Back to GetFilings.com
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended April 30, 1995
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-4822
EARL SCHEIB, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-1759002
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8737 WILSHIRE BOULEVARD 90211-2795
BEVERLY HILLS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 652-4880
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
Capital Stock, $1.00 Par Value REGISTERED
American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT: NONE
----------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR AT LEAST THE PAST 90 DAYS. YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K. [_]
AS OF JULY 13, 1995 THE REGISTRANT HAD 4,568,228 SHARES OF ITS CAPITAL STOCK,
$1.00 PAR VALUE, ISSUED AND OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF THE
VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT WAS $16,632,820
(APPROXIMATELY BASED UPON THE CLOSING PRICE OF THE CAPITAL STOCK ON THE
AMERICAN STOCK EXCHANGE ON SUCH DATE).
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL
YEAR ENDED APRIL 30, 1995 ARE INCORPORATED INTO PART II BY REFERENCE.
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT DATED JULY 17, 1994 FOR USE AT
THE REGISTRANT'S ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED INTO PART III
BY REFERENCE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART I
ITEM 1. BUSINESS
GENERAL
Earl Scheib, Inc., a Delaware corporation, and its subsidiaries (the
"Company"), is the successor to a business founded as a sole proprietorship by
Mr. Earl A. Scheib in 1937. At April 30, 1995 the Company operated 164
automobile paint centers in approximately 142 cities throughout the United
States.
In November 1994, management of the Company was reconstituted when Donald R.
Scheib was appointed as Chairman of the Board and Mr. Daniel A. Seigel was
employed as President and Chief Executive Officer and elected to the Company's
Board of Directors. In addition, in March 1995, management was further
reconstituted with the resignations of officers Albert Scheib (he is currently
employed as the Company's Director of Research and Development), Richard
Gariglio and Sam LaMonto. Those three officer positions were consolidated into
one Executive Vice President position held by Christian Bement who had joined
the Company in January 1995.
During the fiscal year ended April 30, 1995, the Company evaluated its
operations with the intent to reduce operating costs and focus resources on
profitable operations. The Company closed 84 unprofitable shops located
primarily in the Midwestern and Eastern United States and eliminated the
executive and management personnel associated with those operations. Thirty-Two
of the closed shops were located on Company owned real properties. During the
fiscal year ended April 30, 1995, the Company sold three of these real
properties at a net gain of $55,000. The Company recorded a pre-tax charge of
$4,287,000 at April 30, 1995 as a reserve against the costs of the
comprehensive restructuring plan, which included but was not exclusively
related to the closing of paint shops.
SERVICES
The Company paints vehicles on a production line basis. The vehicle is sanded
to remove most chips, scratches, surface rust and oxidized paint, and is spot
primed if necessary. The exposed chrome and glass areas are then masked and the
vehicle is spray painted in a dust-free spray booth. In the Company's remodeled
paint shops the car is then dried in a new Infrared Quartz Finish Drying
System. This new drying process dries the paint from the inside to the outside
by utilizing high intensity electromagnetic waves, dual infrared sensors and
computer-aided temperature controls. Finally, the vehicle is detailed, which
involves removing masking paper and tape, removing overspray and dressing the
tires. Painting of the wheels is generally included at no additional charge.
The workmanship and materials on all paint jobs are guaranteed for a period of
ninety days and the paint jobs are guaranteed against fading for at least one
year. The Company prices its paint jobs depending upon the color of paint
selected and the number of services included.
In connection with its painting operations, the Company also performs light
body and fender repair work. Such body and fender work accounted for
approximately 22% of the Company's sales during the three years ended April 30,
1995.
The Company manufactures the paints and certain other materials utilized in
the Company's business, including primers and sealers. By manufacturing its own
paint and other materials, the Company is better able to ensure the quality of
its products and to control product availability and cost.
RAW MATERIALS
Most of the raw materials used by the Company in manufacturing its paint,
including silicones, resins and pigments, are available from a number of
sources. The Company has not encountered any major difficulty in obtaining
adequate supplies of its major raw materials and does not expect to encounter
any such difficulty in the foreseeable future.
In addition, if needed, automobile paint can be obtained from other wholesale
manufacturers.
1
SEASONALITY
The Company's sales are seasonal in nature. Because of weather conditions in
certain areas where the Company conducts its business, sales for the months of
November, December, January and February are usually lower than the sales in
the remaining months of the year. As a result, a proportionately greater share
of the Company's sales and earnings have historically occurred in the first
half of its fiscal year.
COMPETITION
The automobile painting business in which the Company is engaged is highly
competitive. The Company competes not only with other companies engaged in
automobile painting utilizing techniques similar to its own, but also with
thousands of individual automobile paint and body shops. Local paint and body
shops generally price their services higher than those charged by the Company.
In the field of non-franchised production line automobile painting, the
Company believes that it is substantially larger than any of its competitors
and that its experience, and the price of its services, will enable it to
continue to compete. The Company does not consider itself to be a significant
factor in the automobile body repair industry since its activities in this
field are incidental to its painting operations and it rarely performs major
body repair work.
RESEARCH AND DEVELOPMENT
Although the Company is engaged in certain basic research and development to
improve its existing paint products and is constantly reviewing new products
developed by its suppliers and others for their applicability to the Company's
operations, its research and development expenditures during the three years
ended April 30, 1995 were not significant.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company's automobile painting and paint manufacturing operations are
subject to federal, state and local environmental regulations in many of the
areas in which it operates. The Company believes its operations comply with
existing regulations in those geographic areas in which it now operates.
The Company is currently a defendant in two lawsuits alleging discharge of
toxic waste materials to landfill sites. See Item 3, "Legal Proceedings".
EMPLOYEES
At April 30, 1995, the Company employed approximately 1,090 employees, of
which 309 were sales, administrative, management or executive personnel and 781
were production personnel. Production employees are represented by the
International Brotherhood of Teamsters with whom the current collective
bargaining agreement became effective as of September 16, 1993 and extends
through September 15, 1997. None of the Company's executive, administrative,
shop management or clerical personnel are represented by a union.
ITEM 2. PROPERTIES
As of April 30, 1995, the Company had an aggregate investment (at cost) in
land and buildings of approximately $17,255,000. The Company owned
approximately one-half of its operating shops which were not subject to any
encumbrance as of April 30, 1995. At such date, the Company also had property
held for sale in the amount of $3,642,000 (net book value). Statistics
regarding the Company's principal operating facilities are listed below:
LOCATIONS USE INTEREST SQUARE FEET
--------- --- -------- -----------
Beverly Hills, California Executive Office Owned 10,400
Springfield, Missouri Manufacturing/Warehousing Owned 30,600
2
The Company secures locations for auto paint centers either by purchasing the
real property through its Earl Scheib Realty Corp. subsidiary ("Realty") or by
leasing the property. Many of the Company's auto paint facilities have been or
are undergoing renovation and once completed should be in good operating
condition and adequate for the Company's needs. Those properties not undergoing
renovation are in good operating condition and adequate for the Company's
needs.
The Company currently has listed for sale 29 real properties at an aggregate
sales price of $6,600,000. 9 of such real properties are currently subject to
contracts for sale for an aggregate gross amount of $3,169,000.
ITEM 3. LEGAL PROCEEDINGS
United States of America v. Acme Solvents Reclaiming, Inc., et al. ("U.S. v
Acme") was filed in 1989 in the United States District Court, Northern District
of Illinois, Eastern Division. The lawsuit alleges the liability of certain
defendants under the United States Superfund statute for contributing to the
alleged release or threatened release of toxic waste materials at a landfill
site located in Winnebago County, Illinois referred to as the "Acme Solvents
Site" and seeks to recover administrative costs already incurred by plaintiff
(the U.S. government) in responding to the cleanup of the Acme Solvents Site
and a declaratory judgment that defendants be liable for future cleanup costs
at the site. Defendants joined the Company as a third-party defendant in answer
to the lawsuit. In January 1992, Plaintiff filed a lawsuit styled United States
of America v. AKZO Coatings, et al., ("U.S. v. AKZO") in the United States
District Court, Northern District of Illinois, Eastern Division, making
essentially the same allegations as in U.S. v. Acme. In January 1992, a Consent
Decree was entered in the United States District Court, Northern District of
Illinois, Eastern Division in U.S. v. AKZO whereby a majority of the defendants
agreed to reimburse the U.S. government for past administrative costs and to
continue the cleanup of the Acme Solvents Site and U.S. v. Acme was dismissed.
The Company's insurance carrier, which has defended the Company in these
matters under a reservation of rights, has reserved $711,000 under the terms of
the Company's insurance policy to pay costs of cleanup at the site. The Company
has accrued and funded this liability as at April 30, 1995.
City of Fresno v. NL Industries, Inc., et al., was filed in 1993 in United
States District Court for the Eastern District of California. The City of
Fresno ("City") owned and operated a 145 acre municipal landfill (the "Fresno
Landfill") from approximately 1935 to 1987. Municipal landfills of this type
serve as long-term storage facilities and as natural chemical reactors. Refuse
which was deposited in the Fresno Landfill by thousands of individuals and
entities over the fifty-plus years of operation decomposed into landfill gases
(methane, carbon dioxide, nitrogen and trace gases) and other compounds,
including leachate. On or about October 4, 1989, the Environmental Protection
Agency ("EPA") identified the Fresno Landfill as a superfund site. According to
the City, full remediation of the site, which is expected to take many years,
is expected to cost $44,000,000. The defendants contend that the remediation of
the Fresno Landfill can be properly performed for less than this amount. The
City filed an action against only about twenty (20) of the thousands of
individuals and entities which disposed of the refuse into the Fresno Landfill,
including the Company, to recover "response costs" under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"). The
defendants in the case contend that the City is responsible for 100% of the
remediation costs because the City negligently owned and operated the Fresno
Landfill. The City contends that, although they are liable under CERCLA, the
defendants are also liable for a portion of the "response costs." Although
CERCLA provides for joint and several, strict liability, the defendants have
filed a motion asserting that joint and several liability is inappropriate in
this case. On June 21, 1995, the City and the Company agreed to settle this
case for $86,000, however, execution of a settlement agreement is pending. The
Company's insurance carrier is defending the Company in this matter and has
agreed to pay the settlement sum under a reservation of rights. The Company has
accrued and funded this liability as atApril 30, 1995.
The Company is involved in several other legal proceedings, claims and
liabilities, including environmental matters, arising in the ordinary course of
its business. It is managements' opinion that the final disposition of such
matters should not have a material adverse effect on the Company's operations
and/or financial position.
3
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
The Company's Annual Report to Stockholders for the year ended April 30, 1995
("1995 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 1995 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 1995 Annual Report
is not deemed filed as a part of this Report.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
"Market and Dividend Information" appearing on page 15 of the 1995 Annual
Report is incorporated herein by reference and is filed as part of this Report
on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" appearing on page 15 of the 1995 Annual Report is
incorporated herein by reference and is filed as part of this Report on Form
10-K.
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 13 and 14 of the 1995 Annual Report is
incorporated herein by reference and is filed as part of this Report on Form
10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company together with the Report
thereon of BDO Seidman, certified public accountants, appearing on pages 2
through 12 of the 1995 Annual Report are incorporated herein by reference and
are filed as part of this Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEMS 10., 11., 12. AND 13.
The information required by these items is contained in the Company's
definitive Proxy Statement dated July 17, 1995 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.
4
PART IV
ITEM 14. 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 2 through 12 of the 1995 Annual
Report, are filed as part of this Report on Form 10-K:
For the Fiscal Years Ended April 30, 1995, 1994 and 1993:
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Consolidated Balance Sheets as of April 30, 1995 and 1994
Report of Independent Auditors
2. FINANCIAL STATEMENT SCHEDULES
None.
3. EXHIBITS
The Exhibits required to be filed hereunder are indexed on pages 8 and 9.
(B) REPORTS ON FORM 8-K
The Company did not file any Current Reports on Form 8-K during the
quarter ended April 30, 1995.
5
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.
EARL SCHEIB, INC.
Date: July 26, 1995 By /s/ Daniel A. Seigel
---------------------------------
Daniel A. Seigel
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES 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:
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Daniel A. Seigel President and Director July 26, 1995
____________________________________ [Chief Executive Officer]
Daniel A. Seigel
/s/ Donald R. Scheib Chairman of the Board of July 26, 1995
____________________________________ Directors
Donald R. Scheib
/s/ Alexander L. Kyman Director July 26, 1995
____________________________________
Alexander L. Kyman
/s/ Robert L. Spencer Director July 26, 1995
____________________________________
Robert L. Spencer
/s/ Philip Wm. Colburn Director July 26, 1995
____________________________________
Philip Wm. Colburn
/s/ Robert Wilkinson Director July 26, 1995
____________________________________
Robert Wilkinson
/s/ John K. Minnihan Vice President Finance and July 26, 1995
____________________________________ Chief Financial Officer
John K. Minnihan [Principal Financial and
Accounting Officer]
6
CONSENT OF INDEPENDENT AUDITORS
Earl Scheib, Inc.
Beverly Hills, California
We hereby consent to the use in the Registration Statement on Form S-8,
Registration Number 2-79214 and the Registration Statement on Form S-3,
Registration Number 2-78953 of our report dated June 26, 1995, relating to the
audit of the consolidated financial statements of Earl Scheib, Inc. and
subsidiaries which are contained in and incorporated by reference to the Annual
Report on Form 10-K for the year ended April 30, 1995.
BDO SEIDMAN
Los Angeles, California
June 26, 1995
7
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- ----------- ----------
3(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.
3(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.
3(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.
3(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.
3(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.
3(b)(1) By-Laws of Earl Scheib, Inc., dated December 27, 1961, as amended on July
15, 1963, filed as Exhibits 3(b) and 3(c) to Registrant's Registration
Statement No. 2-21540, effective as of August 7, 1963, and hereby
incorporated herein by reference.
3(b)(2) Amendment to By-Laws of Registrant dated November 6, 1963, filed as Exhibit
3(c) to Registrant's Registration Statement No. 2-32868, effective as of
October 21, 1969, and hereby incorporated herein by reference.
3(b)(3) Amendment to By-Laws of Registrant dated May 15, 1970, filed as Exhibit 1 to
Registrant's Form 8-K Current Report for the month of August 1970 and hereby
incorporated herein by reference.
3(b)(4) Amendment to By-laws of Registrant dated September 25, 1986, as set forth in
the Proxy Statement dated July 22, 1986 and Registrant's Form 10-Q Quarterly
Report for July 31, 1986 and hereby incorporated herein by reference.
10(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.
10(e) Put, Call, and Registration Rights Agreement dated as of November 16, 1993,
between Registrant and Union Bank filed as Exhibit 10(e) to Registrant's
Annual Report on Form 10-K for the fiscal year ended April 30, 1994 and
hereby incorporated herein by reference.
10(f) Reimbursement Agreement dated as of November 16, 1993, between Registrant
and Irwin R. Buchalter, as Executor of the Estate of Earl A. Scheib filed as
Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the fiscal year
ended April 30, 1994 and hereby incorporated herein by reference.
10(g) Employment Agreement dated as of November 18, 1994 between Registrant and
Daniel A. Seigel.
10(h) Stock Option Agreement dated as of November 30, 1994 between Registrant and
Daniel A. Seigel.
10(i) Stock Option Agreement dated as of January 10, 1995 between Registrant and
Christian Bement.
10(j) Employment Agreement dated as of March 1, 1995 between Registrant and A. J.
Scheib.
8
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- ----------- ----------
10(k) Employment Agreement dated as of November 18, 1994 between Registrant and
Donald R. Scheib.
10(l) Earl Scheib, Inc. 1994 Performance Employee Stock Option Plan, June 27,
1994.
10(m) Earl Scheib, Inc. 1994 Board of Directors Stock Option Plan, June 27, 1994.
10(n) 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.
10(o) Put Agreement dated as of February 16, 1995 between Registrant and City
National Bank, filed as Exhibit 10(b) on Form 10-Q for the quarter ended
January 31, 1995, and hereby incorporated herein by reference.
13 1995 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).
21 Subsidiaries of the Registrant filed as Exhibit 22 to Registrant's Annual
Report on Form 10-K for the fiscal year ended April 30, 1991 and hereby
incorporated herein by reference.
23 Consent of Independent Auditors, (see page 7).
27 Financial Data Schedule, Article 5
9
EARL SCHEIB INC. AND SUBSIDIARIES
AVAILABILITY OF EXHIBITS
The Company will furnish upon request
copies of the exhibits indicated on pages
8 and 9 of the Form 10-K at a cost of 25c
per page, which is the reasonable cost to
the Company in fulfilling the request.
10