<PAGE>
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 29, 2000 Commission file no. 0-10823
----------------- -------
BCT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2358849
-------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No)
incorporation of organization)
3000 NE 30th Place, Fifth Floor, Fort Lauderdale, Florida 33306
----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 563-1224
--------------
Securities registered pursuant to Section 12 (b) of the Act:
NONE
----
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, par value $.04 per share
--------------------------------------
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. [X]
The aggregate market value of Registrant's voting stock held by non-
affiliates of the Registrant, at May 19, 2000 was approximately $5,700,000.
The number of shares outstanding of Registrant's Common Stock, par value
$.04 per share, at May 19, 2000 was 5,822,208.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
----
This document consists of 41 pages.
The Index to exhibits appears on page 17.
<PAGE>
Item 1. Business
------- --------
(a) General
-------
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 87 "Business Cards Tomorrow Franchises"
(the "Franchises") specializing in thermography products, labels, rubber stamps
and business announcements for resale by retail printing providers in 38 states,
Canada and Argentina. One franchise located in Merrimack, New Hampshire is owned
directly by BCT.
The Company adopted a plan effective February 28, 1999 for the
disposition of all Company owned Franchises. Under the plan, the Company
intended to sell all Company owned Franchises in fiscal 2000. All but the
franchise located in Merrimack, New Hampshire were sold in fiscal 2000.
Management has entered into a non-binding letter of intent to sell this
franchise for $250,000.
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 four operating segments of a single
industry. The segments include 1) operations as a franchisor of printing
franchises, 2) ownership and operation of Company owned franchises, 3) sale of
paper products and supplies to the BCT Franchises, and 4) other operations.
(b) Narrative description of the business
-------------------------------------
Business Cards Tomorrow, Inc.
-----------------------------
General
-------
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, the "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. Thermography is a
specialized printing process that gives a raised printing effect similar to
engraving and requires specialized equipment and operating techniques which
commercial printers, quick printers, office superstores and other retail dealers
choose not to invest in. 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.
Increasingly, the Franchises receive orders by fax and electronic communications
via the Internet using Orderprinting.com(TM), an Internet-based ordering system.
In January 1999, the Company introduced Orderprinting.com(TM) which is
targeted toward the print broker market. Orderprinting.com(TM) consists of a
custom web-based ordering system which allows end users to log-in to a
personalized Internet site which has all the end user company's business card
and business stationery product layouts. The end user selects the product and
layout desired and enters the required employee and location information,
previews the finished stationery product on-line and approves the order for
processing. The order is transmitted electronically to the BCT Franchise that
will process the order. In addition, the print broker associated with the end
user is notified of the order via e-mail.
This process streamlines the ordering process for both the end user
and the print broker and eliminates the need for manually typesetting the order
by the BCT Franchise, vastly improving the entire process from ordering to
production. As of May 19, 2000, there are 65 franchises employing
Orderprinting.com(TM). These Franchises have used Orderprinting.com(TM) to
process over 95,000 orders since January 1999.
BCT supplies business stationery and rubber stamp and label catalogs
to its Franchises and also sells them the paper products featured in the
catalogs through PPP.
Page 1
<PAGE>
PPP is a primary 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 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)
interest income from financing franchise acquisitions (primarily resales) and
receivables; and (vi) sales of additional Territories to existing franchisees.
As of May 19, 2000, 87 BCT Franchises are in operation in 38 states, Canada
(nine Franchises) and Argentina (one Franchise). The current number of
Franchises compares with 89 and 88 Franchises in operation on May 18, 1999 and
May 15, 1998, 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
$107,000,000, $105,000,000 and $96,000,000 for the years ended December 31,
1999, 1998 and 1997, an average of $1,230,000, $1,222,000 and $1,057,000,
respectively, per Franchise.
BCT receives either a 5% or 6% royalty fee based on gross 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. One franchise
agreement is up for renewal in fiscal 2001. For fiscal years ended 2000, 1999,
and 1998, continuing franchise royalties comprised approximately 27%, 28% and
25% of total revenue, respectively. PPP sales to the franchisees for fiscal
years ended 2000, 1999, and 1998 were approximately 71%, 69%, and 60%, of total
revenue, respectively.
Raw Materials
-------------
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. While BCT, through PPP, sells paper products to its 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
----------
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 15 years. One franchise comes
up for renewal in fiscal 2001, and in the subsequent 10 years, 16 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.
Page 2
<PAGE>
Competition
-----------
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, there can be no
assurance that competitors will not imitate or improve upon the Company's
business strategy. BCT's major national competitors are Regency Thermographers,
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 and, more recently with Orderprinting.com(TM) Internet
technology.
Trade and Service Marks
-----------------------
The Company has received federal registration of the names "Business Cards
Tomorrow", "BCT International, Inc.", "Orderprinting.com" 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
invested significant amounts in the research and development of
Orderprinting.com(TM), an Internet-based order entry and distribution system.
Government Regulation
---------------------
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
---------
The Company has 70 employees, all of whom are located at either (i) the
Company's corporate headquarters in Fort Lauderdale, Florida, (ii) the Company-
owned Franchise in Merrimack, New Hampshire, or (iii) the Company's paper
distribution warehouse and paper converting facility in Menasha, Wisconsin. See
discussion of discontinued operations in item 1.
Financial Information Relating to Foreign and Domestic
-------------------------------------------------------
Operations
----------
February 29, February 28, February 28,
2000 1999 1998
----------- ----------- -----------
Revenue:
Foreign operations $ 866,000 $ 832,000 $ 924,000
Domestic operations $18,783,000 $17,774,000 $16,098,000
Operating Profit (Loss):
Foreign operations $ 134,000 $ 128,000 $ 118,000
Domestic operations (1) $ 2,074,000 $ 3,063,000 $ 2,677,000
Identifiable Assets:
Foreign operations $ 366,000 $ 334,000 $ 355,000
Domestic operations $16,955,000 $14,901,000 $13,802,000
(1) Amounts do not include losses from discontinued operations amounting
to $357,000 $327,000 and $244,000 for the years ended February 29, 2000,
February 28, 1999 and 1998, respectively.
Page 3
<PAGE>
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 Company's primary paper warehouse is located at 772 Specialists
Avenue, Menasha, Wisconsin utilizing approximately 35,000 square feet. This
facility is leased at a monthly rental of approximately $9,200 through January
2005.
The Company's Delray Beach, Florida, catalog printing facility
utilizes a 6,000 square foot facility, which is leased for a monthly rental of
$3,700. The lease on this facility continues through July 2000 at which time the
Company intends to relocate this facility to Menasha, Wisconsin.
The Merrimack, New Hampshire, Company-owned Franchise utilizes a 4,000
square foot facility, which is leased for a monthly rental of $4,200. The lease
on this facility continues through March 2001.
Management believes that existing facilities are adequate for the
foreseeable future. See discussion of discontinued operations in Item 1.
Item 3. Legal Proceedings
------- -----------------
No material matters.
Item 4. Submission of Matters to a Vote of Securities Holders
------- -----------------------------------------------------
No matters were submitted to a vote of securities holders, through the
solicitation of proxies or otherwise, during the fiscal quarter ended February
29, 2000.
Item 5. Market for Registrant's Common Stock and Related Security Holder
------- ----------------------------------------------------------------
Matters
-------
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.
Fiscal Quarters High Low
--------------- ---- ---
1999 First Quarter $ 3.75 $ 2.63
Second Quarter $ 3.125 $2.3125
Third Quarter $2.4375 $1.8125
Fourth Quarter $ 3.625 $2.0625
2000 First Quarter $2.6875 $2.1875
Second Quarter $ 2.50 $ 2.00
Third Quarter $ 2.218 $ 1.375
Fourth Quarter $ 2.125 $ 1.312
2001 First Quarter (through May 19, 2000) $2.1875 $1.5625
On May 19, 2000, the closing price per share of Common Stock, as
reported by NASDAQ, was $1.625.
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, 1999 was 800.
During the fiscal years ended February 29, 2000, February 28, 1999 and
1998, no cash dividends were declared on the outstanding Common Stock.
The Company has no plans to pay any dividends on the Common Stock.
Page 4
<PAGE>
Item 6. Selected Financial Data (000's omitted, except per share data)
------- -----------------------
<TABLE>
<CAPTION>
OPERATIONS
for the fiscal year ended: Feb. 29, 2000 Feb. 28, 1999 Feb. 28, 1998 Feb. 28, 1997 Feb. 29, 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Royalties and franchise fees $ 5,394 $ 5,356 $ 4,921 $ 4,852 $ 4,820
Paper and printing sales 13,881 12,817 11,734 10,118 9,159
Sales of franchises 27 87 44 40 870
Interest and other income 347 346 323 206 436
--------- --------- --------- --------- ---------
19,649 18,606 17,022 15,216 15,285
--------- --------- --------- --------- ---------
EXPENSES:
Cost of paper and printing sales 11,574 10,939 9,857 8,823 7,796
Cost of franchises sold --- --- --- --- 521
Selling, general and administrative 6,619 4,290 4,171 5,820 4,880
Depreciation and amortization 189 186 199 247 170
--------- --------- --------- --------- ---------
18,382 15,415 14,227 14,890 13,367
--------- --------- --------- --------- ---------
Income from continued operations before
legal settlement and income taxes 1,267 3,191 2,795 326 1,918
Legal settlement 941 --- --- --- ---
--------- --------- --------- --------- ---------
Income from continued operations
before income taxes 2,208 3,191 2,795 326 1,918
Income tax provision 837 690 986 54 404
--------- --------- --------- --------- ---------
Income from continued operations 1,371 2,501 1,809 272 1,514
Discontinued operations (2):
Loss from Company owned Franchises
operated under a plan of disposition, net
of income tax benefit (357) (327) (244) (657) (373)
--------- --------- --------- --------- ---------
Net income (loss) $ 1,014 $ 2,174 $ 1,565 $ (385) $ 1,141
========= ========= ========= ========= =========
Earnings (loss) per common share:
Income from continued operations $ .26 $ .47 $ .35 $ .05 $ .29
Loss from discontinued operations (.07) (.06) (.05) (.13) (.07)
--------- --------- --------- --------- ---------
Basic $ .19 $ .41 $ .30 $ (.08) $ .22
========= ========= ========= ========= =========
Income from continued operations $ .25 $ .45 $ .32 $ .05 $ .27
Loss from discontinued operations (.06) (.06) (.04) (.13) (.07)
--------- --------- --------- --------- ---------
Diluted $ .19 $ .39 $ .28 $ (08) $ .20
========= ========= ========= ========= =========
Total assets $ 17,321 $ 15,235 $ 14,157 $ 11,229 $ 10,738
Long-term debt $ 330 $ 433 $ 539 $ 215 $ 5
Preferred stock $ --- $ 60 $ 60 $ 60 $ 260
Working capital $ 5,666 $ 6,424 $ 5,145 $ 3,614 $ 4,633
Stockholders' equity (1) $ 13,756 $ 12,892 $ 11,073 $ 9,310 $ 9,374
</TABLE>
(1) During the five fiscal years ended February 29, 2000, no cash dividends have
been declared on the common stock outstanding.
(2) Discontinued operations are discussed in Note 2 to the Consolidated
Financial Statements.
Page 5
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Fiscal 2000 Compared to Fiscal 1999
-----------------------------------
Total revenue for fiscal 2000 increased $1,043,000 or 6%. Royalty revenue
increased by $38,000 or 1%, and paper and printing sales increased by $1,064,000
or 8%. Revenue growth was attributable to overall sales growth of the BCT
Franchises and the addition of a rubber stamp supplies drop ship program in late
fiscal 1999. Revenues from the sale of Franchises decreased $60,000, or 69%.
Cost of paper and printing sales as a percentage of paper and printing
sales was 83%, 85% and 84%, respectively, for fiscal 2000, 1999 and 1998.
Fluctuations in this percentage result primarily from changes in the sales mix.
Selling, general and administrative expenses represented 34%, 23% and 25% of
gross revenues in fiscal 2000, 1999 and 1998, respectively. The increase in the
fiscal 2000 percentage was due primarily to a $1,725,000 provision for doubtful
accounts to provide for the deterioration of the financial condition of several
Franchises which have significant receivable balances with the Company. In
addition, the increase in fiscal 2000 expenses was due to (i) severance costs in
connection with the resignation of the Company's former President and CEO and
the Company's Vice President of Marketing of approximately $120,000, (ii) the
Company incurred relocation expenses related to the hiring of its new President
and CEO, Vice President of Sales and Marketing, a new Vice President of
Operations and a Director of National Sales of approximately $200,000, and (iii)
additional programming costs related to the development of the
Orderprinting.com(TM) technology of approximately $200,000.
The Company's effective tax rate in fiscal 2000 was significantly higher
than fiscal 1999 because in fiscal 1999 the Company reversed the valuation
allowance associated with its deferred tax assets.
Fiscal 1999 Compared to Fiscal 1998
-----------------------------------
Total revenue for fiscal 1999 increased $1,584,000 or 9%. Royalty revenue
increased by $435,000 or 9%; and paper and printing sales increased by
$1,083,000 or 9%. Revenue growth was attributable to the overall sales growth
of the BCT Franchises, which was stimulated by a national contract, which began
in January 1998, to provide business stationery to over 700 OfficeMax locations.
Cost of paper and printing sales as a percentage of paper and printing
sales was 85%, 84% and 87%, respectively, for the fiscal years ended February
28, 1999, 1998 and 1997. Fluctuations in this percentage result primarily from
differences in the sales mix. Selling, general and administrative expenses
represented 23%, 25% and 38% of gross revenues in fiscal 1999, 1998 and 1997,
respectively. The decrease in fiscal 1999 demonstrates the Company's ability to
increase revenues without incurring a proportionate increase in expenses.
Under a plan adopted effective February 28, 1999, the Company intends to
dispose of its Company owned franchises in fiscal 2000. See Note 2 to the
Consolidated Financial Statements.
Liquidity and Capital Resources
-------------------------------
The Company generated cash from continuing operations of $1,791,000 during
the fiscal year ended February 29, 2000. The Company employed the cash generated
(i) to make capital expenditures of approximately $262,000, primarily for
warehousing equipment and computer hardware, software and leasehold improvements
related to a new training center, (ii) to make repurchases of the Company's
common stock totalling $206,000, (iii) to fund discontinued operations in the
amount of $354,000, and (iv) to make principal payments on debt of $112,000. The
remainder of cash generated from operations was retained to fund day to day
operations of the business.
The Company's cash generated from operations was reduced by the Company's
continuing commitment to the franchise network in the form of working capital to
enhance growth (note financing). Although the Company believes its financial
involvement with certain franchisees is necessary, the Company intends to
minimize this type of relationship in the future.
The Company intends to continue to improve its working capital and cash
positions during fiscal 2000 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 using
Orderprinting.com(TM) and continue to develop and improve new and existing
product offerings.
The Company believes that internally generated funds will be sufficient to
satisfy its working capital and capital expenditure requirements for the
foreseeable future; however, there can be no assurance that external financing
will not be needed. During fiscal 2000, the Company renewed a $2 million line
of credit with a bank. No advances have been made on the line as of May 19,
2000.
Page 6
<PAGE>
Year 2000 Issue
---------------
The Company has not experienced any material year 2000 problems as of May
19, 2000.
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.
The Company evaluated its installed computer systems, network elements,
software applications and other business systems that have time-sensitive
programs and developed and implemented a plan to ensure their Year 2000
compliance. The Company believes that its hardware, network and software
systems are fully Year 2000 compliant.
Since the Year 2000 issue may affect the systems and applications of the
Company's franchises, customers or suppliers, the Company 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 amounted to approximately $45,000.
Forward-Looking Information
---------------------------
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 7A. 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%.
Item 8. Financial Statements and Supplementary Data
------- -------------------------------------------
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
---------------------------------------------------------------
Financial Disclosure
--------------------
None
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
<TABLE>
<CAPTION>
Date Elected
Name Age Position Or Appointed
---- --- -------- ------------
<S> <C> <C> <C>
William Wilkerson 58 Chairman of the Board January 1978
Peter T. Gaughn 44 Chief Executive Officer, President
and Director May 1999
Michael R. Hull 46 Chief Financial Officer, Treasurer
and Secretary May 1996
Thomas J. Cassady 78 Director April 1988
</TABLE>
Page 7
<PAGE>
Jeff Hewson 57 Director October, 1999
Henry A. Johnson 65 Director February 1975
Bill LeVine 80 Director May 1992
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.
Peter T. Gaughn became a Director of the Company in April 1998. He
was appointed Chief Executive Officer and President of the Company in May 1999.
He previously served as President and Chief Executive Officer and Director of
PIP Printing from February 1995 to April 1999. Additionally, Mr. Gaughn was
previously President and Chief Operating Officer of the Company from August 1989
to January 1995.
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.
Jeff Hewson has over 30 years experience in the manufacture and
distribution of office and computer supplies. In 1989 Mr. Hewson became
President and Director of United Stationers Inc., a leading wholesale
distributor of office and computer-related products. He retired as President of
United Stationers at the end of 1995, but stayed on the United Stationers Board
of Directors until November 1997. Mr. Hewson was also the master license
franchisee for BCT Canada, which he successfully developed to nine (9)
franchised plants and sold back to the Company in 1989. Mr. Hewson is currently
on the Board of Directors of Ampad, Inc., Dallas, Texas and he is active
Chairman of the Board for the Kingfield Heath Company, a leading wholesale
distributor of office and computer supplies in the United Kingdom.
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, and California Closets, Inc., San
Francisco, California since 1994.
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 no
instances 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.
Page 8
<PAGE>
Item 11. Executive Compensation
-------- ----------------------
(a) Board Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors, which is
comprised of a majority 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. Pursuant to recently adopted rules designed to enhance
disclosure of companies' policies toward executive compensation, set forth below
is a report submitted by Mr. LeVine in his capacity as the Chairman of the
Board's Compensation Committee, addressing the Company's compensation policies
for fiscal 2000 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. Peter T. Gaughn, President and Chief Executive
Officer of the Company since April 1999, and Mr. James H. Kaufenberg, President
and Chief Executive Officer of the Company from October 1997 until his
resignation in April 1999.
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 Gaughn in fiscal 2000, as
reflected in the following Tables, consisted of base salary and bonus.
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 2000 after informal discussions
with other members of the Board.
Mr. Wilkerson's Fiscal 2000 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 2000 compensation was paid pursuant to this
contract. In June 1997, Mr. Wilkerson's contract was extended for an additional
three year term through fiscal 2003. The agreement calls for minimum annual
salary amounts of $300,000 during the employment term. In May 2000, the
Compensation Committee increased Mr. Wilkerson's fiscal 2001 minimum annual
salary to $315,000.
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.
Page 9
<PAGE>
Mr. Gaughn's Fiscal 2000 Compensation
In May 1999, the Committee approved an employment agreement with Peter T.
Gaughn, the President and Chief Executive Officer of the Company. The initial
term of the employment agreement is three years, but shall be automatically
extended for successive one-year terms unless either party gives notice of its
intent not to renew. The agreement calls for minimum annual salary amounts
during the initial three year term of $250,000, $262,000 and $276,000. In
addition, the agreement provides for incentive compensation based upon pretax
income of the Company, which shall not exceed $125,000 in fiscal 2000 and shall
not exceed the base salary, thereafter. Additionally, the agreement granted
options to purchase 400,000 shares of Common Stock of the Company at $2.25, of
which 100,000 vested immediately and the remainder will vest 15% annually over
the next five years. Further, the agreement provides for the granting each year
of options to purchase shares of the Company's Comm Stock equal to the amount of
the incentive compensation for that year divided by the market price of the
Company's stock on the day preceding the payment of the incentive compensation.
These options shall vest 25% immediately and 15% each year for the five years,
thereafter.
Mr. Kaufenberg's Fiscal 2000 Compensation
During fiscal 1997, the Committee approved the terms of Mr. Kaufenberg's
employment. Under the terms of his employment, if Mr. Kaufenberg left the
employment of the Company for any reason, he was entitled to receive six months
of severance pay. Mr. Kaufenberg resigned in April 1999. Consequently, his
severance package was paid and recorded in fiscal 2000. His bonus of $85,000,
based on fiscal 1999 performance, was recorded in fiscal 1999.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS:
Bill LeVine Henry A. Johnson William Wilkerson
(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 29, 2000,
February 28, 1999, and 1998, by the executive officers of the Company as to whom
the total salary and bonus in the most recent year exceeded $100,000.
Page 10
<PAGE>
BCT International, Inc.
-----------------------
Summary Compensation Table
--------------------------
Fiscal Years 2000, 1999 and 1998
--------------------------------
000's omitted
-------------
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
-------------------------------------------------------------------------------------------------------------------------
Form of Payment
Fiscal --------------------
Name Position Year Salary Bonus Cash Shares Options
---- -------- --- ------ ----- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
W.A. Wilkerson Chairman of 2000 $ 312 (1) $ 40 $352 --- ---
the Board 1999 $ 312 (1) $ 75 $387 --- 2 (2)
1998 $ 294 (1) $ 50 $344 --- 70 (3)
P.T. Gaughn Chief Executive 2000 $ 218 (1) $ 41 $259 --- 400 (4)
Officer and
President
J.H. Kaufenberg Chief Executive 2000 $ 113 $ --- $113 --- ---
Officer and 1999 $ 150 (6) $ 85 $235 --- 2 (2)
President (5) 1998 $ 150 (6) $ 150 $300 --- ---
M.R. Hull Chief Financial 2000 $ 96 $ 32 $128 --- ---
Officer, Secretary 1999 $ 92 $ 36 $128 --- ---
and Treasurer 1998 $ 88 $ 31 $119 --- ---
</TABLE>
(1) Salary for fiscal 2000, 1999 and 1998 includes a $12 car allowance.
(2) Options granted in fiscal 1999, all of which immediately vested.
(3) Options granted in fiscal 1998, all of which immediately vested.
(4) Options granted in fiscal 2000, 25% of which immediately vested and the
remainder vesting over five years.
(5) Mr. Kaufenberg resigned as an officer and director of the Company in April
1999. His fiscal 2000 salary includes $24,000 of regular salary, $17,000 of
accrued vacation, $2,000 of car allowance and $70,000 of severance
payments.
(6) Salary includes a $10 car allowance.
Page 11
<PAGE>
BCT International, Inc.
-----------------------
Aggregated Option Exercises and Year-End
----------------------------------------
Option Values for Fiscal 2000
-----------------------------
000's omitted
-------------
<TABLE>
<CAPTION>
Number of Value of
Unexercised In-The-Money
Options at Options at
Shares 2/29/00 (#) 2/29/00 ($)
Acquired on Value Exercisable/ Exercisable/
Name Position Exercise # Realized ($) Unexercisable Unexercisable
---- -------- ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
W.A. Wilkerson Chairman of
the Board --- $ --- 331/0 $ 45/$0
P.T. Gaughn Chief Executive
Officer and 15 $ 16 137/300 $ 11/0
President
M.R. Hull Chief Financial --- $ --- 15/0 $ 2/0
Officer, Secretary
and Treasurer
</TABLE>
Page 12
<PAGE>
BCT International, Inc.
-----------------------
Executive Management Compensation
---------------------------------
Option Grants in Fiscal Year 2000
---------------------------------
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>
P.T. Gaughn President and Chief
Executive Officer 400 80% $2.25 5/08/09 $564 / $1,436
</TABLE>
Page 13
<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 19, 2000, 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 19, 2000, 5,822,208 shares of Common Stock were
outstanding.
Page 14
<PAGE>
Percent of
Number of Shares Outstanding
Name Beneficially Owned (1) Common Stock
---- ---------------------- ------------
Certain Beneficial Owners:
Steven N. Bronson 545,082 9.36%
B & B Management Group II, Inc.
16 East 52/nd/ Street, Suite 501
New York, NY 10022
Officers and Directors:
William A. Wilkerson 1,323,057 (2) 21.32%
Bill LeVine 702,532 (3) 11.91%
Peter T. Gaughn 219,786 (4) 3.65%
Henry A. Johnson 159,347 (5) 2.72%
Jeff Hewson 55,541 (6) .95%
Thomas Cassady 43,750 (7) .75%
Michael R. Hull 18,500 (8) .32%
Officers and Directors as a group
(7 persons) 2,522,513 (9) 38.52%
____________________________________
(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 336,250 shares covered by currently exercisable stock options and
warrants.
(3) Includes 78,750 shares covered by currently exercisable stock options.
(4) Includes 203,786 shares covered by currently exercisable stock options.
(5) Includes 36,250 shares covered by currently exercisable stock options.
(6) Includes 27,500 shares covered by currently exercisable stock options.
(7) Includes 15,000 shares covered by currently exercisable stock options.
(8) Includes 18,000 shares covered by currently exercisable stock options.
(9) Includes 715,536 shares covered by currently exercisable stock options and
warrants.
Page 15
<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 franchise (the "Hawaii
Franchise") for a total purchase price of $400,000 plus accounts receivable and
inventory. The purchase price was 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 fiscal
1997, the Company advanced an additional $65,000 to the Hawaii Franchise in
exchange for three promissory notes due February 28, 1997 bearing interest of 8%
(the "$65,000 notes"). The Hawaii Franchise 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 45 months behind on payments under the $325,000 note
and 45 months behind on payments under the $108,000 note. No payments have been
made on the $65,000 notes. Further, the Hawaii Franchise's debt to the Company
for paper purchases, royalties and other advances totaling $561,000 is more than
90 days past due as of May 19, 2000. In fiscal 1999, the Company advanced
$167,000 to the owners of the Hawaii Franchise as repayment of monies
contributed by the owners. Reserves have been recorded on the accounts and notes
receivable relating to the Hawaii Franchise.
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 Hawaii 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 Hawaii Franchise has improved 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. In May 2000, in order to further secure his obligations to the
Company in connection with the Hawaii Franchise, Mr. Wilkerson pledged 100,000
shares of the Company's Common Stock as collateral for those obligations.
On April 19, 1999, James H. Kaufenberg resigned from his positions as
President, Chief Executive Officer and Director of the Company. In connection
with his resignation, the Company and Mr. Kaufenberg entered into an agreement
providing for (i) payment to Mr. Kaufenberg of $70,000 pursuant to six months of
salary payments at an annual rate of $140,000 from May to October 1999, (ii)
payment to Mr. Kaufenberg of an $85,000 bonus for fiscal 1999, (iii) exercise by
Mr. Kaufenberg of options to purchase 23,700 shares of Common Stock at an
exercise price of $1.875 per share, (iv) payment by the Company to Mr.
Kaufenberg of $34,475 in cancellation of Mr. Kaufenberg's remaining options to
purchase 78,800 shares of Common Stock at an exercise price of $1.875 per share
($.4375 per option share), (v) payment to Mr. Kaufenberg of $17,500 in accrued
vacation and (vi) customary releases, indemnification and other legal
provisions.
Effective May 8, 1999, the Company entered into a three-year employment
agreement with Peter T. Gaughn, its new President and Chief Executive Officer.
The agreement provides for a base salary of $250,000 during the first year with
minimum 5% salary increases thereafter. In addition, the agreement provides for
incentive compensation based upon the Company's pre-tax income, which
compensation shall not exceed $125,000 in fiscal 2000 and shall not exceed the
base salary thereafter. Additionally, the agreement provides for the grant of
options to purchase 400,000 shares of Common Stock at $2.25, of which 100,000
shares vested immediately and the remainder shall vest in annual increments of
60,000 shares over the next five years. In addition, the agreement provides for
the granting each year of options to purchase a number of shares of Common Stock
equal to the amount of incentive compensation for that fiscal year divided by
the market price of the Common Stock on the day preceding the payment of the
incentive compensation. These options will vest 25% immediately and 15% each
year for five years thereafter.
Page 16
<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 D1
(b) Reports of Form 8-K
No Reports on Form 8-K were filed during the quarter ended
February 29, 2000.
(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., as filed
with the SEC as Exhibit 10.2 to the Company's report on
Form 10-K for the fiscal year ended February 28, 1998
is incorporated herein by reference.
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, as 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.
10.5 Employment agreement between the Company and Peter T.
Gaughn dated May 8, 1999, 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, 1999 is incorporated
herein by reference.
10.6 Termination agreement between the Company and James H.
Kaufenberg dated April 19, 1999, as filed with the SEC
as exhibit 10.6 to the Company's report on Form 10-K
for the fiscal year ended February 28, 1999 is
incorporated herein by reference.
10.7 Stock pledge agreement between the Company and William
A. Wilkerson dated May 30, 2000.
Page 17
<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: May 30, 2000 By: /s/ Peter T. Gaughn
------------------------ __________________________________
Peter T. Gaughn
President, Chief Executive Officer
and Director
DATE: May 30, 2000 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.
William Wilkerson Henry A. Johnson
------------------------------------- -----------------------------------
William Wilkerson Henry A. Johnson
Chairman of the Board & Director Director
Date: May 30, 2000 Date: May 30, 2000
Thomas J. Cassady Bill LeVine
------------------------------------- -----------------------------------
Thomas J. Cassady Bill LeVine
Director Director
Date: May 30, 2000 Date: May 30, 2000
Jeff Hewson Peter T. Gaughn
------------------------------------- -----------------------------------
Jeff Hewson Peter T. Gaughn
Director Director
Date: May 30, 2000 Date: May 30, 2000
Page 18
<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 29, 2000 and February 28, 1999 D-3
Consolidated Statements of Operations for the three fiscal years ended February 29, 2000 D-4
Consolidated Statements of Changes in Stockholders' Equity
for the three fiscal years ended February 29, 2000 D-5
Consolidated Statements of Cash Flows for the three fiscal years ended February 29, 2000 D-6 to D-7
Notes to Consolidated Financial Statements D-8 to D-20
Schedules:
---------
For the fiscal years ended February 29, 2000, February 28, 1999 and 1998:
II Valuation and Qualifying Accounts D-21
X Supplementary Income Statement Information D-22
</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 19
<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 29, 2000 and February 28,
1999, and the results of their operations and their cash flows for each of the
three years in the period ended February 29, 2000 in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedules listed in the accompanying index present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedules are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, 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.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
May 30, 2000
D-2
Page 20
<PAGE>
<TABLE>
<CAPTION>
BCT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
000's omitted, except share amounts
February 29, 2000 February 28, 1999
----------------- -----------------
ASSETS
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,906 $ 1,143
Accounts and notes receivable, net 3,293 3,252
Inventory, net 2,359 2,122
Assets held for sale 268 1,082
Prepaid expense and other current assets 140 199
Deferred income taxes 482 476
----------- -----------
Total current assets 8,448 8,274
Accounts and notes receivable, net 7,275 5,881
Property and equipment at cost, net 529 460
Deferred income taxes 722 246
Deposits and other assets 89 90
Trademark and other intangible assets, net 258 284
----------- -----------
Total assets $ 17,321 $ 15,235
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 1,111 $ 844
Notes payable 104 113
Accrued liabilities 1,349 753
Deferred revenue current 218 140
----------- -----------
Total current liabilities 2,782 1,850
Deferred revenue 453 ---
Notes payable, less current maturities 330 433
----------- -----------
Total liabilities 3,565 2,283
----------- -----------
Commitments and contingencies (Note 11) --- ---
----------- -----------
Preferred stock, Series A, 12% cumulative, $1 par value,
mandatorily redeemable, 810 shares authorized, 60 shares
issued and outstanding in 1999 --- 60
----------- -----------
Stockholders' equity:
Common stock, $.04 par value, authorized 25,000,
5,822 shares (5,753 shares in 1999) issued and outstanding 233 230
Paid in capital 12,597 12,506
Retained earnings 2,334 1,322
----------- -----------
15,164 14,058
Less: Treasury stock, at cost 591 shares, (496 shares in 1999) (1,408) (1,166)
----------- -----------
Total stockholders' equity 13,756 12,892
----------- -----------
Total liabilities and stockholders' equity $ 17,321 $ 15,235
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-3
Page 21
<PAGE>
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's omitted, except per share data)
<TABLE>
<CAPTION>
For the For the For the
Fiscal year ended Fiscal year ended Fiscal year ended
February 29, 2000 February 28, 1999 February 28, 1998
----------------- ----------------- -----------------
Revenues:
<S> <C> <C> <C>
Royalties and Franchise fees $ 5,394 $ 5,356 $ 4,921
Paper and printing sales 13,881 12,817 11,734
Sales of franchises 27 87 44
Interest and other income 347 346 323
----------- ---------- ----------
19,649 18,606 17,022
----------- ---------- ----------
Expenses:
Cost of paper and printing sales 11,574 10,939 9,857
Selling, general and
administrative 6,619 4,290 4,171
Depreciation and amortization 189 186 199
----------- ---------- ----------
18,382 15,415 14,227
----------- ---------- ----------
Income from continued operations before legal
settlement and income taxes 1,267 3,191 2,795
Legal settlement 941 --- ---
----------- ---------- ----------
Income from continued operations before income taxes 2,208 3,191 2,795
Income tax provision 837 690 986
----------- ---------- ----------
Income from continued operations 1,371 2,501 1,809
Discontinued operations:
Loss from Company owned Franchises
operated under a plan of disposition, net of
tax benefit of $217, $130 and $133, respectively (357) (327) (244)
----------- ---------- ----------
Net income $ 1,014 $ 2,174 $ 1,565
=========== ========== ==========
Net income per common share
Income from continued operations $ .26 $ .47 $ .35
Loss from discontinued operations (.07) (.06) (.05)
----------- ---------- ----------
Basic $ .19 $ .41 $ .30
=========== ========== ==========
Income from continued operations $ .25 $ .45 $ .32
Loss from discontinued operations (.06) (.06) (.04)
----------- ---------- ----------
Diluted $ .19 $ .39 $ .28
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-4
Page 22
<PAGE>
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(000's omitted)
<TABLE>
<CAPTION>
Retained
Common Stock Earnings
---------------------
Number of Par Paid In (Accumulated Treasury
Shares Value Capital Deficit) Stock Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance February 28, 1997 5,410 $ 216 $ 12,056 $ (2,403) $ (559) $ 9,310
Exercise of stock options 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
Treasury stock purchases --- --- --- --- (571) (571)
Exercise of warrants 176 7 240 --- --- 247
Other changes 4 --- 12 --- (36) (24)
Dividends on convertible preferred stock --- --- --- (7) --- (7)
Net income --- --- --- 2,174 --- 2,174
------- ------- --------- -------- ------- --------
Balance February 28, 1999 5,753 230 12,506 1,322 (1,166) 12,892
Exercise of options 28 1 33 --- --- 34
Treasury stock purchases --- --- --- --- (206) (206)
Conversion of preferred stock 41 2 58 --- --- 60
Other changes --- --- --- (2) (36) (38)
Net income --- --- --- 1,014 --- 1,014
------- ------- --------- -------- ------- --------
Balance February 29, 2000 5,822 $ 233 $ 12,597 $ 2,334 $(1,408) $ 13,756
======= ======= ========= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-5
Page 23
<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 29, 2000 February 28, 1999 February 28, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,014 $ 2,174 $ 1,565
Plus loss from discontinued operations 357 327 244
------------ ----------- -----------
Income from continuing operations 1,371 2,501 1,809
Adjustments to reconcile income from continuing
operations to net cash provided by
operating activities:
Deferred income taxes (482) 411 748
Depreciation and amortization 189 186 199
Provision for doubtful accounts 1,725 350 109
Provision for inventory obsolescence 76 145 50
Other adjustments 31 31 31
Changes in assets and liabilities:
Accounts and notes receivable (2,115) (1,375) (2,552)
Inventory (85) 87 (5)
Prepaid expenses and other current assets 59 (39) (94)
Accounts payable 267 (420) 288
Deferred revenue 159 (28) 67
Accrued liabilities 596 (24) 486
------------ ----------- -----------
Net cash provided by continuing operations 1,791 1,825 1,136
Net cash used by discontinued operations (354) (812) (301)
------------ ----------- -----------
Net cash provided by operating activities 1,437 1,013 835
------------ ----------- -----------
Cash flows from investing activities:
Capital expenditures for property and equipment (262) (82) (88)
Discontinued operations (90) (312) (195)
------------ ----------- -----------
Net cash (used by) investing activities (352) (394) (283)
------------ ----------- -----------
Cash flows from financing activities:
Treasury stock purchases and other (242) (607) ---
Dividend on Series A Preferred Stock (2) (7) (7)
Exercise of stock options and warrants 34 247 205
Repayments on borrowings (112) (98) (75)
------------ ----------- -----------
Net cash provided by (used by) financing activities (322) (465) 123
------------ ----------- -----------
Net increase in cash and cash equivalents 763 154 675
Cash and cash equivalents at beginning of year 1,143 989 314
------------ ----------- -----------
Cash and cash equivalents at end of year $ 1,906 $ 1,143 $ 989
============ =========== ===========
Supplemental disclosures:
-------------------------
Interest paid during the year $ 48 $ 57 $ 42
============ =========== ===========
Income taxes paid during the year $ 725 $ 200 $ 9
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-6
Page 24
<PAGE>
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(000's omitted)
Noncash activities:
------------------
In fiscal 2000, the Company took notes receivable amounting to $550 and $495,
respectively, in connection with the sales of the Delray Beach, Florida and
Louisville, Kentucky Company owned franchises.
In fiscal 1999, the Company exchanged accounts and notes receivable amounting to
$485 in connection with the purchase of
the Merrimack, New Hampshire franchise.
In fiscal 1998, the Company acquired an independent thermography business in
exchange for cash and a $455 note payable and sold the business to two
franchises in exchange for notes 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.
The accompanying notes are an integral part of these consolidated financial
statements
D-7
Page 25
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's omitted, except per share data)
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. BCT Franchises are located in 38 states, Canada and
Argentina.
As of February 29, 2000, BCT directly owns one franchise which is held for
sale. At February 28, 1999 and 1998, BCT, through its wholly-owned subsidiary
BCT Enterprises, Inc. owned two franchises and directly owned one franchise.
BCT's ownership interest in one of the Company owned franchises was 70%. The
Company adopted a plan of disposition for its three Company owned franchises
effective February 28, 1999 and accordingly the results of operations of these
franchises are presented as discontinued operations. The Company also sells
paper stock and catalogs to franchisees and Company owned franchises.
Principles of Consolidation and Discontinued Operations
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 net assets of the Company
owned franchises are reflected in assets held for sale as it is the Company's
intent to sell these franchises. The results of operations of the Company owned
franchises, including the estimated losses through the dates of disposition, are
included in discontinued operations.
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, estimated future losses on
discontinued operations 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 and notes
receivable (net of the allowance for doubtful accounts), accounts payable and
notes payable approximate fair value as of February 29, 2000 and February 28,
1999.
Inventory
Inventory, consisting primarily of paper products, printing supplies and
catalogs for sale to franchisees or the franchises, is stated at the lower of
cost (first in, first out method) or market. As of February 29, 2000 and
February 28, 1999, the allowance for obsolete inventory was $74 and $226,
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-8
Page 26
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
Acquisitions of Franchises
All acquisitions of Company owned 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 Company acquired one Franchise in fiscal 1999, and acquired
and resold one franchise in fiscal 1998. (See Note 2).
Assets Held for Sale
Assets held for sale, which consist primarily of Company owned franchises
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 29, 2000 and February 28, 1999,
accumulated amortization of intangible assets amounted to $458 and $432,
respectively.
Impairment of Long-Lived Assets and Identifiable Intangibles
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. Management believes
the allowance will be adequate to absorb possible losses in existing accounts
and notes receivable that may become uncollectible. Certain franchise royalties
are recorded on a cash basis when collection is determined by management to be
uncertain. In fiscal 2000, $96 of royalties were not recorded as revenue due to
uncertainty of collection.
D-9
Page 27
<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.
Segment Reporting
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segment of an Enterprise and Related
Information". SFAS 131 supercedes SFAS 14, "Financial Reporting for Segments of
a Business Enterprise", replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
131 also requires information about products and services, geographic areas and
major customers. The adoption of SFAS 131 did not affect results of operations
or financial position but did affect the disclosure of segment information.
Earnings Per Common Share
Basic earnings per share equals net income available to common stockholders
divided by the number of weighted average common shares. Diluted earnings per
share includes potentially dilutive securities such as stock options, warrants
and convertible securities.
A reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations is illustrated below:
<TABLE>
<CAPTION>
Basic Computation:
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Income from continued operations $1,371 $2,501 $1,809
Loss from discontinued operations ( 357 ( 327) ( 244)
------ ------ ------
Net income 1,014 2,174 1,565
Preferred stock dividend ( 2) ( 7) ( 7)
------ ------ ------
Basic earnings $1,012 $2,167 $1,558
====== ====== ======
Weighted average common shares 5,257 5,323 5,230
====== ====== ======
Diluted Computation:
2000 1999 1998
------ ------ ------
Income from continued operations $1,371 $2,501 $1,809
Loss from discontinued operations ( 357 ( 327) ( 244)
------ ------ ------
Net income 1,014 2,174 1,565
Preferred stock dividend ( 2) ( 7) ( 7)
------ ------ ------
Diluted earnings $1,012 $2,167 $1,558
====== ====== ======
Weighted average common shares 5,257 5,323 5,230
Effect of stock options and warrants 301 273 310
------ ------ ------
Weighted average common shares 5,388 5,596 5,540
====== ====== ======
</TABLE>
D-10
Page 28
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
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 1999 and 1998
consolidated financial statements have been reclassified for comparative
purposes.
NOTE 2: DISCONTINUED OPERATIONS
------- -----------------------
On February 28, 1999, the Company's Board of Directors approved a decision to
discontinue the operations comprising its Company owned franchises. The Company
owned franchises include the 100% owned franchises in Delray Beach, Florida and
Merrimack, New Hampshire and the 70% owned franchise in Louisville, Kentucky.
During fiscal 2000 the Company sold the Delray Beach and Louisville franchises.
Both transactions include the Company taking promissory notes equal to the
respective sales price. Gains, if any, will be recognized over the life of the
promissory notes as payments are received. As of May 30, 2000, the Company has
entered into a non-binding letter of intent for the sale of the Merrimack, New
Hampshire Franchise. The $357 loss from discontinued operations for fiscal 2000
is net of a $217 income tax benefit generated by the loss and includes $121 of
anticipated losses to be incurred by the Merrimack, New Hampshire Franchise
through its disposition in fiscal 2001 and the anticipated loss on the sale of
$136 and additional costs of the sale of $53.
The $327 loss from discontinued operations for the year ended February 28, 1999
is net of a $130 income tax benefit generated by the loss, and included $89 of
anticipated losses to be incurred by the Merrimack, New Hampshire franchise in
fiscal 2000. The fiscal 1998 results of operations have been reclassified for
the Company owned franchises designated as discontinued operations in fiscal
1999.
Sales from these discontinued operations were $1,431, $2,643 and $2,383 for the
years ended February 29, 2000, February 28, 1999 and 1998, respectively.
The components of net assets of discontinued operations included in the
consolidated balance sheets at February 29, 2000 and February 28, 1999 are as
follows:
2000 1999
---- ----
Cash $ 10 $ 51
Accounts receivables 120 252
Inventories 27 108
Property and equipment 165 413
Other 211 511
Accounts payable and
accrued liabilities ( 265) ( 253)
------ ------
$ 268 $1,082
====== ======
D-11
Page 29
<PAGE>
NOTE 3: ACCOUNTS AND NOTES RECEIVABLE
------- -----------------------------
Accounts and notes receivable consist of the following:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
----------- -----------
<S> <C> <C>
Franchise fees and royalties
receivable $ 1,653 $ 1,233
Paper sales receivable
from franchisees 4,885 3,644
Notes receivable from sale of
franchises, interest at 7%
to 12%, due in monthly
installments through 2014 2,797 1,535
Notes receivable due from franchisees,
interest at 8% to 12%, payable
in monthly installments through 2009 3,333 3,771
Other 354 253
-------- --------
13,022 10,436
Less - allowance for doubtful accounts ( 2,454) ( 1,303)
-------- --------
10,568 9,133
Less - amounts not expected to
be collected within one year,
net of $2,299 allowance
for doubtful accounts
($1,096 in 1999) ( 7,275) (5,881)
-------- --------
$ 3,293 $ 3,252
======== ========
</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 accounts and notes receivables and the franchise equipment leases
guaranteed by the Company (see Note 11). 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-12
Page 30
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
At February 29, 2000, approximately $4,117 ($2,053 in 1999) of accounts and
notes receivable, although currently due, are classified long term, 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 29, 2000, $485 ($485 in 1999) of notes receivable, with an 8%
interest rate per annum are related to the purchase of a franchise by South
Pacific Wholesale Printers, Inc. The Chairman of the Board of the Company owns
50% of South Pacific Wholesale Printers, Inc. Accounts receivable for paper and
royalties from this franchise as of February 29, 2000, amounted to $404 ($245 in
1999). Reserves have been recorded on the receivables relating to this
franchise. Revenues from the Hawaii franchise amounted to $194 in fiscal 2000
($154 in fiscal 1999 and $167 in fiscal 1998). In order to further secure his
obligations to the Company in connection with the Hawaii Franchise, The Chairman
of the Board of the Company pledged 100,000 shares of the Company's Common Stock
as collateral for these obligations.
Provision for doubtful accounts for the years ended February 29, 2000,
February 28, 1999 and 1998, was approximately $1,725 ($1,000 which was recorded
in the fourth quarter of fiscal 2000), $350 and $109, respectively.
Interest income is recognized on accounts and notes receivable when it is
received.
NOTE 4: PROPERTY AND EQUIPMENT
------ ----------------------
Major classifications of property and equipment are as follows:
<TABLE>
<CAPTION>
Estimated
February 29, February 28, useful lives
2000 1999 (in years)
------------ ------------ ---------
<S> <C> <C> <C>
Leasehold improvements $ 136 $ 78 5 - 7
Machinery and equipment 461 358 3 - 20
Furniture, fixtures and other equipment 220 196 5 - 10
Computers 729 727 5
Other 87 83 3 - 5
-------- ------
1,633 1,442
Less - accumulated depreciation and amortization ( 1,104) ( 982)
-------- ------
$ 529 $ 460
======== ======
</TABLE>
NOTE 5: SALES AND ACQUISITIONS
------- ----------------------
On August 1, 1999, the Company sold its 70% ownership in the Louisville,
Kentucky Company owned Franchise in exchange for a $495, fifteen-year promissory
note bearing interest which escalates to 9%. No gain was recognized on the sale.
The Company has included the results of operations of the Louisville, Kentucky
Company owned Franchise prior to the sale, income of $34, as discontinued
operations in the consolidated statement of operations for fiscal 2000.
On May 14, 1999, the Company sold the Delray Beach, Florida 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 $58 for accounts
receivable. The transaction resulted in deferred revenue of approximately $423,
which will be recognized over the life of the promissory note beginning in
fiscal 2000. The Company has included the results of operations of the Delray
Beach Company owned Franchise prior to the sale, a loss of $107, as discontinued
operations in the consolidated statement of operations for fiscal 2000.
On September 28, 1998, the Company executed an asset purchase agreement
whereby it acquired certain assets of the BCT franchise in Merrimack, New
Hampshire (the "Merrimack Franchise") in exchange for cash and notes and
accounts receivable due the Company amounting to approximately $737. The Company
has included the results of operations of the Merrimack Franchise since the
acquisition, a loss of $521, including $210 of anticipated future losses to the
date of disposition, as discontinued operations in the consolidated statement of
operations for fiscal 2000 and 1999. The net assets of the Merrimack Franchise
are included in assets held for sale in the accompanying consolidated balance
sheets as it is management's intent to resell the Merrimack Franchise. Prior to
the acquisition, the Company wrote off against the allowance for doubtful
accounts, $237 of receivables due from the Merrimack Franchise. As a result, the
initial net asset value for the Merrimack Franchise was $500. As of February 29,
2000, the Company wrote down the carrying amount of this franchise to
approximately $250,000. The resulting charge to earnings of $135,000 is included
as discontinued operations in the accompanying consolidated statement of
operations.
D-13
Page 31
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
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 of the franchises in exchange for cash and notes
amounting to $535.
On March 1, 1997, the Company acquired certain assets of the Boston,
Massachusetts franchise (the "Boston 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.
On September 28, 1998, the Company purchased the assets of one of the
franchises, the Merrimack, New Hampshire franchise.
NOTE 6: NOTES PAYABLE
------- -------------
Notes payable consist of the following:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
------------- ------------
<S> <C> <C>
Note payable to prior owner of Company owned
franchise, monthly principal and interest payments
of $2, interest at 8% per annum, through August 2004 $ 83 $ 98
Notes payable relating to acquisitions, monthly
payments of principal and interest of 8% 351 448
----------- ------------
434 546
Less - current maturities (104) (113)
----------- ------------
$ 330 $ 433
=========== ============
</TABLE>
Scheduled maturities after February 29, 2000 for notes payable are as
follows:
Fiscal Amount
Year Payable
---- -------
2001 $ 104
2002 93
2003 92
2004 98
2005 47
-------
$ 434
=======
In September 1999, the Company renewed a $2 million line of credit with a
bank. The line of credit is collateralized by receivables and inventory and
bears interest at prime +.25%, interest is payable monthly. As of February 29,
2000, no advances have been made on this line.
NOTE 7: 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
D-14
Page 32
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
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 January 21, 1997 and May 1, 1999, 200 and 60 shares of Series A preferred
stock were voluntarily converted into 135 and 41 shares of common stock,
respectively. As such, as of May 1, 1999, no Series A preferred stock remained
outstanding.
NOTE 8: STOCKHOLDERS' EQUITY
------- --------------------
Warrants
--------
As of February 28, 1998, there were outstanding warrants for the purchase
of 508 shares of common stock. During fiscal 1999, 308 warrants were exercised,
200 warrants expired. Of the 308 warrants exercised, 187 were exercised in
exchange for 55 shares of common stock. The remainder were exercised for cash.
No warrants were granted during fiscal 2000 and 1999.
Stock Options
-------------
A summary of stock option activity is as follows (share amounts in 000's):
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999 Fiscal 1998
---------------------- ---------------------- ----------------------
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 1,136 $ 2.01 1,202 $ 2.76 1,318 $ 2.64
Granted 500 2.26 737 1.87 95 2.85
Exercised (129) 1.83 (85) 2.20 (163) 1.26
Cancelled (9) 1.87 (12) 3.00 (37) 1.37
Expired (201) 3.03 (706) 3.10 (11) 1.45
------- -------
Outstanding at end
of year 1,297 $ 2.07 1,136 $ 2.01 1,202 $ 2.76
======= ======= ======= ======= ====== =======
Exercisable at end
of year 937 $ 2.07 1,014 $ 2.05 992 $ 2.74
======= ======= ======= ======= ====== =======
Weighted average
fair value of
options granted
during the year $ 1.05 $ 1.45 $ 1.80
======= ======= =======
</TABLE>
D-15
Page 33
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
A summary of stock options outstanding at February 29, 2000 is as follows (share
amounts in 000's):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ---------------------------
Number Weighted Weighted Number Weighted
Range of Outstanding Average Average Exercisable Average
Exercise at Remaining Exercise at Exercise
Prices February 29, 2000 Life (in years) Price February 29, 2000 Price
------ ----------------- --------------- ----- ----------------- -----
<S> <C> <C> <C> <C> <C>
$1.25 to $1.88 687 4.3 $1.74 687 $1.74
$2.12 to $3.13 520 4.2 $2.27 160 $2.26
$3.38 to $5.00 90 1.7 $3.49 90 $3.49
----- ----
1,297 937
===== ====
</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 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net income:
As reported $ 1,014 $ 2,174 $1,565
======== ======== =========
Pro forma $ 846 $ 2,042 $1,287
======== ======== =========
Net income per share:
As reported Basic $ .19 $ .41 $.30
======== ======== =========
Diluted $ .19 $ .39 $.28
======== ======== =========
Pro forma Basic $ .16 $ .38 $.25
======== ======== =========
Diluted $ .16 $ .36 $.23
======== ======== =========
</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 42.7% to 47%, a risk free interest rate of from 6.0% to 6.5% and
weighted average expected option term of 3.8 years.
NOTE 9: LEGAL SETTLEMENT
------ ----------------
In accordance with a settlement agreement related to litigation brought
against a former Franchise Owner, the Company received $1 million in June 1999.
This amount included reimbursement of approximately $59 of accounts receivable
which were previously reserved.
D-16
Page 34
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
NOTE 10: INCOME TAXES
-------- ------------
The components of the provision for (benefit from) income taxes for the
years ended February 29, 2000, February 28, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ -------
<S> <C> <C> <C>
Current Provision:
Federal $1,250 $ 221 $ 187
State 69 58 51
------ ------ -------
Total current 1,319 279 238
Deferred provision (benefit) (482) 411 748
------ ------ -------
Income tax provision from continued operations 837 690 986
Income tax benefit from discontinued operations (217) (130) (133)
------ ------ -------
$ 620 $ 560 $ 853
====== ====== =======
</TABLE>
The Company's deferred income taxes are comprised of the following:
<TABLE>
<CAPTION>
February 29, 2000 February 28, 1999 February 29, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Deferred income taxes - current:
Bad debt reserve $ 60 $ 193 $ 140
Net operating loss carryovers --- --- 833
Capitalization of inventory cost 172 139 293
Accrued losses on discontinued
operations 121 --- ---
Inventory reserves 29 88 41
Other 100 56 56
------ ------ -------
482 476 1,363
Valuation allowance --- --- (444)
------ ------ -------
Deferred income taxes - current $ 482 $ 476 $ 919
====== ====== =======
Deferred income taxes - non-current:
Bad debt reserve $ 897 $ 193 $ 329
Net operating loss carryovers 203 203 203
Other --- 123 100
------ ------ -------
1,100 519 632
Valuation allowance (203) (203) (306)
Deferred tax liabilities - non-current:
Fixed assets and assets held for sale (175) (70) (112)
------ ------ -------
Deferred income taxes - non-current $ 722 $ 246 $ 214
------ ====== =======
Deferred income taxes - total $1,204 $ 722 $ 1,133
====== ====== =======
</TABLE>
D-17
Page 35
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
Net operating loss carryforwards for Federal income tax purposes total
approximately $539 at February 29, 2000, all of which will expire in 2005 and
include certain limitations.
During fiscal 1999, the Company reduced the valuation allowance by $547 due
to profitable operations. Although realization is not assured, management
believes it is more likely than not that the net deferred tax asset will be
realized. The amount of deferred tax asset considered realizable, could be
reduced in the near term if estimates of future taxable income are reduced.
The difference between the statutory and effective tax rates are as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
----- ----- -----
Amount Rate Amount Rate Amount Rate
----- ---- ------- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory rate $ 556 34% $ 930 34% $ 841 34%
State income tax, net
federal benefit 46 3 38 2 34 1
Alternative minimum tax --- --- --- --- 54 2
Decrease in Federal and state
valuation allowance --- --- (547) (20) (56) (2)
Other 18 1 139 4 (20) ---
----- ----- ----- ----- ----- -----
$ 620 38% $ 560 20% $ 853 (35%)
===== ===== ===== ===== ===== =====
</TABLE>
NOTE 11: COMMITMENTS AND CONTINGENCIES
-------- -----------------------------
The Company's corporate offices, Company owned franchise locations, Wisconsin
warehouse facility and office equipment are leased under noncancellable lease
agreements. The leases initially expire at various dates through 2005. There
are provisions in the leases for rent increases based on cost of living
increases under certain conditions.
The following are the approximate minimum annual noncancellable rentals to
be paid under the provisions of the leases, including the Company owned
franchise classified as assets held for sale:
Fiscal Year Lease Commitments
----------- -----------------
2001 $311
2002 261
2003 195
2004 117
2005 107
----
$991
====
D-18
Page 36
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
Rental expense amounted to the following approximate amounts for the
corresponding periods:
For the year ended Amount
------------------ ------
February 29, 2000 $ 178
February 28, 1999 $ 206
February 28, 1998 $ 234
At February 29, 2000, 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 $575.
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 May
2000, the compensation committee of the Board of Directors approved a 5%
increase in the minimum salary to $315 for the duration of the agreement.
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 May 1999, the Company executed an employment agreement with the
President and Chief Executive Officer of the Company. The initial term of the
employment agreement is three years, but shall be automatically extended for
successive one-year terms unless either party gives notice of its intent not to
renew. The agreement calls for minimum annual salary amounts during the initial
three year term of $250, $262 and $276. In addition, the agreement provides for
incentive compensation based upon pretax income of the Company, which shall not
exceed $125 in fiscal 2000 and shall not exceed the base salary, thereafter.
Additionally, the agreement granted options to purchase 400 shares of Common
Stock of the Company at $2.25, of which 100 vested immediately and the remainder
will vest 15% annually over the next 5 years. Further, the agreement provides
for the granting each year of options to purchase shares of the Company's Common
Stock equal to the amount of the incentive compensation for that year divided by
the market price of the Company's stock on the day preceding the payment of the
incentive compensation. These options shall vest 25% immediately and 15% each
year for the five years, thereafter.
NOTE 12: SEGMENT INFORMATION
------- -------------------
The Company's four reportable segments are (1) Franchisor operations, (2)
Pelican Paper Products, (3) Company owned Franchises and (4) other operations.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies." The Company evaluates the
performance of its segments based on earnings before income taxes.
D-19
Page 37
<PAGE>
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted)
The Company is organized primarily on the basis of business activity units.
Information relating to Company Franchises is included in Note 2. The table
below presents information on continuing operations for the years ended:
<TABLE>
<CAPTION>
2000 Franchisor Pelican Paper Other Total
---------- ------------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 5,421 $13,881 $ 1,288 $20,590
Cost of sales --- 11,574 --- 11,574
Operating expenses 5,956 852 --- 6,808
------- ------- ------- -------
Income (loss) before income taxes $ ( 535) $ 1,455 $ 1,288 $ 2,208
======= ======= ======= =======
Depreciation and amortization $ 139 $ 50 $ --- $ 189
======= ======= ======= =======
Income tax provision (benefit) $ ( 203) $ 551 $ 489 $ 837
======= ======= ======= =======
Capital expenditures $ 119 $ 143 $ --- $ 263
======= ======= ======= =======
1999
Revenues $ 5,443 $12,817 $ 346 $18,606
Cost of sales --- 10,939 --- 10,939
Operating expenses 3,993 483 --- 4,476
------- ------- ------- -------
Income before income taxes $ 1,450 $ 1,395 $ 346 $ 3,191
======= ======= ======= =======
Depreciation and amortization $ 140 $ 46 $ --- $ 186
======= ======= ======= =======
Income tax provision $ 209 $ 406 $ 75 $ 690
======= ======= ======= =======
Capital expenditures $ 65 $ 17 $ --- $ 82
======= ======= ======= =======
1998
Revenues $ 4,965 $11,734 $ 323 $17,022
Cost of sales --- 9,857 --- 9,857
Operating expenses 3,933 437 --- 4,370
------- ------- ------- -------
Income before income taxes $ 1,032 $ 1,440 $ 323 $ 2,795
======= ======= ======= =======
Depreciation and amortization $ 154 $ 45 $ --- $ 199
======= ======= ======= =======
Income taxes $ 210 $ 662 $ 114 $ 986
======= ======= ======= =======
Capital expenditures $ 77 $ 11 $ --- $ 88
======= ======= ======= =======
</TABLE>
The following is sales information by geographic area for the years ended
February 28:
2000 1999 1998
---- ---- ----
United States $19,724 $17,774 $16,098
Canada 866 832 924
------- ------- -------
$20,590 $18,606 $17,022
======= ======= =======
All long-lived assets of the Company are domiciled in the United States.
D-20
Page 38
<PAGE>
BCT INTERNATIONAL, INC.
-----------------------
SCHEDULE II
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 Deductions year
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
For the year ended February 29, 2000
Allowance for doubtful accounts $1,303 $1,725 ( 574) $2,454
====== ====== ====== ======
Deferred tax assets valuation allowance $ 203 $ --- $ --- $ 203
====== ====== ====== ======
For the year ended February 28, 1999
Allowance for doubtful accounts $1,204 $ 350 $ (251) $1,303
====== ====== ====== ======
Deferred tax assets valuation allowance $ 750 $ --- $( 547) $ 203
====== ====== ====== ======
For the year ended February 28, 1998
Allowance for doubtful accounts $1,148 $ 109 $( 53) $1,204
====== ====== ====== ======
Deferred tax assets valuation allowance $ 806 $ --- $( 56) $ 750
====== ====== ====== ======
</TABLE>
Allowance for doubtful accounts at February 29, 2000 of $2,454 is comprised of
$155 related to current receivables and $2,299 to long-term receivables.
D-21
Page 39
<PAGE>
SCHEDULE X
BCT INTERNATIONAL, INC.
-----------------------
SUPPLEMENTARY INCOME STATEMENT INFORMATION
------------------------------------------
(000's omitted)
Item
-----
<TABLE>
<CAPTION> February 29, 2000 February 28, 1999 February 28, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Advertising Costs $ 39 $ 22 $ 12
===== ====== =====
Amortization of intangible assets $ 26 $ 26 $ 26
===== ====== =====
</TABLE>
D-22
Page 40
