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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE SIXTEEN WEEKS ENDED APRIL 9, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-8445
THE STEAK N SHAKE COMPANY
(Exact name of registrant as specified in its charter)
INDIANA 37-0684070
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
36 S. Pennsylvania Street, Suite 500
Indianapolis, Indiana 46204
(317) 633-4100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act rule 12b-2). Yes X No
Number of shares of Common Stock outstanding at May 19, 2003: 27,027,290
The Index to Exhibits is located at Page 14.
Total Pages 27
THE STEAK N SHAKE COMPANY
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Financial Position April 9,
2003 (Unaudited) and September 25, 2002
Condensed Consolidated Statements of Earnings (Unaudited) Sixteen
and Twenty-Eight Weeks Ended April 9, 2003 and April 10, 2002
Condensed Consolidated Statements of Cash Flows (Unaudited)
Twenty-Eight Weeks Ended April 9, 2003 and April 10, 2002
Notes to Condensed Consolidated Financial Statements (Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE STEAK N SHAKE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
APRIL 9, SEPTEMBER 25,
2003 2002
-------------- ---------------
(UNAUDITED)
ASSETS:
CURRENT ASSETS
Cash, including cash equivalents
of $3,025,000 in 2003 and
$3,225,000 in 2002 . . . . . . . . . . . . $ 4,832,129 $ 5,286,311
Short term investments . . . . . . . . . . . 5,436,160 611,092
Receivables, net . . . . . . . . . . . . . . 2,613,492 2,955,049
Inventories. . . . . . . . . . . . . . . . . 5,446,914 5,206,161
Deferred income taxes. . . . . . . . . . . . 2,764,000 2,764,000
Other current assets . . . . . . . . . . . . 1,825,011 1,805,111
-------------- ---------------
Total current assets . . . . . . . . . . . . 22,917,706 18,627,724
-------------- ---------------
PROPERTY AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . 131,948,363 128,354,629
Buildings. . . . . . . . . . . . . . . . . . 130,438,249 125,113,260
Leasehold improvements . . . . . . . . . . . 90,987,245 86,764,055
Equipment. . . . . . . . . . . . . . . . . . 139,933,205 134,277,901
Construction in progress . . . . . . . . . . 7,028,557 11,995,758
-------------- ---------------
500,335,619 486,505,603
Less accumulated depreciation
and amortization . . . . . . . . . . . . . (136,189,828) (126,783,897)
-------------- ---------------
Net property and equipment . . . . . . . . . 364,145,791 359,721,706
-------------- ---------------
NET LEASED PROPERTY. . . . . . . . . . . . . . 3,886,664 4,079,558
OTHER ASSETS
Long term investments . . . . . . . . . . . 5,000,281 9,996,281
Other assets. . . . . . . . . . . . . . . . 2,871,163 2,035,683
Intangible assets . . . . . . . . . . . . . 1,369,689 1,434,037
-------------- ---------------
9,241,133 13,466,001
-------------- ---------------
$ 400,191,294 $ 395,894,989
============== ===============
APRIL 9 SEPTEMBER 25
2003 2002
-------------- ---------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable. . . . . . . . . . . . . . $ 15,571,612 $ 14,695,102
Accrued expenses. . . . . . . . . . . . . . 25,447,808 28,387,780
Current portion of senior note. . . . . . . 5,321,984 3,960,317
Current portion of obligations
under capital leases . . . . . . . . . . 3,308,650 3,248,277
-------------- ---------------
Total current liabilities . . . . . . . . . 49,650,054 50,291,476
-------------- ---------------
DEFERRED INCOME TAXES. . . . . . . . . . . . . 5,020,000 5,062,000
DEFERRED CREDITS . . . . . . . . . . . . . . . 624,675 537,138
OBLIGATIONS UNDER
CAPITAL LEASES . . . . . . . . . . . . . . . . 145,911,595 148,531,256
SENIOR NOTE. . . . . . . . . . . . . . . . . . 21,239,444 24,418,571
SHAREHOLDERS' EQUITY
Common stock -- $.50 stated value
50,000,000 shares authorized --
shares issued: 30,332,839 in 2003;
30,332,839 in 2002. . . . . . . . . . 15,166,420 15,166,420
Additional paid-in capital . . . . . . . 123,334,412 123,334,412
Retained earnings. . . . . . . . . . . . 77,415,381 67,175,420
Less: Unamortized value of
restricted shares. . . . . (353,573) (324,374)
Treasury stock -- at cost
3,305,549 shares in 2003;
3,374,606 shares in 2002 (37,817,114) (38,297,330)
-------------- ---------------
Total shareholders' equity . . . . . . . 177,745,526 167,054,548
-------------- ---------------
$400,191,294 $395,894,989
============ ============
See accompanying notes.
THE STEAK N SHAKE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
SIXTEEN TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED
------------ -------------
APRIL 9, APRIL 10, APRIL 9, APRIL 10,
2003 2002 2003 2002
------------ ------------- ------------ ------------
REVENUES
Net sales. . . . . . . . . . . . . . . . $148,535,098 $ 139,250,562 $249,819,827 $239,126,026
Franchise fees . . . . . . . . . . . . . 1,137,072 1,040,608 1,907,102 1,909,994
Other - net. . . . . . . . . . . . . . . 515,197 476,356 978,137 817,846
------------ ------------- ------------ ------------
150,187,367 140,767,526 252,705,066 241,853,866
------------ ------------- ------------ ------------
COSTS AND EXPENSES
Cost of sales. . . . . . . . . . . . . . 33,898,635 32,090,019 56,693,766 55,733,906
Restaurant operating costs . . . . . . . 73,276,094 68,224,060 125,018,375 117,723,000
General and administrative . . . . . . . 11,669,720 10,572,253 19,819,162 18,506,862
Depreciation and amortization. . . . . . 7,146,981 6,797,924 12,586,207 11,984,984
Marketing. . . . . . . . . . . . . . . . 6,209,846 5,259,706 9,865,496 8,515,162
Interest . . . . . . . . . . . . . . . . 3,523,234 3,583,502 6,738,632 6,857,980
Rent . . . . . . . . . . . . . . . . . . 3,349,028 3,307,739 4,951,520 4,789,182
Pre-opening costs. . . . . . . . . . . . 459,157 685,265 1,087,180 1,109,199
------------ ------------- ------------ ------------
139,532,695 130,520,468 236,760,338 225,220,275
------------ ------------- ------------ ------------
EARNINGS BEFORE INCOME TAXES . . . . . . 10,654,672 10,247,058 15,944,728 16,633,591
INCOME TAXES . . . . . . . . . . . . . . 3,816,000 3,706,500 5,704,000 6,003,000
------------ ------------- ------------ ------------
NET EARNINGS . . . . . . . . . . . . . . $ 6,838,672 $ 6,540,558 $ 10,240,728 $ 10,630,591
============ ============= ============ ============
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Basic. . . . . . . . . . . . . . . . . . $ .25 $ .23 $ .38 $ .38
Diluted. . . . . . . . . . . . . . . . . $ .25 $ .23 $ .38 $ .38
WEIGHTED AVERAGE SHARES AND EQUIVALENTS:
Basic. . . . . . . . . . . . . . . . . . 27,011,227 27,981,902 26,982,998 28,050,198
Diluted. . . . . . . . . . . . . . . . . 27,019,027 28,179,059 27,007,785 28,198,227
See accompanying notes
THE STEAK N SHAKE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
TWENTY-EIGHT WEEKS ENDED
--------------------------
APRIL 9, APRIL 10,
2003 2002
------------- -------------
OPERATING ACTIVITIES
Net earnings . . . . . . . . . . . . . . . . . . . . $ 10,240,728 $ 10,630,591
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . 12,586,207 11,984,984
Provision for deferred income tax. . . . . . . . (42,000) (323,000)
Changes in receivables and inventories . . . . . 100,804 2,793,435
Changes in other assets. . . . . . . . . . . . . (855,380) 376,867
Changes in income taxes payable. . . . . . . . . (1,604,168) 1,091,737
Changes in accounts payable
and accrued expenses. . . . . . . . . . . . . . (187,725) 1,241,812
Loss (gain) on disposal of property. . . . . . . 341,167 267,828
------------- -------------
Net cash provided by operating activities. . . . . . 20,579,633 28,064,254
------------- -------------
INVESTING ACTIVITIES
Additions of property and equipment . . . . . . . . (17,839,966) (16,971,243)
Proceeds from sale of short term investments. . . . 170,934 3,500,000
Net proceeds from sale/leasebacks and
other disposals. . . . . . . . . . . . . . . . . . 745,749 1,657,957
------------- -------------
Net cash used in investing activities. . . . . . . . (16,923,283) (11,813,286)
------------- -------------
FINANCING ACTIVITIES
Principal payments on lease obligations . . . . . . (2,559,288) (1,408,635)
Principal payments on long-term debt. . . . . . . . (1,817,460) (1,817,460)
Proceeds from equipment and property leases . . . . - 13,406,981
Lease payments on subleased properties. . . . . . . - (222,788)
Proceeds from exercise of stock options . . . . . . - 13,959
Proceeds from employee stock purchase plan. . . . . 1,254,655 1,049,275
Treasury stock repurchases. . . . . . . . . . . . . (988,439) (7,386,975)
------------- -------------
Net cash provided by (used in) financing activities (4,110,532) 3,634,357
------------- -------------
INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . (454,182) 19,885,325
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . 5,286,311 8,715,136
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . $ 4,832,129 $ 28,600,461
============= =============
See accompanying notes
THE STEAK N SHAKE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and notes required by generally accepted
accounting principles for complete financial statements.
In the opinion of the Company, all adjustments (consisting of only normal
recurring accruals) considered necessary to present fairly the consolidated
financial position as of April 9, 2003, the consolidated statements of earnings
for the sixteen and twenty-eight weeks ended April 9, 2003 and April 10, 2002
and the consolidated statements of cash flows for the twenty-eight weeks ended
April 9, 2003 and April 10, 2002 have been included.
The consolidated statements of earnings for the sixteen and twenty-eight
weeks ended April 9, 2003 and April 10, 2002 are not necessarily indicative of
the consoli-dated statements of earnings for the entire year. For further
information, refer to the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended
September 25, 2002.
SEASONAL ASPECTS
The Company has substantial fixed costs which do not decline as a result of
a decline in sales. The Company's first and second fiscal quarters, which
include the winter months, usually reflect lower average weekly unit volumes.
Sales in these quarters can be adversely affected by severe winter weather.
STOCK-BASED COMPENSATION
The Company accounts for its Stock Option and Employee Stock Purchase Plans
under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation cost is reflected in net earnings, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net earnings and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
SIXTEEN WEEKS ENDED
APRIL 9, APRIL 10,
2003 2002
----------- -----------
Net earnings as reported. . . . . . . . . . . . $ 6,838,672 $ 6,540,558
Less pro forma compensation expense, net of tax 234,443 372,490
----------- -----------
Proforma net earnings . . . . . . . . . . . . . $ 6,604,229 $ 6,168,068
=========== ===========
Basic earnings per share as reported. . . . . . $ .25 $ .23
Pro forma basic earnings per share. . . . . . . $ .24 $ .22
Diluted earnings per share as reported. . . . . $ .25 $ .23
Pro forma diluted earnings per share. . . . . . $ .24 $ .22
TWENTY-EIGHT WEEKS ENDED
APRIL 9, APRIL 10,
2003 2002
----------- -----------
Net earnings as reported. . . . . . . . . . . . $10,240,728 $10,630,591
Less pro forma compensation expense, net of tax 512,329 731,348
----------- -----------
Proforma net earnings . . . . . . . . . . . . . $ 9,728,399 $ 9,899,243
=========== ===========
Basic earnings per share as reported. . . . . . $ .38 $ .38
Pro forma basic earnings per share. . . . . . . $ .36 $ .35
Diluted earnings per share as reported. . . . . $ .38 $ .38
Pro forma diluted earnings per share. . . . . . $ .36 $ .35
FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents and short term investments
approximate their carrying value due to their short-term maturities. Long-term
investments consist principally of government debt securities that management
has the intent and ability to hold until maturity. These securities, which
mature in five years, are carried at amortized cost, which approximates fair
market value. On May 1, 2003 held to maturity securities with a carrying value
of $4,996,000 were called by the issuer and accordingly have been reclassified
to short term investments in the April 9, 2003 statement of financial position.
EARNINGS PER SHARE
Earnings per share of common stock is based on the weighted average number
of shares outstanding during the year. The following table presents a
reconciliation of the basic and diluted weighted average common shares as
required by Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings Per Share:
SIXTEEN WEEKS ENDED TWENTY-EIGHT WEEKS ENDED
APRIL 9, APRIL 10, APRIL 9, APRIL 10,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Basic earnings per share:
Weighted average
common shares . . . . . . 27,011,227 27,981,902 26,982,998 28,050,198
Diluted earnings per share:
Weighted average
common shares . . . . . . 27,011,227 27,981,902 26,982,998 28,050,198
Dilutive effect of
stock options . . . . . . 7,800 197,157 24,787 148,029
---------- ---------- ---------- ----------
Weighted average common
and incremental shares. . 27,019,027 28,179,059 27,007,785 28,198,227
---------- ---------- ---------- ----------
Options to purchase 1,358,153 and 473,974 shares of common stock were excluded
from the calculations of diluted earnings per share for the sixteen weeks ended
April 9, 2003 and April 10, 2002, respectively, as the options' exercise prices
were greater than the fair value. Options to purchase 1,176,781 and 538,438
shares of common stock were excluded from the calculation of diluted earnings
per share for the twenty-eight weeks ended April 9, 2003 and April 10, 2002,
respectively, as the options' exercise prices were greater than the fair value.
CAPITAL RESOURCES
The Company recently concluded that it would not modify its existing
finance leases to remove two clauses which prevent the use of sale and leaseback
accounting. As of the end of the quarter ended April 9, 2003, the Company's two
loan agreements had not been amended to reflect this decision. Subsequent to the
end of the quarter, the Company 's loan agreements were amended to reflect the
effect of this decision on a financial covenant in the loan agreements. Because
the amendments were executed after the quarter ended April 9, 2003, the Company
technically was in default of a financial covenant until the loan agreements
were amended on May 21, 2003.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which nullifies Emerging Issues
Task Force Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS No. 146 is effective for exit and disposal
activities that are initiated after December 31, 2002. The adoption of this
statement did not have a material effect on the consolidated financial
statements.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN No. 45") Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others an interpretation of SFAS No. 5, 57, and 107 and the rescission of FASB
Interpretation No. 34, was issued. FIN No. 45 clarifies the requirements of
SFAS No. 5, Accounting for Contingencies, relating to guarantor's accounting
for, and disclosure of, the issuance of certain types of guarantees. The
disclosure requirements in this interpretation are effective for financial
statements of interim and annual periods ending after December 15, 2002. The
adoption of the recognition and measurement provisions of this statement did not
have a material effect on the consolidated financial statements.
In November 2002, the Emerging Issues Tasks Force (EITF) reached a
consensus on EITF 02-16 Accounting by a Reseller for Cash Consideration Received
from a Vendor. This EITF addresses the classification of cash consideration
received from vendors in a reseller's consolidated financial statements. The
guidance related to income statement classification is to be applied in annual
and interim financial statements for agreements entered into, or modifications
of existing agreements, after January 1, 2003. The adoption of the recognition
and measurement provisions of this statement did not have a material effect on
the consolidated financial statements.
In December 2002, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 148, Accounting for Stock-Based Compensation-Transition
and Disclosure, which amends SFAS No. 123 Accounting for Stock-Based
Compensation, to provide alternative methods for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The new disclosure requirements
are included in the consolidated financial statements.
On January 17, 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN No. 46"), Consolidation of Variable Interest
Entities, an interpretation of ARB 51. The primary objectives of FIN No. 46 are
to provide guidance on the identification and consolidation of variable interest
entities, or VIE's, which are entities for which control is achieved through
means other than through voting rights. The adoption of the recognition and
measurement provisions of this statement did not have a material effect on the
consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In the following discussion, the term "same store sales" refers to the
sales of only those units open eighteen months as of the beginning of the
current fiscal period being discussed and which remained open through the end of
the fiscal period.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of items included in the Company's
consolidated statements of earnings for the periods indicated:
SIXTEEN TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED
----------- -----------
4/9/03 4/10/02 4/9/03 4/10/02
------ ------- ------ -------
REVENUES
Net sales . . . . . . . . . . 98.9% 98.9% 98.9% 98.9%
Franchise fees. . . . . . . . 0.8 0.8 0.8 0.8
Other, net. . . . . . . . . . 0.3 0.3 0.3 0.3
------- ------- ------- -------
100.0 100.0 100.0 100.0
------- ------- ------- -------
COSTS AND EXPENSES
Cost of sales . . . . . . . . 22.8(1) 23.0(1) 22.7(1) 23.3(1)
Restaurant operating costs. . 49.3(1) 49.0(1) 50.0(1) 49.2(1)
General and administrative. . 7.8 7.5 7.8 7.7
Depreciation and amortization 4.8 4.8 5.0 5.0
Marketing . . . . . . . . . . 4.1 3.7 3.9 3.5
Interest. . . . . . . . . . . 2.3 2.5 2.7 2.8
Rent. . . . . . . . . . . . . 2.2 2.3 2.0 2.0
Pre-opening costs . . . . . . 0.3 0.5 0.4 0.5
------- ------- ------- -------
92.9 92.7 93.7 93.1
------- ------- ------- -------
EARNINGS BEFORE INCOME TAXES . . . 7.1 7.3 6.3 6.9
INCOME TAXES . . . . . . . . . . . 2.5 2.6 2.3 2.5
------- ------- ------- -------
NET EARNINGs . . . . . . . . . . . 4.6% 4.7% 4.0% 4.4%
======= ======= ======= =======
(1) Cost of sales and restaurant operating costs are expressed as a percentage
of net sales.
COMPARISON OF SIXTEEN WEEKS ENDED APRIL 9, 2003 TO SIXTEEN WEEKS ENDED APRIL 10,
2002
Revenues
Net sales increased $9,284,000 to $148,535,000, or 6.7%, due to a 4.7%
increase in the number of Company-operated Steak n Shake restaurants plus a 2.3%
increase in same store sales. The increase in same store sales reflects a
significant improvement in same store sales trend in comparison to a 4.0%
decline reported in the first quarter. This turnaround is attributed to the
system-wide acceptance of credit cards combined with increased television and
promotional marketing. The increase in same store sales was due mostly to a 2.2%
increase in check average, as customer counts were up slightly. The increase in
check average is partially the result of a 1.08% weighted average menu price
increase compared to the same period last year. The number of Company-operated
Steak n Shake restaurants increased to 356 at April 9, 2003 as compared to 340
at April 10, 2002.
Costs and Expenses
Cost of sales increased $1,809,000, or 5.6%, as a result of sales
increases. As a percentage of net sales, cost of sales decreased to 22.8% from
23.0%, primarily as a result of the menu price increases.
Restaurant operating costs increased $5,052,000, or 7.4%, primarily from
the increased sales volume. Restaurant operating costs, as a percentage of net
sales, increased to 49.3% from 49.0% primarily due to credit card processing
fees associated with the system wide acceptance of credit cards during the
quarter.
General and administrative expenses increased $1,098,000, or 10.4%. As a
percentage of revenues, general and administrative expenses increased to 7.8%
from 7.5%. The increase is primarily due to increases in field staff to support
new and growing markets and increased training department staffing.
Rent expense increased $42,000, or 1.3%, primarily due to the assumption of
a lease for a restaurant in a travel center in 2002.
The $349,000, or 5.1%, increase in depreciation and amortization expense
was attributable to the net depreciable capital additions since the beginning of
fiscal 2002.
Marketing expense increased $950,000, or 18.1%. As a percentage of
revenues, marketing expense increased to 4.1% from 3.7%. The increase was
primarily due to the introduction of television marketing in the Cleveland and
Kansas City markets and cable television advertising in the Indianapolis market
and increased promotional marketing.
Pre-opening costs decreased $226,000, or 33.0%, due to timing of new store
openings in the second quarter of 2003 compared to the second quarter of 2002.
Interest expense decreased $61,000 due to decreased average net borrowings
under the Company's Senior Note Agreement.
Income Taxes
The Company's effective income tax rate decreased to 35.8% from 36.2% for
the quarter ended April 9, 2003. The decrease in the effective rate is
primarily due to decreasing the state income tax accrual to recognize certain
state tax benefits not recognized in the prior year quarter. A valuation
allowance against gross deferred tax assets has not been provided based upon the
expectation of future taxable income.
Net Earnings
Net earnings were $6,839,000 ($.25 per diluted share) up 4.5% compared to
the prior year quarter.
COMPARISON OF TWENTY-EIGHT WEEKS ENDED APRIL 9, 2003 TO TWENTY-EIGHT WEEKS ENDED
APRIL 10, 2002
Revenues
Net sales increased $10,694,000 to $249,820,000, or 4.5%, due to a 4.7%
increase in the number of Company-operated Steak n Shake restaurants partially
offset by 0.1% decrease in same store sales. The decrease in same store sales
was attributable to a 1.8% decrease in customer counts partially offset by a
1.7% increase in check average. The number of Company-operated Steak n Shake
restaurants increased to 356 at April 9, 2003 as compared to 340 at April 10,
2002. The increase in check average is primarily the result of a 1.3% weighted
average menu price increase.
Costs and Expenses
Cost of sales increased $960,000, or 1.7%, primarily as a result of sales
increases. As a percentage of net sales, cost of sales decreased to 22.7% from
23.3%, primarily as a result of menu price increases combined with decreases in
beef and dairy costs.
Restaurant operating costs increased $7,295,000, or 6.2%, primarily due to
the increased sales volume. Restaurant operating costs, as a percentage of net
sales, increased to 50.0% from 49.2% due to increases in fringe benefit costs,
in particular group medical insurance costs, credit card processing fees
associated with the system wide acceptance of credit cards and increases in
property and liability insurance costs.
General and administrative expenses increased $1,312,000, or 7.1%. As a
percentage of revenues, general and administrative expenses increased to 7.8%
from 7.7%. The increase is due in part to increases in field staff to support
new and growing markets and increased training department staffing.
Rent expense increased $163,000, or 3.4%, primarily due to ground leases
entered into in 2002, the assumption of a lease for a restaurant in a travel
center in 2002 and an increase in percentage rent.
The $601,000, or 5.0%, increase in depreciation and amortization expense
was attributable to the net depreciable capital additions since the beginning of
fiscal 2002.
Marketing expense increased $1,350,000, or 15.8%. As a percentage of
revenues, marketing expense increased to 3.9% from 3.5%, primarily due to the
introduction of television marketing in the Cleveland and Kansas City markets in
2003, commencement of cable television advertising in the Indianapolis market in
2003 and increased television activity in the St. Louis, Chicago, Tampa and
Nashville markets. Additionally, increased promotional activity over the prior
year contributed to the increase in marketing expenses.
Pre-opening costs decreased $22,000, or 2.0%, due to timing of new store
openings.
Interest expense decreased $119,000 primarily due to the scheduled paydown
of the Company's Senior Note Agreement.
Income Taxes
The Company's effective income tax rate decreased to 35.8% from 36.1% for
the twenty-eight weeks ended April 9, 2003. The decrease in the effective rate
is primarily due to decreasing the state income tax accrual for the effects of
state tax benefits not recognized in the prior year period. A valuation
allowance against gross deferred tax assets has not been provided based upon the
expectation of future taxable income.
Net Earnings
Net earnings were $10,241,000, ($.38 per share), down 3.7% compared to
the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Nine Steak n Shake restaurants, including one franchised Steak n Shake
restaurant, were opened during the twenty-eight weeks ended April 9, 2003. Six
Steak n Shake restaurants are currently under construction. For the
twenty-eight weeks ended April 9, 2003, capital expenditures totaled $17,840,000
as compared to $16,971,000 for the comparable prior year period.
The Company expects to open 13 Steak n Shake company-operated restaurants
in fiscal year 2003. This level of expansion allows management to build field
organizational quality while continuing its focus on improving each and every
guest experience through hospitality initiatives, especially in newer markets;
improving the depth of the field organization through improved recruitment and
higher retention; enhancing training and staff development; and aggressively
marketing the brand through unique differentiation marketing. The average cost
of a new Company-operated Steak n Shake restaurant, including land, site
improvements, building and equipment approximates $1,700,000. The Company
intends to fund capital expenditures, its stock repurchase program and meet
working capital needs using existing resources and anticipated cash flows from
operations.
During the twenty-eight weeks ended April 9, 2003, cash provided by
operations totaled $20,580,000, while cash generated from disposals of property
totaled $746,000. In addition, proceeds from the sale of short term investments
contributed $171,000. During the twenty-eight weeks ended April 10, 2002, cash
provided by operations totaled $28,064,000, while cash generated by disposals of
property totaled $1,658,000. Cash provided by operations decreased due to the
timing of tax and vendor payments.
Net cash used in financing activities for the twenty-eight weeks ended
April 9, 2003, totaled $4,111,000 compared to providing $3,634,000 in the
comparable prior period.
As of April 9, 2003, the Company had outstanding borrowings of $26,561,000
under its Senior Note Agreement and Private Shelf Facility (the "Senior Note
Agreement") and $75 million of additional capacity available. Borrowings under
the Senior Note bear interest at an average fixed rate of 7.6%. On April 10,
2002, the Company had outstanding borrowings of $30,522,000.
There were no borrowings under the Company's $30,000,000 Revolving Credit
Agreement (the "Revolving Credit Agreement") on April 9, 2003 or April 10, 2002.
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. The Revolving
Credit Agreement matures in January 2005. The Company's debt agreements contain
restrictions which, among other things, require the Company to maintain certain
financial ratios.
The Company recently concluded that it would not modify its existing
finance leases to remove two clauses which prevent the use of sale and leaseback
accounting. As of the end of the quarter ended April 9, 2003, the Company's two
loan agreements had not been amended to reflect this decision. Subsequent to the
end of the quarter, the Company 's loan agreements were amended to reflect the
effect of this decision on a financial covenant in the loan agreements. Because
the amendments were executed after the quarter ended April 9, 2003, the Company
technically was in default of a financial covenant until the loan agreements wee
amended on May 21, 2003.
The Company has a stock repurchase program that allows the purchase of up
to 4,000,000 shares of its outstanding common stock. During the twenty-eight
weeks ended April 9, 2003, the Company repurchased a total of 98,800 shares at a
cost of $988,000. The repurchased shares will be used in part to fund the
Company's Stock Option Plan, Capital Appreciation Plan and Employees' Stock
Purchase Plan.
EFFECTS OF GOVERNMENTAL REGULATIONS AND INFLATION
Since most of the Company's employees are paid hourly rates related to federal
and state minimum wage laws, increases in the legal minimum wage directly
increase the Company's operating costs. Inflation in food, labor and other
operating costs directly affects the Company's operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which nullifies Emerging Issues
Task Force Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS No. 146 is effective for exit and disposal
activities that are initiated after December 31, 2002. The adoption of this
statement did not have a material effect on the consolidated financial
statements.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN No. 45") Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others an interpretation of SFAS No. 5, 57, and 107 and the rescission of FASB
Interpretation No. 34, was issued. FIN No. 45 clarifies the requirements of
SFAS No. 5, Accounting for Contingencies, relating to guarantor's accounting
for, and disclosure of, the issuance of certain types of guarantees. The
disclosure requirements in this interpretation are effective for financial
statements of interim and annual periods ending after December 15, 2002. The
adoption of the recognition and measurement provisions of this statement did not
have a material effect on the consolidated financial statements.
In November 2002, the Emerging Issues Tasks Force (EITF) reached a
consensus on EITF 02-16 Accounting by a Reseller for Cash Consideration Received
from a Vendor. This EITF addresses the classification of cash consideration
received from vendors in a reseller's consolidated financial statements. The
guidance related to income statement classification is to be applied in annual
and interim financial statements for agreements entered into, or modifications
of existing agreements, after January 1, 2003. The adoption of the recognition
and measurement provisions of this statement did not have a material effect on
the consolidated financial statements.
In December 2002, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 148, Accounting for Stock-Based Compensation-Transition
and Disclosure, which amends SFAS No. 123 Accounting for Stock-Based
Compensation, to provide alternative methods for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The new disclosure requirements
are included in the consolidated financial statements.
On January 17, 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN No. 46"), Consolidation of Variable Interest
Entities, an interpretation of ARB 51. The primary objectives of FIN No. 46 are
to provide guidance on the identification and consolidation of variable interest
entities, or VIE's, which are entities for which control is achieved through
means other than through voting rights. The adoption of the recognition and
measurement provisions of this statement did not have a material effect on the
consolidated financial statements.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
Under the safe harbor provision of the Private Securities Litigation Reform
Act of 1995, the Company cautions investors that any forward-looking statements,
or projections made by the Company including those made in this report, are
based on management's expectations at the time they are made, but they are
subject to risks and uncertainties that may cause actual results to differ
materially from those projected. Economic, competitive, governmental,
technological and other factors that may affect the Company's operations and
prospects are discussed above and in the Company's most recent report on Form
10K filed with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure with regard to financial
instruments is to changes in interest rates. Pursuant to the terms of the
Senior Note Agreement, the Company may from time to time issue notes in
increments of at least $5,000,000. The interest rate on the notes is based upon
market rates at the time of the borrowing. Once the interest rate is
established at the time of the initial borrowing, the interest rate remains
fixed over the term of the underlying note. The Revolving Credit Agreement
bears interest at a rate based upon LIBOR plus 75 basis points or the prime
rate, at the election of the Company. Historically, the Company has not used
derivative financial instruments to manage exposure to interest rate changes.
At April 9, 2003, a hypothetical 100 basis point increase in short-term interest
rates would have had an immaterial impact on the Company's earnings.
ITEM 4. CONTROLS AND PROCEDURES
Based on their most recent evaluation, which was completed within 90 days
of the filing of this Form 10-Q, the Company's Chief Executive Officer and Chief
Financial Officer believe the Company's disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) are effective in timely
alerting the Company's management to material information required to be
included in this Form 10-Q and other Exchange Act filings. There were no
significant changes in the Company's internal controls or other factors that
could significantly affect these controls subsequent to the date of their
evaluation, and there were no significant deficiencies or material weaknesses
which required corrective actions.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders of The Steak n Shake Company (the
"Company") held February 12, 2003, the following actions were taken:
1. Nine directors were elected to serve until the next annual meeting and
until their successors are duly elected and qualified, as follows:
Name. . . . . . . . . Votes For Abstentions
- --------------------- ---------- -----------
S. Sue Aramian. . . . 23,050,067 1,052,662
Alan B. Gilman. . . . 19,889,751 4,212,978
Stephen Goldsmith . . 23,386,319 716,410
E. W. Kelley. . . . . 19,915,136 4,187,593
Charles E. Lanham . . 23,552,015 550,714
Ruth J. Person. . . . 23,638,319 464,240
J. Fred Risk. . . . . 23,114,637 988,092
John W. Ryan. . . . . 23,550,016 552,713
James Williamson, Jr. 23,112,438 990,291
2. The 2003 Director Stock Option Plan was approved as follows:
Votes for Votes Against Abstentions
--------- ------------- -----------
20,859,904 2,540,002 702,823
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
(3) 3.01 Amended and Restated Articles of Incorporation of The Steak n
Shake Company, filed March 27, 2002. (Incorporated by reference
to the Appendix to the Registrant's definitive Proxy Statement
dated December 19, 2001, related to the 2002 Annual Meeting of
Shareholders).
3.02 Restated Bylaws of The Steak n Shake Company as of May 16, 2001.
(Incorporated by reference to Exhibit 3.08 to the Registrant's
Form 10-K Report for the year ended September 26, 2001.)
(4) 4.01 Specimen certificate representing Common Stock of The Steak n
Shake Company (formerly Consolidated Products, Inc.).
(Incorporated by reference to Exhibit 4.01 to the Registrant's
Form 10-Q Report for the fiscal quarter ended April 11, 2001).
4.02 Amended and Restated Note Purchase and Private Shelf Agreement by
and between The Steak n Shake Company and The Prudential
Insurance Company of America dated as of September 20, 2002
related to $75,000,000 senior note agreement and private shelf
facility. (Incorporated by reference to Exhibit 4.02 to the
Registrant's Form 10-K Report year ended September 25, 2002).
4.03 Amendment No. 1 to Amended and Restated Note Purchase Agreement
by and between The Steak n Shake Company and The Prudential
Insurance Company of America dated as of December 18, 2002
related to the $75,000,000senior note agreement and private shelf
facility. (Incorporated by reference to Exhibit 4.03 to the
Registrant's Form 10-K Report for the year ended September 25,
2002).
4.04 Rights Agreement dated as of May 16, 2001 between The Steak n
Shake Company and Computershare Investor Services, LLC, as Rights
Agent (Incorporated by reference to Exhibit 4.01 to The Steak n
Shake Company's current report on Form 8-K filed May 17, 2001).
(9) No exhibit.
(10)10.01 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).
10.02 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).
10.03 Retirement Agreement by and between S. Sue Aramian and the
Registrant dated August 15, 2001. (Incorporated by reference to
Exhibit 10.05 to the Registrant's Form 10-K Report for the year
ended September 26, 2001).
10.04 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).
10.05 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).
10.06 Amendment No.1 to The Steak n Shake Company (formerly
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).
10.07 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).
10.08 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, 200.)
10.09 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).
10.10 Form of option agreement related to 2002 Nonemployee Director
Stock Option Program and schedule relating thereto. (Incorporated
by reference to Exhibit 10.14 to the Registrant's Form 10-Q
Report for the fiscal quarter ended December 19, 2001).
10.11 2003 Director Stock Option Plan (Incorporated by reference to the
Appendix to the Registrant's definitive Proxy Statement dated
December 20, 2002 related to the 2003 Annual Meeting of
Shareholders).
10.12 Credit Agreement by and between The Steak n Shake Company and
Fifth Third Bank, Indiana (Central) dated November 16, 2001,
relating to a $30,000,000 revolving line of credit. (Incorporated
by reference to Exhibit 10.17 to the Registrant's Form 10-K
Report for the year ended September 26, 2001).
10.13 First Amendment to Credit Agreement by and Between The Steak n
Shake Company and Fifth Third Bank, Indiana (Central) dated
October 17, 2002 related to a $30,000,000 revolving line of
credit. (Incorporated by reference to Exhibit 10.15 to the
Registrant's Form 10-K for the year ended September 25, 2002).
10.14 Second Amendment to Credit Agreement by and Between The Steak n
Shake Company and Fifth Third Bank, Indiana (Central) dated
December 18, 2002 related to a $30,000,000 revolving line of
credit. (Incorporated by reference to Exhibit 10.16 to the
Registrant's Forms 10-K for the year ended September 25, 2002).
10.15 The Steak N Shake Company Incentive Plan approved by the
Company's Board of Directors on February 12, 2003.
10.16 Amendment No. 2 dated May 21, 2003 to Amended and Restated Note
Purchase and Private Shelf Agreement dated September 20, 2002.
10.17 Third Amendment to Credit Agreement by and between The Steak n
Shake Company and Fifth Third Bank, Indiana (Central) dated May
22, 2003 related to a $30,000,000 revolving line of credit.
99.1 Certification of Chief Executive Officer.
99.2 Certification of Chief Financial Officer.
(b) Reports on Form 8-K.
-----------------------
A report on Form 8-K was filed on February 19, 2003 (Item 4).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on May 23, 2003.
THE STEAK N SHAKE COMPANY
(Registrant)
/s/ John E. Hiatt
--- -------------
By John E. Hiatt
Vice President and Controller
On Behalf of the Registrant and as
Principal Accounting Officer
CERTIFICATIONS
I, Alan B. Gilman, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Steak n Shake
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based upon my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for the period presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a -14 and 15d -14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report the "Evaluation Date"; and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the "Evaluation Date".
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 23, 2003
/s/ Alan B. Gilman
---------------------
Alan B. Gilman
Chief Executive Officer
CERTIFICATIONS
I, James W. Bear, Senior Vice President and Chief Financial Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of The Steak n Shake
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based upon my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for the period presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report the "Evaluation Date"; and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the "Evaluation Date".
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 23, 2003
/s/ James W. Bear
--------------------
James W. Bear
Senior Vice President and
Chief Financial Officer
EXHIBIT 10.15
- --------------
Summary
Of
The Steak n Shake Company's
Executive Incentive Bonus Plan
The Steak n Shake Company (the "Company") maintains a Cash Incentive Bonus Plan
(the "Plan") for its Executives. Eligibility to participate in the Plan is
determined by the Company's Board of Directors. The Plan provides for an
additional cash incentive for participants based on the Company's performance.
In setting the basis for the award of a bonus under the Plan, the Board reviews
Management's plans for the Company's growth and profitability and determines
criteria for bonus awards, including the bonus percentage level for each
Executive. The Board then sets a standard for the level of attainment of
financial performance objectives by the Company for awards to be made under the
Plan. The Company's new bonus plan for the current fiscal year focuses on
absolute growth in same store sales and earnings before interest and income
taxes as performance measures.
EXHIBIT 10.16
- --------------
The Steak N Shake Company
500 Century Building
36 South Pennsylvania Street
Indianapolis, Indiana 46204
Attention: Chief Financial Officer
Dated May 21, 2003
Re: Amendment No. 2 to Amended and Restated Note Purchase
and Private Shelf Agreement dated as of September 20, 2002
-------------------------------------------------------------------
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Note Purchase and
Private Shelf Agreement dated as of September 20, 2002 (as amended from time to
time, the "Note Agreement") between The Steak N Shake Company, an Indiana
corporation (the "Company") and The Prudential Insurance Company of America
("Prudential") and each Prudential Affiliate which may become a party thereto in
accordance with the terms thereof, pursuant to which the Company issued and sold
and Prudential purchased the Company's senior fixed rate notes from time to
time. Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to such terms in the Note Agreement.
Pursuant to the request of the Company and in accordance with the
provisions of paragraph 11C of the Note Agreement, the parties hereto agree as
follows:
SECTION 1. AMENDMENT. From and after the date this letter becomes
effective in accordance with its terms, the Note Agreement is amended as
follows:
1.1 The proviso appearing at the end of paragraph 6C(2) [Debt] of the
Note Agreement is deleted in its entirety and the following is hereby
substituted therefor:
"provided that for each period of four (4) consecutive fiscal quarters
commencing with the period of four (4) consecutive fiscal quarters ending on (or
nearest to) September 30, 2002, the Company shall, at all times maintain a ratio
of Debt to EBITDA (the "LEVERAGE RATIO") not to exceed the ratios set forth
below:
Fiscal Quarter End
Ending Nearest To Ratio
- ------------------- -----
September 30, 2002 2.75 to 1:00
December 31, 2002 2.75 to 1:00
March 31, 2003 2.75 to 1:00
June 30, 2003 2.75 to 1:00
September 30, 2003 and each fiscal
quarter thereafter 2.00 to 1:00".
SECTION 2. CONDITION PRECEDENT. This letter shall become effective as of
the date first written above upon (i) the return by the Company to Prudential of
a counterpart hereof duly executed by the Company and Prudential and (ii) the
execution of a similar amendment conforming the Company's bank agreement to the
terms of this amendment in form and substance acceptable to the Required
Holder(s). This letter should be returned to Prudential Capital Group, Two
Prudential Plaza, Suite 5600, Chicago, Illinois 60601, Attn.: Wiley S. Adams.
SECTION 3. REFERENCE TO THE EFFECT ON NOTE AGREEMENT. Upon the
effectiveness of this letter, each reference to the Note Agreement in any other
document, instrument or agreement shall mean and be a reference to the Note
Agreement as modified by this letter. Except as specifically set forth in
Section 1 hereof, the Note Agreement shall remain in full force and effect and
is hereby ratified and confirmed in all respects.
SECTION 4. GOVERNING LAW. THIS LETTER SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW
OF THE STATE OF ILLINOIS (EXCLUDING ANY CONFLICTS OF LAW RULES WHICH WOULD
OTHERWISE CAUSE THIS AGREEMENT TO BE CONSTRUED OR ENFORCED IN ACCORDANCE WITH,
OR THE RIGHTS OF THE PARTIES TO BE GOVERNED BY, THE LAWS OF ANY OTHER
JURISDICTION).
SECTION 5. COUNTERPARTS; SECTION TITLES. This letter may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which when taken together shall constitute but one and
the same instrument. The section titles contained in this letter are and shall
be without substance ,meaning or content of any kind whatsoever and are not a
part of the agreement between the parties hereto.
Very truly yours,
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:_/s/_Mathew_Douglas_________
Name: Mathew Douglas
Title: Vice President
Agreed and accepted:
THE STEAK N SHAKE COMPANY
By:_/s/_James_W._Bear____
Name: James W. Bear
Title: Senior Vice President, CFO
EXHIBIT 10.17
- --------------
THIRD AMENDMENT TO CREDIT AGREEMENT
THE STEAK N SHAKE COMPANY, an Indiana corporation (the "Company") and FIFTH
THIRD BANK, INDIANA (CENTRAL), a national banking association with its
principal office in Indianapolis, Indiana (the "Bank"), being parties to that
certain Credit Agreement dated as of November 16, 2001, as previously amended
(collectively, the "Agreement") agree to amend the Agreement by this Third
Amendment to Credit Agreement (this "Amendment") as follows.
1. DEFINITIONS. All defined terms used herein not otherwise defined in
this Amendment shall have their respective meanings set forth in the Agreement.
In addition, the following new definition is hereby added to Section 1 of the
Agreement as follows:
C "THIRD AMENDMENT" means that certain agreement entitled "First
Amendment to Credit Agreement" entered into by and between the Company and the
Bank dated as of May 21, 2003, for the purpose of amending this Agreement.
2. RATIO OF FUNDED DEBT TO EBITDA. Section 5(g)(i) of the Agreement is
hereby amended and restated in its entirety as follows:
(i) MAXIMUM RATIO OF FUNDED DEBT TO EBITDA. For each period of
four (4) consecutive fiscal quarters commencing with the period of four (4)
consecutive fiscal quarters ending on April 9, 2003, maintain a ratio of Funded
Debt to EBITDA of not more than 2.75 to 1.00.
3. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to
enter into this Amendment, the Company affirms that the representations and
warranties contained in the Agreement are correct as of the date of this
Amendment, except that (i) they shall be deemed to also refer to this Amendment
as well as all documents named herein and, (ii) Section 3(d) of the Agreement
shall be deemed also to refer to the most recent audited and unaudited financial
statements of the Company delivered to the Bank.
4. EVENTS OF DEFAULT. The Company certifies to the Bank that no Event
of Default or Unmatured Event of Default under the Agreement, as amended by this
Amendment, has occurred and is continuing as of the date of this Amendment,
except as specifically waived herein.
5. CONDITIONS PRECEDENT. As conditions precedent to the effectiveness
of this Amendment, the Bank shall have received the following contemporaneously
with execution and delivery of this Amendment, each duly executed, dated and in
form and substance satisfactory to the Bank:
(i) This Amendment.
(ii) A copy of a Resolutions of the Board of Directors of the Company
authorizing the execution, delivery and performance,
respectively, of this Amendment and the other Loan Documents
provided for in this Amendment to which the Company is a party
certified by the Secretary of the Board of Directors of the
Company as being in full force and effect and duly adopted.
(iii) The Certificate of the Secretary of the Board of Directors of the
Company certifying the names of the officer or officers
authorized to sign this Amendment and the other Loan Documents
provided for in this Amendment to which the Company is a party,
together with a sample of the true signature of each such
officer.
6. PRIOR AGREEMENTS. The Agreement, as amended by this Amendment,
supersedes all previous agreements and commitments made or issued by the Bank
with respect to the Loans and all other subjects of this Amendment, including,
without limitation, any oral or written proposals which may have been made or
issued by the Bank.
7. EFFECT OF AMENDMENT. The provisions contained herein shall serve to
supplement and amend the provisions of the Agreement. To the extent that the
terms of this Amendment conflict with the terms of the Agreement, the provisions
of this Amendment shall control in all respects.
8. REAFFIRMATION. Except as expressly amended by this Amendment, all
of the terms and conditions of the Agreement shall remain in full force and
effect as originally written and as previously amended.
9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which when taken
together shall be one and the same agreement.
IN WITNESS WHEREOF, the Company and the Bank by their respective duly
authorized officers have executed and delivered in Indiana this Third Amendment
Credit Agreement as of May 21, 2003.
THE STEAK N SHAKE COMPANY, an Indiana
corporation
By: __/s/_James_W._Bear___
James W. Bear, Senior Vice President and
Chief Financial Officer
FIFTH THIRD BANK, INDIANA (CENTRAL), a
national banking association
By: __/s/_Andrew H. Cardimen____
Andrew M. Cardimen, Vice President
Exhibit 99.1
May 21, 2003
EXHIBIT 99.1
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I, Alan B. Gilman, the Chief Executive Officer of The Steak n Shake
Company, certify that (i) the Quarterly Report on Form 10-Q for the quarter
ended April 9, 2003, (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of The Steak n Shake Company
as of the dates and for the periods set forth therein.
/s/ Alan B. Gilman
---------------------
Alan B. Gilman
Chief Executive Officer
May 23, 2003
EXHIBIT 99.2
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I, James W. Bear, the Senior Vice President and Chief Financial Officer of
The Steak n Shake Company, certify that (i) the Quarterly Report on Form 10-Q
for the quarter ended April 9, 2003, (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
and (ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of The
Steak n Shake Company as of the dates and for the periods set forth therein.
/s/ James W. Bear
--------------------
James W. Bear
Senior Vice President and
Chief Financial Officer
May 23, 2003