<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 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 of 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 January 31, 1996
<PAGE> 2
BESTWAY, INC.
QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTER ENDED
January 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 8-11
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K, Signatures 11-12
</TABLE>
Page 2 of 12
<PAGE> 3
BESTWAY, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 31, July 31,
ASSETS 1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Cash $ 338,476 $ 329,342
Restricted cash 119,342 119,342
Investments 493,500 --
Prepaid expenses 156,518 129,311
Deferred tax asset 1,860,400 2,013,784
Other assets 266,057 209,506
Rental merchandise, at cost 11,147,779 10,596,609
Less accumulated depreciation 4,240,574 4,189,727
----------- -----------
6,907,205 6,406,882
----------- -----------
Property and equipment, at cost 4,133,431 3,584,071
Less accumulated depreciation 1,987,970 1,702,486
----------- -----------
2,145,461 1,881,585
----------- -----------
Non-compete, net of amortization 490,086 581,977
Goodwill, net of amortization 1,952,648 2,038,166
----------- -----------
Total assets $14,729,693 $13,709,895
=========== ===========
LIABILITIES AND EQUITY
Accounts payable $ 503,056 $ 718,861
Accrued interest - related parties 12,014 12,013
Accrued interest - other 33,091 22,043
Income taxes payable 76,376 85,061
Other accrued liabilities 789,524 760,322
Notes payable - related parties 3,600,000 3,600,000
Notes payable - other 3,461,612 2,470,302
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $10.00 par value;
1,000,000 shares authorized, none issued -- --
Common stock, $.01 par value; 20,000,000
authorized; 1,500,070 issued and
outstanding at January 31, 1996 and
July 31, 1995, respectively 15,001 15,001
Paid-in capital 14,842,911 14,842,911
Accumulated deficit (8,603,892) (8,816,619)
----------- -----------
Total equity 6,254,020 6,041,293
----------- -----------
Total liabilities and equity $14,729,693 $13,709,895
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 3 of 12
<PAGE> 4
BESTWAY, INC.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- -------------------------
January 31, January 31, January 31, January 31,
----------- ----------- ----------- -----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Rental revenue $4,226,292 $4,017,578 $8,292,029 $7,838,868
Sales of merchandise and other 155,055 29,575 291,532 59,256
---------- ---------- ---------- ----------
4,381,347 4,047,153 8,583,561 7,898,124
---------- ---------- ---------- ----------
Cost and operating expenses
Depreciation and amortization -
Rental merchandise 1,020,125 983,653 1,985,229 1,930,636
Other 255,234 232,907 506,223 455,607
Cost of sales 128,829 25,672 243,690 51,333
Salaries and wages 1,110,716 1,003,737 2,142,684 1,943,122
Advertising 177,203 178,693 318,540 346,308
Occupancy 202,082 193,878 397,959 372,174
Other operating expenses 1,154,300 1,064,915 2,317,805 2,125,711
(Gain) loss on property and equipment (3,157) 7,433 27,211 (560)
Interest expense 135,242 134,542 247,822 254,788
---------- ---------- ---------- ----------
4,180,574 3,825,430 8,187,163 7,479,119
---------- ---------- ---------- ----------
Net income before income tax provision $ 200,773 $ 221,723 $ 396,398 $ 419,005
---------- ---------- ---------- ----------
Income tax provision
Current 15,321 17,440 30,287 33,024
Deferred 77,518 -- 153,384 --
---------- ---------- ---------- ----------
Net income $ 107,934 $ 204,283 $ 212,727 $ 385,981
========== ========== ========== ==========
Net income per share $ .07 $ .14 $ .14 $ .26
---------- ---------- ---------- ----------
Weighted average common
shares outstanding 1,500,070 1,503,541 1,500,070 1,504,409
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 4 of 12
<PAGE> 5
BESTWAY, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
January 31, January 31,
1996 1995
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 212,727 $ 385,981
Depreciation and amortization 2,491,452 2,386,243
Net book value of rental units retired 605,084 373,817
Loss (gain) on property and equipment 27,211 (560)
Deferred tax asset 153,384 --
Other -- (3,710)
Change in asset and liability accounts other than cash:
Prepaid expenses (27,207) 683
Other assets (56,551) (9,535)
Accounts payable (215,805) (93,294)
Accrued interest payable 11,049 12,739
Income tax payable (8,685) (3,410)
Other accrued liabilities 29,202 (147,910)
----------- -----------
Total adjustments (267,997) (240,727)
----------- -----------
Net cash flows from operating activities: 3,221,861 2,901,044
----------- -----------
Cash flows from investing activities:
Purchase of rental units and equipment (3,090,639) (3,195,915)
Additions to property and equipment (633,478) (369,497)
Proceeds from sale of property and equipment 13,580 19,157
Purchase of investments (493,500) --
----------- -----------
Net cash flows used in investing activities: (4,204,037) (3,546,255)
----------- -----------
Cash flows from financing activities:
Proceeds of notes payable 1,625,000 896,800
Repayment of notes payable (633,690) (258,211)
----------- -----------
Net cash flows provided by financing activities: 991,310 638,589
----------- -----------
Cash at August 1, 1995 and 1994, respectively 329,342 273,183
----------- -----------
Cash at the end of the quarter $ 338,476 $ 266,561
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 5 of 12
<PAGE> 6
BESTWAY, INC.
Consolidated Statements of Stockholders' Equity
for the six months ended January 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock 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 six months ended
January 31, 1996 212,727
--------- --------- ----------- -----------
Balance at January 31, 1996 1,500,070 $ 15,001 $14,842,911 $(8,603,892)
========= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 6 of 12
<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.
3. Investments
During the second quarter of fiscal year 1996, the Company made a
significant investment in a partnership, as a limited partner. The partnership
provides floor plan financing.
Page 7 of 12
<PAGE> 8
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, items from the
Company's Consolidated Statements of Income, expressed as a percentage of total
revenues.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Rental revenue 96.5% 99.3% 96.6% 99.2%
Sales of merchandise and other 3.5% 0.7% 3.4% 0.8%
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Cost and operating expenses
Depreciation and amortization -
Rental merchandise 23.3% 24.3% 23.1% 24.4%
Other 5.8% 5.8% 5.9% 5.8%
Cost of sales 2.9% 0.6% 2.8% 0.6%
Salaries and wages 25.4% 24.8% 25.0% 24.6%
Advertising 4.0% 4.4% 3.7% 4.4%
Occupancy 4.6% 4.8% 4.6% 4.7%
Other operating expenses 26.4% 26.3% 27.0% 26.9%
(Gain) loss on property and equipment -0.1% 0.2% 0.3% 0.0%
Interest expense 3.1% 3.3% 2.9% 3.2%
----- ----- ----- -----
95.4% 94.5% 95.3% 94.6%
----- ----- ----- -----
Net income before income tax provision 4.6% 5.5% 4.7% 5.4%
----- ----- ----- -----
Income tax provision
Current 0.3% 0.4% 0.4% 0.4%
Deferred 1.8% 0.0% 1.8% 0.0%
----- ----- ----- -----
Net income 2.5% 5.1% 2.5% 5.0%
===== ===== ===== =====
</TABLE>
Second Quarter of Fiscal 1996 Compared with Second Quarter of Fiscal 1995
Total revenues increased by $334,194 or 8.3% for the three months ended
January 31, 1996, as compared to the three months ended January 31, 1995. The
increase is primarily due to the opening of two new rental-purchase stores
during the first quarter, growth of same store revenues and a second quarter
acquisition of a single rental-purchase store. In addition, the Company
acquired approximately 150 rental-purchase contracts from another rental dealer
where the Company has an existing store location. Total revenue from the
Company's rental-purchase stores increased by $222,236 or 6.6%. New and
acquired stores accounted for $133,248 (60%) of the increase in rental-purchase
store revenues, while the Company's same stores accounted for $88,988 (40%) of
the increase.
Page 8 of 12
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, con't.
Second Quarter of Fiscal 1996 Compared with Second Quarter of Fiscal 1995,
con't.
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. Revenues, included in sales of merchandise and other,
and operating losses from the retail used car sales and finance business were
$111,958 and $60,371, respectively for the three months ended January 31, 1996.
The Company evaluated the viability of the business over five months and
management has made the decision to discontinue the additional line of business
due to unfavorable operating results. The Company is pursuing several
alternatives and has not yet determined the impact of the disposition.
Total costs and operating expenses increased to 95.4% from 94.5% of total
revenues. The increase is primarily due to costs and operating expenses
relating to the retail used car sales and finance business. The Company
experienced significant improvement in rental-purchase store operating margins
during the three months. The Company's same store operating margins increased
$120,428 or 11.3%. The Company's two new rental-purchase stores and single
store acquisition, as expected, had a negative effect on operating income of
$38,288. The Company expects all three stores to begin contributing to
operating income by April 30, 1996. The Company's core rental-purchase
business continues improved performance primarily due to a marketing program
based on increasing the Company's share of the customers business and improved
customer satisfaction skills of the Company's employees.
Six Months Ended January 31, 1996 Compared with Six Months Ended January 31,
1995
Total revenues increased by $685,437 or 8.7% for the six months ended
January 31, 1996, as compared to the six months ended January 31, 1995. The
increase is primarily due to the opening of two new rental-purchase stores
during the first quarter, growth of same store revenues and a second quarter
acquisition of a single rental-purchase store. In addition, the Company
acquired approximately 150 rental-purchase contracts from another rental dealer
where the Company has an existing store location. Total revenue from the
Company's rental-purchase stores increased by $477,972 or 6.1%. New and
acquired stores accounted for $141,728 (30%) of the increase in rental-purchase
store revenues while the Company's same stores accounted for $336,244 (70%) of
the increase.
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. Revenues, included in sales of merchandise and other,
and operating losses from the retail used car sales and finance business were
$207,465 and $144,111, respectively for the six months ended January 31, 1996.
The Company evaluated the viability of the business over five months and
management has made the decision to discontinue the additional line of business
due to unfavorable operating results. The Company is pursuing several
alternatives and has not yet determined the impact of the disposition.
Page 9 of 12
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, con't.
Six Months Ended January 31, 1996 Compared with Six Months Ended January 31,
1995, con't.
Total costs and operating expenses increased to 95.3% from 94.6% of total
revenues. The increase is primarily due to costs and operating expenses
relating to the retail used car sales and finance business. The Company
experienced significant improvement in rental-purchase store operating margins
during the six months. The Company's same store operating margins increased
$270,581 or 12.8%. The Company's two new rental-purchase stores and single
store acquisition, as expected, had a negative effect on operating income of
$84,721. The Company expects all three stores to begin contributing to
operating income by April 30, 1996. The Company's core rental-purchase
business continues improved performance primarily due to a marketing program
based on increasing the Company's share of the customers business and improved
customer satisfaction skills of the Company's employees.
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 six
months ended January 31, 1996 was $3,221,861 compared to $2,901,044 for the
same period last year, a 11.1% increase. The increase principally reflects an
increase in write-offs of rental merchandise and the provision for deferred
income taxes. Cash flows used in investing activities for the six months ended
January 31, 1996 was $4,204,037 compared to $3,546,255 for the same period last
year, a 18.5% 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 exercising 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 three new rental-purchase locations.
With the Company having available credit of $974,973 under the $4,000,000
amended line of credit at January 31, 1996 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
Page 10 of 12
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, con't.
Financial Condition, Liquidity and Capital Resources, con't.
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.
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 report on Form 8-K during the quarter
ended January 31, 1996
Page 11 of 12
<PAGE> 12
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.
March 15, 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 12 of 12
<PAGE> 13
INDEX TO EXHIBIT
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
Filed electronically only, not attached to printed reports
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 457,818
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 11,147,779
<CURRENT-ASSETS> 0
<PP&E> 4,133,431
<DEPRECIATION> 6,228,544
<TOTAL-ASSETS> 14,420,932
<CURRENT-LIABILITIES> 0
<BONDS> 7,061,612
<COMMON> 15,001
0
0
<OTHER-SE> 6,239,019
<TOTAL-LIABILITY-AND-EQUITY> 14,729,693
<SALES> 0
<TOTAL-REVENUES> 8,583,561
<CGS> 0
<TOTAL-COSTS> 2,228,919
<OTHER-EXPENSES> 5,710,422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 247,822
<INCOME-PRETAX> 396,398
<INCOME-TAX> 183,671
<INCOME-CONTINUING> 212,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212,727
<EPS-PRIMARY> .14
<EPS-DILUTED> 0
</TABLE>
