<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission file number 0-8568
BESTWAY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 81-0332743
---------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7800 Stemmons, Suite 320, Dallas, Texas 75247
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(214) 630-6655
----------------------------------------------------
(Registrant's telephone number, including area code)
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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares: 1,500,070
As of October 31, 1995
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BESTWAY, INC.
QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTER ENDED
October 31, 1995
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
ITEM 1. Consolidated Unaudited Financial Statements 3-7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K, Signatures 9-10
</TABLE>
Page 2 of 10
<PAGE> 3
BESTWAY, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31, July 31,
ASSETS 1995 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Cash $ 270,451 $ 329,342
Restricted cash 119,342 119,342
Investments 243,500 --
Prepaid expenses 215,180 129,311
Deferred tax asset 1,937,918 2,013,784
Other assets 255,279 170,916
Auto inventory 122,740 38,590
Rental merchandise, at cost 10,931,286 10,596,609
Less accumulated depreciation 4,260,282 4,189,727
------------ ------------
6,671,004 6,406,882
------------ ------------
Property and equipment, at cost 3,897,479 3,584,071
Less accumulated depreciation 1,843,400 1,702,486
------------ ------------
2,054,079 1,881,585
------------ ------------
Non-compete, net of amortization 536,032 581,977
Goodwill, net of amortization 1,995,407 2,038,166
------------ ------------
Total assets $ 14,420,932 $ 13,709,895
============ ============
LIABILITIES AND EQUITY
Accounts payable $ 1,050,448 $ 718,861
Accrued interest - related parties 12,012 12,013
Accrued interest - other 19,664 22,043
Income taxes payable 85,587 85,061
Other accrued liabilities 828,647 760,322
Notes payable - related parties 3,600,000 3,600,000
Notes payable - other 2,678,488 2,470,302
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $10.00 par value
1,000,000 authorized, none issued -- --
Common stock, $.01 par value, 20,000,000
authorized, 1,500,070 issued and
outstanding at October 31, 1995 and
July 31, 1995, respectively 15,001 15,001
Paid-in capital 14,842,911 14,842,911
Accumulated deficit (8,711,826) (8,816,619)
------------ ------------
Total equity 6,146,086 6,041,293
------------ ------------
Total liabilities and equity $ 14,420,932 $ 13,709,895
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 3 of 10
<PAGE> 4
BESTWAY, INC.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
October 31, October 31,
---------- ----------
1995 1994
---- ----
<S> <C> <C>
Revenues
Rental income $4,065,737 $3,821,290
Sales of merchandise and other 136,477 29,681
---------- ----------
4,202,214 3,850,971
---------- ----------
Cost and Operating Expenses
Depreciation and amortization-
Rental merchandise 965,104 946,983
Other 250,989 222,700
Cost of sales 114,861 25,661
Salaries and wages 1,031,968 939,385
Advertising 141,337 167,615
Rent expense 195,877 183,561
Other operating expenses 1,163,505 1,055,531
Loss (gain) on property and equipment 30,368 (7,993)
Interest expense 112,580 120,246
---------- ----------
4,006,589 3,653,689
---------- ----------
Net income before income tax provision $ 195,625 $ 197,282
---------- ----------
Income tax provision
Current 14,966 15,584
Deferred 75,866 --
---------- ----------
Net income $ 104,793 $ 181,698
---------- ----------
Net income per share $ .07 $ .12
========== ==========
Weighted average common
shares outstanding 1,500,070 1,505,276
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 4 of 10
<PAGE> 5
BESTWAY, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
October 31, October 31,
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 104,793 $ 181,697
Depreciation and amortization 1,216,093 1,169,683
Net book value of rental units retired 396,560 200,635
Loss (gain) on sale of fixed assets 30,368 (7,993)
Deferred tax asset 75,866 --
Changes in asset and liability accounts other than cash:
Prepaid expenses (85,869) (242,001)
Other assets (84,363) (11,543)
Auto inventory (84,150) --
Accounts payable 331,587 (11,125)
Accrued interest payable (2,380) 5,478
Income taxes payable 526 3,299
Other accrued liabilities 68,326 35,816
----------- -----------
Total adjustments 143,677 (220,076)
----------- -----------
Net cash flows from operating activities 1,967,357 1,323,946
----------- -----------
Cash flows from investing activities:
Purchase of rental units and equipment (1,625,787) (1,305,547)
Additions to property and equipment (370,146) (187,474)
Proceeds from sale of property and equipment 5,000 15,195
Purchase of investments (243,500) --
----------- -----------
Net cash flows used in investing activities (2,234,433) (1,477,826)
----------- -----------
Cash flows from financing activities:
Proceeds of notes payable 250,000 346,800
Repayment of notes payable (41,815) (216,577)
----------- -----------
Net cash flows provided by financing activities 208,185 130,223
----------- -----------
Cash at August 1, 1995 and 1994, respectively 329,342 273,183
----------- -----------
Cash at the end of the quarter $ 270,451 $ 249,526
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 5 of 10
<PAGE> 6
BESTWAY, INC.
Consolidated Statements of Stockholders' Equity
for the three months ended October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
CommonStock Paid-In Accumulated
Shares Amount Capital Deficit
------ ------ ------- -------
<S> <C> <C> <C> <C>
Balance at July 31, 1995 1,500,070 $15,001 $14,842,911 $ (8,816,619)
Net income for the three
months ended October 31, 1995 104,793
--------- ------- ----------- -------------
Balance at October 31, 1995 1,500,070 $15,001 $14,842,911 $ (8,711,826)
========= ======= =========== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 6 of 10
<PAGE> 7
BESTWAY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Reference to Previous Disclosures
The consolidated financial statements included herein have been
prepared by the Company without audit. Certain information and footnote
disclosure normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted or
are incorporated herein by reference to the financial statements included in
the Company's 1995 Form 10-K. Management believes that the disclosures are
adequate to make the information presented not misleading and that all
adjustments deemed necessary for a fair statement of the results for the
interim period have been reflected. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's 1995 Form 10-K, particularly with
regard to disclosure relating to significant accounting policies.
2. Reclassifications
Certain reclassifications were made to the prior year financial
statements to conform with the current year presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company's revenue increased by $351,243, or 9.1% for the three
months ended October 31, 1995 as compared to the three months ended October 31,
1994. During the first quarter, the Company opened two new rental-purchase
stores, one each in Decatur, Alabama and Columbus, Mississippi. Revenues from
the Company's total rental-purchase stores increased by $255,738 or 6.6%.
Comparable store revenues increased $247,256 or 6.4%.
The Company entered into the retail used car sales and finance
business, on a trial basis, in September, 1995 through the opening of a single
prototype retail sales facility in Tullahoma, Tennessee. Revenues and
operating losses from the retail used car sales and finance business were
$95,505 and $83,740, respectively. The Company is evaluating the performance
of the single prototype retail sales facility and, currently, has no intentions
of expanding to other locations.
The Company experienced significant improvement in store operating
margins during the quarter ended October 31, 1995 compared to the quarter ended
October 31, 1994. Comparable store operating margins increased $150,153 or
14.4%. The Company's two new stores, as expected, had a negative effect on the
Company's operating income of $46,433. It typically takes between six and
twelve months before a new store begins generating an operating profit. The
Company expects the two new stores to begin contributing to operating income by
April 30, 1996. The Company's core rental-purchase business continues improved
performance primarily due to the implementation of a marketing program based on
increasing the Company's share of the customers business and the implementation
of a broad-based training program designed to improve customer satisfaction
skills of the Company's employees and to reduce employee turnover.
Page 7 of 10
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, con't.
Financial Condition, Liquidity and Capital Resources
The Company's primary source of funds to finance its business has been
its cash flows provided by operating activities and its bank borrowings. The
funds have been used primarily to purchase and carry additional rental
merchandise for existing and new rental-purchase stores.
On August 26, 1995 the Company extended its maturity on the $500,000
subordinated note payable to affiliate dated March 4, 1992 from August 31, 1995
to August 31, 1996. On October 23, 1995, the Company extended its $3,000,000
subordinated note payable to limited partnership and stockholder dated July 19,
1993. The note which matures on July 19, 1996 was extended until August 19,
1997.
The Company's net cash flows provided by operating activities for the
three months ended October 31, 1995 was $1,967,357 compared to $1,323,946 for
the same period last year, a 48.6% increase. The increase principally reflects
an increase in asset and liability accounts other than cash and the provision
for deferred income taxes. Cash flows used in investing activities for the
three months ended October 31, 1995 was $2,234,433 compared to $1,477,826 for
the same period last year, a 51.2% increase. The Company's investing
activities primarily reflect its continuing replacement of rental merchandise
that was purchased by customers either by full pay out under the rental
agreement or by exercise of the customers early purchase option and provide
increased inventory levels to meet the Company's increase in the number of
units on rent. Additions to property and equipment include the purchase of new
delivery vans and leasehold improvements for the Company's two new store
locations.
With the Company having available credit of $1,799,973 under the
$4,000,000 amended line of credit at October 31, 1995 and reporting operating
profits and cash flows, management believes the Company has adequate cash
resources to meet its cash obligations.
During March 1995, the Financial Accounting Standards Board issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The standard is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company's
analysis of this new standard indicates that the standard should not have a
material effect on its financial position or results of operations.
Inflation
Although the Company cannot precisely determine the effects of
inflation on its business, it is management's belief that the effects on
revenues and operating results have not been significant.
Page 8 of 10
<PAGE> 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, SIGNATURES
(a) Exhibits required by Item 601 of Regulation S-K
3.1 Amended and Restated Certificate of
Incorporation
27 Financial Data Schedule
Filed electronically only, not attached
to printed reports
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the quarter ended October 31, 1995
Page 9 of 10
<PAGE> 10
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.
BESTWAY, INC.
December 14, 1995 /s/ Beth A. Durrett
-------------------
Beth A. Durrett
Vice President - Controller
(Principal Financial Officer and duly
authorized to sign on behalf of the
Registrant)
Page 10 of 10
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation
27 Financial Data Schedule
Filed electronically only, not attached to printed reports
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 389,793
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 11,054,026
<CURRENT-ASSETS> 0
<PP&E> 3,897,479
<DEPRECIATION> 6,103,682
<TOTAL-ASSETS> 14,420,932
<CURRENT-LIABILITIES> 0
<BONDS> 6,278,488
<COMMON> 15,001
0
0
<OTHER-SE> 6,131,085
<TOTAL-LIABILITY-AND-EQUITY> 14,420,932
<SALES> 0
<TOTAL-REVENUES> 4,202,214
<CGS> 0
<TOTAL-COSTS> 1,079,965
<OTHER-EXPENSES> 2,814,044
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,580
<INCOME-PRETAX> 195,625
<INCOME-TAX> 90,832
<INCOME-CONTINUING> 104,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104,793
<EPS-PRIMARY> .07
<EPS-DILUTED> 0
</TABLE>
