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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended August 31, 2000
Commission File No. 0-10823
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BCT INTERNATIONAL, INC.
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(Exact name of Registrant as specified in its Charter)
Delaware 22-2358849
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(State of Incorporation) (I.R.S. Employer Identification Number)
3000 NE 30th Place, 5th Floor, Fort Lauderdale, FL 33306
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 563-1224
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ____.
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Number of shares of common stock outstanding as of
October 9, 2000: 5,822,208
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BCT INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS-
August 31, 2000 and February 29, 2000............................... 2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -
for the three months ended August 31, 2000 and August 31, 1999 and
the six months ended August 31, 2000 and August 31, 1999............ 3
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY - for the six months ended
August 31, 2000..................................................... 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -
for the six months ended August 31, 2000 and August 31, 1999........ 5
Notes to Condensed Consolidated Financial Statements................ 6-7
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 8-9
PART II. OTHER INFORMATION AND SIGNATURES
Signatures.......................................................... 10
</TABLE>
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PART I. FINANCIAL STATEMENTS
BCT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000's omitted)
<TABLE>
<CAPTION>
ASSETS August 31, 2000 February 29, 2000
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,316 $ 1,906
Accounts and notes receivable, net 3,100 3,293
Inventory, net 2,648 2,359
Assets held for sale, net 167 268
Prepaid expenses and other current assets 184 140
Deferred income taxes 408 482
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Total current assets 7,823 8,448
Accounts and notes receivable, net 7,635 7,275
Property and equipment at cost, net 571 529
Deferred income taxes 819 722
Deposits and other assets 24 89
Trademark and other intangible assets, net 245 258
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Total assets $ 17,117 $ 17,321
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Accounts payable $ 950 $ 1,111
Notes payable 104 104
Accrued liabilities 604 1,349
Deferred revenue 218 218
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Total current liabilities 1,876 2,782
Deferred revenue 372 453
Notes payable 271 330
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Total liabilities 2,519 3,565
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Stockholders' equity:
Common stock, $.04 par value, 25,000 shares authorized,
5,822 shares issued 233 233
Paid in capital 12,597 12,597
Retained earnings 3,176 2,334
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16,006 15,164
Less: Treasury stock, at cost, 591 shares ( 1,408) ( 1,408)
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Total stockholders' equity 14,598 13,756
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Total liabilities and stockholders' equity $ 17,117 $ 17,321
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</TABLE>
See notes to condensed consolidated financial statements.
2
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BCT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues:
Royalties and franchise fees $1,286 $1,317 $2,757 $ 2,774
Paper and printing sales 3,314 3,591 6,911 7,136
Sales of Franchises 9 15 24 15
Interest and other 147 75 269 139
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4,756 4,998 9,961 10,064
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Expenses:
Cost of paper and printing sales 2,798 2,923 5,877 5,883
Selling, general and administrative 1,287 1,998 2,553 3,025
Depreciation and amortization 54 45 101 90
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4,139 4,966 8,531 8,998
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Income from continued operations before
legal settlement and income taxes 617 32 1,430 1,066
Income from legal settlement --- 941 --- 941
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Income from continued operations
before income taxes 617 973 1,430 2,007
Provision for income taxes 240 340 557 702
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Income from continued operations 377 633 873 1,305
Discontinued operations:
Loss from company owned franchises
operated under a plan of disposition net
of tax benefit (31) (10) (31) (38)
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Net income $ 346 $ 623 $ 842 $ 1,267
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Earnings per share:
Income from continued operations $ .07 $ .12 $ .17 $ .25
Loss from discontinued operations (.01) --- (.01) (.01)
------ ------ ------ -------
Basic $ .07 $ .12 $ .16 $ .24
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Income from continued operations $ .07 $ .11 $ .17 $ .25
Loss from discontinued operations (.01) ---. (.01) (.01)
------ ------ ------ -------
Diluted $ .07 $ .11 $ .16 $ .24
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</TABLE>
See notes to condensed consolidated financial statements.
3
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BCT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED AUGUST 31, 2000
(UNAUDITED)
000's omitted
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<TABLE>
<CAPTION>
Common Stock Less:
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Number of Par Paid In Retained Treasury
Shares Value Capital Earnings Stock Total
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<S> <C> <C> <C> <C> <C> <C>
Balance February 29, 2000 5,822 $ 233 $12,597 $2,334 $ (1,408) $13,756
Net income --- --- --- 842 --- 842
----- ----- ------- ------ -------- -------
Balance August 31, 2000 5,822 $ 233 $12,597 $3,176 $ (1,408) $14,598
===== ===== ======= ====== ======== =======
</TABLE>
See notes to condensed consolidated financial statements.
4
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BCT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000's omitted)
<TABLE>
<CAPTION>
Six months ended
August 31,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 842 $ 1,267
Plus loss from discontinued operations 31 38
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Income from continued operations 873 1,305
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Depreciation and amortization 101 90
Provision for doubtful accounts 50 687
Other adjustments 11 8
Changes in operating assets and liabilities:
Accounts and notes receivable (217) (1,591)
Inventory (304) (231)
Assets held for sale 101 658
Prepaid expenses and other assets 21 (656)
Deferred income taxes (23) 84
Accounts payable and accrued liabilities (906) 122
Deferred revenue (81) 402
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Net cash (used) provided by continued operations (374) 878
Net cash used by discontinued operations (25) (58)
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Net cash (used) provided by operating activities (399) 820
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Cash flows from investing activities:
Capital expenditures (132) (50)
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Net cash (used in) investing activities (132) (50)
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Cash flows from financing activities:
Principal payments on notes payable (59) (55)
Exercise of warrants/options for common stock --- 31
Treasury stock purchases --- (130)
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Net cash (used in) financing activities (59) (154)
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Net (decrease) increase in cash and cash equivalents (590) 616
Cash and cash equivalents at beginning of period 1,906 1,143
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Cash and cash equivalents at end of period $1,316 $ 1,759
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</TABLE>
See notes to condensed consolidated financial statements.
5
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BCT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(000's omitted)
August 31, 2000
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1. In the opinion of management, the foregoing unaudited condensed
consolidated financial statements contain all normal recurring adjustments
necessary to present fairly the financial position of the Company as of
August 31, 2000.
2. The results for the three and six month periods August 31, 2000 and 1999,
are not necessarily indicative of results that may be expected for the
fiscal year.
3. For the three and six months ended August 31, 2000 and 1999, basic earnings
per common share are calculated by dividing net earnings applicable to
common stock by the weighted average number of shares of common stock
outstanding. Diluted earnings per common share are calculated by dividing
net earnings applicable to common stock by the weighted average number of
shares of common stock outstanding and common stock equivalents which
consist of stock options and warrants and convertible preferred stock.
4. The Company utilizes an asset and liability approach in accounting for
income taxes that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax return. In
estimating future tax consequences, consideration is given to all expected
future events other than enactments of changes in the tax law or rates.
5. On February 28, 1999, the Company's Board of Directors approved a strategy
decision to discontinue the operations comprising its Company owned
franchises. The Company owned franchises included the 100% owned franchises
in Delray Beach, Florida and Merrimack, New Hampshire and the 70% owned
franchise in Louisville, Kentucky. The Company sold the Delray Beach,
Florida and Louisville, Kentucky franchises in fiscal 2000.
Net assets of the Merrimack, New Hampshire franchise of $150 are included
in assets held for sale in the August 31, 2000 condensed consolidated
balance sheet. Sales from Company owned franchise discontinued operations
were $144 and $353 for the three months ended August 31, 2000 and 1999,
respectively, and were $301 and $1,154 for the six months ended August 31,
2000 and 1999, respectively. In a transaction effective September 30, 2000,
the Company tranferred the assets of the Merrimack, New Hampshire Franchise
in exchange for a promissory note in the amount of $150. The Company
recorded an additional loss on discontinued operations of $50 for the
period ended August 31, 2000 in anticipation of this transaction.
6
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BCT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Continued ...
(UNAUDITED) (000's omitted)
August 31, 2000
6. The Company has four reporting segments (1) Franchisor Operations, (2)
Pelican Paper Products, (3) Company Owned Franchises and (4) Other
Operations. The Company evaluates the performance of its segments based on
earnings before income taxes. The Company is organized on the basis of
business activity units. Information relating to Company owned franchises is
included in Note 5. The table below presents information about reported
segments for the three and six months ended August 31:
<TABLE>
<CAPTION>
For the Three Months Ended August 31, Pelican
Franchisor Paper Other Total
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<S> <C> <C> <C> <C>
2000
Revenues $1,295 $3,314 $ 147 $ 4,756
Cost of sales --- 2,798 --- 2,798
Operating expenses 1,023 318 --- 1,341
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Income before income taxes $ 272 $ 198 $ 147 $ 617
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Depreciation and amortization $ 33 $ 21 $ --- $ 54
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Income tax provision $ 105 $ 77 $ 58 $ 240
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Capital expenditures $ 8 $ 80 $ --- $ 88
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1999
Revenues $1,332 $3,591 $1,016 $ 5,939
Cost of sales --- 2,923 --- 2,923
Operating expenses 1,799 244 --- 2,043
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Income (loss) before income taxes $ (467) $ 424 $1,016 $ 973
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Depreciation and amortization $ 34 $ 11 $ --- $ 45
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Income tax (benefit) provision $ (163) $ 148 $ 355 $ 340
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Capital expenditures $ 40 $ 12 $ --- $ 52
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For the Six Months Ended August 31, Pelican
Franchisor Paper Other Total
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2000
Revenues $2,781 $6,911 $ 269 $ 9,961
Cost of sales --- 5,877 --- 5,877
Operating expenses 2,199 455 --- 2,654
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Income before income taxes $ 582 $ 579 $ 269 $ 1,430
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Depreciation and amortization $ 61 $ 40 $ --- $ 101
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Income tax provision $ 226 $ 226 $ 105 $ 557
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Capital expenditures $ 20 $ 112 $ --- $ 132
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1999
Revenues $2,789 $7,136 $1,080 $11,005
Cost of sales --- 5,883 --- 5,883
Operating expenses 2,724 391 --- 3,115
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Income before income taxes $ 65 $ 862 $1,080 $ 2,007
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Depreciation and amortization $ 67 $ 23 $ --- $ 90
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Income tax provision $ 23 $ 302 $ 377 $ 702
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Capital expenditures $ 50 $ --- $ --- $ 50
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</TABLE>
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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August 31, 2000
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Results of Operations
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Total revenues decreased $242,000, or 4.8%, for the three months ended August
31, 2000 as compared to the corresponding period in the prior fiscal year. The
decrease in revenue is attributable primarily to decreases in (i) catalog sales
at the Company's printing facility ($186,000, or 73%), (ii) royalty revenue
($31,000, or 2.4%),(iii) sales of paper and supplies ($91,000 or 2.7%). These
decreases were offset by increases in (iv) interest income ($15,000 or 18%) and
(v) monthly fees charged to franchises for orderprinting.com ($50,000). Catalog
sales decreased in fiscal 2001 due to lower demand. During the first and second
quarter of fiscal 2000, there was a large backlog of orders for catalogs due to
the release of a new catalog design in the fourth quarter of fiscal 1999. This
backlog was eliminated in October 1999. Royalties decreased primarily due to the
Company's practice begun in July 1999 of providing a reserve for royalties whose
collection the Company considers to be doubtful. During the three months ended
August 31, 2000 additions to this reserve amounted to $36,000 as compared to
$24,000 in the corresponding period in the prior fiscal year. Paper and supplies
sales decreased primarily due to holiday greeting card stock sales which
occurred in August last year, but were delayed until September this year.
Interest income increased due to additional promissory notes signed with
franchises during the first quarter of fiscal 2001. Fees charged to franchises
for the use of orderprinting.com, the Company's internet based ordering system,
were increased in January 2000, which resulted in higher revenues this fiscal
year.
Total revenues decreased $103,000, or 1%, for the six months ended August 31,
2000, as compared to the corresponding period in the prior fiscal year. The
decrease in revenue is attributable primarily to decreases in (i) catalog sales
at the Company's printing facility ($307,000, or 67%), and (ii) royalty revenue
($17,000, or .6%). These decreases were offset by increases in (iii) sales of
paper and supplies ($82,000 or 1.2%), (iv) interest income ($35,000 or 22.9%)
and (v) monthly fees charged to franchises for orderprinting.com ($93,000).
Cost of paper and printing sales as a percentage of paper and printing sales was
84% and 85%, respectively, for the three and six months ended August 31, 2000,
as compared to 81% and 82%, respectively, for the corresponding periods in
fiscal 2000. Although the percentage generally remains stable, it does fluctuate
due to periodic changes in the revenue mix. In addition, the percentage has been
impacted in fiscal 2001 by higher freight charges due to fuel surcharges and by
increases in the prices charged by paper mills for certain paper stocks.
Selling and administrative expenses represented 27% and 26% of gross revenues
for the three and six months ended August 31, 2000 as compared to 40% and 30%
for the corresponding periods in fiscal 2000. The selling and administrative
expense percentage was higher in the prior fiscal year due to an additional
$650,000 provision for bad debt, as well as severance and relocation expenses
incurred related to changes at the President and CEO position and two other key
management positions.
Liquidity and Capital Resources
-------------------------------
Cash resources decreased $590,000 during the six months ended August 31, 2000.
The Company used cash to make principal payments on debt of $59,000, to make
capital expenditures of $132,000 and to reduce accounts payable and accrued
liabilities $906,000.
The Company plans to continue to improve its working capital and cash positions
during fiscal 2001 by continuing its efforts to (i) increase cash collections;
and (ii) increase marketing to new customer channels through orderprinting.com,
its proprietary internet based ordering system while containing capital
expenditures and maintaining inventory levels.
The Company believes current cash reserves and internally generated funds will
be sufficient to satisfy the Company's working capital and capital expenditure
requirements for the foreseeable future; however, there can be no assurance that
external financing will not be needed. The Company has available a $2 million
line of credit with a bank. No advances have been made on the line.
<PAGE>
Certain information contained in this report, particularly information regarding
future economic performance and finances, plans and objectives of management,
constitutes "forward-looking statements" within the meaning of the federal
securities laws. In some cases, information regarding certain important factors
that could cause actual results to differ materially from any forward-looking
statement appear together with such statement. In addition, the following
factors, in addition to other possible factors not listed, could affect the
Company's actual results and cause such results to differ materially from those
expressed in forward-looking statements. These factors include competition
within the wholesale printing industry, which is intense; changes in general
economic conditions; technological changes; changes in customer tastes; legal
claims; the continued ability of the Company and its franchisees to obtain
suitable locations and financing for new Franchises as well as expansion of
existing Franchises; governmental initiatives, in particular those relating to
franchise regulation and taxation; and risk factors detailed from time to time
in the Company's filings with the Securities and Exchange Commission.
Quantitative and Qualitative Disclosures About Market Risk
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The Company had no outstanding balances subject to market risk during the period
covered by this report. The Company has a $2 million line of credit with a bank
which bears interest at prime + .25%. No advances have been made on the line.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BCT INTERNATIONAL, INC.
(Registrant)
Date: October 13, 2000 Peter T. Gaughn
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Peter T. Gaughn
President & Chief Executive Officer
Date: October 13, 2000 Michael R. Hull
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Michael R. Hull
Vice President & Chief Financial Officer
10
