<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TWELVE WEEKS ENDED JULY 7, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-8445
CONSOLIDATED PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
INDIANA 37-0684070
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
500 CENTURY BUILDING, 36 S. PENNSYLVANIA STREET
INDIANAPOLIS, INDIANA 46204
(317) 633-4100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /x/ No / /
Number of shares of Common Stock outstanding at August 13, 1999:
26,612,473
<PAGE>
CONSOLIDATED PRODUCTS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
-------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C> <C> <C>
Consolidated Statements of Financial Position -
July 7, 1999 (Unaudited) and September 30, 1998 3
Consolidated Statements of Earnings (Unaudited)
Twelve and Forty Weeks Ended July 7, 1999
and July 1, 1998 4
Consolidated Statements of Cash Flows (Unaudited)
Forty Weeks Ended July 7, 1999 and
July 1, 1998 5
Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 13
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
JULY 7, SEPTEMBER 30,
1999 1998
------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash, including cash equiva-
lents of $6,425,000 in 1999
and $12,235,000 in 1998 $ 8,941,833 $ 13,655,043
Short term investments -- 4,971,169
Receivables 2,425,849 3,740,303
Properties under sale and
leaseback contract 8,353,673 7,025,867
Inventories 4,724,775 4,438,425
Deferred income taxes 1,135,000 1,135,000
Unamortized pre-opening costs 4,343,000 2,818,000
Other current assets 4,368,467 2,228,682
------------ ------------
Total current assets 34,292,597 40,372,489
------------ ------------
PROPERTY AND EQUIPMENT
Land 48,406,072 38,621,688
Buildings 40,740,472 36,001,904
Leasehold improvements 44,344,188 43,275,522
Equipment 94,242,188 80,670,817
Construction in progress 15,848,119 12,356,650
------------ ------------
243,581,039 210,926,581
Less accumulated depreciation
and amortization (71,077,416) (64,588,300)
------------ ------------
Net property and equipment 172,503,623 146,338,281
------------ ------------
LEASED PROPERTY
Leased property under capital
leases, less accumulated amorti-
zation of $8,425,972 in 1999
and $8,084,607 in 1998 1,846,448 2,188,983
Net investment in direct
financing leases 470,788 779,061
------------ ------------
Net leased property 2,317,236 2,968,044
------------ ------------
OTHER ASSETS 1,362,050 502,066
------------ ------------
$210,475,506 $190,180,880
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
JULY 7, SEPTEMBER 30,
1999 1998
------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 18,224,978 $ 15,093,193
Accrued expenses 22,019,049 22,055,329
Current portion of senior note 1,305,794 1,305,794
Current portion of obligations
under capital leases 1,326,925 1,309,345
------------ ------------
Total current liabilities 42,876,746 39,763,661
------------ ------------
DEFERRED INCOME TAXES
AND CREDITS 4,899,465 3,851,091
OBLIGATIONS UNDER
CAPITAL LEASES 2,981,998 3,999,948
SENIOR NOTE 27,216,429 27,216,429
SHAREHOLDERS' EQUITY
Common stock -- $.50 stated value
50,000,000 shares authorized --
shares issued: 26,777,738 in 1999;
26,491,497 in 1998 13,388,869 13,245,749
Additional paid-in capital 94,297,760 92,350,819
Retained earnings 29,115,995 14,284,714
Less: Unamortized value of
restricted shares (1,407,112) (2,272,340)
Treasury stock -- at cost
197,664 shares in 1999;
163,048 shares in 1998 (2,894,644) (2,259,191)
------------ ------------
Total shareholders' equity 132,500,868 115,349,751
------------ ------------
$210,475,506 $190,180,880
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE FORTY
WEEKS ENDED WEEKS ENDED
----------- -----------
JULY 7, JULY 1, JULY 7, JULY 1,
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 87,088,375 $ 71,246,080 $ 267,341,651 $ 224,357,654
Franchise fees 825,651 796,154 2,530,906 2,512,071
Other - net 564,557 490,894 1,664,939 1,682,425
-------------- -------------- ---------------- ----------------
88,478,583 72,533,128 271,537,496 228,552,150
-------------- -------------- ---------------- ----------------
COSTS AND EXPENSES
Cost of sales 21,940,967 17,935,118 68,164,158 57,169,418
Restaurant operating costs 40,919,625 32,311,190 125,372,094 103,195,220
General and administrative 5,758,966 5,257,739 19,499,828 17,641,736
Depreciation and amortization 3,235,165 2,873,387 10,383,977 9,374,914
Rent 3,357,798 2,377,515 10,512,806 7,345,469
Marketing 2,229,937 2,225,075 8,030,409 7,036,900
Amortization of pre-opening costs 1,113,780 660,946 3,203,879 2,550,389
Interest 391,168 489,020 1,569,759 1,977,389
Settlement of litigation - - 1,600,000 -
-------------- -------------- ---------------- ----------------
78,947,406 64,130,890 248,336,910 206,291,435
-------------- -------------- ---------------- ----------------
EARNINGS BEFORE INCOME TAXES 9,531,177 8,402,238 23,200,586 22,260,715
INCOME TAXES 3,409,000 3,080,000 8,350,000 8,140,000
-------------- -------------- ---------------- ----------------
NET EARNINGS $ 6,122,177 $ 5,322,238 $ 14,850,586 $ 14,120,715
-------------- -------------- ---------------- ----------------
-------------- -------------- ---------------- ----------------
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Basic $ .23 $ .20 $ .56 $ .54
Diluted $ .23 $ .20 $ .55 $ .53
WEIGHTED AVERAGE SHARES
AND EQUIVALENTS:
Basic 26,545,511 26,139,868 26,446,183 26,049,054
Diluted 26,963,043 26,658,498 26,877,974 26,540,100
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
-----------------
JULY 7, JULY 1,
1999 1998
-------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES,
Net earnings $ 14,850,586 $ 14,120,715
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 10,383,977 9,374,914
Amortization of pre-opening costs 3,203,879 2,550,389
Changes in receivables and inventories (1,586,266) 1,740,956
Changes in other assets (6,559,081) (2,433,358)
Changes in income taxes payable 2,620,452 1,048,106
Changes in accounts payable
and accrued expenses 938,400 497,448
Gain on disposal of property (90,456) (254,416)
-------------- -------------
Net cash provided by operating activities 23,761,491 26,644,754
-------------- -------------
INVESTING ACTIVITIES
Additions of property and equipment (47,848,957) (37,175,566)
Sale of short-term investments 5,000,000 --
Net proceeds from disposal of
property and equipment 13,607,513 10,040,091
-------------- -------------
Net cash used in investing activities (29,241,444) (27,135,475)
-------------- -------------
FINANCING ACTIVITIES
Principal payments on debt
and capital lease obligations (701,939) (6,512,257)
Proceeds from long-term debt -- 5,000,000
Proceeds from equipment and property leases 542,853 550,507
Lease payments on subleased properties (509,468) (511,098)
Cash paid in lieu of fractional shares (19,313) (21,020)
Proceeds from exercise of stock options 303,830 118,540
Proceeds from employee stock purchase plan 1,150,780 1,015,521
-------------- -------------
Net cash provided by (used in) financing activities 766,743 (359,807)
-------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS (4,713,210) (850,528)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,655,043 2,668,232
-------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,941,833 $ 1,817,704
-------------- -------------
-------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
CONSOLIDATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements.
In the opinion of the Company, all adjustments (consisting of only normal
recurring accruals) considered necessary to present fairly the consolidated
financial position as of July 7, 1999, the consolidated statements of earnings
for the twelve and forty weeks ended July 7, 1999 and July 1, 1998 and the
consolidated statements of cash flows for the forty weeks ended July 7, 1999 and
July 1, 1998 have been included.
The consolidated statements of earnings for the twelve and forty weeks ended
July 7, 1999 and July 1, 1998 are not necessarily indicative of the consolidated
statements of earnings for the entire year. For further information, refer to
the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended September 30, 1998.
SEASONAL ASPECTS
The Company has substantial fixed costs which do not decline as a result of a
decline in sales. The Company's second fiscal quarter, which falls during the
winter months, usually reflects lower average weekly unit volumes, and sales can
be adversely affected by severe winter weather.
INTEREST AND INCOME TAXES PAID
Cash payments for interest during the forty weeks ended July 7, 1999 and July
1, 1998 amounted to $1,708,000 and $2,379,000, respectively. Cash payments for
income taxes during the forty weeks ended July 7, 1999 and July 1, 1998 amounted
to $5,730,000 and $7,389,000, respectively.
STOCK SPLIT
The number of shares issued as of July 7, 1999 on the consolidated statement
of financial position includes 5,270,606 shares which were distributed on
December 28, 1998 pursuant to a five for four stock split declared on December
1, 1998 to shareholders of record on December 14, 1998. Net earnings per common
and common equivalent share and weighted average shares and equivalents for the
twelve and forty weeks ended July 1, 1998 have been restated to give effect to
the five for four stock split.
6
<PAGE>
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Diluted earnings per common and common equivalent share is computed by
dividing net earnings by the weighted average number of outstanding and common
equivalent shares. Common equivalent shares include shares subject to purchase
under stock options.
The following table presents information necessary to calculate basic
and diluted earnings per common and common equivalent share:
<TABLE>
<CAPTION>
TWELVE FORTY
WEEKS ENDED WEEKS ENDED
----------------------------- -----------------------------
JULY 7, JULY 1, JULY 7, JULY 1,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding-Basic 26,545,511 26,139,868 26,446,183 26,049,054
Share equivalents 417,532 518,630 431,791 491,046
------------ ------------ ------------ ------------
Weighted average shares and equivalents-Diluted 26,963,043 26,658,498 26,877,974 26,540,100
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
- - -----------
Net earnings for basic and diluted
earnings per share computation $ 6,122,177 $ 5,322,238 $ 14,850,586 $ 14,120,715
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In the following discussion, the term "same store sales" refers to the
sales of only those units open eighteen months as of the beginning of the
current fiscal period being discussed and which remained open through the end of
the fiscal period.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of items included in the Company's
consolidated statements of earnings for the periods indicated:
<TABLE>
<CAPTION>
TWELVE FORTY
WEEKS ENDED WEEKS ENDED
--------------------- -----------------------
7/7/99 7/1/98 7/7/99 7/1/98
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES
Net sales 98.4% 98.2% 98.5% 98.2%
Franchise fees 0.9 1.1 0.9 1.1
Other, net 0.7 0.7 0.6 0.7
------ ------- ------- -------
100.0 100.0 100.0 100.0
------ ------- ------- -------
COSTS AND EXPENSES
Cost of sales 25.2 (1) 25.2 (1) 25.5 (1) 25.5 (1)
Restaurant operating costs 47.0 (1) 45.4 (1) 46.9 (1) 46.0 (1)
General and administrative 6.5 7.2 7.2 7.7
Depreciation and amortization 3.7 4.0 3.8 4.1
Rent 3.8 3.3 3.9 3.2
Marketing 2.5 3.1 3.0 3.1
Amortization of pre-opening costs 1.3 0.9 1.2 1.1
Interest 0.4 0.7 0.6 0.9
Settlement of litigation -- -- 0.6 --
------ ------ ------- -------
89.2 88.4 91.5 90.3
------ ------- ------- -------
EARNINGS BEFORE INCOME TAXES 10.8 11.6 8.5 9.7
INCOME TAXES 3.9 4.2 3.1 3.5
------ ------- ------- -------
NET EARNINGS 6.9% 7.4% 5.4% 6.2%
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
-------------------
(1) Cost of sales and restaurant operating costs are expressed as a
percentage of net sales.
COMPARISON OF TWELVE WEEKS ENDED JULY 7, 1999 TO TWELVE WEEKS ENDED JULY 1, 1998
REVENUES
Net sales increased $15,842,000 to $87,088,000, or 22.2%, due to an increase
in Steak n Shake's net sales. The increase of $15,973,000, or 23.7%, in the net
sales of Steak n Shake was due to the opening of 42 new units within the last
year pursuant to the Company's expansion plan (non-same stores) and a 4.2%
increase in same store sales. The increase in same store sales was attributable
to a 2.6% increase in check average and a 1.6% increase in customer count. The
number of company-operated Steak n Shake restaurants increased 18% to 260 at
July 7, 1999 as compared to 220 at July 1, 1998. Same store sales have increased
in six consecutive quarters.
Other revenues increased $74,000 to $565,000 primarily due to an increase
in interest income arising from the investment of proceeds from sale and
leaseback transactions in income-producing investments.
8
<PAGE>
COSTS AND EXPENSES
Operating margins for the twelve months ended July 7, 1999 were less than the
prior year primarily as the result of increased wage rates arising from tight
labor markets and increased manager training costs. In response to wage
pressures, the Company implemented a 3% price increase at the start of the
fourth quarter of fiscal 1999.
Cost of sales increased $4,006,000, or 22.3%, primarily as a result of sales
increases. As a percentage of net sales, cost of sales was constant at 25.2%.
Higher beef and bacon costs were offset by lower dairy costs and the higher
level of Company-operated restaurant sales in relation to product sales to
franchisees, which have a much higher cost of sales than restaurant sales.
Restaurant operating costs increased $8,608,000, or 26.6%, due to an increase
in labor costs and other operating costs resulting from the increased sales
volume and an increase in manager training costs over the prior year. Restaurant
operating costs, as a percentage of net sales, increased to 47.0% from 45.4%.
The higher labor costs were the result of a 6.7% increase in wage rates arising
from tight labor markets. The increase in manager training costs of $500,000
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 from 86% staffed as of the
beginning of the third quarter to 105%, 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 $501,000 or 9.5%. The increase
in expenses was attributable to personnel costs, which included costs for
additional management support personnel in connection with the development of
new restaurants, and other costs resulting from the increased number of
restaurants. As a percentage of revenues, general and administrative expenses
decreased to 6.5% from 7.2%.
The $362,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1998.
Rent expense increased $980,000, or 41.2%, primarily as a result of the
completion of the sale and leaseback of thirty-two Company-owned properties
since the third quarter of fiscal 1998.
The increase in amortization of preopening cost of $453,000 was attributable
to the timing of the number of new Company-operated units opened in the latter
part of fiscal 1998 and higher levels of per unit preopening costs, particularly
with respect to units opened in new markets.
Interest expense decreased $98,000 due to decreased average net borrowings
under the Company's senior note agreement and the reduction in capital lease
obligations and higher capitalized interest due to more units under construction
in the third quarter of fiscal 1999.
INCOME TAXES
The Company's effective income tax rate decreased to 35.8% from 36.7% for the
quarter ended July 1, 1998 and from 36.3% for the year ended September 30, 1998.
The decrease from the prior period and from fiscal 1998 resulted from increased
federal tax credits as a percentage of earnings before income taxes.
NET EARNINGS
Net earnings increased $800,000, or 15.0%, primarily as a result of the
increase in Steak n Shake's operating earnings. Diluted earnings per share
increased from $.20 to $.23.
9
<PAGE>
COMPARISON OF FORTY WEEKS ENDED JULY 7, 1999 TO FORTY WEEKS ENDED JULY 1, 1998
REVENUES
Net sales increased $42,984,000 to $267,342,000, or 19.2%, due to
an increase in Steak n Shake's net sales. The increase of $43,677,000, or
20.7% in net sales of Steak n Shake was due to the opening of 68 new units
pursuant to the Company's expansion plan (non-same stores) and a 4.3%
increase in same store sales. The number of company-operated Steak N Shake
restaurants increased 18% to 260 at July 7, 1999 as compared to 220 at July
1, 1998. The same store sales have increased in six consecutive quarters. The
increase in same store sales consisted of an increase of 1.7% in customer
counts and a 2.5% increase in check average. The increased check average is
the result of favorable sales mix changes and menu price increases.
COSTS AND EXPENSES
Operating margins for the forty weeks ended July 7, 1999 were below the prior
year primarily as a result of the significant effect weather had on the results
of operations during the first four weeks of the current year second quarter,
increased wage rates arising from tight labor markets and increased manager
training costs.
Cost of sales increased $10,995,000, or 19.2%, as a result of sales increases.
As a percentage of net sales, cost of sales was flat at 25.5%. Lower beef costs
and the favorable effect of a higher mix of Company-operated restaurant cost of
sales as compared to cost of sales for products sold to franchisees were offset
by increases in dairy, poultry and pork prices.
Restaurant operating costs increased $22,177,000, or 21.5%, due to increased
labor costs and other operating costs resulting 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 46.9% from 46.0%. Restaurant
operating costs increased due to higher wages rates arising from tight labor
markets. The increase in manager training costs of $693,000 results from the
Company's significantly intensified manager recruiting programs.
General and administrative expenses increased $1,858,000, or 10.5%. As a
percentage of revenues, general and administrative expenses decreased to 7.2%
from 7.7%. The increase in expenses was attributable to personnel costs, which
included costs for additional management support personnel in connection with
the development of new restaurants, and other costs resulting from the increased
number of restaurants.
The $1,009,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1998.
Rent expense increased $3,167,000, or 43.1%, as a result of the completion of
the sale and leaseback of forty Company-owned properties since the beginning of
fiscal 1998 and a net increase in the number of other leased properties,
including thirteen franchised Steak n Shake units purchased since the beginning
of the second quarter of fiscal 1998.
Marketing expense increased $994,000, or 14.1%, with the commencement of
television advertising in the Tampa, Florida market and higher billboard and
coupon insert costs. As a percentage of revenues, marketing expense decreased
slightly to 3.0% from 3.1%.
The $653,000 increase in the amortization of pre-opening costs is
attributable to the timing of the number of new Company-operated units opened
in the latter part of fiscal 1998 and higher levels of per unit preopening
costs, particularly with respect to units opened in new markets.
Interest expense decreased $408,000 due to decreased borrowings under the
Company's senior note agreement and the reduction in capital lease
obligations and higher capitalized interest due to higher capital
expenditures.
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.
10
<PAGE>
INCOME TAXES
The Company's effective income tax rate decreased to 36.0% from 36.6% for the
forty weeks ended July 1, 1998 and from 36.3% for the year ended September 30,
1998. The decrease from the prior period resulted from increased federal tax
credits as a percentage of earnings before income taxes.
NET EARNINGS
Net earnings increased $730,000. Excluding the effect of the settlement of the
Pepsi litigation, net earnings increased $1,750,000, or 12.4% and diluted
earnings per share increased from $.53 to $.59.
LIQUIDITY AND CAPITAL RESOURCES
Twenty-two Company-operated Steak n Shake restaurants and four franchised
Steak n Shake restaurants were opened during the forty weeks ended July 7, 1999.
In addition, the Company completed the purchase of five franchised Steak n Shake
restaurants in Arkansas, Missouri and Tennessee. Subsequent to the end of the
third quarter, six company-operated Steak n Shake restaurants were opened.
Sixteen Company-operated units are currently under construction. For the forty
weeks ended July 7, 1999, capital expenditures totaled $47,849,000 as compared
to $37,176,000 for the comparable prior year period.
The Company's five-year growth program for 1999 through 2003 calls for the
opening of 290 Company-operated Steak n Shake restaurants. In addition to the
290 Company-operated units contemplated by this program, the Company will also
very selectively expand its franchise system. Under this controlled growth plan,
over 600 Steak n Shake restaurants, including over 500 company-operated, would
be in operation at the end of fiscal 2003. The average cost of a new
Company-operated Steak n Shake restaurant, including land, site improvements,
building and equipment, was $1,430,000 during fiscal 1998. 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.
During the forty weeks ended July 7, 1999, cash provided by operations totaled
$23,761,000, while cash generated by sale and leaseback transactions and other
disposals of property totaled $13,608,000. During the forty weeks ended July 1,
1998, cash provided by operations totaled $26,645,000, while cash generated by
sale and leaseback transactions and other disposals of property totaled
$10,040,000. The increased proceeds from sales and leaseback transactions and
other property disposals reflect the Company's increased use of sale and
leaseback financing. At July 7, 1999 the Company had additional sale and
leaseback properties under contract which, when closed, will generate
approximately $8,354,000 in proceeds.
Net cash provided by financing activities for the forty weeks ended July 7,
1999, totaled $767,000. There were no net borrowings under the Company's
$30,000,000 Revolving Credit Agreements (the "Revolving Credit Agreement") at
July 7, 1999. During the forty weeks ended July 1, 1998, the Company borrowed
$5,000,000 under its $50,000,000 ten-year Senior Note Agreement and Private
Shelf Facility (the "Senior Note Agreement"), to refinance a like amount which
was payable under the prior senior note agreement.
Borrowings under the Senior Note Agreement bear interest at an average fixed
rate of 7.6%. On April 21, 1999, the Company amended the terms of its ten-year
Senior Note Agreement and Private Shelf Facility increasing the borrowing
capacity to $75,000,000 and extending the issuance period to April 21, 2002. As
of July 7, 1999 the Company had outstanding $28,522,223 under the Senior Note
Agreement. Consequently, the Company currently has borrowings of $46,477,777
available under the Senior Note Agreement 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 fiscal 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.
11
<PAGE>
YEAR 2000
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 an assessment of its point of sale systems.
The Company has satisfactorily tested the necessary solution and is currently in
the process of implementing the necessary software installations.
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 will also be provided to
franchisees regarding the potential risks associated with the Year 2000 problem.
The Company currently believes that, with the purchase of new software and
modifications to existing software, any internal Year 2000 compliance issues
will be remedied in a timely manner and will not pose significant operational
problems for the Company's computer systems as so modified and converted.
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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities." SOP
98-5 broadly defines start-up activities as those one-time activities that
relate to, among other activities, the opening of a new facility. The Company's
current policy is to capitalize pre-opening costs, which represent costs
incurred before a new restaurant opens, and then amortize those costs from the
opening date over a one-year period. Under the new requirements for reporting
costs of start-up activities, companies will be required to expense start-up
costs as incurred. At July 7, 1999 and September 30, 1998, unamortized
pre-opening costs were $4,343,000 and $2,818,000, respectively. The provisions
of SOP 98-5 are effective for fiscal years beginning after December 15, 1998.
Upon adoption at the end of fiscal 1999, the Company will be required to
write-off, retroactively to the beginning of fiscal 1999, the unamortized
pre-opening cost balance of $2,818,000 at September 30, 1998 as a
cumulative-effect change in accounting principle. Net of applicable income
taxes, the one-time, non-cash cumulative-effect of the change in accounting
principle will reduce fiscal 1999 net earnings by $0.07 per share. The Company
will also be required to restate all prior quarters of fiscal 1999 upon
adoption. Previously reported earnings per share for the second and third
quarters of fiscal 1999 will be restated by $.01 and $.02 per share,
respectively, resulting from an increase in preopening expenses arising from the
change in accounting principle.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This report contains certain statements that are "forward-looking statements"
within the meaning of Section 27A of the Securities Act 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
12
<PAGE>
plans and franchising program. 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.
ITEM 3. 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 July 7, 1999, a hypothetical 100
basis point increase in short-term interest rates would have an immaterial
impact on the Company's earnings.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no shareholder actions during the third quarter of 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
(a) EXHIBITS
(2) Not Applicable
(3) 3.01 Articles of Incorporation of Consolidated Products,
Inc. (formerly Steak n Shake, Inc.), as amended
through November 1, 1981. (Incorporated by
reference to the Exhibits to Registration Statement
No. 2-75094).
3.02 Attachment to Joint Agreement of Merger dated October
31, 1983, between Franklin Corporation and Steak n
Shake, Inc. (Incorporated by reference to the
Exhibits to Registrant's Form 10-K for the year ended
September 28, 1983).
3.03 Bylaws of Consolidated Products, Inc. (formerly
Steak n Shake, Inc.) in effect at December 26, 1990.
(Incorporated by reference to the Exhibits to
Registration Statement of Form S-2 filed with the
Commission on August 6, 1992, file no.
33-50568).
3.04 Articles of Amendment to Articles of Incorporation of
Steak n Shake, Inc. dated May 15, 1984. (Incorporated
by reference to the Exhibits to the Registrant's Form
10-K Annual Report for the year ended September 26,
1984).
3.05 Articles of Amendment to the Articles of
Incorporation of Consolidated Products, Inc. dated
May 8, 1998. (Incorporated by reference to the
Exhibits to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended April 8, 1998.)
(4) 4.01 Specimen certificate representing Common Stock of
Consolidated Products, Inc. (Incorporated by
reference to the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the quarterly
period ended April 9, 1997).
4.02 Amended and Restated Credit Agreement by and Between
Consolidated Products, Inc. and Bank One,
Indianapolis, N.A. dated December 30, 1994
(amending that earlier credit agreement between
parties dated as of March 10, 1994 and effective as
of February 23, 1994, relating to a $5,000,000
revolving line of credit which was not filed pursuant
to Rule 601 of the Securities and Exchange
Commission), relating to a $30,000,000 revolving
line of credit. (Incorporated by reference to the
Exhibits to the Registrant's Report on Form 10-Q
for the fiscal quarter ended December 21, 1994).
4.03 Note Purchase and Private Shelf Agreement by and
Between Consolidated Products, Inc. and The
Prudential Insurance Company of America dated as of
September 27 1995 related to $39,250,000 senior note
agreement and private shelf facility. (Incorporated
by reference to the Exhibits to the Registrant's
Report on Form 8-K dated September 26, 1995).
14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.04 First Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products,
Inc. and Bank One, Indianapolis, N.A. dated
September 26, 1995. (Incorporated by reference to
the Exhibits to the Registrant's Report on Form
8-K dated September 26 1995).
4.05 Second Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. effective January
31, 1997. (Incorporated by reference to the Exhibits
to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended April 9, 1997).
4.06 Amendment No. 1 to Note Purchase and Private Shelf
Agreement by and between Consolidated Products, Inc.
and The Prudential Insurance Company of America dated
as of April 28, 1997 related to senior note agreement
and private shelf facility. (Incorporated by
reference to the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the quarterly
period ended April 9, 1997).
4.07 Third Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. dated September 18,
1997. (Incorporated by reference to the Exhibits to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 24, 1997).
4.08 Fourth Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. dated February 9,
1998. (Incorporated by reference to the Exhibits to
the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 8, 1998).
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).
(10) 10.01 Consolidated Products, Inc. Executive Incentive
Bonus Plan. (Incorporated by reference to the
Exhibits to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 1, 1992).
10.02 Steak n Shake, Inc. Executive Incentive Bonus Plan.
(Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter
ended July 1, 1992).
10.03 Consultant Agreement by and between James Williamson,
Jr. and the Registrant dated November 20, 1990.
(Incorporated by reference to the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 1, 1992).
15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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 to the
Appendix to the Registrant's definitive Proxy
Statement dated January 12, 1993 related to the 1993
Annual Meeting of Shareholders).
10.09 Consolidated Products, Inc. 1992 Employee Stock
Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated January 12, 1993 related to the
1993 Annual Meeting of Shareholders).
10.10 Consolidated Products, Inc. 1994 Capital Appreciation
Plan. (Incorporated by reference to the Appendix to
the Registrant's definitive Proxy Statement dated
January 13, 1994 related to the 1994 Annual Meeting
of Shareholders).
10.11 Consolidated Products, Inc. 1994 Nonemployee Director
Stock Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated January 13, 1994 related to the 1994
Annual Meeting of Shareholders).
10.12 Consolidated Products, Inc. 1995 Employee Stock
Option Plan.(Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated January 12, 1995 related to the 1995
Annual Meeting of Shareholders).
10.13 Consolidated Products, Inc. 1995 Nonemployee Director
Stock Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated January 12, 1995 related to the 1995
Annual Meeting of Shareholders).
10.14 Consolidated Products, Inc. 1996 Nonemployee Director
Stock Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated January 15, 1996 related to the
1996 Annual Meeting of Shareholders).
10.15 Consolidated Products, Inc. 1997 Employee Stock
Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive
16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
(15) Not applicable.
(18) Not applicable.
(19) Not applicable.
(22) Not applicable.
(23) Not applicable.
(24) Not applicable.
(27) 27.01 Financial data schedule. (Electronic filing only).
(99) Not applicable.
</TABLE>
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the period covered by this
report.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 20, 1999.
CONSOLIDATED PRODUCTS, INC.
(Registrant)
/s/ GREGORY G. FEHR
--------------------------
By Gregory G. Fehr
Vice President and Controller
On Behalf of the Registrant and as
Principal Accounting Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF JULY 7, 1999 AND THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE TWELVE AND FORTY WEEKS ENDED
JULY 7,1999 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> JUL-07-1999
<CASH> 8,941,833<F1>
<SECURITIES> 0
<RECEIVABLES> 10,779,522
<ALLOWANCES> 0
<INVENTORY> 4,724,775
<CURRENT-ASSETS> 34,292,597
<PP&E> 243,581,039
<DEPRECIATION> 71,077,416
<TOTAL-ASSETS> 210,475,506
<CURRENT-LIABILITIES> 42,876,746
<BONDS> 0
0
0
<COMMON> 13,388,869
<OTHER-SE> 119,111,999
<TOTAL-LIABILITY-AND-EQUITY> 210,475,506
<SALES> 267,341,651
<TOTAL-REVENUES> 271,537,496
<CGS> 68,164,158
<TOTAL-COSTS> 193,536,252<F2>
<OTHER-EXPENSES> 20,896,783<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,569,759
<INCOME-PRETAX> 23,200,586
<INCOME-TAX> 8,350,000
<INCOME-CONTINUING> 14,850,586
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,850,586
<EPS-BASIC> .56
<EPS-DILUTED> .55
<FN>
<F1>CASH INCLUDES CASH EQUIVALENTS OF $6,425,000.
<F2>INCLUDES RESTAURANT OPERATING COSTS OF $125,372,094.
<F3> INCLUDES DEPRECIATION AND AMORTIZATION AND RENT OF $10,383,977 AND
$10,512,806, RESPECTIVELY.
</FN>
</TABLE>
