<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 TWELVE WEEKS ENDED JULY 1, 1998
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 August 3, 1998: 20,971,803
The Index to Exhibits is located at Page 14. Total Pages 19
<PAGE>
CONSOLIDATED PRODUCTS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Position -
July 1, 1998 (Unaudited) and September 24, 1997 3
Consolidated Statements of Earnings (Unaudited)
Twelve and Forty Weeks Ended July 1, 1998
and July 2, 1997 4
Consolidated Statements of Cash Flows (Unaudited)
Forty Weeks Ended July 1, 1998 and
July 2, 1997 5
Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
JULY 1, SEPTEMBER 24,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash, including cash equiva-
lents of $345,000 in 1998
and $2,300,000 in 1997 $ 1,817,704 $ 2,668,232
Receivables 2,647,232 4,021,798
Sale and leaseback properties
under contract 16,217,201 885,000
Inventories 4,266,497 4,592,570
Deferred income taxes 1,971,000 1,971,000
Other current assets 6,474,312 5,853,527
------------- -------------
Total current assets 33,393,946 19,992,127
------------- -------------
PROPERTY AND EQUIPMENT
Land 42,569,158 41,085,184
Buildings 37,297,447 38,814,164
Land and Leasehold improvements 42,083,033 42,988,402
Equipment 76,861,465 66,313,931
Construction in progress 9,514,780 9,998,783
------------- -------------
208,325,883 199,200,464
Less accumulated depreciation
and amortization (62,458,791) (56,360,238)
------------- -------------
Net property and equipment 145,867,092 142,840,226
------------- -------------
LEASED PROPERTY
Leased property under capital
leases, less accumulated amorti-
zation of $9,596,682 in 1998
and $9,722,025 in 1997 2,305,508 2,710,269
Net investment in direct
financing leases 901,005 1,208,032
------------- -------------
Net leased property 3,206,513 3,918,301
------------- -------------
OTHER ASSETS 477,690 515,760
------------- -------------
$ 182,945,241 $ 167,266,414
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
JULY 1, SEPTEMBER 24,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 14,224,951 $ 14,253,267
Accrued expenses 23,654,578 22,101,998
Current portion of senior note 738,889 738,889
Current portion of obligations
under capital leases 1,348,263 1,380,249
------------- -------------
Total current liabilities 39,966,681 38,474,403
------------- -------------
DEFERRED INCOME TAXES 1,205,000 1,205,000
OBLIGATIONS UNDER
CAPITAL LEASES 4,350,543 5,375,754
SENIOR NOTE 28,522,222 29,261,111
SHAREHOLDERS' EQUITY
Common stock -- $.50 stated value
50,000,000 shares authorized --
shares issued: 21,090,109 in 1998;
20,867,475 in 1997 10,545,055 10,433,738
Additional paid-in capital 92,871,497 91,143,921
Retained earnings (deficit) 8,702,730 (5,396,965)
Less: Unamortized value of
restricted shares (1,201,089) (1,839,982)
Treasury stock -- at cost
147,960 shares in 1998:
114,574 shares in 1997 (2,017,398) (1,390,566)
------------- -------------
Total shareholders' equity 108,900,795 92,950,146
------------- -------------
$ 182,945,241 $ 167,266,414
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE FORTY
WEEKS ENDED WEEKS ENDED
--------------------------- -------------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
1998 1997 1998 1997
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 71,246,080 $ 64,173,847 $ 224,357,654 $ 195,603,671
Franchise fees 796,154 842,603 2,512,071 2,353,309
Other - net 490,894 708,262 1,682,425 1,602,734
------------ ------------ ------------- -------------
72,533,128 65,724,712 228,552,150 199,559,714
------------ ------------ ------------- -------------
COSTS AND EXPENSES
Cost of sales 17,935,118 16,732,165 57,169,418 51,481,806
Restaurant operating costs 32,311,190 28,599,552 103,195,220 87,567,081
General and administrative 5,257,739 4,954,117 17,641,736 16,031,364
Depreciation and amortization 2,873,387 2,479,538 9,374,914 7,928,365
Rent 2,377,515 2,020,523 7,345,469 6,321,870
Marketing 2,225,075 2,011,481 7,036,900 6,038,581
Amortization of pre-opening costs 660,946 812,072 2,550,389 2,672,323
Interest 489,920 879,633 1,977,389 2,870,232
------------ ------------ ------------- -------------
64,130,890 58,489,081 206,291,435 180,911,622
------------ ------------ ------------- -------------
EARNINGS BEFORE INCOME TAXES 8,402,238 7,235,631 22,260,715 18,648,092
INCOME TAXES 3,080,000 2,680,000 8,140,000 7,060,000
------------ ------------ ------------- -------------
NET EARNINGS $ 5,322,238 $ 4,555,631 $ 14,120,715 $ 11,588,092
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Basic $ .25 $ .23 $ .68 $ .60
Diluted $ .25 $ .23 $ .67 $ .59
WEIGHTED AVERAGE SHARES
AND EQUIVALENTS:
Basic 20,911,894 19,400,674 20,839,243 19,307,655
Diluted 21,326,798 19,707,885 21,232,080 19,651,074
</TABLE>
4
SEE ACCOMPANYING NOTES.
<PAGE>
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
------------------------------
JULY 1, JULY 2,
1997 1998
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 14,120,715 $ 11,588,092
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 9,397,478 7,928,365
Amortization of pre-opening costs 2,550,389 2,672,323
Changes in receivables and
inventories 1,740,956 (977,166)
Changes in other assets (2,455,922) (3,100,577)
Changes in income taxes payable 1,048,106 1,797,025
Changes in accounts payable
and accrued expenses 497,448 886,804
(Gain) Loss on disposal of
property (254,416) 2,932
-------------- -------------
Net cash provided by operating
activities 26,644,754 20,797,798
-------------- -------------
INVESTING ACTIVITIES
Additions of property and equipment (37,175,566) (42,521,847)
Net proceeds from disposal of
property and equipment 10,040,091 10,244,861
-------------- -------------
Net cash used in investing activities (27,135,475) (32,276,986)
-------------- -------------
FINANCING ACTIVITIES
Principal payments on debt
and capital lease obligations (6,512,257) (5,721,684)
Proceeds from long-term debt 5,000,000 5,000,000
Net proceeds from revolving line
of credit -- 12,000,000
Proceeds from equipment and property
leases 550,507 552,200
Lease payments on subleased properties (511,098) (571,164)
Cash paid in lieu of fractional shares (21,020) (20,519)
Proceeds from exercise of stock options 118,540 203,961
Proceeds from employee stock purchase
plan 1,015,521 746,296
-------------- -------------
Net cash (used in) provided by
financing activities (359,807) 12,189,090
-------------- -------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (850,528) 709,902
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,668,232 630,362
-------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,817,704 $ 1,340,264
-------------- -------------
-------------- -------------
</TABLE>
5
SEE ACCOMPANYING NOTES.
<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 July 1, 1998, the consolidated
statements of earnings for the twelve and forty weeks ended July 1, 1998 and
July 2, 1997 and the consolidated statements of cash flows for the forty
weeks ended July 1, 1998 and July 2, 1997 have been included.
The consolidated statements of earnings for the twelve and forty weeks
ended July 1, 1998 and July 2, 1997 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 24, 1997.
SEASONAL ASPECTS
The Company has substantial fixed costs which do not decline as a result
of a decline in sales. The Company's second fiscal quarter, which falls
during the winter months, usually reflects lower average weekly unit volumes,
and sales can be adversely affected by severe winter weather.
INTEREST AND INCOME TAXES PAID
Cash payments for interest during the forty weeks ended July 1, 1998 and
July 2, 1997 amounted to $2,379,000 and $3,200,000, respectively. Cash
payments for income taxes during the forty weeks ended July 1, 1998 and July
2, 1997 amounted to $7,389,000 and $5,265,000, respectively.
SHAREHOLDERS' EQUITY
The number of shares issued as of July 1, 1998 on the consolidated
statement of financial position includes 4,150,088 shares which were
distributed on December 26, 1997 pursuant to a five for four stock split
declared on December 3, 1997 to shareholders of record on December 15, 1997.
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share".
Statement No. 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Under the new
requirements for computing basic earnings per share, the dilutive effect of
stock options is excluded. Diluted earnings per share is very similar to the
previously reported primary earnings per share. All earnings per share
amounts have been presented, and where necessary, have been restated to
conform to the requirements of Statement No. 128.
Diluted earnings per common and common equivalent share is computed by
dividing net earnings by the weighted average number of outstanding and
common equivalent shares. Common equivalent shares include shares subject to
purchase under stock options.
Net earnings per common and common equivalent share and weighted average
shares and equivalents for the twelve and forty weeks ended July 2, 1997 have
been restated to give effect to the five for four stock split declared on
December 3, 1997 and distributed on December 26, 1997 to shareholders of
record on December 15, 1997.
6
<PAGE>
The following table presents information necessary to calculate basic
and diluted earnings per common and common equivalent share:
<TABLE>
<CAPTION>
TWELVE FORTY
WEEKS ENDED WEEKS ENDED
--------------------------- --------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
1998 1997 1998 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding-Basic 20,911,894 19,400,674 20,839,243 19,307,655
Share equivalents 414,904 307,211 392,837 343,419
------------ ------------ ------------ -----------
Weighted average shares and equivalents-Diluted 21,326,798 19,707,885 21,232,080 19,651,074
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
Net earnings for basic and diluted
earnings per share computation $ 5,322,238 $ 4,555,631 $ 14,120,715 $11,588,092
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
</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 at least six months prior to the beginning
of the fiscal periods being compared and which remained open through the end
of the fiscal period.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of items included in the Company's
consolidated statements of earnings for the periods indicated:
<TABLE>
<CAPTION>
TWELVE FORTY
WEEKS ENDED WEEKS ENDED
----------------------- -----------------------
7/1/98 7/2/97 7/1/98 7/2/97
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES
Net sales 98.2% 97.6% 98.2% 98.0%
Franchise fees 1.1 1.3 1.1 1.2
Other, net 0.7 1.1 0.7 0.8
------ ------ ------ ------
100.0 100.0 100.0 100.0
------ ------ ------ ------
COSTS AND EXPENSES
Cost of sales 25.2 (1) 26.1 (1) 25.5 (1) 26.3 (1)
Restaurant operating costs 45.4 (1) 44.6 (1) 46.0 (1) 44.8 (1)
General and administrative 7.2 7.5 7.7 8.0
Depreciation and amortization 4.0 3.8 4.1 4.0
Rent 3.3 3.1 3.2 3.2
Marketing 3.1 3.1 3.1 3.0
Amortization of pre-opening costs 0.9 1.2 1.1 1.3
Interest 0.7 1.3 0.9 1.4
------ ------ ------ ------
88.4 89.0 90.3 90.7
------ ------ ------ ------
EARNINGS BEFORE INCOME TAXES 11.6 11.0 9.7 9.3
INCOME TAXES 4.2 4.1 3.5 3.5
------ ------ ------ ------
NET EARNINGS 7.4% 6.9% 6.2% 5.8%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
- - -----------------
(1) Cost of sales and restaurant operating costs are expressed as a
percentage of net sales.
COMPARISON OF TWELVE WEEKS ENDED JULY 1, 1998 TO TWELVE WEEKS ENDED JULY 2,
1997
REVENUES
Net sales increased $7,072,000 to $71,246,000, or 11.0%, due to an
increase in Steak n Shake's net sales. The $7,889,000 increase, or 13.5%, in
net sales of Steak n Shake was due to the opening of 56 new units within the
last year pursuant to the Company's expansion plan (non-same stores) and a
1.3% increase in same store sales. The increase in same store sales was
attributable to a 3.1% increase in check average partially offset by a 1.8%
decrease in customer counts. Steak n Shake instituted price increases of
approximately 1.0% in October 1997 and March 1998.
Franchise fees decreased $46,000 to $796,000, due to a decrease in
initial and renewal franchise fees of $80,000. Eleven Steak n Shake
franchised units were opened since the beginning of the third quarter of
fiscal 1997 and one franchised unit was closed during the second quarter of
fiscal 1998. On December 22, 1997, the Company completed the purchase of
eight franchised Steak n Shake restaurants in southern Georgia and northwest
Florida.
Other revenues decreased $217,000 due to the reclassification of certain
transactions related to franchising activities.
8
<PAGE>
COSTS AND EXPENSES
Cost of sales increased $1,203,000, or 7.2%, as a result of sales
increases. As a percentage of net sales, cost of sales decreased to 25.2%
from 26.1%, primarily as a result of the higher level of Company-operated
restaurant sales in relation to product sales to franchisees, which have a
much higher cost of sales than restaurant sales, and menu price increases.
Restaurant operating costs increased $3,712,000, or 13.0%, due to
increased labor costs and other operating costs resulting primarily from the
increased sales volume. Restaurant operating costs, as a percentage of net
sales, increased to 45.4% from 44.6%. The higher labor costs were the result
of an increase in the average hourly employee rate, due in part to increases
in the minimum wage on September 1, 1997, and an increase in management
labor. The higher other operating costs were primarily the result of an
increase in repair and maintenance costs and utilities.
General and administrative expenses increased $304,000 or 6.1%. As a
percentage of revenues, general and administrative expenses decreased to 7.2%
from 7.5%. The increase in expenses was largely attributable to personnel
costs related to additional staffing in connection with the development of
new restaurants.
The $394,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1998
Rent expense increased $357,000, or 17.7%, as a result of sale and
leaseback transactions since the third quarter of fiscal 1997 involving
twelve Company-owned properties and a net increase in the number of other
leased properties, including the eight franchised Steak n Shake restaurants
purchased in fiscal 1998.
Marketing expense increased $214,000, or 10.6%. As a percentage of
revenues, marketing expense remained constant at 3.1%.
The $151,000 decrease in the amortization of pre-opening costs was
attributable to the timing of the number of new Company-operated units opened
during fiscal 1998 as compared to fiscal 1997.
Interest expense decreased $390,000 due to decreased borrowings under
the Company's revolving line of credit as a result of the paydown of this
credit facility with the proceeds from an equity offering in the fourth
quarter of fiscal 1997 and higher capitalized interest due to more units
under construction in the third quarter of fiscal 1998.
INCOME TAXES
The Company's effective income tax rate decreased to 36.7% from 37.0%
for the quarter ended July 2, 1997 and from 36.9% for the year ended
September 24, 1997. A valuation allowance against gross deferred tax assets
has not been provided based upon the expectation of future taxable income.
NET EARNINGS
Net earnings increased $767,000, or 16.8%, primarily as a result of the
increase in Steak n Shake's operating earnings and lower interest expense.
Diluted earnings per share increased from $.23 to $.25.
9
<PAGE>
COMPARISON OF FORTY WEEKS ENDED JULY 1, 1998 TO FORTY WEEKS ENDED JULY 2,
1997
REVENUES
Net sales increased $28,754,000 to $224,358,000, or 14.7%, due to an
increase in Steak n Shake's net sales. The increase of $30,510,000, or 17.3%
in net sales of Steak n Shake was due to the opening of 70 new units pursuant
to the Company's expansion plan (non-same stores) and a 0.3% increase in same
store sales. The increase in same store sales was attributable to a 3.0%
increase in check average partially offset by a decrease of 2.7% in customer
counts. Steak n Shake instituted price increases of approximately 1.0% in
March 1997, October 1997, and March 1998. After excluding units in close
proximity (generally three miles) to the new units opened during the periods,
Steak n Shake's same store sales increased 0.8% versus the prior year. At
July 1, 1998, 271 Steak n Shake restaurants, including 51 franchised units,
were being operated.
Franchise fees increased $159,000 to $2,512,000, as a result of higher
franchised unit sales volumes partially offset by lower initial franchise
fees. Eleven Steak n Shake franchised units were opened since the beginning
of the third quarter of fiscal 1997, including three in the first half of
1998, and one franchised unit was closed during the second quarter of fiscal
1998. On December 22, 1997, the Company completed the purchase of eight
franchised Steak n Shake restaurants Initial franchise fees were $65,000
lower than the prior year due to fewer franchised units openings in fiscal
1998.
COSTS AND EXPENSES
Cost of sales increased $5,688,000, or 11.0%, as a result of sales
increases. As a percentage of net sales, cost of sales decreased to 25.5%
from 26.3% primarily as a result of the higher level of Company-operated
restaurant sales in relation to the cost of product sales to franchisees and
menu price increases.
Restaurant operating costs increased $15,628,000, or 17.8%, due to
increased labor costs and other operating costs resulting primarily from the
higher sales volume. Restaurant operating costs, as a percentage of net
sales, increased to 46.0% from 44.8%. The higher labor costs were the result
of an increase in the average hourly employee rate, due in part to increases
in the minimum wage on September 1, 1997, and higher costs associated with
recruiting and training unit level restaurant management arising from new
restaurant development and management turnover. The higher other operating
costs were the result of an increase in repair and maintenance, utility, and
supply costs.
General and administrative expenses increased $1,610,000, or 10.0%. As a
percentage of revenues, general and administrative expenses decreased to 7.7%
from 8.0%. The increase in expenses was largely attributable to personnel
costs related to additional staffing in connection with the development of
new restaurants.
The $1,447,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1997.
Rent expense increased $1,024,000, or 16.2%, as a result of sale and
leaseback transactions since the beginning of fiscal 1997 involving eighteen
Company-owned properties and a net increase in the number of other leased
properties, including the eight franchised Steak n Shake units purchased
during fiscal 1998.
Marketing expense increased $998,000, or 16.5%. As a percentage of
revenues, marketing expense increased slightly to 3.1% from 3.0%.
The $122,000 decrease in the amortization of pre-opening costs was
attributable to the timing of the number of new Company-operated units opened
during fiscal 1998 as compared to fiscal 1997.
10
<PAGE>
Interest expense decreased $893,000 due to decreased borrowings under
the Company's revolving line of credit as a result of the paydown of this
credit facility with the proceeds from an equity offering in the fourth
quarter of fiscal 1997, partially offset by a reduction in capitalized
interest.
INCOME TAXES
The Company's effective income tax rate decreased to 36.6% from 37.9%
for the forty weeks ended July 2, 1997 and from 36.9% for the year ended
September 24, 1997. The decrease from the prior year resulted from lower
state income taxes. A valuation allowance against gross deferred tax
assets has not been provided based upon the expectation of future taxable
income.
NET EARNINGS
Net earnings increased $2,533,000, or 21.9%, primarily as a result of
the increase in Steak n Shake's operating earnings and lower interest expense
and income taxes. Diluted earnings per share increased from $.59 to $.67.
LIQUIDITY AND CAPITAL RESOURCES
Eighteen Company-operated Steak n Shake restaurants and five franchised
Steak n Shake restaurants were opened during the forty weeks ended July 1,
1998. In addition, the Company completed the purchase of eight franchised
Steak n Shake restaurants in southern Georgia and northwest Florida on
December 22, 1997. Subsequent to the end of the third quarter, two
Company-operated restaurants were opened. Sixteen Company-operated units and
two franchised restaurants are currently under construction. For the forty
weeks ended July 1, 1998, capital expenditures totaled $37,176,000 as
compared to $42,522,000 for the comparable prior year period.
The Company's five year growth program for 1998 through 2002 calls for
an annual increase of 20% in the number of Company-operated Steak n Shake
restaurants. In addition to the 290 Company-operated units contemplated by
this program, the Company will also expand its franchise system. The result
would be nearly 600 systemwide Steak n Shake restaurants by the end of fiscal
2002, of which approximately 500 would be Company-operated. The Company
intends to fund capital expenditures and meet working capital needs using
existing resources and anticipated cash flows 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.
During the forty weeks ended July 1, 1998, cash provided by operations
totaled $26,645,000, while cash generated by sale and leaseback transactions
and other disposals of property totaled $10,040,000. At July 1, 1998, the
Company had sale and leaseback properties under contract which, when closed,
will generate more than $16,000,000 in proceeds. These proceeds will be used
to finance the Company's expansion program. During the forty weeks ended
July 2, 1997, cash provided by operations totaled $20,798,000, while cash
generated by sale and leaseback transactions and other disposals of property
totaled $10,245,000.
Net cash used in financing activities for the forty weeks ended July 1,
1998, totaled $360,000. There were no borrowings under the Company's
$30,000,000 Revolving Credit Agreement (the "Revolving Credit Agreement") at
July 1, 1998 and September 24, 1997. During the forty weeks ended July 1,
1998, the Company borrowed $5,000,000 under its $50,000,000 ten-year Senior
Note Agreement and Private Shelf Facility (the "Senior Note Agreement"), the
proceeds of which were utilized to refinance a like amount under the prior
senior note agreement.
Net cash provided by financing activities for the forty weeks ended July
2, 1997 totaled $12,189,000. Net borrowings under the Revolving Credit
Agreement totaled $12,000,000 during the forty weeks ended July 2, 1997. The
proceeds from these borrowings were used together with cash provided by
operations, to fund the Company's expansion program. During the forty weeks
ended July 2, 1997, the Company borrowed $5,000,000 under the Senior Note
Agreement, the proceeds of which were utilized to refinance a like amount
under the prior senior note agreement.
11
<PAGE>
As of July 1, 1998 the Company had outstanding $29,261,111 under the
Senior Note Agreement. As of July 1, 1998 outstanding borrowings under the
Senior Note Agreement bear interest at an average fixed rate of 7.6%. The
Revolving Credit Agreement bears interest based on LIBOR plus 75 basis points
or the prime rate, at the election of the Company. During the second quarter
of fiscal 1998, the Company amended the Revolving Credit Agreement to extend
the maturity date to December 1999. There were no borrowings outstanding
under the Revolving Credit Agreement as of July 1, 1998. The Company expects
to be able to secure a new revolving credit facility upon expiration of the
current agreement. The Company's debt agreements contain restrictions, which
among other things require the Company to maintain certain financial ratios.
YEAR 2000 ISSUE
The Company has established a company-wide program to prepare our
computer systems and applications for the Year 2000 issue. The Company is
utilizing both internal and external resources to identify, modify and test
the systems for Year 2000 compliance. The Company currently anticipates that
business-critical systems will be replaced by new systems or reprogrammed and
tested by mid 1999.
Confirmations are being requested from our processing vendors and
suppliers to certify that plans are being developed to address the Year 2000
problem. Information will also be provided to all franchisees regarding the
potential risks associated with the Year 2000 problem. The Company intends to
make every reasonable effort to assess Year 2000 readiness of our critical
business partners and develop contingency plans.
The Company currently believes that, with the purchase of new software
or modifications to existing software, any internal Year 2000 compliance
issues will be remedied in a timely manner and will not pose significant
operational problems for the Company's computer systems as so modified and
converted. The costs solely related to addressing Year 2000 compliance issues
will not have a material effect on earnings or financial condition. However,
unanticipated failures by third parties to successfully address Year 2000
issues (to the extent alternative replacement vendors are not available on a
timely basis), as well as the Company's failure to execute its remediation
efforts, could have a material adverse effect on earnings or financial
condition.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities." SOP 98-5 broadly defines start-up activities as those one-time
activities that relate to, among other activities, the opening of a new
facility. The Company's current policy is to capitalize pre-opening costs,
which represent costs incurred before a new restaurant opens, and then
amortize those costs from the opening date over a one-year period. At July
1, 1998, unamortized pre-opening costs were $1,918,000. Under the new
requirements for reporting costs of start-up activities, companies will be
required to expense start-up costs as incurred. The provisions of SOP 98-5
are effective for fiscal years beginning after December 15, 1998. Upon
adoption, the Company will be required to write-off the unamortized
pre-opening cost balance as a cumulative change in accounting principle.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Report contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Those statements include, but may not be limited to, the discussions
of the Company's expansion strategy, franchising program, expectations
concerning its future profitability and capital sources and needs. Investors
in the Company's Common Stock are cautioned that reliance on any
forward-looking statement involves risks and uncertainties, and that although
the Company believes that the assumptions on which the forward-looking
statements contained herein are reasonable, any of those assumptions could
prove to be inaccurate, and as a result, the forward-looking statements based
on those assumptions also could be incorrect. The uncertainties in this
regard include, but are not limited to, those identified above. In light of
these and other uncertainties, the inclusion of a forward-looking statement
12
<PAGE>
herein should not be regarded as a representation by the Company that the
Company's plans and objectives will be achieved.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable until the Company's fiscal year beginning October 1, 1998.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no shareholder actions during the third quarter of 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
(2) Not Applicable
(3) 3.01 Articles of Incorporation of Consolidated
Products, Inc. (formerly Steak n Shake, Inc.),
as amended through November 1, 1981.
(Incorporated by reference to the Exhibits to
Registration Statement No. 2-75094).
3.02 Attachment to Joint Agreement of Merger dated
October 31, 1983, between Franklin Corporation
and Steak n Shake, Inc. (Incorporated by
reference to the Exhibits to Registrant's Form
10-K for the year ended September 28, 1983).
3.03 Bylaws of Consolidated Products, Inc. (formerly
Steak n Shake, Inc.) in effect at December 26,
1990. (Incorporated by reference to the
Exhibits to Registration Statement of Form S-2
filed with the Commission on August 6, 1992,
file no. 33-50568).
3.04 Articles of Amendment to Articles of Incorporation of
Steak n Shake, Inc. dated May 15, 1984.
(Incorporated by reference to the Exhibits to the
Registrant's Form 10-K Annual Report for the year
ended September 26, 1984).
3.05 Articles of Amendment to the Articles of
Incorporation of Consolidated Products, Inc. dated
May 8, 1998. (Incorporated by reference to the
Exhibits to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended April 8, 1998.)
(4) 4.01 Specimen certificate representing Common Stock of
Consolidated Products, Inc. (Incorporated by
reference to the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the quarterly
period ended April 9, 1997).
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).
14
<PAGE>
4.03 Note Purchase and Private Shelf 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).
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).
4.05 Second Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. effective January
31, 1997. (Incorporated by reference to the Exhibits
to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended April 9, 1997).
4.06 Amendment No. 1 to Note Purchase and Private Shelf
Agreement by and between Consolidated Products, Inc.
and The Prudential Insurance Company of America dated
as of April 28, 1997 related to senior note agreement
and private shelf facility. (Incorporated by
reference to the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the quarterly
period ended April 9, 1997).
4.07 Third Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. dated September 18,
1997. (Incorporated by reference to the Exhibits to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 24, 1997).
4.08 Fourth Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. dated February 9,
1998. (Incorporated by reference to the Exhibits to
the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 8, 1998).
(10) 10.01 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).
10.02 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).
10.03 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).
10.04 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).
15
<PAGE>
10.05 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).
10.06 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).
10.07 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).
10.08 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).
10.09 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 Consolidated Products, Inc. 1997 Employee Stock
Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated December 24, 1996 related to the 1997
Annual Meeting of Shareholders).
16
<PAGE>
10.16 Consolidated Products, Inc. 1997 Capital Appreciation
Plan. (Incorporated by reference to the Appendix to
the Registrant's definitive Proxy Statement dated
December 24, 1996 related to the 1997 Annual Meeting
of Shareholders).
10.17 Amendment to Consolidated Products, Inc. 1992
Employee Stock Purchase Plan. (Incorporated by
reference to the Appendix to the Registrant's
definitive Proxy Statement dated December 24, 1996
related to the 1997 Annual Meeting of Shareholders).
10.18 Consolidated Products, Inc. 1997 Nonemployee Director
Stock Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated December 24, 1996 related to the 1997
Annual Meeting of Shareholders).
10.19 Amendment to Consolidated Products, Inc. 1992
Employee Stock Purchase Plan. (Incorporated by
reference to the Appendix to the Registrant's
definitive Proxy Statement dated December 22, 1997
related to the 1998 Annual Meeting of Shareholders).
10.20 Consolidated Products, Inc. 1998 Nonemployee Director
Stock Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated December 22, 1997 related to the
1998 Annual Meeting of Shareholders).
(11) 11.01 Computation of Earnings Per Share.
(15) Not applicable.
(18) Not applicable.
(19) Not applicable.
(22) Not applicable.
(23) Not applicable.
(24) Not applicable.
(27) 27.01 Financial data schedule. (Electronic filing only).
(99) Not applicable.
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed during the twelve weeks ended
July 1, 1998.
17
<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 August 12, 1998.
CONSOLIDATED PRODUCTS, INC.
(Registrant)
/s/ Gregory G. Fehr
---------------------------------------
By Gregory G. Fehr
Vice President and Controller
On Behalf of the Registrant and as
Principal Accounting Officer
17
<PAGE>
EXHIBIT 11.01
CONSOLIDATED PRODUCTS, INC.
COMPUTATION OF EARNINGS PER SHARE
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings Per Share". Statement
No. 128 replaced the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share. Under the new
requirements for computing basic earnings per share, the dilutive effect of
stock options is excluded. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts have been presented, and where necessary, have been restated to
conform to the requirements of Statement No. 128.
Diluted earnings per common and common equivalent share is computed by
dividing net earnings by the weighted average number of outstanding and
common equivalent shares. Common equivalent shares include shares subject to
purchase under stock options.
Net earnings per common and common equivalent share and weighted average
shares and equivalents for the twelve and forty weeks ended July 2, 1997
have been restated to give effect to the five for four stock split declared
on December 3, 1997, distributed on December 26, 1997 to shareholders of
record on December 15, 1997.
The following table presents information necessary to calculate net
earnings per common and common equivalent share:
<TABLE>
<CAPTION>
TWELVE FORTY
WEEKS ENDED WEEKS ENDED
----------------------------- ------------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
1998 1997 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding-Basic 20,911,894 19,400,674 20,839,243 19,307,655
Share equivalents 414,904 307,211 392,837 343,419
----------- ----------- ------------ ------------
Weighted average shares and
equivalents-Diluted 21,326,798 19,707,885 21,232,080 19,651,074
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Net earnings:
Net earnings for basic and diluted
earnings per share computation $ 5,322,238 $ 4,555,631 $ 14,120,715 $ 11,588,092
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF JULY 1, 1998 AND THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE TWELVE WEEKS ENDED JULY 1, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> SEP-25-1997
<PERIOD-END> JUL-01-1998
<CASH> 1,817,704<F1>
<SECURITIES> 0
<RECEIVABLES> 18,864,433
<ALLOWANCES> 0
<INVENTORY> 4,266,497
<CURRENT-ASSETS> 33,393,946
<PP&E> 208,325,883
<DEPRECIATION> 62,459,791
<TOTAL-ASSETS> 182,945,241
<CURRENT-LIABILITIES> 39,966,681
<BONDS> 0
0
0
<COMMON> 10,545,055
<OTHER-SE> 98,355,740
<TOTAL-LIABILITY-AND-EQUITY> 182,945,241
<SALES> 71,246,080
<TOTAL-REVENUES> 72,533,128
<CGS> 17,935,118
<TOTAL-COSTS> 50,246,308<F2>
<OTHER-EXPENSES> 5,911,848<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 489,920
<INCOME-PRETAX> 8,402,238
<INCOME-TAX> 3,080,000
<INCOME-CONTINUING> 5,322,238
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,322,238
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<FN>
<F1>CASH INCLUDES CASH EQUIVALENTS OF $345,000.
<F2>INCLUDES RESTAURANT OPERATING COSTS OF $32,311,190.
<F3>INCLUDES DEPRECIATION AND AMORTIZATION AND RENT OF $3,534,333 AND $2,377,515
RESPECTIVELY.
</FN>
</TABLE>
