<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE SIXTEEN WEEKS ENDED APRIL 12, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-8445
CONSOLIDATED PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
INDIANA 37-0684070
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
500 CENTURY BUILDING, 36 S. PENNSYLVANIA STREET
INDIANAPOLIS, INDIANA 46204
(317) 633-4100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock outstanding at May 10, 1995: 12,257,357
The Index to Exhibits is located at Page 14. Total Pages 17
-----
<PAGE>
CONSOLIDATED PRODUCTS, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Position -
April 12, 1995 (Unaudited) and September 28, 1994 3
Consolidated Statements of Earnings (Unaudited)
Sixteen and Twenty-Eight Weeks Ended April 12, 1995
and April 13, 1994 4
Consolidated Statements of Cash Flows (Unaudited)
Twenty-Eight Weeks Ended April 12, 1995 and
April 13, 1994 5
Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
APRIL 12 SEPTEMBER 28 APRIL 12 SEPTEMBER 28
1995 1994 1995 1994
----------- ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT ASSETS CURRENT LIABILITIES
Cash, including cash equiva- Accounts payable $ 9,899,384 $ 7,246,178
lents of $1,105,000 in 1995 Accrued expenses
and $9,012,000 in 1994 $ 1,757,013 $ 10,326,159 Salaries and wages 3,370,538 3,682,695
Receivables 3,495,613 2,165,177 Insurance 2,184,176 2,521,690
Inventories 3,420,567 3,009,516 Property taxes 1,636,564 1,695,990
Deferred income taxes 801,000 801,000 Other 5,067,136 4,702,137
Other current assets 4,279,379 3,112,136 Current portion of obligations
------------- ------------ under capital leases 1,158,387 1,140,864
Total current assets 13,753,572 19,413,988 Current portion of senior note 4,250,000 3,500,000
------------- -------------
------------- --------------
Total current liabilities 27,566,185 24,489,554
PROPERTY AND EQUIPMENT ------------- --------------
Land 17,013,085 12,352,930
Buildings 16,433,614 14,200,657 OBLIGATIONS UNDER
Leasehold improvements 28,776,379 25,568,627 CAPITAL LEASES 9,143,958 9,885,522
Equipment 47,928,568 42,934,328
Construction in progress 5,047,058 3,334,106 REVOLVING LINE OF CREDIT 5,500,000 --
------------- --------------
115,198,704 98,390,648
Less accumulated depreciation SENIOR NOTE 10,000,000 14,250,000
and amortization (49,105,474) (46,735,270)
------------- --------------
Net property and equipment 66,093,230 51,655,378 SUBORDINATED CONVERTIBLE
------------- -------------- DEBENTURES -- 11,988,400
LEASED PROPERTY
Leased property under capital SHAREHOLDERS' EQUITY
leases, less accumulated amorti- Common stock -- $.50 stated value,
zation of $9,106,870 in 1995 25,000,000 shares authorized --
and $9,378,291 in 1994 4,207,307 4,540,791 shares issued: 12,470,289 in 1995;
Net investment in direct 7,490,818 in 1994 6,235,145 3,745,409
financing leases 2,475,499 2,718,537 Additional paid-in capital 30,941,586 14,696,829
------------- ------------- Retained earnings 414,917 3,004,530
Net leased property 6,682,806 7,259,328
------------- -------------
Less treasury stock -- at cost:
DEFERRED INCOME TAXES 758,000 758,000 223,003 shares in 1995;
265,690 shares in 1994 (1,648,111) (1,732,160)
OTHER ASSETS 866,072 1,241,390 Total shareholders' equity 35,943,537 19,714,608
------------- -------------- -------------- --------------
$ 88,153,680 $ 80,328,084 $ 88,153,680 $ 80,328,084
------------- -------------- -------------- -------------
------------- -------------- -------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
SIXTEEN TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED
----------- ------------
APRIL 12 APRIL 13 APRIL 12 APRIL 13
1995 1994 1995 1994
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 54,710,685 $ 45,686,705 $ 94,341,756 $ 79,351,428
Franchise fees 578,327 317,795 928,905 561,499
Other, net 411,769 302,223 763,286 700,002
------------ ------------ ------------ ------------
55,700,781 46,306,723 96,033,947 80,612,929
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales 14,624,999 12,135,417 25,074,100 20,916,555
Restaurant operating costs 25,873,373 21,368,098 44,002,715 36,867,655
Selling, general and administrative 6,278,361 5,444,571 10,622,405 9,255,096
Depreciation and amortization 2,058,433 1,803,674 3,513,463 3,135,019
Amortization of pre-opening costs 592,353 480,079 975,244 735,193
Rent 1,785,608 1,368,096 3,032,131 2,321,883
Interest 1,020,097 1,100,250 1,771,022 1,955,977
Interest - capital leases 285,684 318,638 506,855 564,563
------------ ------------ ------------ ------------
52,518,908 44,018,823 89,497,935 75,751,941
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 3,181,873 2,287,900 6,536,012 4,860,988
INCOME TAXES 1,225,000 870,000 2,500,000 1,850,000
------------ ------------ ------------ ------------
NET EARNINGS $ 1,956,873 $ 1,417,900 $ 4,036,012 $ 3,010,988
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary $ .22 $ .17 $ .46 $ .37
Fully diluted $ .17 $ .13 $ .35 $ .27
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary 9,048,953 8,122,165 8,827,384 8,064,025
Fully diluted 12,621,017 12,402,148 12,598,668 12,380,774
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED
------------------------
APRIL 12 APRIL 13
1995 1994
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 4,036,012 $ 3,010,988
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,513,463 3,135,019
Amortization of pre-opening costs 975,244 735,193
Provision for deferred income taxes -- 750,000
Changes in receivables and inventories 267,186 (497,453)
Changes in other assets (1,905,399) (1,975,067)
Changes in income taxes payable 574,173 1,136,400
Changes in accounts payable
and accrued expenses 1,594,067 1,511,665
Gain on disposal of property (19,726) (96,859)
----------- -----------
Net cash provided by operating activities 9,035,020 7,709,886
----------- -----------
INVESTING ACTIVITIES
Additions of property and equipment (21,064,062) (8,620,871)
Net proceeds from disposal of
property and equipment 1,428,630 4,103,132
----------- -----------
Net cash used in investing activities (19,635,432) (4,517,739)
----------- -----------
FINANCING ACTIVITIES
Principal payments on debt
and capital lease obligations (3,957,271) (3,232,691)
Proceeds from revolving line of credit 5,500,000 --
Proceeds from equipment and property leases 417,064 458,362
Lease payments on subleased properties (367,975) (388,185)
Cash dividends paid (8,748) (8,790)
Cash paid in lieu of fractional shares (4,260) --
Proceeds from exercise of stock options 58,606 133,479
Proceeds from employee stock purchase plan 393,850 343,918
----------- -----------
Net cash provided by (used in) financing activities 2,031,266 (2,693,907)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,569,146) 498,240
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,326,159 8,822,935
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,757,013 $ 9,321,175
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
CONSOLIDATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements.
In the opinion of the Company, all adjustments (consisting of only normal
recurring accruals) considered necessary to present fairly the consolidated
financial position as of April 12, 1995, the consolidated statements of earnings
for the sixteen and twenty-eight weeks ended April 12, 1995 and April 13, 1994
and the consolidated statements of cash flows for the twenty-eight weeks ended
April 12, 1995 and April 13, 1994 have been included. Certain 1994 items have
been reclassified to conform to the 1995 presentation.
The consolidated statements of earnings for the sixteen and twenty-eight
weeks ended April 12, 1995 and April 13, 1994 are not necessarily indicative of
the consolidated statements of earnings for the entire year. For further
information, refer to the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended
September 28, 1994.
SEASONALITY
Historically, the influence of the seasonal factor on sales has not been
significant. However, profitability may be influenced by fluctuations in sales
volume because of the nature of the Company's fixed costs.
REVOLVING LINE OF CREDIT
The Company has replaced its existing $5,000,000 revolving line of credit
with a $30,000,000 unsecured revolving line of credit with a borrowing rate
based on LIBOR plus 125 basis points (87.5 basis points subsequent to the call
of the Company's 10% Subordinated Convertible Debentures on April 4, 1995) or
the prime rate of interest. The revolving line of credit, which expires in
December 1996, includes the right to convert into a five-year term loan with a
ten-year amortization schedule. Borrowings under this line of credit totaled
$5,500,000 at April 12, 1995.
SUBORDINATED CONVERTIBLE DEBENTURES
On April 4, 1995, the Company completed the call of its 10% Subordinated
Convertible Debentures due November 20, 2002 ("the Debentures"). Holders of the
Debentures ("Holders") electing conversion of their Debentures into common stock
received one share of the Company's common stock for each $2.82 of Debenture
principal held on the date of conversion plus cash for any remaining fractional
portion. Holders electing redemption of their Debentures received cash in the
principal amount of the Debentures, plus accrued interest up to April 4, 1995.
The call of the Company's Debentures eliminated $10,860,600 of the Company's
long-term debt.
SHAREHOLDERS' EQUITY
The number of shares issued as of April 12, 1995 on the statement of
financial position includes 767,174 shares which were distributed on January 20,
1995 pursuant to a 10% stock dividend declared on December 20, 1994.
As a result of Holders electing conversion of their outstanding Debenture
principal to the Company's common stock, the Company issued 3,798,754 shares of
common stock thereby increasing total shareholders' equity by $10,468,000.
6
<PAGE>
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Primary earnings per common and common equivalent share are computed by
dividing net earnings by the weighted average number of common shares and common
equivalent shares outstanding. Common equivalent shares include shares subject
to purchase under stock options and stock warrants.
Fully diluted earnings per common and common equivalent share assumes, in
addition to the above, that the 10% Subordinated Convertible Debentures ("the
Debentures") were converted at the date of issuance, and that net earnings are
increased by the actual amount of interest expense, net of income taxes, related
to the Debentures.
Net earnings per common and common equivalent share and weighted average
shares outstanding for the sixteen and twenty-eight weeks ended April 13, 1994
have been restated to give effect to the 10% stock dividend declared on December
20, 1994. Additionally, the conversion price on the Debentures was adjusted
from $3.10 to $2.82 as a result of the stock dividend.
The following table presents information necessary to calculate net earnings per
common and common equivalent share:
<TABLE>
<CAPTION>
SIXTEEN TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED
--------------------------- ---------------------------
APRIL 12 APRIL 13 APRIL 12 APRIL 13
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRIMARY:
Shares outstanding:
Weighted average shares outstanding 8,744,232 7,759,027 8,535,747 7,701,640
Share equivalents 304,721 363,138 291,637 362,385
----------- ----------- ----------- -----------
Adjusted shares outstanding 9,048,953 8,122,165 8,827,384 8,064,025
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
FULLY DILUTED:
Shares outstanding:
Weighted average shares outstanding 8,744,232 7,759,027 8,535,747 7,701,640
Share equivalents 333,758 363,142 338,648 397,133
Conversion of Debentures 3,543,027 4,279,979 3,724,273 4,282,001
----------- ----------- ----------- -----------
Adjusted shares outstanding 12,621,017 12,402,148 12,598,668 12,380,774
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net earnings:
Net earnings for primary earnings
per share computation $ 1,956,873 $ 1,417,900 $ 4,036,012 $ 3,010,988
Add - interest expense, net of income
taxes , applicable to Debentures 177,682 222,653 333,003 389,842
----------- ----------- ----------- -----------
Net earnings as adjusted for fully
diluted earnings per share computation $ 2,134,555 $ 1,640,553 $ 4,369,015 $ 3,400,830
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In the following discussion, the term "same store sales" refers to the sales
of only those units open at the beginning of both of the fiscal years discussed
and which remained open throughout both years, and the term "non-same store
sales" refers to the sales of units either opened or closed at any time during
the fiscal years discussed.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to revenues of
items included in the Company's consolidated statements of earnings for the
periods indicated:
<TABLE>
<CAPTION>
SIXTEEN TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED
---------------------- ----------------------
4/12/95 4/13/94 4/12/95 4/13/94
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Net sales 98.2% 98.7% 98.2% 98.4%
Franchise fees 1.0 0.7 1.0 0.7
Other, net 0.8 0.6 0.8 0.9
------ ------ ------ ------
100.0 100.0 100.0 100.0
------ ------ ------ ------
COSTS AND EXPENSES
Cost of sales 26.3 26.2 26.1 26.0
Restaurant operating costs 46.4 46.1 45.8 45.7
Selling, general and administrative 11.3 11.8 11.1 11.5
Depreciation and amortization 3.7 3.9 3.7 3.9
Amortization of pre-opening costs 1.1 1.0 1.0 0.9
Rent 3.2 3.0 3.2 2.9
Interest 1.8 2.4 1.8 2.4
Interest-capital leases 0.5 0.7 .5 0.7
------ ------ ------ ------
94.3 95.1 93.2 94.0
------ ------ ------ ------
EARNINGS BEFORE INCOME TAXES 5.7 4.9 6.8 6.0
INCOME TAXES 2.2 1.9 2.6 2.3
------ ------ ------ ------
NET EARNINGS 3.5% 3.0% 4.2% 3.7%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
COMPARISON OF SIXTEEN WEEKS ENDED APRIL 12, 1995 TO SIXTEEN WEEKS ENDED APRIL
13, 1994
REVENUES
Revenues increased $9,394,000, or 20.3%, due primarily to an increase in
Steak n Shake's net sales of $8,248,000. The increase in net sales of Steak n
Shake was due to an increase of 6.4% in same store sales and the opening of
eighteen new units since the first quarter of fiscal 1994, partially offset by
the closure of two low-volume units. The same store sales increase was
attributable to increases of 4.6% in customer counts and 1.9% in check average.
The increase in net sales of $776,000 in the specialty restaurants resulted from
a 22.7% increase in same store sales, somewhat offset by the closure of a
specialty restaurant in the first quarter of fiscal 1995. The increase in same
store sales was attributable to increases of 11.5% in customer counts and 10.1%
in check average, which were a result of the conversion of three additional
units to the Colorado Steakhouse concept since the first quarter of fiscal 1994.
Franchise fees increased $261,000 due to the opening of eight Steak n Shake
franchised units since the first quarter of fiscal 1994.
COSTS AND EXPENSES
Cost of sales increased $2,490,000, or 20.5%, as a result of sales
increases. As a percentage of revenues, cost of sales increased slightly to
26.3% from 26.2%.
Restaurant operating costs increased $4,505,000, or 21.1%, due to higher
labor costs and other operating costs resulting from the increased sales volume.
Restaurant operating costs, as a percentage of revenues, increased to 46.4% from
46.1%, primarily as a result of increased labor costs.
8
<PAGE>
Selling, general and administrative expenses increased $834,000 or 15.3%.
As a percentage of revenues, selling, general and administrative expenses
decreased to 11.3% from 11.8%, due to the increased sales volume. Marketing
expense, as a percentage of revenues, increased to 2.6% from 2.4% and accounted
for $348,000 of the increase. Additionally, the increase in expenses was
attributable to personnel related costs, which included costs for additional
staffing in connection with the development of new restaurants.
The $255,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the first quarter of
fiscal 1994.
The $112,000 increase in the amortization of pre-opening costs was
attributable to the increase in the number of new company-operated units opened.
Rent expense increased $418,000, or 30.5%, as a result of sale and
leaseback transactions since the first quarter of fiscal 1994 involving six
Steak n Shake restaurants and a net increase in the number of other leased
properties.
Interest expense decreased $113,000 as a result of reductions in the senior
debt and capital lease obligations, partially offset by borrowings from the
revolving line of credit.
INCOME TAXES
The Company's effective income tax rate increased to 38.5% from 38.0% for
the quarter ended April 13, 1994 and from 36.7% from the year ended September
28, 1994. The increase from the prior year and from the fiscal year ended
September 28, 1994 resulted from a decrease in federal tax credits.
A valuation allowance against gross deferred tax assets has not been
provided based upon the expectation of future taxable income from the following
sources: (a) future tax deductions that reverse in a carryback period during
which the Company was a tax paying entity; (b) existing taxable temporary
differences reversing in future periods; and (c) future taxable income. The
Company has a strong earnings history and anticipates future earnings to be at a
level that will be more than adequate to realize any remaining deferred tax
assets. Uncertainties relating to future taxable income could include a decline
in sales and reduction in taxable income; however, in management's opinion, it
is more likely than not that the gross deferred tax assets reflected on the
Consolidated Statements of Financial Position will be realized.
NET EARNINGS
Net earnings increased $539,000, or 38.0%, primarily as a result of the
increase in Steak n Shake's operating earnings.
COMPARISON OF TWENTY-EIGHT WEEKS ENDED APRIL 12, 1995 TO TWENTY-EIGHT WEEKS
ENDED APRIL 13, 1994
REVENUES
Revenues increased $15,421,000, or 19.1%, due primarily to an increase in
Steak n Shake's net sales of $13,803,000. The increase in net sales of Steak n
Shake was due to an increase of 7.2% in same store sales and the opening of
twenty-one new units since the beginning of fiscal 1994, partially offset by the
closure of two low-volume units. The same store sales increase was attributable
to increases of 4.4% in customer counts and 2.6% in check average. The increase
in net sales of $1,188,000 in the specialty restaurants resulted from an 18.7%
increase in same store sales, somewhat offset by the closure of a specialty
restaurant in the first quarter of fiscal 1995. The increase in same store
sales was attributable to increases of 8.8% in customer counts and 9.0% in check
average, which were a result of the conversion of three additional units to the
Colorado Steakhouse concept since the beginning of fiscal 1994.
Franchise fees increased $367,000 due to the opening of ten Steak n Shake
franchised units since the beginning of fiscal 1994.
9
<PAGE>
COSTS AND EXPENSES
Cost of sales increased $4,158,000, or 19.9%, as a result of sales
increases. As a percentage of revenues, cost of sales increased slightly to
26.1% from 26.0%.
Restaurant operating costs increased $7,135,000, or 19.4%, due to higher
labor costs and other operating costs resulting from the increased sales volume.
Restaurant operating costs, as a percentage of revenues, increased slightly to
45.8% from 45.7%.
Selling, general and administrative expenses increased $1,367,000 or 14.8%.
As a percentage of revenues, selling, general and administrative expenses
decreased to 11.1% from 11.5%, due to the increased sales volume. Marketing
expense, as a percentage of revenues, increased to 2.7% from 2.6% and accounted
for $527,000 of the increase. Additionally, the increase in expenses was
attributable to personnel related costs, which included costs for additional
staffing in connection with the development of new restaurants.
The $378,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1994.
The $240,000 increase in the amortization of pre-opening costs was
attributable to the increase in the number of new company-operated units opened.
Rent expense increased $710,000, or 30.6%, as a result of sale and
leaseback transactions since the beginning of fiscal 1994 involving eight Steak
n Shake restaurants and a net increase in the number of other leased properties.
Interest expense decreased $243,000 as a result of reductions in the senior
debt and capital lease obligations, partially offset by borrowings from the
revolving line of credit.
INCOME TAXES
The Company's effective income tax rate increased to 38.3% from 38.1% for
the quarter ended April 13, 1994 and from 36.7% from the year ended September
28, 1994. The increase from the prior year and from the fiscal year ended
September 28, 1994 resulted from a decrease in federal tax credits.
A valuation allowance against gross deferred tax assets has not been
provided based upon the expectation of future taxable income from the following
sources: (a) future tax deductions that reverse in a carryback period during
which the Company was a tax paying entity; (b) existing taxable temporary
differences reversing in future periods; and (c) future taxable income. The
Company has a strong earnings history and anticipates future earnings to be at a
level that will be more than adequate to realize any remaining deferred tax
assets. Uncertainties relating to future taxable income could include a decline
in sales and reduction in taxable income; however, in management's opinion, it
is more likely than not that the gross deferred tax assets reflected on the
Consolidated Statements of Financial Position will be realized.
NET EARNINGS
Net earnings increased $1,025,000, or 34.0%, primarily as a result of the
increase in Steak n Shake's operating earnings.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Eighteen Steak n Shake restaurants, including six franchised units, have
been opened during this fiscal year and eight additional units are currently
under construction, including four franchised units. For the twenty-eight weeks
ended April 12, 1995, capital expenditures totaled $21,064,000 as compared to
$8,621,000 for the comparable prior year period.
In February 1995, the Company announced an expansion of its Steak n Shake
growth strategy. The growth plan objective is to open 295 Steak n Shake
restaurants, including 135 franchised restaurants, over the five-year period
1996-2000.
For the twenty-eight weeks ended April 12, 1995, the Company's capital
expenditures were funded by cash flows from operations arising from the
Company's net earnings, the Company's existing cash and cash equivalents and
bank borrowings.
On April 4, 1995, the Company completed the call of its 10% Subordinated
Convertible Debentures due November 20, 2002 ("the Debentures"). Holders of the
Debentures ("Holders") electing conversion of their Debentures into common stock
received one share of the Company's common stock for each $2.82 of Debenture
principal held on the date of conversion plus cash for any remaining fractional
portion. Holders electing redemption of their Debentures received cash in the
principal amount of the Debentures, plus accrued interest up to April 4, 1995.
The call of the Company's Debentures eliminated $10,860,600 of the Company's
long-term debt. As a result of Holders electing conversion of their outstanding
Debenture principal to the Company's common stock, the Company issued 3,798,754
shares of common stock. The conversion of the debentures into equity
significantly strengthened the Company's financial position, as well as
increased the number of shares outstanding by nearly four million to 12,250,000
shares. The Company's market capitalization also has increased to approximately
$150,000,000 from $100,000,000.
The Company expects to fund capital expenditures, including the development
of the 160 Company-operated units contemplated by the expansion plan, and the
interest and principal payments with respect to its indebtedness using existing
resources and anticipated cash flow from operations, together with additional
capital generated by sale and leaseback transactions involving newly acquired
properties, bank borrowings under the $30,000,000 revolving line of credit and
the issuance of equity and/or debt securities.
The Company's Senior Note Agreement and the bank commitment for an
unsecured line of credit contain restrictions which, among other things, require
the Company and Steak n Shake to maintain certain financial ratios and specified
levels of net worth, restrict the payment of cash dividends and limit capital
expenditures to certain specified amounts in each of the fiscal years 1995
through 1997.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 3, 1995, Pepsi-Cola Company ("Pepsi") filed suit against
Steak n Shake, Inc. ("Steak n Shake") in the United States District
Court of Southern Indiana alleging that Steak n Shake breached the
syrup contract with Pepsi by refusing to purchase syrup from Pepsi.
The suit seeks alleged lost profits in excess of $2,800,000 during the
remaining term of the syrup contract and reimbursement of a $120,000
payment made to Steak n Shake.
Steak n Shake terminated the syrup contract for cause and
believes that the litigation is without merit. Steak n Shake
will vigorously defend the action and will file a counterclaim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders of Consolidated Products, Inc.
(the "Company") held February 22, 1995, the following actions were
taken:
1. Eight directors were elected to serve until the next annual meeting
and until their successors are duly elected and qualified, as follows:
Name Votes For Votes Withheld Abstentions
---- --------- -------------- -----------
S. Sue Aramian 6,427,992 2,377 26,685
Alva T. Bonda 6,423,292 7,077 26,685
Neal Gilliatt 6,423,935 6,434 26,685
Alan B. Gilman 6,413,094 1,156 42,804
E. W. Kelley 6,427,942 2,397 26,715
Charles E. Lanham 6,413,404 860 42,790
J. Fred Risk 6,410,034 4,216 42,804
James Williamson, Jr. 6,429,117 1,252 26,685
2. A proposal to approve the adoption by the Board of Directors of
the Company's 1995 Employee Stock Option Plan was adopted by the
vote of 6,360,173 shares FOR, 66,018 shares AGAINST and 30,863
shares ABSTAIN.
3. A proposal to approve the adoption by the Board of Directors of
the Company's 1995 Nonemployee Director Stock Option Plan was
adopted by the vote of 6,340,494 shares FOR, 75,282 shares
AGAINST and 41,278 shares ABSTAIN.
4. A proposal to approve the selection by the Board of Directors of
Ernst & Young LLP as the Company's independent auditors for the
fiscal year ending September 27, 1995 was approved by the vote of
6,435,268 shares FOR, 12,533 shares AGAINST and 9,253 shares
ABSTAIN.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See Index to Exhibits.
(b) REPORTS ON FORM 8-K.
MAY 5, 1995 - THE FOLLOWING EVENT WAS REPORTED.
Item 5. Redemption and conversion of the Company's 10%
Subordinated Convertible Debentures on April 4, 1995.
No financial statements were filed as a part of this report on
Form 8-K.
12
<PAGE>
SIGNATURE
Pursuant to the requirements 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, on May 30, 1995.
CONSOLIDATED PRODUCTS, INC.
(Registrant)
By /s/ Kevin F. Beauchamp
-------------------------
Kevin F. Beauchamp
Vice President and Controller
On Behalf of the Registrant and as
Principal Accounting Officer
13
<PAGE>
CONSOLIDATED PRODUCTS, INC.
INDEX TO FORM 10-Q EXHIBITS
Exhibit Page Number
Number in
Assigned in Sequential
Regulation Numbering
S-K Item 601 Description of Exhibit System
- ------------ ---------------------- ----------
(2) Not applicable.
(4) 4.01 Specimen certificate representing Common Stock of
Consolidated Products, Inc. (formerly Steak n
Shake, Inc.). (Incorporated by reference to
Exhibit 4.1 to Registration Statement No. 2-80542
on Form S-8 filed with the Commission on April 7,
1989).
4.02 Note Agreement among Steak n Shake, Inc.,
Consolidated Products, Inc. and The Prudential
Insurance Company of America dated as of
November 1, 1990, related to $23,750,000 12.44%
Senior Notes of Steak n Shake, Inc. due October 31,
1997. (Incorporated by reference to Exhibit 2.1 to
the Registrant's Report on Form 8-K dated November
27, 1990, file no. 0-8445).
4.03 Steak n Shake, Inc. 12.44% Senior Note Due
October 31, 1997 dated November 27, 1990.
(Incorporated by reference to Exhibit 4.03 to
Registration Statement on Form S-2 filed with the
Commission on August 6, 1992, file no. 33-50568).
4.04 Pledge Agreement between Comsolidated
Products, Inc. and The Prudential Insurance
Company of America dated as of November 1, 1990.
(Incorporated by reference to Exhibit 4.04
to Registration Statement on Form S-2 filed
with the Commission on August 6, 1992, file no. 33-
50568).
4.05 Amended and Restated Credit Agreement by and
between Consolidated Products, Inc. and
Bank One, Indianapolis, N.A. dated December 30,
1994 (amending that earlier credit agreement
between parties dated as of March 10, 1994
and effective as of February 23, 1994,
relating to a $5,000,000 revolving line of credit
which was not filed pursuant to Reg.
299.601(b)(4)(iii) of the Securities and Exchange
Act of 1934), relating to a $30,000,000 revolving
line of credit.
(10) 10.01 Consolidated Products, Inc. 1991 Stock Option Plan
for Nonemployee Directors. (Incorporated by
reference to the Appendix to the Registrant's
definitive Proxy Statement dated January 10, 1992
related to its 1992 Annual Meeting of Shareholders
filed with the Commission on January 14, 1992,
file no. 0-8445).
10.02 Consolidated Products, Inc. 1991 Capital
Appreciation Plan. (Incorporated by reference
to the Appendix to the Registrant's
definitive Proxy Statement dated January 16,
1991 related to its 1991 Annual Meeting of
Shareholders filed with the Commission on
January 20, 1991, file no. 0-8445).
10.03 Consolidated Products, Inc. Executive Incentive
Bonus Plan. (Incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 1, 1992 filed with
the Commission on August 3, 1992, file no. 0-8445).
10.04 Steak n Shake, Inc. Executive Incentive Bonus Plan.
(Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal
quarter ended July 1, 1992 filed with the
Commission on August 3, 1992, file no. 0-8445).
14
<PAGE>
Exhibit Page Number
Number in
Assigned in Sequential
Regulation Numbering
S-K Item 601 Description of Exhibit System
- ------------ ---------------------- ----------
10.05 Employment Agreement by and between Richard C. May and
the Registrant dated July 19, 1991. (Incorporated
by reference to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 1, 1992
filed with the Commission on August 3, 1992, file
no. 0-8445).
10.06 Consultant Agreement by and between James Williamson, Jr.
and the Registrant dated November 20, 1990.
(Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter
ended July 1, 1992 filed with the Commission on August 3,
1992, file no. 0-8445).
10.07 Memorandum agreement between Neal Gilliatt and the
Registrant dated July 30, 1991. (Incorporated by
reference to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 1, 1992
filed with the Commission on August 3, 1992, file
no. 0-8445).
10.08 Area Development Agreement by and between Steak n Shake,
Inc. and Consolidated Restaurants Southeast, Inc.
(currently Kelley Restaurants, Inc.) dated June 12,
1991 for Charlotte, North Carolina area. (Incorporated
by reference to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 1, 1992
filed with the Commission on August 3, 1992, file
no. 0-8445).
10.09 Area Development Agreement by and between Steak n
Shake, Inc. and Consolidated Restaurants Southeast,
Inc. (currently Kelley Restaurants, Inc.) dated June 12,
1991 for Atlanta, Georgia area. (Incorporated by
reference to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 1, 1992
filed with the Commission on August 3, 1992, file
no. 0-8445).
10.10 Letter agreement between Ladenburg, Thalmann &
Co. Inc. and the Registrant dated May 15, 1991 and
related warrant agreement dated September 26, 1991.
(Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal
quarter ended July 1, 1992 filed with the
Commission on August 3, 1992, file no. 0-8445).
10.11 Letter agreement between the Prudential Insurance
Company of America and the Registrant dated August 3,
1992. (Incorporated by reference to Exhibit 10.18
to Registration Statement on Form S-2 filed
with the Commission on August 6, 1992, file no. 33-
50568).
10.12 Letter from the Registrant to Alan B. Gilman dated
June 27, 1992. (Incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 1, 1992 filed with
the Commission on August 3, 1992, file no. 0-8445).
10.13 Consolidated Products, Inc. 1992 Employee Stock
Purchase Plan. (Incorporated by reference in to the
Appendix to the Registrant's definitive Proxy
Statement dated January 12, 1993 related to its
1993 Annual Meeting of Shareholders filed with the
Commission on January 13, 1993, file no. 0-8445).
15
<PAGE>
Exhibit Page Number
Number in
Assigned in Sequential
Regulation Numbering
S-K Item 601 Description of Exhibit System
- ------------ ---------------------- ----------
10.14 Consolidated Products, Inc. 1992 Employee Stock
Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated January 12, 1993 related to its
1993 Annual Meeting of Shareholders filed with the
commission on January 13, 1993, file no. 0-8445).
10.15 Consolidated Products, Inc. 1994 Capital
Appreciation Plan. (Incorporated by reference to
the Appendix to the Registrant's definitive Proxy
Statement dated January 13, 1994 related to the
1994 Annual Meeting of Shareholders filed with the
Commission on January 14, 1994, file no. 0-8445).
10.16 Consolidated Products, Inc. 1994 Nonemployee
Director Stock Option Plan. (Incorporated by
reference to the Appendix to the Registrant's
definitive Proxy Statement dated January 13, 1994
related to its 1994 Annual Meeting of Shareholders
filed with the Commission on January 14, 1994, file
no. 0-8445).
10.17 Consolidated Products, Inc. 1995 Employee Stock
Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated January 12, 1995 related to its
1995 Annual Meeting of Shareholders filed with the
Commission on January 17, 1995, file no. 0-8445).
10.18 Consolidated Products, Inc. 1995 Nonemployee
Director Stock Option Plan. (Incorporated by
reference to the Appendix to the Registrant's
definitive Proxy Statement dated January 12, 1995
related to its 1995 Annual Meeting of Shareholders
filed with the Commission on January 17, 1995, file
no. 0-8445).
(11) 11.01 Computation of Earnings Per Share. (Incorporated
by reference to the Notes to the Consolidated
Financial Statements included as a part of this
Report).
(15) Not applicable.
(18) Not applicable.
(19) Not applicable.
(22) Not applicable.
(23) Not applicable.
(24) Not applicable.
(27) 27.01 Financial Data Schedule. 17
(99) Not applicable.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF APRIL 12, 1995 AND THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE TWENTY-EIGHT WEEKS ENDED APRIL
12, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-27-1995
<PERIOD-START> SEP-29-1994
<PERIOD-END> APR-12-1995
<CASH> 1,757,013<F1>
<SECURITIES> 0
<RECEIVABLES> 3,495,613
<ALLOWANCES> 0
<INVENTORY> 3,420,567
<CURRENT-ASSETS> 13,753,572
<PP&E> 115,198,704
<DEPRECIATION> 49,105,474
<TOTAL-ASSETS> 88,153,680
<CURRENT-LIABILITIES> 27,566,185
<BONDS> 0
<COMMON> 6,235,145
0
0
<OTHER-SE> 29,708,392
<TOTAL-LIABILITY-AND-EQUITY> 88,153,680
<SALES> 94,341,756
<TOTAL-REVENUES> 96,033,947
<CGS> 25,074,100
<TOTAL-COSTS> 69,076,815<F2>
<OTHER-EXPENSES> 7,520,838<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,277,877
<INCOME-PRETAX> 6,536,012
<INCOME-TAX> 2,500,000
<INCOME-CONTINUING> 4,036,012
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,036,012
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.35
<FN>
<F1>Cash includes cash equivalents of $1,105,000.
<F2>Includes Restaurant Operating Costs of $44,002,715.
<F3>Includes Depreciation and Amortization and Rent of $4,488,707 and
$3,032,131, respectively.
</FN>
</TABLE>
