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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File
June 30, 1996 Number 1-3552
SCOPE INDUSTRIES
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(Exact name of Registrant as specified in its charter)
California 95-1240976
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
233 Wilshire Blvd., Ste.310, Santa Monica, CA 90401
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(Address of principal executive office) (ZIP Code)
Registrant's telephone number, including area code (310) 458-1574
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, No Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the Registrant (1)has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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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 or any amendment to this
Form 10-K. (X)
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The aggregate market value of the voting stock of Registrant held by
nonaffiliates of Registrant on August 30, 1996 computed by reference to the
closing sales price of such shares on such date was $16,411,941.
At August 30, 1996, 1,190,665 shares of the Registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
into which document
incorporated
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Document
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Annual Report to Shareowners for the
fiscal year ended June 30, 1996 Parts I, II, and IV
Proxy Statement for the Annual Meeting of
Shareholders to be held October 22, 1996 Parts III and IV
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TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
For the Fiscal Year Ended June 30, 1996
SCOPE INDUSTRIES
PART I PAGE
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 6
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 8. Financial Statements and Supplementary Data 6
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 7
PART III
Item 10. Directors and Executive Officers of the Registrant 7
Item 11. Executive Compensation 7
Item 12. Security Ownership of Certain Beneficial Owners
and Management 7
Item 13. Certain Relationships and Related Transactions 7
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 8
Signatures 10
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PART I
Item 1. BUSINESS
General
The Registrant was organized in 1938 and incorporated in the State of California
on February 8, 1938. The term "Registrant" for purposes of this Item 1 includes
the subsidiaries of the Registrant, unless the content discloses otherwise.
The Registrant and its subsidiaries operate principally in two business
segments.
Waste Material Recycling Segment
In this business, the Registrant owns and operates plants under the name of Dext
Company in Los Angeles and San Jose, California; Baltimore, Maryland; Chicago,
Illinois; Dallas, Texas; and Denver, Colorado. It also operates depots in
California and New Jersey for the collection and transshipment of waste bakery
materials to its processing plants. The Registrant's principal customers are
dairies, feed lots, pet food manufacturers and poultry farms. The Registrant
also owns and operates a plant in Vernon, California in which bakery waste
material is processed and converted into edible bread crumbs. The principal
customers are pre-packaged and restaurant supply food processors. This business
depends upon the Registrant's ability to secure surplus and waste material,
which it does under contract with bakeries and snack food manufacturers. The
competition for securing the waste and surplus material is widespread and
intensive.
This segment contributed between 80% and 84% of the sales and revenues of the
Registrant for 1996, 1995 and 1994. The Waste Material Recycling segment has
operated profitably for the three most recent fiscal years.
Capital expenditures for the Waste Material Recycling segment were $1,776,232
for fiscal 1996. Capital spending for this segment represented 79% of the
Registrant's total capital expenditures for 1996 In 1995 and 1994, capital
expenditures for this segment were $1,541,817 and $2,305,760 respectively.
Capital expenditures for expansion and modernization of existing bakery waste
material recycling operations are expected to continue. Cash flows from
operations and liquid instrument holdings are expected to be adequate to meet
fiscal 1997 capital expenditure needs.
The selling price of recycled bakery waste material is affected by fluctuating
commodity prices, particularly corn. Feed commodity prices and the Registrant's
average unit selling prices were approximately 35% higher in fiscal 1996 than
they were in the prior year. Tonnage volume for fiscal 1996 was constant with
the prior year. The higher sales prices in 1996 contributed to the increased
profits.
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Item 1. BUSINESS. (Continued)
Vocational School Group Segment
Scope Beauty Enterprises, Inc., doing business as Marinello Schools of Beauty,
is comprised of 13 beauty schools in which cosmetology and manicuring are
taught. The schools are located in southern California and Nevada. In its
vocational beauty schools, the Registrant enrolls students who pay a tuition.
Vocational programs and Federal grants and loan programs are also utilized for
the students' tuition. In addition, members of the public patronize the schools
for hair styling and other cosmetological services which are performed by
students. There usually are competitive schools available to the public near
each of the Registrant's schools.
This segment has contributed between 15% and 17% of the Registrant's total
revenues for the past three years. The segment earned $79,496 in operating
income for the 1996 fiscal year. The segment incurred operating losses of
$629,144 and $604,407 for the fiscal years 1995 and 1994 respectively.
Other Business
The Registrant owns various oil and gas royalty and working interests. Oil and
gas revenues represented between 1% and 2% of total sales and revenues in 1996,
1995 and 1994.
The Registrant owns various real estate, including 207 acres of land in Somis,
Ventura County, California purchased in 1979. Various options are being
considered for the use or sale of the land. The Registrant also owns and manages
various marketable securities, U.S. Treasury Bills and other short-term
investments.
Investment income consists primarily of dividends, interest income and gains or
losses on marketable securities. At June 30, 1996, the Registrant held
$5,035,000 par value in U.S. Treasury Bills maturing in less than one year. In
fiscal 1996, interest income from Treasury obligations amounted to $240,276.
Net gains from sale of securities of $132,698 and $1,619,311 were recognized in
1995 and 1994 respectively. A net loss of $87,802 was recognized in 1996. The
gains and losses were from sales of marketable securities and from recognized
losses on securities whose decline in value was deemed to be other than
temporary of $749,900 and $160,000 in 1996 and 1994, respectively.
Impact of Environmental Protection Measures
Certain of the Registrant's activities are affected by federal, state and/or
local air and water pollution control regulations. Compliance with these
regulations has required the purchase and installation of pollution abatement
equipment and adjustment of production procedures. The Registrant has followed a
policy of regular expenditures to assure compliance with such regulations.
Installation of air pollution control equipment at the Baltimore recycling
facility costing approximately $400,000 was completed in fiscal 1996.
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Item 1. BUSINESS (Continued)
Employees
The Registrant (including its subsidiaries) employs approximately 190 persons.
Item 2. PROPERTIES
Principal properties owned by the Registrant are listed below:
Principal
Operation Location Function
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Waste Material Los Angeles, CA Processing Plant
Recycling San Jose, CA Processing Plant
Vernon, CA Processing Plant
Lodi, CA Collection Depot
Chicago, IL Processing Plant
Denver, CO Processing Plant
Baltimore, MD Processing Plant
Secaucus, NJ Collection Depot
Dallas, TX Processing Plant
Unimproved Land Somis, CA
Riverside, CA
Twelve beauty schools in southern California and one school in Nevada operate in
leased properties. One collection depot for the Waste Material Recycling segment
and the corporate administrative office operate in leased premises. No lease has
a material effect on the Registrant's operations. For additional lease
information, Note 4 to the Financial Statements in the 1996 Annual Report to
Shareowners, Page 13, is hereby incorporated by reference.
Item 3. LEGAL PROCEEDINGS
A former subsidiary of the Registrant has been designated as a potentially
responsible party by the Environmental Protection Agency with respect to the
cleanup of hazardous wastes at a site in southern California. The Registrant and
its counsel are currently unable to predict the outcome of this matter, but
believe that its ultimate resolution will not have a materially adverse effect
on its consolidated financial statements.
There are no other material pending legal proceedings against the Registrant,
any of its subsidiaries or any of their property other than routine litigation
incidental to the business, as noted in the 1996 Annual Report to Shareowners,
Note 5 on page 13 which is hereby incorporated by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended June 30, 1996, no matters
were submitted to a vote of the Shareowners of the Registrant, either through
the solicitation of proxies, or otherwise.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Reference is made to the information with respect to the principal market on
which the Registrant's common stock is being traded, and the high and low sales
prices for each quarterly period for the last two fiscal years set forth on Page
3 and inside back cover of the Registrant's 1996 Annual Report to Shareowners
and, by reference, such information is incorporated herein.
The number of holders of record of the Registrant's common stock as of August 2,
1996, based on a listing of the Registrant's Transfer Agent, was 109.
Reference is made to the information regarding the frequency and amount of
dividends declared during the past two years with respect to the Registrant's
common stock set forth on Page 3 of the Registrant's 1996 Annual Report to
Shareowners and, by reference, such information is incorporated herein. On
September 9, 1996 a special cash dividend of $0.25 per share was paid to
shareowners.
Item 6. SELECTED FINANCIAL DATA
Reference is made to the financial data with respect to the Registrant set forth
on page 2 of the Registrant's 1996 Annual Report to Shareowners and, by
reference, such financial data is incorporated herein.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to Management's Discussion and Analysis of Financial Condition
and Results of Operations set forth on pages 4 and 5 of the Registrant's 1996
Annual Report to Shareowners and, by reference, such information is incorporated
herein.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Registrant and its
subsidiaries included in its Annual Report to Shareowners for the year ended
June 30, 1996 are incorporated herein by reference:
Consolidated Balance Sheets - June 30, 1996 and 1995
Consolidated Statements of Income - Years ended June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended June 30, 1996, 1995 and 1994
Consolidated Statements of Shareowners' Equity - Years ended June 30, 1996, 1995
and 1994
Notes to Consolidated Financial Statements
Unaudited Quarterly Financial Data shown on Page 3 of the Registrant's 1996
Annual Report to Shareowners for the years ended June 30, 1996 and 1995 is
incorporated herein by reference.
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Registrant did not change accountants and there were no disagreements on any
matters involving accounting principles or financial statement disclosures
during the two-year period ended June 30, 1996.
PART III
Reference is made to the definitive Proxy Statement pursuant to Regulation 14A,
which involves the election of directors at the Annual Meeting of Shareowners to
be held on October 22, 1996, which was filed with the Securities and Exchange
Commission on September 10, 1996 and, by such reference, said Proxy Statement is
incorporated herein in response to the information called for by Part III (ITEM
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; ITEM 11. EXECUTIVE
COMPENSATION; ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.)
The following additional information is furnished in response to Item 10:
Executive Officers of the Registrant
The name, age, position and business experience of each of the executive
officers of the Registrant as of June 30, 1996 are listed below:
Business Experience
Name, Age and Position During Past Five Years
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Meyer Luskin, 70 Chairman, President and Chief
Chairman of the Board Executive Officer since 1961;
President and Chief Executive responsible primarily for the
Officer formation of overall corporate
policy and operations of the main
business segments.
F. Duane Turney, 49 Chief Operating Officer of Vocational
President of Subsidiary School Group segment since July 1991;
(Scope Beauty Enterprises, Inc.) responsible for operations of beauty
schools.
John J. Crowley, 63 Vice President-Finance and Chief
Vice President-Finance and Financial Officer since 1987;
Chief Financial Officer responsible primarily for the overall
corporate accounting and financial
policies and procedures and a variety
of treasury functions. Mr. Crowley
is a Certified Public Accountant.
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Eleanor R. Smith, 64 Controller since 1974, Assistant
Secretary and Controller Secretary, 1978-1986, Secretary
and Chief Accounting Officer since 1986; responsible for financial
reporting and record keeping, internal
controls, systems and procedures, as well as
corporate secretarial functions.
Officers are elected by the Board of Directors and serve for a one-year period
and until their successors are elected. No officers have employment contracts
with the Registrant. There are no family relationships among any of the
Registrant's directors and officers.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) The following financial statements of the Registrant, together with
the Independent Auditors' Report, included as part of the Registrant's
1996 Annual Report to Shareowners, on Pages 6 through 16 and the
inside backcover thereof, are incorporated by reference and filed
herewith as part of Item 8 of this report:
Independent Auditors' Report
Consolidated Balance Sheets at June 30, 1996 and 1995
Consolidated Statements of Income for the years
ended June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years
ended June 30, 1996, 1995 and 1994
Consolidated Statements of Shareowners' Equity for the
years ended June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) Indepedent Auditors' Report on Schedule
(3) Financial Statement Schedule
Schedule II: Valuation and Qualifying Accounts
All other schedules have been omitted as they are not applicable, not
material or the required information is given in the financial
statements or notes thereto.
(b) No reports on Form 8-K were filed by the Registrant for the period
covered by this report.
(c) Exhibits:
(3) The Bylaws of the Registrant, as amended; and the restated
Articles of Incorporation of the Registrant filed as Exhibits
(3.1) and (3.2) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1989 are
incorporated herein by reference.
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Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K (Continued)
(10) Material Contracts:
1992 Stock Option Plan, reference is made to Exhibit 4(a) to
the Registrant's Registration Statement on Form S-8 (File No.
33-47053), and by reference such information is incorporated
herein.
(13) Annual Report to Shareowners
(21) Subsidiaries of Registrant
(23) Proxy Statement for the Annual Meeting of Shareowners to be
held on October 22, 1996 which was filed with the Securities
and Exchange Commission on September 10, 1996 and by reference
such information is incorporated herein.
(24) Independent Auditors' Consent
(27) Financial Data Schedule
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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.
SCOPE INDUSTRIES
BY /s/ John J. Crowley 09-24-96
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John J. Crowley Date
Vice President-Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Title Date
/s/ Meyer Luskin Chairman of the Board 09-24-96
- ------------------------- President, Chief Executive ----------
Meyer Luskin Officer and Director
/s/ John J. Crowley Vice President-Finance 09-24-96
- ------------------------- Chief Financial Officer ----------
John J. Crowley (Principal Financial Officer)
/s/ Eleanor R. Smith Secretary and Controller 09-24-96
- ------------------------- (Principal Accounting Officer) ----------
Eleanor R. Smith
/s/ Richard L. Fruin, Jr. Director 09-24-96
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Richard L. Fruin, Jr.
/s/ William H. Mannon Director 09-24-96
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William H. Mannon
/s/ Franklin Redlich Director 09-24-96
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Franklin Redlich
/s/ Paul D. Saltman, Ph.D. Director 09-24-96
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Paul D. Saltman, Ph.D.
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INDEPENDENT AUDITORS' REPORT
Board of Directors and
Shareowners
Scope Industries
Santa Monica, California
We have audited the consolidated financial statements of Scope Industries and
subsidiaries as of June 30, 1996 and 1995, and for each of the three years in
the period ended June 30, 1996, and have issued our report thereon dated August
23, 1996; such financial statements and report are included in your 1996 Annual
Report to Shareowners and are incorporated herein by reference. Our audits also
included the financial statement schedule of Scope Industries and subsidiaries,
listed in Item 14(a)(3). This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Los Angeles, California
August 23, 1996
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SCOPE INDUSTRIES AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
JUNE 30, 1996
Additions
Balance Charged
at to Costs Charged Balance
Beginning and to Other Deductions at End
Description of Period Expenses Accounts (a) of Period
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YEAR ENDED JUNE 30, 1996:
Allowance for doubtful accounts - $298,834 $16,908 $0 $166,562 $149,180
accounts receivable
Valuation allowances -
notes receivable 700,000 0 0 0 700,000
YEAR ENDED JUNE 30, 1995:
Allowance for doubtful accounts -
accounts receivable 324,671 118,459 0 144,296 298,834
Valuation Allowances -
notes receivable 700,000 0 0 0 700,000
YEAR ENDED JUNE 30, 1994:
Allowance for doubtful accounts -
accounts receivable 235,296 159,598 0 70,223 324,671
Valuation allowances -
notes receivable 450,000 250,000 0 0 700,000
(a) Uncollectible accounts charged against allowance, net of bad debt
recoveries.
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