item 14 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements company report independent auditors appearing pages 2 12 1995 annual report filed part report form 10k fiscal years ended april 30 1995 1994 1993 consolidated statements operations consolidated statements stockholders equity consolidated statements cash flows consolidated balance sheets april 30 1995 1994 report independent auditors 2 financial statement schedules none 3 exhibits required filed hereunder indexed pages 8 9 b reports form 8k company file current reports form 8k quarter ended april 30 1995 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized earl scheib inc date july 26 1995 daniel seigel daniel seigel president pursuant requirements securities act 1934 report signed following persons behalf registrant capacities dates indicated consent independent auditors earl scheib inc beverly hills california hereby consent use registration statement form s8 registration number 279214 registration statement form s3 registration number 278953 report dated june 26 1995 relating audit consolidated financial statements earl scheib inc subsidiaries contained incorporated reference annual report form 10k year ended april 30 1995 bdo seidman los angeles california june 26 1995 exhibit index exhibit index earl scheib inc subsidiaries availability exhibits company furnish upon request copies exhibits indicated pages 8 9 form 10k cost 25c per page reasonable cost company fulfilling request item 14 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements company report independent auditors appearing pages 6 12 1996 annual report filed part report form 10k fiscal years ended april 30 1996 1995 1994 consolidated statements operations consolidated statements shareholders equity consolidated statements cash flows consolidated balance sheets april 30 1996 1995 report independent auditors 2 financial statement schedules none 3 exhibits required filed hereunder indexed pages 9 10 b reports form 8k company filed current report form 8k march 12 1996 disclosing change certifying accountant safe harbor statement private securities litigation reform act 1995 statements historical facts contained annual report form 10k forward looking statements involve risks uncertainties including limited effect weather effect economic conditions impact competitive products services pricing capacity supply constraints difficulties changes laws regulations applicable company impact renovation majority companys operating paint shops impact companys organizational restructuring impact advertising promotional activities effect companys accounting policies signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized earl scheib inc pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index earl scheib inc subsidiaries availability exhibits company furnish upon request copies exhibits indicated pages 9 10 form 10k cost 25c per page reasonable cost company fulfilling request item 14 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements company report independent auditors appearing pages 4 12 2000 annual report filed part report form 10k fiscal years ended april 30 2000 1999 1998 consolidated statements operations consolidated statements shareholders equity consolidated balance sheets april 30 2000 1999 consolidated statements cash flows report independent public accountants 2 financial statement schedules omitted applicable information required bet set forth therein either included consolidated financial statements significant 3 exhibits required filed hereunder indexed pages 12 13 b reports form 8k none safe harbor statement private securities litigation reform act 1995 statements historical facts contained annual report form 10k forwardlooking statements involve risks uncertainties including limited effect weather effect economic conditions impact competitive products services pricing capacity supply constraints difficulties changes laws regulations applicable company impact advertising promotional activities impact companys expansion closing shops new product rollout fleet painting operations commercial coatings business potential adverse effects certain litigation impact various tax positions taken company signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index earl scheib inc subsidiaries availability exhibits item 14 principal accountant fees services following table sets forth aggregate fees billed company principal accounting firm ernst young llp fiscal 2004 fiscal 2003 audit fees include services related annual audit companys consolidated financial statements included form 10k quarterly reviews companys consolidated financial statements included form 10q audit related fees primarily include services accounting consultations tax fees include services federal state income tax compliance consultation planning audit committee administers companys engagement ernst young llp ey preapproves audit permitted nonaudit services performed ey case basis approving nonaudit services audit committee considers whether engagement could compromise independence ey whether reasons efficiency convenience otherwise best interest company engage independent auditor perform services audit committee determined performance ey nonaudit services related fees table affect independence prior engagement audit committee preapproves independent auditor services fees budgeted audit committee requires independent auditor management report actual fees versus budget periodically year category service year circumstances may arise may become necessary engage independent auditor additional services contemplated original preapproval categories instances audit committee requires specific preapproval engaging independent auditor audit committee may delegate preapproval authority one members member authority delegated must report informational purposes preapproval decisions audit committee next scheduled meeting part iv item 15 item 14 controls procedures within 90 days prior filing date report chief executive officer chief financial officer company participation companys management carried evaluation effectiveness companys disclosure controls procedures pursuant exchange act rule 13a14 based evaluation chief executive officer chief financial officer believe date evaluation companys disclosure controls procedures effective making known material information relating company including consolidated subsidiaries required included report disclosure controls procedures matter well designed implemented provide reasonable assurance achieving entitys disclosure objectives likelihood achieving objectives affected limitations inherent disclosure controls procedures include fact human judgment decisionmaking faulty breakdowns internal control occur human failures simple errors mistakes intentional circumvention established process significant changes companys internal controls factors could significantly affect internal controls known chief executive officer chief financial officer subsequent date evaluation item 15 item 7managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations appearing pages 4 5 1998 annual report incorporated herein reference item 8 item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations appearing pages 1 3 2001 annual report incorporated herein reference item 8 item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations appearing pages 13 14 1995 annual report incorporated herein reference filed part report form 10k item 8 item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations appearing pages 4 5 1996 annual report incorporated herein reference item 8 item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations appearing pages 2 3 2000 annual report incorporated herein reference item 7a quantitative qualitative disclosure market risk managements discussion analysis financial condition results operations appearing pages 2 3 2000 annual report incorporated herein reference item 8 item 7 managements discussion analysis financial condition results operations following table sets forth companys operating results periods indicated amounts shown thousands dollars percentage sales fiscal year ended april 30 2004 fiscal 2004 compared fiscal year ended april 30 2003 fiscal 2003 net sales fiscal 2004 47839 increase 604 13 fiscal 2003 despite loss sales 2554 resulting weightedaverage 11 fewer retail shops fiscal 2004 fiscal 2003 however loss sales offset 71 sameshop shops open one year sales increase 2982 increase 176 combined sales companys fleet truck center commercial coatings operations gross profit margin percentage increased 207 fiscal 2004 189 fiscal 2003 increase gross margin percentage primarily due increased net sales overall reductions components costs sales partially offset increased insurance expenses provision impairment fixed assets 231 fiscal 2004 recorded writedown carrying value fixed assets fleet truck center gardena california estimated net recoverable value provision fiscal 2003 169 three shops selling general administrative expenses decreased 680 absolute dollars percentage sales fiscal 2004 fiscal 2003 due primarily overall reductions administrative expenses partially offset shop exit fixed asset disposal costs related closing 11 shops fiscal 2004 348 higher fiscal 2003 eight shops closed interest expense 679 fiscal 2004 compared 458 fiscal 2003 relates primarily life insurance loans financing letters credit requirements fiscal 2004 amortization deferred financing costs related companys secured credit facility see note 7 consolidated financial statements amortization totaled 268 fiscal 2004 fourth quarter fiscal 2004 company settled dispute internal revenue service irs regarding disallowance related interest thereon irs net operating loss carryback refund received company year ended april 30 1997 see note 2 consolidated financial statements settlement paid april 2004 resulted benefit 1272 excess previously accrued interest expense fiscal 2003 company recorded interest income 164 refunds federal income taxes paid fiscal years 1999 1998 addition company recorded benefit 425 excess previously accrued interest expense required february 24 2003 irs regarding disallowance net operating loss carryback refund received fiscal 1997 see fiscal 2003 company sold four parcels real estate disposed fixed assets pretax gain 1479 company recognize federal state income tax benefit operating loss fiscal 2004 2003 due income allocation state income tax laws portion company state income taxes fiscal 2004 2003 offset operating loss therefore company provided 84 105 respectively state income taxes years fiscal year ended april 30 2003 fiscal 2003 compared fiscal year ended april 30 2002 fiscal 2002 net sales fiscal 2003 decreased 4891 94 compared fiscal 2002 due primarily loss sales weighted average16 fewer retail shops since fiscal 2002 4347 decrease sameshop sales shops still open one year 611 13 partially offset increased sales companys fleet truck center commercial coatings operations 67 company closed operations fleet truck center los angeles fiscal 2003 gross profit margin percentage decreased 189 fiscal 2003 219 fiscal 2002 decrease gross margin percentage primarily due increased insurance expense despite overall reduction components cost sales adverse effect cost reductions proportionate decrease net sales selling general administrative expenses decreased 1960 absolute dollars fiscal 2003 fiscal 2002 percentage net sales 259 272 due overall reductions administrative expenses partially offset increased professional fees 420 provision impairment fixed assets 169 fiscal 2003 recorded writedown carrying value fixed assets three shops including former fleet truck center los angeles net recoverable value provision fiscal 2002 183 also three shops fiscal 2003 company sold four parcels real estate disposed fixed assets pretax gain 1479 fiscal 2002 pursuant restructuring plan company sold 15 parcels real estate including corporate office building disposed fixed assets pretax gain 4088 interest expense 458 fiscal 2003 compared 434 fiscal 2002 relates primarily accrual interest irss disallowance net operating loss carryback received fiscal 1997 see life insurance loans fiscal 2003 company recorded interest income 164 refunds federal income taxes paid fiscal years 1999 1998 addition company recorded benefit 425 excess previously accrued interest expense required february 24 2003 irs see company recognize federal state income tax benefit operating loss fiscal 2003 due income allocation state income tax laws company provided 105 state income taxes fiscal 2003 company provided federal state income taxes effective rate 38 fiscal 2002 liquidity capital resources companys cash requirements based upon seasonal working capital needs capital requirements new shops additions improvements historically first second quarters occasionally fourth quarter fiscal year usually positive cash flow operations third occasionally fourth quarters net users cash april 30 2004 company current assets 8293 current liabilities 6511 net working capital 1782 fiscal 2004 net cash used operating activities 1669 compared 354 net cash used fiscal 2003 capitalized expenditures 212 fiscal 2004 company expects future cash flow operations enhanced capital additions year ending april 30 2005 company plans perform various capital improvements estimated cost approximately 240 companys longterm financial obligations consist deferred management compensation plan loans various life insurance policies company specific assets dedicated deferred compensation plan entered life insurance contracts behalf certain participants partially fund obligations plan obligations plan generally payable 15year period participant attains age 65 employed company least 10 years company expects satisfy obligations utilizing accumulated cash values insurance contracts net related loans cash received death benefits insurance contracts cash provided operating financing investing activities accumulated cash values insurance contracts related loan accrued interest balances april 30 2004 totaled 2598 1683 110 respectively compared 2433 1683 124 respectively april 30 2003 company believes death benefits life insurance contracts along accumulated net cash values cash provided operating financing investing activities adequate meet obligations plan april 30 2004 2003 face value life insurance policies totaled 5096 4954 respectively loans related accrued interest specific life insurance contract would become immediately payable upon death covered plan participant event company intends satisfy liability proceeds received life insurance contract death benefit proceeds utilized repay loan accrued interest would available satisfy benefit obligations plan assuming covered participants died company repaid related loans accrued interest april 30 2004 proceeds death benefits would available satisfy undiscounted plan obligations 3574 generally payable 15 years totaled 3303 company arranges issuance standby letters credit benefit insurance carriers primarily unfunded portion estimated workers compensation liabilities different policy years april 30 2004 arrangement made financial institution pursuant secured line letters credit facility company fiscal 2003 arrangement made one companys banks required company purchase certificates deposit totaling 1378 april 30 2003 secure 59 standby letters credit issued see note 8 consolidated financial statements april 31 2004 company owned 44 parcels real estate including companys paint factory warehouse secure companys revolving line letter credit facility see note 7 consolidated financial statements company believes ability liquidity capital resources necessary meet cash needs foreseeable future fourth quarter fiscal 2003 company engaged investment banking firm exclusive financial advisor respect evaluation report recommendation board directors strategic options designed maximize shareholder value may 2004 close fiscal 2004 company announced executed letter intent sale companys issued outstanding shares elden holding group llc 15 million plus assumption certain transaction related costs expenses transaction subject various conditions contingencies including execution definitive agreement completion due diligence requisite regulatory approvals approval companys stockholders april 30 2004 company recorded deferred income tax assets totaling 1941 realization would require significant increase fiscal 2004 taxable income approximately 5708 company believes however relatively long 20year expiration period federal net operating loss carryforward combined ability devise taxplanning strategies involving sales owned real estate likelihood consummation transaction likely deferred income tax assets realized see note 2 notes consolidated financial statements discussion companys income taxes components deferred income tax assets inflation significant impact companys results operations three fiscal years ended april 30 2004 recent accounting pronouncements december 2003 financial accounting standards board revised statement financial accounting standards sfas 132 employers disclosures pensions postretirement benefits revision statement requires additional disclosures pension plans postretirement benefit plans however change measurement recognition sfas 87 sfas 106 annual disclosure requirements effective fiscal 2004 interim period disclosure requirements effective beginning companys first quarter fiscal year ending april 30 2005 critical accounting policies managements discussion analysis financial condition results operations discusses companys consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities contingencies date financial statements reported amounts revenues expenses reporting periods management evaluates estimates judgments including related critical accounting policies ongoing basis management bases estimates judgments historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities actual results may differ estimates different assumptions conditions management believes following critical accounting policies affect significant judgments estimates used preparation consolidated financial statements companys significant accounting policies disclosed note 1 consolidated financial statements company believes critical accounting policies area risk management specifically workers compensation records uninsured deductible portion liability based estimates development incurred claims provision impairment longlived assets based estimate future cash flows operating unit changing conditions use different assumptions deriving estimates could material effect reported financial results estimate companys workers compensation deductible liability performed risk management department based claims incurred date balance sheet reviewed senior management estimate liability established upon analysis historical data discussions thirdparty insurance carriers brokers estimates provided companys workers compensation third party administrators professional consultants estimates subject high degree variability least annual basis claims actuarially reviewed sources variability numerous include limited severity frequency claims future economic conditions court decisions legislative actions companys workers compensation liability estimates anticipate change benefit structure statutory changes could impact estimated liability seasonality business company reviews longlived assets impairment annually part fiscal year end procedures unless events changes circumstances indicate significant question whether respective carrying amounts recoverable significant longlived asset economic unit individual retail paint body shop evaluation performed annually shops operating least year impairment writedown generally recognized shops estimated undiscounted future cash flows less carrying amount company primarily uses historical performance determining estimate undiscounted future cash flows future cash flows influenced among factors changes competition marketing strategy human resources general market conditions factors could affect amount impairment provision recognized changing conditions use different assumptions deriving estimates described could material effect reported financial results item 7a item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations appearing pages 4 6 1997 annual report incorporated herein reference item 8 item 7 managements discussion analysis financial condition results operations following table sets forth companys operating results periods indicated amounts shown thousands dollars percentage sales fiscal year ended april 30 2003 fiscal 2003 compared fiscal year ended april 30 2002 fiscal 2003 net sales fiscal 2003 decreased 4891 94 compared fiscal 2002 due primarily loss sales weighted average 16 fewer retail shops since fiscal 2002 4347 decrease sameshop sales shops still open one year 611 13 partially offset increased sales companys fleet truck center commercial coatings operations 67 company closed operations fleet truck center los angeles fiscal 2003 gross profit margin percentage decreased 189 fiscal 2003 219 fiscal 2002 decrease gross margin percentage primarily due increased insurance expense despite overall reduction components cost sales adverse effect cost reductions proportionate decrease net sales selling general administrative expenses decreased 1960 absolute dollars fiscal 2003 fiscal 2002 percentage net sales 259 272 due overall reductions administrative expenses partially offset increased professional fees 420 provision impairment fixed assets 169 fiscal 2003 recorded writedown carrying value fixed assets three shops including former fleet truck center los angeles estimated net recoverable value provision fiscal 2002 183 also three shops fiscal 2003 company sold four parcels real estate disposed fixed assets pretax gain 1479 fiscal 2002 pursuant restructuring plan company sold 15 parcels real estate including corporate office building disposed fixed assets pretax gain 4088 interest expense 458 fiscal 2003 compared 434 fiscal 2002 relates primarily accrual interest irss disallowance net operating loss carryback received fiscal 1997 appealed company discussed note 2 consolidated financial statements life insurance loans fiscal 2003 company recorded interest income 164 refunds federal income taxes paid fiscal years 1999 1998 addition company recorded benefit 425 excess previously accrued interest expense required february 24 2003 internal revenue service irs accrued interest relates protest regarding disallowance irs net operating loss carryback refund received fiscal 1997 company recognize federal state income tax benefit operating loss fiscal 2003 due income allocation state income tax laws company provided 105 state income taxes fiscal 2003 company provided federal state income taxes effective rate 38 fiscal 2002 fiscal year ended april 30 2002 fiscal 2002 compared fiscal year ended april 30 2001 fiscal 2001 net sales fiscal 2002 decreased 2935 53 compared fiscal 2001 due primarily loss sales 27 retail shops closed since end fiscal 2001 4585 partially offset increased shop shops open one year sales 476 10 increased sales 1174 companys fleet truck centers commercial coatings business 27 shops closed pursuant restructuring reorganization companys paint body business approved board directors february 2001 gross profit margin percentage decreased slightly 219 fiscal 2002 compared 221 fiscal 2001 decrease gross margin percentage primarily due increased insurance expense impact increased per unit manufacturing costs lower car volume significantly offset reduction depreciation selling general administrative expenses decreased 635 absolute dollars fiscal 2002 fiscal 2001 increased percentage net sales 272 269 decrease absolute dollars primarily due lower administrative expenses including salaries wages advertising partially offset higher legal costs increased rent leased corporate office restructuring charges 9 relate planned closure eight leased shops april 30 2003 fiscal 2003 pursuant restructuring plan consist exit costs 70 write 73 estimated net recoverable value fixed assets shops reversal benefit operating results 134 exit costs recorded fiscal 2001 restructuring charges 645 recorded fiscal 2001 relate planned closure 25 shops fiscal 2002 includes write 357 estimated net recoverable fixed assets shops provision impairment fixed assets 183 fiscal 2002 recorded write carrying value fixed assets three shops net recoverable value provision fiscal 2001 1242 13 shops fiscal 2002 pursuant restructuring plan company sold 14 parcels real estate corporate office building net gain 2374 1779 respectively company moved leased corporate offices sherman oaks california october 8 2001 net gain sale six parcels real estate fiscal 2001 310 net interest expense 390 fiscal 2002 compared 431 fiscal 2001 relates primarily accrual interest irss disallowance net operating loss carryback appealed company discussed note 2 consolidated financial statements life insurance loans fiscal 2002 fiscal 2001 company disposed 65 fixed assets closed retail shops wroteoff 68 unutilizable factory mis equipment respectively company provided federal state taxes effective rate 38 fiscal 2002 company recognize federal income tax benefit operating loss fiscal 2001 due income allocation state income tax laws part companys state income taxes fiscal 2001 offset operating losses company provided 63 state taxes fiscal 2001 liquidity capital resources companys cash requirements based upon seasonal working capital needs capital requirements new shops fleet truck centers additions improvements first second quarters occasionally fourth quarter fiscal year usually positive cash flow operations third occasionally fourth quarters net users cash april 30 2003 company current assets 9922 current liabilities 8614 net working capital 1308 fiscal 2003 net cash used operating activities 354 compared 2446 net cash used fiscal 2002 capitalized expenditures 244 fiscal 2003 company expects future cash flow operations enhanced capital additions fiscal 2004 company plans perform various capital improvements estimated cost approximately 200 companys longterm financial obligations consist deferred management compensation plan loans various life insurance policies company specific assets dedicated deferred compensation plan entered life insurance contracts behalf certain participants partially fund obligations deferred compensation plan obligations deferred compensation plan generally payable 15year period participant attains age 65 employed company least 10 years company expects satisfy obligations utilizing accumulated cash values insurance contracts net related loans cash received death benefits insurance contracts cash provided operating investing activities accumulated cash values insurance contracts related loan accrued interest balances april 30 2003 totaled 2433 1683 124 respectively compared 2257 1683 127 respectively april 30 2002 company believes death benefits life insurance contracts along accumulated net cash values cash provided operating investing activities adequate meet obligations deferred compensation plan april 30 2003 2002 face value life insurance policies totaled 4954 4811 respectively loans related accrued interest specific life insurance contract would become immediately payable upon death covered deferred compensation plan participant event company intends satisfy liability proceeds received death benefit proceeds utilized repay loan accrued interest would available satisfy benefit obligations deferred compensation plan assuming covered participants died company repaid related loans accrued interest april 30 2003 proceeds death benefits would available satisfy undiscounted deferred compensation plan obligations 4031 generally payable 15 years totaled 3148 company arranges issuance standby letters credit benefit insurance carriers primarily unfunded portion estimated workers compensation liabilities different policy years year ended april 30 2003 arrangement made companys bank required purchase certificates deposit totaling 1378 secure 59 standby letters credit issued april 30 2002 certificates deposit totaling 963 secured 50 standby letters credit issued company believes future arrangements terms significantly less favorable existing terms february 1999 company received notice disallowance internal revenue service irs disallowing refund 1845 net operating loss carryback received company year ended april 30 1997 irs also seeking interest penalties amount refund company protested irss position notice dated february 24 2003 irs allowed portion refund stated amount disallowance interest thereon would total 2629 date result company recorded benefit 425 third quarter ended january 31 2003 excess previously accrued interest expense required irs february 24 2003 though amount disallowance interest thereon accrued consolidated financial statements april 30 2003 large single payment would effectively deplete companys available cash would require company evaluate financial resources may available order satisfy payment irs result company filed offer compromise irs total amount payment period april 30 2003 company owned 44 parcels unencumbered real estate including companys paint factory warehouse could either sold used security obtain additional financing company believes ability liquidity capital resources necessary meet cash needs foreseeable future fourth quarter fiscal 2003 company engaged investment banking firm exclusive financial advisor respect evaluation report recommendation board directors strategic options designed maximize shareholder value april 30 2003 company deferred income tax assets totaling 1941 realization would require significant increase fiscal 2003 taxable income approximately 5708 company believes however relatively long 20year expiration period federal net operating loss carryforward combined ability devise taxplanning strategies involving sales owned real estate likelihood consummation transaction services investment banking firm recently engaged likely deferred income tax assets realized see note 2 notes consolidated financial statements discussion companys income taxes components deferred income tax assets inflation significant impact companys results operations three years ended april 30 2003 recent accounting pronouncements june 2002 financial accounting standards board issued statement financial accounting standards sfas 146 accounting costs associated exit disposal activities sfas 146 addresses financial accounting reporting costs associated exit disposal activities nullifies emerging issues task force eitf issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring principal difference sfas 146 eitf issue 943 relates requirements recognition liability cost associated exit disposal activity sfas 146 requires liability cost associated exit disposal activity recognized liability incurred eitf issue 943 liability exit cost defined recognized date entitys commitment exit plan provisions sfas 146 effective exit disposal activities initiated december 31 2002 adoption material effect companys results operations financial position december 2002 financial accounting standards board issued sfas 148 accounting stockbased compensationtransition disclosure sfas 148 provides alternative methods transition sfaf 123s fair value mehtod accounting stockbased employee compensation also amends disclosure provision sfas 123 apb opinion 28 interim financial reporting require disclosure summary significant accounting policies effects entitys accounting respect stockbased employee compensation reported net income earnings per share annual interim financial statements sfas 148s amendment transition annual disclosure requirements sfas 123 efective fiscal years ending december 15 2002 sfas 148s amendment disclosure requirements opinion 28 effective interim periods beginning december 15 2002 adoption sfas 148 reflected note 1 consolidated financial statements critical accounting policies managements discussion analysis financial condition results operations discusses companys consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities contingencies date financial statements reported amounts revenues expenses reporting periods management evaluates estimates judgments including related critical accounting policies ongoing basis management bases estimates judgments historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities actual results may differ estimates different assumptions conditions management believes following critical accounting policies affect significant judgments estimates used preparation consolidated financial statements companys significant accounting policies disclosed note 1 consolidated financial statements company believes critical accounting policies area risk management specifically workers compensation records uninsured deductible portion liability based estimates development incurred claims provision impairment longlived assets based estimate future cash flows operating unit changing conditions use different assumptions deriving estimates could material effect reported financial results estimate companys workers compensation deductible liability performed risk management department based claims incurred date balance sheet reviewed senior management estimate liability established upon analysis historical data discussions thirdparty insurance carriers estimates provided companys workers compensation third party administrators estimates subject high degree variability least annual basis claims actuarially reviewed sources variability numerous include limited severity frequency claims future economic conditions court decisions legislative actions companys workers compensation liability estimates anticipate change benefit structure statutory changes could impact estimated liability seasonality business company reviews longlived assets impairment annually part fiscal year end procedures unless events changes circumstances indicate significant question whether respective carrying amounts recoverable significant longlived asset economic unit individual retail paint body shop evaluation performed annually shops operating least year impairment writedown recognized shops estimated undiscounted future cash flows less carrying amount company primarily uses historical performance determining estimate undiscounted future cash flows future cash flows influenced among factors changes competition marketing strategy human resources general market conditions factors could affect amount impairment provision recognized changing conditions use different assumptions deriving estimates described could material effect reported financial results item 7a item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations appearing pages 2 4 1999 annual report incorporated herein reference item 8 item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations appearing pages 1 3 2002 annual report incorporated herein reference item 8 item 7a quantitative qualitative disclosures market risk april 30 2004 company significant exposure market risks related changes currency exchange rates commodity prices equity values company could exposed interest rate risk credit facility financial institution since cash borrowings bear interest financial institutions prime rate plus four percent see note 7 consolidated financial statements item 8 item 7a quantitative qualitative disclosures market risk april 30 2003 company significant exposure market risks related changes interest rates currency exchange rates commodity prices equity values item 8 item 8 financial statements supplementary data consolidated financial statements company appearing pages 6 12 1998 annual report incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements company appearing pages 4 13 2001 annual report incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements company together report thereon bdo seidman certified public accountants appearing pages 2 12 1995 annual report incorporated herein reference filed part report form 10k item 9 item 8 financial statements supplementary data consolidated financial statements company together report thereon deloitte touche llp certified public accountants appearing pages 6 12 1996 annual report incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements company appearing pages 4 12 2000 annual report incorporated herein reference item 9 item 8 financial statements supplementary data index financial statements item 9 item 8 financial statements supplementary data consolidated financial statements company appearing pages 7 14 1997 annual report incorporated herein reference item 9 item 8 financial statements supplementary data item 9 item 8 financial statements supplementary data consolidated financial statements company appearing pages 5 13 1999 annual report incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements company appearing pages 4 14 2002 annual report incorporated herein reference item 9 item 15 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements company report independent auditors appearing pages 6 13 1998 annual report filed part report form 10k fiscal years ended april 30 1998 1997 1996 consolidated statements operations consolidated statements stockholders equity consolidated statements cash flows consolidated balance sheets april 30 1998 1997 report independent auditors 2 financial statement schedules none 3 exhibits required filed hereunder indexed pages 9 10 b reports form 8k applicable safe harbor statement private securities litigation reform act 1995 statements historical facts contained annual report form 10k forward looking statements involve risks uncertainties including limited effect weather effect economic conditions impact competitive products services pricing capacity supply constraints difficulties changes laws regulations applicable company impact year 2000 hardships impact companys europaintr impact advertising promotional activities impact companys expansion fleet sales potential adverse effects certain litigation signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized earl scheib inc daniel seigel daniel seigel president date july 27 1998 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index earl scheib inc subsidiaries availability exhibits company furnish upon request copies exhibits indicated pages 9 10 form 10k cost 25c per page reasonable cost company fulfilling request item 15 exhibits financial statement schedules reports form 8k a1 financial statements following consolidated financial statements company report independent auditors appearing pages 4 13 2001 annual report filed part report form 10k fiscal years ended april 30 2001 2000 1999 consolidated statements operations consolidated statements shareholders equity consolidated balances sheets april 30 2001 2000 consolidated statements cash flows report independent public accountants 1financial statement schedules omitted applicable information required bet set forth therein either included consolidated financial statements significant 2exhibits exhibits required filed hereunder indexed page 11 breports form 8k none safe harbor statement private securities litigation reform act 1995 certain written oral statements made company may forward looking statements defined private securities litigation reform act 1995 including statements made report filings securities exchange commission generally words believe expect hope intend estimate anticipate plan project similar expressions identify forwardlooking statements generally historical nature statements address operating performance events developments strategies company expects anticipates future forwardlooking statements forwardlooking statements involve risks uncertainties could cause actual results events differ materially companys past experience current expectations following risk uncertainties may impact forwardlooking statements impact companys retail paint body shop closures operational restructuring effect weather effect economic conditions impact competitive products services pricing capacity supply constraints difficulties changes laws regulations applicable company impact advertising promotional activities impact companys expansion fleet services division new product rollout quality fleet truck centers commercial coatings business potential adverse effects certain litigation financing lending constraints impact various tax positions taken company signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibit sequential page a1 certificate incorporation earl scheib inc dated december 22 1961 amended filed exhibit 3a registrants registration statement 221540 effective august 7 1963 hereby incorporated herein reference a2 amendment certificate incorporation dated october 28 1969 filed exhibit 1 registrants form 8k current report month october 1969 hereby incorporated herein reference a3 amendment certificate incorporation dated august 16 1971 filed exhibit 1 registrants form 8k current report month august 1971 hereby incorporated herein reference a4 amendment certificate incorporation dated november 4 1983 filed exhibit 3a1 registrants form 8k current report month august 1983 hereby incorporated herein reference a5 amendment certificate incorporation dated october 2 1986 set forth proxy statement dated july 22 1986 registrants 10q quarterly report quarter ended july 31 1986 hereby incorporated herein reference b amended restated bylaws earl scheib inc filed exhibit registrants current report form 8k dated august 15 1995 hereby incorporated herein reference earl scheib inc 1982 incentive stock option plan filed exhibit 10d registrants annual report form 10k fiscal year ended april 30 1982 hereby incorporated herein reference stock option agreement dated january 10 1995 registrant christian bement filed exhibit 10i registrants 1995 form 10k hereby incorporated herein reference j earl scheib inc 1994 performance employee stock option plan june 27 1994 filed exhibit 10l registrants 1995 form 10k hereby incorporated herein reference k earl scheib inc 1994 board directors stock option plan june 27 1994 filed exhibit 10m registrants 1995 form 10k hereby incorporated herein reference l agreement issuance letters credit dated february 16 1995 registrant city national bank filed exhibit 10a registrants quarterly report form 10q quarter ended january 31 1995 hereby incorporated herein reference amended supplemental terms letter dated march 10 2000 city national bank registrant filed exhibit 10 registrants quarterly report 10q quarter ended january 31 2000 hereby incorporated reference 2001 annual report stockholders earl scheib inc deemed filed except extent sections thereof specifically incorporated report form 10k reference subsidiaries registrant filed exhibit 22 registrants 1999 form 10k hereby incorporated herein reference consent independent auditors earl scheib inc subsidiaries availability exhibits company furnish upon request copies exhibits indicated page 11 form 10k cost 25¢ per page reasonable cost company fulfilling request documents incorporated reference part item 1 business item 2 properties item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity related stockholder matters item 6 selected financial data item 7 managements discussion analysis financial condition results operations item 8 financial statements supplementary data item 9 changes disagreements accountants accounting financial disclosure part iii items 10 directors executive officers company items 11 12 13 14 part iv item 15 exhibits financial statement schedules reports form 8k signatures exhibit index item 15 exhibits financial statement schedules reports form 8k safe harbor statement private securities litigation reform act 1995 written oral statements made company historic nature forward looking statements defined private securities litigation reform act 1995 including statements made report filings securities exchange commission generally words believe expect hope intend estimate anticipate plan project similar expressions identify forwardlooking statements address operating performance events developments strategies company expects anticipates future forwardlooking statements including statements companys expectations regarding completion proposed transaction elden holding group llc forwardlooking statements involve risks uncertainties could cause actual results events differ materially companys past experience current expectations following risks uncertainties may impact forwardlooking statements fact definitive agreement regarding proposed transaction agreed upon signed need satisfy preconditions prior closing acquisition elden holding group llc impact companys retail paint body shop closures operational restructuring effect weather effect economic conditions impact competitive products services pricing capacity supply constraints difficulties changes laws regulations applicable company impact advertising promotional activities impact companys expansion fleet services new product rollout quality fleet truck centers commercial coatings business potential adverse effects certain litigation financing insurance lending constraints impact various tax positions taken company risk identification consummation particular transaction strategic outcome assured signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated earl scheib inc subsidiaries consolidated statements operations dollars thousands except per share data accompanying notes integral part consolidated financial statements earl scheib inc subsidiaries consolidated balance sheets dollars thousands except share data accompanying notes integral part consolidated financial statements earl scheib inc subsidiaries consolidated statements shareholders equity dollars thousands except share data accompanying notes integral part consolidated financial statements earl scheib inc subsidiaries consolidated statements cash flows dollars thousands accompanying notes integral part consolidated financial statements earl scheib inc notes consolidated financial statements dollars thousands except per share data 1 summary significant accounting policies nature business earl scheib inc subsidiaries company operate auto painting auto body repair locations retail consumers businesses april 30 2004 2003 2002 company operated 113 124 132 retail paint body repair shops respectively operated one large fleet center april 30 2004 2003 two large fleet centers 2002 principles consolidation companys consolidated financial statements include company whollyowned subsidiaries significant intercompany accounts transactions eliminated use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make certain estimates assumptions affect amounts reported financial statements accompanying notes actual results could differ estimates significant uninsured deductible portion workers compensation liability based estimates development incurred claims cash equivalents highly liquid investment instruments terms three months less time acquisition considered cash equivalents original maturities excess three months considered marketable securities fair value financial instruments carrying value financial assets liabilities approximates fair value due short maturity accounts receivable writeoffs accounts receivable totaled 43 83 89 provisions doubtful accounts totaled 72 81 116 years ended april 30 2004 2003 2002 respectively recoveries years ended april 30 2004 2003 2002 6 1 22 respectively inventories composed auto paint shop supplies materials stated lower lastin firstout lifo cost market summary inventories follows property plant equipment property plant equipment recorded cost depreciated amortized estimated useful lives lease terms whichever less significant additions improvements extending asset lives capitalized normal maintenance repair costs expensed incurred company uses straightline method computing depreciation amortization financial reporting purposes accelerated methods respect certain assets income tax purposes revenue recognition company recognizes revenue work completed customer accepts delivery vehicle advertising costs expensed incurred except costs related placement company information yellow pages capitalized prepaid expenses amortized applicable directory period generally one year advertising costs expensed years ended april 30 2004 2003 2002 totaled 3241 3376 3628 respectively costs capitalized april 30 2004 2003 totaled 393 444 respectively preopening costs expenses associated opening new auto paint shops fleet centers expensed incurred income taxes deferred income taxes provided statutory rates difference financial statement tax basis assets liabilities classified consolidated balance sheet current longterm consistent classification related asset liability giving rise deferred income taxes carrying value deferred income tax assets determined based upon evaluation whether realization assets likely stockbased compensation april 30 2004 company two stockbased employee compensation plans described note 5 company accounts employee stock plan intrinsic value method prescribed accounting principles board opinion apb 25 accounting stock issued employees related interpretations adopted disclosureonly provisions statement financial accounting standards sfas 123 accounting stockbased compensation amended sfas 148 accounting stock based compensationtransaction disclosure amendment fasb statement 123 sfas 123 amended sfas 148 permits companies recognize expense vesting period fair value stockbased awards date grant blackscholes option valuation model developed use estimating fair value traded options vesting restrictions fully transferable companys stockbased compensation plans characteristics significantly different traded options changes subjective input assumptions materially affect fair value estimate management believes existing option valuation models necessarily provide reliable single measure fair value awards plan therefore permitted company applies existing accounting rules apb 25 provides pro forma net loss pro forma loss per share disclosures stockbased awards made year fair value method defined sfas 123 amended applied net income loss net income loss per share three years ended april 30 2004 2003 2002 would changed following pro forma amounts thousands except per share data options vest several years additional options granted year effects pro forma net income loss related per share amounts presented representative effect future years fair market value stock options granted purposes sfas 123 compensation determined using blackscholes optionpricing model following assumptions applied weightedaverage riskfree interest rate 405 526 fiscal 2004 2002 respectively expected life 10 years expected volatility 549 804 fiscal 2004 2002 respectively expected dividend weightedaverage fair value options granted company fiscal 2004 2002 172 178 respectively stock options granted fiscal 2003 impairment longlived assets company reviews longlived assets impairment whenever events changes circumstances indicate carrying value assets may recoverable company determines impairment longlived asset occurred write asset estimated fair value based primarily expected future cash flows years ended april 30 2004 2003 2002 company provided 231 169 256 impairment fixed assets fleet center three shops eight shops respectively year ended april 30 2002 73 provision included restructuring charges note 9 earnings per share basic earnings per share excludes dilution computed dividing income available common shareholders weightedaverage number common shares outstanding period diluted earnings per share reflects potential dilution could occur securities contracts issue common stock exercised converted common stock resulted issuance common stock shared earnings entity potential dilutive securities company outstanding stock options issued companys board directors management employees weightedaverage number shares used calculate basic earnings loss per share 4380 4375 4363 years ended april 30 2004 2003 2002 respectively weightedaverage number shares used calculate diluted earnings loss per share 4380 4375 4365 years ended april 30 2004 2003 2002 respectively options purchase 600 720 819 shares included calculation diluted earnings per share fiscal 2004 2003 2002 respectively effect would antidilutive recent accounting pronouncements december 2003 financial accounting standards board revised sfas 132 employers disclosures pensions postretirement benefits revision statement requires additional disclosures pension plans postretirement benefit plans however change measurement recognition sfas 87 sfas 106 annual disclosure requirements effective fiscal 2004 interim period disclosure requirements effective beginning companys first quarter fiscal year ending april 30 2005 reclassification certain reclassifications made prior year consolidated financial statements conform current year presentation 2 taxes income components provision income taxes follows reconciliation statutory federal income tax rate companys effective tax rate follows april 30 2004 net current deferred income tax assets net longterm deferred income tax assets comprised following fiscal 2004 fiscal 2003 company recorded deferred income tax assets net valuation allowance 1941 april 30 2004 company owned 44 parcels real property including manufacturing warehouse facility properties purchased number years ago companys taxable income insufficient one year realize deferred income tax asset one properties could sold gain realize income tax asset managements present belief likely remaining net deferred income tax asset realized sales properties rather operating income accordingly since april 30 1999 company establishing valuation allowance income tax benefit recorded net operating losses april 30 2004 company net operating loss carryforwards approximately 5400 3800 available offset future federal state income taxes respectively begin expire fiscal 2016 fiscal 2005 respectively february 1999 company received notice disallowance internal revenue service irs disallowing refund 1845 net operating loss carryback received company year ended april 30 1997 irs also sought interest penalties amount refund company protested irss position notice dated february 24 2003 irs allowed portion refund stated amount disallowance interest thereon would total 2629 date result company recorded benefit 425 third quarter fiscal 2003 excess previously accrued interest expense required irs february 24 2003 fourth quarter fiscal 2004 company settled dispute 1550 settlement paid april 2004 resulted interest benefit 1272 3 property plant equipment property plant equipment including estimated useful lives consist following fiscal 2004 company sold real estate fiscal 2003 company sold 4 parcels real estate net proceeds 1936 resulting net gain 1479 4 leases company leases approximately 63 locations corporate offices management expects normal course business excluding retail shops scheduled closed part companys restructuring plan note 9 leases renewed replaced leases certain lease agreements contain renewal andor purchase options rent expense fiscal 2004 2003 2002 4115 4280 4434 respectively following summary year future minimum lease commitments april 30 2003 5 stock options number shares options thousands company two nonqualified stock option plans one plan allows granting 150 shares companys capital stock nonemployee directors company second plan allows granting 900 shares companys capital stock certain employees company plans allow discretionary pricing vesting periods options generally granted term ten years besides two plans discussed company separate stock option agreement chief executive officer 200 shares stock option transactions summarized follows following tables summarize information stock options outstanding exercisable 6 retirement plans deferred management compensation 1987 company adopted nonqualified supplemental compensation plan provide benefits including post retirement health care death benefits certain employees officers key employees company prior fiscal 1995 admission plan discontinued beginning fiscal 1995 participants share cost plan deferring portion annual compensation purpose due compensation agreements predetermined fixed dollar amounts benefits rates increase future compensation used following table sets forth plans funded status amounts recognized companys statement financial position follows components net periodic pension cost plan assets plan unfunded nonqualified plan cash flows accounting items company entered whole life insurance contracts partially fund obligations plan company obligated enter contracts required use policy proceeds pay plan april 30 2004 2003 contracts cash surrender values 2598 2 433 respectively company borrowed note 7 401k plan fiscal 1999 company established 401k plan covering substantially employees may elect participate 401k plan provided meet certain eligibility requirements voluntary employee contributions limited 15 percent maximum amount allowed federal regulations compensation subject vesting schedule company contributions equal 50 percent first four percent employee contributions distributed matched end calendar year participants employed fiscal 2004 2003 2002 company contributed 83 84 86 respectively 7 debt obligations long term debt obligations consist loans life insurance policy cash surrender values bear interest variable rate currently 45 620 interest payable annually principal due time policies may surrendered company august 2003 company entered loan security agreement financial institution twoyear 10000 revolving line letter credit facility credit facility amended secured substantially assets company including owned real estate properties requires maintenance certain financial covenants company could exposed interest rate risk since cash borrowings credit facility bear interest financial institutions prime rate plus four percent april 30 2004 company made cash borrowings company available borrowing base defined approximately 6786 companys discretion increased 10000 upon completion satisfactory appraisals surveys title certain environmental reports real properties located outside state california 8 commitments contingencies secured credit facility financial institution issued 2392 standby letters credit april 30 2004 letters credit favor certain companys insurance carriers currently secure unfunded portion companys estimated workers compensation insurance liabilities april 30 2003 company satisfied letter credit requirements totaling 2340 facility one banks facility replaced current secured credit facility see note 7 required least 50 issued standby letters credit secured certificates deposit bank 1378 april 30 2003 personal assets company fourth quarter fiscal 2003 company engaged investment banking firm exclusive financial advisor respect evaluation report recommendation board directors strategic options designed maximize shareholder value consideration services company paid retainer fee 75 credited additional fees earned investment banking firm additional fees would vary depending whether services result transaction financing strategic outcome defined agreement aggregate consideration company also defined agreement addition board directors approved retention incentive plan benefit certain officers whereby severance payments transaction bonus defined certain benefits would payable officers event change control transaction defined certain conditions occur part retention incentive plan officers paid aggregate 144 retention bonuses fiscal 2003 see note 11 subsequent event company defendant lawsuit filed superior court los angeles california march 2000 lawsuit essentially alleges company california failed pay overtime benefits shop managers assistant managers made unlawful deductions compensation certain managers assistant managers plaintiff subsequently added certain directors officers defendants individual defendants company provided indemnity applicable law provides fouryear statute limitations unpaid overtime plaintiff seeking class certification case company intends vigorously defend action point ultimate outcome matter cannot determined certainty unfavorable rulings andor cost resolution unfavorable rulings cannot determined time company tendered claim insurance carrier seeking coverage denied company submitted insurance matter binding arbitration held september 2001 october 2001 arbitrator ruled insurance carrier duty advance companys defense costs case ordered carrier reimburse company defense costs less applicable deductible arbitrator asked rule whether numbers claims made indemnifiable applicable policy reserved jurisdiction resolve dispute later date policy aggregate limit liability 3000 april 30 2004 available cost defense claim less reimbursements made company date insurance carrier february 2002 court sustained demurrer individual defendants causes action pleaded final judgment dismissing claims individual defendants entered march 27 2002 may 23 2002 plaintiff filed served notice appeal individual defendants june 5 2002 trial judge underlying action company issued order stays action case appeal resolved april 2 2003 court appeals unanimously affirmed dismissal demurrer individual defendants may 16 2003 plaintiff filed served petition review california supreme court july 23 2003 california supreme court granted petition review court appeals decision april 30 2004 hearing date scheduled court company involved certain legal proceedings claims arise ordinary course business management currently believes financial disposition matters material adverse affect companys operations andor financial position 9 restructuring retail paint body business february 2001 board directors approved plan restructure reorganize companys retail paint body business plan implemented three year period ended april 30 2004 generally lease obligations expired resulted closing approximately 40 retail shops located primarily singleshop areas markets seasonal weather adversely impacts operating results restructuring result leaner infrastructure allow company concentrate efforts geographic areas historically profitable year ended april 30 2001 company recorded restructuring charges totaling 645 planned closure 25 retail shops year ended april 30 2002 including estimated exit costs shop closure costs early termination leases totaling 288 year ended april 30 2002 131 exit costs utilized 134 reversed benefit operating results leaving 23 remaining april 30 2002 year ended april 30 2003 3 exit costs reversed benefit operating results leaving 20 remaining april 30 2003 year ended april 30 2004 remaining exit costs 20 utilized year ended april 30 2002 company recorded restructuring charges totaling 143 planned closure eight leased retail shops april 30 2003 including estimated exit costs 70 fiscal year ended april 30 2003 53 exit costs utilized 12 reversed benefit operating results leaving 5 remaining year ended april 30 2004 remaining exit costs 5 reversed benefit operating results company also planned close four owned retail shops april 30 2003 required estimated exit costs recorded 10 issuance restricted stock directors years ended april 30 2003 2002 company issued 12000 9000 shares capital stock five four outside members board directors respectively lieu portion cash compensation service board shares issued treasury stock held company restricted securities defined rules securities exchange commission aggregate fair market value shares date issuance years ended april 30 2003 2002 35 295 per share 13 160 per share respectively recorded compensation expense excess companys acquired cost fair market value 49 years charged directly retained earnings company issue restricted stock directors year ended april 30 2004 11 subsequent event may 2004 close fiscal 2004 company announced executed letter intent sale companys issued outstanding shares elden holding group llc 15 million plus assumption certain transaction related costs expenses transaction subject various conditions contingencies including execution definitive agreement completion due diligence requisite regulatory approvals approval companys stockholders report independent registered public accounting firm board directors shareholders earl scheib inc audited accompanying consolidated balance sheets earl scheib inc subsidiaries april 30 2004 2003 related consolidated statements operations shareholders equity cash flows three years period ended april 30 2004 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position earl scheib inc subsidiaries april 30 2004 2003 consolidated results operations cash flows three years period ended april 30 2004 conformity us generally accepted accounting principles ernst young llp los angeles california july 13 2004 exhibit index e1 e2 part item 1 business item 2 properties item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity related stockholder matters issuer purchases equity securities item 6 selected financial data item 7 managements discussion analysis financial condition results operations item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures item 9b information part iii item 10 directors executive officers company item 11 executive compensation summary compensation table equity compensation plan information aggregated option exercises last fiscal year fiscal yearend option values item 12 security ownership certain beneficial owners management related stockholder matters item 13 certain relationships related transactions item 14 principal accountant fees services part iv item 15 exhibits financial statement schedules reports form 8k signatures earl scheib inc subsidiaries consolidated statements operations dollars thousands except per share data earl scheib inc subsidiaries consolidated balance sheets dollars thousands except share data earl scheib inc subsidiaries consolidated statements shareholders equity dollars thousands except share data earl scheib inc subsidiaries consolidated statements cash flows dollars thousands earl scheib inc notes consolidated financial statements dollars thousands except per share data report independent registered public accounting firm item 15 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements company report independent auditors appearing pages 7 14 1997 annual report filed part report form 10k fiscal years ended april 30 1997 1996 1995 consolidated statements operations consolidated statements shareholders equity consolidated statements cash flows consolidated balance sheets april 30 1997 1996 report independent auditors 2 financial statement schedules none 3 exhibits required filed hereunder indexed pages 8 9 b reports form 8k applicable safe harbor statement private securities litigation reform act 1995 statements historical facts contained annual report form 10k forward looking statements involve risks uncertainties including limited effect weather effect economic conditions impact competitive products services pricing capacity supply constraints difficulties changes laws regulations applicable company impact renovation majority companys operating paint shops new earl scheib shop format impact companys new europainttm impact companys organizational restructuring impact advertising promotional activities signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized earl scheib inc date july 28 1997 daniel seigel daniel seigel president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index earl scheib inc subsidiaries availability exhibits company furnish upon request copies exhibits indicated pages 8 9 form 10k cost 25c per page reasonable cost company fulfilling request item 15 principal accountant fees services following table sets forth aggregate fees billed company principal accounting firm ernst young llp arthur andersen llp fiscal 2003 fiscal 2002 respectively audit fees include services related annual audit companys consolidated financial statements included form 10k quarterly reviews companys consolidated financial statements included form 10q audit related fees primarily include services accounting consultations tax fees include services federal state income tax compliance consultation planning part iv item 16 exhibits financial statement schedules reports form 8k 1 financial statements see item 8 2 financial statement schedules omitted applicable information required bet set forth therein either included consolidated financial statements significant 3 exhibits required filed hereunder indexed page 28 b reports form 8k none safe harbor statement private securities litigation reform act 1995 certain written oral statements made company may forward looking statements defined private securities litigation reform act 1995 including statements made report filings securities exchange commission generally words believe expect hope intend estimate anticipate plan project similar expressions identify forwardlooking statements generally historical nature statements address operating performance events developments strategies company expects anticipates future forwardlooking statements forwardlooking statements involve risks uncertainties could cause actual results events differ materially companys past experience current expectations following risks uncertainties may impact forwardlooking statements impact companys retail paint body shop closures operational restructuring effect weather effect economic conditions impact competitive products services pricing capacity supply constraints difficulties changes laws regulations applicable company impact advertising promotional activities impact companys expansion fleet services division new product rollout quality fleet truck centers commercial coatings business potential adverse effects certain litigation financing insurance lending constraints impact various tax positions taken company risk identification consummation particular transaction strategic outcome result companys review strategic alternatives assured signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated certification pursuant section 302 sarbanesoxley act 2002 christian k bement certify 1i reviewed annual report form 10k earl scheib inc report 2based knowledge report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered report 3based knowledge financial statements financial information included report fairly present material respects financial condition results operations cash flows registrant periods presented report 4the registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant adesigned disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period report prepared bevaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing report evaluation date cpresented report conclusions effectiveness disclosure controls procedures based evaluation date 5the registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function aall significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls bany fraud whether material involves management employees significant role registrants internal controls 6the registrants certifying officers indicated report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses christian k bement christian k bement president chief executive officer july 28 2003 certification pursuant section 302 sarbanesoxley act 2002 charles e barrantes certify 1i reviewed annual report form 10k earl scheib inc report 2based knowledge report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered report 3based knowledge financial statements financial information included report fairly present material respects financial condition results operations cash flows registrant periods presented report 4the registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant adesigned disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period report prepared bevaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing report evaluation date cpresented report conclusions effectiveness disclosure controls procedures based evaluation date 5the registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function aall significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls bany fraud whether material involves management employees significant role registrants internal controls 6the registrants certifying officers indicated report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses charles e barrantes charles e barrantes vice president chief financial officer july 28 2003 exhibit index portions exhibit omitted pursuant request confidential treatment earl scheib inc subsidiaries consolidated statements operations dollars thousands except per share data accompanying notes integral part consolidated financial statements earl scheib inc subsidiaries consolidated balance sheets dollars thousands except share data accompanying notes integral part consolidated financial statements earl scheib inc subsidiaries consolidated statements shareholders equity dollars thousands except share data accompanying notes integral part consolidated financial statements earl scheib inc subsidiaries consolidated statements cash flows dollars thousands accompanying notes integral part consolidated financial statements earl scheib inc notes consolidated financial statements dollars thousands except per share data 1summary significant accounting policies nature business earl scheib inc subsidiaries company operate auto painting auto body repair locations retail consumers businesses april 30 2003 2002 2001 company operated 124 132 159 retail paint body repair shops respectively operated one two one large fleet centers april 30 2003 2002 2001 respectively principles consolidation companys consolidated financial statements include company whollyowned subsidiaries significant intercompany accounts transactions eliminated use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make certain estimates assumptions affect amounts reported financial statements accompanying notes actual results could differ estimates significant uninsured deductible portion workers compensation liability based estimates development incurred claims cash equivalents highly liquid investment instruments terms three months less time acquisition considered cash equivalents original maturities excess three months considered marketable securities fair value financial instruments carrying value financial assets liabilities approximates fair value due short maturity accounts receivable writeoffs accounts receivable totaled 83 89 61 provisions doubtful accounts totaled 81 116 174 years ended april 30 2003 2002 2001 respectively recoveries years ended april 30 2003 2002 2001 1 22 0 respectively inventories composed auto paint shop supplies materials stated lower lastin firstout lifo cost market summary inventories follows property plant equipment property plant equipment recorded cost depreciated amortized estimated useful lives lease terms whichever less significant additions improvements extending asset lives capitalized normal maintenance repair costs expensed incurred company uses straightline method computing depreciation amortization financial reporting purposes accelerated methods respect certain assets income tax purposes revenue recognition company recognizes revenue work completed customer accepts delivery vehicle advertising costs expensed incurred except costs related placement company information yellow pages capitalized prepaid expenses amortized applicable directory period generally one year advertising costs expensed years ended april 30 2003 2002 2001 totaled 3376 3628 4 010 respectively costs capitalized april 30 2003 2002 totaled 444 612 respectively preopening costs expenses associated opening new auto paint shops fleet centers expensed incurred income taxes deferred income taxes provided statutory rates difference financial statement tax basis assets liabilities classified consolidated balance sheet current longterm consistent classification related asset liability giving rise deferred income taxes carrying value deferred income tax assets determined based upon evaluation whether realization assets likely stockbased compensation april 30 2003 company two stockbased employee compensation plans described fully note 5 company accounts plans recognition measurement principles apb opinion 25 accounting stock issued employees related interpretations stockbased employee compensation cost reflected net income options granted plans exercise price equal market value underlying common stock date grant following table illustrates effect net income earnings per share company applied fair value recognition provision statement financial accounting standards sfas 123 accounting stockbased compensation stockbased employee compensation options vest several years additional options granted year effects pro forma net income loss related per share amounts presented representative effect future years fair market value stock options granted purposes sfas 123 compensation determined using blackscholes optionpricing model following assumptions weightedaverage riskfree interest rate 526 504 fiscal 2002 2001 respectively expected life 10 years expected volatility 804 661 fiscal 2002 2001 respectively expected dividend weightedaverage fair value options granted company fiscal 2002 2001 178 193 respectively stock options granted fiscal 2003 impairment longlived assets company reviews longlived assets impairment whenever events changes circumstances indicate carrying value assets may recoverable company determines impairment longlived asset occurred write asset estimated fair value based primarily expected future cash flows years ended april 30 2003 2002 2001 company provided 169 256 1599 impairment fixed assets three eight thirteen shops respectively years ended april 30 2002 2001 73 357 provision respectively included restructuring charges note 9 earnings per share basic earnings per share excludes dilution computed dividing income available common shareholders weightedaverage number common shares outstanding period diluted earnings per share reflects potential dilution could occur securities contracts issue common stock exercised converted common stock resulted issuance common stock shared earnings entity potential dilutive securities company outstanding stock options issued companys board directors management employees weightedaverage number shares used calculate basic earnings loss per share 4375 4363 4359 years ended april 30 2003 2002 2001 respectively weightedaverage number shares used calculate diluted earnings loss per share 4375 4365 4359 years ended april 30 2003 2002 2001 respectively options purchase 720 819 996 shares included calculation diluted earnings per share fiscal 2003 2002 2001 respectively effect would antidilutive recent accounting pronouncements june 2002 financial accounting standards board issued statement financial accounting standards sfas 146 accounting costs associated exit disposal activities sfas 146 addresses financial accounting reporting costs associated exit disposal activities nullifies emerging issues task force eitf issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring principal difference sfas 146 eitf issue 943 relates requirements recognition liability cost associated exit disposal activity sfas 146 requires liability cost associated exit disposal activity recognized liability incurred eitf issue 943 liability exit cost defined recognized date entitys commitment exit plan provisions sfas 146 effective exit disposal activities initiated december 31 2002 adoption material effect companys results operations financial position december 2002 financial accounting standards board issued sfas 148 accounting stockbased compensationtransition disclosure sfas 148 provides alternative methods transition sfaf 123s fair value method accounting stockbased employee compensation also amends disclosure provision sfas 123 apb opinion 28 interim financial reporting require disclosure summary significant accounting policies effects entitys accounting respect stockbased employee compensation reported net income earnings per share annual interim financial statements sfas 148s amendment transition annual disclosure requirements sfas 123 effective fiscal years ending december 15 2002 sfas 148s amendment disclosure requirements opinion 28 effective interim periods beginning december 15 2002 company adopted sfas 148 fiscal year ended april 30 2003 discussed reclassification certain reclassifications made prior year consolidated financial statements conform current year presentation 2taxes income components provision income taxes follows reconciliation statutory federal income tax rate companys effective tax rate follows april 30 2003 net current deferred income tax assets net longterm deferred income tax assets comprised following fiscal 2003 fiscal 2002 company deferred income tax assets net valuation allowance 1941 2869 respectively april 30 2003 company owned 44 parcels unencumbered properties including manufacturing warehouse facility properties purchased number years ago companys taxable income insufficient one year realize deferred income tax asset one properties could sold gain realize income tax asset accordingly managements present belief likely net deferred income tax asset realized april 30 2003 company net operating loss carryforward approximately 4100 available offset future federal income taxes otherwise payable expire twenty years february 1999 company received notice disallowance internal revenue service irs disallowing refund 1845 net operating loss carryback received company year ended april 30 1997 irs also seeking interest penalties amount refund company protested irss position notice dated february 24 2003 irs allowed portion refund stated amount disallowance interest thereon would total 2629 date result company recorded benefit 425 third quarter ended january 31 2003 excess previously accrued interest expense required irs february 24 2003 though amount disallowance interest thereon accrued consolidated financial statements april 30 2003 large single payment would effectively deplete companys available cash would require company evaluate financial resources may available order satisfy payment irs result company filed offer compromise irs total amount payment period 3property plant equipment property plant equipment including estimated useful lives consist following fiscal 2003 company sold 4 parcels real estate net proceeds 1936 resulting net gain 1479 fiscal 2002 company sold 14 parcels real estate corporate office building net proceeds 5950 resulting net gain 4153 4leases company leases approximately 66 locations corporate offices management expects normal course business excluding retail shops scheduled closed part companys restructuring plan note 9 leases renewed replaced leases certain lease agreements contain renewal andor purchase options rent expense fiscal 2003 2002 2001 4280 4434 4204 respectively following summary year future minimum lease commitments april 30 2003 5stock options number shares options thousands company two nonqualified stock option plans one plan allows granting 150 shares companys capital stock nonemployee directors company second plan allows granting 900 shares companys capital stock certain employees company plans allow discretionary pricing vesting periods options generally granted term ten years besides two plans discussed company separate stock option agreement chief executive officer 200 shares stock option transactions summarized follows following tables summarize information stock options outstanding exercisable 6retirement plans deferred management compensation 1987 company adopted nonqualified supplemental compensation plan provide benefits including post retirement health care death benefits certain employees officers key employees company prior fiscal 1995 admission plan discontinued beginning fiscal 1995 participants share cost plan deferring portion annual compensation purpose deferred compensation expense plan comprised following due compensation agreements predetermined fixed dollar amounts benefits rates increase future compensation used table sets forth funded status amounts recognized companys consolidated financial statements supplemental compensation plan company entered whole life insurance contracts partially fund obligations plan company obligated enter contracts required use policy proceeds pay plan april 30 2003 2002 contracts cash surrender values 2433 2257 respectively company borrowed note 7 401k plan fiscal 1999 company established 401k plan covering substantially employees may elect participate 401k plan provided meet certain eligibility requirements voluntary employee contributions limited 15 percent maximum amount allowed federal regulations compensation subject vesting schedule company contributions equal 50 percent first four percent employee contributions distributed matched end calendar year participants employed fiscal 2003 2002 2001 company contributed 84 86 104 respectively 7longterm debt obligations long term debt obligations consist loans life insurance policy cash surrender values bear interest variable rate currently 50 765 interest payable annually principal due time policies may surrendered company 8commitments contingencies company agreement bank finance letter credit facility bank issued 2340 1925 standby letters credit april 30 2003 2002 respectively letters credit favor companys insurance carriers currently secure unfunded portion companys estimated workers compensation insurance liabilities see note 1 agreement requires least 50 issued standby letters credit secured certificates deposit bank 1378 963 april 30 2003 2002 respectively facility additionally secured personal assets company fourth quarter fiscal 2003 company engaged investment banking firm exclusive financial advisor respect evaluation report recommendation board directors strategic options designed maximize shareholder value consideration services company paid retainer fee 75 credited additional fees earned investment banking firm additional fees would vary depending whether services result transaction financing strategic outcome defined agreement aggregate consideration company also defined agreement addition board directors approved retention incentive plan benefit certain officers whereby severance payments transaction bonus defined certain benefits would payable officers event change control transaction defined certain conditions occur part retention incentive plan officers paid aggregate 144 retention bonuses fiscal 2003 company defendant lawsuit filed superior court los angeles california march 2000 lawsuit essentially alleges company california failed pay overtime benefits shop managers assistant managers made unlawful deductions compensation certain managers assistant managers plaintiff subsequently added certain directors officers defendants individual defendants applicable law provides fouryear statute limitations unpaid overtime plaintiff seeking class certification case company intends vigorously defend action point ultimate outcome matter cannot determined certainty unfavorable rulings andor cost resolution unfavorable rulings cannot determined time company tendered claim insurance carrier seeking coverage denied company submitted matter binding arbitration held september 2001 october 2001 arbitrator ruled insurance carrier duty advance companys defense costs case ordered carrier reimburse company defense costs less applicable deductible arbitrator asked rule whether numbers claims made indemnifiable applicable policy aggregate limit liability 3000 available claim february 2002 court sustained demurrer individual defendants causes action pleaded final judgment dismissing claims individual defendants entered march 27 2002 may 23 2002 plaintiff filed served notice appeal individual defendants june 5 2002 trial judge underlying action company issued order stays action case appeal completed april 2 2003 court appeals affirmed dismissal demurrer individual defendants may 16 2003 plaintiff filed served petition review california supreme court july 23 2003 california supreme court granted petition review court appeals decision company involved certain legal proceedings claims arise ordinary course business management currently believes amount ultimate liability respect matters materially affect companys operations andor financial position 9restructuring retail paint body business february 2001 board directors approved plan restructure reorganize companys retail paint body business plan implemented three year period ending april 30 2004 primarily lease obligations expire result closing approximately 40 retail shops located primarily singleshop areas markets seasonal weather adversely impacts operating results restructuring result leaner infrastructure allow company concentrate efforts geographic areas historically profitable year ended april 30 2001 company recorded restructuring charges totaling 645 planned closure 25 retail shops year ended april 30 2002 including estimated exit costs shop closure costs early termination leases totaling 288 year ended april 30 2002 131 exit costs utilized 134 reversed benefit operating results leaving 23 remaining april 30 2002 year ended april 30 2003 3 exit costs reversed benefit operating results leaving 20 remaining april 30 2003 net sales generated 25 retail shops 0 3030 6284 fiscal 2003 2002 2001 net operating income loss 0 7 23 respectively year ended april 30 2002 company recorded restructuring charges totaling 143 planned closure eight leased retail shops april 30 2003 including estimated exit costs 70 fiscal year ended april 30 2003 53 exit costs utilized 12 reversed benefit operating results leaving 5 remaining company also planned close four owned retail shops april 30 2003 required estimated exit costs recorded net sales generated 12 retail shops 1181 2900 3119 fiscal 2003 2002 2001 net operating income loss 153 456 58 respectively reliance estimates potential changing conditions planned shop closures year ending april 30 2004 subsequently company believes future charges results operations possible years shops actually close 10issuance restricted stock directors years ended april 30 2003 2002 company issued 12000 9000 shares capital stock five four outside members board directors respectively lieu portion cash compensation service board shares issued treasury stock held company restricted securities defined rules securities exchange commission aggregate fair market value shares date issuance years ended april 30 2003 2002 35 295 per share 13 160 per share respectively recorded compensation expense excess companys acquired cost fair market value 49 years charged directly retained earnings report ernst young llp independent auditors board directors shareholders earl scheib inc audited accompanying consolidated balance sheets earl scheib inc subsidiaries april 30 2003 2002 related consolidated statements operations shareholders equity cash flows two years period ended april 30 2003 financial statements responsibility companys management responsibility express opinion financial statements based audits consolidated financial statements earl scheib inc fiscal year ended april 30 2001 audited auditors ceased operations auditors expressed unqualified opinion statements report dated july 11 2001 conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position earl scheib inc subsidiaries april 30 2003 2002 consolidated results operations cash flows two years period ended april 30 2003 conformity accounting principles generally accepted united states ernst young llp los angeles california july 17 2003 copy audit report previously issued arthur andersen llp connection earl scheib inc filing form 10k year ended april 30 2001 audit report reissued arthur andersen llp connection filing form 10k see exhibit 232 discussion balance sheet april 30 2001 referred report included accompanying financial statements report independent public accountants shareholders earl scheib inc audited accompanying consolidated balance sheets earl scheib inc delaware corporation subsidiaries april 30 2001 2000 related consolidated statements operations shareholders equity cash flows three years period ended april 30 2001 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position earl scheib inc subsidiaries april 30 2001 2000 results operations cash flows three years period ended april 30 2001 conformity accounting principles generally accepted united states arthur andersen llp los angeles california july 11 2001 earl scheib inc subsidiaries availability exhibits company furnish upon request copies exhibits indicated pages 28 29 form 10k cost 25¢ per page reasonable cost company fulfilling request part item 1 business item 2 properties item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity related stockholder matters item 6 selected financial data item 7 managements discussion analysis financial condition results operations item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data item 9 changes disagreements accountants accounting financial disclosure part iii item 10 directors executive officers company item 11 executive compensation item 12 security ownership certain beneficial owners management related stockholder matters item 13 certain relationships related transactions item 14 controls procedures item 15 principal accountant fees services part iv item 16 exhibits financial statement schedules reports form 8k signatures certifications exhibit index earl scheib inc subsidiaries consolidated statements operations dollars thousands except per share data earl scheib inc subsidiaries consolidated balance sheets dollars thousands except share data earl scheib inc subsidiaries consolidated statements shareholders equity dollars thousands except share data earl scheib inc subsidiaries consolidated statements cash flows dollars thousands earl scheib inc notes consolidated financial statements dollars thousands except per share data report independent public accountants item 15 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements company report independent auditors appearing pages 5 13 1999 annual report filed part report form 10k fiscal years ended april 30 1999 1998 1997 consolidated statements operations consolidated statements shareholders equity consolidated balance sheets april 30 1999 1998 consolidated statements cash flows report independent public accountants 2 financial statement schedules none 3 exhibits required filed hereunder indexed page e1 b reports form 8k company filed current report form 8k april 23 1999 disclosing change certifying accountant safe harbor statement private securities litigation reform act statements historical facts contained annual report form 10k forward looking statements involve risks uncertainties including limited effect weather effect economic conditions impact competitive products services pricing capacity supply constraints difficulties changes laws regulations applicable company impact year 2000 hardships impact companys europaintr impact advertising promotional activities impact companys expansion fleet sales impact various tax positions taken company signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized earl scheib inc date july 29 1999 christian k bement christian k bement president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index e1 earl scheib inc subsidiaries availability exhibits company furnish upon request copies exhibits indicated page e1 form 10k cost 25c per page reasonable cost company fulfilling request item 15 exhibits financial statement schedules reports form 8k a1 financial statements following consolidated financial statements company report independent auditors appearing pages 4 14 2002 annual report filed part report form 10k fiscal years ended april 30 2002 2001 2000 consolidated statements operations consolidated statements shareholders equity consolidated balance sheets april 30 2002 2001 consolidated statements cash flows report independent auditors 1financial statement schedules omitted applicable information required bet set forth therein either included consolidated financial statements significant 2exhibits exhibits required filed hereunder indexed page 11 breports form 8k none safe harbor statement private securities litigation reform act 1995 certain written oral statements made company may forward looking statements defined private securities litigation reform act 1995 including statements made report filings securities exchange commission generally words believe expect hope intend estimate anticipate plan project similar expressions identify forwardlooking statements generally historical nature statements address operating performance events developments strategies company expects anticipates future forwardlooking statements forwardlooking statements involve risks uncertainties could cause actual results events differ materially companys past experience current expectations following risk uncertainties may impact forwardlooking statements impact companys retail paint body shop closures operational restructuring effect weather effect economic conditions impact competitive products services pricing capacity supply constraints difficulties changes laws regulations applicable company impact advertising promotional activities impact companys expansion fleet services division new product rollout quality fleet truck centers commercial coatings business potential adverse effects certain litigation financing insurance lending constraints impact various tax positions taken company signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibit sequential page a1 certificate incorporation earl scheib inc dated december 22 1961 amended filed exhibit 3a registrants registration statement 221540 effective august 7 1963 hereby incorporated herein reference a2 amendment certificate incorporation dated october 28 1969 filed exhibit 1 registrants form 8k current report month october 1969 hereby incorporated herein reference a3 amendment certificate incorporation dated august 16 1971 filed exhibit 1 registrants form 8k current report month august 1971 hereby incorporated herein reference a4 amendment certificate incorporation dated november 4 1983 filed exhibit 3a1 registrants form 8k current report month august 1983 hereby incorporated herein reference a5 amendment certificate incorporation dated october 2 1986 set forth proxy statement dated july 22 1986 registrants 10q quarterly report quarter ended july 31 1986 hereby incorporated herein reference b amended restated bylaws earl scheib inc filed exhibit registrants current report form 8k dated august 15 1995 hereby incorporated herein reference earl scheib inc 1982 incentive stock option plan filed exhibit 10d registrants annual report form 10k fiscal year ended april 30 1982 hereby incorporated herein reference stock option agreement dated january 10 1995 registrant christian bement filed exhibit 10i registrants 1995 form 10k hereby incorporated herein reference j earl scheib inc 1994 performance employee stock option plan june 27 1994 filed exhibit 10l registrants 1995 form 10k hereby incorporated herein reference k earl scheib inc 1994 board directors stock option plan june 27 1994 filed exhibit 10m registrants 1995 form 10k hereby incorporated herein reference l agreement issuance letters credit dated february 16 1995 registrant city national bank filed exhibit 10a registrants quarterly report form 10q quarter ended january 31 1995 hereby incorporated herein reference amended supplemental terms letter dated march 10 2000 city national bank registrant filed exhibit 10 registrants quarterly report 10q quarter ended january 31 2000 hereby incorporated reference 2002 annual report stockholders earl scheib inc deemed filed except extent sections thereof specifically incorporated report form 10k reference 131 report independent public accountants arthur andersen llp subsidiaries registrant filed exhibit 22 registrants 1999 form 10k hereby incorporated herein reference consent independent auditors earl scheib inc subsidiaries availability exhibits company furnish upon request copies exhibits indicated page 11 form 10k cost 25¢ per page reasonable cost company fulfilling request part item 1 business item 2 properties item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity related stockholder matters item 6 selected financial data item 7 managements discussion analysis financial condition results operations item 8 financial statements supplementary data item 9 changes disagreements accountants accounting financial disclosure part iii item 10 directors executive officers company items 11 12 13 14 part iv item 15 exhibits financial statement schedules reports form 8k signatures exhibit index