<PAGE>
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, 1999
Commission File No. 0-10823
-------
BCT INTERNATIONAL, INC.
-----------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 22-2358849
- ------------------ --------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
3000 NE 30th Place, 5th Floor, Fort Lauderdale, FL 33306
- -------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 563-1224
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ____.
-----
Number of shares of common stock outstanding as of
October 8, 1999: 5,820,625
<PAGE>
BCT INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS -
August 31, 1999 and February 28, 1999................................ 2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -
for the three months ended August 31, 1999 and August 31, 1998 and
the six months ended August 31, 1999 and August 31, 1998............. 3
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY - for the six months ended
August 31, 1999...................................................... 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -
for the six months ended August 31, 1999 and August 31, 1998......... 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
</TABLE>
<PAGE>
PART I. FINANCIAL STATEMENTS
BCT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000's omitted)
<TABLE>
<CAPTION>
ASSETS August 31, 1999 February 28, 1999
- ------ ----------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,759 $ 1,143
Accounts and notes receivable, net 3,747 3,252
Inventory, net 2,353 2,122
Assets held for sale, net 424 1,082
Prepaid expenses and other current assets 868 199
Deferred income taxes 392 476
-------- --------
Total current assets 9,543 8,274
Accounts and notes receivable, net 6,461 6,052
Property and equipment at cost, net 432 460
Deferred income taxes 246 246
Deposits and other assets 90 90
Trademark and other intangible assets, net 271 284
-------- --------
Total assets $ 17,043 $ 15,406
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 1,123 $ 844
Notes payable 113 113
Accrued liabilities 596 753
Deferred revenue 713 311
-------- --------
Total current liabilities 2,545 2,021
Notes payable 378 433
-------- --------
Total liabilities 2,923 2,454
-------- --------
Preferred stock, Series A, 12% cumulative, $1 par value,
mandatorily redeemable, 810 shares authorized, 60 shares
issued and outstanding in fiscal 1999 --- 60
-------- --------
Stockholders' equity:
Common stock, $.04 par value, 25,000 shares authorized,
5,821 shares issued (5,753 shares in fiscal 1999) 233 230
Paid in capital 12,594 12,506
Retained earnings 2,589 1,322
-------- --------
15,416 14,058
Less: Treasury stock, at cost, 551 shares (496 in fiscal 1999) (1,296) (1,166)
-------- --------
Total stockholders' equity 14,120 12,892
-------- --------
Total liabilities and stockholders' equity $ 17,043 $ 15,406
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
BCT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
1999 1998 1999 1998
------------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Royalties and franchise fees $1,317 $1,297 $ 2,774 $2,742
Paper and printing sales 3,591 3,103 7,136 6,359
Sales of Franchises 15 43 15 78
Interest and other 75 62 139 124
------ ------ ------- ------
4,998 4,505 10,064 9,303
------ ------ ------- ------
Expenses:
Cost of paper and printing sales 2,923 2,659 5,883 5,421
Selling, general and administrative 1,998 998 3,025 2,041
Depreciation and amortization 45 45 90 92
------ ------ ------- ------
4,966 3,702 8,998 7,554
------ ------ ------- ------
Income from continued operations before
legal settlement and income taxes 32 803 1,066 1,749
Income from legal settlement 941 --- 941 ---
------ ------ ------- ------
Income from continued operations
before income taxes 973 803 2,007 1,749
Provision for income taxes 340 196 702 414
------ ------ ------- ------
Income from continued operations 633 607 1,305 1,335
Discontinued operations:
Loss from company owned franchises
operated under a plan of disposition net
of tax benefit ( 10) ( 49) ( 38) ( 108)
------ ------ ------- ------
Net income $ 623 $ 558 $ 1,267 $1,227
====== ====== ======= ======
Earnings per share:
Income from continued operations $ .12 $ .11 $ .25 $ .25
Loss from discontinued operations --- ( .01) ( .01) ( .02)
------ ------ ------- ------
Basic $ .12 $ .10 $ .24 $ .23
====== ====== ======= ======
Income from continued operations $ .11 $ .11 $ .25 $ .23
Loss from discontinued operations --- ( .01) ( .01) ( .02)
------ ------ ------- ------
Diluted $ .11 $ .10 $ .24 $ .21
====== ====== ======= ======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
BCT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED AUGUST 31, 1999
(UNAUDITED)
000's omitted
-------------
<TABLE>
<CAPTION>
Common Stock Less:
------------------
Number of Par Paid In Retained Treasury
Shares Value Capital Earnings Stock Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance February 28, 1999 5,753 $ 230 $12,506 $ 1,322 $ (1,166) $12,892
Exercise of options 27 1 30 --- --- 31
Purchase of treasury stock --- --- --- --- (30) 130)
Conversion of preferred stock 41 2 58 --- --- 60
Net income --- --- --- 1,267 --- 1,267
----- ------ ------- -------- --------- -------
Balance August 31, 1999 5,821 $ 233 $12,594 $ 2,589 $ (1,296) $14,120
===== ====== ======= ======== ========= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
BCT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000's omitted)
<TABLE>
<CAPTION>
Six months ended
August 31,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,267 $ 1,227
Plus loss from discontinued operations 38 108
-------- --------
Income from continued operations 1,305 1,335
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 90 92
Provision for doubtful accounts 687 125
Other adjustments 8 13
Changes in operating assets and liabilities:
Accounts and notes receivable (1,591) (741)
Inventory (231) ( 17)
Assets held for sale 658 (191)
Prepaid expenses and other assets (656) ( 19)
Deferred income taxes 84 380
Accounts payable and accrued liabilities 122 (801)
Deferred revenue 402 47
-------- -------
Net cash provided by continued operations 878 164
Net cash used by discontinued operations (58) (141)
-------- -------
Net cash provided by operating activities 820 102
-------- -------
Cash flows from investing activities:
Capital expenditures (50) (43)
-------- -------
Net cash (used in) investing activities (50) (43)
-------- -------
Cash flows from financing activities:
Dividend payment on preferred stock --- (4)
Principal payments on notes payable (55) (49)
Exercise of warrants/options for common stock 31 47
Treasury stock purchases (130) ---
-------- -------
Net cash (used in) financing activities (154) (6)
-------- -------
Net increase in cash and cash equivalents 616 53
Cash and cash equivalents at beginning of period 1,143 1,018
-------- -------
Cash and cash equivalents at end of period $ 1,759 $ 1,071
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(000's omitted)
August 31, 1999
---------------
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, 1999.
2. The results for the three and six month periods August 31, 1999 and 1998, are
not necessarily indicative of results that may be expected for the fiscal
year.
3. For the three and six months ended August 31, 1999 and 1998, 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
and warrants and convertible preferred stock.
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 February 28, 1999, the Company's Board of Directors approved a strategic
decision to discontinue the operations comprising its Company-owned
franchises. The Company owned franchises included the 100% owned franchises
in Delray Beach, Florida and Merrimack, New Hampshire and the 70% owned
franchise in Louisville, Kentucky.
On May 14, 1999, the Company sold the Delray Beach Company-owned franchise in
exchange for a $550, ten year promissory note bearing interest of 7.5%. In
addition, the Company expects to receive approximately $75 for existing
accounts receivable at the date of sale. The transaction resulted in deferred
revenue of approximately $440, which will be recognized over the life of the
promissory note.
Effective August 1, 1999, the Company sold the Louisville, Kentucky franchise
in exchange for a $495, fifteen year note bearing interest which escalates to
9%. No deferred revenue was recognized on the sale.
Net assets of the Merrimack, New Hampshire franchise of $424 are included in
assets held for sale in the August 31, 1999 condensed consolidated balance
sheet. Sales from Company-owned franchise discontinued operations were $353
and $579 for the three months ended August 31, 1999 and 1998, respectively,
and were $1,154 and $1,184 for the six months ended August 31, 1999 and 1998,
respectively. Losses from company owned franchises for the three months ended
August 31, 1999 and 1998 were net of income tax benefits of $5 and $15,
respectively, and for the six months ended August 31, 1999 and 1998 were net
of income tax benefits of $20 and $33, respectively. Additional losses from
the date of measurement, February 28, 1999, of $38 have been incurred through
August 31, 1999 for the Delray Beach, Florida and Louisville, Kentucky
franchises. Management intends to sell the Merrimack, New Hampshire franchise
in fiscal 2000; however, no assurances can be made that a sale will be
consummated. The results of operations for the three and six months ended
August 31, 1998 have been classified for the Company-owned franchises as
discontinued operations in fiscal 1999.
6. The Company has four reporting segments (1) Franchisor Operations, (2)
Pelican Paper Products, (3) Company Owned Franchises and (4) 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. Information
relating to Company-owned franchises is included in Note 5. The table below
presents information about reported segments for the three and six months
ended August 31:
6
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Continued ...
(UNAUDITED) (000's omitted)
August 31, 1999
For the Three Months Ended August 31,
<TABLE>
<CAPTION>
Pelican
Franchisor Paper Other Total
---------- ----- ----- -----
<S> <C> <C> <C> <C>
1999
Revenues $ 1,332 $3,591 $1,016 $ 5,939
Cost of sales --- 2,923 --- 2,923
Operating expenses 1,799 244 --- 2,043
-------- ------ ------ -------
Income (loss) before income taxes (467) $ 424 $1,016 $ 973
======== ====== ====== =======
Depreciation and amortization $ 34 $ 11 $ --- $ 45
======== ====== ====== =======
Income tax (benefit) provision (163) $ 148 $ 355 $ 340
======== ====== ====== =======
Capital expenditures $ 40 $ 12 $ --- $ 52
======== ====== ====== =======
</TABLE>
<TABLE>
1998
<S> <C> <C> <C> <C>
Revenues $ 1,340 $3,103 $ 62 $ 4,505
Cost of sales --- 2,659 --- 2,659
Operating expenses 907 136 --- 1,043
-------- ------ ------ -------
Income (loss) before income taxes $ 433 $ 308 $ 62 $ 803
======== ====== ====== =======
Depreciation and amortization $ 33 $ 12 $ --- $ 45
======== ====== ====== =======
Income tax provision $ 107 $ 75 $ 14 $ 196
======== ====== ====== =======
Capital expenditures $ 19 $ 10 $ --- $ 29
======== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended August 31,
Pelican
Franchisor Paper Other Total
---------- ----- ------ -----
<S> <C> <C> <C> <C>
1999
Revenues $ 2,789 $7,136 $1,080 $11,005
Cost of sales --- 5,883 --- 5,883
Operating expenses 2,724 391 --- 3,115
--------- ------ ------ -------
Income (loss) before income taxes $ 65 $ 862 $1,080 $ 2,007
========= ====== ====== =======
Depreciation and amortization $ 67 $ 23 $ --- $ 90
========= ====== ====== =======
Income tax (benefit) provision $ 23 $ 302 $ 377 $ 702
========= ====== ====== =======
Capital expenditures $ 50 $ --- $ --- $ 50
========= ====== ====== =======
</TABLE>
<TABLE>
1998
<S> <C> <C> <C> <C>
Revenues $ 2,820 $6,359 $ 124 $ 9,303
Cost of sales --- 5,421 --- 5,421
Operating expenses 1,877 256 --- 2,133
--------- ------ ------ -------
Income (loss) before income taxes $ 943 $ 682 $ 124 $ 1,749
========= ====== ====== =======
Depreciation and amortization $ 69 $ 23 $ --- $ 92
========= ====== ====== =======
Income tax (benefit) provision $ 224 $ 161 $ 29 $ 414
========= ====== ====== =======
Capital expenditures $ 33 $ 10 $ --- $ 43
========= ====== ====== =======
</TABLE>
7. On June 14, 1999, the Company entered into a settlement agreement involving
litigation brought against a former franchise owner. During June 1999, the
Company received payment of $1 million in accordance with the terms of the
settlement agreement. This amount includes reimbursement of approximately
$59 of accounts receivable which were previously reserved.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
August 31, 1999
---------------
Results of Operations
- ---------------------
Total revenues increased $493,000, or 11%, for the three months ended August 31,
1999 as compared to the corresponding period in the prior fiscal year. The
increase in revenue is attributable primarily to increases in (i) sales of paper
products ($488,000, or 16%), (ii) royalty revenue ($20,000, or 1.5%) and is
offset by a decrease in fees associated with the sale of franchises of $28,000.
The increase in royalty revenue is attributable to increased sales of the BCT
network of franchises. The increase in sales of paper products is attributable
to the increase in BCT network sales and the introduction of a new drop shipment
program for rubber stamp supplies which began in November 1998.
Total revenues increased $761,000, or 8.2%, for the six months ended August 31,
1999, as compared to the corresponding period in the prior fiscal year. The
increase in revenue is attributable primarily to increases in (i) sales of paper
products ($777,000, or 12.2%), (ii) royalty revenue ($32,000, or 1.2%) and is
offset by a decrease in fees associated with the sale of franchises of $63,000.
Cost of paper and printing sales as a percentage of paper and printing sales was
81% and 82%, respectively, for the three and six months ended August 31, 1999,
as compared to 86% and 85%, respectively, for the corresponding periods in
fiscal 1999. Although the percentage generally remains stable, it does fluctuate
due to periodic changes in the revenue mix.
Selling and administrative expenses represented 40% and 30% of gross revenues
for the three and six months ended August 31, 1999, and 22% for the
corresponding periods in fiscal 1998. The selling and administrative expense
percentage increased in fiscal 2000 due to an additional $650,000 provision for
bad debt, as well as, severance and relocation expenses incurred related to
changes at the President and CEO position and two other key management
positions, and increased research and development expenses related to the
Company's internet technology. A significant portion of the additional bad debt
provision is attributable to one franchise whose performance has been
substantially worse than expected.
Liquidity and Capital Resources
- -------------------------------
Cash resources increased $616,000 during the six months ended August 31, 1999.
The Company generated $878,000 from continued operations, including cash
resources provided by a legal settlement amounting to $1,000,000. The Company
utilized working capital to make debt payments totaling $55,000, advanced
$212,000 on behalf of the franchise network relating to a national account,
$130,000 to purchase treasury stock and $300,000 for accrued management
incentives.
The Company plans to continue to improve its working capital and cash positions
during fiscal 2000 by continuing its efforts to (i) increase cash collections;
and (ii) marketing to new customer channels through the implementation of a
proprietary internet based ordering system while containing capital expenditures
and maintaining inventory levels.
The Company believes current 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.
Year 2000 Issue
- ---------------
The Year 2000 issue affects the Company's installed computer systems, network
elements, software applications and other business systems that have time-
sensitive programs, including those with embedded microprocessors, that may not
properly reflect or recognize the year 2000 and years thereafter. Because many
computers and computer applications define dates by the last two digits of the
year, "00" or other two-digit dates after the year 2000 may not properly be
identified as the year 2000 or the appropriate later year, but rather the year
1900 or a year between 1901 and 1999 (as the case may be). This error could
result in system and equipment failures or malfunctions causing disruption of
operations including among other things, a temporary inability to process
telephone calls, transactions and information, or engage in normal business
activities.
8
<PAGE>
BCT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS CONTINUED ...
The Company has evaluated its installed computer systems, network elements,
software applications and other business systems that have time-sensitive
programs and has developed and implemented a plan to ensure their Year 2000
compliance. The Company believes that its hardware, network and software
systems, with minor modifications, will be Year 2000 compliant.
Since the Year 2000 issue may affect the systems and applications of the
Company's franchises, customers or suppliers, the Company has communicated with
its franchises, customers and suppliers to determine their overall Year 2000
readiness. Based upon responses received from its franchises, customers and
suppliers, the Company does not anticipate any material adverse impact on its
operations as a result of Year 2000 issues. No assurance can be given that the
failure by one or more of its major franchises, suppliers or customers to become
Year 2000 compliant will not have a material adverse impact on its operations.
The cost to the Company of developing and implementing its Year 2000 compliance
plan has amounted to approximately $65,000.
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 prime + .25%. No advances have been made on the line.
9
<PAGE>
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 , 1999 Peter T. Gaughn
------------------- ----------------------------------------
Peter T. Gaughn
President & Chief Executive Officer
Date: October , 1999 Michael R. Hull
------------------- ----------------------------------------
Michael R. Hull
Vice President & Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000351541
<NAME> BCT INTERNATIONAL, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1999
<PERIOD-END> AUG-31-1999
<CASH> 1,759
<SECURITIES> 0
<RECEIVABLES> 12,173
<ALLOWANCES> (1,965)
<INVENTORY> 2,353
<CURRENT-ASSETS> 9,543
<PP&E> 1,587
<DEPRECIATION> (1,155)
<TOTAL-ASSETS> 17,043
<CURRENT-LIABILITIES> 2,545
<BONDS> 491
0
0
<COMMON> 233
<OTHER-SE> 13,887
<TOTAL-LIABILITY-AND-EQUITY> 17,043
<SALES> 7,136
<TOTAL-REVENUES> 11,005
<CGS> 5,883
<TOTAL-COSTS> 5,883
<OTHER-EXPENSES> 2,403
<LOSS-PROVISION> 687
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 2,007
<INCOME-TAX> 702
<INCOME-CONTINUING> 1,305
<DISCONTINUED> (38)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,267
<EPS-BASIC> .24
<EPS-DILUTED> .24
</TABLE>
