ITEM 1. Business
General
Earl Scheib, Inc., a Delaware corporation, and its subsidiaries (collectively referred to as the "Company") is celebrating 65 years in the automobile paint and repair business as the successor to a business founded as a sole proprietorship by Earl A. Scheib in 1937. The Company's principal executive offices are located at 15206 Ventura Boulevard, Suite 200, Sherman Oaks, California, 91403. The Company maintains personnel, systems, advertising, legal, real estate and accounting functions at its principal executive offices. See ITEM 2.
ITEM 2. Properties
The Company owns the land and buildings occupied by 45 of the Company's operating shops as of April 30, 2002. The remaining 89 of the Company's 134 shops, at April 30, 2002, are leased from outside third parties. The 132 retail shops and two fleet centers are located in over 100 cities in 24 states and the District of Columbia. In fiscal 2002, the Company began operations in one fleet center and ceased operations in 27 shops.
Leases for shop premises vary as to their terms, rental provisions, expiration dates and the existence of renewal options. The number of years remaining on leases for the Company's shops (excluding unexercised options) range from a month to month tenancy to approximately 10 years. All of the leases, with two exceptions, have fixed rentals with no additional rents based upon shop sales. Many leases also require the Company to pay all or a portion of the real estate taxes, insurance charges and maintenance expenses relating to the leased premises. The Company maintains fire and liability insurance as well as umbrella earthquake coverage for its shops and other real estate interests.
The Company historically secured sites for new stores by a variety of methods, including lease, purchase, assignment or sublease of existing facilities, build-to-suit leases, or purchase and development of sites that may be owned by the Company or sold and leased back by the Company under sale-and-leaseback arrangements. In many cases, the Company was able to lease or sublease existing buildings that have been previously used for other purposes, such as automobile repair shops or retail establishments. These sites must be suitable for the Company's needs, at a lease rate that is within the Company's guidelines and without the need for substantial expenditures to convert the facilities to the Company's needs. In connection with the opening of new shops, the Company generally makes capital
investments and incurs expenditures (excluding expenditures to purchase land, buildings or leasehold interest) of approximately $175,000. These costs consist of construction of improvements, paint and supply inventories, fixtures, equipment, signs and pre-opening expense. The Company does not intend to open any new retail locations during the fiscal year ending April 30, 2003, but may open replacement shops for existing shops that may close as a result of expired leases. In connection with the opening of a QFTC location, the Company expects expenses and capital investments (excluding expenditures to purchase land, buildings or leasehold interest) to be approximately $300,000 to $400,000. These costs consist of construction of improvements, paint and supply inventories, fixtures, equipment, signs and pre-opening expense. The Company primarily secures sites for its QFTC operation using the same methods as described above.
The majority of the Company's stores are in stand-alone sites on main streets and have adjacent parking facilities. Store hours are generally from 7:30 a.m. to 6:00 p.m. Monday through Friday and 8:00 a.m. to 12:00 p.m. on Saturday. The Company's shops are generally 6,000 square feet with most shops ranging from approximately 3,500 square feet to 7,000 square feet and some as large as approximately 12,000 square feet.
As of April 30, 2002, the Company had parcels of real estate for sale. The property had a net book value at April 30, 2002 of approximately $30,000, which is shown in the financial statements as Property held for sale.
The Company owns a manufacturing and warehousing facility in Springfield, Missouri. The Company manufactures and warehouses paint and related products and warehouses other necessary supplies used by the shops in this facility until needed by the Company's shops. This facility occupies approximately 30,600 square feet.
In July 2001, the Company sold the real estate under its Corporate headquarters for net proceeds of $1,913,000. The Company currently occupies Corporate offices in Sherman Oaks, California under a 10-year lease.
The Company believes its operating properties are in good operating condition.
ITEM 3.
ITEM 3. Legal Proceedings
The Company is a defendant in a lawsuit filed in Los Angeles, California in March 2000. The lawsuit essentially alleges that the Company, in California, failed to pay overtime benefits to shop managers and assistant managers and made unlawful deductions from the compensation of certain managers and assistant managers. The plaintiff subsequently added certain directors and officers as defendants (the "Individual Defendants"). The applicable law provides for up to a four-year statute of limitations for unpaid overtime and the plaintiff is seeking class certification in this case. The Company intends to vigorously defend against this action, but at this point the ultimate outcome of this matter cannot be determined with certainty. Unfavorable rulings and/or the cost of resolution of any unfavorable rulings cannot be determined at this time. The Company tendered this claim to its insurance carrier seeking coverage, which was denied. The Company then submitted the matter to binding arbitration, which was held in September 2001. In October 2001, the arbitrator ruled that the insurance carrier has a duty to advance the Company's defense costs in this case and ordered the carrier to reimburse the Company for its defense costs, less the applicable deductible. The arbitrator was not asked to, nor did, rule on whether the numbers of claims made, or any of them, are indemnifiable under the applicable policy. The policy has an aggregate limit of liability of $3,000,000 all of which is available for this claim. In February 2002, the Court sustained the demurrer of the Individual Defendants to all causes of action pleaded against them. A final judgment dismissing all claims against the Individual Defendants was entered on March 27, 2002. On May 23, 2002, the plaintiff filed and served a Notice of Appeal against the Individual Defendants. On June 5, 2002, the
trial judge in the underlying action against the Company issued an Order which stays further action in the case until the appeal is completed.
The Company is involved in certain legal proceedings and claims arising in the ordinary course of its business. Management believes that the final disposition of such matters should not have a material adverse effect on the Company's operations and/or financial position.
ITEM 4.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Company
The executive officers of the Company, their ages and their positions are set forth below.
Mr. Bement became President and Chief Executive Officer on January 1, 1999. Mr. Bement previously served the Company as its Executive Vice President and Chief Operating Officer since February 1995 and became a director in 1997. Prior thereto and for over 25 years, Mr. Bement served in various senior executive positions at Thrifty Corporation, most recently, from 1990-1994, as Executive Vice President.
Mr. Barrantes became Vice President and Chief Financial Officer of the Company in August 1999. From July 1998 through July 1999, he was Vice President, Chief Financial Officer and Secretary of Medical Device Alliance Inc., a medical devices company. Prior to that, Mr. Barrantes was Vice President and Chief Financial Officer in 1997 for Whittaker Corporation, a NYSE-listed diversified company involved in the aerospace, defense electronics and global networking industries; and Executive Vice President, Chief Financial Officer and Secretary of Thompson PBE, Inc., a NASDAQ-traded company that distributed paint and related supplies to the collision repair industry, from March 1996 through April 1997.
Mr. Sunkin has served as Vice President and General Counsel and Secretary since November 1995. Mr. Sunkin also supervises the Company's Real Estate Department and the Company's Risk Management Department and handles various strategic matters for the Company. Prior to that, Mr. Sunkin was an Associate in the Business Practices Group of the law firm Buchalter, Nemer, Fields & Younger, P.C.
Mr. Smith has served as Vice President-Shop Operations since December 1995. Prior to that and for more than five years, Mr. Smith served the Company in various operational capacities.
Mr. Minnihan has served as Vice President-Finance since April, 1996. Prior to that and for more than 10 years, Mr. Minnihan served as the Company's Chief Financial Officer.
Mr. Lange became Vice President-Chief Operating Officer in December 2001. Prior to that and for more than 5 years, Mr. Lange was Senior Vice President of Penske Auto Centers.
PART II
The Company's Annual Report to Shareholders for the year ended April 30, 2002 ("2002 Annual Report") is filed as Exhibit 13 to this Report on Form 10-K. The responses to Items 5, 6, 7 and 8 are contained in the 2002 Annual Report on the pages noted and are specifically incorporated herein by reference in this Report on Form 10-K. With the exception of these items, the 2002 Annual Report is not deemed filed as a part of this Report.
ITEM 5.
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters
"Market Information" appearing on page 16 of the 2002 Annual Report is incorporated herein by reference.
ITEM 6.
ITEM 6. Selected Financial Data
"Selected Financial Data" appearing on page 15 of the 2002 Annual Report is incorporated herein by reference.
ITEM 7.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
"Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 1 through 3 of the 2002 Annual Report is incorporated herein by reference.
ITEM 8.
ITEM 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company appearing on pages 4 through 14 of the 2002 Annual Report are incorporated herein by reference.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
The information required by Item 9 is incorporated by reference from the Company's definitive Proxy Statement dated July 26, 2002.
PART III
ITEM 10.
ITEM 10. Directors and Executive Officers of the Company
The information required by Item 10 is incorporated by reference from page 7 of Part I included herein and the Company's definitive Proxy Statement dated July 26, 2002.
ITEMS 11., 12., 13. and 14.
The information required by these items is contained in the Company's definitive Proxy Statement dated July 26, 2002 which relates to election of the Company's directors and which was filed with the Commission within 120 days after the close of the Company's fiscal year pursuant to Regulation 14A of the Securities Exchange Act of 1934.
PART IV
ITEM 15.
ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)1. Financial Statements
The following consolidated financial statements of the Company and Report of Independent Auditors, appearing on pages 4 through 14 of the 2002 Annual Report, are filed as part of this Report on Form 10-K:
For the Fiscal Years Ended April 30, 2002, 2001 and 2000:
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Balance Sheets as of April 30, 2002 and 2001
Consolidated Statements of Cash Flows
Report of Independent Auditors
1.Financial Statement Schedules
Schedules have been omitted because they are not applicable or the information required to bet set forth therein is either included in the consolidated financial statements or is not significant.
2.Exhibits
The Exhibits required to be filed hereunder are indexed on page 11.
(b)Reports on Form 8-K
None
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995"
Certain written and oral statements made by the Company may be "forward looking statements" as defined under the Private Securities Litigation Reform Act of 1995, including statements made in this report and other filings with the Securities and Exchange Commission. Generally, the words "believe," "expect," "hope," "intend," "estimate," "anticipate," "plan," "will," "project," and similar expressions identify forward-looking statements which generally are not historical in nature. All statements which address operating performance, events, developments or strategies that the Company expects or anticipates in the future are forward-looking statements.
Forward-looking statements, involve risks and uncertainties that could cause actual results or events to differ materially from the Company's past experience or current expectations. The following are some of the risk and uncertainties that may impact the forward-looking statements: the impact of the Company's retail paint and body shop closures and operational restructuring, the effect of weather, the effect of economic conditions, the impact of competitive products, services, pricing, capacity and supply constraints or difficulties, changes in laws and regulations applicable to the Company, the impact of advertising and promotional activities, the impact of the Company's expansion of its fleet services division, new product rollout and Quality Fleet & Truck Centers, commercial coatings business, the potential adverse effects of certain litigation, financing, insurance or lending constraints and the impact of various tax positions taken by the Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
EXHIBIT INDEX
Exhibit No.
Sequential
Page No.
(a)(1) Certificate of Incorporation of Earl Scheib, Inc., dated December 22, 1961, as amended, filed as Exhibit 3(a) to Registrant's Registration Statement No. 2-21540, effective as of August 7, 1963, and hereby incorporated herein by reference.
(a)(2)
Amendment to Certificate of Incorporation dated October 28, 1969, filed as Exhibit 1 to Registrant's Form 8-K Current Report for the month of October, 1969 and hereby incorporated herein by reference.
(a)(3)
Amendment to Certificate of Incorporation dated August 16, 1971, filed as Exhibit 1 to Registrant's Form 8-K Current Report for the month of August, 1971 and hereby incorporated herein by reference.
(a)(4)
Amendment to Certificate of Incorporation dated November 4, 1983, filed as Exhibit 3(a)(1) to Registrant's Form 8-K Current Report for the month of August, 1983 and hereby incorporated herein by reference.
(a)(5)
Amendment to Certificate of Incorporation dated October 2, 1986, as set forth in the Proxy Statement dated July 22, 1986 and Registrant's 10-Q Quarterly Report for the quarter ended July 31, 1986 and hereby incorporated herein by reference.
(b)
Amended and Restated Bylaws of Earl Scheib, Inc., filed as an exhibit to Registrant's Current Report on Form 8-K dated August 15, 1995, and hereby incorporated herein by reference.
(d)
Earl Scheib, Inc. 1982 Incentive Stock Option Plan, filed as Exhibit 10(d) to Registrant's Annual Report on Form 10-K for the fiscal year ended April 30, 1982 and hereby incorporated herein by reference.
(i)
Stock Option Agreement dated as of January 10, 1995 between Registrant and Christian Bement filed as Exhibit 10(i) to the Registrant's 1995 Form 10-K and hereby incorporated herein by reference.
(j)
Earl Scheib, Inc. 1994 Performance Employee Stock Option Plan, June 27, 1994 filed as Exhibit 10(l) to the Registrant's 1995 Form 10-K and hereby incorporated herein by reference.
(k)
Earl Scheib, Inc. 1994 Board of Directors Stock Option Plan, June 27, 1994 filed as Exhibit 10(m) to the Registrant's 1995 Form 10-K and hereby incorporated herein by reference.
(l)
Agreement for Issuance of Letters of Credit dated as of February 16, 1995 between Registrant and City National Bank, filed as Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 1995, and hereby incorporated herein by reference.
(m)
Amended Supplemental Terms Letter dated March 10, 2000 between City National Bank and Registrant filed as Exhibit 10 to Registrant's Quarterly Report on 10-Q for the quarter ended January 31, 2000 and hereby incorporated by reference.
2002 Annual Report to Stockholders of Earl Scheib, Inc. (not deemed filed except to the extent that sections thereof are specifically incorporated into this report on Form 10-K by reference).
13.1
Report of Independent Public Accountants (Arthur Andersen LLP).
Subsidiaries of the Registrant filed as Exhibit 22 to the Registrant's 1999 Form 10-K and hereby incorporated herein by reference.
Consent of Independent Auditors.
EARL SCHEIB INC. AND SUBSIDIARIES
AVAILABILITY OF EXHIBITS
The Company will furnish upon
request copies of the exhibits indicated
on page 11 of the Form 10-K
at a cost of 25¢ per page, which
is the reasonable cost to the Company
in fulfilling the request.
PART I
ITEM 1. Business
ITEM 2. Properties
ITEM 3 . Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters
ITEM 6. Selected Financial Data
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 8 . Financial Statements and Supplementary Data
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
ITEM 10. Directors and Executive Officers of the Company
ITEMS 11., 12., 13. and 14.
PART IV
ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX