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 27, 1995
[ ] 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
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)
Securities registered pursuant to Sec. 12(b) of the Act: None
Securities registered pursuant to Sec. 12(g) of the Act: Common Stock
(Title of Class)
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.[ ]
The aggregate market value of Common Stock held by persons not "affiliated"
with the registrant, based on the closing price of the Common Stock as of
December 1, 1995, was approximately $132,500,000.
The number of shares of Common Stock outstanding at December 1, 1995
was 12,440,373.
DOCUMENTS INCORPORATED BY REFERENCE
PARTS OF FORM 10-K INTO WHICH
IDENTITY OF DOCUMENT DOCUMENT IS INCORPORATED
The definitive Proxy Statement to be filed with respect
to the 1996 Annual Meeting of Shareholders of Registrant Part III
1
PART I.
ITEM 1. BUSINESS
GENERAL
The Company owns and operates full service, casual dining restaurants
featuring two distinct concept groups: the "Steak n Shake-Registered
Trademark-" concept, with 171 restaurants located in twelve states (including
34 franchised units), and 10 specialty restaurants located in Illinois and
Indiana. The primary specialty restaurant theme concept is a steakhouse
operated under the name Colorado Steakhouse-Registered Trademark-.
STEAK N SHAKE, INC. ("STEAK N SHAKE")
CONCEPT
Founded in 1934 in Normal, Illinois, Steak n Shake is one of the oldest
restaurant chains in the country. The Steak n Shake concept maintains a
distinctive market position between the limited menu and full service
restaurant categories. The restaurants are full service and offer counter
and dining room seating, as well as drive-thru and carry-out service.
Counter and dining room sales are approximately 70% of the sales mix while
sales for consumption off the premises represent approximately 30% of the
sales mix. All food is freshly prepared, made-to-order in the customer's
view and is served promptly on china with flatware and glassware by friendly
staff. The traditional featured menu items are steakburgers made from 100%
pure U.S. beef, including cuts of t-bone, strip and sirloin steaks, thin and
crispy french fries and hand-dipped milk shakes. Over the years, Steak n
Shake has responded to customer demands for more menu variety and healthy
food by making carefully planned additions to the menu without losing Steak n
Shake's focus or customer appeal. Such menu additions include a grilled
chicken breast sandwich, beef or chicken taco salads, homestyle soups and
salads of many varieties. The typical restaurant seats approximately 100
customers and is open 24 hours a day, seven days a week. Lunch and dinner
sales account for 38% and 44% of sales, respectively, while breakfast and
late night sales account for 6% and 12% of sales, respectively. In Fiscal
1995, the average check was $4.92 per person, although the average checks
during the peak lunch and dinner hours were $5.50 and $5.80, respectively.
The average unit volume was $1,279,000.
RESTAURANT DESIGN AND SITE SELECTION
Steak n Shake restaurants have a distinctive exterior appearance and interior
decor. The open cooking and food handling areas permit food preparation to
take place in view of the customer, thus the Company's slogan "In Sight It
Must Be Right-Registered Trademark-". The interior decor features a casual
dining atmosphere which is suggestive of the nostalgic diner era blended with
a contemporary use of materials, including chrome, glass, neon and tile. The
kitchen space is designed to allow for efficiency of work flow, thereby
minimizing the amount of space required. Restaurants constructed prior to
1972 are similar in architectural style but differ in size resulting in
seating capacities varying from 39 to 138 customers. Restaurants built since
1972 are generally 3,800 square feet and seat approximately 100 customers.
The exterior design of the newest Steak n Shake unit has all the unique
character of a branded logo. The design embraces building shape, awning
detail, building graphics and pylon signing to create a distinctive external
visual message.
Management strongly believes that the site selection process is most critical
in determining the potential success of a particular restaurant. Senior
management devotes significant time and resources in 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 customers such as major retailers, regional malls and power
centers, office and hotel concentrations and entertainment centers including
stadiums, arenas and multi-screen theaters.
2
The Company's Vice President, Real Estate and Franchising and the Managers of
Real Estate identify and research sites. Potential sites are reviewed in
detail by the Company's senior management, prior to submission to the Board
of Directors for purchase or lease approval. Upon identification of a site,
its potential success including the return on investment is determined by
utilization of financial models which evaluate the projected sales and
earnings. This detailed process, along with a critical approval path,
ensures the management discipline and scrutiny to acquire sites that have the
most potential to meet the Company's required criteria.
RESTAURANT LOCATIONS
All but five of the Company's restaurants are free-standing units. The
following table lists, as of September 27, 1995, the locations of the 171
Steak n Shake restaurants and the number of units in each location if more
than one unit:
FLORIDA ILLINOIS INDIANA MISSOURI
Bradenton Alton Anderson Arnold
Daytona Beach Belleville Bloomington-3 *Branson
Gainesville Bloomington Carmel-2 *Cape Girardeau
Lakeland -2 Bradley Columbus *Columbia
Lake Mary Carbondale Elkhart *Farmington
Merritt Island Champaign-2 *Evansville Festus
Ocala Collinsville Ft. Wayne-2 Independence
Orlando - 5 Danville-2 Goshen *Jefferson City
Ormond Beach Decatur-3 Greenwood *Joplin
* Tallahassee East Peoria Indianapolis-19 *Poplar Bluff
Tampa - 4 Effingham Kokomo-2 *Rolla
Wildwood Fairview Heights Lafayette St. Louis-30
Winter Haven Galesburg Michigan City *Springfield-3
*Jacksonville Mishawaka
KENTUCKY Joliet Muncie GEORGIA
Florence *Lincoln Plainfield *Albany
* Louisville -3 Marion Richmond *Atlanta-7
Paducah Mt. Vernon Seymour *Tifton
Normal-2 South Bend *Valdosta
OHIO Pekin Terre Haute
Cincinnati- 4 Peoria-4 TENNESSEE
Middletown *Springfield-3 MICHIGAN *Chattanooga
West Chester Urbana Battle Creek *Dickson
Benton Harbor
ARKANSAS IOWA Holland KANSAS
* Jonesboro Davenport Portage Overland Park
- -------------------
* Franchised units.
EXPANSION STRATEGY
During the three years ended September 27, 1995, 40 company-operated units
were added comprised of 37 newly constructed free-standing units and three
conversions of existing buildings.
The Company's growth plan for the next five years focuses primarily on the
development of additional company-operated restaurants in existing or
contiguous markets and franchised units in targeted markets in the midwest
and southeast regions of the United States. Over the next five years, the
Company intends to add 160 company-operated restaurants, with 27 expected
openings during Fiscal 1996 and 135 franchised units, with an estimated 17
openings during Fiscal 1996.
3
The addition of 15 company-operated Steak n Shakes in markets where the
Company's television marketing effort is in effect reflects the strategy to
intensify existing markets with new units. These units in existing markets
benefit from high customer recognition and acceptance, resulting in sales
above the company average along with greater marketing and management cost
efficiencies. During 1995, four restaurants were opened in the Cincinnati,
Ohio media market, bringing the total number of restaurants in this market to
seven. In October 1995, the Company inaugurated television marketing in
Cincinnati as part of the cluster strategic marketing approach. This
strategy calls for sufficient numbers of restaurants to be opened in a media
market to effectively use Steak n Shake's marketing program to build brand
loyalty. Four restaurants were opened in the Orlando/Daytona media market
during 1995 and three have been opened in fiscal 1996 to date, bringing the
total number of units in the Orlando/Daytona media market to 14. With these
additions, the television advertising weight in this media market has been
significantly increased.
In addition to clustered expansion in existing and contiguous markets, the
Company's strategy involves linking major existing markets with the addition
of locations on connecting interstate highways. During 1995, 11
company-operated Steak n Shake restaurants were opened along these interstate
highways.
The Company expects to fund capital expenditures, including the development
of the 160 new company-operated units contemplated by the expansion plan and
meet the interest and principal payments with respect to its indebtedness
using its existing resources and anticipated cash flow from operations,
together with additional capital generated by sale and leaseback transactions
involving newly acquired properties, bank borrowings and the issuance of
equity and/or debt securities.
MANAGEMENT AND EMPLOYEES
The management team responsible for operating the restaurants consists of the
Vice President of Operations and National General Manager, division managers,
district managers and restaurant management teams.
The divisions and the number of units in each are as follows:
NUMBER OF
DIVISION UNITS
-------- ---------
Missouri 38
Indiana 37
Illinois 27
Florida 20
Michiana 15
---------
137
---------
---------
Division managers are responsible for the operations of the restaurants in
the division as well as supervision of the division support team, which
includes district managers, training and recruiting managers, division
trainers and maintenance and administration staff. District managers
generally have responsibility for the operating performance of six
restaurants. The management team of a typical Steak n Shake restaurant
consists of a general manager, a restaurant manager and several assistant
managers. The number of assistant managers is primarily dependent upon the
volume of the unit. Each restaurant also employs approximately 40 to 80
hourly employees, many of whom work part-time. The general manager of each
restaurant has primary responsibility for the day-to-day operation of the
restaurant and is responsible for maintaining Company-established operating
standards and procedures. An incentive compensation plan exists for all
levels of restaurant management personnel. Awards under the plan are based
upon attainment of defined operating performance standards.
4
PURCHASING AND DISTRIBUTION CENTER OPERATIONS
Steak n Shake maintains 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 116 company-operated and 21 franchised restaurants located in
the midwest. The Company's semi-trailers have the capability to handle
refrigerated and frozen products along with dry goods in the same delivery
trip. The distribution center was built in 1975 and has adequate capacity to
handle the Company's requirements for the foreseeable future. The remaining
Steak n Shake restaurants located primarily in the Southeast obtain food
products and supplies from two independent distributors.
Purchases are negotiated centrally for most food, beverage and supply
products to ensure uniform quality, adequate supplies and competitive prices.
Food and supply items undergo continuous research, development and testing
in an effort to maintain the highest quality products and to be responsive to
changing customer tastes. No significant delays in receiving food and
beverage products, restaurant supplies or equipment have been experienced.
TRAINING
Each crew member participates in a formal training program that utilizes work
station video presentations, training manuals, a scheduled evaluation process
and recognition awards which signify proficiency in specific areas. This
training process, which takes place within the restaurant, is continuously
reinforced and monitored.
Restaurant managers 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, customer service and employee
relations. Restaurant managers also are provided with video training
presentations and operations manuals relating to food preparation, customer
service standards, restaurant operation practices and Company procedures.
Each geographic division designates specific restaurants where intensified
on-the-job management training occurs under careful seasoned supervision.
During fiscal 1995, 332 individuals entered this training program as compared
to 267 in fiscal 1994. Nearly 25 percent of the individuals entering the
management training programs were employees promoted from within the Company.
QUALITY CONTROL
Restaurant management is responsible for ensuring that the restaurants are
operated in accordance with strict operational procedures and quality
requirements. Compliance with the operational procedures and quality
requirements for company-operated units is monitored through periodic on-site
visits and formal inspections by the division and district managers as well
as division training personnel, and for franchised units through periodic
inspections by the Managers for Franchise Field Operations.
RESTAURANT REPORTING
Operational and financial controls, which are essential to the delivery of
high quality food and service to customers and the achievement of desirable
operating margins, are maintained through the use of point of sale systems in
each restaurant, personal computers in the division offices and an automated
data processing system at the corporate office. The point of sale system
provides daily reports of sales, sales mix, customer counts, check average,
cash and food cost. Inventories are taken of key products daily and of all
products at the end of each four-week accounting period. Restaurant
personnel forward daily sales reports, vendor invoices, payroll information
and other data to the corporate office for processing. 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 and
product mix. Cash is controlled through frequent deposits in local bank
operating accounts and then transferred to the principal corporate operating
account.
5
MARKETING
The Company focuses on the family and adult mid-scale dining market segments.
Management believes that the Company's commitment to customer service and
value is the most effective approach to attracting and retaining customers.
Accordingly, the Company has focused its resources on providing its customers
with superior service and value, and historically has relied primarily on
word of mouth to attract new and repeat customers. Management believes that
its strategy of locating multiple restaurants under the same name within a
defined geographic area has enabled newer restaurants to benefit from the
name recognition and reputation for quality developed by existing operations.
Steak n Shake's media program, particularly television advertising, involves
building brand loyalty. Unlike competitors, Steak n Shake's strategy does not
involve price led marketing. Value at Steak n Shake is based on exceeding
our customer's expectations by delivering freshly prepared, made-to-order,
quality food with good taste and served promptly by friendly staff in an
attractive, clean environment. Our marketing emphasis is focused on building
brand identity awareness. The theme continues to demonstrate the specific
product and service benefits that have been inherent in the Steak n Shake
offering over many years. The campaign has effectively increased customer
trial and built brand loyalty, resulting in a strong performance pattern of
same store sales growth.
In conjunction with these marketing efforts, in-store, short-term, seasonal,
non-discounted special product promotions have been implemented to build
brand loyalty, create new customer trial and/or introduce new products. The
fully integrated marketing program also utilizes menu clip-ons, table cards,
ceiling danglers and signage.
FRANCHISING
At September 27, 1995, the Company had 34 franchised Steak n Shake
restaurants, located in Illinois, Indiana, Florida, Missouri, Georgia,
Kentucky, Tennessee and Arkansas. These restaurants are located in
geographic areas which are contiguous to geographic areas in which there
are company-operated restaurants. Twenty-four of the franchised units have
been added since June 1991, including eleven in Fiscal 1995. Steak n Shake's
franchise program has enabled it to extend its brand name recognition and
derive additional revenues without substantial investment. The Company's
current expansion plan contemplates the opening of 135 new Steak n Shake
franchised units during the period 1996-2000, including 17 units in 1996
(a franchised unit opened in Little Rock, Arkansas in October 1995, and seven
franchised units are currently under construction). The Company has
commitments for the development of 47 additional franchised restaurants over
the next five years 1996-2000.
The current 34 franchised restaurants are operated by 14 franchisees, one of
which, Kelley Restaurants, Inc. ("Kelley Restaurants") is a corporation
controlled by E.W. Kelley, Chairman of the Company.
In August 1994, the Company entered into an area development agreement with a
new franchisee for the franchising of Steak n Shake restaurants in travel
centers to be developed along interstate highways in several southern and
southeastern states. Under the agreement, the franchisee will develop a
minimum of 15 travel centers, which will contain Steak n Shake restaurants,
over the next five years. In September, 1995 the first of these travel
centers was opened in Dickson, Tennessee.
Franchisees undergo a selection process supervised by the Vice President,
Real Estate and Franchising, and require final approval by senior management.
Steak n Shake seeks franchisees with significant experience in the
restaurant business who have demonstrated the financial and management
capabilities required to develop and operate a franchised restaurant.
Steak n Shake assists franchisees with both the development and the ongoing
operation of their restaurants. Steak n Shake management personnel provide
assistance 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 provide both on-site and off-site
instruction to franchised restaurant management employees. The Company's
support continues after a restaurant opening with periodic training programs,
the provision of manuals and updates relating to product specifications,
customer service and quality control procedures, advertising and marketing
materials and assistance 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.
6
The Company, in certain future Steak n Shake franchise transactions, will
assist a qualified franchisee in financing the development of one or more
franchised units by purchasing or leasing approved sites from third parties
and constructing the restaurant thereon through the Company's franchise
financing subsidiary, SNS Investment Company, Inc. and then 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 rates in effect
in the franchised area. The Louisville, Kentucky restaurant, which opened in
November 1993, was the first franchise restaurant to be financed by SNS
Investment Company, Inc. During fiscal 1995, additional franchised
restaurants in Chattanooga, Tennessee and Louisville, Kentucky were financed
by SNS Investment Company, Inc.
All franchised restaurants are required, pursuant to their respective
franchise agreements, to serve Steak n Shake approved menu items. In
addition, although not required to do so, a majority of the franchisees
purchase food, supplies and smallwares through Steak n Shake's distribution
center. This 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".
A Steak n Shake franchise agreement currently has an initial term of 20
years. Among other obligations, the agreements generally require franchisees
to pay an initial franchise fee of $30,000 for the first unit in a market and
$25,000 for each subsequent unit in a market and a continuing royalty of 4%
of monthly gross sales. The current franchise agreement also requires
franchisees to spend 5% of monthly gross sales on advertising, 4% to be spent
locally and 1% to be paid to Steak n Shake for creative and promotional
development, outside independent marketing agency fees and technical and
professional marketing advice.
CONSOLIDATED SPECIALTY RESTAURANTS, INC. ("CSR")
CONCEPTS
CSR operates ten theme restaurants located in Illinois and Indiana. The
primary theme concept is a steakhouse operated under the name of Colorado
Steakhouse. The restaurant's design theme is reminiscent of a Colorado log
cabin. The Colorado Steakhouse menu emphasizes steak and prime rib with
limited additional non-beef alternatives and is designed to have a narrow
offering to permit greater attention to quality and consistency in both food
and service. Menu offerings are moderately priced with an approximate
current average dinner check for the Colorado Steakhouse restaurants of
$15.00 and an average annual unit volume of $1,950,000 in fiscal 1995. In
1995, one additional existing specialty restaurant in Calumet City, Illinois
was converted to the Colorado Steakhouse concept, giving the Company a total
of seven restaurants operating under the Steakhouse concept. All of the
conversions have shown significant sales increases. In November 1995, the
specialty restaurant in Decatur, Illinois was closed due to its inability to
achieve acceptable levels of profitability and related return on investment.
All of the CSR restaurants also offer alcoholic beverages, which represent
approximately 14% of CSR's sales.
The Company does not maintain a franchise program for its specialty
restaurants.
7
MANAGEMENT AND EMPLOYEES
Each specialty restaurant employs approximately 60 to 80 hourly employees,
many of whom work part-time. The management staff of a typical specialty
restaurant consists of one general manager, one or more assistant general
managers or managers and a kitchen manager. The general manager of each
restaurant carries primary responsibility for the day-to-day operation of the
restaurant and is responsible for maintaining Company established operating
standards and procedures. The Company employs Regional Directors of
Operations who report directly to the President and who have responsibility
for the operating performance of approximately five units. The operations of
the specialty restaurants are under the general supervision of the President
of CSR, a restaurant executive with over 25 years of experience in various
management capacities in the casual dining segment of the restaurant industry.
An incentive compensation plan exists for all levels of restaurant management
personnel. Awards under the plan are based upon achievement of certain
defined operating performance standards. The corporate staff of the Company
provides marketing, training, accounting, data processing and administrative
support services to all the specialty restaurants.
COMPETITION
Competition in the food service industry is intense. The Company's
restaurants are in direct or indirect competition with many restaurants in
the areas which they serve. Many of these restaurants are operated by
companies having competitive advantages such as a greater number of units
located in broader geographic locations and nationwide marketing. The
Company believes the principal competitive factors within the industry to be
food quality, service, location and price.
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.
EMPLOYEES
As of September 27, 1995, the Company had approximately 9,500 employees, of
which 8,900 were employed by Steak n Shake and 600 by CSR. None of the
employees is represented by a labor union. Approximately two-thirds of the
Company's employees are part-time restaurant service personnel, generally
paid at the minimum wage.
TRADEMARKS
"Steak n Shake-Registered Trademark-", "Takhomasak-Registered Trademark-",
"Famous For Steakburgers-Registered Trademark-", "FAXASAK-Registered
Trademark-", "In Sight It Must Be Right-Registered Trademark-" and the "Wing
and Circle-Registered Trademark-" logo are federally registered trademarks
and servicemarks of Steak n Shake. Steak n Shake has licensed exclusive use
of the "Steak n Shake" trademark in the states of Rhode Island and California
and within a three-county area of New Jersey, which would restrict expansion
of Steak n Shake into those geographical areas. CSR holds federal
registrations for "The Charley Horse-Registered Trademark-" and "Colorado
Steakhouse-Registered Trademark-" as well as other federal and state
trademarks and servicemarks applicable to its restaurant businesses as well
as state registrations. The Company is not aware of any infringing uses that
could materially affect the business of Steak n Shake or CSR. The Company
will protect 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, and alcoholic beverage control in the case of CSR.
The development and construction of additional restaurants will be 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.
8
In Fiscal 1995, approximately 14% of CSR's sales were attributable to the
sale of alcoholic beverages. Alcoholic beverage control regulations require
each of the specialty restaurants to apply to a state authority and, in
certain locations, county or municipal authorities, for a license or permit
to sell alcoholic beverages on the premises. Typically, licenses must be
renewed annually and may be revoked or suspended for cause at any time.
Alcoholic beverage control regulations relate to numerous aspects of the
daily operations of the specialty restaurants, including minimum age of
patrons and employees, hours of operation, advertising, wholesale purchasing,
inventory control and handling, storage and dispensing of alcoholic
beverages. The failure of a restaurant to obtain or retain liquor or food
service licenses would adversely affect the restaurant's operations. The
Company may be subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to
recover damages from an establishment which wrongfully served alcoholic
beverages to the intoxicated person. The Company carries liquor liability
coverage as part of its existing comprehensive general liability insurance.
The Company's restaurant operations are also subject to federal and state
minimum wage laws and laws governing such matters as working conditions,
overtime and tip credits. Many of the Company's food service and preparation
personnel are paid at rates related to the federal minimum wage 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 -- Arkansas,
Florida, Georgia, Illinois, Indiana, Kentucky, Missouri 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 in the future conduct its franchise business.
The federal Americans with Disabilities Act prohibits discrimination in
public accommodations and employment on the basis of disability. The Company
builds all new restaurants to standards which comply with the Act and has
reviewed its employment policies and practices for compliance with the Act.
ITEM 2. PROPERTIES
The Company currently leases 25,732 square feet of executive office space in
Indianapolis, Indiana, under a lease expiring December 31, 2005.
STEAK N SHAKE, INC.
As of September 27, 1995, Steak n Shake operated 97 leased and 40 owned
restaurants in Indiana, Illinois, Michigan, Missouri, Florida, Iowa, Ohio,
Kansas and Kentucky. Steak n Shake restaurant leases typically 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, 38 contain percentage of sales rental
clauses.
Steak n Shake restaurants constructed prior to 1972 have a similar
architectural style, seat 39 to 138 customers and occupy between 1,010 to
6,000 square feet. Restaurants built since 1972 are generally 3,800 square
feet and seat approximately 100 customers.
Steak n Shake has lease obligations on 20 former restaurant locations in
Georgia, Texas, Ohio, Illinois, Kentucky and Missouri of which all but one
have been subleased to others as of September 27, 1995. 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 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 a division office in Lakeland, Florida, and a division office and
administrative facility in Indianapolis, Indiana, and owns a division office
in St. Louis, Missouri. At September 27, 1995, Steak n Shake owns one
restaurant location that has been leased to a third party. In addition, there
are eight restaurants currently under construction and the Company owns 13
parcels of land which are being held for future development.
9
CSR
As of September 27, 1995, CSR operated ten facilities in Illinois and
Indiana, of which eight are leased facilities and two are owned. The leases
are typically non-cancelable agreements with initial terms of 10 to 15 years
and three five-year renewal terms. All of the leases except two have
percentage of sales rental clauses in addition to base rent requirements.
The leases require CSR to pay real estate taxes, insurance and maintenance
costs. These units have approximately 6,000 to 8,000 square feet and seat
150 to 225 customers. In addition, CSR has lease obligations on three former
restaurants in Illinois and Indiana which have been, or will be, subleased to
third parties. CSR also owns a property in Indianapolis, Indiana, upon which
a Colorado Steakhouse was constructed (the restaurant opened in November
1995).
SNS INVESTMENT COMPANY, INC.
As of September 27, 1995, SNS Investment Company, Inc. leased parcels of land
in Louisville, Kentucky and Chattanooga, Tennessee upon which Steak n Shake
restaurants are being operated by franchisees pursuant to sublease agreements
and owned a Steak n Shake restaurant in Louisville, Kentucky which was leased
by a franchisee. An additional Steak n Shake restaurant in Little Rock,
Arkansas, owned by SNS Investment Company, Inc. and leased to a franchisee,
was opened in October 1995.
RESTAURANT LEASE EXPIRATIONS
Restaurant leases are scheduled to expire as follows, assuming the exercise
of all renewal options:
NUMBER OF LEASES EXPIRING
-------------------------
PERIOD SNS CSR
------ --- ---
1996 - 2000 4 0
2001 - 2005 10 4
2006 - 2010 21 1
2011 - 2015 5 2
2016 - 2020 10 0
Beyond 47 1
--- ---
97 8
--- ---
--- ---
ITEM 3. LEGAL PROCEEDINGS
On May 3, 1995, Pepsi-Cola Company ("Pepsi") filed suit against Steak n
Shake, Inc. ("Steak n Shake") in the United States District Court of Southern
Indiana alleging that Steak n Shake breached the syrup contract with Pepsi by
refusing to purchase syrup from Pepsi. The suit seeks alleged lost profits
in excess of $2,800,000 during the remaining term of the syrup contract and
reimbursement of a $120,000 payment made to Steak n Shake.
Steak n Shake terminated the syrup contract for cause and believes that the
litigation is without merit. Steak n Shake will vigorously defend the action
and has filed a counterclaim.
There are no other legal proceedings pending 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 quarter ended
September 27, 1995.
10
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET PRICE RANGE/STOCK TRADING
The Common Stock of Consolidated Products, Inc. is traded on the
Nasdaq National Market System (NMS) under the symbol COPI. 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 Nasdaq for each quarter of the Company's past two fiscal years,
are shown below.
1995 1994(1)
------------------------------------------
HIGH LOW High Low
---- --- ---- ---
First Quarter $ 10(1) $ 8 5/8(1) $ 9 1/2 $ 7
Second Quarter $ 12 1/2 $ 9 $ 9 3/8 $ 7 7/8
Third Quarter $ 15 1/4 $ 12 $ 10 1/8 $ 7 3/4
Fourth Quarter $ 15 1/4 $ 13 $ 10 1/2 $ 8 1/2
(1) THE SALES PRICES HAVE BEEN ADJUSTED TO REFLECT THE 10% STOCK DIVIDEND
DECLARED IN DECEMBER 1994.
Subsequent to year end, a 10% stock dividend was declared on December 12,
1995, payable on January 15, 1996 to shareholders of record on December 22,
1995. This information has not been restated to reflect this stock dividend.
ITEM 6. SELECTED FINANCIAL DATA
Consolidated Products, Inc.
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
(53 Weeks)
Systemwide Sales:
Company $ 186,740 $ 158,637 $ 132,509 $ 126,024 $115,436
Franchise 39,521 27,139 18,163 15,064 11,023
-------------------------------------------------------------------
$ 226,261 $ 185,776 $ 150,672 $ 141,088 $126,459
-------------------------------------------------------------------
-------------------------------------------------------------------
Statement of Earnings Data:
Revenues $ 190,133 $ 161,173 $ 134,156 $ 127,444 $117,119
Net earnings $10,026 $7,174 $ 5,191 $ 4,172 $ 3,264
Per Share Data(1):
Primary $ .95(2) $ .88 $ .68 $ .61 $ .50
Fully diluted $ .82 $ .64 $ .49 $ .44 $ .38
Statement of Financial Position Data:
Total assets $ 99,834 $ 80,328 $ 70,643 $ 67,062 $ 66,084
Long-term debt:
Obligations under capital leases $ 8,263 $ 9,886 $ 11,178 $ 12,742 $ 13,880
Senior note $ 20,000 $ 14,250 $ 17,750 $ 20,500 $ 22,500
Subordinated convertible debentures -- $ 11,988 $ 12,076 $ 12,496 $ 12,669
Other -- -- -- -- $ 2,200
11
Shareholders' equity (deficit) $ 42,615 $ 19,715 $ 11,107 $ 1,779 $ (2,816)
Special dividend declared per share(1) -- -- -- -- $ 4.95
Number of Restaurants:
Steak n Shake
Company-operated 137 118 108 104 104
Franchised 34 23 19 16 15
-------------------------------------------------------------------
171 141 127 120 119
Specialty Restaurants 10 11 11 14 15
-------------------------------------------------------------------
181 152 138 134 134
-------------------------------------------------------------------
Number of Employees 9,543 7,712 6,471 6,184 5,892
Number of Shareholders 3,882 2,262 2,288 2,126 2,214
(1) ALL FINANCIAL DATA REGARDING PER SHARE AMOUNTS HAVE BEEN ADJUSTED
RETROACTIVELY TO REFLECT THE 10% STOCK DIVIDEND DECLARED IN DECEMBER
1994.
(2) THE PERCENT INCREASE IN PRIMARY EARNINGS PER SHARE WAS LESS THAN THE
INCREASE IN FULLY DILUTED EARNINGS PER SHARE DUE TO AN INCREASE IN
THE NUMBER OF SHARES OUTSTANDING ARISING FROM THE CONVERSION OF THE
COMPANY'S 10% SUBORDINATED CONVERTIBLE DEBENTURES INTO THE COMPANY'S
COMMON STOCK EFFECTIVE APRIL 3, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Consolidated Products, Inc.
(YEARS ENDED SEPTEMBER 27, 1995, SEPTEMBER 28, 1994 AND SEPTEMBER 29, 1993)
In the following discussion, the term "same store sales" refers to the
sales of restaurants open at the beginning of both of the fiscal periods
discussed and which remained open throughout both periods, and the term
"non-same store sales" refers to the sales of restaurants either opened or
closed at any time during the fiscal periods discussed.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to revenues of
items included in the Company's statements of earnings for the periods
indicated:
1995 1994 1993
------------------------
Revenues
Net sales 98.2% 98.4% 98.8%
Franchise fees 1.0 .7 .6
Other, net .8 .9 .6
------------------------
100.0 100.0 100.0
------------------------
Costs and Expenses
Cost of sales 25.8 25.9 25.7
Restaurant operating costs 45.0 45.6 46.2
Selling, general and administrative 11.1 11.1 10.7
Depreciation and amortization 3.7 3.7 4.2
Amortization of pre-opening costs 1.0 1.0 .3
Rent 3.2 2.9 2.8
Interest 1.2 2.2 3.0
Interest - capital leases .5 .6 .8
------------------------
91.5 93.0 93.7
------------------------
Earnings Before Income Taxes 8.5 7.0 6.3
Income Taxes 3.2 2.6 2.4
------------------------
Net Earnings 5.3% 4.4% 3.9%
------------------------
12
Comparison of Year Ended September 27, 1995 to Year Ended September 28, 1994
REVENUES
Revenues increased $28,959,000, or 18.0%, due primarily to an increase in
Steak n Shake net sales of $27,253,000. The increase in net sales of Steak n
Shake was due to an increase of 5.0% in same store sales and the opening of
32 new company-operated restaurants since the beginning of fiscal 1994
partially offset by the closure of three low-volume restaurants during the
same period. The same store sales increase was attributable to increases of
2.5% in check average and 2.4% in customer counts. The $850,000 increase in
specialty restaurants' net sales resulted from a 9.9% increase in same store
sales, somewhat offset by the closure of a restaurant in the first quarter of
fiscal 1995 that did not achieve acceptable levels of profitability and
related return on investment. The increase in same store sales was
attributable to increases of 8.4% in check average and 1.4% in customer
counts, which were a result of the conversion of three additional restaurants
to the Colorado Steakhouse concept since the beginning of fiscal 1994.
Franchise fees increased $741,000 due to the opening of 15 Steak n Shake
franchised restaurants since the beginning of fiscal 1994.
COSTS AND EXPENSES
Cost of sales increased $7,370,000, or 17.7%, as a result of sales
increases. As a percentage of revenues, cost of sales decreased slightly to
25.8% from 25.9%.
Restaurant operating costs increased $12,094,000, or 16.5%, primarily due
to higher labor costs and other operating costs resulting from the increased
sales volume. Restaurant operating costs, as a percentage of revenues,
decreased to 45.0% from 45.6% as a result of the economies of scale realized
with increased sales.
Selling, general and administrative expenses increased $3,125,000, or 17.4%.
As a percentage of revenues, selling, general and administrative expenses
remained unchanged at 11.1%. Marketing expense, as a percentage of revenues,
increased to 2.8% from 2.6% and accounted for $1,135,000 of the increase. The
remaining $1,990,000 increase was attributable to personnel related costs,
which included costs related to additional staffing in connection with the
development of new restaurants.
The $1,105,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1994.
The $410,000 increase in the amortization of pre-opening costs was
attributable to the increase in the number of new company-operated
restaurants opened.
Rent expense increased $1,408,000, or 30.3%, as a result of sale and
leaseback transactions since the beginning of fiscal 1994 involving 12
company-owned properties and a net increase in the number of other leased
properties.
Interest expense decreased $1,356,000 as a result of the conversion of the
10% Subordinated Convertible Debentures on April 3, 1995, the Company's
adoption of the Statement of Financial Accounting Standards No. 34,
"Capitalization of Interest" in fiscal 1995 and reductions in capital lease
obligations.
INCOME TAXES
The increase in the Company's effective income tax rate to 37.8% from
36.7% resulted from a decrease in federal tax credits.
A valuation allowance against gross deferred tax assets has not been
provided based upon the expectation of future taxable income from the
following sources: (a) future tax deductions that reverse in a carryback
period during which the Company was a taxpaying entity; (b) existing taxable
temporary differences reversing in future periods; and (c) future taxable
income. The Company has a strong earnings history and anticipates future
earnings to be at a level that will be more than adequate to realize any
remaining deferred tax assets. Uncertainties relating to future taxable
income could include a decline in sales and reduction in taxable income;
however, in management's opinion, it is more likely than not that the gross
deferred tax assets reflected on the Consolidated Statements of Financial
Position will be realized.
13
NET EARNINGS
Net earnings increased $2,852,000, or 39.8%, primarily as a result of the
increase in Steak n Shake's operating earnings and the decrease in interest
expense.
Comparison of Year Ended September 28, 1994 to Year Ended September 29, 1993
REVENUES
Revenues increased $27,017,000, or 20.1%, due primarily to an increase in
Steak n Shake net sales of $25,294,000. The increase in net sales of Steak n
Shake was due to an increase of 8.8% in same store sales and the opening of
19 new restaurants since the beginning of fiscal 1993. The same store sales
increase was attributable to increases of 4.7% in check average and 3.7% in
customer counts. The $833,000 increase in specialty restaurants net sales
resulted from an 18.3% increase in same store sales offset by a decrease of
$1,854,000 in non-same store sales. The increase in same store sales was
attributable to increases of 11.4% in customer counts and 5.7% in check
average, which were a result of the conversion of five restaurants to the
Colorado Steakhouse concept. The decrease in non-same store sales resulted
from the conversion of one restaurant to a Steak n Shake restaurant and the
disposal of two restaurants that did not achieve acceptable levels of
profitability and related return on investment.
Franchise fees increased $355,000 due to the opening of seven Steak n
Shake franchised restaurants since the beginning of fiscal 1993.
The $535,000 increase in other revenues, net was primarily due to income
from property transactions during 1994 and a loss in connection with the
disposal of one of the specialty restaurants during 1993.
COSTS AND EXPENSES
Cost of sales increased $7,195,000, or 20.9%, as a
result of sales increases. As a percentage of revenues, cost of sales
increased slightly to 25.9% from 25.7%.
Restaurant operating costs increased $11,484,000, or 18.5%, primarily due
to higher labor costs and other operating costs resulting from the increased
sales volume. Restaurant operating costs, as a percentage of revenues,
decreased to 45.6% from 46.2% as a result of the economies of scale realized
with increased sales.
Selling, general and administrative expenses increased $3,573,000, or
24.9%. As a percentage of revenues, selling, general and administrative
expenses increased to 11.1% from 10.7%. Marketing expense, as a percentage of
revenues, remained unchanged at 2.7% and accounted for $708,000 of the
increase. The increase as a percentage of revenues was attributable to
personnel related costs, which included costs related to additional staffing
in connection with the development of new restaurants.
The $233,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1993.
The $1,158,000 increase in the amortization of pre-opening costs was
attributable to the increase in the number of new company-operated
restaurants opened.
Rent expense increased $922,000, or 24.8%, as a result of sale and
leaseback transactions since the beginning of fiscal 1993 involving seven
Steak n Shake restaurants and a net increase in the number of other leased
properties.
Interest expense decreased $461,000 as a result of the reduction in debt
outstanding and a decrease in capital lease obligations.
INCOME TAXES
The decrease in the Company's effective income tax rate from
38.3% to 36.7% resulted from an increase in federal tax credits.
A valuation allowance against gross deferred tax assets has not been
provided based upon the expectation of future taxable income from the
following sources: (a) future tax deductions that reverse in a carryback
period during which the Company was a taxpaying entity; (b) existing taxable
temporary differences reversing in future periods; and (c) future taxable
income. The Company has a strong earnings history and anticipates future
earnings to be at a level that will be more than adequate to realize any
remaining deferred tax assets. Uncertainties relating to future taxable
income could include a decline in sales and reduction in taxable income;
however, in management's opinion, it is more likely than not that the gross
deferred tax assets reflected on the Consolidated Statements of Financial
Position will be realized.
14
NET EARNINGS
Net earnings increased $1,983,000, or 38.2%, primarily as a result of the
increase in Steak n Shake's operating earnings and the decrease in interest
expense.
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.
LIQUIDITY AND CAPITAL RESOURCES
In February 1995, the Company announced an expansion of its Steak n Shake
growth plan. The growth plan for the five-year period 1996-2000 will more
than double the size of the Company, calling for the opening of 295
Steak n Shake restaurants, including 135 franchised.
Thirty-two new Steak n Shake restaurants, including 11 franchised, were
opened during fiscal 1995. The Company plans on opening 44 new Steak n Shake
restaurants, including 17 franchised, in fiscal 1996. Capital expenditures
in fiscal years 1993 to 1995 were $14,766,000, $20,567,000 and $42,899,000,
respectively. The Company has projected capital expenditures of $50,000,000
in fiscal year 1996. The average cost of construction of a new Steak n Shake
restaurant is approximately $1,300,000 for land, building and equipment.
On September 27, 1995, the Company entered into a $25,000,000 ten-year
Senior Note Agreement and Private Shelf Facility. At September 27, 1995,
the Company had borrowed $10,000,000 under this agreement and was committed
to borrow an additional $5,000,000 by November 15, 1995 to pay off
existing debt. The remaining $10,000,000 will be used to finance future
expansion and pay off exiting debt. Additionally, on September 26, 1995,
the Company extended its bank commitment for an unsecured revolving line of
credit of $30,000,000 to December 1997. The revolving line of credit, with
borrowing rates based on LIBOR plus 87.5 basis points or the prime rate of
interest, includes an option for conversion into a five-year term loan with
a ten-year amortization schedule. At September 27, 1995, the Company had no
borrowings outstanding under this line of credit. The Company's debt
agreements contain restrictions which, among other things, require the Company
to maintain certain financial ratios.
The Company expects to fund capital expenditures, including the
development of the 160 company-operated units contemplated by the expansion
plan, and meet the interest and principal payments with respect to its
indebtedness using its existing resources and anticipated cash flow from
operations, together with additional capital generated by sale and leaseback
transactions involving newly acquired properties, bank borrowings and the
issuance of equity and/or debt securities.
On April 4, 1995, the Company called the 10% Subordinated Convertible
Debentures due November 20, 2002 ("the Debentures"). Holders of the
Debentures ("Holders") electing conversion of their Debentures into common
stock received one share of the Company's common stock for each $2.82 of
Debenture principal held on the date of conversion plus cash for any
remaining fractional portion. Holders electing redemption of their Debentures
received cash in the principal amount of the Debentures, plus accrued
interest up to April 4, 1995. The call of the Company's Debentures resulted
in $10,468,000 of the Company's long-term debt being converted into equity.
The conversion of the Debentures significantly strengthened the Company's
financial position, as well as increased the number of shares outstanding by
nearly four million to 12,250,000. The Company's market capitalization has
also increased from less than $100,000,000 to approximately $200,000,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required under this Item 8 is set forth on pages 24 through
36 of this report. These financial statements have not been restated to
reflect the subsequent 10% stock dividend discussed in Item 5. If the
financial statements were restated for the effect of the stock dividend,
primary earnings per share would have been $.86 in 1995 (compared to $.95 as
reported), $.80 in 1994 (compared to $.88 as reported) and $.62 in 1993
(compared to $.68 as reported). Fully diluted earnings per share would have
been $.75 in 1995 (compared to $.82 as reported), $.58 in 1994 (compared to
$.64 as reported) and $.45 in 1993 (compared to $.49 as reported).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
15
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the caption "Election of Directors" in the
Company's definitive Proxy Statement relating to its 1996 Annual Meeting of
Shareholders to be filed pursuant to Rule 14a-6(c) is incorporated herein by
reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages, 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
E.W. Kelley(1),(2) 78 Chairman -
Consolidated Products, Inc. 1984
Steak n Shake, Inc. 1984
Consolidated Specialty Restaurants, Inc. 1990
S. Sue Aramian(1),(3) 63 Vice Chairwoman -
Consolidated Products, Inc. 1990
Steak n Shake, Inc. 1990
Consolidated Specialty Restaurants, Inc. 1990
Secretary -
Consolidated Products, Inc. 1995
Steak n Shake, Inc. 1995
Consolidated Specialty Restaurants, Inc. 1995
Alan B. Gilman(1) 65 President and Chief Executive Officer -
Consolidated Products, Inc. 1992
Steak n Shake, Inc. 1992
Vice Chairman -
Consolidated Specialty Restaurants, Inc. 1992
James W. Bear(3) 50 Senior Vice President, Administration and
Finance and Treasurer -
Consolidated Products, Inc. 1991
Steak n Shake, Inc. 1991
Consolidated Specialty Restaurants, Inc. 1993
Kevin F. Beauchamp 38 Vice President and Controller -
Consolidated Products, Inc. 1993
Steak n Shake, Inc. 1993
Consolidated Specialty Restaurants, Inc. 1994
Kevin E. Dooley 52 Vice President -
Steak n Shake, Inc. 1993
Consolidated Specialty Restaurants, Inc. 1993
Duane E. Geiger 33 Vice President -
Consolidated Products, Inc. 1995
Steak n Shake, Inc. 1995
Consolidated Specialty Restaurants, Inc. 1995
William H. Hart 46 Vice President -
Steak n Shake, Inc. 1991
Consolidated Specialty Restaurants, Inc. 1990
John P. Hawes(3) 44 Vice President -
Consolidated Products, Inc. 1994
Steak n Shake, Inc. 1994
Consolidated Specialty Restaurants, Inc. 1994
Richard C. May 59 Vice President -
Consolidated Products, Inc. 1991
President -
Consolidated Specialty Restaurants, Inc. 1991
16
Gary T. Reinwald 47 Vice President -
Consolidated Products, Inc. 1991
Steak n Shake, Inc. 1983
National General Manager -
Steak n Shake, Inc. 1983
James E. Richmond 57 Vice President -
Consolidated Products, Inc. 1986
Steak n Shake, Inc. 1986
Victor F. Yeandel 39 Vice President -
Consolidated Products, Inc. 1995
Steak n Shake, Inc. 1995
Consolidated Specialty Restaurants, Inc. 1995
Mary H. Mueller 47 General Counsel and Assistant Secretary -
Consolidated Products, Inc. 1995
Steak n Shake, Inc. 1995
Consolidated Specialty Restaurants, Inc. 1995
(1) Member of the Board of Directors of the Company
(2) Member of the Executive Committee of the Company
(3) Member of Benefits and Personnel Committee of the Company
Mr. Kelley has been a Director of the Company since 1981 and Chairman since
1984. Prior thereto he served as Vice Chairman and Chief Executive Officer
from 1981 to 1984. He served as President and Chief Executive Officer from
January 1, 1992 until July 13, 1992, and continued to serve as Chief
Executive Officer until October 1, 1992. Since 1974, he has been a Managing
General Partner of Kelley & Partners, Ltd., a Florida limited partnership
which holds investments in companies engaged in snack food distribution and
restaurant operations, and is a principal shareholder of the Company.
Ms. Aramian has been Vice Chairwoman since 1990, a Director since 1981 and
was named Secretary in 1995. She served as Vice President from 1984 to 1990.
Ms. Aramian has been a Managing General Partner of Kelley & Partners, Ltd.
since 1974.
Mr. Gilman was elected President and a Director on July 13, 1992 after
serving as a consultant to the Company on special projects since February 3,
1992 and assumed the additional position of Chief Executive Officer effective
October 1, 1992. During 1985-1992, Mr. Gilman was a private investor. 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.
Mr. Bear was elected Senior Vice President, Administration and Finance and
Treasurer in 1991. Prior thereto, he served as Vice President and Treasurer
of the Company from 1980 to 1991.
Mr. Beauchamp joined the Company as Vice President and Controller in 1993.
From 1990 to 1993, Mr. Beauchamp was Director of Accounting for a division of
The Limited, Inc. Prior thereto, Mr. Beauchamp served in various capacities
at Price Waterhouse, over a period of 11 years, which included a three-year
Managers' International Program in Europe, and ultimately served as a Senior
Manager.
Mr. Dooley joined Steak n Shake and CSR as Vice President in 1993 and is
responsible for engineering and construction. Prior thereto and since 1991,
Mr. Dooley was a Director of Engineering with Wendy's, Inc. From 1987 to
1990, he served as Director of Facilities, Engineering and Construction at
Norris Food Service, Inc. (a Hardee's Food System, Inc. franchisee). Before
1987, Mr. Dooley served in various capacities, over a period of 17 years, at
Hardee's Food System, Inc. and ultimately served as Director of Construction
and Maintenance.
Mr. Geiger was appointed Vice President in 1995. From 1992 to 1995, Mr.
Geiger served as Director of Financial Planning and Audit and Assistant
Treasurer for the Company. Prior thereto, Mr. Geiger served in various
capacities at Ernst & Young LLP, over a period of eight years, and ultimately
served as a Manager.
Mr. Hart has been Vice President, Purchasing of Steak n Shake and CSR since
1991 and was Vice President of Operations of CSR from 1990 to 1991. From
1985 to 1990, Mr. Hart served as Director of Purchasing for both companies.
17
Mr. Hawes was appointed Vice President in 1994. Prior thereto, Mr. Hawes
served in various capacities at Gilbert/Robinson, Inc. for a total of 16
years and ultimately served as Vice President of Administration.
Mr. May was elected Vice President of the Company and President of CSR in
July 1991. From 1988 to July 1991, Mr. May was Chairman and Chief Executive
Officer of Creative Restaurant Management, a restaurant consulting firm.
Before 1988, Mr. May served in various capacities at Gilbert/Robinson, Inc.,
a specialty restaurant operator, over a period of 25 years, ultimately
serving as President of its Specialty Restaurant Division.
Mr. Reinwald has been Vice President, Operations of Steak n Shake since 1983,
and served in various capacities in the Company for 19 years prior to that
date.
Mr. Richmond joined the Company as Vice President in 1986 and is responsible
primarily for real estate and franchise matters.
Mr. Yeandel joined the Company as Vice President in 1995. From 1992 to 1995,
Mr. Yeandel served as Vice President, Franchise Development for Long John
Silver's, Inc. Prior thereto and since 1987, Mr. Yeandel held various
marketing positions with Long John Silver's, Inc.
Mrs. Mueller was appointed General Counsel and Assistant Secretary in 1995.
From 1994 to 1995, Mrs. Mueller served as the Company's Associate General
Counsel for Real Estate and Franchising. From 1992 to 1994, Mrs. Mueller
served as Associate City Attorney for the city of South Bend, Indiana. Prior
thereto and since 1983, Mrs. Mueller served as General Counsel for the
Indiana Toll Road.
Officers are elected annually at the annual meeting of the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
The information included under the captions "Compensation of Directors",
"Compensation of Executive Officers", "Summary Compensation Table", "Stock
Option Grants in Fiscal 1995", "Aggregated Stock Option Exercises in 1995 and
Fiscal Year End Option Values", "Long-Term Incentive Plan - Awards in Last
Fiscal Year", "Report of the Executive Committee" and "Company Performance"
in the Company's definitive Proxy Statement relating to its 1996 Annual
Meeting of Shareholders to be filed pursuant to Rule 14a-6(c) is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information contained under the caption "Election of Directors" in the
Company's definitive Proxy Statement relating to its 1996 Annual Meeting of
Shareholders to be filed pursuant to Rule 14a-6(c) is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain Transactions" in the
Company's definitive Proxy Statement relating to its 1996 Annual Meeting of
Shareholders to be filed pursuant to Rule 14 a-6(c) is incorporated herein by
reference.
18
PART IV.
ITEM 14. 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 27, 1995 and
September 28, 1994
For the years ended September 27, 1995, September 28, 1994 and
September 29, 1993:
- Consolidated Statements of Earnings
- Consolidated Statements of Cash Flows
- Consolidated Statements of Shareholders' Equity
Notes to Consolidated Financial Statements
Report of Independent Auditors
The financial statements have not been restated to reflect the subsequent
stock dividend discussed in Item 5 of Part II.
2. FINANCIAL STATEMENT SCHEDULES. The following table sets forth
those financial statement schedules filed as a part of this report:
All schedules for the years ended September 27, 1995, September 28, 1994 and
September 29, 1993 have been omitted for the reason that they are
not required or 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 report
(see Index to Exhibits)
(3) 3.01 Articles of Incorporation of Consolidated Products, Inc.
(formerly Steak n Shake, Inc.), as amended through November 1,
1981. (Incorporated by reference to the Exhibits to Registration
Statement No. 2-75094).
3.02 Attachment to Joint Agreement of Merger dated October 31, 1983,
between Franklin Corporation and Steak n Shake, Inc.
(Incorporated by reference to the Exhibits to the Registrant's
Form 10-K Annual Report for the year ended September 28, 1983).
3.03 Bylaws of Consolidated Products, Inc. (formerly Steak n Shake,
Inc.) in effect at December 26, 1990. (Incorporated by reference
to the Exhibits to Registration Statement on Form S-2 filed
with the Commission on August 6, 1992, file no. 33-50568).
3.04 Articles of Amendment to Articles of Incorporation of Steak n
Shake, Inc. dated May 15, 1984. (Incorporated by reference to
the Exhibits to the Registrant's Form 10-K Annual Report for
the year ended September 26, 1984).
(4) 4.01 Specimen certificate representing Common Stock of Consolidated
Products, Inc. (formerly Steak n Shake, Inc.). (Incorporated by
reference to the Exhibits to Registration Statement No. 2-80542
on Form S-8 filed with the Commission on April 7, 1989).
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).
19
4.03 Note Purchase Agreement by and Between Consolidated Products,
Inc. and The Prudential Insurance Company of America dated as
of September 27 1995 related to $39,250,000 senior note
agreement and private shelf facility. (Incorporated by
reference to the Exhibits to the Registrant's Report on
Form 8-K dated September 26, 1995).
4.04 First Amendment to Amended and Restated Credit Agreement by and
between Consolidated Products, Inc. and Bank One, Indianapolis,
N.A. dated September 26, 1995. (Incorporated by reference to
the Exhibits to the Registrant's Report on Form 8-K dated
September 26 1995).
(9) No exhibit.
(10) 10.01 Consolidated Products, Inc. 1991 Stock Option Plan for
Nonemployee Directors. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy Statement
dated January 10, 1992 related to its 1992 Annual Meeting
of Shareholders).
10.02 Consolidated Products, Inc. 1991 Capital Appreciation Plan.
(Incorporated by reference to the Appendix to the Registrant's
definitive Proxy Statement dated January 16, 1991 related to its
1991 Annual Meeting of Shareholders).
10.03 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).
10.04 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).
10.05 Employment Agreement by and between Richard C. May and the
Registrant dated July 19, 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).
10.06 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).
20
10.07 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).
10.08 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).
10.09 Area Development Agreement by and between Steak n Shake, Inc.
and Consolidated Restaurants Southeast, Inc. (currently Kelley
Restaurants, Inc.) dated June 12, 1991 for Atlanta, Georgia
area. (Incorporated by reference to the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 1, 1992).
10.10 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).
10.11 Consolidated Products, Inc. 1992 Employee Stock Purchase Plan.
(Incorporated by reference in to the Appendix to the
Registrant's definitive Proxy Statement dated January 13, 1993
related to its 1993 Annual Meeting of Shareholders).
10.12 Consolidated Products, Inc. 1992 Employee Stock Option Plan.
(Incorporated by reference to the Appendix to the Registrant's
definitive Proxy Statement dated January 12, 1993 related to
its 1993 Annual Meeting of Shareholders).
10.13 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).
10.14 Consolidated Products, Inc. 1994 Nonemployee Director Stock
Option Plan. (Incorporated by reference in to the Appendix to
the Registrant's definitive Proxy Statement dated January 13,
1994 related to its 1994 Annual Meeting of Shareholders).
10.15 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).
10.16 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).
21
(11) 11.01 Computation of Earnings Per Share. 37
(12) No exhibit.
(13) No exhibit.
(16) No exhibit.
(18) No exhibit.
(19) No exhibit.
(21) 21.01 Subsidiaries of the Registrant. 38
(22) No exhibit.
(23) 23.01 Consent of Ernst & Young LLP. 39
(24) No exhibit.
(25) No exhibit.
(27) 27.01 Financial data schedule.
(28) No exhibit.
(99) No exhibit.
(b) REPORTS ON FORM 8-K.
OCTOBER 6, 1995 - THE FOLLOWING EVENT WAS REPORTED.
Item 5. New senior note agreement and private shelf facility effective
September 27, 1995 and extension of revolving line of credit
effective September 26, 1995.
No financial statements were filed as a part of this report on Form 8-K.
22
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 26,
1995.
CONSOLIDATED PRODUCTS, INC.
By: /s/ James W. Bear
-----------------------------------
James W. Bear
Senior Vice President and Treasurer
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 26, 1995.
/s/ E. W. Kelley
- ------------------------- Director
E. W. Kelley
/s/ S. Sue Aramian
- ------------------------- Director
S. Sue Aramian
/s/ Alan B. Gilman
- ------------------------- President, Chief Executive Officer and Director
Alan B. Gilman (Principal Executive Officer)
/s/ James W. Bear
- ------------------------- Senior Vice President and Treasurer
James W. Bear (Principal Financial Officer)
/s/ Kevin F. Beauchamp
- ------------------------- Vice President and Controller
Kevin F. Beauchamp
/s/ Alva T. Bonda
- ------------------------- Director
Alva T. Bonda
/s/ Neal Gilliatt
- ------------------------- Director
Neal Gilliatt
/s/ Charles E. Lanham
- ------------------------- Director
Charles E. Lanham
/s/ J. Fred Risk
- ------------------------- Director
J. Fred Risk
/s/ James Williamson, Jr.
- ------------------------- Director
James Williamson, Jr.
23
FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED STATEMENTS OF EARNINGS
- -------------------------------------------------------------------------------
Consolidated Products, Inc.
(YEARS ENDED SEPTEMBER 27, 1995, SEPTEMBER 28, 1994 AND SEPTEMBER 29, 1993)
1995 1994 1993
---------------------------------------------------
Revenues
Net sales $186,739,591 $158,636,627 $132,509,229
Franchise fees 1,880,220 1,138,949 783,970
Other, net 1,512,766 1,397,811 863,031
---------------------------------------------------
190,132,577 161,173,387 134,156,230
---------------------------------------------------
Costs and Expenses
Cost of sales 49,072,393 41,702,229 34,506,742
Restaurant operating costs 85,572,053 73,477,598 61,993,885
Selling, general and administrative 21,042,628 17,917,935 14,345,247
Depreciation and amortization 7,021,497 5,916,278 5,683,554
Amortization of pre-opening costs 1,965,334 1,555,294 397,189
Rent 6,048,909 4,640,733 3,718,450
Interest 2,369,138 3,616,738 3,960,904
Interest - capital leases 914,481 1,022,659 1,139,525
---------------------------------------------------
174,006,433 149,849,464 125,745,496
---------------------------------------------------
Earnings Before Income Taxes 16,126,144 11,323,923 8,410,734
Income Taxes 6,100,000 4,150,000 3,220,000
---------------------------------------------------
Net Earnings $ 10,026,144 $ 7,173,923 $ 5,190,734
---------------------------------------------------
---------------------------------------------------
Net Earnings Per Common and Common
Equivalent Share:
Primary $ .95 $ .88 $ .68
Fully diluted $ .82 $ .64 $ .49
Weighted Average Shares and Equivalents:
Primary 10,591,362 8,125,314 7,655,702
Fully diluted 12,672,813 12,423,775 12,023,015
SEE ACCOMPANYING NOTES.
24
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
- -------------------------------------------------------------------------------
Consolidated Products, Inc.
(SEPTEMBER 27, 1995 AND SEPTEMBER 28, 1994)
1995 1994
-------------------------------
Assets
Current Assets
Cash, including cash equivalents of $615,000 in 1995
and $9,012,000 in 1994 $ 1,350,139 $10,326,159
Receivables 5,123,102 2,165,177
Inventories 3,619,687 3,009,516
Deferred income taxes 747,000 801,000
Other current assets 3,611,261 3,112,136
-------------------------------
Total current assets 14,451,189 19,413,988
-------------------------------
-------------------------------
Property and Equipment
Land 21,425,346 12,352,930
Buildings 18,138,352 14,200,657
Leasehold improvements 31,062,184 25,568,627
Equipment 51,194,014 42,934,328
Construction in progress 7,957,312 3,334,106
-------------------------------
129,777,208 98,390,648
Less accumulated depreciation and amortization (51,664,749) (46,735,270)
-------------------------------
Net property and equipment 78,112,459 51,655,378
-------------------------------
Net Leased Property 5,970,236 7,259,328
Deferred Income Taxes 558,000 758,000
Other Assets 741,913 1,241,390
-------------------------------
$ 99,833,797 $ 80,328,084
-------------------------------
-------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 9,242,512 $ 7,246,178
Accrued expenses 14,292,194 12,602,512
Current portion of senior note 4,250,000 3,500,000
Current portion of obligations under capital leases 1,170,946 1,140,864
-------------------------------
Total current liabilities 28,955,652 24,489,554
-------------------------------
Obligations Under Capital Leases 8,262,690 9,885,522
Senior Note 20,000,000 14,250,000
Subordinated Convertible Debentures -- 11,988,400
Shareholders' Equity
Common stock -- $.50 stated value, 25,000,000 shares
authorized -- shares issued: 12,471,879 in 1995;
7,490,818 in 1994 6,235,940 3,745,409
Additional paid-in capital 31,952,996 14,696,829
Retained earnings 6,405,050 3,004,530
Less treasury stock -- at cost: 139,564 shares in 1995;
265,690 shares in 1994 (1,978,531) (1,732,160)
-------------------------------
Total shareholders' equity 42,615,455 19,714,608
-------------------------------
$ 99,833,797 $ 80,328,084
-------------------------------
-------------------------------
SEE ACCOMPANYING NOTES.
25
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
Consolidated Products, Inc.
(YEARS ENDED SEPTEMBER 27, 1995, SEPTEMBER 28, 1994 AND SEPTEMBER 29, 1993)
1995 1994 1993
---------------------------------------------------
Operating Activities
Net earnings $ 10,026,144 $ 7,173,923 $ 5,190,734
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 7,021,497 5,916,278 5,683,554
Amortization of pre-opening costs 1,965,334 1,555,294 397,189
Provision for deferred income taxes 254,000 1,092,000 461,000
Changes in receivables and inventories (381,328) (849,931) (834,381)
Changes in other assets (1,970,901) (2,684,948) (437,657)
Changes in income taxes payable 647,934 1,104,806 (526,859)
Changes in accounts payable and accrued expenses 3,271,363 4,624,389 (1,207,160)
(Gain) loss on disposal of property 160,190 (81,920) 74,830
---------------------------------------------------
Net cash provided by operating activities 20,994,233 17,849,891 8,801,250
---------------------------------------------------
Investing Activities
Additions of property and equipment (42,898,950) (20,566,614) (14,765,513)
Net proceeds from disposal of property and equipment 6,715,490 7,097,144 1,699,662
---------------------------------------------------
Net cash used in investing activities (36,183,460) (13,469,470) (13,065,851)
---------------------------------------------------
Financing Activities
Proceeds from long-term debt 10,000,000 -- --
Principal payments on debt and capital lease obligations (4,327,641) (3,650,192) (2,861,688)
Proceeds from equipment and property leases 695,386 845,486 834,860
Lease payments on subleased properties (637,673) (768,618) (801,832)
Cash dividends paid in lieu of fractional shares (8,748) (8,790) (6,547)
Cash paid in lieu of fractional shares (4,260) -- --
Proceeds from exercise of stock options 102,293 360,999 125,113
Proceeds from stock offering -- -- 3,176,500
Proceeds from employee stock purchase plan 393,850 343,918 --
---------------------------------------------------
Net cash provided by (used in) financing activities 6,213,207 (2,877,197) 466,406
---------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (8,976,020) 1,503,224 (3,798,195)
Cash and Cash Equivalents at Beginning of Year 10,326,159 8,822,935 12,621,130
---------------------------------------------------
Cash and Cash Equivalents at End of Year $ 1,350,139 $ 10,326,159 $ 8,822,935
---------------------------------------------------
---------------------------------------------------
SEE ACCOMPANYING NOTES.
26
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Consolidated Products, Inc.
(YEARS ENDED SEPTEMBER 27, 1995, SEPTEMBER 28, 1994 AND SEPTEMBER 29, 1993)
Additional
Common Paid-In Retained Treasury Stock
Stock Capital Earnings Shares Amount
-----------------------------------------------------------------
Balance at September 30, 1992 $2,804,673 $ 200,121 $ 957,391 658,923 $2,183,253
Net earnings 5,190,734
Shares issued under stock option plan 116,844 (172,420) (344,607)
Shares exchanged to exercise stock options 42,415 336,338
Shares granted under Capital Appreciation Plan 101,799 (28,100) (110,451)
Shares forfeited under Capital Appreciation Plan 438 3,993 10,751
Changes in unamortized value of shares granted
under Capital Appreciation Plan 84,859
Tax benefit relating to incentive stock plans 299,986
Ten percent common stock dividend declared
December 10, 1992 (550,795 shares) 275,398 4,130,963 (4,406,361)
Cash dividends paid in lieu of fractional shares (6,547)
Shares issued from stock offering (495,000 shares) 247,500 2,929,000
Shares issued for conversion of subordinated
debentures (123,914 shares) 61,957 363,500
-----------------------------------------------------------------
Balance at September 29, 1993 3,389,528 8,142,651 1,735,217 504,811 2,160,143
Net earnings 7,173,923
Shares issued under stock option plan 6,007 (238,293) (726,620)
Shares exchanged to exercise stock options 38,572 371,628
Shares granted under Capital Appreciation Plan 194,192 (34,400) (72,408)
Shares granted to Profit Sharing Plan 425 (5,000) (41,029)
Changes in unamortized value of shares granted
under Capital Appreciation Plan 40,446
Tax benefit relating to incentive stock plans 370,715
Ten percent common stock dividend declared
December 20, 1993 (637,386 shares) 318,693 5,577,127 (5,895,820)
Cash dividends paid in lieu of fractional shares (8,790)
Shares issued for Employee Stock Purchase Plan 23,120 320,798
Shares issued for conversion of subordinated
debentures (28,136 shares) 14,068 84,914
-----------------------------------------------------------------
Balance at September 28, 1994 3,745,409 14,696,829 3,004,530 265,690 1,732,160
Net earnings 10,026,144
Shares issued under stock option plan (32,012) (70,532) (328,263)
Shares exchanged to exercise stock options 14,906 193,958
Shares granted under Capital Appreciation Plan 695,734 (70,500) (233,141)
Shares granted to Profit Sharing Plan
Changes in unamortized value of shares granted
under Capital Appreciation Plan 613,817
Tax benefit relating to incentive stock plans 471,945
Ten percent common stock dividend declared
December 20, 1994 (767,174 shares) 383,587 6,233,289 (6,616,876)
Cash dividends paid in lieu of fractional shares (8,748)
Shares issued for Employee Stock Purchase Plan 24,858 368,992
Shares issued for conversion of subordinated
debentures (4,164,171 shares) 2,082,086 9,518,219
-----------------------------------------------------------------
Balance at September 27, 1995 $6,235,940 $31,952,996 $6,405,050 139,564 $1,978,531
-----------------------------------------------------------------
-----------------------------------------------------------------
SEE ACCOMPANYING NOTES.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Consolidated Products, Inc.
(YEARS ENDED SEPTEMBER 27, 1995, SEPTEMBER 28, 1994 AND SEPTEMBER 29, 1993)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of Consolidated Products, Inc. (the
"Company") include the accounts of Consolidated Products, Inc. (parent) and its
three wholly-owned subsidiaries: Steak n Shake, Inc., Consolidated Specialty
Restaurants, Inc. and SNS Investment Company. All intercompany items have been
eliminated. The Company's fiscal year ends on the last Wednesday in September.
CASH, INCLUDING CASH EQUIVALENTS:
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, substantially all of which have maturities of three months
or less.
RECEIVABLES:
At September 27, 1995, receivables include $3,150,000 related to the cost
of three properties for which sale and leaseback contracts have been entered
into for the sale of these properties.
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 5 to 10 years for restaurant equipment). Leasehold
improvements are amortized by the straight-line method over the shorter of
the estimated useful lives of the improvements or the terms of the related
leases.
LEASED PROPERTY:
The lower of fair market value or the discounted value of that portion of
a capital lease attributable to building costs is capitalized and amortized
by the straight-line method over the term of such leases and included with
depreciation expense. The portions of such leases relating to land are
accounted for as operating leases.
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.
PRE-OPENING COSTS:
Pre-opening costs, which represent expenses incurred before a new
restaurant opens, are capitalized and then amortized from the opening date
over a one-year period.
28
INCOME TAXES:
The Company uses the liability method prescribed by the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
EMPLOYEES' PROFIT SHARING PLAN:
The Consolidated Products, Inc. Employees' Profit Sharing 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.
Contributions to the Plan, which are subject to the discretion of the Board
of Directors, amounted to $880,000 for 1995, $710,000 for 1994 and $585,000
for 1993.
DEFERRED DEBT COSTS:
Certain fees and expenses incurred to obtain long-term financing are
being amortized over the life of the related borrowings. These costs totaled
$554,000 of which the unamortized balance was $325,000 as of September 27,
1995.
ADVERTISING EXPENSES:
Advertising costs are charged to expense as incurred. These expenses
totaled $5,401,000 for 1995, $4,266,000 for 1994 and $3,558,000 for 1993.
STOCK DIVIDEND
On December 20, 1994, the Company declared a 10% stock dividend
distributable on January 20, 1995 to shareholders of record on January 5,
1995. Accordingly, all references in the consolidated financial statements
related to per share amounts, average shares outstanding, conversion prices
and information concerning Stock Option and Capital Appreciation Plans have
been adjusted retroactively to reflect the stock dividend.
INCOME TAXES
The components of the provision for income taxes consist of the
following:
1995 1994 1993
---- ---- ----
Current:
Federal $4,486,000 $1,983,000 $1,924,000
State 1,360,000 1,075,000 835,000
Deferred 254,000 1,092,000 461,000
--------- --------- ---------
Total income taxes $6,100,000 $4,150,000 $3,220,000
--------- --------- ---------
--------- --------- ---------
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
1995 1994 1993
---- ---- ----
Tax at U.S. statutory rates $5,578,000 $3,863,000 $2,860,000
State income taxes, net of federal tax
benefit 884,000 710,000 551,000
Employer's FICA tax credit (260,000) (201,000) --
Targeted jobs tax credit (35,000) (135,000) (135,000)
Other (67,000) (87,000) (56,000)
--------- --------- ---------
Total income taxes $6,100,000 $4,150,000 $3,220,000
--------- --------- ---------
--------- --------- ---------
Income taxes paid totaled $5,199,000 in 1995, $2,807,000 in 1994 and
$3,290,000 in 1993.
29
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 enacted marginal tax rates and laws that will be in effect
when the differences are expected to reverse. The components of the Company's
net deferred tax asset consist of the following:
1995 1994
---- ----
Deferred tax assets:
Insurance reserves $ 776,000 $ 783,000
Capital leases 1,022,000 1,062,000
Other 933,000 456,000
--------- ---------
Total deferred tax assets 2,731,000 2,301,000
--------- ---------
Deferred tax liabilities:
Depreciation 743,000 293,000
Restaurant pre-opening costs 585,000 327,000
Other 98,000 122,000 --------- ---------
--------- ---------
Total deferred tax liabilities 1,426,000 742,000 --------- ---------
--------- ---------
Net deferred tax asset 1,305,000 1,559,000
Less current portion 747,000 801,000 --------- ---------
--------- ---------
$ 558,000 $ 758,000 --------- ---------
--------- ---------
--------- ---------
LEASED ASSETS AND LEASE COMMITMENTS
1995 1994
---- ----
Leased property under capital leases,
less accumulated amortization of $9,079,286
and $9,378,291 $3,802,939 $4,540,791
Long-term portion of net investment in
direct financing leases 2,167,297 2,718,537
--------- ---------
Net leased property $5,970,236 $7,259,328
========= =========
The Company leases the majority of its physical facilities under
noncancelable lease agreements. Steak n Shake restaurants typically have initial
terms of eighteen to twenty-five years and renewal terms aggregating twenty
years or more and Consolidated Specialty Restaurants typically have terms of ten
to fifteen years and three five-year renewal terms. These leases require the
subsidiaries to pay real estate taxes, insurance and maintenance costs. Certain
leased facilities which are no longer operated by the subsidiaries, but have
been subleased to third parties, are classified as non-operating properties in
the table below of minimum future rental payments. Minimum future rental
payments have not been reduced by minimum sublease rentals of $3,500,000 related
to capital leases and $6,953,000 related to operating leases receivable in the
future under noncancelable subleases.
30
At September 27, 1995, obligations under noncancelable capital leases and
operating leases (excluding real estate taxes, insurance and maintenance costs)
require the following minimum future rental payments:
Capital Leases (000's) Operating Leases (000's)
------------------------------ ------------------------
Non- Non-
Operating Operating Operating Operating
Year Property Property Total Property Property
- ---- --------- --------- ----- --------- ---------
1996 $ 1,604 $ 672 $ 2,276 $ 5,620 791
1997 1,583 672 2,255 5,504 794
1998 1,525 672 2,197 5,460 799
1999 1,312 672 1,984 5,288 799
2000 1,133 604 1,737 4,923 715
After 2000 3,018 532 3,550 40,994 3,055
------ ----- ------ ------ -----
Total minimum future rental payments 10,175 3,824 13,999 $67,789 $6,953
------ -----
------ -----
Less amount representing interest 3,416 1,149 4,565
------ ----- ------
Total obligations under capital leases 6,759 2,675 9,434
Less current portion 854 317 1,171
------ ----- ------
Long-term obligations under capital
leases $ 5,905 $2,358 $ 8,263
====== ===== ======
During 1995 and 1994, the Company received net proceeds of $5,544,242
involving five properties, and $6,647,325 involving seven properties,
respectively, from sale and leaseback transactions. Since these leases are
classified as operating, any related gains on the transactions have been
deferred and are being amortized in proportion to the related gross rental
charged to expense over the eighteen-year lease terms.
Direct financing leases resulted from subleasing certain of the
aforementioned leased facilities and the leasing of certain Company-owned
facilities identified for disposal. Net investment in direct financing leases
consists of:
1995 1994
---- ----
Total minimum lease payments to be received $3,899,160 $4,996,508
Less unearned income 1,391,265 1,963,715
--------- ---------
Net investment in direct financing leases 2,507,895 3,032,793
Less current portion included in receivables 340,598 314,256
--------- ---------
Long-term net investment $2,167,297 $2,718,537
--------- ---------
--------- ---------
At September 27, 1995, minimum annual lease payments on direct financing
leases of approximately $625,000 per year are receivable over the next five
years.
DEBT
SENIOR NOTE
On September 27, 1995, the Company entered into a $25,000,000 ten-year
Senior Note Agreement and Private Shelf Facility (the "Agreement"). At
September 27, 1995, the Company had borrowed $10,000,000 under this Agreement.
The borrowings bear interest at 7.7% and the amounts maturing in each of the
five fiscal years subsequent to September 27, 1995 are as follows: 1996 - $0;
1997 -$0; 1998 - $433,333; 1999 - $433,333; 2000 - $945,238. The Company was
also committed to borrowing an additional $5,000,000 under this Agreement by
November 15, 1995 at an interest rate of 7.4%. The remaining $10,000,000
available under this Agreement may be borrowed over the three-year period ending
September 27, 1998 at interest rates based upon market rates at the time of
borrowing. A 12.44% senior note agreement with this same lender dated
November 1, 1990 was consolidated into this Agreement. The amount from the
previous senior note outstanding at September 27, 1995 was $14,250,000 and is
repayable as follows: 1996 - $4,250,000; 1997 -$5,000,000; 1998 - $5,000,000.
The Agreement is unsecured and contains restrictions which, among other things,
require the Company to maintain certain financial ratios.
31
10% SUBORDINATED CONVERTIBLE DEBENTURES
On April 4, 1995, the Company completed the call of its 10% Subordinated
Convertible Debentures due November 20, 2002 ("the Debentures"). Holders of the
Debentures ("Holders") electing conversion of their Debentures into common stock
received one share of the Company's common stock for each $2.82 of Debenture
principal held on the date of conversion plus cash for any remaining fractional
portion. Holders electing redemption of their Debentures received cash in the
principal amount of the Debentures, plus accrued interest up to April 4, 1995.
The call of the Company's Debentures resulted in $10,468,000 of the Company's
long-term debt being converted to equity.
REVOLVING CREDIT AGREEMENT
On September 26, 1995, the Company extended its bank commitment for an
unsecured revolving line of credit of $30,000,000 to December 1997. The line
of credit, with borrowing rates based on LIBOR plus 87.5 basis points or the
prime rate of interest, includes an option for conversion into a five-year
term loan with a ten-year amortization schedule. No borrowings were
outstanding under the line of credit as of September 27, 1995.
During fiscal 1995, interest capitalized in connection with financing
additions to property and equipment amounted to $538,000 pursuant to the
Company's adoption of the Statement of Financial Accounting
Standards No. 34, "Capitalization of Interest" in fiscal 1995.
Interest paid on all debt amounted to $4,063,000 in 1995, $4,259,000
in 1994 and $3,863,000 in 1993.
ACCRUED EXPENSES
1995 1994
---- ----
Salaries and wages $ 4,402,889 $ 3,682,695
Insurance 2,938,352 2,521,690
Property taxes 1,940,653 1,695,990
Other 5,010,300 4,702,137
---------- ----------
$14,292,194 $12,602,512
========== ==========
CAPITAL APPRECIATION PLAN
The Capital Appreciation Plans established in 1991 and 1994 provide for
tandem awards of Common Stock (restricted shares) and book units of up to
219,615 and 132,000 shares and related units, respectively. 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. The total value of the stock grant (based upon market
value at the date of the grant) is credited to treasury stock and amortized
to compensation expense ratably over the three-year period. The 1991 Plan
expired on December 31, 1993, however, the total number of shares and book
units granted under the 1991 Plan for which restrictions have not lapsed was
75,625 at September 27, 1995; 108,900 at September 28, 1994; and 138,432 at
September 29, 1993. The total number of shares and book units granted under
the 1994 Plan for which restrictions have not lapsed was 72,550 at September
27, 1995 and 59,450 shares were reserved for future grants. The amount
charged to expense under the Plans was $438,067 in 1995; $345,365 in 1994;
and $191,320 in 1993.
32
STOCK OPTION PLANS
EMPLOYEE STOCK OPTION PLAN
In February 1995, the shareholders approved the 1995 Employee Stock
Option Plan ("the 1995 Plan"), which provides for the granting of 330,000
stock options. All options granted under the 1995 Plan are incentive 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 five years from the date of grant. Options were granted under
the 1995 Plan to officers and key employees selected by the Stock Option
Committee. At September 27, 1995, 115,700 options have been granted under
the 1995 Plan and 23,060 are exercisable.
In February 1993, the shareholders approved the 1992 Employee Stock
Option Plan ("the 1992 Plan"), which provides for the granting of 242,000
stock options. All options granted under the 1992 Plan are incentive stock
options exercisable on the same terms as the 1995 Plan. The options expire
five years from the date of grant. Options were granted under the 1992 Plan
to officers and key employees selected by the Stock Option Committee. At
September 27, 1995, 241,061 options have been granted under the 1992 Plan and
111,194 are exercisable.
The Company's 1983 Employee Stock Option Plan ("the 1983 Plan") expired
on September 30, 1992. All options outstanding at September 27, 1995 under
the 1983 Plan are nonqualified stock options exercisable on the same terms as
the 1992 Plan. At September 27, 1995, 177,992 options were exercisable under
the 1983 Plan.
As of September 27, 1995, 556,785 shares of Common Stock
were subject to issuance upon the exercise of outstanding options. The
following table summarizes the changes in options outstanding and related
average prices under the 1995, 1992 and 1983 Plans:
Average
Shares Price
------ -------
Outstanding at September 30, 1992 674,432 $3.27
Fiscal 1993 Activity:
Granted 131,406 6.20
Exercised (214,915) 2.10
Canceled (20,451) 4.65
---------
Outstanding at September 29, 1993 570,472 4.34
Fiscal 1994 Activity:
Granted 113,850 8.74
Exercised (152,999) 2.85
Canceled (12,989) 4.42
---------
Outstanding at September 28, 1994 518,334 5.75
Fiscal 1995 Activity:
Granted 120,761 12.96
Exercised (73,087) 4.05
Canceled (9,223) 8.11
--------
Outstanding at September 27, 1995 556,785 $7.45
========
NONEMPLOYEE DIRECTOR STOCK OPTION PLANS
The Company's 1991, 1994 and 1995 Nonemployee Director Stock Option Plans
("the 1991, 1994 and 1995 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.
An aggregate of 40,995 shares of Common Stock are reserved
for the grant of options under the 1991 Plan. At September 27, 1995, all of
the options authorized under the 1991 Plan have been granted at a price of
$3.33, of which 19,619 are exercisable. No options have been canceled since
the inception of the 1991 Plan and 13,177 options have been exercised.
An
aggregate of 32,670 shares of Common Stock are reserved for the grant of
options under the 1994 Plan. At September 27, 1995, all of the options
authorized under the 1994 Plan have been granted at a price of $8.16 of which
13,068 are exercisable. No options have been canceled or exercised since the
inception of the 1994 Plan.
An aggregate of 27,500 shares of Common Stock
are reserved for the grant of options under the 1995 Plan. At September 27,
1995, all of the options authorized under the 1995 Plan have been granted at
a price of $9.18 of which 5,500 are exercisable. No options have been
canceled or exercised since the inception of the 1995 Plan.
33
EMPLOYEE STOCK PURCHASE PLAN
In February 1993, the shareholders approved a tax-qualified Employee
Stock Purchase Plan, providing for a maximum of 60,500 shares of Common Stock
per year for five years. The Plan is available to all eligible employees of
the Company and its subsidiaries as determined by the Board of Directors and
has a calendar plan year. Employees are able to purchase shares of Common
Stock each year through payroll deductions from 2% to 10% of compensation up
to a maximum allowable fair market value of $10,000 or 1,000 shares per year,
whichever is less. The purchase price will be the lesser of 85% of the market
price, as defined, on the first or last trading day of the plan year. During
fiscal 1995 and fiscal 1994, 49,716 shares and 46,240 shares, respectively,
have been purchased and issued to employees.
RELATED PARTY TRANSACTIONS
Kelley & Partners, Ltd. owned 1,205,456 shares, or 9.8%, of the Company
at September 27, 1995. Additionally, certain of the partners, who also serve
as officers and/or directors of the Company, collectively controlled
1,644,311 shares, or 13.3% of the Company's outstanding stock at September
27, 1995.
Kelley & Partners, Ltd. and affiliates held $4,860,100 of the
Debentures at September 28, 1994, all of which were converted into shares of
the Company's common stock upon call of the Debentures (see Debt note).
Interest expense on related party debt was $249,681 in 1995, $488,193 in 1994
and $490,262 in 1993.
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Primary earnings per common and common equivalent share are computed by
dividing net earnings by the weighted average number of common shares
outstanding and common equivalent shares. Common equivalent shares include
shares subject to purchase under stock options and stock warrants. Primary
weighted average shares and equivalents increased due to an increase in the
number of shares outstanding arising from the conversion of the Company's 10%
subordinated convertible debentures into the Company's common stock effective
April 3, 1995.
Fully diluted earnings per common and common equivalent
share assumes, in addition to the above, that the Debentures were converted
at the date of issuance, and that net earnings are increased by the actual
amount of interest expense, net of income taxes, related to the Debentures.
The following table presents information necessary to calculate earnings
per common and common equivalent share:
1995 1994 1993
---- ---- ----
Primary:
Weighted average shares outstanding 10,264,804 7,793,298 7,296,905
Share equivalents 326,558 332,016 358,797
---------- ---------- ----------
Weighted average shares and equivalents 10,591,362 8,125,314 7,655,702
Fully Diluted: ---------- ---------- ----------
Weighted average shares outstanding 10,264,804 7,793,298 7,296,905
Share equivalents 402,631 358,123 362,852
Conversion of Debentures 2,005,378 4,272,354 4,363,258
---------- ---------- ----------
Weighted average shares and equivalents 12,672,813 12,423,775 12,023,015
Net earnings: ---------- ---------- ----------
Net earnings for primary earnings per share computation $10,026,144 $ 7,173,923 $ 5,190,734
Add-interest expense, net of income taxes, applicable to
Debentures 333,003 722,368 736,769
---------- ---------- ----------
Net earnings as adjusted for fully diluted earnings per share
computation $10,359,147 $ 7,896,291 $ 5,927,503
========== ========== ==========
34
MANAGEMENT'S REPORT
- -------------------------------------------------------------------------------
Consolidated Products, Inc.
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Consolidated Products, Inc. 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 generally accepted accounting principles and
reflect in all material respects the Company's 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 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.
The Audit Committee of the Board of Directors,
which is composed of three 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 Committee
is also responsible for making recommendations to the Board of Directors
concerning the selection of the independent auditors.
/s/ Alan B. Gilman /s/ James W. Bear
PRESIDENT AND SENIOR VICE PRESIDENT
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
35
REPORT OF INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Consolidated Products, Inc.
We have audited the accompanying consolidated statements of financial
position of Consolidated Products, Inc. as of September 27, 1995 and
September 28, 1994, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three years in the
period ended September 27, 1995. 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 generally accepted auditing
standards. 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 Consolidated
Products, Inc. at September 27, 1995 and September 28, 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 27, 1995, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Indianapolis, Indiana
November 20, 1995
36