<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
(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, 1996
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)
<TABLE>
<S> <C>
DELAWARE 95-1759002
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8737 WILSHIRE BOULEVARD
BEVERLY HILLS, CALIFORNIA 90211-2795
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 652-4880
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- --------------------------------------------------------------------------------------------
<S> <C>
Capital Stock, $1.00 Par Value American Stock Exchange
</TABLE>
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. /X/
As of July 22, 1996 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 $24,843,012
(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 Shareholders for the fiscal
year ended April 30, 1996 are incorporated into Part II by reference.
Portions of the registrant's Proxy Statement dated July 26, 1996 for use at
the registrant's annual meeting of shareholders are incorporated into Part III
by reference.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Earl Scheib, Inc., a Delaware corporation, and its subsidiaries
(collectively referred to as the "Company") is celebrating its 60th year in
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. "PROPERTIES."
At April 30, 1996, the Company operated a chain of 160 automobile
production paint and body shops which specialize in repainting automobiles and
performing body repairs other than major collision repair. The Company also
offers at various shops the replacement of car body parts using new, used and
after-market parts, glass replacement as well as factory style pinstriping,
molding and vinyl top replacement. Auto painting operations represent
approximately 93% of the Company's business. All of the Company's sales take
place in either cash or credit cards.
The Company's shops operate under the name of the New Earl Scheib Paint and
Body Shop. The Company's shops are located in 136 cities throughout the United
States with 45 shops in California, 24 shops in the Western United States
(excluding California), 63 shops in the Midwestern United States and 28 shops in
the Eastern United States.
RESTRUCTURING
In November, 1994, management of the Company was reconstituted when Donald
R. Scheib was appointed as Chairman of the Board and Daniel A. Seigel was
employed as President and Chief Executive Officer and elected to the Company's
Board of Directors. In March 1995, management was further reconstituted with the
resignation of officers Albert Scheib (who is currently employed as the
Company's Director of Research and Development), Richard Gariglio and Sam
LaMonto. Those three officers' positions were consolidated into one Executive
Vice President position held by Christian K. Bement who joined the Company in
January, 1995.
During the fiscal year ended April 30, 1995, ("fiscal 1995") the Company
evaluated its operations and developed a comprehensive restructuring plan with
the intent to reduce operating expenses and to focus its resources on profitable
operations. As part of this plan the Company closed 84 unprofitable shops
located primarily in the Midwestern and Eastern United States and eliminated the
executive, office and shop personnel associated with those operations. The
Company recorded a pre-tax charge of $4,287,000 in fiscal 1995 for costs
associated with the restructuring plan which included, but was not exclusively
related to, the closing of the unprofitable paint shops.
Thirty-two of the shops closed in the Company's restructuring were located
on real estate owned by the Company. During fiscal 1995 the Company sold 3 of
these real estate parcels for a net gain of $55,000.
During the fiscal year ended April 30, 1996, ("fiscal 1996") the Company
renovated and converted 137 of its shops to the New Earl Scheib Paint and Body
Shops (the "New Shops"). Conversion to a New Shop included new paint and
graphics, new exterior signage, a new customer information center and the
installation of a new Infrared Quartz Finish Drying System to dry the paint on
the car. New Shop conversions occurred in California during the first quarter of
fiscal 1996. Because of the significant comparable shop-for-shop sales increases
in the California New Shop remodels (New Shop remodels experienced a 37%
comparable shop-for-shop sales increase during the period from August 1, 1995,
through April 30, 1996) a decision was made to remodel a majority of the
Company's shops to New Shops. The Company is currently evaluating if the
remaining 23 shops will be converted to the New Shop format.
2
<PAGE> 3
The cost of converting shops to New Shops during fiscal 1996 was
approximately $4.6 million which was financed from the sale of 22 Company owned
properties (which had previously been occupied by unprofitable paint and body
shops closed during the restructuring) and from internal cashflow.
The Company also restructured its operational management organization in
fiscal 1996. The position of Production and Operation Manager, whose
responsibility was to directly supervise the shop manager, was eliminated, and
the number of Division Managers was increased from 12 to 17 positions. In
addition, a new Assistant Division Manager position was created. The
restructuring resulted in the Division Managers supervising fewer shops which
should improve the quality of the shop supervision and enable the shop managers
to directly benefit from the Division Managers' years of experience. The Company
expects that the creation of the smaller divisions with fewer shops will improve
sales and decrease expenses.
SERVICES
The Company currently offers three paint packages which range in price
based upon the color of the paint, number of coats of paint, additional services
and length of warranty provided in each package. Customers may also purchase
options to the package such as spot-priming, the Company's UV Supergloss,
Starfire paint colors and new 1996 paint colors ("the 1996 Colors") for an
additional cost.
The Company paints vehicles on a production line basis. The vehicle is
sanded to remove most chips, scratches, surface rust and oxidized paint. The
vehicle is then air-blown using a high pressured air hose to remove excess dust.
The exposed chrome and glass areas are masked and the vehicle is spray painted
in a dust-free spray booth. In the Company's New Shops, the vehicle is then
dried in an Infrared Quartz Finish Drying System. This new drying process dries
the paint by quartz infrared waves increasing the metal temperature just enough
to heat the paint such that the paint on the vehicle dries from the inside next
to the metal to the outside. The quartz heat tubes utilize high intensity
electromagnetic waves to heat the metal and are controlled by infrared sensors
and computer aided temperature controls. Finally, the vehicle is detailed, which
involves removing the masking paper and tape, removing overspray and
reinstalling any accessories removed during the painting process.
In connection with its painting operations, the Company also performs, for
an additional cost, body and fender repair work. Such body and fender work
accounted for approximately 25%, 22% and 22% of the Company's sales during
fiscal 1996, fiscal 1995 and fiscal 1994, respectively.
During fiscal 1996, the Company introduced a new Company developed product
called UV Supergloss. This new product is sold as an additive to two of the
Company's paint packages. The UV Supergloss provides the car with a brighter
shine and is designed to protect the paint from the harmful effects of
Ultraviolet rays. By the end of fiscal 1996, the Company was selling the UV
Supergloss to approximately 50% of the customers purchasing eligible paint jobs.
During the fourth quarter of fiscal 1996, the Company introduced 13 new and
updated 1996 Colors. These modern colors were based upon the earth's natural
hues and tones taken from satellite images of the earth from space. The 1996
Colors are in response to consumer demand for certain colors ranging from
non-metallic greens and reds to metallic shades of purple and blue. The 1996
Colors are available to the Company's customers for an additional charge.
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. A majority of such raw materials are provided to the Company by a
variety of wholesale chemical companies. 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.
3
<PAGE> 4
By manufacturing its own paint and paint related products, including
primers and sealers, the Company is better able to ensure the quality of its
products and to control product availability and cost. However, if necessary,
automobile paint can be obtained from other wholesale manufacturers.
SEASONALITY
The Company's sales are seasonal in nature. Because of weather conditions
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 primarily due to the relative ease of entry into the industry. The
Company competes not only with nationally and regionally based companies engaged
in production style automobile painting utilizing techniques similar to its own,
but also with thousands of individual automobile paint and body shops. Both
types of competitors 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 reasonable prices of its services, will enable it
to continue to effectively compete. The Company expects that its recent shop
renovations and operational restructuring along with its increased emphasis on
developing new products will enable it to compete more effectively than it
currently does.
RESEARCH AND DEVELOPMENT
The Company is engaged in certain research and development to improve its
existing paint products, update product lines and develop new products which can
be introduced to the shops without significant cost or training such as the UV
Supergloss and the 1996 Colors. The Company constantly reviews new products and
techniques developed by its suppliers and others in its and related industries
for their applicability to the Company's operations. Although the Company's
research and development costs are increasing to accomplish these objectives,
such expenditures during the three years ended April 30, 1996 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 substantially
comply with existing regulations in those geographic areas in which it now
operates. The Company, since it manufactures its owns products, has the ability
to modify and/or develop paint and paint related product formulations to
reasonably ensure continued compliance with new and changing environmental
regulations.
The Company is currently a party to a consent decree for the clean-up of a
landfill. See ITEM 3, "LEGAL PROCEEDINGS".
EMPLOYEES
At April 30, 1996, the Company employed approximately 1,100 employees, of
which 300 were sales, administrative, management or executive personnel and 800
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. Management
believes its employee relations are generally good.
4
<PAGE> 5
During fiscal 1996, the Company strengthened its executive management team
with the addition of John D. Branch as Senior Vice President and Chief Financial
Officer and David I. Sunkin as Vice President and General Counsel.
ITEM 2. PROPERTIES
The Company owns the land and buildings occupied by 74 of the Company's
operating shops as of April 30, 1996. The remainder of the Company's 160
operating shops at the end of fiscal 1996 were leased from outside third
parties. The 160 shops are located in 136 cities in 31 states.
During fiscal 1996 the Company closed 8 shops and opened 4 shops. Two of
the shops opened in fiscal 1996 had been previously closed in fiscal 1995. Of
the four shops opened in fiscal 1996, one shop was in New York, one shop was in
Missouri and two shops were in Texas. The Company closed 84 shops during its
restructuring in 1995. In fiscal 1994 the Company opened 5 new shops and closed
17 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 1 to 11 years. All of the leases 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 does not maintain
earthquake insurance for its shops.
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.
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 less than $75,000. These costs consist of 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. Particular location schedules may vary slightly. The Company's shops
are generally 7,000 square feet with existing shops ranging in size from
approximately 5,000 square feet to approximately 12,000 square feet.
As of April 30, 1996, the Company had 20 parcels of real estate it was
attempting to sell. The majority of these properties were under sales contracts
as April 30, 1996. If all of the sales close in fiscal 1997 (which management
believes will happen), then the Company should receive approximately $2.9
million in cash. The properties have a net book value at April 30, 1996, of
approximately $2.2 million which consists of $1.1 million shown in the financial
statements as Property held for sale (shops closed in fiscal 1995) and $1.1
million in Property and equipment, net (other shops for sale).
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
manufactures and warehouses paint (and warehouses other supplies) in this
facility until needed by the Company's shops. This facility occupies
approximately 30,600 square feet.
The Company believes its properties are in good operating condition. As of
April 30, 1996, all of the Company's properties were free of loan encumbrances.
5
<PAGE> 6
ITEM 3. LEGAL PROCEEDINGS
In January, 1992, a Consent Decree was entered in a case entitled United
States of America v. AKZO Coatings, et al., in the United States District Court,
Northern District of Illinois, Eastern Division whereby a majority of the
defendants in the case, which arose under the United States Superfund statute
for contributing to the alleged release or threatened release of toxic waste
material at a landfill located in Winnebago, Illinois, including the Company,
agreed to reimburse the U.S. government for past administrative costs and to
continue the cleanup of the landfill. The Company's insurance carrier, which has
defended the Company in this matter under a reservation of rights, has reserved
$711,000 under the terms of the Company's insurance policy to pay the costs of
cleanup at the site. The Company has accrued and funded this liability.
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.
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,
1996 ("1996 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 1996 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 1996 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 Information" appearing on page 13 of the 1996 Annual Report is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" appearing on page 13 of the 1996 Annual Report is
incorporated herein by reference.
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 4 and 5 of the 1996 Annual Report is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company together with the
Report thereon of Deloitte & Touche, LLP, certified public accountants,
appearing on pages 6 through 12 of the 1996 Annual Report are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company filed a Current Report on Form 8-K dated March 12, 1996
disclosing a change in its certifying accountant.
6
<PAGE> 7
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 26, 1996 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 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 6 through 12 of the 1996 Annual
Report, are filed as part of this Report on Form 10-K:
For the Fiscal Years Ended April 30, 1996, 1995 and 1994:
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Consolidated Balance Sheets as of April 30, 1996 and 1995
Report of Independent Auditors
2. FINANCIAL STATEMENT SCHEDULES
None.
3. EXHIBITS
The Exhibits required to be filed hereunder are indexed on pages 9
through 10.
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on March 12, 1996 disclosing
a Change in Certifying Accountant.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
The statements which are not historical facts contained in this Annual
Report on Form 10-K are forward looking statements that involve risks and
uncertainties, including, but not limited to, the effect of weather, the effect
of economic conditions, the impact of competitive products, services and
pricing, capacity and supply constraints or difficulties, changes in laws and
regulations applicable to the Company, the impact of the renovation of a
majority of the Company's operating paint shops, the impact of the Company's
organizational restructuring, the impact of advertising and promotional
activities and the effect of the Company's accounting policies.
7
<PAGE> 8
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.
<TABLE>
<S> <C>
Date: July 30, 1996 By s/ DANIEL A. SEIGEL
-----------------------------------------
Daniel A. Seigel
President
</TABLE>
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:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------------------- ---------------------------------- --------------
<S> <C> <C>
By s/ DANIEL A. SEIGEL President and Director [Chief July 30, 1996
- ---------------------------------------- Executive Officer]
Daniel A. Seigel
By s/ DONALD R. SCHEIB Chairman of the Board July 30, 1996
- ---------------------------------------- of Directors
Donald R. Scheib
By s/ ALEXANDER L. KYMAN Director July 30, 1996
- ----------------------------------------
Alexander L. Kyman
By s/ ROBERT L. SPENCER Director July 30, 1996
- ----------------------------------------
Robert L. Spencer
By s/ PHILIP WM. COLBURN Director July 30, 1996
- ----------------------------------------
Philip Wm. Colburn
By s/ ROBERT WILKINSON Director July 30, 1996
- ----------------------------------------
Robert Wilkinson
By s/ JOHN D. BRANCH Senior Vice President and Chief July 30, 1996
- ---------------------------------------- Financial Officer [Principal
John D. Branch Financial and Accounting Officer]
</TABLE>
8
<PAGE> 9
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NO.
- -------- ----------
<S> <C> <C>
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) 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..................
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(g) Employment Agreement dated as of November 18, 1994 between
Registrant and Daniel A. Seigel filed as Exhibit 10(g) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
April 30, 1995 ("1995 10-K") and hereby incorporated herein by
reference..........................................................
10(h) Stock Option Agreement dated as of November 30, 1994 between
Registrant and Daniel A. Seigel filed as Exhibit 10(h) to the
Registrant's 1995 Form 10-K and hereby incorporated herein by
reference..........................................................
10(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..........................................................
10(j) Employment Agreement dated as of March 1, 1995 between Registrant
and A. J. Scheib filed as Exhibit 10(j) to the Registrant's 1995
Form 10-K and hereby incorporated herein by reference..............
10(k) Employment Agreement dated as of November 18, 1994 between
Registrant and Donald R. Scheib filed as Exhibit 10(k) to the
Registrant's 1995 Form 10-K and hereby incorporated herein by
reference..........................................................
10(l) 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........................
10(m) 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........................
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NO.
- -------- ----------
<S> <C> <C>
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..........................................................
10(p) Employment Agreement dated as of March 25, 1996 between Registrant
and John Branch....................................................
13 1996 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)...........
22 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........................
24.1 Consent of Prior Independent Auditors..............................
24.2 Consent of Current Independent Auditors............................
99.1 Report of Prior Independent Auditors...............................
</TABLE>
<PAGE> 11
EARL SCHEIB, INC. AND SUBSIDIARIES
AVAILABILITY OF EXHIBITS
------------------------------------------------------
THE COMPANY WILL FURNISH UPON REQUEST
COPIES OF THE EXHIBITS INDICATED ON PAGES
9 THROUGH 10 OF THE FORM 10-K AT A COST
OF 25C PER PAGE, WHICH IS THE REASONABLE
COST TO THE COMPANY IN FULFILLING THE
REQUEST.
<PAGE> 1
EXHIBIT 10(p)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, is entered into as of this 25th day of
March, 1996, is by and between EARL SCHEIB, INC., a Delaware corporation (the
"Company") and John Branch, an individual whose mailing address is 12036 Goshen
Avenue, Los Angeles, CA. 90049 ("Employee").
RECITALS
A. Employee has developed considerable familiarity with and expertise
in the financial and accounting operations of retail and manufacturing
operations.
B. Employee and the Company desire to provide for Employee's employment
by the Company upon the terms and conditions set forth in this Employment
Agreement.
AGREEMENT
1. Employment. The Company hereby agrees effective April 29, 1996 (or
sooner, if agreed to by both parties) to employ Employee and Employee hereby
agrees effective April 29, 1996 to serve the Company as its Senior Vice
President and Chief Financial Officer. Employee further agrees that he (i) shall
report to the President and the Board of Directors of the Company, and (ii)
serve as an officer of such subsidiaries of the Company as he shall be elected.
2. Employment Term. Subject to the terms and conditions hereof,
Employee shall serve at the discretion of the Company (the "Employment Term").
3. Responsibilities. During the Employment Term, Employee shall
render such services to the Company and its subsidiaries and affiliates as are
reasonably required by the President and Board of Directors of the Company and
as may be required by virtue of the office(s) and positions held by Employee.
Such responsibilities shall include but not be limited to:
(a) devoting Employee's full time and best effort to the
performance of all responsibilities to the Company to further the business and
interests of the Company and its subsidiaries, and shall perform the services
contemplated herein faithfully, diligently, to the best of his ability;
1
<PAGE> 2
(b) reviewing all the Company's financial, accounting and
management information systems areas to reduce expenses where appropriate and
improve efficiency;
(c) ensure that the Company is complying with all financial
and accounting rules to which it must comply including, without limitation, FASB
rules and regulations and rules and regulations of the Securities and Exchange
Commission (jointly, the "Rules");
(d) establishing effective management systems with a view
toward implementing the Company's financial objective of increasing profits and
positive cash flow; and
(e) implementing effective financial controls, both internal
and external, and reporting procedures consistent with and in support of the
Rules.
4. Compensation. As full compensation for all services rendered
pursuant to this Employment Agreement, the Company agrees to pay Employee a
gross salary equal to $140,000 per year (the "Salary") subject to annual review.
The Salary shall be payable in installments not less frequently than
semi-monthly in accordance with the regular employee salary procedure from time
to time adopted by the Company. There shall be deducted from all Compensation
paid to Employee such sums, including, but without limitation, social security,
income tax withholding, disability and unemployment insurance, as Company is
obligated by law to withhold.
5. Bonus. Notwithstanding Section 4 above, Employee will be
eligible to receive a bonus in accordance with the terms of the Company's
management bonus plan, if any.
6. Options. Notwithstanding Section 5 above and subject to Board
of Director's and Shareholders' approval, the Company shall grant, Employee an
option to purchase up to 50,000 shares of the common stock of Company ("Common
Stock") at the last reported sales price per share as quoted on the AMEX as of
the date of this Agreement (the "Price"), and an option to purchase up to 50,000
shares of Common Stock at the Price plus $3.50 per share and on the terms and
conditions stated in that certain Stock Option Agreement of even date herewith
between the Company and Employee.
7. Expenses. During the Employment Term, the Company shall allow
Employee reasonable travel, business entertainment, and other business expenses
incurred in the performance of his duties hereunder, subject to the rules and
regulations adopted by the Company for the handling of such business expenses
provided Employee shall first furnish proper expense account information for
approval setting forth the information
2
<PAGE> 3
required by the U.S. Treasury Department for deductible business expenses. It is
agreed that Employee will generally pay his own lunch and personal costs in
accord with the practice of the President and Executive Vice President of the
Company.
8. Other Benefits. During the Employment Term, the Company shall
provide Employee with the same insurance and other benefits that the Company
makes available to other similarly situated employees with the exception of not
providing those offered under the Company's Supplemental Employee Retirement
Plan.
9. Confidentiality and Restricting Contact With Competitive
Business.
9.1 Employee hereby acknowledges that Company's business
operations require protection of certain proprietary interests in Confidential
Information (defined below) and practices and that Employee's access to such
information places Employee in a position of confidence and trust with Company.
Except as (i) required by law or judicial process or (ii) in accordance with his
fiduciary obligations to the Company, Employee agrees while employed by the
Company and thereafter for a period of two years not, directly or indirectly, to
disclose or use to the detriment of the Company or any of its affiliates (the
term "affiliates" as used in this Employment Agreement is understood to mean
subsidiaries, and parent and brother/sister corporations of the Company) or for
the benefit of any other person or firm any Confidential Information or trade
secrets which are not readily available in the public domain and which Company
possesses that has been created, compiled, discovered, developed by or for
Company, or otherwise acquired by or made known to Company whether by Employee
during the course of his employment or otherwise (including, but not limited to,
the identity and particular needs of any customer of the Company or any of its
affiliates, the methods and techniques of any of the businesses of the Company
or any of its affiliates, the marketing plans, budgets and objectives of the
Company or any of its affiliates, the formula of any product of the Company or
any of its affiliates; all of the foregoing herein is referred to as
"Confidential Information") of the Company or any of its affiliates.
Furthermore, Employee shall deliver promptly to the Company upon termination of
employment, or at any time the Company may so request, all memoranda, notes,
records, reports, manuals, drawings, blueprints, formulas and other documents
(and all copies thereof) relating to the business of the Company or any of its
affiliates and all property associated therewith, then possessed or under the
control of the Employee. The terms of this provision are to be construed as
broadly as possible to give effect to the intent of the parties.
9.2 Employee agrees during the period Employee is employed by
Company, Employee shall not directly or indirectly, individually or together or
through any affiliate or other person or entity engage in any other business
activities similar to
3
<PAGE> 4
or in direct or indirect competition with the business, markets or operations of
Company or any of its affiliates, successors or assigns.
9.3 Employee agrees that during the period of Employee's
employment, and for a period of two (2) years thereafter, except in connection
with Employee's duties to, and employment by, Company, Employee shall not
directly or indirectly, individually or together or through any affiliate or
other person or entity (i) approach, counsel, or attempt to induce any person
who is then in the employ of Company to leave their employ, or employ or attempt
to employ any such person; (ii) approach, solicit or call on any of the actual
customers of Company or potential customers targeted for solicitation by Company
for the purpose of securing such customer's business; or (iii) counsel any
person, firm, corporation or entity to do any of the above.
10. Remedies for Breach. Employee acknowledges that the legal
remedies for breach of the covenants contained in Section 9 are inadequate, and
therefore agrees that, in addition to any or all other remedies available to the
Company and its affiliates in the event of a breach or a threatened breach of
any covenant contained in Section 9, the Company or any of its affiliates may:
(a) Obtain preliminary and permanent injunctions against any
and all such actions, and
(b) Seek to recover from Employee monetary damages to the
Company or its affiliates arising from such breach or threatened breach and all
costs and expenses (including attorneys' fees) incurred by the Company or any of
its affiliates in enforcement of such covenants.
11. Benefit. This Employment Agreement shall bind and inure to
the benefit of Employee, the Company, and their respective heirs, personal
representatives, successors and assigns; provided that Employee may not assign
any rights or obligations hereunder without the prior written consent of the
Company.
12. Termination of Prior Agreements. When this Employment
Agreement becomes effective it shall supersede all prior arrangements or
understandings concerning Employee's employment by the Company but shall in no
way affect the Stock Option Agreement.
13. Governing Law. This Employment Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the State
of California.
14. Severability. The provisions of this Employment Agreement are
severable and the invalidity of any one or more of such provisions does not
affect or limit the enforceability of the remaining provisions or paragraphs of
this Employment Agreement.
15. Headings. The headings in this Employment Agreement are
solely for convenience of reference and shall not affect its interpretation.
4
<PAGE> 5
16. No Waiver. No failure on the part of any party hereto at any
time to require the performance by any other party of any term of the Employment
Agreement shall be taken or held to be a waiver of such term or in any way
affect such party's right to enforce such term, and no waiver on the part of
either party of any term of this Employment Agreement shall be taken or held to
be a waiver of any other term hereof or the breach thereof.
17. Entire Agreement; Written Modifications. This instrument
contains the entire agreement between the parties with respect to the subject
matter hereof; all representations, promises and prior or contemporaneous
understandings relating to Employee's employment by the Company are merged into
and expressed in this instrument. This Employment Agreement shall not be
amended, modified or supplemented without the written agreement of the parties
at the time of such amendment, modification or supplement.
18. Notice. Any notice required to be given hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally to
the party whom notice is given or, if mailed, certified or registered mail,
postage prepaid as follows:
To Company: Earl Scheib, Inc.
8737 Wilshire Boulevard
Beverly Hills, CA. 90211
Attention: Corporate Secretary
To Employee: To the address set forth at the head of this
Employment Agreement.
19. Counterparts. This Employment Agreement may be executed in
separate counterparts, each of which when so executed shall be an original but
all of such counterparts shall together constitute but one and the same
instrument.
EXECUTED AND EFFECTIVE as of the date first written above.
EARL SCHEIB, INC.,
a Delaware corporation
By s/ Daniel A. Seigel
----------------------------------------
Daniel A. Seigel
President & Chief Executive Officer
s/ John Branch
-------------------------------------------
John Branch
5
<PAGE> 1
EXHIBIT 13
Earl Scheib, Inc.
Results of Operations
The following table sets forth the Company's operating results for the periods
indicated expressed in thousands of dollars and as a percentage of sales.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $43,981 100.0% $47,288 100.0% $48,492 100.0%
Cost of sales 33,069 75.2 37,705 79.7 38,351 79.1
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 10,912 24.8 9,583 20.3 10,141 20.9
Selling, general and administrative expense 12,333 28.0 12,640 26.7 13,106 27.0
Restructuring charge -- -- 4,287 9.1 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Operating loss (1,421) (3.2) (7,344) (15.5) (2,965) (6.1)
Other income 2,401 5.4 366 0.8 258 0.5
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) before income tax 980 2.2 (6,978) (14.7) (2,707) (5.6)
Provision (benefit) for income taxes 85 0.2 (1,425) (3.0) (880) (1.8)
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 895 2.0% $(5,553) (11.7)% $(1,827) (3.8)%
===========================================================================================================================
</TABLE>
FISCAL YEAR ENDED APRIL 30, 1996 ("FISCAL 1996") COMPARED TO FISCAL YEAR ENDED
APRIL 30, 1995 ("FISCAL 1995")
Total sales for fiscal 1996 decreased $3,307 or 7.0% from fiscal 1995. This
decrease resulted from the Company closing, in fiscal 1995, 84 unprofitable auto
paint shops or 34% of the Company's shops, partially offset by a 16% or $5,841
increase in same shop sales.
The increase in same shop sales resulted mainly from the conversion of
the Company's paint and body shops to its New Earl Scheib Shop format. The new
shop format includes new color schemes both inside and out, new graphics, new
customer information centers, new signage and installation of
state-of-the-industry infrared quartz drying systems.
The Company began remodeling its shops to the New Earl Scheib Shop
format in March, 1995, and had remodeled 137 shops by the end of fiscal 1996. As
can be seen in the table below, the Company's same shop sales increased with the
number of New Earl Scheib Shop remodels.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Qtr. Qtr. Qtr. Qtr.
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Number of New
Earl Scheib Shops 11 64 137 137
Same shop sales
percentage increase (1)% 16% 17% 38%
</TABLE>
Gross profit margins increased by $1,329 or 4.5% of sales in fiscal
1996 compared to fiscal 1995 due primarily to a reduction in shop overhead
expense resulting from the closure of 84 unprofitable shops in fiscal 1995 as
well as the introduction of new products in fiscal 1996.
Selling, general and administrative expense decreased by $307 in fiscal
1996 compared to fiscal 1995. Advertising expense increased by $222 due in part
to additional promotional expense to introduce the New Earl Scheib Shop format,
while other selling, general and administrative expenses decreased a net of $529
mainly as the result of closing 84 unprofitable shops in fiscal 1995. Selling,
general and administrative expense as a percent of sales increased in fiscal
1996, compared to fiscal 1995, mainly due to the increase in advertising spread
over fewer shops.
Other income consists of gains from the sale of excess real estate and
interest income. During fiscal 1996, the Company sold 22 properties (closed in
the fiscal 1995 restructuring) for a net gain of $2,258 compared to a net gain
of $84 from the sale of three properties in fiscal 1995. Interest income,
generated from the investment of cash in short term instruments, was lower in
fiscal 1996 than in fiscal 1995, $143 and $282, respectively. This decrease in
interest income resulted from lower interest rates and lower average funds
available for investment in fiscal 1996.
In fiscal 1995 the Company did not recognize its entire net operating
loss carryforward as a tax benefit for financial reporting purposes.
Accordingly, tax benefits from the 1995 net operating loss carryforward were
available to more than offset the Company's financial federal tax provision for
fiscal 1996. Due to income allocation and state income tax laws, the Company did
have income tax liabilities in some states for which the Company provided $85.
FISCAL YEAR ENDED APRIL 30, 1995 ("FISCAL 1995") COMPARED TO FISCAL YEAR ENDED
APRIL 30, 1994 ("FISCAL 1994")
During fiscal 1995 the Company analyzed its operations and commenced a
restructuring plan which included the closure of 84 unprofitable auto paint
cen-
4
<PAGE> 2
ters located primarily in the Midwestern and Eastern United States. In 1995,
the Company recorded $4,287 for estimated costs of the restructuring plan.
As a result of the closure of 84 centers, net sales decreased by $1,204
or 2% compared with sales in fiscal 1994. The decrease in net sales resulted
from a 5% decrease in the number of cars painted partially offset by a 2%
increase in the average sales ticket. Same shop sales in fiscal 1995 increased
by $4,302 or 13% compared to fiscal 1994.
Gross profit margins during fiscal 1995 slipped slightly to 20% of
sales compared with 21% of sales in fiscal 1994 due to the following: overhead
expenses decreased by $2,109 or 3% of sales due to the closure of 84 centers
during the year and consisted primarily of reduced paint center manager pay of
$834, a reduction in rent expense of $799, a reduction in utilities expense of
$457 and reduced travel expense of $114; material costs increased by $750 or 2%
of sales due to increases in raw material prices, higher cost of new paint
formulations required to meet air quality standards in certain areas of the
country and the absorption of fixed overhead costs over the reduced production
level resulting from fewer paint centers; direct labor costs increased by $713
or 2% of sales due to additional labor required on increased sales of the
Company's more labor intensive premium paint services, additional labor required
by reformulated paints in certain areas, and less efficiency in meeting higher
expectation production and quality standards. The Company has commenced an
employee training program which is expected to meet production and quality
expectations.
As discussed above, the Company recorded a charge of $4,287 for costs
associated with restructuring of the Company's auto paint center operations.
Selling, general and administrative expenses during fiscal 1995 decreased by
$466 as compared to fiscal 1994 due primarily to a reduction in advertising and
other costs associated with the 84 paint center closures. The $84 gain on sale
of properties in fiscal 1995 results from the sale of 3 properties sold prior to
restructuring.
The income tax benefit results from the carryback of a portion of the
fiscal 1995 loss to recover previously paid federal income taxes of $490 and an
increase in the deferred tax asset of $935.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements are based upon its seasonal working capital
needs (the first and second quarters usually have positive cash flow from
operations while the third and fourth quarter are net users of cash) and its
capital requirements for capitalized additions and improvements and expansion.
As of April 30, 1996, the Company had current assets of $7,363 and
current liabilities of $6,645 for a net working capital position of $718. The
Company has no long-term debt except for its deferred compensation plan. During
the fiscal year ended April 30, 1997 ("fiscal 1997") the Company plans on
opening 20 new shops (depending upon the availability of locations) and
performing various improvements for an estimated cost of $2,300.
In fiscal 1996 the Company remodeled 137 of its 160 auto paint and body
shops. These remodels as well as other capitalized expenditures totaled $5,155
and were financed largely through the $5,158 of proceeds from the sale of excess
real estate. The Company expects that future cash flow from operations will be
enhanced from the remodels of its paint and body shops.
Historically, a major source of cash flow for the Company is from
operations. During fiscal 1996, cash used by operations was $836, a 67% decrease
from the amount of cash used in fiscal 1995's operations. A number of one-time
events relating to the restructuring of the Company, which was started in fiscal
1995, contributed to fiscal 1996's negative cash flow from operations.
Management believes (due to additional sales from remodeled shops and greatly
decreased cash outlays relating to the restructuring), that cash flow from
operations will be positive in fiscal 1997.
The other major source of cash flow for the Company is the sale of real
estate. As of April 30, 1996, the Company had 20 parcels of real estate it was
attempting to sell. The majority of these properties were under sales contracts
as of April 30, 1996. If all of these sales close in fiscal 1997 (which
management believes will happen), then the Company should receive approximately
$2,900 in cash. The Company also has an additional 76 parcels of nonencumbered
property, including the Company's headquarters and paint factory, which could be
used as security to obtain outside financing; however, management currently does
not believe this action is necessary and has no plans to seek outside financing.
In addition, the Company has an operating loss carryforward of $5,241
for tax purposes. Accordingly, the amount of taxes in fiscal 1997 the Company
would normally pay from the improvement in operations and gain on the sale of
real estate will be greatly reduced, if not eliminated.
Management believes that internally generated funds as well as funds
from the sale of excess properties will be more than adequate to satisfy its
anticipated cash requirements in fiscal 1997.
5
<PAGE> 3
Earl Scheib, Inc.
Consolidated Statements of Operations
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
- ------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $43,981 $47,288 $48,492
Cost of sales 33,069 37,705 38,351
- ------------------------------------------------------------------------------------------
Gross profit 10,912 9,583 10,141
Selling, general and administrative expense 12,333 12,640 13,106
Restructuring charge (Note 2) -- 4,287 --
- ------------------------------------------------------------------------------------------
Operating loss (1,421) (7,344) (2,965)
Other income (Note 2) 2,401 366 258
- ------------------------------------------------------------------------------------------
Income (loss) before income taxes 980 (6,978) (2,707)
Provision (benefit) for income taxes (Note 3) 85 (1,425) (880)
- ------------------------------------------------------------------------------------------
Net income (loss) $ 895 $(5,553) $(1,827)
==========================================================================================
Earnings (loss) per share (Note 1) $ 0.19 $ (1.22) $ (.40)
==========================================================================================
</TABLE>
Consolidated Statements of Shareholders' Equity
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
CAPITAL STOCK, $1 PAR ADDITIONAL
------------------------
SHARES PAID-IN RETAINED
OUTSTANDING AMOUNT CAPITAL EARNINGS TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance May 1, 1993 4,563,000 $4,563 $5,504 $14,862 $24,929
Net loss for the year -- -- -- (1,827) (1,827)
Cash dividends--$.09 per share -- -- -- (411) (411)
- ---------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1994 4,563,000 4,563 5,504 12,624 22,691
Net loss for the year -- -- -- ( 5,553) ( 5,553)
Stock issued under stock option plan 5,000 5 18 -- 23
- ---------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1995 4,568,000 4,568 5,522 7,071 17,161
Net income for the year -- -- -- 895 895
- ---------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1996 4,568,000 $4,568 $5,522 $ 7,966 $18,056
===========================================================================================================================
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
6
<PAGE> 4
Earl Scheib, Inc.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
- -------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,827 $ 3,417
Marketable securities 536 --
Refundable income taxes (Note 3) -- 990
Accounts receivable 180 186
Inventories 1,389 1,412
Prepaid expenses 1,372 1,358
Deferred income taxes (Note 3) 963 1,788
Property held for sale (Note 2) 1,096 3,642
- -------------------------------------------------------------------------------------------------
Total current assets 7,363 12,793
Property and equipment, net (Note 4) 18,040 14,868
Deferred income taxes (Note 3) 1,345 300
Other, primarily cash surrender value of life insurance (Note 7) 1,762 1,541
- -------------------------------------------------------------------------------------------------
$ 28,510 $29,502
=================================================================================================
LIABILITIES
Current liabilities:
Accounts payable $ 1,762 $ 1,627
Accrued expenses:
Insurance 1,570 2,673
Payroll 1,690 800
Restructuring (Note 2) 516 2,171
Other 1,107 1,470
- -------------------------------------------------------------------------------------------------
Total current liabilities 6,645 8,741
Deferred management compensation (Note 7) 3,809 3,600
Commitments and contingencies (Notes 5, 7 and 8) -- --
SHAREHOLDERS' EQUITY
Capital stock $1 par value--shares authorized 12,000,000;
issued and outstanding 4,568,000 (Note 6) 4,568 4,568
Additional paid-in capital 5,522 5,522
Retained earnings 7,966 7,071
- -------------------------------------------------------------------------------------------------
Total shareholders' equity 18,056 17,161
=================================================================================================
$ 28,510 $29,502
=================================================================================================
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
7
<PAGE> 5
Earl Scheib, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
- ------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 895 $(5,553) $(1,827)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Write-down of assets (closed shops) -- 581 --
Gain on disposal of property and equipment (1,948) (139) --
Depreciation 1,319 1,043 1,168
Deferred income taxes (220) (814) (31)
Deferred management compensation 209 116 306
Changes in operating assets and liabilities:
Refundable income taxes 990 179 (469)
Accounts receivable 6 574 (174)
Inventories 23 211 (243)
Prepaid expenses (14) 458 149
Accounts payable 135 (80) 669
Accrued expenses (2,231) 870 647
- ------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (836) (2,554) 195
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,155) (929) (1,155)
Proceeds from disposal of property and equipment 5,158 343 240
Reduction (investment) in marketable securities (536) 1,648 (8)
Other (221) 598 69
- ------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (754) 1,660 (854)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid -- -- (411)
Stock options exercised -- 23 --
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities -- 23 (411)
- ------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,590) (871) (1,070)
Cash and cash equivalents, beginning of year 3,417 4,288 5,358
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 1,827 $ 3,417 $ 4,288
======================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 51 $ 549 $ 245
======================================================================================================
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
8
<PAGE> 6
Earl Scheib, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: Earl Scheib, Inc. (the "Company") which offers auto painting
and body repair services to consumers, operates the New Earl Scheib Auto Paint
and Body Shops throughout the United States.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements of the
Company include the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
CASH AND CASH EQUIVALENTS: All highly liquid investment instruments with
maturities of three months or less at the time of acquisition are considered to
be cash equivalents while those having maturities in excess of three months are
considered marketable securities.
MARKETABLE SECURITIES: Marketable securities are categorized as available for
sale and consist of commercial and U.S. Government bonds. Marketable securities
are carried at fair value based upon quoted market prices for each investment.
FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS: The carrying value of financial
assets and liabilities approximates fair value due to their short maturity.
INVENTORIES: Inventories, which are composed of auto paint, shop supplies and
materials, are stated at the lower of last-in, first-out (LIFO) cost or market.
A summary of inventories is as follows:
<TABLE>
<CAPTION>
APRIL 30,
-----------------
1996 1995
-----------------
<S> <C> <C>
Finished goods $1,639 $1,472
Raw materials 374 508
LIFO reserve (624) (568)
-------------------
Inventories $1,389 $1,412
===================
</TABLE>
PROPERTY AND EQUIPMENT: Property and equipment (including new shops) is recorded
at cost and is depreciated over the estimated useful lives of the assets.
Significant additions or improvements extending asset lives are capitalized;
normal maintenance and repair costs are expensed as incurred. Property and
equipment includes equipment held by the service and supply subsidiary for sale
to the auto paint shop subsidiaries. It is the policy of the Company not to
depreciate the Company's service and supply subsidiary's equipment until it is
transferred to an auto paint shop for use. The Company uses the straight-line
method of computing depreciation and amortization for financial reporting
purposes and accelerated methods, with respect to certain assets, for income tax
purposes.
START-UP COSTS: Expenses associated with the opening of new auto paint
shops are expensed as incurred.
INCOME TAXES: Deferred income taxes are provided at the current statutory rates
on the difference between financial statement and tax basis of assets and
liabilities and are classified in the consolidated balance sheet as current or
long-term consistent with the classification of the related asset or liability
giving rise to the deferred income taxes.
ENVIRONMENTAL COSTS: The Company accrues for costs associated with the
remediation of environmental pollution when it becomes probable that a liability
has been incurred and the Company's proportionate share of the expense can be
reasonably estimated. Ongoing compliance costs are expensed as incurred.
CASUALTY INSURANCE: Prior to August 1, 1995, the Company was insured for workers
compensation claims expense through risk retention plans. Under these plans the
Company accrued for its estimated risk expense and remitted payment to the
Company's insurer as claims were paid. Unfunded liabilities are secured by
stand-by letters of credit issued by a bank. The Company currently insures for
workers compensation under a stop-loss funded deductible program.
PROSPECTIVE ACCOUNTING CHANGES: In 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". The Company will adopt SFAS No. 121 in the year ending April
30, 1997 ("fiscal 1997"). The impact from this new accounting standard on the
Company's financial statements is not expected to be material.
In fiscal 1997, the Company intends to adopt the disclosure provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation".
REVENUE RECOGNITION: The Company recognizes sales when the work is completed and
the customer accepts delivery of the vehicle.
RECLASSIFICATION: Certain reclassification have been made to the year ended
April 30, 1995 ("fiscal 1995") and the year ended April 30, 1994 ("fiscal 1994")
amounts to conform to the year ended April 30, 1996 ("fiscal 1996")
presentation.
EARNINGS PER SHARE: Earnings per share is computed using the weighted average
number of shares of common stock outstanding and common stock equivalents when
dilutive (using the modified treasury stock method in 1996). Fully diluted
amounts for each period do not differ materially from amounts presented. The
weighted average number of shares used to compute earnings per share were
4,726,000 in 1996 and 4,568,000 in 1995 and 1994.
2. RESTRUCTURING CHARGES
During fiscal 1995, the Company restructured its operations and closed 84
unprofitable auto paint shops located primarily in the Midwest and Eastern
United States. The Company recorded a pre-tax charge of $4,287 during fiscal
1995 to provide for costs associated with the restructuring plan. The charge
consisted of $1,556 for lease termination costs, $591 for the writedown of long
term assets to their net realizable value, $355 for severance to terminated
employees, $338 for repairs and maintenance, $333 for property taxes, $327 for
warranty repairs, $265 for utilities and $522 for other.
As of April 30, 1996, $516 of the reserve for restructuring remained
and was classified as a current liability in the accompanying financial
statements. Management of the Company believes the remaining reserve will be
fully utilized during fiscal 1997.
9
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
- --------------------------------------------------------------------------------
As of April 30, 1995, twenty-nine auto paint shop properties were held
for sale. During fiscal 1996, the Company sold 19 of these properties plus 3
additional properties at a net gain of $2,258. The net book value of the
remaining parcels of real estate is included as a current asset in the
accompanying financial statements under the caption Properties Held for Sale.
Any future gain from the sale of the remaining properties will be recognized
when the properties are sold.
3. INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax return.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------------
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Current:
Federal $ 220 $ (500) $(978)
State 85 66 129
----------------------------
305 (434) (849)
Deferred (220) (991) (31)
----------------------------
Total $ 85 $(1,425) $(880)
============================
</TABLE>
Reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------
1996 1995 1994
----------------------------
<S> <C> <C> <C>
Tax (benefit) at U.S. Federal
statutory tax rate 35.0% (34.0)% (34.0)%
State taxes, net of
federal benefit 5.7 0.6 3.1
Federal net operating loss (26.9) 10.5 (4.8)
Other (5.1) 2.5 3.2
-----------------------------
Total 8.7% (20.4)% (32.5)%
=============================
</TABLE>
At April 30, 1996, net current deferred income tax assets and net long term
deferred income tax assets are comprised of the following:
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1996 1995
--------------------
<S> <C> <C>
Deferred income tax assets-current:
Accrued insurance $ 609 $1,050
Restructuring charges 175 738
Accrued vacation 179 --
--------------------
$ 963 $1,788
====================
Deferred income tax assets
(liabilities)-long term:
Net operating loss $1,782 $1,050
Deferred compensation 1,295 1,162
Depreciation (364) (675)
Other (204) (264)
Valuation allowance (1,164) (973)
--------------------
$1,345 $ 300
====================
</TABLE>
In 1996 and 1995 the Company had deferred tax assets, net of valuation
allowance, of $2,308 and $2,088, respectively. The Company owns a substantial
number of unencumbered properties, including its administrative offices and its
manufacturing and warehouse facility. These properties were purchased a number
of years ago and could probably be sold for a gain. Should the Company's taxable
income not be sufficient in any one year to realize the deferred tax asset, then
one or more properties could be sold for a gain to realize the tax asset.
Accordingly, it is management's opinion that it is more likely than not that the
net deferred tax assets of $2,308 will be realized. At April 30, 1996, the
Company had federal income tax loss carryforwards for income tax purposes of
approximately $5,241. These loss carryforwards expire in 2010 and 2011.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
---------------- ESTIMATED
1996 1995 USEFUL LIVES
- --------------------------------------------------------------
<S> <C> <C>
Land $ 6,023 $ 6,433
Buildings and building
improvements 10,718 10,822 8-33 years
Machinery and equipment 6,396 3,777 3-10 years
Automotive equipment 231 244 2- 4 years
Office furniture and
equipment 1,534 1,126 3-10 years
Leasehold improvements 3,838 2,419 Life of Lease
----------------------------------
28,740 24,821
Less accumulated
depreciation and
amortization 10,700 9,953
----------------------------------
Net property and
equipment $18,040 $14,868
==================================
</TABLE>
See Note 2 regarding property held for sale.
5. LEASES
The Company leases approximately one-half of its auto paint shops. Management
expects that in the normal course of business such leases will be renewed or
replaced by other leases. Certain lease agreements contain renewal and/or
purchase options. Rent expense for fiscal 1996, 1995 and 1994 was $2,260, $4,656
and $4,265, respectively. Following is a schedule, by year, of the future
minimum lease commitments as of April 30, 1996.
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30:
- -----------------------------------------------------
<C> <C>
1997 $2,390
1998 1,824
1999 1,151
2000 860
2001 623
Thereafter 926
-------
Total minimum lease payments $7,774
=======
</TABLE>
6. STOCK OPTIONS
In August, 1994, the Company's shareholders approved two non-qualified stock
option plans. One plan allows for the granting of up to 100,000 shares of the
Company's capital stock to non-employee directors of the Company (the
"Directors' Plan"). A second plan allows for the granting of up to 300,000
shares of the Company's capital stock to certain employees of the Company (the
"Employees' Plan"). Both plans require that
10
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
the price of the shares underlying the option granted be no less than the fair
market value of the shares on the date of the grant. The plans allow for
discretionary vesting periods.
During June 1996, the Company's Board of Directors authorized an
increase in the number of shares available under the Company's option plans to
150,000 shares for the Directors' Plan and 500,000 shares for the Employees'
Plan. These changes to the Company's stock option plans are subject to approval
by the Company's shareholders.
In November, 1994, the Company granted a stock option for 400,000
shares of the Company's capital stock to the Company's president and chief
executive officer, subject to approval by the Company's shareholders. The
options become vested and exercisable in a 50% installment on the first
anniversary following the date of grant and in 12.5% installments in each
quarter following the first anniversary of the date of grant. The options have
an exercise price of $6.375 per share. As a result, the Company recognized
compensation expense of $100 which is included in selling, general and
administrative expense in the consolidated statements of operations.
In January, 1995, the Company granted a stock option for 200,000 shares
of the Company's capital stock to the Company's chief operating officer, subject
to approval by the Company's shareholders. The options were granted at fair
market value or higher and become vested and exercisable in a 50% installment on
the first anniversary following the date of grant and in 12.5% installments in
each quarter following the first anniversary of the date of grant. The exercise
price is $5.50 per share for the option to purchase the first 100,000 shares and
$9.00 per share for the option to purchase the second 100,000 shares.
The following table summarizes stock option transactions:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
- -----------------------------------------------------------
<S> <C> <C> <C>
Outstanding at
April 30, 1994 46,000 $11.23 - $12.35
Granted 932,000 $ 4.50 - $ 9.00
Exercised (5,000) $ 4.50
Cancelled (58,000) $ 4.50 - $11.23
----------------------------------
Outstanding at
April 30, 1995 915,000 $ 4.50 - $12.35
Granted 191,000 $ 5.13 - $ 9.00
Exercised --
Cancelled (40,000) $ 4.50 - $12.35
----------------------------------
Outstanding at
April 30,1996 1,066,000 $ 4.50 - $11.23
==================================
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
-------------------
1996 1995
-------------------
<S> <C> <C>
Shares exercisable 387,000 28,000
Shares available for grant at
end of year 253,000 108,000
===================
</TABLE>
7. DEFERRED MANAGEMENT COMPENSATION
In March 1987, the Company adopted a non-qualified supplemental compensation
plan ("the Plan") for certain key management employees which will provide
benefits to employees upon retirement. As of April 30, 1996, 12 employees (who
were officers or key employees of the Company prior to fiscal 1995) are still
covered by the Plan. The Plan also provides for post-retirement health care and
death benefits. Participants are required to share in the cost of the Plan by
deferring a portion of their annual compensation for that purpose. Deferred
compensation expense under the Plan for fiscal 1996, 1995, and 1994 was $329,
$236, and $306, respectively.
The cost of the Plan is determined through actuarial methods using a 7%
discount rate in 1996. The Plan at April 30, 1996, had nonvested and total
obligations (all of which are accrued in the Company's financial statements),
net of unrecognized gains and prior service costs, of $3,809. The net pension
expense in fiscal 1996 consisted principally of interest costs.
The Company entered into whole life insurance contracts, to meet its
obligation under the Plan. As of April 30, 1996, these contracts had cash
surrender values of $1,557. The Company was not obligated to enter into these
contracts and is not required to use the proceeds to pay for the Plan.
8. COMMITMENTS AND CONTINGENCIES
The Company has an agreement with its bank to finance a letter of credit
facility under which the bank has issued approximately $3,491 in standby letters
of credit at April 30, 1996. The letters of credit are in favor of the Company's
insurance carrier and secure the unfunded portion of the Company's estimated
workers' compensation insurance liabilities.
The Estate of Earl A. Scheib (the "Estate") obtained a bank loan (the
"Estate Loan") to fund state and federal estate tax payments. To secure the
Estate Loan, the Estate pledged to the bank its 1,099,684 shares of the
Company's capital stock owned as of April 30, 1996.
The outstanding balance of the Estate Loan at April 30, 1996, was
$2,250. As part of the Estate Loan, the Company entered into agreements with the
bank and with the Estate whereby the bank has the right to put the loan to the
Company upon a default by the Estate. A default would occur if the Estate fails
to meet its payment obligations to the bank or should the market value of the
stock pledged by the Estate drop below 63% of the outstanding loan balance (at
April 30, 1996, the stock would have to be below $1.29 a share). Since the loan
is secured by a pledge of the Estate's stock in the Company, should the Company
be required to purchase the loan from the bank, the Company would also acquire
the stock owned by the Estate.
As further security for the Company, in the event of a default by the
Estate on the Estate Loan, the Estate granted a lien in favor of the Company on
a parcel of real property owned by the Estate. A sales agreement has been
entered into with an outside third party to purchase the property in two phases
for $3,100. The proceeds from the sale will be used to repay the Estate's loan
at which time the put agreement with the Company will be terminated. The Company
receives a $15 quarterly fee from the Estate as consideration for the put
agreement.
The Company is involved in several legal proceedings and claims
including federal and state occupational safety and health administration and
environmental matters which arise in the ordinary course of its business.
Management believes that the amount of ultimate liability with respect to these
matters should not materially affect the Company's financial statements.
11
<PAGE> 9
INDEPENDENT AUDITORS' REPORT
Deloitte & Touche LLP
To the Stockholders and Board of Directors
Earl Scheib, Inc.
We have audited the accompanying consolidated balance sheet of Earl Scheib, Inc.
and subsidiaries as of April 30, 1996, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit. The consolidated financial statements of the Company and
subsidiaries for the years ended April 30, 1995 and 1994 were audited by other
auditors whose report, dated June 26, 1995, expressed an unqualified opinion on
those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 1996 consolidated financial statements present
fairly, in all material respects, the financial position of Earl Scheib, Inc.
and subsidiaries at April 30, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
- -----------------------------
Los Angeles, California
July 3, 1996
12
<PAGE> 10
EARL SCHEIB, INC.
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales $43,981 $47,288 $48,492 $53,648 $58,211
Net income (loss) 895 (5,553) (1,827) (110) 1,497
Per share:
Earnings (loss) 0.19 (1.22) (.40) (.02) .33
Cash dividends declared -- -- .09 .18 .18
FINANCIAL POSITION
Property and equipment, net $18,040 $14,868 $19,409 $19,662 $19,825
Total assets 28,510 29,502 34,126 34,762 35,460
Long-term liabilities 3,809 3,600 3,484 3,198 2,750
Shareholders' equity 18,056 17,161 22,691 24,929 25,860
Number of shops at end of year 160 164 248 260 273
===========================================================================================================================
</TABLE>
MARKET INFORMATION
Earl Scheib, Inc. is listed and traded on the American Stock Exchange under the
ticker symbol "ESH". As of June 14, 1996, there were approximately 293 record
holders of the Company's stock according to records maintained by the Company's
transfer agent. The high and low sales prices of the stock for each of the
fiscal quarters of 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $7 $6 3/4 $8 3/4 $8 $5 1/8 $5 3/4 $8 3/8 $8 1/4
Low 5 4 15/16 5 6 3 7/8 4 4 6 1/2
</TABLE>
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
The statements which are not historical facts contained in this Annual Report
are forward looking statements that involve risks and uncertainties, including,
but not limited to, the effect of weather, the effect of economic conditions,
the impact of competitive products, services and pricing, capacity and supply
constraints or difficulties, changes in laws and regulations applicable to the
Company, the impact of the renovation of a majority of the Company's operating
paint shops, the impact of the Company's organizational restructuring, the
impact of advertising and promotional activities and the effect of the Company's
accounting policies.
13
<PAGE> 1
EXHIBIT 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Earl Scheib, Inc.
Beverly Hills, California
We hereby consent to the use in the Registration Statements on Form S-8,
(Registration Numbers 33-87128, 33-87130, 33-63327 and 33-87132) and
Registration Statement on Form S-3, (Registration Number 33-87126) of our report
dated June 26, 1995, relating to the audit of the consolidated financial
statements and schedules of Earl Scheib, Inc. and Subsidiaries for each of the
two years ended April 30, 1995 which are contained in and incorporated by
reference to the Audit Report on Form 10-K for the year ended April 30, 1996.
/s/ BDO SEIDMAN, LLP
--------------------------------------
BDO SEIDMAN, LLP
Los Angeles, California
July 26, 1996
<PAGE> 1
EXHIBIT 24.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-63327, 33-87128, and 33-87130 of Earl Scheib, Inc. on Form S-8,
Post-Effective Amendment No. 1 to Registration Statement No. 33-87132 of Earl
Scheib, Inc. on Form S-8, and Registration Statement No. 33-87126 of Earl
Scheib, Inc. on Form S-3 of our report dated July 3, 1996, incorporated by
reference in this Annual Report on Form 10-K of Earl Scheib, Inc. for the year
ended April 30, 1996.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
July 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 1827000
<SECURITIES> 536000
<RECEIVABLES> 180000
<ALLOWANCES> 0
<INVENTORY> 1389000
<CURRENT-ASSETS> 7363000
<PP&E> 28740000
<DEPRECIATION> 10700000
<TOTAL-ASSETS> 28510000
<CURRENT-LIABILITIES> 6645000
<BONDS> 0
0
0
<COMMON> 4568000
<OTHER-SE> 13488000
<TOTAL-LIABILITY-AND-EQUITY> 28510000
<SALES> 43981000
<TOTAL-REVENUES> 43981000
<CGS> 33069000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 980000
<INCOME-TAX> 85000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 895000
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
<PAGE> 1
EXHIBIT 99.1
To the Stockholders and Board of Directors
Earl Scheib, Inc.
We have audited the accompanying consolidated balance sheet of Earl Scheib,
Inc. and subsidiaries as of April 30, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended April 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Earl Scheib, Inc. and subsidiaries as of April 30, 1995, and the consolidated
results of their operations and cash flows for each of the two years in the
period ended April 30, 1995 in conformity with generally accepted accounting
principles.
/s/ BDO SEIDMAN, LLP
Los Angeles, California
June 26, 1995
