<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 DECEMBER 23, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-8445
CONSOLIDATED PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
INDIANA 37-0684070
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
500 CENTURY BUILDING, 36 S. PENNSYLVANIA STREET
INDIANAPOLIS, INDIANA 46204
(317) 633-4100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---
Number of shares of Common Stock outstanding at January 29, 1999: 26,475,856
The Index to Exhibits is located at Page 12. Total Pages 16
<PAGE>
CONSOLIDATED PRODUCTS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Position -
December 23, 1998 (Unaudited) and September 30, 1998 3
Consolidated Statements of Earnings (Unaudited)
Twelve Weeks Ended December 23, 1998 and December 17, 1997 4
Consolidated Statements of Cash Flows (Unaudited)
Twelve Weeks Ended December 23, 1998 and December 17, 1997 5
Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 23, SEPTEMBER 30,
1998 1998
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS:
CURRENT ASSETS
Cash, including cash equiva-
lents of $8,215,000 in 1999
and $12,235,000 in 1998 $ 9,568,703 $ 13,655,043
Short term investments 5,985,758 4,971,169
Receivables 3,539,664 3,740,303
Properties under sale and
leaseback contract 3,422,077 7,025,867
Inventory 4,538,710 4,438,425
Deferred income taxes 1,135,000 1,135,000
Other current assets 6,790,261 5,406,682
------------- -------------
Total current assets 34,980,173 40,372,489
------------- -------------
PROPERTY AND EQUIPMENT
Land 40,712,636 38,621,688
Buildings 39,239,663 36,001,904
Leasehold improvements 44,587,285 43,275,522
Equipment 86,370,706 80,670,817
Construction in progress 9,749,918 12,356,650
------------- -------------
220,660,208 210,926,581
Less accumulated depreciation
and amortization (67,091,982) (64,588,300)
------------- -------------
Net property and equipment 153,568,226 146,338,281
------------- -------------
LEASED PROPERTY
Leased property under capital
leases, less accumulated amorti-
zation of $8,187,236 in 1999
and $8,084,607 in 1998 2,086,003 2,188,983
Net investment in direct
financing leases 685,093 779,061
------------- -------------
Net leased property 2,771,096 2,968,044
------------- -------------
OTHER ASSETS 586,059 502,066
------------- -------------
$ 191,905,554 $ 190,180,880
============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 23, SEPTEMBER 30,
1998 1998
------------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable $ 14,196,929 $ 15,093,193
Accrued expenses 19,643,784 22,055,329
Current portion of senior note 1,305,794 1,305,794
Current portion of obligations
under capital leases 1,337,870 1,309,345
------------- -------------
Total current liabilities 36,484,377 39,763,661
------------- -------------
DEFERRED INCOME TAXES
AND CREDITS 4,171,611 3,851,091
OBLIGATIONS UNDER
CAPITAL LEASES 3,681,434 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: 26,526,457 in 1999;
26,491,497 in 1998 13,263,229 13,245,749
Additional paid-in capital 92,514,325 92,350,819
Retained earnings 18,986,612 14,284,714
Less: Unamortized value of
restricted shares (2,010,030) (2,272,340)
Treasury stock -- at cost
169,752 shares in 1999;
163,048 shares in 1998 (2,402,433) (2,259,191)
------------- -------------
Total shareholders' equity 120,351,703 115,349,751
------------- -------------
$ 191,905,554 $ 190,180,880
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
------------------------------------
DECEMBER 23, DECEMBER 17,
1998 1997
--------------- ---------------
<S> <C> <C>
REVENUES:
Net sales $ 77,867,282 $ 63,415,741
Franchise fees 704,361 809,668
Other, net 439,782 653,567
--------------- ---------------
79,011,425 64,878,976
--------------- ---------------
COSTS AND EXPENSES:
Cost of sales 19,882,043 16,445,871
Restaurant operating costs 36,434,450 29,225,359
General and administrative 5,617,372 4,833,751
Depreciation and amortization 3,060,077 2,728,695
Rent 2,941,090 1,963,223
Marketing 2,228,900 2,001,534
Amortization of pre-opening costs 882,441 861,423
Interest 533,841 640,204
--------------- ---------------
71,580,214 58,700,060
--------------- ---------------
EARNINGS BEFORE INCOME TAXES 7,431,211 6,178,916
INCOME TAXES 2,710,000 2,255,000
--------------- ---------------
NET EARNINGS $ 4,721,211 $ 3,923,916
=============== ===============
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Basic $ .18 $ .15
Diluted $ .18 $ .15
WEIGHTED AVERAGE SHARES
AND EQUIVALENTS:
Basic 26,337,080 25,942,511
Diluted 26,748,963 26,409,749
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
------------------------------
DECEMBER 23, DECEMBER 17,
1998 1997
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 4,721,211 $ 3,923,916
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,060,077 2,728,695
Amortization of pre-opening costs 882,441 861,423
Gain on disposal of property (7,143) (239,369)
Changes in receivables and inventories 54,681 1,907,006
Changes in other assets (2,110,391) (2,371,955)
Changes in income taxes payable 2,399,891 1,209,680
Changes in accounts payable
and accrued expenses (5,726,777) (3,046,038)
------------ ------------
Net cash provided by operating activities 3,273,990 4,973,358
------------ ------------
INVESTING ACTIVITIES:
Additions of property and equipment (12,346,745) (7,607,579)
Purchase of short term investments (1,000,000) --
Net proceeds from sale/leasebacks and
other disposals 6,126,337 1,366,816
------------ ------------
Net cash used in investing activities (7,220,408) (6,240,763)
------------ ------------
FINANCING ACTIVITIES:
Principal payments on debt
and capital lease obligations (203,465) (5,967,282)
Proceeds from long-term debt -- 5,000,000
Net proceeds from revolving line of credit -- 2,000,000
Lease payments on subleased properties (113,064) (118,584)
Cash dividends paid in lieu of fractional shares (19,313) (21,020)
Proceeds from equipment and property leases 158,174 171,841
Proceeds from exercise of stock options 37,746 6,185
------------ ------------
Net cash (used in) provided by financing activities (139,922) 1,071,140
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (4,086,340) (196,265)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,655,043 2,668,232
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,568,703 $ 2,471,967
============ ============
</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 December 23, 1998, the consolidated statements of
earnings for the twelve weeks ended December 23, 1998 and December 17, 1997 and
the consolidated statements of cash flows for the twelve weeks ended December
23, 1998 and December 17, 1997 have been included. Certain amounts in the prior
year unaudited consolidated financial statements have been reclassified to
conform to the current year presentation.
The consolidated statements of earnings for the twelve weeks ended December
23, 1998 and December 17, 1997 are not necessarily indicative of the
consolidated statements of earnings for the entire year. For further
information, refer to the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended
September 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 twelve weeks ended December 23, 1998
and December 17, 1997 amounted to $288,000 and $777,000, respectively. Cash
payments for income taxes during the twelve weeks ended December 23, 1998 and
December 17, 1997 amounted to $310,000 and $1,046,000, respectively.
STOCK SPLIT
The number of shares issued as of December 23, 1998 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 weeks ended December 17, 1997 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 WEEKS ENDED
----------------------------
DECEMBER 23, DECEMBER 17,
1998 1997
----------- ------------
<S> <C> <C>
Weighted average shares outstanding - Basic 26,337,080 25,942,511
Share equivalents 411,883 467,238
----------- -----------
Weighted average shares and equivalents - Diluted 26,748,963 26,409,749
=========== ===========
Net earnings for basic and diluted earnings
per share computation $ 4,721,211 $ 3,923,916
=========== ===========
</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 WEEKS ENDED
---------------------
12/23/98 12/17/97
-------- --------
<S> <C> <C>
REVENUES
Net sales 98.6% 97.7%
Franchise fees 0.9 1.2
Other, net 0.5 1.1
----- -----
100.0 100.0
----- -----
COSTS AND EXPENSES
Cost of sales 25.5 (1) 25.9 (1)
Restaurant operating costs 46.8 (1) 46.1 (1)
General and administrative 7.1 7.5
Depreciation and amortization 3.9 4.2
Rent 3.7 3.0
Marketing 2.8 3.1
Amortization of pre-opening costs 1.1 1.3
Interest 0.7 1.0
----- -----
90.6 90.5
----- -----
EARNINGS BEFORE INCOME TAXES 9.4 9.5
INCOME TAXES 3.4 3.5
----- -----
NET EARNINGS 6.0% 6.0%
===== =====
</TABLE>
- - -----------------
(1) Cost of sales and restaurant operating costs are expressed as a percentage
of net sales.
COMPARISON OF TWELVE WEEKS ENDED DECEMBER 23, 1998 TO TWELVE WEEKS ENDED
DECEMBER 17, 1997
REVENUES
Net sales increased $14,452,000 to $77,867,000, or 22.8%, due to an increase
in Steak n Shake's net sales. The increase of $14,583,000, or 24.6%, in net
sales of Steak n Shake was due to the opening of new units within the last year
pursuant to the Company's expansion plan (non-same stores) and a 4.6% increase
in same store sales. The number of Company-operated Steak n Shake restaurants
increased 19% to 239 at December 23, 1998 as compared to 201 at December 17,
1997. The same store sales increase continues the trend of steady improvement
over the past year. The increase in same store sales consisted of an increase of
1.9% in customer counts and a 2.7% increase in check average. The increase in
check average is the result of favorable sales mix changes and, to a lesser
extent, menu price increases. As planned, a one percent menu price increase was
implemented after the end of the first quarter of fiscal 1999.
Franchise fees decreased $105,000 to $704,000, as a result of a decrease in
franchise royalties of $60,000 due to the 11 former franchised units purchased
by the Company and a decrease in initial and renewal franchise fees of $45,000
due to timing of franchise openings.
Other revenues decreased $214,000 to $440,000, primarily as a result of the
inclusion of a $228,000 gain on the disposal of property in the first quarter of
1998.
8
<PAGE>
COSTS AND EXPENSES
Cost of sales increased $3,436,000, or 20.9%, as a result of sales increases.
As a percentage of net sales, cost of sales decreased to 25.5% from 25.9%,
primarily as a result of the higher mix of Company-operated restaurant cost of
sales as compared to cost of sales for products sold to franchisees. The
favorable effects of the shift in mix were somewhat offset by increases in
dairy, poultry and pork prices, partially offset by lower beef costs.
Restaurant operating costs increased $7,209,000, or 24.7%, principally due to
higher labor costs and other operating costs resulting from the increased sales
volume. Restaurant operating costs, as a percentage of net sales, increased to
46.8% from 46.1%. Restaurant operating costs increased due to higher wage rates
arising from labor shortages in most markets and new unit opening labor
inefficiencies associated with the twelve Steak N Shake restaurants opened late
in the fourth quarter of fiscal 1998.
General and administrative expenses increased $784,000 or 16.2%. The increase
in expenses was attributable to personnel related 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 7.1% from 7.5%.
The $331,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1998.
Rent expense increased $978,000, or 49.8%, as a result of the completion of
the sale and leaseback of thirty-three Company-owned properties since the
beginning of fiscal 1998 and a net increase in the number of other leased
properties, including the eight franchised Steak n Shake units purchased in
fiscal 1998.
Marketing expense increased $227,000, or 11.4%, with the commencement of
television advertising in the Tampa, Florida market. As a percentage of
revenues, marketing expense decreased to 2.8% from 3.1%.
Interest expense decreased $106,000 due to decreased average net borrowings
under the Company's senior note agreement and the reduction in capital lease
obligations.
INCOME TAXES
The Company's effective income tax rate was to 36.5% for the quarters ended
December 23, 1998 and December 17, 1997 and 36.3% for the year ended September
30, 1998. 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 $797,000 to $4,721,000, or 20.3%, primarily as a result
of the increase in Steak n Shake's operating earnings. Diluted earnings per
share increased from $.15 to $.18.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Three Company-operated Steak n Shake restaurants and one franchised Steak n
Shake restaurant were opened during the quarter ended December 23, 1998. In
addition, the Company completed the purchase of three franchised Steak n Shake
restaurants in October of 1998. Subsequent to the end of the first quarter, two
Company-operated Steak n Shake restaurants and one franchised unit were opened.
Nine additional units, including one franchised unit, are currently under
construction. For the quarter ended December 23, 1998, capital expenditures
totaled $12,347,000 as compared to $7,608,000 for the comparable prior year
period.
The Company's five-year growth program for fiscal 1999 through 2003 calls for
the opening of 290 Company-operated Steak n Shake units. In addition to the 290
Company-operated units, 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 twelve weeks ended December 23, 1998, cash provided by operations
totaled $3,274,000, while cash generated by sale and leaseback transactions and
other disposals of property totaled $6,126,000. During the twelve weeks ended
December 17, 1997, cash provided by operations totaled $4,973,000, while cash
generated by sale and leaseback transactions and other disposals of property
totaled $1,367,000. The increased proceeds from sales and leaseback transactions
and other property disposals reflect the Company's increased use of sale and
leaseback financing. At December 23, 1998 the Company had additional sale and
leaseback properties under contract which, when closed, will generate
approximately $3,422,000 in proceeds.
Net cash used in financing activities for the twelve weeks ended December 23,
1998, totaled $140,000. There were no net borrowings under the Company's
$30,000,000 Revolving Credit Agreement (the "Revolving Credit Agreement") at
December 23, 1998. During the twelve weeks ended December 17, 1997 net
borrowings under the Revolving Credit Agreement totaled $2,000,000 and 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.
As of December 23, 1998, the Company borrowed $30,000,000 under its Senior
Note Agreement. Borrowings under this facility bear interest at an average fixed
rate of 7.6%. Consequently, the Company has borrowings of $20,000,000 available
under the Senior Note Agreement over the period ending April 28, 2000, at
interest rates based upon market rates at the time of borrowing. As of December
23, 1998 the Company had outstanding $28,522,000 under the Senior Note
Agreement. 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 1999. The Company expects to
be able to secure a new revolving credit facility upon expiration of the current
agreement. The Company's debt agreements contain restrictions, which among other
things require the Company to maintain certain financial ratios.
YEAR 2000
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 is utilizing both internal and external resources to identify,
modify and test the systems for Year 2000 compliance. The Company currently
anticipates that business-critical information technology systems will be
replaced by new systems or reprogrammed and tested by mid 1999. Formal
communications are being 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
10
<PAGE>
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 December 23, 1998 and September 30, 1998, unamortized
pre-opening costs were $2,825,000 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 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 Company will be required to restate all prior
quarters of fiscal 1999 upon adoption.
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 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 DISCLOSURE 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 30, 1998, a
hypothetical 100 basis point increase in short-term interest rates would have an
immaterial impact on the Company's earnings.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
(2) Not applicable.
(3) 3.01 Articles of Incorporation of Consolidated
Products, Inc. (formerly Steak n Shake, Inc.), as
amended through November 1, 1981. (Incorporated by
reference to the Exhibits to Registration Statement
No. 2-75094).
3.02 Attachment to Joint Agreement of Merger dated October
31, 1983, between Franklin Corporation and Steak n
Shake, Inc. (Incorporated by reference to the
Exhibits to 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 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,
1995. (Incorporated by reference to the Exhibits to
the Registrant's Report on Form 8-K dated September
26 1995).
12
<PAGE>
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. 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).
(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 ended July 1, 1992).
10.04 Memorandum agreement between Neal Gilliatt and the
Registrant dated July 30, 1991. (Incorporated by
reference to the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter
ended July 1, 1992).
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).
13
<PAGE>
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).
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).
14
<PAGE>
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.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the period covered by this
report.
15
<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 February 5, 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
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATON EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 23, 1998 AND THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE TWELVE WEEKS ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-29-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-23-1998
<CASH> 9,568,703<F1>
<SECURITIES> 0
<RECEIVABLES> 6,961,741
<ALLOWANCES> 0
<INVENTORY> 4,538,710
<CURRENT-ASSETS> 34,980,173
<PP&E> 220,660,208
<DEPRECIATION> 67,091,982
<TOTAL-ASSETS> 191,905,554
<CURRENT-LIABILITIES> 36,484,377
<BONDS> 0
0
0
<COMMON> 13,263,229
<OTHER-SE> 107,088,474
<TOTAL-LIABILITY-AND-EQUITY> 191,905,554
<SALES> 77,867,282
<TOTAL-REVENUES> 79,011,425
<CGS> 19,882,043
<TOTAL-COSTS> 56,316,493<F2>
<OTHER-EXPENSES> 6,883,608<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 533,841
<INCOME-PRETAX> 7,431,211
<INCOME-TAX> 2,710,000
<INCOME-CONTINUING> 4,721,211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,721,211
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<FN>
<F1>Cash includes equivalents of $8,215,000.
<F2>Includes restaurant operating costs of $36,434,450.
<F3>Includes depreciation and amortization and rent of $3,942,518 and $2,941,090,
respectively.
</FN>
</TABLE>
