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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year
ended February 28, 2002 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 incorporation of organization) (I.R.S. Employer Identification No.)
3000 NE 30th Place, Fifth Floor, Fort Lauderdale, Florida 33306
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 563-1224
--------------
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 22, 2002 was approximately $1,973,000.
The number of shares outstanding of Registrant's Common Stock, par
value $.04 per share, at May 22, 2002 was 5,121,471.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
----
This document consists of 45 pages.
The Index to exhibits begins on page 20.
Item 1. Business
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(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.
Since its founding in 1975, the system has grown to include 82 "Business Cards
Tomorrow Franchises" (the "Franchises") specializing in thermography products,
labels, rubber stamps and business announcements for resale by retail printing
providers in 36 states and Canada.
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. In
October 2000, the Company sold the Merrimack, New Hampshire franchise in
exchange for a $150,000 promissory note. In January 2001, as a result of the
purchaser's default on its obligations to the Company, the Company took back the
franchise, ceased operations of the franchise and liquidated the assets.
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 three operating segments of a single
industry. The segments include 1) operations as a franchisor of printing
franchises, 2) sale of paper products and supplies to the BCT Franchises, and 3)
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 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.
BCT supplies business stationery and rubber stamp and label catalogs to
its Franchises and also sells them paper products featured in the catalogs
through PPP. The catalogs are printed at the Company's catalog printing facility
which is located in the Company's warehouse and paper conversion facility in
Menasha, Wisconsin.
Page 1
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 also
performs converting and handling services for third parties. 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) 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) software licensing fees related to
Orderprinting.com.
As of May 22, 2002, 82 BCT Franchises are in operation in 36 states and
Canada (nine Franchises). In August 2001, the Company reached agreement with the
Franchise located in Buenos Aires, Argentina. Under the agreement, both parties
released the other party from any further obligation under the then existing
Franchise Agreement. The current number of Franchises compares with 84 and 87
Franchises in operation on May 25, 2001 and May 19, 2000, respectively. The
decrease in the number of franchises in fiscal 2002 is the result of the closing
of one Franchise location and the agreement with the Buenos Aires Franchise
described above. Total BCT system sales reached approximately $101,000,000,
$108,000,000 and $107,000,000 for the years ended December 31, 2001, 2000 and
1999, an average of $1,232,000, $1,238,000 and $1,230,000, 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. Certain Franchises were
granted a sliding scale of decreasing royalty rates based upon meeting specified
quarterly sales plateaus in connection with the renewal of their franchise
agreement. No franchise agreements are up for renewal in fiscal 2003. For fiscal
years ended 2002, 2001, and 2000, continuing franchise royalties comprised
approximately 28%, 27% and 21% of total revenue, respectively. PPP sales to the
franchisees for fiscal years ended 2002, 2001, and 2000 were approximately 67%,
69%, and 71%, 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. No Franchises come up
for renewal in fiscal 2003, 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 in an attempt to
reverse the decline in sales resulting from the overall decline in the quick
print industry, the core market of the Company's franchises.
Page 2
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'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. Additional investment will be required to enhance
the system and to provide for the increasing volume of orders being processed in
this manner.
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
---------
As of May 22, 2002, the Company has 42 employees, all of whom are
located at either (i) the Company's corporate headquarters in Fort Lauderdale,
Florida, or (ii) the Company's paper distribution warehouse and paper converting
facility in Menasha, Wisconsin.
Financial Information Relating to Foreign and Domestic Operations
-----------------------------------------------------------------
February 28, February 28, February 29,
2002 2001 2000
------------- ------------- -------------
Revenue:
Foreign operations $ 576,000 $ 811,000 $ 866,000
Domestic operations $ 17,431,000 $ 18,618,000 $ 18,783,000
Operating Profit:
Foreign operations $ 26,000 $ 45,000 $ 134,000
Domestic operations (1) $ 787,000 $ 1,092,000 $ 2,074,000
Identifiable Assets:
Foreign operations $ 299,000 $ 309,000 $ 366,000
Domestic operations $ 16,779,000 $ 15,881,000 $ 16,955,000
(1) Amounts do not include losses from discontinued operations
amounting to $31,000 and $357,000 for the years ended February 28, 2001
and February 29, 2000, respectively.
Page 3
Item 2. Properties
- ------ ----------
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 $11,000.
The Company's primary paper warehouse is located at 772 Specialists
Avenue, Menasha, Wisconsin utilizing approximately 35,000 square feet. This
facility also accommodates the Company's printing and paper converting
operations and is leased at a monthly rental of approximately $10,000 through
January 2005.
Management believes that existing warehouse facilities are adequate for
the foreseeable future. Management is currently evaluating lease options for its
corporate headquarters where the existing lease expires in October 2002.
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
28, 2002.
Item 5. Market for Registrant's Common Stock and Related Security Holder
- ------ ----------------------------------------------------------------
Matters
-------
The Company's Common Stock was traded on the NASDAQ National Market
under the symbol "BCTI" until September 9, 2001 when it was de-listed for
failure to meet minimum requirements for the market value of its public float.
Since September 9, 2001 the Company's Common Stock has traded on the OTC
Bulletin Board.
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 through September 9, 2001, and on the OTC Bulletin Board thereafter.
Fiscal Quarters High Low
--------------- ---- ---
2001 First Quarter $2.19 $1.25
Second Quarter $1.72 $1.31
Third Quarter $1.94 $1.34
Fourth Quarter $1.56 $1.19
2002 First Quarter $1.62 $0.93
Second Quarter $1.30 $0.71
Third Quarter $1.09 $0.50
Fourth Quarter $1.11 $1.02
2003 First Quarter (through May 22, 2002) $1.11 $0.46
On May 22, 2002, the closing price per share of Common Stock, as
reported on the OTC Bulletin Board was $0.85.
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 22, 2002 was 800.
During the fiscal years ended February 28, 2002, February 28, 2001, and
February 29, 2000 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
Item 6. Selected Financial Data (000's omitted, except per share data)
- ------- -----------------------
OPERATIONS
for the fiscal year ended: Feb. 28, 2002 Feb. 28, 2001 Feb. 29, 2000 Feb. 28, 1999 Feb. 28, 1998
------------- ------------- ------------- ------------- -------------
REVENUES:
Royalties and franchise fees $ 5,117 $ 5,267 $ 5,394 $ 5,356 $ 4,921
Paper and printing sales 12,068 13,424 13,881 12,817 11,734
Sales of franchises 99 46 27 87 44
Interest and other income 723 692 347 346 323
----------- ---------- --------- ---------- ----------
18,007 19,429 19,649 18,606 17,022
----------- ---------- --------- ---------- ----------
EXPENSES:
Cost of paper and printing sales 10,592 11,605 11,574 10,939 9,857
Selling, general and administrative 6,376 6,455 6,619 4,290 4,171
Depreciation and amortization 226 232 189 186 199
----------- ---------- --------- ---------- ----------
17,194 18,292 18,382 15,415 14,227
----------- ---------- --------- ---------- ----------
Income from continued operations before
legal settlement and income taxes 813 1,137 1,267 3,191 2,795
Legal settlement --- --- 941 --- ---
----------- ---------- --------- ---------- ----------
Income from continued operations
before income taxes 813 1,137 2,208 3,191 2,795
Income tax provision 321 442 837 690 986
----------- ---------- --------- ---------- ----------
Income from continued operations 492 695 1,371 2,501 1,809
Discontinued operations (2):
Loss from Company owned Franchises
operated under a plan of disposition, net
of income tax benefit --- (31) (357) (327) (244)
----------- ---------- --------- ---------- ----------
Net income $ 492 $ 664 $ 1,014 $ 2,174 $ 1,565
=========== ========== ========= ========== ==========
Earnings (loss) per common share:
Income from continued operations $ .10 $ .13 $ .26 $ .47 $ .35
Loss from discontinued operations --- (.01) (.07) (.06) (.05)
----------- ---------- --------- ---------- ----------
Basic $ .10 $ .13 $ .19 $ .41 $ .30
=========== ========== ========= ========== ==========
Income from continued operations $ .10 $ .13 $ .25 $ .45 $ .32
Loss from discontinued operations --- (.01) (.06) (.06) (.04)
----------- ---------- --------- ---------- ----------
Diluted $ .10 $ .13 $ .19 $ .39 $ .28
=========== ========== ========= ========== ==========
Total assets $ 17,078 $ 16,190 $ 17,321 $ 15,235 $ 14,157
Long-term debt $ --- $ 236 $ 330 $ 433 $ 539
Preferred stock $ --- $ --- $ --- $ 60 $ 60
Working capital $ 8,285 $ 6,921 $ 5,666 $ 6,424 $ 5,145
Stockholders' equity (1) $ 14,756 $ 14,284 $ 13,756 $ 12,892 $ 11,073
(1) During the five fiscal years ended February 28, 2002, 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
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Critical Accounting Policies
- ----------------------------
Our critical accounting policies are those which we believe require the
most subjective or complex judgements, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain. A
discussion of our critical accounting policies, the underlying judgments and
uncertainties affecting their application and the likelihood that materially
different amounts would be reported under different conditions or using
different assumptions, is as follows:
Royalty Revenue
Royalty revenue is recorded based upon reports received from
Franchises. Each month, an accrual is made for each Franchise for unreported
sales. This accrual is calculated by taking the number of unreported weeks for
each Franchise multiplied by the average of the previous six reported weeks'
sales for that Franchise. The risk exists that actual sales for the unreported
weeks may materially differ from the average used to calculate the accrual. For
the fiscal years 2002, 2001 and 2000 the end of year accruals for unreported
royalties approximated $286,000, $398,000 and $334,000, respectively.
In addition, the Company evaluates the collectibility of royalties.
When the Company determines, through payment history, knowledge of weak
financial condition or other factors, that collectibility of royalties from a
particular Franchise is doubtful, the Company ceases accruing royalties for the
franchise until the Franchise is transitioned to new ownership or until payments
become current. At the end of fiscal 2002, 2001 and 2000 the Company was not
accruing royalties for two franchises. The Company has an active program to
assist in remarketing franchises that are not meeting the expectations of the
owner(s) or the Company.
Certain franchises are eligible for a rebate of royalties paid based
upon meeting specific contractually established sales levels and other financial
performance requirements. The Company records an accrual each month for
estimated royalty rebates. There is a risk that actual results may vary from the
amounts accrued due to variances in sales levels and or failure by the Franchise
to meet financial performance requirements.
Allowance for Doubtful Accounts
The Company records an allowance for doubtful accounts when it is
determined that the amount a Franchise owes the Company approaches the estimated
value of the Franchise. In addition, provision is made when, in management's
judgment, there is significant risk that a Franchise will not be able to meet
its obligations as they become due. There is a risk that the value, estimated by
the Company, may vary materially from the actual value of the Franchise or that
factors beyond the control of the Company may result in a Franchise ceasing
operations unexpectedly, thus significantly decreasing the value of the
Franchise.
Line of Credit Guarantee
In August 2002, the board of directors of the Company approved a
guaranty of a $2 million bank line of credit for Phoenix Group of Florida, Inc.,
(Phoenix) a company owned by the Chairman, Chief Executive Officer and President
(the Chairman) of the Company. This guarantee has been treated as a commitment
and as such the possible liability of the Company is not reflected in the
balance sheet of the Company. Phoenix is a Company formed to acquire shares of
the Company's common stock in anticipation of a going private transaction via a
merger between the Company and Phoenix. As such, the primary asset of Phoenix
consists of the common stock of the Company. The Company periodically evaluates
the ability of Phoenix to meet its obligations under the line of credit
agreement.
Fiscal 2002 Compared to Fiscal 2001
- -----------------------------------
Total revenues for fiscal 2002 decreased $1,422,000, or 7%. Royalties
decreased $150,000 or 3%. Paper and printing sales decreased $1,356,000 or 10%.
These decreases were partially offset by an increase in interest and other
income of $31,000 or 5% and an increase in revenue from sales of franchises of
$53,000 or 115%.
Royalties decreased due to lower network sales which resulted from
the loss of a national account in Canada at the end of fiscal 2001 and the
failure of 3 franchises in the 3/rd/ and 4/th/ quarters of fiscal 2001. Paper
and printing sales decreased in fiscal 2002 due to the decrease in network sales
and due to strict enforcement of payment terms.
Page 6
The Company recognized deferred revenue from the sale of a franchise
in connection with the payoff of the related note receivable in November 2001.
In addition, the Company reached agreement with the franchise in Buenos Aires,
Argentina releasing each party of any further contractual obligations, which
resulted in the recognition of revenue which was previously deferred due to the
uncertainty of related support costs associated with the revenue. These factors
resulted in higher revenue from sales of franchises in fiscal 2002.
Interest and other income increased due to an increase in fees
charged to Franchises for use of Orderprinting.com. Franchises pay an annual
license fee each calendar year. In 2001, the annual fee was $4,200 compared to
$6,000 beginning in January 2002. In addition, interest income increased $27,000
or 7%.
Cost of paper and printing sales as a percentage of paper and
printing sales was 88%, 86% and 83%, respectively, for fiscal 2002, 2001 and
2000. Fluctuations in this percentage result primarily from changes in the sales
mix. In addition, the Company recorded a reserve for obsolete inventory of
$175,000 in fiscal 2002 ($30,000 and $76,000, respectively, in fiscal 2001 and
2000) relating to label catalog raw material and finished product and
inventories of label stock, all made obsolete by the introduction of a new
outsource label program. Selling, general and administrative expenses
represented 35%, 33% and 34% of total revenue, respectively for fiscal 2002,
2001 and 2000. The increase in the fiscal 2002 percentage is primarily the
result of the decrease in total revenues in fiscal 2002. During fiscal 2002,
expenses for research and development decreased $403,000 or 60% as the Company
migrated from the use of outside programmers to an in-house programmer. In
addition, bad debt expense decreased $152,000 or 10% and travel expense
decreased by $81,000 or 45%. These decreases were offset by increases in (i)
salaries and employee benefits of $307,000 or 11% which resulted from severance
paid to the prior President and CEO and three other employees amounting to
approximately $407,000 and (ii) an increase in legal and professional fees of
$313,000 or 133%, primarily the result of the proposed merger of the Company
with Phoenix Group of Florida, Inc. See Item 13. "Certain Relationships and
Related Transactions."
Fiscal 2001 Compared to Fiscal 2000
- -----------------------------------
Total revenue for fiscal 2001 decreased $220,000 or 1%. Royalties
decreased $127,000 or 2%. Paper and printing sales decreased $457,000 or 3%.
These decreases were partially offset by an increase in interest and other
income of $345,000 or 99%. Royalty revenues decreased due to the Company ceasing
to recognize royalty revenue for three Franchises which closed due to a
deterioration of their operations. Paper and printing sales decreased primarily
due to lower sales of business stationery catalogs from the Company's catalog
printing facility. Sales of business stationery catalogs were higher in the
prior fiscal year due to the introduction of a new revised catalog in that
fiscal year. Interest and other income increased due to licensing fees charged
to Franchises in fiscal 2001 for use of Orderprinting.com, the Company's
Internet based ordering system. These licensing fees amounted to $263,000 in
fiscal 2001.
Cost of paper and printing sales as a percentage of paper and printing
sales was 86%, 83% and 85%, respectively, for fiscal 2001, 2000 and 1999.
Fluctuations in this percentage result primarily from changes in the sales mix.
Selling, general and administrative expenses represented 33%, 34% and 23% of
gross revenues in fiscal 2001, 2000 and 1999, respectively. The increase in the
fiscal 2001 and 2000 percentages was due primarily to provisions for doubtful
accounts of $1,452,000 and $1,725,000, respectively, 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 2001 expenses was due to additional programming costs related to the
development of the Orderprinting.com(TM) technology of approximately $306,000.
Liquidity and Capital Resources
- -------------------------------
The Company generated cash from continuing operations of $3,260,000
during the fiscal year ended February 28, 2002. The Company employed the cash
generated to make capital expenditures of approximately $162,000 and to make
principal payments on debt of $86,000. The Company's cash increased by
$3,020,000 in fiscal 2002.
Included in cash are amounts received from national accounts on behalf
of Franchises which are remitted to the Franchises weekly. The balance to be
remitted amounted to $279,000 and $152,000 at February 28, 2002 and 2001,
respectively.
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 2002, the Company renewed a $2 million line of
credit with a bank. No advances have been made on the line as of May 22, 2002.
It is the Company's intention to reinvest cash generated from
operations into financial assistance to the network in order to encourage
replacement of outdated equipment and investment in new software and equipment
to bring new products to the marketplace. Further, the Company will increase
certain minimum order quantities from its paper suppliers in order to entice
better pricing resulting in somewhat higher inventory levels in the future. In
addition, as the volume of orders processed on
Page 7
Orderprinting.com continues to increase, significant future investment will be
necessary to provide additional functionality and to support the increasing
volume of transactions. Finally, the Company intends to retire its outstanding
debt in fiscal 2003 which will reduce interest expense approximately $50,000.
At February 28, 2002, the Company has future obligations of the following:
Fiscal Operating Long Term
Year Leases Debt Total
2003 $ 218 $ 560 $ 778
2004 123 --- 123
2005 114 --- 114
2006 6 --- 6
2007 6 --- 6
------ ------ ------
Totals $ 467 $ 560 $1,027
====== ====== ======
In August 2001, in connection with the $2 million bank loan to Phoenix
(the "Loan"), the Company entered into an agreement with Phoenix and the
Chairman providing the following conditions to the guarantee of the loan by the
Company and its subsidiary BCT (which included a pledge of substantially all of
the assets of the Company and BCT to secure the Loan): (i) the last year of the
Chairman's employment agreement with the Company was eliminated, so that the
agreement will now terminate on February 28, 2002; (ii) the Chairman and
Phoenix, jointly and severally, agreed to (A) grant the Company an assignable
one-year option to repurchase all of the shares of the Company's common stock
bought with the borrowed funds at the same price paid by Phoenix and (B) pay the
Company's expenses incurred in connection with the transaction, unless (1) the
Chairman and/or Phoenix made an offer on or before September 30, 2001, to
purchase for cash all of the Company's shares held by public shareholders, and
providing for a closing of that transaction on or before April 15, 2002 and (2)
such transaction closes on terms deemed "fair" to the Company and its
shareholders by the Special Committee, consisting of non-management directors of
the Company; and (iii) the Company and Phoenix, jointly and severally, agreed to
immediately reimburse the Company for all payments made pursuant to the
corporate guaranty. As collateral for their reimbursement obligations, the
Chairman and Phoenix granted the Company a first priority security interest in
any and all shares of the Company's common stock which Phoenix purchased with
the borrowed funds and a subordinated security interest in the shares of the
Company's common stock already owned by Phoenix and pledged to the bank.
Selected Quarterly Financial Data
- ---------------------------------
Quarterly financial results were as follows: (000's omitted, except per share
data)
Quarters Ended
May 31 Aug. 31 Nov. 30 Feb. 28
Fiscal 2002
Revenues $ 4,804 $ 4,529 $ 4,390 $ 4,284
Operating income (loss) 110 342 483 (122)
------- ------- ------- -------
Net income (loss) $ 67 $ 209 $ 291 $ (75)(a)
======= ======= ======= =======
Earnings (loss) per share:
Basic $ 0.01 $ 0.04 $ 0.06 $ (0.01)
======= ======= ======= =======
Diluted $ 0.01 $ 0.04 $ 0.06 $ (0.01)
======= ======= ======= =======
Fiscal 2001
Revenues $ 5,205 $ 4,756 $ 4,878 $ 4,590
Operating income (loss) 813 617 380 (673)
Discontinued operations --- (31) --- ---
------- ------- ------- -------
Net income (loss) $ 496 $ 346 $ 243 $ (421)(a)
======= ======= ======= =======
Earnings per share:
Basic $ 0.09 $ 0.07 $ 0.05 $ (0.08)
======= ======= ======= =======
Diluted $ 0.09 $ 0.07 $ 0.05 $ (0.08)
======= ======= ======= =======
(a) Losses in the 4/th/ quarters are attributable to additional bad debt expense
due to the unanticipated seizure of a franchise in January 2002 and the closing
of a franchise in January 2001.
Page 8
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. 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 LIBOR + 2.35%.
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
- ------- --------------------------------------------------
Date Elected
Name Age Position Or Appointed
- ---- --- -------- ------------
William Wilkerson 60 Chairman of the Board, Chief
Executive Officer and President January 1978
Michael R. Hull 48 Chief Financial Officer, Treasurer
and Secretary May 1996
John Galardi 64 Director November 2000
Jeff Hewson 58 Director October, 1999
Henry A. Johnson 66 Director February 1975
Philip Pisciotta 63 Director June 2001
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. In February 2001,
he was appointed Chief Executive Officer, and in May 2001 was appointed
President as well.
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 had previously 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.
John N. Galardi was formerly a Director of the Company from August 1990
to November 1995. He joined the Board again in November 2000. He has been a
franchisor for more than 30 years and is the Chairman of the Board of Galardi
Group, Inc., a restaurant holding company based in Newport Beach, California,
which operates 350 fast food restaurants. In addition, Mr. Galardi is an
investor in several other private businesses.
Page 9
Jeff Hewson has over 30 years experience in the manufacture and
distribution of office and computer supplies. In 1990 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 which were sold back to the Company in 1989. Mr. Hewson is
currently on the Board of Directors of 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. Mr. Johnson was appointed Senior Vice President of the
Company effective March 1, 2001. 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 his family has
operated a private printing business, Colorful Copies, located in Las Vegas,
Nevada.
Philip Pisciotta became a Director of the Company in June 2001. Since
1986, he has been the CEO, Chairman and a major stockholder of The Cove Group,
Denver, Colorado which operates two food processing facilities. He is a member
of the Board of Directors of The Galardi Group.
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.
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. Pursuant to
recently adopted rules designed to enhance disclosure of companies' policies
toward executive compensation, set forth below is a report submitted by Mr. Jeff
Hewson in his capacity as the Chairman of the Board's Compensation Committee,
addressing the Company's compensation policies for fiscal 2002 as they affected
the Company's executive officers generally and Mr. William A. Wilkerson,
Chairman of the Board and Chief Executive Officer since February 2001, and Mr.
Peter T. Gaughn, President and Chief Executive Officer from April 1999 until
February 2001, and President and Chief Operating Officer of the Company until
May 2001. Mr. Gaughn's employment was terminated by the Company without cause as
of May 25, 2001.
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:
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, Johnson and Hull in fiscal 2002,
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
Page 10
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 2002 after informal discussions with other members of the Board.
Mr. Wilkerson's Fiscal 2002 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 2001 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. The Company guaranteed a $2 million bank line of credit for
Phoenix Group of Florida, Inc., a company owned by Mr. Wilkerson. In connection
with the guarantee, Mr. Wilkerson's employment contract expired on February 28,
2002. Mr. Wilkerson is currently employed without a contract at an annual salary
of $315,000. See Item 13. "Certain Relationships and Related Transactions."
Mr. Gaughn's Fiscal 2002 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 was three years, but was subject to automatic
extension for successive one-year terms unless either party gives notice of its
intent not to renew. The agreement called for minimum annual salary amounts
during the initial three year term of $250,000, $262,000 and $276,000. In
addition, the agreement provided for incentive compensation equal to 2.5% of the
pretax income of the Company, subject to a limit of $125,000 in fiscal 2000 and
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 were scheduled to vest 15% annually
over the next five years. Further, the agreement provided 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 were to vest 25% immediately and 15% each year for
five years thereafter. Mr. Gaughn's employment was terminated without cause on
May 25, 2001. Under the terms of Mr. Gaughn's employment agreement, the Company
was required to pay Mr. Gaughn's salary at an annual rate of $276,000 through
May 2002. The Company recorded a charge to operations for the entire amount of
this payout in the first quarter of fiscal 2002.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS:
Jeff Hewson John Galardi 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 28, 2002
February 28, 2001, and February 29, 2000, by the executive officers of the
Company as to whom the total salary and bonus in the most recent year exceeded
$100,000.
Page 11
BCT International, Inc.
-----------------------
Summary Compensation Table
--------------------------
Fiscal Years 2002, 2001 and 2000
--------------------------------
000's omitted
-------------
Long-Term
Annual Compensation Compensation Awards
- ---------------------------------------------------------------------------------------------------------------------
Fiscal Form of Payment
---------------
Name Position Year Salary Bonus Cash Shares Options
- ---- -------- ---- ------ ----- ---- ------ -------
W.A. Wilkerson Chairman of 2002 $ 327 (1) $ 65 $ 392 --- ---
the Board 2001 $ 327 (1) $ --- $ 327 --- 5 (2)
2000 $ 312 (1) $ 40 $ 352 --- ---
H.A. Johnson Senior Vice-President
Director 2002 $ 142 (1) $ 28 $ 170 --- ---
M.R. Hull Chief Financial 2002 $ 110 (3) $ 22 $ 132 --- ---
Officer, Secretary 2001 $ 106 (3) $ --- $ 106 --- ---
and Treasurer 2000 $ 96 $ 32 $ 128 --- 15 (4)
(1) Salary for fiscal 2002, 2001 and 2000 includes a $12 car allowance.
(2) Options granted in fiscal 2001, all of which immediately vested.
(3) Salary for fiscal 2002 and 2001 includes a $6 car allowance.
(4) Options granted in fiscal 2000, 25% of which immediately vested and the
remainder vesting over five years.
Page 12
BCT International, Inc.
-----------------------
Aggregated Option Exercises and Year-End
-----------------------------------------
Option Values for Fiscal 2002
-----------------------------
000's omitted
-------------
Number of Value of
Unexercised In-The-Money
Options at Options at
Shares 2/28/02 (#) 2/28/02 ($)
Acquired on Value Exercisable/ Exercisable/
Name Position Exercise # Realized ($) Unexercisable Unexercisable
- ---- -------- ----------- ------------ ------------- -------------
W.A. Wilkerson Chairman and
Chief Executive --- $ --- 330/0 $ 0/0
Officer
H.A. Johnson Senior Vice- --- $ --- 36/0 $ 0/0
President
M.R. Hull Chief Financial --- $ --- 8/7 $ 0/0
Officer, Secretary
and Treasurer
Page 13
BCT International, Inc.
-----------------------
Executive Management Compensation
---------------------------------
Option Grants in Fiscal Year 2002
---------------------------------
000's omitted
-------------
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% ($) 10% ($)
None
Page 14
(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 22, 2002, 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, 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 22,
2002, 5,121,471 shares of Common Stock were outstanding, excluding treasury
shares held for the account of the Company.
Page 15
Percent of
Number of Shares Outstanding
Name Beneficially Owned (1) Common Stock
- ---- ---------------------- ------------
Officers and Directors:
William A. Wilkerson 3,017,782 (2) 55.38%
Henry A. Johnson 96,007 (3) 1.86%
Jeff Hewson 70,541 (4) 1.37%
John Galardi 20,000 (5) .39%
Michael R. Hull 8,750 (6) .17%
Officers and Directors as a group (5 persons) 3,213,080 (7) 58%
_________________________
(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 327,500 shares covered by currently exercisable stock options.
(3) Includes 27,500 shares covered by currently exercisable stock options.
(4) Includes 30,000 shares covered by currently exercisable stock options.
(5) Includes 20,000 shares covered by currently exercisable stock options.
(6) Includes 8,250 shares covered by currently exercisable stock options.
(7) Includes 413,250 shares covered by currently exercisable stock options.
Page 16
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
In February 1996, a company of which Mr. Wilkerson, the Chairman of the
Board and Chief Executive Officer, was 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 bore interest at 8% per year and required 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 bore interest at
8% per year and was 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 were secured by pledges of substantially all of the assets of
the Hawaii Franchise, as well as the joint and several personal guarantees of
the shareholders
In fiscal 1999, the Company advanced $167,000 to the owners of the Hawaii
Franchise. Reserves were recorded by the Company on the accounts and notes
receivable relating to the Hawaii Franchise. 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.
As of May 2001, the Hawaii Franchise was 57 months behind on payments under
the $325,000 note and 57 months behind on payments under the $108,000 note. No
payments had been made on the $65,000 notes. Further, the Hawaii Franchise's
debt to the Company for paper purchases, royalties and other advances totaling
$581,000 was more than 90 days past due.In May 2001, the Board of Directors
approved the Company's purchase of 50% of the Hawaii Franchise from Mr.
Wilkerson's partner in exchange for forgiveness of 50% of the principal amounts
owed to the Company by the Hawaii Franchise ($566,000). In connection with the
purchase, the Company realized a loss amounting to approximately $466,000,
representing the excess of amounts forgiven over the fair market value of the
assets acquired. This loss was specifically reserved for in a prior year. In
connection with this transaction, the Company received a promissory note from
Mr. Wilkerson for the remaining principal balance due the Company ($566,000).
The note bears interest of 8% and requires monthly instalments of principal and
interest consisting of Mr. Wilkerson's proportional share of the monthly cash
flow of the business until May 25, 2006 when the remaining principal and accrued
interest is due. During the fiscal year ended February 28, 2002, no payments
were made under the note because the Hawaii Franchise failed to generate
positive cash flow.
Effective May 8, 1999, the Company entered into a three-year employment
agreement with Peter T. Gaughn, its President and Chief Executive Officer. The
agreement provided for a base salary of $250,000 during the first year with
minimum 5% salary increases thereafter. In addition, the agreement provided for
incentive compensation equal to 2.5% of the Company's pre-tax income, subject to
a limit of $125,000 in fiscal 2000 and the base salary thereafter. Additionally,
the agreement provided for the grant of options to purchase 400,000 shares of
Common Stock at $2.25, of which 100,000 options vested immediately and the
remainder were to vest in annual increments of 60,000 shares over the next five
years. In addition, the agreement provided 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 were to vest 25% immediately and 15% each year for five years
thereafter.
Effective May 25, 2001, Mr. Gaughn's employment with the Company was
terminated without cause. As prescribed by Mr. Gaughn's employment agreement,
Mr. Gaughn received his $276,000 annual salary until May 2002. In addition, Mr.
Gaughn was paid $39,000, representing the incentive compensation due him for
fiscal 2001 and the first three months of fiscal 2002, and accrued vacation. The
Company recorded a charge in operations for the previously unrecorded costs
associated with the pay out of Mr. Gaughn's employment agreement in the first
quarter of fiscal 2002.
Page 17
Effective March 1, 2001, the Company entered into a two-year employment
agreement with Henry A. Johnson, a Director and the Company's founder. Under the
agreement, Mr. Johnson serves as Senior Vice President of the Company and earns
an annual salary of $130,000 plus an annual car allowance of $12,000.
Effective February 22, 2001, the Company entered into a two year oral
consulting agreement with Jeffrey Hewson, a Director. Under the arrangement, Mr.
Hewson is paid $3,500 monthly in addition to his monthly director fee, and is
reimbursed for all related expenses. Pursuant to the agreement, Mr. Hewson is
required to perform an operational review of the Company and provide management
of the Company with a report on same and to assist management in developing and
implementing the future strategic direction of the Company.
In May 2001, Mr. Wilkerson expressed to the Company's board his interest in
exploring the possibility of purchasing the shares of the Company's common stock
not already owned by him. On May 21, 2001, Mr. Wilkerson acquired the right to
purchase 623,782 shares of the Company's common stock at a price of $1.75 per
share pursuant to an option agreement with Bill LeVine, a former director of the
Company, as Trustee of the 1982 Bill and Bonnie LeVine Trust (the "LeVine
Trust"). On June 19, 2001, the Company's board appointed Jeffrey K. Hewson and
Phillip M. Pisciotta, both independent directors, as members of a Special
Committee to consider the terms and conditions of a possible future proposal for
Mr. Wilkerson and persons affiliated with him to purchase the shares of the
Company's common stock not already owned by him. The Special Committee was
authorized to engage legal counsel and a financial advisor at the Company's
expense, to consider the proposed offer from Mr. Wilkerson as well as any other
bonafide offers made to the Company, to negotiate the definitive terms and
conditions of any such transaction and to prepare and deliver to the Company's
board its presentation and recommendation on the appropriate course of action
for the Company.
On August 9, 2001, the Company entered into an agreement with Mr. Wilkerson
and Phoenix Group of Florida, Inc. ("Phoenix") a Nevada corporation wholly-owned
by Mr. Wilkerson and formed to hold the shares of the Company's common stock
beneficially owned by Mr. Wilkerson, providing the terms and conditions pursuant
to which the Company would guarantee a $2 million bank loan to Phoenix, secured
by a pledge of substantially all of the Company's assets, which Phoenix and Mr.
Wilkerson (the "Acquisition Group") could use to acquire shares of the Company's
common stock with a view to acquiring all of the shares of the common stock not
owned by the Acquisition Group. The Company agreed to guarantee the bank loan on
the following terms and conditions:
(i) The last year of Mr. Wilkerson's employment agreement with the
Company was eliminated, so that the agreement would terminate on
February 28, 2002;
(ii) Mr. Wilkerson and Phoenix, jointly and severally, agreed to (A)
grant the Company an assignable one-year option to repurchase all of
the shares of the Company's common stock bought with the borrowed
funds at the same price paid by Phoenix and (B) pay the Company's
expenses incurred in connection with the transaction, unless (1) Mr.
Wilkerson and/or Phoenix made an offer on or before September 30,
2001, to purchase for cash, all of the Company's shares held by
public shareholders and provided for a closing of the transaction on
or before April 15, 2002 (subject to extension to May 31, 2002, in
the event of delays caused by a third party), with the option to
run one year from the Acquisition Group's failure to meet the
applicable deadline, and (2) such transaction closes on terms
deemed "fair" to the Company and its shareholders by the Special
Committee; and
(iii) Mr. Wilkerson and Phoenix, jointly and severally, agreed to
immediately reimburse the Company for all payments made pursuant to
the guarantee.
As collateral for their reimbursement obligations, Wilkerson and Phoenix granted
to the Company a first priority security interest in all shares of the Company's
common stock which Phoenix purchased with the borrowed funds and a subordinated
security interest in the 935, 382 shares of the Company's common stock already
owned by Phoenix and pledged to the bank.
On August 29, 2001, Phoenix purchased an aggregate of 618,482 shares of the
Company's common stock from Steven N. Bronson and Catalyst Financial, LLC, at a
price of $1.50 per share. On September 1, 2001, pursuant to the LeVine Trust
option assigned by Wilkerson to Phoenix, Phoenix exercised the option and
purchased the 623,782 shares held by the LeVine Trust at a purchase price of
$1.75 per share. In connection with the exercise of the option, Phoenix made a
payment of $45,484 to the LeVine Trust at the closing and Mr. Wilkerson executed
a two-year promissory note in favor of the LeVine Trust for the balance of the
aggregate exercise price of $1,046,134. Between August 20 and October 21, 2001,
Phoenix purchased an aggregate of 454,036 shares of common stock from various
shareholders in private transactions for an aggregate purchase price of $408,632
($.90 per share). The funds used for these private purchases came from the
proceeds of the bank loan.
On September 20, 2001, Phoenix presented a written offer to purchase all of
the Company's shares not owned by Phoenix at a price of $.85 per share. On
November 26, 2001, after two months of negotiations between Phoenix and the
Special Committee and extensive financial analysis by Capitalink, LLC as
financial advisor to the Special Committee, the board of directors of the
Company approved a definitive merger agreement between the Company and Phoenix
and Wilkerson providing for the Acquisition Group to
Page 18
purchase all of the shares of the Company's outstanding common stock not owned
by the Acquisition Group at a price of $1.13 per share. Prior to approving the
merger agreement, the board received an opinion from Capitalink stating its
belief that the proposed merger consideration was fair from a financial point of
view to the Company's stockholders other than the Acquisition Group.
On April 26, 2002, the Company and Phoenix entered into an
agreement terminating the merger agreement. The Company advanced on Wilkerson's
behalf payment of approximately $110,000 in legal fees incurred by the
Acquisition Group in connection with the proposed merger.
Page 19
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 28, 2002.
(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.
Page 20
10.6 Stock pledge agreement between the Company
and William A. Wilkerson dated May 30, 2000,
as filed with the SEC as exhibit 10.7 to the
Company's report on Form 10-K for the fiscal
year ended February 29, 2000 is incorporated
herein by reference.
10.7 Employment agreement between the Company and
Henry A. Johnson dated February 26, 2001 as
filed with the SEC as Exhibit 10.8 to the
Company's report on Form 10-K for the fiscal
year ended February 28, 2001 is incorporated
herein by reference.
10.8 Agreement dated May 25, 2001 among Business
Cards Tomorrow, Inc. and South Pacific
Wholesale Printers, Inc., William A.
Wilkerson, Val Antrim, and Rosemary Antrim
as filed with the SEC as Exhibit 10.9 to the
Company's report on Form 10-K for the fiscal
year ended February 28, 2001 is incorporated
herein by reference.
10.9 Agreement dated August 15, 2001, among the
Company, Business Cards Tomorrow, Inc.,
Phoenix Group of Florida, Inc. and William A.
Wilkerson as filed as Exhibit 2.1 to Form 8-K
filed on August 31, 2001 is incorporated
herein by reference.
10.10 Definitive Merger Agreement between the
Company and Phoenix Group of Florida, Inc.
dated November 26, 2001 as filed as Exhibit 2.1
to Form 8-K filed on December 11, 2001 is
incorporated herein by reference.
...
10.11 Agreement for termination of the Merger
Agreement.
Page 21
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 29, 2002 By: William A. Wilkerson
------------------------- ------------------------------
William A. Wilkerson
Chairman, Chief Executive
Officer and Director
DATE: May 29, 2002 By: 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.
Jeff Hewson Henry A. Johnson
---------------------------------- ------------------------------
Jeff Hewson Henry A. Johnson
Director Director
Date: May 29, 2002 Date: May 29, 2002
John Galardi Philip Pisciotta
---------------------------------- ------------------------------
John Galardi Philip Pisciotta
Director Director
Date: May 29, 2002 Date: May 29, 2002
Page 22
BCT INTERNATIONAL, INC.
-----------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
--------------------------------------------------------
Financial Statements: Page Numbers
- -------------------- ------------
Report of Independent Certified Public Accountants D-2
Consolidated Balance Sheets at February 28, 2002 and 2001 D-3
Consolidated Statements of Operations for the three fiscal years ended February 28, 2002 D-4
Consolidated Statements of Changes in Stockholders' Equity
for the three fiscal years ended February 28, 2002 D-5
Consolidated Statements of Cash Flows for the three fiscal years ended February 28, 2002 D-6 to D-7
Notes to Consolidated Financial Statements D-8 to D-21
Schedules:
- ---------
For the fiscal years ended February 28, 2002, 2001 and February 29, 2000:
II Valuation and Qualifying Accounts D-22
X Supplementary Income Statement Information D-23
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 23
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
of BCT International, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of BCT
International, Inc. and its subsidiaries at February 28, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended February 28, 2002 in conformity with accounting principles
generally accepted in the United States of America. 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 of America, 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 our opinion.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
May 28, 2002
D-2
Page 24
BCT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS February 28, 2002 February 28, 2001
----------------- -----------------
(000's omitted, except per share data)
ASSETS
------
Current Assets:
Cash $ 4,819 $ 1,799
Accounts and notes receivable, net 2,889 3,568
Inventory, net 1,887 2,352
Assets held for sale 105 63
Prepaid expense and other current assets 154 71
Deferred income taxes 419 321
----------- -----------
Total current assets 10,273 8,174
Accounts and notes receivable, net 5,170 6,362
Property and equipment at cost, net 435 473
Deferred income taxes 970 925
Deposits and other assets 24 24
Trademark and other intangible assets, net 206 232
----------- -----------
Total assets $ 17,078 $ 16,190
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 432 $ 597
Notes payable 560 86
Accrued liabilities 791 403
Deferred revenue 125 167
----------- -----------
Total current liabilities 1,988 1,253
Deferred revenue 334 417
Notes payable, less current maturities --- 236
----------- -----------
Total liabilities 2,322 1,906
----------- -----------
Commitments and contingencies (Note 11) --- ---
----------- -----------
Stockholders' equity:
Common stock, $.04 par value, authorized 25,000,
5,828 shares (5,822 shares in 2001) issued 233 233
Paid in capital 12,605 12,597
Retained earnings 3,490 2,998
----------- -----------
16,328 15,828
Less: Treasury stock, at cost, 707 shares (686 shares in 2001) (1,572) (1,544)
----------- -----------
Total stockholders' equity 14,756 14,284
----------- -----------
Total liabilities and stockholders' equity $ 17,078 $ 16,190
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
D-3
Page 25
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's omitted, except per share data)
For the For the For the
Fiscal year ended Fiscal year ended Fiscal year ended
February 28, 2002 February 28, 2001 February 29, 2000
----------------- ----------------- -----------------
Revenues:
Royalties and franchise fees $ 5,117 $ 5,267 $ 5,394
Paper and printing sales 12,068 13,424 13,881
Sales of franchises 99 46 27
Interest and other income 723 692 347
------------- ------------ ------------
18,007 19,429 19,649
------------- ------------ ------------
Expenses:
Cost of paper and printing sales 10,592 11,605 11,574
Selling, general and
administrative 6,376 6,455 6,619
Depreciation and amortization 226 232 189
------------- ------------ ------------
17,194 18,292 18,382
------------- ------------ ------------
Income from continued operations before legal
settlement and income taxes 813 1,137 1,267
Legal settlement --- --- 941
------------- ------------ ------------
Income from continued operations before income taxes 813 1,137 2,208
Income tax provision 321 442 837
------------- ------------ ------------
Income from continued operations 492 695 1,371
Discontinued operations:
Loss from Company owned Franchises
operated under a plan of disposition, net of
tax benefit of $0, $19, and $217, respectively --- (31) (357)
------------- ------------ ------------
Net income $ 492 $ 664 $ 1,014
============= ============ ============
Net income (loss) per common share
Income from continued operations $ .10 $ .13 $ .26
Loss from discontinued operations --- (.01) (.07)
------------- ------------ ------------
Basic $ .10 $ .13 $ .19
============= ============ ============
Income from continued operations $ .10 $ .13 $ .25
Loss from discontinued operations --- (.01) (.06)
------------- ------------ ------------
Diluted $ .10 $ .13 $ 19
============= ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
D-4
Page 26
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(000's omitted)
Common Stock
----------------------
Number of Par Paid In Retained Treasury
Shares Value Capital Earnings Stock Total
-----------------------------------------------------------------------------------
Balance March 1, 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
Treasury stock purchases --- --- --- --- (136) (136)
Net income --- --- --- 664 --- 664
----- ------- ------- -------- -------- --------
Balance February 28, 2001 5,822 233 12,597 2,998 (1,544) 14,284
Exercise of options 6 --- 8 --- --- 8
Treasury stock purchases --- --- --- --- (28) (28)
Net income --- --- --- 492 --- 492
----- ------- ------- -------- -------- --------
Balance February 28, 2002 5,828 $ 233 $12,605 $ 3,490 $ (1,572) $ 14,756
===== ======= ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
D-5
Page 27
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
For the For the For the
Fiscal year ended Fiscal year ended Fiscal year ended
February 28, 2002 February 28, 2001 February 29, 2000
----------------- ----------------- -----------------
Cash flows from operating activities:
Net income $ 492 $ 664 $ 1,014
Plus loss from discontinued operations -- 31 357
------------ ----------- -----------
Income from continuing operations 492 695 1,371
Adjustments to reconcile income from continuing
operations to net cash provided by
operating activities:
Deferred income taxes (143) (42) (482)
Depreciation and amortization 226 232 189
Provision for doubtful accounts 1,300 1,452 1,725
Provision for inventory obsolescence 175 30 76
Other adjustments 4 31 31
Changes in assets and liabilities:
Accounts and notes receivable 571 (615) (2,115)
Inventory 290 (23) (85)
Prepaid expenses and other current assets (83) 134 59
Accounts payable (165) (514) 267
Accrued liabilities 468 (946) 596
Deferred revenue 125 (87) 159
------------ ----------- -----------
Net cash provided by continuing operations 3,260 347 1,791
Net cash used by discontinued operations --- (31) (354)
------------ ----------- -----------
Net cash provided by operating activities 3,260 316 1,437
------------ ----------- -----------
Cash flows from investing activities:
Capital expenditures for property and equipment (162) (150) (262)
Discontinued operations --- (25) (90)
------------ ----------- -----------
Net cash (used by) investing activities (162) (175) (352)
------------ ----------- -----------
Cash flows from financing activities:
Treasury stock purchases and other --- (136) (242)
Dividend on Series A Preferred Stock --- --- (2)
Exercise of stock options and warrants 8 --- 34
Repayments on borrowings (86) (112) (112)
------------ ----------- -----------
Net cash (used by) financing activities (78) (248) (322)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 3,020 (107) 763
Cash at beginning of year 1,799 1,906 1,143
------------ ---------- -----------
Cash at end of year $ 4,819 $ 1,799 $ 1,906
============ ========== ===========
Supplemental disclosures:
- ------------------------
Interest paid during the year $ 34 $ 41 $ 48
============ ========== ===========
Income taxes paid during the year $ 209 $ 823 $ 725
============ ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
D-6
Page 28
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(000's omitted)
Noncash activities:
------------------
In fiscal 2002, the Company became liable under a guarantee when a franchise
defaulted on its obligations resulting in an increase in notes payable and long
term receivables amounting to $324.
In March 2001, the Company received common stock of the Company (treasury stock)
amounting to $28 from a franchise in exchange for amounts due the Company.
In May 2001, the Company purchased 50% of the Hawaii Franchise in exchange for
forgiveness of 50% of the principal amounts owed to the Company by the Hawaii
Franchise ($566). The Company realized a loss of approximately $466,
representing the excess of amounts forgiven over the fair market value of the
assets acquired.
In fiscal 2000, the Company took back notes receivable amounting to $550 and
$495, respectively, in connection with the sales of the Delray Beach, Florida
and Louisville, Kentucky Company owned franchises.
The accompanying notes are an integral part of these consolidated financial
statements
D-7
Page 29
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 36 states and Canada.
As of February 28, 2002, BCT owns 50% of the franchise located in Honolulu,
Hawaii which is held for sale. As of February 28, 2001 there were no franchises
owned by BCT. As of February 29, 2000, BCT directly owned one franchise which
was held for sale. 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 were presented as discontinued operations. The
Company also sells paper stock and catalogs to franchisees.
Principles of Consolidation and Discontinued Operations
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated. The remaining net assets of the franchises wholly-owned by
the Company are reflected in assets held for sale as it is management's
intention to resell them. The results of operations of the franchises
wholly-owned by the Company , including the estimated losses through the dates
of disposition, are included in discontinued operations. The results of
operations the franchise not wholly-owned by the Company (Hawaii), of $48 were
recognized using the equity method.
Management Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 the accrual for
unreported royalty sales and the allowance for doubtful accounts. 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 28, 2002 and 2001.
Inventory
Inventory, consisting primarily of paper products, printing supplies
and catalogs for sale to the franchises, is stated at the lower of cost (first
in, first out method) or market. As of February 28, 2002 and 2001, the allowance
for obsolete inventory was $82 and $75, 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 30
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted, except per share data)
Company Owned Franchises
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 sold one Company owned franchise in fiscal 2001. On
January 31, 2001, the Company took back this franchise, ceased operations of the
franchise and liquidated the assets.
Assets Held for Sale
Assets held for sale are carried at the lower of cost or market value.
Trademark and Other Intangible Assets
The trademark is amortized using the straight-line method over 17 years.
Other intangible assets consist of the excess of purchase price over the fair
value of the net assets acquired relating primarily to the acquisition of the
Canadian franchise rights in fiscal 1994. The amortization period for the
Canadian franchise rights is 19 years, which represented the remaining life of
the franchise agreement acquired. As of February 28, 2002 and 2001, accumulated
amortization of intangible assets amounted to $268 and $242, 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 probable 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 2002, 2001and 2000, respectively, $120, $182 and $86 of
royalties were not recorded as revenue due to uncertainty of collection.
Licensing Fees
The Company charges franchises an annual license for the use of
Orderprinting.com, the Company's Internet based ordering system. These fees are
recognized over the term of the licensing agreement, (one year).
D-9
Page 31
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted, except per share data)
Income Taxes
The Company utilizes an asset and liability approach to accounting for
income taxes that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. In estimating
future tax consequences, the Company generally considers all expected future
events other than enactments of changes in the tax law or rates.
Earnings Per Common Share
Basic earnings per share equals net income available to common stockholders
divided by the number of weighted average common shares outstanding. 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:
2002 2001 2000
--------- -------- ---------
Income from continued operations $ 492 $ 695 $ 1,371
Loss from discontinued operations --- (31) (357)
--------- -------- ---------
Net income 492 664 1,014
Preferred stock dividend --- --- (2)
--------- -------- ---------
Basic earnings $ 492 $ 664 $ 1,012
========= ======== =========
Weighted average common shares - basic 5,123 5,214 5,257
Effect of stock options and warrants --- 21 131
--------- -------- ---------
Weighted average common shares - diluted 5,123 5,235 5,388
========= ======== =========
Cash
For the purposes of reporting cash flows, cash and cash equivalents include
investments with original maturities of ninety days or less at purchase date.
Included in cash at February 28, 2002 and 2001, respectively, are $279 and $152
representing amounts collected from national accounts which are due to
franchises.
D-10
Page 32
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted, except per share data)
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 included 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 included the Company taking promissory notes equal
to the respective sales price. Gains, if any, are recognized as payments are
received. 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 and costs on the sale of
$189. In September 2000, the Company sold the assets of the Merrimack New
Hampshire franchise in exchange for a $150 promissory note. In January 2001, the
Company reacquired the assets of the Merrimack franchise in exchange for
foregiveness of the $150 promissory note. The Company ceased operating the
franchise and liquidated the assets of the franchise.
The $31 loss from discontinued operations for the year ended February 28,
2001 is net of a $19 income tax generated by the loss. 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.
Sales from these discontinued operations were $350 and $1,431 for the years
ended February 28, 2001 and February 29, 2000, respectively.
The components of net assets of discontinued operations included in the
consolidated balance sheet at February 28, 2001 are as follows:
2001
----
Cash $ 2
Accounts receivables 52
Property and equipment 9
-------
$ 63
=======
D-11
Page 33
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted, except per share data)
NOTE 3: ACCOUNTS AND NOTES RECEIVABLE
- ------- -----------------------------
Accounts and notes receivable consist of the following:
February 28, February 28,
2002 2001
------------ ------------
Franchise fees and royalties
receivable $ 859 $ 1,349
Paper sales receivable
from franchisees 2,459 4,237
Notes receivable from sale of
franchises, interest at 5%
to 10.25%, due in monthly
installments through 2014 3,907 2,914
Notes receivable due from franchisees,
interest at 8% to 12%, payable
in monthly installments through
2014 3,098 3,566
Other 715 461
------- --------
11,038 12,527
Less - allowance for doubtful accounts (2,979) (2,597)
------- --------
8,059 9,930
Less - amounts not expected to
be collected within one year,
net of $2,722 allowance
for doubtful accounts
($2,245 in 2001) (5,170) (6,362)
------- --------
$ 2,889 $ 3,568
======= ========
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.
At February 28, 2002, approximately $1,259 ($3,385 in 2001) 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.
D-12
Page 34
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted, except per share data)
At February 28, 2001, $485 ($485 in 2000) of notes receivable, with an 8%
interest rate per annum were related to the purchase of a franchise by South
Pacific Wholesale Printers, Inc. ("SPWP") The Chairman of the Board of the
Company owns 50% of SPWP and was a guarantor of SPWP's debt to the Company.
Accounts receivable for paper and royalties from this Franchise as of February
28, 2001, amounted to $418 ($404 in 2000). Reserves were recorded on the
receivables relating to this Franchise. Revenues from the Hawaii Franchise
amounted to $155 in fiscal 2001 ($194 in fiscal 2000). On May 25, 2001, the
Company purchased a 50% interest in South Pacific Wholesale Printers, Inc. from
the Chairman's partner in exchange for forgiveness of 50% of the principal
amounts due to the Company by the Franchise, ($566). As a result of the
purchase, the Company realized a loss of approximately $466 in fiscal 2002
representing the excess of amounts owed over the fair market value of the assets
acquired. This loss was specifically reserved for at February 28, 2001. In
connection with the purchase transaction, the Company received a promissory note
from the Chairman for the remaining principal balance due the Company ($566).
This note bears interest of 8% and is payable in monthly instalments equal to
the Chairman's proportionate share of the monthly cash flow of the Franchise
until May 25, 2006 when the remaining principal and accrued interest is due. In
May 2000, the Chairman pledged 100,000 shares of the Company's Common Stock to
secure his guarantee of SPWP's debt to the Company. No payments were made on
this note during the fiscal year ended February 28, 2002. The Company recognized
a loss of $48 relating to the Hawaii franchise in fiscal 2002.
Provision for doubtful accounts for the years ended February 28, 2002, and
2001 and February 29, 2000 was approximately $1,300, $1,452 and $1,725,
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:
Estimated
February 28, February 28, useful lives
2002 2001 (in years)
------------ ------------ ----------
Leasehold improvements $ 45 $ 45 5 - 7
Machinery and equipment 532 523 3 - 20
Furniture, fixtures and other equipment 230 230 5 - 10
Computers 878 813 3 - 5
Other 184 96 3 - 5
--------- -------
1,869 1,707
Less - accumulated depreciation and amortization (1,434) (1,234)
--------- -------
$ 435 $ 473
========= =======
NOTE 5: SALES AND ACQUISITIONS OF COMPANY OWNED FRANCHISES
- ------ --------------------------------------------------
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 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 in 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 received approximately $58 for accounts
receivable. The
D-13
Page 35
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted, except per share data)
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. During fiscal 2001, the Company recognized
$36 of deferred revenue related to this sale. In fiscal 2002, the Company
recognized $52 of deferred revenue upon the payment of a portion of the
promissory note.
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
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 The net assets of the Merrimack Franchise were
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. The resulting charge to earnings of $135 was included as discontinued
operations in the accompanying consolidated statement of operations.
NOTE 6: NOTES PAYABLE
- ------ -------------
Notes payable consist of the following:
February 28, February 28,
2002 2001
------------ ------------
Note payable to prior owner of Company owned
franchise, monthly principal and interest payments
of $2, interest at 8% per annum, through August 2004 $ 50 $ 67
Note payable relating to assumption of note guaranteed by
the Company, monthly principal and interest payments
of $6, interest at 10% per annum, through April 2008 324 --
Notes payable relating to acquisitions, monthly
payments of principal and interest at 8% 186 255
----------- ------------
560 322
Less - amounts expected to be repaid within 1 year (560) (86)
----------- ------------
$ -- $ 236
=========== ============
The notes relating to acquisitions of $186 and the note due a prior owner
of $50 were paid in full in May 2002. The Company is currently negotiating the
retirement in fiscal 2003 of the $324 note assumed in connection with a
guarantee made by the Company.
In September 2001, 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 LIBOR + 2.35%, interest is payable monthly. As of February 28,
2002, no advances have been made on this line.
In August 2001, in connection with the $2 million bank loan to Phoenix (the
"Loan"), the Company entered into an agreement with Phoenix and the Chairman
providing the following conditions to the guarantee of the loan by the Company
and its subsidiary BCT (which included a pledge of substantially all of the
assets of the Company and BCT to secure the Loan): (i) the last year of the
Chairman's employment agreement with the Company was eliminated, so that the
agreement will now terminate on February 28, 2002; (ii) the Chairman and
Phoenix, jointly and severally, agreed to (A) grant the Company an assignable
one-year option to repurchase all of the shares of the Company's common stock
bought with the borrowed funds at the same price paid by Phoenix and (B) pay the
Company's expenses incurred in connection with the transaction, unless (1) the
Chairman and/or Phoenix made an offer on or before September 30, 2001, to
purchase for cash all of the Company's shares held by public shareholders, and
providing for a closing of that transaction on or before April 15, 2002 and (2)
such transaction closes on terms deemed "fair" to the
D-14
Page 36
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted, except per share data)
Company and its shareholders by the Special Committee, consisting of
non-management directors of the Company; and (iii) the Company and Phoenix,
jointly and severally, agreed to immediately reimburse the Company for all
payments made pursuant to the corporate guaranty. As collateral for their
reimbursement obligations, the Chairman and Phoenix granted the Company a first
priority security interest in any and all shares of the Company's common stock
which Phoenix purchased with the borrowed funds and a subordinated security
interest in the shares of the Company's common stock already owned by Phoenix
and pledged to the bank. As of February 28, 2002, approximately $1,991,000 was
drawn on this line.
NOTE 7: STOCKHOLDERS' EQUITY
- ------ --------------------
Stock Options
- -------------
The Company has an employee stock option plan for certain employees. The
plan is administered by a committee of two directors of the Company (the
Committee) which determines who is eligible to participate, the number of shares
for which options are to be granted and the amounts that may be exercised within
a specified term. The option exercise price is generally established by the
Committee at 100% of the fair market value of the Common Stock on the date the
option is granted. All options granted during the fiscal years 2002, 2001 and
2000 were granted at an exercise price per share equal to the fair market value
of the Company's Common Stock on the date of grant. In accordance with the
intrinsic value method for employee and director stock based awards, no
compensation expense has been recognized. Employee options generally vest over
five years and have a ten year term. At February 28, 2002, options for 305,000
shares were available for future grants.
A summary of stock option activity is as follows (share amounts in 000's):
Fiscal 2002 Fiscal 2001 Fiscal 2000
--------------------- --------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning
of year 1,428 $ 2.03 1,297 $ 2.07 1,136 $ 2.01
Granted 15 1.09 144 1.55 500 2.26
Exercised (6) 1.25 -- -- (129) 1.83
Cancelled -- -- -- -- (9) 1.87
Expired (422) 2.01 (13) 1.25 (201) 3.03
----- ----- -----
Outstanding at end
of year 1,015 $ 2.02 1,428 $ 2.03 1,297 $ 2.07
===== ====== ===== ====== ===== ======
Exercisable at end
of year 967 $ 2.01 1,051 $ 2.00 937 $ 2.07
===== ====== ===== ====== ===== ======
Weighted average
fair value of
options granted during the year $ .63 $ .81 $ 1.05
====== ====== ======
D-15
Page 37
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted, except per share data)
A summary of stock options outstanding at February 28, 2002 is as follows
(share amounts in 000's):
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------------
Number Weighted Weighted Number Weighted
Range of Outstanding Average Average Exercisable Average
Exercise at Remaining Exercise at Exercise
Prices February 28, 2002 Life (in years) Price February 28, 2002 Price
- ------ ----------------- --------------- ----- ----------------- -----
$1.09 to $1.88 695 3.2 $ 1.74 660 $ 1.65
$2.12 to $3.50 320 4.6 $ 2.60 307 $ 2.62
------ ------
1,015 967
====== ======
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.
Year Ended Year Ended Year Ended
February 28, February 28, February 29,
2002 2001 2000
------------- ------------- ------------
Net income:
As reported $ 492 $ 664 $ 1,014
========== ====== =======
Pro forma $ 470 $ 605 $ 846
========== ====== =======
Net income per share:
As reported Basic $ .10 $ .13 $ .19
========== ====== =======
Diluted $ .10 $ .13 $ .19
========== ====== =======
Proforma Basic $ .09 $ .12 $ .16
========== ====== =======
Diluted $ .09 $ .12 $ .16
========== ====== =======
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 78%, a risk free interest rate of from 4.5% to
6.5% and weighted average expected option term of 3.6 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 38
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted, except per share data)
NOTE 10: INCOME TAXES
- -------- ------------
The components of the provision (benefit) for income taxes for the years
ended February 28, 2002 and 2001, and February 29, 2000 are as follows:
2001 2001 2000
---- ---- ----
Current Provision:
Federal $ 402 $ 422 $ 1,250
State 62 62 69
------- ------- -------
Total current 464 484 1,319
Deferred provision (143) (42) (482)
------- ------- -------
Income tax provision from continued operations 321 442 837
Income tax benefit from discontinued operations --- (19) (217)
------- ------- -------
$ 321 $ 423 $ 620
======= ======= =======
The Company's deferred income taxes are comprised of the following:
February 28, 2002 February 28, 2001 February 29, 2000
----------------- ----------------- -----------------
Deferred income taxes - current:
Bad debt reserve $ 100 $ 120 $ 60
Capitalization of inventory cost 176 172 172
Accrued losses on discontinued
operations -- -- 121
Inventory reserves 32 29 29
Other 111 -- 100
-------------- -------------- --------------
Deferred income taxes - current $ 419 $ 321 $ 482
============== ============== ==============
Deferred income taxes - non-current:
Bad debt reserve $ 1,062 $ 893 $ 897
Net operating loss carryovers 203 203 203
Deferred tax liabilities - Fixed assets (92) (2) (175)
Other -- 34 --
-------------- -------------- --------------
1,173 1,128 925
Valuation allowance (203) (203) (203)
-------------- -------------- --------------
Deferred income taxes - non-current $ 970 $ 925 $ 722
============== ============== ==============
Deferred income taxes - total $ 1,389 $ 1,246 $ 1,204
============== ============== ==============
D-17
Page 39
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted, except per share data)
Net operating loss carryforwards for Federal income tax purposes total
approximately $539 at February 28, 2002, all of which will expire in 2005 and
include certain limitations. Due to the limitations, the Company recorded a full
valuation allowance related to this tax asset.
The difference between the statutory and effective tax rates are as
follows:
2002 2001 2000
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ------ ------ ------ ------ ------
Tax provision at statutory rate $ 276 34% $ 357 34% $ 556 34%
State income tax, net of
federal benefit 28 3 37 3 46 3
Other 17 2 29 2 18 1
------ ------ ------ ------ ------ ------
$ 321 39% $ 423 39% $ 620 38%
====== ====== ====== ====== ====== ======
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 2007. 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
----------- -----------------
2003 $ 218
2004 123
2005 114
2006 6
2007 6
------
$ 467
======
D-18
Page 40
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted, except per share data)
Rental expense approximated the following amounts for the corresponding periods:
For the year ended Amount
------------------ ------
February 28, 2002 $ 347
February 28, 2001 $ 353
February 29, 2000 $ 348
At February 28, 2002, 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 $562.
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 fiscal 2002, the Board of Directors of the Company approved the
Company's guarantee of a $2 million bank line of credit for Phoenix Group of
Florida, Inc., a company owned by the Chairman. In connection with the
guarantee, the Chairman's employment agreement was teminated on February 28,
2002.
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 was three years. The agreement called for minimum annual
salary amounts during the initial three year term of $250, $262 and $276. In
addition, the agreement provided for incentive compensation based upon pretax
income of the Company, not to exceed $125 in fiscal 2000 and not to 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 was to vest 15% annually over the next 5 years.
Further, the agreement provided 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 were to vest 25% immediately and 15% each year for the five years,
thereafter. In February 2001, the President and Chief Executive Officer was
appointed President and Chief Operating Officer. Effective May 25, 2001, the
President and Chief Operating Officer's employment with the Company was
terminated without cause. As prescribed by his employment agreement, the
President and Chief Operating Officer received his $276 annual salary until May
2002. In addition, the President and Chief Operating Officer was paid $39,
representing the incentive compensation due him for fiscal 2001 and for the
first three months of fiscal 2002, and accrued vacation. The Company recorded a
charge in operations for the previously unrecorded costs associated with the
payout of the President and Chief Operating Officer's employment agreement in
the first quarter of fiscal 2002.
Effective March 1, 2001, the Company entered into a two-year employment
agreement with the Company's Senior Vice President. Under the agreement, the
Senior Vice President of the Company will earn an annual salary of $130 plus an
annual car allowance of $12 In addition, the agreement calls for 6 months
severance in the event of termination for other than cause.
NOTE 12: SEGMENT INFORMATION
- ------- -------------------
The Company's three reportable segments are (1) Franchisor operations,
(2) Pelican Paper Products and (3) 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 41
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted, except per share data)
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:
Franchisor Pelican Paper Other Total
---------- ------------- ----- -----
2002
Revenues $ 5,216 $ 12,068 $ 723 $18,007
Cost of sales --- 10,592 --- 10,592
Operating expenses 6,017 585 --- 6,602
--------- --------- ------- -------
Income (loss) before income taxes $ (801) $ 891 $ 723 $ 813
========= ========= ======= =======
Assets $ 7,652 $ 5,108 $ 4,318 $17,078
========= ========= ======= =======
Depreciation and amortization $ 122 $ 104 $ --- $ 226
========= ========= ======= =======
Income tax provision (benefit) $ (316) $ 352 $ 285 $ 321
========= ========= ======= =======
Capital expenditures $ 137 $ 25 $ --- $ 162
========= ========= ======= =======
2001
Revenues $ 5,313 $ 13,424 $ 692 $19,429
Cost of sales --- 11,605 --- 11,605
Operating expenses 6,056 631 --- 6,687
--------- --------- ------- -------
Income (loss) before income taxes $ (743) $ 1,188 $ 692 $ 1,137
========= ========= ======= =======
Assets $ 4,960 $ 6,995 $ 4,235 $16,190
========= ========= ======= =======
Depreciation and amortization $ 133 $ 99 $ --- $ 232
========= ========= ======= =======
Income tax provision (benefit) $ (289) $ 462 $ 269 $ 442
========= ========= ======= =======
Capital expenditures $ 84 $ 66 $ --- $ 150
========= ========= ======= =======
2000
Revenues $ 5,421 $ 13,881 $ 1,288 $20,590
Cost of sales --- 11,574 --- 11,574
Operating expenses 5,956 852 --- 6,808
--------- --------- ------- -------
Income before income taxes $ (535) $ 1,455 $ 1,288 $ 2,208
========= ========= ======= =======
Assets $ 6,077 $ 7,413 $ 3,831 $17,321
========= ========= ======= =======
Depreciation and amortization $ 139 $ 50 $ --- $ 189
========= ========= ======= =======
Income tax provision $ (203) $ 551 $ 489 $ 837
========= ========= ======= =======
Capital expenditures $ 119 $ 143 $ --- $ 262
========= ========= ======= =======
The following is sales information by geographic area for the years
ended February 28(9):
2002 2001 2000
---- ---- ----
United States $ 17,572 $ 18,618 $19,724
Canada 435 811 866
--------- --------- -------
$ 18,007 $ 19,429 $20,590
========= ========= =======
All long-lived assets of the Company are domiciled in the United
States.
D-20
Page 42
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(000's omitted, except per share data)
NOTE 13: RECENT ACCOUNTING PRONOUNCEMENTS
- ------- --------------------------------
In June 2001, SFAS No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets" were issued. SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. SFAS 141 also further clarifies the criteria for
recognition of intangible assets separately from goodwill. The Company's
adoption of this standard is not expected to have a material effect on the
accounting for prior business combinations.
SFAS No. 142 eliminates the amortization of goodwill and indefinite-lived
intangible assets and requires an impairment review of both of these
non-amortizable intangible assets annually, or when events or circumstances
dictate. Identifiable intangible assets with a determinable useful life will
continue to be amortized. The amortization provisions apply immediately to
goodwill and other intangible assets acquired after June 30, 2001, Goodwill and
other intangible assets acquired prior to June 30, 2001 will be affected upon
adoption. The Company intends to adopt SFAS 142 in fiscal 2003. This adoption
will have no effect on annual goodwill amortization as the Company's intangibles
have defined lives.
The SFAS No. 142 goodwill impairment review consists of a two-step
process of first determining the fair value of the reporting unit and comparing
it to the carrying value of the net assets allocated to the reporting unit. If
this fair value exceeds the carrying value, no further analysis is required. If
the fair value of reporting unit is less than the carrying value of the net
assets, the implied fair value of the reporting is allocated to all the
underlying assets and liabilities, including both recognized and unrecognized
intangible assets, based on their fair value. No impairment of goodwill is
anticipated upon adoption of SFAS No. 142.
In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" was issued. SFAS No. 144 requires (1) the
recognition and measurement of the impairment of long-lived assets to be held
and used, and (2) the measurement of long-lived assets to be held for sale. SFAS
144 is effective in fiscal 2003. The Company does not anticipate that the
adoption of SFAS No. 144 will have a material effect on the Company's financial
statements.
In April 2002, SFAS No. 145 "Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued.
As applicable to the Company, SFAS No. 145 rescinds SFAS No. 4 which prescribed
that any gain or loss associated with the early extinguishment of debt be
classified as extraordinary. SFAS No. 145 requires that the factors prescribed
by APB Opinion 30, "Reporting the Results of Operations---Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" be used to determine if the
early retirement of debt will be classified as part of normal recurring
operations or will be classified as extraordinary. The Company does not expect
adoption of SFAS No. 145 to have a material impact on the Company's financial
statements.
D-21
Page 43
BCT INTERNATIONAL, INC.
-----------------------
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
(000's omitted)
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
---------- ----------- ------------ -----------
For the year ended February 28, 2002
Allowance for doubtful accounts $ 2,597 $ 1,300 $ (918) $ 2,979
======== ========= ======== ==========
Allowance for obsolete inventory $ 75 $ 175 $ (168) $ 82
======== ========= ======== ==========
Deferred tax assets valuation allowance $ 203 $ --- $ --- $ 203
======== ========= ======== ==========
For the year ended February 28, 2001
Allowance for doubtful accounts $ 2,454 $ 1,452 $ (1,309) $ 2,597
======== ========= ======== ==========
Allowance for obsolete inventory $ 74 $ 30 $ (29) $ 75
======== ========= ======== ==========
Deferred tax assets valuation allowance $ 203 $ --- $ --- $ 203
======== ========= ======== ==========
For the year ended February 29, 2000
Allowance for doubtful accounts $ 1,303 $ 1,725 $ (574) $ 2,454
======== ========= ======== ==========
Allowance for obsolete inventory $ 226 $ 76 $ (228) $ 74
======== ========= ======== ==========
Deferred tax assets valuation allowance $ 203 $ --- $ --- $ 203
======== ========= ======== ==========
D-22
Page 44
SCHEDULE X
BCT INTERNATIONAL, INC.
-----------------------
SUPPLEMENTARY INCOME STATEMENT INFORMATION
------------------------------------------
(000's omitted)
Item
----
February 28, 2002 February 28, 2001 February 29, 2000
----------------- ----------------- -----------------
Advertising Costs $ 8 $ --- $ 39
======== ======== ========
Amortization of intangible assets $ 26 $ 26 $ 26
======== ======== ========
D-23
Page 45