<PAGE> 1
BESTWAY, INC. FORM 10-Q
- --------------------------------------------------------------------------------
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, 1998
OR
| | 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 Freeway, Suite 320 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, 1998, was 1,751,592.
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BESTWAY, INC. FORM 10-Q
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QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTER ENDED
October 31, 1998
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NOS.
---------
<S> <C> <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 12
</TABLE>
2 of 12
<PAGE> 3
BESTWAY, INC. FORM 10-Q
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CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
October 31, 1998 July 31, 1998
---------------- -------------
ASSETS
<S> <C> <C>
Cash $ 555,634 $ 501,119
Prepaid expenses 137,603 182,118
Deferred income taxes 1,176,324 1,269,065
Other assets 98,682 46,773
Rental merchandise, at cost 18,830,329 17,723,833
less accumulated depreciation 6,823,762 6,315,080
------------ ------------
12,006,567 11,408,753
Property and equipment, at cost 5,842,678 5,366,471
less accumulated depreciation 2,989,616 2,816,429
------------ ------------
2,853,062 2,550,042
Non-competes, net of amortization 337,514 393,056
Goodwill, net of amortization 2,264,670 2,323,024
------------ ------------
Total assets $ 19,430,056 $ 18,673,950
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 2,085,262 $ 865,162
Accrued interest - related parties 20,667 15,500
Income taxes payable 83,240 184,419
Other accrued liabilities 946,058 982,464
Notes payable - related parties 3,000,000 3,000,000
Notes payable - other 4,777,376 5,230,043
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,
1,751,592 issued and outstanding at,
October 31, 1998 and July 31, 1998, respectively 17,516 17,516
Paid-in capital 16,098,006 16,098,006
Accumulated deficit (7,598,069) (7,719,160)
------------ ------------
Total stockholders' equity 8,517,453 8,396,362
------------ ------------
Total liabilities and stockholders' equity $ 19,430,056 $ 18,673,950
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE> 4
BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
----------------------------
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Rental income $ 6,779,651 $6,041,567
Sales of merchandise 52,921 50,610
----------- ----------
6,832,572 6,092,177
----------- ----------
Cost and Operating Expenses:
Depreciation and amortization:
Rental merchandise 1,489,358 1,310,042
Other 348,418 394,953
Cost of merchandise sold 56,716 51,837
Salaries and wages 1,839,534 1,623,843
Advertising 303,123 239,815
Occupancy 411,290 378,280
Other operating expenses 1,973,747 1,736,304
Interest expense 185,078 188,467
(Gain) loss on sale of property and equipment (6,270) 6,114
----------- ----------
6,600,994 5,929,655
----------- ----------
Income from operations
before income tax provision: 231,578 162,522
----------- ----------
Current income tax expense 17,746 11,095
Deferred income tax expense 92,741 58,131
----------- ----------
Net income $ 121,091 $ 93,296
=========== ==========
Basic and diluted net income per share $ .07 $ .05
=========== ==========
Weighted average common shares outstanding 1,751,592 1,749,967
=========== ==========
Diluted weighted average common shares
outstanding 1,789,660 1,795,513
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4 of 12
<PAGE> 5
BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
----------------------------------
October 31, 1998 October 31, 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 121,091 $ 93,296
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,837,776 1,704,995
Net book value of rental units retired 393,145 226,646
(Gain) loss on sale of property and equipment (6,270) 6,114
Deferred income taxes 92,741 58,131
Changes in operating assets and liabilities other than cash:
Prepaid expenses 44,515 (45,494)
Other assets (51,909) (7,608)
Accounts payable 276,055 (20,747)
Accrued interest payable 5,167 11,737
Income taxes payable (101,179) 7,193
Other accrued liabilities (36,406) (111,234)
----------- -----------
Total adjustments 136,243 (166,153)
----------- -----------
Net cash flows from operating activities 2,574,726 1,923,029
----------- -----------
Cash flows from investing activities:
Purchase of rental units and equipment (1,536,230) (2,562,359)
Additions to property and equipment (539,764) (256,755)
Proceeds from sale of property and equipment 8,450 2,504
----------- -----------
Net cash flows used in investing activities (2,067,544) (2,816,610)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable -- 1,169,974
Repayment of notes payable (452,667) (106,489)
----------- -----------
Net cash flows (used in) provided by financing activities (452,667) 1,063,485
----------- -----------
Cash at August 1, 1998 and 1997, respectively 501,119 354,738
----------- -----------
Cash at the end of the quarter $ 555,634 $ 524,642
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5 of 12
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BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended October 31, 1998
<TABLE>
<CAPTION>
(Unaudited)
Common Stock
--------------------------------- Paid-In Accumulated
Shares Amount Capital Deficit
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance at July 31, 1998 1,751,592 $ 17,516 $ 16,098,006 $ (7,719,160)
Net income for the three months ended
October 31, 1998 -- -- -- 121,091
--------------- -------------- -------------- ---------------
Balance at October 31, 1998 1,751,592 $ 17,516 $ 16,098,006 $ (7,598,069)
=============== ============== ============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<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 1998 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 1998 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. Income Per Share
In January 1998, the Company adopted SFAS No. 128, "Earnings Per
Share," resulting in the replacement of primary earnings per share (EPS) with a
newly defined basic EPS and modification to the computation of diluted EPS. As a
result, all prior period EPS data has been restated to conform to the provisions
of this statement. For the three months ended October 31, 1997, basic and
diluted net income per share as restated approximate net income per share as
reported.
For the three months ended October 31, 1998 and 1997, 38,068 and 45,546
shares of common stock options were included in the denominator for the
calculation of diluted net income per share and for the three months ended
October 31, 1998, 9,250 shares of common stock options were excluded from the
denominator because their effect would have been antidilutive to the computation
of diluted EPS.
4. New Accounting Standards
During the first quarter of fiscal year 1998, the Company adopted SFAS
No. 130, "Reporting Comprehensive Income", SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information" and SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits". The adoption of
these statements had no impact on the Company's consolidated financial
statements.
7 of 12
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BESTWAY, INC. FORM 10-Q
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report on Form 10-Q contains various "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements represent the Company's expectations or beliefs concerning future
events. Any forward-looking statements made by or on behalf of the Company are
subject to uncertainties and other factors that could cause actual results to
differ materially from such statements. These uncertainties and other factors
include, but are not limited to, (i) the ability of the Company to acquire
additional rental-purchase stores on favorable terms, (ii) the ability of the
Company to improve the performance of such acquired stores and to integrate such
acquired stores into the Company's operations, and (iii) the impact of state and
federal laws regulating or otherwise affecting the rental-purchase transaction.
Undo reliance should not be placed on any forward-looking statements made by or
on behalf of the Company as such statements speak only as of the date made. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, the
occurrence of future events or otherwise.
Results of Operations
The following table sets forth, for the periods indicated, certain
items from the Company's unaudited Consolidated Statements of Income, expressed
as a percentage of revenues:
<TABLE>
<CAPTION>
Quarter Ended
---------------
October 31,
1998 1997
------ ------
<S> <C> <C>
Revenues:
Rental income 99.2% 99.2%
Sales of merchandise 0.8 0.8
------ ------
Total revenues 100.0 100.0
Cost and operating expenses:
Depreciation and amortization:
Rental merchandise 21.8 21.5
Other 5.1 6.4
Cost of merchandise sold 0.8 0.9
Salaries and wages 26.9 26.7
Advertising 4.4 3.9
Occupancy 6.0 6.2
Other operating expenses 28.9 28.5
Interest expense 2.7 3.1
Loss on sale of property and
equipment -- 0.1
------ ------
Total cost and operating expenses 96.6 97.3
------ ------
Income from operations
before income tax provision 3.4 2.7
------ ------
Current income tax expense 0.3 0.2
Deferred income tax expense 1.3 1.0
------ ------
Net income 1.8% 1.5%
====== ======
</TABLE>
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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.
For the three months ended October 31, 1998 compared to the three
months ended October 31, 1997, total revenue increased $740,395, or 12.2% to
$6,832,572 from $6,092,177. The increase in total revenue was primarily
attributable to the inclusion of two stores purchased in the fourth quarter of
fiscal year 1998, inclusion of one internal new store opening in the first
quarter of fiscal year 1999 and improved same store revenues. Revenue from same
stores increased 10.2% and accounted for 83.5% of the increase. The improvement
was primarily attributable to an increase in both the number of items on rent
and in revenue earned per item. Revenue from the two stores purchased in the
fourth quarter of fiscal year 1998 and the one internal new store opening in
the first quarter of 1999 accounted for 16.6% and 5.3% of the increase,
respectively. Revenue decreased $40,113, or 5.3% due to closing one store
location in fiscal year 1998.
For the three months ended October 31, 1998 compared to October 31,
1997, total cost and operating expenses increased $671,339, or 11.3% to
$6,600,994 from $5,929,655, but decreased .7% as a percentage of total revenues
to 96.6% from 97.3%. The decrease is primarily due to a decrease in depreciation
and amortization and interest expense offset by increased advertising costs.
Depreciation of rental merchandise increased $179,316, or 13.7% to
1,489,358 from 1,310,042. Depreciation of rental merchandise expressed as a
percent of total store rental and fee revenue increased .3% to 21.8% from 21.5%.
Other depreciation and amortization decreased $46,535, or 11.8% to $348,418 from
$394,953 and as a percentage of total store revenue decreased 1.3% to 5.1% from
6.4%. The decrease was primarily due to the full amortization of certain
non-competes at the end of fiscal year 1998.
Salaries and wages increased $215,691, or 13.3% to $1,839,534 from
$1,623,843. Salaries and wages expressed as a percent of total store revenue
increased .2% to 26.9% from 26.7%. The increase was due to additional personnel
at the Company's same stores necessitated by the increase in the number of items
on rent, as well as additional personnel for the stores acquired in the fourth
quarter of fiscal year 1998 and the one new internal store opening this quarter.
Advertising expense increased $63,308, or 26.4% to $303,123 from $239,815.
Advertising expense expressed as a percent of total store revenue increased .5%
to 4.4% from 3.9% primarily due to the stores acquired in the fourth quarter of
fiscal year 1998 and the one new internal store opening this quarter. Occupancy
expense increased $33,010, or 8.7% to $411,290 from $378,280 and as a percentage
of total store revenue decreased .2% to 6.0% from 6.2%. Other operating expenses
increased $237,443, or 13.7% to $1,973,747 from $1,736,304 and as a percentage
of total store revenue increased .4% to 28.9% from 28.5%. The increase was
primarily due to the increase in the number of items on rent and increased
write-offs of rental merchandise. Interest expense decreased $3,389, or 1.8% to
$185,078 from $188,467 and as a percentage of total store revenue decreased .4%
to 2.7% from 3.1 % primarily due to decreased borrowings under the Revolving
Credit Loan Agreement.
For the three months ended October 31, 1998, net income increased
$27,795, or 29.8% to $121,091 from $93,296. Net income expressed as a percent of
total store revenue increased .3% to 1.8% from 1.5% due to the factors discussed
above.
9 of 12
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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
For the three months ended October 31, 1998 the Company's net cash
flows from operating activities was $2,574,726 as compared to $1,923,029 for
the three months ended October 31, 1997. The increase was primarily due to
increased cash flow from two stores acquired in the fourth quarter of fiscal
year 1998, and increased cash flow from a single new internal store opening
during the first quarter of fiscal year 1999, offset by a decrease in working
capital requirements.
For the three months ended October 31, 1998 the Company's net cash
flows used in investing activities was $2,067,544 as compared to $2,816,610 for
the three months ended October 31, 1997. The Company's investing activities
reflects a $283,009 increase in additions to property and equipment and a
$1,026,129 decrease in the purchase of rental units and equipment.
For the three months ended October 31, 1998 the Company's net cash
flows (used in) provided by financing activities was ($452,667) as compared to
$1,063,485 for the three months ended October 31, 1997. The decrease in
financing activities principally reflects decreased borrowings on the Company's
debt.
With the Company having available credit of approximately $3,838,000
under the $8,500,000 Revolving Credit Loan Agreement, 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.
Year 2000
The Company is coordinating the identification, evaluation, and
implementation of changes to computer systems and applications necessary to
achieve a year 2000 date conversion with no effect on customers or disruption to
business operations. These actions are necessary to ensure that the systems and
applications will recognize and process the year 2000 and beyond. The principal
areas of risk identified by the Company are purchased software, computer
hardware and systems other than information technology systems.
The Company uses purchased software programs for a variety of
functions, including general ledger, accounts payable, payroll, fixed assets and
treasury. Currently, the Company's general ledger, accounts payable, payroll and
fixed asset systems are year 2000 compliant. The Company is coordinating with
banks with which it does business to ensure the compliance of the electronic
transfer software used by each bank as well as the compliance of each bank's
internal systems. Additionally, the Company has upgraded all software for
individual workstations and laptops to be year 2000 compliant.
The Company believes it has identified all computer hardware used in
connection with its operations that must be modified, upgraded or replaced. The
Company has upgraded certain of its hardware to be year 2000 compliant and is
currently working with outside consultants to modify, replace or upgrade its
remaining hardware identified as adversely affected.
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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.
The Company has identified systems other than information technology
systems that may be affected by the year 2000 problem including telephone
systems, alarm systems, fax machines and merchandise rented by the Company. The
Company has ensured the year 2000 readiness for certain of these items and is in
the process of completing any modifications or replacements necessary to make
all items year 2000 compliant.
As part of the year 2000 readiness process, significant service
providers, vendors, suppliers and customers that are believed to be critical to
business operations after January 1, 2000, have been identified and steps are
underway in an attempt to reasonably ascertain their stage of year 2000
readiness. The failure to correct a material year 2000 problem could result in
an interruption in, or a failure of, certain normal business activities and
operations, liquidity and financial condition. The Company does not expect the
year 2000 problem to have a material impact on the Company; however, due to the
general uncertainty inherent in the year 2000 problem, resulting in part from
the uncertainty of the year 2000 readiness of third party suppliers, year 2000
failures may have a material impact on the Company. The total cost of compliance
and its effect on the Company's future results of operations is not expected to
be material and based on the Company's current state of year 2000 readiness, no
contingency plan is deemed necessary at this time.
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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) Report on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended October 31, 1998.
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 15, 1998
/s/ Beth A. Durrett
------------------------------------------------
Beth A. Durrett
Chief Financial Officer
(Principal Financial Officer and duly authorized
to sign on behalf of the Registrant)
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<PAGE> 13
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-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 555,634
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 18,830,329
<CURRENT-ASSETS> 0
<PP&E> 5,842,678
<DEPRECIATION> 9,831,378
<TOTAL-ASSETS> 19,430,056
<CURRENT-LIABILITIES> 0
<BONDS> 7,777,376
0
0
<COMMON> 17,516
<OTHER-SE> 8,499,937
<TOTAL-LIABILITY-AND-EQUITY> 19,430,056
<SALES> 0
<TOTAL-REVENUES> 6,832,572
<CGS> 0
<TOTAL-COSTS> 1,489,358
<OTHER-EXPENSES> 4,926,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,078
<INCOME-PRETAX> 231,578
<INCOME-TAX> 110,487
<INCOME-CONTINUING> 121,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,091
<EPS-PRIMARY> .07
<EPS-DILUTED> 0
</TABLE>
