<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 5, 2000
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 4, 2000: 29,157,585
1
<PAGE>
CONSOLIDATED PRODUCTS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Position -
July 5, 2000 (Unaudited) and September 29, 1999 3
Consolidated Statements of Earnings (Unaudited)
Twelve and Forty Weeks Ended July 5, 2000
and July 7, 1999 4
Consolidated Statements of Cash Flows (Unaudited)
Forty Weeks Ended July 5, 2000 and
July 7, 1999 5
Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
JULY 5, SEPTEMBER 29, JULY 5, SEPTEMBER 29,
2000 1999 2000 1999
----------- ------------- ------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
ASSETS: LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT ASSETS CURRENT LIABILITIES
Cash, including cash equiva- Accounts payable $ 13,652,721 $ 18,416,612
lents of $2,265,000 in 1999 $ 4,109,499 $ 4,005,187 Accrued expenses 24,003,991 19,148,669
Receivables 3,973,882 5,088,622 Current portion of senior note 2,734,365 2,734,365
Properties under sale and Current portion of obligations
leaseback contract - 6,011,486 under capital leases 953,866 1,248,681
Total current liabilities 41,344,943 41,548,327
Inventories 5,252,706 4,849,216
Deferred income taxes 1,133,000 1,133,000
Other current assets 5,353,420 3,989,204
----------- ------------ DEFERRED INCOME TAXES
Total current assets 19,822,507 25,076,715 AND CREDITS 6,793,361 6,226,172
----------- ------------ ------------ -------------
OBLIGATIONS UNDER
CAPITAL LEASES 2,024,847 2,747,982
PROPERTY AND EQUIPMENT
Land 60,714,350 49,691,470 REVOLVING LINE OF CREDIT 10,700,000 -
Buildings 54,052,468 41,799,306
Leasehold improvements 52,107,939 45,079,229
Equipment 115,268,171 99,761,598 SENIOR NOTE 24,482,064 24,482,064
Construction in progress 15,616,125 20,109,301
----------- ------------
297,759,053 256,440,904
Less accumulated
depreciation and
amortization (84,891,751) (74,530,108)
----------- -----------
Net property and
equipment 212,867,302 181,910,796 SHAREHOLDERS' EQUITY
----------- ----------- Common stock -- $.50 stated value
LEASED PROPERTY 50,000,000 shares authorized --
Leased property under capital shares issued: 29,916,386 in
leases, less accumulated 2000; 29,587,890 in 1999 14,958,193 14,793,945
amortization of $5,910,056 Additional paid-in capital 121,030,760 118,767,710
in 2000 and $8,287,813
in 1999 1,432,919 1,745,671 Retained earnings 23,905,473 7,452,544
Net investment in direct Less: Unamortized value of
financing leases 117,435 379,262 restricted shares (1,510,482) (2,498,091)
----------- ----------- Treasury stock -- at cost
Net leased property 1,550,354 2,124,933 730,701 shares in 2000;
----------- ----------- 207,210 shares in 1999 (8,245,714) (3,049,002)
------------ ------------
OTHER ASSETS 1,243,282 1,359,207 Total shareholders' equity 150,138,230 135,467,106
----------- ----------- ------------ ------------
$235,483,445 $210,471,651 $235,483,445 $210,471,651
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE FORTY
WEEKS ENDED WEEKS ENDED
------------------------------- -------------------------------
JULY 5, JULY 7, JULY 5, JULY 7,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 100,031,551 $ 87,088,375 $ 312,931,013 $ 267,341,653
Franchise fees 845,317 825,651 2,647,263 2,530,906
Other - net 614,301 564,557 1,919,162 1,664,940
------------- ------------- ------------- -------------
101,491,169 88,478,583 317,497,438 271,537,499
------------- ------------- ------------- -------------
COSTS AND EXPENSES
Cost of sales 24,622,270 21,940,967 77,095,311 68,164,158
Restaurant operating costs 48,205,590 40,919,625 151,927,355 125,372,094
General and administrative 7,217,708 5,758,966 23,642,793 19,499,826
Depreciation and amortization 3,783,983 3,235,165 12,296,240 10,383,977
Rent 4,126,272 3,357,798 12,915,492 10,512,806
Marketing 2,798,317 2,229,937 9,227,073 8,030,409
Pre-opening costs 971,144 2,139,873 3,344,388 4,728,893
Interest 472,376 391,168 1,438,987 1,569,759
Settlement of litigation -- -- -- 1,600,000
------------- ------------- ------------- -------------
92,197,660 79,973,499 291,887,639 249,861,922
------------- ------------- ------------- -------------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING 9,293,509 8,505,084 25,609,799 21,675,577
INCOME TAXES 3,288,000 3,020,000 9,193,000 7,771,000
------------- ------------- ------------- -------------
EARNINGS BEFORE CUMULATIVE EFFECT
CHANGE IN ACCOUNTING 6,005,509 5,485,084 16,416,799 13,904,577
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR PRE-OPENING COSTS -- -- -- (1,750,430)
------------- ------------- ------------- -------------
NET EARNINGS $ 6,005,509 $ 5,485,084 $ 16,416,799 $ 12,154,147
============= ============= ============= =============
BASIC EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Before cumulative effect of
change in accounting $ .21 $ .19 $ .56 $ .48
Cumulative effect of change in accounting
for pre-opening costs -- -- -- (.06)
------------- ------------- ------------- -------------
Basic earnings per share $ .21 $ .19 $ .56 $ .42
============= ============= ============= =============
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Before cumulative effect of
change in accounting $ .21 $ .18 $ .56 $ .47
Cumulative effect of change in accounting
for pre-opening costs -- -- -- (.06)
------------- ------------- ------------- -------------
Diluted earnings per share $ .21 $ .18 $ .56 $ .41
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
AND EQUIVALENTS:
Basic 29,218,392 29,200,062 29,296,637 29,090,801
Diluted 29,264,875 29,659,347 29,387,509 29,565,771
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED
--------------------------------
JULY 5, JULY 7,
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 16,416,799 $ 12,154,147
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 12,296,240 10,383,977
Cumulative effect of change in accounting
for pre-opening costs -- 1,750,430
Changes in receivables and inventories 679,656 (1,586,266)
Changes in other assets (347,721) 988,246
Changes in income taxes payable 3,438,089 2,043,452
Changes in accounts payable
and accrued expenses (3,385,071) (1,882,039)
Gain on disposal of property (246,306) (90,456)
------------ ------------
Net cash provided by operating activities 28,851,686 23,761,491
------------ ------------
INVESTING ACTIVITIES
Additions of property and equipment (53,974,160) (47,848,957)
Proceeds from sale of short-term investments -- 5,000,000
Net proceeds from disposal of
property and equipment 17,960,402 13,607,513
------------ ------------
Net cash used in investing activities (36,013,758) (29,241,444)
------------ ------------
FINANCING ACTIVITIES
Principal payments on debt
and capital lease obligations (706,311) (701,939)
Net proceeds from revolving line of credit 10,700,000 --
Proceeds from equipment and property leases 497,034 542,853
Lease payments on subleased properties (491,071) (509,468)
Cash paid in lieu of fractional shares (12,372) (19,313)
Proceeds from exercise of stock options 583,622 303,830
Proceeds from employee stock purchase plan 1,237,782 1,150,780
Treasury stock repurchases (4,542,300) --
------------ ------------
Net cash provided by financing activities 7,266,384 766,743
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS 104,312 (4,713,210)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,005,187 13,655,043
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,109,499 $ 8,941,833
============ ============
</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 5, 2000, the consolidated statements of earnings
for the twelve and forty weeks ended July 5, 2000 and July 7, 1999 and the
consolidated statements of cash flows for the forty weeks ended July 5, 2000 and
July 7, 1999 have been included.
The consolidated statements of earnings for the twelve and forty weeks
ended July 5, 2000 and July 7, 1999 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 29, 1999.
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 5, 2000 and
July 7, 1999 amounted to $1,718,000 and $1,708,000, respectively. Cash payments
for income taxes during the forty weeks ended July 5, 2000 and July 7, 1999
amounted to $5,761,000 and $5,730,000, respectively.
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 change in accounting, net of income tax benefit, of
$1,750,000 ($0.06 per diluted share) was recorded in the first quarter of fiscal
1999.
STOCK DIVIDEND
The number of shares issued as of July 5, 2000 include 2,659,929 shares
which were distributed on January 12, 2000 pursuant to a 10% stock dividend
declared on December 15, 1999 to shareholders of record on December 29, 1999.
Net earnings per common and common equivalent share and weighted average shares
and equivalents for the twelve and forty weeks ended July 7, 1999 have been
restated to give effect to the 10% stock dividend.
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 5, JULY 7, JULY 5, JULY 7,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding-Basic 29,218,392 29,200,062 29,296,637 29,090,801
Share equivalents 46,483 459,285 90,872 474,970
----------- ----------- ----------- -----------
Weighted average shares and equivalents-Diluted 29,264,875 29,659,347 29,387,509 29,565,771
=========== =========== =========== ===========
Net earnings for basic and diluted
earnings per share computation $ 6,005,509 $ 5,485,084 $16,416,799 $12,154,147
=========== =========== =========== ===========
</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
---------------- -----------------
7/5/00 7/7/99 7/5/00 7/7/99
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES
Net sales 98.6% 98.4% 98.6% 98.5%
Franchise fees 0.8 0.9 0.8 0.9
Other, net 0.6 0.7 0.6 0.6
----- ----- ----- -----
100.0 100.0 100.0 100.0
----- ----- ----- -----
COSTS AND EXPENSES
Cost of sales 24.6(1) 25.2(1) 24.6(1) 25.5(1)
Restaurant operating costs 48.2(1) 47.0(1) 48.5(1) 46.9(1)
General and administrative 7.1 6.5 7.4 7.2
Depreciation and amortization 3.7 3.7 3.9 3.8
Rent 4.1 3.8 4.1 3.9
Marketing 2.8 2.5 2.9 3.0
Pre-opening costs 1.0 2.4 1.1 1.7
Interest 0.5 0.4 0.5 0.6
Settlement of litigation -- -- -- 0.6
----- ----- ----- -----
90.8 90.4 91.9 92.0
----- ----- ----- -----
EARNINGS BEFORE INCOME TAXES 9.2 9.6 8.1 8.0
INCOME TAXES 3.2 3.4 2.9 2.9
----- ----- ----- -----
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING 6.0 6.2 5.2 5.1
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR PRE-OPENING COSTS -- -- -- (0.6)
----- ----- ----- -----
NET EARNINGS 6.0% 6.2% 5.2% 4.5%
===== ===== ====== =====
</TABLE>
--------------
(1) Cost of sales and restaurant operating costs are expressed as a percentage
of net sales.
COMPARISON OF TWELVE WEEKS ENDED JULY 5, 2000 TO TWELVE WEEKS ENDED JULY 7, 1999
REVENUES
Net sales increased $12,943,000 to $100,032,000, or 14.9%, due to an
increase in Steak n Shake's net sales. The $12,947,000 increase, or 15.5%, 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 1.9%
increase in same store sales. Same store sales have trended up for 10
consecutive quarters. The number of Company-operated Steak n Shake restaurants
increased 16% to 302 at July 5, 2000 as compared to 260 at July 7, 1999. The
increase in same store sales was attributable to a 4.5% increase in check
average, partially offset by a 2.5% decrease in customer counts. Steak n Shake
instituted menu price increases of approximately 3.0% in the fourth quarter of
fiscal 1999, 1% in the second quarter of fiscal 2000 and 2.4% late in the third
quarter of fiscal 2000.
COSTS AND EXPENSES
Cost of sales increased $2,681,000, or 12.2%, primarily as a result of
sales increases. As a percentage of net sales, cost of sales decreased to 24.6%
from 25.2%, primarily as a result of the menu price increases.
8
<PAGE>
Restaurant operating costs increased $7,286,000, or 17.8%, due to an
increase in labor costs and other operating costs resulting primarily from the
increased sales volume. Restaurant operating costs, as a percentage of net
sales, increased to 48.2% from 47.0%. An increase in restaurant management
staffing levels and a 2.6% increase in wage rates arising from tight labor
markets also contributed to higher labor costs. The increased manager staffing
levels and manager recruiting and training costs reflect the progress made
towards the Company's goal to increase management quality and staffing levels to
develop the bench strength to support the Company's growth program and
anticipate management staffing needs arising from turnover.
General and administrative expenses increased $1,459,000, or 25.3%. The
increase in expenses was attributable to personnel related costs, which included
costs for additional recruiting, training and management support personnel in
connection with the development of new restaurants and the Company's intensified
management programs, and other costs resulting from the increased number of
restaurants. As a percentage of revenues, general and administrative expenses
increase to 7.1% from 6.5%.
The $549,000, or 17.0%, increase in depreciation and amortization expense
was attributable to the net depreciable capital additions over the past year.
Rent expense increased $768,000, or 22.9%, primarily as a result of the
completion of the sale and leaseback of twenty-four Company-owned properties
since the beginning of the third quarter of fiscal 1999.
Marketing expense increased $568,000, or 25.5%, due to increased costs of
television advertising in existing markets and outdoor media costs. As a
percentage of revenues, marketing expense increased to 2.8% from 2.5%.
Pre-opening costs decreased $1,169,000, or 54.6%, due to fewer store
openings in the third quarter of 2000 compared to the third quarter of 1999 and
lower per unit pre-opening costs in fiscal 2000.
INCOME TAXES
The Company's effective income tax rate decreased to 35.4% from 35.5% for
the quarter ended July 5, 2000.
NET EARNINGS
Net earnings were $6,006,000 ($.21 per diluted share) up 9.5% compared to
prior year.
COMPARISON OF FORTY WEEKS ENDED JULY 5, 2000 TO FORTY WEEKS ENDED JULY 7, 1999
REVENUES
Net sales increased $45,589,000 to $312,931,000, or 17.1%, due to an
increase in Steak n Shake's net sales. The increase of $45,425,000, or 17.8% in
net sales of Steak n Shake was due to the opening of new units pursuant to the
Company's expansion plan (non-same stores) and a 3.0% increase in same store
sales. The number of Company-operated Steak n Shake restaurants increased 16% to
302 at July 5, 2000 as compared to 260 at July 7, 1999. The increase in same
store sales was attributable to a 4.6% increase in check average, partially
offset by a 1.6% decrease in customer counts. Steak n Shake instituted menu
price increases of approximately 1.0% and 3.0% in the second and fourth
quarters, respectively, of fiscal 1999 and 1% in the second quarter of fiscal
2000. A 2.4% menu price increase was also instituted late in the third quarter
of fiscal 2000.
COSTS AND EXPENSES
Cost of sales increased $8,931,000, or 13.1%, primarily as a result of
sales increases. As a percentage of net sales, cost of sales decreased to 24.6%
from 25.5%, primarily as a result of menu price increases.
Restaurant operating costs increased $26,555,000, or 21.2%, due to an
increase in labor costs and other operating costs resulting primarily from the
increased sales volume and manager staffing levels and manager recruiting and
training costs over the prior year. Restaurant operating costs, as a percentage
of net sales, increased to 48.5% from 46.9%. As discussed previously, the
increased manager staffing levels and manager recruiting and training costs
reflect the significant progress made towards the Company's goal to increase
management quality and staffing levels to develop the bench strength to support
the Company's growth program and anticipate management staffing needs arising
from turnover. A 4.4% increase in wage rates arising from tight labor markets
also contributed to higher labor costs.
9
<PAGE>
General and administrative expenses increased $4,143,000, or 21.2%. As a
percentage of revenues, general and administrative expenses increased to 7.4%
from 7.2%. The increase in expenses was attributable to personnel related costs,
which included costs for additional recruiting, training and management support
personnel in connection with the development of new restaurants and the
Company's intensified management programs, and other costs resulting from the
increased number of restaurants.
The $1,912,000, or 18.4%, increase in depreciation and amortization expense
was attributable to the net depreciable capital additions since the beginning of
fiscal 1999.
Rent expense increased $2,403,000, or 22.9%, as a result of the completion
of the sale and leaseback of thirty-five Company-owned properties since the
beginning of fiscal 1999.
Marketing expense increased $1,197,000, or 14.9%, due to increased costs of
television advertising in existing markets and outdoor media costs. As a
percentage of revenues, marketing expense decreased to 2.9% from 3.0%.
The $1,385,000 decrease in the pre-opening costs is primarily attributable
to lower per unit pre-opening costs in fiscal 2000.
Interest expense decreased $131,000 due to higher capitalized interest
resulting from increased 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.
INCOME TAXES
The Company's effective income tax rate remained constant at 35.9% for the
forty weeks ended July 5, 2000.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR PRE-OPENING COSTS
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 the change in accounting for pre-opening costs, net of
income tax benefit, of $1,750,000 ($0.06 per diluted share) was recorded in the
first quarter of fiscal 1999.
NET EARNINGS
Net earnings were $16,417,000, ($.56 per share), up 35.1% compared to the
prior year. Excluding the effect of the settlement of the Pepsi litigation and
the cumulative effect of the change in accounting for pre-opening costs, net
earnings increased 10%.
LIQUIDITY AND CAPITAL RESOURCES
Twenty-six Company-operated Steak n Shake restaurants and two franchised
Steak n Shake restaurants were opened during the forty weeks ended July 5, 2000.
Two old, underperforming Company-operated Steak n Shake restaurants were closed
during the forty weeks ended July 5, 2000. Subsequent to the end of the third
quarter, five Company-operated Steak n Shake restaurants, including one
franchised were opened. Thirteen Steak n Shake restaurants, including two
franchised units, are currently under construction. For the forty weeks ended
July 5, 2000, capital expenditures totaled $53,974,000 as compared to
$47,849,000 for the comparable prior year period.
The Company expects to open 38 Steak n Shake restaurants in fiscal year
2000. The Company's five-year controlled growth objective contemplates opening
300 additional Steak n Shake restaurants. The average cost of a new
Company-operated Steak n Shake restaurant, including land, site improvements,
building and equipment, was $1,480,000 during fiscal 1999. The Company intends
to fund capital expenditures and meet working capital needs using existing
resources and anticipated cash flows from operations, together with
10
<PAGE>
additional capital generated by sale and leaseback transactions involving newly
acquired properties and bank borrowings.
During the forty weeks ended July 5, 2000, cash provided by operations
totaled $28,852,000, while cash generated by sale and leaseback transactions and
other disposals of property totaled $17,960,000. During the forty weeks ended
July 5, 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. The proceeds from sale and leaseback transactions and other
property disposals reflect the Company's continued use of sale and leaseback
financing.
Net cash provided by financing activities for the forty weeks ended July 5,
2000, totaled $7,266,000 compared to net cash provided of $767,000 in the
comparable prior period.
As of July 5, 2000, the Company had outstanding borrowings of $27,216,000
under its $75,000,000 Senior Note Agreement and Private Shelf Facility the
"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. Borrowings under the Senior Note bear interest at an average fixed
rate of 7.5%.
During the forty weeks ended July 5, 2000 the company had net borrowings of
$10,700,000 under its $30,000,000 Revolving Credit Agreement (the "Revolving
Credit Agreement"). Borrowings under the Revolving Credit Agreement totaled
$10,700,000 at July 5, 2000. The Company's Revolving Credit Agreement matures on
January 31, 2002 and bears interest based on LIBOR plus 75 basis points, or the
prime rate, at the election of the Company. 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.
The Company has a stock repurchase program which allows the purchase of up
to 2,000,000 shares of its outstanding common stock. During the forty weeks
ended July 5, 2000, the Company repurchased a total of 456,800 shares at a cost
of $4,542,000. The repurchased shares will be used in part to fund the Company's
Stock Option Plan, Capital Appreciation Plan and Employees' Stock Purchase Plan.
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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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.
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, 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
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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 5, 2000, a hypothetical 100
basis point increase in short-term interest rates would have an immaterial
impact on the Company's earnings.
The Company enters into commitments to purchase defined quantities of
certain food commodities at fixed prices based upon prevailing market prices at
that time. Purchase arrangements for items such as french fries, chili beans and
coffee contain contractual features that limit the price paid by establishing
certain price floors or caps and provides adequate supply for the Company's
forecasted needs. 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.
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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 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).
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).
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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 on 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 on Form 10-Q for the fiscal quarter
ended April 14, 1999).
4.11 Sixth Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. dated March 27,
2000. (Incorporated by reference to the Exhibits to
the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 12, 2000).
4.12 Seventh Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. dated May 31, 2000.
(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).
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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).
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
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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).
10.21 Form of option agreement related to 1999 Nonemployee
Director Stock Option Program and schedule relating
thereto.
10.22 Form of option agreement related to 2000 Nonemployee
Director Stock Option Program and schedule relating
thereto.
(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.
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(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the period covered by this
report.
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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 15, 2000.
CONSOLIDATED PRODUCTS, INC.
(Registrant)
/s/ James W. Bear
------------------------------
By James W. Bear
Senior Vice President, Administration
and Finance, Treasurer
On Behalf of the Registrant and as
Principal Accounting Officer
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