SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 24, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-8445
THE STEAK N SHAKE COMPANY
(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)
36 S. Pennsylvania Street, Suite 500
Indianapolis, Indiana 46204
(317) 633-4100
(Address and telephone number
of registrant's principal executive offices)
Securities registered pursuant to Sec. 12(b) of the Act:
Title of Each Class on Which Registered Name of Exchange
- -------------------------------------------- ------------------
Common Stock, stated value $.50 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Sec. 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act rule 12b-2). Yes X No
--
The aggregate market value of Common Stock held by persons not "affiliated" with
the registrant, based on the closing price of the Common Stock at April 9, 2003,
was approximately $215,727,976.
The number of shares of Common Stock outstanding at December 5, 2003 was
27,265,073.
DOCUMENTS INCORPORATED BY REFERENCE
PARTS OF FORM 10-K INTO WHICH
IDENTITY OF DOCUMENT DOCUMENT IS INCORPORATED
Registrant's Annual Report to Shareholders
for fiscal year ended September 24, 2003 Part II
The definitive Proxy Statement to be filed
with respect to the 2004 Annual Meeting of
Shareholders of Registrant Part III
PART I.
ITEM 1. BUSINESS
GENERAL
The Company is engaged primarily in the ownership, operation and franchising of
Steak n Shake restaurants through its wholly owned subsidiary, Steak n Shake
Operations, Inc. Founded in 1934 in Normal, Illinois, Steak n Shake is one of
the oldest restaurant chains in the country. As of September 24, 2003, Steak n
Shake had 356 Company-operated restaurants and 57 franchised restaurants,
located in 19 Midwestern and Southern states. Steak n Shake restaurants are
generally open 24 hours a day, seven days a week, and in addition to the core
menu, offer a breakfast menu during breakfast hours. During fiscal 2003, lunch
and dinner sales accounted for approximately 36.4% and 44.4% of sales,
respectively, while breakfast and late night sales accounted for 7.1% and 12.1%
of sales, respectively.
THE STEAK N SHAKE CONCEPT
Management's key concept strategies are to:
Capitalize on distinct market niche. Steak n Shake occupies a distinct niche in
the restaurant industry. The restaurants offer full-service dining with counter
and dining room seating, as well as drive-thru and carryout service. Counter
and dining room sales represent approximately two-thirds of the sales mix, while
sales for off-premises dining represent approximately one-third of the sales
mix. Unlike most fast-food restaurants, all food is freshly prepared,
cooked-to-order in view of the customer, and served promptly on china with
flatware and glassware by friendly wait staff. Steak n Shake's prices are
considerably less than most casual dining and family-style concepts with an
average check of approximately $6.14 per person. The average check during the
peak lunch and dinner hours is approximately $6.12 and $6.40, respectively. The
Company believes that Steak n Shake offers more compelling value and core menu
items with a higher level of quality than competitive fast food and casual
dining chains.
Focus on core menu items while offering variety. For nearly 70 years, Steak n
Shake's menu has featured core items, which include Steakburgers, thin and
crispy french fries and hand-dipped milk shakes. The Company believes that its
focus on certain menu items has allowed it to serve consistent, high-quality
food, that has built brand loyalty with its guests. Menu items are prepared in
accordance with the Company's strict specifications using high-quality
ingredients such as 100% pure U.S. beef, including cuts of T-bone, strip and
sirloin steaks, in its Steakburgers. Over the years, Steak n Shake has
responded to changing guest tastes with greater menu variety without losing its
focus or guest appeal. Additions to the core menu items include melt sandwiches,
chicken breast sandwiches, beef and chicken taco salads, desserts and various
home style soups and salads.
Emphasize guest satisfaction. Steak n Shake's reputation and long-standing
guest loyalty have been earned over many years by the consistent quality of the
dining experience. The success of Steak n Shake depends on its employees'
commitment to consistently exceed the guests' expectations. All restaurant
associates participate in a formal training program that focuses on enhancing
guest satisfaction through classroom and on-the-job instruction. Restaurant
managers are required to complete a comprehensive eight-week training program on
restaurant operating procedures, associate relations, and guest service. To
ensure consistent execution of the Company's standards for service, self-stamped
and addressed guest comment cards are placed in every restaurant, management
performs periodic on-site visits and formal inspections, and the Company
performs mystery shopping evaluations.
Restaurant Design
Steak n Shake restaurants have a distinctive exterior appearance and interior
decor. The exterior design of a Steak n Shake restaurant has the individual
character of a branded logo, embracing building shape, awning detail, building
graphics and pylon signage. The interior decor is reminiscent of the nostalgic
diner era using chrome, glass, neon and tile in a contemporary manner. Food
preparation takes place in view of the guest, as reflected by Steak n Shake's
slogan, "In Sight It Must Be Right(R)". The kitchen area is designed to allow
for efficiency of workflow, thereby, minimizing the amount of space required.
All Steak n Shake restaurants are freestanding structures except for six units,
of which three are part of travel centers. Most restaurants are generally 3,900
square feet in area and seat approximately 100 customers, while a minimal
percentage of restaurants vary in size, and seat from 54 to 198 customers. The
travel center units are located in complexes that typically include a fuel
service area and a convenience store. These units are located on interstate
highways and serve both the general traveler and truck traffic. The travel
center unit interiors are similar to those of the freestanding units.
Expansion Strategy
Controlled growth into new trade areas has been a focus over the last several
years. During fiscal year 2003, thirteen Company-operated units were opened and
two franchised units were opened. This level of expansion allows management to
build field organizational quality and stability while focusing on improving
each and every guest experience through hospitality initiatives, especially in
newer markets; improve the depth of the field organization through improved
recruitment and higher retention; enhance training and staff development; and
aggressively market the brand through unique differentiation marketing. The
Company currently expects to open fifteen to eighteen Company-operated Steak n
Shake restaurants and two franchised restaurants in fiscal year 2004.
The Company's controlled expansion program is based upon a market penetration
strategy focused on clustering restaurants in current or contiguous trade areas
to capitalize on its name recognition, increase guest convenience and achieve
media and operating efficiencies. The addition of Company-operated restaurants
in markets where the Company's television marketing effort has been implemented
allows the Company to leverage its advertising costs over more units and to
benefit from management efficiencies. In existing media markets, the Company's
advertising expenditures create higher levels of customer recognition and
greater market acceptance for new units. During fiscal 2003, the Company
continued its expansion program by focusing primarily on the Dallas, Texas and
Florida markets.
Another element of the Company's expansion strategy is to link existing major
Steak n Shake markets by developing units along the connecting interstate
highways. Since the beginning of fiscal 1995, 119 Company-operated and 29
franchised restaurants have been placed at interstate highway locations.
A final element of the Company's expansion program is franchising. The Company's
franchising program is designed to extend brand name recognition of Steak n
Shake and derive additional revenues without substantial investment by the
Company. As part of its continual planning process, management reviews the
relationship of the number of Company-operated to franchised restaurants, and
the selection of areas for development by the Company and its franchisees. The
Company's expansion plan includes selectively seeking new franchisees to help
grow the Steak n Shake brand. (See "Franchising")
Site Selection
Management believes the site selection process is critical to the success of its
restaurants, and senior management devotes significant time and resources to
analyzing each prospective site. A variety of factors are considered in the
site selection process, including local market demographics, site visibility and
accessibility, highway interchanges and proximity to significant generators of
potential guests such as major retailers, regional malls, shopping centers,
office complexes, and hotel and entertainment centers including stadiums, arenas
and multi-screen theaters.
The Company's Senior Vice President of Development and the real estate managers
identify and research sites for review by the Company's senior management prior
to final authorization for purchase or lease approval. Upon identification of a
site, its success, including the potential return on investment, is assessed by
utilizing financial models that evaluate the unit's projected sales and
earnings.
Restaurant Locations
The following table lists the locations of the 413 Steak n Shake restaurants,
including 57 franchise units, the number of units in each state and the number
of units in each market if more than one unit, as of September 24, 2003:
Alabama (7) Illinois (60) Kansas (5) Ohio (55)
Dothan Bloomington - 4 Kansas City - 3 Akron - 5
Huntsville Bradley Lawrence Ashtabula
Mobile - 2 Carbondale - 2 Topeka Chillicothe
Montgomery - 3 Champaign - 3 Cincinnati - 11
Danville - 2 Kentucky (14) Cleveland - 5
Arkansas (2) Davenport *Bowling Green Columbus - 13
Jonesboro Decatur - 3 Cincinnati - 2 Dayton - 6
Little Rock DeKalb *Elizabethtown Findlay
Effingham - 2 Frankfort Lima
Florida (72) Galesburg Lexington - 2 Mansfield - 2
Bradenton - 2 *Jacksonville *Louisville - 5 Marion
Daytona - 3 Joliet - 2 *Owensboro Sandusky
Ft. Myers - 3 Lincoln Paducah Springfield
Gainesville - 2 Mt. Vernon Toledo - 2
Jacksonville - 4 Peoria - 5 Michigan (19) Wheeling
Lake City Peru Battle Creek Youngstown - 2
Lakeland - 3 *Quincy Benton Harbor Zanesville
Miami - 5 Rockford Detroit - 7
Ocala - 2 South Chicago Grand Rapids - 4 Pennsylvania (2)
Orlando - 19 *Springfield - 4 Holland Pittsburgh - 2
Pensacola St. Louis - 6 Jackson
Space Coast - 2 West Suburban Kalamazoo - 2 South Carolina (2)
St. Petersburg - 6 Chicago - 16 Lansing - 2 Columbia
Tallahassee - 2 Greenville
Tampa - 11 Indiana (60) Mississippi (1)
West Palm Beach - 6 Anderson *Memphis Tennessee (15)
Auburn *Chattanooga - 2
Georgia (22) Bloomington - 3 Missouri (54) Clarksville
Albany Cincinnati *Branson *Cleveland
*Alpharetta *Clarksville *Cape Girardeau Cookeville
*Atlanta - 10 Columbus *Columbia - 2 *Jackson
*Brunswick Elkhart *Farmington Knoxville - 2
*Chattanooga *Evansville - 2 *Jefferson City *Memphis
Columbus Ft. Wayne - 3 Joplin Murfreesboro
*Cumming Goshen Kansas City - 4 Nashville -5
*Dalton Greenfield *Poplar Bluff
Macon - 3 Indianapolis - 29 *Rolla Texas (10)
Tifton Kokomo - 2 *Springfield - 5 Dallas - 7
Valdosta Lafayette - 2 St. Louis - 36 Ft. Worth - 2
Lake County - 2 Plano
Iowa (4) Marion North Carolina (6)
Cedar Rapids - 2 Michigan City *Charlotte - 3 Wisconsin (3)
Davenport Muncie *Greensboro - 3 Janesville
Waterloo Richmond Madison
Seymour Milwaukee
South Bend - 2
Terre Haute
Valparaiso
(* denotes franchised units)
Restaurant Management
The operation of the Company-operated restaurants is the responsibility of the
Senior Vice President of Operations and National General Manager, and the Vice
President of Operations and Deputy National General Manager. The field
organization consists of 13 divisions.
The divisions and the number of units in each are as follows:
DIVISION NUMBER OF UNITS
-------------------- ---------------
Indiana . . . . . . . 52
Florida . . . . . . . 44
Central/Northern Ohio 39
Missouri. . . . . . . 36
Ohio/Tennessee. . . . 36
Southern Illinois . . 28
Illinois/Chicago. . . 28
South Florida . . . . 27
Michigan. . . . . . . 18
Southeastern. . . . . 16
Illinois Central. . . 12
Kansas. . . . . . . . 10
Texas . . . . . . . . 10
---
356
====
Division managers are responsible for the operation of the restaurants in the
division as well as supervision of the division support team, which includes
district managers and maintenance and administration staff. District managers
generally have responsibility for the operating performance of six to eight
restaurants. The management team of a typical Steak n Shake restaurant consists
of a general manager, a restaurant manager and three assistant managers. The
number of assistant managers varies depending upon the volume of the unit.
The general manager of each restaurant has primary responsibility for the
day-to-day operations of the restaurant and is responsible for maintaining
Company-established operating standards and procedures. The general manager is
the key contributor to the success of a Steak n Shake restaurant. An
experienced, well-trained general manager promotes compliance with the Company's
high standards for food quality and guest service. Steak n Shake seeks to
employ managers who are guest service oriented and who manage the restaurant
from the dining room. Steak n Shake recognizes the important role of a
seasoned, well-trained and properly motivated restaurant team. The Company
maintains innovative programs that involve hiring, training, career development,
and a wide variety of benefits to reward and recognize adherence to Steak n
Shake's high standards.
The Company utilizes exhaustive recruiting and hiring programs to attract the
qualified people required to support the Company's growth plans. The philosophy
of the Company is to foster the field operations culture with a "promote from
within" approach. In fiscal 2003, 237 hourly employees were promoted to Manager
and 175 Managers were promoted to General Manager. In addition, 15 General
Managers were promoted to District Managers. To develop the talented bench
strength needed for continued internal promotions, people development is one of
the Company's highest priorities. Organization-wide evaluations of individual
development progress are routinely conducted. As part of the Company's
commitment to improving its standards of execution, emphasis is placed upon
strengthening the skills and capabilities of each restaurant team through
innovative selection, development, evaluation, and reward systems. Associates
are encouraged to learn new skills to foster their professional growth and to
create greater opportunities for advancement.
College recruiting programs are designed to provide another source of leadership
for our growth, and are a major corporate priority. The Company has focused on
college recruiting efforts to increase restaurant management quality and
staffing levels, thereby adding to the management bench strength and reducing
management turnover. The increased management staffing depth also enhances the
Company's ability to deliver dining experiences that exceed the guests'
expectations.
The Company believes that offering competitive base compensation and incentive
bonus plans tied to performance improvement goals are important to attracting
and retaining competent and highly-motivated managers. Awards under the
Incentive Bonus Plan are based upon achieving defined operating performance
standards such as sales growth and restaurant profitability. Additionally,
managers are eligible to participate in the Company's Employee Stock Purchase
Plan. The Employee Stock Purchase Plan provides an attractive incentive
opportunity for associates to purchase shares of the Company's stock at a
discounted price without the added cost of brokerage fees. This is an enhanced
opportunity for associates to become shareholders of the Company and to share in
its growth through their own efforts.
Training
Each restaurant team member participates in a formal training program that
utilizes workstation video presentations, training manuals, a scheduled
evaluation process and recognition awards which signify proficiency in specific
areas. This training process, known as "Earn Your Wings", takes place within
each restaurant, and is continuously reinforced and monitored through periodic
performance reviews.
Steak n Shake's goal is to continue to develop strong restaurant management
teams by providing carefully designed leadership training programs. Each
geographic division designates specific restaurants where intensified on-the-job
management training occurs under careful supervision by experienced general
managers. Managers in training are required to complete a comprehensive
eight-week training program during which time they are instructed in subjects
such as the standards of food quality and preparation, guest hospitality and
associate relations. Managers in training also are provided with video training
presentations and operations manuals relating to food preparation, guest
hospitality standards, restaurant operation practices and Company procedures.
During fiscal 2003, 781 individuals entered this training program, approximately
40% of who were promoted from within the Company.
The general managers, together with division personnel, are responsible for
hiring the hourly associates for each restaurant. Each restaurant employs
approximately 40 to 80 hourly associates, many of whom work part-time. Prior to
the opening of a restaurant, the Company's division management assembles a team
of experienced associates to train and educate the new associates. The training
period for new associates lasts approximately two weeks and includes one week of
general training prior to opening and one week of on-the-job supervision at the
restaurant. Ongoing associate training remains the responsibility of the
restaurant general manager under the supervision of a division training manager.
Guest Satisfaction and Quality Control
Management believes that associate commitment to consistently exceeding guest
expectations is critical to the success of Steak n Shake. The Company intends
to continue to develop and implement standards of execution that will result in
the efficient delivery of high quality, great-tasting food served by friendly,
and competent wait staff.
Restaurant management is responsible for ensuring that the restaurants are
operated in accordance with strict operational procedures and quality
requirements. Compliance for Company-operated units is monitored through the
use of guest comment cards, a mystery shopping program, frequent on-site visits
and formal inspections by the division managers, district managers, and division
training personnel. Franchised units are monitored through periodic inspections
by the Company's franchise field operations personnel and a mystery shopping
program. Division management quickly responds to unfavorable comment cards.
Purchasing and Distribution Center Operations
Steak n Shake operates a distribution center in Bloomington, Illinois from which
food products (except for items purchased by the restaurants locally such as
bakery goods, produce and dairy products) and restaurant supplies are delivered
to 102 Company-operated and 16 franchised restaurants located in parts of the
Midwest (primarily in Illinois, Missouri and Iowa). The Company's semi-trailers
have the capability to handle refrigerated and frozen products along with dry
goods in the same delivery trip. The remaining Steak n Shake restaurants,
located primarily in the Southeast, Texas, and parts of the Midwest, obtain food
products and supplies that meet the Company's quality standards and
specifications from two separate independent distributors located in Tampa,
Florida and Zanesville, Ohio.
Purchases are negotiated centrally for most food and beverage products and
supplies to ensure uniform quality, adequate quantities and competitive prices.
Short-term forward buying contracts are utilized to facilitate the availability
of products pursuant to the Company's specifications and to lessen exposure to
fluctuating prices. Food and supply items undergo ongoing research, development
and testing in an effort to maintain the highest quality products and to be
responsive to changing consumer tastes. The Company has not experienced any
significant delays in receiving food and beverage products, restaurant supplies
or equipment.
Restaurant Reporting
Systems and technology are essential for the management oversight needed to
monitor Steak n Shake's high standards for quality and to achieve proper
operating margins. Operational and financial controls are maintained through
the use of point of sale systems in each restaurant, personal computers in the
division offices and a data center at the corporate office. The management
accounting system polls data from the point of sale system by way of satellite
to the corporate data center where daily reports of sales, sales mix, customer
counts, check average, cash, labor and food cost are generated and provided to
field management. Inventories are taken of key products daily and a complete
inventory of food products is taken at the end of each four-week accounting
period. Management utilizes this data to monitor the effectiveness of controls
and to prepare periodic financial and management reports. The system is also
utilized for financial and budget analysis, planning and analysis of sales by
revenue center, meal period and product mix, and labor utilization.
Marketing
For nearly seventy years, the Company's commitment to guest service satisfaction
has been the most effective approach to attracting and retaining guests. New
restaurants benefit from loyalty to the Steak n Shake brand and the Company's
strategy of locating multiple restaurants within a market area. Steak n Shake's
marketing thrust is directed towards building brand loyalty and is not price
driven or reliant on discount marketing. Value at Steak n Shake is based on
exceeding our guests' expectations by delivering freshly prepared,
cooked-to-order, quality food with a unique taste that our friendly,
well-trained staff serves promptly in an attractive, clean environment.
This niche value positioning is communicated to the consumer via a branded
non-price differentiation marketing strategy. Television marketing platforms
are product benefit directed, showing why Steak n Shake is superior to fast food
alternatives with a fun, irreverent, tongue-in-cheek humorous approach. This
"voice of the restaurant" defines a brand personality that recalls the nostalgic
diner days when life was simpler, friendlier, and less stressful. By coupling
this branding approach with real consumer benefits, existing guests are
encouraged to visit more often and new guests are encouraged to try a
Steakburger and a Shake. Print, outdoor, radio, and most other media forms are
utilized, but the most effective and efficient media form remains television as
it sells Steak n Shake with sight, sound, motion, and emotion.
Our web site at www.steaknshake.com provides a worldwide presence that
-------------------
communicates the brand, the menu, our history, and location addresses by market,
as well as serving as an effective recruiting tool. A strong emphasis on
investor information allows potential investors to learn about the Company
including the latest public relations, financial information, and corporate
governance issues.
Additional marketing activities designed to build brand awareness and loyalty,
create new customer trial and introduce new products include quarterly
freestanding newspaper inserts, co-op covers, and solo direct mail, coupled with
seasonal in-store offerings centered around short-term, special promotions or
product introductions. The fully integrated marketing program also utilizes
menu clip-ons, table cards, ceiling danglers and signage. During fiscal 2003,
the Company expended $18.9 million or 3.8% of revenues for marketing activities.
Franchising
General. The Company's franchising program is designed to extend the brand name
recognition of Steak n Shake to areas where the Company has no current
development plans and to derive additional revenues without substantial
investment by the Company. The Company's expansion plan includes selectively
seeking new franchisees to help grow the Steak n Shake brand, along with
expanding relationships with current franchisees.
As of September 24, 2003, the Company had 57 franchised Steak n Shake
restaurants operated by 14 franchisees, located in Georgia, Illinois, Indiana,
Kentucky, Mississippi, Missouri, North Carolina and Tennessee. These
restaurants are located in areas contiguous to markets in which there are
Company-operated restaurants. The Company currently has commitments from
existing franchisees for the development of two additional franchised
restaurants in fiscal 2004.
Principal Franchisee. Steak n Shake's principal franchise relationship is with
Kelley Restaurants, Inc. ("KRI"). KRI operates twelve Steak n Shake restaurants
in the Atlanta market and three units in the Charlotte market. Wayne L. Kelley,
a member of the Company's Board of Directors, is President of KRI.
Approval. Franchisees undergo a selection process supervised by a Senior Vice
President in charge of franchising, and require final approval by senior
management. Steak n Shake seeks franchisees with the financial resources
necessary to fund successful development ($1,000,000 net worth, $510,000 liquid
assets) and significant experience in the restaurant/retail business who have
demonstrated the financial and management capabilities required to operate a
franchised restaurant effectively.
Training and Development. Steak n Shake assists franchisees with both the
development and the ongoing operation of their restaurants. Steak n Shake
management personnel assist with site selection, approve all franchise sites and
provide franchisees with prototype plans and specifications for construction of
their restaurants. The Company's training staff provides both on-site and
off-site instruction to franchised restaurant management employees. Managers of
franchised restaurants are required to obtain the same training as managers of
Company-operated units. Steak n Shake's support continues after a restaurant
opening with periodic training programs, providing manuals and updates relating
to product specifications, guest service and quality control procedures,
advertising and marketing materials and assisting with particular advertising
and marketing needs. Steak n Shake also makes available to franchisees certain
accounting services and management information reports prepared at the corporate
office for a monthly fee based on Steak n Shake's actual costs. Steak n Shake
has three franchise field representatives who monitor franchise operations.
Operations. All franchised restaurants are required, pursuant to their
respective franchise agreements, to serve Steak n Shake approved menu items.
Although not required to do so, franchisees served by Steak n Shake's
distribution center purchase food, supplies and smallwares at Steak n Shake's
cost, plus a markup to cover the cost of operation, including freight for
delivery. Steak n Shake's point-of-sale systems are also available for purchase
by franchisees. Access to these services enables franchisees to benefit from
Steak n Shake's purchasing power and assists Steak n Shake in monitoring
compliance with its standards and specifications for uniform quality. (See
"Purchasing and Distribution Center Operations")
Franchise Agreement. The standard Steak n Shake franchise agreement generally
has an initial term of 20 years. Among other obligations, the agreement
requires franchisees to pay an initial franchise fee of $30,000 for the first
unit in a market, $25,000 for each subsequent unit, and a continuing royalty of
4% of monthly gross receipts, as defined. The current franchise agreement also
requires the franchisee to pay 5% of monthly gross sales to the Company for
advertising, of which 80% is spent on local, regional or national marketing and
20% is used by Steak n Shake for creative and promotional development, outside
independent marketing agency fees and technical and professional marketing
advice.
Franchising Assistance. In certain circumstances, the Company's financing
subsidiary, SNS Investment Company, Inc., will assist qualified franchisees in
financing the development of one or more franchised units by purchasing or
leasing approved sites from third parties, constructing the restaurant and
leasing or subleasing the finished facility to the franchisee. The lease terms
and rentals, including a surcharge by the Company for administrative services,
are negotiated based on prevailing real estate and construction costs in effect
in the franchised area. At September 24, 2003, six restaurants were financed
through this subsidiary.
COMPETITION
The restaurant business is one of the most intensely competitive industries in
the United States, with price, menu offerings, location and service all being
significant competitive factors. The Company's competitors include national,
regional and local chains as well as local, owner-operated establishments. There
are established competitors with financial and other resources greater than
those of the Company in all of the Company's current and proposed future market
areas. The Company faces competition for sites on which to locate new
restaurants, as well as for personnel and guests. The restaurant business is
often affected by changes in consumer tastes and by national, regional and local
economic conditions and demographic trends. The performance of individual
restaurants may be affected by factors such as traffic patterns, demographic
factors, harsh weather conditions, and the type, number and location of
competing restaurants. Additional factors that may adversely affect the
restaurant industry in general, and the Company's restaurants in particular, are
inflation of food, labor and associate benefit costs, and difficulty in
attracting qualified management personnel and hourly associates.
SEASONAL ASPECTS
The Company has substantial fixed costs, which do not decline as a result of a
decline in sales. The Company's first and second fiscal quarters, which include
the winter months, usually reflect lower average weekly unit volumes as compared
to the third and fourth quarters. Additionally, sales in the first two quarters
can be adversely affected by severe winter weather.
EMPLOYEES
As of September 24, 2003, the Company employed approximately 20,000 associates,
the majority of which are employed by Steak n Shake Operations, Inc.
Approximately two-thirds of the Company's hourly associates are part-time.
TRADEMARKS
"Steak n Shake(R)", "Takhomasak(R)", "Famous For Steakburgers(R)", "FAXASAK(R)",
"In Sight It Must Be Right(R)", "Steak n Shake - Its a Meal(R)", "The Original
Steakburger(R)", the "Wing and Circle(R)" logo and the Company's storefront
design are among the federally registered trademarks and servicemarks owned by
the Company. The Company is aware of one potentially infringing use of its
trademark, but does not currently believe that it could materially affect its
business. The Company protects its trademark rights by appropriate legal action
whenever necessary.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local laws affecting its
business. Each of the Company's restaurants is subject to licensing and
regulation by a number of governmental authorities, including health and safety
and fire agencies in the state and municipality in which the restaurant is
located. The development and construction of restaurants is subject to
compliance with applicable zoning, land use and environmental regulations.
Difficulties in obtaining, or failure to obtain, the required licenses or
approvals could delay or prevent the development of a new restaurant in a
particular area.
The Company's restaurant operations are also subject to federal and state
minimum wage laws and laws governing such matters as working conditions, child
labor, overtime and tip credits. Many of the Company's restaurant associates
are paid at rates related to the federal and state minimum wage laws, and
accordingly, further increases in the minimum wage would increase the Company's
labor costs.
Steak n Shake currently has franchise operations in eight states -- Georgia,
Illinois, Indiana, Kentucky, Mississippi, Missouri, North Carolina and Tennessee
- -- and is subject to certain federal and state laws controlling the offering and
conduct of its franchise business in those states. In addition, the Company is
subject to franchise registration requirements in several states in which it is
now conducting or will conduct its franchise business in the future.
GEOGRAPHIC CONCENTRATION
During fiscal 2003, approximately 64.4% of the Company's net sales were derived
from six markets: Central Florida (17.0%); St. Louis, Missouri (13.9%);
Indianapolis, Indiana (12.4%); Central and Northern Illinois, including Chicago
(10.8%); and Western and Central Ohio (10.3%). As a result, the Company's
results of operations may be materially affected by weather, economic or
business conditions within these markets. Also, given the Company's present
geographic concentration, adverse publicity relating to Steak n Shake
restaurants could have a more pronounced adverse overall effect on the Company's
sales than might be the case if the Company's restaurants were more broadly
dispersed.
SHAREHOLDER RIGHTS PLAN
On May 16, 2001, the Company's Board of Directors adopted a Shareholder Rights
Plan (the "Plan"). Under the Plan, rights have been attached to the outstanding
shares of Common Stock at the rate of one right for each share of Common Stock
held by shareholders of record at the close of business on May 31, 2001. The
rights will become exercisable only if a person or group of affiliated persons
(an "Acquiring Person") acquires 15% or more of the Company's Common Stock or
announces a tender offer or exchange offer that would result in the acquisition
of 30% or more of the outstanding Common Stock. At that time, the rights may be
redeemed at the election of the Board of Directors. If not redeemed, then prior
to the acquisition by the Acquiring Person of 50% or more of the outstanding
Common Stock of the Company, the Company may exchange the rights (other than
rights owned by the Acquiring Person, which would have become void) for Common
Stock (or other securities) of the Company on a one-for-one basis. If not
exchanged, the rights may be exercised and the holders may acquire one
one-hundredth of a share of Preferred Stock of the Company having a value of two
times the exercise price of $40.00. Each one one-hundredth of a share of
Preferred Stock carries the same voting rights as one share of Common Stock. If
the Acquiring Person engages in a merger or other business combination with the
Company, the rights would entitle the holders to acquire shares of the Acquiring
Person having a market value equal to twice the exercise price of the rights.
The Plan will expire in May 2011. The Plan is intended to protect the interests
of the Company's shareholders against certain coercive tactics sometimes
employed in takeover attempts.
INFORMATION AVAILABLE ON OUR WEB SITE
We make available through our web site, free of charge, our filings with the
Securities and Exchange Commission ("SEC") as soon as reasonably practicable
after we file them electronically with, or furnish them to, the SEC. The
reports we make available include annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, proxy statements, registration
statements, and any amendments to those documents. In addition, as a result of
the passage of the Sarbanes-Oxley Act of 2002 and revised listing standards for
the New York Stock Exchange that will become effective as of the Company's 2004
Annual Meeting, the Board of Directors is reviewing and considering revisions to
the charters of its standing committees and corporate governance principles.
Once this process is completed, such documents will be posted on the Company's
web site and will also be available without charge upon written request. The
Company web site link is www.steaknshake.com and the link to SEC filings is
-------------------
www.steaknshake.com/investing.html.
------------------------------
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth, as of September 24, 2003, the names, ages, and
positions held with the Company and its subsidiaries, and the date on which
service in such capacities began, of the executive officers of the Company and
its subsidiaries:
Name Age Position with Company Since
- ----------------------------------- ---- -------------------------------------------- -----
James W. Bear(1) 58 Senior Vice President, Chief Financial Officer -
The Steak n Shake Company 1991
Steak n Shake Operations, Inc. 1991
Kevin F. Beauchamp 46 Vice President -
The Steak n Shake Company 1993
Vice President and Deputy National
General Manager -
Steak n Shake Operations, Inc. 1997
B. Charlene Boog(1) 71 Associate Vice President -
The Steak n Shake Company 1997
Kevin E. Dooley 60 Vice President -
Steak n Shake Operations, Inc. 1993
Peter Dunn 48 President and Chief Operating Officer -
The Steak n Shake Company 2002
Steak n Shake Operations, Inc. 2002
Duane E. Geiger 41 Vice President and Treasurer
The Steak n Shake Company 2000
Steak n Shake Operations, Inc. 2000
Alan B. Gilman(2) 73 Chairman -
The Steak n Shake Company 2003
Steak n Shake Operations, Inc. 2003
Chief Executive Officer -
The Steak n Shake Company 1992
Steak n Shake Operations, Inc. 1992
Mary E. Ham 55 Vice President -
The Steak n Shake Company 1995
Steak n Shake Operations, Inc. 1995
Secretary -
The Steak n Shake Company 1999
Steak n Shake Operations, Inc. 1999
William H. Hart 54 Vice President -
Steak n Shake Operations, Inc. 1991
David C. Milne 36 General Counsel -
The Steak n Shake Company 2003
Steak n Shake Operations, Inc. 2003
Assistant Secretary -
The Steak n Shake Company 2001
Steak n Shake Operations, Inc. 2001
Scott C. Norrick 38 Senior Vice President -
The Steak n Shake Company 2003
Steak n Shake Operations, Inc. 2003
Gary T. Reinwald(1) 55 Senior Vice President -
The Steak n Shake Company 1996
Senior Vice President and National
General Manager -
Steak n Shake Operations, Inc. 1996
Gary S. Walker 43 Senior Vice President -
The Steak n Shake Company 1998
Steak n Shake Operations, Inc. 1998
Douglas D. Willard 44 Vice President -
Steak n Shake Operations, Inc. 2003
Victor F. Yeandel 47 Vice President -
The Steak n Shake Company 1995
(1) Member of the Personnel/Benefits Committee of the Company
(2) Member of the Board of Directors of the Company
Mr. Bear was appointed Senior Vice President in 1991. Prior thereto, he served
as Vice President, Chief Financial Officer, and Treasurer of the Company from
1980 to 1991. Mr. Bear served the Company as Treasurer until 2000.
Mr. Beauchamp was appointed Vice President, Operations and Deputy National
General Manager of Steak n Shake Operations, Inc. in 1997. Mr. Beauchamp joined
the Company as Vice President and Controller in 1993.
Ms. Boog was appointed Associate Vice President in 1997. Prior thereto, she
served as Assistant Vice President and Assistant Secretary from 1991 to 1997.
Mr. Dooley joined Steak n Shake Operations, Inc. as Vice President in 1993 and
is responsible for engineering and construction.
Mr. Dunn joined the Company in September of 2002 as President and Chief
Operating Officer. From 1993 to 2002, Mr. Dunn was President of Borden Foods
Corporation. Prior thereto, he served in several capacities for Kraft General
Foods, including General Manager for Claussen Pickle Company and the Marketing
Manager for Oscar Mayer. At Oscar Mayer, Mr. Dunn was responsible for New
Product Development where he led a cross-functional team that created and
introduced Lunchables in 1987.
Mr. Geiger was appointed Vice President, Information Systems, Financial Planning
in 1995 and as Treasurer in 2000. From 1993 to 1995, Mr. Geiger served as
Director of Financial Planning and Audit, and Assistant Treasurer for the
Company.
Mr. Gilman was elected Chairman during 2003 and has been Chief Executive Officer
and a Director of the Company since 1992. He served as President from 1992 to
September 2002. From 1985 to 1992, Mr. Gilman was a private investor, and from
1980 to 1985, he served as President of Murjani International, Ltd., an
international marketing firm. From 1968 to 1980, Mr. Gilman served as a
principal executive of various divisions of Federated Department Stores, Inc.,
concluding as Chairman and Chief Executive Officer of the Abraham & Straus
Division in New York.
Ms. Ham was elected Vice President in 1996 and Secretary in 1999. From 1995 to
2003, Ms. Ham also served as General Counsel of the Company.
Mr. Hart has been Vice President, Purchasing of Steak n Shake Operations, Inc.
since 1991.
Mr. Milne was promoted to General Counsel in 2003 after joining the Company in
2000. He has been Assistant Secretary of the Company since 2001. From 1996 to
2000, Mr. Milne was in private practice with the firm of Scopelitis, Garvin,
Light and Hanson.
Mr. Norrick was promoted to Senior Vice President in 2003 after joining the
Company as Vice President in 2000, and is primarily responsible for real estate
and franchise operations. From 1996 to 2000, Mr. Norrick was an executive with
LinksCorp, owner of high-quality golf clubs and resorts, lastly serving as
Corporate Vice President, Acquisitions.
Mr. Reinwald was appointed Senior Vice President of the Company in 1996. Prior
thereto, Mr. Reinwald was Vice President, Operations and National General
Manager of Steak n Shake Operations, Inc. since 1983, and served in various
capacities in the Company for 19 years prior to that date.
Mr. Walker joined the Company as Senior Vice President in 1998 and is
responsible for purchasing and distribution, and legal matters. From 1994 to
1998, Mr. Walker was Vice President of Marketing - Home Care Division for
DowBrands L.P.
Mr. Willard joined the Company in 2003 as Vice President, Consumer Insight and
Innovation. Prior to joining the Company, Mr. Willard served as an independent
consultant. From 1992 to 2001, Mr. Willard served in various management
capacities with Borden Foods Corporation in the business development and
marketing functions.
Mr. Yeandel joined the Company as Vice President, Marketing in 1995 was named
Vice President, Marketing and Investor Relations in 2000.
Officers are elected annually at the annual meeting of the Board of Directors.
ITEM 2. PROPERTIES
The Company currently leases 35,225 square feet of executive office space in
Indianapolis, Indiana, under a lease expiring June 30, 2013.
STEAK N SHAKE OPERATIONS, INC.
As of September 24, 2003, Steak n Shake operated 222 leased and 134 owned
restaurants in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa,
Kansas, Kentucky, Michigan, Missouri, Ohio, Pennsylvania, South Carolina,
Tennessee, Texas and Wisconsin. Steak n Shake restaurant leases for land and
building typically are non-cancelable, have an initial term of 18 to 25 years
and renewal terms aggregating twenty years or more and require Steak n Shake to
pay real estate taxes, insurance and maintenance costs. Of these leases, 181
contain percentage of sales rental clauses in addition to base rent
requirements. Most restaurants are generally 3,900 square feet and seat
approximately 100 customers, while a minimal percentage of restaurants have a
similar architectural style but seat 54 to 198 customers and occupy between
1,000 and 6,000 square feet. Steak n Shake has lease obligations on two former
restaurant locations in Illinois and Texas, both of which have been subleased to
others as of September 24, 2003. These obligations primarily relate to
restaurant locations disposed of in the late 1970's, and the sublease rentals
cover substantially all of the Company's obligations under the primary leases.
Steak n Shake also has a complex of three buildings located in Bloomington,
Illinois, where it owns 38,900 square feet of office/warehouse space in two
separate buildings, one of which has cold storage facilities, and leases a
26,300 square foot distribution center and division office facility. Steak n
Shake also leases division offices in Orlando, Florida; Cincinnati, Ohio;
Columbus, Ohio; Brighton, Michigan; and Elk Grove Village, Illinois; and a
division office and administrative facility in Indianapolis, Indiana. In
addition, Steak n Shake owns a division office facility in St. Louis, Missouri.
At September 24, 2003, Steak n Shake owned one restaurant location that had been
leased to a third party. In addition, there were five restaurants under
construction and the Company owned five parcels of land that are being held for
future development at September 24, 2003.
SNS INVESTMENT COMPANY
SNS Investment Company ("SIC"), a wholly owned subsidiary of the Company,
assists qualified franchisees with financing by purchasing or leasing land,
constructing the restaurant and then leasing or subleasing the land and building
to the franchisee. SIC leases the land and building for these properties as the
primary lessee. These leases typically have an initial term of 18 years and
renewal options aggregating 20 years or more, and require SIC to pay real estate
taxes, insurance and maintenance costs. As of September 24, 2003, SIC had six
land and building leases for properties located in Louisville and Elizabethtown,
Kentucky; Chattanooga, Tennessee; Clarksville, Indiana and Columbia, Missouri
which are being operated by franchisees pursuant to sublease agreements. All
lease and sublease agreements between SIC and its franchisees specifically
include triple net lease provisions whereby the franchisee is responsible for
all real estate taxes, insurance and maintenance costs. SIC also has a land and
building lease for a property in Little Rock, Arkansas, which is operated by
Steak n Shake Operations, Inc. Additionally, SIC has a ground lease for a
property in Bloomington, Indiana, and owns a property in Indianapolis, Indiana,
which are subleased and leased, respectively, to third parties.
RESTAURANT LEASE EXPIRATIONS
Restaurant leases are scheduled to expire as follows, assuming the exercise of
all renewal options:
Number of Leases Expiring
----------------------------
Calendar Year SNS SIC
- ------------- --- ---
2004 - 2008 . 1 0
2009 - 2013 . 4 0
2014 - 2018 . 3 0
2019 - 2023 . 13 0
2024 - 2028 . 8 0
Beyond. . . . 193 8
--- ---
222 8
=== ===
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings against the Company, which, if adversely
resolved, would have a material effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth quarter of
the fiscal year covered by this Report.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET PRICE RANGE/STOCK TRADING
The Common Stock of The Steak n Shake Company is traded on the New York Stock
Exchange ("NYSE") under the symbol SNS. Stock price quotations can be found in
major daily newspapers and in The Wall Street Journal. The high and low closing
sales prices for the Company's Common Stock, as reported on the NYSE for each
quarter of the Company's past two fiscal years, are shown below:
2003 2002
---- ----
High Low High Low
------ ------ ------ ------
First Quarter. $11.63 $ 9.97 $11.51 $ 9.90
Second Quarter $10.52 $ 8.89 $15.10 $10.60
Third Quarter. $15.25 $ 9.60 $15.65 $13.60
Fourth Quarter $16.04 $14.05 $14.74 $10.41
The Company did not pay cash dividends on its Common Stock during the two fiscal
years reflected in the table. As of December 5, 2003, there were 13,415 record
holders of the Common Stock.
See Item 12 for "Equity Compensation Plan Information".
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for each of the Company's five most recent fiscal years,
set forth in the Company's 2003 Annual Report to Shareholders under "Selected
Financial and Operating Data (Unaudited)," are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial conditions and results of
operations set forth in the Company's 2003 Annual Report to Shareholders under
"Management's Discussion and Analysis" are incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure with regard to financial instruments
is to changes in interest rates. The Company invests excess cash primarily in
government debt securities due to their relative low credit risk. Interest
rates on these securities are based upon market rates at the time of purchase
and remain fixed until maturity. 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 24, 2003,
a hypothetical 100 basis point increase in short-term interest rates would have
an immaterial impact on the Company's earnings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Statements of Earnings, Consolidated Statements of
Financial Position, Consolidated Statements of Cash Flows, Consolidated
Statements of Shareholders' Equity, Notes to Consolidated Financial Statements
and Reports of Independent Auditors set forth in the Company's 2003 Annual
Report to Shareholders are incorporated herein by reference.
Information on quarterly results of operations, set forth in the Company's 2003
Annual Report to Shareholders under "Quarterly Financial Data (Unaudited)" is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
As previously reported by the Company in its current report on Form 8-K filed on
February 19, 2003, the Audit Committee decided to change the Company's
independent public accountants and replaced Ernst & Young LLP with Deloitte &
Touche LLP. There were no disagreements or reportable events with the Company's
auditors during the two-year period ended September 24, 2003.
ITEM 9A. CONTROLS AND PROCEDURES
Based on an evaluation of the Company's disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(c)) as of September 24, 2003,
the Company's Chief Executive Officer and Chief Financial Officer have concluded
that the Company's disclosure controls and procedures are effective in timely
alerting the Company's management to material information required to be
included in this Form 10-K and other Exchange Act filings. There have been no
changes in the Company's internal controls over financial reporting that
occurred during the quarter ended September 24, 2003 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the captions "Election of Directors", "Committees
and Meetings of the Board of Directors", "Section 16(a) Beneficial Ownership
Reporting Compliance", and "Miscellaneous - Code of Business Conduct and Ethics"
in the Company's definitive Proxy Statement relating to its 2004 Annual Meeting
of Shareholders is incorporated herein by reference. Certain information
relating to the Company's executive officers is included in Part I of this Form
10-K under "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information included under the captions "Compensation of Directors",
"Compensation of Executive Officers", "Summary Compensation Table",
"Options/SAR Grants in Last Fiscal Year", "Aggregated Stock Option Exercises in
Fiscal 2003 and Fiscal Year End Option Values", "Long Term Incentive Plan Awards
in Last Fiscal Year", "Report of the Compensation Committee", and "Company
Performance" in the Company's definitive Proxy Statement relating to its 2004
Annual Meeting of Shareholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information contained under the captions "Ownership of Common Stock" and
"Equity Compensation Plan Information" in the Company's definitive Proxy
Statement relating to its 2004 Annual Meeting of Shareholders is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Management Relationships and
Related Transactions" in the Company's definitive Proxy Statement relating to
its 2004 Annual Meeting of Shareholders is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information included in Appendix A in the Company's definitive Proxy
Statement relating to its 2004 Annual Meeting of Shareholders is incorporated
herein by reference.
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
-----------------------------------------------
1. Financial Statements. The following table sets forth the
----------------------
financial statements filed as a part of this report:
Consolidated Statements of Financial Position at September 24,
2003 and September 25, 2002
For the years ended September 24, 2003, September 25, 2002 and
September 26, 2001:
Consolidated Statements of Earnings
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity
Notes to Consolidated Financial Statements
Reports of Independent Auditors
2. Financial Statement Schedules.
--------------------------------
All schedules for the years ended September 24, 2003, September
25, 2002 and September 26, 2001 have been omitted for the reason
that they are not required, are not applicable, or the required
information is set forth in the financial statements or notes
thereto.
3. Exhibits. The following exhibits are filed as a part of this
---------
Annual Report on Form 10-K.
3.01 Amended and Restated Articles of Incorporation of The Steak n Shake
Company, filed March 27, 2002. (Incorporated by reference to the
Registrant's definitive Proxy Statement dated December 19, 2001,
related to the 2002 Annual Meeting of Shareholders).
3.02 Restated Bylaws of The Steak n Shake Company as of May 16, 2001.
(Incorporated by reference to Exhibit 3.08 to the Registrant's Annual
Report on Form 10-K for the year ended September 26, 2001).
4.01 Specimen certificate representing Common Stock of The Steak n Shake
Company. (Incorporated by reference to Exhibit 4.01 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended April 11,
2001).
4.02 Amended and Restated Note Purchase and Private Shelf Agreement by and
between The Steak n Shake Company and The Prudential Insurance Company
of America dated as of September 20, 2002 related to the $75,000,000
senior note agreement and private shelf facility. (Incorporated by
reference to Exhibit 4.02 to the Registrant's Annual Report on Form
10-K for the year ended September 25, 2002).
4.03 Amendment No. 1 to Amended and Restated Note Purchase Agreement by and
between The Steak n Shake Company and The Prudential Insurance Company
of America dated as of December 18, 2002 related to the $75,000,000
senior note agreement and private shelf facility. (Incorporated by
reference to Exhibit 4.03 to the Registrant's Annual Report on Form
10-K for the year ended September 25, 2002).
4.04 Rights Agreement dated as of May 16, 2001 between The Steak n Shake
Company and Computershare Investor Services, LLC, as Rights Agent.
(Incorporated by reference to Exhibit 4.01 to the Registrant's current
report on Form 8-K filed May 17, 2001).
4.05 Credit Agreement by and between The Steak n Shake Company and Fifth
Third Bank, Indiana (Central) dated November 16, 2001, relating to a
$30,000,000 revolving line of credit. (Incorporated by reference to
Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the
year ended September 26, 2001).
4.06 First Amendment to Credit Agreement by and Between The Steak n Shake
Company and Fifth Third Bank, Indiana (Central) dated October 17, 2002
relating to a $30,000,000 revolving line of credit. (Incorporated by
reference to Exhibit 10.15 to the Registrant's Annual Report on Form
10-K for the year ended September 25, 2002).
4.07 Second Amendment to Credit Agreement by and Between The Steak n Shake
Company and Fifth Third Bank, Indiana (Central) dated December 18, 2002
relating to a $30,000,000 revolving line of credit. (Incorporated by
reference to Exhibit 10.16 to the Registrant's Annual Report on Form
10-K for the year ended September 25, 2002).
4.08 Amendment No. 2 dated May 21, 2003 to the Amended and Restated Note
Purchase and Private Shelf Agreement dated September 20, 2002.
(Incorporated by reference to Exhibit 10.16 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
April 9, 2003).
4.09 Third Amendment to Credit Agreement by and between The Steak n Shake
Company and Fifth Third Bank, Indiana (Central) dated May 22, 2003
related to a $30,000,000 revolving line of credit. (Incorporated by
reference to Exhibit 10.17 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended April 9, 2003).
4.10 Amendment No. 3 dated September 17, 2003 to the Amended and Restated
Note Purchase and Private Shelf Agreement dated September 20, 2002.
10.01 * Letter from the Registrant to Alan B. Gilman dated June 27, 1992.
(Incorporated by reference to Exhibit 19.13 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 1992).
10.02 * Retirement Agreement by and between S. Sue Aramian and the
Registrant dated August 15, 2001. (Incorporated by reference to
Exhibit 10.05 to the Registrant's Annual Report on Form 10-K for the
year ended September 26, 2001).
10.03 * 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).
10.04 * 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).
10.05 * Amendment No. 1 to The Steak n Shake Company's (formerly
Consolidated Products, Inc.) 1997 Employee Stock Option Plan.
(Incorporated by reference to the Appendix to the Registrant's
definitive Proxy Statement dated December 19, 2001 related to the 2002
Annual Meeting of Shareholders).
10.06 * 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).
10.07 * Consolidated Products, Inc. 1998 Non-employee 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).
10.08 * Form of option agreement related to 1999 Non-employee Director Stock
Option Program and schedule relating thereto. (Incorporated by
reference to Exhibit 10.21 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended July 5, 2000).
10.09 * Form of option agreement related to 2000 Non-employee Director
Stock Option Program and schedule relating thereto. (Incorporated by
reference to Exhibit 10.22 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended July 5, 2000).
10.10 * Form of option agreement related to 2002 Non-employee Director Stock
Option Program and schedule relating thereto. (Incorporated by
reference to Exhibit 10.22 to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended December 19, 2001).
10.11 * The Steak n Shake Company Incentive Bonus Plan approved by the
Company's Board of Directors on February 12, 2003. (Incorporated by
reference to Exhibit 10.15 to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended April 9, 2003).
10.12 * The Steak n Shake Company's 2003 Director Stock Option Plan.
10.13 * Letter from Registrant to Peter Dunn dated July 25, 2002.
13.01 Portions of the Annual Report to Shareholders for the Year Ended
September 24, 2003 incorporated by reference into this Form 10-K.
14.01 The Steak n Shake Company Conflicts of Interest and Standards of
Business Ethics Policy.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Deloitte & Touche LLP.
23.02 Consent of Ernst & Young LLP.
31.01 Rule 13(a)-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.02 Rule 13(a)-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.01 Section 1350 Certifications.
* Indicates management contract or compensatory plans or arrangements required
to be filed as an Exhibit.
(b) Reports on Form 8-K:
-----------------------
A report on Form 8-K was furnished on August 1, 2003 announcing
Third quarter fiscal 2003 results and the retirement of James W.
Bear, Chief Financial Officer.
A report on Form 8-K was furnished on August 6, 2003 providing the
transcript of the conference call dated July 30, 2003 announcing
third quarter fiscal 2003 results.
A report on Form 8-K was filed on August 19, 2003 announcing
changes to the Board of Directors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on December 9, 2003.
THE STEAK N SHAKE COMPANY
By: /s/ James W. Bear
--------------------
James W. Bear
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated, on December 8, 2003.
/s/ S. Sue Aramian. . . . Director
- -------------------------
S. Sue Aramian
/s/ James W. Bear . . . . Senior Vice President and Chief Financial Officer
- -------------------------
James W. Bear . . . . . . (Principal Financial Officer and Principal Accounting Officer)
/s/ Alan B. Gilman. . . . Chief Executive Officer and Director
- -------------------------
Alan B. Gilman. . . . . . (Principal Executive Officer)
/s/ Stephen Goldsmith . . Director
- -------------------------
Stephen Goldsmith
/s/ Wayne L. Kelley . . . Director
- -------------------------
Wayne L. Kelley
/s/ Charles E. Lanham . . Director
- -------------------------
Charles E. Lanham
/s/ Dr. Ruth J. Person. . Director
- -------------------------
Ruth J. Person
/s/ J. Fred Risk. . . . . Director
- -------------------------
J. Fred Risk
/s/ Dr. John W. Ryan. . . Director
- -------------------------
Dr. John W. Ryan
/s/ James Williamson, Jr. Director
- -------------------------
James Williamson, Jr.
THE STEAK N SHAKE COMPANY AND SUBIDIARIES
Index to Exhibits
Number Description
------ -----------
(3) 3.01 Amended and Restated Articles of Incorporation of The
Steak n Shake Company, filed March 27, 2002. (Incorporated by reference to the
Registrant's definitive Proxy Statement dated December 19, 2001 related to the
2002 Annual Meeting of Shareholders).
3.02 Restated Bylaws of The Steak n Shake Company as of May 16,
2001.(Incorporated by reference to Exhibit 3.08 to the Registrant's Annual
Report onForm 10-K for the year ended September 26, 2001).
(4) 4.01 Specimen certificate representing Common Stock of The
Steak n Shake Company (formerly Consolidated Products, Inc.). (Incorporated by
reference to Exhibit 4.01 to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 11, 2001).
4.02 Amended and Restated Note Purchase and Private Shelf
Agreement by and between The Steak n Shake Company and The Prudential
Insurance Company of America dated as of September 20, 2002 related to
$75,000,000 senior note agreement and private shelf facility. (Incorporated by
reference to Exhibit 4.02 to the Registrant's Annual Report on Form 10-K for the
year ended September 25, 2002).
4.03 Amendment No. 1 to Amended and Restated Note Purchase
Agreement by and between The Steak n Shake Company and The Prudential Insurance
Company of America dated as of December 18, 2002 related to the $75,000,000
senior note agreement and private shelf facility. (Incorporated by reference to
Exhibit 4.03 to the Registrant's Annual Report on Form 10-K for the year ended
September 25, 2002).
4.04 Rights Agreement dated as of May 16, 2001 between The
Steak n Shake Company and Computershare Investor Services, LLC, as Rights Agent.
(Incorporated by reference to Exhibit 4.01 to the Registrant's current report
on Form 8-K filed May 17, 2001).
4.05 Credit Agreement by and between The Steak n Shake Company
and Fifth Third Bank, Indiana (Central) dated November 16, 2001, relating to a
$30,000,000 revolving line of credit. (Incorporated by reference to Exhibit
10.17 to the Registrant's Annual Report on Form 10-K for the year ended
September 26, 2001).
4.06 First Amendment to Credit Agreement by and between The
Steak n Shake Company and Fifth Third Bank, Indiana (Central) dated October 17,
2002, relating to a $30,000,000 revolving line of credit. (Incorporated by
reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K
for the year ended September 25, 2002).
4.07 Second Amendment to Credit Agreement by and between The
Steak n Shake Company and Fifth Third Bank, Indiana (Central) dated
December 18, 2002, relating to a $30,000,000 revolving line of credit.
(Incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report
on Form 10-K for the year ended September 25, 2002).
4.08 Amendment No. 2 dated May 21, 2003 to the Amended and
Restated Note Purchase and Private Shelf Agreement dated September 20, 2002.
(Incorporated by reference to Exhibit 10.16 to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended April 9, 2003).
4.09 Third Amendment to Credit Agreement by and between The
Steak n Shake Company and Fifth Third Bank, Indiana (Central) dated May 22,
2003 related to a $30,000,000 revolving line of credit. (Incorporated by
reference to Exhibit 10.17 to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended April 9, 2003).
4.10 Amendment No. 3 dated September 17, 2003 to the Amended
and Restated Note Purchase and Private Shelf Agreement dated September 20, 2002.
(9) No exhibit.
(10) 10.01 * Letter from the Registrant to Alan B. Gilman dated
June 27, 1992. (Incorporated by reference to Exhibit 19.13 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 1992).
10.02 * Retirement Agreement by and between S. Sue Aramian and
the Registrant dated August 15, 2001. (Incorporated by reference to Exhibit
10.05 to the Registrant's Annual Report on Form 10-K for the year ended
September 26,2001).
10.03 * 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).
10.04 * 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).
10.05 * Amendment No. 1 to The Steak n Shake Company's
(formerly Consolidated Products, Inc.) 1997 Employee Stock Option Plan.
(Incorporated by reference to the Appendix to the Registrant's definitive Proxy
Statement dated December 19, 2001 related to the 2002 Annual Meeting of
Shareholders).
10.06 * 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).
10.07 * Consolidated Products, Inc. 1998 Non-employee 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).
10.08 * Form of option agreement related to 1999 Non-employee
Director Stock Option Program and schedule relating thereto.
(Incorporated by reference to Exhibit 10.21 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended July 5, 2000).
10.09 * Form of option agreement related to 2000 Non-employee
Director Stock Option Program and schedule relating thereto. (Incorporated
by reference to Exhibit 10.22 to the Registrant's Quarterly Report on Form
10-Q for the fiscalquarter ended July 5, 2000).
10.10 * Form of option agreement related to 2002 Non-employee
Director Stock Option Program and schedule relating thereto. (Incorporated
by reference to Exhibit 10.14 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended December 19, 2001).
10.11 * The Steak n Shake Company Incentive Plan approved by
the Company's Board of Directors on February 12, 2003. (Incorporated by
reference to Exhibit 10.15 to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended April 9, 2003).
10.12 * The Steak n Shake Company's 2003 Director Stock Option
Plan.
10.13 * Letter from Registrant to Peter Dunn dated July 25, 2002
(11) No exhibit.
(12) No exhibit.
(13) 13.01 Portions of the Annual Report to Shareholders for the
Year Ended September 24, 2003 incorporated by reference into this Form 10-K.
(14) 14.01 The Steak n Shake Company Conflicts of Interest and
Standards of Business Ethics Policy.
(18) No exhibit.
(21) 21.01 Subsidiaries of the Registrant.
(22) No exhibit.
(23) 23.01 Consent of Deloitte & Touche LLP.
23.02 Consent of Ernst & Young LLP.
(24) No exhibit.
(27) No exhibit.
(31) 31.01 Rule 13(a)-14(a)/15d-14(a) Certification of Chief
Executive Officer.
31.02 Rule 13(a)-14(a)/15d-14(a) Certification of Chief
Financial Officer.
(32) 32.01 Section 1350 Certifications.
* Indicates management contracts or compensatory plans or arrangements required
to be filed as an Exhibit.
EXHIBIT 13.01 - ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED
SEPTEMBER 24, 2003
SELECTED FINANCIAL AND OPERATING DATA (UNAUDITED)
The Steak n Shake Company
(All dollar amounts in thousands, except per share data)
2003 2002 2001 2000 1999
---------- -------- -------- -------- --------
Statement of Earnings Data :
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 499,104 $459,014 $445,191 $406,047 $348,250
Earnings from continuing operations
before discontinued operations and cumulative
effect of change in accounting . . . . . . . . . . . . . . . . . . . 20,939(1) 23,089 20,796 21,467 19,236(3)
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . - - - (3,715)(2) (1,169)(2)
Cumulative effect of change in accounting . . . . . . . . . . . . . . . . . . - - - - (1,751)(4)
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,939 $ 23,089 $ 20,796 $ 17,752 $ 16,316
--------- -------- -------- --------- ---------
Per Share Data:
Basic Earnings Per Common Share:
From continuing operations before discontinued
operations and cumulative effect of
change in accounting . . . . . . . . . . . . . . . . . . . . . . . . $ .78 $ .83 $ .72 $ .73 $ .66(3)
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . - - - (.13)(2) (.04)(2)
Cumulative effect of change in accounting. . . . . . . . . . . . . . - - - - (.06)(4)
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . $ .78 $ .83 $ .72 $ .60 $ .56
---------- -------- -------- ------- ------
Diluted Earnings Per Common and
Common Equivalent Share:
From continuing operations before discontinued
operations and cumulative effect of
change in accounting . . . . . . . . . . . . . . . . . . . . . . . . $ .77 $ .83 $ .72 $ .73 $ .65(3)
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . - - - (.13)(2) (.04)(2)
Cumulative effect of change in accounting. . . . . . . . . . . . . . - - - - (.06)(4)
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . $ .77 $ .83 $ .72 $ .60 $ .55
---------- -------- -------- ------- ------
Basic Weighted Average Shares (in thousands). . . . . . . . . . . . . . . 27,010 27,814 28,707 29,263 29,149
Diluted Weighted Average
Shares and Share Equivalents (in thousands). . . . . . . . . . . . . . 27,110 27,986 28,716 29,339 29,579
Statement of Financial Position Data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 414,636 $395,895 $371,415 $346,375 $300,016
Long-term debt:
Obligations under leases . . . . . . . . . . . . . . . . . . . . . . 145,125 148,531 135,916 113,441 96,799
Revolving line of credit . . . . . . . . . . . . . . . . . . . . . . - - - 12,695 -
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,203 24,419 28,379 25,522 24,482
Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . $ 188,614 $167,055 $162,004 $149,316 $133,517
SELECTED FINANCIAL AND OPERATING DATA (UNAUDITED)
The Steak n Shake Company
(All dollar amounts in thousands, except per share data)
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Other Data:(5)
System wide Sales:
Company. . . . . . . . . . . . . . $495,277 $455,359 $441,513 $402,509 $344,885
Franchise. . . . . . . . . . . . . 97,323 92,421 90,043 86,454 80,381
$592,600 $547,780 $531,556 $488,963 $425,266
-------- -------- -------- -------- --------
Number of Restaurants:
Company-operated . . . . . . . . . 356 348 332 313 278
Franchised . . . . . . . . . . . . 57 56 56 54 50
--- --- --- --- ---
413 404 388 367 328
Number of Employees . . . . . . . . . 20,000 20,000 19,000 18,000 16,000
Number of Shareholders (in thousands) 13,415 12,714 11,459 12,127 12,236
(1) The Company recorded a charge of $5,200,000 ($3,360,000 net of income
taxes or $.13 per diluted share) related to the disposal of nine
under-performing restaurants.
(2) In 2000, the Company recorded a charge for the loss on disposal of
discontinued operations of the Specialty Restaurant segment of $3,715,000,
($2,400,000 net of income taxes or $.08 per diluted share).
(3) The Company recorded a charge of $1,040,000, net of income taxes,
related to the settlement of a lawsuit.
(4) 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". The cumulative effect of this accounting change, net
of income tax benefit, was $1,751,000 ($.06 per diluted share). The effect of
the adoption of the accounting standard was a reduction in the Company's
earnings before cumulative effect of change in accounting for fiscal 1999 of
approximately $1,900,000 ($.06 per diluted share).
(5) Data presented is not required by generally accepted accounting
principles but provides an important measure of Company performance.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Steak n Shake Company
(Years ended September 24, 2003, September 25, 2002 and September 26, 2001)
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to use its judgement to make estimates and assumptions that can have
a material impact on the results of operations and reported amounts of assets
and liabilities. The Company evaluates its assumptions and estimates on an
ongoing basis based on current market conditions, historical experience, and
various other factors that are believed to be relevant under the circumstances.
Actual results may differ significantly from these estimates under different
assumptions or conditions.
The Company believes that, of its significant accounting policies, the
following policies involve a higher degree of risk, judgement and/or complexity.
Property and Equipment
Property and equipment are recorded at cost with depreciation and
amortization being recognized on the straight-line method over the estimated
useful lives of the assets (15 to 25 years for building and land improvements, 3
to 10 years for equipment, and the shorter of the estimated useful lives or the
lease term for leasehold improvements). The Company reviews each asset for
impairment on a restaurant-by-restaurant basis when events or circumstances
indicate it might be impaired. The Company tests for impairment by comparing
the carrying value of the asset to the future cash flows expected to be
generated by the asset. If the total future cash flows are less than the
carrying amount of the asset, the carrying amount is written down to the
estimated fair value, and a loss is recognized in earnings. Because
depreciation and amortization expense is based upon useful lives of assets and
the net salvage value at the end of their lives, significant judgment is
required in estimating this expense. Additionally, the future cash flows
expected to be generated by an asset requires significant judgment regarding
future performance of the asset, fair market value if the asset were to be sold,
and other financial and economic assumptions. Accordingly, management believes
that accounting estimates related to property and equipment are critical.
Insurance Reserves
The Company self-insures a significant portion of expected losses under its
workers' compensation, general liability, and auto liability insurance programs.
The Company purchases reinsurance for individual and aggregate claims that
exceed predetermined limits. The Company records a liability for all unresolved
claims and its estimate of incurred but not reported ("IBNR") claims at the
anticipated cost to the Company. The liability estimate is based on information
received from insurance companies, combined with management's judgments
regarding frequency and severity of claims, claims development history, and
settlement practices. Significant judgment is required to estimate IBNR claims
as parties have yet to assert a claim and therefore the degree to which injuries
have been incurred, and the related costs, have not yet been determined.
Additionally, estimates about future costs involve significant judgment
regarding legislation, case jurisdictions and other matters. Accordingly,
management believes that estimates related to self-insurance reserves are
critical.
Income Taxes
The Company records deferred tax assets or liabilities based on differences
between financial reporting and tax bases of assets and liabilities using
currently enacted rates and laws that will be in effect when the differences are
expected to reverse. Management records deferred tax assets to the extent it
believes there will be sufficient future taxable income to utilize those assets
prior to their expiration. To the extent deferred tax assets would be unable to
be utilized, management would record a valuation allowance against the
unrealizable amount, and record that amount as a charge against earnings. Due
to changing tax laws and state income tax rates, significant judgment is
required to estimate the effective tax rate expected to apply to tax differences
that are expected to reverse in the future. Management must also make estimates
about the sufficiency of taxable income in future periods to offset any
deductions related to deferred tax assets currently recorded. Accordingly,
management believes estimates related to income taxes are critical.
RESULTS OF OPERATIONS
In the following table is set forth the percentage relationship to total
revenues, unless otherwise noted, of items included in the Company's
consolidated statements of earnings for the periods indicated:
2003 2002 2001
------- ------- -------
Revenues
Net sales . . . . . . . . . . . . 99.2% 99.2% 99.2%
Franchise fees. . . . . . . . . . .8 .8 .8
100.0 100.0 100.0
------- ------- -------
Costs and Expenses
Cost of sales . . . . . . . . . . 22.9(1) 23.1(1) 23.8(1)
Restaurant operating costs. . . . 49.6(1) 48.8(1) 49.7(1)
General and administrative. . . . 7.6 7.5 7.2
Depreciation and amortization . . 4.8 5.0 4.7
Marketing . . . . . . . . . . . . 3.8 3.5 3.5
Interest. . . . . . . . . . . . . 2.7 2.9 2.9
Rent. . . . . . . . . . . . . . . 1.7 1.8 1.5
Provision for restaurant closings 1.0 - -
Pre-opening costs . . . . . . . . .4 .5 .6
Other income, net . . . . . . . . (.4) (.4) (.5)
------- ------- -------
Earnings Before Income Taxes . . . . . 6.5 7.8 7.3
Income Taxes . . . . . . . . . . . . . 2.3 2.8 2.6
------- ------- -------
Net Earnings . . . . . . . . . . . . . 4.2% 5.0% 4.7%
------- ------- -------
<FN>
(1) Cost of sales and restaurant operating costs are expressed as a percentage
of net sales.
YEAR ENDED SEPTEMBER 24, 2003 TO YEAR ENDED SEPTEMBER 25, 2002
In the following discussions, the term "same-store sales" refers to the sales of
only those units open for at least eighteen months.
Revenues
Net sales increased $39,917,000 (8.8%) to $495,277,000, due to a 4.9%
increase in same-store sales, coupled with the opening of thirteen new
Company-operated restaurants. The strong sales growth is mainly attributable to
system-wide acceptance of credit cards in the first quarter, increased
television and promotional marketing throughout the year, and the introduction
of three new shake flavors in the third quarter. These efforts had the effect
of increasing customer counts by 2.8% and check average by 2.0%. The increased
check average was also partially caused by a 1.3% weighted-average menu price
increase. The Company had 356 Company-operated Steak n Shake restaurants
operating at September 24, 2003, compared to 348 at September 25, 2002.
Costs and Expenses
Cost of sales increased $8,171,000 (7.8%) to $113,496,000 primarily due to
the increase in net sales. As a percentage of sales, cost of sales decreased to
22.9% from 23.1% based on menu price increases and decreases in dairy product
costs compared to the prior year.
Restaurant operating costs increased $23,091,000 (10.4%) to $245,524,000
due to increased sales and opening of new restaurants. As a percentage of net
sales, restaurant operating costs increased to 49.6% from 48.8% as credit card
processing fees were incurred in the current year, but not in the prior year.
Additionally, market conditions caused the Company's property taxes and
insurance premiums to increase 16.3%.
General and administrative expenses increased $3,694,000 (10.8%) to
$37,908,000, and as a percentage of revenue increased to 7.6% from 7.5% in the
prior year. This increase in general and administrative expenses is
attributable to increased staffing and training to support new and growing
markets, and incremental investments in consumer research, mystery shopping, and
training.
Depreciation and amortization expense increased $1,074,000 (4.7%) to
$24,169,000 primarily from property and equipment additions due to opening
thirteen new Company-operated restaurants in the current year.
Marketing expense increased $2,794,000 (17.4%) to $18,856,000, and as a
percentage of revenue increased to 3.8% from 3.5% in the prior year. This
increase is primarily attributable to additional television marketing in several
key Midwestern and Southeastern markets, combined with increased promotional
marketing.
Interest expense decreased $681,000 (4.8%) to $13,391,000 due to principal
repayments on long-term debt and capital leases of $7,214,000 during the year.
Rent expense increased $901,000 (12.2%) to $8,309,000 as increased sales
resulted in higher percentage rent payments.
The provision for restaurant closings of $5,200,000 relates to the decision
to dispose of nine under-performing units in the current year.
Pre-opening costs were $323,000 less than prior year as thirteen
Company-owned restaurants were opened in the current year, compared to sixteen
new restaurants in the prior year.
Other income, net increased $211,000 (11.4%) over the prior year to
$2,064,000 primarily due to increased interest income on higher average
investment balances in the current year.
Income Taxes
The Company's effective tax rate decreased to 35.4% from 35.9% in the prior
year primarily due to lower state income taxes.
YEAR ENDED SEPTEMBER 25, 2002 TO YEAR ENDED SEPTEMBER 26, 2001
Revenues
Net sales increased $13,847,000 to $455,359,000, or 3.1%, due primarily to
a 4.8% increase in the number of Company-operated Steak n Shake restaurants. The
number of Company-operated Steak n Shake restaurants increased to 348 at
September 25, 2002 as compared to 332 at September 26, 2001. Same store sales
decreased 0.7% due to a 2.8% decrease in customer counts partially offset by a
2.1% increase in check average. The decrease in customer counts is due, in part,
to a reduction of promotional marketing activity during the year. The increase
in check average is primarily the result of a 2.3% weighted average menu price
increase for the year.
Costs and Expenses
Cost of sales increased $237,000, or 0.2%, as a result of the sales
increase. As a percentage of net sales, cost of sales decreased to 23.1% from
23.8%, primarily as a result of menu price increases and relatively stable food
costs (decreases in potato and pork costs, somewhat offset by increases in beef
costs).
Restaurant operating costs increased $2,875,000, or 1.3%, due to increased
labor costs resulting primarily from the higher sales volume. As a percentage of
net sales, restaurant operating costs decreased to 48.8% from 49.7% primarily
due to lower wage rates and reduced employee turnover, resulting from the
softening in labor markets and improved employee recruitment and retention
programs, and a reduction in gas heating and supply costs.
General and administrative expenses increased $2,291,000, or 7.2%. The
increase is primarily due to new technology initiatives surrounding human
resources and payroll, and a sales forecasting and labor scheduling system.
Additionally, the Company reorganized field operations, which added new field
offices to better support new and key core markets. In the current year the
Company incurred losses on the disposal of assets compared to gains in the prior
year. As a percentage of revenues, general and administrative expenses
increased to 7.5% from 7.2%.
The $2,143,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 2001.
Marketing expense increased $622,000, or 4.0%. As a percentage of
revenues, marketing expense increased to 3.5% from 3.4% primarily due to the
implementation of television advertising in the Grand Rapids, Michigan and
Nashville, Tennessee markets in fiscal 2001 and increased television advertising
in the Indianapolis, Orlando and St. Louis markets.
Interest expense increased $1,221,000, or 9.5%, as a result of the
completion of thirty-one sale and leaseback transactions since the beginning of
fiscal 2001. Proceeds from these transactions aggregated $13,198,000 and
$22,559,000 in 2002 and 2001, respectively. This increase was partially offset
by a decrease in average net borrowings under the Company's Senior Note
Agreement and the revolving line of credit.
Rent expense increased $796,000, or 12.0%, due to ground leases entered
into in 2002, the assumption of a lease for a restaurant located in a travel
center in 2002 and an increase in percentage rent.
Pre-opening costs decreased $508,000, or 18.7%, in fiscal 2002 due to
fewer new store openings.
Other income, net decreased $469,000 to $1,853,000 due to lower
miscellaneous restaurant revenues.
Income Taxes
The Company's effective income tax rate, as a percentage of earnings before
income taxes, increased to 35.9% from 35.7%. The increase in the effective rate
is primarily due to a decrease in federal job tax credits.
RESTAURANT CLOSINGS
During 2003, the Company identified nine under-performing restaurants for
disposal (seven owned units and two leased units). The decision to dispose of
these restaurants resulted from an extensive analysis of the current financial
and operational performance of the units, prospects for improved performance,
the location and surrounding demographics, and other market conditions. In
connection with this decision, in the fourth quarter the Company recorded a
charge of $5,200,000 ($3,360,000 net of income taxes or $.13 per diluted share).
Included in the charge is a write-down of related property and equipment to its
estimated fair value, lease termination costs, and closing costs. The Company
is currently seeking buyers for these properties, and anticipates completing the
disposal of the properties within the next twelve to eighteen months. The
Company does not anticipate any significant additional future payments related
to the store closings, other than the amounts accrued.
EFFECTS OF GOVERNMENTAL REGULATIONS AND INFLATION
Most of the Company's employees are paid hourly rates related to federal
and state minimum wage laws. Any increase in the legal minimum wage would
directly increase the Company's operating costs. The Company is also subject to
various federal, state and local laws related to zoning, land use, safety
standards, working conditions, and accessibility standards. Any changes in
these laws that require improvements to our restaurants would increase our
operating costs. In addition, the Company is subject to franchise registration
requirements and certain related federal and state laws regarding franchise
operations. Any changes in these laws could affect our ability to attract and
retain franchisees.
Inflation in food, labor, fringe benefits, and other operating costs
directly affect the Company's operations. The Company's results of operations
have not been significantly affected by inflation during the last three fiscal
years.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $50,703,000 in cash flows from operations during
2003, primarily due to $20,939,000 in net earnings, depreciation and
amortization charges of $24,169,000, and a non-cash charge for restaurant
closings of $5,200,000. Modest increases in receivables, inventories and other
assets were offset by similar increases in accounts payable and accrued
liabilities, most of which is attributable to the increase in Company-owned
restaurants over the prior year and timing of vendor and tax payments. Cash
flows from operations in 2002 resulted primarily from earnings of $23.1 million,
depreciation and amortization of $23.1 million, and increases in payables and
accrued liabilities. The increase in payables and accrued liabilities was
attributable to increases in self-insurance liabilities of $5.3 million and
income taxes payable of $3.8 million.
Net cash used in investing activities of $24,413,000 during 2003 resulted
from capital expenditures of $30,707,000, offset by proceeds from long-term
investments called of $5,000,000. The capital expenditures included the cost of
thirteen new, three rebuilt, and two relocated restaurants during the year. Net
cash used in investing activities in 2002 totaled $46.1 million. Capital
expenditures of $41.4 million resulted primarily from the opening of fifteen
new, two rebuilt, and two replacement restaurants, and purchasing one franchised
unit. Additionally, the Company purchased $16.4 million and sold $9.3 million
of investments during the year. The Company expects to open fifteen to eighteen
Company-operated Steak n Shake restaurants during 2004 at an average cost of
$1.75 million, which includes the land, site improvements, building, and
equipment. This level of expansion will allow the Company to grow the business
in a controlled manner while still focusing on improving each and every guest
experience. The Company expects to fund this expansion by using existing cash
resources, combined with anticipated future cash flows from operations.
Net cash used in financing activities during 2003 totaled $6,781,000
primarily due to principal repayments on long-term debt and lease obligations.
During 2002, net cash used in financing activities of $12.3 million resulted
from stock repurchases of $19.7 million and repayments on long-term debt and
leases of $7.3 million, offset by proceeds from leases of $13.5 million. In 2002
and prior, the Company entered into sale/leaseback financing arrangements for
certain restaurant properties. These leases are for a primary term of 18 years
with four five-year renewal options which grant the Company the exclusive right
to operate the property for a minimum of 18 years with fixed rent plus a
percentage rent. During 2002, the Company entered into eleven sale/leaseback
transactions that generated proceeds of $13.2 million. Because operating cash
flows were adequate to fund its expansion in 2003, the Company suspended the use
of sale/leaseback transactions as a financing alternative. No such
sale/leaseback transactions were entered into during 2003, and the Company does
not currently anticipate entering into sale/leaseback transactions in 2004.
The Company's existing financing structure consists of a revolving line of
credit, senior note agreement, and capital leases, which provide for a
combination of near-term and long-term alternatives to fund its growth. The
$30,000,000 revolving credit agreement bears interest at LIBOR plus 75 basis
points, or the prime rate, at the Company's discretion, and matures in January
2005. No amounts were outstanding under this agreement at September 24, 2003 or
September 25, 2002; however, the Company had $2,110,000 in stand-by letters of
credit outstanding at September 24, 2003, which reduced the borrowing limit.
The Company also maintains $75,000,000 of availability under its amended
ten-year senior note agreement and private shelf facility. Borrowings under
this agreement bear interest at market rates at the time of borrowings and are
generally repayable over ten years. At September 24, 2003, loans outstanding
under this agreement totaled $24,419,000, at an average fixed rate of 7.58%, and
an average remaining life of four years. The Company expects to fund its 2004
principal payments on debt and capital leases of $11,616,000 by using existing
cash resources and/or anticipated future cash flows from operations.
The Company's debt agreements contain covenants that require the Company to
maintain certain financial ratios related to debt service coverage and maximum
debt levels. During 2003 and 2002, the Company was in compliance with the
covenants, and anticipates compliance in future periods based on anticipated
earnings and debt repayments terms.
The Company has a stock repurchase program that provides for the purchase
of up to 4,000,000 shares of its outstanding common stock. During the year
ended September 24, 2003, the Company repurchased a total of 98,800 shares at
cost of $988,000. Since the plan's inception, the Company has repurchased a
total of 3,376,689 shares at a cost of $36,242,000. The repurchased shares will
be used in part to fund the Company's employee stock plans including the
Company's Stock Option Plans, Capital Appreciation Plan and Employee Stock
Purchase Plan.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
Certain statements contained in this report and in other reports and proxy
statements the Company files with the SEC contain forward-looking information.
In general, forward-looking statements include estimates of future revenues,
cash flows, capital expenditures, or other financial items, and assumptions
underlying any of the foregoing. Forward-looking statements reflect
management's current expectations regarding future events and use words such as
"anticipate", "believe", "expect", "may", "will", and other similar terminology.
These statements speak only as of the date they are made and involve a number of
risks and uncertainties that could cause actual results to differ materially
from those expressed in the forward-looking statements. Several factors, many
beyond our control, could cause actual results to differ significantly from our
expectations. Some of these factors are as follows:
- - Our ability to attract and retain guests to our restaurants is dependent upon our ability to execute our operating
initiatives effectively. If we do not deliver an enjoyable dining experience to our guests they may not return to our
restaurants, and our results may be negatively affected.
- - Changes in economic conditions may impact our guests' discretionary spending. If guests choose not to spend money
on dining at our restaurants, our results may be negatively affected.
- - Our unique advertising and marketing programs are an essential part of our plan to attract and retain guests. If these
programs do not continue to be as effective at attracting guests in the future as they have been in the past, our results
may be negatively affected.
- - Many of our restaurants are located in the Midwest portion of the United States. During the first and second fiscal
quarters, many restaurants face harsh winter conditions, which may make it more difficult for guests to visit our
restaurants. If guests are unable to visit our restaurants, our sales and operating results may be negatively affected.
- - Our associates are essential to the operation of our restaurants and our ability to deliver an enjoyable dining
experience to our guests. If we are unable to attract and retain enough qualified restaurant personnel at a reasonable
cost, and if they do not deliver an enjoyable dining experience, our results may be negatively affected.
- - Our menu offerings include Steakburgers, chicken sandwiches, french fries, and hand-dipped milk shakes. If consumer
tastes change and we are unable to meet these changes in demand, our results may be negatively affected.
- - Our expansion plans are based on identifying opportunities for new restaurants in new and existing markets. Our plans
also involve identifying opportunities for new franchisees and expanding relationships with current franchisees. If the
Company and its franchisees are unable to locate suitable sites for new restaurants, negotiate acceptable lease or purchase
terms, and meet construction schedules, our expansion plans may be negatively affected.
- - Many of our associates are paid wages that relate to federal and state minimum wage rates. Any changes in minimum wage
rates may significantly increase our restaurant operating costs.
- - Changes in accounting standards promulgated by the Financial Accounting Standards Board, the Securities and Exchange
Commission, and the American Institute of Certified Public Accountants may affect our reported financial results.
The foregoing list of important factors is not intended to be all-inclusive as
other general market, industry, economic, and political factors may also impact
our operations. Readers are cautioned not to place undue reliance on our
forward-looking statements, which speak only as of the date of this report, as
we assume no obligation to update forward-looking statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. SFAS No. 146 is
effective for exit and disposal activities that are initiated after December 31,
2002. The adoption of this statement did not have a material effect on the
consolidated financial statements. The Company accounted for the provision for
restaurant closings of $5,200,000 in accordance with SFAS No. 146.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of SFAS No. 5,
57, and 107 and the rescission of FASB Interpretation No. 34. FIN 45 clarifies
the requirements of SFAS No. 5, Accounting for Contingencies, relating to a
guarantor's accounting for, and disclosure of, the issuance of certain types of
guarantees. The disclosure requirements in this interpretation are effective
for financial statements of interim and annual periods ending after December 15,
2002. The adoption of the recognition and measurement provisions of this
statement did not have a material effect on the consolidated financial
statements.
In November 2002, the EITF reached a consensus on EITF 02-16, Accounting by
a Reseller for Cash Consideration Received from a Vendor. EITF 02-16 addresses
the classification of cash consideration received from vendors in a reseller's
consolidated financial statements. The guidance related to income statement
classification is to be applied in annual and interim financial statements for
agreements entered into, or modifications of existing agreements, after January
1, 2003. The adoption of this statement did not have a material effect on the
consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, which amends SFAS No. 123, Accounting
for Stock-Based Compensation, to provide alternative methods for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements of the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The new
disclosure requirements of this statement are included in the consolidated
financial statements.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), Consolidation
of Variable Interest Entities, an interpretation of ARB 51. The primary
objective of FIN 46 is to provide guidance on the identification and
consolidation of variable interest entities, or VIE's, which are entities for
which control is achieved through means other than through voting rights. The
adoption of this statement did not have a material effect on the consolidated
financial statements.
FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------
The Steak n Shake Company
(Years ended September 24, 2003, September 25, 2002 and September 26, 2001)
2003 2002 2001
------------- ------------- -------------
Revenues:
Net sales . . . . . . . . . . . . . . $495,276,837 $455,359,393 $441,512,565
Franchise fees. . . . . . . . . . . . 3,826,718 3,655,070 3,678,277
------------- ------------- -------------
Total revenues . . . . . . . . . . 499,103,555 459,014,463 445,190,842
Costs and Expenses:
Cost of sales . . . . . . . . . . . . 113,496,038 105,325,485 105,088,792
Restaurant operating costs. . . . . . 245,524,172 222,433,486 219,558,410
General and administrative. . . . . . 37,908,447 34,214,802 31,924,150
Depreciation and amortization . . . . 24,169,474 23,095,399 20,952,880
Marketing . . . . . . . . . . . . . . 18,856,484 16,062,012 15,439,532
Interest. . . . . . . . . . . . . . . 13,390,635 14,072,120 12,850,991
Rent. . . . . . . . . . . . . . . . . 8,308,972 7,407,722 6,611,888
Provision for restaurant closings . . 5,200,000 - -
Pre-opening costs . . . . . . . . . . 1,889,044 2,212,381 2,720,689
Other income, net . . . . . . . . . . (2,063,846) (1,853,152) (2,322,374)
------------- ------------- -------------
Total costs and expenses . . . . . 466,679,420 422,970,255 412,824,958
------------- ------------- -------------
Earnings Before Income Taxes . . . . . . 32,424,135 36,044,208 32,365,884
Income Taxes . . . . . . . . . . . . . . 11,485,000 12,955,000 11,570,000
------------- ------------- -------------
Net Earnings . . . . . . . . . . . . . . $ 20,939,135 $ 23,089,208 $ 20,795,884
============= ============= =============
Basic Earnings Per Common and
Common Equivalent Share . . . . . . . $ .78 $ .83 $ .72
Diluted Earnings Per Common and
Common Equivalent Share . . . . . . . $ .77 $ .83 $ .72
Weighted Average Shares and Equivalents:
Basic . . . . . . . . . . . . . . . . 27,010,024 27,814,482 28,707,389
Diluted . . . . . . . . . . . . . . . 27,110,065 27,985,911 28,715,770
<FN>
See accompanying notes.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
- -------------------------------------------------
The Steak n Shake Company
(September 24, 2003 and September 25, 2002)
2003 2002
-------------- --------------
Assets:
Current Assets Cash, including cash equivalents of $22,975,000 in 2003
and $3,225,000 in 2002 . . . . . . . . . . . . . . . . . . . . . . . . $ 24,794,540 $ 5,286,311
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . 949,000 611,092
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,470,976 2,955,049
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,757,275 5,206,161
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 2,470,000 2,764,000
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 1,814,206 1,805,111
-------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 39,255,997 18,627,724
-------------- --------------
Property and Equipment
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,779,311 128,354,629
Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,370,353 125,113,260
Land and leasehold improvements. . . . . . . . . . . . . . . . . . . . 91,793,031 86,764,055
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,194,528 134,277,901
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . 8,274,263 11,995,758
-------------- --------------
506,411,486 486,505,603
Less accumulated depreciation and amortization . . . . . . . . . . . . (145,532,776) (126,783,897)
-------------- --------------
Net property and equipment . . . . . . . . . . . . . . . . . . . . . . 360,878,710 359,721,706
-------------- --------------
Net Leased Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,721,063 4,079,558
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,779,813 13,466,001
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 414,635,583 $ 395,894,989
============== ==============
Liabilities and Shareholders' Equity:
Current Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,460,997 $ 14,695,102
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,718,439 28,387,780
Current portion of senior note . . . . . . . . . . . . . . . . . . . . 8,215,397 3,960,317
Current portion of obligations under leases. . . . . . . . . . . . . . 3,400,847 3,248,277
Total current liabilities. . . . . . . . . . . . . . . . . . . . 61,795,680 50,291,476
-------------- --------------
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,876,000 5,062,000
Deferred Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,887 537,138
Obligations Under Leases . . . . . . . . . . . . . . . . . . . . . . . . . . 145,124,559 148,531,256
Senior Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,203,175 24,418,571
Commitments and Contingencies
Shareholders' Equity:
Common stock - $.50 stated value, 50,000,000 shares
authorized - shares issued: 30,332,839 in 2003
and 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,166,420 15,166,420
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 123,179,523 123,334,412
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,113,794 67,175,420
Less: Unamortized value of restricted shares . . . . . . . . . . . . . . . . (195,173) (324,374)
Treasury stock - at cost: 3,264,165 shares in 2003;
3,374,606 shares in 2002. . . . . . . . . . . . . . . . . . . . . . . . (37,650,282) (38,297,330)
-------------- --------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . 188,614,282 167,054,548
-------------- --------------
Total liabilities and shareholders' equity.. . . . . . . . . . . $ 414,635,583 $ 395,894,989
============== ==============
<FN>
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------
The Steak n Shake Company
(Years ended September 24, 2003, September 25, 2002 and September 26, 2001)
2003 2002 2001
------------- ------------- -------------
Operating Activities:
Net earnings. . . . . . . . . . . . . . . . . . . . $ 20,939,135 $ 23,089,208 $ 20,795,884
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . 24,169,474 23,095,399 20,952,880
Provision for deferred income taxes. . . . . . . (1,892,000) (1,297,000) 1,884,000
Provision for restaurant closings. . . . . . . . 5,200,000 - -
Changes in receivables and inventories . . . . . (1,067,041) 2,115,989 3,023,610
Changes in other assets. . . . . . . . . . . . . (2,442,414) (1,501,589) (155,068)
Changes in accounts payable and accrued expenses 6,252,999 9,223,548 (1,681,258)
(Gain) loss on disposal of property. . . . . . . (457,403) 289,395 (57,665)
------------- ------------- -------------
Net cash provided by operating activities . . . . . 50,702,750 55,014,950 44,762,383
------------- ------------- -------------
Investing Activities:
Additions of property and equipment . . . . . . . . (30,707,476) (41,350,633) (39,910,397)
Proceeds from sale of short-term investments. . . . 171,092 9,270,000 2,000,000
Purchase of short-term investments. . . . . . . . . (509,000) (6,380,000) (5,500,000)
Purchase of long-term investments . . . . . . . . . - (10,000,000) -
Proceeds from long-term investments called. . . . . 5,000,000 - -
Net proceeds from disposals . . . . . . . . . . . . 1,632,258 2,351,761 4,044,516
------------- ------------- -------------
Net cash used in investing activities . . . . . . . (24,413,126) (46,108,872) (39,365,881)
------------- ------------- -------------
Financing Activities:
Proceeds from long-term debt. . . . . . . . . . . . - - 5,000,000
Net payments on line of credit. . . . . . . . . . . - - (12,695,000)
Principal payments on long-term debt. . . . . . . . (3,960,316) (3,960,318) (2,142,857)
Proceeds from equipment and property leases . . . . - 13,510,911 23,138,802
Principal payments on lease obligations . . . . . . (3,254,127) (3,357,655) (3,088,769)
Proceeds from exercise of stock options . . . . . . 166,853 124,861 29,010
Stock repurchases . . . . . . . . . . . . . . . . . (988,439) (19,701,977) (10,247,066)
Proceeds from employee stock purchase plan. . . . . 1,254,634 1,049,275 1,259,781
Shareholder rights plan . . . . . . . . . . . . . . - - (113,047)
------------- ------------- -------------
Net cash (used in) provided by financing activities (6,781,395) (12,334,903) 1,140,854
------------- ------------- -------------
Increase (Decrease) in Cash and Cash Equivalents. . . 19,508,229 (3,428,825) 6,537,356
Cash and Cash Equivalents at Beginning of Year. . . . 5,286,311 8,715,136 2,177,780
------------- ------------- -------------
Cash and Cash Equivalents at End of Year. . . . . . . $ 24,794,540 $ 5,286,311 $ 8,715,136
============= ============= =============
<FN>
See accompanying notes.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ---------------------------------------------------
The Steak n Shake Company
(Years ended September 24, 2003, September 25, 2002 and September 26, 2001)
Unamortized
Additional Value of
Common Paid-In Retained Restricted Treasury Stock
Stock Capital Earnings Shares Shares Amount
---------------------------------------------------------------------------
Balance at September 28, 2000. . . . . . . . . . . .$14,960,304 $121,412,602 $23,290,328 $(1,307,031) 819,238 $ (9,039,834)
Net earnings . . . . . . . . . . . . . . . . . . . 20,795,884
Shares issued under stock option plan. . . . . . 7,830 114,975
Shares exchanged to exercise stock options . . . . 133,893 (1,203,199)
Shares reissued to exercise stock options. . . . . (131,190) 1,109,408
Shares repurchased under Stock Buyback Program . . 1,247,660 (10,247,066)
Shares granted under Capital Appreciation Plan . . (803,250) (102,000) 803,250
Shares forfeited under Capital Appreciation Plan . 174,813 14,600 (174,813)
Changes in unamortized value of shares granted
under Capital Appreciation Plan 1,007,677
Tax effect relating to stock options . . . . . . . (44,289)
Shares issued for Employee Stock Purchase Plan . . 107,675 1,152,107
Other. . . . . . . . . . . . . . . . . . . . . . . (113,050)
----------------------------------------------------------------------------
Balance at September 26, 2001. . . . . . . . . . . .15,075,809 122,522,345 44,086,212 (927,791) 1,982,201 (18,752,254)
Net earnings . . . . . . . . . . . . . . . . . . . 23,089,208
Shares exchanged to exercise stock options . . . . 136,556 (1,863,426)
Shares reissued to exercise stock options. . . . . (229,480) 1,988,287
Shares repurchased under Stock Buyback Program . . 1,488,329 (19,701,977)
Shares granted under Capital Appreciation Plan . . (32,040) (3,000) 32,040
Changes in unamortized value of shares granted
under Capital Appreciation Plan 635,457
Tax effect relating to stock options . . . . . . . (146,597)
Shares issued for Employee Stock Purchase Plan . 90,611 958,664
----------------------------------------------------------------------------
Balance at September 25, 2002. . . . . . . . . . . .15,166,420 123,334,412 67,175,420 (324,374) 3,374,606 (38,297,330)
Net earnings . . . . . . . . . . . . . . . . . . . 20,939,135
Shares exchanged to exercise stock options . . . . 126,577 (1,787,379)
Shares reissued to exercise stock options. . . . . (168,214) 1,954,232
Shares repurchased under Stock Buyback Program . . 98,800 (988,439)
Shares granted under Capital Appreciation Plan . . (214,000) (20,000) 214,000
Changes in unamortized value of shares granted
under Capital Appreciation Plan 343,201
Tax effect relating to stock options . . . . . . . (154,889)
Shares issued for Employee Stock Purchase Plan . . (147,604) 1,254,634
Other. . . . . . . . . . . . . . . . . . . . . . . (761)
-------------------------------------------------------------------------------
Balance at September 24, 2003. . . . . . . . . . $15,166,420 $123,179,523 $88,113,794 $(195,173) 3,264,165 $(37,650,282)
==============================================================================
<FN>
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
The Steak n Shake Company
(Years ended September 24, 2003, September 25, 2002 and September 26, 2001)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of The Steak n Shake Company (the
"Company") include the accounts of The Steak n Shake Company (parent) and its
wholly owned subsidiaries. All inter-company items have been eliminated in
consolidation. The Company's fiscal year ends on the last Wednesday in
September. As of September 24, 2003, the Company operated 413 Steak n Shake
restaurants, including 57 franchised units, through its wholly owned subsidiary
Steak n Shake Operations, Inc. The Company's business, operating and franchising
Steak n Shake restaurants, constitutes a single segment pursuant to the
provisions of Statement of Financial Accounting Standards No. 131, Disclosure
About Segments of an Enterprise and Related Information.
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
The Company's policy is to invest cash in excess of operating requirements
in income-producing investments. Cash equivalents primarily consist of bank
repurchase agreements, U.S. Government securities, and money market accounts,
all of which have maturities of three months or less. Short-term investments at
September 24, 2003 and September 25, 2002 primarily consisted of commercial
papers, which were available for sale. Cash equivalents and short-term
investments are carried at cost, which approximates market value due to their
short maturities.
RECEIVABLES
The Company carries its accounts receivable at cost less an allowance for
doubtful accounts. On a periodic basis, the Company evaluates its accounts
receivable and establishes an allowance for doubtful accounts, based on a
history of past write-offs and collections and current credit conditions. The
allowance for doubtful accounts was $121,000 at September 24, 2003 and $314,000
at September 25, 2002.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are recognized on the straight-line
method over the estimated useful lives of the assets (15 to 25 years for
buildings and land improvements, and 3 to 10 years for equipment). Leasehold
improvements are amortized on the straight-line method over the shorter of the
estimated useful lives of the improvements or the term of the related leases.
The Company reviews for impairment its long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. For purposes of assessment, assets are evaluated on a
restaurant-by-restaurant basis, the lowest level for which there are
identifiable cash flows. If the future undiscounted cash flows of an asset are
less than the recorded value, an impairment is recorded.
LONG-TERM INVESTMENTS
The Company has long-term investments in government debt securities. These
investments are classified as held-to-maturity and are carried at amortized
cost, without recognition of gains or losses that are deemed to be temporary,
because the Company has both the intent and ability to hold these investments
until they mature.
REVENUE RECOGNITION
The Company records revenues from restaurant sales upon performance of
service, except for gift certificate revenues which are deferred until the
certificates are redeemed at the restaurants.
FRANCHISE FEES
Unit franchise fees and area development fees are recorded as revenue when
the related restaurant begins operations. Royalty fees based on franchise sales
are recognized as revenue on the accrual basis of accounting.
INSURANCE RESERVES
The Company self-insures a significant portion of expected losses under its
workers' compensation, general liability, and auto liability insurance programs,
and records a reserve for its estimated losses on all unresolved open claims and
its estimated incurred but not reported claims at the anticipated cost to the
Company.
EARNINGS PER SHARE
Earnings per share of common stock is based on the weighted average number
of shares outstanding during the year. The following table presents a
reconciliation of basic and diluted weighted average common shares as required
by Statement of Financial Accounting Standards No. 128, Earnings Per Share.
2003 2002 2001
---------- ---------- ----------
Basic earnings per share:
Weighted average common shares . . . . . . . . 27,010,024 27,814,482 28,707,389
---------- ---------- ----------
Diluted earnings per share:
Weighted average common shares . . . . . . . . 27,010,024 27,814,482 28,707,389
Dilutive effect of stock options . . . . . . . 100,041 171,429 8,381
---------- ---------- ----------
Weighted average common and incremental shares 27,110,065 27,985,911 28,715,770
========== ========== ==========
At the end of fiscal year 2003, options to purchase 919,922 shares of common
stock were outstanding but were not included in the computation of diluted
shares because the options' exercise prices were greater than the fair value.
At the end of fiscal years 2002 and 2001, options to purchase 557,917 and
1,063,077 shares, respectively, were not included in the computation because the
options' exercise prices were greater than fair value.
STOCK-BASED COMPENSATION
The Company accounts for its Stock Option and Employee Stock Purchase Plans
under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees. No stock-based employee compensation
cost for options issued is reflected in net earnings, as all options are granted
under those plans at an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net earnings and earnings per share if the Company had applied the
fair value recognition provisions of Financial Accounting Standards Board
("FASB") Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.
2003 2002 2001
------------ ------------ ------------
Net earnings, as reported. . . . . . . . . . . $20,939,135 $23,089,208 $20,795,884
Less proforma compensation expense, net of tax (1,156,427) (1,587,747) (1,028,254)
------------ ------------ ------------
Proforma net earnings. . . . . . . . . . . . . $19,782,708 $21,501,461 $19,767,630
============ ============ ============
Basic earnings per share, as reported. . . . . $ .78 $ .83 $ .72
Proforma basic earnings per share. . . . . . . $ .73 $ .77 $ .69
Diluted earnings per share, as reported. . . . $ .77 $ .83 $ .72
Proforma diluted earnings per share. . . . . . $ .73 $ .77 $ .69
EMPLOYEES' 401(K) AND PROFIT SHARING PLAN
The Steak n Shake Company Employees' 401(k) and Profit Sharing Plan (the
"Plan") is a defined contribution plan covering substantially all employees of
the Company after they have attained age 21 and completed one year of service
and allows employees to defer up to 20% of their salaries. Company
contributions to the Plan, which are subject to the discretion of the Board of
Directors, amounted to $1,854,000 for 2003, $1,858,000 for 2002, and $1,695,000
for 2001.
ADVERTISING EXPENSES
Advertising costs are charged to expense at the latter of the date the
expenditure is incurred, or the date the promotional item is first aired in the
case of television commercials.
USE OF ESTIMATES
Preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes.
Actual results could differ from the estimates.
RECLASSIFICATIONS
Certain amounts in the 2002 and 2001 financial statements have been
reclassified to conform to the 2003 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which nullifies Emerging Issues
Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS No. 146 is effective for exit and disposal
activities that are initiated after December 31, 2002. The adoption of this
statement did not have a material effect on the consolidated financial
statements. The Company accounted for the provision for restaurant closings of
$5,200,000 in accordance with SFAS No. 146.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of SFAS No. 5,
57, and 107 and the rescission of FASB Interpretation No. 34. FIN 45 clarifies
the requirements of SFAS No. 5, Accounting for Contingencies, relating to a
guarantor's accounting for, and disclosure of, the issuance of certain types of
guarantees. The disclosure requirements in this interpretation are effective
for financial statements of interim and annual periods ending after December 15,
2002. The adoption of the recognition and measurement provisions of this
statement did not have a material effect on the consolidated financial
statements.
In November 2002, the EITF reached a consensus on EITF 02-16, Accounting by
a Reseller for Cash Consideration Received from a Vendor. EITF 02-16 addresses
the classification of cash consideration received from vendors in a reseller's
consolidated financial statements. The guidance related to income statement
classification is to be applied in annual and interim financial statements for
agreements entered into, or modifications of existing agreements, after January
1, 2003. The adoption of this statement did not have a material effect on the
consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, which amends SFAS No. 123, Accounting
for Stock-Based Compensation, to provide alternative methods for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements of the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The new
disclosure requirements of this statement are included in the consolidated
financial statements.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, an interpretation of ARB 51. The
primary objective of FIN 46 is to provide guidance on the identification and
consolidation of variable interest entities, or VIE's, which are entities for
which control is achieved through means other than through voting rights. The
adoption of this statement did not have a material effect on the consolidated
financial statements.
2. RESTAURANT CLOSINGS
During 2003, the Company identified nine under-performing restaurants for
disposal (seven owned units and two leased units). In connection with this
decision, the Company recorded a pre-tax charge of $5,200,000 ($3,360,000 net of
income taxes), which reflects a write-down of related property and equipment to
its fair value, lease termination costs, and closing costs. The components of
the restaurant closing charge are as follows:
Write-down of property and equipment to fair value $4,860,000
Lease termination costs. . . . . . . . . . . . . . 225,000
Closing costs. . . . . . . . . . . . . . . . . . . 115,000
----------
$5,200,000
==========
The assets and liabilities of the affected restaurants shown in the consolidated
statements of financial position consist of the following at September 24, 2003:
$3,567,000 property and equipment, $225,000 lease termination liability, and
$115,000 closing costs. The Company is currently seeking buyers for these
properties, and anticipates completing the disposal of the properties within the
next twelve to eighteen months. The Company does not anticipate any significant
additional future payments related to the store closings, other than the amounts
accrued.
3. OTHER ASSETS
2003 2002
----------- -----------
Long-term investments $ 5,001,280 $ 9,996,281
Other assets. . . . . 4,463,999 2,035,683
Intangible assets . . 1,314,534 1,434,037
----------- -----------
$10,779,813 $13,466,001
=========== ===========
Long-term investments consist of U.S. Government guaranteed debt securities
with a fair value of $5,292,950 at September 24, 2003, and $10,372,000 at
September 25, 2002. Gross unrealized gains on held-to-maturity securities were
$292,000 at September 24, 2003 and $376,000 at September 25, 2002. Intangible
assets consist of a $1,480,000 right to operate that is recorded at cost and is
being amortized $119,000 per year over its estimated life of twelve years.
Accumulated amortization totaled $165,466 at September 24, 2003 and $45,963 at
September 25, 2002.
4. ACCRUED EXPENSES
2003 2002
----------- -----------
Salaries and wages $10,328,593 $ 7,200,641
Taxes payable. . . 12,309,466 11,885,339
Insurance accruals 3,518,724 5,630,273
Other. . . . . . . 6,561,656 3,671,527
----------- -----------
$32,718,439 $28,387,780
=========== ===========
5. INCOME TAXES
The components of the provision for income taxes consist of the following:
2003 2002 2001
------------ ------------ ------------
Current:
Federal. . . . . . . . . . . . . . . . . . $11,465,000 $12,341,000 $ 8,412,000
State. . . . . . . . . . . . . . . . . . . 1,912,000 2,333,000 1,870,000
Deferred . . . . . . . . . . . . . . . . . . . (1,892,000) (1,719,000) 1,288,000
------------ ------------ ------------
Total income taxes . . . . . . . . . . . . . . $11,485,000 $12,955,000 $11,570,000
============ ============ ============
The reconciliation of effective income tax is:
2003 2002 2001
------------ ------------ ------------
Tax at U.S. statutory rates. . . . . . . . . . $11,348,000 $12,615,000 $11,328,000
State income taxes, net of federal benefit . . 1,243,000 1,376,000 1,359,000
Employer's FICA tax credit . . . . . . . . . . (942,000) (676,000) (620,000)
Jobs tax credit. . . . . . . . . . . . . . . . (237,000) (260,000) (347,000)
Other. . . . . . . . . . . . . . . . . . . . . 73,000 (100,000) (150,000)
------------ ------------ ------------
Total income taxes . . . . . . . . . . . . . . $11,485,000 $12,955,000 $11,570,000
============ ============ ============
Income taxes paid totaled $13,615,000 in 2003, $11,810,000 in 2002, and
$8,704,000 in 2001.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the currently enacted tax rates, and laws that will be in effect when the
differences are expected to reverse. The Company's net deferred tax liability
consists of the following:
2003 2002
------------ ------------
Deferred tax assets:
Insurance reserves . . . . . . . . $ 1,390,000 $ 2,224,000
Provision for restaurant closings. 1,840,000 -
Capital leases . . . . . . . . . . 171,000 251,000
Capital appreciation plans . . . . 582,000 915,000
Discontinued operations. . . . . . - 243,000
Accrued vacation . . . . . . . . . 712,000 430,000
Other. . . . . . . . . . . . . . . 825,000 341,000
------------ ------------
Total deferred tax assets. . . 5,520,000 4,404,000
------------ ------------
Deferred tax liabilities:
Depreciation . . . . . . . . . . . 5,894,000 6,510,000
Other. . . . . . . . . . . . . . . 32,000 192,000
------------ ------------
Total deferred tax liabilities 5,926,000 6,702,000
------------ ------------
Net deferred tax liability . . . . . . (406,000) (2,298,000)
Less current portion . . . . . . . . . 2,470,000 2,764,000
------------ ------------
Long-term liability. . . . . . . . . . $(2,876,000) $(5,062,000)
============ ============
6. LEASED ASSETS AND LEASE COMMITMENTS
The Company leases certain of its physical facilities under non-cancelable
lease agreements. Steak n Shake restaurant leases typically have initial terms
of eighteen to twenty-five years and renewal terms aggregating twenty years or
more. These leases require the tenant to pay real estate taxes, insurance and
maintenance costs. Certain leased facilities, which are no longer operated by
the Company's subsidiaries, but have been subleased to third parties, are
classified below as non-operating properties. Minimum future rental payments
have not been reduced by minimum sublease rentals of $778,000 related to
operating leases receivable under non-cancelable subleases. The property and
equipment cost related to the finance obligations and capital leases as of
September 24, 2003, is as follows: $72,720,000 buildings, $60,493,000 land,
$30,235,000 leasehold improvements, and $28,638,000 accumulated depreciation.
At September 24, 2003, obligations under non-cancelable finance obligations,
capital leases, and operating leases (excluding real estate taxes, insurance and
maintenance costs) require the following minimum future rental payments:
Finance Capital Operating
Obligations Leases Leases
--------------------------------------------------------------------
Operating Operating Operating Non-Operating
Property Property Total Property Property
------------ ---------- ------------ ----------- ---------------
Year
- ----------------------------------------------
2004 . . . . . . . . . . . . . . . . . . . . . $ 14,701,462 $ 901,021 $ 15,602,483 $ 7,200,389 $ 115,616
2005 . . . . . . . . . . . . . . . . . . . . . 14,701,462 867,386 15,568,848 7,070,026 115,616
2006 . . . . . . . . . . . . . . . . . . . . . 14,738,172 497,923 15,236,095 6,877,172 115,616
2007 . . . . . . . . . . . . . . . . . . . . . 14,746,631 404,540 15,151,171 6,815,524 115,616
2008 . . . . . . . . . . . . . . . . . . . . . 14,741,631 403,145 15,144,776 6,711,059 115,616
After 2008 . . . . . . . . . . . . . . . . . . 116,417,624 2,828,367 119,245,991 40,161,569 199,992
------------ ---------- ------------
Total minimum future rental payments . . . . . 190,046,982 5,902,382 195,949,364 $74,835,739 $ 778,072
========================
Less amount representing interest. . . . . . . 125,365,215 2,371,804 127,737,019
------------ ---------- ------------
Total principal obligations under leases . . . 64,681,767 3,530,578 68,212,345
Less current portion . . . . . . . . . . . . . 2,965,513 435,334 3,400,847
------------ ---------- ------------
Non-current principal obligations under leases 61,716,254 3,095,244 64,811,498
Residual value at end of lease term. . . . . . 80,313,061 - 80,313,061
------------ ---------- ------------
Obligations under leases . . . . . . . . . . . $142,029,315 $3,095,244 $145,124,559
============ ========== ============
During 2002, the Company received net proceeds from sale and leaseback
transactions aggregating $13,198,000 involving 11 properties. Since these
transactions are treated as finance obligations, they are classified as a
liability in the statement of financial position.
Contingent rent totaling $556,000 in 2003, $468,000 in 2002, and $397,000
in 2001 is recorded in rent expense in the accompanying consolidated statements
of earnings.
7. DEBT
REVOLVING CREDIT AGREEMENT
The Company's $30,000,000 Revolving Credit Agreement matures in January
2005 and bears interest at a rate based on LIBOR plus 75 basis points or the
prime rate, at the election of the Company. There were no outstanding
borrowings under the Revolving Credit Agreement at September 24, 2003, but the
Company had $2,110,000 in stand-by letters of credit outstanding, which reduced
the borrowing limit.
SENIOR NOTE AGREEMENT
The Company's amended and restated Senior Note Agreement and Private Shelf
Facility (the "Senior Note Agreement") allows for additional borrowing of
$75,000,000 until September 20, 2005. As of September 24, 2003, the Company had
borrowings of $24,418,572 with an average interest rate of 7.58% under its
original $75,000,000 Senior Note Agreement. Interest rates are fixed and based
upon market rates at the time of borrowing. Amounts maturing in fiscal years
2004 through 2008 are as follows: $8,215,000, $6,775,000, $3,857,000,
$2,429,000, and $1,714,000, respectively.
Interest capitalized in connection with financing additions to property and
equipment amounted to $476,000 and $545,000 in 2003 and 2002, respectively.
Interest paid on debt amounted to $2,181,000 in 2003, $2,428,000 in 2002, and
$3,165,000 in 2001.
The carrying amounts for debt reported in the consolidated statement of
financial position do not differ materially from their fair market values at
September 24, 2003.
The Revolving Credit Agreement and Senior Note Agreement are unsecured and
contain restrictions, which among other things, require the Company to maintain
certain financial ratios. The Company is in compliance with all restrictive
covenants under these borrowing agreements at September 24, 2003.
8. RELATED PARTY TRANSACTIONS
A member of the Board of Directors is the President of Kelley Restaurants,
Inc. ("KRI"), a franchisee. In accordance with its franchise agreement, the
Company collects initial franchise fees, royalty fees, and advertising fees from
its franchisees. The Company recorded revenues from KRI totaling $1,392,000,
$1,208,000, and $1,125,000 during 2003, 2002, and 2001, respectively. Amounts
receivable from KRI at September 24, 2003 and September 25, 2002 were $361,000
and $224,000 and are recorded in receivables, net in the consolidated statements
of financial position.
9. COMMON STOCK PLANS
CAPITAL APPRECIATION PLAN
The Capital Appreciation Plan was established in 1997 and provides for
tandem awards of Common Stock (restricted shares) and book units of up to
567,187 shares and related units. These awards are restricted for a period of
three years and are returnable to the Company if the grantee is not employed
(except for reasons of retirement, permanent disability or death) by the Company
at the end of the period. The stock is valued at 100% of market value at the
date of grant, and the book units, which are granted in an equal number to the
shares of stock, provide for a cash payment at the end of the three-year period
equal to the sum of the net change in book value per share and the common stock
dividends paid per share during the period, as adjusted for stock
dividends/splits. The total value of the stock grant (based upon market value at
the date of the grant) is recorded to unamortized value of restricted shares and
is amortized to compensation expense ratably over the three-year period. The
total number of shares and book units granted under the 1997 Plan for which
restrictions have not lapsed was 122,500 at September 24, 2003, 102,500 at
September 25, 2002, and 202,625 at September 26, 2001. At September 24, 2003,
129,622 shares were reserved for future grants. The average remaining period for
which restrictions had not lapsed at September 24, 2003 was 0.47 years. The
amount charged to expense under the Plans was $452,000 in 2003, $799,000 in
2002, and $1,249,000 in 2001.
EMPLOYEE STOCK OPTION PLAN
The 1997 Employee Stock Option Plan (the "1997 Plan"), provides for the
granting of 1,745,313 stock options. The 1997 Plan provides for the issuance of
stock options exercisable as to 20% on the date of grant and 20% on each
anniversary of the date of grant thereafter until fully exercisable. The
options expire either five or ten years from the date of grant and are issued
with an exercise price equal to the fair market value of the underlying stock on
the date of issuance. Options are granted under the 1997 Plan to officers and
key employees selected by the Stock Option Committee. As of September 24, 2003,
1,114,545 options have been granted under the 1997 Plan and 866,888 are
exercisable.
The 1995 Employee Stock Option Plan (the "1995 Plan"), provides for the
granting of 686,297 stock options. Options granted under the 1995 Plan are
primarily incentive stock options exercisable on the same terms as the 1997
Plan. Options were granted under the 1995 Plan to officers and key employees
selected by the Stock Option Committee. At September 24, 2003, 634,543 options
have been granted under the 1995 Plan and 44,820 are exercisable.
The following table summarizes the options activity under the 1997 and 1995
Plans:
Shares Weighted Average Price
---------- -----------------------
Outstanding at September 28, 2000 1,146,324 $ 12.00
Fiscal 2001 Activity:
Granted . . . . . . . . . 125,391 9.07
Exercised . . . . . . . . (133,804) 8.47
Canceled. . . . . . . . . (126,875) 10.77
----------
Outstanding at September 26, 2001 1,011,036 12.27
Fiscal 2002 Activity:
Granted . . . . . . . . . 591,646 12.67
Exercised . . . . . . . . (203,957) 8.69
Canceled. . . . . . . . . (19,277) 10.74
----------
Outstanding at September 25, 2002 1,379,448 12.99
Fiscal 2003 Activity:
Granted . . . . . . . . . 100,424 13.80
Exercised . . . . . . . . (114,382) 11.63
Canceled. . . . . . . . . (135,501) 14.35
----------
Outstanding at September 24, 2003 1,229,989 $ 13.03
NONEMPLOYEE DIRECTOR STOCK OPTION PLANS
The Company's Nonemployee Director Stock Option Plans provide for the grant
of nonqualified stock options at a price equal to the fair market value of the
Common Stock on the date of the grant. Options outstanding under each Plan are
exercisable as to 20% on the date of grant and 20% on each anniversary of the
date of grant thereafter until fully exercisable. The options expire five years
from the date of grant.
The following table summarizes information about the Nonemployee Director
Stock Option Plans at September 24, 2003.
Plan Year Options Issued Options Exercisable Exercise Price
-------------- ------------------- ---------------
2003. . . 46,000 9,200 $ 9.97
2002. . . 35,000 14,000 $ 9.99
2000. . . 19,800 13,200 $ 11.08
As of September 24, 2003, 3,300 options under the 2000 plan year have been
exercised. No options have been canceled under the Plans since their inception.
The following table summarizes information regarding stock options
outstanding at September 24, 2003 under the employee and nonemployee director
stock option plans.
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------------------------------------------
Number Weighted Average Weighted
Range of Outstanding at Remaining Weighted Average Number Exercisable at Average
Exercise Prices September 24, 2003 Contractual Life Exercise Price September 24, 2003 Exercise Price
- --------------------------------------------------------------------------------------------------------------------
$ 5 - $10 433,940 2.92 years $ 9.70 231,530 $ 9.51
$10 - $15 416,463 3.19 years $12.77 371,663 $12.99
$15 - $20 477,086 4.36 years $15.70 344,915 $15.93
- --------------------------------------------------------------------------------------------------------------------
$ 5 - $20 1,327,489 3.52 years $12.82 948,108 $13.21
At September 25, 2002, 963,538 options were exercisable at a weighted
average exercise price of $13.11, and at September 26, 2001, 862,332 options
were exercisable at a weighted average exercise price of $11.81. Stock options
are issued pursuant to the employee and nonemployee director stock option plans
with exercise prices equal to the market value on the date of grant. As
discussed in Note 1, the Company measures stock compensation in accordance with
APB Opinion No. 25. Had the Company measured stock compensation in accordance
with fair value provisions of SFAS No. 123, the effect on net earnings and
earnings per share would have been as summarized in Note 1. In calculating the
impact of options granted, the Company has estimated the fair value of each
grant using the Black-Scholes option-pricing model.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options. The fair value estimates are
based on the following assumptions:
2003 2002 2001
-------- -------- --------
Risk-free interest rate 2.0% 2.0% 4.0%
Dividend yield. . . . . 0.0% 0.0% 0.0%
Expected volatility . . 42% 42% 53%
Expected life in years. 5 Years 5 years 5 years
EMPLOYEE STOCK PURCHASE PLAN
Under the Employee Stock Purchase Plan, a maximum of 1,852,545 shares of
Common Stock are available for issuance to all eligible employees of the Company
as determined by the Board of Directors (125,821 per year for 1993 to 1997;
154,688 per year for 1998 to 2002; and 150,000 per year for 2003 to 2005).
Unissued shares in any given calendar year are available to increase the annual
maximum number of shares issuable in subsequent years. Employees may purchase
shares of Common Stock through payroll deductions from 2% to 10% of compensation
up to a maximum fair market value of $10,000 or 1,000 shares per year. Shares
are purchased at a 15% discount from the lesser of the share price on the first
or last day of the year. Shares purchased under the plan were 147,604 in 2003,
181,222 in 2002, and 215,232 in 2001.
10. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal matters in the normal course of
business. In the opinion of management, the ultimate outcome of these matters
will not have a material adverse effect on the financial position or results of
operations of the Company.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter(1)
First Second Third Fourth(2)
------------- ------------ ------------ -------------
2003
- ----
Revenues. . . . . . . . . . . . . . . . . . . . . . . . $ 102,054,759 $149,672,170 $121,268,526 $ 126,108,100
Costs and Expenses. . . . . . . . . . . . . . . . . . . 96,764,703 139,017,498 110,209,160 120,688,059
Earnings Before Income Taxes. . . . . . . . . . . . . . 5,290,056 10,654,672 11,059,366 5,420,041
Net Earnings. . . . . . . . . . . . . . . . . . . . . . 3,402,056 6,838,672 7,089,366 3,609,041
Diluted Earnings per Common and Common Equivalent Share $.13 $.25 $.26 $.13
2002
- ----
Revenues. . . . . . . . . . . . . . . . . . . . . . . . $ 100,744,850 $140,291,170 $108,412,717 $ 109,565,726
Costs and Expenses. . . . . . . . . . . . . . . . . . . 94,358,317 130,044,113 98,213,843 100,353,982
Earnings Before Income Taxes. . . . . . . . . . . . . . 6,386,533 10,247,057 10,198,874 9,211,744
Net Earnings. . . . . . . . . . . . . . . . . . . . . . 4,090,033 6,540,557 6,511,374 5,947,244
Diluted Earnings per Common and Common Equivalent Share $.15 $.23 $.23 $.22
(1) The Company's fiscal year includes quarters consisting of 12,16,12 and
12 weeks, respectively.
(2) In 2003, the Company recorded a charge of $5,200,000 ($3,360,000 net of
income taxes or $.13 per diluted share) related to the disposal of nine
under-performing restaurants.
36
MANAGEMENT'S REPORT
- --------------------
The Steak n Shake Company
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of The Steak n Shake Company is responsible for the
preparation, integrity and objectivity of the Company's financial statements and
the other financial information in this report. The financial statements were
prepared in conformity with accounting principles generally accepted in the
United States of America and reflect in all material respects the Company's
consolidated results of operations and the financial position for the periods
shown based upon management's best estimates and judgments.
In addition, management maintains internal control systems which are
adequate to provide reasonable assurance that assets are safeguarded from loss
or unauthorized use and which produce records adequate for the preparation of
financial information. There are limits inherent in all systems of internal
accounting control based on the recognition that the cost of such systems should
not exceed the benefits to be derived. We believe the Company's systems provide
the appropriate balance. The effectiveness of the control systems is supported
by the selection and training of qualified personnel, an organizational
structure that provides an appropriate division of responsibility and a strong
budgetary system of control. Deloitte & Touche LLP, our independent auditors,
has been engaged to express an opinion regarding the fair presentation of the
Company's financial condition and operating results. As part of its audit of
the Company's financial statements, Deloitte & Touche LLP considered the
Company's system of internal controls to the extent it deemed necessary to
determine the nature, timing and extent of its audit tests.
The Audit Committee of the Board of Directors, which is composed of four
outside directors, serves in an oversight role to assure the integrity and
objectivity of the Company's financial reporting process. The Committee meets
periodically with representatives of management and the independent auditors to
review matters of a material nature related to auditing, financial reporting,
internal accounting controls and audit results. The independent auditors have
free access to the Audit Committee. The Audit Committee is also responsible for
the selection of the independent auditors.
/s/ Alan B. Gilman /s/ James W. Bear
Chairman and Senior Vice President
Chief Executive Officer and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
The Steak n Shake Company
We have audited the accompanying consolidated statement of financial
position of The Steak n Shake Company and subsidiaries (the "Company") as of
September 24, 2003, and the related consolidated statements of earnings,
shareholders' equity and cash flows for the year ended September 24, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2003 consolidated financial statements present fairly, in
all material respects, the consolidated financial position of The Steak n Shake
Company and subsidiaries at September 24, 2003, and the results of their
operations, and their cash flows for the year ended September 24, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
November 20, 2003
Indianapolis, Indiana
- ------
REPORT OF INDEPENDENT AUDITORS
- ---------------------------------
Shareholders and Board of Directors
The Steak n Shake Company
We have audited the accompanying consolidated statements of financial
position of The Steak n Shake Company as of September 25, 2002 and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the two years in the period ended September 25, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Steak n Shake
Company at September 25, 2002, and the consolidated results of their operations
and their cash flows for each of the two years in the period ended September 25,
2002, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Indianapolis, Indiana
December 3, 2002
EXHIBIT 4.10
September 17, 2003
The Steak N Shake Company
500 Century Building
36 South Pennsylvania Street
Indianapolis, Indiana 46204
Attention: Chief Financial Officer
Re: Amendment No. 3 to Amended and Restated Note Purchase
and Private Shelf Agreement dated as of September 20, 2002
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Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Note Purchase and
Private Shelf Agreement dated as of September 20, 2002 (as amended prior to the
date hereof, the "Note Agreement") among The Steak N Shake Company, an Indiana
corporation (the "Company"), Prudential Investment Management, Inc., The
Prudential Insurance Company of America and each Prudential Affiliate which may
become a party thereto in accordance with the terms thereof (collectively,
"Prudential"), pursuant to which the Company issued and sold and Prudential
purchased the Company's senior fixed rate notes from time to time. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned to such terms in the Note Agreement.
Pursuant to the request of the Company and in accordance with the
provisions of paragraph 11C of the Note Agreement, the parties hereto agree as
follows:
SECTION 1. Amendment. From and after the date this letter becomes
---------
effective in accordance with its terms, the Note Agreement is amended as
follows:
1.1 Clause (iv) and (v) of paragraph 6C(1) (Liens) of the Note
Agreement are amended and restated to read in their entirety as follows:
"(iv) Liens securing Debt of the Company or Subsidiaries evidenced by
Capitalized Lease Obligations existing on September 24, 2003, in individual
principal amounts not in excess of the amounts outstanding on September 24, 2003
(which principal amounts in aggregate shall be less than $150,000,000) and as
identified on Schedule 6C(1) hereto, and
---------------
(v) other Liens securing Debt which is permitted by clause (iii) or (v)
of paragraph 6C(2) (notwithstanding the foregoing in this clause (v), the Lien
basket provided in this clause (v) shall not be used to provide credit
enhancements (in any form, including Liens and Guarantees) to the lenders under
the Company's primary bank facility);".
1.2 Clauses (iv) and (v) of paragraph 6C(2) (Debt) of the Note
Agreement are amended and restated to read in their entirety as follows:
"(iv) Debt of the Company or Subsidiaries evidenced by Capitalized
Lease Obligations existing on September 24, 2003, in individual principal
amounts not in excess of the amounts outstanding on September 24, 2003 (which
principal amounts in aggregate shall be less than $150,000,000) and as
identified on Schedule 6C(1) hereto, and
---------------
(v) other Debt of the Company or Subsidiaries, so long as Priority Debt at
no time exceeds 20% of Consolidated Tangible Net Worth (notwithstanding the
foregoing in this clause (v), the Debt basket provided in this clause (v) shall
not be used to provide credit enhancements (in any form, including Liens and
Guarantees) to the lenders under the Company's primary bank facility);".
1.3 The proviso appearing at the end of paragraph 6C(2) (Debt) of the
Note Agreement is deleted in its entirety and the following is hereby
substituted therefor:
"provided that for each period of four (4) consecutive fiscal quarters
commencing with the period of four (4) consecutive fiscal quarters ending on (or
nearest to) September 30, 2002, the Company shall, at all times maintain a ratio
of Consolidated Debt to consolidated EBITDA (the "LEVERAGE RATIO") not exceeding
2.75 to 1.00; further provided that for purposes of the Leverage Ratio, all
current and future Capitalized Lease Obligations shall, for so long as the
underlying leases are in effect, at all times be included in the computation of
Consolidated Debt of the Company notwithstanding any subsequent reclassification
of such Capitalized Lease Obligations as operating leases under generally
accepted accounting principles (and with respect to such rental obligations that
are reclassified as operating leases, the amount of such rental obligations
included in the computation of Consolidated Debt shall be the amount that would
otherwise be required to be capitalized in accordance with generally accepted
accounting principles if such rental obligations were in fact Capitalized Lease
Obligations (it being understood and agreed that if the Company and/or its
Subsidiaries has Capitalized Lease Obligations at the time of calculating the
capitalized amount of such operating leases, such calculation of the capitalized
amount of such operating leases shall be performed consistent with the
methodology used to calculate the capitalized amount of such Capitalized Lease
Obligations)). Together with the delivery of financial statements required by
paragraphs 5A(i) and (ii), for each Capitalized Lease Obligation reclassified as
an operating lease the Company will deliver to each Significant Holder an
Officer's Certificate demonstrating the computation (including disclosing the
discount rate used in each such computation) of the capitalized portion of such
operating lease required to be included in the computation of Consolidated Debt
for purposes of the Leverage Ratio pursuant to the immediately preceding
proviso."
1.4 The definition of "Capitalized Lease Obligations" in paragraph 10B
of the Note Agreement is amended and restated to read in its entirety as
follows:
"'CAPITALIZED LEASE OBLIGATION' shall mean any rental obligation which,
under generally accepted accounting principles, is or will be required to be
capitalized on the books of the Company or any Subsidiary, taken at the amount
thereof accounted for as indebtedness (net of interest expense) in accordance
with such principles; for the avoidance of doubt, such term includes all
"finance obligations" but excludes operating leases."
1.5 The definition of "Priority Debt" in paragraph 10B of the Note
Agreement is amended and restated to read in its entirety as follows:
"'PRIORITY DEBT' shall mean, as of any time of determination thereof, the
aggregate amount of (i) Debt of the Company which is secured by any Lien and
(ii) Debt of Subsidiaries (including any Debt of a Subsidiary which consists of
a Guarantee of Debt of the Company), excluding in each case any Debt described
in clause (i), (ii) or (iv) of paragraph 6C(2)."
1.5 Schedule 6C(1) to the Note Agreement is amended and restated to
read in its entirety as set forth on Exhibit A hereto.
----------
SECTION 2. REPRESENTATIONS AND WARRANTIES. The Company represents and
-------------------------------
warrants that (a) each representation and warranty set forth in paragraph 8 of
the Note Agreement is true and correct as of the date of execution and delivery
of this letter by the Company with the same effect as if made on such date
(except to the extent such representations and warranties expressly refer to an
earlier date, in which case they were true and correct as of such earlier date);
and (b) after giving effect to the amendments set forth in Section 1 hereof, no
Event of Default or Default exists or has occurred and is continuing on the date
hereof.
SECTION 3. Condition Precedent. This letter shall become effective as of the
--------------------
date first written above upon the return by the Company to Prudential of a
counterpart hereof duly executed by the Company and Prudential. This letter
should be returned to Prudential Capital Group, Two Prudential Plaza, Suite
5600, Chicago, Illinois 60601, Attn.: Armando M. Gamboa.
SECTION 4. Reference to and Effect on Note Agreement. Upon the
-----------------------------------------------
effectiveness of this letter, each reference to the Note Agreement in any other
document, instrument or agreement shall mean and be a reference to the Note
Agreement as modified by this letter. Except as specifically set forth in
Section 1 hereof, the Note Agreement shall remain in full force and effect and
is hereby ratified and confirmed in all respects.
SECTION 5. Governing Law. THIS LETTER SHALL BE CONSTRUED AND ENFORCED
-------------
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW
OF THE STATE OF ILLINOIS (EXCLUDING ANY CONFLICTS OF LAW RULES WHICH WOULD
OTHERWISE CAUSE THIS AGREEMENT TO BE CONSTRUED OR ENFORCED IN ACCORDANCE WITH,
OR THE RIGHTS OF THE PARTIES TO BE GOVERNED BY, THE LAWS OF ANY OTHER
JURISDICTION).
The remainder of this page is intentionally left blank.
SECTION 6. Counterparts; Section Titles. This letter may be executed
-----------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which when taken together shall constitute but one and
the same instrument. Delivery of an executed counterpart of a signature page to
this letter by facsimile shall be effective as delivery of a manually executed
counterpart of this letter. The section titles contained in this letter are and
shall be without substance, meaning or content of any kind whatsoever and are
not a part of the agreement between the parties hereto.
Very truly yours,
PRUDENTIAL INVESTMENT MANAGEMENT, INC.
By:/s/ Mathew Douglass
-----------------
Name: Mathew Douglass
Title: Vice President
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ Mathew Douglass
------------------
Name: Mathew Douglass
Title: Vice President
Agreed and accepted:
THE STEAK N SHAKE COMPANY
By: /s/ James W. Bear
--------------------
Name: James W. Bear
Title: Senior Vice President, CFO
The Steak N Shake Company
September 17, 2003
Page 10
[F:\WORD\STEAK N SHAKE Amendment (September 2003) clean]
EXHIBIT A
TO AMENDMENT
SCHEDULE 6C(1)
--------------
CAPITALIZED LEASE OBLIGATIONS
-----------------------------
STEAK N' SHAKE, INC.
FINANCING LEASE OBLIGATIONS
PERIOD 12 ENDING BALANCE AND PERIOD 13 PROJECTION
BUILD TO SUIT LEASES - Only include the rent portion attributable to the building
PERIOD 12
TOTAL PERIOD 13
STORE LOCATION LANDLORD OBLIGATION PROJECTION
003 614 West Raab Road. . . . . . . Gerald W & Christine Strickland 886,704.12 869,955.00
007 2250 Mount Zion Road. . . . . . Foltz, Inc. 901,202.12 899,672.00
011 1709 South Neil Street. . . . . W G Properties 541,182.51 539,884.00
029 7230 Woodland Drive . . . . . . M&G Realty LLC 773,628.84 807,110.00
036 1501 East 86th Street . . . . . Brauvin Income Plus LP III LLC 656,552.84 653,928.00
044 9550 Natural Bridge . . . . . . Melvin Dubinsky, Trustee of the Revocable Living Trust 1,280,103.08 1,277,404.00
045 3549 North Lindbergh. . . . . . Harry Shapiro Jr Realty & Investment Co 2,126,472.16 809,617.00
055 7350 Gravois. . . . . . . . . . Melvin Dubinsky, Trustee of the Revocable Living Trust (1,440.62) 1,311,937.00
072 818 South Orlando Ave . . . . . Dorothy K McPherson Revocable Trust 1,047,362.27 1,045,848.00
073 2820 East Colonial Blvd . . . . Edward J and Mary J Picard 993,933.08 993,115.00
082 1450 East Fowler Avenue . . . . Louise S. Dibbs 638,438.99 636,536.00
159 8640 North Michigan Road. . . . Brauvin Income Plus LP III LLC 610,189.91 607,147.00
162 325 South Veterans Pkwy . . . . Sebring Assoc Ltd Pship 597,920.74 595,770.00
163 408 South Gilbert . . . . . . . Maravin Donald Lampert/Gloria Morgan 908,842.99 907,184.00
170 1211 North Keller . . . . . . . Terry M & Susan A Gold 495,913.10 494,592.00
172 130 North 44th Street . . . . . Rich Stieren 687,994.86 686,253.00
175 76 South Highway Drive. . . . . Brauvin Corp Lease Program IV LLC 971,159.83 968,169.00
177 7700 South Orange Blossom . . . B A Swartz & Ann Swartz 620,645.38 618,743.00
201 2712 West DeYoung Street. . . . Underwood Building Corp 685,419.26 683,664.00
204 2010 North Prospect . . . . . . Ross Mattis Properties, LLC 981,787.06 979,853.00
205 1365 East Main Street . . . . . Sebring Assoc Ltd Pship 803,365.25 801,491.00
208 1802 South Veterans . . . . . . Red Rock Co of IL 998,735.11 997,079.00
210 2675 Plainfield Road. . . . . . Bruce A Swartz "Trust" 1,079,264.54 1,079,417.00
211 2009 North Kenyon Road. . . . . Commerce Bank, Trustee - Jean Snyder 499,380.50 497,399.00
212 1400 Broadway East. . . . . . . Robert E Vescovo 831,263.03 829,535.00
213 10001 Wylie Drive . . . . . . . Red Rock Co of IL 1,050,640.08 1,048,923.00
214 4240 Venture Drive. . . . . . . Northpoint/Bartonville Joint Venture 985,398.14 983,298.00
215 5229 Elmore Avenue. . . . . . . Carson Corporation Trustee, Trust #80 909,469.06 907,956.00
219 16110 Harlem Avenue . . . . . . Gisela M Stern Cohen 1,130,903.29 1,129,248.00
220 7561 East State Street. . . . . R & G Investment Company, Inc. 1,165,378.45 1,163,429.00
221 290 South Randall Road. . . . . Woodridge Properties, LLC 1,052,187.65 1,050,430.00
225 1315 East Ireland Road. . . . . Nick Striglos 784,927.18 782,230.00
226 5415 Grape Road . . . . . . . . Elro Company 354,194.66 351,363.00
227 7485 Foltz Drive. . . . . . . . LPF Corporation 353,325.72 351,386.00
228 3250 Cassopolis Street. . . . . B A Swartz & Ann Swartz 687,731.82 685,614.00
230 6019 Illinois Road. . . . . . . The Estate of Donald E Balser 381,268.91 378,655.00
231 247 West Smith Valley Road. . . Harry Shapiro Jr Realty & Investment Co 778,079.86 776,486.00
233 10701 East Washington . . . . . GHSC Associates Ltd Pship 833,586.08 831,434.00
237 1185 Gravois Road . . . . . . . Holiday Mobile Home Park LLC 1,193,247.79 1,191,172.00
238 5885 Suemandy Drive . . . . . . Edward or Dorothy Willmering 930,333.82 927,569.00
239 2382 Troy Road. . . . . . . . . Southern Commercial 992,273.96 990,029.00
240 16051 Manchester. . . . . . . . Caplaco, Inc. 1,195,808.39 1,193,239.00
242 2101 Liberty Drive. . . . . . . Sebring Assoc Ltd Pship 863,569.85 861,865.00
243 103 North State Road 135. . . . Miran Investment Company & Mohr Family Partnership 796,867.09 795,243.00
244 518 Essex Drive . . . . . . . . Essex Investments, Inc. 373,981.12 372,093.00
245 3170 Towne Blvd.. . . . . . . . Julius Greenburg Trust 839,213.08 838,012.00
246 2655 Airport Rd . . . . . . . . J Dan Nic, LLC 904,946.56 903,469.00
247 4025 Elkhart Road . . . . . . . Miran Investment 811,404.58 810,217.00
249 4310 Southport Crossing . . . . Fran-Ray Investments 919,793.60 917,798.00
251 6208 Cambridge Way. . . . . . . EDD of Bloomington, LLC 876,159.08 874,236.00
254 1640 East Tipton Street . . . . Billy J. Coleman 782,157.57 781,770.00
255 2403 North Post Drive . . . . . Harry Shapiro, Jr. Realty and Investment Co 850,487.23 848,172.00
256 1460 Jungerman Road . . . . . . Bonhomme Associates Trust 915,317.64 913,198.00
259 3488 Alpine Ave . . . . . . . . A & R Development II, LLC 1,070,376.49 1,069,103.00
261 8157 East 96th Street . . . . . Holiday Mobile Home Park LLC 1,266,535.69 1,264,802.00
262 2998 Highway K. . . . . . . . . O'Fallon Crossing Estate Corp 506,417.81 504,764.00
263 681 Sycamore Street . . . . . . Kenrick A Jones 931,252.55 929,677.00
264 10625 US 36 East. . . . . . . . American Art Clay Co, Inc. 958,783.19 957,100.00
265 1485 West Main Street . . . . . Thomas and Adele Daake 1,062,660.36 1,061,119.00
266 200 Meijer Way. . . . . . . . . Rosemary Deedle, Trustee 759,127.27 757,612.00
267 8311 Old Troy Pike. . . . . . . Pontoni Land Holdings Family LP & KIR Huber Heights 1,045,501.94 1,044,168.00
268 1236 West State Road 32 . . . . Terry S Dunaway & Jan S Dunaway 809,771.57 808,166.00
269 2856 Center Drive . . . . . . . EDD of Bloomington, LLC 1,192,755.57 1,190,907.00
271 3800 Southwest College Road . . Nick Striglos 1,115,380.77 1,113,405.00
272 4325 Lake Mary West Boulevard . Bing S. Wong c/o Note World 1,003,389.62 1,001,649.00
273 120 Williamson Boulevard. . . . Bing S. Wong c/o Note World 908,243.79 906,415.00
275 1651 West New Haven . . . . . . Capital Land Company 1,192,362.05 1,189,921.00
276 790 Merritt Island Causeway . . Caplaco Five, Inc. 1,143,277.17 1,141,553.00
277 8115 Red Bug Lake Road. . . . . Sebring Assoc Ltd Pship 1,150,293.23 1,149,039.00
278 40 Towne Center Circle. . . . . Sanjust, LLC 1,170,410.64 1,168,731.00
279 927 Saxon Boulevard . . . . . . Southwest Bank 1,035,059.20 1,033,381.00
280 7101 West Colonial Drive. . . . William and Mildred Frein 1,326,579.08 1,324,541.00
282 1 Cypress Edge Drive. . . . . . Famlee Investment Co. 959,356.39 957,950.00
283 4500 Highway 17-92. . . . . . . Thomas C. Richards 1,097,227.06 1,095,685.00
284 10555 Ulmerton Road . . . . . . Patricia L. Bridgeforth, Trustee 1,187,677.86 1,186,041.00
285 4313 West Vine Street . . . . . William and Mildred Frein 1,214,081.60 1,211,830.00
286 2700 South Semoran Blvd.. . . . Raphael Family Real Estate, LLC & Carnac R.E. LLC 1,297,537.21 1,296,106.00
288 11306 Causeway. . . . . . . . . Bearheart Properties, Ltd 1,161,636.31 1,159,982.00
290 2624 South Western Avenue . . . John J Franks 743,294.08 741,792.00
291 6050 Howdershell Road . . . . . Janice Klaus 1,084,616.28 1,082,751.00
294 1080 El Jobean Road . . . . . . Terry S Dunaway & Jan S Dunaway 1,067,629.83 1,066,190.00
295 6380 Wilmington Pike. . . . . . Lucille J Dreisewerd 968,896.62 967,480.00
298 109 Regency Park. . . . . . . . Bonhomme Associates Trust 888,114.16 886,334.00
301 8420 Springboro Rd. . . . . . . Cary & Sheri Steffens 944,031.28 942,815.00
304 9116 US Highway 19. . . . . . . Tusker Port Richey LLC 1,200,603.17 1,199,001.00
305 1681 Wells Road . . . . . . . . St. Louis County Realty Co 1,043,737.19 1,042,396.00
307 4480 Park Street. . . . . . . . Sebring Assoc Ltd Pship 1,154,681.56 1,153,187.00
308 1620 North State Road 59. . . . Mavens Limited Partnership 955,645.50 953,768.00
310 9560 Regency Square . . . . . . William and Mildred Frein 1,129,741.99 1,128,437.00
311 1825 Barrington Road. . . . . . Higgins and Barrington Owners Assoc 1,255,563.47 1,253,955.00
313 719 Myatt Drive . . . . . . . . Stewart Campbell, Jr. & Mary H Campbell 843,057.22 841,575.00
314 2490 State Road 580 . . . . . . William and Mildred Frein 1,168,780.70 1,167,022.00
315 5401 Meijer Drive . . . . . . . Frederic J. Mohr, Robert S. Mohr & Miran Invest. Co. 914,295.34 912,899.00
316 12035 East Colonial . . . . . . RD or RK Martin 1,126,296.83 1,124,716.00
318 1251 Strongbow Center . . . . . The Southern Group, LLC 952,710.95 951,301.00
319 2000 North Carrothers . . . . . GENE L. VESCOVO IRREVOCABLE TRUST 1,057,369.37 1,055,897.00
320 9150 North Main Street. . . . . Thomas and Adele Daake 1,152,485.45 1,150,931.00
322 4333 Fox Valley Center. . . . . Thomas and Adele Daake 1,223,413.79 1,223,853.00
325 5000B Old Hickory Rd. . . . . . Imperial Catering Company, Inc. 901,156.12 898,944.00
326 2600 NW Federal . . . . . . . . Vista Plaza Ltd Pship 319,484.99 318,582.00
327 1100 Evansway Court . . . . . . Richland Trust - Donald W Barr Trust 1,045,973.25 1,044,466.00
329 6070 Gurnee Mills Circle. . . . Kevin & Carol Vescovo 1,102,600.84 1,100,805.00
331 4297 Cattlemen Road . . . . . . William and Mildred Frein 1,144,778.66 1,142,480.00
332 10650 US Highway 441. . . . . . Frederick Swarner 951,837.23 950,529.00
333 10181 Colerain Avenue . . . . . Timothy P. and Paula S. Heather 1,192,387.68 1,191,185.00
335 3906 South Florida Ave. . . . . Alicia Abels 1,184,556.13 1,182,852.00
336 335 Leonardwood Drive . . . . . Acreco Investment Co 907,664.88 906,303.00
338 1940 94th Court . . . . . . . . Victor F Donnelly and Agnes Donnelly 1,025,330.43 1,023,791.00
339 2100 N. Richmond Road . . . . . The Wayne R Meling Declaration of Trust 1,082,894.47 1,080,910.00
341 3714 SW 42nd Street . . . . . . Dorothy Papazian 1,112,026.43 1,110,460.00
342 16902 Clover Road . . . . . . . James E & Betty J Huffer 954,086.63 952,338.00
344 211 North Randell Road. . . . . Blue Ribbon Investments, LLC 1,140,534.23 1,138,886.00
349 3111 South Nieder Road. . . . . First National Bank of Olathe 995,338.20 993,903.00
350 8101 Dr. MLK Blvd . . . . . . . Alice Nisk and Ronald Nisk 1,150,587.48 1,149,262.00
360 304 SE M-291. . . . . . . . . . Edna Walke 1,313,662.70 1,311,688.00
362 2441 South Hamilton Road. . . . McKelvey Partnership, L.P. 1,074,193.20 1,072,870.00
367 6200 Lake Worth Rd. . . . . . . Stromboli USA, Inc 1,335,223.24 1,335,012.00
370 9500 NE Barry Road. . . . . . . Lawrence E Noll 1,230,357.27 1,228,732.00
375 1832 Alysheba Way . . . . . . . Madden Family LLC 494,480.62 493,948.00
377 1780 Hill Road. . . . . . . . . J.M. Muggs, Ltd. c/o John Rogers & Michelle Rogers 1,064,627.08 1,063,074.00
378 #178 EQUIPMENT. . . . . . . . . FCB Real Estate Holdings, LLC 46,222.93 44,928.36
379 PART OF #179 - CAPITAL LEASE. . PURCHASED BACK 3/25/99 12,902.69 12,526.84
383 5488 Cleveland Avenue . . . . . Simon Property Group, L.P. 497,199.90 495,882.00
384 16203 North Dale Mabry. . . . . CNL Group, Inc. 476,341.85 474,990.00
386 4047 Morse Crossing . . . . . . BMJ Company, Inc. 1,197,976.96 1,196,702.00
387 4620 Milan Rd . . . . . . . . . Howard Gross and Kathy Gross 1,033,720.65 1,032,167.00
388 12541 W. Sunrise Boulevard. . . Samuel R. Schwartz 1,698,281.41 1,696,015.00
392 5995 Sawmill Road . . . . . . . Sawmill Ridge Plaza, L.P. 226,808.11 226,244.00
396 1684 Home Avenue. . . . . . . . Ratkelis Family Trust, & Construction Invest. Corp. 1,012,037.08 1,010,596.00
398 5960 East Main Street . . . . . Sivad Investment Company 539,106.29 537,871.00
399 1881 Polaris Parkway. . . . . . N P Limited Partnership 514,386.98 513,142.00
402 10330 Cascade Crossing. . . . . Prior Management Company, LLC 1,424,277.83 1,422,468.00
404 4000 Medina Road (Suite 200). . MS at Montrose, LLC (formerly Montrose Development) 529,986.99 528,765.00
412 1721 NE Pine Island Rd. . . . . Industrail Square Corporation 1,016,999.91 1,015,795.00
424 1680 N. Orange Blossom Trail. . Underwood Building Corp 1,215,828.44 1,214,447.00
425 9530 Diamond Center Drive . . . Greg Vescovo 1,263,888.61 1,262,338.00
427 1095 Highway 28 . . . . . . . . Myers Y. Cooper Company 205,519.44 205,026.00
433 13133 S. Orange Blossom Trail . Diana Jaffe 1,263,591.47 1,262,104.00
437 5180 N.E. 24th Street . . . . . Sheri Steffens and Cary Steffens 901,702.89 900,346.00
449 12921 Sheldon Road. . . . . . . Leap Citrus Park, L.C. 663,149.09 661,609.00
450 1134 Pearce Boulevard . . . . . Pearce Plaza, L.L.C. 560,171.77 558,790.00
455 1415 Wanamaker Road . . . . . . Carnahan Family, L.P. & Raphael Family R.E., LLC 1,280,982.46 1,279,601.00
460 3165 Elida Road . . . . . . . . Dr. Kemi Azeez 521,833.79 520,751.00
462 17509 North Palm Village Place. Tampa S & S Realty,LLC 1,196,161.86 1,194,903.00
478 17312 Chesterfield Airport Rd.. THF Chesterfield Development,LLC 579,361.88 578,264.00
479 PART OF #179 - CAPITAL LEASE. . PURCHASED BACK 3/25/99 106,349.43 103,309.28
481 4666 Dressler Road. . . . . . . TTM I, Properties, LTD. 552,277.97 551,203.00
489 6786 Applewood Blvd . . . . . . V & V 224, Limited 553,265.97 552,198.00
496 17325 Loraine Avenue. . . . . . Lorain Rocky River Properties, Inc. 555,342.28 554,337.00
501 50840 Valley Frontage Road. . . THF St. Clairsville Development, LP 531,081.65 530,075.00
506 5555 Youngstown Warren Rd . . . Boulveard Centre Company 415,356.12 414,568.00
509 Suite 15, 10800 Pines Blvd. . . Cole Boulevard Holdings, LLC (formerly BSO Limited) 137,101.16 136,810.00
514 1951 Park Manor Boulevard . . . Park Associates 539,195.27 538,248.00
SIC PROPERTIES
---------------------------------
322 4545 Outer Loop Road. . . . . . STEAK N SHAKE INVESTMENT CO 856,538.87 854,369.00
323 2717 Hurstbourne Parkway. . . . STEAK N SHAKE INVESTMENT CO 900,400.24 898,902.00
324 980 East State Road 131 . . . . STEAK N SHAKE INVESTMENT CO 1,251,733.61 1,250,111.00
325 1627 North Dixie Boulevard. . . STEAK N SHAKE INVESTMENT CO 959,730.43 958,076.00
331 2296 Gunbarrel Road . . . . . . FRAN-RAY INVESTMENTS 826,557.41 826,180.00
402 10330 Cascade Crossing. . . . . Prior Management Company, LLC 948,630.11 946,911.00
2103 3004 Clark Lane . . . . . . . . Jewel Associates 1,008,685.22 1,004,896.00
TOTALS. . . . . . . . . . . . . . 144,513,801.19 144,277,267.48
STEAK N' SHAKE, INC.
CAPITAL LEASE OBLIGATIONS
PERIOD 12 ENDING BALANCE AND PERIOD 13 PROJECTION
CAPITAL LEASES - Only include the portion of the lease payment attributable to building
PERIOD 12
TOTAL PERIOD 13
store # LOCATION LANDLORD OBLIGATION PROJECTION
CAPITAL LEASES (RESTATEMENT)
070 1000 Int'l Speedway Blvd. . . Bronze/Daytona LP 565,927.74 563,527.00
168 3909 Mexico Road. . . . . . . James D Browne 269,715.30 267,283.00
206 5036 North Big Hollow . . . . The Big Hollow Outlot Land Trust 512,477.78 510,786.00
250 831 Clepper Lane. . . . . . . Retail Land Limited Partnership 616,089.67 614,038.00
257 7876 Tylersville Road . . . . Retail Land Limited Partnership 525,332.62 523,685.00
357 155 Tom Hill Senior Boulevard Treaty Fields 554,873.14 553,498.00
380 2091 Old Fort Parkway . . . . JDN Realty Investment, LP 537,942.94 536,645.00
OLD CAPITAL LEASES
038 1104 Brentwood Boulevard. . . Brentwood SNS Partnership 45,390.90 44,782.71
051 80 Homer Adams Parkway. . . . Steven Mathis & Gwenn Glassman 42,451.98 40,382.67
065 7310 South Lindbergh. . . . . Mathis Real Estate 8,091.25 6,095.99
154 3064 Crossroads . . . . . . . James Gilliand & Mark Loyd 50,303.65 48,481.54
178 7510 West 63rd St.. . . . . . FCB Real Estate Holdings, LLC 158,297.77 153,864.10
179 13621 E. 40th Highway . . . . PURCHASED BACK 3/25/99 165,408.69 160,472.61
981 1700 West Washington. . . . . Wayne H Marks/Willa Black 235,589.84 227,851.79
TOTALS . . . . . . . . . . . . . 4,287,893.27 4,251,393.41
EXHIBIT 10.12
THE STEAK N SHAKE COMPANY'S
2003 DIRECTOR STOCK OPTION PLAN
1. PURPOSE.
The purpose of The Steak n Shake Company's Director Stock Option Plan (the
"Plan") is to provide those directors of The Steak n Shake Company (the
"Company"), and its subsidiaries, who do not currently receive options under the
Company's Employee Stock Option Plan (the "Directors"), a favorable opportunity
to acquire shares of Common Stock of the Company, (the "Common Stock"), thereby
providing them with an increased incentive to work for the success of the
Company and better enabling the Company to attract and retain directors.
2. ADMINISTRATION OF THE PLAN.
It is intended that the Plan be administered as a non-discretionary plan,
and no person shall have any discretion as to:
(a) the selection of Directors to whom stock options under the Plan
shall be granted, and
(b) the number of shares granted to each Director under the Plan.
3. TAX STATUS.
Options granted under the Plan will not be entitled to special tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
4. ELIGIBILITY.
Options may be granted only to Directors of the Company who do not
currently receive options under the employee stock option plans sponsored by
the Company.
5. STOCK SUBJECT TO THE PLAN.
There shall be reserved for issuance upon the exercise of options granted
under the Plan 46,000 shares of Common Stock of the Company, with a stated value
of $.50 per share, which may be authorized but unissued shares or treasury
shares of the Company. Subject to Section 8 hereof, the shares for which
options may be granted under the Plan shall not exceed that number. If any
option shall expire or terminate for any reason without having been exercised in
full, the unpurchased shares subject thereto shall not become available for
other options under the Plan.
6. OPTION GRANTS AND OPTION PERIOD.
Without further action by the Board of Directors (the "Board"), each
Director listed below shall automatically receive an option to purchase the
shares of Common Stock indicated, subject to approval by the shareholders of the
Company at the 2003 Annual Meeting. Each option shall expire 5 years after date
of grant. Each option shall be subject to earlier termination as hereinafter
provided.
E.W. Kelley 5,000 shares
S. Sue Aramian 5,000 shares
Stephen Goldsmith 5,000 shares
Charles E. Lanham 5,000 shares
Ruth J. Person 5,000 shares
J. Fred Risk 5,000 shares
John W. Ryan 5,000 shares
James Williamson, Jr. 5,000 shares
Wayne L. Kelley 3,000 shares
Frank G. Regas 3,000 shares
7. TERMS OF OPTION.
Each option granted under the Plan shall be evidenced by a Stock Option
Agreement between the Company and the optionee and shall be subject to the
following terms and conditions:
(a) Option Price - The price to be paid for shares of Common Stock upon
------------
the exercise of each option shall be the fair market value on the date of grant.
As used herein, fair market value shall be the closing sales price for the
Common Stock on the New York Stock Exchange on the date of grant.
(b) Period for Exercise of Option - An option shall not be exercisable
------------------------------
after five (5) years from the date on which such option is granted.
(c) Purchase of Shares - The option price of each share of Common Stock
------------------
purchased upon exercise of an option shall be paid in full, in cash, at the time
of exercise; provided, however, that an optionee may exercise an option in whole
or in part by tendering to the Company whole shares of the Company's Common
Stock owned by him or her having a fair market value equal to the cash exercise
price of the shares with respect to which the option is being exercised. For
this purpose, any shares so tendered by an optionee shall be deemed to have a
fair market value equal to the average of the closing sales price for the stock
on the New York Stock Exchange for the five trading days preceding the date of
exercise of the option. An option may be exercised at any time and from time to
time during the term of the option as to any or all whole shares which have
become subject to purchase pursuant to the terms of the option or the Plan, but
not at any time as to fewer than 100 shares. An option may be exercised only by
written notice to the Company, mailed to the attention of the Secretary of the
Company, signed by the optionee (or such other persons as shall demonstrate to
the Company his or her right to exercise the option), specifying the number of
shares in respect of which it is being exercised, and accompanied by payment of
the option price for such shares. The certificate or certificates for the shares
as to which the option is exercised shall be registered in the name of the
person or persons exercising the option and shall be delivered to or upon the
order of that person or persons as soon as practicable after such written notice
is received by the Company. An optionee shall not have any rights of a
shareholder in respect of the shares subject to an option until a certificate
representing such shares has been issued.
(d) Termination of Option - If an optionee ceases to be a director of
-----------------------
the Company for any reason other than permanent and total disability (within the
meaning of Section 105(d)(4) of the Internal Revenue Code (the "Code"), or
death, any option granted to him or her shall forthwith terminate. Leave of
absence approved by the Board of Directors shall not constitute cessation of
directorship. If an optionee ceases to be a director of the Company by reason
of permanent or total disability (within the meaning of Section 105(d)(4) of the
Code), any option granted to him or her may be exercised by him or her in whole
or in part within one year after the date of termination as a director by reason
of such disability. In the event of death of an optionee while serving as a
director, any option granted to him or her may be exercised in whole or in part
at any time after the date of death by the executor or administrator of his or
her estate or by the person or persons entitled to the option by will or by
applicable laws of descent and distribution until the expiration of the option
term. Notwithstanding the foregoing provisions of this subsection (d), no option
shall, in any event, be exercisable after the expiration of the period set out
in subsection (b) above.
(e) Nontransferability of Option - An option may not be transferred by
-----------------------------
the optionee otherwise than by will or the laws of descent and distribution and,
during the lifetime of the optionee, shall be exercisable only by him or her.
(f) Investment Representations - Unless the shares subject to an option
--------------------------
are registered under the applicable federal and state securities laws, each
optionee by accepting an option shall be deemed to agree for himself or herself
and his or her legal representatives that any option granted to him or her and
any and all shares of Common Stock purchased upon the exercise of the option
shall be acquired for investment and not with a view to, or for the sale in
connection with, any distribution thereof. Any shares issued pursuant to an
exercise of an option may bear a legend evidencing these limitations on
transfer.
8. ADJUSTMENT OF SHARES.
In the event of any change after the effective date of the Plan in the
outstanding shares of Common Stock of the Company by reason of any
reorganization, recapitalization, stock split, stock dividend, combination of
shares, exchange of shares, merger or consolidation, liquidation, or any other
change after the effective date of the Plan in the nature of the shares of
Common Stock of the Company, the Company shall make a corresponding adjustment
in the number and kind of shares reserved under the Plan, and in the option
price and the number and kind of shares covered by outstanding options granted
and to be granted under the Plan as determined by the Board. Any determination
by the Board hereunder shall be conclusive.
9. AMENDMENT.
The Board may amend the Plan from time to time and, with the consent of the
optionee, the terms and provisions of an option, except that:
(a) the number of shares of stock which may be reserved for issuance
under the Plan may not be increased except as provided in Section 8 hereof;
(b) the option price under any option may not be reduced to less than
the fair market value of the Common Stock on the date such option is granted
except as provided in Section 8 hereof;
(c) the number of shares subject to options granted to any individual
Director, the date of such grants and the period during which an option may be
exercised may not be modified except as provided in Section 8 hereof, and
(d) the class of persons to whom options may be granted under the Plan may
not be modified.
No amendment of the Plan may, without the consent of optionees, make any
changes in any outstanding options theretofore granted under the Plan that would
adversely affect the rights of such optionees.
10. TERMINATION.
The Plan shall terminate upon the earlier to occur of (a) the date on which
all shares available for issuance under the Plan have been issued pursuant to
the exercise of options granted hereunder or (b) at any time upon determination
by the Board of Directors. Any termination by the Board of Directors shall not
affect the validity of any option theretofore granted under the Plan.
11. GOVERNING LAW.
The terms of any options granted hereunder and the rights and obligations
hereunder of the Company, the Directors and their successors in interest shall,
except to the extent governed by federal law, be governed by Indiana law.
12. GOVERNMENT AND OTHER REGULATIONS.
The obligations of the Company to issue or transfer and deliver shares
under the options granted under the Plan shall be subject to compliance with all
applicable laws, governmental rules and regulations, and administrative actions,
and the options granted pursuant to the Plan may not be exercised until all
applicable Federal and State securities requirements pertaining to the offer and
sale of securities issued pursuant to the Plan have been met.
13. EFFECTIVE DATE.
The Plan shall become effective when it has been approved by the Board;
provided, however, that the effectiveness of any grant of options pursuant to
the Plan prior to the 2003 Annual Meeting of Shareholders shall be conditional
upon the approval of the Plan by the holders of at least a majority of the
outstanding shares of the Company's stock entitled to vote at the 2003 Annual
Meeting.
EXHIBIT 10.13
July 25, 2002
Mr. Peter Dunn
1604 Grenoble Road
Columbus, OH 43221
Dear Peter:
We are most pleased that you have agreed to join The Steak n Shake Company as
President and Chief Operating Officer.
Your base salary will be $350,000 per year. You will participate in our
existing cash incentive bonus program in accordance with the provisions
applicable to your senior officer level. For the present fiscal year ending
September 25, 2002 your cash incentive will be guaranteed based on an annual
award of $150,000 prorated from your start date over the balance of the fiscal
year. Any unpaid portion will carry over at the annual rate of $150,000 during
your first 12 months of employment. Thereafter, you will be on the standard
executive incentive plan then in effect, which currently is at a 22%
participation level.
Our recommendations to the Board of the Directors of The Company, and to the
Stock Option Committee of The Company's Board of Directors, will be to grant you
20,000 Shares of The Steak n Shake Company common stock, under the Company's
Stock Option Plan. These grants will be subject to the normal vesting
provisions of that plan.
Our recommendation to the Board of Directors of The Company and to the Stock
Option Committee of The Company's Board of Directors will be to grant you 20,000
Book Units.
The Company will provide you with a Company Automobile (Cadillac SLS level) and
you will reimburse the Company for personal use of the vehicle in accordance
with the existing provisions of our Company automobile policy.
You will be eligible for all existing executive benefits of the Company from
your start date including group medical and life insurance, the separate Medical
Reimbursement Plan, Profit Sharing Plan (after one full year of employment),
AD&D and all other benefits applicable to your senior level.
We are confident that you will contribute importantly to the progress,
objectives and growth of the Company. We look forward to a long and productive
association.
Sincerely,
/s/ Alan B. Gilman
---------------------
Alan B. Gilman
August 6, 2002
Mr. Peter Dunn
1604 Grenoble Road
Columbus, OH 43221
ADDENDUM TO THE ORIGINAL LETTER PER OUR CONVERSATION ON
THURSDAY, AUGUST 1, 2002
In the event of your voluntary termination (except for retirement) or
termination initiated by the Company for any reason other than malfeasance, you
will receive severance benefits for a period of one year from the date of your
termination at your then-base compensation rate plus profit sharing and
incentive bonus payments for the year in which the termination occurs, prorated
to the date of termination.
Sincerely,
/s/ Alan B. Gilman
- ---------------------
EXHIBIT 14.01
THE STEAK N SHAKE COMPANY
STATEMENT OF POLICY ON CONFLICTS OF INTEREST
AND STANDARDS OF BUSINESS ETHICS
Business Transactions
- ----------------------
Officers and other employees who share a significant role in the management of
the Company, and who have authority to bind the Company on contracts or on other
obligations or to disburse or approve disbursal of the Company's funds, stand in
a fiduciary relationship to this Company and are bound to exercise their
business judgment wholly for its benefit. These officers and other employees,
or members of their immediate families, may from time to time have interests
directly or indirectly in businesses which enter into transactions with SNS.
Under such circumstances, a real or apparent conflict of interest may arise. At
any time when an employee's personal interest might influence his/her judgment
in matters of the Company's business, there is a potential conflict of interest.
In order to ensure the independent review of transactions between SNS and any
business in which an officer or employee or a member of their immediate family,
is directly or indirectly interested, management has established a policy that
all transactions between SNS and any such business enterprise be reviewed by
management prior to consummating the contract or other arrangement for the
transaction.
SNS employees who have dealings with SNS as individuals or as representatives of
other business firms, or whose individual business interests may directly or
indirectly affect or be affected by SNS, should be alert to potential conflicts
of interest. Any officer or employee of SNS who, as an individual or through
any other business firm in which he or an immediate family member is an officer,
director, significant stockholder, partner or investor, contemplates engaging in
a business transaction with SNS should timely submit the proposed transaction
together with a complete disclosure of all relevant facts to the Corporate
Office, (Attention: Vice President, General Counsel and Secretary) for review
and recommendation.
Examples of areas in which conflicts of interest may arise include:
A. Direct or indirect business dealings, such as:
(i) sales of goods, land or services,
(ii) leases of real estate or personal property,
(iii) loans.
B. Private transactions between an employee of SNS and a third party when
the third party also deals with SNS.
C. Business activities by an employee, the success of which indirectly
depends on the taking of certain actions by SNS (e.g., if SNS and one of its
employees owned adjoining tracts of land, and the improvements of the SNS tract
would enhance the value of the employee's tract, the employee would face a
conflict of interest in the decision as to whether SNS should improve its land).
D. An employee of SNS has a direct or indirect material interest in any
third party firm, organization or other entity doing business with SNS.
There are, of course, many other circumstances in which a conflict of interest
may arise. If an employee of SNS is in doubt as to whether there is a potential
conflict of interest, the proposed transaction should be submitted to
management.
Inside Information
- -------------------
It is the law and policy of SNS that an officer or employee may not for his own
account, or for that of anyone else, exploit information which he has received
in confidence in his position or disclose material inside information received
in his position which he knows or has reasonable grounds to believe is not
generally available to anyone outside SNS. He must refrain from the purchase or
sale of real or personal property, including stock of SNS, on the basis of
inside information.
Gratuities
- ----------
It is the policy of SNS that an officer or employee, or member of his immediate
family, may not accept gifts, gratuities, entertainment or favors of such value
or significance that their receipt might reasonably be expected to interfere
with the exercise of independent and objective judgment by such officer or
employee in making or participating in business decisions for SNS.
Reports
- -------
It is the policy of SNS that periodically, and not less frequently than
annually, each officer and other responsible employee shall disclose to SNS on
forms provided by the Company any interests referred to in "Business
Transactions" of this Statement of Policy and such other information as may be
required to fully disclose any conflicts of interest that an employee may have
in order to ensure conscious adherence by all Company people to the high
standards of integrity and business morals sought to be fostered.
Dated: February 25, 2002
/s/ Alan B. Gilman
President and Chief Executive Officer
THE STEAK N SHAKE COMPANY
POLICY ON IMPROPER PAYMENTS AND RECEIPTS,
ACCOUNTING PRACTICES AND POLITICAL CONTRIBUTIONS
We believe that all of the officers and employees of The Steak n Shake Company
("SNS") observe ethical principles and can be depended upon to act in the best
interests of the Company. However, a corporation has an obligation to make
certain that the actions of its officer and employees are above reproach and
suspicion. It is, therefore, appropriate to set forth the policy of SNS in the
matter of bribes, kickbacks, improper payments, rebates, discounts, gifts,
gratuities, accounting practices and political contributions. The policy is as
follows:
I. IMPROPER PAYMENTS AND RECEIPTS INCLUDING
BRIBES, KICKBACKS AND UNDER THE TABLE PAYMENTS
Public disclosures have revealed that it has been a widespread practice common
among many United States corporations, to make monetary payments, gifts,
gratuities or provide other inducements to influence the purchase or sale of
products and services. This practice is completely contrary to the standards of
our Company. Therefore, no officer or employee of SNS shall engage in the
following practices:
1. Make or approve payments or provide gratuities or other emoluments to
influence the behavior of public officials to obtain permits or other approvals;
2. Enter into any type of arrangement, formal or written to the effect that
this Company will make or receive payments, gratuities or other emoluments; or
3. Pay or receive any monetary payments, gifts or gratuities directly or
indirectly to, from or with any person, whether or not an employee of a
prospective purchaser or supplier, for the purpose of influencing the purchase
of products or services by SNS or the extension of special treatment to SNS.
These restrictions do not preclude expenditures allowed under the Company's
existing Statement of Policy on Conflicts of Interest and Standards of Business
Ethics.
II. IRREGULAR ACCOUNTING PRACTICES - SLUSH FUNDS
It has been the long-standing policy of the Company to require strict adherence
to the Company's prescribed accounting policies, practices and procedures. Our
accounting records shall always reflect accurately and completely the
transactions that have occurred and the irregular accounting practices
enumerated below are absolutely prohibited:
1. "Off-book" accounts and "slush funds". All petty cash funds must be
maintained and specifically accounted for in accordance with the Company's
regular accounting practices and procedures;
2. False entries in the books and records of the Company or supporting
documents, such as expense reports;
3. Overbilling arrangements; or
4. Payments made with the understanding that part or all of the payment is
to be used for purposes other than described by the documents supporting the
payment.
III. POLITICAL CONTRIBUTIONS
No political contribution of corporate funds shall be made, directly or
indirectly, by the Company to any candidate or political party in the United
States or in any state or subdivision thereof, and no unlawful payment by or on
behalf of the Company shall be made, directly or indirectly, to or for the
benefit of any official or employee of the government of the United States or of
any state or subdivision thereof or of any entity owned or controlled by such
government. Among other things, this prohibition applies to:
1. Contributions consisting of cash, gifts in kind, subscriptions,
memberships, loans, advances, purchases of tickets, purchase of advertising
space, furnishing of supplies and payment of expenses;
2. Contributions consisting of furnishing services of employees or
performing services;
3. Contributions, consisting of the use of Company motor vehicles, equipment
or real estate;
4. Undercharging for services or material sold or leased; and
5. Indirect as well as direct contributions.
These restrictions relate only to the use of Company funds and are in no way
intended to discourage officers or employees from voluntarily making personal
contributions from their own funds to candidates, political parties and
political organizations of their free choice.
IV. GENERAL
1. Applicability of Policy. The aforementioned policies are applicable to
all officers and employees of the Company, its subsidiaries and divisions.
2. Disclosure of Knowledge of a Prohibited Act. Any officer or employee
with information or knowledge of acts in violation of these policies shall
report the matter to the top management of the Company.
3. Questions Relating to Policies. The provisions of this policy statement
supersede prior policies and practices of the Company which conflict with this
policy statement. Anyone who has any question regarding this policy statement
or its application should review the matter with his supervisor. The services
of the General Counsel of the Company are available through normal channels for
advice and consultation in this respect.
4. Exceptions to these general policies may be made only on the written
authorization of the President of the Company.
5. Disciplinary Action. Anyone who violates the prohibition set forth in
this policy statement may be subject to disciplinary action including, when
appropriate, suspension or termination of employment. This provision does not
waive the Company's right to take legal action in the appropriate situations.
Date: February 25, 2002
/s/ Alan B. Gilman
President and Chief Executive Officer
EXHIBIT 21.01
THE STEAK N SHAKE COMPANY
State of
Wholly-owned Subsidiaries Incorporation or Organization
----------------------------------- -----------------------------
Steak n Shake Operations, Inc. Indiana
SNSTM, Inc. * Delaware
Steak n Shake, LP ** Indiana
Consolidated Specialty Restaurants, Inc. Indiana
SNS Investment Company Indiana
* Wholly-owned subsidiary of Steak n Shake Operations, Inc.
** Limited partnership owned 99% Steak n Shake Operations, Inc. and 1% by The
Steak n Shake Company
EXHIBIT 23.01
THE STEAK N SHAKE COMPANY
CONSENT OF DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements No.
333-53447, No. 333-88668, No. 033-61945, No. 333-33667 and No. 333-88670 on Form
S-8 of our report dated November 20, 2003, incorporated by reference in the
Annual Report on Form 10-K of The Steak n Shake Company for the year ended
September 24, 2003.
/s/ Deloitte & Touche LLP
Indianapolis, Indiana
December 8, 2003
EXHIBIT 23.02
THE STEAK N SHAKE COMPANY
CONSENT OF ERNST & YOUNG LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 333-53447 and No. 333-88668) pertaining to the Employee Stock
Purchase Plan, (Form S-8 No. 033-61945) pertaining to the 1995 Employee Stock
Option Plan and (Forms S-8 No. 333-33667 and No. 333-88670) pertaining to the
1997 Employee Stock Option Plan of Consolidated Products, Inc. of our report
dated December 3, 2002, with respect to the consolidated financial statements of
The Steak n Shake Company included in the Annual Report (Form 10-K) for the year
ended September 24, 2003.
/s/ Ernst & Young LLP
Indianapolis, Indiana
December 5, 2003
EXHIBIT 31.01
CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, Alan B. Gilman, certify that:
1. I have reviewed this annual report on Form 10-K of The Steak n Shake
Company;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: December 9, 2003
/s/ Alan B Gilman
--------------------
Alan B. Gilman
Chief Executive Officer
EXHIBIT 31.02
CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, James W. Bear, certify that:
1. I have reviewed this annual report on Form 10-K of The Steak n Shake
Company;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: December 9, 2003
/s/ James W. Bear
--------------------
James W. Bear
Senior Vice President and
Chief Financial Officer
EXHIBIT 32.01
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of The Steak n Shake Company (the
"Company") on Form 10-K for the period ending September 24, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), each
of the undersigned certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant
to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Alan B. Gilman
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Alan B. Gilman, Chief Executive Officer
December 9, 2003
/s/ James W. Bear
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James W. Bear, Senior Vice President and
Chief Financial Officer
December 9, 2003