 29, 1996 FEB. 28, 1995 FEB. 28, 1994
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REVENUES:
Royalties and franchise fees $ 4,921 $ 4,852 $ 4,820 $ 4,540 $ 4,004
Paper and printing sales 11,734 10,118 9,159 7,585 7,400
Company franchise sales 2,383 2,529 2,305 852 651
Sales of franchises 44 40 870 466 957
Interest and other income 323 206 436 130 109
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19,405 17,745 17,590 13,573 13,121
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EXPENSES:
Cost of paper and printing sales 9,857 8,823 7,796 6,657 6,376
Operating expenses of company
franchises 2,760 3,262 3,277 1,120 802
Cost of franchises sold --- --- 521 326 691
Selling, general and
administrative 4,171 5,820 4,880 4,212 4,146
Depreciation and amortization 199 247 170 227 338
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16,987 18,152 16,644 12,542 12,353
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Income (loss) before income taxes 2,418 ( 407) 946 1,031 768
Income tax provision (benefit) 853 ( 22) ( 195) ( 124) ( 93)
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Net income (loss) $ 1,565 $( 385) $ 1,141 $ 1,155 $ 861
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Earnings (loss) per common share:
Net income (loss)
Basic $ .30 $ (.08) $ .22 $ .34 $ .31
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Diluted $ .28 $ (.08) $ .20 $ .23 $ .25
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Total assets $14,157 $11,229 $10,738 $10,018 $ 7,781
Long-term debt $ 539 $ 215 $ 5 $ 48 $ 459
Preferred stock $ 60 $ 60 $ 260 $ 810 $ 1,622
Net working capital $ 5,032 $ 3,614 $ 4,633 $ 5,542 $ 1,067
Stockholders' equity (1) $11,073 $ 9,310 $ 9,374 $ 7,759 $ 2,290
</TABLE>
(1) During the five fiscal years ended February 28, 1998, no cash dividends have
been declared on the common stock outstanding.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Fiscal 1998 Compared to Fiscal 1997
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Total revenue for fiscal 1998 increased by $1,660,000 or 9% over the prior
fiscal year. Royalty revenue increased by $69,000 or 1%; paper and printing
sales increased by $1,616,000 or 16%, and revenue from Company Franchises
decreased $146,000 or 6%. Revenue growth was attributable to the overall
revenue growth of the BCT system, continued increased market penetration by PPP,
the introduction of labels to the revenue mix of the BCT system and the
corresponding sale of labels materials and supplies by PPP. The decrease in
Company Franchise revenue resulted from the Company operating a weighted average
of 2.4 Company Franchises in fiscal 1998 as compared with a weighted average of
3.5 in fiscal 1997. Interest and other income increased $117,000 or 57% due to
the Company's increase in trade notes receivable.
Cost of goods sold as a percentage of revenues was 51%, 50% and 47%,
respectively, for fiscal years ended 1998, 1997 and 1996. Fluctuations in this
percentage primarily result from changes in the revenue mix. Selling, general
and administrative expenses represented 21%, 33% and 28% of gross revenues in
fiscal 1998, 1997 and 1996, respectively. The decrease in fiscal 1998 was the
result of applying the cost containment begun in fiscal 1997 for a full year.
In addition, selling, general and administrative cost in fiscal 1997 included a
loss of $130,000 incurred by the Company relating to its freight auditing
company as well as a writedown of certain assets relating to the social
stationery program amounting to $144,000.
Losses at Company Franchises were $377,000 in fiscal 1998 versus losses of
$733,000 in fiscal 1997. The reduction of losses resulted from the decrease in
the weighted average number of Company Franchises in operation during fiscal
1998.
Fiscal 1997 Compared to Fiscal 1996
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Total revenue for fiscal 1997 increased by $155,000 or 1% over the prior
fiscal year. Royalty revenue increased by $32,000 or 1%; paper and printing
sales increased by $959,000 or 10%; revenue from Company Franchises increased by
$866,000 or 82%; revenue from Company Franchises held for sale decreased by
$642,000 or 51%; revenue from the sales of franchises decreased by $830,000 or
95% and interest and other income decreased by $230,000 or 53%. Revenue growth
was attributable to the overall revenue growth of the BCT system, increased
market penetration by Pelican Paper, and a complete year of revenue from the
Company Franchises. Revenue growth was tempered by an increase in the number of
franchises participating in the renewal royalty scale, and a decrease in
revenues from Company Franchises held for sale as current year revenue includes
revenue from three Franchises versus five in the prior year. In addition,
Franchise sales decreased as a result of the sale of one Franchise in fiscal
1997 versus sales of two Franchises, a Facility, two territories and a Company
Franchise is fiscal 1996.
Cost of goods sold as a percentage of revenue was 50%, 47% and 51%,
respectively, for fiscal years ended 1997, 1996 and 1995. Although the
percentage generally remains stable, it does fluctuate due to periodic changes
in the revenue mix. Selling, general and administrative expenses represented
33%, 28% and 31% of gross revenues in fiscal 1997, 1996 and 1995, respectively.
In fiscal 1997, management focused on the sale of Company owned Franchises held
for sale and on cost containment as it related to BCT operations.
In fiscal 1997, losses of $733,000 were incurred by the Company Franchises
as compared to losses of $972,000 in fiscal 1996. The Company Franchises in
Marietta, Georgia; Riverside, California; and Newbury Park, California were sold
in August 1996.
In addition, the Company discontinued its social stationery program in
fiscal 1997. As a result, provision was made for inventory obsolescence; and
certain assets related to development of the social catalog were written off.
The aggregate charge to fiscal 1997 earnings was $270.
Liquidity and Capital Resources
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The Company generated cash from operations of $864,000 during the fiscal year
ended February 28, 1998. The Company employed the cash generated to make
capital expenditures of $88,000, primarily for equipment at the Company
Franchises, acquisitions of $195,000 relating to the Boston Franchise repurchase
and the purchase of an independent thermography business which was resold, and
to make principal payments on debt of $75,000. The remainder of cash generated
from operations and from stock options which were exercised by their holders
($205,000) were retained to fund day to day operations of the business.
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The Company's cash generated from operations was reduced by the Company's
commitment to the franchise network in the form of note financing for
acquisitions and to finance certain current obligations of the franchise owners.
The Company intends to continue to improve its working capital and cash
positions during fiscal 1999 by focusing its efforts on cash collections and
maintaining current inventory levels. Further, the Company intends to pursue
new channels of distribution for its current products and continue to develop
and improve new and existing product offerings such as labels and rubber stamps.
The Company believes that 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 or that, if needed, it will be available on
commercially reasonable terms.
Certain information contained in this annual 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 8. Financial Statements and Supplementary Data
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The financial statements and schedules listed in the accompanying
Index to consolidated financial statements and schedules on page D-1 are filed
as a part of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
--------------------
None
Item 10. Directors and Executive Officers of the Registrant
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Date Elected
Name Age Position Or Appointed
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<S> <C> <C> <C>
William Wilkerson 56 Chairman of the Board January 1978
James H. Kaufenberg 56 Chief Executive Officer, President
and Director September 1996
Michael R. Hull 44 Chief Financial Officer, Treasurer
and Secretary May 1996
Thomas J. Cassady 76 Director April 1988
Alvin Katz 68 Director October, 1996
Henry A. Johnson 63 Director February 1975
Bill LeVine 78 Director May 1992
Peter Gaughn 42 Director April 1998
</TABLE>
William Wilkerson has been Chairman of the Board and a Director of the
Company since January 1986. He was Chief Executive Officer of the Company from
May 1988 until October 1997. He was President and Chief Executive Officer of
Business Cards Tomorrow, Inc. (a Florida corporation) from January 1978 to
January 1982 and Chairman from January 1982 to January 1986.
James H. Kaufenberg joined the Company in September 1996 and served as
President and Chief Operating Officer. In October 1997, Mr. Kaufenberg was
appointed Chief Executive Officer and was appointed to the Board of Directors.
Previously, he
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was President and Chief Executive Officer and a Director of Insty-Prints, Inc.
since September 1989. Mr. Kaufenberg has an extensive background in general and
financial management in the paper, manufacturing and technology industries. From
November 1984 to October 1989, he was Chief Financial Officer of CPT Corporation
based in Minnesota. From May 1983 to October 1984, he was President and Chief
Executive Officer of Daycom Corporation based in Dayton, Ohio. Before that, Mr.
Kaufenberg was President and General Manager of Miami Paper Corporation in
Dayton, Ohio. Mr. Kaufenberg graduated with distinction from the University of
Nebraska in 1969 and earned his CPA in 1970.
Michael R. Hull joined the Company in May 1996 and became Vice
President/Chief Financial Officer and Treasurer beginning May 31, 1996. Mr. Hull
is a certified public accountant, a member of the Florida Institute of Certified
Public Accountants and the American Institute of Certified Public Accountants
and has worked in public accounting since 1985. Prior to joining the Company,
Mr. Hull served as an audit senior manager with the accounting firm of Price
Waterhouse LLP for three years.
Thomas J. Cassady became a Director of the Company in April 1988 and has
been a Director of Photo Control Corporation, Minneapolis, Minnesota, since
February 1978. Mr. Cassady is a veteran of more than 30 years in the financial
and securities field, having served as President and Chief Administrative
Officer of Merrill, Lynch, Pierce, Fenner and Smith, Inc., until his retirement
in 1978.
Alvin Katz became a Director in October 1996. He has been an adjunct
professor of management at Florida Atlantic University in Boca Raton, Florida
since 1980. He spent 20 years with United Parcel Service, Inc. from 1957 to 1976
in various staff assignments, including Corporate Director of R&D and Operations
Planning. Subsequently, he served as CEO of a privately owned conglomerate in
New York City. He is a Director of NASTECH Co., Blimpies International, Inc.,
AMTECH Systems, Inc., MIKRON Instrument Company, and OZO Diversified Automation,
Inc.
Henry A. Johnson, founder of BCT, has been a Director of the Company since
January 1986. From January 1986 until October 1988, he was Senior Vice
President/Operations of the Company. In February 1989, he accepted the
additional responsibilities of Executive Vice President of BCT. Previously, he
was Senior Vice President/Operations for Business Cards Tomorrow, Inc. (a
Florida corporation), from January 1978. In March 1990, he retired from his
position with BCT. Since March 1991, Mr. Johnson has owned and operated a
private printing business, Colorful Copies, located in Las Vegas, Nevada.
Bill LeVine became a Director of the Company in May 1992. Mr. LeVine is the
pioneer of the quick printing industry. He founded Postal Instant Press (PIP
Printing) in 1967 and served as its Chairman, Chief Executive Officer and
President until January 1988. Since that time, he has focused on private
investments. Since 1992, Mr. LeVine has been a Director of Fast Frame, Inc. Mr.
LeVine has been a Director of Mellon First Business Bank, Los Angeles,
California, since 1982, Rentrak Corporation, formerly National Video, Portland,
Oregon, since 1987 and California Closets, Inc., San Francisco, California since
1994.
Peter Gaughn became a Director of the Company in April 1998. He currently
serves as President and Chief Executive Officer and Director of PIP Printing, a
position he has held since February 1995. Previously, Mr. Gaughn was President
and Chief Operating Officer of the Company from August 1989 to January 1995.
Compliance with Section 16 (a) of the Exchange Act
The Company has reviewed the Forms 3 and 4 and amendments thereto furnished
to it pursuant to SEC Rule 16a-3(e) during its most recent fiscal year and Form
5 and amendments thereto furnished to the Company with respect to its most
recent fiscal year. Based solely on such review, the Company is aware of one
instance involving a late filing of a required Form by a person who, at any time
during the fiscal year, was a director, officer or beneficial owner of more than
10% of the Company's Common Stock. A Form 4 relating to the exercise of options
to purchase common stock by the Chairman of the Company was received by the
Securities and Exchange Commission one day after the filing deadline.
Item 11. Executive Compensation
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(a) Board Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors, which is
comprised of non-employee directors, has overall responsibility to review and
recommend broad-based compensation plans for executive officers of the Company
and its BCT subsidiary to the Board of Directors. One of the members of the
Compensation Committee, Mr. LeVine, has invested significant sums of money in
the Company. (See Item 13. "Certain Relationships and Related Transactions").
Pursuant to recently adopted rules designed to enhance disclosure of companies'
policies toward executive compensation, set forth below is a report submitted by
Mr.
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LeVine in his capacity as the remaining member of the Board's Compensation
Committee following the March 1998 death of the other member, Raymond Kiernan,
addressing the Company's compensation policies for fiscal 1998 as they affected
the Company's executive officers generally and Mr. William A. Wilkerson,
Chairman of the Board (and Chief Executive Officer until October 1997), and Mr.
James H. Kaufenberg, President and Chief Executive Officer of the Company since
October 1997.
Compensation Policies For Executive Officers
The executive compensation program is based on a philosophy which aligns
compensation with business strategy, Company values and management initiatives.
The principles underlying this compensation philosophy are: the linkage of
executive compensation to the enhancement of shareholder value; maintenance of a
compensation program that will attract, motivate and retain key executives
critical to the long-term success of the Company; creation of a performance
oriented environment by rewarding performance leading to the attainment of the
Company's goals; evaluation of competitiveness of salary and equity incentive
opportunities; and determination of the adequacy and propriety of the annual
bonus plan, including structure and performance measures.
Relationship of Performance Under Compensation Plans
Compensation paid Messrs. Wilkerson and Kaufenberg in fiscal 1998, as
reflected in the following Tables, consisted of base salary. In addition, as
indicated in the Tables, in fiscal 1998 the Compensation Committee awarded stock
options to Mr. Wilkerson.
Annual Bonus Arrangements
The Company's annual bonuses to its executive officers, as indicated above,
are based on both objective and subjective performance criteria. Objective
criteria include actual versus target annual operating budget performance and
actual versus target annual income growth. Target annual income growth and
target annual operating budgets utilized for purposes of evaluating annual
bonuses are based on business plans which have been approved by the Board of
Directors. Subjective performance criteria encompass evaluation of each
officer's initiative and contribution to overall corporate performance, the
officer's managerial ability, and the officer's performance in any special
projects that the officer may have undertaken. Performance under the subjective
criteria was determined at the end of fiscal 1998 after informal discussions
with other members of the Board.
Mr. Wilkerson's Fiscal 1998 Compensation
During fiscal 1993, the Compensation Committee approved a seven year
employment contract for Mr. Wilkerson for fiscal years beginning in fiscal 1994.
All of Mr. Wilkerson's fiscal 1997 compensation was paid pursuant to this
contract. In June 1997, Mr. Wilkerson's contract was extended for an additional
three year term. The agreement calls for minimum annual remaining salary amounts
of $300,000 during the employment term.
In the event that Mr. Wilkerson is substantially incapacitated during the
term of his employment for a period of 90 days in the aggregate during any
twelve month period, the Company has the right to terminate his employment.
Under such termination, Mr. Wilkerson will receive one-half of his salary in
effect on the date of termination for the remaining term of the agreement.
Additionally, in the event of Mr. Wilkerson's death during his employment, his
designated beneficiary or his estate shall be paid one-half of his salary in
effect on the date of his death for the remaining term of the agreement.
Mr. Kaufenberg's Fiscal 1998 Compensation
During fiscal 1997, the Committee approved the terms of Mr. Kaufenberg's
employment. Under the terms of his employment, if Mr. Kaufenberg is terminated
for any reason, he is entitled to receive six months of severance pay. Mr.
Kaufenberg's compensation in fiscal 1998 consisted of a base salary plus a bonus
arrangement based upon the achievement of certain levels of profitability by the
Company.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS:
BILL LEVINE
(c) Compensation Tables
The following tables set forth the compensation received for services in
all capacities to the Company during its fiscal years ended February 28, 1998,
and February 28, 1997, and February 29, 1996, by the executive officers of the
Company as to whom the total salary and bonus in the most recent year exceeded
$100,000.
Page 9
<PAGE>
BCT INTERNATIONAL, INC.
-----------------------
SUMMARY COMPENSATION TABLE
--------------------------
FISCAL YEARS 1998, 1997 AND 1996
--------------------------------
000'S OMITTED
-------------
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
- --------------------------------------------------------------------------------------------------------
FISCAL FORM OF PAYMENT
-----------------
NAME POSITION YEAR SALARY BONUS CASH SHARES OPTIONS
- ---- -------- ------ ------ ----- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
W.A. Wilkerson Chairman of 1998 $ 294 (1) $ 50 $ 344 --- 70 (5)
the Board 1997 $ 312 (1) $ --- $ 300 --- 50 (2)
1996 $ 287 (1) $ 10 $ 297 --- ---
J.H. Kaufenberg Chief Executive 1998 $ 150 (6) $ 150 $ 300 --- ---
Officer and 1997 $ 120 (3) $ 10 $ 130 --- 200 (4)
President
M.R. Hull Chief Financial 1998 $ 88 $ 31 $ 119 --- ---
Officer, Secretary 1997 $ 68 $ --- $ 68 --- 15 (7)
and Treasurer
</TABLE>
(1) Salary for fiscal 1998, 1997 and 1996 includes a $12 car allowance.
(2) Options granted in fiscal 1997 all of which immediately vested.
(3) Includes a $50 non-accountable moving allowance.
(4) Options granted in fiscal 1997, which vest in equal installments over a
four year period ending in fiscal 2001.
(5) Options granted in fiscal 1998, all of which immediately vested.
(6) Salary includes an $10 car allowance.
(7) Options granted in fiscal 1997, which vest in equal installments over a
three year period ending in fiscal 2000.
Page 10
<PAGE>
BCT INTERNATIONAL, INC.
-----------------------
AGGREGATED OPTION EXERCISES AND YEAR-END
----------------------------------------
OPTION VALUES FOR FISCAL 1998
-----------------------------
000'S OMITTED
-------------
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES 2/28/98 (#) 2/28/98 ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME POSITION EXERCISE # REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- -------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
W.A. Wilkerson Chairman of
the Board 25 $ 37 329 / 0 $11 / $0
J.H. Kaufenberg Chief Executive
Officer and --- $ --- 50 / 150 $ 0 / $0
President
M.R. Hull Chief Financial --- $ --- 5 / 10 $ 0 / $0
Officer, Secretary
and Treasurer
</TABLE>
Page 11
<PAGE>
BCT INTERNATIONAL, INC.
-----------------------
EXECUTIVE MANAGEMENT COMPENSATION
---------------------------------
OPTION GRANTS IN FISCAL YEAR 1998
---------------------------------
000'S OMITTED
-------------
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK PRICE
OPTIONS GRANTED TO EXERCISE EXPIRATION APPRECIATION
NAME POSITION GRANTED EMPLOYEES PRICE DATE FOR OPTION TERM
- ---- -------- ------- --------- ----- ---- ---------------
5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
W.A. Wilkerson Chairman of
the Board 70 74% $2.88 8/10/07 $127 / $321
</TABLE>
Page 12
<PAGE>
(d) Other Compensation Arrangements
Outside directors of the Company receive director's fees of $750 per month
plus $750 for each Board of Directors meeting attended, $500 for each telephonic
meeting and $500 for each committee meeting attended.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
The following table sets forth as of May 15, 1998, information with respect
to the only persons known to the Company to be beneficial owners of more than 5%
of the Company's outstanding Common Stock (excluding treasury stock), as well as
the beneficial ownership of all directors and officers of the Company
individually and all directors and officers as a group. Based on the information
available to the Company, except as set forth in the accompanying footnotes,
each person has sole investment and voting power with respect to the shares of
common stock indicated. At May 15, 1998, 5,573,589 shares of Common Stock were
outstanding.
Page 13
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES OUTSTANDING
NAME BENEFICIALLY OWNED (1) COMMON STOCK
- ---- ---------------------- -------------
<S> <C> <C>
Certain Beneficial Owners:
Steven N. Bronson 635,320 (2) 10.95%
Barber & Bronson, Inc.
2101 West Commercial Blvd., Suite 1500
Fort Lauderdale, Florida 33309
Officers and Directors:
William A. Wilkerson 1,318,808 (3) 22.33%
Bill LeVine 697,532 (4) 12.35%
Henry A. Johnson 154,347 (5) 2.75%
Thomas J. Cassady 38,750 (6) .69%
Alvin Katz 22,500 (7) .40%
James H. Kaufenberg 54,500 (8) .97%
Peter T. Gaughn 53,500 (9) .95%
Michael R. Hull 5,000 (10) .09%
Officers and Directors
as a group (8 persons) 2,344,937 (11) 38.04%
</TABLE>
- --------------------
(1) This column sets forth shares of Common Stock which are deemed to be
"beneficially owned" by the persons named in the table under Rule 13D-3 of
the Securities and Exchange Commission ("SEC").
(2) Includes 228,750 shares covered by currently exercisable warrants.
(3) Includes 331,250 shares covered by currently exercisable stock options and
warrants.
(4) Includes 73,750 shares covered by currently exercisable stock options.
(5) Includes 31,250 shares covered by currently exercisable stock options.
(6) Includes 22,500 shares covered by currently exercisable stock options.
(7) Includes 22,500 shares covered by currently exercisable stock options.
(8) Includes 52,500 shares covered by currently exercisable stock options.
(9) Includes 52,500 shares covered by currently exercisable stock options.
(10) Includes 5,000 shares covered by currently exercisable stock options.
(11) Includes 591,250 shares covered by currently exercisable stock options and
warrants.
Page 14
<PAGE>
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
In February 1996, a company of which Mr. Wilkerson, the Chairman of the
Board, is a 50% shareholder, purchased the Honolulu, Hawaii, Company Franchise
for a total purchase price of $400,000 plus accounts receivable and inventory.
The purchase price is payable pursuant to a $325,000 promissory note,
representing an assumption of the prior franchisee's debt to the Company, and a
$108,000 promissory note representing the value of the inventory and accounts
receivable acquired. The $325,000 note bears interest at 8% per year and
requires equal monthly payments of principal and interest for 10 years based on
a 15-year amortization, with a balloon payment due at the end of 10 years. The
$108,000 note bears interest at 8% per year and is payable in five years
pursuant to equal monthly payments of principal and interest. During 1997, the
Company advanced an additional $65,000 to the Hawaii Franchise in exchange for
three demand notes bearing interest of 8%. These notes are secured by pledges of
substantially all of the assets of the Hawaii Franchise, as well as the personal
guarantees of the shareholders.
The Hawaii Franchise is 21 months behind on payments under the $325,000
note and 21 months behind on payments under the $108,000 note. Further, the
Hawaii Franchise's debt to the Company for paper purchases, royalties and other
advances totalling $131,414 is more than 90 days past due as of May 15, 1998. In
April 1998, the Company advanced $102,000 to the other 50% shareholder who is an
owner of another BCT franchise to fund a buyout by the manager of the Hawaii
Franchise. The proposed buyout transaction has not been concluded.
The Company has thus far elected not to exercise its contractual rights to
declare a default, accelerate the Hawaii Franchise's indebtedness and foreclose
its security interest in the Franchise's assets. This election has been made in
accordance with the Company's policy of working closely with troubled
franchisees in an attempt to restore their financial and operating health and of
taking legal action to collect debts and repossess assets only when the troubled
Franchise appears unable to be successfully turned around. In the case of the
Hawaii Franchise, which was in very poor financial and operating condition when
acquired by Mr. Wilkerson's company, the Company believes that the operating
performance of the Franchise has improved significantly in recent months and
that, by continuing its current posture, the Company will maximize the
probability of making the Hawaii Franchise a successful Franchise contributing
to the Company's long-term profitability.
Page 15
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------- ---------------------------------------------------------------
(a) Financial Statements and Financial Statement Schedules
See index to Financial Statements on page 17
(b) Reports of Form 8-K
June 12, 1997 Report on Form 8-K is incorporated herein by
reference.
(c) Exhibits
3.1 Certificate of Incorporation of the Company, as amended, as
filed with the SEC as Exhibit 3.1 to the Company's Report on
Form 10-K for the fiscal year ended February 28, 1995, is
incorporated herein by reference.
3.2 By-Laws of the Company, as amended, as filed with the SEC as
Exhibit 3.2 to the Company's report on Form 10-K for the
fiscal year ended February 28, 1995, are incorporated herein
by reference.
4.1 Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock, as filed with the SEC as
Exhibit 4.1 to the Company's report on Form 10-K for the
fiscal year ended February 29, 1995, is incorporated herein by
reference.
10.1 Employment Agreement dated March 1, 1993 between the Company
and William A. Wilkerson, as filed with the SEC as Exhibit
10.4 to the Company's report on Form 10-K for the fiscal year
ended February 28, 1995, is incorporated herein by reference.
10.2 Amendment dated June 12, 1997 to employment agreement between
the Company and William A. Wilkerson.
10.3 Agreement dated January 1, 1993 between Business Cards
Tomorrow, Inc. and Hence/EDP, as filed with the SEC as Exhibit
10.5 to the Company's report on Form 10-K for the fiscal year
ended February 28, 1995, is incorporated herein by reference.
10.4 Asset Purchase Agreement dated February 23, 1996, between BCT
and E.V. Antrim, Rosemary R. Antrim and William A. Wilkerson,
is filed with the SEC as Exhibit 10.3 to the Company's report
on Form 10-K for the fiscal year ended February 28, 1997 is
incorporated herein by reference.
Page 16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
BCT INTERNATIONAL, INC.
(Registrant)
DATE: By: /s/ James H. Kaufenberg
--------------------- -----------------------------------------------
James H. Kaufenberg
President, Chief Executive Officer and Director
DATE: By: /s/ Michael R. Hull
--------------------- -----------------------------------------------
Michael R. Hull
Vice President, Treasurer &
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
/s/ William Wilkerson /s/ Henry A. Johnson
- --------------------------------------- --------------------------------
William Wilkerson Henry A. Johnson
Chairman of the Board & Director Director
Date: Date:
/s/ Thomas J. Cassady /s/ Bill LeVine
- --------------------------------------- --------------------------------
Thomas J. Cassady Bill LeVine
Director Director
Date: Date:
/s/ Alvin Katz /s/ Peter Gaughn
- --------------------------------------- --------------------------------
Alvin Katz Peter Gaughn
Director Director
Date: Date:
Page 17
<PAGE>
BCT INTERNATIONAL, INC.
-----------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
--------------------------------------------------------
<TABLE>
<CAPTION>
Financial Statements: Page Numbers
- -------------------- ------------
<S> <C>
Report of Independent Certified Public Accountants D-2
Consolidated Balance Sheets at February 28, 1998 and February 28, 1997 D-3
Consolidated Statements of Operations for the fiscal years ended February 28, 1998
and 1997, and February 29, 1996 D-4
Consolidated Statements of Changes in Stockholders' Equity
for the fiscal years ended February 28, 1998 and 1997, and February 29, 1996 D-5
Consolidated Statements of Cash Flows for the fiscal years ended February 28, 1998
and 1997, and February 29, 1996 D-6
Notes to Consolidated Financial Statements D-7 to D-17
Schedules:
- ---------
For the fiscal years ended February 28, 1998 and 1997, and February 29, 1996:
VIII Valuation and Qualifying Accounts D-18
X Supplementary Income Statement Information D-19
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
D-1
Page 18
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Stockholders of BCT International, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of BCT
International, Inc. and its subsidiaries at February 28, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended February 28, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Fort Lauderdale, Florida
April 30, 1998
D-2
Page 19
<PAGE>
<TABLE>
<CAPTION>
BCT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS February 28, 1998 February 28, 1997
000's omitted ----------------- ------------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 1,018 $ 314
Accounts and notes receivable, net 2,482 1,641
Inventory 2,423 2,468
Assets held for sale 514 457
Prepaid expense and other current assets 160 66
Deferred income taxes 919 312
-------- --------
Total current assets 7,516 5,258
Accounts and notes receivable, net 5,376 3,209
Property and equipment at cost, net 651 762
Deferred income taxes 214 1,569
Deposits and other assets 89 94
Trademark and other intangible assets 311 337
-------- --------
$ 14,157 $ 11,229
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 1,264 $ 1,032
Notes payable 105 49
Accrued liabilities 777 291
Deferred revenue 339 272
-------- --------
Total current liabilities 2,484 1,644
Notes payable 539 215
-------- --------
Total liabilities 3,025 1,859
-------- --------
Commitments and contingencies (Note 9) --- ---
-------- --------
Preferred stock, Series A, 12% cumulative, $1 par value,
mandatorily redeemable, 810 shares authorized, 60 shares
issued and outstanding 60 60
-------- --------
Stockholders' equity:
Common stock, $.04 par value, authorized 25,000,
issued and outstanding 5,573 shares (5,410 shares in 1997) 223 216
Paid in capital 12,254 12,056
Accumulated deficit (845) (2,403)
-------- --------
11,632 9,869
Less: Treasury stock, at cost, 251 shares (559) (559)
-------- --------
Total stockholders' equity 11,073 9,310
-------- --------
$ 14,157 $ 11,229
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-3
Page 20
<PAGE>
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's omitted)
<TABLE>
<CAPTION>
For the For the For the
Fiscal year ended Fiscal year ended Fiscal year ended
February 28, 1998 February 28, 1997 February 29, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Royalties and Franchise fees $ 4,921 $ 4,852 $ 4,820
Paper and printing sales 11,734 10,118 9,159
Company Franchise revenues 2,383 2,529 2,305
Sales of franchises 44 40 870
Interest and other income 323 206 436
------- ------- -------
19,405 17,745 17,590
------- ------- -------
Expenses:
Cost of paper and printing sales 9,857 8,823 7,796
Operating costs of Company Franchises 2,760 3,244 3,277
Cost of franchises sold --- --- 521
Selling, general and
administrative 4,171 5,838 4,880
Depreciation and amortization 199 247 170
------- ------- -------
16,987 18,152 16,644
------- ------- -------
Income (loss) before income taxes 2,418 (407) 946
Income tax provision (benefit) 853 (22) (195)
------- ------- -------
Net income (loss) $ 1,565 $ (385) $ 1,141
======= ======= =======
Net income (loss) per common share:
Basic $ .30 $ (.08) $ .22
======= ======= =======
Diluted $ .28 $ (.08) $ .20
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-4
Page 21
<PAGE>
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(000's omitted)
<TABLE>
<CAPTION>
Common Stock
-----------------
Less:
Number of Par Paid In Accumulated Treasury
Shares Value Capital Deficit Stock Total
--------- ----- ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance February 28, 1995 4,785 $ 191 $11,110 $ (3,054) $ (488) $ 7,759
Conversion of 550 shares of
Series A Preferred Stock at
a conversion ratio of 1.48 372 15 535 --- --- 550
Other changes 7 1 14 3 (13) 5
Net income --- --- --- 1,141 --- 1,141
Dividend on convertible
preferred stock --- --- --- (81) --- (81)
----- ----- ------- -------- ------ -------
Balance February 29, 1996 5,164 207 11,659 (1,991) (501) 9,374
Exercise of stock options
at prices from $1.25 to
$3.38 per share 111 4 165 --- --- 169
Conversion of 200 shares of
convertible preferred stock
to common stock with a
conversion rate of 1.48 135 5 195 --- --- 200
Other changes --- --- 37 --- (58) (21)
Dividends on convertible
preferred stock --- --- --- (27) --- (27)
Net loss (385) (385)
----- ----- ------- -------- ------ -------
Balance February 28, 1997 5,410 216 12,056 (2,403) (559) 9,310
Exercise of stock options at
prices from $1.25 to $1.48
per share 163 7 198 --- --- 205
Dividends on convertible
preferred stock --- --- --- (7) --- (7)
Net income 1,565 1,565
----- ----- ------- -------- ------ -------
Balance February 28, 1998 5,573 $ 223 $12,254 $ (845) $ (559) $11,073
===== ===== ======= ======== ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-5
Page 22
<PAGE>
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
<TABLE>
<CAPTION>
For the For the For the
Fiscal year ended Fiscal year ended Fiscal year ended
February 28, 1998 February 28, 1997 February 29, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,565 $ (385) $ 1,141
Adjustments to reconcile net income (loss)
to net cash provided by (used by)
operating activities:
Deferred income taxes 1,355 36 (138)
Depreciation and amortization 199 385 381
Cost assigned to warrants issued --- 37 38
Provision for doubtful accounts 109 503 435
Provision for inventory obsolescence 50 140 ---
Write-off of fixed assets --- 145 ---
Other adjustments 60 (18) 46
Changes in assets and liabilities
(Increase) in accounts and notes receivable (2,552) (1,474) (985)
(Increase) in inventory (5) (96) (338)
(Increase) in assets held for sale (57) (176) (367)
(Increase) decrease in prepaid expenses and
other current assets (94) 16 (18)
(Increase) in deferred income taxes current (607) (101) (123)
Increase (decrease) in accounts payable 288 345 (241)
Increase in deferred revenue 67 85 ---
Increase (decrease) in accrued liabilities 486 110 57
-------- -------- -------
Net cash provided by (used by) operating
activities 864 (448) (112)
-------- -------- -------
Cash flows from investing activities:
Maturity of short-term investments --- 50 1,021
Capital expenditures for property
and equipment (88) (240) (917)
Sale of Company Franchises held for sale --- 43 ---
Acquisitions (195) --- (100)
-------- -------- -------
Net cash (used by) provided by investing
activities (283) (147) 4
-------- -------- -------
Cash flows from financing activities:
Treasury stock purchase --- (58) ---
Dividend on Series A Preferred Stock (7) (27) (81)
Exercise of stock options and warrants 205 169 ---
Repayments on borrowings (75) (98) (187)
-------- -------- -------
Net cash provided by (used by) financing
activities 123 (14) (268)
-------- -------- -------
Net increase (decrease) in cash and
cash equivalents 704 (609) (376)
Cash and cash equivalents at beginning of year 314 923 1,299
-------- -------- -------
Cash and cash equivalents at end of year $ 1,018 $ 314 $ 923
======== ======== =======
Supplemental disclosures:
- ------------------------
Interest paid during the year $ 42 $ 14 $ 27
======== ======== =======
Income taxes paid during the year $ 9 $ 7 $ 71
======== ======== =======
</TABLE>
Noncash activities:
- ------------------
In fiscal 1998, the Company acquired an independent thermography business in
exchange for cash and a $455 note payable and sold the business to franchises
owner in exchange for note receivable of $505.
In fiscal 1998, the Company exchanged accounts and notes receivable amounting to
$380, and took notes receivable amounting to $498 in connection with the
purchase and resale of the Boston franchise.
In fiscal 1997, $200 of convertible Series A preferred stock was converted into
135 shares of common stock.
In fiscal 1997, the Company sold Company Franchises held for sale in exchange
for accounts and notes receivable amounting to $746.
In fiscal 1996, $550 of convertible Series A preferred stock was converted into
372 shares of common stock.
In fiscal 1996, the Company repossessed two existing franchisee plants and
acquired $50 in tangible assets in exchange for funds owed the Company.
The accompanying notes are an integral part of these consolidated financial
statements.
D-6
Page 23
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's omitted)
NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------- -------------------------------------------------------
Business
BCT International Inc. (the Company), franchises wholesale thermography
printing Franchises through its wholly-owned subsidiary, Business Cards
Tomorrow, Inc. (BCT), for which it receives initial franchise fees and
continuing royalties. At February 28, 1998 and 1997, BCT, through its wholly-
owned subsidiary BCT Enterprises, Inc. owned two Company Franchises. BCT's
ownership interest in one of the Company Franchises is 70%. The Company also
sells paper stock and catalogs to franchisees and Company Franchises.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, and its 70% owned subsidiary. All significant
intercompany transactions have been eliminated. The minority interest held by
third parties in the majority owned subsidiary is included in selling, general
and administrative expense in the statement of operations. As of February 28,
1998, the net assets of the 70% owned Company Franchise are reflected in assets
held for sale as it is the Company's intent to sell this investment.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates made by management in the
accompanying financial statements relate to accounts receivable allowances and
the tax valuation allowance. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
trade notes receivable, accounts payable, and notes payable approximate fair
value as of February 28, 1998 and February 28, 1997.
Inventory
Inventory, consisting primarily of paper products, printing supplies and
catalogs for sale to franchisees and Company Franchises, is stated at the lower
of cost (first in, first out method) or market. As of February 28, 1998 and
1997, the allowance for obsolete inventory was $106 and $89, respectively.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is provided on
the straight-line method over the estimated useful life of the asset. Leasehold
improvements are amortized over the lives of the respective leases or the
estimated useful lives of the improvements, whichever is shorter. Costs of
major additions and improvements are capitalized and expenditures for
maintenance and repairs which do not extend the life of the assets are expensed.
Upon the sale or disposition of property and equipment, the cost and related
accumulated depreciation is eliminated from the accounts, and any resultant gain
or loss is credited or charged to operations.
D-7
Page 24
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
Acquisitions of Franchises
All acquisitions of Company Franchises have been accounted for as
purchases; operations of the businesses acquired have been included in the
accompanying consolidated statements of operations from their respective dates
of acquisition. The excess of the purchase price over fair value of the net
assets acquired is included in goodwill. The Company acquired and resold one
Franchise in fiscal 1998, no Franchises in fiscal 1997, and three in fiscal
1996.
Assets Held for Sale
Assets held for sale are carried at the lower of cost or market value.
Trademark and Other Intangible Assets
The trademark is amortized using the straight-line method over 17 years.
Intangible assets consist of the excess of purchase price over the fair value of
the net assets acquired relating primarily to the acquisition of the Canadian
franchise rights in fiscal 1994. The amortization period for the Canadian
franchise rights is 19 years, which represented the remaining life of the
franchise agreement acquired. As of February 28, 1998 and 1997, accumulated
amortization of intangible assets amounted to $405 and $379, respectively.
Impairment of Long-Lived Assets and Identifiable Intangibles
During fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long Lived
Assets and for Long-Lived Assets To Be Disposed Of". Upon adoption, the
goodwill associated with the Delray Beach, Florida Company Franchise ($108) was
written off. The Company reviews long-lived assets and identifiable
intangibles and reserves for impairment whenever events or changes in
circumstances indicate the carrying amount of the assets may not be fully
recoverable.
Sales of Franchises
Revenue from the sales of individual franchises, including the initial
equipment package, is recognized upon the opening of the related franchise and
when all significant services or conditions relating to the sale have been
substantially performed. When these criteria have not been met, then the net
profit from the sale has been deferred and characterized as deferred revenue.
Continuing Franchise Royalties, Paper and Printing Revenues
Continuing franchise royalties and paper and printing revenues are
recognized monthly when earned. Collectibility of these revenues is assessed on
a regular basis. The allowance for doubtful accounts is established through a
provision for losses charged to selling, general and administrative expense.
Accounts receivable are charged off against the allowance for doubtful accounts
when management believes that collectibility is unlikely. The allowance is an
amount that management believes will be adequate to absorb possible losses in
existing accounts and notes receivable that may become uncollectible.
Accounting for Stock Based Compensation
The Company accounts for employee stock options using the intrinsic value
method as prescribed by APB No. 25 "Accounting for Stock Issued to Employees".
During 1997, the Company adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123") (see Note 8).
D-8
Page 25
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
Income Taxes
The Company utilizes an asset and liability approach to 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 returns. In estimating
future tax consequences, the Company generally considers all expected future
events other than enactments of changes in the tax law or rates.
Earnings Per Common Share
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 128 (FAS128), "Earnings Per Share" (EPS). FAS128 supercedes
Accounting Principles Board Opinion No. 15 and replaces primary and diluted EPS
with a dual presentation of basic and diluted EPS. Basic EPS equals net income
available to common shareholders divided by the number of weighted average
common shares. Diluted EPS includes potentially dilutive securities such as
stock options and convertible securities.
A reconciliation of the numerators and denominators of the basic diluted
EPS computations is illustrated below:
<TABLE>
<CAPTION>
Basic Computation: Fiscal
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
Net income (loss) $1,565 $ (385) $1,141
Preferred stock dividends 7 27 81
------ ------ ------
Net income (loss) available to
common shareholders $1,558 $ (412) $1,060
====== ====== ======
Weighted average common shares 5,230 5,018 4,721
====== ====== ======
Earnings per common share $ .30 $ (.08) $ .22
====== ====== ======
Diluted Computation:
Net income (loss) $1,565 $ (385) $1,141
====== ====== ======
Weighted average common shares 5,230 5,018 4,721
Effect of stock options and warrants 310 --- 898
------ ------ ------
Total 5,540 5,018 5,619
====== ====== ======
Diluted earnings per common share $ .28 $ (.08) $ .20
====== ====== ======
</TABLE>
Cash and Cash Equivalents
For the purposes of reporting cash flows, cash and cash equivalents include
investments with original maturities of ninety days or less at purchase date.
Presentation and Reclassification
All dollar and share amounts, except amounts related to per share data, are
expressed in thousands of dollars. Certain items in the 1997 and 1996
consolidated financial statements have been reclassified for comparative
purposes.
D-9
Page 26
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
NOTE 2: ACCOUNTS AND NOTES RECEIVABLE
- ------- -----------------------------
Accounts and notes receivable consist of the following:
<TABLE>
<CAPTION>
February 28, February 28,
1998 1997
------------ ------------
<S> <C> <C>
Franchise fees and royalties
receivable $ 920 $ 1,118
Paper sales receivable
from franchisees 2,181 1,419
Notes receivable from sale of
franchises, interest at 7%
to 12%, due in monthly
installments through 2008 1,975 1,572
Notes receivable due from franchisees,
interest at 8% to 12%, payable
in monthly installments through
2005 3,788 1,675
Company Franchise accounts receivable
from customers 148 139
Miscellaneous 50 75
-------- --------
9,062 5,998
Less - allowance for doubtful accounts ( 1,204) ( 1,148)
-------- --------
7,858 4,850
Less - amounts not expected to
be collected within one year,
net of $845 allowance
for doubtful accounts
($769 in 1997) ( 5,376) ( 3,209)
-------- --------
$ 2,482 $ 1,641
======== ========
</TABLE>
In the normal course of business, to meet the financing needs of its
franchisees, the Company extends credit to its franchisees throughout the United
States and Canada. Although the Company has a diversified receivable portfolio,
a substantial portion of the franchisees' ability to honor their commitments to
the Company is reliant upon the economic stability of the market in the
franchisee's particular geographic area. The Company's exposure to loss in the
event of nonperformance by the franchisees is represented by the contractual
amount of the notes and accounts receivables and the franchise equipment leases
guaranteed by the Company (see Note 10). The Company controls the credit risk
of its receivables through credit approvals, limits and monitoring procedures.
The Company generally requires collateral or other security to support the
receivables with credit risk.
D-10
Page 27
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
At February 28, 1998, approximately $1,110 ($723 in 1997) of accounts
receivable, although currently due, are classified into long term accounts and
notes receivable, based upon historic payment performance of the franchisees. A
significant portion of the allowance for doubtful accounts relates to these
accounts and notes receivable.
At February 28, 1998, $485 ($487 in 1997) of notes receivable, with an 8%
interest rate per annum, related to the purchase of the Honolulu, Hawaii Company
Franchise by South Pacific Wholesale Printers, Inc. The Chairman of the Board
of the Company owns 50% of South Pacific Wholesale Printers, Inc.
Provision for doubtful accounts for the years ended February 28, 1998,
February 28, 1997 and February 29, 1996, was approximately $109, $503 and $504,
respectively.
Interest income is recognized on accounts and notes receivable when it is
received.
NOTE 3: PROPERTY AND EQUIPMENT
- ------- ----------------------
Major classifications of property and equipment are as follows:
<TABLE>
<CAPTION>
Estimated
useful
February 28, February 28, lives
1998 1997 (in years)
------------ ------------ ----------
<S> <C> <C> <C>
Leasehold improvements $ 121 $ 107 5 - 7
Machinery and equipment 438 411 3 - 20
Furniture, fixtures and other
equipment 197 171 5 - 10
Computers 671 667 5
Other 85 81 3 - 5
------ ------
1,512 1,437
Less - accumulated depreciation
and amortization ( 861) ( 675)
------ ------
$ 651 $ 762
====== ======
</TABLE>
NOTE 4: SALES AND ACQUISITIONS
- ------- ----------------------
On July 15, 1997, the Company purchased certain assets of an independent
thermography business in exchange for a payment of $120 and a note payable of
$455. The assets consisted of certain equipment, the customer list and a non-
compete agreement from the owners of the business. The Company resold certain
of the assets acquired to two Franchises in exchange for cash and notes
amounting to $535.
On March 1, 1997, the Company acquired certain assets of the Boston,
Massachusetts Franchise for $75 cash and forgiveness of all amounts owed the
Company (approximately $380). This acquisition was accounted for under the
purchase method of accounting and accordingly, the purchase price was allocated
to the assets acquired based upon the estimated fair values at the date of
acquisition. The purchase price associated with the acquisition was recorded as
an asset held for sale as it was the Company's intent to resell this Franchise.
The operating results of this business acquisition were included in the
Company's consolidated results of operations from March 1, 1997. On August 1,
1997, the Company resold the Boston Franchise to two existing Franchises in
exchange for promissory notes amounting to $498. Due to the Company's continuing
involvement with these Franchises, no gain has been recorded on this
transaction. Deferred revenue as of February 28, 1998 includes $68 relating to
this transaction.
D -11
Page 28
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
On August 30, 1996, the Company sold the assets of the Riverside,
California Franchise, the assets of the Newbury Park, California Franchise and
the rights to doing business in the Newbury Park, California Franchise Territory
along with a 30 month option to purchase the Newbury Park Franchise. The
purchase price was $338 consisting of cash and a $254, 10 year note bearing
interest of 2% above prime. Due to the Company's continuing involvement with
these Franchises, no sale has been recorded on this transaction. Deferred
revenue as of February 28, 1998 and 1997 includes $52 and $57, respectively,
relating to this transaction.
NOTE 5: NOTES PAYABLE
- ------- --------------
Notes payable consist of the following:
<TABLE>
<CAPTION>
February 28, February 28,
1998 1997
-------------- ---------------
<S> <C> <C>
Notes payable relating to an acquisition, monthly
principal and interest of 9% $ --- $ 5
Note payable to prior owner of Company Franchise,
monthly principal and interest payments
of $2, interest at 8% per annum, through August 2004 113 125
Notes payable relating to acquisitions, monthly
principal and interest of 8% 531 134
------ -----
644 264
Less - amount due within one year (105) (49)
------ -----
$ 539 $ 215
====== =====
</TABLE>
Scheduled maturities after February 28, 1997 for notes payable are as
follows:
<TABLE>
<CAPTION>
Fiscal Amount
Year Payable
------ -------
<S> <C>
1999 $ 105
2000 113
2001 104
2002 85
2003 91
Thereafter 146
-------
$ 644
=======
</TABLE>
NOTE 6: PREFERRED STOCK
- ------- ---------------
Dividends on preferred stock are cumulative and accrue from the date of
original issue at a 12% rate per annum, payable quarterly on the first day of
each January, April, July and October. Dividends in arrears are non-interest
bearing. Dividends must either be fully paid or declared and aggregated for
payment prior to the declaration of dividends on the common shares. The Series
A preferred stock is non-voting except as it relates to any action affecting the
terms of the priority of the preferred stock.
Upon the event of a voluntary or involuntary liquidation, the holders of
the Series A preferred stock will be entitled to receive $1.00 per share plus
all accrued and unpaid dividends. The Series A preferred stock is convertible
into common stock at a ratio of 1.48 shares of preferred stock for each share of
common stock. The Company has the option to require conversion of the preferred
stock beginning two years after the date of issuance if the common stock closing
price or last reported sales price is at least $7.00 per share for 10
consecutive business days. If the preferred stock is not converted within five
years of issuance, the Company must redeem the stock at $1.00 per share plus all
accrued and unpaid dividends.
On October 1, 1995 and January 21, 1997, 550 and 200 shares of Series A
preferred stock were voluntarily converted into 372 and 135 shares of common
stock, respectively.
D-12
Page 29
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
NOTE 7: STOCKHOLDERS' EQUITY
- ------- --------------------
In Fiscal 1997, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123__Accounting for Stock
Based Compensation, to establish a fair value based method of accounting for
stock compensation plans for awards granted in fiscal years that begin after
December 15, 1994.
Warrants
- --------
As of February 28, 1998 and 1997, there were outstanding warrants for the
purchase of 508 and 658, respectively, shares of common stock. During fiscal
1998, no warrants were exercised, 150 warrants expired. The exercise price and
the dates are as follows:
<TABLE>
<CAPTION>
Title of Issue Aggregate Amount Date from which Price at which
Called for of Securities Called Warrants Expiration Warrants
by Warrants for by Warrants are Exercisable Date are Exercisable
- -------------- -------------------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Issued to Investment
Banker 208 May 31, 1993 June 1, 1998 $2.25
Issued to Investment
Banker 300 February 1, 1994 February 1, 1999 $2.00 to $ 4.00
------
Warrants outstanding 508
======
</TABLE>
Stock Options
- -------------
A summary of stock option activity is as follows (share amounts in 000's):
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 1,318 $2.64 1,213 $2.32 1,164 $2.17
Granted 95 $2.85 358 $3.01 65 $4.96
Exercised (163) $1.26 (111) $1.53 --- ---
Cancelled (37) $1.37 (42) $2.98 (16) $4.00
Expired (11) $1.45 (100) $1.40 --- ---
------ ------ ------
Outstanding at end
of year 1,202 $2.76 1,318 $2.64 1,213 $2.32
====== ====== ======
Exercisable 992 $2.74 1,042 $2.52 1,131 $2.20
====== ====== ======
Weighted average
fair value of
options granted $1.80 $1.43 $1.52
===== ===== =====
</TABLE>
D -13
Page 30
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
A summary of stock options outstanding at February 28, 1998 is as follows
(share amounts in 000's):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- ---------------------------
Weighted Weighted Weighted
Range of Outstanding Average Average Exercisable Average
Exercise at Remaining Exercise at Exercise
Prices February 28, 1998 Life (in years) Price February 28, 1998 Price
- -------- ----------------- --------------- -------- ----------------- --------
<S> <C> <C> <C> <C> <C>
$1.25 to $1.88 225 3.16 $1.37 225 $1.37
$2.38 to $3.13 548 2.98 $2.74 343 $2.74
$3.38 to $5.00 429 6.32 $3.48 424 $3.46
----- -----
1,202 992
===== =====
</TABLE>
Pro forma information regarding net income and net income per share is
required by Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" and has been determined as if the Company had
accounted for stock options using the fair value method of that statement.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
February 28, February 28, February 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss):
As reported $ 1,565 ($ 385) $ 1,141
======= ======= =======
Pro forma $ 1,287 ($ 628) $ 1,119
======= ======= =======
Net income (loss) per share:
As reported Basic $ .30 ($ .08) $ .22
======= ======= =======
Diluted $ .28 ($ .08) $ .20
======= ======= =======
Proforma Basic $ .25 ($ .13) $ .22
======= ======= =======
Diluted $ .23 ($ .13) $ .20
======= ======= =======
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model assuming a dividend yield of 0%,
expected volatility from 44% to 47%, a risk free interest rate of from 6.0% to
6.5% and weighted average expected option term of 4.8 years.
D-14
Page 31
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
NOTE 8: INCOME TAXES
- ------- ------------
The components of the provision for (benefit from) income taxes for the
years ended February 28, 1998 and 1997, and February 29, 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Current Provision:
Federal $ 54 $ 4 $ 32
State 51 39 52
------ ------ ------
Total current 105 43 84
Deferred provision (benefit) 748 (65) (279)
------ ------ ------
Total provision (benefit) $ 853 (22) (195)
====== ====== ======
</TABLE>
The Company's deferred income taxes are comprised of the following:
<TABLE>
<CAPTION>
February 28, 1998 February 28, 1997 February 29, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Deferred income taxes - current:
Bad debt reserve $ 140 $ 148 $ 159
Net operating loss carryovers 833 --- ---
Capitalization of inventory cost 293 238 102
Other 97 60 41
------ ------ ------
1,363 446 302
------ ------ ------
Valuation allowance (444) (134) (91)
------ ------ ------
Deferred income taxes - current $ 919 $ 312 $ 211
====== ====== ======
Deferred income taxes - non-current:
Bad debt reserve $ 329 $ 300 $ 193
Net operating loss carryovers 203 1,967 2,052
Other 100 86 135
------ ------ ------
632 2,353 2,380
------ ------ ------
Valuation allowance (306) (672) (685)
------ ------ ------
Deferred tax liabilities - non-current:
Fixed assets (112) (112) (91)
------ ------ ------
Deferred income taxes - non-current $ 214 $1,569 $1,604
====== ====== ======
Deferred income taxes - total $1,133 $1,881 $1,815
====== ====== ======
</TABLE>
D-15
Page 32
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
Net operating loss carryforwards for Federal income tax purposes total
approximately $2,752 at February 28, 1998. The net operating loss carryforward
includes $539 with certain limitations. Net operating losses expire as follows:
<TABLE>
<CAPTION>
Year of
Expiration Amount
------------ --------
<S> <C>
2005 1,376
2006 962
2007 12
2008 16
2012 386
------
$2,752
======
</TABLE>
The difference between the statutory and effective tax rates are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Tax provision (benefit) at
statutory rate $ 841 34% $ (139) (34%) $ 321 34%
State income tax, net of
federal benefit 34 1 24 6 52 6
Alternative minimum tax 54 2 4 1 32 3
Increase (decrease) in Federal
and state valuation allowance (56) (2) 30 7 (778) (82)
Other (1) --- 59 15 178 19
------ ------ ------ ------ ------ ------
$ 853 35% $ (22) (5%) $ (195) (20%)
====== ====== ====== ====== ====== ======
</TABLE>
NOTE 9: COMMITMENTS AND CONTINGENCIES
- ------- -----------------------------
The Company is a party to several litigation matters. In the opinion of
management, potential losses, if any, on the matters will not have a material
impact on the financial condition or results of operation of the Company.
The Company's corporate offices, Company Franchise locations and office
equipment are leased under noncancellable lease agreements. The leases initially
expire at various dates through 2002. There are provisions in the leases for
rent increases based on cost of living increases under certain conditions.
D-16
Page 33
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
The following are the approximate minimum annual noncancellable rentals to
be paid under the provisions of the leases:
Fiscal Year Lease Commitments
----------- -----------------
1999 $ 226
2000 219
2001 172
2002 120
2003 68
-----
$ 805
=====
Rental expense amounted to the following approximate amounts for the
corresponding periods:
For the year ended Amount
------------------ ------
February 28, 1998 $ 234
February 28, 1997 $ 287
February 29, 1996 $ 295
At February 28, 1998, the Company has guaranteed the payment of equipment
lease obligations and promissory note obligations for certain of its franchisees
for an aggregate amount of approximately $155.
In March 1993, the Company entered into an employment agreement with the
Chairman of the Board. The term of the employment contract is seven years. The
agreement calls for minimum annual salary amounts during the term of this
contract of $300. In June 1997, the employment agreement was extended for an
additional 3 years at an annual salary of $300 through February 28, 2003.
In the event that the Chairman of the Board is substantially incapacitated
during the term of his employment for a period of 90 days in the aggregate
during any twelve month period, the Company has the right to terminate his
employment. Upon termination, the Chairman of the Board will receive one-half
of his salary in effect on the date of termination for the remaining term of the
agreement. Additionally, in the event of the Chairman's death during his
employment, his designated beneficiary or his estate shall be paid one-half of
his salary in effect on the date of his death for the remaining term of the
agreement.
In August 1996, the Company agreed to the terms of employment with the
President and Chief Executive Officer. Under the terms of his employment, the
Company is liable for six months severance pay should employment be terminated
for any reason.
D-17
Page 34
<PAGE>
BCT INTERNATIONAL, INC.
-----------------------
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
----------------------
Balance at Charged to Balance at
beginning costs and end of
of year expenses Other Deductions year
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
For the year ended February 28, 1998
Allowance for doubtful accounts $ 1,148 $ 109 $ --- $ (53)(1) $ 1,204
========== ========== ========== =========== ===========
Deferred tax assets valuation allowance $ 806 $ --- $ $ (56) $ 750
========== ========== ========== =========== ===========
For the year ended February 28, 1997
Allowance for doubtful accounts $ 913 $ 503 $ --- $ (268)(1) $ 1,148
========== ========== ========== =========== ===========
Deferred tax assets valuation allowance $ 776 $ --- $ 30 $ --- $ 806(2)
========== ========== ========== =========== ===========
For the year ended February 29, 1996
Allowance for doubtful accounts $ 888 $ 504 $ --- $ (479)(1) $ 913
========== ========== ========== =========== ===========
Deferred tax assets valuation allowance $ 1,554 $ --- $ --- $ (778) $ 776(2)
========== ========== ========== =========== ===========
</TABLE>
Allowance for doubtful accounts at February 28, 1998 of $1,204 is comprised of
$359 related to current receivables and $845 to long-term receivables.
(1) Write off of uncollectible receivables.
(2) A deferred income tax value.
D-18
Page 35
<PAGE>
SCHEDULE X
BCT INTERNATIONAL, INC.
-----------------------
SUPPLEMENTARY INCOME STATEMENT INFORMATION
------------------------------------------
(000's omitted)
<TABLE>
<CAPTION>
Item
-----
February 28, 1998 February 29, 1997 February 28, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Advertising Costs $ 12 $ 83 $ 210
------------- ----------- ----------
Amortization of intangible assets $ 26 $ 166 $ 182
------------- ------------ ----------
</TABLE>
D-19
Page 36
<PAGE>
EXHIBIT 10.2
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment is dated as of June 12, 1997, and relates to the Employment
Agreement dated as of March 1, 1993, between BCT International, Inc., a Delaware
corporation (together with its subsidiaries "BCT") and William A. Wilkerson
("Employee").
WHEREAS, the parties wish to amend the Employment Agreement in order to
extend the term of Employee's employment.
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. Terms defined in the Employment Agreement are used herein as defined
therein.
2. Paragraph 3 of the Employment Agreement is deleted in its entirety and
replaced with the following language:
3. TERM. The term of Employee's employment hereunder shall be
----
through February 28, 2003, subject to the termination provisions
set forth in paragraphs 7, 8 and 9 hereof.
3. Paragraph 2 of the Employment Agreement is hereby amended to insert the
following language just prior to the final sentence of said paragraph in order
to set forth the minimum annual salary for Employee for the extended term of the
Employment Agreement:
Year ending February 28, 2001 $300,000
Year ending February 28, 2002 $300,000
Year ending February 28, 2003 $300,000
4. Except as amended herein, all terms and provisions of the Employment
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this amendment as of the date
first above-written.
BCT INTERNATIONAL, INC.
By: Bill Levine
---------------------
Bill LeVine, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<CIK> 0000351541
<NAME> BCT INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 1,018
<SECURITIES> 0
<RECEIVABLES> 9,062
<ALLOWANCES> 1,204
<INVENTORY> 2,423
<CURRENT-ASSETS> 7,516
<PP&E> 1,512
<DEPRECIATION> 861
<TOTAL-ASSETS> 14,157
<CURRENT-LIABILITIES> 2,485
<BONDS> 539
0
60
<COMMON> 223
<OTHER-SE> 10,850
<TOTAL-LIABILITY-AND-EQUITY> 14,157
<SALES> 14,117
<TOTAL-REVENUES> 19,405
<CGS> 12,617
<TOTAL-COSTS> 12,617
<OTHER-EXPENSES> 4,219
<LOSS-PROVISION> 109
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 2,418
<INCOME-TAX> 853
<INCOME-CONTINUING> 1,565
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,565
<EPS-PRIMARY> .30
<EPS-DILUTED> .28
</TABLE>
