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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JULY 31, 2000
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
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BESTWAY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 81-0332743
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7800 STEMMONS FREEWAY, SUITE 320
DALLAS, TEXAS 75247
(Address of principal executive offices, including zip code)
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Registrant's telephone number, including area code: (214) 630-6655
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
(TITLE OF CLASS)
Common Stock, $.01 par value
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting common stock held by non-affiliates
of the registrant as of October 26, 2000 was approximately $1,768,895.
The number of shares of Common Stock, $.01 par value, outstanding as of
October 26, 2000 was 1,696,272.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information called for by Part III is incorporated by reference
to the definitive proxy statement for the annual meeting of the stockholders of
Bestway, Inc., which will be filed with the Securities and Exchange Commission
not later than 120 days after July 31, 2000.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
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<S> <C> <C>
PART I
Item 1. Business 3-5
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters 6
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
PART III
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Bestway, Inc. and its consolidated subsidiaries ("Bestway" or the
"Company") has been engaged in the rental-purchase industry since 1987. The
Company owns and operates a total of seventy-seven stores located in the states
of Alabama, Arkansas, Georgia, Mississippi, North Carolina, South Carolina and
Tennessee. The stores' operations are controlled and monitored through the
Company's management information system networked with its home office in
Dallas, Texas. The Company is a Delaware corporation and its principal executive
offices are located at 7800 Stemmons Freeway, Suite 320, Dallas, Texas 75247.
The Company's rental-purchase program offers brand name durable household
goods, electronics, appliances and jewelry to customers on a week-to-week or
month-to-month basis. These products are furnished to customers under
full-service rental agreements which require that the charge for each rental
period be paid in advance, but no additional advance payment or security deposit
is required. At the end of each rental period, the customer has the option of
retaining the product for an additional rental period or returning the product
without further obligation. If the product is returned, it is serviced and then
offered for rent to another customer. The rental agreements contain options
under which customers may own the merchandise under specified terms. The
Company's rental agreements typically have a 12 to 24 month term with weekly or
monthly payment options. The most distinguishing factor of this form of
retailing is the cancelability of the rental agreement at any time without
further obligation by returning the product to the dealer. The industry
primarily serves customers in the low to middle income sector who may have a
need for a product, but do not wish or are unable to purchase it for cash or on
credit.
PRODUCTS
The Company generally purchases products directly from the manufacturers
and local distributors. Products offered by the Company include a wide variety
of brands, styles and models of television sets, audio equipment, video cassette
recorders, washers and dryers, refrigerators and freezers, microwave ovens,
furniture and jewelry. Although the Company presently expects to continue
relationships with its existing suppliers, there are numerous sources of
products, and the Company does not believe its operations are dependent on any
one or more of its present suppliers.
ADVERTISING
The Company markets its products and services by selecting prominent
store locations in retail shopping areas on main traffic thoroughfares near
targeted customers' residences or job locations. Substantially all of the
advertising is developed and produced by the Company's in-house advertising
department. Additionally, the Company solicits new business by acquainting
potential customers with the Company's products and services through mailing
lists and local media advertising programs. The Company also has programs which
reward existing customers with rental discounts or cash payments for the
referral of new customers.
COMPETITION
The rental-purchase industry is highly competitive. Competition is based
primarily on store location, product selection and availability, customer
service and rental rates and terms. Several of the Company's competitors are
national or regional companies and some have significantly greater financial
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and operating resources and name recognition than the Company. In addition, the
Company faces competition from sources outside the rental-purchase industry,
such as department stores, discount stores and retail outlets. These
competitors may offer an installment sales program or may compete with the
Company simply on the basis of product and price. There is no assurance that
the Company will be able to compete successfully against these competitors.
Because capital and other requirements for entry into the rental-purchase
industry is relatively low, competition may arise from new sources not
currently competing with the Company. Increased competition could have a
material adverse effect on the Company's sales and profitability.
PERSONNEL
At July 31, 2000 the Company employed approximately 338 full-time
employees, of which 16 are located at the corporate office in Dallas, Texas.
The Company has various incentive programs for all personnel. None of the
Company's employees are represented by a labor union. The Company considers its
relations with its employees to be satisfactory.
COMPANY STORES
The number of stores operated by the Company has increased from 70 as of
July 31, 1999 to 77 as of July 31, 2000. The following table shows the number
of stores opened, acquired and closed during the year.
<TABLE>
<CAPTION>
NUMBER OF
Stores
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<S> <C>
Open at July 31, 1999 70
Opened 12
Closed 1
Sold 4
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Open at July 31, 2000 77
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</TABLE>
REGULATION
Federal Regulation - No federal legislation has been enacted regulating
or otherwise governing rental-purchase transactions. The Company instructs its
managers in procedures required by applicable law through training seminars and
policy manuals and believes that it has operated in compliance with the
requirements of applicable law in all material respects. Management believes
that in the unlikely event federal legislation is enacted regulating
rental-purchase transactions as credit sales, the Company would be able to
adapt to the new laws and remain profitable by repositioning itself as a
rent-to-rent business.
State Regulation - There are currently 46 states that have legislation
regulating rental-purchase transactions. The Company currently operates its
stores in states that have enacted laws specifically regulating rental-purchase
transactions. The Company's policy is to operate only in states where there is
an absence of unfavorable legislation regarding rental-purchase transactions.
There can be no assurance against the enactment of new or revised
rental-purchase laws that would have a material adverse effect on the Company.
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SERVICE MARK
The Company owns the federally registered service mark "Bestway Rental".
The Company believes that the Bestway Rental mark has acquired significant
market recognition and goodwill in the communities in which its stores are
located.
ITEM 2. PROPERTIES
All store locations, with the exception of one, and the home office
facility in Dallas, Texas are leased. Store facilities typically are showroom
locations of approximately 4,100 square feet in retail centers on heavy traffic
thoroughfares near customers' residences or work places. Almost all available
rental merchandise is kept in the showroom area which comprises the majority of
the available square footage. Store location is considered critical to the
success of the store.
The Company's store locations by state at July 31, 2000, are as follows:
<TABLE>
<CAPTION>
NUMBER OF
STATE STORES
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<S> <C>
Alabama 22
Arkansas 2
Georgia 2
Mississippi 13
North Carolina 14
South Carolina 7
Tennessee 17
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Open at July 31, 2000 77
---------
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings other than ordinary routine litigation
incidental to the Company's business to which the Company or any of its
subsidiaries is a party or to which any of its property is subject. To the
Company's knowledge, no litigation has been threatened against the Company or
any of its subsidiaries other than routine actions and administrative
proceedings, which in the aggregate, are not expected to have a material adverse
effect on the business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's Common Stock is publicly traded on the Nasdaq Small-Cap
Market under the symbol "BSTW".
The following table sets forth, for the periods indicated, the high and
low sales price per share of the Common Stock as reported on the Nasdaq
Small-Cap Market.
<TABLE>
<CAPTION>
Year ended July 31, 2000 Year ended July 31, 1999
------------------------ ------------------------
High Low High Low
--------- -------- --------- -------
<S> <C> <C> <C> <C>
First Quarter $ 6-1/2 $ 6-3/16 $ 6-1/2 $ 6-1/4
Second Quarter $ 7-1/2 $ 5 $ 9-1/4 $ 5
Third Quarter $ 6-15/16 $ 5-3/16 $ 11-1/2 $ 6
Fourth Quarter $ 6-5/8 $ 5 $ 9-1/2 $ 6
</TABLE>
At July 31, 2000, there were 425 stockholders of record of the Company's
Common Stock.
The Company has not paid cash dividends on its Common Stock since its
inception and intends to retain earnings for operations. The Company is a party
to a loan agreement which prohibits the payment of cash dividends on Common
Stock.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues from continuing
operations $34,909,758 $29,365,753 $25,875,934 $24,662,812 $18,923,852
Income from continuing
operations before income tax 1,068,199 1,107,509 1,381,813 320,004 902,903
Current income tax expense 180,845 94,713 155,064 34,322 49,099
Deferred income tax
expense 397,413 397,912 433,012 119,622 321,574
Loss from discontinued
operations, net of taxes -- -- -- -- 394,568
Net income 489,941 614,884 793,737 166,060 137,662
Basic and diluted net income
per share 0.28 0.35 0.45 0.10 0.09
Cash flows provided by
operations 12,759,621 11,320,309 9,478,714 9,895,993 7,365,631
Total assets 25,617,543 21,218,412 18,673,950 18,373,967 18,925,440
Notes payable 13,294,945 9,244,012 8,230,043 8,171,945 9,048,928
Stockholder's equity 9,174,511 8,971,630 8,396,362 7,594,500 7,417,190
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the information set forth under Item 6, "Selected Financial Data," and the
financial statements of the Company and the accompanying notes thereto included
elsewhere in this Report.
The Company currently operates 77 rental-purchase stores located in seven
states. The number of stores operated by the Company has increased from 35 as of
July 31, 1995 to 77 as of July 31, 2000. During the year ended July 31, 2000,
the Company opened twelve new store locations, closed one store, and sold four
stores.
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>
YEAR ENDED JULY 31,
------------------------
2000 1999
----- -----
<S> <C> <C>
Revenues:
Rental income 98.7% 99.0%
Sales of merchandise 1.3 1.0
----- -----
Total revenues 100.0 100.0
Cost and operating expenses:
Depreciation and amortization:
Rental merchandise 21.9 21.5
Other 4.6 4.7
Cost of merchandise sold 1.2 1.0
Salaries and wages 27.7 27.5
Advertising 5.1 4.4
Occupancy 6.3 6.5
Other operating expenses 27.0 28.1
Interest expense 3.2 2.7
(Gain) loss on sale of property and equipment - -
Gain on sale of assets - (0.2)
----- -----
Total cost and operating expenses 97.0 96.2
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Income before income tax provision 3.0 3.8
----- -----
Current income tax expense 0.5 0.3
Deferred income tax expense 1.1 1.4
----- -----
Net income 1.4% 2.1%
===== =====
</TABLE>
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RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JULY 31, 2000 COMPARED
TO 1999
For the fiscal year ended July 31, 2000 compared to the fiscal year ended
July 31, 1999, total revenue increased $5,544,005, or 18.9%, to $34,909,758 from
$29,365,753. The increase in total revenue was primarily attributable to the
inclusion of two stores acquired and eleven new store openings in fiscal year
1999, the inclusion of twelve new store openings in fiscal year 2000, and
improved same store revenues offset by decreased revenue due to selling four
store locations and merging one location in fiscal year 2000. Revenue from the
two stores acquired in 1999 accounted for $453,617, or 8.2% of the increase.
Revenue from the eleven new store openings in fiscal year 1999 accounted for
$3,373,157, or 60.8% of the increase. Revenue from the twelve new store openings
in fiscal year 2000 accounted for $2,632,600, or 47.5% of the increase. The
increase in revenue from new stores is primarily a result of an increase in
customers and the inclusion of a full year's results for stores opened in 1999.
Revenue from same stores improved $1,396,560, or 5.8% and accounted for 25.2% of
the increase. Same store revenues represent those revenues earned in stores that
were operated by the Company for the entire year ending July 31, 2000 and 1999.
The improvement was primarily attributable to an increase in both the number of
items on rent and in revenue earned per item. Revenue decreased $2,311,929, or
41.7%, due to selling four locations and merging one location in fiscal year
2000, respectively.
The Company receives rental revenue from various products including
televisions and video cassette recorders, household appliances, as well as home
furniture and jewelry. In fiscal year 2000, approximately 17% of the Company's
rental revenue was derived from appliances, 25% from home furniture, 28% from
electronics, 11% from various other products including jewelry and 19% from
various services and charges to rental customers including reinstatement fees,
club program and liability waiver fees.
Total costs and operating expenses increased $5,583,315, or 19.8%, to
$33,841,559 from $28,258,244 and increased .8% as a percentage of total revenues
to 97.0% from 96.2%. The increase was primarily the result of expenses
associated with the twelve stores opened in fiscal year 2000.
Depreciation of rental merchandise increased $1,329,761, or 21.1% to
$7,642,889 from $6,313,128. Depreciation of rental merchandise expressed as a
percent of total revenue increased .4% to 21.9% from 21.5%. Other depreciation
and amortization increased $251,414, or 18.4% to $1,618,166 from $1,366,752 and
as a percentage of total revenue decreased .1% to 4.6% from 4.7%.
Salaries and wages increased $1,579,701, or 19.6%, to $9,659,144 from
$8,079,443 and as a percentage of total store revenue increased .2% to 27.7%
from 27.5%. Additional personnel for the twelve new internal stores opened in
fiscal year 2000 increased salaries and wages by $895,387, or 56.7% of the total
increase. Salaries and wages increased $623,461, or 39.5% of the total increase
due to additional personnel for the eleven new internal stores opened and the
two stores acquired in fiscal year 1999, respectively. Salaries and wages
increased $351,136, or 22.2% of the total increase due to higher staffing costs
associated with higher turnover in same stores during fiscal year 2000. Salaries
and wages decreased $360,963, or 22.9%, due to selling four locations and
merging one location in fiscal year 2000, respectively. Advertising expense
increased $481,068, or 36.9%, to $1,786,361 from $1,305,293. Advertising expense
expressed as a percent of total store revenue increased .7% to 5.1% from 4.4%
primarily due to the twelve and eleven new stores opened in fiscal year 2000 and
fiscal year 1999, respectively. Occupancy expense increased $302,039, or 15.9%,
to $2,198,247 from $1,896,208 and as a percentage of total revenues decreased
.2% to 6.3% from 6.5% primarily due to the twelve and eleven new stores opened
in fiscal year 2000 and fiscal year 1999, respectively. Other operating expenses
increased $1,166,337, or 14.1%, to $9,429,515 from $8,263,178 and as a
percentage of total revenues decreased 1.1% to 27.0% from 28.1%. The increase
was primarily attributable to the twelve new stores opened in fiscal year 2000
and increased write-offs of rental merchandise. Interest expense
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increased $314,768, or 39.5%, to $1,111,379 from $796,611 and as a percentage
of total revenue increased .5% to 3.2% from 2.7%. The increase in interest
expense is primarily attributable to the indebtedness related to the internal
new store locations in fiscal year 2000 and fiscal year 1999, respectively.
For the fiscal year ended July 31, 2000 compared to the fiscal year
ended July 31, 1999, income from operations before income tax provision
decreased $39,310, or 3.5%, to $1,068,199 from $1,107,509 and as a percentage
of total revenues decreased .8% to 3.0% from 3.8%. The Company experienced
operating losses of $397,721 from the twelve new stores opened in fiscal year
2000. The new stores operated at a lower average revenue per store as compared
to the Company's existing stores and, therefore, had higher salaries and wages,
advertising and occupancy expenses as a percentage of revenues.
For the fiscal year ended July 31, 2000 compared to the fiscal year
ended July 31, 1999, income tax expense increased $85,633, or 17.4%, to
$578,258 from $492,625 and as a percentage of total revenues decreased .1% to
1.6% from 1.7%.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For the fiscal year ended July 31, 2000, the Company's net cash flows
from operating activities was $12,759,621 as compared to $11,320,309 for the
fiscal year ended July 31, 1999. The increase was primarily due to increased
cash flow from the stores acquired and opened in fiscal years 2000 and 1999
offset by increased outflow for working capital commitments.
For the fiscal year ended July 31, 2000, the Company's net cash flows
used in investing activities was $16,356,631 as compared to $11,983,602 for the
year ended July 31, 1999. The Company's investing activities reflects a
$3,938,439 increase in the purchase of rental units and equipment and a
$595,193 increase in additions to property and equipment primarily for the
twelve new internal store openings during the year.
For the fiscal year ended July 31, 2000, the Company's net cash flows
provided by financing activities was $3,763,873 as compared to $974,353 for the
year ended July 31, 1999. The increase in financing activities principally
reflects increased borrowings on the Company's debt to finance the purchase of
rental units and equipment for the twelve internal store openings during fiscal
year 2000.
On November 30, 1999, the Company amended its November 18, 1997 Third
Amendment to First Amended and Restated Revolving Credit Loan Agreement (the
"Agreement") with its senior collateralized lender. In the amendment, the
company extended the maturity date from November 30, 1999 to February 29, 2000
and increased the maximum amount of revolving credit under such loan agreement
from $8,500,000 to $9,000,000. On December 28, 1999, the Company further
amended the Agreement. In the amendment, the Company revised certain covenants,
increased the maximum amount of revolving credit under such agreement from
$9,000,000 to $17,500,000 and extended the maturity date from February 29, 2000
to February 28, 2002.
On December 23, 1999, the Company amended its subordinated note payable
to O'Donnell & Masur, LP dated August 18, 1999. In the amendment, the Company
extended the maturity date from August 19, 2001 to February 28, 2002.
On October 7, 1999, the Company signed an asset purchase agreement with
Panco Electronics and Appliances, Inc. to acquire all rental contracts
associated with a single store location in Mississippi for approximately
$93,000 in cash.
On April 20, 2000, the Company entered into an asset purchase agreement
with BHC, Inc. to acquire all rental contracts associated with a single store
located in Mississippi for approximately $80,000 in cash.
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On May 10, 2000, the Company signed an asset purchase agreement with
Cato TV and Appliance to acquire all rental contracts associated with a single
store location in Tennessee for approximately $150,000.
On May 19, 2000, the Company signed an asset purchase agreement with
Rent-A-Center, Inc. to acquire all rental contracts associated with a single
store location in Tennessee for approximately $174,000.
On July 12, 2000, the Company signed an asset purchase agreement with
AROA, Inc. to acquire all rental contracts associated with a single store
location in Alabama for approximately $53,000.
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.
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.
On January 7, 2000, the Company entered into an asset purchase agreement
with Rent-A-Center, Inc. to sell all the assets of one store location in
Mississippi. The Company received $109,747 in cash for all the assets involved
in the daily operation of the store including all rental inventory being rented
by customers. Idle inventory was transferred to the Company's existing store
locations.
On February 2, 2000, the Company entered into an asset purchase
agreement with MATCAM, Inc. to sell all the assets of one store location in
Georgia. The Company received $110,000 in cash for all the assets involved in
the daily operation of the store including all rental inventory being rented by
customers. Idle inventory was transferred to the Company's existing store
locations.
On May 19, 2000, the Company entered into an asset purchase agreement
with Rent-A-Center, Inc. to sell all the assets of one store location in
Tennessee. The Company received $153,930 in cash for all the assets involved in
the daily operation of the stores including all rental inventory being rented
by customers. Idle inventory was transferred to the Company's existing store
locations.
On July 12, 2000, the Company entered into an asset purchase agreement
with AROA, Inc. to sell all the assets of one store location in Alabama. The
Company received $76,839 in cash for all the assets involved in the daily
operation of the store including all rental inventory being rented by
customers. Idle inventory was transferred to the Company's existing 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.
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RECENTLY ISSUED ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognized at fair
value in the statement of financial position, and that the corresponding gains
or losses be reported either in the statement of operations or as a component
of comprehensive income (loss), depending on the type of hedging relationship
that exists. SFAS No. 133, as amended, will be effective for fiscal quarters or
years beginning after June 15, 2000. The Company does not currently hold
derivative instruments or engage in hedging activities.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, which provides guidances on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Management
does not anticipate that SAB 101 will have a material impact on the Company's
consolidated financial statements.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of APB
No. 25 for (a) the definition of an employee for purposes of applying APB No.
25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various modifications
to the terms of a previously fixed stock option or award, and (d) the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 was effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
Management does not anticipate that this interpretation will have a material
impact on the Company's consolidated financial statements.
In September 2000, the FASB issued SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - a replacement of FASB Statement No. 125. SFAS No. 140 revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it carries over most
of the provisions of SFAS No. 125 without reconsideration. SFAS No. 140 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001 and is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
Management does not expect this statement to have a material effect on the
Company's consolidated financial statements.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JULY 31, 1999 COMPARED
TO 1998
For the fiscal year ended July 31, 1999 compared to the fiscal year
ended July 31, 1998, total revenue increased $3,489,819, or 13.5%, to
$29,365,753 from $25,875,934. 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 eleven new stores openings in fiscal year 1999
and improved same store revenues. Revenue from same stores improved $2,087,604,
or 8.9%, and accounted for 59.8% of the increase. Same store revenues represent
those revenues earned in stores that were operated by the Company for the
entire year ending July 31, 1999 and 1998. 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 $450,811, or 12.9% of the increase. Revenue from the
two stores
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purchased in the second quarter of fiscal year 1999 accounted for $621,774, or
17.8% of the increase. Revenue from the eleven new store openings in fiscal
year 1999 accounted for $1,178,701, or 33.8% of the increase. Revenue decreased
$849,071, or 24.3%, due to closing and merging one store location in fiscal
year 1998, closing and merging five store locations in fiscal year 1999 and
selling three stores in fiscal year 1999, respectively.
The Company receives rental revenue from various products including
televisions and video cassette recorders, household appliances, as well as home
furniture and jewelry. In fiscal year 1999, approximately 18% of the Company's
rental revenue was derived from appliances, 26% from home furniture, 28% from
electronics, 9% from various other products including jewelry and 19% from
various services and charges to rental customers including reinstatement fees,
club program and liability waiver fees.
Total costs and operating expenses increased $3,764,123, or 15.4%, to
$28,258,244 from $24,494,121 and increased 1.5% as a percentage of total
revenues to 96.2% from 94.7%. The increase was primarily the result of expenses
associated with the two stores acquired and eleven stores opened in fiscal year
1999.
Depreciation of rental merchandise increased by $669,829, or 11.9%, to
$6,313,128 from $5,643,299. Depreciation of rental merchandise expressed as a
percent of total store revenue decreased .3% to 21.5 from 21.8%. Other
depreciation and amortization decreased $153,039, or 10.1%, to $1,366,752 from
$1,519,791 and as a percentage of total store revenue decreased 1.2% to 4.7%
from 5.9%. The decrease was primarily due to the full amortization of certain
noncompetes at the end of fiscal year 1998.
Salaries and wages increased $1,460,747 or 22.1%, to $8,079,443, from
$6,618,696. Salaries and wages expressed as a percent of total store revenue
increased 1.9% to 27.5% from 25.6%. Salaries and wages increased by $231,241,
or 15.8% of the total increase due to additional personnel for the stores
acquired in the fourth quarter of fiscal year 1998 and for the stores acquired
in the second quarter of fiscal year 1999. Additional personnel for the eleven
new internal stores opened in fiscal year 1999 increased salaries and wages by
$477,124, or 32.7% of the total increase. Salaries and wages increased
$440,476, or 30.2% 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 $437,778, or 50.5%, to $1,305,293 from
$867,515. Advertising expense expressed as a percent of total store revenue
increased 1.1% to 4.4% from 3.3% primarily due to the stores acquired in the
fourth quarter of 1998, stores acquired in the second quarter of 1999 and the
eleven new internal stores opened in fiscal year 1999. Occupancy expense
increased $327,338, or 20.9%, to $1,896,208 from $1,568,870 and as a percentage
of total revenues increased .4% to 6.5% from 6.1% primarily due to stores
acquired and opened in fiscal year 1999. Other operating expenses increased
$1,081,615, or 15.1%, to $8,263,178 from $7,181,563 and as a percentage of
total revenues increased .3% to 28.1% from 27.8%. The increase was 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 fiscal year ended July 31, 1999 compared to the fiscal year
ended July 31, 1998, income from operations before income tax provision
decreased $274,304, or 19.9%, to $1,107,509 from $1,381,813 and as a percentage
of total revenues decreased 1.5% to 3.8% from 5.3%. The decrease was primarily
due to operating losses of $307,963 from the eleven new internal store openings
during fiscal 1999. The new stores operated at a lower average revenue per
store as compared to the Company's existing stores and, therefore, had higher
salaries and wages, advertising and occupancy expenses as a percentage of
revenues.
12
<PAGE> 13
BESTWAY, INC. FORM 10-K
--------------------------------------------------------------------------------
CAUTIONARY STATEMENT
This Report on Form 10-K and the foregoing Management's Discussion and
Analysis of Financial Condition and Results of Operations 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. The Company's Annual Report to Shareholders, any
Report on Form 10-Q or Form 8-K or any other written or oral statements made by
or on behalf of the Company may include forward looking statements.
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 open or 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 opened or 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.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure to market risk associated with the floating rate
portion of the interest charged on its Revolving Credit Loan Agreement. At July
31, 2000, the Company had $10,200,000 outstanding on its Revolving Credit Loan
Agreement at an interest rate of prime plus .75%, and the fair value of the
obligation outstanding approximates its related carrying value because the
obligation bears interest at the current market rate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is hereby made to the Consolidated Financial Statements and
notes thereto appearing at pages F-1 to F-18 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required will be contained in the Company's Proxy
Statement for the Annual Meeting of Shareholders for 2000, and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required will be contained in the Company's Proxy
Statement for the Annual Meeting of Shareholders for 2000, and is incorporated
herein by reference.
13
<PAGE> 14
BESTWAY, INC. FORM 10-K
--------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required will be contained in the Company's Proxy
Statement for the Annual Meeting of Shareholders for 2000, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required will be contained in the Company's Proxy
Statement for the Annual Meeting of Shareholders for 2000, and is incorporated
herein by reference.
14
<PAGE> 15
BESTWAY, INC. FORM 10-K
--------------------------------------------------------------------------------
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following are filed as Exhibits to this Annual Report filed as
Form 10-K for the year ended July 31, 2000.
(b) Exhibits
EXHIBIT
NUMBER DOCUMENT
---------- ------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of
Bestway, incorporated by reference to Bestway's Current
Report on Form 8-K, filed September 2, 1993.
3.2 Amended and Restated Bylaws of Bestway, incorporated by
reference incorporated by reference to Bestway's Annual
Report on Form 10-K, for the year ended December 31,
1984.
4.1 Specimen stock certificate representing shares of
Bestway's Registration Statement on Form S-8, filed
June 22, 1995.
10.1 Incentive Stock Oprion Plan of Bestway, incorporated
by reference to Bestway's Registration Statement on
Form S-8, filed June 22, 1995.
10.2 Form of Incentive Stock Option Agreement pursuant to
Incentive Stock Option Plan, incorporated by reference
to Betway's Registration Statement on Form S-8, filed
June 22, 1995.
10.3 First Amendment to the First Amended and Restated
Revolving Credit Loan, dated March 15, 1995, by and
between Bestway and Comerica Bank- Texas, incorporated
by reference to Bestway's Quarterly Report on Form
10-Q for the period ended April 30, 1995.
10.4 Second Amendment to the First Amended and Restated
Revolving Credit Loan, dated March 15, 1995, by and
between Bestway and Comerica Bank- Texas, incorporated
by reference to Bestway's Current Report on Form 8-K,
filed April 25, 1996.
10.5 Third Amendment to the First Amended and Restated
Revolving Credit Loan, dated March 15, 1995, by and
between Bestway and Comerica Bank- Texas, incorporated
by reference to Bestway's Current Report on Form 8-K,
filed December 1, 1997.
10.6 Fifth Amendment to the First Amended and Restated
Revolving Credit Loan, dated March 15, 1995, by and
between Bestway and Comerica Bank- Texas, incorporated
by reference to Bestway's Current Report on Form 8-K,
filed January 13, 2000.
10.7 First Amended and Restated Promissory Note, dated
August 19, 1997, between O'Donnell & Masur, L.P. and
Bestway, incorporated by reference to Bestway's Annual
Report on Form 10-K, for the year ended July 31, 1997.
10.8 Extension Agreement for the First Amended and Restated
Promissory Note, dated August 19, 1997, between
O'Donnell & Masur, L.P. and Bestway, incorporated by
reference to Bestway's Annual Report on Form 10-K for
the year ended July 31, 1999.
10.9* Modification letter dated October 19, 2000 modifying
certain covenants of the Loan Agreement between
Comerica Bank-Texas and Bestway.
21* Subsidiaries
23* Consent of PricewaterhouseCoopers LLP
27* Financial Data Schedule
Filed electonrically only, not attached to
printed reports.
----------
*Filed herewith
(c) Reports on Form 8-K
Current Report on Form 8-K of Bestway Inc., dated January 13, 2000.
15
<PAGE> 16
BESTWAY, INC. FORM 10-K
--------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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.
October 30, 2000 /s/ R. Brooks Reed
-----------------------------------------
R. BROOKS REED, CHAIRMAN OF THE BOARD
OF DIRECTORS AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 30th day of October 2000.
SIGNATURE TITLE
--------- -----
/s/ R. Brooks Reed Chairman of the Board of Directors
---------------------------------- and Chief Executive Officer
R. BROOKS REED
/s/ Jack E. Meyer Director
----------------------------------
JACK E. MEYER
/s/ James A. O'Donnell Director
----------------------------------
JAMES A. O'DONNELL
/s/ Bernard J. Hinterlong Director
----------------------------------
BERNARD J. HINTERLONG
/s/ Teresa A. Sheffield President and Chief Operating Officer
----------------------------------
TERESA A. SHEFFIELD
/s/ Beth A. Durrett Chief Financial Officer
----------------------------------
BETH A. DURRETT
/s/ Joe R. McElroy Vice President - Real Estate
----------------------------------
JOE R. MCELROY
/s/ Vincent E. Jarbo Regional Vice President
----------------------------------
VINCENT E. JARBO
/s/ Rhonda M. Wilson Regional Vice President
----------------------------------
RHONDA M. WILSON
16
<PAGE> 17
BESTWAY, INC. FORM 10-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Accountants F-1
Financial Statements:
Consolidated Balance Sheets as of July 31, 2000 and 1999 F-2
Consolidated Statements of Income for the years ended
July 31, 2000, 1999 and 1998 F-3
Consolidated Statements of Cash Flows for the years ended
July 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity for the years
ended July 31, 2000, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6-F-16
Exhibit 21 F-17
SIGNATURES F-18
</TABLE>
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Bestway, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, cash flows and stockholders' equity present
fairly, in all material respects, the financial position of Bestway, Inc. and
its subsidiaries at July 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
2000 in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Dallas, Texas
October 13, 2000
F-1
<PAGE> 19
BESTWAY, INC. FORM 10-K
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 979,042 $ 812,179
Prepaid expenses 176,833 172,226
Deferred income taxes 473,739 871,152
Other assets 117,901 63,202
Rental merchandise, at cost 25,025,924 20,164,761
less accumulated depreciation 8,771,578 7,339,287
------------ ------------
16,254,346 12,825,474
------------ ------------
Property and equipment, at cost 9,334,006 7,247,516
less accumulated depreciation 4,147,614 3,398,724
------------ ------------
5,186,392 3,848,792
------------ ------------
Non-competes, net of amortization 378,273 262,783
Goodwill, net of amortization 2,051,017 2,362,604
------------ ------------
Total assets $ 25,617,543 $ 21,218,412
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,453,892 $ 1,384,696
Accrued interest - related parties 20,667 20,667
Income taxes payable 135,796 56,406
Other accrued liabilities 1,537,732 1,541,001
Notes payable-related parties 3,000,000 3,000,000
Notes payable-other 10,294,945 6,244,012
Commitments and contingencies (Notes 7 and 10)
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 issued at July 31, 2000 and July 31, 1999 17,569 17,569
Paid-in capital 16,124,578 16,124,578
Less treasury stock, at cost, 55,945 at July 31, 2000 and
11,200 at July 31, 1999, respectively (353,301) (66,241)
Accumulated deficit (6,614,335) (7,104,276)
------------ ------------
Total stockholders' equity 9,174,511 8,971,630
------------ ------------
Total liabilities and stockholders' equity $ 25,617,543 $ 21,218,412
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 20
BESTWAY, INC. FORM 10-K
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JULY 31,
----------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Rental income $ 34,473,255 $ 29,066,438 $ 25,614,663
Sales of merchandise 436,503 299,315 261,271
------------ ------------ ------------
34,909,758 29,365,753 25,875,934
------------ ------------ ------------
Cost and operating expenses:
Depreciation and amortization:
Rental merchandise 7,642,889 6,313,128 5,643,299
Other 1,618,166 1,366,752 1,519,791
Cost of merchandise sold 424,096 281,954 253,884
Salaries and wages 9,659,144 8,079,443 6,618,696
Advertising 1,786,361 1,305,293 867,515
Occupancy 2,198,247 1,896,208 1,568,870
Other operating expenses 9,429,515 8,263,178 7,181,563
Interest expense 1,111,379 796,611 795,232
(Gain) loss on sale of property and equipment (16,961) 25,452 45,271
Gain on sale of assets (11,277) (69,775) --
------------ ------------ ------------
33,841,559 28,258,244 24,494,121
------------ ------------ ------------
Income from operations before income taxes: 1,068,199 1,107,509 1,381,813
------------ ------------ ------------
Current income tax expense 180,845 94,713 155,064
Deferred income tax expense 397,413 397,912 433,012
------------ ------------ ------------
Net income $ 489,941 $ 614,884 $ 793,737
============ ============ ============
Basic and diluted net income per share $ 0.28 $ 0.35 $ 0.45
============ ============ ============
Weighted average common shares outstanding 1,723,030 1,747,575 1,750,384
============ ============ ============
Diluted weighted average common shares outstanding 1,740,828 1,786,445 1,795,552
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 21
BESTWAY, INC. FORM 10-K
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JULY 31,
----------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 489,941 $ 614,884 $ 793,737
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,261,055 7,679,880 7,163,090
Net book value of rental units retired 2,381,370 2,216,789 1,635,606
(Gain) loss on sale of property and equipment (16,961) 25,452 45,271
Gain on sale of assets (11,277) (69,775) --
Deferred income taxes 397,413 397,912 433,012
Changes in operating assets and liabilities other than cash:
Prepaid expenses (4,607) 9,892 (54,141)
Other assets (54,699) (16,429) 22,116
Accounts payable 241,265 26,013 (462,054)
Income taxes payable 79,390 (128,013) 131,771
Other accrued liabilities (3,269) 563,704 (229,694)
------------ ------------ ------------
Total adjustments 258,080 455,167 (592,002)
------------ ------------ ------------
Net cash flows from operating activities 12,759,621 11,320,309 9,478,714
------------ ------------ ------------
Cash flows from investing activities:
Purchase of rental units and equipment (13,643,485) (9,705,046) (8,343,193)
Additions to property and equipment (2,693,510) (2,098,317) (932,022)
Proceeds from sale of property and equipment 59,942 53,961 159,040
Asset purchases net of cash acquired (549,047) (523,896) (401,723)
Proceeds from restricted cash -- -- 119,342
Proceeds from sale of assets 469,469 289,696 --
------------ ------------ ------------
Net cash flows used in investing activities (16,356,631) (11,983,602) (9,398,556)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds of notes payable 4,412,999 2,425,000 3,483,932
Repayment of notes payable (362,066) (1,411,031) (3,425,834)
Treasury stock purchase (287,060) (66,241) --
Stock issuance -- 26,625 8,125
------------ ------------ ------------
Net cash flows provided by financing activities 3,763,873 974,353 66,223
------------ ------------ ------------
Cash and cash equivalents at the beginning of year 812,179 501,119 354,738
------------ ------------ ------------
Cash and cash equivalents at the end of the year $ 979,042 $ 812,179 $ 501,119
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 22
BESTWAY, INC. FORM 10-K
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
For the years ended July 31, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------ PAID-IN
SHARES AMOUNT CAPITAL
----------- ----------- -----------
<S> <C> <C> <C>
Balance at July 31, 1997 1,749,967 $ 17,500 $16,089,897
----------- ----------- -----------
Stock options exercised 1,625 16 8,109
Net income for the year ended July 31, 1998 -- -- --
----------- ----------- -----------
Balance at July 31, 1998 1,751,592 17,516 16,098,006
----------- ----------- -----------
Stock options exercised 5,325 53 26,572
Treasury stock purchases -- -- --
Net income for the year ended July 31, 1999 -- -- --
----------- ----------- -----------
Balance at July 31, 1999 1,756,917 17,569 16,124,578
----------- ----------- -----------
Treasury stock purchases -- -- --
Net income for the year ended July 31, 2000 -- -- --
----------- ----------- -----------
Balance at July 31, 2000 1,756,917 $ 17,569 $16,124,578
=========== =========== ===========
<CAPTION>
TREASURY STOCK
------------------------------ ACCUMULATED
SHARES AMOUNT DEFICIT
----------- ----------- -----------
<S> <C> <C> <C>
Balance at July 31, 1997 -- $ -- $(8,512,897)
----------- ----------- -----------
Stock options exercised -- -- --
Net income for the year ended July 31, 1998 -- -- 793,737
----------- ----------- -----------
Balance at July 31, 1998 -- -- (7,719,160)
----------- ----------- -----------
Stock options exercised -- -- --
Treasury stock purchases (11,200) (66,241) --
Net income for the year ended July 31, 1999 -- -- 614,884
----------- ----------- -----------
Balance at July 31, 1999 (11,200) (66,241) (7,104,276)
----------- ----------- -----------
Treasury stock purchases (44,745) (287,060) --
Net income for the year ended July 31, 2000 -- -- 489,941
----------- ----------- -----------
Balance at July 31, 2000 (55,945) $ (353,301) $(6,614,335)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE> 23
BESTWAY, INC. FORM 10-K
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Bestway, Inc. (the "Company"),
include the Company's wholly-owned operating subsidiaries, Bestway Rental, Inc.
which operates under the registered trade name "Bestway Rent-To-Own", U.S.
Credit-Service Corporation and Westdale Data Service, Inc. Intercompany
balances and transactions have been eliminated in the consolidated financial
statements.
The Company owns and operates a total of seventy seven stores located in
various states. The store operations are controlled and monitored through the
Company's management information system networked with its home office in
Dallas, Texas. The Company's store locations by state as of July 31, 2000, are
as follows:
<TABLE>
<CAPTION>
NUMBER OF
STATE STORES
----- ---------
<S> <C>
Alabama 22
Arkansas 2
Georgia 2
Mississippi 13
North Carolina 14
South Carolina 7
Tennessee 17
---------
77
=========
</TABLE>
RENTAL MERCHANDISE, RELATED RENTAL REVENUE AND DEPRECIATION
Rental merchandise is rented to customers pursuant to rental agreements
which provide for either weekly or monthly rental terms with nonrefundable
rental payments for the first week or month collected in advance. Rental
revenue is recognized as collected since at the time of collection the rental
merchandise has been placed in service and costs of installation and delivery
have been incurred. Rental agreements generally cover a period of 12 to 24
months with a majority of rental agreements specifying 18 months. At the end of
each rental period, the customer can renew the rental agreement, return the
merchandise with no obligation, or purchase the merchandise by exercising their
early purchase option. Amounts received from such sales are included in revenue
when received. Past due or stolen merchandise is expensed generally within
three months from the due date. The Company receives rental revenue from
various products including televisions and video cassette recorders, household
appliances, as well as home furniture and jewelry. In fiscal year 2000,
approximately 17% of the Company's rental revenue was derived from appliances,
25% from home furniture, 28% from electronics, 11% from various other products
such as jewelry and 19% from various services and charges to rental customers
including reinstatement fees, club fees and liability waiver fees. In fiscal
year 1999, approximately 18% of the Company's rental revenue was derived from
appliances, 26% from home furniture, 28% from electronics, 9% from various
other products such as jewelry and 19% from various services and charges to
rental customers including reinstatement fees and liability wavier fees. In
fiscal year 1998, approximately 18% of the Company's rental revenue was derived
from appliances, 25% from home furniture, 29% from electronics, 10% from
various other products such as jewelry and 18% from various services and
charges to rental customers, including reinstatement fees and liability waiver
fees.
F-6
<PAGE> 24
BESTWAY, INC. FORM 10-K
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
Merchandise rented to customers, or available for rent, is recorded at
cost net of accumulated depreciation, which equals the carrying amount, and is
classified in the consolidated balance sheets as rental merchandise. Merchandise
rented to customers is depreciated on the income-forecast basis over the term of
the rental agreement ranging from 12 to 24 months. When not on rent, merchandise
is not depreciated.
Rental merchandise which is damaged and inoperable, deemed obsolete, or
not returned by the customer after becoming delinquent on payments, is written
off as such impairment is incurred. For the fiscal years ended July 31, 2000,
1999 and 1998, $1,747,354, $1,378,571 and $1,557,112, respectively, of such
impairments were incurred and are included in other operating expenses in the
accompanying consolidated statements of income.
SALES OF MERCHANDISE
Sales of merchandise includes revenue from cash sales of primarily used
merchandise.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major improvements to
property and equipment are capitalized. Maintenance and repair expenditures are
charged to expense as incurred. As fixed assets are sold or retired, the
applicable cost and accumulated depreciation are eliminated from the accounts
and any gain or loss is recorded.
Depreciation of property and equipment is provided over the estimated
useful lives, on the straight-line basis as defined below. Leasehold
improvements are amortized over the shorter of the useful life of the asset or
the term of the lease and renewal period, if applicable.
<TABLE>
<CAPTION>
LIVES (YEARS)
-------------
<S> <C>
Furniture and fixtures 7
Vehicles 5
Computer equipment 3
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and on deposit, and
highly liquid instruments with maturities of three months or less when
purchased. The carrying amount of cash and cash equivalents is the estimated
fair value at July 31, 2000 and 1999.
INTANGIBLE ASSETS
Goodwill represents the cost in excess of the fair value of net tangible
assets of acquired businesses and is being amortized on a straight-line basis
over 15 to 20 years. Accumulated amortization of goodwill was $2,533,272 and
$2,280,923 at July 31, 2000 and 1999, respectively.
F-7
<PAGE> 25
BESTWAY, INC. FORM 10-K
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
The non-competes represents the allocation of the purchase price from the
September 10, 1993 acquisition of 12 stores in Mississippi, the April 12, 1996
acquisition of 15 stores in Georgia, North Carolina and South Carolina, the July
1, 1996 acquisition of 8 stores in Arkansas and Mississippi, and several single
store acquisitions in fiscal years 1999 and 2000 (see Note 2) and is being
amortized on a straight-line basis over periods from 2 to 5 years. Accumulated
amortization of the non-competes was $1,554,873 and $1,443,394 at July 31, 2000
and 1999, respectively.
The Company continually evaluates the propriety of the carrying amount of
goodwill and other intangibles based on the estimated future undiscounted cash
flows of the related investment, as well as the amortization period to determine
whether current events and circumstances warrant adjustments to carrying value
and/or revised estimates of useful lives. At this time, the Company believes no
impairment of the goodwill and other intangibles has occurred and that no
reduction of the estimated useful lives is warranted.
INCOME TAXES
Investment tax credits are accounted for on the "flow-through" method.
EARNINGS PER COMMON SHARE
Basic net income per common share is based on the weighted average common
shares outstanding during the period. Diluted net income per share includes
common stock equivalents, consisting of stock options, which are dilutive to net
income per share. For the fiscal year ended July 31, 2000, 77,474 shares of
common stock options were excluded from the calculation of diluted income per
share because their effect would be antidilutive.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, particularly deferred tax
assets, and liabilities, disclosure of contingent assets and liabilities and
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
RECENTLY ISSUED ACCOUNTING PRINCIPLES
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
No. 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income (loss), depending on the type of hedging relationship that
exists. SFAS No. 133, as amended, will be effective for fiscal quarters or years
beginning after June 15, 2000. The Company does not currently hold derivative
instruments or engage in hedging activities.
F-8
<PAGE> 26
BESTWAY, INC. FORM 10-K
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
In December 1999, SEC issued SAB 101, Revenue Recognition in Financial
Statements, which provides guidances on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Management
does not anticipate that SAB 101 will have a material impact on the Company's
consolidated financial statements.
In March 2000, the FASB issued FIN 44, Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of APB Opinion No.
25. FIN 44 clarifies the application of APB No. 25 for (a) the definition of an
employee for purposes of applying APB No. 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 was effective July 1, 2000, but certain
conclusions cover specific events that occur after either December 15, 1998, or
January 12, 2000. Management does not anticipate that this interpretation will
have a material impact on the Company's consolidated financial statements.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities - a
replacement of FASB Statement No. 125. SFAS No. 140 revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of the
provisions of SFAS No. 125 without reconsideration. SFAS No. 140 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001 and is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
Management does not expect this statement to have a material effect on the
Company's consolidated financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years financial
statements in order to conform to the current year's presentation.
2. ACQUISITIONS AND DISPOSITIONS
On May 22, 1998, the Company signed an Asset Purchase Agreement with
Ideal Rent to Own, Inc. to acquire all the assets of a single store location in
North Carolina. The Company paid approximately $140,000 in cash for all assets
involved in the daily operations of the store including all idle rental
inventory, all rental contracts, vehicles, store furniture and fixtures,
computer and leasehold improvements. Additionally, the Company obtained the
seller's former store location by assuming the lease agreement.
On May 29, 1998, the Company signed an Asset Purchase Agreement with
Grand Rental Station, Inc. to acquire all the assets of a single store location
in Tennessee. The Company paid $262,000 in cash for all the assets involved in
the daily operations of the store including all idle rental inventory, all
rental contracts, vehicles, store furniture and fixtures, computers and
leasehold improvements. Additionally, the Company obtained the seller's former
store location by assuming the lease agreement.
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
F-9
<PAGE> 27
BESTWAY, INC. FORM 10-K
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
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.
On October 7, 1999, the Company signed an asset purchase agreement with
Panco Electronics and Appliances, Inc. to acquire all rental contracts
associated with a single store location in Mississippi for approximately $93,000
in cash.
On April 20, 2000, the Company entered into an asset purchase agreement
with BHC, Inc. to acquire all rental contracts associated with a single store
located in Mississippi for approximately $80,000 in cash.
On May 10, 2000, the Company signed an asset purchase agreement with Cato
TV and Appliance to acquire all rental contracts associated with a single store
location in Tennessee for approximately $150,000.
On May 19, 2000, the Company signed an asset purchase agreement with
Rent-A-Center, Inc. to acquire all rental contracts associated with a single
store location in Tennessee for approximately $174,000.
On July 12, 2000, the Company signed an asset purchase agreement with
AROA, Inc. to acquire all rental contracts associated with a single store
location in Alabama for approximately $53,000.
The acquisitions have 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
acquisitions 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.
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. The Company recognized a gain of $38,382 on the sale.
On January 7, 2000, the Company entered into an asset purchase agreement
with Rent-A-Center, Inc. to sell all the assets of one store location in
Mississippi. The Company received $109,747 in cash for all the assets involved
in the daily operation of the store including all rental inventory being rented
by customers. Idle inventory was transferred to the Company's existing store
location. The Company recognized a gain of $4,073 on the sale.
On February 2, 2000, the Company entered into an asset purchase agreement
with MATCAM, Inc. to sell all the assets of one store location in Georgia. The
Company received $110,000 in cash for all the assets involved in the daily
operation of the store including all rental inventory being rented by
F-10
<PAGE> 28
BESTWAY, INC. FORM 10-K
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
customers. Idle inventory was transferred to the Company's existing store
location. The Company recognized a loss of $30,790 on the sale.
On May 19, 2000, the Company entered into an asset purchase agreement
with Rent-A-Center, Inc. to sell all the assets of one store location in
Tennessee. The Company received $153,930 in cash for all the assets involved in
the daily operation 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 $43,790 on the sale.
On July 12, 2000, the Company entered into an asset purchase agreement
with AROA, Inc. to sell all the assets of one store location in Alabama. The
Company received $76,839 in cash for all the assets involved in the daily
operation of the store including all rental inventory being rented by customers.
Idle inventory was transferred to the Company's existing store locations. The
Company recognized a loss of $5,796 on the sale.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JULY 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Building and leaseholds $ 3,740,750 $ 2,775,651
Vehicles 3,677,346 2,841,626
Furniture and fixtures 1,267,124 1,047,391
Computer equipment 648,786 582,848
------------ ------------
9,334,006 7,247,516
Accumulated depreciation (4,147,614) (3,398,724)
------------ ------------
$ 5,186,392 $ 3,848,792
============ ============
</TABLE>
4. NOTE PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Senior collateralized debt
Revolving Credit Loan Agreement dated August 19, 1993,
amended December 28, 1999, interest payable monthly at
prime plus .75%; note matures on February 28, 2002;
note matures on February 28, 2002; note collateralized by
substantially all the Company's assets $ 10,200,000 $ 6,137,001
Subordinated debt
Note payable to limited partnership and stockholder dated
July 19, 1993, amended December 23, 1999, interest paid
quarterly at 8% beginning October 1, 1993; note, as amended,
matures on February 28, 2002 3,000,000 3,000,000
Other notes payable
Note payable to bank dated April 11, 1994, principal payable
monthly; interest payable at 9% per annum; note matures on
April 15, 2006; note collateralized by associated real estate 94,945 107,011
------------ ------------
$ 13,294,945 $ 9,244,012
============ ============
</TABLE>
At July 31, 2000 and 1999 the prime rate was 9.5% and 8.0%, respectively.
F-11
<PAGE> 29
BESTWAY, INC. FORM 10-K
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
On November 30, 1999, the Company amended its November 18, 1997 Third
Amendment to First Amended and Restated Revolving Credit Loan Agreement (the
"Agreement") with its senior collateralized lender. In the amendment, the
Company extended the maturity date from November 30, 1999 to February 29, 2000
and increased the maximum amount of revolving credit under such loan agreement
from $8,500,000 to $9,000,000. On December 28, 1999, the Company further amended
the Agreement. In the amendment, the Company revised certain covenants,
increased the maximum amount of revolving credit under such agreement from
$9,000,000 to $17,500,000 and extended the maturity date from February 29, 2000
to February 28, 2002.
On December 23, 1999, the Company amended its subordinated note payable
to limited partnership and stockholder dated July 19, 1993. In the amendment,
the Company extended the maturity date from August 19, 2001 to February 28,
2002.
At July 31, 2000, the carrying value of the Company's senior
collateralized debt and other notes payable approximated fair value, estimated
primarily based on the borrowing rates available to the Company for debt with
similar terms and average maturities. It is not practicable to estimate the
fair value of the Company's subordinated debt because it is with a related
party.
Following is a summary of maturities of notes payable, as amended, for
each of the periods ending July 31:
<TABLE>
<S> <C>
2001 $ 14,328
2002 13,214,520
2003 15,882
2004 17,371
2005 19,001
Thereafter 13,843
------------
$ 13,294,945
============
</TABLE>
5. INCOME TAXES
The provisions for income tax on income from continuing operations
consists of the following for the years ended July 31:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ 96,327 $ 131,174 $ 76,344
State 84,518 (36,461) 78,720
------------ ------------ ------------
180,845 94,713 155,064
------------ ------------ ------------
Deferred:
Federal 342,372 311,024 460,661
State 55,041 86,888 (27,649)
------------ ------------ ------------
397,413 397,912 433,012
------------ ------------ ------------
Total income tax provision $ 578,258 $ 492,625 $ 588,076
============ ============ ============
</TABLE>
F-12
<PAGE> 30
BESTWAY, INC. FORM 10-K
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
Significant components of the Company's deferred income tax assets at
July 31, 2000 and 1999, respectively, are as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net operating loss carryforward $ 1,443,332 $ 903,198
Investment tax credit carryforward 2,688 18,706
Minimum tax credit carryover 323,385 231,670
Property and equipment 169,297 270,913
Intangible assets 373,870 364,254
Accrued expenses 109,199 204,475
------------ ------------
Total deferred tax assets 2,421,771 1,993,216
Rental merchandise (1,945,344) (1,103,357)
------------ ------------
Total deferred tax liabilities (1,945,344) (1,103,357)
------------ ------------
Valuation allowance (2,688) (18,706)
------------ ------------
Net deferred tax asset $ 473,739 $ 871,153
============ ============
</TABLE>
Deferred tax assets are reduced by a valuation allowance if, based on
available evidence, it is more likely than not that some portion of all of the
deferred tax assets will not be realized. In fiscal 2000 and 1999, the valuation
allowance was reduced $16,018 and $7,015, respectively as a result of the
expiration of investment tax credit carryforwards.
The following is the reconciliation of the U.S. statutory tax rate to the
Company's effective tax rate on income from continuing operations for the years
ended July 31:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Federal income tax at statutory rate of 34% $ 363,188 $ 376,553 $ 469,816
Goodwill amortization 58,117 58,152 58,152
State income tax 129,498 46,411 52,071
Other 27,455 11,509 8,037
---------- ---------- ----------
Provision for income tax $ 578,258 $ 492,625 $ 588,076
========== ========== ==========
</TABLE>
During 2000 and 1999, the net operating loss carryforwards were increased
by $1,588,629 and $1,217,376, respectively. At July 31, 2000, the Company has
Federal net operating loss carryforward of approximately $4,079,850 expiring
from 2006 to 2020. The Company has State net operating loss carryforward of
$1,547,730 which expires from 2004 to 2020. The Company has investment tax
credit carryforwards of approximately $2,688 which expire in 2001.
F-13
<PAGE> 31
BESTWAY, INC. FORM 10-K
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
6. RELATED PARTY TRANSACTIONS
The Company has a consulting agreement with a former owner of one of the
Company's operating subsidiaries. As of July 31, 2000, $33,000 recorded in
other accrued liabilities in the Company's financial statements remains to be
paid over 11 years. If, however, the market price of the Company's Common Stock
reaches $50.00 per share, the Company has no further obligation under this
consulting agreement. Consulting fees paid for each of the years ended July 31,
2000, 1999 and 1998 was $30,000.
Interest expense relating to notes payable to affiliates amounted to
approximately $244,667 for the years ended July 31, 2000, $243,333 for the year
ended July 31, 1999 and $182,500 for year ended July 31, 1998.
7. LEASES
The Company leases all store facilities, with the exception of one, under
operating leases with terms ranging from one to ten years. Many leases contain
escalation clauses. Minimum lease obligations for the Company at July 31, 2000
by fiscal year are as follows:
<TABLE>
<S> <C>
2000 $1,525,035
2001 1,166,422
2002 912,512
2003 618,699
2004 371,249
Thereafter 676,918
----------
$5,270,835
==========
</TABLE>
8. SUPPLEMENTAL DATA TO STATEMENT OF CASH FLOWS
Cash interest payments for the years ended July 31, 2000, 1999 and 1998
are $1,111,380, $791,444 and $836,995, respectively. Cash tax payments for the
years ended July 31, 2000, 1999 and 1998 are $101,455, $74,768 and $23,293,
respectively.
9. INCENTIVE PLANS
STOCK OPTION PLAN
The Company has a stock option plan (the "Plan") for officers and
employees of the Company or its affiliates, under which the maximum number of
shares which may be granted in the aggregate is 225,000 of the Company's Common
Stock. The Plan, which became effective June 30, 1995, provides for the options
to be granted, become exercisable, and terminate upon terms established by the
Board of Directors (the "Committee"). Shares become exercisable from time to
time (but not sooner than six months after the date of grant) over such period
and upon such terms as the Committee may determine, but such exercise can not at
any time be less than 25 shares unless the remaining shares that have become so
purchasable are less than 25 shares.
F-14
<PAGE> 32
BESTWAY, INC. FORM 10-K
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
All options granted to the employees have an exercise price no less than
the fair market value of the stock at grant date. The options vest under one of
the following conditions: (i) one-third each year, beginning on the first
anniversary of the date of grant, (ii) one-half each year, beginning on the
first anniversary of the date of grant, or (iii) one-fourth each year, beginning
on the first anniversary of the date of grant.
The Company applies APB Opinion 25 and related Interpretations in
accounting for the Plan. In 1995, the Financial Accounting Standards Board
("FASB") issued FASB Statement No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") which, if fully adopted by the Company, would
change the methods the Company applies in recognizing the cost of the Plan.
Adoption of the cost recognition provisions of SFAS No. 123 is optional and the
Company has decided not to elect the provisions of SFAS 123. However, pro forma
disclosures as if the Company adopted the cost recognition provisions of SFAS
123 are required by SFAS 123 and are presented below.
In accordance with APB 25, the Company has not recognized any
compensation cost for the stock options granted.
A summary of the status of the Company's stock options as of July 31,
2000, 1999 and 1998 and the changes during the year ended on those dates is
presented below:
<TABLE>
<CAPTION>
STOCK OPTIONS
2000 1999 1998
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
# SHARES AVERAGE # SHARES AVERAGE # SHARES AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 193,035 $ 5.69 147,150 $ 5.53 184,650 $ 5.47
Granted 17,500 $ 6.75 71,710 $ 6.22 27,750 $ 7.00
Exercised -- N/A 5,325 $ 5.00 1,625 $ 5.00
Forfeited 16,175 $ 5.94 20,500 $ 6.58 63,625 $ 6.22
Expired -- N/A -- $ -- -- $ --
Outstanding at end of year 194,360 $ 5.79 193,035 $ 5.69 147,150 $ 5.53
Exercisable at end of year 146,228 $ 5.41 112,173 $ 5.25 80,920 $ 5.14
Available for grant at end of year 23,690 25,015 76,225
Weighted average fair value of
options granted $ 3.34 $ 2.62 $ 2.71
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 0.00%; risk-free interest rate
of 6.06%, 5.48% and 5.7% for 2000, 1999 and 1998, respectively; the expected
life of options is 5 years; and a volatility of 41.39%, 37.98% and 32.37% for
options granted in 2000, 1999 and 1998, respectively.
At July 31, 2000, exercise prices for all options outstanding ranged
from $5.00 to $7.50 and the weighted-average remaining contractual life for
options outstanding was 6.59 years.
F-15
<PAGE> 33
PRO FORMA NET INCOME AND NET INCOME PER COMMON SHARE
Had the compensation cost for the Company's stock-based compensation
plan been determined consistent with SFAS No. 123, the Company's net income and
net income per common share for 2000, 1999 and 1998 would approximate the pro
forma amounts below:
<TABLE>
<CAPTION>
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
7/31/00 7/31/00 7/31/99 7/31/99 7/31/98 7/31/98
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 489,941 $ 489,922 $ 614,884 $ 559,413 $ 793,737 $ 769,394
Basic net income per common share $ 0.28 $ 0.28 $ 0.35 $ 0.32 $ 0.45 $ 0.44
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards granted
prior to the 1996 fiscal year.
401(k) PLAN
The Company established a Retirement Savings Plan (the "Savings Plan"),
effective as of September 1, 1994, which is intended to qualify under Section
401(k) of the Internal Revenue Code "the Code". Employees who have been
employed with the Company for one year or more are eligible for participation
in the Savings Plan. Employees may elect to reduce up to 15% of their annual
compensation (subject to certain limitations under the Code) by having such
amounts contributed to the Savings Plan. The Board intends to conduct a review
at the end of each fiscal year to determine whether the Company will make any
additional or matching contribution to the Savings Plan. For the year ended July
31, 2000, the Company contributed approximately $145,000 to the Savings Plan.
For the years ended July 31, 1999 and 1998, the Company made no matching
contributions to the Savings Plan. All assets of the Savings Plan are held in
trust.
10. CONTINGENCIES
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. Management believes that the final
outcome of such matters will not have a material adverse effect on the
financial position, results of operations or liquidity of the Company.
F-16
<PAGE> 34
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of
Bestway, incorporated by reference to Bestway's Current
Report on Form 8-K, filed September 2, 1993.
3.2 Amended and Restated Bylaws of Bestway, incorporated by
reference incorporated by reference to Bestway's Annual
Report on Form 10-K, for the year ended December 31,
1984.
4.1 Specimen stock certificate representing shares of
Bestway's Registration Statement on Form S-8, filed
June 22, 1995.
10.1 Incentive Stock Oprion Plan of Bestway, incorporated
by reference to Bestway's Registration Statement on
Form S-8, filed June 22, 1995.
10.2 Form of Incentive Stock Option Agreement pursuant to
Incentive Stock Option Plan, incorporated by reference
to Bestway's Registration Statement on Form S-8, filed
June 22, 1995.
10.3 First Amendment to the First Amended and Restated
Revolving Credit Loan, dated March 15, 1995, by and
between Bestway and Comerica Bank-Texas, incorporated
by reference to Bestway's Quarterly Report on Form 10-Q
for the period ended April 30, 1995.
10.4 Second Amendment to the First Amended and Restated
Revolving Credit Loan, dated March 15, 1995, by and
between Bestway and Comerica Bank-Texas, incorporated
by reference to Bestway's Current Report on Form 8-K,
filed April 25, 1996.
10.5 Third Amendment to the First Amended and Restated
Revolving Credit Loan, dated March 15, 1995, by and
between Bestway and Comerica Bank-Texas, incorporated
by reference to Bestway's Current Report on Form 8-K,
filed December 1, 1997.
10.6 Fifth Amendment to the First Amended and Restated
Revolving Credit Loan, dated March 15, 1995, by and
between Bestway and Comerica Bank-Texas, incorporated
by reference to Bestway's Current Report on Form 8-K,
filed January 13, 2000.
10.7 First Amended and Restated Promissory Note, dated
August 19, 1997, between O'Donnell & Masur, L.P. and
Bestway, incorporated by reference to Bestway's Annual
Report on Form 10-K, for the year ended July 31, 1997.
10.8 Extension Agreement for the First Amended and Restated
Promissory Note, dated August 19, 1997, between
O'Donnell & Masur, L.P. and Bestway, incorporated by
reference to Bestway's Annual Report on Form 10-K for
the year ended July 31, 1999.
10.9* Modification letter dated October 19, 2000 modifying
certain covenants of the Loan Agreement between
Comerica Bank-Texas and Bestway.
21* Subsidiaries
23* Consent of PricewaterhouseCoopers LLP
27* Financial Data Schedule Filed electonrically only, not
attached to printed reports.
</TABLE>
----------
*Filed herewith
