-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R7fg01pl8bTl6FFbl4u2s91KgDGodgeNk0vwvXwfi1QKieMunxIle3IdCLgh24pH /bpaenhjXu8R3kSTla01dg== 0000912057-00-054610.txt : 20001225 0000912057-00-054610.hdr.sgml : 20001225 ACCESSION NUMBER: 0000912057-00-054610 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000927 FILED AS OF DATE: 20001222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED PRODUCTS INC /IN/ CENTRAL INDEX KEY: 0000093859 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 370684070 STATE OF INCORPORATION: IN FISCAL YEAR END: 0927 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-08445 FILM NUMBER: 794881 BUSINESS ADDRESS: STREET 1: 500 CENTURY BLDG STREET 2: 36 S PENNSYLVANIA ST CITY: INDIANAPOLIS STATE: IN ZIP: 46236 BUSINESS PHONE: 3176334100 MAIL ADDRESS: STREET 1: 500 CENTURY BUILDING STREET 2: 36 SOUTH PENNSYLVANIA STREET CITY: INDIANAPOLIS STATE: IN ZIP: 46204 FORMER COMPANY: FORMER CONFORMED NAME: STEAK N SHAKE INC DATE OF NAME CHANGE: 19840529 10-K 1 a2033923z10-k.txt 10-K 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, 2000 / / 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) 36 S. Pennsylvania Street, Suite 500 Indianapolis, Indiana 46204 (317) 633-4100 (Address and telephone number of registrant's principal executive offices) Securities registered pursuant to Sec. 12(b) of the Act: Name of Exchange Title of Each Class On Which Registered ------------------- ------------------- Common Stock, par value $.50 per share New York Stock Exchange Securities registered pursuant to Sec. 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ NO / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K./ / 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 8, 2000, was approximately $148,106,658. The number of shares of Common Stock outstanding at December 8, 2000 was 28,992,636. DOCUMENTS INCORPORATED BY REFERENCE PARTS OF FORM 10-K INTO WHICH IDENTITY OF DOCUMENT DOCUMENT IS INCORPORATED Registrant's Annual Report to Shareholders for fiscal year ended September 27, 2000 Parts II and IV The definitive Proxy Statement to be filed with respect to the 2000 Annual Meeting of Shareholders of Registrant Part III PART I. ITEM 1. BUSINESS GENERAL The Company is engaged primarily in the ownership, operation and franchising of Steak n Shake restaurants through its wholly-owned subsidiary, Steak n Shake, Inc. Founded in 1934 in Normal, Illinois, Steak n Shake is one of the oldest restaurant chains in the country. As of September 27, 2000, Steak n Shake had 313 Company-operated restaurants and 54 franchised restaurants, located in 16 midwestern and southeastern states. Steak n Shake restaurants are generally open 24 hours a day, seven days a week, and in addition to the core menu, offer a breakfast menu during breakfast hours. During fiscal 2000, lunch and dinner sales accounted for approximately 36% and 44% of sales, respectively, while breakfast and late night sales accounted for 7% and 13% of sales, respectively. THE STEAK N SHAKE CONCEPT Management's key concept strategies are to: CAPITALIZE ON DISTINCT MARKET NICHE. Steak n Shake occupies a distinct niche in the restaurant industry. The restaurants offer full-service dining with counter and dining room seating, as well as drive-thru and carryout service. Counter and dining room sales represent approximately two-thirds of the sales mix, while sales for off-premises dining represent approximately one-third of the sales mix. Unlike most fast-food restaurants, all food is freshly prepared, cooked-to-order in view of the customer and served promptly on china with flatware and glassware by friendly wait staff. Steak n Shake's prices are considerably less than most casual dining concepts with an average check of approximately $5.60 per person, although the average check during the peak lunch and dinner hours is approximately $5.55 and $5.80, respectively. The Company believes that Steak n Shake offers more compelling value and core menu items with a higher level of quality than competitive fast food and casual dining chains. FOCUS ON CORE MENU ITEMS WHILE OFFERING VARIETY. For over 66 years, Steak n Shake's menu has featured core items, which include Steakburgers, thin and crispy French fries and hand-dipped Milk Shakes. The Company believes that its focus on certain menu items has allowed it to serve consistent, high quality food, which, in turn, has built brand loyalty with its customers. Menu items are prepared in accordance with the Company's strict specifications using high quality ingredients such as 100% pure U.S. beef, including cuts of T-bone, strip and sirloin steaks, in its Steakburgers. Over the years, Steak n Shake has responded to changing customer tastes with greater menu variety without losing its focus or customer appeal, by making carefully planned menu additions such as chicken breast sandwiches, beef and chicken taco salads, desserts and various homestyle soups and salads. EMPHASIZE CUSTOMER SATISFACTION. Steak n Shake's reputation and long-standing customer loyalty have been earned over many years by the consistent quality of the dining experience. The success of Steak n Shake depends on its employees' commitment to consistently exceed the customer's expectations. All restaurant employees participate in a formal training program that focuses on enhancing customer satisfaction and includes classroom and on-the-job instruction. Restaurant managers are required to complete a comprehensive eight-week training program on restaurant operating procedures, employee relations, and customer service. In order to ensure consistent execution of the Company's standards for service, self-stamped and addressed customer comment cards are placed in every restaurant, and management performs periodic on-site visits and formal inspections. RESTAURANT DESIGN Steak n Shake restaurants have a distinctive exterior appearance and interior decor. The exterior design of a Steak n Shake restaurant has the individual character of a branded logo, embracing building shape, awning detail, building graphics and pylon signage. The interior decor is reminiscent of the nostalgic diner era using chrome, glass, neon and tile in a contemporary manner. Food preparation takes place in view of the customer, as reflected by Steak n Shake's slogan, "In Sight It Must Be Right-Registered Trademark-". The kitchen area is designed to allow for efficiency of workflow, thereby minimizing the amount of space required. All Steak n Shake restaurants are freestanding structures except for nine units, of which four are part of travel centers. The majority of restaurants are generally 3,800 square feet in area and seat approximately 100 customers while a minimal percentage of restaurants vary in size and seat from 39 to 138 customers. The travel center units are located 2 in complexes that typically include a fuel service area and a convenience store. These units are located on interstate highways and serve both the general traveler and truck traffic. The travel center unit exteriors and interiors are similar to those of the freestanding units. EXPANSION STRATEGY Controlled growth into new trade areas has been a focus over the last five years. For fiscal year 2000, 37 Company-operated units were opened. Due to the increasingly tight labor market that resulted from the unprecedented low unemployment in fiscal year 2000, the Company has experienced pressure on staffing and wages. In the face of these challenges, the Company has shifted its focus from new unit development to increasing same store sales, controlling costs, and developing new initiatives in employee retention. Accordingly, the Company now expects to open 25 to 30 Company - operated Steak n Shake restaurants in fiscal year 2001. The Company's controlled expansion program is based upon a market penetration plan focused on clustering restaurants in existing or contiguous geographic areas to capitalize on name recognition, increase customer convenience and achieve media efficiency. The addition of Company-operated restaurants in markets where the Company's television marketing effort has been implemented allows the Company to leverage its advertising costs over more units and to benefit from management efficiencies. In existing media markets, the Company's advertising expenditures create higher levels of customer recognition and greater market acceptance for new units. During fiscal 2000, the Company opened its first restaurants in the Mobile and Montgomery, Alabama markets while continuing its expansion in the Ohio, Florida and Michigan markets. A second element of the Company's expansion is to link existing major Steak n Shake markets by developing Steak n Shake units along the connecting interstate highways. Since the beginning of fiscal 1995, 99 Company-operated and 26 franchised restaurants have been opened at locations along interstate highways. Franchising is another element of the Company's expansion program. The Company's franchising program is designed to extend brand name recognition of Steak n Shake and derive additional revenues without substantial investment by the Company. As part of its continuing planning process, management reviews the relationship of the number of Company-operated to franchised restaurants and the selection of areas for development by the Company and by franchisees. The Company's expansion plan contemplates the controlled addition of franchised restaurants with the current franchisees. See "Franchising." SITE SELECTION Management believes the site selection process is critical to the success of its restaurants, and senior management devotes significant time and resources 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, shopping centers, office complexes, and hotel and entertainment centers including stadiums, arenas and multi-screen theaters. The Company's Vice President of Real Estate and the real estate managers identify and research sites for review by the Company's senior management prior to final authorization for purchase or lease approval. Upon identification of a site, its success, including the potential return on investment, is assessed by utilization of financial models, which evaluate the unit's projected sales and earnings. 3 RESTAURANT LOCATIONS The following table lists, as of September 27, 2000, the locations of the 367 Steak n Shake restaurants, including 54 franchised, the number of units in each state and the number of units in each city if more than one unit: (* denotes franchised units) FLORIDA (62) (CONT. OHIO) (CONT. IOWA) MISSOURI (54) Boynton Beach Medina Davenport Arnold Bradenton Mentor Waterloo * Branson Cape Coral Middletown * Cape Girardeau Clearwater - 2 Milford INDIANA (57) * Columbia - 2 Daytona Beach Pickerington Anderson Eureka Ft. Pierce Sandusky Avon * Farmington Gainesville -2 Springfield Bloomington - 3 Fenton Green Acres Toledo -2 Carmel - 2 Festus Jacksonville - 2 Troy * Clarksville Independence Kissimmee Zanesville Columbus * Jefferson City Lakeland - 3 Elkhart Joplin Lake Buena Vista ILLINOIS (59) * Evansville - 2 Kansas City Lake Mary Alton Ft. Wayne - 3 Lees Summit Largo Aurora Goshen * Poplar Bluff Leesburg Batavia Greenwood - 2 * Rolla Merritt Island Belleville Indianapolis - 20 St. Louis - 32 Ocala - 2 Bloomington - 2 Kokomo - 2 Springfield - 4 Orange City Bradley Lafayette - 2 Sullivan Orlando - 11 Bolingbrook Lawrenceburg Wentzville Ormond Beach Carbondale Lebanon Oviedo Champaign Marion GEORGIA (21) Palm Coast Collinsville Merrillville Albany Pensacola Danville - 2 Michigan City * Atlanta - 12 Port Charlotte Decatur - 2 Mishawaka * Brunswick Port Richey DeKalb Muncie Columbus Sanford Downers Grove Noblesville * Dalton Sarasota East Peoria Plainfield Macon - 2 Spring Hill Edwardsville Richmond Tifton St. Augustine Effingham Schererville Valdosta St. Petersburg -2 Elgin Seymour Warner Robins Stuart Fairview Heights South Bend Tallahassee - 2 Forsythe Terre Haute TENNESSEE (15) Tampa - 8 Galesburg Valparaiso Antioch Vero Beach Glendale Heights * Chattanooga - 2 West Melbourne Gurnee MICHIGAN (18) Clarksville Wildwood Hoffman Estates Auburn Hills Cleveland Winter Haven * Jacksonville Battle Creek Cookeville Joliet - 2 Benton Harbor Franklin KENTUCKY (14) Lake In the Hills Grand Rapids - 3 * Jackson * Bowling Green * Lincoln Grandville Knoxville - 2 * Elizabethtown Marion Holland * Memphis Florence - 2 Mattoon Jackson Murfreesboro Frankfort McHenry Kalamazoo Nashville -3 Lexington Moline Lansing - 2 * Louisville - 5 Mt. Prospect Livonia KANSAS (4) * Owensboro Mt. Vernon Portage Lawrence Paducah Naperville Sterling Heights Olathe Richmond Normal - 2 Waterford Overland Park O'Fallon Woodhaven Topeka OHIO (44) Oswego Ypsilanti Akron - 2 Pekin ALABAMA (6) Brooklyn Peoria - 4 NORTH CAROLINA (4) Decatur Cincinnati - 7 Peru * Burlington Dothan Columbus - 11 * Quincy * Charlotte - 2 Mobile - 2 Dayton - 5 Rockford * Greensboro Montgomery Elyria Rosemont Prattville Findlay * Springfield - 4 MISSISSIPPI (1) Forest Park Tinley Park * Southaven WISCONSIN (3) Lancaster Urbana - 2 Janesville Lima ARKANSAS (2) Madison Mansfield IOWA (3) Jonesboro Racine Marion Cedar Rapids Little Rock
4 RESTAURANT MANAGEMENT The operation of the restaurants is the responsibility of the Senior Vice President of Operations and National General Manager, the Vice President of Operations and Deputy National General Manager, nine division managers, fifty district managers and the unit-level restaurant management teams. The divisions and the number of units in each are as follows:
NUMBER OF DIVISION UNITS -------- --------- Missouri 52 Indiana 50 Illinois 59 Florida 59 Michigan 17 Ohio 20 Central Ohio 27 Tennessee 14 Southeastern 15 --- 313 ---
Division managers are responsible for the operation of the restaurants in the division as well as supervision of the division support team, which includes district managers, human resource managers, training managers, training supervisors, and maintenance and administration staff. District managers generally have responsibility for the operating performance of six to eight restaurants. The management team of a typical Steak n Shake restaurant consists of a general manager, a restaurant manager and three assistant managers. The number of assistant managers varies depending upon the volume of the unit. The general manager of each restaurant has primary responsibility for the day-to-day operations of the restaurant and is responsible for maintaining Company-established operating standards and procedures. The general manager is the key contributor to the success of a Steak n Shake restaurant. An experienced, well-trained general manager promotes compliance with the Company's high standards for food quality and customer service. Steak n Shake seeks to employ restaurant managers who are customer service oriented and who manage the restaurant from the dining room. Steak n Shake recognizes the important role of a seasoned, well-trained and properly motivated restaurant team. The Company has initiated innovative programs that involve hiring, training and career development, and a wide variety of benefits to reward and recognize adherence to Steak n Shake's high standards. Recruiting and hiring programs have been intensified to seek the qualified people required to support the Company's growth plan. The philosophy of the Company has always been to build the field operations culture with a "promote from within" approach. In fiscal 2000, 333 hourly employees were promoted to Manager. In the last year, 143 General Managers were promoted from within to their positions. In addition, 12 General Managers were promoted to District Manager. In order to develop the talented bench strength needed for continued internal promotions, people development is one of the highest priorities of the Company. Organization-wide evaluations of individual development progress are routinely conducted. As part of the Company's commitment to improving its standards of execution, emphasis is placed upon strengthening the skills and capabilities of each restaurant team through innovative selection, development, evaluation, and reward systems. Employees are encouraged to learn new skills to foster their professional growth and to create greater opportunities for advancement. Aggressive college recruiting programs designed to provide the future leadership for our growth is another major corporate priority. The Company has created a focus on an intensified college recruiting effort to increase the Company's restaurant management quality and staffing levels, thereby providing the management bench strength to support the Company's growth program. The increased management staffing depth will also enhance the Company's ability to deliver dining experiences that exceed customers' expectations, as well as reduce management turnover. The Company believes that offering competitive compensation, including incentive bonus plans tied to performance goals for all levels of restaurant management personnel, is important to attracting and retaining competent and highly motivated managers. Awards under the Incentive Bonus Plan are based upon attainment of defined operating performance standards. Accelerated growth continues as one of the Company's primary attractions by providing many 5 new opportunities for qualified employees to grow within the organization. The Employee Stock Purchase Plan also provides an opportunity for employees to purchase shares of the Company's stock at a discounted price and without the cost of any brokerage fees. This provides an enhanced opportunity for employees to become shareholders of the Company and invest in its future. TRAINING Each restaurant team 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. Steak n Shake's goal is to continue to develop strong restaurant management teams by providing carefully designed leadership training programs. Each geographic division designates specific restaurants where intensified on-the-job management training occurs under careful supervision by experienced restaurant managers. 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. During fiscal 2000, 937 individuals entered this training program, approximately 35% of whom were promoted from within the Company. The general managers, together with division personnel, are responsible for hiring the hourly employees for each restaurant. Each restaurant employs approximately 40 to 80 hourly employees, many of whom work part-time. Prior to the opening of a restaurant, the Company's division management assembles a team of experienced employees to train and educate the new employees. The training period for new employees lasts approximately two weeks and includes one week of general training prior to opening and one week of on-the-job supervision at the restaurant. Ongoing employee training remains the responsibility of the restaurant general manager under the supervision of a division training manager. CUSTOMER SATISFACTION AND QUALITY CONTROL Management believes that employee commitment to consistently exceed customer expectations is critical to the success of Steak n Shake. The Company intends to continue to develop and implement standards of execution that will result in the efficient delivery of high quality, great-tasting food served by friendly, competent wait staff. Restaurant management is responsible for ensuring that the restaurants are operated in accordance with strict operational procedures and quality requirements. Compliance for Company-operated units is monitored through the use of customer comment cards, a mystery shopping program, 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 Company's franchise field operations personnel and a mystery shopping program. Unfavorable comment cards are responded to by division management. PURCHASING AND DISTRIBUTION CENTER OPERATIONS Steak n Shake operates a distribution center in Bloomington, Illinois from which food products (except for items purchased by the restaurants locally such as bakery goods, produce and dairy products) and restaurant supplies are delivered to 99 Company-operated and 17 franchised restaurants located in parts of the Midwest (primarily in Illinois, Missouri and Iowa). The Company's semi-trailers have the capability to handle refrigerated and frozen products along with dry goods in the same delivery trip. The remaining Steak n Shake restaurants, located primarily in the Southeast and parts of the Midwest, obtain food products and supplies that meet the Company's quality standards and specifications from an independent distributor with locations in Tampa, Florida and Bloomington, Indiana. Purchases are negotiated centrally for most food and beverage products and supplies to ensure uniform quality, adequate quantities and competitive prices. Forward buying contracts are utilized to facilitate the availability of products pursuant to the Company's specifications and to even out exposure to fluctuating prices. Food and supply items undergo ongoing research, development and testing in an effort to maintain the highest quality products and to be responsive to changing consumer tastes. The Company has not experienced any significant delays in receiving food and beverage products, restaurant supplies or equipment. RESTAURANT REPORTING 6 Systems and technology are essential for the management oversight needed to monitor Steak n Shake's high standards for quality and to achieve proper operating margins. Operational and financial controls are maintained through the use of point of sale systems in each restaurant, personal computers in the division offices and an automated data processing system at the corporate office. The management accounting system polls data from the point of sale system by way of local and wide area networks and generates daily reports of sales, sales mix, customer counts, check average, cash, labor and food cost. Inventories are taken of key products daily and at the end of each four-week accounting period. Management utilizes this data to monitor the effectiveness of controls and to prepare periodic financial and management reports. The system is also utilized for financial and budget analysis, planning and analysis of sales by revenue center and product mix and labor utilization. Planned system developments include additional enhancements, such as a sales forecasting and labor scheduling system. Cash is controlled through frequent deposits in local bank operating accounts followed by transfers to the principal corporate operating account. MARKETING For over sixty-six years, our commitment to customer service satisfaction has been the most effective approach to attracting and retaining guests. New restaurants benefit from loyalty to the Steak n Shake brand and the Company's strategy of locating multiple restaurants within a market area. Steak n Shake's marketing thrust is directed towards building brand loyalty and is not price driven or reliant on low price discount marketing. Value at Steak n Shake is based on exceeding our customers' expectations by delivering freshly prepared, cooked-to-order, quality food with a unique taste that our friendly, well-trained staff serves promptly in an attractive, clean environment. This niche value positioning is communicated to the consumer via a branded non-price differentiation marketing strategy. Television marketing platforms are product benefit directed, showing why Steak n Shake is superior to fast food alternatives with a fun, irreverent, tongue-in-cheek humorous approach. This "voice of the restaurant" defines a brand personality that recalls the nostalgic diner days when life was simpler, friendlier, and less stressful. By coupling this branding approach with real consumer benefits, existing guests are encouraged to visit more often and new guests are encouraged to try a Steakburger and a Shake. Print, outdoor, radio, and most other media forms are utilized, but the most effective and efficient media form remains television as it sells Steak n Shake with sight, sound, motion, and emotion. Our web site at www.steaknshake.com provides a worldwide presence that communicates the brand, the menu, our history, and location addresses by market. A strong emphasis on investor information allows potential investors to learn about the Company including the latest public relations and financial information. The web site also serves as an effective recruiting tool. Additional marketing activities designed to build brand awareness and loyalty, create new customer trials and introduce new products include quarterly freestanding newspaper inserts and seasonal in-store offerings centered around short-term, special promotions or product introductions. The fully integrated marketing program also utilizes menu clip-ons, table cards, ceiling danglers and signage. During fiscal 2000, the Company expended 3.0% of revenues on media and marketing materials. FRANCHISING GENERAL. The Company's franchising program is designed to extend the brand name recognition of Steak n Shake to areas where the Company has no current development plan and to derive additional revenues without substantial investment by the Company. The Company contemplates the controlled addition of franchised restaurants over the next five years with a very selective screening standard. As of September 27, 2000, the Company had 54 franchised Steak n Shake restaurants operated by 15 franchisees, located in Georgia, Illinois, Indiana, Kentucky, Mississippi, Missouri, North Carolina and Tennessee. These restaurants are located in areas contiguous to markets in which there are Company-operated restaurants. The Company currently has commitments from existing franchisees for the development of additional franchised restaurants. PRINCIPAL FRANCHISEES. Steak n Shake's principal franchise relationship is with Kelley Restaurants, Inc. ("KRI"). KRI operates twelve Steak n Shake restaurants in the Atlanta market and two units in the Charlotte market. KRI is controlled by E. W. Kelley, the Chairman of the Company. 7 APPROVAL. Franchisees undergo a selection process supervised by the Senior Vice President in charge of 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. The Company initially enters into an agreement with the franchisee for the development of one unit. After the franchisee has demonstrated the ability to operate that unit in accordance with Company standards, the Company will consider entering into a broader franchise relationship. TRAINING AND DEVELOPMENT. Steak n Shake assists franchisees with both the development and the ongoing operation of their restaurants. Steak n Shake management personnel assist with site selection, approve all franchise sites and provide franchisees with prototype plans and specifications for construction of their restaurants. The Company's training staff provides both on-site and off-site instruction to franchised restaurant management employees. Managers of franchised restaurants are required to obtain the same training as managers of Company-operated units. Steak n Shake's support continues after a restaurant opening with periodic training programs, 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. Steak n Shake has three franchise field representatives who monitor franchise operations. OPERATIONS. All franchised restaurants are required, pursuant to their respective franchise agreements, to serve Steak n Shake approved menu items. In addition, although not required to do so, franchisees served by Steak n Shake's distribution center purchase food, supplies and smallwares at Steak n Shake's cost, plus a markup to cover its cost of operation including freight for delivery. Steak n Shake's point-of-sale systems are also available for purchase by franchisees. Access to these services enables franchisees to benefit from Steak n Shake's purchasing power and assists Steak n Shake in monitoring compliance with its standards and specifications for uniform quality. See "Purchasing and Distribution Center Operations". FRANCHISE AGREEMENT. The standard Steak n Shake franchise agreement currently has an initial term of 20 years. Among other obligations, the agreement generally requires franchisees to pay an initial franchise fee of $30,000 for the first unit in a market, $25,000 for each subsequent unit and a continuing royalty of 4% of monthly gross sales. The current franchise agreement also requires the franchisee to pay 5% of monthly gross sales to the Company for advertising, of which 80% is to be spent on local, regional or national marketing and 20% is to be used by Steak n Shake for creative and promotional development, outside independent marketing agency fees and technical and professional marketing advice. FRANCHISING ASSISTANCE. In certain circumstances, the Company's financing subsidiary, SNS Investment Company, Inc., will assist qualified franchisees in financing the development of one or more franchised units by purchasing or leasing approved sites from third parties, constructing the restaurant and leasing or subleasing the finished facility to the franchisee. The lease terms and rentals, including a surcharge by the Company for administrative services, are negotiated based on prevailing real estate and construction rates in effect in the franchised area. Through September 27, 2000, seven restaurants had been financed through this subsidiary. CONSOLIDATED SPECIALTY RESTAURANTS, INC. ("CSR") CSR, a wholly owned subsidiary of the Company, operated eleven theme restaurants located in Illinois and Indiana. In September of 2000, the Company announced its decision to dispose of the specialty Restaurant segment comprised of eleven specialty casual dining restaurants operated by CSR. The Company has reported the disposal of CSR as a discontinued operation. COMPETITION The restaurant business is one of the most intensely competitive industries in the United States, with price, menu offerings, location and service all being significant competitive factors. The Company's competitors include national, regional and local chains as well as local, owner-operated establishments. There are established competitors with financial and other resources greater than those of the Company in all of the Company's current and proposed future market areas. The Company faces competition for sites on which to locate new restaurants and for personnel, as well as for customers. 8 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, 2000, the Company had approximately 18,000 employees, the majority of which are employed by Steak n Shake. Approximately two-thirds of the Company's hourly employees are part-time. The Company has experienced higher labor costs in part due to tight labor markets in many of the markets served by the Company. Wage rates increased by 4.4% during fiscal 2000 due to these tight labor markets. The Company also experienced an increase in manager training costs of $1,300,000 over fiscal 1999 resulting from the Company's significantly intensified manager recruiting programs. 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-", "Its a Meal-Registered Trademark-" and the "Wing and Circle-Registered Trademark-" logo are federally registered trademarks and servicemarks. 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 in addition to state registrations. The Company is not aware of any infringing uses that could materially affect its business. 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. 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 restaurant employees 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 -- Georgia, Illinois, Indiana, Kentucky, Mississippi, Missouri, North Carolina and Tennessee - -- and is subject to certain federal and state laws controlling the offering and conduct of its franchise business in those states. In addition, the Company is subject to franchise registration requirements in several states in which it is now conducting or will 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 that comply with the Act, and has reviewed its employment policies and practices for compliance with the Act. GEOGRAPHIC CONCENTRATION During fiscal 1999, approximately 66% of the Company's net sales were derived from six markets: St. Louis, Missouri (17%); Indianapolis, Indiana (14%); Central Florida (19%), Western and Central Ohio (10%) and Chicago, Illinois (6%), respectively. As a result, the Company's results of operations may be materially affected by weather, economic or business conditions within these markets. Also, given the Company's present geographic concentration, adverse publicity relating to Steak n Shake restaurants could have a more pronounced adverse effect on the Company's overall sales than might be the case if the Company's restaurants were more broadly dispersed. THE RESTAURANT INDUSTRY Historically, the restaurant industry has been affected by changes in consumer tastes and by national, regional and local economic conditions and demographic trends. The performance of individual restaurants may be affected by factors such as traffic patterns, demographic factors and the type, number and location of competing restaurants. In the future, factors such as inflation, increased food, labor and employee benefit costs and the lack of availability of qualified 9 management personnel and hourly employees could adversely affect the restaurant industry in general and the Company's restaurants in particular. RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS Certain forward-looking statements are contained in this Report and may be made by Company spokespersons based on current expectations of management. Those statements include, but may not be limited to, the discussions of the Company's expansion strategy, expectations concerning its future profitability, capital sources and needs, marketing plans and franchising programs. Investors in the Common Stock are cautioned that reliance on any forward-looking statement involves risks and uncertainties. Those risks and uncertainties include, but are not limited to, changes in competitive, economic or legal factors, changes in the tax laws and changes in accounting standards, as well as changes in internal and business combinations. Although the Company believes that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements could be incorrect. 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. EXECUTIVE OFFICERS OF THE REGISTRANT 10 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) 83 Chairman - Consolidated Products, Inc. 1984 Steak n Shake, Inc. 1984 Consolidated Specialty Restaurants, Inc. 1990 S. Sue Aramian(1) 68 Vice Chairwoman - Consolidated Products, Inc. 1990 Steak n Shake, Inc. 1990 Consolidated Specialty Restaurants, Inc. 1990 Alan B. Gilman(1)(2) 70 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) 55 Senior Vice President, Chief Financial Officer - Consolidated Products, Inc. 1991 Steak n Shake, Inc. 1991 Consolidated Specialty Restaurants, Inc. 1993 Kevin F. Beauchamp 43 Vice President - Consolidated Products, Inc. 1993 Vice President and Deputy National General Manager - Steak n Shake, Inc. 1997 B. Charlene Boog(3) 68 Associate Vice President Consolidated Products, Inc. 1997 Kevin E. Dooley 57 Vice President - Steak n Shake, Inc. 1993 Consolidated Specialty Restaurants, Inc. 1993 Duane E. Geiger 38 Vice President and Assistant Treasurer - Consolidated Products, Inc. 1995 Robert L. Grimm(3) 48 Vice President - Consolidated Products, Inc. 1997 William H. Hart 51 Vice President - Steak n Shake, Inc. 1991 Consolidated Specialty Restaurants, Inc. 1990 Mary E. Ham 52 Vice President and General Counsel - Consolidated Products, Inc. 1995 Steak n Shake, Inc. 1995 Consolidated Specialty Restaurants, Inc. 1995 Secretary - Consolidated Products, Inc. 1999 Steak n Shake, Inc. 1999 Consolidated Specialty Restaurants, Inc. 1999 Scott C. Norrick 35 Vice President - Consolidated Products, Inc. 2000 Steak n Shake, Inc. 2000 Consolidated Specialty Restaurants, Inc. 2000 Mark A. Paul 32 Controller - Consolidated Products, Inc. 2000 Steak n Shake, Inc. 2000 Consolidated Specialty Restaurants, Inc. 2000 Gary T. Reinwald 52 Senior Vice President - Consolidated Products, Inc. 1996 Senior Vice President and National General Manager - Steak n Shake, Inc. 1996 11 Gary S. Walker 40 Senior Vice President - Consolidated Products, Inc. 1998 Steak n Shake, Inc. 1998 Consolidated Specialty Restaurants, Inc. 1998 Victor F. Yeandel 44 Vice President - Consolidated Products, Inc. 1995
(1) Member of the Board of Directors of the Company (2) Member of the Executive Committee of the Company (3) Member of the Personnel/Benefits Committee of the Company Mr. Kelley has been a Director of the Company since 1981 and Chairman since 1984. 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. Prior to 1981, Mr. Kelley was the Chief Executive Officer of Fairmont Foods Company, a large consumer goods company listed on the New York Stock Exchange. Ms. Aramian has been Vice Chairwoman since 1990 and a Director since 1981. She served as Secretary from 1995 to 1999 and as Vice President from 1984 to 1990. Ms. Aramian has been a Managing General Partner of Kelley & Partners, Ltd. since 1974 and is involved in all administrative matters, including those of related companies. Prior to 1981, Ms. Aramian was an executive officer of Fairmont Foods Company. Mr. Gilman was elected President and a Director on July 13, 1992 and assumed the additional position of Chief Executive Officer effective October 1, 1992. From 1985 to 1992, Mr. Gilman was a private investor, and from 1980 to 1985, he served as President of Murjani International, Ltd., an international marketing firm. From 1968 to 1980, Mr. Gilman served as a principal executive of various divisions of Federated Department Stores, Inc., concluding as Chairman and Chief Executive Officer of the Abraham & Straus Division in New York. Mr. Bear was elected Senior Vice President, Finance and Treasurer in 1991. Prior thereto, he served as Vice President and Treasurer of the Company from 1980 to 1991. Mr. Beauchamp was appointed Vice President, Operations and Deputy National General Manager of Steak n Shake, Inc. effective March 1, 1997. 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. Ms. Boog was elected Associate Vice President in 1997. Prior thereto, she served as Assistant Vice President and Assistant Secretary from 1991 to 1997. Ms. Boog is also a Vice President of Kelley & Partners, Ltd. 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 Wendys, Inc. Mr. Geiger was appointed Vice President, Information Systems, Financial Planning and Audit in 1995. From 1993 to 1995, Mr. Geiger served as Director of Financial Planning and Audit and Assistant Treasurer for the Company. Prior to such time, Mr. Geiger served in various capacities at Ernst & Young LLP, over a period of eight years, and ultimately served as a Manager. Mr. Grimm joined the Company as Vice President - Human Resources in November 1997. For the previous twelve years, Mr. Grimm was an executive with May Department Stores Company. Lastly, he served as Corporate Vice President, Executive Development and Training. 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 Ms. Ham was appointed Vice President in December 1996, General Counsel in 1995 and Secretary in 1999. She served as Associate Secretary from 1994 to 1999. From 1994 to 1995, Ms. Ham served as the Company's Associate General Counsel for Real Estate and Franchising. From 1992 to 1994, Ms. Ham served as Associate City Attorney for the city of South Bend, Indiana, and was previously General Counsel for the Indiana Toll Road. Mr. Norrick joined the Company as Vice President in 2000 and is responsible primarily for real estate. From 1996 to 12 2000, Mr. Norrick had been an executive with LinksCorp, owner of high quality golf clubs and resorts, lastly as Corporate Vice President, Acquisitions. Prior to 1996, Mr. Norrick was with Walt Disney Company in various senior financial planning and analysis positions. Mr. Paul was appointed Controller in August 2000 after joining the Company as Assistant Controller in March 2000. From 1997 to 2000, Mr. Paul served in various controllership functions for Bank One Mortgage Corporation, lastly as Vice President of Finance. Prior to 1997, Mr. Paul served in various capacities at Coopers and Lybrand LLP, (a predecessor to PricewaterhouseCoopers LLP), over a period of seven years. Mr. Reinwald was appointed Senior Vice President, Operations and National General Manager of Steak n Shake, Inc. in December 1996. Prior thereto, Mr. Reinwald was Vice President, Operations and National General Manager of Steak n Shake since 1983, and served in various capacities in the Company for 19 years prior to that date. Mr. Walker joined the Company as Senior Vice President in 1998 and is responsible for franchising, purchasing and distribution and legal matters and the general management of Consolidated Specialty Restaurants, Inc. From 1994 to 1998, Mr. Walker was Vice President of Marketing - Home Care Division for DowBrands L.P. Prior thereto, Mr. Walker served in various brand management positions with The Proctor & Gamble Company. 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. Officers are elected annually at the annual meeting of the Board of Directors. 13 ITEM 2. PROPERTIES The Company currently leases 34,620 square feet of executive office space in Indianapolis, Indiana, under a lease expiring December 31, 2005. STEAK N SHAKE, INC. As of September 27, 2000, Steak n Shake operated 188 leased and 125 owned restaurants in Indiana, Illinois, Michigan, Missouri, Florida, Georgia, Iowa, Ohio, Kansas, Kentucky, Tennessee, Arkansas, Alabama and Wisconsin. Steak n Shake restaurant leases for land and building typically are non-cancelable, have an initial term of 18 to 25 years and renewal terms aggregating twenty years or more and require Steak n Shake to pay real estate taxes, insurance and maintenance costs. Of these leases, 138 contain percentage of sales rental clauses in addition to base rent requirements. The majority of restaurants are generally 3,800 square feet and seat approximately 100 customers while a minimal percentage of restaurants have a similar architectural style but seat 39 to 138 customers and occupy between 1,010 and 6,000 square feet. Steak n Shake has lease obligations on 15 former restaurant locations in Georgia, Ohio, Illinois, Kentucky and Texas all of which have been subleased to others as of September 27, 2000. These obligations primarily relate to restaurant locations disposed of in the late 1970's, and the sublease rentals cover substantially all of the Company's obligations under the primary leases. Steak n Shake also has a complex of three buildings located in Bloomington, Illinois, where it owns 38,900 square feet of office/warehouse space in two separate buildings, one of which has cold storage facilities, and leases a 26,300 square foot distribution center and division office facility. Steak n Shake also leases division offices in Orlando, Florida; Franklin, Ohio; Columbus, Ohio; Brighton, Michigan, Elk Grove Village, IL and Tallahasee, Florida and a division office and administrative facility in Indianapolis, Indiana. In addition, Steak n Shake owns a division office facility in St. Louis, Missouri. At September 27, 2000, Steak n Shake owns one restaurant location that has been leased to a third party. In addition, there were eight restaurants under construction and the Company owned two parcels of land, that are being held for future development. CONSOLIDATED SPECIALTY RESTAURANTS, INC. As of September 27, 2000, CSR operated ten facilities in Illinois and Indiana, of which six are leased facilities and four are owned. In addition, CSR has a lease obligation on one former restaurant located in Indiana. The leases for land and building 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 September 2000 the Company announced that CSR's operations would be discontinued and its properties disposed of. To date, two of the CSR restaurants have been sold while three units have been closed or the lease terminated. The remaining units are expected to be disposed of by the end of fiscal year 2001. SNS INVESTMENT COMPANY, INC. SNS Investment Company, Inc. ("SIC"), a wholly owned subsidiary of the Company, assists qualified franchisees with financing by purchasing or leasing land, constructing the restaurant and then leasing or subleasing the land and building to the franchisee. SIC leases the land and building for seven properties as the primary lessee. These leases typically have an initial term of 18 years and renewal options aggregating 20 years or more and require SIC to pay real estate taxes, insurance and maintenance costs. As of September 27, 2000, SIC had six land and building leases for properties located in Louisville and Elizabethtown, Kentucky; Chattanooga, Tennessee; Clarksville, Indiana and Columbia, Missouri which are being operated by franchisees pursuant to sublease agreements. All lease and sublease agreements between SIC and its franchisees specifically include triple net lease provisions whereby the franchisee is responsible for all real estate taxes, insurance and maintenance costs. Additionally, SIC had a land and building lease for a property in Little Rock, Arkansas which was operated by Steak n Shake, Inc. 14 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 SIC ------ --- --- --- 2001 - 2005 2 2 0 2006 - 2010 9 2 0 2011 - 2015 3 1 0 2016 - 2020 9 1 0 2021 - 2025 18 0 0 Beyond 147 1 7 --- - - 188 7 7 === = =
ITEM 3. LEGAL PROCEEDINGS There are no legal proceedings against the Company, which, if adversely resolved, would have a material effect upon the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of shareholders during the fourth quarter of the fiscal year covered by this Report. 15 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 New York Stock Exchange (NYSE) under the symbol COP. Stock price quotations can be found in major daily newspapers and in The Wall Street Journal. The high and low closing sales prices for the Company's Common Stock, as reported on the New York Stock Exchange for each quarter of the Company's past two fiscal years, are shown below:
2000 1999(1) ----------------------------------------------- HIGH LOW HIGH LOW ---- --- ---- --- First Quarter $ 11 1/4 $ 7 11/16 $ 16 9/16 $ 11 1/2 Second Quarter $ 11 7/8 $ 9 $ 19 $ 14 1/2 Third Quarter $ 10 1/16 $ 9 $ 18 1/16 $ 15 11/16 Fourth Quarter $ 9 7/16 $ 7 3/4 $ 16 1/8 $ 9 3/16
(1) THE SALES PRICES HAVE BEEN ADJUSTED TO REFLECT THE 10% STOCK DIVIDEND DECLARED IN DECEMBER 1999. 16 ITEM 6. SELECTED FINANCIAL DATA Selected financial data for each of the Company's five most recent fiscal years, set forth in the Company's 2000 Annual Report under "Selected Financial and Operations Data (Unaudited)," are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of results of operations and financial condition set forth in the Company's 2000 Annual Report under "Management's Discussion and Analysis", are incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure with regard to financial instruments is to changes in interest rates. Pursuant to the terms of the Senior Note Agreement, the Company may from time to time issue notes in increments of at least $5,000,000. The interest rate on the notes is based upon market rates at the time of the borrowing. Once the interest rate is established at the time of the initial borrowing, the interest rate remains fixed over the term of the underlying note. The Revolving Credit Agreement bears interest at a rate based upon LIBOR plus 75 basis points or the prime rate, at the election of the Company. Historically, the Company has not used derivative financial instruments to manage exposure to interest rate changes. At September 27, 2000, a hypothetical 100 basis point increase in short-term interest rates would have an immaterial impact on the Company's earnings. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Consolidated Statements of Earnings, Consolidated Statements of Financial Position, Consolidated Statements of Cash Flows, Consolidated Statements of Shareholders' Equity, Notes to Consolidated Financial Statements and The Report of Independent Auditors set forth in the Company's 2000 Annual Report are incorporated herein by reference. Information on quarterly results of operations, set forth in the Company's 2000 Annual Report under "Quarterly Financial Data (Unaudited)" is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 17 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 2001 Annual Meeting of Shareholders to be filed pursuant to Rule 14a-6(c) is incorporated herein by reference. Certain information relating to the Company's executive officers is included in Part I of this Form 10-K under "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION The information included under the captions "Compensation of Directors", "Compensation of Executive Officers", "Summary Compensation Table", "Stock Option Grants in Fiscal 2000", "Aggregated Stock Option Exercises in Fiscal 2000 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 2001 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 "Ownership of Common Stock" in the Company's definitive Proxy Statement relating to its 2001 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 "Management Relationships and Related Transactions" in the Company's definitive Proxy Statement relating to its 2001 Annual Meeting of Shareholders to be filed pursuant to Rule 14a-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, 2000 and September 29, 1999 For the years ended September 27, 2000, September 29, 1999 and September 30, 1998: - Consolidated Statements of Earnings - Consolidated Statements of Cash Flows - Consolidated Statements of Shareholders' Equity Notes to Consolidated Financial Statements Report of Independent Auditors 2. FINANCIAL STATEMENT SCHEDULES. All schedules for the years ended September 27, 2000, September 29, 1999 and September 30, 1998 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 Annual Report on Form 10-K. 3.01 Restated Articles of Incorporation of Steak n Shake, Inc., filed April 1, 1977. 3.02 Attachment to Joint Agreement of Merger, between Franklin Corporation and Steak n Shake, Inc., filed October 31, 1983 (Incorporated by reference to Exhibit 3.2 to the Registrant's Form 10-K Report for the year ended September 28, 1983). 3.03 Articles of Amendment to Articles of Incorporation of Steak n Shake, Inc. filed May 15, 1984 changing the name of the Registrant to "Consolidated Products, Inc." (Incorporated by reference to Exhibit 3.4 to the Registrant's Form 10-K Report for the year ended September 26, 1984). 3.04 Articles of Amendment to the Articles of Incorporation of Consolidated Products, Inc. filed May 11, 1998. (Incorporated by reference to Exhibit 3.05 to the Registrant's Form 10-Q Report for the fiscal quarter ended April 8, 1998.) 3.05 Bylaws of Consolidated Products, Inc., as amended through October 30, 1996. 4.01 Specimen certificate representing Common Stock of Consolidated Products, Inc. (formerly Steak n Shake, Inc.). (Incorporated by reference to Exhibit 4.01 to the Registrant's Form 10-Q Report for the fiscal quarter ended April 9, 1997). 4.02 Amended and Restated Credit Agreement by and Between Consolidated Products, Inc. and Bank One, Indianapolis, N.A. dated December 30, 1994 (amending that earlier credit agreement between parties dated as of March 10, 1994 and effective as of February 23, 1994, relating to a $5,000,000 revolving line of credit which was not filed pursuant to Rule 601 of the Securities and Exchange Commission), relating to a $30,000,000 revolving line of credit. (Incorporated by reference to Exhibit 4.06 to the Registrant's Form 10-Q Report 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 Exhibit 4.1 to the Registrant's Form 8-K Report dated September 26, 1995). 4.04 Amendment To Note Purchase and Private Shelf Agreement by and between Consolidated Products, Inc. and The Prudential Insurance Company of America dated as of April 21, 1999 related to senior note agreement and private shelf facility. (Incorporated by reference to Exhibit 4.10 to the Registrant's Form 10-Q Report for the fiscal quarter ended April 14, 1999). 4.05 Seventh Amendment to Amended and Restated Credit Agreement by and between Consolidated Products, Inc. and Bank One, Indianapolis, N.A. dated May 31, 2000. (Incorporated by reference to Exhibit 4.12 to the Registrant's Form 10-Q Report for the fiscal quarter ended July 5, 2000). 10.01 Consolidated Products, Inc. Executive Incentive Bonus Plan. (Incorporated by reference to Exhibit 19.1 to the Registrant's Form 10-Q Report for the fiscal quarter ended July 1, 1992). 10.02 Steak n Shake, Inc. Executive Incentive Bonus Plan. (Incorporated by reference to Exhibit 19.2 to the Registrant's Form 10-Q Report for the fiscal quarter ended July 1, 1992). 10.03 Consultant Agreement by and between James Williamson, Jr. and the Registrant dated November 20, 1990. (Incorporated by reference to Exhibit 19.5 to the Registrant's Form 10-Q Report for the fiscal quarter July 1, 1992). 10.04 Letter from the Registrant to Alan B. Gilman dated June 27, 1992. (Incorporated by reference to Exhibit 19.13 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 1992). 10.05 Consolidated Products, Inc. 1992 Employee Stock Purchase Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated January 13, 1993 related to its 1993 Annual Meeting of Shareholders). 10.06 Consolidated Products, Inc. 1992 Employee Stock Option Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated January 13, 1993 related to its 1993 Annual Meeting of Shareholders). 10.07 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). 10.08 Consolidated Products, Inc. 1996 Nonemployee Director Stock Option Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated January 15, 1996 related to the 1996 Annual Meeting of Shareholders). 10.09 Consolidated Products, Inc. 1997 Employee Stock Option Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated December 24, 1996 related to the 1997 Annual Meeting of Shareholders). 10.10 Consolidated Products, Inc. 1997 Capital Appreciation Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated December 24, 1996 related to the 1997 Annual Meeting of Shareholders). 20 10.11 Amendment to Consolidated Products, Inc. 1992 Employee Stock Purchase Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated December 24, 1996 related to the 1997 Annual Meeting of Shareholders). 10.12 Consolidated Products, Inc. 1997 Nonemployee Director Stock Option Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated December 24, 1996 related to the 1997 Annual Meeting of Shareholders). 10.13 Amendment to Consolidated Products, Inc. 1992 Employee Stock Purchase Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated December 22, 1997 related to the 1998 Annual Meeting of Shareholders). 10.14 Consolidated Products, Inc. 1998 Nonemployee Director Stock Option Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated December 22, 1997 related to the 1998 Annual Meeting of Shareholders). 10.15 Form of option agreement related to 1999 Nonemployee Director Stock Option Program and schedule relating thereto. (Incorporated by reference to Exhibit 10.21 to the Registrant's Form 10-Q Report for the fiscal quarter ended July 5, 2000). 10.16 Form of option agreement related to 2000 Nonemployee Director Stock Option Program and schedule relating thereto. (Incorporated by reference to Exhibit 10.22 to the Registrant's Form 10-Q Report for the fiscal quarter ended July 5, 2000). 13.01 Portions of the Annual Report to Shareholders for the Year Ended September 27, 2000 incorporated by reference into this Form 10-K. 21.01 Subsidiaries of the Registrant. 23.01 Consent of Ernst & Young LLP. 27.01 Financial Data Schedule. (b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the last quarter of the period covered by this report. 21 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 22, 2000. CONSOLIDATED PRODUCTS, INC. By: /s/ Mark A. Paul -------------------------- Mark A. Paul Controller 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 22, 2000. /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 Finance - ----------------------------- and Treasurer James W. Bear (Principal Financial Officer) /s/ Mark A. Paul Controller - ----------------------------- (Principal Accounting Officer) Mark A. Paul /s/ Stephen Goldsmith Director - ----------------------------- Stephen Goldsmith /s/ Charles E. Lanham Director - ----------------------------- Charles E. Lanham /s/ J. Fred Risk Director - ----------------------------- J. Fred Risk /s/ Dr. John W. Ryan Director - ----------------------------- Dr. John W. Ryan /s/ James Williamson, Jr. Director - ----------------------------- James Williamson, Jr. 22 CONSOLIDATED PRODUCTS INC. AND SUBIDIARIES Index to Exhibits
NUMBER DESCRIPTION ------ ----------- (3) 3.01 Restated Articles of Incorporation of Steak n Shake, Inc., filed April 1, 1977. 3.02 Attachment to Joint Agreement of Merger between Franklin Corporation and Steak n Shake, Inc., filed October 31, 1983 (Incorporated by reference to Exhibit 3.2 to the Registrant's Form 10-K Report for the year ended September 28, 1983). 3.03 Articles of Amendment to Articles of Incorporation of Steak n Shake, Inc. filed May 15, 1984 changing the name of the Registrant to "Consolidated Products, Inc." (Incorporated by reference to Exhibit 3.4 to the Registrant's Form 10-K Report for the year ended September 26, 1984). 3.04 Articles of Amendment to the Articles of Incorporation of Consolidated Products, Inc. filed May 11, 1998. (Incorporated by reference to Exhibit 3.05 to the Registrant's Form 10-Q Report for the fiscal quarter ended April 8, 1998.) 3.05 Bylaws of Consolidated Products, Inc., as amended through October 30, 1996. (4) 4.01 Specimen certificate representing Common Stock of Consolidated Products, Inc. (formerly Steak n Shake, Inc.). (Incorporated by reference to Exhibit 4.01 to the Registrant's Form 10-Q Report for the fiscal quarter ended April 9, 1997). 4.02 Amended and Restated Credit Agreement By and Between Consolidated Products, Inc. and Bank One, Indianapolis, N.A. dated December 30, 1994 (amending that earlier credit agreement between parties dated as of March 10, 1994 and effective as of February 23, 1994, relating to a $5,000,000 revolving line of credit which was not filed pursuant to Rule 601 of the Securities and Exchange Commission), relating to a $30,000,000 revolving line of credit. (Incorporated by reference to Exhibit 4.06 to the Registrant's 10-Q Report 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 Exhibit 4.1 to the Registrant's Form 8-K Report dated September 26, 1995). 4.04 Amendment To Note Purchase and Private Shelf Agreement by and between Consolidated Products, Inc. and The Prudential Insurance Company of America dated as of April 21, 1999 related to senior note agreement and private shelf facility. (Incorporated by reference to Exhibit 4.10 to the Registrant's Form 10-Q Report for the fiscal quarter ended April 14, 1999). 4.05 Seventh Amendment to Amended and Restated Credit Agreement by and between Consolidated Products, Inc. and Bank One, Indianapolis, N.A. dated May 31, 2000. (Incorporated by reference to Exhibit 4.12 to the Registrant's Form 10-Q Report for the fiscal quarter ended July 5, 2000). (9) No exhibit. (10) 10.01 Consolidated Products, Inc. Executive Incentive Bonus Plan. (Incorporated by reference to Exhibit 19.1 to the Registrant's Form 10-Q Report for the fiscal quarter 23 ended July 1, 1992). 10.02 Steak n Shake, Inc. Executive Incentive Bonus Plan. (Incorporated by reference to Exhibit 19.2 to the Registrant's Form 10-Q Report for the fiscal quarter ended July 1, 1992). 10.03 Consultant Agreement by and between James Williamson, Jr. and the Registrant dated November 20, 1990. (Incorporated by reference to Exhibit 19.5 to the Registrant's Form 10-Q Report for the fiscal quarter July 1, 1992). 10.04 Letter from the Registrant to Alan B. Gilman dated June 27, 1992. (Incorporated by reference to Exhibit 19.13 to the Registrant's Form 10-Q Report for the fiscal quarter ended July 1, 1992). 10.05 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). 10.06 Consolidated Products, Inc. 1992 Employee Stock Option Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated January 13, 1993 related to its 1993 Annual Meeting of Shareholders). 10.07 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). 10.08 Consolidated Products, Inc. 1996 Nonemployee Director Stock Option Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated January 15, 1996 related to the 1996 Annual Meeting of Shareholders). 10.09 Consolidated Products, Inc. 1997 Employee Stock Option Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated December 24, 1996 related to the 1997 Annual Meeting of Shareholders). 10.10 Consolidated Products, Inc. 1997 Capital Appreciation Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated December 24, 1996 related to the 1997 Annual Meeting of Shareholders). 10.11 Amendment to Consolidated Products, Inc. 1992 Employee Stock Purchase Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated December 24, 1996 related to the 1997 Annual Meeting of Shareholders). 10.12 Consolidated Products, Inc. 1997 Nonemployee Director Stock Option Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated December 24, 1996 related to the 1997 Annual Meeting of Shareholders). 10.13 Amendment to Consolidated Products, Inc. 1992 Employee Stock Purchase Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated December 22, 1997 related to the 1998 Annual Meeting of Shareholders). 10.14 Consolidated Products, Inc. 1998 Nonemployee Director Stock Option Plan. (Incorporated by reference to the Appendix to the Registrant's definitive Proxy Statement dated December 22, 1997 related to the 1998 Annual Meeting of Shareholders). 24 10.15 Form of option agreement related to 1999 Nonemployee Director Stock Option Program and schedule relating thereto. (Incorporated by reference to Exhibit 10.21 to the Registrant's Form 10-Q Report for the fiscal quarter ended July 5, 2000). 10.16 Form of option agreement related to 2000 Nonemployee Director Stock Option Program and schedule relating thereto. (Incorporated by reference to Exhibit 10.22 to the Registrant's Form 10-Q Report for the fiscal quarter ended July 5, 2000). (11) No exhibit. (12) No exhibit. (13) 13.01 Portions of the Annual report to Shareholders for the Year Ended September 27, 2000 incorporated by reference into this Form 10-K. (16) No exhibit. (18) No exhibit. (21) 21.01 Subsidiaries of the Registrant. (22) No exhibit. (23) 23.01 Consent of Ernst & Young LLP. (24) No exhibit. (27) 27.01 Financial Data Schedule. (99) No exhibit.
25 EX-3.01 2 a2033923zex-3_01.txt RESTATE ARTICLES OF INCORP EXHIBIT 3.01 - RESTATE ARTICLES OF INCORPORATION OF STEAK N SHAKE, INC. RESTATED ARTICLES OF INCORPORATION OF STEAK n SHAKE, INC. NAME The name of the Corporation is STEAK n SHAKE, INC. PURPOSES The purposes for which the Corporation is formed are: SPECIFIC PURPOSE. To engage in the restaurant business. GENERAL BUSINESS PURPOSES. To manufacture, in whole or in part, design, develop, produce, assemble, fabricate, lease, purchase or otherwise acquire; to invest in, own, hold, use, license the use of, install, handle, maintain, service or repair; to sell, pledge, mortgage, exchange, distribute, lease, assign and otherwise dispose of, and generally to trade and deal in and deal with, as principal or agent, export and import, at wholesale, retail, or on commission, in every manner, goods, wares, merchandise, commodities, products, materials, and articles of commerce and property of every kind, class and description. In general, to engage in any lawful activity or business whatsoever, including but not limited to the following enumerated corporate purposes and powers. TO DEAL IN PERSONAL PROPERTY. To acquire by purchase, exchange, lease or otherwise, and to hold, own, use, manufacture, improve, mortgage, pledge, hypothecate, sell, lease, exchange or otherwise dispose of, alone or in conjunction with others, personal property, tangible and intangible, of every kind, character and description whatsoever and wheresoever situated, and any interest therein, including, but without limiting the generality thereof, shares of capital stock, warrants, bonds, debentures, notes, trust receipts, and other securities, obligations, choses in action, and evidences of indebtedness or interest, issued or created by any corporation, joint stock company, syndicate, association, firm, trust, government or person, public or private, and as owner thereof to possess and exercise all the rights, powers and privileges of ownership, including the right, if any, to vote thereon, and to do any and all acts and things necessary and advisable for the preservation, protection, improvement and enhancement thereof. TO DEAL IN REAL PROPERTY. To acquire by purchase, exchange, lease or otherwise, and to hold, own, use, construct, improve, equip, manage, occupy, mortgage, sell, lease, convey, exchange or otherwise dispose of, alone or in conjunction with others, real estate and leaseholds of every kind, character and description whatsoever and wheresoever situated, and any other interests therein, including, but without limiting the generality thereof, buildings, factories, warehouses, offices and structures of all kinds. CAPACITY TO ACT. To have the capacity to act possessed by natural persons and to perform such acts as are necessary and advisable to accomplish the purposes, activities and business of the Corporation. TO ACT AS AGENT. To act as agent or representative for any firm, association, corporation, partnership, government or person, public or private, with respect to any activity or business of the Corporation. TO MAKE CONTRACTS AND GUARANTEES. To make, execute and perform, or cancel and rescind, contracts of every kind and description, including guarantees and contracts of suretyship, with any firm, association, corporation, partnership, government or person, public or private. TO BORROW FUNDS. To borrow moneys for any activity or business of the Corporation and, from time to time, without limit as to amount, to draw, make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, notes, trust receipts, and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment thereof, and the interest thereon, by mortgage, pledge, conveyance, or assignment in trust of all or any part of the assets of the Corporation, real, personal or mixed, including contract rights, whether at the time owned or thereafter acquired, and to sell, exchange or otherwise dispose of such securities or other obligations of the Corporation. 26 TO DEAL IN ITS OWN SECURITIES. To purchase, take, receive, or otherwise acquire, and to hold, own, pledge, transfer or otherwise dispose of shares of its own capital stock and other securities. Purchases of the Corporation's own shares, whether direct or indirect, may be made without shareholder approval only to the extent of unreserved and unrestricted earned surplus available therefor. TO ENTER INTO PARTNERSHIPS AND JOINT VENTURES. To enter into any partnership, joint venture or other arrangement for sharing profits, union of interest or reciprocal association with any firm, association, corporation, partnership, government or person, public or private. TO DEAL IN PATENT AND SIMILAR RIGHTS. To secure, register, purchase, license or otherwise acquire; to hold, own, use, improve, introduce or exploit; and to sell, exchange, pledge, grant licenses or sublicenses in respect of, or otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses, privileges, inventions, improvements, formulas, processes, copyrights, trademarks, trade names and similar rights. ASSISTANCE TO OTHER BUSINESSES. To aid, in any manner whatsoever, any firm, association, corporation, partnership or person in whose business the Corporation may be in any way interested or any of whose properties, including shares of capital stock, bonds, notes or other obligations or securities, are held by the Corporation or in which it is in any way interested, and to do any and all acts and things necessary and advisable for the preservation, protection, improvement or enhancement of the value of any such business or property, or for the promotion of any interests of the Corporation. ACQUISITION OF OTHER BUSINESSES. To acquire all or any part of the goodwill, property, assets, rights and business, and to undertake or assume all or any part of the obligations or liabilities, of any firm, association, corporation, partnership or person; to pay for the same in whole or in part with shares of capital stock, warrants, cash, bonds, debentures, notes, or other securities and obligations of the Corporation or otherwise; to hold, utilize and in any manner dispose of the whole or any part of the rights and property so acquired; and to carry on and conduct the business so acquired and to exercise all powers necessary and advisable in the management and conduct of such business. GENERAL POWERS. To possess, exercise, and enjoy all rights, powers, privileges and immunities conferred upon corporations by The Indiana General Corporation Act, as now existing or as hereafter amended or supplemented, and all other rights and powers not expressly denied or forbidden by the laws of the State of Indiana; and in respect to business carried on and all acts done and powers exercised in jurisdictions other than Indiana, to posses, exercise, and enjoy all rights, powers, privileges and immunities conferred upon and not expressly denied to corporations under the laws of such other jurisdictions, all of which rights, powers, privileges and immunities shall be considered in addition to and supplemental to those hereinabove granted. INCIDENTAL POWERS AND PURPOSES. In general, to carry on all activity and business whatsoever and to perform any and all acts in connection with or incidental to the foregoing powers and purposes, or which has for its object the promotion, directly or indirectly, of the general interests of the Corporation, or the protection, improvements, preservation or enhancement of the value of the Corporation's properties and interests, and to do whatever the Corporation may deem necessary and advisable for the accomplishment of any one or more of the purposes of the Corporation, the enumeration of specific powers not being a limitation or restriction in any manner upon the general powers of the Corporation. CONSTRUCTION OF SECTIONS. The foregoing Sections shall be construed as purposes as well as powers, and the matters expressed in each Section, unless otherwise expressly provided, shall not be limited by reference to, or inference from, the terms of any other Section, each of such Sections being regarded as creating independent powers and purposes. The enumeration of specific powers and purposes in any of such Sections shall not be construed as limiting or restricting in any manner either the meaning of general terms used in any of such Sections, or the scope of the general powers of the Corporation created thereby; nor shall the expression of one thing be deemed to exclude another not expressed, although it be of like nature. PERIOD OF EXISTENCE The period during which the Corporation shall continue is perpetual. 27 RESIDENT AGENT AND PRINCIPAL OFFICE RESIDENT AGENT. The name and address of the Resident Agent in charge of the Corporation's principal office is CT Corporation System, 1011 Merchants Bank Building, Indianapolis, Indiana 46204. PRINCIPAL OFFICE. The post office address of the principal office of the Corporation is One Indiana Square, Suite 2160, Indianapolis, Indiana 46204. SHARES NUMBER. The total number of shares which the Corporation has authority to issue is 6,000,000. The number of shares which the Corporation designates as having par value--none. The number of shares which the Corporation designates as without par value is 6,000,000. GENERAL TERMS. All of the authorized shares shall be designated as "Common Stock", and each share of Common Stock shall be equal to every other share of Common Stock and shall participate equally in all earnings and profits of the Corporation and on distribution of assets, either on dissolution, liquidation or otherwise. VOTING RIGHTS. Each holder of the Common Stock shall have the right to vote on all matters presented to shareholders and shall be entitled on all matters including elections of directors to one vote for each share of Common Stock registered in his name on the books of the Corporation. DIRECTORS NUMBER OF DIRECTORS. The Board of Directors is composed of nine (9) members. The number of directors may be from time to time fixed by the By-Laws of the Corporation at any number. In the absence of a By-Law fixing the number of directors, the number shall be nine (9). NAMES AND POST OFFICE ADDRESSES OF THE DIRECTORS. The names and post office addresses of the Board of Directors of the Corporation are:
Name Number and Street, City, State and Zip Code ---- ------------------------------------------- Robert P. Cronin 7900 High Drive, Indianapolis, Indiana 46240 H. J. Baker 6957 North Delaware, Indianapolis, Indiana 46220 Clarence C. Barksdale First National Bank in St. Louis, P.O. Box 267, St. Louis, Missouri 63166 Merle A. Delph 3 Woodland Drive, Carmel, Indiana 46032 William H. Krieg 5533 Roxbury Terrace, Indianapolis, Indiana 46226 Charles E. Lanham 7564 Silver Pine Court, Indianapolis, Indiana 46250 Marvin L. Miller R.R. 5, Bedford, Indiana 47421 J. Fred Risk 7801 North Pennsylvania, Indianapolis, Indiana 46240 Richard A. Seal 531 Round Hill Road, Indianapolis, Indiana 46260
QUALIFICATION OF DIRECTORS. Directors need not be shareholders of the Corporation. 28 OFFICERS The names and post office addresses of the officers of the Corporation are: Robert P. Cronin President 7900 High Drive Indianapolis, Indiana 46240 Richard A. Seal Executive Vice President and 531 Round Hill Road Secretary Indianapolis, Indiana 46260
PROVISIONS FOR REGULATION OF BUSINESS AND CONDUCT OF AFFAIRS OF CORPORATION MEETINGS OF SHAREHOLDERS. Meetings of shareholders of the Corporation shall be held at such place within or without the State of Indiana, as may be specified in the notices or waivers of notice of such meetings. MEETINGS OF DIRECTORS. Meetings of Directors of the Corporation shall be held at such place, within or without the State of Indiana, as may be specified in the notices or waivers of notice of such meetings. CONSIDERATION FOR SHARES. Shares of stock of the Corporation shall be issued or sold in such manner and for such amount of consideration as may be fixed from time to time by the Board of Directors. BY-LAWS OF THE CORPORATION. The Board of Directors by a majority vote of the actual number of directors elected and qualified from time to time shall have the power, without the assent or vote of the shareholders, to make, alter, amend or repeal the By-Laws of the Corporation. If the By-laws so provide, the Board of Directors may, by resolution adopted by a majority of the actual number of directors elected and qualified from time to time, designate from among its members an executive committee and one or more other committees, each committee to consist of at least three members, which, to the extent provided in such resolution, shall have and exercise all the authority and powers of the Board of Directors of the Corporation, and shall have the power to authorize the execution of all documents and the affixing of the Seal of the Corporation to all papers which may require it; but no such committee shall have the authority of the Board of Directors in reference to amending the Articles of Incorporation, adopting an agreement or plan of merger or consolidation, proposing a special corporate transaction, recommending to the shareholders a voluntary dissolution of the Corporation or a revocation thereof, electing or removing officers, or amending the By-Laws of the Corporation. The designation of any such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed by law. No member of any such committee shall continue to be a member thereof after he ceases to be a Director of the Corporation. CONSENT ACTION BY SHAREHOLDERS. Any action required by statute to be taken at a meeting of the shareholders, or any action which may be taken at a meeting of the shareholders, may be taken without a meeting if, prior to such action, a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof, and such written consent is filed with the minutes of the proceedings of the shareholders. CONSENT ACTION BY DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if prior to such action a written consent to such action is signed by all members of the Board of Directors or such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or committee. INTEREST OF DIRECTORS IN CONTRACTS. Any contract or other transaction between the Corporation or any corporation in which this Corporation owns a majority of the capital stock shall be valid and binding, notwithstanding that the directors or officers of this Corporation are identical or that some or all of the directors or officers, or both, are also directors or officers of such other corporation. Any contract or other transaction between the Corporation and one or more of its directors or members or employees, or between the Corporation and any firm of which one or more of its directors are members or employees or in which they are interested, or between the Corporation and any corporation or association of which one or more of its directors are shareholders, members, directors, officers, or employees or in which they are interested, 29 shall be valid for all purposes notwithstanding the presence of such director or directors at the meeting of the Board of Directors of the Corporation which acts upon, or in reference to, such contract or transaction and notwithstanding his or their participation in such action, if the fact of such interest shall be disclosed or known to the Board of Directors and the Board of Directors shall authorize, approve and ratify such contract or transaction by a vote of a majority of the directors present, such interested director or directors to be counted in determining whether a quorum is present, but not to be counted in calculating the majority of such quorum necessary to carry such vote. This Section shall not be construed to invalidate any contract or other transaction which would otherwise be valid under the common and statutory law applicable thereto. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. Every person who is or was a director, officer or employee of this Corporation or of any other corporation for which he is or was serving in any capacity at the request of this Corporation shall be indemnified by this Corporation against any and all liability and expense that may be incurred by him in connection with or resulting from or arising out of any claim, action, suit or proceeding, provided that such person is wholly successful with respect thereto or acted in good faith in what he reasonably believed to be in or not opposed to the best interests of this Corporation or such other corporation, as the case may be, and, in addition, in any criminal action or proceeding, he had no reasonable cause to believe that his conduct was unlawful. As used herein, "claim, action, suit or proceeding" shall include any claim, action, suit or proceeding (whether brought by or in the right of this Corporation or such other corporation or otherwise), civil, criminal, administrative or investigative, whether actual or threatened or in connection with an appeal relating thereto, in which a director, officer or employee of the Corporation may become involved, as a party otherwise, (i) by reason of his being or having been a director, officer or employee of this Corporation or such other corporation or arising out of his status as such or (ii) by reason of any past or future action taken or not taken by him in any such capacity or status, whether or not he continues to be such at the time such liability or expense is incurred. The terms "liability" and "expense" shall include, but shall not be limited to, attorneys' fees and disbursements, amounts of judgments, fines or penalties, and amounts paid in settlement by or on behalf of a director, officer or employee, but shall not in any event include any liability or expenses on account of profits realized by him in the purchase or sale of securities of the Corporation in violation of the law. The termination of any claim, action, suit or proceeding, by judgment, settlement (whether with or without court approval) or conviction or upon a plea of guilty or nolo contendere, or its equivalent, shall not create a presumption that a director, officer or employee did not meet the standards of conduct set forth in this paragraph. Any such director, officer or employee who has been wholly successful with respect to any such claim, action, suit or proceeding shall be entitled to indemnification as a matter of right. Except as provided in the preceding sentence, any indemnification hereunder shall e made at the discretion of the Corporation but only if (i) the Board of Directors acting by a quorum consisting of Directors who are not parties to or who have been wholly successful with respect to such claim, action, suit or proceeding shall find that the director, officer or employee has met the standards of conduct set forth in the preceding paragraph; or (ii) independent legal counsel shall deliver to the Corporation their written opinion that such director, officer or employee has met such standards of conduct. If several claims, issues or matters of action are involved, any such person may be entitled to indemnification as to some matters even though he is not entitled as to other matters. The Corporation may advance expenses to or, where appropriate, may at its expense undertake the defense of any such director, officer or employee upon receipt of an undertaking by or on behalf of such person to repay such expenses if it should ultimately be determined that he is not entitled to indemnification hereunder. The provisions of this Section shall be applicable to claims, actions, suits or proceedings made or commenced after the adoption hereof, whether arising from acts or omissions to act during, before or after the adoption hereof. The rights of indemnification provided hereunder shall be in addition to any rights to which any person concerned may otherwise be entitled by contract or as a matter of law and shall inure to the benefit of the heirs, executors and administrators of any such person. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation as a director, officer, employee or agent of another 30 corporation against any liability asserted against him and incurred by him in any capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Section or otherwise. DISTRIBUTIONS OUT OF CAPITAL SURPLUS. The Board of Directors of the Corporation may from time to time distribute to its shareholders out6 of the capital surplus of the Corporation a portion of its assets, in cash or property, without the assent or vote of the shareholders, provided that with respect to such a distribution the requirements of The Indiana General Corporation Act other than shareholder approval are satisfied. POWERS OF DIRECTORS. In addition to the powers and the authority granted by these Articles or by statute expressly conferred, the Board of Directors of the Corporation is hereby authorized to exercise all powers and to do all acts and things as may be exercised or done under the laws of the State of Indiana by a corporation organized and existing under the provisions of The Indiana General Corporation Act and not specifically prohibited or limited by these Articles. STATED CAPITAL The stated capital at the time of filing these Amended Articles of Incorporation is at least $1,000,000. 31 EX-3.05 3 a2033923zex-3_05.txt BYLAWS OF CONSOLIDATED PRODS EXHIBIT 3.05 - BYLAWS OF CONSOLIDATED PRODUCTS, INC. BY-LAWS OF CONSOLIDATED PRODUCTS, INC. Article I SECTION 1. NAME. The name of the corporation is Consolidated Products, Inc. ("Corporation"). SECTION 2. PRINCIPAL OFFICE AND RESIDENT AGENT. The post-office address of the principal office of the corporation is 500 Century Building, 36 South Pennsylvania Street, Indianapolis, Indiana 46204, and the name and post-office address of its Resident Agent in charge of such office is C T Corporation System 1011 Merchants Bank Building, Indianapolis, Indiana 46204. SECTION 3. SEAL. The seal of the Corporation shall be circular in form and mounted upon a metal die, suitable for impressing the same upon paper. About the upper periphery of the seal shall appear the words "Consolidated Products, Inc." and about the lower periphery thereof the word "Indiana". In the center of the seal shall appear the word "Seal". Article II The fiscal year of the Corporation shall end on the last Wednesday in September of each calendar year. Article III Capital Stock SECTION 1. NUMBER OF SHARES AND CLASSES OF CAPITAL STOCK. The total number of shares of capital stock which the Corporation shall have authority to issue is 25,000,000 shares, which shall consist of 25,000,000 common shares without par value. SECTION 2. CONSIDERATION FOR NO PAR SHARES. The shares of stock of the Corporation without par value shall be issued or sold in such manner and for such amount of consideration as may be fixed from time to time by the Board of Directors, such shares of stock shall be fully paid and nonassessable. SECTION 3. CONSIDERATION FOR TREASURY SHARES. Treasury shares may be disposed of by the Corporation for such consideration as may be determined from time to time by the Board of Directors. Amended as of October 30, 1996 SECTION 4. PAYMENT FOR SHARES. The consideration for the issuance of shares of capital stock of the Corporation may be paid, in whole or in part, in money, in other property, tangible or intangible, or in labor actually performed for, or services actually rendered to the Corporation which is transferred to stated upon the issuance of shares as a share dividend shall be deemed to be the consideration for the issuance of such shares. When payment of the consideration for which a share was authorized to be issued shall have been received by the Corporation, or when surplus shall have been transferred to stated capital upon the issuance of a share dividend, such share shall be declared and taken to be fully paid and not liable to any further call or assessment, and the holder thereof shall not be liable for any further payments thereon. In the absence of actual fraud in the transaction, the judgement of the Board of Directors as to the value of such property labor or services received as consideration, or the value placed by the Board of Directors upon the corporate assets in the event of share dividend, shall be conclusive. Promissory notes, uncertified checks, or future services shall not be accepted in payment or part payment of the capital stock of the Corporation, except as permitted by The Indiana General Corporation Act. 32 SECTION 5. CERTIFICATES FOR SHARES. Each holder of capital stock of the Corporation shall be entitled to a stock certificate, signed by the Chairman or a Vice President and the Secretary or any Assistant Secretary of the Corporation, with the seal of the Corporation thereto affixed, stating the name of the registered holder, the number of shares represented by such certificate, the par value of each shares of stock or that such shares of stock are without par value, and that such shares are not fully paid and nonassesable. If such shares are not fully paid, the certificates shall be legibly stamped to indicate the percent which has been paid, and as further payments are made, the certificate shall be stamped accordingly. If the Corporation is authorized to issue shares of more than one class, every certificate shall state the kind and class of shares represented thereby, and the relative rights, interests, preferences and restrictions of such class, or a summary thereof; provided, that such statement may be omitted from the certificate if it shall be set forth upon the face or back of the certificate that such statement, in full, will be furnished by the Corporation to any shareholder upon written request and without charge. SECTION 6. FACSIMILE SIGNATURES. If a certificate is countersigned by the written signature of a transfer agent other than the Corporation or its employee, the signatures of the officers of the Corporation may be facsimiles. If a certificate is countersigned by the written signature of a registrar other than the Corporation of its employee, the signatures of the transfer agent and the officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of its issue. SECTION 7. TRANSFER OF SHARES. The share of the capital stock of the Corporation shall be transferable only on the books of the Corporation upon surrender of the certificate or certificates representing the same, properly endorsed by the registered holder or by his duly authorized attorney or accompanied by proper evidence of succession, assignment or authority to transfer. SECTION 8. CANCELLATION. Every certificate surrendered to the Corporation for exchange or transfer shall be cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled, except in cases provided for in Section 10 of this Article III. SECTION 9. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint a transfer agent and a registrar for each class of capital stock of the Corporation and may require all certificates representing such shares to bear the signature of such transfer agent and registrar. Shareholders shall be responsible for notifying the transfer agent and registrar for the class of stock held by such shareholder in writing of any changes in their addresses from time to time, and failure so to do shall relieve the Corporation, its shareholders, directors, officers, transfer agent and registrar of liability for failure to direct notices, dividends, or other documents or property to an address other than the one appearing upon the records of the transfer agent and registrar of the Corporation. SECTION 10. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors may authorize the transfer agent and a registrar to issue replacement shares for Corporation stock alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Corporation may, in its discretion and as a condition of precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the Corporation on a bond in such sum and in such form as it may direct to indemnify against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate. The Corporation, at its discretion, may authorize the issuance of such new certificates without any bond when in its judgment it is proper to do so. SECTION 11. REGISTERED SHAREHOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of such shares to receive dividends, to vote as such owner, to hold liable for calls and assessments, and to treat as owner in all other respects, and shall not be bound to recognize any equitable or other claims to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by laws of Indiana. SECTION 12. OPTIONS TO OFFICERS AND EMPLOYEES. The issuance, including the consideration, of rights or 33 options to directors, officers or employees of the Corporation, and not to the shareholders generally, to purchase from the Corporation shares of its capital stock shall be approved by the affirmative vote of the holders of a majority of the shares entitled to vote thereon or shall be authorized by and consistent with a plan approved by such a vote of the shareholders. The price to be received for any shares having a par value, other than treasury shares to be issued upon the exercise of such rights or options, shall not be less than the par value thereof. ARTICLE IV MEETINGS OF SHAREHOLDERS SECTION 1. PLACE OF MEETING. Meetings of shareholders of the Corporation shall be held at such place, within or without the State of Indiana, as may from time to time be designated by the Board of Directors, or as may be specified in the notices or waivers of notice of such meetings. SECTION 2. ANNUAL MEETING. The annual meeting of shareholders for the election of Directors, and for the transaction of such other business as may properly come before the meeting, shall be held on the second Wednesday of February of each year, unless in any year the Board of Directors establishes a different date as the date of the annual meeting. Failure to hold the annual meeting at the designated time shall not work any forfeiture or dissolution of the Corporation, and shall not affect otherwise valid corporate acts. SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statue or by the Articles of Incorporation, may be called by the Board of Directors or the Chairman and shall be called by the Chairman or the Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of shareholders holding of record not less than one-fourth of all the shares outstanding and entitled by the Articles of Incorporation to vote on the business for which the meeting is being called. SECTION 4. NOTICE OF MEETINGS. A written or printed notice, stating the place, day and hour of the meeting, and in case of a special meeting, or when required by any other provision of The Indiana General Corporation Act, or of the Articles of Incorporation, as now or hereafter amended, or these By-Laws, the purpose or purposes for which the meeting is called, shall be delivered or mailed by the Secretary, or by the officers or persons calling the meeting, to each shareholder of record entitled by the Articles of Incorporation, as now or hereafter amended, and by The Indiana General Corporation Act to vote at such meeting, as such address as appears upon the records of the Corporation, at least ten (10) days before the date of the meeting. Notice of any such meeting may be waived in writing by any shareholder, if the waiver sets forth in reasonable detail the purpose or purposes for which the meeting is called, and the time and place thereof. Attendance at any meeting in person, or by proxy, shall constitute a waiver of notice of such meeting. Each shareholder, who has in the manner above provided waived notice of shareholders' meeting, or who personally attends a shareholders' meeting, or is conclusively presumed to have been given due notice of such meeting. Notice of any adjourned meeting of stockholders shall not be required to be given if the time and place thereof are announced at the meeting at which the adjournment is taken, except as may be expressly required by law. SECTION 5. ADDRESSES OF SHAREHOLDERS. The address of any shareholder appearing upon the records of the Corporation shall be deemed to be the latest address of such shareholder for the class of stock held by such shareholder. SECTION 6. VOTING AT MEETINGS (a) QUORUM. The holders of record of a majority of the issued and outstanding stock of the Corporation entitled to vote at such meeting, present in person or by proxy, shall constitute a quorum at all meetings of stockholders for the transaction of business, except where otherwise provided by law, the Certificate of Incorporation or these By-Laws. In the absence of a quorum, any officer entitled to preside at, or act as Secretary of, such meeting shall have the power to adjourn the meeting from time to time until a quorum shall be constituted. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting, but only those stockholders entitled to vote at the original meeting shall be entitled to vote at any adjournment or adjournments thereof unless a new record date is fixed by the Board of Directors for the adjourned meeting. 34 (b) VOTING RIGHTS. Except as otherwise provided by law or by the provisions of the Articles of Incorporation, every shareholder shall have the right at every shareholders' meeting to one vote for each share of stock having voting power, registered in his name on the books of the Corporation on the date for the determination of shareholders entitled to vote, on all matters coming before the meeting including the election of directors. At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person, or by proxy executed in writing by the shareholder or a duly authorized attorney in fact and bearing a date not more than eleven months prior to its execution, unless a longer time is expressly provided therein. (c) REQUIRED VOTE. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of The Indiana General Corporation Act or of the Articles of Incorporation or by these By-Laws, a greater vote is required, in which case such express provision shall govern and control the decision of such question. SECTION 7. VOTING LIST. The Transfer Agent of the Corporation shall make, at least five days before each election of directors, a complete list of the shareholders entitled by the Articles of Incorporation, as now or hereafter amended, to vote at such election, arranged alphabetical order, with the address and number of shares so entitled to vote held by each, which list shall be on file at the principal office of the Corporation and subject to inspection by any shareholder. Such list shall be produced and kept open at the time and place of election and subject to the inspection of any shareholder during the holding of such election. The original stock register or transfer book, or duplicate thereof kept in the State of Indiana, shall be the only evidence as to who are the shareholders entitled to examine which list or the stock ledger or transfer book or to vote at any meeting of the shareholders. SECTION 8. FIXING OF RECORD DATE TO DETERMINE SHAREHOLDERS ENTITLED TO VOTE. The Board of Directors may prescribe a period not exceeding 70 days prior to meetings of the shareholders, during which stock on the books of the Corporation may not be transferred; or, in lieu of prohibiting the transfer of stock may set a date and time as the time at which shareholders entitled to notice of, and to vote at, such meeting shall be determined, and all persons who are holders of record of voting stock at such time, and no others, shall be entitle to notice of, and to vote at, such meeting. Said date and time shall not be more than 70 days prior to any shareholders' meeting. In the absence of such determination, such date shall be 10 days prior to the date of such meeting. ARTICLE V BOARD OF DIRECTORS SECTION 1. ELECTION, NUMBER AND TERM OF OFFICE. Directors shall be elected at the annual meeting of shareholders, or, if not so elected, at a special meeting of shareholders for that purpose, by the holders of the shares of stock entitled by the Articles of Incorporation to elect Directors. The number of Directors of the Corporation to be elected by the holders of the shares of stock entitled by the Articles of Incorporation to elect Directors shall be nine (9) unless changed by amendment of this section. All Directors elected by the holders of such shares, except in the case of earlier resignation, removal or death, shall hold office until their respective successors are chosen and qualified. Directors need not be shareholders of the Corporation. Any vacancy on the Board of Directors caused by an increase in the number of Directors shall be filled by a majority of the members of the Board of Directors, until the next annual or special meeting of shareholders or, at the discretion of the Board of Directors, such vacancy may be filled by vote of the shareholders at a special meeting called for that purpose. No decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. 35 SECTION 2. VACANCIES. Any vacancy occurring in the Board of Directors caused by resignation, death or other incapacity shall be filled by a majority vote of the remaining members of the Board of Directors, until the next annual meeting of shareholders. If the vote of the remaining members of the Board shall result in a tie, such vacancy, at the discretion of the Board of Directors, may be filled by vote of the shareholders at a special meeting for that purpose. SECTION 3. ANNUAL MEETING OF DIRECTORS. The Board of Directors shall meet each year immediately after the annual meeting of the shareholders, at the place where such meeting of the shareholders has been held either within or without the State of Indiana, for the purpose of organization, election of officers, and consideration of any other business that may properly come before the meeting. No notice of any kind to either old or new members of the Board of Directors for such meeting shall be necessary. SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such times and places, either within or without the State of Indiana, as may be fixed by the Directors. Such regular meetings of the Board of Directors may be held without notice or upon such notice as may be fixed by the Directors. SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, or by not less than a majority of the members of the Board of Directors. Notice of the time and place, either within or without the State of Indiana, of a special meeting shall be served upon or telephoned to each Director at least twenty-four hours, or mailed, telegraphed or cabled to each Director at his usual place of business or residence at least forty-eight hours, prior to the ties of the meeting. Directors, in lieu of such notice, may sign a written waiver of notice either before the time of the meeting, at the meeting or after the meeting. Attendance by a direction in person at any such special meeting shall constitute a waiver of notice. SECTION 6. QUORUM. A majority of the actual number of Directors elected and qualified, from time to time, shall be necessary to constitute a quorum for the transaction of any business except the filling of vacancies, and the act of majority of the Directors present at the meeting, at which a quorum is present, shall be the act of the Board of Directors, unless the act of a greater number is required by The Indiana General Corporation Act, by the Articles of Incorporation, or these By-Laws. A Director, who is present at a meeting of the Board of Directors, at which action on any corporate matter is taken, unless (a) his dissent shall be affirmatively stated by him at and before the adjournment of such meeting (in which event the fact of such dissent shall be entered by the secretary of the meeting in the minutes of the meeting), or (b) he shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. The right of dissent provided for by either clause (a) or clause (b) of the immediately preceding sentence shall not be available, in respect of any matter, acted upon at any meeting, to a Director who voted at the meeting in favor of such matter and did not change his vote prior to the time the result of the vote on such matter was announced by the Chairman of such meeting. SECTION 7. CONSENT ACTION BY DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if prior to such action a written consent to such action is signed by all members of the Board of Directors or such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or committee. SECTION 8. REMOVAL OF DIRECTORS. Any or all members of the Board of Directors may be removed, with or without cause, at a meeting of shareholders called expressly for that purpose by a vote of the holders of not less than a majority of the outstanding shares of capital stock then entitled at an election of directors. SECTION 9. DIVIDENDS. The Board of Directors shall have power, subject to any restrictions contained in The Indiana General Corporation Act or in the Articles of Incorporation and out of funds legally available therefor, to declare and pay dividends upon the outstanding capital stock of the Corporation as and when they deem expedient. Before declaring any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time in their absolute discretion deem proper for working capital, or as a reserve or reserves to meet contingencies or for such other purposes as the Board of Directors shall deem conducive to the interests of the Corporation and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. SECTION 10. FIXING OF RECORD DATE TO DETERMINE SHAREHOLDERS ENTITLED TO RECEIVE CORPORATE BENEFITS. The 36 Board of Directors may fix a day and hour not exceeding 50 days preceding the date fixed for payment of any dividend or for the delivery of evidence of rights, or for the distribution or other corporate benefits, or for a determination of shareholders entitled to receive any such dividend, rights or distribution, and such case only shareholders of record at the time so fixed shall be entitled to receive such dividend, rights or distribution. If no record date is fixed for the determination of shareholders entitled to receive payment of a dividend, the end of the day on which the resolution of the Board of Directors declaring such dividend is adopted shall be the record date for such determination. SECTION 11. INTEREST OF DIRECTORS IN CONTRACTS. Any contract or other transaction between the Corporation of any corporation which this Corporation owns a majority of the capital stock shall be valid and binding, notwithstanding that the directors and officers of this Corporation are identical or that some or all of the directors or officers, or both, are also directors or officers of such other corporation. Any contract or other transaction between the Corporation and one or more of its directors or members or employees, or between the Corporation and any firm of which one or more of its directors are members or employees or in which they are interested, or between the Corporation and any corporation or association of which one or more of its directors are stockholders, members, directors, officers or employees or in which they are interested, shall be valid for all purposes, notwithstanding the presence of such director or directors at the meeting of the Board of Directors of the Corporation which acts upon, or in reference to, such contract or transaction and notwithstanding his or their participation in such action, if the fact of such interest shall be disclosed or known to the Board of Directors and the Boards of Directors shall authorize, approve and ratify such contract or transaction by a vote of a majority of the directors present, such interested director or directors to be counted in determining whether a quorum is present, but not to be counted in calculating the majority of such quorum necessary to carry such vote. This Section shall not be construed to invalidate any contract or other transaction which would otherwise be valid under the common and statutory law applicable thereto. SECTION 12. COMMITTEES. The Board of Directors may, by resolution adopted by a majority of the actual number of Directors elected and qualified, from time to time designate from among its members, an executive committee and one or more other committees and may delegate to each such committee such authority and power of the Board of Directors as shall be specified in such resolution, but no such committee shall have the authority of the Board of Directors in reference to amending the Articles of Incorporation, adopting an agreement or plan of merger or consolidation proposing a special corporate transaction, recommending to the shareholders a voluntary dissolution of the Corporation or a revocation thereof, or amending these By-Laws. No member of any such committee shall continue to be a member thereof after he ceases to be a Director of the Corporation. The calling and holding of meetings of such committee and its method of procedure shall be as determined by the Board of Directors. ARTICLE VI OFFICERS SECTION 1. PRINCIPAL OFFICERS. The principal officers of the Corporation shall be a Chairman, a President, one or more Vice Presidents, a Treasurer and a Secretary. The Corporation may also have, at the discretion of the Board of Directors, such other subordinate officers as may be appointed in accordance with the provisions of these By-Laws. Any two or more offices may be held by the same person, except the duties of the President and Secretary shall not be eligible for the office of Chairman who is not a Director of the Corporation. SECTION 2. CHIEF EXECUTIVE OFFICER. The Board of Directors shall designate a Chief Executive Officer who shall be either the Chairman or President. The Chief Executive Officer shall hold those powers and authorities normally accorded such position and shall be the senior officer accountable to the Board for principles and policies of the Corporation. SECTION 3. ELECTION AND TERM OF OFFICE. The principal officers of the Corporation shall be chosen annually by the Board of Directors at the annual meeting thereof. Each such officer shall hold office until his successor shall have been duly chosen and qualified, or until his death, or he shall resign, or shall have been removed in the manner hereinafter provided. SECTION 4. REMOVAL. Any principal officer may be removed either with or without cause, at any time by resolution adopted at any meeting of the Board of Directors elected and qualified from time to time. 37 SECTION 5. SUBORDINATE OFFICERS. In addition to the principal officers enumerated in Section 1 of this Article VI, the Corporation may have a Controller, one or more Assistant Controllers, one or more Assistant Secretaries and such other officers, agents and employees as the Board of Directors may deem necessary, each of whom shall hold office for such period, may be removed with or without cause, have such authority and perform such duties as the Chairman, the President, or the Board of Directors may from time to time determine. The Board of Directors may delegate to any principal officer the power to appoint and to remove any such subordinate officers, agents or employees. SECTION 6. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Chairman, the Board of Directors, the President or to the Secretary. Any such resignation shall take effect upon receipt of such notice or at any later time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 7. VACANCIES. Any vacancy in any office for any cause may be filled for the unexpired portion of the term in the manner prescribed in these By-Laws for election or appointment to such office for such term. SECTION 8. CHAIRMAN. The Chairman, who shall be chosen from among the Directors, shall have general supervision of the affairs of the Corporation, subject to the control of the Board of Directors. He shall be an ex officio member of all standing committees. The Chairman shall preside at all meetings of the shareholders and at all meetings of the Board of Directors. Subject to the control and direction of the Board of Directors, the Chairman may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. In general, he shall perform all duties and have all powers as, from time to time may be herein defined, and all such other duties and powers as, from time to time may be assigned to him by the Board of Directors. SECTION 9. PRESIDENT. The President shall be responsible to the Chairman in the performance of his duties, and shall, in the absence or disability of the Chairman, perform the duties and exercise the power of the Chairman. The President shall perform such duties and have such powers as the Board of Directors may, from time to time assign. SECTION 10. VICE PRESIDENTS. The other Vice Presidents in the order of their seniority, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President. They shall perform such other duties and have such other powers as the Chairman and President and the Board of Directors may, from time to time assign. SECTION 11. TREASURER. The Treasurer shall be the Chief Financial Officer of the Corporation and shall have charge and custody of, and be responsible for, all funds and securities of the Corporation and shall deposit all such funds and securities of the Corporation in such banks or other depositories as shall be selected by the Board of Directors. He shall, upon request, exhibit at all reasonable times his books of account and records to any of the directors of the Corporation where such books and records shall be kept; shall render upon request by the Board of Directors, a statement of the condition of the finances of the Corporation at any time requested by the Board of Directors or at the annual meeting of shareholders; shall receive, and give receipt for moneys due and payable to the Corporation from any source whatsoever; and in general, shall perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Chairman, the President, or the Board of Directors. The Treasurer shall give such bond, if any, for the faithful discharge of his duties as the Board of Directors may require. SECTION 12. SECRETARY. The Secretary shall keep or cause to be kept in the books provided for that purpose, the minutes of the meetings of the Shareholders and of the Board of Directors; shall duly give and serve all notices required to be given in accordance with the provisions of these By-Laws and by the Indiana General Corporation Act; shall be custodian of the records and of the seal of the Corporation and see that the seal is affixed to all documents, the executing of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these By-Laws; and, in general, shall perform all duties incident to the office of Secretary and such other duties as may, from time to time, be assigned to him by the Chairman, the President or the Board of Directors. SECTION 13. SALARIES. The salaries of the principal officers shall be fixed from time to time by the Board of Directors and the salaries of any subordinate officers may be fixed by the President. 38 SECTION 14. GENERAL POWERS OF OFFICERS. The Chairman and President and each are authorized and empowered for and on behalf of the Corporation and in its name, singly and without the joinder of any other officer, to execute and deliver any and all contracts, leases, notes, mortgages, receipts, deeds, commitments, power of attorney, authorizations and any and all documents in addition to, but not limited to the ones therefore described which said offices, or any of them believe to be necessary and advisable in carrying on the business of the Corporation. The Treasurer and the Secretary of the Corporation are hereby authorized to execute and deliver any and all documents which relate to the routine discharge of the responsibilities of each of said offices and such other documents as either the Chairman or the President shall specifically authorize said officers to execute or deliver only such documents, or general types of classes of documents, with respect to which they have received specific authorization from either the Chairman, the President or the Board of Directors. SECTION 15. VOTING CORPORATION'S SECURITIES. Unless otherwise ordered by the Board of Directors, the Chairman, President and Secretary and each of them, are appointed attorneys and agents of the Corporation, and shall have full power and authority in the name and on behalf of the Corporation, to attend, to act, and to vote all stock or other securities entitled to be voted at any meetings of security holders of corporations, or associations in which the Corporation may hold securities, in person, or by proxy, as a stockholder or otherwise and at such meetings shall possess and may exercise any and all rights and powers incident to the ownership of such securities, and which as the owner thereof of the Corporation might have possessed and exercised, if present, or to consent in writing to any action by and such other corporation or association. The Board of Directors by resolution from time to time, may confer like powers upon any other person or persons. Article VII Indemnification SECTION 1. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. Every person who is or was a director, officer or employee of this Corporation or of any other corporation for which he is or was serving in any capacity at the request of this Corporation shall be indemnified by this Corporation against any and all liability and expense that may be incurred by him in connection with or resulting from or arising out of any claim, action, suit or proceeding, providing that such person is wholly successful with respect thereto or acted in good faith in what he reasonably believed to be in or not opposed to the best interests of this Corporation or such other corporation, as the case may be, and, in addition, in any criminal action or proceeding, he had no reasonable cause to believe that his conduct was unlawful. As used herein, "claim, action, suit or proceeding" includes all actions (whether brought by or in the right of this Corporation or such other corporation or otherwise), civil, criminal, administrative or investigative, whether actual or threatened or in connection with an appeal relating thereto, in which a director, officer or employee of this Corporation may become involved, as a party or otherwise. (i) by reason of his being or having a director, officer or employee of this Corporation or such other corporation or arising out of his status as such or; (ii) by reason of any past or future action taken or not taken by him in any such capacity or status, whether or not he continues to be such at the time such liability or expense is incurred. The terms "liability" and "expense" shall include, but shall not be limited to, attorneys' fees and disbursements, amounts of judgments, fines or penalties, and amounts paid in settlement by or on behalf of a director, officer or employee. The Corporation may advance expenses to or, where appropriate, may at its expense undertake the defense of any such director, officer or employee upon receipt of an undertaking by or on behalf of such person to repay such expenses if it should ultimately be determined that he is not entitled to indemnification hereunder. The provisions of the Section shall be applicable to claims, suits, or proceedings made or commended after the adoption hereof, whether arising from acts or omissions to act during, before or after the adoption hereof. The rights of indemnification provided hereunder shall be in addition to any rights to which any person concerned may otherwise be entitled by contract or as a matter of law and shall inure to the benefit of the heirs, executors and administrators of any such person. 39 ARTICLE VIII AMENDMENTS The power to make, alter, amend or repeal these By-Laws is vested in the Board of Directors, but the affirmative vote of a majority of the actual number of directors elected and qualified, from time to time, shall be necessary to effect any alteration, amendment or repeal of the By-Laws. EX-13.01 4 a2033923zex-13_01.txt ANNL RPRT TO SHRHLDRS FOR YEAR ENDED SEPT 27, 2000 EXHIBIT 13.01 - ANNUAL REPORT TO SHAREHOLDER FOR THE YEAR ENDED SEPTEMBER 27, 2000 SELECTED FINANCIAL AND OPERATING DATA (UNAUDITED) Consolidated Products, Inc. (ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- (53 weeks) Statement of Earnings Data(2): Revenues $ 408,686 $ 350,879 $ 295,944 $ 251,412 $ 211,777 Earnings from continuing operations before pre-opening costs, interest, income taxes and cumulative effect of change in accounting $ 40,589 $ 39,581 $ 37,984 $ 33,284 $ 27,836 Earnings from continuing operations before cumulative effect of change in accounting $ 22,309 $ 19,882(1)(3) $ 20,921 $ 16,934 $ 13,806 Discontinued operations $ (3,715)(2) $ (1,169) $ (1,218) $ (785) $ (797) Cumulative effect of change in accounting for pre-opening costs $ -- $ (1,751)(3) $ -- $ -- $ -- Net earnings $ 18,594 $ 16,962 $ 19,703 $ 16,149 $ 13,009 Per Share Data(2): Basic Earnings Per Common and Common Equivalent Share: From continuing operations before cumulative effect of change in accounting $ .76 $ .68(3) $ .73 $ .63 $ .53 Discontinued operations (.13)(2) (.04) (.04) (.03) (.03) Cumulative effect of change in accounting for pre-opening costs (.06)(3) -- -- -- --------------------------------------------------------------------- Basic earnings per share $ .63 $ .58 $ .69 $ .60 $ .50 --------------------------------------------------------------------- Diluted Earnings Per Common and Common Equivalent Share: From continuing operations before cumulative effect of change in accounting $ .76 $ .67(3) $ .71 $ .62 $ .52 Discontinued operations (.13)(2) (.04) (.04) (.03) (.03) Cumulative effect of change in accounting for pre-opening costs (.06)(3) -- -- -- --------------------------------------------------------------------- Diluted earnings per share $ .63 $ .57 $ .67 $ .59 $ .49 --------------------------------------------------------------------- Diluted Weighted Average Shares and Share Equivalents (in thousands) 29,339 29,579 29,228 27,337 26,676 Statement of Financial Position Data(2): Total assets $ 240,767 $ 210,472 $ 190,181 $ 168,294 $ 131,416 Long-term debt: Obligations under capital leases $ 1,839 $ 2,748 $ 4,000 $ 5,376 $ 6,957 Revolving line of credit $ 12,695 $ -- $ -- $ -- $ 4,000 Senior note $ 25,522 $ 24,482 $ 27,216 $ 29,261 $ 25,000 Shareholders' equity $ 152,108 $ 135,467 $ 115,350 $ 92,950 $ 57,829
41 SELECTED FINANCIAL AND OPERATING DATA (UNAUDITED) Consolidated Products, Inc. (ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- (53 weeks) Other Data(2) (4): Systemwide Sales(1): Company $ 402,509 $ 344,885 $ 289,965 $ 245,505 $ 206,115 Franchise 86,454 80,381 79,960 72,642 62,600 --------------------------------------------------------------------- $ 488,963 $ 425,266 $ 369,925 $ 318,147 $ 268,715 --------------------------------------------------------------------- Number of Restaurants: Steak n Shake: Company-operated 313 278 233 194 161 Franchised 54 50 51 55 47 --------------------------------------------------------------------- 367 328 284 249 208 Number of Employees 18,000 16,000 14,000 12,000 10,500 Number of Shareholders 12,127 12,236 7,922 6,292 4,655
(1) IN THE SECOND QUARTER OF FISCAL 1999, THE COMPANY RECORDED A NONRECURRING CHARGE OF $1,040,000, NET OF INCOME TAXES, RELATED TO THE SETTLEMENT OF A LAWSUIT. (2) IN SEPTEMBER 2000, THE COMPANY ANNOUNCED ITS DECISION TO DISPOSE OF THE SPECIALTY RESTAURANT SEGMENT OF THE BUSINESS COMPRISED OF ITS CONSOLIDATED SPECIALTY RESTAURANTS, INC. SUBSIDIARY, WHICH OPERATED 11 SPECIALTY CASUAL DINING RESTAURANTS, PRIMARILY COLORADO STEAKHOUSES. ACCORDINGLY, THE COMPANY RECORDED A ONE-TIME CHARGE FOR THE LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS OF $3,750,000, ($2,400,000 NET OF INCOME TAXES OR $.08 PER DILUTED SHARE), IN THE FOURTH QUARTER. THE LOSS FROM THE OPERATIONS OF THE SPECIALTY RESTAURANTS AND THE LOSS ON DISPOSAL OF THE DISCONTINUED OPERATIONS ARE REPORTED AS A DISCONTINUED OPERATION IN FISCAL 2000. THE LOSS FROM OPERATIONS AND THE ESTIMATED LOSS ON DISPOSAL, NET OF APPLICABLE INCOME TAXES, ARE SHOWN BELOW EARNINGS FROM CONTINUING OPERATIONS. AMOUNTS FOR 1999, 1998, 1997 AND 1996 DIFFER FROM PREVIOUSLY REPORTED AMOUNTS SINCE THE RESULTS OF THE SPECIALTY RESTAURANT BUSINESS HAVE BEEN REFLECTED AS DISCONTINUED OPERATIONS (SEE THE DISCONTINUED OPERATIONS FOOTNOTE). (3) DURING 1999, THE COMPANY ADOPTED THE PROVISIONS OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS STATEMENT OF POSITION 98-5, "REPORTING ON THE COSTS OF START-UP ACTIVITIES" RETROACTIVE TO THE FIRST QUARTER OF FISCAL 1999. THIS NEW ACCOUNTING STANDARD REQUIRED THE COMPANY TO EXPENSE ALL PRE-OPENING COSTS AS THEY WERE INCURRED. THE COMPANY PREVIOUSLY DEFERRED SUCH COSTS AND AMORTIZED THEM OVER THE ONE-YEAR PERIOD FOLLOWING THE OPENING OF EACH RESTAURANT. THE CUMULATIVE EFFECT OF THIS ACCOUNTING CHANGE, NET OF INCOME TAX BENEFIT, WAS $1.8 MILLION ($0.06 PER DILUTED SHARE). THE EFFECT OF THE ADOPTION OF THE NEW ACCOUNTING STANDARD WAS A REDUCTION IN THE COMPANY'S EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR FISCAL 1999 OF APPROXIMATELY $1.9 MILLION ($0.06 PER DILUTED SHARE). (4) DATA PRESENTED IS NOT REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES BUT PROVIDES AN IMPORTANT MEASURE OF COMPANY PERFORMANCE. 42 MANAGEMENT'S DISCUSSION AND ANALYSIS Consolidated Products, Inc. (YEARS ENDED SEPTEMBER 27, 2000, SEPTEMBER 29, 1999 AND SEPTEMBER 30, 1998) 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 periods being compared and which remained open through the end of the fiscal period. In September 2000, the Company announced its decision to dispose of the Specialty Restaurant segment of the business comprised of Consolidated Specialty Restaurants, Inc. (CSR). The Company has reported the disposal of the Specialty Restaurant segment as a disposal of a segment of the business and has reported it as a discontinued operation in accordance with APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The loss from operations and the estimated loss on disposal, net of applicable income taxes, are shown below Earnings from Continuing Operations. In addition, all amounts relating to CSR have been reclassified to discontinued operations for all years presented. In 1999, the Company adopted the provisions of American Institute of Certified Public Accountants Statement of Position 98-5, "Reporting on the Costs of Start-up Activities ("SOP 98-5") retroactive to the first quarter of fiscal 1999. This new accounting standard required the Company to expense all pre-opening costs as they are incurred. The Company previously deferred such costs and amortized them over the one-year period following the opening of each restaurant. 43 RESULTS OF OPERATIONS The following table sets forth the percentage relationship to total revenues, unless otherwise indicated, of items included in the Company's consolidated statements of earnings for the periods indicated:
2000 1999 1998 ---------------------------------------- (53 weeks) Revenues Net sales 98.5% 98.3% 98.0% Franchise fees .9 1.0 1.1 Other, net .6 .7 .9 ---------------------------------------- 100.0 100.0 100.0 ---------------------------------------- Costs and Expenses Cost of sales 24.1(1) 24.8(1) 24.8(1) Restaurant operating costs 48.7(1) 47.0(1) 46.0(1) General and administrative 7.5 7.2 7.7 Depreciation and amortization 3.8 3.7 3.8 Rent 4.1 3.8 3.2 Marketing 3.0 2.9 3.1 Interest .3 .4 .6 ---------------------------------------- Earnings from Continuing Operations Before Income Taxes, Cumulative Effect of Change in Accounting, Pre-opening Costs and Settlement of Litigation 9.6 11.3 12.2 Pre-opening costs 1.1 2.1(3) 1.1 Settlement of litigation -- .5 -- ---------------------------------------- Earnings from Continuing Operations Before Income Taxes and Cumulative Effect of Change In Accounting 8.5 8.7 11.1 Income Taxes 3.0 3.1 4.0 ---------------------------------------- Earnings from Continuing Operations Before Cumulative Effect of Change in Accounting 5.5 5.6 7.1 Discontinued Operations: Loss from operations, net of income taxes (0.3)(2) (0.3)(2) (0.4)(2) Loss on disposal, including provision of $818,000, for operating losses during phase-out period, net of income taxes (0.6)(2) -- -- ---------------------------------------- Earnings Before Cumulative Effect of Change In Accounting 4.6 5.3 6.7 Cumulative Effect of Change in Accounting for Pre-opening Costs, Net of Income Taxes -- (.5)(3) -- ---------------------------------------- Net Earnings 4.6% 4.8% 6.7% ----------------------------------------
(1) Cost of sales and restaurant operating costs are expressed as a percentage of net sales. (2) See the following discussion regarding Discontinued Operations. (3) During 1999, the Company adopted the provisions of SOP 98-5, retroactive to the first quarter of fiscal 1999. This new accounting standard required the Company to expense all pre-opening costs as they were incurred. The company previously deferred such costs and amortized them over the one-year period following the opening of each restaurant. The cumulative effect of this accounting change, net of income tax benefit, was $1.8 million ($0.06 per diluted share). The effect of the adoption of the new accounting standard was a reduction in the Company's earnings before cumulative effect of change in accounting for fiscal 1999 of approximately $1.9 million ($0.06 per diluted share). 44 COMPARISON OF CONTINUING OPERATIONS: YEAR ENDED SEPTEMBER 27, 2000 TO YEAR ENDED SEPTEMBER 29, 1999 REVENUES Net sales increased $57,624,000 to $402,509,000, or 16.7%, due to a 13% increase in the number of Company-operated Steak n Shake restaurants and a 3.0% increase in same store sales. The number of Company-operated Steak n Shake restaurants increased to 313 at September 27, 2000 as compared to 278 at September 27, 1999. The increase in same store sales was attributable to an increase in check average as customer counts were flat. Steak n Shake initiated price increases of approximately 1.2% and 2.4% in the second and third quarters of fiscal 2000, respectively. COSTS AND EXPENSES Cost of sales increased $11,526,000, or 13.5%, as a result of sales increases. As a percentage of net sales, cost of sales decreased to 24.1% from 24.8%, primarily as a result of menu price increases. Restaurant operating costs increased $33,840,000, or 20.9%, due to increased labor costs and other operating costs resulting primarily from the higher sales volume and an increase in manager training costs over the prior year. Restaurant operating costs, as a percentage of net sales, increased to 48.7% from 47.0%. The higher labor costs were the result of a 4.4% increase in wage rates arising from tight labor markets. The increase in manager staffing and training costs results from the Company's significantly intensified manager recruiting programs. The goal of the recruiting effort is to increase the Company's restaurant management quality and staffing levels, thereby providing the management bench strength to support the Company's growth program. The Company's recruiting efforts are focused on identifying growth employees from within for promotion to restaurant manager positions, as well as, college-based recruiting. The increased depth in management staffing will also enhance the Company's ability to deliver dining experiences that exceed customers' expectations and reduce employee turnover. General and administrative expenses increased $5,139,000, or 20.2%. The increase in expenses was primarily attributable to personnel related costs, which included costs related to additional staffing in connection with the Company's growth program, and other costs resulting from the increased number of restaurants. In addition, the Company experienced higher expenses related to the significantly intensified manager recruiting programs. As a percentage of revenues, general and administrative expenses increased to 7.5% from 7.2%. The $2,390,000 increase in depreciation and amortization expense was attributable to the net depreciable capital additions since the beginning of fiscal 1999. Rent expense increased $3,360,000, or 25.1%, as a result of the Company using sale/leaseback financing to fund its growth and a net increase in the number of other leased properties, including leases related to the five franchised Steak n Shake units purchased in 1999. Proceeds from sale/leaseback transactions aggregated $18,453,000 and $19,619,000 in 2000 and 1999, respectively. Marketing expense increased $2,144,000, or 20.8%. As a percentage of revenues, marketing expense increased to 3.0% from 2.9%. Marketing expenses increased primarily due to higher television media costs related to additional television markets, a direct mail program and higher television production costs, print costs and outdoor media costs. Television costs increased due to the introduction of television in the Chicago, IL and Columbus, OH markets and the introduction of cable television in Florida. Pre-opening costs decreased in fiscal 2000 due to a significant decrease in the average cost to open a new unit and through fewer openings in 2000. The decrease in the average cost to open a new unit is primarily the result of now having an established base of restaurants in the Cleveland, Detroit, Kansas City and South Florida markets, thereby eliminating the need to bring employees in from other Steak n Shake markets to assist in the opening of new restaurants. Increased budgetary controls surrounding new unit openings also contributed to this reduction. The Company recorded a nonrecurring charge of $1,600,000 in the second quarter of fiscal 1999 related to the settlement of a lawsuit with the Pepsi-Cola Company ("Pepsi"). INCOME TAXES The Company's effective income tax rate as a percentage of earnings before income taxes increased to 35.3% from 35.0% principally as a result of higher state income taxes. A valuation allowance against gross deferred tax assets has not been provided based upon the expectation of future taxable income. EARNINGS FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING Earnings from continuing operations before cumulative effect of change in accounting increased 12.2% to $22,309,000. 45 DISCONTINUED OPERATIONS In September 2000, the Company announced its decision to dispose of the Specialty Restaurants segment of the business comprised of its Consolidated Specialty Restaurants, Inc. subsidiary, (CSR) which operated 11 specialty casual dining restaurants, primarily Colorado Steakhouses. Accordingly, the Company recorded a one-time charge for the estimated loss on disposal of discontinued operations of $3,750,000, ($2,400,000 net of income taxes or $.08 per diluted share), in the fourth quarter. The loss from the operations and the estimated loss on disposal of the discontinued operations of the Specialty Restaurants are reported as a discontinued operation in fiscal 2000. The loss from operations and the estimated loss on disposal, net of applicable income taxes, are shown below Earnings from Continuing Operations. In addition, all amounts relating to CSR have been reclassified to discontinued operations for all years presented. See the Discontinued Operations footnote to the consolidated financial statements for further information. COMPARISON OF YEAR ENDED SEPTEMBER 29, 1999 TO YEAR ENDED SEPTEMBER 30, 1998 (53 WEEKS) REVENUES Net sales increased $54,920,000 to $344,885,000, or 18.9%, due to a 19% increase in the number of Company-operated Steak n Shake restaurants and a 4.0% increase in same store sales. Exclusive of the extra week of sales in 1998, net sales increased $60,046,000, or 20.0%. The number of Company-operated Steak n Shake restaurants increased to 278 at September 29, 1999 as compared to 233 at September 30, 1998. The increase in same store sales was attributable to a 3.0% increase in check average and a 1.0% increase in customer counts. Steak n Shake initiated price increases of approximately 1.0% and 3.0% in the second and fourth quarters of fiscal 1999, respectively. Steak n Shake same store sales improved each quarter during fiscal 1999 with the fourth quarter same store sales being up 4.9%. COSTS AND EXPENSES Cost of sales increased $13,503,000, or 18.8%, as a result of sales increases. As a percentage of net sales, cost of sales remained constant at 24.8%, primarily as a result of menu price increases. Restaurant operating costs increased $28,706,000, or 21.5%, due to increased labor costs and other operating costs resulting primarily from the higher sales volume and an increase in manager training costs over the prior year. Restaurant operating costs, as a percentage of net sales, increased to 47.0% from 46.0%. The higher labor costs were the result of a 5.6% increase in wage rates arising from tight labor markets. The increase in manager training costs of $1,100,000 results from the Company's significantly intensified manager recruiting programs. The goal of the recruiting effort is to increase the Company's restaurant management quality and staffing levels to 105% staffed, thereby providing the management bench strength to support the Company's growth program. The Company's recruiting efforts are focused on identifying growth employees from within for promotion to restaurant manager positions, as well as aggressive college-based recruiting. The increased depth in management staffing will also enhance the Company's ability to deliver dining experiences that exceed customers' expectations and should also reduce manager turnover. General and administrative expenses increased $2,548,000, or 11.2%. The increase in expenses was primarily attributable to personnel related costs, which included costs related to additional staffing in connection with the development of new restaurants, and other costs resulting from the increased number of restaurants. In addition, the Company experienced higher expenses related to the significantly intensified manager recruiting programs. As a percentage of revenues, general and administrative expenses decreased to 7.2% from 7.7%. The $1,697,000 increase in depreciation and amortization expense was attributable to the net depreciable capital additions since the beginning of fiscal 1998. Rent expense increased $4,055,000, or 43.4%, as a result of an increased use of sale/leaseback financing involving 46 properties since the beginning of fiscal 1998 and a net increase in the number of other leased properties, including leases related to the thirteen franchised Steak n Shake units purchased in 1999 and 1998. Marketing expense increased $1,230,000, or 13.5%. As a percentage of revenues, marketing expense decreased to 2.9% from 3.1%. Pre-opening costs increased in fiscal 1999 due to the adoption of SOP 98-5 which resulted in pre-opening costs being charged to expense as incurred. During 1998 and prior years, pre-opening costs were deferred and amortized over the one-year period following the opening of each restaurant. Excluding the one-time cumulative effect, the adoption of SOP 98-5 reduced the Company's earnings before income taxes and cumulative effect of change in accounting for fiscal 1999 by $3.0 million and reported net earnings for fiscal 1999 by approximately $1.9 million ($0.06 per diluted share). In addition, the increase in pre-opening costs is attributable to the timing of the number of new units and higher levels of per unit pre-opening costs, particularly with respect to units opened in new markets. 46 Interest expense decreased $507,000 as a result of decreased borrowings during fiscal 1999. The Company utilized proceeds from sale/leaseback financing to fund its growth in 1999. The Company recorded a nonrecurring charge of $1,600,000 in the second quarter of fiscal 1999 related to the settlement of a lawsuit with Pepsi. INCOME TAXES The Company's effective income tax rate decreased to 35.0% from 36.3% principally as a result of lower state income taxes and higher 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. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR PRE-OPENING COSTS The cumulative effect of the change in accounting for pre-opening costs, net of income tax benefit, was $1,750,000 ($0.06 per diluted share). EARNINGS FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING Earnings from continuing operations before cumulative effect of change in accounting increased 9.3% to $22,861,000 exclusive of the effect of the $1,040,000 Pepsi litigation charge and the effect in fiscal 1999 of the change in accounting for pre-opening costs $1,940,000. Net earnings decreased $2,740,000 to $16,962,226 primarily as a result of the adoption of SOP 98-5 and the charge related to the settlement of the Pepsi litigation. EFFECTS OF GOVERNMENTAL REGULATIONS AND INFLATION Since most of the Company's employees are paid hourly rates related to federal and state minimum wage laws, increases in the legal minimum wage directly increase the Company's operating costs. Inflation in food, labor and other operating costs directly affects the Company's operations. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities." In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," which defers the effective date of SFAS No. 133 until the Company's first quarter financial statements of fiscal 2001. The Company currently believes that the adoption of SFAS No. 133 will not have a material effect on the Company's results of operations. LIQUIDITY AND CAPITAL RESOURCES Thirty-seven Company-operated Steak n Shake restaurants and four franchised Steak n Shake restaurants were opened during fiscal year 2000. In addition, two Company-operated Steak n Shake restaurants were closed upon lease expiration. For fiscal 2000, capital expenditures totaled $73,462,000 as compared to $66,974,000 and $51,430,000 during fiscal 1999 and 1998, respectively. The Company expects to open 25 to 30 Steak n Shake restaurants in fiscal year 2001. This reduction in new unit openings from the prior year reflects an increased focus on consistently providing guests high levels of hospitality and satisfaction, especially in recently opened restaurants, to increase same store sales. The reduction will also allow management to focus solely on very high quality new sites that will yield above average results. The average cost of a new Company-operated Steak n Shake restaurant, including land, site improvements, building and equipment for fiscal 2000 was $1,500,000. The Company intends to fund capital expenditures and meet working capital needs using existing resources and anticipated cash flows from operations, together with additional capital generated by sale and leaseback transactions involving newly acquired properties and bank borrowings. Cash provided by operations in fiscal 2000 totaled $38,862,000 while cash generated by sale and leaseback transactions and other disposals of property totaled $22,096,000. Cash provided by operations in fiscal 1999 and 1998 totaled $33,354,000 and $36,654,000, respectively. Cash generated by sale and leaseback transactions and other disposals in fiscal 1999 and 1998 totaled $19,655,000 and $31,906,000, respectively. At September 27, 2000 the Company had additional sale/leaseback properties under contract which, when closed, will generate $3,593,000 in proceeds. Net cash provided by financing activities during fiscal 2000 totaled $10,677,000. During fiscal 2000 net borrowings under the Company's $30,000,000 Revolving Credit Agreement ("Revolving Credit Agreement") aggregated $12,695,000. Additionally, the Company borrowed $5,000,000 under its $75,000,000 ten-year Senior Note Agreement and Private Shelf Facility ("Senior Note"), the proceeds of which were utilized to refinance a like amount that was repayable. Net cash used in financing activities during fiscal 1999 totaled $684,000. Net cash used in financing activities totaled $1,172,000 during fiscal 1998. During fiscal 1998, the Company borrowed $5,000,000 47 under its Senior Note, the proceeds of which were utilized to refinance a like amount that was repayable. Borrowings under the Senior Note bear interest at an average fixed rate of 7.6%. On April 21, 1999, the Company amended the terms of its Senior Note increasing the borrowing capacity to $75,000,000 and extending the issuance period to April 21, 2002. As of September 27, 2000, the Company had outstanding borrowings of $29,482,000 under the Senior Note. Consequently, the Company has borrowings of $45,518,000 available under the Senior Note at interest rates based upon market rates at the time of borrowing. The Company's Revolving Credit Agreement bears interest based on LIBOR plus 75 basis points, or the prime rate, at the election of the Company. During the second quarter of 2000, the Company amended the Revolving Credit Agreement to extend the maturity date to January 31, 2002. The Company expects to be able to secure a new revolving credit facility upon expiration of the current agreement. The Company's debt agreements contain restrictions, which among other things require the Company to maintain certain financial ratios. The Company has a stock repurchase program, that allows the purchase of up to 2,000,000 shares of its outstanding common stock. As of September 27, 2000, the Company had repurchased a total of 541,900 shares at a cost of $5,304,714. The repurchased shares will be used in part to fund the Company's Stock Option Plan, Capital Appreciation Plan and Employees' Stock Purchase Plan. 48 FINANCIAL STATEMENTS AND SCHEDULES CONSOLIDATED STATEMENTS OF EARNINGS - -------------------------------------------------------------------------------- Consolidated Products, Inc. (Years ended September 27, 2000, September 29, 1999 and September 30, 1998)
2000 1999 1998 ------------------------------------------------- (53 weeks) Revenues: Net sales $402,508,840 $344,885,290 $289,965,123 Franchise fees 3,538,370 3,364,769 3,355,073 Other, net 2,639,208 2,629,094 2,623,521 ---------------------------------------------------------- 408,686,418 350,879,153 295,943,717 Costs and Expenses: Cost of sales 97,000,735 85,474,965 71,971,630 Restaurant operating costs 195,886,169 162,046,552 133,340,790 General and administrative 30,533,931 25,394,750 22,846,905 Depreciation and amortization 15,455,557 13,065,810 11,369,025 Rent 16,760,561 13,400,243 9,345,647 Marketing 12,459,993 10,315,537 9,085,306 Interest 1,394,190 1,395,983 1,903,317 --------------------------------------------------------- 39,195,282 39,785,313 36,081,097 Pre-opening costs 4,689,608 7,583,106 3,230,818 Settlement of litigation -- 1,600,000 -- --------------------------------------------------------- Earnings from Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting 34,505,674 30,602,207 32,850,279 Income Taxes 12,197,000 10,721,000 11,930,000 --------------------------------------------------------- Earnings from Continuing Operations Before Cumulative Effect of Change in Accounting 22,308,674 19,881,207 20,920,279 Discontinued Operations: Loss from operations, net of income taxes (1,314,977) (1,168,551) (1,217,580) Loss on disposal, including provision of $818,000 for operating losses during phase-out period, net of income taxes (2,400,000) -- -- --------------------------------------------------------- Earnings Before Cumulative Effect Of Change in Accounting 18,593,697 18,712,656 19,702,699 Cumulative Effect of Change in Accounting for Pre-opening Costs, Net of Income Taxes -- (1,750,430) -- --------------------------------------------------------- Net Earnings $ 18,593,697 $ 16,962,226 $19,702,699 ---------------------------------------------------------
SEE ACCOMPANYING NOTES. 49 CONSOLIDATED STATEMENTS OF EARNINGS, CONT. - -------------------------------------------------------------------------------- Consolidated Products, Inc. (Years ended September 27, 2000, September 29, 1999 and September 30, 1998)
2000 1999 1998 ------------------------------------------------- (53 weeks) Basic Earnings Per Common and Common Equivalent Share: From continuing operations before cumulative effect of change in accounting $ .76 $ .68 $ .73 Discontinued Operations (.13) (.04) (.04) Cumulative effect of change in accounting for pre-opening costs -- (.06) -- --------------------------------------------------------- Basic earnings per share $ .63 $ .58 $ .69 ---------------------------------------------------------- Diluted Earnings Per Common and Common Equivalent Share: From continuing operations before cumulative effect of change in accounting $ .76 $ .67 $ .71 Discontinued Operations (.13) (.04) (.04) Cumulative effect of change in accounting for pre-opening costs -- (.06) -- ---------------------------------------------------------- Diluted earnings per share $ .63 $ .57 $ .67 ---------------------------------------------------------- Weighted Average Shares and Equivalents: Basic 29,263,076 29,149,065 28,710,438 Diluted 29,338,814 29,579,311 29,227,943
SEE ACCOMPANYING NOTES. 50 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION - -------------------------------------------------------------------------------- Consolidated Products, Inc. (September 27, 2000 and September 29, 1999)
2000 1999 ------------------------------------- Assets: Current Assets Cash, including cash equivalents of $0 in 2000 and $2,265,000 in 1999 $ 2,177,780 $ 4,005,187 Receivables 6,785,407 11,100,108 Inventories 5,484,670 4,849,216 Deferred income taxes 400,000 1,133,000 Other current assets 3,769,898 3,989,204 ------------------------------------- Total current assets 18,617,755 25,076,715 ------------------------------------- Property and Equipment Land 63,688,394 49,691,470 Buildings 56,011,693 41,799,306 Leasehold improvements 51,746,799 45,079,229 Equipment 114,286,577 99,761,598 Construction in progress 14,584,748 20,109,301 ------------------------------------- 300,318,211 256,440,904 Less accumulated depreciation and amortization (80,620,128) (74,530,108 ------------------------------------- Net property and equipment 219,698,083 181,910,796 ------------------------------------- Net Leased Property 1,453,428 2,124,933 Other Assets 997,585 1,359,207 ------------------------------------- $ 240,766,851 $ 210,471,651 ------------------------------------- Liabilities and Shareholders' Equity: Current Liabilities Accounts payable $ 16,031,451 $ 18,416,612 Accrued expenses 20,200,716 19,148,669 Current portion of senior note 3,960,317 2,734,365 Current portion of obligations under capital leases 905,453 1,248,681 ------------------------------------- Total current liabilities 41,097,937 41,548,327 ------------------------------------- Deferred Income Taxes and Credits 7,504,485 6,226,172 Obligations Under Capital Leases 1,839,244 2,747,982 Revolving Line of Credit 12,695,000 -- Senior Note 25,521,746 24,482,064 Shareholders' Equity Common stock-- $.50 stated value, 50,000,000 shares authorized-- shares issued: 29,920,608 in 2000; 29,587,890 in 1999 14,960,304 14,793,945 Additional paid-in capital 121,412,602 118,767,710 Retained earnings) 26,082,398 7,452,544 Less: Unamortized value of restricted shares (1,307,031) (2,498,091) Treasury stock-- at cost: 819,238 shares in 2000; 207,210 shares in 1999 (9,039,834) (3,049,002) Total shareholders' equity 152,108,439 135,467,106 ------------------------------------- $ 240,766,851 $ 210,471,651 -------------------------------------
SEE ACCOMPANYING NOTES. 51 CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- Consolidated Products, Inc. (YEARS ENDED SEPTEMBER 27, 2000, SEPTEMBER 29, 1999 AND SEPTEMBER 30, 1998)
2000 1999 1998 --------------------------------------------------------- (53 weeks) Operating Activities: Net earnings $ 18,593,697 $ 16,962,226 $ 19,702,699 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 16,415,000 14,127,339 12,547,067 Amortization of pre-opening costs -- -- 3,230,818 Cumulative effect of change in accounting for pre-opening costs -- 1,750,430 -- Provision for deferred income taxes 1,435,000 2,063,000 1,516,000 Changes in receivables and inventories (1,065,225) (1,732,257) 553,634 Changes in other assets 2,716,533 (1,169,515) (1,880,154) Changes in income taxes payable 211,976 (617,241) (121,733) Changes in accounts payable and accrued expenses 215,984 2,024,278 1,295,113 (Gain) loss on disposal of property 339,391 (54,693) (189,846) --------------------------------------------------------- Net cash provided by operating activities 38,862,356 33,353,567 36,653,598 --------------------------------------------------------- Investing Activities: Additions of property and equipment (73,462,020) (66,974,269) (51,429,949) Proceeds from sale of short term investments -- 5,000,000 -- Purchase of short term investments -- -- (4,971,169) Net proceeds from sale/leasebacks and other disposals 22,095,542 19,654,722 31,906,246 --------------------------------------------------------- Net cash used in investing activities (51,366,478) (42,319,547) (24,494,872) --------------------------------------------------------- Financing Activities: Proceeds from long-term debt 17,695,000 -- 5,000,000 Proceeds from equipment and property leases 647,979 679,703 709,959 Principal payments on debt and capital lease obligations (3,584,068) (2,224,696) (7,486,655) Lease payments on subleased properties (592,200) (680,099) (680,944) Cash dividends paid in lieu of fractional shares (12,372) (19,313) (21,020) Proceeds from exercise of stock options and warrants 587,396 409,749 291,224 Stock repurchase (5,304,714) -- -- Proceeds from employee stock purchase plan 1,239,694 1,150,780 1,015,521 --------------------------------------------------------- Net cash provided by (used in) financing activities 10,676,715 (683,876) (1,171,915) --------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents (1,827,407) (9,649,856) 10,986,811 Cash and Cash Equivalents at Beginning of Year 4,005,187 13,655,043 2,668,232 --------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 2,177,780 $ 4,005,187 $ 13,655,043 ---------------------------------------------------------
SEE ACCOMPANYING NOTES. 52 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------- Consolidated Products, Inc. (YEARS ENDED SEPTEMBER 27, 2000, SEPTEMBER 29, 1999 AND SEPTEMBER 30, 1998)
Unamortized Additional Retained Value of Common Paid-In Earnings Restricted Treasury Stock Stock Capital (Deficit) Shares Shares Amount --------------------------------------------------------------------------------- Balance at September 24, 1997 $10,433,738 $91,143,921 $(5,396,965) $(1,839,982) 114,574 $(1,390,566) Net earnings 19,702,699 Shares issued under stock option plan 96,521 936,569 Shares exchanged to exercise stock options 39,472 (743,269) Shares granted under Capital Appreciation Plan 41,100 1,449,387 (1,490,488) Shares forfeited under Capital Appreciation Plan 85,920 9,750 (134,344) Changes in unamortized value of shares granted under Capital Appreciation Plan 972,210 Tax benefit relating to stock plans 487,398 Cash dividends paid in lieu of fractional shares (21,020) Shares issued for Employee Stock Purchase Plan 41,791 973,730 Five for four common stock split declared December 1, 1998 (5,265,690 shares) 2,632,845 (2,632,845) Other (246) (7,341) (748) 8,988 ---------------------------------------------------------------------------------- Balance at September 30, 1998 13,245,749 92,350,819 14,284,714 (2,272,340) 163,048 (2,259,191) Net earnings 16,962,226 Shares issued under stock option plan 111,896 1,087,662 Shares exchanged to exercise stock options 44,162 (789,811) Shares granted under Capital Appreciation Plan 49,875 1,327,922 (1,377,797) Changes in unamortized value of shares granted under Capital Appreciation Plan 1,152,046 Tax benefit relating to stock plans 461,869 Cash dividends paid in lieu of fractional shares (19,313) Shares issued form Employee Stock Purchase Plan 51,283 1,099,497 Ten percent common stock dividend declared December 15, 1999 (2,665,368 shares) 1,332,684 22,442,399 (23,775,083) Other 2,458 (2,458) ---------------------------------------------------------------------------------- Balance at September 29, 1999 14,793,945 118,767,710 7,452,544 (2,498,091) 207,210 (3,049,002) Net earnings 18,593,697 Shares issued under stock option plan 96,687 1,168,575 Shares exchanged to exercise stock options 70,128 (686,118) Shares repurchased under Stock Buyback Program 541,900 (5,304,714) Changes in unamortized value of shares granted under Capital Appreciation Plan 1,191,060 Tax benefit relating to stock plans 346,561 Cash dividends paid in lieu of fractional shares (12,372) Shares issued for Employee Stock Purchase Plan 71,992 1,167,702 Other (2,320) (37,946) 48,529 ---------------------------------------------------------------------------------- Balance at September 27, 2000 $14,960,304 $121,412,602 $26,082,398 $(1,307,031) 819,238 $(9,039,834) ----------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES. 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Consolidated Products, Inc. (YEARS ENDED SEPTEMBER 27, 2000, SEPTEMBER 29, 1999 AND SEPTEMBER 30, 1998) 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 wholly-owned subsidiaries. All intercompany items have been eliminated. The Company's fiscal year ends on the last Wednesday in September. As of September 27, 2000, the Company operated 367 Steak n Shake restaurants, including 54 franchised, through its wholly-owned subsidiary Steak n Shake, Inc. and ten casual dining theme restaurants through its wholly-owned subsidiary, Consolidated Specialty Restaurants, Inc. ("CSR") (see Discontinued Operations footnote). The Company's business constitutes a single operating segment pursuant to the provisions of Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information." 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, all of which have maturities of three months or less. Cash equivalents are carried at cost, which approximates market value. RECEIVABLES At September 27, 2000 and September 29, 1999, receivables include $3,593,023 and $6,011,486, respectively, related to the cost of six properties in each fiscal year for which sale and leaseback contracts have been entered into for the sale of these properties. Receivables are net of any related allowances. 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 term of the related 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. 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 $1,591,000 for 2000, $1,565,000 for 1999 and $1,545,000 for 1998. ADVERTISING EXPENSES Advertising costs are charged to expense as incurred. USE OF ESTIMATES Preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from the estimates. RECLASSIFICATIONS Certain amounts in the 1999 and 1998 financial statements have been reclassified to conform to the 2000 presentation. 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities." In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," which defers the effective date of SFAS No. 133 until the Company's first quarter financial statements of fiscal 2001. The Company believes that the adoption of SFAS No. 133 will not have a material effect on the Company's results of operations. CHANGE IN ACCOUNTING During 1999, the Company adopted the provisions of American Institute of Certified Public Accountants Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" retroactive to the first quarter of fiscal 1999. This new accounting standard requires the Company to expense all pre-opening costs as they are incurred. The Company previously deferred such costs and amortized them over the one-year period following the opening of each restaurant. The cumulative effect of this accounting change, net of income tax benefit, was $1.8 million ($0.06 per diluted share). This new accounting standard accelerates the Company's recognition of pre-opening costs, but benefits the post-opening results of new restaurants. The effect of the adoption of the new accounting standard was a reduction in the Company's earnings before cumulative effect of change in accounting for pre-opening costs for fiscal 1999 of approximately $1.9 million ($0.06 per diluted share). STOCK DIVIDEND On December 15, 1999, the Company declared a 10% stock dividend distributable on January 12, 2000 to shareholders of record on December 29, 1999. Accordingly, all references in the consolidated financial statements and accompanying notes related to per share amounts, average shares outstanding and shareholders' equity have been adjusted retroactively to reflect the stock dividend. Stock dividends are accounted for through capitalization of retained earnings at the fair market value of the shares issued. DISCONTINUED OPERATIONS In September 2000, the Company announced its decision to dispose of the Specialty Restaurant segment comprised of eleven specialty casual dining restaurants operated by its subsidiary, CSR. To date, proceeds on the sale of closed units are approximately $657,000 with the remaining units expected to be closed, sold or lease terminated by the end of fiscal year 2001. The results of operations of the Specialty Restaurants have been classified as discontinued operations in the consolidated statement of earnings and operating results of CSR prior period have been reclassified as discontinued operations. Selected consolidated statement of earnings information for CSR follows:
2000 1999 1998 ---------------------------------------------------------- Revenues $ 16,120,721 $ 15,966,409 $16,996,755 Income tax benefit 707,000 641,000 705,000 Loss from discontinued operations, net of income taxes 1,314,977 1,168,551 1,217,580 Loss on disposal from discontinued operations, net of $1,350,000 taxes 2,400,000 -- --
Assets and liabilities, excluding intercompany amounts, of CSR included in the consolidated statements of financial position were as follows:
2000 1999 --------------------------------- Current assets $ 2,197,312 $ 761,678 Total assets 2,952,461 7,710,430 Current liabilities 3,764,673 2,709,046 Total liabilities 7,212,590 8,255,582
Assets primarily consist of property and equipment, inventories, deferred income taxes and other assets. Liabilities primarily consist of accounts payable and other accrued liabilities. 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- INCOME TAXES The components of the provision for income taxes attributable to continuing operations before cumulative effect of change in accounting consist of the following:
2000 1999 1998 --------------------------------------------------------- Current: Federal $ 8,140,000 $ 7,232,000 $ 8,861,000 State 1,560,000 1,385,000 1,701,000 Deferred 2,497,000 2,104,000 1,368,000 --------------------------------------------------------- Total income taxes $ 12,197,000 $ 10,721,000 $11,930,000 --------------------------------------------------------- ---------------------------------------------------------
The reconciliation of effective income tax attributable to continuing operations before cumulative effect of change in accounting is:
2000 1999 1998 --------------------------------------------------------- Tax at U.S. statutory rates $ 12,077,000 $ 10,711,000 $ 11,497,000 State income taxes, net of federal tax benefit 1,207,000 900,000 1,106,000 Employer's FICA tax credit (479,000) (497,000) (420,000) Jobs tax credit (273,000) (250,000) (162,000) Other (335,000) (143,000) (91,000) --------------------------------------------------------- Total income taxes $ 12,197,000 $10,721,000 $11,930,000 --------------------------------------------------------- ---------------------------------------------------------
Income taxes paid totaled $8,490,000 in 2000, $8,791,000 in 1999 and $10,129,000 in 1998. 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 (liability) asset consist of the following:
2000 1999 ------------------------------------ Deferred tax assets: Insurance reserves $ 328,000 $ 949,000 Capital leases 377,000 523,000 Capital appreciation plans 1,053,000 969,000 Other 430,000 361,000 ------------------------------------ Total deferred tax assets 2,188,000 2,802,000 ------------------------------------ Deferred tax liabilities: Depreciation 4,983,000 4,304,000 Other 467,000 325,000 ------------------------------------ Total deferred tax liabilities 5,450,000 4,629,000 ------------------------------------ Net deferred tax liability (3,262,000) (1,827,000) Less current portion 400,000 1,133,000 ------------------------------------ Long-term liability $ (3,662,000) $ (2,960,000) ------------------------------------ ------------------------------------
56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- LEASED ASSETS AND LEASE COMMITMENTS The Company leases certain of its physical facilities under non-cancelable lease agreements. Steak n Shake restaurant leases typically have initial terms of eighteen to twenty-five years and renewal terms aggregating twenty years or more. These leases require the tenant to pay real estate taxes, insurance and maintenance costs. Certain leased facilities which are no longer operated by the Company's subsidiaries, but have been subleased to third parties, are classified below as non-operating properties. Minimum future rental payments have not been reduced by minimum sublease rentals of $457,000 related to capital leases and $1,161,000 related to operating leases receivable under non-cancelable subleases. At September 27, 2000, obligations under non-cancelable 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 -------------------------------------------------------------------- 2001 $ 836 $ 350 $ 1,186 $ 17,516 $ 318 2002 657 99 756 17,043 157 2003 555 -- 555 16,795 87 2004 450 -- 450 16,736 87 2005 416 -- 416 16,582 88 After 2005 105 -- 105 148,689 424 ------------------------------------ ------------------------ Total minimum future rental payments 3,019 449 3,468 $233,361 $ 1,161 ------------------------ Less amount representing interest 676 48 724 ------------------------------------ Total obligations under capital leases 2,343 401 2,744 Less current portion 594 311 905 ------------------------------------ Long-term obligations under capital leases $1,749 $ 90 $ 1,839 ------------------------------------
During 2000 and 1999, the Company received net proceeds of $18,452,805 involving 17 properties, and $19,618,859 involving 19 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. DEBT REVOLVING CREDIT AGREEMENT The Company's $30,000,000 Revolving Credit Agreement matures in January 2002 and bears interest at a rate based on LIBOR plus 75 basis points or the prime rate, at the election of the Company. The Revolving Credit Agreement includes an option for conversion into a five-year term loan with a ten-year amortization schedule. The Company had outstanding borrowings of $12,695,000 under the Revolving Credit Agreement as of September 27, 2000. SENIOR NOTE On April 21, 1999, the Company amended the terms of its Senior Note Agreement and Private Shelf Facility (the "Senior Note Agreement") to increase the borrowing capacity to $75,000,000 and extend the issuance period to April 21, 2002. As of September 27, 2000, the Company had borrowings of $29,482,000 under its $75,000,000 Senior Note Agreement. Consequently, the Company has borrowings of $45,518,000 available under the Senior Note Agreement. Interest rates are based upon market rates at the time of borrowing. As of September 27, 2000, outstanding borrowings under the Senior Note Agreement had an average interest rate of 7.6% and the amounts maturing subsequent to fiscal 2000 in each of the next five fiscal years are as follows: 2001- $3,960,000; 2002- $3,960,000; 2003- $4,322,000; 2004- $5,036,000; 2005- $5,775,000. The Senior Note Agreement is unsecured and contains restrictions which, among other things, require the Company to maintain certain financial ratios. Interest capitalized in connection with financing additions to property and equipment amounted to $980,000 and $835,000 in fiscal 2000 and 1999, respectively. Interest paid on all debt amounted to $2,399,000 in 2000 $2,254,000 in 1999, and $2,938,000 in 1998. The carrying amounts for debt reported in the consolidated statement of financial position do not differ materially from their fair market values at September 27, 2000. 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- OTHER CURRENT ASSETS
2000 1999 ------------------------------------- Prepaid expenses $ 2,319,729 $ 3,989,204 Other assets of discontinued operations 1,450,169 -- ------------------------------------- $ 3,769,898 $ 3,989,204 -------------------------------------
ACCRUED EXPENSES
2000 1999 ------------------------------------- Salaries and wages $ 6,388,375 $ 6,766,105 Insurance 632,339 2,553,044 Property taxes 4,614,932 4,093,404 Other 8,565,070 5,736,116 ------------------------------------- $ 20,200,716 $ 19,148,669 -------------------------------------
DEFERRED INCOME TAXES AND CREDITS
2000 1999 ------------------------------------- Income taxes $ 3,662,000 $2,960,000 Gain on sale and leaseback transactions and other 3,842,485 3,266,172 ------------------------------------- $ 7,504,485 $6,226,172 -------------------------------------
CAPITAL APPRECIATION PLANS The Capital Appreciation Plan established in 1997 provides for tandem awards of Common Stock (restricted shares) and book units of up to 567,187 shares and related units. These awards are restricted for a period of three years and are returnable to the Company if the grantee is not employed (except for reasons of retirement, permanent disability or death) by the Company at the end of the period. The stock is valued at 100% of market value at the date of grant, and the book units, which are granted in an equal number to the shares of stock, provide for a cash payment at the end of the three-year period equal to the sum of the net change in book value per share and the common stock dividends paid per share during the period, as adjusted for stock dividends/splits. The total value of the stock grant (based upon market value at the date of the grant) is debited to unamortized value of restricted shares and amortized to compensation expense ratably over the three-year period. The total number of shares and book units granted under the 1997 Plan for which restrictions have not lapsed was 211,437 at September 27, 2000; 327,164 at September 29, 1999 and 335,982 at September 30, 1998. At September 27, 2000, 247,997 shares were reserved for future grants. The average remaining period for which restrictions had not lapsed at September 27, 2000 was 1.36 years. The amount charged to expense under the Plans was $1,435,000 in 2000, $1,418,000 in 1999 and $1,169,000 in 1998. 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STOCK OPTION PLANS EMPLOYEE STOCK OPTION PLAN The 1997 Employee Stock Option Plan ("the 1997 Plan"), provides for the granting of 945,313 stock options. The 1997 Plan provides for the issuance of stock options exercisable as to 20% on the date of grant and 20% on each anniversary of the date of grant thereafter until fully exercisable. The options expire five years from the date of grant. Options were granted under the 1997 Plan to officers and key employees selected by the Stock Option Committee. As of September 27, 2000, 707,459 options have been granted under the 1997 Plan and 351,618 are exercisable. The 1995 Employee Stock Option Plan ("the 1995 Plan"), provides for the granting of 686,297 stock options. Options granted under the 1995 Plan are primarily incentive stock options exercisable on the same terms as the 1997 Plan. Options were granted under the 1995 Plan to officers and key employees selected by the Stock Option Committee. At September 27, 2000, 680,829 options have been granted under the 1995 Plan and 388,445 are exercisable. The 1992 Employee Stock Option Plan ("the 1992 Plan"), provides for the granting of 503,284 stock options. Options granted under the 1992 Plan are primarily 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. All options have been granted under the 1992 Plan and 6,073 are exercisable. As of September 29, 1999, 401,612 options were available for grant and 669,065 options were exercisable. The following table summarizes the changes in options outstanding and related average prices under the 1997, 1995 and 1992 Plans:
Weighted Average Shares Price ---------------------------- Outstanding at September 24, 1997 986,314 $ 6.38 Fiscal 1998 Activity: Granted 257,499 14.22 Exercised (232,600) 3.88 Canceled (16,188) 8.56 --------- Outstanding at September 30, 1998 995,025 8.95 Fiscal 1999 Activity: Granted 352,669 15.34 Exercised (176,288) 4.72 Canceled (5,969) 11.94 --------- Outstanding at September 29, 1999 1,165,437 11.51 Fiscal 2000 Activity: Granted 185,399 9.90 Exercised (177,404) 6.37 Canceled (27,108) 13.10 --------- Outstanding at September 27, 2000 1,146,324 $ 12.00 ---------
NONEMPLOYEE DIRECTOR STOCK OPTION PLANS The Company's 1996, 1997, 1998, 1999 and 2000 Nonemployee Director Stock Option Plans provide for the grant of nonqualified stock options at a price equal to the fair market value of the Common Stock on the date of the grant. Options outstanding under each Plan are exercisable as to 20% on the date of grant and 20% on each anniversary of the date of grant thereafter until fully exercisable. The options expire five years from the date of grant. An aggregate of 31,196 shares of Common Stock are reserved for the grant of options under the 1996 Plan. At September 27, 2000, all of the options authorized under the 1996 Plan have been granted and are exercisable at a price of $7.69. No options have been canceled and 17,470 shares have been exercised since the inception of the 1996 Plan. An aggregate of 34,032 shares of Common Stock are reserved for the grant of options under the 1997 Plan. At September 27, 2000, all of the options authorized under the 1997 Plan have been granted at an average price of $8.47 of which 19,286 are exercisable. No options have been canceled and 7,942 shares have been exercised since the inception of the 1997 Plan. An aggregate of 25,782 shares of Common Stock are reserved for the grant of options under the 1998 Plan. At September 27, 2000, all of the options authorized under the 1998 Plan have been granted at a price of $11.20 of which 15,468 are exercisable. No options have been canceled or exercised since the inception of the 1998 Plan. An aggregate of 24,750 shares of Common Stock are reserved for the grant of options under the 1999 Plan. At September 27,2000, all of the options authorized under the 1999 Plan have been granted at a price of $12.09 of which 9,900 are exercisable. No options have been canceled or exercised since the inception of the 1999 Plan. An aggregate of 19,800 shares of Common Stock are reserved for the grant of options under the 2000 Plan. At September 27,2000, all of the options authorized under the 2000 Plan have been granted at a price of $11.08 of which 3,960 are exercisable. No options have been canceled or exercised since the inception of the 2000 Plan. 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The following table summarizes information about the exercise price for stock options outstanding at September 27, 2000 under the employee and nonemployee director stock option plans.
Options Outstanding Options Exercisable ------------------- ------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding at Contractual Exercise Exercisable at Exercise Prices September 27, 2000 Life Price September 27, 2000 Price ------------------------------------------------------------------------------------------------------------ $ 5 - $10 460,087 1.52 years $ 8.63 410,233 $ 8.64 $10 - $15 502,409 3.24 years $12.18 247,325 $12.62 $15 - $20 293,976 3.43 years $16.33 151,482 $16.22 ----------------------------------------------------------------------------------------------------------- $ 5 - $20 1,256,472 2.65 years $11.85 809,040 $11.27
EMPLOYEE STOCK PURCHASE PLAN In February 1993, the shareholders approved a tax-qualified Employee Stock Purchase Plan, providing for a maximum of 125,821 shares of Common Stock per year for five years. In February 1998, the shareholders approved an amendment to the Employee Stock Purchase Plan providing for a maximum of 154,688 shares of Common Stock per year for an additional five years. Unissued shares in any given year are carried forward and are available to increase the annual maximum. 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 2000 and fiscal 1999, 143,983 shares and 112,822 shares, respectively, were purchased and issued to employees. STOCK-BASED COMPENSATION The Company measures stock-based compensation cost in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" requires that the Company disclose pro forma information regarding net earnings and earnings per share as if the Company had accounted for its employee stock awards, consisting of stock options and stock issued pursuant to the Employee Stock Purchase Plan, granted subsequent to September 28, 1995, under the fair value method as defined by that statement. The fair value for these awards was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for fiscal 2000 and 1999: volatility factor of the expected market price of the Company's common stock of .53 in 2000 and .51 in 1999; expected option lives of 1-5 years; dividend yield of 0.0%; and a risk-free interest rate of 5.75% in 2000 and 5.4% in 1999. The weighted average fair value of options granted in 2000 and 1999 was $4.09 and $7.52, respectively. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options discussed below, are amortized to expense over the related vesting period. Because compensation expense is recognized over the vesting period, the initial impact on pro forma net earnings may not be representative of compensation expense in future years, when the effect of the amortization of multiple awards would be reflected. The Company's pro forma information giving effect to the estimated compensation expense related to stock-based compensation is as follows:
2000 1999 ---------------------------------- Net earnings as reported $ 18,593,697 $ 16,962,226 Less pro forma compensation expense 1,352,075 1,554,495 ---------------------------------- Pro forma net earnings $ 17,241,622 $ 15,407,731 ---------------------------------- Diluted earnings per share as reported $ .63 $ .57 Pro forma diluted earnings per share $ .59 $ .52
60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- RELATED PARTY TRANSACTIONS Kelley & Partners, Ltd. owned 2,030,805 shares, or 7.0%, of the Company at September 27, 2000. Additionally, certain of the partners, who also serve as officers and/or directors of the Company, collectively controlled 2,551,897 shares, or 8.8% of the Company's outstanding stock at September 27, 2000. NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Diluted 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. Net earnings per common and common equivalent share and weighted average shares and equivalents have been restated to give effect to the 10% stock dividend declared on December 15, 1999 and distributed on January 12, 2000 to shareholders of record on December 29, 1999. The following table presents information necessary to calculate basic and diluted earnings per common and common equivalent share:
2000 1999 1998 ------------------------------------------- Weighted average shares outstanding - basic 29,263,076 29,149,065 28,710,438 Share equivalents 75,738 430,246 517,505 ------------------------------------------- Weighted average shares and equivalents - diluted 29,338,814 29,579,311 29,227,943 ------------------------------------------- Net earnings for basic and diluted earnings per share computation $ 18,593,697 $ 16,962,226 $ 19,702,699
61 QUARTERLY FINANACIAL DATA (UNAUDITED)
Quarter(1)(2) First Second Third Fourth ------------------------------------------------------------------------ 2000 - ---- Revenues $ 89,329,236 $ 117,796,985 $ 97,807,567 $ 103,752,634 Costs and Expenses $ 81,234,409 $108,566,871$ 88,131,207 $ 96,248,257 Earnings From Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting $ 8,094,827 $ 9,230,114 $ 9,676,360 $ 7,504,377 Earnings From Continuing Operations Before Cumulative Effect of Change in Accounting $ 5,171,827 $ 5,882,114 $ 6,250,360 $ 5,004,377 Discontinued Operations $ (242,321) $ (400,325) $ (244,851) $ (2,827,474) Net Earnings $ 4,929,506 $ 5,481,789 $ 6,005,509 $ 2,176,903 Diluted Earnings Per Common and Common Equivalent Share: From Continuing Operations Before Cumulative Effect of Change in Accounting $ .18 $ .20 $ .21 $ .17 Discontinued Operations $ (.01) $ (.01) $ -- $ (.10) Net Earnings $ .17 $ .19 $ .21 $ .07 1999 - ---- Revenues $ 75,108,940 $ 99,260,701 $ 84,976,634 $ 91,532,875 Costs and Expenses $ 67,355,067 $ 92,990,693(4) $ 76,080,050 $ 83,851,137 Earnings From Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting(3) $ 7,753,873 $ 6,270,006 $ 8,896,585 $ 7,681,738 Earnings From Continuing Operations Before Cumulative Effect of Change in Accounting $ 4,926,873 $ 4,037,006 $ 5,735,585 $ 5,181,738 Discontinued Operations $ (209,742) $ (334,649) $ (250,501) $ (373,659) Net Earnings(3) $ 2,966,701 $ 3,702,357 $ 5,485,084 $ 4,808,079 Diluted Earnings Per Common and Common Equivalent Share: From Continuing Operations Before Cumulative Effect of Change in Accounting(3) $ .17 $ .14 $ .19 $ .17 Discontinued Operations $ (.01) $ (.01) $ (.01) $ (.01) Net Earnings(3) $ .10 $ .13 $ .18 $ .16
(1) The Company's fiscal year includes quarters consisting of 12, 16, 12 and 12 weeks, respectively. (2) In September 2000, the Company announced its decision to dispose of the Specialty Restaurant segment of the business comprised of its Consolidated Specialty Restaurants, Inc. subsidiary, which operated 11 specialty casual dining restaurants, primarily Colorado Steakhouses. Accordingly, the Company recorded a one-time charge for the loss on disposal of discontinued operations of $3,750,000, ($2,400,000 net of income taxes or $.08 per diluted share), in the fourth quarter. The loss from the operations of the Specialty Restaurants and the loss on disposal of the discontinued operations are reported as a discontinued operation in fiscal 2000. The loss from operations and the estimated loss on disposal, net of applicable income taxes, are shown below Earnings from Continuing Operations. All amounts related to CSR have been reclassified to discontinued operations for all years presented. (3) During 1999, the Company adopted the provision of SOP 98-5 retroactive to the first quarter of fiscal 1999. The cumulative effect of this accounting change, net of income tax benefit, was a reduction in first quarter net earnings of $1.8 million ($0.06 per diluted share). The effect of the adoption of the new accounting standard was a reduction in the Company's earnings before cumulative effect of change in accounting for the second, third and fourth quarters of fiscal 1999 of $0.01, $0.02 and $0.04 per diluted share, respectively. (4) Includes charge of $1,600,000 for settlement of Pepsi litigation. 62 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 the preparation of financial information. There are limits inherent in all systems of internal accounting control based on the recognition that the cost of such systems should not exceed the benefits to be derived. We believe the Company's systems provide the appropriate balance. The effectiveness of the control systems is supported by the selection and training of qualified personnel, an organizational structure that provides an appropriate division of responsibility and a strong budgetary system of control. Ernst & Young LLP, independent auditors, has been engaged to express an opinion regarding the fair presentation of the Company's financial condition and operating results. As part of their audit of the Company's financial statements, Ernst & Young LLP considered the Company's system of internal controls to the extent they deemed necessary to determine the nature, timing and extent of their audit tests. The Audit Committee of the Board of Directors, which is composed of four outside directors, serves in an oversight role to assure the integrity and objectivity of the Company's financial reporting process. The Committee meets periodically with representatives of management and the independent auditors to review matters of a material nature related to auditing, financial reporting, internal accounting controls and audit results. The independent auditors have free access to the Audit Committee. The 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 - -------------------------------------------------------------------------------- REPORT OF 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, 2000 and September 29, 1999, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended September 27, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Consolidated Products, Inc. at September 27, 2000 and September 29, 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 27, 2000, in conformity with accounting principles generally accepted in the United States. As discussed in the Change in Accounting note to the consolidated financial statements, in 1999 the Company changed its method of accounting for pre-opening costs. /s/ Ernst & Young LLP Indianapolis, Indiana November 22, 2000 63 EX-21.01 5 a2033923zex-21_01.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.01 CONSOLIDATED PRODUCTS, INC.
State of Wholly-owned Subsidiaries Incorporation or Organization ------------------------- ----------------------------- Steak n Shake, Inc. Indiana SNSTM, Inc.* Delaware Steak n Shake, LP** Indiana Consolidated Specialty Restaurants, Inc. Indiana SNS Investment Company Indiana
* Wholly-owned subsidiary of Steak n Shake, Inc. ** Limited partnership owned 99% Steak n Shake, Inc. and 1% by Consolidated Products, Inc. 64 EX-23.01 6 a2033923zex-23_01.txt CONSENT OF ERNST & YOUNG EXHIBIT 23.01 CONSOLIDATED PRODUCTS, INC. CONSENT OF ERNST & YOUNG LLP CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-63342) pertaining to the 1992 Employee Stock Option Plan, (Forms S-8 No. 33-63344 and No. 333-53447) pertaining to the Employee Stock Purchase Plan, (Form S-8 No. 33-61945) pertaining to the 1995 Employee Stock Option Plan and (Form S-8 No. 333-33667) pertaining to the 1997 Employee Stock Option Plan of Consolidated Products, Inc. of our report dated November 22, 2000, with respect to the consolidated financial statements of Consolidated Products, Inc. and subsidiaries incorporated by reference in the Annual Report (Form 10-K) for the year ended September 27, 2000. /s/ Ernst & Young LLP Indianapolis, Indiana December 22, 2000 65 EX-27.01 7 a2033923zex-27_01.txt FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT AND FINANCIAL POSITION AS OF SEPTEMBER 27, 2000 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE FIFTY-TWO WEEKS ENDED SEPTEMBER 27, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. OTHER SEP-27-2000 SEP-30-1999 SEP-27-2000 2,177,780 0 6,785,407 0 5,484,670 18,617,755 300,318,211 (80,620,128) 240,766,851 41,097,937 0 0 0 14,960,304 137,148,135 240,766,851 402,508,840 408,686,418 97,000,735 292,886,904 36,905,726 0 1,394,190 34,505,674 12,197,000 22,308,674 3,714,977 0 0 18,573,697 .63 .63 INCLUDED RESTAURANT OPERATING COSTS OF $162,046,552. INCLUDED DEPRECIATION AND AMORTIZATION AND RENT OF $20,145,165 AND $16,760,561, RESPECTIVELY. IN SEPTEMBER 2000, THE COMPANY ANNOUNCED ITS DECISION TO DISPOSE OF THE SPECIALTY RESTAURANT SEGMENT COMPRISED OF ELEVEN SPECIALTY CASUAL DINING RESTAURANTS OPERATED BY ITS SUBSIDIARY, CONSOLIDATED SPECIALTY RESTAURANTS, INC.
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