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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 29, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________to _______________ .
Commission file number 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 organization) Identification No.)
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)
Securities registered pursuant to Sec. 12(b) of the Act:
Name of Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, par value $.50 per share New York Stock Exchange
Securities registered pursuant to Sec. 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
The aggregate market value of Common Stock held by persons not "affiliated"
with the registrant, based on the closing price of the Common Stock as of
December 10, 1999, was approximately $203,461,648.
The number of shares of Common Stock outstanding at December 10, 1999 was
26,666,683 (not adjusted for 10% stock dividend declared in December 1999).
DOCUMENTS INCORPORATED BY REFERENCE
PARTS OF FORM 10-K INTO WHICH
IDENTITY OF DOCUMENT DOCUMENT IS INCORPORATED
The definitive Proxy Statement to be filed with respect
to the 2000 Annual Meeting of Shareholders of Registrant Part III
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PART I.
ITEM 1. BUSINESS
GENERAL
The Company is engaged primarily in the ownership, operation and franchising
of Steak n Shake restaurants through its wholly owned subsidiary, Steak n
Shake, Inc. Founded in 1934 in Normal, Illinois, Steak n Shake is one of the
oldest restaurant chains in the country. As of September 29, 1999, Steak n
Shake had 278 Company-operated restaurants and 50 franchised restaurants,
located in 15 midwestern and southeastern states. Steak n Shake restaurants
are generally open 24 hours a day, seven days a week, and in addition to the
core menu, offer a breakfast menu during breakfast hours. During fiscal 1999,
lunch and dinner sales accounted for approximately 36% and 44% of sales,
respectively, while breakfast and late night sales accounted for 7% and 13%
of sales, respectively.
THE STEAK N SHAKE CONCEPT
Management's key concept strategies are to:
CAPITALIZE ON DISTINCT MARKET NICHE. Steak n Shake occupies a distinct niche
in the restaurant industry. The restaurants offer full-service dining with
counter and dining room seating, as well as drive-thru and carryout service.
Counter and dining room sales represent approximately two-thirds of the sales
mix while sales for off-premises dining represent approximately one-third of
the sales mix. Unlike most fast-food restaurants, all food is freshly
prepared, cooked-to-order in view of the customer and is served promptly on
china with flatware and glassware by friendly wait staff. Steak n Shake's
prices are considerably less than most casual dining concepts with an average
check of approximately $5.40 per person, although the average check during
the peak lunch and dinner hours is approximately $5.50 and $5.75,
respectively. The Company believes that Steak n Shake offers a much more
compelling value and higher quality level of core menu items than competitive
fast food and casual dining chains.
FOCUS ON CORE MENU ITEMS WHILE OFFERING VARIETY. For over 65 years, Steak n
Shake's menu has featured core items, which include Steakburgers, thin and
crispy French fries and hand-dipped Milk Shakes. The Company believes that
its focus on certain menu items has allowed it to serve consistent, high
quality food, which, in turn, has built brand loyalty with its customers.
Menu items are prepared in accordance with the Company's strict
specifications using high quality ingredients such as 100% pure U.S. beef,
including cuts of T-bone, strip and sirloin steaks, in its Steakburgers. Over
the years, Steak n Shake has responded to changing customer tastes with
greater menu variety without losing its focus or customer appeal, by making
carefully planned menu additions such as chicken breast sandwiches, beef and
chicken taco salads, desserts and various homestyle soups and salads.
EMPHASIZE CUSTOMER SATISFACTION. Steak n Shake's reputation and long-standing
customer loyalty have been earned over many years by the consistent quality
of the dining experience. The success of Steak n Shake depends on its
employees' commitment to consistently exceed the customer's expectations. All
restaurant employees participate in a formal training program that focuses on
enhancing customer satisfaction and includes classroom and on-the-job
instruction. Restaurant managers are required to complete a comprehensive
eight-week training program on restaurant operating procedures, employee
relations, and customer service. In order to ensure consistent execution of
the Company's standards for service, self-stamped and addressed customer
comment cards are placed in every restaurant, and management performs
periodic on-site visits and formal inspections.
RESTAURANT DESIGN
Steak n Shake restaurants have a distinctive exterior appearance and interior
decor. The exterior design of a Steak n Shake restaurant has the individual
character of a branded logo, embracing building shape, awning detail,
building graphics and pylon signage. The interior decor is reminiscent of the
nostalgic diner era using chrome, glass, neon and tile in a contemporary
manner. Food preparation takes place in view of the customer, as reflected by
Steak n Shake's slogan, "In Sight It Must Be Right -Registered Trademark-".
The kitchen area is designed to allow for efficiency of workflow, thereby
minimizing the amount of space required.
All Steak n Shake restaurants are freestanding structures except for nine
units, of which four are part of travel centers. Restaurants constructed
prior to 1973 are similar in architectural style but differ in size resulting
in seating capacities
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varying from 39 to 138 customers. Restaurants built since 1973 are generally
3,800 square feet in area and seat approximately 100 customers. The travel
center units are located in complexes that typically include a fuel service
area and a convenience store. These units are located on interstate highways
and serve both the general traveler and truck traffic. The travel center unit
exteriors and interiors are similar to those of the freestanding units.
EXPANSION STRATEGY
Controlled growth into new trade areas has been a focus over the last five
years. For fiscal year 1999, 40 Company-operated units were opened. In
addition, the Company completed the purchase of five franchised Steak n Shake
restaurants.
The Company's controlled expansion program is based upon a market penetration
plan focused on clustering restaurants in existing or contiguous geographic
areas to capitalize on name recognition, increase customer convenience and
achieve media efficiency. The addition of Company-operated restaurants in
markets where the Company's television marketing effort has been implemented
allows the Company to leverage its advertising costs over more units and to
benefit from management efficiencies. In existing media markets, the
Company's advertising expenditures create higher levels of customer
recognition and greater market acceptance for new units.
During fiscal 1999, the Company opened units in Toledo, Cleveland, and Akron,
Ohio as well as continuing growth plans for Cincinnati, Dayton and Columbus.
The Company opened its first stores in the Detroit and Ann Arbor markets.
Kansas City and the Gold Coast of Florida were also addressed as major new
opportunities.
A second element of the Company's expansion is to link existing major Steak n
Shake markets by developing Steak n Shake units along the connecting
interstate highways. Since the beginning of fiscal 1995, 77 Company-operated
and 23 franchised restaurants have been opened at locations along interstate
highways.
Franchising is another element of the Company's expansion program. The
Company's franchising program is designed to extend brand name recognition of
Steak n Shake and derive additional revenues without substantial investment
by the Company. As part of its continuing planning process, management
reviews the relationship of the number of Company-operated to franchised
restaurants and the selection of areas for development by the Company and by
franchisees. The Company's expansion plan contemplates the controlled
addition of franchised restaurants with the current franchisees. See
"Franchising."
The Company expects to open 40 Steak n Shake restaurants in fiscal year 2000.
The Company's five-year controlled growth plan for fiscal 2000 through 2004
calls for increasing the numbers of new Company-operated Steak n Shake units
by 300. In addition to the 300 Company-operated units, the franchise system
will add 50 units. The goal would be over 600 systemwide Steak n Shake
restaurants by the end of fiscal 2004.
SITE SELECTION
Management believes that the site selection process is critical to the
success of its restaurants, and senior management devotes significant time
and resources in analyzing each prospective site. A variety of factors are
considered in the site selection process, including local market
demographics, site visibility and accessibility, highway interchanges and
proximity to significant generators of potential customers such as major
retailers, regional malls, shopping centers, office complexes, and hotel and
entertainment centers including stadiums, arenas and multi-screen theaters.
The Company's Vice President of Real Estate and the real estate managers
identify and research sites for review by the Company's senior management
prior to final authorization for purchase or lease approval. Upon
identification of a site, its success including the potential return on
investment is assessed by utilization of financial models, which evaluate the
unit's projected sales and earnings. Management believes this detailed
process, along with a critical approval path, ensures the management
discipline and scrutiny necessary to acquire sites that have the most
potential to meet the Company's required performance criteria.
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RESTAURANT LOCATIONS
The following table lists, as of September 29, 1999, the locations of the 328
Steak n Shake restaurants, including 50 franchised, and the number of units
in each state and the number of units in each city if more than one unit:
<TABLE>
<S> <C> <C> <C>
FLORIDA (54) ILLINOIS (55) INDIANA (56) MISSOURI (54)
Boynton Beach Alton Anderson Arnold
Bradenton Aurora Avon * Branson
Clearwater -- 2 Belleville Bloomington -- 3 * Cape Girardeau
Daytona Beach Bloomington -- 2 Carmel -- 2 * Columbia -- 2
Gainesville -- 2 Bradley * Clarksville Eureka
Jacksonville -- 2 Carbondale Columbus * Farmington
Kissimmee Champaign Elkhart Fenton
Lakeland -- 3 Collinsville * Evansville -- 2 Festus
Lake Buena Vista Danville -- 2 Ft. Wayne -- 3 Independence
Lake Mary Decatur -- 2 Goshen * Jefferson City
Largo DeKalb Greenwood -- 2
Leesburg Downers Grove Indianapolis -- 20 Joplin
Merritt Island East Peoria Kokomo -- 2 Kansas City
Ocala Edwardsville Lafayette -- 2 Lees Summit
Orange City Effingham Lebanon * Poplar Bluff
Orlando -- 10 Elgin Marion * Rolla
Ormond Beach Fairview Heights Merrillville St. Louis -- 33
Oviedo Forsythe Michigan City Springfield -- 4
Palm Coast Galesburg Mishawaka Sullivan
Pensacola Glendale Heights Muncie
Port Charlotte Gurnee Noblesville
Port Richey Hoffman Estates Plainfield GEORGIA (21)
Sanford * Jacksonville Richmond Albany
Sarasota Joliet -- 2 Schererville * Atlanta -- 12
Spring Hill Lake In the Hills Seymour * Brunswick
St. Petersburg -- 2 * Lincoln South Bend Columbus
Stuart Marion Terre Haute * Dalton
Tallahassee -- 2 Mattoon Valparaiso Macon -- 2
Tampa -- 6 McHenry Tifton
Vero Beach Moline MICHIGAN (16) Valdosta
West Melbourne Mt. Vernon Battle Creek Warner Robins
Wildwood Naperville Benton Harbor
Winter Haven Normal -- 2 Grand Rapids -- 3 TENNESSEE (13)
O'Fallon Grandville Antioch
KENTUCKY (12) Oswego Holland * Chattanooga -- 2
* Bowling Green Pekin Jackson Clarksville
* Elizabethtown Peoria -- 4 Kalamazoo Cleveland
Florence Peru Lansing -- 2 Franklin
Frankfort * Quincy Livonia Knoxville -- 2
Lexington Rockford Portage * Memphis
* Louisville -- 4 Rosemont Sterling Heights Murfreesboro
* Owensboro * Springfield -- 3 Waterford Nashville -- 3
Paducah Tinley Park Ypsilanti
Richmond Urbana -- 2 KANSAS (3)
NORTH CAROLINA (3) Lawrence
OHIO (32) IOWA (3) * Burlington Olathe
Akron -- 2 Davenport -- 2 * Charlotte Overland Park
Brooklyn Waterloo * Greensboro
Cincinnati -- 7
Columbus -- 10 WISCONSIN (3) MISSISSIPPI (1)
Dayton -- 5 Janesville * Southaven
Mansfield Madison
Middletown Racine
Milford
Pickerington ARKANSAS (2)
Sandusky Jonesboro
Toledo Little Rock
Troy
</TABLE>
- - --------------
* Franchised units.
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RESTAURANT MANAGEMENT
The operations of the restaurants are the responsibility of the Senior Vice
President of Operations and National General Manager, Vice President of
Operations and Deputy National General Manager, nine division managers,
forty-five district managers and the unit-level restaurant management teams.
The divisions and the number of units in each are as follows:
<TABLE>
<CAPTION>
NUMBER OF
DIVISION UNITS
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<S> <C>
Missouri 51
Indiana 49
Illinois 56
Florida 51
Michigan 15
Ohio 17
Central Ohio 17
Tennessee 12
Southeastern 10
--------
278
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Division managers are responsible for the operations of the restaurants in
the division as well as supervision of the division support team, which
includes district managers, human resource managers, training managers,
training supervisors, and maintenance and administration staff. District
managers generally have responsibility for the operating performance of six
to eight restaurants. The management team of a typical Steak n Shake
restaurant consists of a general manager, a restaurant manager and three
assistant managers. The number of assistant managers varies depending upon
the volume of the unit.
The general manager of each restaurant has primary responsibility for the
day-to-day operations of the restaurant and is responsible for maintaining
Company-established operating standards and procedures. The general manager
is the key person in the success of a Steak n Shake restaurant. An
experienced, well-trained general manager promotes compliance with the
Company's high standards for food quality and customer service. Steak n Shake
seeks to employ restaurant managers who are customer service oriented and who
manage the restaurant from the dining room. Steak n Shake recognizes the
important role of a seasoned, well-trained and properly motivated restaurant
team. The Company has initiated innovative programs that involve hiring,
training and career development, and a wide variety of benefits to reward and
recognize adherence to Steak n Shake's high standards.
Recruiting and hiring programs have been intensified to seek the qualified
people required to support the Company's aggressive growth plan. In order to
develop the talented bench strength for continued internal promotions; people
development is one of the highest priorities of the Company. Regular
organization-wide evaluations of individual development progress are
routinely conducted. As part of the Company's commitment to improving its
standards of execution, emphasis is placed upon strengthening the skills and
capabilities of each restaurant team through innovative selection,
development, evaluation, and reward systems. Employees are encouraged to
learn new skills to foster their professional growth and to create greater
opportunities for advancement.
Aggressive college recruitment programs to provide the future leadership for
our growth is another major corporate priority. The Company has created a
focus on a significantly intensified college recruiting effort to increase
the Company's restaurant management quality and staffing levels, thereby
providing the management bench strength to support the Company's growth
program. The increased management staffing depth will also enhance the
Company's ability to deliver dining experiences that exceed customers'
expectations, as well, as reduce management turnover. The costs associated
with the management recruiting and training programs are central to the
continuation of excellent consumer value.
Initiatives are in place at selected Colleges, Universities and Technical
Schools in Steak n Shake's markets to recruit, select and retain people who
will become our future leaders. A cadre of recruiting professionals is in
place to insure
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that the Steak n Shake opportunity is communicated to prospective candidates
with the competitively desired inducements to join the Company.
The Company believes that offering competitive compensation, including
Incentive Bonus Plans tied to performance goals for all levels of restaurant
management personnel, is important to attracting and retaining competent and
highly motivated managers. Awards under the incentive bonus plan are based
upon attainment of defined operating performance standards. Accelerated
growth continues as one of the Company's attractions by providing many new
opportunities for qualified employees to grow within the organization. The
Employee Stock Purchase Plan also provides an attractive opportunity for
employees to purchase shares of the Company's stock at a discounted price and
without the cost of any brokerage fees. This provides an enhanced opportunity
for employees to become shareholders of the Company, invest in its future and
share in the growth through their own initiatives.
TRAINING
Each restaurant team member participates in a formal training program that
utilizes work station video presentations, training manuals, a scheduled
evaluation process and recognition awards which signify proficiency in
specific areas. This training process, which takes place within the
restaurant, is continuously reinforced and monitored.
Steak n Shake's goal is to continue to develop strong restaurant management
teams by providing carefully designed leadership training programs. Each
geographic division designates specific restaurants where intensified
on-the-job management training occurs under careful supervision by
experienced restaurant managers. Restaurant managers are required to complete
a comprehensive eight-week training program during which time they are
instructed in subjects such as the standards of food quality and preparation,
customer service and employee relations. Restaurant managers also are
provided with video training presentations and operations manuals relating to
food preparation, customer service standards, restaurant operation practices
and Company procedures. During fiscal 1999, 833 individuals entered this
training program, approximately 30% of whom were promoted from within the
Company.
The general managers, together with division personnel, are responsible for
hiring the hourly employees for each restaurant. Each restaurant employs
approximately 40 to 80 hourly employees, many of whom work part-time. Prior
to the opening of a restaurant, the Company's Division management assembles a
team of experienced employees to train and educate the new employees. The
training period for new employees lasts approximately two weeks and includes
one week of general training prior to opening and one week of on-the-job
supervision at the restaurant. Ongoing employee training remains the
responsibility of the restaurant general manager under the supervision of a
division training manager.
CUSTOMER SATISFACTION AND QUALITY CONTROL
Management believes that employee commitment to consistently exceed customer
expectations is critical to the success of Steak n Shake. The Company intends
to continue to develop and implement standards of execution that will result
in the efficient delivery of high quality, great-tasting food served by
friendly, competent wait staff.
Restaurant management is responsible for ensuring that the restaurants are
operated in accordance with strict operational procedures and quality
requirements. Compliance for Company-operated units is monitored through the
use of customer comment cards, the mystery shopping program, periodic on-site
visits and formal inspections by the division and district managers as well
as division training personnel, and for franchised units through periodic
inspections by the Company's franchise field operations personnel and the
mystery shopping program. Unfavorable comment cards are responded to by
division management.
PURCHASING AND DISTRIBUTION CENTER OPERATIONS
Steak n Shake operates a distribution center in Bloomington, Illinois from
which food products (except for items purchased by the restaurants locally
such as bakery goods, produce and dairy products) and restaurant supplies are
delivered to 96 Company-operated and 15 franchised restaurants located in
parts of the Midwest. The Company's semi-trailers have the capability to
handle refrigerated and frozen products along with dry goods in the same
delivery trip. The remaining Steak n Shake restaurants, located primarily in
the Southeast and parts of the Midwest, obtain food products and supplies,
which meet the Company's quality standards and specifications from an
independent distributor with locations in Tampa, Florida and Bloomington,
Indiana.
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Purchases are negotiated centrally for most food and beverage products and
supplies to insure uniform quality, adequate quantities and competitive
prices. Forward buying contracts are utilized to insure availability of
products pursuant to the Company's specifications as well as to even out
exposure to fluctuating prices. Food and supply items undergo ongoing
research, development and testing in an effort to maintain the highest
quality products and to be responsive to changing customer tastes. The
Company has not experienced any significant delays in receiving food and
beverage products, restaurant supplies or equipment.
RESTAURANT REPORTING
Systems and technology are essential for the management oversight needed to
monitor Steak n Shake's high standards for quality and to achieve proper
operating margins. Operational and financial controls are maintained through
the use of point of sale systems in each restaurant, personal computers in
the division offices and an automated data processing system at the corporate
office. The management accounting system polls data from the point of sale
system by way of local and wide area networks and generates daily reports of
sales, sales mix, customer counts, check average, cash, labor and food cost.
Inventories are taken of key products daily and of all products at the end of
each four-week accounting period. Management utilizes this data to monitor
the effectiveness of controls and to prepare periodic financial and
management reports. The system is also utilized for financial and budget
analysis, planning and analysis of sales by revenue center and product mix
and labor utilization. New technology developments include the roll out of a
touch screen point-of-sale system connected to a personal computer located in
the restaurant. Planned system developments will include additional
enhancements, such as sales forecasting and labor scheduling systems. Cash is
controlled through frequent deposits in local bank operating accounts
followed by transfers to the principal corporate operating account.
MARKETING
For over sixty-five years, our commitment to customer service satisfaction
has been the most effective approach to attracting and retaining guests.
Customer loyalty to the Steak n Shake brand coupled with locating multiple
restaurants within a market area has enabled newer restaurants to become
highly successful. Steak n Shake's marketing thrust is directed towards
building brand loyalty and is not price driven or reliant on low price
discount marketing. Value at Steak n Shake is based on exceeding our
customers' expectations by delivering freshly prepared, cooked to order
quality food with a unique taste that our friendly, well-trained staff serves
promptly in an attractive, clean environment.
This niche value positioning is communicated to the consumer via a branded
non-price differentiation marketing strategy. Television marketing platforms
are product benefit directed, showing why Steak n Shake is superior to fast
food alternatives with a fun, irreverent, tongue in cheek humorous approach.
This "voice of the restaurant" defines a brand personality that recalls the
nostalgic diner days when life was simpler, friendlier, and less stressful.
By coupling this branding approach with real consumer benefits, existing
guests are encouraged to visit more often and new guests are encouraged to
try a Steakburger and a Shake. Print, outdoor, radio, and most other media
forms are utilized, but the most effective and efficient media form remains
television as it sells Steak n Shake with sight, sound, motion, and emotion.
Television is able to telescope the time frame of deep consumer acceptance of
the brand emotion to earn the brand loyalty position found in our core
markets. In fiscal year 1999, the star waitress in the new Steak n Shake
commercial was also the star of the hit movie, The Blair Witch Project. The
public relations halo from this successful film allowed Steak n Shake to
benefit from hundreds of thousands of dollars of free publicity.
Our web site at www.steaknshake.com provides a worldwide presence that
effectively communicates the brand, the menu, our history, and location
addresses by market. A strong emphasis on investor information allows
potential investors to learn everything about Consolidated Products, Inc.
including the latest public relations and financial information. The web site
also serves as an effective recruiting tool.
Additional marketing activities designed to build brand awareness and
loyalty, create new customer trials and introduce new products include
quarterly freestanding newspaper inserts and seasonal in-store offerings
centered around short-term, special promotions or product introductions. The
fully integrated marketing program also utilizes menu clip-ons, table cards,
ceiling danglers and signage. During fiscal 1999, the Company expended 2.9%
of revenues on media and marketing materials.
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FRANCHISING
GENERAL. The Company's franchising program is designed to extend its brand
name recognition of Steak n Shake in areas where the Company has no current
development plan, but yet serves the same general regions, and derive
additional revenues without substantial investment by the Company. The
Company contemplates the controlled addition of franchised restaurants over
the next five years with a very selective screening standard.
As of September 29, 1999, the Company had 50 franchised Steak n Shake
restaurants operated by 15 franchisees, located in Georgia, Illinois,
Indiana, Kentucky, Mississippi, Missouri, North Carolina and Tennessee. These
restaurants are located in areas contiguous to markets in which there are
Company-operated restaurants. The Company currently has commitments from
existing franchisees for the development of additional franchised
restaurants. During fiscal 1999, the Company completed the purchase of five
Steak n Shake restaurants previously operated by franchisees.
PRINCIPAL FRANCHISEES. Steak n Shake's principal franchise relationship
includes an agreement with Kelley Restaurants, Inc., for the development of
additional Steak n Shake restaurants in the Charlotte, North Carolina market
over the next three years. In addition, Kelley Restaurants operates twelve
Steak n Shake restaurants in the Atlanta Market. Kelley Restaurants, Inc. is
controlled by E. W. Kelley, the Chairman of the Company.
APPROVAL. Franchisees undergo a selection process supervised by the Senior
Vice President in charge of franchising, and requires final approval by
senior management. Steak n Shake seeks franchisees with significant
experience in the restaurant business who have demonstrated the financial and
management capabilities required to develop and operate a franchised
restaurant. The Company initially enters into an agreement with the
franchisee for the development of one unit. After the franchisee has
demonstrated the ability to operate that unit in accordance with Company
standards, the Company will consider entering into a broader franchise
relationship.
TRAINING AND DEVELOPMENT. Steak n Shake assists franchisees with both the
development and the ongoing operation of their restaurants. Steak n Shake
management personnel assist with site selection, approve all franchise sites
and provide franchisees with prototype plans and specifications for
construction of their restaurants. The Company's training staff provides both
on-site and off-site instruction to franchised restaurant management
employees. Managers of franchised restaurants are required to obtain the same
training as managers of Company-operated units. Steak n Shake's support
continues after a restaurant opening with periodic training programs, the
provision of manuals and updates relating to product specifications, customer
service and quality control procedures, advertising and marketing materials
and assistance with particular advertising and marketing needs. Steak n Shake
also makes available to franchisees certain accounting services and
management information reports prepared at the corporate office for a monthly
fee based on Steak n Shake's actual costs. Steak n Shake has three franchise
field representatives who monitor franchise operations.
OPERATIONS. All franchised restaurants are required, pursuant to their
respective franchise agreements, to serve Steak n Shake approved menu items.
In addition, although not required to do so, franchisees served by Steak n
Shake's distribution center, purchase food, supplies and smallwares at Steak
n Shake's cost, plus a markup to cover its cost of operation, including
freight for delivery. Steak n Shake's point-of-sale systems are also
available for purchase by franchisees. Access to these services enables
franchisees to benefit from Steak n Shake's purchasing power and assists
Steak n Shake in monitoring compliance with its standards and specifications
for uniform quality. See "Purchasing and Distribution Center Operations".
FRANCHISE AGREEMENT. The standard Steak n Shake franchise agreement currently
has an initial term of 20 years. Among other obligations, the agreement
generally requires franchisees to pay an initial franchise fee of $30,000 for
the first unit in a market, $25,000 for each subsequent unit and a continuing
royalty of 4% of monthly gross sales. The franchise agreement also requires
the franchisee to pay 5% of monthly gross sales to the Company for
advertising, of which 80% is to be spent on local, regional or national
marketing and 20% is to be used by Steak n Shake for creative and promotional
development, outside independent marketing agency fees and technical and
professional marketing advice.
FRANCHISING ASSISTANCE. In certain circumstances, the Company's financing
subsidiary, SNS Investment Company, Inc., will assist qualified franchisees
in financing the development of one or more franchised units by purchasing or
leasing approved sites from third parties, constructing the restaurant and
leasing or subleasing the finished facility to the franchisee. The lease
terms and rentals, including a surcharge by the Company for administrative
services, are
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negotiated based on prevailing real estate and construction rates in effect
in the franchised area. Through September 29, 1999, seven restaurants had
been financed through this subsidiary.
CONSOLIDATED SPECIALTY RESTAURANTS, INC. ("CSR")
CONCEPTS
CSR, a wholly owned subsidiary of the Company, operates eleven theme
restaurants located in Illinois and Indiana. Eight of these restaurants are
steakhouses operated under the name of Colorado Steakhouse. The restaurant's
design theme is reminiscent of a Colorado log cabin and gives the ambiance
and atmosphere of a Rocky Mountain lodge. The Colorado Steakhouse menu
features steak and prime rib with limited non-beef alternatives, such as
salmon, chicken and pork, as well as an array of delicious and popular
salads. The narrow menu offering was designed to permit greater attention to
quality and consistency in both food and service. The average dinner check
approximates $15. All of the CSR restaurants also offer alcoholic beverages,
which represent approximately 14% of CSR's sales.
The Company has substantially completed the capital investment required to
develop this concept, and is in the process of refining and evaluating the
operations of these restaurants. The Company does not intend to expand
operations of CSR unless the existing restaurants demonstrate satisfactory
levels of profitability and return-on-investment.
The Company does not maintain a franchise program for its specialty
restaurants.
COMPETITION
The restaurant business is one of the most intensely competitive industries
in the United States, with price, menu offerings, location and service all
being significant competitive factors. The Company's competitors include
national, regional and local chains as well as local owner-operated
establishments. There are established competitors with financial and other
resources greater than those of the Company in all of the Company's current
and proposed future market areas. The Company faces competition for sites on
which to locate new restaurants and for personnel, as well as for customers.
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.
EMPLOYEES
As of September 29, 1999, the Company had approximately 18,560 employees, of
which 18,000 were employed by Steak n Shake and 560 by CSR. None of the
employees is represented by a collective bargaining agreement. Approximately
two-thirds of the Company's hourly employees are part-time.
The Company has experienced higher labor costs in part due to tight labor
markets in many of the markets served by the Company. Wage rates increased by
5.6% during fiscal 1999 due to these tight labor markets. The Company has
also experienced an increase in manager training costs of $1,100,000 results
from the Company's significantly intensified manager recruiting programs.
TRADEMARKS
"Steak n Shake-Registered Trademark-", "Takhomasak-Registered Trademark-",
"Famous For Steakburgers-Registered Trademark-", "FAXASAK-Registered
Trademark-", "In Sight It Must Be Right-Registered Trademark-", "Its a
Meal-Registered Trademark-" and the "Wing and Circle-Registered Trademark-"
logo are federally registered trademarks and servicemarks. CSR holds federal
registrations for "The Charley Horse-Registered Trademark-" and "Colorado
Steakhouse-Registered Trademark-" as well as other federal and state
trademarks and servicemarks applicable to its restaurant businesses in
addition to state registrations. The Company is not aware of any infringing
uses that could materially affect its business. The Company will protect its
trademark rights by appropriate legal action whenever necessary.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local laws affecting its
business. Each of the Company's restaurants is subject to licensing and
regulation by a number of governmental authorities, including health and
safety and fire agencies in the state and municipality in which the
restaurant is located, and alcoholic beverage control in the
9
<PAGE>
case of CSR. The development and construction of additional restaurants will
be subject to compliance with applicable zoning, land use and environmental
regulations. Difficulties in obtaining or failure to obtain the required
licenses or approvals could delay or prevent the development of a new
restaurant in a particular area.
The Company's restaurant operations are also subject to federal and state
minimum wage laws and laws governing such matters as working conditions,
overtime and tip credits. Many of the Company's restaurant employees are paid
at rates related to the federal minimum wage and, accordingly, further
increases in the minimum wage would increase the Company's labor costs.
Steak n Shake currently has franchise operations in eight states -- Georgia,
Illinois, Indiana, Kentucky, Mississippi, Missouri, North Carolina and
Tennessee -- and is subject to certain federal and state laws controlling the
offering and conduct of its franchise business in those states. In addition,
the Company is subject to franchise registration requirements in several
states in which it is now conducting or will in the future conduct its
franchise business.
The federal Americans with Disabilities Act prohibits discrimination in
public accommodations and employment on the basis of disability. The Company
builds all new restaurants to standards, which comply with the Act, and has
reviewed its employment policies and practices for compliance with the Act.
GEOGRAPHIC CONCENTRATION
During fiscal 1999, approximately 63% of the Company's net sales were derived
from four markets: St. Louis, Missouri (19%); Indianapolis, Indiana (16%);
Central Florida (19%) and Chicago, Illinois (9%), respectively. As a result,
the Company's results of operations may be materially affected by weather,
economic or business conditions within these markets.
THE RESTAURANT INDUSTRY
Historically, the restaurant industry has been affected by changes in
consumer tastes and by national, regional and local economic conditions and
demographic trends. The performance of individual restaurants may be affected
by factors such as traffic patterns, demographic factors and the type, number
and location of competing restaurants. Although management believes that the
Company has successfully responded to changes in the restaurant industry, in
the future, factors such as inflation, increased food, labor and employee
benefit costs and the lack of availability of qualified management personnel
and hourly employees could adversely affect the restaurant industry in
general and the Company's restaurants in particular.
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 of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Those
statements include, but may not be limited to, the discussions of the
Company's expansion strategy, expectations concerning its future
profitability, capital sources and needs, Year 2000 remedial efforts,
marketing plans and franchising programs. Investors in the 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 herein should not be regarded as a
representation by the Company that the Company's plans and objectives will be
achieved.
10
<PAGE>
ITEM 2. PROPERTIES
The Company currently leases 30,700 square feet of executive office space in
Indianapolis, Indiana, under a lease expiring December 31, 2005.
STEAK N SHAKE, INC.
As of September 29, 1999, Steak n Shake operated 175 leased and 103 owned
restaurants in Indiana, Illinois, Michigan, Missouri, Florida, Georgia, Iowa,
Ohio, Kansas, Kentucky, Tennessee, Arkansas and Wisconsin. Steak n Shake
restaurant leases for land and building typically are non-cancelable, have an
initial term of 18 to 25 years and renewal terms aggregating twenty years or
more and require Steak n Shake to pay real estate taxes, insurance and
maintenance costs. Of these leases, 118 contain percentage of sales rental
clauses in addition to base rent requirements.
Steak n Shake restaurants constructed prior to 1973 have a similar
architectural style, seat 39 to 138 customers and occupy between 1,010 and
6,000 square feet. Restaurants built since 1973 are generally 3,800 square
feet and seat approximately 100 customers.
Steak n Shake has lease obligations on 16 former restaurant locations in
Georgia, Ohio, Illinois, and Kentucky, all of which have been subleased to
others as of September 29, 1999. These obligations primarily relate to
restaurant locations disposed of in the late 1970's, and the sublease rentals
cover substantially all of the Company's obligations under the primary leases.
Steak n Shake also has a complex of three buildings located in Bloomington,
Illinois, where it owns 38,900 square feet of office/warehouse space in two
separate buildings, one of which has cold storage facilities, and leases a
26,300 square foot distribution center and division office facility. Steak n
Shake also leases division offices in Orlando, Florida; Franklin, Ohio;
Columbus, Ohio; Brighton, Michigan and Tallahasee, Florida and a division
office and administrative facility in Indianapolis, Indiana. In addition,
Steak n Shake owns a division office facility in St. Louis, Missouri. At
September 29, 1999, Steak n Shake owns one restaurant location that has been
leased to a third party. In addition, there were seven restaurants under
construction and the Company owned two parcels of land, which are being held
for future development.
CONSOLIDATED SPECIALTY RESTAURANTS, INC.
As of September 29, 1999, CSR operated eleven facilities in Illinois and
Indiana, of which eight are leased facilities and three are owned. The leases
for land and building are typically non-cancelable agreements with initial
terms of 10 to 15 years and three five-year renewal terms. All of the leases
except two have percentage of sales rental clauses in addition to base rent
requirements. The leases require CSR to pay real estate taxes, insurance and
maintenance costs. These units have approximately 6,000 to 8,000 square feet
and seat 150 to 225 customers.
SNS INVESTMENT COMPANY, INC.
SNS Investment Company, Inc. ("SIC"), a wholly owned subsidiary of the
Company, assists qualified franchisees with financing by purchasing or
leasing land, constructing the restaurant and then leasing or subleasing the
land and building to the franchisee. SIC leases the land and building for
seven properties as the primary lessee. These leases typically have an
initial term of 18 years and renewal options aggregating 20 years or more and
require SIC to pay real estate taxes, insurance and maintenance costs. As of
September 29, 1999, SIC had six land and building leases for properties
located in Louisville and Elizabethtown, Kentucky; Chattanooga, Tennessee;
Clarksville, Indiana and Columbia, Missouri which are being operated by
franchisees pursuant to sublease agreements. All lease and sublease
agreements between SIC and its franchisees specifically include triple net
lease provisions whereby the franchisee is responsible for all real estate
taxes, insurance and maintenance costs. Additionally, SIC also had a land and
building lease for a property in Little Rock, Arkansas which was operated by
Steak n Shake, Inc.
11
<PAGE>
RESTAURANT LEASE EXPIRATIONS
Restaurant leases are scheduled to expire as follows, assuming the exercise
of all renewal options:
<TABLE>
<CAPTION>
NUMBER OF LEASES EXPIRING
-------------------------
PERIOD SNS CSR SIC
------ --- --- ---
<S> <C> <C> <C>
2000 - 2004 3 2 0
2005 - 2009 14 3 0
2010 - 2014 3 1 0
2015 - 2019 5 1 0
2020 - 2024 19 0 0
Beyond 131 1 7
----- - -
175 8 7
=== = =
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
On April 29, 1999, the Company settled the lawsuit filed on May 31, 1995 by
the Pepsi-Cola Company ("Pepsi") against Steak n Shake, Inc. in the United
States District Court for the Southern District of Indiana alleging that
Steak n Shake had breached a ten-year contract with Pepsi. The Company
recorded a one-time, non-recurring pretax charge of $1,600,000 or $.04 per
share in the second quarter of fiscal 1999 related to the settlement of this
lawsuit with Pepsi.
There are no other legal proceedings against the Company, which, if adversely
resolved, would have a material effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth quarter
of the fiscal year covered by this Report.
12
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages, positions held with the
Company and its subsidiaries and the date on which service in such capacities
began, of the executive officers of the Company and its subsidiaries:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY SINCE
---- --- --------------------- -----
<S> <C> <C> <C>
E.W. Kelley(1)(2) 82 Chairman --
Consolidated Products, Inc. 1984
Steak n Shake, Inc. 1984
Consolidated Specialty Restaurants, Inc. 1990
S. Sue Aramian(1)(3) 67 Vice Chairwoman --
Consolidated Products, Inc. 1990
Steak n Shake, Inc. 1990
Consolidated Specialty Restaurants, Inc. 1990
Alan B. Gilman(1)(2) 69 President and Chief Executive Officer --
Consolidated Products, Inc. 1992
Steak n Shake, Inc. 1992
Vice Chairman --
Consolidated Specialty Restaurants, Inc. 1992
James W. Bear(3) 54 Senior Vice President, Administration and
Finance and Treasurer --
Consolidated Products, Inc. 1991
Steak n Shake, Inc. 1991
Consolidated Specialty Restaurants, Inc. 1993
Kevin F. Beauchamp 42 Vice President --
Consolidated Products, Inc. 1993
Vice President and Deputy National General Manager --
Steak n Shake, Inc. 1997
B. Charlene Boog(3) 67 Associate Vice President
Consolidated Products, Inc. 1997
Kevin E. Dooley 56 Vice President --
Steak n Shake, Inc. 1993
Consolidated Specialty Restaurants, Inc. 1993
Gregory G. Fehr 37 Vice President and Controller --
Consolidated Products, Inc. 1997
Steak n Shake, Inc. 1997
Consolidated Specialty Restaurants, Inc. 1997
Duane E. Geiger 37 Vice President and Assistant Treasurer --
Consolidated Products, Inc. 1995
Robert L. Grimm(3) 47 Vice President --
Consolidated Products, Inc. 1997
William H. Hart 50 Vice President --
Steak n Shake, Inc. 1991
Consolidated Specialty Restaurants, Inc. 1990
Mary E. Ham 51 Vice President and General Counsel --
Consolidated Products, Inc. 1995
Steak n Shake, Inc. 1995
Consolidated Specialty Restaurants, Inc. 1995
Secretary --
Consolidated Products, Inc. 1999
Steak n Shake, Inc. 1999
Consolidated Specialty Restaurants, Inc. 1999
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C>
Gary T. Reinwald 51 Senior Vice President --
Consolidated Products, Inc. 1996
Senior Vice President and National General Manager -
Steak n Shake, Inc. 1996
James E. Richmond 61 Vice President --
Consolidated Products, Inc. 1986
Steak n Shake, Inc. 1986
Consolidated Specialty Restaurants, Inc. 1996
Gary S. Walker 39 Senior Vice President --
Consolidated Products, Inc. 1998
Steak n Shake, Inc. 1998
Consolidated Specialty Restaurants, Inc. 1998
Victor F. Yeandel 43 Vice President --
Consolidated Products, Inc. 1995
</TABLE>
(1) Member of the Board of Directors of the Company
(2) Member of the Executive Committee of the Company
(3) Member of the Personnel/Benefits Committee of the Company
Mr. Kelley has been a Director of the Company since 1981 and Chairman since
1984. From 1981 to 1984 he served as Vice Chairman and Chief Executive
Officer. He served as President and Chief Executive Officer from January 1,
1992 until July 13, 1992, and continued to serve as Chief Executive Officer
until October 1, 1992. Since 1974, he has been a Managing General Partner of
Kelley & Partners, Ltd., a Florida limited partnership which holds
investments in companies engaged in snack food distribution and restaurant
operations, and is a principal shareholder of the Company. Prior to 1981, Mr.
Kelley was the Chief Executive Officer of Fairmont Foods Company, a large
consumer goods company listed on the New York Stock Exchange.
Ms. Aramian has been Vice Chairwoman since 1990 and a Director since 1981.
She served as Secretary in 1995 to 1999 and as Vice President from 1984 to
1990. Ms. Aramian has been a Managing General Partner of Kelley & Partners,
Ltd. since 1974 and is importantly involved in all administrative matters
including related companies. Prior to 1981, Ms Aramian was an executive
officer of Fairmont Foods Company.
Mr. Gilman was elected President and a Director on July 13, 1992 after
serving as a consultant to the Company on special projects since February 3,
1992 and assumed the additional position of Chief Executive Officer effective
October 1, 1992. From 1985 to 1992, Mr. Gilman was a private investor, and
from 1980 to 1985, he served as President of Murjani International, Ltd., an
international marketing firm. From 1968 to 1980, Mr. Gilman served as a
principal executive of various divisions of Federated Department Stores,
Inc., concluding as Chairman and Chief Executive Officer of the Abraham &
Straus Division in New York.
Mr. Bear was elected Senior Vice President, Administration and Finance and
Treasurer in 1991. Prior thereto, he served as Vice President and Treasurer
of the Company from 1980 to 1991.
Mr. Beauchamp was appointed Vice President, Operations and Deputy National
General Manager of Steak n Shake, Inc. effective March 1, 1997. Mr. Beauchamp
joined the Company as Vice President and Controller in 1993. From 1990 to
1993, Mr. Beauchamp was Director of Accounting for a division of The Limited,
Inc.
Ms. Boog was elected Associate Vice President in 1997. Prior thereto, she
served as Assistant Vice President and Assistant Secretary from 1991 to 1997.
Ms Boog is also a Vice President of Kelly & Partners, Ltd.
Mr. Dooley joined Steak n Shake and CSR as Vice President in 1993 and is
responsible for engineering and construction. Prior thereto and since 1991,
Mr. Dooley was a Director of Engineering with Wendys, Inc.
Mr. Fehr joined the Company as Vice President and Controller in April 1997.
From 1993 to 1997, Mr. Fehr served in various controllership functions for
Fruehauf Trailer Corporation, lastly as Vice President -- Corporate Controller.
Mr. Geiger was appointed Vice President, Information Systems, Financial
Planning and Audit in 1995. From 1993 to 1995, Mr. Geiger served as Director
of Financial Planning and Audit and Assistant Treasurer for the Company.
Prior
14
<PAGE>
to such time, Mr. Geiger served in various capacities at Ernst & Young LLP,
over a period of eight years, and ultimately served as a Manager. Mr. Grimm
joined the Company as Vice President -- Human Resources in November 1997. For
the previous twelve years, Mr. Grimm was an executive with May Department
Stores Company. Lastly, he served as Corporate Vice President, Executive
Development and Training.
Mr. Hart has been Vice President, Purchasing of Steak n Shake and CSR since
1991 and was Vice President of Operations of CSR from 1990 to 1991
Ms. Ham was appointed Vice President in December 1996, General Counsel in
1995 and Secretary in 1999. She served as Associate Secretary from 1994 to
1999. From 1994 to 1995, Ms. Ham served as the Company's Associate General
Counsel for Real Estate and Franchising. From 1992 to 1994, Ms. Ham served as
Associate City Attorney for the city of South Bend, Indiana
Mr. Reinwald was appointed Senior Vice President, Operations and National
General Manager of Steak n Shake, Inc. in December 1996. Prior thereto, Mr.
Reinwald was Vice President, Operations and National General Manager of Steak
n Shake since 1983, and served in various capacities in the Company for 19
years prior to that date.
Mr. Richmond joined the Company as Vice President in 1986 and is responsible
primarily for real estate.
Mr. Walker joined the Company as Senior Vice President in 1998 and is
responsible for franchising, purchasing and distribution and legal matters
and the general management of Consolidated Specialty Restaurants, Inc. From
1994 to 1998, Mr. Walker was Vice President of Marketing -- Home Care Division
for DowBrands L.P. Prior thereto, Mr. Walker served in various brand
management positions with The Proctor & Gamble Company.
Mr. Yeandel joined the Company as Vice President in 1995. From 1992 to 1995,
Mr. Yeandel served as Vice President, Franchise Development for Long John
Silver's, Inc. Prior thereto and since 1987, Mr. Yeandel held various
marketing positions with Long John Silver's, Inc.
Officers are elected annually at the annual meeting of the Board of Directors.
15
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET PRICE RANGE/STOCK TRADING
The Common Stock of Consolidated Products, Inc. is traded on the New York
Stock Exchange (NYSE) under the symbol COP. Stock price quotations can be
found in major daily newspapers and in The Wall Street Journal. The high and
low closing sales prices for the Company's common stock, as reported on the
New York Stock Exchange for each quarter of the Company's past two fiscal
years, are shown below:
<TABLE>
<CAPTION>
1999(1) 1998(1)(2)
----------------------------------------------------
HIGH LOW High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $ 16 9/16(2) $ 11 1/2(2) $ 12 $10 15/16
Second Quarter $ 19 $ 14 1/2 $ 14 3/8 $11 1/2
Third Quarter $ 18 1/16 $ 15 11/16 $ 15 9/16 $13 7/16
Fourth Quarter $ 16 1/8 $ 9 3/16 $ 15 7/16 $11 5/16
</TABLE>
(1) THE SALES PRICES HAVE BEEN ADJUSTED TO REFLECT THE 10% STOCK DIVIDEND
DECLARED IN DECEMBER 1999.
(2) THE SALES PRICES HAVE BEEN ADJUSTED TO REFLECT THE FIVE FOR FOUR STOCK
SPLIT DECLARED IN DECEMBER 1998.
Subsequent to fiscal year end, a 10% stock dividend was declared on December
15, 1999, distributable on January 12, 2000 to shareholders of record on
December 29, 1999. This information has been restated to reflect this stock
dividend.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Consolidated Products, Inc.
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------
(53 weeks)
<S> <C> <C> <C> <C> <C>
Systemwide Sales:
Company $ 360,836 $ 306,943 $ 262,669 $ 224,147 $ 186,740
Franchise 80,381 79,960 72,642 62,600 39,521
-----------------------------------------------------------------
$ 441,217 $ 386,903 $ 335,311 $ 286,747 $ 226,261
------------------------------------------------------------------
Statement of Earnings Data:
Revenues $ 366,451 $ 312,552 $ 268,184 $ 229,421 $ 190,133
Earnings before cumulative effect of
change in accounting $ 18,713(1) $ 19,703 $ 16,149 $ 13,009 $ 10,026
Cumulative effect of change in accounting for
pre-opening costs $ 1,751(1) -- -- -- --
Net earnings $ 16,962 $ 19,703 $ 16,149 $ 13,009 $ 10,026
Per Share Data: (2)
Basic Earnings Per Common and Common
Equivalent Share:
Before cumulative effect of
change in accounting $ .64 (1) $ .69 $ .60 $ 0.50(3) $ 0.47(3)
Cumulative effect of change in accounting
for pre-opening costs $ (.06)(1) $ -- $ -- $ -- $ --
------------------------------------------------------------------
Basic earnings per share $ .58 $ .69 $ .60 $ 0.50(3) $ 0.47(3)
---------------------------------------------------------------------
Diluted Earnings Per Common and
Common Equivalent Share:
Before cumulative effect of
change in accounting $ .63 (1) $ .67 $ .59 $ 0.49 $ 0.40
Cumulative effect of change in accounting for
pre-opening costs $ (.06)(1) $ -- $ -- $ -- $ --
------------------------------------------------------------------
Diluted earnings per share $ .57 $ .67 $ .59 $ .49 $ .40
------------------------------------------------------------------
Diluted Weighted Average
Shares and Equivalents (in thousands) (2) 29,579 29,228 27,337 26,676 26,197
</TABLE>
17
<PAGE>
Consolidated Products, Inc.
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------
(53 weeks)
<S> <C> <C> <C> <C> <C>
Statement of Financial Position Data:
Total assets $ 210,472 $ 190,181 $ 168,294 $ 131,416 $ 99,834
Long-term debt:
Obligations under capital leases $ 2,748 $ 4,000 $ 5,376 $ 6,957 $ 8,263
Revolving line of credit -- -- $ -- $ 4,000 --
Senior note $ 24,482 $ 27,216 $ 29,261 $ 25,000 $ 20,000
Shareholders' equity $ 135,467 $ 115,350 $ 92,950 $ 57,829 $ 42,615
Number of Restaurants:
Steak n Shake:
Company-operated 278 233 194 161 137
Franchised 50 51 55 47 34
-------------------------------------------------------------------
328 284 249 208 171
Specialty Restaurants 11 11 11 11 10
-------------------------------------------------------------------
339 295 260 219 181
-------------------------------------------------------------------
Number of Employees 18,560 14,000 12,000 10,500 9,543
Number of Shareholders 12,236 7,922 6,292 4,655 3,882
</TABLE>
(1) DURING 1999, THE COMPANY ADOPTED THE PROVISIONS OF AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS STATEMENT OF POSITION 98-5, "REPORTING ON THE
COSTS OF START-UP ACTIVITIES" RETROACTIVE TO THE FIRST QUARTER OF FISCAL
1999. THIS NEW ACCOUNTING STANDARD REQUIRES THE COMPANY TO EXPENSE ALL
PRE-OPENING COSTS AS THEY ARE INCURRED. THE COMPANY PREVIOUSLY DEFERRED SUCH
COSTS AND AMORTIZED THEM OVER THE ONE-YEAR PERIOD FOLLOWING THE OPENING OF
EACH RESTAURANT. THE CUMULATIVE EFFECT OF THIS ACCOUNTING CHANGE, NET OF
INCOME TAX BENEFIT, WAS $1.8 MILLION ($0.06 PER DILUTED SHARE). THE EFFECT OF
THE ADOPTION OF THE NEW ACCOUNTING STANDARD WAS A REDUCTION IN THE COMPANY'S
EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR FISCAL 1999 OF
APPROXIMATELY $1.9 MILLION ($0.07 PER DILUTED SHARE).
(2) ALL FINANCIAL DATA HAS BEEN ADJUSTED RETROACTIVELY TO REFLECT THE 10%
STOCK DIVIDEND DECLARED IN DECEMBER 1999.
(3) THE PERCENT INCREASE IN BASIC EARNINGS PER SHARE WAS LESS THAN THE
INCREASE IN DILUTED EARNINGS PER SHARE DUE TO AN INCREASE THE NUMBER OF
SHARES OUTSTANDING ARISING FROM THE CONVERSION OF THE COMPANY'S 10%
SUBORDINATED CONVERTIBLE DEBENTURES INTO THE COMPANY'S COMMON STOCK EFFECTIVE
APRIL 3, 1995.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Consolidated Products, Inc.
(YEARS ENDED SEPTEMBER 29, 1999, SEPTEMBER 30, 1998 AND SEPTEMBER 24, 1997)
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 periods being compared and which remained open through the end of the
fiscal period.
The Company adopted the provision of American Institute of Certified
Public Accountants Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities ("SOP 98-5") retroactive to the first quarter of fiscal
1999. This new accounting standard requires the Company to expense all
pre-opening costs as they are incurred. The Company previously deferred such
costs and amortized them over the one-year period following the opening of
each restaurant.
IMPACT OF UNUSUAL ITEMS IN FISCAL 1999
Fiscal 1999 earnings include the effect of the change in accounting for
pre-opening costs and a nonrecurring charge of $1,600,000 related to the
settlement of a lawsuit with Pepsi-Cola Company. The following table sets
forth a reconciliation of earnings excluding the effects of pre-opening costs
and the settlement of litigation charge for the years indicated (dollars in
thousands).
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------
<S> <C> <C> <C>
Earnings before income taxes and cumulative
effect of change in accounting $ 28,793 $ 30,928 $ 25,574
Pre-opening costs -- as previously stated 4,598 3,231 3,476
Pre-opening costs -- restatement effect 2,985 -- --
Settlement of litigation 1,600 -- --
-------------------------------------------------------
Earnings before income taxes, cumulative effect
of change in accounting, pre-opening
costs and settlement of litigation $ 37,976 $ 34,159 $ 29,050
-------------------------------------------------------
</TABLE>
19
<PAGE>
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>
1999 1998 1997
------------------------------------------------------
(53 weeks)
<S> <C> <C> <C>
Revenues
Net sales 98.5% 98.2% 97.9%
Franchise fees .9 1.1 1.2
Other, net .6 .7 .9
------------------------------------------------------
100.0 100.0 100.0
------------------------------------------------------
Costs and Expenses
Cost of sales 25.3(1) 25.5(1) 26.4(1)
Restaurant operating costs 47.2(1) 46.3(1) 44.9(1)
General and administrative 7.1 7.6 7.9
Depreciation and amortization 3.9 4.0 4.0
Rent 3.8 3.2 3.1
Marketing 2.9 3.1 3.0
Interest .5 .8 1.3
------------------------------------------------------
Earnings Before Income Taxes, Cumulative Effect of Change
In Accounting, Pre-opening Costs and Settlement of Litigation 10.4 10.9 10.8
Pre-opening costs -- as previously recorded 1.3(2) 1.0 1.3
Pre-opening costs -- restatement effect .8(2)
Settlement of litigation .4 -- --
------------------------------------------------------
Earnings Before Income Taxes and Cumulative
Effect of Change In Accounting 7.9 9.9 9.5
Income Taxes 2.8 3.6 3.5
------------------------------------------------------
Earnings Before Cumulative Effect of
Change in Accounting 5.1 6.3 6.0
Cumulative Effect of Change in Accounting for
Pre-opening Costs, Net of Income Taxes .5(2) -- --
------------------------------------------------------
Net Earnings 4.6% 6.3% 6.0%
------------------------------------------------------
</TABLE>
(1) Cost of sales and restaurant operating costs are expressed as a
percentage of net sales.
(2) During 1999, the Company adopted the provisions of SOP 98-5, retroactive
to the first quarter of fiscal 1999. This new accounting standard requires
the Company to expense all pre-opening costs as they are incurred. The
company previously deferred such costs and amortized them over the one-year
period following the opening of each restaurant. The cumulative effect of
this accounting change, net of income tax benefit, was $1.8 million ($0.06
per diluted share). The effect of the adoption of the new accounting standard
was a reduction in the Company's earnings before cumulative effect of change
in accounting for fiscal 1999 of approximately $1.9 million ($0.07 per
diluted share).
20
<PAGE>
COMPARISON OF YEAR ENDED SEPTEMBER 29, 1999 TO YEAR ENDED SEPTEMBER 30, 1998
(53 WEEKS)
REVENUES
Net sales increased $53,893,000 to $360,836,000, or 17.6%, due to an
increase in Steak n Shake net sales. The $54,920,000 increase, or 18.9%, in
net sales of Steak n Shake was due to the opening of new units (non-same
stores) and a 4.0% increase in same store sales. Exclusive of the extra week
of sales in 1998, net sales increased $60,046,000, or 20.0%. The number of
Company-operated Steak n Shake restaurants increased 19% to 278 at September
29, 1999 as compared to 233 at September 30, 1998. The increase in same store
sales was attributable to a 3.0% increase in check average and a 1.0%
increase in customer counts. Steak n Shake initiated price increases of
approximately 1.0% and 3.0% in the second and fourth quarters of fiscal 1999,
respectively. Steak n Shake same store sales improved each quarter during
fiscal 1999 with the fourth quarter same store sales being up 4.9%.
COSTS AND EXPENSES
Cost of sales increased $13,078,000, or 16.7%, as a result of sales
increases. As a percentage of net sales, cost of sales decreased to 25.3%
from 25.5%, primarily as a result of menu price increases.
Restaurant operating costs increased $28,403,000, or 20.0%, due to
increased labor costs and other operating costs resulting primarily from the
higher sales volume and an increase in manager training costs over the prior
year. Restaurant operating costs, as a percentage of net sales, increased to
47.2% from 46.3%. The higher labor costs were the result of a 5.6% increase
in wage rates arising from tight labor markets. The increase in manager
training costs of $1,100,000 results from the Company's significantly
intensified manager recruiting programs. The goal of the recruiting effort is
to increase the Company's restaurant management quality and staffing levels
to 105% staffed, thereby providing the management bench strength to support
the Company's growth program. The Company's recruiting efforts are focused on
identifying growth employees from within for promotion to restaurant manager
positions, as well as aggressive college based recruiting. The increased
management staffing depth will also enhance the Company's ability to deliver
dining experiences that exceed customer's expectations. Increased manager
staffing will also reduce manager turnover.
General and administrative expenses increased $2,490,000, or 10.5%. The
increase in expenses was primarily attributable to personnel related costs,
which included costs related to additional staffing in connection with the
development of new restaurants, and other costs resulting from the increased
number of restaurants. In addition, the Company experienced higher expenses
related to the significantly intensified manager recruiting programs. As a
percentage of revenues, general and administrative expenses decreased to 7.1%
from 7.6%.
The $1,580,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1998.
Rent expense increased $4,038,000, or 40.5%, as a result of an increased
use of sale/leaseback financing involving 46 properties since the beginning
of fiscal 1998 and a net increase in the number of other leased properties,
including leases related to the thirteen franchised Steak n Shake units
purchased in 1999 and 1998.
Marketing expense increased $1,028,000, or 10.7%. As a percentage of
revenues, marketing expense decreased to 2.9% from 3.1%.
Pre-opening costs increased in fiscal 1999 due to the adoption of SOP
98-5 which resulted in pre-opening costs being charged to expense as
incurred. During 1998 and prior years, pre-opening costs were deferred and
amortized over the one-year period following the opening of each restaurant.
Excluding the one-time cumulative effect, the adoption of SOP 98-5 reduced
the Company's earnings before income taxes and cumulative effect of change in
accounting for fiscal 1999 by $3.0 million and reported net earnings for
fiscal 1999 by approximately $1.9 million ($0.07 per diluted share). In
addition, the increase in pre-opening costs is attributable to the timing of
the number of new units and higher levels of per unit pre-opening costs,
particularly with respect to units opened in new markets.
Interest expense decreased $536,000 as a result of decreased borrowings
during fiscal 1999. The Company utilized proceeds from sale/leaseback
financing to fund its growth in 1999.
The Company recorded a one-time, nonrecurring charge of $1,600,000 in
the second quarter of fiscal 1999 related to the settlement of a lawsuit with
Pepsi-Cola Company.
INCOME TAXES
The Company's effective income tax rate decreased to 35.0% from 36.3%
principally as a result of lower state income taxes and higher 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.
21
<PAGE>
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR PRE-OPENING COSTS
The cumulative effect of the change in accounting for pre-opening costs,
net of income tax benefit, was $1,750,000 ($0.06 per diluted share). This new
accounting standard accelerated the Company's recognition of pre-opening
costs, but benefits the post-opening results of new restaurants.
NET EARNINGS
Net earnings increased 10% to $21,663,603 exclusive of the effect of the
Pepsi litigation charge and the effect of the change in accounting for
pre-opening costs. Net earnings decreased $2,740,000 to $16,962,226 primarily
as a result of the adoption of SOP 98-5 and the $1,600,000 charge related to
the settlement of the Pepsi litigation.
COMPARISON OF YEAR ENDED SEPTEMBER 30, 1998 (53 WEEKS) TO YEAR ENDED
SEPTEMBER 24, 1997
REVENUES
Net sales increased $44,274,000 to $306,943,000, or 16.9%, due to an
increase in Steak n Shake net sales. The $44,461,000 increase, or 18.1%, in
net sales of Steak n Shake was due to the opening of new units (non-same
stores) and a .3% increase in same store sales, in addition to an extra week
of sales in 1998. The number of Company-operated Steak n Shake restaurants
increased 20% to 233 at September 30, 1998 as compared to 194 at September
24, 1997. The increase in same store sales was attributable to a 2.5%
increase in check average partially offset by a 2.2% decrease in customer
counts. Steak n Shake initiated price increases of approximately 1.0% in
March 1997, October 1997 and March 1998. Steak n Shake same store sales
improved each quarter during fiscal 1998 with the fourth quarter same store
sales being up 2.7%. After excluding units in close proximity (generally
three miles) to the new units opened, Steak n Shake same store sales
increased 1.9% for fiscal 1998.
Franchise fees increased $196,000 to $3,355,000 as a result of higher
franchised unit sales volumes partially offset by a decrease in initial and
renewal franchise fees. Six franchised units opened in fiscal 1998 compared
to eight franchised units in fiscal 1997 and two franchised units were closed
during fiscal 1998. On December 22, 1997, the Company completed the purchase
of eight franchised Steak n Shake restaurants in southern Georgia and
northwest Florida.
COSTS AND EXPENSES
Cost of sales increased $8,953,000, or 12.9%, as a result of sales
increases. As a percentage of net sales, cost of sales decreased to 25.5%
from 26.4%, primarily as a result of the higher level of Company-operated
restaurant sales in relation to product sales to franchisees and menu price
increases.
Restaurant operating costs increased $24,168,000, or 20.5%, due to
increased labor costs and other operating costs resulting primarily from the
higher sales volume. Restaurant operating costs, as a percentage of sales,
increased to 46.3% from 44.9%. The higher labor costs were the result of an
increase in the average hourly employee rate, due in part to increases in
minimum wage on September 1, 1997, increases in management labor 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 $2,364,000, or 11.1%. The
increase in expenses was primarily attributable to personnel related costs,
which included costs related to additional staffing in connection with the
development of new restaurants. As a percentage of revenues, general and
administrative expenses decreased to 7.6% from 7.9%.
The $1,857,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1997.
Rent expense increased $1,552,000, or 18.4%, as a result of an increased
use of sale/leaseback financing involving 37 properties since the beginning
of fiscal 1997 and a net increase in the number of other leased properties,
including eight franchised Steak n Shake units purchased in fiscal 1998.
Marketing expense increased $1,478,000, or 18.2%. As a percentage of
revenues, marketing expense increased slightly to 3.1% from 3.0%.
The $245,000 decrease in the amortization of pre-opening costs was
attributable to the timing of the number of new Company-operated units opened
in fiscal 1998 as compared to fiscal 1997.
Interest expense decreased $1,113,000 as a result of decreased
borrowings during fiscal 1998 under the Company's revolving line of credit
facility as a result of the paydown of this credit facility with the proceeds
of an equity offering in the fourth quarter of fiscal 1997 and the increased
use of sale/leaseback financing.
22
<PAGE>
INCOME TAXES
The Company's effective income tax rate decreased to 36.3% from 36.9%
principally as a result of lower state income taxes and higher federal tax
credits. 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 $3,554,000, or 22.0%, 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.
EFFECTS OF GOVERNMENTAL REGULATIONS AND INFLATION
Since most of the Company's employees are paid hourly rates related to
federal and state minimum wage laws, increases in the legal minimum wage
directly increase the Company's operating costs. Inflation in food, labor and
other operating costs directly affects the Company's operations.
YEAR 2000 ISSUE
The Company has established a Company-wide program to prepare its
information technology and non-information technology systems for Year 2000,
including modification of the Company's computer systems and applications
where necessary. The Company has utilized both internal and external
resources to identify, modify and test the systems for Year 2000 compliance.
The Company has completed the conversion of its financial accounting systems
to compliant versions of the third party developed software and the software
is currently in production. In addition, the Company has completed the
necessary software and hardware upgrades to make its point of sale systems
Year 2000 compliant.
Formal communications have been made with all significant suppliers and
service providers to determine the extent to which the Company is vulnerable
to those third parties' failure to remedy the Year 2000 problem. Unless
public suppliers of water, electricity and natural gas are disrupted for a
substantial period of time (in which the Company's business may be materially
adversely affected), the Company currently believes that its operations will
not be significantly disrupted even if third parties with whom the Company
has relationships are not Year 2000 compliant. Information has been provided
to franchisees regarding the potential risks associated with the Year 2000
problem.
The Company currently believes that, with the purchases of new software
and hardware modifications to existing software and hardware, any internal
Year 2000 compliance issues have been remedied and will not pose significant
operational problems for the Company's computer systems as so modified and
converted. Further, the Company believes that the costs solely related to
addressing Year 2000 compliance issues will not have a material effect on the
Company's earnings or financial condition. However, uncertainty exists
concerning the potential costs and effects associated with any Year 2000
compliance. The Company intends to continue to make efforts to ensure that
third parties with whom it has relationships are Year 2000 compliant, as well
as, develop contingency plans, including alternative suppliers or service
providers. Any Year 2000 compliance problem of either the Company or its
suppliers (to the extent alternative suppliers are not available on a timely
basis) could possibly result in disruptions and unexpected business problems
and could have a material adverse effect on earnings or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Forty Company-operated Steak n Shake restaurants and four franchised
Steak n Shake restaurants were opened during the fiscal year. In addition,
the Company completed the purchase of five franchised Steak n Shake
restaurants. For fiscal 1999, capital expenditures totaled $66,974,000 as
compared to $51,430,000 and $52,229,000 during fiscal 1998 and 1997,
respectively.
The Company expects to open 40 Steak n Shake restaurants in fiscal year
2000. Annually, as part of the Company's ongoing planning process, management
will evaluate the current year's development plan to determine the number of
units to be opened in subsequent fiscal years. The average cost of a new
Company-operated Steak n Shake restaurant, including land, site improvements,
building and equipment for fiscal 1999 was $1,480,000. 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 and bank borrowings.
Cash provided by operations in fiscal 1999 totaled $33,354,000 while
cash generated by sale and leaseback transactions and other disposals of
property totaled $19,655,000. Cash provided by operations in fiscal 1998 and
1997 totaled $36,654,000 and $30,196,000, respectively. Cash generated by
sale and leaseback transactions and other disposals in fiscal 1998 and 1997
totaled $31,906,000 and $11,534,000, respectively. At September 30, 1999 the
23
<PAGE>
Company had additional sale/leaseback properties under contract which, when
closed, will generate $6,011,000 in proceeds.
Net cash used in financing activities during fiscal 1999 totaled
$684,000. There were no borrowings under the Company's $30,000,000 Revolving
Credit Agreement ("Revolving Credit Agreement") during fiscal 1999. Net cash
used in financing activities during fiscal 1998 totaled $1,172,000. During
fiscal 1998, the Company borrowed $5,000,000 under its $50,000,000 ten-year
Senior Note Agreement and Private Shelf Facility ("Senior Note"), the
proceeds of which were utilized to refinance a like amount under the prior
senior note agreement. Net cash generated by financing activities totaled
$12,536,000 during fiscal 1997 including the net proceeds of the sale of
1,000,000 shares of common stock of approximately $16,616,000. The proceeds
were used to repay all outstanding borrowings under the Revolving Credit
Agreement.
Borrowings under the Senior Note bear interest at an average fixed rate
of 7.6%. On April 21, 1999, the Company amended the terms of its Senior Note
increasing the borrowing capacity to $75,000,000 and extending the issuance
period to April 21, 2002. As of September 29, 1999, the Company had
outstanding borrowings of $27,216,000 under the Senior Note. Consequently,
the Company has borrowings of $47,784,000 available under the Senior Note at
interest rates based upon market rates at the time of borrowing. The
Company's 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 1999, the Company amended the Revolving Credit Agreement to
extend the maturity date to December 2000. 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.
24
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure with regard to financial
instruments is to changes in interest rates. Pursuant to the terms of the
Senior Note Agreement, the Company may from time to time issue notes in
increments of at least $5,000,000. The interest rate on the notes is based
upon market rates at the time of the borrowing. Once the interest rate is
established at the time of the initial borrowing, the interest rate remains
fixed over the term of the underlying note. The Revolving Credit Agreement
bears interest at a rate based upon LIBOR plus 75 basis points or the prime
rate, at the election of the Company. Historically, the Company has not used
derivative financial instruments to manage exposure to interest rate changes.
At September 29, 1999, a hypothetical 100 basis point increase in short-term
interest rates would have an immaterial impact on the Company's earnings.
The Company purchases certain commodities which are generally purchased
based upon market prices established with vendors. Purchase arrangements for
items such as french fries, chili beans and coffee may contain contractual
features that limit the price paid by establishing certain price floors or
caps. Since commodity price aberrations are generally short term in nature
the Company does not use financial instruments to hedge commodity prices
because these purchase arrangements help control the ultimate cost paid.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS
- - ------------------------------------------------------------------------------
Consolidated Products, Inc.
(Years ended September 29, 1999, September 30, 1998 and September 24, 1997)
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------
(53 weeks)
<S> <C> <C> <C>
Revenues:
Net sales $360,835,778 $306,942,834 $262,668,556
Franchise fees ,364,769 3,355,073 3,158,634
Other, net 2,250,802 2,254,485 2,357,216
------------------------------------------------------
366,451,349 312,552,392 268,184,406
------------------------------------------------------
Costs and Expenses:
Cost of sales 91,272,265 78,194,622 69,241,320
Restaurant operating costs 170,400,459 141,997,185 117,828,980
General and administrative 26,105,360 23,615,535 21,251,502
Depreciation and amortization 14,127,339 12,547,067 10,690,410
Rent 14,020,175 9,982,146 8,430,115
Marketing 10,640,516 9,612,099 8,134,422
Interest 1,909,473 2,445,221 3,558,098
------------------------------------------------------
37,975,762 34,158,517 29,049,559
Pre-opening costs (See Change in Accounting Note) 7,583,106 3,230,818 3,475,728
Settlement of litigation 1,600,000 -- --
------------------------------------------------------
Earnings Before Income Taxes and Cumulative Effect
Of Change in Accounting 28,792,656 30,927,699 25,573,831
Income Taxes 10,080,000 11,225,000 9,425,000
------------------------------------------------------
Earnings Before Cumulative Effect of
Change in Accounting 18,712,656 19,702,699 16,148,831
Cumulative Effect of Change in Accounting
For Pre-opening Costs, Net of Income Taxes 1,750,430 -- --
------------------------------------------------------
Net Earnings $ 16,962,226 $ 19,702,699 $ 16,148,831
------------------------------------------------------
Basic Earnings Per Common and
Common Equivalent Share:
Before cumulative effect of
change in accounting $ .64 $ .69 $ .60
Cumulative effect of change in accounting
for pre-opening costs $ (.06) $ -- $ --
------------------------------------------------------
Basic earnings per share $ .58 $ .69 $ .60
------------------------------------------------------
Diluted Earnings Per Common and
Common Equivalent Share:
Before cumulative effect of
change in accounting $ .63 $ .67 $ .59
Cumulative effect of change in accounting
for pre-opening costs $ (.06) $ -- $ --
------------------------------------------------------
Diluted earnings per share $ .57 $ .67 $ .59
------------------------------------------------------
Weighted Average Shares and Equivalents:
Basic 29,149,065 28,710,438 26,867,430
Diluted 29,579,311 29,227,943 27,336,815
</TABLE>
SEE ACCOMPANYING NOTES.
26
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
- - --------------------------------------------------------------------------------
Consolidated Products, Inc.(September 29, 1999 and September 30, 1998)
<TABLE>
<CAPTION>
1999 1998
------------------------------------
<S> <C> <C>
Assets:
Current Assets
Cash, including cash equivalents of $2,265,000 in 1999
and $12,235,000 in 1998 $ 4,005,187 $ 13,655,043
Short term investments -- 4,971,469
Receivables 11,100,108 10,766,170
Inventories 4,849,216 4,438,425
Deferred income taxes 1,133,000 1,135,000
Other current assets 3,989,204 5,406,682
------------------------------------
Total current assets 25,076,715 40,372,489
------------------------------------
Property and Equipment
Land 49,691,470 38,621,688
Buildings 41,799,306 36,001,904
Leasehold improvements 45,079,229 43,275,522
Equipment 99,761,598 80,670,817
Construction in progress 20,109,301 12,356,650
------------------------------------
256,440,904 210,926,581
Less accumulated depreciation and amortization (74,530,108) (64,588,300)
------------------------------------
Net property and equipment 181,910,796 146,338,281
------------------------------------
Net Leased Property 2,124,933 2,968,044
Other Assets 1,359,207 502,066
------------------------------------
$ 210,471,651 $190,180,880
------------------------------------
Liabilities and Shareholders' Equity:
Current Liabilities
Accounts payable $ 18,416,612 $ 15,093,193
Accrued expenses 19,148,669 22,055,329
Current portion of senior note 2,734,365 1,305,794
Current portion of obligations under capital leases 1,248,681 1,309,345
------------------------------------
Total current liabilities 41,548,327 39,763,661
------------------------------------
Deferred Taxes and Credits 6,226,172 3,851,091
Obligations Under Capital Leases 2,747,982 3,999,948
Senior Note 24,482,064 27,216,429
Shareholders' Equity
Common stock -- $.50 stated value, 50,000,000 shares
authorized -- shares issued: 29,587,890 in 1999;
26,491,497 in 1998 14,793,945 13,245,749
Additional paid-in capital 118,767,710 92,350,819
Retained earnings (deficit) 7,452,544 14,284,714
Less: Unamortized value of restricted shares (2,498,091) (2,272,340)
Treasury stock -- at cost: 207,210 shares in 1999;
163,048 shares in 1998 (3,049,002) (2,259,191)
------------------------------------
Total shareholders' equity 135,467,106 115,349,751
------------------------------------
$ 210,471,651 $ 190,180,880
------------------------------------
</TABLE>
27
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - -------------------------------------------------------------------------------
Consolidated Products, Inc.
(YEARS ENDED SEPTEMBER 29, 1999, SEPTEMBER 30, 1998 AND SEPTEMBER24, 1997)
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------
(53 weeks)
<S> <C> <C> <C>
Operating Activities:
Net earnings $ 16,962,226 $ 19,702,699 $ 16,148,831
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 14,127,339 12,547,067 10,690,410
Amortization of pre-opening costs -- 3,230,818 3,475,728
Cumulative effect of change in accounting for
pre-opening costs 1,750,430 -- --
Provision for deferred income taxes 2,063,000 1,516,000 157,000
Changes in receivables and inventories (1,732,257) 553,634 (1,256,278)
Changes in other assets (1,169,515) (1,880,154) (3,770,218)
Changes in income taxes payable (617,241) (121,733) 1,056,150
Changes in accounts payable and accrued expenses 2,024,278 1,295,113 3,657,280
(Gain) loss on disposal of property (54,693) (189,846) 37,484
--------------------------------------------------
Net cash provided by operating activities 33,353,567 36,653,598 30,196,387
--------------------------------------------------
Investing Activities:
Additions of property and equipment (66,974,269) (51,429,949) (52,228,883)
Proceeds from sale of short term investments 5,000,000 -- --
Purchase of short term investments -- (4,971,169) --
Net proceeds from sale/leasebacks and other disposals 19,654,722 31,906,246 11,534,362
--------------------------------------------------
Net cash used in investing activities (42,319,547) (24,494,872) (40,694,521)
--------------------------------------------------
Financing Activities:
Proceeds from long-term debt -- 5,000,000 5,000,000
Repayments of revolving line of credit -- -- (4,000,000)
Proceeds from equipment and property leases 679,703 709,959 672,205
Principal payments on debt and capital lease obligations (2,224,696) (7,486,655) (5,945,151)
Lease payments on subleased properties (680,099) (680,944) (741,103)
Cash dividends paid in lieu of fractional shares (19,313) (21,020) (20,519)
Proceeds from exercise of stock options and warrants 409,749 291,224 207,945
Proceeds from stock offering -- -- 16,616,331
Proceeds from employee stock purchase plan 1,150,780 1,015,521 746,296
--------------------------------------------------
Net cash provided by (used in) financing activities (683,876) (1,171,915) 12,536,004
--------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (9,649,856) 10,986,811 2,037,870
Cash and Cash Equivalents at Beginning of Year 13,655,043 2,668,232 630,362
--------------------------------------------------
Cash and Cash Equivalents at End of Year $ 4,005,187 $ 13,655,043 $ 2,668,232
--------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
28
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- - ------------------------------------------------------------------------------
Consolidated Products, Inc.
(YEARS ENDED SEPTEMBER 29, 1999, SEPTEMBER 30, 1998 AND SEPTEMBER 24, 1997)
<TABLE>
<CAPTION>
Unamortized
Additional Retained Value of
Common Paid-In Earnings Restricted Treasury Stock
Stock Capital (Deficit) Shares Shares Amount
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 25, 1996 7,022,743 51,766,742 1,262,066 (1,416,851) 78,288 (805,768)
Net earnings 16,148,831
Shares issued under stock option plan 72,664 691,943
Shares exchanged to exercise stock options 32,821 (540,360)
Shares granted under Capital Appreciation Plan 32,625 1,101,094 (1,133,719)
Shares forfeited under Capital Appreciation Plan 28,135 3,465 (44,438)
Shares issued in stock offering 500,000 16,116,331
Changes in unamortized value of shares
granted under Capital Appreciation Plan 682,453
Tax benefit relating to stock plans 739,878
Ten percent common stock dividend declared
December 18, 1996 (1,402,298 shares) 701,149 22,086,194 (22,787,343)
Cash dividends paid in lieu of fractional shares (20,519)
Shares issued for Employee Stock Purchase Plan 29,267 717,029
Five for four common stock split declared
December 3, 1997 (4,150,580 shares) 2,075,290 (2,075,290)
------------------------------------------------------------------------
Balance at September 24, 1997 10,433,738 91,143,921 (5,396,965) (1,839,982) 114,574 (1,390,566)
Net earnings 19,702,699
Shares issued under stock option plan 96,521 936,569
Shares exchanged to exercise stock options 39,472 (743,269)
Shares granted under Capital Appreciation Plan 41,100 1,449,387 (1,490,488)
Shares forfeited under Capital Appreciation Plan 85,920 9,750 (134,344)
Changes in unamortized value of shares
granted under Capital Appreciation Plan 972,210
Tax benefit relating to stock plans 487,398
Cash dividends paid in lieu of fractional shares (21,020)
Shares issued form Employee Stock Purchase Plan 41,791 973,730
Five for four common stock split declared
December 1, 1998 (5,265,690 shares) 2,632,845 (2,632,845)
Other (246) (7,341) (748) 8,988
------------------------------------------------------------------------
Balance at September 30, 1998 13,245,749 92,350,819 14,284,714 (2,272,340) 163,048 (2,259,191)
Net earnings 16,962,226
Shares issued under stock option plan 111,896 1,087,662
Shares exchanged to exercise stock options 44,162 (789,811)
Shares granted under Capital Appreciation Plan 49,875 1,327,922 (1,377,797)
Changes in unamortized value of shares
granted under Capital Appreciation Plan 1,152,046
Tax benefit relating to stock plans 461,869
Cash dividends paid in lieu of fractional shares (19,313)
Shares issued for Employee Stock Purchase Plan 51,283 1,099,497
Ten percent common stock dividend declared
December 15, 1999 (2,665,368 shares) 1,332,684 22,442,399 (23,775,083)
Other 2,458 (2,458)
------------------------------------------------------------------------
Balance at September 29, 1999 $14,793,945 $118,767,710 $ 7,452,544 $(2,498,091) 207,210 $(3,049,002)
------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - -------------------------------------------------------------------------------
Consolidated Products, Inc.
(YEARS ENDED SEPTEMBER 29, 1999, SEPTEMBER 30, 1998 AND SEPTEMBER 24, 1997)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Consolidated Products, Inc.
(the "Company") include the accounts of Consolidated Products, Inc. (parent)
and its wholly-owned subsidiaries. All intercompany items have been
eliminated. The Company's fiscal year ends on the last Wednesday in
September. As of September 29, 1999, the Company owned and operated, or
franchised, 328 Steak n Shake restaurants, including 50 franchised, through
its wholly-owned subsidiary Steak n Shake, Inc. and eleven casual dining
theme restaurants through its wholly-owned subsidiary, Consolidated Specialty
Restaurants, Inc. The Company's business constitutes a single operating
segment pursuant to the provisions of Statement of Financial Accounting
Standard No. 131, "Disclosure About Segments of an Enterprise and Related
Information."
CASH, INCLUDING CASH EQUIVALENTS, AND SHORT TERM INVESTMENTS
The Company's policy is to invest cash in excess of operating
requirements in income producing investments. Cash equivalents primarily
consist of bank repurchase agreements, U.S. Government securities and money
market accounts, all of which have maturities of three months or less. Short
term investments at September 29, 1999 primarily consist of commercial paper
all of which are available for sale. Cash equivalents and short term
investments are carried at cost, which approximates market value.
RECEIVABLES
At September 29, 1999 and September 30, 1998, receivables include
$6,011,486 and $7,025,867, respectively, related to the cost of six and seven
properties, respectively, for which sale and leaseback contracts have been
entered into for the sale of these properties. Receivables are net of any
related allowances.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method)
or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are recognized on the
straight-line method over the estimated useful lives of the assets (15 to 25
years for buildings and 5 to 10 years for restaurant equipment). Leasehold
improvements are amortized by the straight-line method over the shorter of
the estimated useful lives of the improvements or the terms of the related
leases.
LEASED PROPERTY
The lower of fair market value or the discounted value of that portion
of a capital lease attributable to building costs is capitalized and
amortized by the straight-line method over the term of such leases and
included with depreciation expense. The portions of such leases relating to
land are accounted for as operating leases.
FRANCHISE FEES
Unit franchise fees and area development fees are recorded as revenue
when the related restaurant begins operations. Royalty fees based on
franchise sales are recognized as revenue on the accrual basis of accounting.
EMPLOYEES' PROFIT SHARING PLAN
The Consolidated Products, Inc. Employees' Profit Sharing Plan is a
defined contribution plan covering substantially all employees of the Company
after they have attained age 21 and completed one year of service.
Contributions to the Plan, which are subject to the discretion of the Board
of Directors, amounted to $1,565,000 for 1999, $1,545,000 for 1998 and
$1,340,000 for 1997.
ADVERTISING EXPENSES
Advertising costs are charged to expense as incurred.
USE OF ESTIMATES
Preparation of the consolidated financial statements requires management
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from the estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities." In June 1999,
the FASB issued Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133," which defers the effective date of
SFAS No. 133 until the Company's first quarter financial statements of fiscal
2001. The Company currently believes that the adoption of SFAS No. 133 will
not have a material effect on the Company's results of operations.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
CHANGE IN ACCOUNTING
During 1999, the Company adopted the provisions of American Institute of
Certified Public Accountants Statement of Position 98-5, "Reporting on the
Costs of Start-up Activities" retroactive to the first quarter of fiscal
1999. This new accounting standard requires the Company to expense all
pre-opening costs as they are incurred. The Company previously deferred such
costs and amortized them over the one-year period following the opening of
each restaurant. The cumulative effect of this accounting change, net of
income tax benefit, was $1.8 million ($0.06 per diluted share). This new
accounting standard accelerates the Company's recognition of pre-opening
costs, but benefits the post-opening results of new restaurants. The effect
of the adoption of the new accounting standard was a reduction in the
Company's earnings before cumulative effect of change in accounting for
pre-opening costs for fiscal 1999 of approximately $1.9 million ($0.07 per
diluted share).
STOCK SPLIT
On December 1, 1998, the Company declared a five for four stock split
distributable on December 28, 1998 to shareholders of record on December 14,
1998. Accordingly, all references in the consolidated financial statements
and accompanying notes related to per share amounts, average shares
outstanding and shareholders' equity have been adjusted retroactively to
reflect the five for four stock split. Stock splits are accounted for through
the reduction of paid-in capital at the par value of the shares issued.
INCOME TAXES
The components of the provision for income taxes consist of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 6,722,000 $ 8,109,000 $ 7,853,000
State 1,295,000 1,600,000 1,415,000
Deferred 2,063,000 1,516,000 157,000
------------------------------------------------
Total income taxes $ 10,080,000 $ 11,225,000 $ 9,425,000
------------------------------------------------
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory
tax rates to income tax expense is:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. statutory rates $ 10,077,000 $ 10,825,000 $ 8,951,000
State income taxes, net of federal tax benefit 842,000 1,040,000 920,000
Employer's FICA tax credit (553,000) (477,000) (382,000)
Jobs tax credit (253,000) (163,000) (29,000)
Other (33,000) -- (35,000)
------------------------------------------------
Total income taxes $ 10,080,000 $ 11,225,000 $ 9,425,000
------------------------------------------------
</TABLE>
Income taxes paid totaled $8,791,000 in 1999, $10,129,000 in 1998 and
$8,202,000 in 1997.
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted marginal tax rates and laws that will be in effect
when the differences are expected to reverse. The components of the Company's
net deferred tax (liability) asset consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------------------------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 949,000 $ 1,434,000
Capital leases 523,000 654,000
Capital appreciation plans 969,000 821,000
Other 361,000 693,000
------------------------------
Total deferred tax assets 2,802,000 3,602,000
------------------------------
Deferred tax liabilities:
Depreciation 4,304,000 3,254,000
Restaurant pre-opening costs -- 986,000
Other 325,000 112,000
------------------------------
Total deferred tax liabilities 4,629,000 4,352,000
------------------------------
Net deferred tax asset (1,827,000) (750,000)
Less current portion 1,133,000 1,135,000
------------------------------
Long-term liability $ (2,960,000) $(1,885,000)
------------------------------
</TABLE>
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - ------------------------------------------------------------------------------
LEASED ASSETS AND LEASE COMMITMENTS
<TABLE>
<CAPTION>
1999 1998
----------------------------
<S> <C> <C>
Leased property under capital leases, less accumulated amortization
of $8,287,813 in 1999 and $8,084,607 in 1998 $1,745,671 $2,188,983
Long-term portion of net investment in direct financing leases 379,262 779,061
----------------------------
Net leased property $2,124,933 $2,968,044
----------------------------
</TABLE>
The Company leases certain of its physical facilities under
non-cancelable lease agreements. Steak n Shake restaurant leases typically
have initial terms of eighteen to twenty-five years and renewal terms
aggregating twenty years or more and Consolidated Specialty Restaurant leases
typically have terms of ten to fifteen years and three five-year renewal
terms. These leases require the subsidiaries to pay real estate taxes,
insurance and maintenance costs. Certain leased facilities which are no
longer operated by the subsidiaries, but have been subleased to third
parties, are classified as non-operating properties in the table below of
minimum future rental payments. Minimum future rental payments have not been
reduced by minimum sublease rentals of $966,000 related to capital leases and
$644,000 related to operating leases receivable in the future under
non-cancelable subleases.
At September 29, 1999, obligations under non-cancelable capital leases
and operating leases (excluding real estate taxes, insurance and maintenance
costs) require the following minimum future rental payments:
<TABLE>
<CAPTION>
Capital Leases (000's) Operating Leases (000's)
---------------------- ------------------------
Non- Non-
Operating Operating Operating Operating
Year Property Property Total Property Property
- - ---- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 $1,133 $ 517 $1,650 $ 15,266 $ 344
2001 836 350 1,186 15,043 231
2002 657 99 756 14,897 69
2003 555 -- 555 14,721 --
2004 450 -- 450 14,444 --
After 2004 520 -- 520 135,849 --
------------------------------ ------------------
Total minimum future rental payments 4,151 966 5,117 $210,220 $ 644
------------------
Less amount representing interest 996 124 1,120
------------------------------
Total obligations under capital leases 3,155 842 3,997
Less current portion 813 436 1,249
------------------------------
Long-term obligations under capital leases $2,342 $ 406 $2,748
------------------------------
</TABLE>
During 1999 and 1998, the Company received net proceeds of $19,618,859
involving nineteen properties, and $30,871,822 involving twenty-seven
properties, respectively, from sale and leaseback transactions. Since these
leases are classified as operating, any related gains on the transactions
have been deferred and are being amortized in proportion to the related gross
rental charged to expense over the eighteen-year lease terms.
Direct financing leases resulted from subleasing certain of the
aforementioned leased facilities and the leasing of certain Company-owned
facilities identified for disposal. Net investment in direct financing leases
consists of:
<TABLE>
<CAPTION>
1999 1998
----------------------------
<S> <C> <C>
Total minimum lease payments to be received $ 965,909 $1,521,651
Less unearned income 187,211 358,677
----------------------------
Net investment in direct financing leases 778,698 1,162,974
Less current portion included in receivables 399,436 383,913
----------------------------
Long-term net investment $ 379,262 $ 779,061
----------------------------
</TABLE>
At September 29, 1999, minimum annual lease payments on direct financing
leases are receivable as follows: 2000-$508,000; 2001-$356,000 and
2002-$102,000.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - ------------------------------------------------------------------------------
DEBT
REVOLVING CREDIT AGREEMENT
The Company's $30,000,000 Revolving Credit Agreement matures in December
2000 and bears interest at a rate based on LIBOR plus 75 basis points or the
prime rate, at the election of the Company. The line of credit includes an
option for conversion into a five-year term loan with a ten-year amortization
schedule. There were no outstanding borrowings under the Revolving Credit
Agreement as of September 29, 1999.
SENIOR NOTE
On April 21, 1999, the Company amended the terms of its Senior Note
Agreement and Private Shelf Facility (the "Senior Note Agreement") to
increase the borrowing capacity to $75,000,000 and extend the issuance period
to April 21, 2002. As of September 29, 1999, the Company had borrowings of
$27,216,000 under its $75,000,000 Senior Note Agreement. Consequently, the
Company has borrowings of $47,784,000 available under the Senior Note
Agreement over the period ending April 21, 2002, at interest rates based upon
market rates at the time of borrowing. As of September 29, 1999, outstanding
borrowings under the Senior Note Agreement had an average interest rate of
7.6% and the amounts maturing subsequent to fiscal 1999 in each of the five
years ending September 29 are as follows: 2000- $2,734,000; 2001- $3,960,000;
2002- $3,960,000; 2003-$4,322,000; 2004- $4,322,000. The Senior Note
Agreement is unsecured and contains restrictions which, among other things,
require the Company to maintain certain financial ratios.
Interest capitalized in connection with financing additions to property
and equipment amounted to $835,000 and $672,000 in fiscal 1999 and 1998,
respectively. Interest paid on all debt amounted to $2,254,000 in 1999
$2,938,000 in 1998, and $3,559,000 in 1997.
The carrying amounts reported in the consolidated balance sheet of debt
do not materially differ from their fair market value at September 29, 1999.
ACCRUED EXPENSES
<TABLE>
<CAPTION>
1999 1998
------------------------------
<S> <C> <C>
Salaries and wages $ 6,766,105 $ 7,454,917
Insurance 2,553,044 3,415,840
Property taxes 4,093,404 3,771,869
Other 5,736,116 7,412,703
------------------------------
$ 19,148,669 $ 22,055,329
------------------------------
</TABLE>
DEFERRED TAXES AND CREDITS
<TABLE>
<CAPTION>
1999 1998
------------------------------
<S> <C> <C>
Income taxes $ 2,960,000 $ 1,885,000
Gain on sale and leaseback
transactions and other 3,266,172 1,966,091
------------------------------
$ 6,226,172 $ 3,851,091
------------------------------
</TABLE>
CAPITAL APPRECIATION PLANS
The Capital Appreciation Plans established in 1994 and 1997 provide for
tandem awards of Common Stock (restricted shares) and book units of up to
274,518 and 567,188 shares and related units, respectively. These awards are
restricted for a period of three years and are returnable to the Company if
the grantee is not employed (except for reasons of retirement, permanent
disability or death) by the Company at the end of the period. The stock is
valued at 100% of market value at the date of grant, and the book units,
which are granted in an equal number to the shares of stock, provide for a
cash payment at the end of the three-year period equal to the sum of the net
change in book value per share and the common stock dividends paid per share
during the period, as adjusted for stock dividends/splits. The total value of
the stock grant (based upon market value at the date of the grant) is debited
to unamortized value of restricted shares and amortized to compensation
expense ratably over the three-year period. The total number of shares and
book units granted under the 1994 and 1997 Plans for which restrictions have
not lapsed was 327,164 at September 29,1999; 335,982 at September 30, 1998
and 260,018 at September 24, 1997. At September 29, 1999, 240,022 shares were
reserved for future grants. The average remaining period for which
restrictions had not lapsed at September 29, 1999 was 1.86 years. The amount
charged to expense under the Plans was $1,418,000 in 1999, $1,169,000 in 1998
and $846,000 in 1997.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - ------------------------------------------------------------------------------
STOCK OPTION PLANS
EMPLOYEE STOCK OPTION PLAN
The 1997 Employee Stock Option Plan ("the 1997 Plan"), provides for the
granting of 945,313 stock options. The 1997 Plan provides for the issuance of
stock options exercisable as to 20% on the date of grant and 20% on each
anniversary of the date of grant thereafter until fully exercisable. The
options expire five years from the date of grant. Options were granted under
the 1997 Plan to officers and key employees selected by the Stock Option
Committee. As of September 29, 1999, 545,185 options have been granted under
the 1997 Plan and 174,756 are exercisable.
The 1995 Employee Stock Option Plan ("the 1995 Plan"), provides for the
granting of 686,297 stock options. Options granted under the 1995 Plan are
primarily incentive stock options exercisable on the same terms as the 1997
Plan. Options were granted under the 1995 Plan to officers and key employees
selected by the Stock Option Committee. At September 29, 1999, 684,812
options have been granted under the 1995 Plan and 474,978 are exercisable.
The 1992 Employee Stock Option Plan ("the 1992 Plan"), provides for the
granting of 503,284 stock options. Options granted under the 1992 Plan are
primarily incentive stock options exercisable on the same terms as the 1995
Plan. The options expire five years from the date of grant. Options were
granted under the 1992 Plan to officers and key employees selected by the
Stock Option Committee. All options have been granted under the 1992 Plan and
19,331 are exercisable.
As of September 30, 1998, 748,298 options were available for grant and
587,178 options were exercisable. The following table summarizes the changes
in options outstanding and related average prices under the 1997, 1995 and
1992 Plans:
<TABLE>
<CAPTION>
Weighted
Average
Shares Price
--------- ---------
<S> <C> <C>
Outstanding at September 25, 1996 1,002,557 $ 5.07
Fiscal 1997 Activity:
Granted 231,885 8.63
Exercised (231,936) 2.98
Canceled (16,192) 6.15
---------
Outstanding at September 24, 1997 986,314 6.38
Fiscal 1998 Activity:
Granted 257,499 14.22
Exercised (232,600) 3.88
Canceled (16,188) 8.56
---------
Outstanding at September 30, 1998 995,025 8.95
Fiscal 1999 Activity:
Granted 352,669 15.34
Exercised (176,288) 4.72
Canceled (5,969) 11.94
---------
Outstanding at September 29, 1999 1,165,437 $ 11.51
---------
</TABLE>
NONEMPLOYEE DIRECTOR STOCK OPTION PLANS
The Company's 1995, 1996, 1997, 1998 and 1999 Nonemployee Director Stock
Option Plans provide for the grant of nonqualified stock options at a price
equal to the fair market value of the Common Stock on the date of the grant.
Options outstanding under each Plan are exercisable as to 20% on the date of
grant and 20% on each anniversary of the date of grant thereafter until fully
exercisable. The options expire five years from the date of grant.
An aggregate of 57,192 shares of Common Stock are reserved for the grant
of options under the 1995 Plan. At September 29, 1999, all of the options
authorized under the 1995 Plan have been granted at a price of $4.41. All
options were exercised this year related to the 1995 Plan.
An aggregate of 31,196 shares of Common Stock are reserved for the grant
of options under the 1996 Plan. At September 29, 1999, all of the options
authorized under the 1996 Plan have been granted at a price of $7.69 of which
19,967 are exercisable. No options have been canceled and 4,992 shares have
been exercised since the inception of the 1996 Plan.
An aggregate of 34,032 shares of Common Stock are reserved for the grant
of options under the 1997 Plan. At September 29, 1999, all of the options
authorized under the 1997 Plan have been granted at an average price of $8.47
of which 17,585 are exercisable. No options have been canceled and 3,403
shares have been exercised since the inception of the 1997 Plan.
An aggregate of 25,782 shares of Common Stock are reserved for the grant
of options under the 1998 Plan. At September 29, 1999, all of the options
authorized under the 1998 Plan have been granted at a price of $11.20 of
which 10,316 are exercisable. No options have been canceled or exercised
since the inception of the 1998 Plan.
An aggregate of 24,750 shares of Common Stock are reserved for the grant
of options under the 1999 Plan. At September 29,1999, all of the options
authorized under the 1999 Plan have been granted at a price of $12.09 of
which 4,950 are exercisable. No options have been canceled or exercised since
the inception of the 1999 Plan.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - ------------------------------------------------------------------------------
The following table summarizes information about the exercise price for
stock options outstanding at September 29, 1999 under the employee and
nonemployee director stock option plans.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices September 29, 1999 Life Price September 29, 1999 Price
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5 - $10 611,655 1.72 years $ 7.90 474,176 $ 7.72
$10 - $15 357,325 3.67 years $ 13.07 144,064 $ 13.13
$15 - $20 303,817 4.43 years $ 16.33 103,639 $ 16.12
-------------------------------------------------------------------------------------------------
$ 5 - $20 1,272,797 2.91 years $ 11.36 721,879 $ 10.00
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In February 1993, the shareholders approved a tax-qualified Employee
Stock Purchase Plan, providing for a maximum of 125,821 shares of Common
Stock per year for five years. In February 1998, the shareholders approved an
amendment to the Employee Stock Purchase Plan providing for a maximum of
154,688 shares of Common Stock per year for an additional five years.
Unissued shares in any given year are carried forward and are available to
increase the annual maximum. The Plan is available to all eligible employees
of the Company and its subsidiaries as determined by the Board of Directors
and has a calendar plan year. Employees are able to purchase shares of Common
Stock each year through payroll deductions from 2% to 10% of compensation up
to a maximum allowable fair market value of $10,000 or 1,000 shares per year,
whichever is less. The purchase price will be the lesser of 85% of the market
price, as defined, on the first or last trading day of the plan year. During
fiscal 1999 and fiscal 1998, 112,822 shares and 114,926 shares, respectively,
were purchased and issued to employees.
STOCK-BASED COMPENSATION
The Company measures stock-based compensation cost in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" requires that the Company disclose pro forma
information regarding net earnings and earnings per share as if the Company
has accounted for its employee stock awards, consisting of stock options and
stock issued pursuant to the Employee Stock Purchase Plan, granted subsequent
to September 28, 1995, under the fair value method as defined by that
statement. The fair value for these awards was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions for
fiscal 1999 and 1998: volatility factor of the expected market price of the
Company's common stock of .51 in 1999 and .32 in 1998; expected option lives
of 1-5 years; dividend yield of 0.0%; and a risk-free interest rate of 5.4%
in 1999 and 5.5% in 1998. The weighted average fair value of options granted
in 1999 and 1998 was $7.52 and $6.23, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options discussed below, are amortized to expense over the related vesting
period. Because compensation expense is recognized over the vesting period,
the initial impact on pro forma net earnings may not be representative of
compensation expense in future years, when the effect of the amortization of
multiple awards would be reflected. The Company's pro forma information
giving effect to the estimated compensation expense related to stock-based
compensation is as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------
<S> <C> <C>
Net earnings as reported $ 16,962,226 $ 19,702,699
Less pro forma compensation expense 1,554,495 931,449
------------------------------
Pro forma net earnings $ 15,407,731 $ 18,771,250
------------------------------
Diluted earnings per share as reported $ .57 $ .67
Pro forma diluted earnings per share $ .52 $ .64
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - ------------------------------------------------------------------------------
RELATED PARTY TRANSACTIONS
Kelley & Partners, Ltd. owned 2,034,106 shares, or 6.9%, of the Company
at September 29, 1999. Additionally, certain of the partners, who also serve
as officers and/or directors of the Company, collectively controlled
2,808,719 shares, or 9.6% of the Company's outstanding stock at September 29,
1999.
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Diluted earnings per common and common equivalent share are computed by
dividing net earnings by the weighted average number of common shares
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 have been restated to give effect to the five for four
stock split declared on December 1, 1998 and distributed on December 28, 1998
to shareholders of record on December 14, 1998.
The following table presents information necessary to calculate
basic and diluted earnings per common and common equivalent share (adjusted
for the five for four stock split declared in December 1998):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Weighted average shares outstanding - basic 29,149,065 28,710,438 26,867,430
Share equivalents 430,246 517,505 469,385
-------------------------------------------------
Weighted average shares and equivalents - diluted 29,579,311 29,227,943 27,336,815
-------------------------------------------------
Net earnings for basic and diluted earnings per share
computation $ 16,962,226 $ 19,702,699 $ 16,148,831
</TABLE>
SUBSEQUENT EVENT-STOCK DIVIDEND
On December 15, 1999, the Company declared a 10% stock dividend
distributable on January 12, 2000 to shareholders of record on December 29,
1999. References in the consolidated financial statements related to share
amounts, per share amounts, average shares outstanding and shareholders'
equity have been adjusted retroactively to reflect the 10% stock dividend.
36
<PAGE>
QUARTERLY FINANACIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER(1)
FIRST SECOND THIRD FOURTH
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Revenues $ 79,011,425 $ 104,047,488 $ 88,478,583 $ 94,913,850
Costs and Expenses $ 71,586,294 $ 98,302,131(3) $ 79,973,499 $ 87,796,771
Earnings Before Income Taxes and Cumulative
Effect of Change in Accounting(2) $ 7,425,131 $ 5,745,357 $ 8,505,084 $ 7,117,079
Earnings Before Cumulative Effect of
Change in Accounting $ 4,717,131 $ 3,702,357 $ 5,485,084 $ 4,808,079
Net Earnings(2) $ 2,966,701 $ 3,702,357 $ 5,485,084 $ 4,808,079
Diluted Earnings Per Commons and
Common Equivalent Share:
Earnings Before Cumulative Effect
Of Change in Accounting(2)(4) $ .16 $ .13 $ .18 $ .16
Net Earnings(2)(4) $ .10 $ .13 $ .18 $ .16
1998
Revenues $ 65,169,897 $ 91,140,048 $ 72,533,128 $ 84,000,242
Costs and Expenses $ 58,990,981 $ 83,460,487 $ 64,130,890 $ 75,333,258
Earnings Before Income Taxes $ 6,178,916 $ 7,679,561 $ 8,402,238 $ 8,666,984
Net Earnings $ 3,923,916 $ 4,874,561 $ 5,322,238 $ 5,581,984
Net Earnings Per Common and
Common Equivalent Share(4) $ .14 $ .17 $ .18 $ .19
</TABLE>
(1) The Company's fiscal year includes quarters consisting of 12, 16, 12 and
12 weeks, respectively, except for 1998 which had 13 weeks in the fourth
quarter due to it being a 53 week year.
(2) During 1999, the Company adopted the provision of SOP 98-5 retroactive to
the first quarter of fiscal 1999. The cumulative effect of this accounting,
net of income tax benefit, was a reduction in first quarter net earnings of
$1.8 million ($0.06 per diluted share). The effect of the adoption of the new
accounting standard was reduction in the Company's earnings before cumulative
effect of change in accounting for the second, third and fourth quarters of
fiscal 1999 of $0.01, $0.02 and $0.04 per diluted share, respectively.
(3) Includes charge of $1,600,000 for settlement of Pepsi litigation.
(4) All financial data regarding per share amounts have been adjusted to
reflect the 10% stock dividend declared in December 1999.
37
<PAGE>
MANAGEMENT'S REPORT
- - -------------------------------------------------------------------------------
Consolidated Products, Inc.
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Consolidated Products, Inc. is responsible for the
preparation, integrity and objectivity of the Company's financial statements
and the other financial information in this report. The financial statements
were prepared in conformity with generally accepted accounting principles and
reflect in all material respects the Company's results of operations and the
financial position for the periods shown based upon management's best
estimates and judgments.
In addition, management maintains internal control systems which are
adequate to provide reasonable assurance that assets are safeguarded from
loss or unauthorized use and which produce records adequate for preparation
of financial information. There are limits inherent in all systems of
internal accounting control based on the recognition that the cost of such
systems should not exceed the benefits to be derived. We believe the
Company's systems provide the appropriate balance. The effectiveness of the
control systems is supported by the selection and training of qualified
personnel, an organizational structure that provides an appropriate division
of responsibility and a strong budgetary system of control. Ernst & Young
LLP, independent auditors, has been engaged to express an opinion regarding
the fair presentation of the Company's financial condition and operating
results. As part of their audit of the Company's financial statements, Ernst
& Young LLP considered the Company's system of internal controls to the
extent they deemed necessary to determine the nature, timing and extent of
their audit tests.
The Audit Committee of the Board of Directors, which is composed of four
outside directors, serves in an oversight role to assure the integrity and
objectivity of the Company's financial reporting process. The Committee meets
periodically with representatives of management and the independent auditors
to review matters of a material nature related to auditing, financial
reporting, internal accounting controls and audit results. The independent
auditors have free access to the Audit Committee. The Committee is also
responsible for making recommendations to the Board of Directors concerning
the selection of the independent auditors.
/s/ Alan B. Gilman /s/ James W. Bear
PRESIDENT AND SENIOR VICE PRESIDENT
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
REPORT OF INDEPENDENT AUDITORS
- - -------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Consolidated Products, Inc.
We have audited the accompanying consolidated statements of financial
position of Consolidated Products, Inc. as of September 29, 1999 and
September 30, 1998, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three years in the period
ended September 29, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Consolidated
Products, Inc. at September 29, 1999 and September 30, 1998, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended September 29, 1999, in conformity with
generally accepted accounting principles.
As discussed in the Change in Accounting note to the consolidated
financial statements, in 1999 the Company changed its method of accounting
for pre-opening costs.
/s/ Ernst & Young LLP
Indianapolis, Indiana
November 22, 1999
Except for the stock dividend described on page
45, as to which the date is December 15, 1999
38
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
39
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the caption "Election of Directors" in the
Company's definitive Proxy Statement relating to its 2000 Annual Meeting of
Shareholders to be filed pursuant to Rule 14a-6(c) is incorporated herein by
reference. Information relating to the company's executive officers is set forth
at pages 13-15 of this Form 10-K under "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information included under the captions "Compensation of Directors",
"Compensation of Executive Officers", "Summary Compensation Table", "Stock
Option Grants in Fiscal 1999", "Aggregated Stock Option Exercises in Fiscal 1999
and Fiscal Year End Option Values", "Long Term Incentive Plan -- Awards in Last
Fiscal Year", "Report of the Executive Committee" and "Company Performance" in
the Company's definitive Proxy Statement relating to its 2000 Annual Meeting of
Shareholders to be filed pursuant to Rule 14a-6(c) is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information contained under the caption "Ownership of Common Stock" in the
Company's definitive Proxy Statement relating to its 2000 Annual Meeting of
Shareholders to be filed pursuant to Rule 14a-6(c) is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Management Relationships and
Related Transactions" in the Company's definitive Proxy Statement relating to
its 2000 Annual Meeting of Shareholders to be filed pursuant to Rule 14a-6(c) is
incorporated herein by reference.
40
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS A PART OF THIS REPORT:
1. FINANCIAL STATEMENTS. The following table sets forth the financial
statements filed as a part of this report:
Consolidated Statements of Financial Position at September 29, 1999
and September 30, 1998
For the years ended September 29, 1999, September 30, 1998 and
September 24, 1997:
- Consolidated Statements of Earnings
- Consolidated Statements of Cash Flows
- Consolidated Statements of Shareholders' Equity
Notes to Consolidated Financial Statements
Report of Independent Auditors
2. FINANCIAL STATEMENT SCHEDULES.
All schedules for the years ended September 29, 1999, September 30,
1998 and September 24, 1997 have been omitted for the reason that they
are not required or are not applicable, or the required information is
set forth in the financial statements or notes thereto.
3. EXHIBITS. The following exhibits are filed as a part of this Annual
Report on Form 10-K.
(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 the
Registrant's Form 10-K Annual Report 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 on
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.)
41
<PAGE>
(4) 4.01 Specimen certificate representing Common Stock of
Consolidated Products, Inc. (formerly Steak n Shake, Inc.).
(Incorporated by reference to the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter 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).
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).
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 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. effective 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.)
4.09 Fifth Amendment to Amended and Restated Credit Agreement by
and between Consolidated Products, Inc. and Bank One,
Indianapolis, N.A. dated February 24, 1999. (Incorporated by
reference to the Exhibits to the Registrant's Quarterly
Report in Form 10-Q for the fiscal quarter ended April 14,
1999).
4.10 Amendment To Note Purchase and Private Shelf Agreement by
and between Consolidated Products, Inc. and The Prudential
Insurance Company of America
42
<PAGE>
dated as of April 21, 1999 related to senior note agreement
and private shelf facility. (Incorporated by reference to the
Exhibits to the Registrant's Quarterly Report in Form 10-Q for
the fiscal quarter ended April 14, 1999).
(9) No exhibit.
(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 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).
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 in to the Appendix to the
Registrant's definitive Proxy Statement dated January 13,
1993 related to its 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 its 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 in to the Appendix
to the Registrant's definitive Proxy Statement dated January
13, 1994 related to its 1994 Annual Meeting of
Shareholders).
43
<PAGE>
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).
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) No exhibit.
(12) No exhibit.
(13) No exhibit.
(16) No exhibit.
(18) No exhibit.
(21) 21.01 Subsidiaries of the Registrant.
(22) No exhibit.
(23) 23.01 Consent of Ernst & Young LLP.
44
<PAGE>
(24) No exhibit.
(27) 27.01 Financial Data Schedule.
(99) No exhibit.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on December 20, 1999.
CONSOLIDATED PRODUCTS, INC.
By: /s/ GREGORY G. FEHR
------------------------------
Gregory G. Fehr
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated, on December 20, 1999.
<TABLE>
<S> <C>
/s/ E. W. KELLEY Director
- - ------------------------
E. W. Kelley
/s/ S. SUE ARAMIAN Director
- - ------------------------
S. Sue Aramian
/s/ ALAN B. GILMAN President, Chief Executive Officer and Director
- - ------------------------ (Principal Executive Officer)
Alan B. Gilman
/s/ JAMES W. BEAR Senior Vice President and Treasurer
- - ------------------------ (Principal Financial Officer)
James W. Bear
/s/ GREGORY G. FEHR Vice President and Controller
- - ------------------------ (Principal Accounting Officer)
Gregory G. Fehr
/s/ NEAL GILLIATT Director
- - ------------------------
Neal Gilliatt
/s/ STEPHEN GOLDSMITH Director
- - ------------------------
Stephen Goldsmith
/s/ CHARLES E. LANHAM Director
- - ------------------------
Charles E. Lanham
/s/ J. FRED RISK Director
- - ------------------------
J. Fred Risk
/s/ DR. JOHN W. RYAN Director
- - ------------------------
Dr. John W. Ryan
/s/ JAMES WILLIAMSON, JR. Director
- - ------------------------
James Williamson, Jr.
</TABLE>
46
<PAGE>
CONSOLIDATED PRODUCTS INC. AND SUBIDIARIES
Index to Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
(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 the
Registrant's Form 10-K Annual Report 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 on
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. (formerly Steak n Shake, Inc.).
(Incorporated by reference to the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter 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).
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).
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,
</TABLE>
47
<PAGE>
<TABLE>
<C> <S>
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 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. effective 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.)
4.8 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.)
4.09 Fifth Amendment to Amended and Restated Credit Agreement by
and between Consolidated Products, Inc. and Bank One,
Indianapolis, N.A. dated February 24, 1999. (Incorporated by
reference to the Exhibits to the Registrant's Quarterly
Report in Form 10-Q for the fiscal quarter ended April 14,
1999).
4.10 Amendment To Note Purchase and Private Shelf Agreement by
and between Consolidated Products, Inc. and The Prudential
Insurance Company of America dated as of April 21, 1999
related to senior note agreement and private shelf facility.
(Incorporated by reference to the Exhibits to the
Registrant's Quarterly Report in Form 10-Q for the fiscal
quarter ended April 14, 1999).
(9) No exhibit.
(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 July 1, 1992).
</TABLE>
48
<PAGE>
<TABLE>
<C> <S>
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).
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 in to the Appendix to the
Registrant's definitive Proxy Statement dated January 13,
1993 related to its 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 its 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 in to the Appendix
to the Registrant's definitive Proxy Statement dated January
13, 1994 related to its 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).
</TABLE>
49
<PAGE>
<TABLE>
<C> <S>
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) No exhibit.
(12) No exhibit.
(13) No exhibit.
(16) No exhibit.
(18) No exhibit.
(21) 21.01 Subsidiaries of the Registrant.
(22) No exhibit.
(23) 23.01 Consent of Ernst & Young LLP.
(24) No exhibit.
(27) 27.01 Financial Data Schedule.
(99) No exhibit.
</TABLE>
50
<PAGE>
EXHIBIT 21.01
CONSOLIDATED PRODUCTS, INC.
<TABLE>
<CAPTION>
State of
Wholly-owned Subsidiaries Incorporation
------------------------- -------------
<S> <C>
Steak n Shake, Inc. Indiana
SNSTM, Inc. * Delaware
Consolidated Specialty Restaurants, Inc. Indiana
SNS Investment Company Indiana
</TABLE>
* Wholly owned subsidiary of Steak n Shake, Inc.
51
<PAGE>
EXHIBIT 23.01
CONSOLIDATED PRODUCTS, INC.
CONSENT OF ERNST & YOUNG LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-63342) pertaining to the 1992 Employee Stock Option Plan,
(Forms S-8 No. 33-63344 and No. 333-53447) pertaining to the Employee Stock
Purchase Plan, (Form S-8 No. 33-61945) pertaining to the 1995 Employee Stock
Option Plan and (Form S-8 No. 333-33667) pertaining to the 1997 Employee
Stock Option Plan of our report dated November 22, 1999 (except the
Subsequent Event - Stock Dividend footnote, as to which the date is December
15, 1999), with respect to the consolidated financial statements of
Consolidated Products, Inc. and subsidiaries included in the Annual Report
(Form 10-K) for the year ended September 29, 1999.
/s/ Ernst & Young LLP
Indianapolis, Indiana
December 22, 1999
52
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT AND FINANCIAL POSITION AS OF SEPTEMBER 29, 1999 AND THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE FIFTY-TWO WEEKS ENDED SEPTEMBER 29,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000093859
<NAME> CONSOLIDATED PRODUCTS, INC.
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-29-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-29-1999
<CASH> 4,005,187<F1>
<SECURITIES> 0
<RECEIVABLES> 11,100,108
<ALLOWANCES> 0
<INVENTORY> 4,849,216
<CURRENT-ASSETS> 25,076,715
<PP&E> 256,440,904
<DEPRECIATION> 74,530,108
<TOTAL-ASSETS> 210,471,651
<CURRENT-LIABILITIES> 41,548,327
<BONDS> 0
0
0
<COMMON> 13,461,261
<OTHER-SE> 122,005,845
<TOTAL-LIABILITY-AND-EQUITY> 210,471,651
<SALES> 360,835,778
<TOTAL-REVENUES> 366,451,349
<CGS> 91,272,265
<TOTAL-COSTS> 261,672,724<F2>
<OTHER-EXPENSES> 35,730,620<F3><F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,909,473
<INCOME-PRETAX> 28,792,656
<INCOME-TAX> 10,080,000
<INCOME-CONTINUING> 18,712,656
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,750,430<F4>
<NET-INCOME> 16,962,226
<EPS-BASIC> .58
<EPS-DILUTED> .57
<FN>
<F1>CASH INCLUDES CASH EQUIVALENTS OF $2,265,000.
<F2>INCLUDED RESTAURANT OPERATING COSTS OF $170,400,459.
<F3>INCLUDED DEPRECIATION AND AMORTIZATION AND RENT OF $21,710,445 AND $14,020,175,
RESPECTIVELY.
<F4>DURING 1999 THE COMPANY ADOPTED SOP 98-5 RETROACTIVE TO THE FIRST QUARTER OF
FISCAL 1999.
</FN>
</TABLE>
