<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, 1996
[ ] 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.
------------------------------------------------------
(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:
The number of shares of Common Stock, $.01 par value, outstanding as of
October 31, 1996, was 1,749,967.
<PAGE> 2
BESTWAY, INC. FORM 10-Q
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QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTER ENDED
October 31, 1996
<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 8-9
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K, Signatures 10
</TABLE>
Page 2 of 10
<PAGE> 3
BESTWAY, INC. FORM 10-Q
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CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS October 31, 1996 July 31, 1996
---------------- -------------
(Unaudited)
<S> <C> <C>
Cash $ 615,783 $ 325,513
Restricted cash 119,342 119,342
Prepaid expenses 347,207 342,912
Deferred tax asset 1,749,823 1,821,701
Investment in partnership 423,560 423,560
Other assets 139,709 121,473
Rental merchandise, at cost 15,953,671 14,309,351
less accumulated depreciation 5,119,917 4,716,054
------------ ------------
10,833,754 9,593,297
------------ ------------
Property and equipment, at cost 5,260,419 4,768,700
less accumulated depreciation 2,494,191 2,340,664
------------ ------------
2,766,228 2,428,036
------------ ------------
Non-competes, net of amortization 861,716 959,339
Goodwill, net of amortization 2,700,569 2,790,267
------------ ------------
Total assets $ 20,557,691 $ 18,925,440
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,682,996 $ 976,869
Accrued interest - related parties 12,411 12,023
Accrued interest - other 49,463 49,253
Income taxes payable 71,428 66,031
Other accrued liabilities 1,285,895 1,355,146
Notes payable - related parties 3,600,000 3,600,000
Notes payable - other 6,274,109 5,448,928
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $10.00 par value
1,000,000 authorized, none issued -- --
Common stock, $.01 par value, 5,000,000
authorized, 1,749,967 and 1,747,717 issued and
outstanding at, October 31, 1996 and July 31, 1996, 17,499 17,477
respectively
Paid-in capital 16,089,897 16,078,670
Accumulated deficit (8,526,007) (8,678,957)
------------ ------------
Total stockholders' equity 7,581,389 7,417,190
------------ ------------
Total liabilities and stockholders' equity $ 20,557,691 $ 18,925,440
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 3 of 10
<PAGE> 4
BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
-----------------------------------
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Revenues:
Rental income $ 6,019,221 $ 4,065,737
Sales of merchandise 50,535 40,972
----------- -----------
6,069,756 4,106,709
----------- -----------
Cost and Operating Expenses:
Depreciation and amortization:
Rental merchandise 1,389,395 965,104
Other 422,705 245,095
Cost of merchandise sold 52,458 38,174
Salaries and wages 1,522,721 1,024,438
Advertising 234,981 136,507
Occupancy 326,588 193,177
Other operating expenses 1,696,931 1,082,855
Interest expense 188,631 111,627
(Gain) loss on sale of property and equipment (9,634) 30,368
----------- -----------
5,824,776 3,827,345
----------- -----------
Income from continuing operations before income tax
provision: 244,980 279,364
----------- -----------
Current income tax expense 20,152 20,744
Deferred income tax expense 71,878 102,746
----------- -----------
Income from continuing operations 152,950 155,874
----------- -----------
Discontinued operation:
Loss from discontinued business
(net of income tax benefit of $32,658) -- 51,081
----------- -----------
Net income $ 152,950 $ 104,793
----------- -----------
Net income per share from continuing operations $ .09 $ .10
=========== ===========
Net loss per share from discontinued operations -- (.03)
----------- -----------
Net income per share $ .09 $ .07
=========== ===========
Weighted average common shares outstanding 1,749,217 1,500,070
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 4 of 10
<PAGE> 5
BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
-----------------------------------
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 152,950 $ 104,793
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,812,100 1,210,200
Net book value of rental units retired 532,619 396,560
(Gain) Loss on sale of property and equipment (9,634) 30,368
Loss on discontinued operations -- 51,081
Deferred income taxes 71,878 102,746
Stock options exercised 11,250 --
Changes in operating assets and liabilities other than cash:
Prepaid expenses (4,295) (81,159)
Other assets (18,236) (313,606)
Accounts payable 706,127 239,166
Accrued interest payable 598 (2,380)
Income taxes payable 5,397 6,304
Other accrued liabilities (69,251) 66,416
----------- -----------
Total adjustments 620,340 (85,259)
----------- -----------
Net cash flows from operating activities 3,191,503 1,810,489
----------- -----------
Cash flows from investing activities:
Purchase of rental units and equipment (3,162,539) (1,625,787)
Additions to property and equipment (594,221) (291,160)
Proceeds from sale of property and equipment 30,344 5,000
Purchase of investments -- (165,618)
----------- -----------
Net cash flows used in investing activities (3,726,416) (2,077,565)
----------- -----------
Cash flows from financing activities:
Proceeds of notes payable 1,075,000 250,000
Repayment of notes payable (249,817) (41,815)
----------- -----------
Net cash flows provided by financing activities 825,183 208,185
----------- -----------
Cash at August 1, 1996 and 1995, respectively 325,513 329,342
----------- -----------
Cash at the end of the quarter $ 615,783 $ 270,451
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 5 of 10
<PAGE> 6
BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended October 31, 1996
<TABLE>
<CAPTION>
(Unaudited)
Common Stock
------------------------- Paid-In Accumulated
Shares Amount Capital Deficit
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at July 31, 1996 1,747,717 $ 17,477 $16,078,670 $(8,678,957)
Stock options exercised 2,250 22 11,227 --
Net income for the three months
ended October 31, 1996 -- -- -- 152,950
----------- ----------- ----------- -----------
Balance at October 31, 1996 1,749,967 $ 17,499 $16,089,897 $(8,526,007)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 6 of 10
<PAGE> 7
BESTWAY, INC. FORM 10-Q
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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 1996 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 1996 Form 10-K, particularly with regard to
disclosure relating to significant accounting policies.
Earnings Per Common Share
Earnings per common share is based on the weighted average of common
shares outstanding during the period and the effect of considering common stock
equivalents (stock options) under the treasury stock method. Primary and fully
diluted earnings per common share are not shown because the effect of the stock
options is immaterial.
2. Impairment of Long-Lived Assets
As of August 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS No. 121 establishes accounting standards for Long-Lived Assets to be
Disposed Of. The adoption of SFAS No. 121 did not have a material effect on the
Company's earnings.
3. Reclassifications
Certain reclassifications were made to the prior year financial statements
to conform with the current year presentation.
Page 7 of 10
<PAGE> 8
BESTWAY, INC. FORM 10-Q
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated, certain items
from the Company's Consolidated Statements of Income, expressed as a percentage
of revenues.
<TABLE>
<CAPTION>
Quarter Ended
October 31
-------------------
1996 1995
---- ----
<S> <C> <C>
Revenues
Rental income 99.2% 99.0%
Sales of merchandise .8 1.0
----- -----
Total revenues 100.0 100.0
----- -----
Cost and operating expenses
Depreciation and amortization:
Rental merchandise 22.9 23.6
Other 7.0 6.0
Cost of merchandise sold .9 .9
Salaries and wages 25.1 24.9
Advertising 3.9 3.3
Occupancy 5.4 4.7
Other operating expenses 27.9 26.4
Interest expense 3.1 2.7
(Gain) loss on sale of property and equipment (.2) .7
----- -----
Total cost and operating expenses 96.0 93.2
----- -----
Income from continuing operations before income tax provision 4.0 6.8
----- -----
Current income tax expense .3 .5
Deferred income tax expense 1.2 2.5
----- -----
1.5 3.0
----- -----
Income from continuing operations 2.5 3.8
----- -----
Discontinued operation:
Loss from discontinued business, net of taxes -- 1.2
----- -----
Net income 2.5% 2.6%
===== =====
</TABLE>
Total revenue increased $1,963,047 or 47.8% to $6,069,756 as compared to
$4,106,709 in the quarter ended October 31, 1996. The increase was due to the
inclusion of operations for the stores acquired in April 1996 from All Star
Rental, Inc. (the "All Star Acquisition"), operations for the stores acquired
in July 1996 from REJA, Inc. (the "REJA Acquisition"), operations from a single
store acquisition in November 1995 and operations for four internal new store
openings in fiscal year 1996. The stores acquired in the All Star Acquisition
accounted for $1,209,407 (62%) of the increase, the stores acquired in the REJA
Acquisition accounted for $530,642 (27%) of the increase, the single store
acquisition accounted for $86,576 (4%) of the increase, internal new store
openings accounted for $207,931 (11%) of the increase, while the Company's same
stores decreased $71,509 (4%) of the overall increase in revenues. The
Company's same store revenues, as a percent, decreased 1.7%.
Total costs and operating expenses increased $1,997,431 or 52.2% and as a
percent of total revenues increased from 93.2% to 96.0%. This 2.8% net increase
resulted primarily from increases in other depreciation and amortization,
advertising, occupancy and other operating expenses associated with the All
Star and REJA Acquisitions. Salaries and wages increased $498,283 or 48.6% to
$1,522,721 and increased from 24.9% to 25.1% of total revenues primarily due to
the addition of key management personnel added in preparation for expansion.
Interest expense increased $77,004 or 68.9% to $188,631 and increased from 2.7%
to 3.1% of total revenue due to increased borrowings on the Company's revolving
line of credit with its senior collateralized lender.
Page 8 of 10
<PAGE> 9
BESTWAY, INC. FORM 10-Q
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, con't.
Financial Condition, Liquidity and Capital Resources
On August 26, 1996, the Company extended its maturity on the $500,000
subordinated note payable to affiliate dated March 4, 1992 from August 31, 1996
to August 31, 1997. For the quarter ended October 31, 1996, the Company's net
cash flows from operating activities was $3,191,503 as compared to $1,810,489
for the quarter ended October 31, 1995. The increase was primarily due to an
increase in cash generating earnings.
For the quarter ended October 31, 1996, the Company's net cash flows used
in investing activities was $3,726,416 as compared to $2,077,565 for the
quarter ended October 31, 1995. The Company's investing activities reflect
significant increases in purchases of rental units and property and equipment
as a result of the All Star and REJA Acquisitions. The Company's investing
activities reflect its continuing replacement of rental merchandise that was
purchased by customers either by full payout under the rental agreement or by
exercise of the customers early purchase option.
For the quarter ended October 31, 1996, the Company's net cash flows from
financing activities was $825,183 as compared to $208,185 for the quarter ended
October 31, 1995. The increase in financing activities principally reflects
increased borrowings on the Company's debt.
With the Company having available credit of $1,719,973 under the
$7,500,000 amended line of credit at October 31, 1996, management believes the
Company has adequate resources to meet its future cash obligations.
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 9 of 10
<PAGE> 10
BESTWAY, INC. FORM 10-Q
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, SIGNATURES
(a) Exhibits required by Item 601 of Regulation S-K
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, 1996
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 16, 1996 /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>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 735,125<F1>
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 15,953,671
<CURRENT-ASSETS> 0
<PP&E> 5,260,419
<DEPRECIATION> 7,614,108
<TOTAL-ASSETS> 20,557,691
<CURRENT-LIABILITIES> 0
<BONDS> 9,874,109
0
0
<COMMON> 17,499
<OTHER-SE> 7,581,389
<TOTAL-LIABILITY-AND-EQUITY> 20,557,691
<SALES> 0
<TOTAL-REVENUES> 6,069,756
<CGS> 0
<TOTAL-COSTS> 1,441,853
<OTHER-EXPENSES> 4,194,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188,631
<INCOME-PRETAX> 244,980
<INCOME-TAX> 92,030
<INCOME-CONTINUING> 152,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152,950
<EPS-PRIMARY> .09
<EPS-DILUTED> 0
<FN>
<F1>Company adopted unclassified balance sheet in 1989
</FN>
</TABLE>
