SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE SIXTEEN WEEKS ENDED APRIL 12, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-8445
CONSOLIDATED PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
INDIANA 37-0684070
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
500 CENTURY BUILDING, 36 S. PENNSYLVANIA STREET
INDIANAPOLIS, INDIANA 46204
(317) 633-4100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Number of shares of Common Stock outstanding at May 12, 2000: 29,238,110
The Index to Exhibits is located at Page 14. Total Pages 20
CONSOLIDATED PRODUCTS, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Position -
April 12, 2000 (Unaudited) and September 29, 1999 3
Consolidated Statements of Earnings (Unaudited)
Sixteen and Twenty-Eight Weeks Ended April 12, 2000
and April 14, 1999 4
Consolidated Statements of Cash Flows (Unaudited)
Twenty-Eight Weeks Ended April 12, 2000 and
April 14, 1999 5
Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
APRIL 12, SEPTEMBER 29,
2000 1999
------------ ------------
(Unaudited)
ASSETS:
CURRENT ASSETS
Cash, including cash equiva-
lents of $2,265,000 in 1999 $ 1,672,599 $ 4,005,187
Receivables 2,679,829 5,088,622
Properties under sale and
leaseback contract 5,795,933 6,011,486
Inventories 5,246,714 4,849,216
Deferred income taxes 1,133,000 1,133,000
Other current assets 5,036,511 3,989,204
------------ ------------
Total current assets 21,564,586 25,076,715
------------ ------------
PROPERTY AND EQUIPMENT
Land 56,186,151 49,691,470
Buildings 50,000,982 41,799,306
Leasehold improvements 49,199,213 45,079,229
Equipment 111,759,519 99,761,598
Construction in progress 15,236,328 20,109,301
------------ ------------
282,382,193 256,440,904
Less accumulated depreciation
and amortization (81,147,293) (74,530,108)
------------ ------------
Net property and equipment 201,234,900 181,910,796
------------ ------------
LEASED PROPERTY
Leased property under capital
leases, less accumulated amorti-
zation of $7,719,825 in 2000
and $8,287,813 in 1999 1,520,669 1,745,671
Net investment in direct
financing leases 197,078 379,262
------------ ------------
Net leased property 1,717,747 2,124,933
------------ ------------
OTHER ASSETS 1,317,327 1,359,207
------------ ------------
$225,834,560 $210,471,651
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable $ 14,278,235 $ 18,416,612
Accrued expenses 19,917,861 19,148,669
Current portion of senior note 2,734,365 2,734,365
Current portion of obligations
under capital leases 1,035,226 1,248,681
------------ ------------
Total current liabilities 37,965,687 41,548,327
DEFERRED INCOME TAXES
AND CREDITS 6,518,091 6,226,172
OBLIGATIONS UNDER
CAPITAL LEASES 2,237,446 2,747,982
REVOLVING LINE OF CREDIT 10,230,000 --
SENIOR NOTE 24,482,064 24,482,064
SHAREHOLDERS' EQUITY
Common stock -- $.50 stated value
50,000,000 shares authorized --
shares issued: 29,829,906 in 2000;
29,587,890 in 1999 14,914,953 14,793,945
Additional paid-in capital 120,517,601 118,767,710
Retained earnings 17,899,971 7,452,544
Less: Unamortized value of
restricted shares (1,795,684) (2,498,091)
Treasury stock -- at cost
612,754 shares in 2000;
207,210 shares in 1999 (7,135,569) (3,049,002)
------------ ------------
Total shareholders' equity 144,401,272 135,467,106
------------ ------------
$225,834,560 $210,471,651
============ ============
SEE ACCOMPANYING NOTES.
3
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
SIXTEEN TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED
------------------------------ ------------------------------
APRIL 12, APRIL 14, APRIL 12, APRIL 14,
2000 1999 2000 1999
------------ ------------ ------------ ------------
REVENUES
Net sales $121,029,331 $102,385,994 $212,899,462 $180,253,276
Franchise fees 1,053,001 1,000,894 1,801,946 1,705,255
Other - net 738,443 660,600 1,304,861 1,100,382
------------ ------------ ------------ ------------
122,820,775 104,047,488 216,006,269 183,058,913
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales 29,718,344 26,341,148 52,473,041 46,223,191
Restaurant operating costs 59,240,529 48,018,019 103,721,765 84,452,469
General and administrative 9,576,968 8,123,490 16,425,085 13,740,862
Depreciation and amortization 4,909,099 4,088,735 8,512,257 7,148,812
Rent 5,136,513 4,213,918 8,789,220 7,155,008
Marketing 3,785,632 3,571,572 6,428,756 5,800,472
Pre-opening costs 1,234,655 1,700,499 2,373,244 2,589,020
Interest 617,246 644,750 966,610 1,178,591
Settlement of litigation -- 1,600,000 -- 1,600,000
------------ ------------ ------------ ------------
114,218,986 98,302,131 199,689,978 169,888,425
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING 8,601,789 5,745,357 16,316,291 13,170,488
INCOME TAXES 3,120,000 2,043,000 5,905,000 4,751,000
------------ ------------ ------------ ------------
EARNINGS BEFORE CUMULATIVE EFFECT
CHANGE IN ACCOUNTING 5,481,789 3,702,357 10,411,291 8,419,488
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR PRE-OPENING COSTS -- -- -- (1,750,430)
------------ ------------ ------------ ------------
NET EARNINGS $ 5,481,789 $ 3,702,357 $ 10,411,291 $ 6,669,058
============ ============ ============ ============
BASIC EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Before cumulative effect of
accounting change $ .19 $ .13 $ .35 $ .29
Cumulative effect of change in accounting
for pre-opening costs -- -- -- (.06)
------------ ------------ ------------ ------------
Basic earnings per share $ .19 $ .13 $ .35 $ .23
============ ============ ============ ============
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Before cumulative effect of
accounting change $ .19 $ .13 $ .35 $ .29
Cumulative effect of change in accounting
for pre-opening costs -- -- -- (.06)
------------ ------------ ------------ ------------
Diluted earnings per share $ .19 $ .13 $ .35 $ .23
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
AND EQUIVALENTS:
Basic 29,294,658 29,098,868 29,330,171 29,043,977
Diluted 29,408,776 29,602,025 29,440,067 29,525,669
SEE ACCOMPANYING NOTES.
4
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
TWENTY-EIGHT WEEKS ENDED
-------------------------------
APRIL 12, APRIL 14,
2000 1999
------------ ------------
OPERATING ACTIVITIES
Net earnings $ 10,411,291 6,669,058
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 8,512,257 7,148,812
Cumulative effect of change in accounting
for pre-opening costs -- 1,750,430
Changes in receivables and inventories 1,966,251 309,516
Changes in other assets (366,027) (1,721,565)
Changes in income taxes payable 1,423,663 194,926
Changes in accounts payable
and accrued expenses (4,815,058) (4,686,151)
Gain on disposal of property (284,529) (123,759)
------------ ------------
Net cash provided by operating activities 16,847,848 9,541,267
------------ ------------
INVESTING ACTIVITIES
Additions of property and equipment (38,597,307) (28,537,911)
Purchase of short-term investments -- (1,750,000)
Net proceeds from disposal of
property and equipment 11,844,573 11,459,446
------------ ------------
Net cash used in investing activities (26,752,734) (18,828,465)
------------ ------------
FINANCING ACTIVITIES
Principal payments on debt
and capital lease obligations (500,401) (484,433)
Net proceeds from revolving line of credit 10,230,000 --
Proceeds from equipment and property leases 358,599 381,862
Lease payments on subleased properties (336,379) (339,692)
Cash paid in lieu of fractional shares (12,372) (19,313)
Proceeds from exercise of stock options 254,332 111,844
Proceeds from employee stock purchase plan 1,237,782 1,150,780
Treasury stock repurchases (3,659,263) --
------------ ------------
Net cash provided by financing activities 7,572,298 801,048
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (2,332,588) (8,486,150)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,005,187 13,655,043
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,672,599 $ 5,168,893
============ ============
SEE ACCOMPANYING NOTES.
5
CONSOLIDATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements.
In the opinion of the Company, all adjustments (consisting of only normal
recurring accruals) considered necessary to present fairly the consolidated
financial position as of April 12, 2000, the consolidated statements of earnings
for the sixteen and twenty-eight weeks ended April 12, 2000 and April 14, 1999
and the consolidated statements of cash flows for the twenty-eight weeks ended
April 12, 2000 and April 14, 1999 have been included.
The consolidated statements of earnings for the sixteen and twenty-eight
weeks ended April 12, 2000 and April 14, 1999 are not necessarily indicative of
the consolidated statements of earnings for the entire year. For further
information, refer to the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended
September 29, 1999.
SEASONAL ASPECTS
The Company has substantial fixed costs which do not decline as a result of
a decline in sales. The Company's second fiscal quarter, which falls during the
winter months, usually reflects lower average weekly unit volumes, and sales can
be adversely affected by severe winter weather.
INTEREST AND INCOME TAXES PAID
Cash payments for interest during the sixteen weeks ended April 12, 2000 and
April 14, 1999 amounted to $854,000 and $861,000, respectively. Cash payments
for income taxes during the sixteen weeks ended April 12, 2000 and April 14,
1999 amounted to $4,488,000 and $4,248,000, respectively.
CHANGE IN ACCOUNTING
During 1999, the Company adopted the provisions of American Institute of
Certified Public Accountants Statement of Position 98-5, "Reporting on the Costs
of Start-up Activities" retroactive to the first quarter of fiscal 1999. This
new accounting standard requires the Company to expense all pre-opening costs as
they are incurred. The Company previously deferred such costs and amortized them
over the one-year period following the opening of each restaurant. The
cumulative effect of this change in accounting, net of income tax benefit, of
$1,750,000 ($0.06 per diluted share) was recorded in the first quarter of fiscal
1999.
STOCK DIVIDEND
The number of shares issued as of April 12, 2000 include 2,659,929 shares
which were distributed on January 12, 2000 pursuant to a 10% stock dividend
declared on December 15, 1999 to shareholders of record on December 29, 1999.
Net earnings per common and common equivalent share and weighted average shares
and equivalents for the sixteen and twenty-eight weeks ended April 14, 1999 have
been restated to give effect to the 10% stock dividend.
6
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Diluted earnings per common and common equivalent share is computed by
dividing net earnings by the weighted average number of outstanding and common
equivalent shares. Common equivalent shares include shares subject to purchase
under stock options.
The following table presents information necessary to calculate basic and
diluted earnings per common and common equivalent share:
SIXTEEN TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED
---------------------------- ----------------------------
APRIL 12, APRIL 14, APRIL 12, APRIL 14,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Weighted average shares outstanding-Basic 29,294,658 29,098,868 29,330,171 29,043,977
Share equivalents 114,118 503,157 109,896 481,692
----------- ----------- ----------- -----------
Weighted average shares and equivalents-Diluted 29,408,776 29,602,025 29,440,067 29,525,669
=========== =========== =========== ===========
Net earnings for basic and diluted
earnings per share computation $ 5,481,789 $ 3,702,357 $10,411,291 $ 6,669,058
=========== =========== =========== ===========
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In the following discussion, the term "same store sales" refers to the sales
of only those units open eighteen months as of the beginning of the current
fiscal period being discussed and which remained open through the end of the
fiscal period.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of items included in the Company's
consolidated statements of earnings for the periods indicated:
SIXTEEN TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED
--------------------- --------------------
4/12/00 4/14/99 4/14/99 4/8/98
------- ------- ------- ------
REVENUES
Net sales 98.5% 98.4% 98.6% 98.5%
Franchise fees 0.9 1.0 0.8 0.9
Other, net 0.6 0.6 0.6 0.6
----- ----- ----- -----
100.0 100.0 100.0 100.0
----- ----- ----- -----
COSTS AND EXPENSES
Cost of sales 24.5(1) 25.7(1) 24.6(1) 25.6(1)
Restaurant operating costs 48.9(1) 46.9(1) 48.7(1) 46.9(1)
General and administrative 7.8 7.8 7.6 7.5
Depreciation and amortization 4.0 3.9 3.9 3.9
Rent 4.2 4.0 4.1 3.9
Marketing 3.1 3.4 3.0 3.2
Pre-opening costs 1.0 1.6 1.1 1.4
Interest 0.5 0.6 0.4 0.6
Settlement of litigation -- 1.5 -- 0.9
----- ----- ----- -----
93.0 94.5 92.4 92.8
----- ----- ----- -----
EARNINGS BEFORE INCOME TAXES 7.0 5.5 7.6 7.2
INCOME TAXES 2.5 2.0 2.7 2.6
----- ----- ----- -----
EARNINGS BEFORE CUMULATIVE EFFECT
CHANGE IN ACCOUNTING 4.5 3.5 4.9 4.6
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR PRE-OPENING COSTS -- -- -- (1.0)
----- ----- ----- -----
NET EARNINGS 4.5% 3.5% 4.9% 3.6%
===== ===== ===== =====
----------
(1) Cost of sales and restaurant operating costs are expressed as a
percentage of net sales.
COMPARISON OF SIXTEEN WEEKS ENDED APRIL 12, 2000 TO SIXTEEN WEEKS ENDED APRIL
14, 1999
REVENUES
Net sales increased $18,643,000 to $121,029,000, or 18.2%, due to an
increase in Steak n Shake's net sales. The $18,426,000 increase, or 18.9%, in
net sales of Steak n Shake was due to the opening of new units within the last
year pursuant to the Company's expansion plan (non-same stores) and a 3.0%
increase in same store sales. The number of company-operated Steak n Shake
restaurants increased 19% to 293 at April 12, 2000 as compared to 247 at April
14, 1999. The increase in same store sales was attributable to a 4.6% increase
in check average, partially offset by a 1.6% decrease in customer counts. Steak
n Shake instituted menu price increases of approximately 3.0% in the fourth
quarter of fiscal 1999 and 1% in the second quarter of fiscal 2000. The increase
in same store sales continues a trend of nine consecutive quarters of increased
same store sales.
COSTS AND EXPENSES
Cost of sales increased $3,377,000, or 12.8%, primarily as a result of sales
increases. As a percentage of net sales, cost of sales decreased to 24.5% from
25.7%, primarily as a result of the menu price increases.
Restaurant operating costs increased $11,223,000, or 23.4%, due to an
increase in labor costs and other operating costs resulting primarily from the
increased sales volume and increased manager staffing levels and manager
recruiting and training costs over the prior year. Restaurant operating costs,
as a percentage of net sales, increased to 48.9% from 46.9%. The
8
increased manager staffing levels and manager recruiting and training costs
reflect the significant progress made towards the Company's goal to increase
management quality and staffing levels to develop the bench strength to support
the Company's growth program and anticipate management staffing needs arising
from turnover. Increased management staffing quality greatly enhances the
Company's ability to consistently deliver its commitment to exceed customer
expectations by providing a high quality dining experience on every visit. With
higher staffing levels, managers enjoy a better quality of life, thereby
reducing turnover. A 4.2% increase in wage rates arising from tight labor
markets also contributed to higher labor costs.
General and administrative expenses increased $1,453,000, or 17.9%. The
increase in expenses was attributable to personnel related costs, which included
costs for additional recruiting, training and management support personnel in
connection with the development of new restaurants and the Company's intensified
management programs, and other costs resulting from the increased number of
restaurants. As a percentage of revenues, general and administrative expenses
were 7.8% in each period.
The $820,000, or 20.0%, increase in depreciation and amortization expense
was attributable to the net depreciable capital additions since the beginning of
fiscal 1999.
Rent expense increased $923,000, or 21.9%, primarily as a result of the
completion of the sale and leaseback of twenty-four Company-owned properties
since the beginning of the second quarter of fiscal 1999.
Marketing expense increased $214,000, or 6.0%, with increased television
advertising in existing markets and outdoor media costs. As a percentage of
revenues, marketing expense decreased to 3.1% from 3.4%.
Pre-opening costs decreased $465,844, or 27.4%, due to increased budgetary
controls over pre-opening costs.
The Company recorded a one-time, nonrecurring charge of $1,600,000 in the
second quarter of fiscal 1999 related to the settlement of a lawsuit with Pepsi
- - - - - - - - -Cola Company.
INCOME TAXES
The Company's effective income tax rate increased to 36.3% from 35.6% for
the quarter ended April 12, 2000. The increase from the prior period resulted
primarily from decreased federal tax credits as a percentage of earnings before
income taxes.
NET EARNINGS
Net earnings were $5,482,000 ($.19 per diluted share) up 48% compared to
prior year. The prior year quarter include a pretax charge of $1,600,000 related
to the settlement of the Pepsi litigation ($.03 per share). Excluding the effect
of the charge related to the settlement of the Pepsi litigation, net earnings
increased 16%.
COMPARISON OF TWENTY-EIGHT WEEKS ENDED APRIL 12, 2000 TO TWENTY-EIGHT WEEKS
ENDED APRIL 14, 1999
REVENUES
Net sales increased $32,646,000 to $212,899,000, or 18.1%, due to an
increase in Steak n Shake's net sales. The increase of $32,478,000, or 19.0% in
net sales of Steak n Shake was due to the opening of new units pursuant to the
Company's expansion plan (non-same stores) and a 3.0% increase in same store
sales. The number of Company-operated Steak N Shake restaurants increased 19% to
293 at April 12, 2000 as compared to 247 at April 14, 1999. The increase in same
store sales was attributable to a 4.5% increase in check average, partially
offset by a 1.5% decrease in customer counts. Steak n Shake instituted menu
price increases of approximately 1.0% and 3.0% in the second and fourth
quarters, respectively, of fiscal 1999 and 1% in the second quarter of fiscal
2000.
COSTS AND EXPENSES
Cost of sales increased $6,250,000, or 13.5%, primarily as a result of sales
increases. As a percentage of net sales, cost of sales decreased to 24.6% from
25.6%, primarily as a result of menu price increases.
Restaurant operating costs increased $19,269,000, or 22.8%, due to an
increase in labor costs and other operating costs resulting primarily from the
increased sales volume and manager staffing levels and manager recruiting and
training costs over the prior year. Restaurant operating costs, as a percentage
of net sales, increased to 48.7% from 46.9%. As discussed
9
previously, the increased manager staffing levels and manager recruiting and
training costs reflect the significant progress made towards the Company's goal
to increase management quality and staffing levels to develop the bench strength
to support the Company's growth program and anticipate management staffing needs
arising from turnover. A 5.3% increase in wage rates arising from tight labor
markets also contributed to higher labor costs.
General and administrative expenses increased $2,684,000, or 19.5%. As a
percentage of revenues, general and administrative expenses increased to 7.6%
from 7.5%. The increase in expenses was attributable to personnel related costs,
which included costs for additional recruiting, training and management support
personnel in connection with the development of new restaurants and the
Company's intensified management programs, and other costs resulting from the
increased number of restaurants.
The $1,363,000, or 19.1%, increase in depreciation and amortization expense
was attributable to the net depreciable capital additions since the beginning of
fiscal 1999.
Rent expense increased $1,634,000, or 22.8%, as a result of the completion
of the sale and leaseback of thirty Company-owned properties since the beginning
of fiscal 1999.
Marketing expense increased $628,000, or 10.8%, with increased television
advertising in existing markets and outdoor media costs.. As a percentage of
revenues, marketing expense decreased to 3.0% from 3.2%.
The $216,000 decrease in the pre-opening costs is attributable to increased
budgetary controls over pre-opening costs.
Interest expense decreased $212,000 due to decreased average borrowings
outstanding and higher capitalized interest resulting from increased capital
expenditures.
The Company recorded a one-time, nonrecurring charge of $1,600,000 in the
second quarter of fiscal 1999 related to the settlement of a lawsuit with Pepsi
- - - - - - - - -Cola Company.
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
Exclusive of the increased investment in management recruiting and training,
earnings before income taxes and cumulative effect of change in accounting
increased 33%.
INCOME TAXES
The Company's effective income tax rate increased to 36.2% from 36.1% for
the twenty-eight weeks ended April 12, 2000.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR PRE-OPENING COSTS
During 1999, the Company adopted the provisions of American Institute of
Certified Public Accountants Statement of Position 98-5, "Reporting on the Costs
of Start-up Activities" retroactive to the first quarter of fiscal 1999. This
new accounting standard requires the Company to expense all pre-opening costs as
they are incurred. The Company previously deferred such costs and amortized them
over the one-year period following the opening of each restaurant. The
cumulative effect of the change in accounting for pre-opening costs, net of
income tax benefit, of $1,750,000 ($0.06 per diluted share) was recorded in the
first quarter of fiscal 1999.
NET EARNINGS
Net earnings were $10,411,291, (.35 per share), up 56% compared to the prior
year. Excluding the effect of the settlement of the Pepsi litigation and the
cumulative effect of the change in accounting for pre-opening costs, net
earnings increased 10%.
LIQUIDITY AND CAPITAL RESOURCES
Seventeen Company-operated Steak n Shake restaurants and two franchised
Steak n Shake restaurants were opened during the twenty-eight weeks ended April
12, 2000. Two old, underperforming Company-operated Steak n Shake restaurants
were closed during the sixteen weeks ended April 12, 2000. Subsequent to the end
of the second quarter, one company-operated Steak n Shake restaurant was opened.
Eighteen Steak N Shake restaurants, including two franchised units, are
currently under construction. For the twenty-eight weeks ended April 12, 2000,
capital expenditures totaled $38,597,000 as compared to $28,538,000 for the
comparable prior year period.
10
The Company expects to open 40 Steak n Shake restaurants in fiscal year
2000. The Company's five-year controlled growth objective contemplated opening
300 additional Steak n Shake restaurants. The average cost of a new
Company-operated Steak n Shake restaurant, including land, site improvements,
building and equipment, was $1,480,000 during fiscal 1999. The Company intends
to fund capital expenditures and meet working capital needs using existing
resources and anticipated cash flows from operations, together with additional
capital generated by sale and leaseback transactions involving newly acquired
properties and bank borrowings.
During the twenty-eight weeks ended April 12, 2000, cash provided by
operations totaled $16,848,000, while cash generated by sale and leaseback
transactions and other disposals of property totaled $11,845,000. During the
twenty-eight weeks ended April 14, 1999, cash provided by operations totaled
$9,541,000, while cash generated by sale and leaseback transactions and other
disposals of property totaled $11,459,000. The proceeds from sale and leaseback
transactions and other property disposals reflect the Company's continued use of
sale and leaseback financing. At April 12, 2000 the Company had additional sale
and leaseback properties under contract which, when closed, will generate
approximately $5,796,000 in proceeds.
Net cash provided by financing activities for the twenty-eight weeks ended
April 12, 2000, totaled $7,572,000 compared to net cash provided of $801,000 in
the comparable prior period.
As of April 12, 2000, the Company had outstanding borrowings of $27,216,000
under its $75,000,000 Senior Note Agreement and Private Shelf Facility (the
"Senior Note Agreement"). Consequently, the Company has borrowings of
$47,784,000 available under the Senior Note Agreement over the period ending
April 21, 2002 at interest rates based upon market rates at the time of
borrowing. Borrowings under the Senior Note bear interest at an average fixed
rate of 7.6%.
There were $10,230,000 of net borrowings during the twenty-eight weeks ended
April 12, 2000 under the Company's $30,000,000 Revolving Credit Agreement (the
"Revolving Credit Agreement"). Borrowings under the Revolving Credit Agreement
totaled $10,230,000 at April 12, 2000. The Company's Revolving Credit Agreement
matures on January 31, 2002 and bears interest based on LIBOR plus 75 basis
points, or the prime rate, at the election of the Company. During the second
quarter of fiscal 2000, the Company amended the Revolving Credit Agreement to
extend the maturity date to January 31, 2002. The Company expects to be able to
secure a new revolving credit facility upon expiration of the current agreement.
The Company's debt agreements contain restrictions, which among other things,
require the Company to maintain certain financial ratios.
The Company has a stock repurchase program which calls for the purchase of
up to 2,000,000 shares of its outstanding common stock. During the twenty-eight
weeks ended April 12, 2000, the Company repurchased a total of 363,000 shares
for $3,659,000. The repurchased shares will be used in part to fund the
Company's Stock Option Plan and Employees' Stock Purchase Plan.
EFFECTS OF GOVERNMENTAL REGULATIONS AND INFLATION
Since most of the Company's employees are paid hourly rates related to
federal and state minimum wage laws, increases in the legal minimum wage
directly increase the Company's operating costs. Inflation in food, labor and
other operating costs directly affects the Company's operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities." In June 1999,
the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement No. 133," which defers the effective date of SFAS No. 133
until the Company's first quarter financial statements of fiscal 2001. The
Company currently believes that the adoption of SFAS No. 133 will not have a
material effect on the Company's results of operations.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This report contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Those statements
11
include, but may not be limited to, the discussions of the Company's expansion
strategy, expectations concerning its future profitability, capital sources and
needs, marketing plans and franchising program. Investors in the common stock
are cautioned that reliance on any forward-looking statement involves risks and
uncertainties, and that although the Company believes that the assumptions on
which the forward-looking statements contained herein are reasonable, any of
those assumptions could prove to be inaccurate, and as a result, the
forward-looking statements based on those assumptions also could be incorrect.
The uncertainties in this regard include, but are not limited to, those
identified above. In light of these and other uncertainties, the inclusion of a
forward-looking statement herein should not be regarded as a representation by
the Company that the Company's plans and objectives will be achieved.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure with regard to financial
instruments is to changes in interest rates. Pursuant to the terms of the Senior
Note Agreement, the Company may from time to time issue notes in increments of
at least $5,000,000. The interest rate on the notes is based upon market rates
at the time of the borrowing. Once the interest rate is established at the time
of the initial borrowing, the interest rate remains fixed over the term of the
underlying note. The Revolving Credit Agreement bears interest at a rate based
upon LIBOR plus 75 basis points or the prime rate, at the election of the
Company. Historically, the Company has not used derivative financial instruments
to manage exposure to interest rate changes. At April 12, 2000, a hypothetical
100 basis point increase in short-term interest rates would have an immaterial
impact on the Company's earnings.
The Company enters into commitments to purchase defined quantities of
certain food commodities at fixed prices based upon prevailing market prices at
that time. Purchase arrangements for items such as french fries, chili beans and
coffee contain contractual features that limit the price paid by establishing
certain price floors or caps and provides adequate supply for the Company's
forecasted needs. Since commodity price aberrations are generally short term in
nature the Company does not use financial instruments to hedge commodity prices
because these purchase arrangements help control the ultimate cost paid.
12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders of Consolidated Products, Inc.
(the "Company") held February 9, 2000, the following actions were
taken:
1. Eight directors were elected to serve until the next annual
meeting and until their successors are duly elected and
qualified, as follows:
Name Votes For Abstentions
---- --------- -----------
S. Sue Aramian 23,403,960 418,078
Alan B. Gilman 23,445,527 376,511
Stephen Goldsmith 23,462,763 359,275
E. W. Kelley 23,446,460 375,578
Charles E. Lanham 23,469,603 352,435
J. Fred Risk 23,447,417 374,621
John W. Ryan 23,441,987 380,051
James Williamson, Jr. 23,460,270 361,768
2. A proposal to approve the selection by the Board of Directors of
Ernst & Young LLP as the Company's independent auditors for the
fiscal year ending September 27, 2000 was approved by the vote
of 23,521,474 shares FOR, 258,229 shares AGAINST and 42,335
shares ABSTAIN.
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
(2) Not Applicable
(3) 3.01 Articles of Incorporation of Consolidated Products,
Inc. (formerly Steak n Shake, Inc.), as amended
through November 1, 1981. (Incorporated by
reference to the Exhibits to Registration Statement
No. 2-75094).
3.02 Attachment to Joint Agreement of Merger dated
October 31, 1983, between Franklin Corporation and
Steak n Shake, Inc. (Incorporated by reference to
the Exhibits to Registrant's Form 10-K for the year
ended September 28, 1983).
3.03 Bylaws of Consolidated Products, Inc. (formerly
Steak n Shake, Inc.) in effect at December 26, 1990.
(Incorporated by reference to the Exhibits to
Registration Statement of Form S-2 filed with the
Commission on August 6, 1992, file no. 33-50568).
3.04 Articles of Amendment to Articles of Incorporation
of Steak n Shake, Inc. dated May 15, 1984.
(Incorporated by reference to the Exhibits to the
Registrant's Form 10-K Annual Report for the year
ended September 26, 1984).
3.05 Articles of Amendment to the Articles of
Incorporation of Consolidated Products, Inc. dated
May 8, 1998. (Incorporated by reference to the
Exhibits to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended April 8,
1998.)
(4) 4.01 Specimen certificate representing Common Stock of
Consolidated Products, Inc. (Incorporated by
reference to the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the quarterly
period ended April 9, 1997).
4.02 Amended and Restated Credit Agreement by and Between
Consolidated Products, Inc. and Bank One,
Indianapolis, N.A. dated December 30, 1994 (amending
that earlier credit agreement between parties dated
as of March 10, 1994 and effective as of February
23, 1994, relating to a $5,000,000 revolving line
of credit which was not filed pursuant to Rule 601
of the Securities and Exchange Commission), relating
to a $30,000,000 revolving line of credit.
(Incorporated by reference to the Exhibits to the
Registrant's Report on Form 10-Q for the fiscal
quarter ended December 21, 1994).
4.03 Note Purchase and Private Shelf Agreement by and
Between Consolidated Products, Inc. and The
Prudential Insurance Company of America dated as of
September 27 1995 related to $39,250,000 senior note
agreement and private shelf facility. (Incorporated
by reference to the Exhibits to the Registrant's
Report on Form 8-K dated September 26, 1995).
4.04 First Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. dated September 26,
1995. (Incorporated by reference to the Exhibits to
the Registrant's Report on Form 8-K dated September
26, 1995).
4.05 Second Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. effective January
31, 1997. (Incorporated by reference to the Exhibits
to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended April 9, 1997).
14
4.06 Amendment No. 1 to Note Purchase and Private Shelf
Agreement by and between Consolidated Products, Inc.
and The Prudential Insurance Company of America
dated as of April 28, 1997 related to senior note
agreement and private shelf facility. (Incorporated
by reference to the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the quarterly
period ended April 9, 1997).
4.07 Third Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. dated September 18,
1997. (Incorporated by reference to the Exhibits to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 24, 1997).
4.08 Fourth Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. dated February 9,
1998. (Incorporated by reference to the Exhibits to
the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 8, 1998).
4.09 Fifth Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. dated February 24,
1999. (Incorporated by reference to the Exhibits to
the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 14, 1999).
4.10 Amendment To Note Purchase and Private Shelf
Agreement by and between Consolidated Products, Inc.
and The Prudential Insurance Company of America
dated as of April 21, 1999 related to senior note
agreement and private shelf facility. (Incorporated
by reference to the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter
ended April 14, 1999).
4.11 Sixth Amendment to Amended and Restated Credit
Agreement by and between Consolidated Products, Inc.
and Bank One, Indianapolis, N.A. dated March 27,
2000.
(10) 10.01 Consolidated Products, Inc. Executive Incentive
Bonus Plan. (Incorporated by reference to the
Exhibits to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 1,
1992).
10.02 Steak n Shake, Inc. Executive Incentive Bonus Plan.
(Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter
ended July 1, 1992).
10.03 Consultant Agreement by and between James
Williamson, Jr. and the Registrant dated November
20, 1990. (Incorporated by reference to the Exhibits
to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended July 1, 1992).
10.04 Memorandum agreement between Neal Gilliatt and the
Registrant dated July 30, 1991. (Incorporated by
reference to the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter
ended July 1, 1992).
10.05 Area Development Agreement by and between Steak n
Shake, Inc. and Consolidated Restaurants Southeast,
Inc. (currently Kelley Restaurants, Inc.) dated June
12, 1991 for Charlotte, North Carolina area.
(Incorporated by reference to the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 1, 1992).
10.06 Area Development Agreement by and between Steak n
Shake, Inc. and Consolidated Restaurants Southeast,
Inc. (currently Kelley Restaurants, Inc.) dated June
12, 1991 for Atlanta, Georgia area. (Incorporated by
reference to the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter
ended July 1, 1992).
15
10.07 Letter from the Registrant to Alan B. Gilman dated
June 27, 1992. (Incorporated by reference to the
Exhibits to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 1,
1992).
10.08 Consolidated Products, Inc. 1992 Employee Stock
Purchase Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated January 12, 1993 related to the 1993
Annual Meeting of Shareholders).
10.09 Consolidated Products, Inc. 1992 Employee Stock
Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated January 12, 1993 related to the 1993
Annual Meeting of Shareholders).
10.10 Consolidated Products, Inc. 1994 Capital
Appreciation Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated January 13, 1994 related to the 1994
Annual Meeting of Shareholders).
10.11 Consolidated Products, Inc. 1994 Nonemployee
Director Stock Option Plan. (Incorporated by
reference to the Appendix to the Registrant's
definitive Proxy Statement dated January 13, 1994
related to the 1994 Annual Meeting of Shareholders).
10.12 Consolidated Products, Inc. 1995 Employee Stock
Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated January 12, 1995 related to the 1995
Annual Meeting of Shareholders).
10.13 Consolidated Products, Inc. 1995 Nonemployee
Director Stock Option Plan. (Incorporated by
reference to the Appendix to the Registrant's
definitive Proxy Statement dated January 12, 1995
related to the 1995 Annual Meeting of Shareholders).
10.14 Consolidated Products, Inc. 1996 Nonemployee
Director Stock Option Plan. (Incorporated by
reference to the Appendix to the Registrant's
definitive Proxy Statement dated January 15, 1996
related to the 1996 Annual Meeting of Shareholders).
10.15 Consolidated Products, Inc. 1997 Employee Stock
Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated December 24, 1996 related to the
1997 Annual Meeting of Shareholders).
10.16 Consolidated Products, Inc. 1997 Capital
Appreciation Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy
Statement dated December 24, 1996 related to the
1997 Annual Meeting of Shareholders).
10.17 Amendment to Consolidated Products, Inc. 1992
Employee Stock Purchase Plan. (Incorporated by
reference to the Appendix to the Registrant's
definitive Proxy Statement dated December 24, 1996
related to the 1997 Annual Meeting of Shareholders).
10.18 Consolidated Products, Inc. 1997 Nonemployee
Director Stock Option Plan. (Incorporated by
reference to the Appendix to the Registrant's
definitive Proxy Statement dated December 24, 1996
related to the 1997 Annual Meeting of Shareholders).
10.19 Amendment to Consolidated Products, Inc. 1992
Employee Stock Purchase Plan. (Incorporated by
reference to the Appendix to the Registrant's
definitive Proxy Statement dated December 22, 1997
related to the 1998 Annual Meeting of Shareholders).
16
10.20 Consolidated Products, Inc. 1998 Nonemployee
Director Stock Option Plan. (Incorporated by
reference to the Appendix to the Registrant's
definitive Proxy Statement dated December 22, 1997
related to the 1998 Annual Meeting of Shareholders).
(11) No exhibit
(15) Not applicable.
(18) Not applicable.
(19) Not applicable.
(22) Not applicable.
(23) Not applicable.
(24) Not applicable.
(27) 27.01 Financial data schedule. (Electronic filing only).
(99) Not applicable.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the period covered by this
report.
17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on May 19, 2000.
CONSOLIDATED PRODUCTS, INC.
(Registrant)
/s/ Gregory G. Fehr
---------------------------
By Gregory G. Fehr
Vice President and Controller
On Behalf of the Registrant and as
Principal Accounting Officer
18