-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lw2Yf+IRnz4BDKBF+QbCeQMRXz3fGA3xlZndfYaVmp1bKP9sLu5Wi+CVKmZiP10R ru6UzfB3PqAB5+72SB8PEQ== 0000928385-98-001152.txt : 19980601 0000928385-98-001152.hdr.sgml : 19980601 ACCESSION NUMBER: 0000928385-98-001152 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980529 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BCT INTERNATIONAL INC / CENTRAL INDEX KEY: 0000351541 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] IRS NUMBER: 222358849 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-10823 FILM NUMBER: 98634238 BUSINESS ADDRESS: STREET 1: 3000 NE 30TH PL 5TH FL CITY: FT LAUDERDALE STATE: FL ZIP: 33306 BUSINESS PHONE: 3055631224 MAIL ADDRESS: STREET 1: 3000 NE 30TH PL STREET 2: 5TH FL CITY: FORT LAUDERDALE STATE: FL ZIP: 33306 FORMER COMPANY: FORMER CONFORMED NAME: BUSINESS CARDS TOMORROW INC DATE OF NAME CHANGE: 19881017 FORMER COMPANY: FORMER CONFORMED NAME: GOOD TACO CORP DATE OF NAME CHANGE: 19860318 10-K 1 FORM 10-K 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, 1998 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 ---------------------------------------------------------------- (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. [ ] The aggregate market value of Registrant's voting stock held by non- affiliates of the Registrant, at May 15, 1998 was approximately $10,444,976. The number of shares outstanding of Registrant's Common Stock, par value $.04 per share, at May 15, 1998 was 5,573,589. DOCUMENTS INCORPORATED BY REFERENCE NONE ---- This document consists of 36 pages. The Index to exhibits appears on page 16. Item 1. Business - ------- -------- (a) General ------- BCT International, Inc. (the "Company") is a holding company with one direct wholly-owned subsidiary: Business Cards Tomorrow, Inc., a Florida corporation ("BCT"). BCT operates the Business Cards Tomorrow franchise system, the world's largest wholesale franchise printing chain. Since its founding in 1975, the system has grown to include 88 "Business Cards Tomorrow Franchises" (the "Franchises") specializing in thermography products for resale by retail printing providers in 38 states and Canada. One Franchise -- located in Delray Beach, Florida, is owned by BCT through wholly-owned subsidiaries. Another subsidiary of BCT owns 70% of the Louisville, Kentucky, Franchise and the remaining 30% is owned by third parties who manage day to day operations. 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 a single industry segment: the franchising, ownership and operation of and sale of paper products to the BCT Franchises. (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, "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. 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. While most Franchises receive at least some orders by mail, fax and electronic communication, this normally does not constitute a major portion of a Franchise's business. Thermography is a specialized printing process that gives a raised printing effect similar to engraving and requires specialized equipment and operating techniques. Most commercial and "quick" printers and office superstores and other Dealers choose not to invest in this specialized equipment, preferring to subcontract this type of work to wholesale "trade" printing companies such as Business Cards Tomorrow Franchises that specialize in thermography. BCT supplies business card, stationery, rubber stamp and label catalogs to its Franchises and also sells them the paper products featured in the catalogs through PPP. PPP is a supplier of paper products for the BCT Franchises. PPP purchases raw paper directly from paper mills and paper brokers and utilizes the services of converters to convert the raw material to finished paper products. In addition, certain conversion functions are performed "in house". PPP utilizes three public storage facilities located strategically throughout the United States to house and ship out paper products to the Franchises. BCT markets its franchise operations to potential franchisees through major business newspapers as well as printing trade publications. The development of a specific market is determined by a number of different criteria, including resources available, customer base and operating efficiencies. BCT has developed the BCT network primarily through the sale of franchises to third parties. BCT indirectly owns and operates two Franchises described in Item 1(a) above (the "Company Franchises"). BCT Franchises are located throughout the Continental U.S., Hawaii and Canada. Page 1 BCT derives revenues from six principal sources: (i) royalties, which are based on a percentage of sales from the BCT Franchises; (ii) franchise fees from newly franchised Franchises and resale fees from the resale of operating Franchises; (iii) sales of paper products to franchisees; (iv) catalog and miscellaneous equipment and parts sales classified as printing sales; (v) gross revenue from the Company Franchises; and (vi) sales of additional Territories to existing franchisees. As of May 15, 1998, 88 BCT Franchises are in operation in 38 states and Canada. The current number of Franchises compares with 98 and 100 Franchises in operation on May 1, 1997 and 1996, respectively. The decrease in the number of franchises is the result of several instances of Franchises combining the operations of multiple Franchises into one Franchise. Total BCT system sales reached approximately $96,000,000 and $91,000,000 for the years ended December 31, 1997 and 1996, an average of $1,057,000 and $919,000, respectively, per Franchise. Total and average sales were $84,000,000 and $853,000, respectively, for fiscal 1996. On April 6, 1998, BCT entered into an agreement for a Franchise to be located in Buenos Aires, Argentina. BCT receives either a 5% or 6% royalty fee based on gross BCT 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 franchise agreements are up for renewal. For fiscal years ended 1998, 1997, and 1996, continuing franchise royalties comprised approximately 25%, 27% and 27% of total revenue, respectively. PPP sales to the franchisees for fiscal years ended 1998, 1997, and 1996 were approximately 60%, 53%, and 47% 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. Consequently, PPP frequently carries higher levels of inventory than what is required according to PPP's customer demands. While BCT, through PPP, sells paper products to its Franchises and the Company 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 17 years. One Franchise comes up for renewal in fiscal 1999, and in the subsequent 10 years, 18 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. 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 (supported by the May 1993 Quick Print Magazine "Supply and Services Survey," indicating a 23% market share in the brokered printing category for business cards), there can be no assurance that competitors will not imitate Page 2 or improve upon the Company's business strategy. BCT's major national competitors are Regency Thermographers and 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. Trade and Service Marks ----------------------- The Company has received federal registration of the names "Business Cards Tomorrow" and "BCT International, Inc." and the BCT commercial logo, as well as the names and commercial marks for "Typesetting Express", "Engraving Tomorrow", "Thrift-T-Cards", "Thermo-Rite", and "Rubber Stamps Tomorrow". Research and Development ------------------------ The Company performs ongoing research and development, seeking improvements in the operating procedures and products of its Franchises and development of proprietary software. These activities are primarily done at the Company Franchises and at the Company's corporate headquarters. Also, the Company often requests individual franchisees to perform tests of various equipment, materials or techniques in an actual production environment. The Company has done extensive research and development in the use of an internet based order entry and distribution system. Government Regulation --------------------- The Federal Trade Commission has adopted rules relating to the sales of franchises and disclosure requirements to potential franchise purchasers. Additionally, various states have adopted laws regulating franchise sales and operations. As a franchisor, the Company is required to comply with these federal and state regulations and believes that it is not operating in violation of any of these regulations. Employees --------- The Company has 90 employees, all of whom are located at either (i) the Company's corporate headquarters in Fort Lauderdale, Florida, or (ii) the Company Franchises in Delray Beach, Florida and Louisville, Kentucky. Financial Information Relating to Foreign and Domestic Operations -----------------------------------------------------------------
February 28, February 28, February 29, 1998 1997 1996 ------------ ------------- ------------ Revenue: Foreign operations $ 924,000 $ 969,000 $ 922,000 Domestic operations $18,481,000 $16,776,000 $16,668,000 Operating Profit (Loss): Foreign operations $ 118,000 $ (22,000) $ 123,000 Domestic operations $ 2,300,000 $ (385,000) $ 823,000 Identifiable Assets: Foreign operations $ 355,000 $ 356,000 $ 312,000 Domestic operations $13,802,000 $10,873,000 $10,426,000
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 $9,800. The Delray Beach, Florida, Company Franchise utilizes a 6,000 square foot facility, which is leased for a monthly rental of $3,700. The lease on this facility continues through April 2000. The Louisville, Kentucky, Company Franchise utilizes a 5,000 square foot facility, which is leased for a monthly rental of $1,400. The lease on this facility continues through September 1999. The Woburn, Massachusetts location, formerly occupied by a Company Franchise, is currently being marketed for sublease. The monthly rental of $3,300 on this 4,500 square foot facility continues through February 2001. Management believes that existing facilities are adequate for the foreseeable future. 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, 1998. Item 5. Market for Registrant's Common Stock and Related Security Holder - ------- --------------------------------------------------------- ------ Matters ------- The Company's Common Stock is traded on the National Market tier of the NASDAQ Stock Market under the symbol "BCTI". The following table sets forth, for the quarters indicated, the high and low closing price for the Common Stock as reported on the NASDAQ National Market.
Fiscal Quarters High Low --------------- ----- ----- 1997 First Quarter $4.38 $3.00 Second Quarter $3.62 $2.75 Third Quarter $4.38 $3.12 Fourth Quarter $5.00 $2.50 1998 First Quarter $3.80 $2.00 Second Quarter $3.75 $2.50 Third Quarter $3.62 $2.62 Fourth Quarter $3.43 $2.37 1999 First Quarter (through May 15, 1998) $3.75 $2.68
On May 15, 1998, the closing price per share of common stock, as reported by NASDAQ, was $3.06. There is currently no established public trading market for any securities of the Company other than the common stock. The approximate number of holders of record of the Company's common stock as of May 15, 1998 was 835. During the fiscal years ended February 28, 1998 and 1997 and February 29, 1996, 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) - ------- -----------------------
OPERATIONS for the fiscal year ended: FEB. 28, 1998 FEB. 28, 1997 FEB. 29, 1996 FEB. 28, 1995 FEB. 28, 1994 ------------- -------------- ------------- ------------- ------------- REVENUES: Royalties and franchise fees $ 4,921 $ 4,852 $ 4,820 $ 4,540 $ 4,004 Paper and printing sales 11,734 10,118 9,159 7,585 7,400 Company franchise sales 2,383 2,529 2,305 852 651 Sales of franchises 44 40 870 466 957 Interest and other income 323 206 436 130 109 ------- ------- ------- ------- ------- 19,405 17,745 17,590 13,573 13,121 ------- ------- ------- ------- ------- EXPENSES: Cost of paper and printing sales 9,857 8,823 7,796 6,657 6,376 Operating expenses of company franchises 2,760 3,262 3,277 1,120 802 Cost of franchises sold --- --- 521 326 691 Selling, general and administrative 4,171 5,820 4,880 4,212 4,146 Depreciation and amortization 199 247 170 227 338 ------- ------- ------- ------- ------- 16,987 18,152 16,644 12,542 12,353 ------- ------- ------- ------- ------- Income (loss) before income taxes 2,418 ( 407) 946 1,031 768 Income tax provision (benefit) 853 ( 22) ( 195) ( 124) ( 93) ------- ------- ------- ------- ------- Net income (loss) $ 1,565 $( 385) $ 1,141 $ 1,155 $ 861 ======= ======= ======= ======= ======= Earnings (loss) per common share: Net income (loss) Basic $ .30 $ (.08) $ .22 $ .34 $ .31 ------- ------- ------- ------- ------- Diluted $ .28 $ (.08) $ .20 $ .23 $ .25 ------- ------- ------- ------- ------- Total assets $14,157 $11,229 $10,738 $10,018 $ 7,781 Long-term debt $ 539 $ 215 $ 5 $ 48 $ 459 Preferred stock $ 60 $ 60 $ 260 $ 810 $ 1,622 Net working capital $ 5,032 $ 3,614 $ 4,633 $ 5,542 $ 1,067 Stockholders' equity (1) $11,073 $ 9,310 $ 9,374 $ 7,759 $ 2,290
(1) During the five fiscal years ended February 28, 1998, no cash dividends have been declared on the common stock outstanding. Page 5 Item 7. Management's Discussion and Analysis of Financial Condition and Results - ------- ----------------------------------------------------------------------- of Operations ------------- Fiscal 1998 Compared to Fiscal 1997 - ----------------------------------- Total revenue for fiscal 1998 increased by $1,660,000 or 9% over the prior fiscal year. Royalty revenue increased by $69,000 or 1%; paper and printing sales increased by $1,616,000 or 16%, and revenue from Company Franchises decreased $146,000 or 6%. Revenue growth was attributable to the overall revenue growth of the BCT system, continued increased market penetration by PPP, the introduction of labels to the revenue mix of the BCT system and the corresponding sale of labels materials and supplies by PPP. The decrease in Company Franchise revenue resulted from the Company operating a weighted average of 2.4 Company Franchises in fiscal 1998 as compared with a weighted average of 3.5 in fiscal 1997. Interest and other income increased $117,000 or 57% due to the Company's increase in trade notes receivable. Cost of goods sold as a percentage of revenues was 51%, 50% and 47%, respectively, for fiscal years ended 1998, 1997 and 1996. Fluctuations in this percentage primarily result from changes in the revenue mix. Selling, general and administrative expenses represented 21%, 33% and 28% of gross revenues in fiscal 1998, 1997 and 1996, respectively. The decrease in fiscal 1998 was the result of applying the cost containment begun in fiscal 1997 for a full year. In addition, selling, general and administrative cost in fiscal 1997 included a loss of $130,000 incurred by the Company relating to its freight auditing company as well as a writedown of certain assets relating to the social stationery program amounting to $144,000. Losses at Company Franchises were $377,000 in fiscal 1998 versus losses of $733,000 in fiscal 1997. The reduction of losses resulted from the decrease in the weighted average number of Company Franchises in operation during fiscal 1998. Fiscal 1997 Compared to Fiscal 1996 - ----------------------------------- Total revenue for fiscal 1997 increased by $155,000 or 1% over the prior fiscal year. Royalty revenue increased by $32,000 or 1%; paper and printing sales increased by $959,000 or 10%; revenue from Company Franchises increased by $866,000 or 82%; revenue from Company Franchises held for sale decreased by $642,000 or 51%; revenue from the sales of franchises decreased by $830,000 or 95% and interest and other income decreased by $230,000 or 53%. Revenue growth was attributable to the overall revenue growth of the BCT system, increased market penetration by Pelican Paper, and a complete year of revenue from the Company Franchises. Revenue growth was tempered by an increase in the number of franchises participating in the renewal royalty scale, and a decrease in revenues from Company Franchises held for sale as current year revenue includes revenue from three Franchises versus five in the prior year. In addition, Franchise sales decreased as a result of the sale of one Franchise in fiscal 1997 versus sales of two Franchises, a Facility, two territories and a Company Franchise is fiscal 1996. Cost of goods sold as a percentage of revenue was 50%, 47% and 51%, respectively, for fiscal years ended 1997, 1996 and 1995. Although the percentage generally remains stable, it does fluctuate due to periodic changes in the revenue mix. Selling, general and administrative expenses represented 33%, 28% and 31% of gross revenues in fiscal 1997, 1996 and 1995, respectively. In fiscal 1997, management focused on the sale of Company owned Franchises held for sale and on cost containment as it related to BCT operations. In fiscal 1997, losses of $733,000 were incurred by the Company Franchises as compared to losses of $972,000 in fiscal 1996. The Company Franchises in Marietta, Georgia; Riverside, California; and Newbury Park, California were sold in August 1996. In addition, the Company discontinued its social stationery program in fiscal 1997. As a result, provision was made for inventory obsolescence; and certain assets related to development of the social catalog were written off. The aggregate charge to fiscal 1997 earnings was $270. Liquidity and Capital Resources - ------------------------------- The Company generated cash from operations of $864,000 during the fiscal year ended February 28, 1998. The Company employed the cash generated to make capital expenditures of $88,000, primarily for equipment at the Company Franchises, acquisitions of $195,000 relating to the Boston Franchise repurchase and the purchase of an independent thermography business which was resold, and to make principal payments on debt of $75,000. The remainder of cash generated from operations and from stock options which were exercised by their holders ($205,000) were retained to fund day to day operations of the business. Page 6 The Company's cash generated from operations was reduced by the Company's commitment to the franchise network in the form of note financing for acquisitions and to finance certain current obligations of the franchise owners. The Company intends to continue to improve its working capital and cash positions during fiscal 1999 by focusing its efforts on cash collections and maintaining current inventory levels. Further, the Company intends to pursue new channels of distribution for its current products and continue to develop and improve new and existing product offerings such as labels and rubber stamps. The Company believes that 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 or that, if needed, it will be available on commercially reasonable terms. Certain information contained in this annual report, particularly information regarding future economic performance and finances, plans and objectives of management, constitutes "forward-looking statements" within the meaning of the federal securities laws. In some cases, information regarding certain important factors that could cause actual results to differ materially from any forward-looking statement appear together with such statement. In addition, the following factors, in addition to other possible factors not listed, could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include competition within the wholesale printing industry, which is intense; changes in general economic conditions; technological changes; changes in customer tastes; legal claims; the continued ability of the Company and its franchisees to obtain suitable locations and financing for new Franchises as well as expansion of existing Franchises; governmental initiatives, in particular those relating to franchise regulation and taxation; and risk factors detailed from time to time in the Company's filings with the Securities and Exchange Commission. Item 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 56 Chairman of the Board January 1978 James H. Kaufenberg 56 Chief Executive Officer, President and Director September 1996 Michael R. Hull 44 Chief Financial Officer, Treasurer and Secretary May 1996 Thomas J. Cassady 76 Director April 1988 Alvin Katz 68 Director October, 1996 Henry A. Johnson 63 Director February 1975 Bill LeVine 78 Director May 1992 Peter Gaughn 42 Director April 1998
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. James H. Kaufenberg joined the Company in September 1996 and served as President and Chief Operating Officer. In October 1997, Mr. Kaufenberg was appointed Chief Executive Officer and was appointed to the Board of Directors. Previously, he Page 7 was President and Chief Executive Officer and a Director of Insty-Prints, Inc. since September 1989. Mr. Kaufenberg has an extensive background in general and financial management in the paper, manufacturing and technology industries. From November 1984 to October 1989, he was Chief Financial Officer of CPT Corporation based in Minnesota. From May 1983 to October 1984, he was President and Chief Executive Officer of Daycom Corporation based in Dayton, Ohio. Before that, Mr. Kaufenberg was President and General Manager of Miami Paper Corporation in Dayton, Ohio. Mr. Kaufenberg graduated with distinction from the University of Nebraska in 1969 and earned his CPA in 1970. Michael R. Hull joined the Company in May 1996 and became Vice President/Chief Financial Officer and Treasurer beginning May 31, 1996. Mr. Hull is a certified public accountant, a member of the Florida Institute of Certified Public Accountants and the American Institute of Certified Public Accountants and has worked in public accounting since 1985. Prior to joining the Company, Mr. Hull served as an audit senior manager with the accounting firm of Price Waterhouse LLP for three years. Thomas J. Cassady became a Director of the Company in April 1988 and has been a Director of Photo Control Corporation, Minneapolis, Minnesota, since February 1978. Mr. Cassady is a veteran of more than 30 years in the financial and securities field, having served as President and Chief Administrative Officer of Merrill, Lynch, Pierce, Fenner and Smith, Inc., until his retirement in 1978. Alvin Katz became a Director in October 1996. He has been an adjunct professor of management at Florida Atlantic University in Boca Raton, Florida since 1980. He spent 20 years with United Parcel Service, Inc. from 1957 to 1976 in various staff assignments, including Corporate Director of R&D and Operations Planning. Subsequently, he served as CEO of a privately owned conglomerate in New York City. He is a Director of NASTECH Co., Blimpies International, Inc., AMTECH Systems, Inc., MIKRON Instrument Company, and OZO Diversified Automation, Inc. Henry A. Johnson, founder of BCT, has been a Director of the Company since January 1986. From January 1986 until October 1988, he was Senior Vice President/Operations of the Company. In February 1989, he accepted the additional responsibilities of Executive Vice President of BCT. Previously, he was Senior Vice President/Operations for Business Cards Tomorrow, Inc. (a Florida corporation), from January 1978. In March 1990, he retired from his position with BCT. Since March 1991, Mr. Johnson has owned and operated a private printing business, Colorful Copies, located in Las Vegas, Nevada. Bill LeVine became a Director of the Company in May 1992. Mr. LeVine is the pioneer of the quick printing industry. He founded Postal Instant Press (PIP Printing) in 1967 and served as its Chairman, Chief Executive Officer and President until January 1988. Since that time, he has focused on private investments. Since 1992, Mr. LeVine has been a Director of Fast Frame, Inc. Mr. LeVine has been a Director of Mellon First Business Bank, Los Angeles, California, since 1982, Rentrak Corporation, formerly National Video, Portland, Oregon, since 1987 and California Closets, Inc., San Francisco, California since 1994. Peter Gaughn became a Director of the Company in April 1998. He currently serves as President and Chief Executive Officer and Director of PIP Printing, a position he has held since February 1995. Previously, Mr. Gaughn was President and Chief Operating Officer of the Company from August 1989 to January 1995. 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 one instance 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. A Form 4 relating to the exercise of options to purchase common stock by the Chairman of the Company was received by the Securities and Exchange Commission one day after the filing deadline. Item 11. Executive Compensation - -------- ---------------------- (a) Board Compensation Committee Report on Executive Compensation The Compensation Committee of the Board of Directors, which is comprised of non-employee directors, has overall responsibility to review and recommend broad-based compensation plans for executive officers of the Company and its BCT subsidiary to the Board of Directors. One of the members of the Compensation Committee, Mr. LeVine, has invested significant sums of money in the Company. (See Item 13. "Certain Relationships and Related Transactions"). Pursuant to recently adopted rules designed to enhance disclosure of companies' policies toward executive compensation, set forth below is a report submitted by Mr. Page 8 LeVine in his capacity as the remaining member of the Board's Compensation Committee following the March 1998 death of the other member, Raymond Kiernan, addressing the Company's compensation policies for fiscal 1998 as they affected the Company's executive officers generally and Mr. William A. Wilkerson, Chairman of the Board (and Chief Executive Officer until October 1997), and Mr. James H. Kaufenberg, President and Chief Executive Officer of the Company since October 1997. Compensation Policies For Executive Officers The executive compensation program is based on a philosophy which aligns compensation with business strategy, Company values and management initiatives. The principles underlying this compensation philosophy are: the linkage of executive compensation to the enhancement of shareholder value; maintenance of a compensation program that will attract, motivate and retain key executives critical to the long-term success of the Company; creation of a performance oriented environment by rewarding performance leading to the attainment of the Company's goals; evaluation of competitiveness of salary and equity incentive opportunities; and determination of the adequacy and propriety of the annual bonus plan, including structure and performance measures. Relationship of Performance Under Compensation Plans Compensation paid Messrs. Wilkerson and Kaufenberg in fiscal 1998, as reflected in the following Tables, consisted of base salary. In addition, as indicated in the Tables, in fiscal 1998 the Compensation Committee awarded stock options to Mr. Wilkerson. Annual Bonus Arrangements The Company's annual bonuses to its executive officers, as indicated above, are based on both objective and subjective performance criteria. Objective criteria include actual versus target annual operating budget performance and actual versus target annual income growth. Target annual income growth and target annual operating budgets utilized for purposes of evaluating annual bonuses are based on business plans which have been approved by the Board of Directors. Subjective performance criteria encompass evaluation of each officer's initiative and contribution to overall corporate performance, the officer's managerial ability, and the officer's performance in any special projects that the officer may have undertaken. Performance under the subjective criteria was determined at the end of fiscal 1998 after informal discussions with other members of the Board. Mr. Wilkerson's Fiscal 1998 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 1997 compensation was paid pursuant to this contract. In June 1997, Mr. Wilkerson's contract was extended for an additional three year term. The agreement calls for minimum annual remaining salary amounts of $300,000 during the employment term. In the event that Mr. Wilkerson is substantially incapacitated during the term of his employment for a period of 90 days in the aggregate during any twelve month period, the Company has the right to terminate his employment. Under such termination, Mr. Wilkerson will receive one-half of his salary in effect on the date of termination for the remaining term of the agreement. Additionally, in the event of Mr. Wilkerson's death during his employment, his designated beneficiary or his estate shall be paid one-half of his salary in effect on the date of his death for the remaining term of the agreement. Mr. Kaufenberg's Fiscal 1998 Compensation During fiscal 1997, the Committee approved the terms of Mr. Kaufenberg's employment. Under the terms of his employment, if Mr. Kaufenberg is terminated for any reason, he is entitled to receive six months of severance pay. Mr. Kaufenberg's compensation in fiscal 1998 consisted of a base salary plus a bonus arrangement based upon the achievement of certain levels of profitability by the Company. SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS: BILL LEVINE (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, 1998, and February 28, 1997, and February 29, 1996, by the executive officers of the Company as to whom the total salary and bonus in the most recent year exceeded $100,000. Page 9 BCT INTERNATIONAL, INC. ----------------------- SUMMARY COMPENSATION TABLE -------------------------- FISCAL YEARS 1998, 1997 AND 1996 -------------------------------- 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 1998 $ 294 (1) $ 50 $ 344 --- 70 (5) the Board 1997 $ 312 (1) $ --- $ 300 --- 50 (2) 1996 $ 287 (1) $ 10 $ 297 --- --- J.H. Kaufenberg Chief Executive 1998 $ 150 (6) $ 150 $ 300 --- --- Officer and 1997 $ 120 (3) $ 10 $ 130 --- 200 (4) President M.R. Hull Chief Financial 1998 $ 88 $ 31 $ 119 --- --- Officer, Secretary 1997 $ 68 $ --- $ 68 --- 15 (7) and Treasurer
(1) Salary for fiscal 1998, 1997 and 1996 includes a $12 car allowance. (2) Options granted in fiscal 1997 all of which immediately vested. (3) Includes a $50 non-accountable moving allowance. (4) Options granted in fiscal 1997, which vest in equal installments over a four year period ending in fiscal 2001. (5) Options granted in fiscal 1998, all of which immediately vested. (6) Salary includes an $10 car allowance. (7) Options granted in fiscal 1997, which vest in equal installments over a three year period ending in fiscal 2000. Page 10 BCT INTERNATIONAL, INC. ----------------------- AGGREGATED OPTION EXERCISES AND YEAR-END ---------------------------------------- OPTION VALUES FOR FISCAL 1998 ----------------------------- 000'S OMITTED -------------
NUMBER OF VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT SHARES 2/28/98 (#) 2/28/98 ($) ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME POSITION EXERCISE # REALIZED ($) UNEXERCISABLE UNEXERCISABLE - ---- -------- ----------- ------------ ------------- ------------- W.A. Wilkerson Chairman of the Board 25 $ 37 329 / 0 $11 / $0 J.H. Kaufenberg Chief Executive Officer and --- $ --- 50 / 150 $ 0 / $0 President M.R. Hull Chief Financial --- $ --- 5 / 10 $ 0 / $0 Officer, Secretary and Treasurer
Page 11 BCT INTERNATIONAL, INC. ----------------------- EXECUTIVE MANAGEMENT COMPENSATION --------------------------------- OPTION GRANTS IN FISCAL YEAR 1998 --------------------------------- 000'S OMITTED -------------
POTENTIAL REALIZABLE VALUE AT ASSUMED % OF TOTAL ANNUAL RATES OF OPTIONS STOCK PRICE OPTIONS GRANTED TO EXERCISE EXPIRATION APPRECIATION NAME POSITION GRANTED EMPLOYEES PRICE DATE FOR OPTION TERM - ---- -------- ------- --------- ----- ---- --------------- 5% ($) 10% ($) W.A. Wilkerson Chairman of the Board 70 74% $2.88 8/10/07 $127 / $321
Page 12 (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 15, 1998, information with respect to the only persons known to the Company to be beneficial owners of more than 5% of the Company's outstanding Common Stock (excluding treasury stock), as well as the beneficial ownership of all directors and officers of the Company individually and all directors and officers as a group. Based on the information available to the Company, except as set forth in the accompanying footnotes, each person has sole investment and voting power with respect to the shares of common stock indicated. At May 15, 1998, 5,573,589 shares of Common Stock were outstanding. Page 13
PERCENT OF NUMBER OF SHARES OUTSTANDING NAME BENEFICIALLY OWNED (1) COMMON STOCK - ---- ---------------------- ------------- Certain Beneficial Owners: Steven N. Bronson 635,320 (2) 10.95% Barber & Bronson, Inc. 2101 West Commercial Blvd., Suite 1500 Fort Lauderdale, Florida 33309 Officers and Directors: William A. Wilkerson 1,318,808 (3) 22.33% Bill LeVine 697,532 (4) 12.35% Henry A. Johnson 154,347 (5) 2.75% Thomas J. Cassady 38,750 (6) .69% Alvin Katz 22,500 (7) .40% James H. Kaufenberg 54,500 (8) .97% Peter T. Gaughn 53,500 (9) .95% Michael R. Hull 5,000 (10) .09% Officers and Directors as a group (8 persons) 2,344,937 (11) 38.04%
- -------------------- (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 228,750 shares covered by currently exercisable warrants. (3) Includes 331,250 shares covered by currently exercisable stock options and warrants. (4) Includes 73,750 shares covered by currently exercisable stock options. (5) Includes 31,250 shares covered by currently exercisable stock options. (6) Includes 22,500 shares covered by currently exercisable stock options. (7) Includes 22,500 shares covered by currently exercisable stock options. (8) Includes 52,500 shares covered by currently exercisable stock options. (9) Includes 52,500 shares covered by currently exercisable stock options. (10) Includes 5,000 shares covered by currently exercisable stock options. (11) Includes 591,250 shares covered by currently exercisable stock options and warrants. Page 14 Item 13. Certain Relationships and Related Transactions - -------- ---------------------------------------------- In February 1996, a company of which Mr. Wilkerson, the Chairman of the Board, is a 50% shareholder, purchased the Honolulu, Hawaii, Company Franchise for a total purchase price of $400,000 plus accounts receivable and inventory. The purchase price is payable pursuant to a $325,000 promissory note, representing an assumption of the prior franchisee's debt to the Company, and a $108,000 promissory note representing the value of the inventory and accounts receivable acquired. The $325,000 note bears interest at 8% per year and requires equal monthly payments of principal and interest for 10 years based on a 15-year amortization, with a balloon payment due at the end of 10 years. The $108,000 note bears interest at 8% per year and is payable in five years pursuant to equal monthly payments of principal and interest. During 1997, the Company advanced an additional $65,000 to the Hawaii Franchise in exchange for three demand notes bearing interest of 8%. These notes are secured by pledges of substantially all of the assets of the Hawaii Franchise, as well as the personal guarantees of the shareholders. The Hawaii Franchise is 21 months behind on payments under the $325,000 note and 21 months behind on payments under the $108,000 note. Further, the Hawaii Franchise's debt to the Company for paper purchases, royalties and other advances totalling $131,414 is more than 90 days past due as of May 15, 1998. In April 1998, the Company advanced $102,000 to the other 50% shareholder who is an owner of another BCT franchise to fund a buyout by the manager of the Hawaii Franchise. The proposed buyout transaction has not been concluded. The Company has thus far elected not to exercise its contractual rights to declare a default, accelerate the Hawaii Franchise's indebtedness and foreclose its security interest in the Franchise's assets. This election has been made in accordance with the Company's policy of working closely with troubled franchisees in an attempt to restore their financial and operating health and of taking legal action to collect debts and repossess assets only when the troubled Franchise appears unable to be successfully turned around. In the case of the Hawaii Franchise, which was in very poor financial and operating condition when acquired by Mr. Wilkerson's company, the Company believes that the operating performance of the Franchise has improved significantly in recent months and that, by continuing its current posture, the Company will maximize the probability of making the Hawaii Franchise a successful Franchise contributing to the Company's long-term profitability. Page 15 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 17 (b) Reports of Form 8-K June 12, 1997 Report on Form 8-K is incorporated herein by reference. (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. 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, is 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. Page 16 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: By: /s/ James H. Kaufenberg --------------------- ----------------------------------------------- James H. Kaufenberg President, Chief Executive Officer and Director DATE: By: /s/ Michael R. Hull --------------------- ----------------------------------------------- Michael R. Hull Vice President, Treasurer & Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated. /s/ William Wilkerson /s/ Henry A. Johnson - --------------------------------------- -------------------------------- William Wilkerson Henry A. Johnson Chairman of the Board & Director Director Date: Date: /s/ Thomas J. Cassady /s/ Bill LeVine - --------------------------------------- -------------------------------- Thomas J. Cassady Bill LeVine Director Director Date: Date: /s/ Alvin Katz /s/ Peter Gaughn - --------------------------------------- -------------------------------- Alvin Katz Peter Gaughn Director Director Date: Date: Page 17 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, 1998 and February 28, 1997 D-3 Consolidated Statements of Operations for the fiscal years ended February 28, 1998 and 1997, and February 29, 1996 D-4 Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended February 28, 1998 and 1997, and February 29, 1996 D-5 Consolidated Statements of Cash Flows for the fiscal years ended February 28, 1998 and 1997, and February 29, 1996 D-6 Notes to Consolidated Financial Statements D-7 to D-17 Schedules: - --------- For the fiscal years ended February 28, 1998 and 1997, and February 29, 1996: VIII Valuation and Qualifying Accounts D-18 X Supplementary Income Statement Information D-19
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 18 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Fort Lauderdale, Florida April 30, 1998 D-2 Page 19
BCT INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS February 28, 1998 February 28, 1997 000's omitted ----------------- ------------------ ASSETS - ------ Current Assets: Cash and cash equivalents $ 1,018 $ 314 Accounts and notes receivable, net 2,482 1,641 Inventory 2,423 2,468 Assets held for sale 514 457 Prepaid expense and other current assets 160 66 Deferred income taxes 919 312 -------- -------- Total current assets 7,516 5,258 Accounts and notes receivable, net 5,376 3,209 Property and equipment at cost, net 651 762 Deferred income taxes 214 1,569 Deposits and other assets 89 94 Trademark and other intangible assets 311 337 -------- -------- $ 14,157 $ 11,229 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Accounts payable $ 1,264 $ 1,032 Notes payable 105 49 Accrued liabilities 777 291 Deferred revenue 339 272 -------- -------- Total current liabilities 2,484 1,644 Notes payable 539 215 -------- -------- Total liabilities 3,025 1,859 -------- -------- Commitments and contingencies (Note 9) --- --- -------- -------- Preferred stock, Series A, 12% cumulative, $1 par value, mandatorily redeemable, 810 shares authorized, 60 shares issued and outstanding 60 60 -------- -------- Stockholders' equity: Common stock, $.04 par value, authorized 25,000, issued and outstanding 5,573 shares (5,410 shares in 1997) 223 216 Paid in capital 12,254 12,056 Accumulated deficit (845) (2,403) -------- -------- 11,632 9,869 Less: Treasury stock, at cost, 251 shares (559) (559) -------- -------- Total stockholders' equity 11,073 9,310 -------- -------- $ 14,157 $ 11,229 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. D-3 Page 20 BCT INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (000's omitted)
For the For the For the Fiscal year ended Fiscal year ended Fiscal year ended February 28, 1998 February 28, 1997 February 29, 1996 ----------------- ----------------- ----------------- Revenues: Royalties and Franchise fees $ 4,921 $ 4,852 $ 4,820 Paper and printing sales 11,734 10,118 9,159 Company Franchise revenues 2,383 2,529 2,305 Sales of franchises 44 40 870 Interest and other income 323 206 436 ------- ------- ------- 19,405 17,745 17,590 ------- ------- ------- Expenses: Cost of paper and printing sales 9,857 8,823 7,796 Operating costs of Company Franchises 2,760 3,244 3,277 Cost of franchises sold --- --- 521 Selling, general and administrative 4,171 5,838 4,880 Depreciation and amortization 199 247 170 ------- ------- ------- 16,987 18,152 16,644 ------- ------- ------- Income (loss) before income taxes 2,418 (407) 946 Income tax provision (benefit) 853 (22) (195) ------- ------- ------- Net income (loss) $ 1,565 $ (385) $ 1,141 ======= ======= ======= Net income (loss) per common share: Basic $ .30 $ (.08) $ .22 ======= ======= ======= Diluted $ .28 $ (.08) $ .20 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. D-4 Page 21 BCT INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (000's omitted)
Common Stock ----------------- Less: Number of Par Paid In Accumulated Treasury Shares Value Capital Deficit Stock Total --------- ----- ------- ----------- -------- ------- Balance February 28, 1995 4,785 $ 191 $11,110 $ (3,054) $ (488) $ 7,759 Conversion of 550 shares of Series A Preferred Stock at a conversion ratio of 1.48 372 15 535 --- --- 550 Other changes 7 1 14 3 (13) 5 Net income --- --- --- 1,141 --- 1,141 Dividend on convertible preferred stock --- --- --- (81) --- (81) ----- ----- ------- -------- ------ ------- Balance February 29, 1996 5,164 207 11,659 (1,991) (501) 9,374 Exercise of stock options at prices from $1.25 to $3.38 per share 111 4 165 --- --- 169 Conversion of 200 shares of convertible preferred stock to common stock with a conversion rate of 1.48 135 5 195 --- --- 200 Other changes --- --- 37 --- (58) (21) Dividends on convertible preferred stock --- --- --- (27) --- (27) Net loss (385) (385) ----- ----- ------- -------- ------ ------- Balance February 28, 1997 5,410 216 12,056 (2,403) (559) 9,310 Exercise of stock options at prices from $1.25 to $1.48 per share 163 7 198 --- --- 205 Dividends on convertible preferred stock --- --- --- (7) --- (7) Net income 1,565 1,565 ----- ----- ------- -------- ------ ------- Balance February 28, 1998 5,573 $ 223 $12,254 $ (845) $ (559) $11,073 ===== ===== ======= ======== ====== =======
The accompanying notes are an integral part of these consolidated financial statements. D-5 Page 22 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, 1998 February 28, 1997 February 29, 1996 ----------------- ----------------- ----------------- Cash flows from operating activities: Net income (loss) $ 1,565 $ (385) $ 1,141 Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities: Deferred income taxes 1,355 36 (138) Depreciation and amortization 199 385 381 Cost assigned to warrants issued --- 37 38 Provision for doubtful accounts 109 503 435 Provision for inventory obsolescence 50 140 --- Write-off of fixed assets --- 145 --- Other adjustments 60 (18) 46 Changes in assets and liabilities (Increase) in accounts and notes receivable (2,552) (1,474) (985) (Increase) in inventory (5) (96) (338) (Increase) in assets held for sale (57) (176) (367) (Increase) decrease in prepaid expenses and other current assets (94) 16 (18) (Increase) in deferred income taxes current (607) (101) (123) Increase (decrease) in accounts payable 288 345 (241) Increase in deferred revenue 67 85 --- Increase (decrease) in accrued liabilities 486 110 57 -------- -------- ------- Net cash provided by (used by) operating activities 864 (448) (112) -------- -------- ------- Cash flows from investing activities: Maturity of short-term investments --- 50 1,021 Capital expenditures for property and equipment (88) (240) (917) Sale of Company Franchises held for sale --- 43 --- Acquisitions (195) --- (100) -------- -------- ------- Net cash (used by) provided by investing activities (283) (147) 4 -------- -------- ------- Cash flows from financing activities: Treasury stock purchase --- (58) --- Dividend on Series A Preferred Stock (7) (27) (81) Exercise of stock options and warrants 205 169 --- Repayments on borrowings (75) (98) (187) -------- -------- ------- Net cash provided by (used by) financing activities 123 (14) (268) -------- -------- ------- Net increase (decrease) in cash and cash equivalents 704 (609) (376) Cash and cash equivalents at beginning of year 314 923 1,299 -------- -------- ------- Cash and cash equivalents at end of year $ 1,018 $ 314 $ 923 ======== ======== ======= Supplemental disclosures: - ------------------------ Interest paid during the year $ 42 $ 14 $ 27 ======== ======== ======= Income taxes paid during the year $ 9 $ 7 $ 71 ======== ======== =======
Noncash activities: - ------------------ In fiscal 1998, the Company acquired an independent thermography business in exchange for cash and a $455 note payable and sold the business to franchises owner in exchange for note receivable of $505. In fiscal 1998, the Company exchanged accounts and notes receivable amounting to $380, and took notes receivable amounting to $498 in connection with the purchase and resale of the Boston franchise. In fiscal 1997, $200 of convertible Series A preferred stock was converted into 135 shares of common stock. In fiscal 1997, the Company sold Company Franchises held for sale in exchange for accounts and notes receivable amounting to $746. In fiscal 1996, $550 of convertible Series A preferred stock was converted into 372 shares of common stock. In fiscal 1996, the Company repossessed two existing franchisee plants and acquired $50 in tangible assets in exchange for funds owed the Company. The accompanying notes are an integral part of these consolidated financial statements. D-6 Page 23 BCT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000's omitted) 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. At February 28, 1998 and 1997, BCT, through its wholly- owned subsidiary BCT Enterprises, Inc. owned two Company Franchises. BCT's ownership interest in one of the Company Franchises is 70%. The Company also sells paper stock and catalogs to franchisees and Company Franchises. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and its 70% owned subsidiary. All significant intercompany transactions have been eliminated. The minority interest held by third parties in the majority owned subsidiary is included in selling, general and administrative expense in the statement of operations. As of February 28, 1998, the net assets of the 70% owned Company Franchise are reflected in assets held for sale as it is the Company's intent to sell this investment. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates made by management in the accompanying financial statements relate to accounts receivable allowances and the tax valuation allowance. Actual results could differ from those estimates. Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, accounts receivable, trade notes receivable, accounts payable, and notes payable approximate fair value as of February 28, 1998 and February 28, 1997. Inventory Inventory, consisting primarily of paper products, printing supplies and catalogs for sale to franchisees and Company Franchises, is stated at the lower of cost (first in, first out method) or market. As of February 28, 1998 and 1997, the allowance for obsolete inventory was $106 and $89, 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-7 Page 24 BCT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (000's omitted) Acquisitions of Franchises All acquisitions of Company 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 excess of the purchase price over fair value of the net assets acquired is included in goodwill. The Company acquired and resold one Franchise in fiscal 1998, no Franchises in fiscal 1997, and three in fiscal 1996. 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. 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, 1998 and 1997, accumulated amortization of intangible assets amounted to $405 and $379, respectively. Impairment of Long-Lived Assets and Identifiable Intangibles During fiscal 1996, the Company adopted Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long Lived Assets and for Long-Lived Assets To Be Disposed Of". Upon adoption, the goodwill associated with the Delray Beach, Florida Company Franchise ($108) was written off. 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. The allowance is an amount that management believes will be adequate to absorb possible losses in existing accounts and notes receivable that may become uncollectible. Accounting for Stock Based Compensation The Company accounts for employee stock options using the intrinsic value method as prescribed by APB No. 25 "Accounting for Stock Issued to Employees". During 1997, the Company adopted the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123") (see Note 8). D-8 Page 25 BCT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (000's omitted) Income Taxes The Company utilizes an asset and liability approach to accounting for income taxes that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax law or rates. Earnings Per Common Share In fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128 (FAS128), "Earnings Per Share" (EPS). FAS128 supercedes Accounting Principles Board Opinion No. 15 and replaces primary and diluted EPS with a dual presentation of basic and diluted EPS. Basic EPS equals net income available to common shareholders divided by the number of weighted average common shares. Diluted EPS includes potentially dilutive securities such as stock options and convertible securities. A reconciliation of the numerators and denominators of the basic diluted EPS computations is illustrated below:
Basic Computation: Fiscal 1998 1997 1996 ------ ------- ------ Net income (loss) $1,565 $ (385) $1,141 Preferred stock dividends 7 27 81 ------ ------ ------ Net income (loss) available to common shareholders $1,558 $ (412) $1,060 ====== ====== ====== Weighted average common shares 5,230 5,018 4,721 ====== ====== ====== Earnings per common share $ .30 $ (.08) $ .22 ====== ====== ====== Diluted Computation: Net income (loss) $1,565 $ (385) $1,141 ====== ====== ====== Weighted average common shares 5,230 5,018 4,721 Effect of stock options and warrants 310 --- 898 ------ ------ ------ Total 5,540 5,018 5,619 ====== ====== ====== Diluted earnings per common share $ .28 $ (.08) $ .20 ====== ====== ======
Cash and Cash Equivalents For the purposes of reporting cash flows, cash and cash equivalents include investments with original maturities of ninety days or less at purchase date. Presentation and Reclassification All dollar and share amounts, except amounts related to per share data, are expressed in thousands of dollars. Certain items in the 1997 and 1996 consolidated financial statements have been reclassified for comparative purposes. D-9 Page 26 BCT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (000's omitted) NOTE 2: ACCOUNTS AND NOTES RECEIVABLE - ------- ----------------------------- Accounts and notes receivable consist of the following:
February 28, February 28, 1998 1997 ------------ ------------ Franchise fees and royalties receivable $ 920 $ 1,118 Paper sales receivable from franchisees 2,181 1,419 Notes receivable from sale of franchises, interest at 7% to 12%, due in monthly installments through 2008 1,975 1,572 Notes receivable due from franchisees, interest at 8% to 12%, payable in monthly installments through 2005 3,788 1,675 Company Franchise accounts receivable from customers 148 139 Miscellaneous 50 75 -------- -------- 9,062 5,998 Less - allowance for doubtful accounts ( 1,204) ( 1,148) -------- -------- 7,858 4,850 Less - amounts not expected to be collected within one year, net of $845 allowance for doubtful accounts ($769 in 1997) ( 5,376) ( 3,209) -------- -------- $ 2,482 $ 1,641 ======== ========
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 notes and accounts receivables and the franchise equipment leases guaranteed by the Company (see Note 10). The Company controls the credit risk of its receivables through credit approvals, limits and monitoring procedures. The Company generally requires collateral or other security to support the receivables with credit risk. D-10 Page 27 BCT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (000's omitted) At February 28, 1998, approximately $1,110 ($723 in 1997) of accounts receivable, although currently due, are classified into long term accounts and notes receivable, based upon historic payment performance of the franchisees. A significant portion of the allowance for doubtful accounts relates to these accounts and notes receivable. At February 28, 1998, $485 ($487 in 1997) of notes receivable, with an 8% interest rate per annum, related to the purchase of the Honolulu, Hawaii Company Franchise by South Pacific Wholesale Printers, Inc. The Chairman of the Board of the Company owns 50% of South Pacific Wholesale Printers, Inc. Provision for doubtful accounts for the years ended February 28, 1998, February 28, 1997 and February 29, 1996, was approximately $109, $503 and $504, respectively. Interest income is recognized on accounts and notes receivable when it is received. NOTE 3: PROPERTY AND EQUIPMENT - ------- ---------------------- Major classifications of property and equipment are as follows:
Estimated useful February 28, February 28, lives 1998 1997 (in years) ------------ ------------ ---------- Leasehold improvements $ 121 $ 107 5 - 7 Machinery and equipment 438 411 3 - 20 Furniture, fixtures and other equipment 197 171 5 - 10 Computers 671 667 5 Other 85 81 3 - 5 ------ ------ 1,512 1,437 Less - accumulated depreciation and amortization ( 861) ( 675) ------ ------ $ 651 $ 762 ====== ======
NOTE 4: SALES AND ACQUISITIONS - ------- ---------------------- On July 15, 1997, the Company purchased certain assets of an independent thermography business in exchange for a payment of $120 and a note payable of $455. The assets consisted of certain equipment, the customer list and a non- compete agreement from the owners of the business. The Company resold certain of the assets acquired to two Franchises in exchange for cash and notes amounting to $535. On March 1, 1997, the Company acquired certain assets of the Boston, Massachusetts Franchise for $75 cash and forgiveness of all amounts owed the Company (approximately $380). This acquisition was accounted for under the purchase method of accounting and accordingly, the purchase price was allocated to the assets acquired based upon the estimated fair values at the date of acquisition. The purchase price associated with the acquisition was recorded as an asset held for sale as it was the Company's intent to resell this Franchise. The operating results of this business acquisition were included in the Company's consolidated results of operations from March 1, 1997. On August 1, 1997, the Company resold the Boston Franchise to two existing Franchises in exchange for promissory notes amounting to $498. Due to the Company's continuing involvement with these Franchises, no gain has been recorded on this transaction. Deferred revenue as of February 28, 1998 includes $68 relating to this transaction. D -11 Page 28 BCT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (000's omitted) On August 30, 1996, the Company sold the assets of the Riverside, California Franchise, the assets of the Newbury Park, California Franchise and the rights to doing business in the Newbury Park, California Franchise Territory along with a 30 month option to purchase the Newbury Park Franchise. The purchase price was $338 consisting of cash and a $254, 10 year note bearing interest of 2% above prime. Due to the Company's continuing involvement with these Franchises, no sale has been recorded on this transaction. Deferred revenue as of February 28, 1998 and 1997 includes $52 and $57, respectively, relating to this transaction. NOTE 5: NOTES PAYABLE - ------- -------------- Notes payable consist of the following:
February 28, February 28, 1998 1997 -------------- --------------- Notes payable relating to an acquisition, monthly principal and interest of 9% $ --- $ 5 Note payable to prior owner of Company Franchise, monthly principal and interest payments of $2, interest at 8% per annum, through August 2004 113 125 Notes payable relating to acquisitions, monthly principal and interest of 8% 531 134 ------ ----- 644 264 Less - amount due within one year (105) (49) ------ ----- $ 539 $ 215 ====== =====
Scheduled maturities after February 28, 1997 for notes payable are as follows:
Fiscal Amount Year Payable ------ ------- 1999 $ 105 2000 113 2001 104 2002 85 2003 91 Thereafter 146 ------- $ 644 =======
NOTE 6: PREFERRED STOCK - ------- --------------- Dividends on preferred stock are cumulative and accrue from the date of original issue at a 12% rate per annum, payable quarterly on the first day of each January, April, July and October. Dividends in arrears are non-interest bearing. Dividends must either be fully paid or declared and aggregated for payment prior to the declaration of dividends on the common shares. The Series A preferred stock is non-voting except as it relates to any action affecting the terms of the priority of the preferred stock. Upon the event of a voluntary or involuntary liquidation, the holders of the Series A preferred stock will be entitled to receive $1.00 per share plus all accrued and unpaid dividends. The Series A preferred stock is convertible into common stock at a ratio of 1.48 shares of preferred stock for each share of common stock. The Company has the option to require conversion of the preferred stock beginning two years after the date of issuance if the common stock closing price or last reported sales price is at least $7.00 per share for 10 consecutive business days. If the preferred stock is not converted within five years of issuance, the Company must redeem the stock at $1.00 per share plus all accrued and unpaid dividends. On October 1, 1995 and January 21, 1997, 550 and 200 shares of Series A preferred stock were voluntarily converted into 372 and 135 shares of common stock, respectively. D-12 Page 29 BCT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (000's omitted) NOTE 7: STOCKHOLDERS' EQUITY - ------- -------------------- In Fiscal 1997, the Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123__Accounting for Stock Based Compensation, to establish a fair value based method of accounting for stock compensation plans for awards granted in fiscal years that begin after December 15, 1994. Warrants - -------- As of February 28, 1998 and 1997, there were outstanding warrants for the purchase of 508 and 658, respectively, shares of common stock. During fiscal 1998, no warrants were exercised, 150 warrants expired. The exercise price and the dates are as follows:
Title of Issue Aggregate Amount Date from which Price at which Called for of Securities Called Warrants Expiration Warrants by Warrants for by Warrants are Exercisable Date are Exercisable - -------------- -------------------- --------------- ---------- --------------- Issued to Investment Banker 208 May 31, 1993 June 1, 1998 $2.25 Issued to Investment Banker 300 February 1, 1994 February 1, 1999 $2.00 to $ 4.00 ------ Warrants outstanding 508 ======
Stock Options - ------------- A summary of stock option activity is as follows (share amounts in 000's):
Fiscal 1998 Fiscal 1997 Fiscal 1996 ------------------- ------------------- ------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Outstanding at beginning of year 1,318 $2.64 1,213 $2.32 1,164 $2.17 Granted 95 $2.85 358 $3.01 65 $4.96 Exercised (163) $1.26 (111) $1.53 --- --- Cancelled (37) $1.37 (42) $2.98 (16) $4.00 Expired (11) $1.45 (100) $1.40 --- --- ------ ------ ------ Outstanding at end of year 1,202 $2.76 1,318 $2.64 1,213 $2.32 ====== ====== ====== Exercisable 992 $2.74 1,042 $2.52 1,131 $2.20 ====== ====== ====== Weighted average fair value of options granted $1.80 $1.43 $1.52 ===== ===== =====
D -13 Page 30 BCT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (000's omitted) A summary of stock options outstanding at February 28, 1998 is as follows (share amounts in 000's):
Options Outstanding Options Exercisable -------------------------------------------- --------------------------- Weighted Weighted Weighted Range of Outstanding Average Average Exercisable Average Exercise at Remaining Exercise at Exercise Prices February 28, 1998 Life (in years) Price February 28, 1998 Price - -------- ----------------- --------------- -------- ----------------- -------- $1.25 to $1.88 225 3.16 $1.37 225 $1.37 $2.38 to $3.13 548 2.98 $2.74 343 $2.74 $3.38 to $5.00 429 6.32 $3.48 424 $3.46 ----- ----- 1,202 992 ===== =====
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, 1998 1997 1996 ------------ ------------ ------------ Net income (loss): As reported $ 1,565 ($ 385) $ 1,141 ======= ======= ======= Pro forma $ 1,287 ($ 628) $ 1,119 ======= ======= ======= Net income (loss) per share: As reported Basic $ .30 ($ .08) $ .22 ======= ======= ======= Diluted $ .28 ($ .08) $ .20 ======= ======= ======= Proforma Basic $ .25 ($ .13) $ .22 ======= ======= ======= Diluted $ .23 ($ .13) $ .20 ======= ======= =======
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 44% to 47%, a risk free interest rate of from 6.0% to 6.5% and weighted average expected option term of 4.8 years. D-14 Page 31 BCT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (000's omitted) NOTE 8: INCOME TAXES - ------- ------------ The components of the provision for (benefit from) income taxes for the years ended February 28, 1998 and 1997, and February 29, 1996 are as follows:
1998 1997 1996 ------ ------ ------ Current Provision: Federal $ 54 $ 4 $ 32 State 51 39 52 ------ ------ ------ Total current 105 43 84 Deferred provision (benefit) 748 (65) (279) ------ ------ ------ Total provision (benefit) $ 853 (22) (195) ====== ====== ======
The Company's deferred income taxes are comprised of the following:
February 28, 1998 February 28, 1997 February 29, 1996 ----------------- ----------------- ----------------- Deferred income taxes - current: Bad debt reserve $ 140 $ 148 $ 159 Net operating loss carryovers 833 --- --- Capitalization of inventory cost 293 238 102 Other 97 60 41 ------ ------ ------ 1,363 446 302 ------ ------ ------ Valuation allowance (444) (134) (91) ------ ------ ------ Deferred income taxes - current $ 919 $ 312 $ 211 ====== ====== ====== Deferred income taxes - non-current: Bad debt reserve $ 329 $ 300 $ 193 Net operating loss carryovers 203 1,967 2,052 Other 100 86 135 ------ ------ ------ 632 2,353 2,380 ------ ------ ------ Valuation allowance (306) (672) (685) ------ ------ ------ Deferred tax liabilities - non-current: Fixed assets (112) (112) (91) ------ ------ ------ Deferred income taxes - non-current $ 214 $1,569 $1,604 ====== ====== ====== Deferred income taxes - total $1,133 $1,881 $1,815 ====== ====== ======
D-15 Page 32 BCT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (000's omitted) Net operating loss carryforwards for Federal income tax purposes total approximately $2,752 at February 28, 1998. The net operating loss carryforward includes $539 with certain limitations. Net operating losses expire as follows:
Year of Expiration Amount ------------ -------- 2005 1,376 2006 962 2007 12 2008 16 2012 386 ------ $2,752 ======
The difference between the statutory and effective tax rates are as follows:
1998 1997 1996 ---- ---- ---- Amount Rate Amount Rate Amount Rate ------ ------ ------ ------ ------ ------ Tax provision (benefit) at statutory rate $ 841 34% $ (139) (34%) $ 321 34% State income tax, net of federal benefit 34 1 24 6 52 6 Alternative minimum tax 54 2 4 1 32 3 Increase (decrease) in Federal and state valuation allowance (56) (2) 30 7 (778) (82) Other (1) --- 59 15 178 19 ------ ------ ------ ------ ------ ------ $ 853 35% $ (22) (5%) $ (195) (20%) ====== ====== ====== ====== ====== ======
NOTE 9: COMMITMENTS AND CONTINGENCIES - ------- ----------------------------- The Company is a party to several litigation matters. In the opinion of management, potential losses, if any, on the matters will not have a material impact on the financial condition or results of operation of the Company. The Company's corporate offices, Company Franchise locations and office equipment are leased under noncancellable lease agreements. The leases initially expire at various dates through 2002. There are provisions in the leases for rent increases based on cost of living increases under certain conditions. D-16 Page 33 BCT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (000's omitted) The following are the approximate minimum annual noncancellable rentals to be paid under the provisions of the leases: Fiscal Year Lease Commitments ----------- ----------------- 1999 $ 226 2000 219 2001 172 2002 120 2003 68 ----- $ 805 ===== Rental expense amounted to the following approximate amounts for the corresponding periods: For the year ended Amount ------------------ ------ February 28, 1998 $ 234 February 28, 1997 $ 287 February 29, 1996 $ 295 At February 28, 1998, 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 $155. 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 the event that the Chairman of the Board is substantially incapacitated during the term of his employment for a period of 90 days in the aggregate during any twelve month period, the Company has the right to terminate his employment. Upon termination, the Chairman of the Board will receive one-half of his salary in effect on the date of termination for the remaining term of the agreement. Additionally, in the event of the Chairman's death during his employment, his designated beneficiary or his estate shall be paid one-half of his salary in effect on the date of his death for the remaining term of the agreement. In August 1996, the Company agreed to the terms of employment with the President and Chief Executive Officer. Under the terms of his employment, the Company is liable for six months severance pay should employment be terminated for any reason. D-17 Page 34 BCT INTERNATIONAL, INC. ----------------------- SCHEDULE VIII 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 Other Deductions year ---------- ---------- ---------- ----------- ----------- For the year ended February 28, 1998 Allowance for doubtful accounts $ 1,148 $ 109 $ --- $ (53)(1) $ 1,204 ========== ========== ========== =========== =========== Deferred tax assets valuation allowance $ 806 $ --- $ $ (56) $ 750 ========== ========== ========== =========== =========== For the year ended February 28, 1997 Allowance for doubtful accounts $ 913 $ 503 $ --- $ (268)(1) $ 1,148 ========== ========== ========== =========== =========== Deferred tax assets valuation allowance $ 776 $ --- $ 30 $ --- $ 806(2) ========== ========== ========== =========== =========== For the year ended February 29, 1996 Allowance for doubtful accounts $ 888 $ 504 $ --- $ (479)(1) $ 913 ========== ========== ========== =========== =========== Deferred tax assets valuation allowance $ 1,554 $ --- $ --- $ (778) $ 776(2) ========== ========== ========== =========== ===========
Allowance for doubtful accounts at February 28, 1998 of $1,204 is comprised of $359 related to current receivables and $845 to long-term receivables. (1) Write off of uncollectible receivables. (2) A deferred income tax value. D-18 Page 35 SCHEDULE X BCT INTERNATIONAL, INC. ----------------------- SUPPLEMENTARY INCOME STATEMENT INFORMATION ------------------------------------------ (000's omitted)
Item ----- February 28, 1998 February 29, 1997 February 28, 1996 ----------------- ----------------- ----------------- Advertising Costs $ 12 $ 83 $ 210 ------------- ----------- ---------- Amortization of intangible assets $ 26 $ 166 $ 182 ------------- ------------ ----------
D-19 Page 36 EX-10.2 2 EXHIBIT 10.2 EXHIBIT 10.2 AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment is dated as of June 12, 1997, and relates to the Employment Agreement dated as of March 1, 1993, between BCT International, Inc., a Delaware corporation (together with its subsidiaries "BCT") and William A. Wilkerson ("Employee"). WHEREAS, the parties wish to amend the Employment Agreement in order to extend the term of Employee's employment. NOW THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: 1. Terms defined in the Employment Agreement are used herein as defined therein. 2. Paragraph 3 of the Employment Agreement is deleted in its entirety and replaced with the following language: 3. TERM. The term of Employee's employment hereunder shall be ---- through February 28, 2003, subject to the termination provisions set forth in paragraphs 7, 8 and 9 hereof. 3. Paragraph 2 of the Employment Agreement is hereby amended to insert the following language just prior to the final sentence of said paragraph in order to set forth the minimum annual salary for Employee for the extended term of the Employment Agreement: Year ending February 28, 2001 $300,000 Year ending February 28, 2002 $300,000 Year ending February 28, 2003 $300,000 4. Except as amended herein, all terms and provisions of the Employment Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this amendment as of the date first above-written. BCT INTERNATIONAL, INC. By: Bill Levine --------------------- Bill LeVine, Director EX-27 3 FINANCIAL DATA SCHEDULE
5 0000351541 BCT INTERNATIONAL, INC. 1,000 YEAR FEB-28-1998 MAR-01-1997 FEB-28-1998 1,018 0 9,062 1,204 2,423 7,516 1,512 861 14,157 2,485 539 0 60 223 10,850 14,157 14,117 19,405 12,617 12,617 4,219 109 42 2,418 853 1,565 0 0 0 1,565 .30 .28
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