<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 10, 1996
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 8, 1996: 13,848,448
The Index to Exhibits is located at Page 12. Total Pages 14
<PAGE>
CONSOLIDATED PRODUCTS, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial
Position - April 10, 1996 (Unaudited)
and September 27, 1995 3
Consolidated Statements of Earnings
(Unaudited) Sixteen and Twenty-Eight
Weeks Ended April 10, 1996 and
April 12, 1995 4
Consolidated Statements of Cash Flows
(Unaudited) Twenty-Eight Weeks Ended
April 10, 1996 and April 12, 1995 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 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 10 SEPTEMBER 27
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash, including cash equivalents
of $700,000 in 1996
and $615,000 in 1995 $ 1,145,585 $ 1,350,139
Receivables 2,279,787 1,973,102
Sale and leaseback properties
under contract 1,829,894 3,150,000
Inventories 3,614,895 3,619,687
Deferred income taxes 747,000 747,000
Other current assets 4,078,072 3,611,261
------------ -----------
Total current assets 13,695,233 14,451,189
------------ -----------
PROPERTY AND EQUIPMENT
Land 27,799,467 21,425,346
Buildings 24,261,501 18,138,352
Leasehold improvements 34,531,256 31,062,184
Equipment 57,686,177 51,194,014
Construction in progress 7,942,590 7,957,312
------------ -----------
152,220,991 129,777,208
Less accumulated depreciation
and amortization (54,287,515) (51,664,749)
------------ -----------
Net property and equipment 97,933,476 78,112,459
------------ -----------
LEASED PROPERTY
Leased property under capital
leases, less accumulated amortization
of $9,374,781 in 1996
and $9,079,286 in 1995 3,506,625 3,802,939
Net investment in direct
financing leases 1,967,313 2,167,297
------------ -----------
Net leased property 5,473,938 5,970,236
------------ -----------
DEFERRED INCOME TAXES 558,000 558,000
OTHER ASSETS 639,083 741,913
------------ -----------
$118,299,730 $99,833,797
------------ -----------
------------ -----------
<CAPTION>
APRIL 10 SEPTEMBER 27
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,330,249 $ 9,242,512
Accrued expenses
Salaries and wages 4,191,389 4,402,889
Insurance 3,037,312 2,938,352
Property taxes 1,866,431 1,940,653
Other 5,703,452 5,010,300
Current portion of obligations
under capital leases 1,245,492 1,170,946
Current portion of senior note 5,000,000 4,250,000
------------ -----------
Total current liabilities 31,374,325 28,955,652
------------ -----------
OBLIGATIONS UNDER
CAPITAL LEASES 7,573,693 8,262,690
REVOLVING LINE OF CREDIT 10,000,000 --
SENIOR NOTE 20,000,000 20,000,000
SHAREHOLDERS' EQUITY
Common stock -- $.50 stated value,
25,000,000 shares authorized --
shares issued: 13,879,680 in 1996;
12,471,879 in 1995 6,939,840 6,235,940
Additional paid-in capital 50,085,054 31,952,996
Retained earnings (deficit) (6,167,515) 6,405,050
Less treasury stock -- at cost:
66,747 shares in 1996;
139,564 shares in 1995 (1,505,667) (1,978,531)
------------ -----------
Total shareholders' equity 49,351,712 42,615,455
------------ -----------
$118,299,730 $99,833,797
------------ -----------
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
SIXTEEN TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED
----------- ------------
APRIL 10 APRIL 12 APRIL 10 APRIL 12
1996 1995 1996 1995
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 65,017,847 $ 54,710,685 $ 112,025,399 $ 94,341,756
Franchise fees 817,423 578,327 1,382,480 928,905
Other, net 720,832 411,769 1,259,688 763,286
------------ ------------ ------------ -------------
66,556,102 55,700,781 114,667,567 96,033,947
------------ ------------ ------------ -------------
COSTS AND EXPENSES
Cost of sales 17,421,914 14,624,999 29,761,061 25,074,100
Restaurant operating costs 29,783,276 25,873,373 51,048,581 44,002,715
Selling, general and administrative 8,064,282 6,278,361 13,352,299 10,622,405
Depreciation and amortization 2,551,947 2,058,433 4,378,067 3,513,463
Amortization of pre-opening costs 955,540 592,353 1,612,734 975,244
Rent 2,194,758 1,785,608 3,834,980 3,032,131
Interest 968,769 1,305,781 1,640,298 2,277,877
------------ ------------ ------------ -------------
61,940,486 52,518,908 105,628,020 89,497,935
------------ ------------ ------------ -------------
EARNINGS BEFORE INCOME TAXES 4,615,616 3,181,873 9,039,547 6,536,012
INCOME TAXES 1,790,000 1,225,000 3,460,000 2,500,000
------------ ------------ ------------ -------------
NET EARNINGS $ 2,825,616 $ 1,956,873 $ 5,579,547 $ 4,036,012
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary $ .20 $ .20 $ .40 $ .42
Fully diluted $ .20 $ .15 $ .40 $ .32
WEIGHTED AVERAGE SHARES
AND EQUIVALENTS:
Primary 14,084,311 9,953,848 14,056,957 9,710,122
Fully diluted 14,120,734 13,883,119 14,094,189 13,858,535
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED
-------------------------
APRIL 10 APRIL 12
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 5,579,547 $ 4,036,012
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 4,378,067 3,513,463
Amortization of pre-opening costs 1,612,734 975,244
Changes in receivables and inventories (294,245) 267,186
Changes in other assets (1,806,717) (1,905,399)
Changes in income taxes payable 556,513 574,173
Changes in accounts payable
and accrued expenses 979,383 1,594,067
(Gain) loss on disposal of property 70,066 (19,726)
------------ ------------
Net cash provided by operating activities 11,075,348 9,035,020
------------ ------------
INVESTING ACTIVITIES
Additions of property and equipment (26,165,718) (21,064,062)
Net proceeds from disposal of
property and equipment 3,645,432 1,428,630
------------ ------------
Net cash used in investing activities (22,520,286) (19,635,432)
------------ ------------
FINANCING ACTIVITIES
Principal payments on debt
and capital lease obligations (4,698,581) (3,957,271)
Proceeds from debt 5,000,000 --
Proceeds from revolving line of credit 10,000,000 5,500,000
Proceeds from equipment and property leases 429,608 417,064
Lease payments on subleased properties (376,441) (367,975)
Cash dividends paid in lieu of fractional shares (13,062) (8,748)
Cash paid in lieu of fractional shares -- (4,260)
Proceeds from exercise of stock options 360,192 58,606
Proceeds from employee stock purchase plan 538,668 393,850
------------ ------------
Net cash provided by financing activities 11,240,384 2,031,266
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (204,554) (8,569,146)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,350,139 10,326,159
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,145,585 $ 1,757,013
------------ ------------
------------ ------------
</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 10, 1996, the consolidated statements of earnings
for the sixteen and twenty-eight weeks ended April 10, 1996 and April 12, 1995
and the consolidated statements of cash flows for the twenty-eight weeks ended
April 10, 1996 and April 12, 1995 have been included. Certain 1995 items have
been reclassified to conform to the 1996 presentation.
The consolidated statements of earnings for the sixteen and twenty-
eight weeks ended April 10, 1996 and April 12, 1995 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 27, 1995.
SEASONALITY
Historically, the influence of the seasonality 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.
INTEREST AND INCOME TAXES PAID
Cash payments for interest during the sixteen weeks ended April 10, 1996
and April 12, 1995 amounted to $1,301,000 and $1,432,000, respectively. Cash
payments for income taxes during the sixteen weeks ended April 10, 1996 and
April 12, 1995 amounted to $2,764,000 and $1,586,000, respectively.
SHAREHOLDERS' EQUITY
The number of shares issued as of April 10, 1996 on the consolidated
statement of financial position includes 1,246,670 shares which were distributed
on January 15, 1996 pursuant to a 10% stock dividend declared on December 12,
1995 to shareholders of record on December 22, 1995.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company is required to adopt the provisions of this
Statement for its fiscal year beginning September 26, 1996. The Company will
continue to measure compensation cost in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and provide the
necessary footnote disclosure in accordance with Statement of Financial
Accounting Standards No. 123.
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. Primary earnings per share
in Fiscal 1996 are not comparable to Fiscal 1995 because of the increase in the
number of shares outstanding arising from the conversion of the Company's 10%
Subordinated Convertible Debentures ("the Debentures") into the Company's common
stock effective April 3, 1995.
Fully diluted earnings per common and common equivalent share assumes, in
addition to the above, that 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 and equivalents for the sixteen and twenty-eight weeks ended April 12,
1995 have been restated to give effect to the 10% stock dividend declared on
December 12, 1995.
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 10 APRIL 12 APRIL 10 APRIL 12
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average shares
outstanding 13,774,860 9,618,655 13,727,947 9,389,322
Share equivalents 309,451 335,193 329,010 320,800
----------- ----------- ----------- -----------
Weighted average shares
and equivalents 14,084,311 9,953,848 14,056,957 9,710,122
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
FULLY DILUTED:
Weighted average shares
outstanding 13,774,860 9,618,655 13,727,947 9,389,322
Share equivalents 345,874 367,134 366,242 372,513
Conversion of Debentures -- 3,897,330 -- 4,096,700
----------- ----------- ----------- -----------
Weighted average shares
and equivalents 14,120,734 13,883,119 14,094,189 13,858,535
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET EARNINGS:
Net earnings for
primary earnings per
share computation $ 2,825,616 $ 1,956,873 $ 5,579,547 $ 4,036,012
Add - interest
expense, net of
income taxes,
applicable to
Debentures -- 177,682 -- 333,003
----------- ----------- ------------ -----------
Net earnings, as
adjusted for fully
diluted earnings
per share computation $ 2,825,616 $ 2,134,555 $ 5,579,547 $ 4,369,015
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</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 for two years prior to the fiscal period and
which remained open through the end of the fiscal period 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
----------------------------------
4/10/96 4/12/95 4/10/96 4/12/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Net sales 97.7% 98.2% 97.7% 98.2%
Franchise fees 1.2 1.0 1.2 1.0
Other, net 1.1 0.8 1.1 0.8
----- ----- ----- -----
100.0 100.0 100.0 100.0
----- ----- ----- -----
COSTS AND EXPENSES
Cost of sales 26.2 26.3 26.0 26.1
Restaurant operating costs 44.8 46.4 44.5 45.8
Selling, general and administrative 12.1 11.3 11.7 11.1
Depreciation and amortization 3.8 3.7 3.8 3.7
Amortization of pre-opening costs 1.4 1.1 1.4 1.0
Rent 3.3 3.2 3.3 3.2
Interest 1.5 2.3 1.4 2.3
----- ----- ----- -----
93.1 94.3 92.1 93.2
----- ----- ----- -----
EARNINGS BEFORE INCOME TAXES 6.9 5.7 7.9 6.8
INCOME TAXES 2.7 2.2 3.0 2.6
----- ----- ----- -----
NET EARNINGS 4.2% 3.5% 4.9% 4.2%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
COMPARISON OF SIXTEEN WEEKS ENDED APRIL 10, 1996 TO SIXTEEN WEEKS ENDED APRIL
12, 1995
REVENUES
Revenues increased $10,855,000, or 19.5%, due primarily to an increase in
Steak n Shake's net sales of $10,363,000. The increase in net sales of Steak n
Shake was due to the opening of 44 new, company-operated restaurants since the
first quarter of fiscal 1994 (which represents non-same store sales of new
units) partially offset by a 0.6% decrease in same store sales and the closure
of six low-volume units. Many of the new restaurants are located in the
Company's core markets in Missouri, Illinois, Indiana and central Florida,
resulting in increased market share. The decrease in same store sales was
attributable to a decrease of 4.5% in customer counts partially offset by a 4.1%
increase in check average. After consideration of the cannibalization effect of
new restaurants on existing restaurants, Steak n Shake's same store sales
increased 1.8%. The decrease in net sales of $56,000 in the specialty
restaurants resulted from a 13.4% decrease in same store sales partially offset
by the opening of a new specialty restaurant in the first quarter of fiscal
1996. The decrease in same store sales was attributable to a 15.5% decrease in
customer counts partially offset by a 2.4% increase in check average.
Franchise fees increased $239,000 due to the opening of 18 Steak n Shake
franchised units since the first quarter of fiscal 1995.
Other revenues increased $309,000 due to the increase in the number of
properties leased to franchisees by the Company's franchise financing
subsidiary.
8
<PAGE>
COSTS AND EXPENSES
Cost of sales increased $2,797,000, or 19.1%, as a result of sales
increases. As a percentage of revenues, cost of sales decreased to 26.2% from
26.3%, primarily as a result of a menu price increase and lower beef costs.
Restaurant operating costs increased $3,910,000, or 15.1%, due to higher
labor costs and other operating costs resulting from the increased sales volume.
Restaurant operating costs, as a percentage of revenues, decreased to 44.8% from
46.4%, primarily as a result of the increase in sales and improved labor
utilization.
Selling, general and administrative expenses increased $1,786,000 or 28.4%.
As a percentage of revenues, selling, general and administrative expenses
increased to 12.1% from 11.3%. Marketing expense, as a percentage of revenues,
increased to 3.2% from 2.6% and accounted for $664,000 of the increase,
primarily as a result of increased television advertising. 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 $494,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the first quarter of
fiscal 1995.
The $363,000 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 $409,000, or 22.9%, as a result of sale and
leaseback transactions since the first quarter of fiscal 1995 involving eight
company-owned properties and a net increase in the number of other leased
properties.
Interest expense decreased $337,000 as a result of the conversion of the
10% Subordinated Convertible Debentures ("the Debentures") on April 3, 1995 and
the Company's adoption of the Statement of Financial Accounting Standards No.
34, "Capitalization of Interest" during fiscal 1995 partially offset by interest
expense related to the additional borrowings under the Company's revolving line
of credit and senior note agreements.
INCOME TAXES
The Company's effective income tax rate increased to 38.8% from 38.5% for
the quarter ended April 12, 1995 and from 37.8% for the year ended September 27,
1995. The increase from the prior year and from the fiscal year ended September
27, 1995 resulted from a decrease in federal tax credits as a percentage of
earnings before income taxes.
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 taxpaying 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 $869,000, or 44.4%, primarily as a result of the
increase in Steak n Shake's operating earnings. Primary earnings per share for
the sixteen weeks ended April 10, 1996 and April 12, 1995 are not comparable
because of the increase in the number of shares outstanding arising from the
conversion of the Debentures into the Company's common stock effective April 3,
1995.
9
<PAGE>
COMPARISON OF TWENTY-EIGHT WEEKS ENDED APRIL 10, 1996 TO TWENTY-EIGHT WEEKS
ENDED APRIL 12, 1995
REVENUES
Revenues increased $18,634,000, or 19.4%, due primarily to an increase in
Steak n Shake's net sales of $17,928,000. The increase in net sales of Steak n
Shake was due to the opening of 47 new units since the beginning of fiscal 1994
(which represents non-same store sales of new units) partially offset by a
decrease in same store sales of 1.3% and the closure of six low-volume units.
The decrease in same store sales was attributable to a decrease of 4.1% in
customer counts partially offset by a 2.9% increase in check average. After
consideration of the cannibalization effect of new restaurants on existing
restaurants, same store sales increased 1.1%. The soft retail environment and
inclement weather late in the quarter ended December 20, 1995 had a negative
impact on Steak n Shake's sales. The decrease in net sales of $244,000 in the
specialty restaurants resulted from a 14.0% decrease in same store sales and the
closure of a specialty restaurant in the first quarter of fiscal 1995, partially
offset by the opening of a new specialty restaurant in the first quarter of
fiscal 1996. The decrease in same store sales was attributable to a 16.3%
decrease in customer counts partially offset by a 2.8% increase in check
average.
Franchise fees increased $454,000 due to the opening of 20 Steak n Shake
franchised units since the beginning of fiscal 1995.
Other revenues increased $496,000 due to the increase in the number of
properties leased to franchisees by the Company's franchise financing
subsidiary.
COSTS AND EXPENSES
Cost of sales increased $4,687,000, or 18.7%, as a result of sales
increases. As a percentage of revenues, cost of sales decreased slightly to
26.0% from 26.1%, primarily as a result of menu price increases and lower beef
costs.
Restaurant operating costs increased $7,046,000, or 16.0%, due to higher
labor costs and other operating costs resulting from the increased sales volume.
Restaurant operating costs, as a percentage of revenues, decreased to 44.5% from
45.8%, primarily as a result of the increase in sales and improved labor
utilization.
Selling, general and administrative expenses increased $2,730,000 or 25.7%.
As a percentage of revenues, selling, general and administrative expenses
increased to 11.7% from 11.1%. Marketing expense, as a percentage of revenues,
increased to 3.1% from 2.7% and accounted for $988,000 of the increase,
primarily as a result of increased television advertising. 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 $865,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1995.
The $637,000 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 $803,000, or 26.5%, as a result of sale and
leaseback transactions since the beginning of fiscal 1995 involving eight
company-owned properties and a net increase in the number of other leased
properties.
Interest expense decreased $638,000 as a result of the conversion of the
10% Subordinated Convertible Debentures on April 3, 1995 and the Company's
adoption of the Statement of Financial Accounting Standards No. 34,
"Capitalization of Interest" during fiscal 1995 partially offset by borrowings
under the Company's revolving line of credit and senior note agreements.
10
<PAGE>
INCOME TAXES
The Company's effective income tax rate increased slightly to 38.3% from
38.2% for the twenty-eight weeks ended April 12, 1995 and from 37.8% for the
year ended September 27, 1995. The increase from the prior year and from the
fiscal year ended September 27, 1995 resulted from a decrease in federal tax
credits as a percentage of earnings before income taxes.
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 taxpaying 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 $1,544,000, or 38.2%, primarily as a result of the
increase in Steak n Shake's operating earnings. The decrease in primary
earnings per share results from an increase in the number of shares outstanding
arising from the conversion of the Debentures into the Company's common stock
effective April 3, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Twelve Steak n Shake restaurants, including five franchised units, were
opened during the quarter ended April 10, 1996 and 11 additional units,
including two franchised units, are currently under construction. For the
twenty-eight weeks ended April 10, 1996, capital expenditures totaled
$26,166,000 as compared to $21,064,000 for the comparable prior year period.
In February 1996, the Company announced an expansion of its Steak n Shake
growth strategy to an annual growth rate of twenty percent for company-operated
restaurants. This accelerated expansion target calls for 240 new company-
operated restaurants to be opened during the five year period 1997-2001,
bringing the total number of restaurants to more than 600 by year end 2001.
For the twenty-eight weeks ended April 10, 1996, the Company's capital
expenditures and the principal repayment on its senior note were funded by the
Company's existing cash and cash equivalents, cash flows from operations,
proceeds from three sale and leaseback transactions and debt borrowings.
The Company expects to fund capital expenditures, including the development
of the 240 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 and the issuance of equity and/or debt securities.
The Company's debt agreements contain restrictions which, among other
things, require the Company to maintain certain financial ratios.
11
<PAGE>
PART II. OTHER INFORMATION
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 21, 1996, 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 12,603,875 337 8,213
Alva T. Bonda 12,576,219 1,241 34,965
Neal Gilliatt 12,576,029 1,970 34,426
Alan B. Gilman 12,606,039 1,281 5,105
E. W. Kelley 12,578,527 1,837 32,061
Charles E. Lanham 12,604,752 1,264 6,409
J. Fred Risk 12,590,933 3,192 18,300
James Williamson, Jr. 12,603,327 280 8,818
2. A proposal to approve the adoption by the Board of Directors of the
Company's 1996 Nonemployee Director Stock Option Plan was adopted by
the vote of 11,869,569 shares FOR, 239,047 shares AGAINST and 503,809
shares ABSTAIN.
3. 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 25, 1996 was approved by the vote of 12,081,693
shares FOR, 21,133 shares AGAINST and 509,599 shares ABSTAIN.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
(2) Not Applicable
(4) 4.01 Specimen certificate representing Common Stock of
Consolidated Products, Inc. (formerly Steak n Shake,
Inc.). (Incorporated by reference to the Exhibits to
Registration Statement No. 2-80542 on Form S-8 filed
with the Commission on April 7, 1989).
4.02 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 Rule 601 of the Securities and
Exchange Commission), relating to a $30,000,000
revolving line of credit. (Incorporated by reference to
the Exhibits to the Registrant's Report on Form 10-Q
for the fiscal quarter ended December 21, 1994).
4.03 Note Purchase Agreement by and Between Consolidated
Products, Inc. and The Prudential Insurance Company of
America dated as of September 27 1995 related to
$39,250,000 senior note agreement and private shelf
facility. (Incorporated by reference to the Exhibits to
the Registrant's Report on Form 8-K dated September 26,
1995).
12
<PAGE>
4.04 First Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. dated September 26,
1995. (Incorporated by reference to the Exhibits to the
Registrant's Report on Form 8-K dated September 26
1995).
(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).
10.02 Consolidated Products, Inc. Executive Incentive Bonus
Plan. (Incorporated by reference to the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 1, 1992).
10.03 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).
10.04 Employment Agreement by and between Richard C. May and
the Registrant dated July 19, 1991. (Incorporated by
reference to the Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended July
1, 1992).
10.05 Consultant Agreement by and between James Williamson,
Jr. and the Registrant dated November 20, 1990.
(Incorporated by reference to the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 1, 1992).
10.06 Memorandum agreement between Neal Gilliatt and the
Registrant dated July 30, 1991. (Incorporated by
reference to the Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended July
1, 1992).
10.07 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 Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 1, 1992).
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 Atlanta, Georgia area. (Incorporated by
reference to the Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended July
1, 1992).
10.09 Letter from the Registrant to Alan B. Gilman dated June
27, 1992. (Incorporated by reference to the Exhibits
to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 1, 1992).
10.10 Consolidated Products, Inc. 1992 Employee Stock
Purchase Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy Statement
dated January 12, 1993 related to the 1993 Annual
Meeting of Shareholders).
10.11 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 the 1993 Annual Meeting of
Shareholders).
13
<PAGE>
10.12 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).
10.13 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 the 1994 Annual
Meeting of Shareholders).
10.14 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 the 1995 Annual Meeting of
Shareholders).
10.15 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 the 1995 Annual
Meeting of Shareholders).
10.16 Consolidated Products, Inc. 1996 Nonemployee Director
Stock Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy Statement
dated January 15, 1996 related to the 1996 Annual
Meeting of Shareholders).
(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).
(27) 27.01 Financial data schedule. (Electronic filing only).
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the sixteen weeks ended April
10, 1996.
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 20, 1996.
CONSOLIDATED PRODUCTS, INC.
(Registrant)
/s/ Kevin F. Beauchamp
--------------------------------------
By Kevin F. Beauchamp
Vice President and Controller
On Behalf of the Registrant and as
Principal Accounting Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF APRIL 10, 1996 AND THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE TWENTY-EIGHT WEEKS ENDED APRIL 10,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-25-1996
<PERIOD-START> SEP-28-1995
<PERIOD-END> APR-10-1996
<CASH> 1,145,585<F1>
<SECURITIES> 0
<RECEIVABLES> 2,279,787
<ALLOWANCES> 0
<INVENTORY> 3,614,895
<CURRENT-ASSETS> 13,695,233
<PP&E> 152,220,991
<DEPRECIATION> (54,287,515)
<TOTAL-ASSETS> 118,299,730
<CURRENT-LIABILITIES> 31,374,325
<BONDS> 0
0
0
<COMMON> 6,939,840
<OTHER-SE> 42,411,872
<TOTAL-LIABILITY-AND-EQUITY> 118,299,730
<SALES> 112,025,399
<TOTAL-REVENUES> 114,667,567
<CGS> 29,761,061
<TOTAL-COSTS> 80,809,642<F2>
<OTHER-EXPENSES> 9,825,781<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,640,298
<INCOME-PRETAX> 9,039,547
<INCOME-TAX> 3,460,000
<INCOME-CONTINUING> 5,579,547
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,579,547
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
<FN>
<F1>Cash includes cash equivalents of $700,000.
<F2>Includes restaurant operating costs of $51,048,581
<F3>Includes depreciation and amortization and rent of $5,990,801 and
$3,834,980, respectively.
</FN>
</TABLE>
