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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the Quarter ended August 31, 2002
 
Commission File No. 0-10823
 
 
BCT INTERNATIONAL, INC.
(Exact name of Registrant as specified in its Charter)
 
Delaware
(State of Incorporation)
  
22-2358849
(IRS Employer
Identification Number)
 
3000 NE 30th Place, 5th Floor, Fort Lauderdale, FL
(Address of principal executive offices)
   
33306
(Zip Code)
 
Registrant’s telephone number, including area code: (954) 563-1224
 
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  x      NO  ¨.
 
Number of shares of common stock outstanding as of October 15, 2002: 5,828,458
 

Table of Contents
 
BCT INTERNATIONAL, INC.
 
INDEX
 
         
Page Number
PART I.
   
FINANCIAL INFORMATION
     
       
2
       
3
       
4
       
5
       
6-7
       
8-9
PART II.
   
OTHER INFORMATION AND SIGNATURES
     
       
10
       
11-12
    
Exhibits
   
13-14

Table of Contents
PART I.    FINANCIAL STATEMENTS
 
BCT INTERNATIONAL, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(000’s omitted)
 
    
August 31, 2002
     
February 28, 2002
  
ASSETS
                  
Current assets:
                  
Cash
   
$
4,687
 
   
$
4,819
 
Accounts and notes receivable, net
   
 
2,171
 
   
 
2,889
 
Inventory, net
   
 
2,625
 
   
 
1,887
 
Assets held for sale, net
   
 
177
 
   
 
105
 
Prepaid expenses and other current assets
   
 
310
 
   
 
154
 
Deferred income taxes
   
 
419
 
   
 
419
 
    
  
Total current assets
   
 
10,389
 
   
 
10,273
 
Accounts and notes receivable, net
   
 
5,331
 
   
 
5,170
 
Property and equipment at cost, net
   
 
637
 
   
 
435
 
Deferred income taxes
   
 
1,189
 
   
 
970
 
Deposits and other assets
   
 
39
 
   
 
24
 
Trademark and other intangible assets, net
   
 
193
 
   
 
206
 
    
  
Total assets
   
$
17,778
 
   
$
17,078
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
732
 
   
$
432
 
Notes payable
   
 
374
 
   
 
560
 
Accrued liabilities
   
 
985
 
   
 
871
 
Deferred revenue
   
 
125
 
   
 
125
 
    
  
Total current liabilities
   
 
2,216
 
   
 
1,988
 
Deferred revenue
   
 
228
 
   
 
334
 
Notes payable
   
 
161
 
   
 
—  
 
    
  
Total liabilities
   
 
2,605
 
   
 
2,322
 
    
  
Stockholders’ equity:
                  
Common stock, $.04 par value, 25,000 shares authorized, 5,828 shares issued
   
 
233
 
   
 
233
 
Paid in capital
   
 
12,605
 
   
 
12,605
 
Retained earnings
   
 
3,907
 
   
 
3,490
 
    
  
    
 
16,745
 
   
 
16,328
 
Less: Treasury stock, at cost, 707 shares
   
 
(1,572
)
   
 
(1,572
)
    
  
Total stockholders’ equity
   
 
15,173
 
   
 
14,756
 
    
  
Total liabilities and stockholders’ equity
   
$
17,778
 
   
$
17,078
 
    
  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents
BCT INTERNATIONAL, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(000’s omitted)
 
    
Three Months Ended
August 31,
   
Six Months Ended
August 31,
    
2002
     
2001
   
2002
     
2001
Revenues:
                                
Royalties and franchise fees
   
$
1,241
     
$
1,266
   
$
2,621
     
$
2,614
Paper and printing sales
   
 
2,903
     
 
3,110
   
 
6,145
     
 
6,385
Company-owned franchise sales
   
 
76
     
 
—  
   
 
76
     
 
—  
Sales of Franchises
   
 
1
     
 
9
   
 
2
     
 
22
Interest and other
   
 
194
     
 
144
   
 
411
     
 
312
    
    
  
    
    
 
4,415
     
 
4,529
   
 
9,255
     
 
9,333
    
    
  
    
Expenses:
                                
Cost of paper and printing sales
   
 
2,523
     
 
2,696
   
 
5,286
     
 
5,527
Cost of Company-owned franchise sales
   
 
19
     
 
—  
   
 
19
     
 
—  
Selling, general and administrative
   
 
1,620
     
 
1,434
   
 
3,155
     
 
3,240
Depreciation and amortization
   
 
55
     
 
57
   
 
111
     
 
114
    
    
  
    
    
 
4,217
     
 
4,187
   
 
8,571
     
 
8,881
    
    
  
    
Income from continued operations before income taxes
   
 
198
     
 
342
   
 
684
     
 
452
Provision for income taxes
   
 
83
     
 
133
   
 
267
     
 
176
    
    
  
    
Net income
   
$
115
     
$
209
   
$
417
     
$
276
    
    
  
    
Earnings per share:
                                
Basic
   
$
.02
     
$
.04
   
$
.08
     
$
.05
    
    
  
    
Diluted
   
$
.02
     
$
.04
   
$
.08
     
$
.05
    
    
  
    
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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BCT INTERNATIONAL, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Six Months ended August 31, 2002
(Unaudited)
(000’s omitted)
 
    
Common Stock
   
Paid In
Capital
   
Retained
Earnings
   
Less:
Treasury
Stock
     
Total
    
Number of
Shares
   
Par
Value
            
Balance February 28, 2002
   
5,828
   
$
233
   
$
12,605
   
$
3,490
   
$
(1,572
)
   
$
14,756
Net income
   
—  
   
 
—  
   
 
—  
   
 
417
   
 
—  
 
   
 
417
    
  
  
  
  
  
Balance August 31, 2002
   
5,828
   
$
233
   
$
12,605
   
$
3,907
   
$
(1,572
)
   
$
15,173
    
  
  
  
  
  
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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BCT INTERNATIONAL, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(000’s omitted)
 
    
Six months ended
August 31,
  
    
2002
       
2001
  
Cash flows from operating activities:
                    
Net income
   
$
417
 
     
$
276
 
Adjustments to reconcile net income to net cash provided by operating activities:
                    
Depreciation and amortization
   
 
111
 
     
 
114
 
Provision for doubtful accounts
   
 
700
 
     
 
450
 
Provision for inventory obsolescence
   
 
50
 
     
 
50
 
Other adjustments
   
 
—  
 
     
 
(12
)
Changes in operating assets and liabilities:
                    
Accounts and notes receivable
   
 
(143
)
     
 
826
 
Inventory
   
 
(788
)
     
 
(73
)
Assets held for sale
   
 
(72
)
     
 
(3
)
Prepaid expenses and other assets
   
 
(171
)
     
 
(40
)
Deferred income taxes
   
 
(219
)
     
 
116
 
Accounts payable and accrued liabilities
   
 
414
 
     
 
(151
)
Deferred revenue
   
 
(106
)
     
 
(97
)
    
    
Net cash provided by operating activities
   
 
193
 
     
 
1,456
 
    
    
Cash flows from investing activities:
                    
Capital expenditures
   
 
(69
)
     
 
(51
)
    
    
Net cash (used in) investing activities
   
 
(69
)
     
 
(51
)
    
    
Cash flows from financing activities:
                    
Principal payments on notes payable
   
 
(256
)
     
 
(42
)
Exercise of stock options
   
 
—  
 
     
 
8
 
    
    
Net cash (used in) financing activities
   
 
(256
)
     
 
(34
)
    
    
Net (decrease) increase in cash
   
 
(132
)
     
 
1,371
 
Cash at beginning of period
   
 
4,819
 
     
 
1,799
 
    
    
Cash at end of period
   
$
4,687
 
     
$
3,170
 
    
    
 
Noncash Activities:
 
In July 2002, the Company entered into a capital lease in the amount of $231 for the equipment acquired to operate the Company-owned franchise in San Carlos, California.
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents
BCT INTERNATIONAL, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(000’s omitted)
 
August 31, 2002
 
1.  In the opinion of management, the foregoing unaided condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position of the Company as of August 31, 2002. The balance sheet as of February 28, 2002 was derived from audited financial statements.
 
2.  The results for the three and six month periods ended August 31, 2002 and 2001, are not necessarily indicative of results that may be expected for the fiscal year.
 
3.  For the three and six months ended August 31, 2002 and 2001, basic earnings per common share are calculated by dividing net earnings applicable to common stock by the weighted average number of shares of common stock outstanding. Diluted earnings per common share are calculated by dividing net earnings applicable to common stock by the weighted average number of shares of common stock outstanding and common stock equivalents which consist of stock options.
 
For the three and six months ended August 31, 2002 and 2001, the number of shares used for both the basic and diluted earnings per share calculations were 5,121,000 and 5,127,000, respectively. All of the stock options outstanding for both periods were excluded from the diluted earnings per share calculation as their impact was anti-dilutive. In 2002, and 2001, 885,000 options and 1,393,000 options, respectively, were excluded.
 
4.  The Company utilizes an asset and liability approach in accounting for income taxes that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax return. In estimating future tax consequences, consideration is given to all expected future events other than enactment’s of changes in the tax law or rates.
 
5.  On July 19, 2002, the Company began operating a Company owned franchise in San Carlos, California. This franchise replaced a franchise in San Francisco, whose franchise agreement was terminated. The Company entered into an agreement with the terminated franchise for the orderly transition of the franchise business to the new facility in exchange for forgiveness of amounts due to the Company of approximately $658. In addition, the Company is obligated as guarantor for amounts borrowed by the San Francisco franchise owner for the purchase of the franchise in the amount of $457. The results of operations of the San Carlos Franchise, since July 19, 2002, (a loss of $49) are included in the consolidated income statement for the three and six month periods ended August 31, 2002.
 
6.  On September 19, 2002, the Company exercised its option to acquire an additional 37.15% interest in TBDS, Inc., the BCT franchise in Tampa, Florida. After exercising its option, the Company owns 56.15% of TBDS, Inc. Under the option agreement, no consideration was given for the additional ownership interest . The Company intends to operate the BCT Tampa franchise as a Company-owned franchise.

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Table of Contents
BCT INTERNATIONAL, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Continued …
(Unaudited) (000’s omitted)
August 31, 2002
 
7.  The Company has four reporting segments (1) Franchiser Operations, (2) Pelican Paper Products, (3) Company-owned Franchises and (4) Other Operations. The Company evaluates the performance of its segments based on earnings before income taxes. The Company is organized on the basis of business activity units. The table below presents information about reported segments for the three and six months ended August 31:
 
For the Three Months Ended August 31,
 
    
Franchiser
     
Pelican
Paper
     
Company owned
Franchise
     
Other
   
Total
2002
                                         
Revenues
   
$
1,242
 
   
$
2,903
     
$
76
 
   
$
194
   
$
4,415
Cost of sales
   
 
—  
 
   
 
2,523
     
 
19
 
   
 
—  
   
 
2,542
Operating expenses
   
 
1,415
 
   
 
154
     
 
106
 
   
 
—  
   
 
1,675
    
  
    
  
  
Income (loss) before income taxes
   
$
(173
)
   
$
226
     
$
(49
)
   
$
194
   
$
198
    
  
    
  
  
Depreciation and amortization
   
$
30
 
   
$
25
     
$
—  
 
   
$
—  
   
$
55
    
  
    
  
  
Income tax (benefit) provision
   
$
(73
)
   
$
95
     
$
(20
)
   
$
81
   
$
83
    
  
    
  
  
Capital expenditures
   
$
15
 
   
$
12
     
$
258
 
   
$
—  
   
$
285
    
  
    
  
  
2001
                                         
Revenues
   
$
1,275
 
   
$
3,110
     
$
—  
 
   
$
144
   
$
4,529
Cost of sales
   
 
—  
 
   
 
2,696
     
 
—  
 
   
 
—  
   
 
2,696
Operating expenses
   
 
1,344
 
   
 
147
     
 
—  
 
   
 
—  
   
 
1,491
    
  
    
  
  
Income (loss) before income taxes
   
$
(69
)
   
$
267
     
$
—  
 
   
$
144
   
$
342
    
  
    
  
  
Depreciation and amortization
   
$
30
 
   
$
27
     
$
—  
 
   
$
—  
   
$
57
    
  
    
  
  
Income tax (benefit) provision
   
$
(27
)
   
$
104
     
$
—  
 
   
$
56
   
$
133
    
  
    
  
  
Capital expenditures
   
$
37
 
   
$
7
     
$
—  
 
   
$
—  
   
$
44
    
  
    
  
  
 
For the Six Months Ended August 31,
 
    
Franchiser
     
Pelican
Paper
     
Company owned
Franchise
     
Other
   
Total
2002
                                         
Revenues
   
$
2,623
 
   
$
6,145
     
$
76
 
   
$
411
   
$
9,255
Cost of sales
   
 
—  
 
   
 
5,286
     
 
19
 
   
 
—  
   
 
5,305
Operating expenses
   
 
2,851
 
   
 
309
     
 
106
 
   
 
—  
   
 
3,266
    
  
    
  
  
Income (loss) before income taxes
   
$
(228
)
   
$
550
     
$
(49
)
   
$
411
   
$
684
    
  
    
  
  
Depreciation and amortization
   
$
62
 
   
$
49
     
$
—  
 
   
$
—  
   
$
111
    
  
    
  
  
Income tax (benefit) provision
   
$
(89
)
   
$
215
     
$
(19
)
   
$
160
   
$
267
    
  
    
  
  
Capital expenditures
   
$
26
 
   
$
16
     
$
258
 
   
$
—  
   
$
300
    
  
    
  
  
2001
                                         
Revenues
   
$
2,636
 
   
$
6,385
     
$
—  
 
   
$
312
   
$
9,333
Cost of sales
   
 
—  
 
   
 
5,527
     
 
—  
 
   
 
—  
   
 
5,527
Operating expenses
   
 
3,068
 
   
 
286
     
 
—  
 
   
 
—  
   
 
3,354
    
  
    
  
  
Income (loss) before income taxes
   
$
(432
)
   
$
572
     
$
—  
 
   
$
312
   
$
452
    
  
    
  
  
Depreciation and amortization
   
$
60
 
   
$
54
     
$
—  
 
   
$
—  
   
$
114
    
  
    
  
  
Income tax (benefit) provision
   
$
(169
)
   
$
223
     
$
—  
 
   
$
122
   
$
176
    
  
    
  
  
Capital expenditures
   
$
44
 
   
$
7
     
$
—  
 
   
$
—  
   
$
51
    
  
    
  
  

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Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
August 31, 2002
 
Results of Operations
 
Total revenues decreased $114,000, or 2.5% for the three months ended August 31, 2002 as compared to the corresponding period in the prior fiscal year. The decrease in revenue is attributable primarily to decreases in (i) royalty revenue ($25,000 or 2%) and (ii) paper and printing sales ($207,000 or 6.7%). These decreases were partially offset by increases in Orderprinting.com software licensing fees of $27,000 or 35% (the fees were increased from $4,200 to $6,000 annually), and an increase in Company-owned franchise sales of $76,000 due to the opening of a Company-owned franchise in July 2002.
 
Total revenues decreased $78,000, or 1% for the six months ended August 31, 2002 as compared to the corresponding period in the prior fiscal year. The decrease in revenue is attributable to decreases in paper and printing sales ($240,000 or 3.8%). These sales decreases were partially offset by increases in Orderprinting.com software licensing fees of $73,000 or 52% and Company-owned franchise sales of $76,000.
 
Cost of paper and printing sales as a percentage of paper and printing sales was 87% and 86%, respectively, for the three and six months ended August 31, 2002 as compared to 87% for the corresponding periods in fiscal 2002.
 
Selling and administrative expenses represented 37% and 34% of gross revenues for the three and six months ended August 31, 2002 as compared to 32% and 35% for the corresponding periods in fiscal 2002. The selling and administrative expense percentage is higher for the three months ended August 31, 2002 primarily due to an additional $125,000 provision for bad debt, as well as expenses related to the opening of the Company-owned franchise in July 2002 of $106,000.
 
Liquidity and Capital Resources
 
Cash resources decreased $132,000 during the six months ended August 31, 2002. The Company generated $193,000 from operations. During the first six months of fiscal 2003, the Company made debt payments totaling $256,000, invested $788,000 for additional inventory and made capital expenditures of $69,000.
 
The Company believes current cash reserves and internally generated funds will be sufficient to satisfy the Company’s working capital and capital expenditure requirements for the foreseeable future; however, there can be no assurance that external financing will not be needed. The Company has available a $2 million line of credit with a bank. No advances have been made on the line.
 
Certain information contained in this report, particularly information regarding future economic performance and finances, plans and objectives of management, constitutes “forward-looking statements” within the meaning of the federal securities laws. In some cases, information regarding certain important factors that could cause actual results to differ materially from any forward-looking statement appear together with such statement. In addition, the following factors, in addition to other possible factors not listed, could affect the Company’s actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include competition within the wholesale printing industry, which is intense; changes in general economic conditions; technological changes; changes in customer tastes; legal claims; the continued ability of the Company and its franchisees to obtain suitable locations and financing for new Franchises as well as expansion of existing Franchises; governmental initiatives, in particular those relating to franchise regulation and taxation; and risk factors detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

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Item 3.    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 4.    Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of October 11, 2002 and believe that they are effective.
 
Change in Internal Controls
 
Not applicable.
 
 
PART II    OTHER INFORMATION AND SIGNATURES
 
Item 6.    Exhibits and Reports on Form 8-K
 
(a)  Exhibits:
 
99.1
   
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2
   
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
(b)  No reports on Form 8-K were filed by the Company during the three month period ended August 31, 2002

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
BCT INTERNATIONAL, INC.
    (Registrant)
/s/    WILLIAM WILKERSON        
William Wilkerson
Chairman, President
& Chief Executive Officer
 
Date:  October 15, 2002
 
/s/    MICHAEL R. HULL        
Michael R. Hull
Vice President
& Chief Financial Officer
 
Date:  October 15, 2002

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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
 
I, William Wilkerson, Chief Executive Officer of BCT International, Inc., certify that:
 
(1)  I have reviewed this quarterly report on Form 10-Q of BCT International, Inc;
 
(2)  Based on my knowledge, this quarterly report dos not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this quarterly report; and
 
(3)  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report.
 
/s/    WILLIAM A. WILKERSON        
William A. Wilkerson
Chief Executive Officer
Date:  October 15, 2002

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CERTIFICATION OF CHIEF FINANCIAL OFFICER
 
I, Michael R. Hull, Chief Financial Officer of BCT International, Inc., certify that:
 
(1)  I have reviewed this quarterly report on Form 10-Q of BCT International, Inc;
 
(2)  Based on my knowledge, this quarterly report dos not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this quarterly report; and
 
(3)  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report.
 
/s/    MICHAEL R. HULL
Michael R. Hull
Chief Financial Officer
 
Date:  October 15, 2002

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