ITEM 1. BUSINESS
GENERAL
Earl Scheib, Inc., a Delaware corporation, and its subsidiaries (collectively referred to as the "Company") is celebrating over 60 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 8737 Wilshire Boulevard, Beverly Hills, California 90211. The Company maintains personnel, systems, advertising, 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 69 of the Company's operating shops as of April 30, 1999. The remaining 105 of the Company's 174 shops were leased from outside third parties. The 174 shops are located in 145 cities in 31 states. In fiscal 1999, the Company began operations in 19 new shops and ceased operations in 6 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 15 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 secures 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 is 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 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 new shops ranging from approximately 3,500 square feet to 7,000 square feet and existing shops ranging in size from approximately 3,500 square feet to approximately 12,000 square feet.
As of April 30, 1999, the Company had 2 parcels of real estate for sale. Both properties sold during the first quarter of fiscal 2000 for a net of $342,888. The properties had a net book value at April 30, 1999, of approximately $338,875 which are shown in the financial statements as Property held for sale. The gain on the sale of these properties was $4,013 and will be recognized in the first quarter of fiscal 2000.
The Company owns its corporate offices, located at 8737 Wilshire Boulevard, Beverly Hills, California 90211. The facility has three floors and approximately 10,500 square feet of office space. In addition, the Company owns a manufacturing and warehousing facility in Springfield, Missouri. The Company manufac-
tures and warehouses paint and related products used by the shops (and warehouses other necessary supplies) in this facility until needed by the Company's shops. This facility occupies approximately 30,600 square feet.
The Company believes its operating properties are in good operating condition.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
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.
PART II
The Company's Annual Report to Shareholders for the year ended April 30, 1999 ("1999 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 1999 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 1999 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 SHAREHOLDER MATTERS
"Market Information" appearing on page 15 of the 1999 Annual Report is incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" appearing on page 14 of the 1999 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 2 through 4 of the 1999 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 5 through 13 of the 1999 Annual Report are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company, effective April 20, 1999, dismissed Deloitte & Touche, LLP, independent auditors, as its principal independent accountant. The dismissal was recommended by the Audit Committee of the Board of Directors.
Deloitte & Touche, LLP's report on the Company's financial statements for either of the past two years did not contain an adverse opinion or disclaimer of opinion, nor was the report qualified or modified as to uncertainty, audit scope or accounting principles.
Effective April 22, 1999, following the recommendation of the Audit Committee, the Company engaged Arthur Andersen, LLP, independent public accountants, as its new principal independent accountant to audit the Company's financial statements. The Company did not consult Arthur Andersen, LLP during its two most recent fiscal years with regard to any of the matters described in Item 304(a)(2) of Regulation S-K.
PART III
ITEMS 10., 12., 13. AND 14.
The information required by these items is contained in the Company's definitive Proxy Statement dated July 29, 1999 which relates to election of the Company's directors and which was filed within 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.