SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TWELVE WEEKS ENDED DECEMBER 18, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-8445
CONSOLIDATED PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
INDIANA 37-0684070
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
500 CENTURY BUILDING, 36 S. PENNSYLVANIA STREET
INDIANAPOLIS, INDIANA 46204
(317) 633-4100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock outstanding at January 15, 1997: 15,435,694
The Index to Exhibits is located at Page 10. Total Pages 13
CONSOLIDATED PRODUCTS, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Position -
December 18, 1996 (Unaudited) and September
25, 1996 3
Consolidated Statements of Earnings (Unaudited)
Twelve Weeks Ended December 18, 1996 and
December 20, 1995 4
Consolidated Statements of Cash Flows (Unaudited)
Twelve Weeks Ended December 18, 1996 and December
20, 1995 5
Notes to Consolidated Financial Statements
(Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 18 SEPTEMBER 25 DECEMBER 18 SEPTEMBER 25
1996 1996 1996 1996
----------- ------------- ----------- -------------
(Unaudited) (Unaudited)
ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT ASSETS CURRENT LIABILITIES
Cash, including cash equiva- Accounts payable $ 13,074,636 $ 13,529,119
lents of $160,000 in 1997 Accrued expenses 16,711,731 17,473,046
and $190,000 in 1996 $ 710,781 $ 630,362 Current portionof senior note 5,738,889 5,000,000
Receivables 3,672,849 3,301,499 Current portion of obligations
Sale and leaseback properties under capital leases 1,328,934 1,302,523
under contract -- 2,231,000 ------------ ------------
Total current liabilities 36,854,190 37,304,688
Inventory 3,913,392 3,940,075 ------------ ------------
Deferred income taxes 1,248,000 1,248,000
Other current assets 4,606,494 3,792,620 DEFERRED INCOME TAXES 325,000 325,000
----------- -----------
Total current assets 14,151,516 15,143,556
----------- -----------
PROPERTY AND EQUIPMENT OBLIGATIONS UNDER
Land 36,131,413 30,579,097 CAPITAL LEASES 6,638,452 6,956,882
Buildings 32,100,070 29,417,926
Leasehold improvements 38,858,192 37,235,370
Equipment 55,804,996 52,920,755 REVOLVING LINE OF CREDIT 14,000,000 4,000,000
Construction in progress 9,972,640 7,496,456
----------- -----------
172,867,311 157,649,604
Less accumulated depreciation SENIOR NOTE 24,261,111 25,000,000
and amortization (49,050,035) (46,987,316)
----------- -----------
Net property and equipment 123,817,276 110,662,288 SHAREHOLDERS' EQUITY
----------- -----------
Common stock -- $.50 stated value,
LEASED PROPERTY 25,000,000 shares authorized --
Leased property under capital shares issued: 15,456,569 in 1997;
leases, less accumulated amorti- 14,045,486 in 1996 7,728,285 7,022,743
zation of $9,754,702 in 1997 Additional paid-in capital 73,900,136 51,766,742
and $9,628,062 in 1996 3,125,651 3,252,642 Retained earnings (deficit) (18,316,591) 1,262,066
Net investment in direct Less: Unamortized value of
financing leases 1,649,382 1,782,993 restricted shares (1,266,342) (1,416,851)
----------- -----------
Net leased property 4,775,033 5,035,635 Treasury stock -- at cost
----------- ----------- 79,892 shares in 1997;
78,288 shares in 1996 (833,930) (805,768)
------------ ------------
OTHER ASSETS 546,486 574,023 Total shareholders' equity 61,211,558 57,828,932
----------- ----------- ------------ ------------
$ 143,290,311 $131,415,502 $143,290,311 $131,415,502
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
SEE ACCOMPANYING NOTES.
3
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
TWELVE WEEKS ENDED
-----------------------------------
DECEMBER 18 DECEMBER 20
1996 1995
------------- --------------
REVENUES
Net sales $54,344,458 $47,007,551
Franchise fees 654,231 565,057
Other, net 600,614 538,856
----------- -----------
55,599,303 48,111,464
----------- -----------
COSTS AND EXPENSES
Cost of sales 14,501,691 12,339,147
Restaurant operating costs 24,288,073 21,265,305
General and administrative 4,339,820 3,817,868
Depreciation and amortization 2,243,992 1,826,120
Marketing 1,663,968 1,470,149
Rent 1,802,013 1,640,222
Amortization of pre-opening costs 792,171 657,194
Interest 798,370 671,529
----------- -----------
50,430,098 43,687,534
----------- -----------
EARNINGS BEFORE INCOME TAXES 5,169,205 4,423,930
INCOME TAXES 1,940,000 1,670,000
----------- -----------
NET EARNINGS $ 3,229,205 $ 2,753,930
----------- -----------
----------- -----------
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ .21 $ .18
WEIGHTED AVERAGE SHARES
AND EQUIVALENTS 15,657,914 15,430,087
SEE ACCOMPANYING NOTES.
4
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
TWELVE WEEKS ENDED
----------------------------
DECEMBER 18 DECEMBER 20
1996 1995
------------ ------------
OPERATING ACTIVITIES
Net earnings $ 3,229,205 $ 2,753,930
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 2,243,992 1,826,120
Amortization of pre-opening costs 792,171 657,194
Changes in receivables and inventories (358,259) (883,216)
Changes in other assets (1,493,093) (1,100,797)
Changes in income taxes payable 1,568,325 1,585,786
Changes in accounts payable
and accrued expenses (2,783,737) 1,488,487
Loss on disposal of property 2,689 53,558
----------- ------------
Net cash provided by operating activities 3,201,293 6,381,062
----------- ------------
INVESTING ACTIVITIES
Additions of property and equipment (15,268,456) (12,792,502)
Net proceeds from disposal of
property and equipment 2,330,701 3,645,432
----------- ------------
Net cash used in investing activities (12,937,755) (9,147,070)
----------- ------------
FINANCING ACTIVITIES
Principal payments on debt
and capital lease obligations (5,212,863) (4,438,697)
Proceeds from long-term debt 5,000,000 5,000,000
Proceeds from revolving line of credit 10,000,000 2,000,000
Lease payments on subleased properties (127,497) (136,763)
Cash dividends paid in lieu of fractional shares (20,519) --
Proceeds from equipment and property leases 154,330 191,718
Proceeds from exercise of stock options 23,430 294,746
----------- ------------
Net cash provided by financing activities 9,816,881 2,911,004
----------- ------------
INCREASE IN CASH AND CASH EQUIVALENTS 80,419 144,996
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 630,362 $ 1,350,139
----------- ------------
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 710,781 $ 1,495,135
----------- ------------
----------- ------------
SEE ACCOMPANYING NOTES.
5
CONSOLIDATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles
for complete financial statements.
In the opinion of the Company, all adjustments (consisting of only normal
recurring accruals) considered necessary to present fairly the consolidated
financial position as of December 18, 1996, the consolidated statements of
earnings for the twelve weeks ended December 18, 1996 and December 20, 1995
and the consolidated statements of cash flows for the twelve weeks ended
December 18, 1996 and December 20, 1995 have been included. Certain 1996
items have been reclassified to conform to the 1997 presentation.
The consolidated statements of earnings for the twelve weeks ended
December 18, 1996 and December 20, 1995 are not necessarily indicative of the
consolidated statements of earnings for the entire year. For further
information, refer to the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended
September 25, 1996.
SEASONAL ASPECTS
The Company has substantial fixed costs which do not decline as a result
of a decline in sales. The Company's second fiscal quarter, which falls
during the winter months, usually reflects lower average weekly unit volumes,
and sales can be adversely affected by severe winter weather.
INTEREST AND INCOME TAXES PAID
Cash payments for interest during the twelve weeks ended December 18,
1996 and December 20, 1995 amounted to $1,020,000 and $673,000, respectively.
Cash payments for income taxes during the twelve weeks ended December 18,
1996 and December 20, 1995 amounted to $372,000 and $84,000, respectively.
SHAREHOLDERS' EQUITY
The number of shares issued as of December 18, 1996 on the consolidated
statement of financial position includes 1,402,298 shares which were
distributed on January 20, 1997 pursuant to a 10% stock dividend declared on
December 18, 1996 to shareholders of record on January 6, 1997.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In the following discussion, the term "same store sales" refers to the
sales of only those units open for at least six months prior to the beginning
of the fiscal periods being compared and which remained open through the end
of the fiscal period.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to revenues of
items included in the Company's consolidated statements of earnings for the
periods indicated:
TWELVE WEEKS ENDED
-----------------------
12/18/96 12/20/95
-------- --------
REVENUES
Net sales 97.7% 97.7%
Franchise fees 1.2 1.2
Other, net 1.1 1.1
----- -----
100.0 100.0
----- -----
COSTS AND EXPENSES
Cost of sales 26.1 25.6
Restaurant operating costs 43.7 44.2
General and administrative 7.8 7.9
Depreciation and amortization 4.0 3.8
Marketing 3.0 3.1
Rent 3.3 3.4
Amortization of pre-opening costs 1.4 1.4
Interest 1.4 1.4
----- -----
90.7 90.8
----- -----
EARNINGS BEFORE INCOME TAXES 9.3 9.2
INCOME TAXES 3.5 3.5
----- -----
NET EARNINGS 5.8% 5.7%
----- -----
----- -----
COMPARISON OF TWELVE WEEKS ENDED DECEMBER 18, 1996 TO TWELVE WEEKS ENDED
DECEMBER 20, 1995
REVENUES
Revenues increased $7,488,000 to $55,599,000, or 15.6%, due primarily to
an increase in Steak n Shake's net sales of $7,449,000. The increase in net
sales of Steak n Shake was due to the opening of new units pursuant to the
Company's expansion plan (non-same stores), partially offset by a decrease in
same store sales of 0.6% and the closure of three low-volume units. The
decrease in same store sales was attributable to a decrease of 2.7% in
customer counts partially offset by a 2.1% increase in check average. Steak n
Shake instituted price increases of 1.4% and 1.3% in January 1996 and October
1996, respectively. The retail environment with fewer shopping days between
Thanksgiving and Christmas had a somewhat negative effect on same store
sales. After excluding units in close proximity (generally three miles) to
the new units opened during the periods, Steak n Shake same store sales
increased 2.1%.
Franchise fees, which includes both initial franchise fees and royalties
on franchise sales, increased $89,000 to $654,000 due primarily to the
opening of 15 Steak n Shake franchised units since the beginning of fiscal
1996.
7
COSTS AND EXPENSES
Cost of sales increased $2,163,000, or 17.5%, as a result of sales
increases. As a percentage of revenues, cost of sales increased to 26.1%
from 25.6%, primarily as a result of increased dairy and beef costs, along
with the mix of Company-operated cost of sales and the cost of sales on
product sales to franchisees.
Restaurant operating costs increased $3,023,000, or 14.2%, 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
43.7% from 44.2%, primarily as a result of the increase in Steak n Shake
sales and improved labor utilization.
The Company's operating margins improved slightly despite the effect of
the minimum wage increase and inflationary pressures on food cost.
General and administrative expenses increased $522,000 or 13.7%. As a
percentage of revenues, general and administrative expenses decreased
slightly to 7.8% from 7.9%. The increase in expenses was attributable to
personnel related costs, which included costs for additional staffing in
connection with the development of new restaurants.
The $418,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1996.
Marketing expense increased $194,000, or 13.2%. As a percentage of
revenues, marketing expense decreased slightly to 3.0% from 3.1%.
Rent expense increased $162,000, or 9.9%, as a result of sale and
leaseback transactions since the beginning of fiscal 1996 involving eight
Company-owned properties and a net increase in the number of other leased
properties.
The $135,000 increase in the amortization of pre-opening costs was
attributable to the increase in the number of new Company-operated units
opened.
Interest expense increased $127,000 as a result of the increased
borrowings under the Company's revolving line of credit and senior note
agreements, partially offset by the reduction in capital lease obligations.
INCOME TAXES
The Company's effective income tax rate decreased slightly to 37.5% from
37.8% for both the quarter ended December 20, 1995 and the year ended
September 25, 1996. The decrease from the prior period and from fiscal 1996
resulted from an increase in federal tax credits as a percentage of earnings
before income taxes. A valuation allowance against gross deferred tax assets
has not been provided based upon the expectation of future taxable income.
NET EARNINGS
Net earnings increased $475,000 to $3,229,000, or 17.3%, primarily as a
result of the increase in Steak n Shake's operating earnings. Fully diluted
earnings per share increased from $.18 to $.21.
8
LIQUIDITY AND CAPITAL RESOURCES
Thirteen Steak n Shake restaurants, including two franchised units, were
opened during the quarter ended December 18, 1996. Subsequent to the end of
the first quarter, two Company-operated Steak n Shake restaurants were
opened. Eleven additional units, including three franchised units, are
currently under construction. For the quarter ended December 18, 1996,
capital expenditures totaled $15,268,000 as compared to $12,793,000 for the
comparable prior year period. The primary sources of funds for the Company's
expansion program have been cash flow from operations, borrowings, and
capital generated by sale and leaseback transactions.
During the twelve weeks ended December 18, 1996, the Company borrowed the
remaining $5,000,000 available under the $25,000,000 ten-year Senior Note
Agreement and Private Shelf Facility (the "Senior Note Agreement"). As of
December 18, 1996, outstanding borrowings under the Senior Note Agreement
bear interest at an average fixed rate of 7.7%. The Company's $30,000,000
Revolving Credit Agreement extends to December 1997, with interest rates
based on LIBOR plus 87.5 basis points or the prime rate, at the election of
the Company. The amount outstanding under the Revolving Credit Agreement was
$14,000,000 as of December 18, 1996. The Company expects to be able to
secure a new revolving credit facility upon expiration of the current
agreement. The Company's debt agreements contain restrictions, which among
other things require the Company to maintain certain financial ratios.
The Company's current expansion plan calls for 240 new Company-operated
restaurants to be opened during the five-year period from fiscal 1997 to
fiscal 2001. The Company intends to fund capital expenditures and meet
working capital needs using existing resources and anticipated cash flows
from operations, together with additional capital generated by sale and
leaseback transactions involving newly acquired properties, bank borrowings,
and the issuance of equity and/or debt securities.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Report contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Those statements include, but may not be limited to, the discussions
of the Company's expansion strategy, expectations concerning its future
profitability, capital sources and needs and franchising program. Investors
in the Common Stock are cautioned that reliance on any forward-looking
statement involves risks and uncertainties, and that although the Company
believes that the assumptions on which the forward-looking statements
contained herein are reasonable, any of those assumptions could prove to be
inaccurate, and as a result, the forward-looking statements based on those
assumptions also could be incorrect. The uncertainties in this regard
include, but are not limited to, those identified above. In light of these
and other uncertainties, the inclusion of a forward-looking statement herein
should not be regarded as a representation by the Company that the Company's
plans and objectives will be achieved.
9
PART II. OTHER INFORMATION
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
(2) Not Applicable
(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).
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).
(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. 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).
10.03 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).
10.04 Consultant Agreement by and between James Williamson, Jr.
and the Registrant dated November 20, 1990. (Incorporated
by reference to the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter
ended July 1, 1992).
10.05 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
10.06 Area Development Agreement by and between Steak n Shake,
Inc. and Consolidated Restaurants Southeast, Inc.
(currently Kelley Restaurants, Inc.) dated June 12, 1991
for 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).
10.07 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).
10.08 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).
10.09 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
11
10.15 Consolidated Products, Inc. 1996 Nonemployee Director
Stock Option Plan. (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy Statement
dated January 15, 1996 related to the 1996 Annual Meeting
of Shareholders).
(11)11.01 Computation of Earnings Per Share.
(27)27.01 Financial data schedule. (Electronic filing only).
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the period covered by this report
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on January 30, 1997.
CONSOLIDATED PRODUCTS, INC.
(Registrant)
/s/Kevin F. Beauchamp
--------------------------------------
By Kevin F. Beauchamp
Vice President and Controller
On Behalf of the Registrant and as
Principal Accounting Officer
12