<PAGE> 1
BESTWAY, INC. FORM 10-Q
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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 April 30, 1999
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
April 30, 1999, was 1,745,717.
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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
April 30, 1999
PART I - FINANCIAL INFORMATION PAGE NOS.
---------
ITEM 1. Consolidated Unaudited Financial Statements 3-8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-15
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K, Signatures 16
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BESTWAY, INC. FORM 10-Q
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CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
April 30, 1999 July 31, 1998
-------------- -------------
ASSETS
<S> <C> <C>
Cash $ 442,256 $ 501,119
Prepaid expenses 209,033 182,118
Deferred income taxes 965,658 1,269,065
Other assets 139,891 46,773
Rental merchandise, at cost 20,039,541 17,723,833
less accumulated depreciation 7,048,679 6,315,080
------------ ------------
12,990,862 11,408,753
------------ ------------
Property and equipment, at cost 6,742,759 5,366,471
less accumulated depreciation 3,264,603 2,816,429
------------ ------------
3,478,156 2,550,042
------------ ------------
Non-competes, net of amortization 287,693 393,056
Goodwill, net of amortization 2,425,692 2,323,024
------------ ------------
Total assets $ 20,939,241 $ 18,673,950
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,390,219 $ 865,162
Accrued interest - related parties 20,000 15,500
Income taxes payable 45,291 184,419
Other accrued liabilities 1,028,958 982,464
Notes payable - related parties 3,000,000 3,000,000
Notes payable - other 6,646,864 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, 1,756,917 and
1,751,592 issued at April 30, 1999
and July 31, 1998, respectively 17,569 17,516
Paid-in capital 16,124,578 16,098,006
Less treasury stock, at cost, 11,200 at April 30, 1999 (66,241) --
Accumulated deficit (7,267,997) (7,719,160)
------------ ------------
Total stockholders' equity 8,807,909 8,396,362
------------ ------------
Total liabilities and stockholders' equity $ 20,939,241 $ 18,673,950
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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BESTWAY, INC. FORM 10-Q
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CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
April 30, April 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 7,582,359 $ 6,334,448 $ 21,222,966 $ 18,764,194
Sales of merchandise 112,012 95,654 231,674 212,689
------------ ------------ ------------ ------------
7,694,371 6,430,102 21,454,640 18,976,883
------------ ------------ ------------ ------------
Cost and Operating Expenses:
Depreciation and amortization:
Rental merchandise 1,631,210 1,397,652 4,607,019 4,119,156
Other 347,362 381,825 1,024,054 1,163,401
Cost of merchandise sold 103,421 95,639 218,939 199,572
Salaries and wages 2,081,809 1,642,276 5,833,057 4,928,111
Advertising 375,530 195,295 989,785 639,159
Occupancy 479,293 390,414 1,334,521 1,164,710
Other operating expenses 2,114,445 1,854,832 6,082,879 5,487,311
Interest expense 203,841 194,916 576,383 602,336
Gain on sale of assets (31,393) -- (31,393) --
(Gain) loss on sale of property and equipment (136) (13,871) 4,358 17,530
------------ ------------ ------------ ------------
7,305,382 6,138,978 20,639,602 18,321,286
------------ ------------ ------------ ------------
Income from operations before income tax
provision: 388,989 291,124 815,038 655,597
------------ ------------ ------------ ------------
Current income tax expense 27,959 22,594 60,468 50,238
Deferred income tax expense 144,791 110,199 303,407 250,400
------------ ------------ ------------ ------------
Net income $ 216,239 $ 158,331 $ 451,163 $ 354,959
============ ============ ============ ============
Basic and diluted net income per share $ .12 $ .09 $ .26 $ .20
============ ============ ============ ============
Weighted average common shares outstanding 1,744,700 1,750,342 1,748,195 1,750,092
============ ============ ============ ============
Diluted weighted average common shares
outstanding 1,843,630 1,797,245 1,799,505 1,798,176
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
-------------------------------
April 30, 1999 April 30, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 451,163 $ 354,959
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,631,073 5,282,557
Net book value of rental units retired 1,771,337 1,112,269
Loss on sale of property and equipment 4,358 17,530
Deferred income taxes 303,407 250,400
Gain on sale of assets (31,393) --
Changes in operating assets and liabilities other than cash:
Prepaid expenses (26,915) (15,765)
Other assets (93,118) (12,335)
Accounts payable (343,102) (34,228)
Income taxes payable (139,128) 31,432
Accrued interest payable 4,500 (42,263)
Other accrued liabilities 46,494 74,378
------------ ------------
Total adjustments (551,269) 1,219
------------ ------------
Net cash flows from operating activities 7,578,676 7,018,934
------------ ------------
Cash flows from investing activities:
Purchase of rental units and equipment (6,909,929) (6,667,815)
Additions to property and equipment (1,715,955) (658,019)
Proceeds from sale of property and equipment 45,036 158,690
Asset purchase net of cash acquired (523,896) --
Proceeds from sale of assets 90,000 --
------------ ------------
Net cash flows used in investing activities (9,014,744) (7,167,144)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 2,425,000 2,821,932
Repayment of notes payable (1,008,179) (2,423,220)
Treasury stock purchase (66,241) --
Stock issuance 26,625 5,625
------------ ------------
Net cash flows provided by financing activities 1,377,205 404,337
------------ ------------
Cash at August 1, 1998 and 1997, respectively 501,119 354,738
------------ ------------
Cash at the end of the quarter $ 442,256 $ 610,865
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the nine months ended April 30, 1999
<TABLE>
<CAPTION>
(Unaudited)
----------------------------------------------------------------------------------------------
Common Stock Paid-In Treasury Stock Accumulated
---------------------------- -----------------------------
Shares Amount Capital Shares Amount Deficit
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1998 1,751,592 $ 17,516 $ 16,098,006 -- $ -- $ (7,719,160)
Stock options exercised 5325 53 26,572 -- -- --
Treasury stock purchases -- -- -- (11,200) (66,241) --
Net income for the nine months
ended April 30, 1999 -- -- -- -- -- 451,163
------------ ------------ ------------ ------------ ------------ ------------
Balance at April 30, 1999 1,756,917 $ 17,569 $ 16,124,578 (11,200) $ (66,241) $ (7,267,997)
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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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 pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosure
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. 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 unaudited consolidated 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. Income Per Share
Basic and diluted income per share is calculated based on the weighted
average common shares outstanding during the period. Stock options are not
included in the calculation of diluted income per share if their effect would
be antidultive.
3. Acquisitions and Dispositions
On January 11, 1999, the Company signed an asset purchase agreement with
King Rental, Inc. to acquire all the assets of two store locations in Alabama.
The Company paid $525,000 in cash for all the assets involved in the daily
operations of the stories including all idle rental inventory and all rental
inventory. Additionally, the Company obtained the seller's former store
locations by assuming the lease agreements. The Company funded the purchase
through borrowings under the Revolving Credit Loan Agreement.
The acquisition has been accounted for under the purchase method and,
accordingly, the operating results from the acquired stores are included in the
accompanying consolidated statements of income from the date of acquisition.
The acquisition resulted in $284,040 of goodwill which is being amortized on a
straight-line basis over 15 years.
On February 1, 1999, the Company entered into an asset purchase agreement
with Griffin Acceptance Corporation to sell all the assets of one store location
in Mississippi. The Company received $90,000 in cash for all the assets involved
in the daily operations of the stores including all rental inventory being
rented by customers. Idle inventory was transferred to the Company's existing
store locations. The Company recognized a gain of $31,393 on the sale.
4. Common Stock
During the nine months ending April 30, 1999, the Company repurchased
11,200 shares of its common stock in the open market at a cost of $66,241
(2,500 shares repurchased for $15,938, 4,900 shares repurchased for $24,653 and
3,800 shares repurchased for $25,650).
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BESTWAY, INC. FORM 10-Q
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5. Subsequent Event
On May 14, 1999, the Company entered into an asset purchase agreement with
Rent-A-Center, Inc. to sell all the assets of two store locations in Tennessee.
The Company received $196,996 in cash for all the assets involved in the daily
operations of the stores including all rental inventory being rented by
customers. Idle inventory was transferred to the Company's existing store
locations.
6. New Accounting Standards
During the first quarter of fiscal year 1999, 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.
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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.
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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.
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>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
April 30, April 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 98.5% 98.5% 98.9% 98.9%
Sales of merchandise 1.5 1.5 1.1 1.1
------------ ------------ ------------ ------------
Total revenues 100.0 100.0 100.0 100.0
------------ ------------ ------------ ------------
Cost and Operating Expenses:
Depreciation and amortization:
Rental merchandise 21.2 21.7 21.5 21.7
Other 4.5 5.9 4.8 6.1
Cost of merchandise sold 1.3 1.5 1.0 1.1
Salaries and wages 27.1 25.5 27.2 26.0
Advertising 4.9 3.0 4.6 3.4
Occupancy 6.2 6.1 6.2 6.1
Other operating expenses 27.5 28.9 28.3 28.9
Interest expense 2.6 3.0 2.7 3.2
Gain on sale of assets (0.4) -- (0.1) --
(Gain) loss on sale of property and equipment -- (0.1) -- 0.1
------------ ------------ ------------ ------------
Total cost and operating expenses 94.9 95.5 96.2 96.6
------------ ------------ ------------ ------------
Income from operations before income tax provision 5.1 4.5 3.8 3.4
------------ ------------ ------------ ------------
Current income tax expense 0.4 0.3 0.3 0.2
Deferred income tax expense 1.9 1.7 1.4 1.3
------------ ------------ ------------ ------------
Net income 2.8% 2.5% 2.1% 1.9%
============ ============ ============ ============
</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.
Comparison of Three Months Ended April 30, 1999 and 1998
For the three months ended April 30, 1999 compared to the three months
ended April 30, 1998, total revenue increased $1,264,269 or 19.7% to $7,694,371
from $6,430,102. 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 two stores purchased in the second quarter of fiscal year
1999, inclusion of one new store opening in the first quarter of fiscal year
1999, inclusion of three new store openings in the second quarter of fiscal
year 1999, inclusion of three new store openings in the third quarter of fiscal
year 1999, and improved same store revenues. Revenue from same stores increased
$827,393, or 13.6% and accounted for 65.4% of the increase in total revenues.
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 accounted for $137,948, or
10.9% of the increase. Revenue from the two stores purchased in the second
quarter of fiscal year 1999 accounted for $296,075, or 23.4% of the increase.
Revenue from the one new store opening in the first quarter of fiscal year 1999
accounted for $111,572, or 8.8% of the increase. Revenue from the three new
store openings in the second quarter of fiscal year 1999 accounted for
$191,465, or 15.1% of the increase. Revenue from the three new store openings
in the third quarter of fiscal year 1999 accounted for $52,147, or 4.1% of the
increase. Revenue decreased $12,450, or 1.0% and $339,881, or 26.9% due to
closing one store location in fiscal year 1998 and four store locations in
fiscal year 1999, respectively.
For the three months ended April 30, 1999 compared to the three months
ended April 30, 1998, total cost and operating expenses increased $1,166,404,
or 19.0% to $7,305,382 from $6,138,978 and decreased .6% as a percentage of
total revenues to 94.9% from 95.5%.
Depreciation of rental merchandise increased $233,558, or 16.7% to
$1,631,210 from $1,397,652 due to an increase in items on rent. Depreciation of
rental merchandise expressed as a percent of total store rental and fee revenue
decreased .5% to 21.2% from 21.7% primarily due to higher rental rates on
rental merchandise. Other depreciation and amortization decreased $34,463, or
9.0% to $347,362 from $381,825 and as a percentage of total store revenue
decreased 1.4% to 4.5% from 5.9%. The decrease was primarily due to the full
amortization of certain non-competes at the end of fiscal year 1998.
Salaries and wages increased $439,533, or 26.8% to $2,081,809 from
$1,642,276. Salaries and wages expressed as a percent of total store revenue
increased 1.6% to 27.1% from 25.5%. Salaries and wages increased $89,577, or
20.4% of the total increase due to additional personnel for the stores acquired
in the fourth quarter of fiscal 1998 and for the stores acquired in the second
quarter of fiscal 1999. Additional personnel for the seven new internal stores
opened in the first, second and third quarters of fiscal 1999 increased
salaries and wages by $126,463, or 28.8% of the total increase. Salaries and
wages increased $179,751, or 40.9% of the total increase due to additional
personnel at the Company's same stores necessitated by the increase in the
number of items on rent. Advertising expense increased $180,235, or 92.3% to
$375,530 from $195,295. Advertising expense expressed as a percent of total
store revenue increased 1.9% to 4.9% from 3.0% primarily due to the stores
acquired in the fourth quarter of fiscal year 1998, stores acquired in the
second quarter of fiscal year 1999 and the seven new internal stores opened in
the first, second and third quarters of fiscal year 1999. Occupancy expense
increased $88,879 or 22.8% to $479,293 from $390,414 and as a percentage of
total revenues increased .1% to 6.2% from 6.1%. Other operating expenses
increased $259,613, or 14.0% to $2,114,445 from $1,854,832 and as a percentage
of total revenues decreased 1.4% to 27.5% from 28.9%. The increase is primarily
attributable to the acquired and new stores offset by decreases in expenses
relating to the write-off of rental merchandise and insurance premiums.
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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 April 30, 1999, income from operations before
income tax provision increased $97,865, or 33.6% to $388,989 from $291,124 and
as a percentage of total revenues increased .6% to 5.1% from 4.5%. The increase
was primarily due to increased same store revenues offset by operating losses
of $61,108 from the seven new internal store openings during the first, second
and third quarters of fiscal year 1999. The new stores operated at a lower
average revenue per store and, therefore, had higher salaries and wages,
advertising and occupancy expenses as a percentage of revenues.
Comparison of Nine Months Ended April 30, 1999 and 1998
For the nine months ended April 30, 1999 compared to the nine months ended
April 30, 1998, total revenue increased $2,477,757, or 13.1% to $21,454,640
from $18,976,883. 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 two stores purchased in the second quarter of fiscal year
1999, inclusion of one new store opening in the first quarter of fiscal year
1999, inclusion of three new store openings in the second quarter of fiscal
year 1999, inclusion of three new store openings in the third quarter of fiscal
year 1999 and improved same store revenues. Revenue from same stores improved
$1,693,123, or 9.5% and accounted for 68.3% 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 1998 accounted for $389,426, or 15.7% of the increase.
Revenue from the two stores purchased in the second quarter of fiscal 1999
accounted for $341,009, or 13.8% of the increase. Revenue from the one new
store opening in the first quarter of fiscal 1999 accounted for $228,494, or
9.2% of the increase. Revenue from the three new store openings in the second
quarter of fiscal 1999 accounted for $270,320, or 10.9% of the increase.
Revenue from the three new store openings in the third quarter of fiscal 1999
accounted for $52,147, or 2.1% of the increase. Revenue decreased $92,556, or
3.7% and $404,200, or 16.3% due to closing one store location in fiscal year
1998 and four store locations in fiscal year 1999, respectively.
For the nine months ended April 30, 1999 compared to April 30, 1998, total
cost and operating expense increased $2,318,319, or 12.6% to $20,639,602 from
$18,321,286 and decreased .4% as a percentage of total revenues to 96.2% from
96.6%. The increase was primarily the result of salaries and wages and
advertising expenses associated with the stores acquired and opened in the
fourth quarter of fiscal year 1998 and the first nine months of fiscal year
1999.
Depreciation of rental merchandise increased $487,863, or 11.8% to
$4,607,019 from $4,119,156. Depreciation of rental merchandise expressed as a
percent of total store revenue decreased .2% to 21.5% from 21.7%. Other
depreciation and amortization decreased $139,347, or 12.0% to $1,024,054 from
$1,163,401 and as a percentage of total store revenue decreased 1.3% to 4.8%
from 6.1%. The decrease was primarily due to the full amortization of certain
non-competes at the end of fiscal year 1998.
Salaries and wages increased $904,946, or 18.4% to $5,833,057 from
$4,928,111. Salaries and wages expressed as a percent of total store revenue
increased 1.2% to 27.2% from 26.0%. Salaries and wages increased by $168,080,
or 18.6% of the total increase due to additional personnel for the stores
acquired in the fourth quarter of fiscal 1998 and for the stores acquired in
the second quarter of fiscal 1999. Additional personnel for the seven new
internal stores opened in the first, second and third quarters of fiscal 1999
increased salaries and wages by $231,384, or 25.6% of the total increase.
Salaries
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, con't.
and wages increased $359,593, or 39.7% of the total increase due to additional
personnel at the Company's same stores necessitated by the increase in the
number of items on rent. Advertising expense increased $350,626, or 54.9% to
$989,785 from $639,159. Advertising expense expressed as a percent of total
store revenue increased 1.2% to 4.6% from 3.4% primarily due to the stores
acquired in the fourth quarter of fiscal year 1998, stores acquired in the
second quarter of fiscal year 1999 and the seven new internal stores opened in
the first, second and third quarters of fiscal year 1999. Occupancy expense
increased $169,811 or 14.6% to $1,334,521 from $1,164,710 and as a percentage
of total revenues increased .1% to 6.2% from 6.1%. Other operating expenses
increased $595,568, or 10.8% to $6,082,879 from $5,487,311 and as a percentage
of total revenues decreased .6% to 28.3% from 28.9%. The increase is primarily
attributable to the acquired and new stores offset by decreases in expenses
relating to the write-off of rental merchandise and insurance premiums.
For the nine months ended April 30, 1999, income from operations before
income tax provision increased $159,441, or 24.3% to $815,038 from $655,597 and
as a percentage of total revenues increased .4% to 3.8% from 3.4%. The increase
was primarily due to increased same store revenues offset by operating losses
of $186,347 from the seven new internal store openings during the first, second
and third quarters of fiscal year 1999. The new stores operated at a lower
average revenue per store and, therefore, had higher salaries and wages,
advertising and occupancy expenses as a percentage of revenues.
Financial Condition, Liquidity and Capital Resources
For the nine months ended April 30, 1999 the Company's net cash flows from
operating activities was $7,578,676 as compared to $7,018,934 for the nine
months ended April 30, 1998. 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 seven new internal store openings during the first,
second and third quarters of fiscal 1999.
For the nine months ended April 30, 1999 the Company's net cash flows
used in investing activities was $9,014,744 as compared to $7,167,144 for the
nine months ended April 30, 1998. The Company's investing activities reflects a
$523,896 outflow, net of cash acquired, for the two store acquisition during
the second quarter, a $1,057,936 increase in additions to property and
equipment primarily for the seven new internal store openings during the first,
second and third quarters of fiscal year 1999, a $242,114 increase in the
purchase of rental units and equipment and a $90,000 inflow for the sale of one
store location in the third quarter of fiscal year 1999.
For the nine months ended April 30, 1999, the Company's net cash flows
provided by financing activities was $1,377,205 as compared to $404,337 for the
nine months ended April 30, 1999. The increase in financing activities
principally reflects increased borrowings on the Company's debt.
With the Company having available credit of approximately $1,963,000 under
the $8,500,000 Revolving Credit Loan Agreement, management believes the Company
has adequate resources to meet its future cash obligations.
On January 11, 1999, the Company signed an asset purchase agreement with
King Rentals, Inc. to acquire all the assets of two store locations in Alabama.
The Company paid $525,000 in cash for all the assets involved in the daily
operations of the stores including all idle rental inventory and all rental
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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.
inventory. Additionally, the Company obtained the seller's former store
locations by assuming the lease agreements. The Company funded the purchase
through borrowings under the Revolving Credit Agreement.
On February 1, 1999, the Company entered into an asset purchase agreement
with Griffin Acceptance Corporation to sell all the assets of one store
location in Mississippi. The Company received $90,000 in cash for all the
assets involved in the daily operations of the store including all rental
inventory being rented by customers. Idle inventory was transferred to the
Company's store locations.
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
assets 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.
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 services 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 the attempt to reasonably ascertain their stage of year 2000 readiness. The
failure to correct a material year 2000 problem could result in the
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
general uncertainty inherent in the year 2000 problem, resulting in part from
the uncertainty of the
14 of 16
<PAGE> 15
BESTWAY, INC. FORM 10-Q
- -------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, con't.
year 2000 readiness of third party suppliers, year 2000 failures may have a
material impact on the Company. The Company has incurred approximately $5,000 of
compliance costs to date and the total cost of compliance and its effect on the
Company's future results of operations is not expected to be material. Based on
the Company's current state of year 2000 readiness, no contingency plan is
deemed necessary at this time.
15 of 16
<PAGE> 16
BESTWAY, INC. FORM 10-Q
- -------------------------------------------------------------------------------
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 April 30, 1999.
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.
June 14, 1999
/s/ Beth A. Durrett
-------------------------------------------
Beth A. Durrett
Chief Financial Officer
(Principal Financial Officer and duly
authorized to sign on behalf of the
Registrant)
16 of 16
<PAGE> 17
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> 9-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
<CASH> 442,256
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 20,039,541
<CURRENT-ASSETS> 0
<PP&E> 6,742,759
<DEPRECIATION> 10,313,282
<TOTAL-ASSETS> 20,939,241
<CURRENT-LIABILITIES> 0
<BONDS> 9,646,864
0
0
<COMMON> 17,516
<OTHER-SE> 8,790,340
<TOTAL-LIABILITY-AND-EQUITY> 20,939,241
<SALES> 0
<TOTAL-REVENUES> 21,454,640
<CGS> 0
<TOTAL-COSTS> 4,607,019
<OTHER-EXPENSES> 15,456,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 576,383
<INCOME-PRETAX> 815,038
<INCOME-TAX> 363,875
<INCOME-CONTINUING> 451,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 451,163
<EPS-BASIC> .26
<EPS-DILUTED> 0
</TABLE>
