UNITED
STATES
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
For
the
fiscal year ended September 26, 2007
OR
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
transition period from
__________ to _________
Commission
file number 0-8445
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THE
STEAK N SHAKE COMPANY
(Exact
name of registrant as specified in its
charter)
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INDIANA
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37-0684070
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(State
or other jurisdiction
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(I.R.S.
Employer
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of
incorporation or organization)
|
Identification
No.)
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36
S. Pennsylvania Street, Suite 500
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Indianapolis,
Indiana
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46204
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(Address
of principal executive offices)
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(Zip
code)
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(317)
633-4100
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Sec. 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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Common
Stock, stated value $.50 per share
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New
York Stock Exchange
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Securities
registered pursuant to section 12(g) of the Act:
Title
of class
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
Yes No X
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes No X
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. [X]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer
__ Accelerated filer
X Non-accelerated
filer
___
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes
___ No X
The
aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant as of the last day of the second fiscal quarter
ended April 11, 2007 was approximately $450,885,788 based on the closing stock
price of $16.70 per share on that day.
The
number of shares of Common Stock outstanding at December 6, 2007 was 28,388,014.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
Form
10-K
Year
ended September 26, 2007
Table
of Contents
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Page
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Part
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3
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10
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12
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13
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13
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13
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Part
II
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14
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15
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16
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23
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24
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43
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43
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46
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Part
III
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47
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47
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47
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47
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47
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Part
IV
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48
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51
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52
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PART
I.
ITEM
1. BUSINESS
General
The
Steak n
Shake Company (“we”, “us” or "Steak n Shake") is engaged primarily in the
ownership, operation and franchising of Steak n Shake restaurants. Founded
in
1934 in Normal, Illinois, Steak n Shake is one of the oldest restaurant chains
in the country. As of September 26, 2007, we had 435 Company-owned
restaurants and 56 franchised restaurants located in 21 states. Most Steak
n Shake restaurants are open 24 hours a day, seven days a week, and in addition
to the core menu featuring STEAKBURGER™ sandwiches and milk shakes, offer a
breakfast menu during breakfast hours. Lunch and dinner sales account for
approximately 37% and 46% of sales, respectively, while breakfast and late
night
sales account for 6% and 11% of sales, respectively.
Our
fiscal
year ends on the last Wednesday in September. Accordingly, every five or six
years, our fiscal year contains 53 weeks. Fiscal years 2007, 2006, and 2005
each
contained 52 weeks. Our first, third, and fourth quarters contain 12 weeks
and
the second quarter contains 16 weeks (except in fiscal years when there are
53
weeks, in which case the fourth quarter contains 13 weeks).
The
Steak n Shake Concept
We
strive to
be the best restaurant in the world at providing guests a genuine, classic
community diner experience with STEAKBURGER™ sandwiches and hand-dipped milk
shakes. We occupy a distinct niche in the restaurant industry by offering
full-service dining with counter and dining room seating, as well as drive-thru
and carry-out service. Counter and dining room sales represent approximately
60% of the sales mix, while sales for off-premises dining represent
approximately 40% of the sales mix. Unlike some quick service restaurants
(“QSR”), all Steak n Shake food is freshly prepared, cooked-to-order in view of
the guest, and served promptly on china with flatware and glassware by a
friendly team of wait staff. Our prices are generally less than most casual
dining and family-style concepts, with an average check of approximately $7.10
per person. The average check during the peak lunch and dinner hours is
approximately $7.03 and $7.37, respectively.
We
believe
that Steak n Shake offers a compelling value and core menu items with a higher
level of quality than competing restaurant chains. Our menu features core items
such as STEAKBURGER™ sandwiches, thin and crispy french fries and hand-dipped
milk shakes. During fiscal 2007 we supplemented the core menu with high-quality
chicken sandwiches, low-fat Fruit n Frozen Yogurt shakes and improved entrée
salad offerings. We believe that the core items of high-quality food have built
brand loyalty with our guests, while newer menu items have met consumer demand
for healthier menu items. All menu items are prepared in accordance with our
strict specifications using high-quality ingredients, including 100% pure beef
in our STEAKBURGER™ sandwiches.
Over
the
years, we have responded to changing guest tastes by providing greater menu
variety, while maintaining the core items to ensure continued guest appeal.
While we plan to focus on our core menu items, we will periodically add
complementary items to the menu. For example, we are currently testing upgraded
coffee and new breakfast menu items in select markets.
Expanding
the Concept
Continuing
to
grow in both new and existing trade areas is an important part of our strategy
to enhance the Steak n Shake brand and increase shareholder value. During fiscal
year 2007, we opened 16 new Company-owned units and franchisees opened
six new units. The new Company-owned units and franchise
openings were in current and new markets. This level of expansion is less
than in prior years. We currently expect the opening of approximately
nine Company-owned and six franchised Steak n Shake restaurants in fiscal
year 2008. The actual number of openings will depend on many factors, including
the ability to locate appropriate sites, negotiate acceptable purchase or lease
terms, obtain necessary local governmental permits, complete construction and
recruit and train restaurant management and hourly associates. We will also
rebuild two older units and remodel four to six units utilizing an updated
restaurant design which adds the historic winged logo to the building exterior,
reduces construction costs, maximizes the use of available space and can
potentially be located on smaller parcels of land. The updated design will
be
used for new unit construction beginning in fiscal 2009.
In
fiscal
years 2005 and 2006, we acquired a total of 25 restaurants from former
franchisees. During the fourth quarter of fiscal 2006, we acquired eight
restaurants from Creative Restaurants, Inc. ("CRI"), and in fiscal 2005, we
acquired 17 restaurants from Kelley Restaurants, Inc. ("KRI"). The
purchases of franchised restaurants allow us to build on the success achieved
by
our franchisees while giving us the opportunity to further develop the markets
in which these restaurants are located.
Because
the
site selection process is critical to the success of our restaurants, our senior
management devotes significant time and resources to analyzing each prospective
site. We consider a variety of factors in the site selection process,
including local market demographics, site visibility and accessibility, highway
interchanges and proximity to significant generators of potential guests, such
as major retailers, housing communities and businesses. Our site selection
tool,
Thompson MapInfo, allows us to be more analytic in our real estate site
selections. This site selection tool provides a sophisticated view of the sales
potential for each prospective site as well as insight into markets around
the
country. In 2008 and beyond, we will continue to be selective in choosing
markets and individual sites for both Company-owned and franchise
expansion.
Our
Strategy for 2008
Our
primary
focus in fiscal 2008 is reversing our negative prior years’ same store sales
trends. In furtherance of that goal we are focused on three core activities:
simplifying business initiatives, intensifying the focus on store level
execution and critically reviewing our cost structure. We will also be
implementing a modest incremental price increase of 2% over the year to cover
some of the commodity and minimum wage cost increases we will face in fiscal
2008. In addition, during the first quarter of fiscal 2008, we will decrease
the
volume of coupon distribution in most markets as compared to the first quarter
of fiscal 2007.
Simplification
Relative
to
simplification, we have rigorously evaluated all recent initiatives and
eliminated anything that would not contribute to improved store level execution
in a cost efficient manner. Our commitment to simplification and focus on core
products is exemplified by our 2008 marketing programming, which is balanced
between product and brand focus, with primary emphasis on core STEAKBURGER™ and
milk shake messaging. This message will focus on core product
promotions that utilize existing ingredients and proven limited time
offers, such as the black peppercorn bacon premium topping STEAKBURGER™
sandwiches currently being marketed.
The
development efforts that we will undertake during the year will focus on a
few
initiatives that we believe represent the best potential to drive future sales,
including upgraded coffee and breakfast, improved milk shake fountain deployment
and menu simplification and reengineering.
Execution
We
intend to
improve store level execution and field accountability in the coming year.
Among
the initiatives in this area is the implementation of an integrated store level
execution plan which includes several core elements. The first, and perhaps
the
most important, is the “Leading from the Front” initiative, under which store
General Managers work almost exclusively within the sight of their guests.
This allows them to focus on the guest service experience and
eliminate any dissatisfaction in the dining room. Attention to and follow-up
on
the enhanced customer service program, “Seven Steps of Service,” which provides
a renewed focus on cleanliness, training and coaching, are central to making
this initiative successful.
Another
initiative tied to successful execution is the roll-out of the “Guest Recovery”
800 number capability for resolution of customer issues. This system enables
guests to alert us to complaints in real time via toll-free hotline and enables
our senior leaders to promptly address complaints and ensure that guests return.
An added benefit of this system is that it provides significant insight into
operational issues in particular restaurants or areas while creating a database
of learning and coaching material to enable focus on continuous
improvement.
Finally,
we
are simplifying the performance scorecards for store level managers and will
compensate them based on their ability to execute our strategy. Their bonus
will
be based primarily on store level improvements. We will support them in this
regard by implementing a few initiatives which will not distract them from
their
primary focus. These include implementing a new point-of-sale ("POS") system,
simplifying the milk shake fountain process, streamlining the drive-thru and
dine-in menus and enhancing the hiring and career development process to
increase the bench strength for both field leaders and associates.
Cost
Structure
We
expect a
difficult cost environment in fiscal 2008 with rapidly rising commodity costs,
especially dairy, and the incremental annual impact of minimum wage increases.
We are attempting to manage this cost environment with limited price
increases, labor management efficiencies and supply chain cost savings
initiatives. In addition, during fiscal 2007 we undertook a critical review
of
all general and administrative expenses to ensure that all expenses support
our
strategic direction. Any spending not directly related to execution of our
core
strategies was reduced or eliminated. As a result, we reduced general and
administrative spending by a net $8.1 million for fiscal 2008. This includes
reductions in staffing, salaries and outside consulting services as well as
tightening of overall general and administrative spending. We believe that
further cost reduction opportunities exist. We are also performing a critical
analysis of our new unit construction costs, which have become increasingly
expensive in the last few years. This focus is primarily on reducing
the overall development and operating costs of our building prototype, as
well as developing a new building refresh prototype. We will continue building
new stores in 2008 in existing markets and will pilot the new refresh prototype.
This new prototype is an appealing evolution of the current style that is less
expensive to build, increases the use of available space and can potentially
be
located on smaller parcels of land. In addition, retrofits to this design will
cost approximately $225,000 to $300,000 each, with significant returns expected
on this investment. The new prototype will be used in 2008 refreshes and 2009
new unit construction.
Restaurant
Locations
The
following
table lists the locations of the 491 Steak n Shake restaurants, including 56
franchised units, as of September 26, 2007:
|
Company-Owned
|
Franchised
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Total
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|||
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Alabama
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5
|
—
|
5
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||
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Arkansas
|
—
|
1
|
1
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||
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Florida
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85
|
—
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85
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||
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Georgia
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25
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3
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28
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||
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Illinois
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63
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6
|
69
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||
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Indiana
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69
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2
|
71
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||
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Iowa
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4
|
—
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4
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||
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Kansas
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3
|
1
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4
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||
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Kentucky
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14
|
1
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15
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||
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Michigan
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20
|
—
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20
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||
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Mississippi
|
—
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1
|
1
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||
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Missouri
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42
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17
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59
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||
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North
Carolina
|
6
|
5
|
11
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||
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Ohio
|
64
|
—
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64
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||
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Oklahoma
|
—
|
5
|
5
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||
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Pennsylvania
|
5
|
1
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6
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||
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South
Carolina
|
1
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2
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3
|
||
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Tennessee
|
9
|
9
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18
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||
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Texas
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20
|
—
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20
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||
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West
Virginia
|
—
|
1
|
1
|
||
|
Wisconsin
|
—
|
1
|
1
|
||
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Total
|
435
|
56
|
491
|
Restaurant
Operations
The
key to
growing our customer base is ensuring our guests have an enjoyable dine-in,
carry-out or drive-thru experience. To ensure this positive guest
experience, we must have competent and skilled restaurant management at each
of
our locations. A typical Steak n Shake restaurant's management
team consists of a General Manager, a restaurant manager and from one to
four secondary managers. The number of managers varies depending upon the sales
volume of the unit. Each restaurant's General Manager has primary
responsibility for the day-to-day operations of the restaurant and is
responsible for maintaining our operating standards and procedures. The General
Manager holds the responsibility for the unit's profitability and their
bonus is partially based on meeting or exceeding the financial plan's expected
store sales and profitability. In addition to day-to-day operations, the General
Manager is involved in the planning and budgeting process for their
restaurant. An experienced, well-trained General Manager promotes compliance
with our high standards for food quality and guest service, ensures that
all health and safety requirements are met and ensures compliance with
applicable state labor laws. We seek to employ managers who focus on
delivering superior guest service.
We
foster a
"promote from within" approach. To develop the talented bench strength needed
for continued internal promotions, developing our associates into competent
managers is one of our highest priorities. As part of our commitment to
improving our standards of execution, we emphasize strengthening each management
team's skills and capabilities through innovative selection, development,
evaluation and reward systems. Associates are encouraged to learn new skills
to
aid in their professional growth and to create greater opportunities for
advancement. The management development process is designed to not only meet
our
current management needs, but to provide for our future growth needs
as well.
Guest
Satisfaction and Quality Control
Our
future success depends on our associates' consistent commitment to
exceeding the guests' expectations. This commitment is monitored at
Company-owned units through the use of guest satisfaction surveys, a
mystery shopping program, frequent on-site visits and formal inspections by
management and training personnel. In the first quarter of fiscal 2008, we
will
complete the roll-out of a new “Guest Recovery” 800 number to resolve customer
issues in a timely manner and encourage return visits. Franchised restaurants
are monitored through periodic inspections by franchise field operations
personnel, guest satisfaction surveys and a mystery shopping program, in
addition to their own internal management oversight procedures. These guest
satisfaction measurement tools provide data for both continuing and
improving our excellence in customer service.
Purchasing
and Distribution Center Operations
We
operate
one 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 107
Company-owned and 10 franchised restaurants. The restaurants served by the
distribution center are located in the Midwest (primarily in Illinois, Missouri,
Iowa and Wisconsin). Our semi-trailers handle refrigerated
products, frozen products and dry goods in the same delivery trip. The
restaurants that are not serviced by the distribution center obtain
Company-approved food products and supplies from two separate independent
distributors; one with locations in Orlando, Florida and Pryor, Oklahoma, and
the other with a location in Zanesville, Ohio.
Purchases
are
negotiated centrally for most food and beverage products and supplies to ensure
uniform quality, adequate quantities and competitive prices. Short-term forward
buying contracts are utilized to facilitate the availability of products that
meet our specifications and to lessen our 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.
Branding
Our
marketing
thrust for 2008 will be driven by a focus on our core menu items, including
STEAKBURGER™ sandwiches, french fries and milk shakes. Its goal is to build
brand loyalty and increase purchase frequency. Marketing platforms are
product directed and explain why Steak n Shake is superior to alternatives
by
using a fun, irreverent, tongue-in-cheek approach in our advertising campaigns.
This "voice of the restaurant" defines our brand personality. By coupling this
branding approach with real consumer benefits, existing guests are encouraged
to
visit more often and new guests are encouraged to give our concept a try.
Television and radio, outdoor billboards, and coupon inserts are the mediums
on
which we focus our advertising.
Franchising
Our
franchising program extends our brand name recognition to areas where we have
no
current development plans and generates additional revenues without substantial
investment. Our expansion plans include seeking qualified new franchisees and
expanding our relationships with current franchisees.
Franchisees
undergo a selection process supervised by the Vice President, Franchising,
and
require final approval by senior management. We typically seek franchisees
with both the financial resources necessary to fund successful development
and significant experience in the restaurant/retail business. We assist
franchisees with the development and ongoing operation of their restaurants.
Our
management personnel assist franchisees with site selection, approve all
restaurant sites and provide prototype plans and construction support and
specifications. Our staff provides both on-site and off-site instruction to
franchised restaurant management and associates.
All
franchised restaurants are required to serve only Steak n Shake
approved menu items. Access to services such as our distribution center and
POS system enables franchisees to benefit from our purchasing power and assists
us in monitoring compliance with our quality standards and
specifications.
The
standard
Steak n Shake unit franchise agreement has an initial term of 20 years. Among
other obligations, the standard agreement requires franchisees to pay an initial
franchise fee of $40,000 for the first restaurant in a market, $35,000 for
the
second unit and $30,000 for each subsequent unit, as well
as continuing royalty fees and service fees based on gross receipts. The
standard franchise agreement also requires the franchisee to pay 5% of gross
sales for advertising. For more information on franchising opportunities,
visit our web site at www.steaknshake.com/franchise.
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. Our competitors include national, regional
and
local establishments. In all of our current and proposed future market areas,
there are established competitors with financial and other resources which
are
greater than ours. We face competition for sites on which to locate new
restaurants, as well as for restaurant associates and guests. The restaurant
business is often 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,
demographics, harsh weather conditions, and the type, number and location of
competing restaurants. Additional factors that may adversely affect the
restaurant industry in general, and our restaurants in particular, are increases
in food, labor and associate benefit costs, negative publicity surrounding
food
quality or safety issues and difficulty in attracting qualified management
personnel and hourly associates.
Seasonal
Aspects
We
have
substantial fixed costs which do not decline as a result of a decline in
sales. Our first and second fiscal quarters, which include the winter
months, usually reflect lower average weekly unit volumes as compared to the
third and fourth fiscal quarters. Additionally, sales in the first two
fiscal quarters can be adversely affected by severe winter weather. We may
also be negatively affected by potential adverse weather during the first and
fourth fiscal quarters due to hurricanes and tropical storms that
may impact the Southeastern portion of the United States, where we have a
significant number of restaurants.
Employees
As
of
September 26, 2007, we employed approximately 22,000 associates, of which
approximately two-thirds were part-time hourly associates. We consider our
employee relations to be good and believe that we are providing working
conditions and wages that compare favorably with the industry.
Trademarks
"Steak
n
Shake®", "Steak 'n Shake Famous For Steakburgers®", "Famous For Steakburgers®",
"Takhomasak®", "Faxasak®", "Original Steakburgers®", "In Sight It Must Be
Right®", "Steak n Shake It’s a Meal®", "The Original Steakburger®", "The "Wing
and Circle"® logo", "Steak n Shake In Sight it Must be Right®", "Takhomacup®",
"Takhomasak®", "Takhomacard®", "Banawberry®", "Banocolate®", "Strawnilla®",
"Vanocha®", "Sippable Sundaes®", “Side-by-Side®” and the Company’s
"storefront design"® are among the federally registered trademarks and
servicemarks we own. "Bits ‘n Pieces™", “Original Double Steakburger™”, "Exactly
The Way You Want It™”, "Food And Service Exactly The Way You Want It™" and
"Create Your Own Steakburger™" are among the trademarks and service marks
we own or for which federal registration applications are currently pending.
We
protect our trademark rights by appropriate legal action whenever
necessary.
Government
Regulation
We
are
subject to various federal, state and local laws and regulations that might
impact our business. Each of our 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. The development and construction of restaurants is 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.
Our
restaurant operations are also subject to federal and state minimum wage laws
and laws governing such matters as working conditions, child labor, overtime
and
tip credits. Many of our restaurant associates are paid at rates related to
the
federal and state minimum wage laws, and accordingly, further increases in
the
minimum wage would increase our labor costs. During 2007 we experienced federal
and state mandated minimum wage rate increases in a number of states where
we operate numerous stores, including Florida, Georgia, Illinois, Indiana,
Missouri and Ohio, resulting in a collective fiscal 2007 impact of approximately
$3.7 million. The total impact of these federal and state minimum wage increases
for fiscal 2008 is expected to be approximately $3.5 million.
As
of
September 26, 2007, we had franchise operations in 15 states and are subject
to
certain federal and state laws controlling the offering and conduct of the
franchise business in those states. In addition, we are subject to franchise
registration requirements in several states in which we are now conducting
or
will conduct franchise business in the future.
Geographic
Concentration
During
fiscal
2007, approximately 42.1% of our net sales were derived from five defined market
areas ("DMA"): Indianapolis, Indiana (11.7%); St. Louis, Missouri (11.3%);
Orlando, Florida (7.0%); Chicago, Illinois (6.5%); and Tampa, Florida
(5.6%). As a result, operations may be materially affected by weather, economic
or business conditions within these markets. Also, given our present geographic
concentration, adverse publicity relating to Steak n Shake restaurants could
have a more pronounced overall adverse effect on our sales than might be the
case if our restaurants were more broadly dispersed.
Information
Available on our Web Site
We
make
available through our web site, free of charge, our filings with the Securities
and Exchange Commission ("SEC") as soon as reasonably practicable after we
file
them electronically with, or furnish them to, the SEC. The reports we make
available include annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, proxy statements, registration statements and
any
amendments to those documents. In addition, corporate governance documents
such
as our Corporate Governance Guidelines, Code of Business Conduct and Ethics,
Whistleblower Policy, Nominating and Corporate Governance Committee Charter,
Compensation Committee Charter and Audit Committee Charter are posted on our
web
site and are available without charge upon written request. Our web site link
is
www.steaknshake.com and the link to SEC filings and corporate governance
documents is www.steaknshake.com/investing.html. Our web site and the
information contained therein or connected thereto is not intended to be
incorporated into this report on Form 10-K.
Executive
Officers of the Registrant
The
following
table sets forth information regarding our executive officers effective as
of
September 26, 2007:
|
Name
|
Age
|
Position
with Company
|
Since
|
|
Jeffrey
A. Blade
|
46
|
Executive
Vice President, Chief Financial and Administrative Officer
-
|
|
|
The
Steak n Shake Company
|
2004
|
||
|
Steak
n Shake Enterprises, Inc.
|
2006
|
||
|
Duane
E. Geiger
|
44
|
Vice
President, Controller -
|
|
|
The
Steak n Shake Company
|
2000
|
||
|
Steak
n Shake Enterprises, Inc.
|
2006
|
||
|
Alan
B. Gilman(1)
|
77
|
Interim
President -
|
|
|
The
Steak n Shake Company
|
2007
|
||
|
Steak
n Shake Operations, Inc.
|
2007
|
||
|
Interim
Chief Executive Officer -
|
|||
|
The
Steak n Shake Company
|
2007
|
||
|
Steak
n Shake Enterprises, Inc.
|
2007
|
||
|
Chairman
-
|
|||
|
The
Steak n Shake Company
|
2003
|
||
|
Steak
n Shake Operations, Inc.
|
2003
|
||
|
Steak
n Shake Enterprises, Inc
|
2006
|
||
|
Omar
Janjua
|
49
|
Executive
Vice President, Operations -
|
|
|
The
Steak n Shake Company
|
2007
|
||
|
Steak
n Shake Operations, Inc.
|
2007
|
||
|
David
C. Milne
|
40
|
Vice
President -
|
|
|
The
Steak n Shake Company
|
2007
|
||
|
Steak
n Shake Enterprises, Inc.
|
2007
|
||
|
General
Counsel -
|
|||
|
The
Steak n Shake Company
|
2003
|
||
|
Steak
n Shake Enterprises, Inc.
|
2006
|
||
|
Corporate
Secretary -
|
|||
|
The
Steak n Shake Company
|
2004
|
||
|
Steak
n Shake Enterprises, Inc.
|
2006
|
||
|
Thomas
Murrill
|
58
|
Senior
Vice President, Human Resources -
|
|
|
The
Steak n Shake Company
|
2007
|
||
|
Steak
n Shake Operations, Inc.
|
2007
|
||
|
Gary
T. Reinwald
|
59
|
Executive
Vice President, Development -
|
|
|
The
Steak n Shake Company
|
2004
|
||
|
Steak
n Shake Operations, Inc.
|
2004
|
||
|
Steven
M. Schiller
|
42
|
Senior
Vice President, Chief Marketing Officer-
|
|
|
The
Steak n Shake Company
|
2005
|
||
|
Steak
n Shake Enterprises, Inc.
|
2006
|
||
|
J.
Michael Vance
|
38
|
Vice
President, Strategic Planning and Chief Information Officer
-
|
|
|
The
Steak n Shake Company
|
2006
|
||
|
Steak
n Shake Enterprises, Inc.
|
2006
|
(1)
Member of the Board of Directors of the Company.
Mr.
Blade joined us
as Senior Vice President and Chief Financial Officer in 2004 and was promoted
to
Executive Vice President, Chief Financial and Administrative Officer in 2007.
From 1999 to 2004, Mr. Blade was Vice President of Finance for the U.S.
operations of Cott Corporation. Prior thereto, Mr. Blade served in various
financial roles for the Kraft Foods Corporation from 1988 to 1999.
Mr.
Geiger
was appointed Vice President, Controller in 2004. Prior thereto, Mr. Geiger
was
Vice President, Information Systems, Financial Planning and Treasurer and served
in various other capacities within the Company since 1993.
Mr.
Gilman
was appointed interim President and Chief Executive Officer in 2007. Mr. Gilman
was elected Chairman during 2003 and has been a Director of the Company since
1992. He served as Chief Executive Officer from 1992 until 2004 and as President
from 1992 until 2002.
Mr.
Janjua
joined us as Executive Vice President, Operations in 2007. Prior to joining
Steak n Shake, he served in various executive positions with Yum Brands, Inc.
in
its Pizza Hut operations since joining Yum in 1989.
Mr.
Milne was
promoted to General Counsel in 2003, to Secretary in 2004 and to Vice President
in 2007 after joining us in 2000. Prior to joining Steak n Shake, Mr. Milne
was
in the private practice of law with two large Indianapolis law
firms.
Mr.
Murrill
joined us as Senior Vice President, Human Resources in 2007. Prior to joining
Steak n Shake he served as Executive Vice President of Total Access Speakers
Bureau, Inc. in 2006 and Vice President of Human Resources and Administration
at
Royal Caribbean Cruise Lines, LTD from 1995 through 2006.
Mr. Reinwald
was
appointed Executive Vice President of the Company in 2004. Prior thereto, Mr.
Reinwald was Senior Vice President, Operations and National General Manager,
and
he has served in various management and senior management capacities during
his
43-year tenure with Steak n Shake.
Mr.
Schiller
joined us as Senior Vice President and Chief Marketing Officer in 2005.
Prior to joining Steak n Shake, Mr. Schiller was the Group Director for the
Marketing Organization for The Coca-Cola Company since joining in
1996.
Mr.
Vance was
promoted to Chief Information Officer and Vice President, Strategic Planning
in
2007 after having served as Vice President, Information Technology and Director
of Information Technology since joining us in 2003. Prior to joining Steak
n Shake he served as Director of Consulting Services with Inrange Global
Consulting from 2002 through 2003 and was a Senior Manager with Arthur
Anderson/Accenture from 1997 through 2002.
Our
executive
officers are appointed annually by the Board of Directors.
ITEM
1A. RISK FACTORS
An
investment
in our common stock involves a degree of risk. These risks should be considered
carefully with the uncertainties described below, and all other information
included in this Annual Report on Form 10-K, as well as other filings that
we
make from time to time with the SEC, before deciding whether to purchase our
common stock. Additional risks and uncertainties not currently known to us
or that we currently deem immaterial may also become important factors that
may
harm our business, financial condition, results of operations or cash
flows. The occurrence of any of the following risks could harm our business,
financial condition, results of operations or cash flows. The trading price
of
our common stock could decline due to any of these risks and uncertainties,
and
you may lose part or all of your investment.
This
report
includes forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In
general, forward-looking statements include estimates of future revenues, cash
flows, capital expenditures or other financial items, and assumptions underlying
any of the foregoing. Forward-looking statements reflect management's current
expectations regarding future events and use words such as "anticipate,"
"believe," "expect," "may," and other similar terminology. A
forward-looking statement is neither a prediction nor a guarantee of future
events or circumstances, and those future events or circumstances may not occur.
Investors should not place undue reliance on the forward-looking statements,
which speak only as of the date of this report. These forward-looking statements
are all based on currently available operating, financial and competitive
information and are subject to various risks and uncertainties. Our actual
future results and trends may differ materially depending on a variety of
factors, many beyond our control, including, but not limited to, the risks
and
uncertainties discussed below. Accordingly, such forward-looking statements
do
not purport to be predictions of future events or circumstances and may not
be
realized. We undertake no obligation to publicly update or revise them, except
as may be required by law.
Our
new stores may not perform up to expectations.
We
are
currently planning to open fewer new restaurants in fiscal 2008 than
in recent years. Our ability to open and profitably operate restaurants is
subject to risks such as identifying and securing suitable and economically
viable locations, negotiating acceptable lease or purchase terms for new
locations, obtaining required governmental permits (including zoning approvals)
on a timely basis, complying with other regulatory requirements, securing
necessary contractors, subcontractors and labor, meeting construction schedules
and budgets, increasing labor and building materials costs and adverse weather
conditions or other acts of God that could result in construction
delays. If we are unable to successfully manage these risks, we could face
increased costs and lower than anticipated revenues and earnings in future
periods.
We
face continually increasing competition in the restaurant industry for
locations, guests, staff, supplies and new products, which may prevent
us from
reversing negative same store sales trends.
Our
business
is subject to intense competition with respect to prices, services, locations,
qualified management personnel and quality of food. We compete with other
food
service operations, with locally-owned restaurants and with other national
and
regional restaurant chains that offer the same or similar types of services
and
products. Some of our competitors may be better established in the markets
where
our restaurants are or may be located. Changes in consumer tastes, national,
regional, or local economic conditions, demographic trends, traffic patterns
and
the types and numbers and locations of competing restaurants often affect
the
restaurant business. There is active competition for management personnel
and
for attractive commercial real estate sites suitable for restaurants. In
addition, factors such as inflation, increased food, labor, equipment,
fixture
and benefit costs, as well as difficulty in attracting qualified
management and hourly employees may adversely affect the restaurant industry
in
general and our restaurants in particular. We expect our first quarter
fiscal
2008 same store sales to be down more than the low end of our annual range
of
down 1% to 5%. If our strategy does not improve same store sales, our operating
results and business would be adversely affected.
The
inability of our franchises to operate profitable restaurants may negatively
impact our continued financial success.
We
operate a
franchise program and collect royalties, marketing and service fees from
the
franchisees. The ability of franchisees to generate profits impacts our overall
profitability and brand recognition.
Growth
within
the existing franchise base is dependent upon many of the same factors that
apply to our Company-owned restaurants, and sometimes the challenges of opening
profitable restaurants prove to be more difficult for our franchisees. For
example, franchisees may not have access to the financial or management
resources that they need to open or continue operating the restaurants
contemplated by their franchise agreements with us. In addition, our continued
growth is also partially dependent upon our ability to find and retain qualified
franchisees in new markets, which may include markets in which the Steak
n Shake
brand is less well known. Furthermore, the loss of any of our franchisees
due to
financial concerns and/or operational inefficiencies could impact our
profitability and brand.
Our
franchisees are required to operate their restaurants according to our
guidelines. We provide training opportunities to our franchise operators
to
fully integrate them into our operating strategy. However, since we do not
have
control over these restaurants, we cannot give assurance that there will
not be
differences in product quality or that there will be adherence to all of
our
guidelines at these franchised restaurants. In order to mitigate these risks,
we
do require that our franchisees focus on the quality of their operations,
and we
expect full compliance with our standards.
Due
to our smaller restaurant base, our operating results could be materially and
adversely affected by the negative performance of or the decision to close
a
small number of restaurants.
Our
restaurant base is smaller than many other restaurant chains. Accordingly,
poor
operating results in one or more of our markets or the decision to close even
a
relatively small number of underperforming restaurants could materially and
adversely affect our business, financial conditions, results of operations
or
cash flows.
Our
operating results could vary significantly if we are unable to attract guests
to
our restaurants and earn their repeat
business.
We
take pride
in our ability to attract and retain our guests, however if we do not deliver
an
enjoyable dining experience for our guests or are unable to provide them
with the food quality they expect, they may not return to our restaurants,
and
results may be negatively affected.
Changes
in guest preferences for casual dining styles or menu items could adversely
affect our financial
performance.
Changing
guest preferences, tastes and dietary habits can adversely impact our business
and financial performance. We offer a large variety of entrees, side dishes
and desserts, and our continued success depends, in part, on the popularity
of
our product offerings and casual style of dining. A change in guest
preferences away from this dining style or our offerings in favor of other
dining styles or offerings may have an adverse effect on our
business.
Increases
in the minimum wage rates by federal or state governments could adversely affect
our business.
Many
of our
associates are paid wages that relate to federal and state minimum wage
rates. Any increases in the minimum wage rates may significantly increase
our restaurant operating costs. In addition, since our business is
labor-intensive, shortages in the labor pool or other inflationary pressure
could increase labor costs, which could harm our financial
performance.
Ownership
and leasing of significant amounts of real estate exposes us to possible
liabilities
We
own the
land and building or lease the land and/or the building for our
restaurants. Accordingly, we are subject to all of the risks associated
with owning and leasing real estate. In particular, the value of our assets
could decrease and our costs could increase because of changes in the investment
climate for real estate, demographic trends, supply or demand for the use of
restaurants in an area, or liabilities for environmental
conditions. We generally cannot cancel our leases. If we decide
to close an underperforming existing store, or if we decide not to
open a planned future store, we may, nonetheless, be committed to perform our
obligations under the applicable lease including, among other things, paying
the
base rent for the remainder of the lease term. In addition, as each of
the leases expires, we may fail to negotiate renewals either on commercially
acceptable terms or at all, which could cause us to close stores in desirable
locations.
Labor
shortages, an increase in labor costs, or the inability to attract
qualified associates could harm our business.
Our
associates are essential to the operation of our restaurants and our ability
to
deliver an enjoyable dining experience to our guests. If we are unable to
attract and retain enough qualified restaurant personnel at a reasonable cost,
or if they do not deliver an enjoyable dining experience to our guests, our
results may be negatively affected. Additionally, competition for qualified
employees could require us to pay higher wages or provide greater benefits,
which could result in higher labor costs.
Fluctuations
in commodity and energy prices and the availability of commodities, including
beef, poultry and dairy, could affect our business.
A
significant
component of our costs is related to food commodities, including beef,
poultry and dairy products, which can be subject to significant price
fluctuations due to seasonal shifts, climate conditions, industry demand,
changes in international commodity markets and other factors. If there is a
substantial increase in prices for these food commodities, and we are unable
to
offset the increases with changes in our menu pricing, our results of operations
may be negatively affected. In addition, we are dependent on frequent deliveries
of perishable food products that meet certain specifications. Shortages or
interruptions in the supply of perishable food products caused by unanticipated
demand, problems in production or distribution, disease or food-borne illnesses,
inclement weather or other conditions could adversely affect the availability,
quality and cost of ingredients, which would likely lower revenues, damage
our
reputation and otherwise harm our business.
We
must
purchase energy-related products such as electricity, oil and natural gas for
use in each of our restaurants.Our suppliers must purchase gasoline in order
to
transport food and supplies to us. Our guests purchase energy to heat and cool
their homes and fuel their automobiles. When energy prices increase, we incur
greater costs to operate our restaurants. Likewise, our guests have lower
disposable income and thus may reduce the frequency in which they dine out
and/or feel compelled to choose more inexpensive restaurants when eating outside
the home.
Due
to our geographic locations, certain restaurants are subject to climate
conditions that could affect operations.
Many
of our
restaurants are located in the Midwest and Southeast portions of the United
States. During the first and second fiscal quarters, restaurants in the
Midwest may face harsh winter weather conditions. During the first and
fourth fiscal quarters, restaurants in the Southeast may face harsh weather
associated with hurricanes or tropical storms. These harsh weather
conditions may make it more difficult for guests to visit our restaurants or
may
necessitate the closure of our restaurants for a period of time. If guests
are
unable to visit our restaurants, or if our restaurants are closed as the result
of inclement weather, our sales and operating results may be negatively
affected.
Unfavorable
publicity could harm our business.
Restaurant
chains such as ours can be adversely affected by publicity resulting from
complaints or litigation alleging poor food quality, food-borne illness,
personal injury caused by food tampering, adverse health effects (including
obesity) or other concerns stemming from one or a limited number of restaurants.
Regardless of whether the allegations or complaints are valid, unfavorable
publicity relating to even just one of our restaurants, could adversely affect
public perception of the entire brand, which could immediately and severely
hurt
sales and accordingly, revenues and profits. If guests become ill from
food-borne illnesses, we could also be forced to temporarily close some
restaurants. In addition, instances of food-borne illnesses or food tampering,
even those occurring solely at the restaurants of competitors, could, due to
negative publicity about the restaurant industry, adversely affect
sales.
We
are subject to health, employment, environmental and other government
regulations, and failure to comply with existing or future government
regulations could expose us to litigation, damage our reputation and lower
profits.
We
are
subject to various federal, state and local laws affecting our business.
Restaurant operations are also subject to licensing and regulation by state
and
local departments relating to health, food preparation, sanitation and safety
standards, federal and state labor laws (including applicable minimum wage
requirements, overtime, working and safety conditions and citizenship
requirements), federal and state laws prohibiting discrimination and other
laws
regulating the design and operation of facilities, such as the Americans with
Disabilities Act of 1990. If we fail to comply with any of these laws, we may
be
subject to governmental action or litigation, and our reputation could be
accordingly harmed. Injury to our reputation would, in turn, likely reduce
revenues and profits.
In
recent
years, there has been an increased legislative, regulatory and consumer focus
on
nutrition and advertising practices in the food industry. As a result, we may
become subject to regulatory initiatives in the area of nutrition disclosure
or
advertising, such as requirements to provide information about the nutritional
content of our food products, which could increase expenses. The operation
of
our franchise system is also subject to franchise laws and regulations enacted
by a number of states and to rules promulgated by the U.S. Federal Trade
Commission. Any future legislation regulating franchise relationships may
negatively affect our operations, particularly our relationship with
franchisees. Failure to comply with new or existing franchise laws and
regulations in any jurisdiction or to obtain required government approvals
could
result in a ban or temporary suspension on future franchise sales.
We
may not be able to adequately protect our intellectual property, which could
decrease the value of our brand and products.
The
success
of our business depends on the continued ability to use the existing trademarks,
service marks and other components of our brand to increase brand awareness
and
further develop branded products. While we take steps to protect our
intellectual property, our rights to our trademarks could be challenged by
third
parties or our use of these trademarks may result in liability for trademark
infringement, trademark dilution or unfair competition, adversely affecting
our
profitability.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
We
currently
lease 57,066 square feet of executive office space in Indianapolis,
Indiana, under a lease expiring June 30, 2013.
We
also have
a complex of three buildings located in Bloomington, Illinois, where we own
38,900 square feet of office/warehouse space in two separate buildings (one
of
which has cold storage facilities), and we lease a 26,300 square foot
distribution center and division office facility. We lease division offices
in
Orlando, Florida; Cincinnati, Ohio; Columbus, Ohio; Chicago, Illinois; and
Indianapolis, Indiana. We own division office facilities in St. Louis, Missouri.
At September 26, 2007, we owned one restaurant location that had been leased
to
a third party. In addition, there were six restaurants under construction and
we
owned four parcels of land that are being held for future development at
September 26, 2007.
As
of
September 26, 2007, we operated 266 leased and 169 owned
restaurants. Restaurant leases for land and building typically are
non-cancelable, have an initial term of 18 to 25 years, renewal terms
aggregating twenty years or more and require us to pay real estate taxes,
insurance and maintenance costs. Of our leases, 185 contain clauses
requiring the payment of a percentage of sales in excess of a certain
threshold as rent in addition to base rent requirements. Restaurants
are generally 3,900 square feet and seat approximately 100 customers, while
a
minimal percentage of restaurants have a similar style but seat 54 to 198
customers and occupy between 1,000 and 6,000 square feet. We have lease
obligations on three former restaurants which have been subleased to others
as
of September 26, 2007. These obligations primarily relate to restaurant
locations disposed of in the late 1970's and the sublease rentals cover
substantially all of our obligations under the primary leases.
Our
wholly
owned subsidiary, SNS Investment Company ("SIC"), 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 these properties as the primary lessee. These leases
typically have an initial term of 18 years, renewal options aggregating 20
years
or more and require SIC to pay real estate taxes, insurance and maintenance
costs. As of September 26, 2007, SIC had three land and building leases for
properties located in Chattanooga, Tennessee; Columbia, Missouri; and Topeka,
Kansas; 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 has
a
ground lease for a property in Bloomington, Indiana, which is
subleased to a third party.
Restaurant
Lease Expirations
Restaurant
leases are scheduled to expire as follows, assuming the exercise of all renewal
options:
|
Number
of Leases Expiring
|
||
|
Calendar
Year
|
SNS
|
SIC
|
|
2008
- 2012
|
1
|
—
|
|
2013
- 2017
|
3
|
—
|
|
2018
- 2022
|
17
|
1
|
|
2023
- 2027
|
11
|
1
|
|
2028
- 2032
|
23
|
—
|
|
Beyond
|
211
|
2
|
|
266
|
4
|
|
ITEM
3. LEGAL PROCEEDINGS
We
are
engaged in various legal proceedings and have certain unresolved claims pending.
The ultimate liability, if any, for the aggregate amounts claimed cannot be
determined at this time. However, management believes, based on examination
of
these matters and experiences to date, that the ultimate liability, if any,
in
excess of amounts already provided in our consolidated financial statements
is
not likely to have a material adverse effect on our financial position,
results of operations or cash flows.
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.
PART
II.
ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market
Price Range/Stock Trading
Our common
stock is traded on the New York Stock Exchange ("NYSE") under the symbol
SNS. Stock price quotations can be found in major daily newspapers, in The
Wall Street Journal and on our web site. The high and low closing sales
prices for our common stock, as reported on the NYSE for each quarter of the
past two fiscal years, are shown below:
|
2007
|
2006
|
|||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||
|
First
Quarter
|
$ |
19.25
|
$ |
16.53
|
$ |
19.39
|
$ |
16.87
|
||||||
|
Second
Quarter
|
$ |
18.08
|
$ |
16.43
|
$ |
21.10
|
$ |
16.60
|
||||||
|
Third
Quarter
|
$ |
17.13
|
$ |
14.78
|
$ |
20.08
|
$ |
14.79
|
||||||
|
Fourth
Quarter
|
$ |
17.22
|
$ |
13.46
|
$ |
17.41
|
$ |
13.46
|
||||||
We
did not
pay cash dividends on our common stock during the last two fiscal years and
do
not expect to pay cash dividends in the near future. As of December 5, 2007,
there were approximately 8,000 record holders of our common
stock.
Share
Repurchases
The
following
table presents a summary of share repurchases made by us:
|
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans
or
Programs
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or
Programs
|
|||||
|
July
5, 2007-August 1, 2007
|
—
|
—
|
—
|
2,979,600
|
|||||
|
August
2, 2007-August 29, 2007
|
—
|
—
|
—
|
2,979,600
|
|||||
|
August
30, 2007-September 26, 2007
|
—
|
—
|
—
|
2,979,600
|
The
share
repurchase program previously authorized by the Board of Directors was announced
on November 16, 2005. The program allowed for the repurchase of up
to three million shares for a period of two years. There were no further
repurchases of shares subsequent to year-end through the expiration of the
program on November 16, 2007.
See
Item 12
for the "Equity Compensation Plan Information" required by Item 201(d) of
Regulation S-K.
ITEM
6. SELECTED FINANCIAL DATA
|
SELECTED
FINANCIAL AND OPERATING DATA
|
||||||||||||||||||||
|
The
Steak n Shake Company
|
||||||||||||||||||||
|
(Amounts
in 000s, except per share data)
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Statement
of Earnings Data:
|
||||||||||||||||||||
|
Total
Revenues
|
$ |
654,142
|
$ |
638,822
|
$ |
606,912
|
$ |
553,692
|
$ |
499,104
|
||||||||||
|
Net
Earnings (1)
|
$ |
11,808
|
$ |
28,001
|
$ |
30,222
|
$ |
27,591
|
$ |
20,861
|
||||||||||
|
Per
Share Data:
|
||||||||||||||||||||
|
Basic
Earnings Per Common Share:
|
||||||||||||||||||||
|
Basic
earnings per share (1)
|
$ |
0.42
|
$ |
1.01
|
$ |
1.10
|
$ |
1.01
|
$ |
0.77
|
||||||||||
|
Diluted
Earnings Per Common and
Common
Equivalent Share:
|
||||||||||||||||||||
|
Diluted
earnings per share (1)
|
$ |
0.42
|
$ |
1.00
|
$ |
1.08
|
$ |
1.00
|
$ |
0.77
|
||||||||||
|
Basic
Weighted Average Shares
(in
thousands)
|
28,018
|
27,723
|
27,500
|
27,385
|
27,010
|
|||||||||||||||
|
Diluted
Weighted Average Shares and
Share
Equivalents (in thousands)
|
28,216
|
28,039
|
28,059
|
27,711
|
27,110
|
|||||||||||||||
|
Statement
of Financial Position Data:
|
||||||||||||||||||||
|
Total
assets
|
$ |
565,214
|
$ |
542,521
|
$ |
474,657
|
$ |
435,853
|
$ |
417,174
|
||||||||||
|
Long-term
debt:
|
||||||||||||||||||||
|
Obligations
under leases
|
139,493
|
143,996
|
147,615
|
144,647
|
147,957
|
|||||||||||||||
|
Other
long-term debt
|
16,522
|
18,802
|
6,315
|
9,429
|
16,203
|
|||||||||||||||
|
Shareholders'
equity
|
$ |
303,864
|
$ |
287,035
|
$ |
252,975
|
$ |
218,932
|
$ |
187,903
|
||||||||||
|
SELECTED
FINANCIAL AND OPERATING DATA
|
||||||||||
|
The
Steak n Shake Company
|
||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||
|
Other
Data:
|
||||||||||
|
Number
of Restaurants:
|
||||||||||
|
Company-owned
|
435
|
429
|
399
|
365
|
356
|
|||||
|
Franchised
|
56
|
48
|
49
|
60
|
57
|
|||||
|
491
|
477
|
448
|
425
|
413
|
||||||
|
Approximate
Number of Employees
|
22,000
|
23,000
|
21,500
|
20,000
|
20,000
|
|||||
|
Approximate
Number of Shareholders
|
8,000
|
12,000
|
13,500
|
13,500
|
13,500
|
|||||
(1)
Fiscal 2007 and 2006 net income and earnings per share include the impact of
the
adoption of Statement of Financial Accounting Standards No. 123 (Revised
2004), "Share Based Payment" ("SFAS 123(R)"). Net after-tax effect was
$0.04 and $0.07 per diluted share, respectively.
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
Steak
n Shake Company
(Years
ended September 26, 2007, September 27, 2006 and September 28,
2005)
(Amounts
in $000s, except per share data)
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.
We
have a
52/53 week fiscal year ending on the last Wednesday in September. Fiscal years
2007, 2006 and 2005, which ended on September 26, 2007, September 27, 2006
and
September 28, 2005, respectively, each contained 52 weeks.
For
an
understanding of the significant factors that influenced our performance during
the past three fiscal years, the following discussion should be read in
conjunction with the consolidated financial statements and related notes found
elsewhere in this Annual Report.
Overview
Business
Profile
In
fiscal
2007, we opened 16 new Company-owned restaurants, closed eight
underperforming restaurants and sold two restaurants to franchisees, which
brings the total Company-owned restaurants to 435. Additionally, six new
franchised units were opened during fiscal 2007, bringing the total number
of franchised restaurants to 56.
Company
Performance
We
reported
higher revenues and lower net earnings and diluted earnings per share in the
year ended September 26, 2007 as compared to the prior year. Total revenues
increased by 2.4% to $654,142, compared to $638,822 for the same period last
year. Net earnings decreased 57.8% to $11,808 from $28,001 in the prior year,
while diluted earnings per share decreased to $0.42 from $1.00. Included
in 2007 earnings per share is a charge of $5,369 ($3,329 or $0.12 per
diluted share, net of tax) primarily related to the impairment of 14
Company-owned restaurants. During the fourth quarter of fiscal 2007, we
closed eight of these impaired restaurants. We do not anticipate any material
Company-owned store closures during 2008. Also included in 2007 earnings per
share was a charge of $1,900 ($1,178 or $0.04 per diluted share, net of tax)
related to restructuring and severance expenses.
The
keys to
revenue growth in fiscal 2007 were the addition of 16 new Company-owned
stores and a full year of revenues earned from eight stores acquired from
CRI at the beginning of the fourth quarter of fiscal 2006. These increased
revenues were offset by a decline in same store sales of 3.8% for the full
year. The decrease in same store sales was the result of a decrease in guest
counts of 5.6% offset by an increase in average guest expenditure of
1.8%, aided by a 2.0% weighted average menu price increase in the
current year.
We
believe
the decline in guest counts is due to a number of factors, including
the impact of rising fuel prices, rising interest rates, high home
foreclosure rates in some of our core markets, poor store level execution,
the underperformance of stores opened in recent years and falling consumer
confidence that diverted these guests to more traditional QSR. We are
committed to improving both our execution and the concept to enable us to gain
same store sales, even in difficult environments. We understand that the
outlook for several external environmental factors that affect casual dining
trends (such as gas prices, foreclosures and interest rates) remains
uncertain.
Fiscal
2008
We
anticipate
full-year diluted earnings per share in the range of $0.32 to $0.42. The
earnings per share estimate is based on a same store sales decline of 1.0%
to
5.0%, given the continued difficult operating environment and the resulting
impact on same store sales performance. This estimate includes a 2% incremental
price increase taken in November 2008. We expect first quarter fiscal 2008
same store sales to be down potentially more than the low end of the annual
range, reflecting the current challenging business environment and the impact
of
a decrease in the volume of coupon distribution in most markets as compared
to
the first quarter of fiscal 2007.
We
anticipate
opening approximately nine new Company-owned stores in established markets
during fiscal 2008 with the expectation that at least two-thirds of
the openings will be completed in the first half of the fiscal year. This
represents fewer openings than in recent years, which will permit us to focus
on
improving execution and same store sales. Fiscal 2008 capital spending is
anticipated to be in a range of $37,000 to $45,000. Relative to franchising,
we
expect franchisees to open approximately six units during fiscal
2008.
Critical
Accounting Estimates
Management’s
discussion and analysis of financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared
in
accordance with accounting principles generally accepted in the United
States of America. The preparation of our financial statements requires us
to
make estimates and judgments that affect the reported amounts of assets,
liabilities, expenses and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate these estimates and our
assumptions based on historical experience and other factors that are believed
to be relevant under the circumstances. Actual results may differ from these
estimates under different assumptions or circumstances.
We
believe
the following critical accounting estimates represent our more significant
judgments and estimates used in preparation of our consolidated financial
statements.
Long-lived
Assets - Impairment and Classification as Held for Sale
We
review our restaurants for impairment on a restaurant-by-restaurant basis
when events or circumstances indicate a possible impairment. We test for
impairment by comparing the carrying value of the asset to the undiscounted
future cash flows expected to be generated by the asset. If the total estimated
future cash flows are less than the carrying amount of the asset, the carrying
amount is written down to the estimated fair value, and a loss is recognized
in
earnings.
We
sell
restaurants that have been closed due to underperformance and land parcels
that
we do not intend to develop in the future. We classify an asset as held for
sale
in the period during which each of the following conditions is met: (a)
management has committed to a plan to sell the asset; (b) the asset is available
for immediate sale in its present condition; (c) an active search for a buyer
has been initiated; (d) completion of the sale of the asset within one year
is
probable; (e) the asset is being marketed at a reasonable price; and (f) no
significant changes to the plan of sale are expected.
Because
depreciation and amortization expense is based upon useful lives of assets
and
the net salvage value at the end of their lives, significant judgment is
required in estimating this expense. Additionally, determining the future
cash flows expected to be generated by an asset requires significant judgment
regarding future performance of the asset, fair market value if the asset were
to be sold and other financial and economic assumptions. There is also judgment
involved in estimating the timing of completing the sale of an asset.
Accordingly, we believe that accounting estimates related to long-lived assets
are critical.
Insurance
Reserves
We
self-insure a significant portion of expected losses under our workers'
compensation, general liability and auto liability insurance programs. In 2006,
we began to self-insure our group health insurance risk. We purchase
reinsurance for individual and aggregate claims that exceed predetermined
limits. We record a liability for all unresolved claims and our estimates of
incurred but not reported ("IBNR") claims at the anticipated cost to us. The
liability estimate is based on information received from insurance companies,
combined with management's judgments regarding frequency and severity of claims,
claims development history and settlement practices. Significant judgment is
required to estimate IBNR claims as parties have yet to assert a claim and
therefore, the degree to which injuries have been incurred and the related
costs
have not yet been determined. Additionally, estimates about future costs involve
significant judgment regarding legislation, case jurisdictions and other
matters. Accordingly, management believes that estimates related to
self-insurance reserves are critical. Our reserve for self-insured liabilities
at September 26, 2007 and September 27, 2006 were $7,037 and $10,521,
respectively. The reduction in insurance liability is the result of
favorable claims experience over prior years, timing of payments made due to
our
efforts to close claims related to prior years and a shift in our prepayment
of
estimated reserves from the fourth quarter of fiscal 2006 to the first quarter
of fiscal 2007.
Income
Taxes
We
record
deferred tax assets or liabilities based on differences between financial
reporting and tax basis of assets and liabilities using currently enacted rates
and laws that will be in effect when the differences are expected to reverse.
We
record deferred tax assets to the extent we believe there will be sufficient
future taxable income to utilize those assets prior to their expiration. To
the
extent deferred tax assets would be unable to be utilized, we would record
a
valuation allowance against the unrealizable amount and record that amount
as a
charge against earnings. Due to changing tax laws and state income tax rates,
significant judgment is required to estimate the effective tax rate expected
to
apply to tax differences that are expected to reverse in the future. We must
also make estimates about the sufficiency of taxable income in future periods
to
offset any deductions related to deferred tax assets currently recorded.
Accordingly, we believe estimates related to income taxes are critical. Based
on
2007 results, a change of 1% in the annual effective tax rate would have an
impact of $149 on net earnings.
Goodwill
and Other Intangible Assets
We
evaluate
goodwill and other indefinite life intangible assets annually, or more
frequently if indicators of impairment are present. If the determined fair
values of these assets are less than the related carrying amounts an impairment
loss is recognized. The methods used to estimate fair value may include future
cash flow assumptions, which may differ from actual cash flows due to, among
other things, economic conditions or changes in operating
performance. Determining the future cash flows expected to be generated by
an asset requires significant judgment regarding future performance of the
asset and other financial and economic assumptions. Accordingly, we believe
that accounting estimates related to goodwill and other intangible assets are
critical.
Leases
We
lease
certain properties under operating leases. We also have many lease
agreements that contain rent holidays, rent escalation clauses and/or contingent
rent provisions. We recognize rent expense on a straight-line basis over
the expected lease term, including cancelable option periods when failure to
exercise such options would result in an economic penalty. We use a time
period for our straight-line rent expense calculation that equals or exceeds
the
time period used for depreciation. In addition, the rent commencement date
of the lease term is the earlier of the date when we become legally obligated
for the rent payments or the date when we take access to the grounds for
buildout. As the assumptions inherent in determining lease commencement and
lease expiration dates and other related complexities of accounting for leases
involve significant judgment, management has determined that lease accounting
is
critical.
Results
of Operations
In
the
following table is set forth the percentage relationship to total revenues,
unless otherwise noted, of items included in consolidated statements of earnings
for the periods indicated:
|
2007
|
2006
|
2005
|
||||||
|
Revenues:
|
||||||||
|
Net
sales
|
99.4
|
%
|
99.4
|
%
|
99.4
|
%
|
||
|
Franchise
fees
|
0.6
|
0.6
|
0.6
|
|||||
|
Total
Revenues
|
100
|
100
|
100
|
|||||
|
Costs
and Expenses:
|
||||||||
|
Cost
of sales (1)
|
23.1
|
22.6
|
23.2
|
|||||
|
Restaurant
operating costs (1)
|
51.8
|
50.3
|
49.0
|
|||||
|
General
and administrative
|
8.8
|
8.3
|
7.9
|
|||||
|
Depreciation
and amortization
|
4.9
|
4.5
|
4.4
|
|||||
|
Marketing
|
4.4
|
4.3
|
4.4
|
|||||
|
Interest
|
2.1
|
1.8
|
2.1
|
|||||
|
Rent
|
2.1
|
1.9
|
1.7
|
|||||
|
Pre-opening
costs
|
0.4
|
0.6
|
0.5
|
|||||
|
Provision
for restaurant closings
|
0.8
|
—
|
0.2
|
|||||
|
Other
income, net
|
(0.3)
|
(0.4)
|
(0.3)
|
|||||
|
Earnings
Before Income Taxes
|
2.3
|
6.6
|
7.3
|
|||||
|
Income
Taxes
|
0.5
|
2.2
|
2.3
|
|||||
|
Net
Earnings
|
1.8
|
%
|
4.4
|
%
|
5.0
|
%
|
||
|
(1)
Cost of sales and restaurant operating costs are expressed as a
percentage
of net sales.
|
||||||||
(Amounts
in $000s)
Fiscal
2007 compared with Fiscal
2006
Net
Earnings
Net
earnings
decreased in the current year by 57.8% or $16,193 to $11,808, or $0.42 per
diluted share compared with $28,001 or $1.00 per diluted share, for fiscal
2006. The decrease was primarily driven by the decline in same store sales
noted below, a $5,369 ($3,329, net of tax) non-cash impairment charge which
had an impact of $0.12 per diluted share and $1,900 ($1,178, net of tax) of
restructuring and severance expenses which had an impact of $0.04 per diluted
share.
Net
Sales
For
the year,
net sales increased 2.4% from $634,941 to $650,416. The net
sales gains were due to the opening of 16 new Company-owned stores,
partially offset by a 3.8% same store sales decline. That decrease in same
store
sales was due to a declining guest count of 5.6% partially offset by a 1.8%
increase in average guest expenditure. As noted, fiscal 2007 net sales also
benefited from a full year of sales relating to the acquisition of eight
franchised restaurants from CRI in the fourth quarter of fiscal 2006. CRI sales
during 2007 and 2006 were $15,842 and $3,990, respectively.
Cost
and Expenses
In
2007, cost
of sales was $150,286 or 23.1% of net sales, compared with $143,360 or
22.6% of net sales in fiscal 2006. The increase as a percentage of net
sales was primarily due to new menu items with higher percentage food cost,
including improved entrée salads, chicken sandwiches and Fruit n Frozen
yogurt shakes, and to operational inefficiencies from implementing the new
product mix.
Restaurant
operating costs were $336,955 or 51.8% of net sales compared to $319,070 or
50.3% of net sales in the prior year. The largest portion of
the increase related to labor and fringes, which increased $10,144 or
0.7% as a percentage of net sales over the prior year. The increase in labor
costs was primarily due to federal and state mandated minimum wage rate
increases in states where we operate numerous stores,
including Florida, Georgia, Illinois, Indiana, Missouri and Ohio, resulting
in a collective fiscal 2007 impact of $3,722. Other restaurant operating costs
including utilities and repairs and maintenance increased as a percentage of
net
sales due to the impact of negative same store sales on fixed
costs.
General
and
administrative expenses for fiscal 2007 were $57,525 or 8.8% of total
revenues compared to $52,949 or 8.3% of total revenues in fiscal 2006. The
increase in general and administrative expenses as a percentage of
revenues was attributable to $1,900 of restructuring and severance expenses
not incurred in fiscal 2006 and to approximately $1,600 of compensation and
$1,400 of incremental consulting expenses including "Guest Winning Promise"
research. Planned general and administrative spending for fiscal 2008 is
anticipated to be approximately $8.1 million lower than in fiscal 2007 due
to
decreases in staffing, salaries, outside consulting services and overall
general and administrative spending.
Depreciation
and amortization expense for fiscal 2007 was $32,185 or 4.9% of total revenues,
versus $28,967 or 4.5% of total revenues in the prior year. The increase was
primarily due to the addition of units, including the eight restaurants
acquired from CRI in the fourth quarter of fiscal 2006, to software placed
in
service during fiscal 2007 and to the impact of negative same store sales on
fixed costs.
Rent
expense
increased slightly as a percentage of total revenues primarily as a result
of the decline in same store sales, as well as increases in rental rates
for new unit leases.
Interest
expense in fiscal 2007 was $14,015 or 2.1% of total revenues, versus
$11,373 or 1.8% of total revenues in the prior year. The increase in
interest expense was due to increased borrowings under the Senior Note Agreement
and Private Shelf Facility ("Senior Note Agreement") and to lower capitalized
interest from decreased land acquisition and unit construction, partially offset
by lower average borrowings under leases.
In
fiscal
2007, provision for restaurant closings was $5,176, which represented a
charge of $5,369 for impairment of assets and store closure reserve related
to 14 underperforming units, offset by the gain on the sale of two units that
had been closed during a prior year. Fiscal 2006 provision was a
credit of $103 as a result of the gain on the sale of one unit that
had been closed during a prior year.
Pre-opening
expense was $2,689 or 0.4% of total revenues, versus $3,579 or 0.6% of
total revenues in the prior year. The reduction was driven by a decrease in
new units from 26 last year to 16 in fiscal year 2007. Pre-opening costs per
restaurant increased slightly over the prior year due to differences in the
timing of when pre-opening costs are incurred compared to when the stores are
opened.
Income
tax
expense was recorded at an effective tax rate of 20.6%, versus 33.8% in the
prior year. The decrease in the tax rate in the current year is due primarily
to
the proportionate effect of federal income tax credits when compared to annual
pre-tax earnings and the impact of the extension of the Work Opportunity and
Welfare to Work tax credits retroactive to January 1, 2006. The benefit recorded
related to the tax credit extension totaled approximately $650.
Fiscal
2006 compared with Fiscal
2005
Net
Earnings
Net
earnings
decreased in fiscal 2006 by 7.3% or $2,221 to $28,001, or $1.00 per diluted
share compared with $30,222 or $1.08 per diluted share, for fiscal
2005. The decrease was primarily driven by the impact of the adoption of
SFAS 123(R), which had an impact of $0.07 per diluted share coupled with the
decrease in same stores sales as noted below.
Net
Sales
For
2006, net
sales increased 5.3% from $603,068 to $634,941. The net sales gains
were due to new Company-owned stores and the acquisition of
franchise units partially offset by a 2.1% same store sales decline.
That decline in same store sales was due to a declining guest count of 6.2%
partially offset by a 4.1% increase in average guest expenditure. In 2006,
we
opened 26 new Company-owned stores and acquired eight restaurants in the
fourth quarter from CRI, a franchisee. Fiscal 2006 net sales also benefited
from
a full year of sales relating to the acquisition of 17 franchised restaurants
from KRI during December 2004. KRI sales during 2006 and 2005 were $37,765
and $29,750, respectively. CRI sales during the fourth quarter and full
year of 2006 were $3,990.
Cost
and Expenses
In
2006, cost
of sales were $143,360 or 22.6% of net sales, compared with $140,078 or 23.2%
of
net sales in fiscal 2005. The decrease as a percentage of sales was
due primarily to lower commodity costs, the positive impact of pricing actions
and food cost control measures. These reductions were partially offset by
unfavorable mix for premium topping STEAKBURGER™ sandwiches and premium
milk shakes.
Restaurant
operating costs were $319,070 or 50.3% of net sales compared to $295,202 or
49.0% of net sales in 2005. The increase in absolute dollars for
labor and fringes was $13,867 or 0.4% as a percentage of net sales over 2005, an
increase in utilities of $3,131 or 0.3% as a percentage of net sales over
2005 and an increase in repairs and maintenance of $1,898 or 0.2% as a
percentage of net sales over 2005.
General
and
administrative expenses for fiscal 2006 were $52,949 or 8.3% of total
revenues compared to $47,902 or 7.9% of total revenues in 2005. The increase
in general and administrative expenses as a percentage of sales was
attributable to the $2,200 expense related to the expensing of stock options
and
shares issued from our employee stock purchase plan pursuant to SFAS
123(R).
Occupancy
costs including depreciation and rent expense increased slightly as a percentage
of total revenues primarily as a result of the decline in same store sales
as well as the addition of capital assets owned, which increased
depreciation expense. Rental rates for new unit leases also increased,
which affected overall rent expense.
Interest
expense as a percentage of revenues in fiscal 2006 was $11,373
or 1.8%, versus $12,641 or 2.1% in 2005. The decrease in interest
expense was due to reduced debt under the Senior Note Agreement, lower capital
lease balances and higher capitalized interest from increased land acquisition
and unit construction.
In
fiscal
2006, provision for restaurant closings was a credit of $103 as a
result of the gain on the sale of one unit that had been closed during a
prior year. The fiscal 2005 provision of $1,400 was charged as a result of
the decision to close two restaurants.
Pre-opening
expense was $3,579 or 0.6% of total revenues versus $3,247 or 0.5% of
revenues in 2005. The fluctuation is driven by an increase in new
units from 19 in fiscal 2005 to 26 in fiscal year 2006. Pre-opening costs per
restaurant continued to average approximately $150.
Income
tax
expense was recorded at an effective tax rate of 33.8%, versus 32.0% in the
prior year. The increase in the tax rate in 2006 is due to a benefit recorded
in
the fourth quarter of 2005 of $900 due primarily to the favorable resolution
of
state income tax amounts accrued in prior years. In addition, the increase
in the effective tax rate over prior year was also due to the tax effects of
the
adoption of SFAS 123(R) and an increase in state income tax
expense.
Restaurant
Closings
During
the
fourth quarter of fiscal 2007, we permanently closed eight Company-owned
restaurants. The net book value of these assets was transferred to Assets
held for sale in the Statement of Financial Position during the quarter
ended September 26, 2007.
Six
of the
closed restaurants were located near other Company-owned stores that will
continue to operate, and we expect significant sales to transfer to the other
existing locations. Therefore, the results of operations of these six
restaurants are not presented as discontinued operations and continue to be
included in continuing operations in the Statement of Earnings. The assets
of
the other two restaurants were not located near other Company-owned stores,
and
we do not expect to have significant continuing involvement in the operations
after disposal. Although these restaurants meet the definition of "discontinued
operations" as defined in Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (“SFAS
144”), we have not segregated the results of operations as the amounts are
immaterial. Net loss after tax related to the two restaurants totaled
approximately $582, $151 and $116 for fiscal years 2007, 2006 and 2005,
respectively. The after-tax loss in fiscal 2007 includes $515 after-tax of
asset
impairment charges.
Effects
of Governmental Regulations and Inflation
Most
Steak n
Shake employees are paid hourly rates related to federal and state minimum
wage
laws. Any increase in the legal minimum wage would directly increase our
operating costs. We are also subject to various federal, state and local laws
related to zoning, land use, safety standards, working conditions and
accessibility standards. Any changes in these laws that require improvements
to
our restaurants would increase our operating costs. In addition, we are subject
to franchise registration requirements and certain related federal and state
laws regarding franchise operations. Any changes in these laws could affect
our
ability to attract and retain franchisees.
Inflation
in
food, labor, fringe benefits, energy costs, transportation costs and other
operating costs directly affect our operations. Our results of operations have
not been significantly affected by inflation during the last three fiscal
years.
Liquidity
and Capital Resources
We
generated
$43,431 and $69,578 in cash flows from operations during fiscal 2007 and fiscal
2006, respectively, based upon timing of receipts and payment of disbursements
related to operating activities.
Net
cash used
in investing activities of $60,110 during fiscal 2007 resulted primarily from
capital expenditures of $68,643. We opened 16 new restaurants in
2007. Additionally, we rebuilt three restaurants and replaced two
restaurants during 2007. Net cash used in investing activities of $87,314
during 2006 resulted primarily from capital expenditures of $80,840 and the
acquisition of CRI, a franchisee, for $9,598. During 2006, there were
26 new restaurants opened, eight restaurants that were acquired and two
restaurants that were rebuilt. We expect to open approximately nine
Company-owned Steak n Shake restaurants during fiscal 2008 at an average cost
of
approximately $2,000 to $2,500, which includes the land, site improvements,
building, equipment and pre-opening costs. Additionally, we plan to rebuild
two older restaurants and remodel four to six restaurants utilizing an
updated restaurant design. The new design is an appealing evolution of the
current design with the potential to reduce building costs and to build on
smaller plots of land. The updated store design will be used for new restaurant
construction beginning in fiscal 2009. We intend to fund future capital
expenditures and meet our working capital needs from a variety of sources
including cash flows from operations, borrowings on our existing credit
facilities and proceeds from possible sale-leaseback transactions. We
currently own the land and buildings of approximately one-third of our
restaurant sites.
As
of
September 26, 2007 and September 27, 2006, we had one remaining mortgage that
we
assumed upon acquisition of KRI in fiscal 2005 with a balance of $659 and $742,
respectively, at a fixed interest rate of 5%.
We
had
outstanding borrowings under our Senior Note Agreement of $18,143 at an average
fixed rate of 6.1% as of September 26, 2007, and $5,572 at an average fixed
rate
of 7.6% at September 27, 2006. Our Senior Note Agreement was amended in the
prior fiscal year to allow us to extend the term of the remaining
borrowing capacity of $75,000 through September 30, 2008. We plan to request
another extension of the term of this facility.
We
also
maintain a $50,000 Revolving Credit Agreement that, as of September 26, 2007,
bore interest based on LIBOR plus 55 basis points, or the prime rate minus
100 basis points, at our election, and was scheduled to mature on
January 30, 2008. As of September 26, 2007, we had borrowings under the
Revolving Credit Agreement of $27,185 at an interest rate of 5.4%. As of
September 27, 2006, we had borrowings under the Revolving Credit Agreement
of $25,065 at a blended borrowing rate of 5.9%. On December 7, 2007, we
amended our Revolving Credit Agreement to extend the term through January 30,
2009 and change the interest rate. We had $3,327 in standby letters of
credit outstanding as of September 26, 2007 and September 27, 2006.
Our
debt
agreements contain restrictions, which, among other things, require us to
maintain certain financial ratios. During 2007 and 2006, we were in
compliance with the covenants and anticipate compliance in future periods based
on expected earnings and debt repayment terms. Subsequent to year-end, we
amended our Senior Note Agreement to lessen the restrictions on
our covenants through the next fiscal year.
Contractual
Obligations
Our
significant contractual obligations and commitments as of September 26, 2007
are
shown in the following table.
|
Payments
due by period
|
||||||||||||||||||||
|
Contractual
Obligations
|
Less
than 1 year
|
1-3
years
|
3-5
years
|
More
than 5 years
|
Total
|
|||||||||||||||
|
Long-term
debt(1)
|
$ |
30,670
|
$ |
8,074
|
$ |
10,396
|
$ |
8
|
$ |
49,148
|
||||||||||
|
Capital
leases and finance obligations(1)
|
14,990
|
31,827
|
30,137
|
69,634
|
146,588
|
|||||||||||||||
|
Operating
leases(2)
|
10,749
|
20,210
|
18,124
|
63,288
|
112,371
|
|||||||||||||||
|
Purchase
commitments(3)
|
3,420 | 463 |
—
|
—
|
3,883
|
|||||||||||||||
|
Other
Long-term liabilities(4)
|
—
|
—
|
—
|
2,660
|
2,660
|
|||||||||||||||
|
Total
|
$ |
59,829
|
$ |
60,574
|
$ |
58,657
|
$ |
135,590
|
$ |
314,650
|
||||||||||
(1)
Payments include principal and interest for long-term debt and exclude interest
for the Revolving Credit Agreement.
(2)
Payments exclude amounts to be paid for contingent rents.
(3)
Includes agreements to purchase goods or services that are enforceable and
legally binding on us and that specify all significant terms. Excludes
agreements that are cancelable without penalty.
(4)
Includes liabilities for our Non-Qualified Deferred Compensation
Plan.
Off
Balance Sheet Arrangements
We
have no
off-balance sheet arrangements other than operating leases entered into in
the
normal course of business.
New Accounting
Standards
In
May 2005,
the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No. 154, “Accounting Changes and Error Corrections – a
replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS
154 was effective in our current fiscal year. There was no impact of adoption
in
fiscal 2007 as there were no accounting changes or corrections of
errors.
In
June 2006,
the Emerging Issues Task Force reached a consensus on Issue No. 06-3, "How
Taxes
Collected from Customers and Remitted to Governmental Authorities Should be
Presented in the Income Statement" ("EITF 06-3"). The scope of EITF 06-3
includes sales, use, value added and some excise taxes that are assessed by
a
governmental authority on specific revenue-producing transactions between a
seller and customer. EITF 06-3 states that a company should disclose its
accounting policy (i.e., gross or net presentation) regarding the presentation
of taxes within its scope, and if significant, these disclosures should be
applied retrospectively to the financial statements for all periods
represented. EITF 06-3 was effective in our second fiscal quarter. We
have historically presented, and will continue to present, such taxes on a
net
basis.
In
July 2006,
the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 48") which prescribes a recognition threshold and
measurement process for recording in the financial statements uncertain tax
positions taken or expected to be taken in a tax return. This
Interpretation requires that we recognize in our financial statements the impact
of a tax position if that position is more likely than not of being sustained
on
audit, based on the technical merits of the position. The accounting
provisions of FIN 48 will be effective for us as of the beginning of fiscal
2008. We estimate that the cumulative effect of the change in accounting
principle upon adoption will be between $250 and $1,000 and will be recorded
as
an adjustment to opening retained earnings. We continue to evaluate the
estimated liability.
In
September
2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”), which
provides interpretive guidance on how the effects of the carryover or reversal
of prior year misstatements should be considered in quantifying a current year
misstatement. SAB 108 was effective in our current fiscal year. The adoption
of
this statement did not have a material impact on our financial position or
results of operations in fiscal 2007.
In
September
2006, the FASB issued Statement of Financial Accounting Standards No. 157,
“Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes
a formal framework for measuring fair value and expands disclosures about fair
value measurements. The Statement is effective beginning in fiscal 2009. We
are in the process of determining the effect, if any, that the adoption of
SFAS 157 will have on our financial statements.
In
February
2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets
and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies with an
option to report selected financial assets and financial liabilities at fair
value. Unrealized gains and losses on items for which the fair value option
has
been elected are reported in earnings at each subsequent reporting date. SFAS
159 is effective for fiscal years beginning after November 15, 2007, our
fiscal 2009. We are in the process of determining the effect, if any, that
the adoption of SFAS 159 will have on our financial statements.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Our
primary
market risk exposure with regard to financial instruments is to changes in
interest rates. We invest excess cash primarily in cash equivalents due to
their relatively low credit risk. Interest rates on these securities are based
upon market rates at the time of purchase and remain fixed until
maturity.
Pursuant
to
the terms of our Senior Note Agreement, we may from time to time borrow in
increments of at least $5,000. 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 55 basis points or the prime rate minus 100 basis
points, at our election. Historically, we have not used derivative financial
instruments to manage exposure to interest rate changes. At September 26, 2007,
a hypothetical 100 basis point increase in short-term interest rates would
have
an impact of approximately $169 on our earnings.
We purchase
certain food products which may be affected by volatility in commodity prices
due to weather conditions, supply levels, and other market conditions. We
utilize various purchasing and contract pricing techniques to minimize
volatility, but do not enter into financial derivative contracts.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Shareholders of
The
Steak
n Shake Company
Indianapolis,
Indiana
We
have
audited the accompanying consolidated statements of financial position of The
Steak n Shake Company and subsidiaries (the "Company") as of September 26,
2007
and September 27, 2006, and the related consolidated statements of earnings,
shareholders’ equity, and cash flows for the years ended September 26, 2007,
September 27, 2006, and September 28, 2005. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
We
conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (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, such consolidated financial statements present fairly, in all material
respects, the financial position of The Steak n Shake Company and subsidiaries
as of September 26, 2007 and September 27, 2006, and the results of their
operations and their cash flows for the years ended September 26, 2007,
September 27, 2006, and September 28, 2005, in conformity with accounting
principles generally accepted in the United States of
America.
As
discussed
in Note 1 to the consolidated financial statements, effective September 29,
2005, the Company changed its method of accounting for share-based payments
as
required by Statement of Financial Accounting Standards No. 123(R), Share-Based
Payment.
We
have also
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of September 26, 2007, based on the criteria established in
Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated
December 7, 2007 expressed an unqualified opinion on the Company's internal
control over financial reporting.
/s/ Deloitte & Touche LLP
Indianapolis,
Indiana
December
7, 2007
|
Consolidated
Statements of Earnings
|
||||||||||||
|
The
Steak n Shake Company
|
||||||||||||
|
(Years
ended September 26, 2007, September 27, 2006, and September 28,
2005)
|
||||||||||||
|
(Amounts
in $000s except share and per share data)
|
||||||||||||
|
2007
(52
Weeks)
|
2006
(52
Weeks)
|
2005
(52
Weeks)
|
||||||||||
|
Revenues:
|
||||||||||||
|
Net
sales
|
$ |
650,416
|
$ |
634,941
|
$ |
603,068
|
||||||
|
Franchise
fees
|
3,726
|
3,881
|
3,844
|
|||||||||
|
Total
revenues
|
654,142
|
638,822
|
606,912
|
|||||||||
|
Costs
and Expenses:
|
||||||||||||
|
Cost
of sales
|
150,286
|
143,360
|
140,078
|
|||||||||
|
Restaurant
operating costs
|
336,955
|
319,070
|
295,202
|
|||||||||
|
General
and administrative
|
57,525
|
52,949
|
47,902
|
|||||||||
|
Depreciation
and amortization
|
32,185
|
28,967
|
26,945
|
|||||||||
|
Marketing
|
28,644
|
27,473
|
26,771
|
|||||||||
|
Interest
|
14,015
|
11,373
|
12,641
|
|||||||||
|
Rent
|
13,961
|
12,233
|
10,250
|
|||||||||
|
Pre-opening
costs
|
2,689
|
3,579
|
3,247
|
|||||||||
|
Asset
impairments and provision for restaurant closings
|
5,176
|
(103 | ) |
1,400
|
||||||||
|
Other
income, net
|
(2,165 | ) | (2,371 | ) | (1,968 | ) | ||||||
|
Total
costs and expenses
|
639,271
|
596,530
|
562,468
|
|||||||||
|
Earnings
Before Income Taxes
|
14,871
|
42,292
|
44,444
|
|||||||||
|
Income
Taxes
|
3,063
|
14,291
|
14,222
|
|||||||||
|
Net
Earnings
|
$ |
11,808
|
$ |
28,001
|
$ |
30,222
|
||||||
|
Basic
Earnings Per Common and
Common
Equivalent Share
|
$ |
0.42
|
$ |
1.01
|
$ |
1.10
|
||||||
|
Diluted
Earnings Per Common and
Common
Equivalent Share
|
$ |
0.42
|
$ |
1.00
|
$ |
1.08
|
||||||
|
Weighted
Average Shares and Equivalents:
|
||||||||||||
|
Basic
|
28,018,014
|
27,723,282
|
27,499,982
|
|||||||||
|
Diluted
|
28,215,647
|
28,038,545
|
28,059,152
|
|||||||||
|
See
accompanying notes.
|
||||||||||||
|
Consolidated
Statements of Financial Position
|
||||||||
|
The
Steak n Shake Company
|
||||||||
|
(As
of September 26, 2007 and September 27, 2006)
|
||||||||
|
(Amounts
in $000s except share and per share data)
|
||||||||
|
2007
|
2006
|
|||||||
|
Assets:
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ |
1,497
|
$ |
4,820
|
||||
|
Receivables,
net
|
6,289
|
5,858
|
||||||
|
Inventories
|
7,226
|
7,018
|
||||||
|
Deferred
income taxes
|
3,616
|
3,873
|
||||||
|
Assets
held for sale
|
18,571
|
4,514
|
||||||
|
Other
current assets
|
10,998
|
4,837
|
||||||
|
Total
current assets
|
48,197
|
30,920
|
||||||
|
Net
property and equipment
|
492,610
|
490,142
|
||||||
|
Goodwill
|
14,503
|
14,485
|
||||||
|
Other
intangible assets, net
|
1,959
|
2,152
|
||||||
|
Other
assets
|
7,945
|
4,822
|
||||||
|
Total
assets
|
$ |
565,214
|
$ |
542,521
|
||||
|
Liabilities
and Shareholders' Equity:
|
||||||||
|
Current
Liabilities
|
||||||||
|
Accounts
payable
|
$ |
28,195
|
$ |
28,262
|
||||
|
Accrued
expenses
|
32,624
|
38,023
|
||||||
|
Current
portion of long-term debt
|
2,390
|
2,512
|
||||||
|
Line
of credit
|
27,185
|
10,065
|
||||||
|
Current
portion of obligations under leases
|
4,180
|
4,221
|
||||||
|
Total
current liabilities
|
94,574
|
83,083
|
||||||
|
Deferred
income taxes
|
5,060
|
5,800
|
||||||
|
Other
long-term liabilities
|
5,701
|
3,805
|
||||||
|
Obligations
under leases
|
139,493
|
143,996
|
||||||
|
Long-term
debt
|
16,522
|
18,802
|
||||||
|
Commitments
and Contingencies
|
||||||||
|
Shareholders'
Equity:
|
||||||||
|
Common
stock - $0.50 stated value, 50,000,000 shares authorized -
shares
issued: 30,332,839 in 2007 and 2006
|
15,166
|
15,166
|
||||||
|
Additional
paid-in capital
|
126,415
|
123,860
|
||||||
|
Retained
earnings
|
185,024
|
173,216
|
||||||
|
Treasury
stock - at cost: 1,959,931 shares in 2007;
2,170,332
shares in 2006
|
(22,741 | ) | (25,207 | ) | ||||
|
Total
shareholders' equity
|
303,864
|
287,035
|
||||||
|
Total
liabilities and shareholders'equity
|
$ |
565,214
|
$ |
542,521
|
||||
|
See
accompanying notes.
|
||||||||
|
Consolidated
Statements of Cash Flows
|
||||||||||||
|
The
Steak n Shake Company
|
||||||||||||
|
(Years
ended September 26, 2007, September 27, 2006, and September 28,
2005)
|
||||||||||||
|
(Amounts
in $000s)
|
||||||||||||
|
2007
(52
Weeks)
|
2006
(52
Weeks)
|
2005
(52
Weeks)
|
||||||||||
|
Operating
Activities:
|
||||||||||||
|
Net
earnings
|
$ |
11,808
|
$ |
28,001
|
$ |
30,222
|
||||||
|
Adjustments
to reconcile net earnings
to
net cash provided by operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
32,185
|
28,967
|
26,945
|
|||||||||
|
Provision
for deferred income taxes
|
(483 | ) | (956 | ) |
1,769
|
|||||||
|
Provision
for restaurant closings
|
5,176
|
(103 | ) |
1,400
|
||||||||
|
Non-cash
expense for stock-based compensation
and
deferred rent
|
3,322
|
4,560
|
1,798
|
|||||||||
|
Loss
on disposal of property
|
601
|
911
|
650
|
|||||||||
|
Changes
in receivables and inventories
|
(639 | ) | (3,773 | ) |
1,575
|
|||||||
|
Changes
in other assets
|
(265 | ) | (259 | ) | (935 | ) | ||||||
|
Changes
in accounts payable and accrued expenses
|
(8,274 | ) |
12,230
|
855
|
||||||||
|
Net
cash provided by operating activities
|
43,431
|
69,578
|
64,279
|
|||||||||
|
Investing
Activities:
|
||||||||||||
|
Additions
of property and equipment
|
(68,643 | ) | (80,840 | ) | (63,622 | ) | ||||||
|
Purchase
of franchisees
|
—
|
(9,598 | ) | (16,082 | ) | |||||||
|
Proceeds
from property and equipment disposals
|
8,533
|
3,124
|
4,365
|
|||||||||
|
Proceeds
from sale of short-term investments
|
—
|
—
|
466
|
|||||||||
|
Net
cash used in investing activities
|
(60,110 | ) | (87,314 | ) | (74,873 | ) | ||||||
|
Financing
Activities:
|
||||||||||||
|
Net
proceeds from line of credit facility
|
2,120
|
25,065
|
—
|
|||||||||
|
Proceeds
from issuance of long-term debt
|
15,000
|
—
|
—
|
|||||||||
|
Principal
payments on long-term debt
|
(2,511 | ) | (3,941 | ) | (9,910 | ) | ||||||
|
Proceeds
from equipment and property sale-leasebacks
|
800
|
700
|
650
|
|||||||||
|
Principal
payments on lease obligations
|
(4,149 | ) | (4,082 | ) | (4,494 | ) | ||||||
|
Proceeds
from exercise of stock options
|
660
|
646
|
688
|
|||||||||
|
Stock
repurchases
|
—
|
(312 | ) |
—
|
||||||||
|
Excess
tax benefits from stock-based awards
|
202
|
72
|
—
|
|||||||||
|
Proceeds
from employee stock purchase plan
|
1,234
|
1,345
|
1,573
|
|||||||||
|
Net
cash provided by (used in) financing activities
|
13,356
|
19,493
|
(11,493 | ) | ||||||||
|
(Decrease)
Increase in Cash and Cash Equivalents
|
(3,323 | ) |
1,757
|
(22,087 | ) | |||||||
|
Cash
and Cash Equivalents at Beginning of Year
|
4,820
|
3,063
|
25,150
|
|||||||||
|
Cash
and Cash Equivalents at End of Year
|
$ |
1,497
|
$ |
4,820
|
$ |
3,063
|
||||||
|
See
accompanying notes.
|
||||||||||||
|
Consolidated
Statements of Shareholders' Equity
|
||||||||||||||||||||||
|
The
Steak n Shake Company
|
||||||||||||||||||||||
|
(Years
ended September 26, 2007, September 27, 2006, and September 28,
2005)
|
||||||||||||||||||||||
|
(Amounts
in $000s except share data)
|
||||||||||||||||||||||
|
Additional
Paid-In
|
Retained
|
Unamortized
Value of Restricted
|
Treasury
Stock
|
|||||||||||||||||||
|
Common
Stock
|
Capital
|
Earnings
|
Shares
|
Shares
|
Amount
|
|||||||||||||||||
|
Balance
at September 29, 2004
|
$ |
15,166
|
$ |
123,787
|
$ |
114,993
|
$ | (1,393 | ) |
2,846,560
|
$ | (33,621 | ) | |||||||||
|
Net
earnings
|
30,222
|
|||||||||||||||||||||
|
Shares
exchanged to exercise stock options
|
156,280
|
(3,120 | ) | |||||||||||||||||||
|
Shares
reissued to exercise stock options
|
(314,284 | ) |
3,808
|
|||||||||||||||||||
|
Shares
granted under Capital Appreciation
Plan
|
(2,478 | ) | (139,700 | ) |
2,478
|
|||||||||||||||||
|
Shares
forfeited under Capital Appreciation
Plan
|
224
|
14,000
|
(224 | ) | ||||||||||||||||||
|
Changes
in unamortized value of shares
granted
under Capital Appreciation Plan
|
1,347
|
|||||||||||||||||||||
|
Tax
effect relating to stock awards
|
213
|
|||||||||||||||||||||
|
Shares
issued for Employee Stock
Purchase
Plan
|
(102,830 | ) |
1,573
|
|||||||||||||||||||
|
Balance
at September 28, 2005
|
15,166
|
124,000
|
145,215
|
(2,300 | ) |
2,460,026
|
(29,106 | ) | ||||||||||||||
|
Net
earnings
|
28,001
|
|||||||||||||||||||||
|
Reclass
of unamortized value of
restricted
shares
|
(2,300 | ) |
2,300
|
|||||||||||||||||||
|
Compensation
expense for share-based
payments
|
3,992
|
|||||||||||||||||||||
|
Shares
exchanged to exercise stock options
|
74,547
|
(1,345 | ) | |||||||||||||||||||
|
Shares
reissued to exercise stock options
|
(165,532 | ) |
1,991
|
|||||||||||||||||||
|
Shares
repurchased under stock buyback
program
|
20,400
|
(312 | ) | |||||||||||||||||||
|
Shares
granted under Capital Appreciation
Plan
|
(2,381 | ) | (135,500 | ) |
2,381
|
|||||||||||||||||
|
Shares
forfeited under Capital Appreciation
Plan
|
161
|
9,700
|
(161 | ) | ||||||||||||||||||
|
Tax
effect relating to stock awards
|
388
|
|||||||||||||||||||||
|
Shares
issued for Employee Stock
Purchase
Plan
|
(93,309 | ) |
1,345
|
|||||||||||||||||||
|
Balance
at September 27, 2006
|
15,166
|
123,860
|
173,216
|
—
|
2,170,332
|
(25,207 | ) | |||||||||||||||
|
Net
earnings
|
11,808
|
|||||||||||||||||||||
|
Compensation
expense for share-based
payments
|
2,955
|
|||||||||||||||||||||
|
Shares
exchanged to exercise stock options
|
121,477
|
(2,087 | ) | |||||||||||||||||||
|
Shares
reissued to exercise stock options
|
(205,355 | ) |
2,747
|
|||||||||||||||||||
|
Shares
granted under Capital Appreciation
Plan
|
(3,023 | ) | (178,050 | ) |
3,023
|
|||||||||||||||||
|
Shares
forfeited under Capital Appreciation
Plan
|
2,451
|
138,300
|
(2,451 | ) | ||||||||||||||||||
|
Tax
effect relating to stock awards
|
172
|
|||||||||||||||||||||
|
Shares
issued for Employee Stock
Purchase
Plan
|
(86,773 | ) |
1,234
|
|||||||||||||||||||
|
Balance
at September 26, 2007
|
$ |
15,166
|
$ |
126,415
|
$ |
185,024
|
$ |
—
|
1,959,931
|
$ | (22,741 | ) | ||||||||||
|
See
accompanying notes.
|
||||||||||||||||||||||
Notes
to Consolidated Financial Statements
The
Steak
n Shake Company
(Years
ended September 26, 2007, September 27, 2006, and September 28,
2005)
(Amounts
in $000s except share and per share data)
1.
Summary of Significant Accounting Policies
Description
of
Business
The
Steak n
Shake Company's principal business is the operation, development and franchising
of full service, casual dining restaurants. As of September 26, 2007, we
operated 435 Steak n Shake restaurants through our wholly owned subsidiary,
Steak n Shake Operations, Inc., and franchisees operated 56
restaurants.
Fiscal
Year
Our
fiscal
year ends on the last Wednesday in September. Fiscal years 2007, 2006
and 2005 contain 52 weeks.
Principles
of Consolidation
The
consolidated financial statements include the accounts of The Steak n Shake
Company (parent) and its wholly owned subsidiaries. All intercompany accounts
and transactions have been eliminated in consolidation.
Cash
and Cash Equivalents
Our
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 due to their short
maturities.
Receivables
We
carry our accounts receivable at cost less an allowance for doubtful
accounts, which is based on a history of past write-offs and collections
and
current credit conditions. The allowance for doubtful accounts was $68 at
September 26, 2007 and $74 at September 27, 2006.
Inventories
Inventories
are valued at the lower of cost (first-in, first-out method) or market, and
consist primarily of restaurant food items and supply inventory.
Assets
Held for Sale
Assets
held
for sale consists of property and equipment related to underperforming
restaurants and land that is currently being marketed for disposal. Assets
held for sale are reported at the lower of carrying value or estimated fair
value less costs to sell.
Property
and Equipment
Property
and
equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are recognized using the straight-line method
over the estimated useful lives of the assets (10 to 25 years for buildings
and
land improvements, and 3 to 10 years for equipment). Leasehold improvements
are
amortized using the straight-line method over the shorter of the estimated
useful lives of the improvements or the terms of the related
leases. Interest costs associated with the construction of
new restaurants are capitalized. Major improvements are also capitalized,
while
repairs and maintenance are expensed as incurred. We review our long-lived
assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. For purposes
of
this assessment, assets are evaluated on a restaurant-by-restaurant basis,
the lowest level for which there are identifiable cash flows. If the future
undiscounted cash flows of an asset are less than the recorded value, an
impairment is recorded for the difference between the carrying value and
the
estimated fair value of the asset. During fiscal 2007, we recorded a pre-tax,
non-cash impairment of $5,369, which was offset by a $193 gain on the sale
of
two units that had been closed during a prior year. The current year impairment
charge related primarily to 14 underperforming restaurants, including eight
restaurants permanently closed during the fourth quarter of fiscal 2007.
Of the
total charge of $5,369 in fiscal 2007, $1,916 was recorded as an adjustment
to
Property and equipment for assets held and used, and $3,453 has been recorded
as
an adjustment to Assets held for sale. No impairments were recorded during
fiscal 2006. In fiscal 2005, we recorded a pre-tax, non-cash impairment of
$1,400 related to two underperforming restaurants.
Goodwill
and Purchased Intangible Assets
Goodwill
and
indefinite life intangibles are not amortized, but are tested for potential
impairment on an annual basis, or more often if events or circumstances change
that could cause goodwill or indefinite life intangibles to become impaired.
Other purchased intangible assets are amortized on a straight-line basis
over
their estimated useful lives. We perform reviews for impairment of other
intangible assets whenever events or changes in circumstances indicate that
the
carrying value of an asset may not be recoverable. An impairment loss is
recognized when estimated future cash flows expected to result from the use
of
the asset and its eventual disposition are less than its carrying amount.
When
an impairment is identified, we reduce the carrying amount of the asset to
its estimated fair value. No impairments were recorded on goodwill or intangible
assets during fiscal 2007, 2006 or 2005.
Capitalized
Software
Internal-use
software is stated at cost less accumulated amortization and is amortized
using
the straight-line method over its estimated useful life ranging from three
to five years. Software assets are reviewed for impairment when events or
circumstances indicate that the carrying value may not be recoverable over
the
remaining lives of the assets. During the software application development
stage, capitalized costs include external consulting costs, cost of software
licenses and internal payroll and payroll-related costs for employees who
are
directly associated with a software project. Upgrades and enhancements are
capitalized if they result in added functionality which enables the software
to
perform tasks it was previously incapable of performing. Software maintenance,
training, data conversion and business process reengineering costs are expensed
in the period in which they are incurred. Capitalized software is included
in the balance of Other assets in the Statement of Financial
Position.
Revenue
Recognition
We
record
revenues from restaurant sales at the time of sale, net of discounts. Revenues
from the sale of gift cards are deferred at the time of sale and recognized
upon
redemption by the customer, or at expiration of the gift cards. Sales revenues
are presented net of sales taxes. Cost of sales primarily includes the cost
of
food used in preparing menu items and excludes depreciation and amortization,
which is presented as a separate line item on the Statement of
Earnings.
Franchise
Fees
Unit
franchise fees and area development fees are recorded as revenue when the
related restaurant begins operations. Royalty fees and administrative services
fees are based on franchise sales and are recognized as revenue as
earned.
Insurance
Reserves
We
self-insure a significant portion of expected losses under our
workers’compensation, general liability, medical and auto liability insurance
programs, and we record a reserve for our estimated losses on all
unresolved open claims and our estimated incurred but not reported claims
at the
anticipated cost to us. Insurance reserves are recorded in the balance of
Accrued expenses in the 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
basic and diluted weighted average common shares as required by Statement
of
Financial Accounting Standards No. 128, Earnings Per
Share.
|
2007
|
2006
|
2005
|
|||
|
Basic
earnings per share:
|
|||||
|
Weighted
average common shares
|
28,018,014
|
27,723,282
|
27,499,982
|
||
|
Diluted
earnings per share:
|
|||||
|
Weighted
average common shares
|
28,018,014
|
27,723,282
|
27,499,982
|
||
|
Dilutive
effect of stock options
|
197,633
|
315,263
|
559,170
|
||
|
Weighted
average common and incremental shares
|
28,215,647
|
28,038,545
|
28,059,152
|
||
|
Number
of share-based awards excluded from the calculation of earnings
per share as the awards' exercise prices were greater than the
average market price of the Company's common stock
|
1,030,051
|
792,193
|
280,929
|
Stock-Based
Compensation
We
adopted
Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share Based
Payment” ("SFAS 123(R)") on September 29, 2005. This Statement requires that all
stock-based compensation, including grants of employee stock options and
shares
issued under our employee stock purchase plan, be accounted for using the
fair
value-based method. We elected to adopt SFAS 123(R) using the modified
prospective method. Refer to Note 15 for additional information
regarding our stock-based compensation.
Employees’
401(k) and Profit Sharing Plan
The
Steak n
Shake Company's 401(k) and Profit Sharing Plan (the "Plan") is a defined
contribution plan covering substantially all employees after they have
attained
age 21 and completed one year of service and allows employees to defer
up to 20%
of their salaries. Additionally, Company profit sharing contributions are
subject to the discretion of the Board of Directors. We contributed $1,500
in
2005. There were no discretionary profit sharing contributions in 2007 or
2006. We must match 50% of the participants' first 6% of eligible
compensation deferred. Matching contributions paid in fiscal 2007, 2006 and
2005 were $1,231, $1,266 and $1,497, respectively.
Marketing
Expense
Advertising
costs are charged to expense at the latter of the date the expenditure
is
incurred, or the date the promotional item is first communicated.
Non-Qualified
Deferred Compensation Plan
We
maintain a
self-directed Non-Qualified Deferred Compensation Plan (the "Non-Qualified
Plan”) for executive employees. The Non-Qualified Plan is structured as a rabbi
trust; therefore, assets in the Non-Qualified Plan are subject to creditor
claims in the event of bankruptcy. We recognize investment assets on the
Statement of Financial Position at current fair value. A liability of the
same
amount is recorded on the Statement of Financial Position representing
our
obligation to distribute funds to participants. The investment assets are
classified as trading, and accordingly, realized and unrealized gains and
losses
are recognized in income.
Segments
Our
business,
operating and franchising Steak n Shake restaurants, constitutes a single
reportable segment pursuant to the provisions of Statement of Financial
Accounting Standards No. 131, "Disclosure About Segments of an Enterprise
and
Related Information" ("SFAS No 131").
Use
of Estimates
Preparation
of the consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America 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.
New Accounting
Standards
In
May 2005,
the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No. 154, “Accounting Changes and Error Corrections – a
replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS
154 was effective in our current fiscal year. There was no impact of adoption
in
fiscal 2007 as there were no accounting changes or corrections of
errors.
In
June 2006,
the Emerging Issues Task Force reached a consensus on Issue No. 06-3, "How
Taxes
Collected from Customers and Remitted to Governmental Authorities Should
be
Presented in the Income Statement" ("EITF 06-3"). The scope of EITF 06-3
includes sales, use, value added and some excise taxes that are assessed
by a
governmental authority on specific revenue-producing transactions between
a
seller and customer. EITF 06-3 states that a company should disclose its
accounting policy (i.e., gross or net presentation) regarding the presentation
of taxes within its scope, and if significant, these disclosures should
be
applied retrospectively to the financial statements for all periods
represented. EITF 06-3 was effective in our second fiscal quarter. We
have historically presented, and will continue to present, such taxes on
a net
basis.
In
July 2006,
the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 48") which prescribes a recognition threshold and
measurement process for recording in the financial statements uncertain
tax
positions taken or expected to be taken in a tax return. This
Interpretation requires that we recognize in our financial statements the
impact
of a tax position if that position is more likely than not of being sustained
on
audit, based on the technical merits of the position. The accounting
provisions of FIN 48 will be effective for us as of the beginning of fiscal
2008. We estimate that the cumulative effect of the change in accounting
principle upon adoption will be between $250 and $1,000 and will be recorded
as
an adjustment to opening retained earnings. We continue to evaluate the
estimated liability.
In
September
2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
Bulletin No. 108 (“SAB 108”), which provides interpretive guidance on how the
effects of the carryover or reversal of prior year misstatements should
be
considered in quantifying a current year misstatement. SAB 108 was effective
in
our current fiscal year. The adoption of this statement did not have a
material
impact on our financial position or results of operations in fiscal
2007.
In
September
2006, the FASB issued Statement of Financial Accounting Standards No. 157,
“Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes
a formal framework for measuring fair value and expands disclosures about
fair
value measurements. The Statement is effective beginning in fiscal 2009. We
are in the process of determining the effect, if any, that the adoption of
SFAS 157 will have on our financial statements.
In
February
2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets
and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies with an
option to report selected financial assets and financial liabilities at
fair
value. Unrealized gains and losses on items for which the fair value option
has
been elected are reported in earnings at each subsequent reporting date.
SFAS
159 is effective for fiscal years beginning after November 15, 2007, our
fiscal 2009. We are in the process of determining the effect, if any, that
the adoption of SFAS 159 will have on our financial statements.
2.
Restaurant Closings
During
the
fourth quarter of fiscal 2007, we permanently closed eight Company-owned
restaurants. The net book value of these assets was transferred to Assets
held for sale in the Statement of Financial Position during the quarter
ended September 26, 2007.
Six
of the
closed restaurants were located near other Company-owned stores that will
continue to operate, and we expect significant sales to transfer to the
other
existing locations. Therefore, the results of operations of these six
restaurants are not presented as discontinued operations and continue to
be
included in continuing operations in the Statement of Earnings. The assets
of
the other two restaurants were not located near other Company-owned stores,
and
we do not expect to have significant continuing involvement in the operations
after disposal. Although these restaurants meet the definition of "discontinued
operations," as defined in Statement of Financial Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" (“SFAS 144”), we have not
segregated the results of operations as the amounts are immaterial. Net
loss
after tax related to the two restaurants totaled approximately $582, $151
and $116 for fiscal years 2007, 2006 and 2005, respectively. The after-tax
loss
in fiscal 2007 includes $515 after-tax of asset impairment charges.
3.
Other Current Assets
Other
current
assets are comprised of the following:
|
(amounts
in $000s)
|
2007
|
2006
|
|||||
|
Prepaid
marketing
|
$ |
847
|
$ |
620
|
|||
|
Prepaid
rent
|
2,265
|
2,710
|
|||||
|
Prepaid
taxes
|
5,977
|
634
|
|||||
|
Other
|
1,909
|
873
|
|||||
|
Total
other current assets
|
$ |
10,998
|
$ |
4,837
|
|||
4.
Assets Held for Sale
Assets
held
for sale is comprised of the following:
|
(amounts
in $000s)
|
2007
|
2006
|
|||||
|
Land
and buildings
|
$ |
17,494
|
$ |
4,197
|
|||
|
Land
and leasehold improvements
|
592
|
190
|
|||||
|
Equipment
|
485
|
127
|
|||||
|
Total
assets held for sale
|
$ |
18,571
|
$ |
4,514
|
|||
The 2007 balances include eight restaurants permanently closed during fiscal 2007, two closed during a prior year and 19 parcels of land. We expect to sell these properties within the next 12 months. The 2007 balances also reflect the impact of an impairment of $3,453, which represents the portion of the total fiscal 2007 impairment charge of $5,369 that relates to Assets held for sale.
The
2006
balances include five restaurants closed prior to 2006 and five parcels of
land.
5.
Property and Equipment
Property
and
equipment is comprised of the following:
|
(amounts
in $000s)
|
2007
|
2006
|
||||||
|
Land
|
$ |
171,631
|
$ |
184,741
|
||||
|
Buildings
|
166,982
|
165,411
|
||||||
|
Land
and leasehold improvements
|
156,687
|
139,603
|
||||||
|
Equipment
|
200,775
|
184,223
|
||||||
|
Construction
in progress
|
16,555
|
15,460
|
||||||
|
712,630
|
689,438
|
|||||||
|
Less
accumulated depreciation and amortization
|
(220,020 | ) | (199,296 | ) | ||||
|
Net
property and equipment
|
$ |
492,610
|
$ |
490,142
|
||||
Depreciation
and amortization expense for Property and equipment for fiscal 2007, 2006
and 2005 was $30,000, $27,491 and $24,702, respectively. The 2007
balances reflect the impact of an impairment of $1,916, which represents
the
portion of the total fiscal 2007 impairment charge of $5,369 that relates
to
assets held and used.
6.
Goodwill and Other Intangibles
Goodwill
Goodwill
consists of the excess of the purchase price over the fair value of the net
assets acquired in connection with the acquisitions of Creative
Restaurants, Inc. ("CRI") and Kelley Restaurants, Inc. ("KRI") on July 6, 2006
and December 29, 2004, respectively. Goodwill increased by $18 during fiscal
2007 relating to an adjustment to the assumed liabilities recorded at the
acquisition date of CRI. During the third quarter of fiscal 2007, we
completed our process for reviewing our fair value estimates and finalized
our
adjustments to Goodwill as it relates to the purchase of CRI.
Other
Intangibles
Other
intangibles are comprised of the following:
|
(amounts
in $000s)
|
2007
|
2006
|
||||||
|
Gross
value of intangible assets subject to amortization
|
$ |
2,291
|
$ |
2,291
|
||||
|
Accumulated
amortization
|
(832 | ) | (639 | ) | ||||
|
Intangible
assets subject to amortization, net
|
1,459
|
1,652
|
||||||
|
Intangible
assets with indefinite lives
|
500
|
500
|
||||||
|
Total
intangible assets
|
$ |
1,959
|
$ |
2,152
|
||||
Intangible
assets subject to amortization consist of a right to operate, as well
as favorable leases acquired in connection with prior acquisitions. These
assets are being amortized over their estimated weighted average useful lives
of
12 years and 8 years, respectively. Amortization expense for 2007, 2006 and
2005 was $193, $187 and $167, respectively. Total annual amortization
expense for each of the next five years is $193.
Intangible
assets with indefinite lives consist of reacquired franchise rights assumed
in connection with the acquisitions of CRI and KRI and were recorded in
accordance with the provisions of Emerging Issues Task Force Issue No. 04-1,
"Accounting for Pre-existing Relationships between the Parties to a Business
Combination" ("EITF 04-1").
7. Other
Assets
Other
assets
include capitalized software costs, investments related to our Non-Qualified
Plan and deposits. Capitalized software costs are amortized over their
estimated useful lives and related amortization is included in depreciation
and
amortization expense. Depreciation and amortization expense related
to capitalized software in 2007, 2006 and 2005 was $1,992, $1,289 and
$2,076, respectively.
8. Accrued
Expenses
Accrued
expenses are comprised of the following:
|
(amounts
in $000s)
|
2007
|
2006
|
|||||
|
Salaries
and wages
|
$ |
6,970
|
$ |
7,983
|
|||
|
Taxes
payable
|
11,875
|
14,291
|
|||||
|
Insurance
accruals
|
7,037
|
10,521
|
|||||
|
Severance
|
2,321
|
32
|
|||||
|
Other
|
4,421
|
5,196
|
|||||
|
Total
accrued expenses
|
$ |
32,624
|
$ |
38,023
|
|||
9.
Other Long-term Liabilities
Other
long-term liabilities includes deferred amounts related to our Non-Qualified
Plan. The Non-Qualified Plan allows highly compensated employees to defer
amounts from their salaries for retirement savings. The Non-Qualified Plan
includes an employer match equal to the amount of the match the employee
would have received as a participant in our 401(k) plan. Total
liabilities for the Non-Qualified Plan at September 26, 2007 and September
27, 2006 were $2,660 and $1,736, respectively. In addition, other long-term
liabilities includes the balance of deferred rent expense for escalating rent
payments.
10. Income
Taxes
The
components of the provision for income taxes consist of the
following:
|
(amounts
in $000s)
|
2007
|
2006
|
2005
|
|||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ |
2,036
|
$ |
13,433
|
$ |
12,088
|
||||||
|
State
|
1,510
|
1,814
|
365
|
|||||||||
|
Deferred
|
(483 | ) | (956 | ) |
1,769
|
|||||||
|
Total
income taxes
|
$ |
3,063
|
$ |
14,291
|
$ |
14,222
|
||||||
|
The
reconciliation of effective income tax is:
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Tax
at U.S. statutory rates
|
$ |
5,205
|
$ |
14,802
|
$ |
15,555
|
||||||
|
State
income taxes, net of federal benefit
|
967
|
1,135
|
270
|
|||||||||
|
Employer's
FICA tax credit
|
(1,894 | ) | (1,417 | ) | (1,138 | ) | ||||||
|
Jobs
tax credit
|
(1,840 | ) | (631 | ) | (482 | ) | ||||||
|
Share-based
payments
|
608
|
563
|
—
|
|||||||||
|
Other
|
17
|
(161 | ) |
17
|
||||||||
|
Total
income taxes
|
$ |
3,063
|
$ |
14,291
|
$ |
14,222
|
||||||
Income
taxes
paid totaled $11,686 in 2007, $14,796 in 2006 and $13,066 in 2005.
Deferred
tax
assets and liabilities are determined based on differences between
the financial reporting and tax basis of assets and liabilities and are
measured using the currently enacted tax rates, as well as laws that
will be in effect when the differences are expected to reverse. Our net deferred
tax liability consists of the following:
|
(amounts
in $000s)
|
2007
|
2006
|
||||||
|
Deferred
tax assets:
|
||||||||
|
Insurance
reserves
|
$ |
1,739
|
$ |
2,671
|
||||
|
Share-based
payments
|
1,786
|
1,982
|
||||||
|
Compensation
accruals
|
1,431
|
958
|
||||||
|
Gift
card accrual
|
283
|
38
|
||||||
|
Other
|
198
|
287
|
||||||
|
Total
deferred tax assets
|
5,437
|
5,936
|
||||||
|
Deferred
tax liabilities:
|
||||||||
|
Fixed
asset basis difference
|
6,668
|
7,697
|
||||||
|
Other
|
213
|
166
|
||||||
|
Total
deferred tax liabilities
|
6,881
|
7,863
|
||||||
|
Net
deferred tax liability
|
(1,444 | ) | (1,927 | ) | ||||
|
Less
current portion
|
3,616
|
3,873
|
||||||
|
Long-term
liability
|
$ | (5,060 | ) | $ | (5,800 | ) | ||
11. Leased
Assets and Lease Commitments
We
lease
certain physical facilities under non-cancelable lease agreements. Steak n
Shake restaurant leases typically have initial terms of 18 to 25 years and
renewal terms aggregating 20 years or more. These leases require us to pay
real
estate taxes, insurance and maintenance costs. Certain leased facilities,
which
we no longer operate but were subleased to third parties, are classified
below
as non-operating properties. Minimum future rental payments for non-operating
properties have not been reduced by minimum sublease rentals of $65 related
to
operating leases receivable under non-cancelable subleases. The property
and
equipment cost related to the finance obligations and capital leases as of
September 26, 2007, is as follows: $79,235 buildings, $63,667 land, $31,808
land
and leasehold improvements, $607 equipment and $46,213 accumulated
depreciation. At September 26, 2007, obligations under non-cancelable
finance obligations, capital leases and operating leases (excluding real
estate
taxes, insurance and maintenance costs) require the following minimum future
rental payments:
|
(amounts
in $000s)
|
Operating
Leases
|
|||||||||||||||
|
Financial
|
Capital
|
Operating
|
Non-Operating
|
|||||||||||||
|
Obligations
|
Leases
|
Total
|
Property
|
Property
|
||||||||||||
|
Year
|
||||||||||||||||
|
2008
|
$ |
14,899
|
$ |
91
|
$ |
14,990
|
$ |
10,749
|
$ |
116
|
||||||
|
2009
|
16,038
|
64
|
16,102
|
10,378
|
61
|
|||||||||||
|
2010
|
15,661
|
64
|
15,725
|
9,832
|
61
|
|||||||||||
|
2011
|
15,261
|
21
|
15,282
|
9,285
|
—
|
|||||||||||
|
2012
|
14,855
|
—
|
14,855
|
8,839
|
—
|
|||||||||||
|
After
2012
|
69,634
|
—
|
69,634
|
63,288
|
—
|
|||||||||||
|
Total
minimum future rental payments
|
146,348
|
240
|
146,588
|
$ |
112,371
|
$ |
238
|
|||||||||
|
Less
amount representing interest
|
89,914
|
18
|
89,932
|
|||||||||||||
|
Total
principal obligations under leases
|
56,434
|
222
|
56,656
|
|||||||||||||
|
Less
current portion
|
4,099
|
81
|
4,180
|
|||||||||||||
|
Non-current
principal obligations under leases
|
52,335
|
141
|
52,476
|
|||||||||||||
|
Residual
value at end of lease term
|
87,017
|
—
|
87,017
|
|||||||||||||
|
Obligations
under leases
|
$ |
139,352
|
$ |
141
|
$ |
139,493
|
||||||||||
During
2007,
2006 and 2005, we received net proceeds from sale-leaseback transactions
aggregating $800, $700 and $650, respectively. As the underlying
leases included certain provisions that resulted in our continuing involvement
in the assets sold, we have accounted for the transactions as
financings.
Contingent
rent totaling $900 in 2007, $927 in 2006 and $1,045 in 2005 is recorded in
rent
expense in the accompanying Statements of Earnings.
12. Debt
Revolving
Credit Agreement
The
Revolving
Credit Agreement allows us to borrow up to $50,000. As of September 26, 2007,
the agreement was scheduled to expire on January 30, 2008 and bore interest
at a rate based on LIBOR plus 55 basis points, or the prime rate minus 100
basis
points, at our election. At September 26, 2007, outstanding borrowings were
$27,185 at an interest rate of 5.4%. As of September 27, 2006, we
had borrowings under the Revolving Credit Agreement of $25,065 at a blended
borrowing rate of 5.9%.On December 7, 2007, we amended the Revolving Credit
Agreement to extend the term through January 30, 2009 and change the interest
rate.
Senior
Note Agreement
Our
amended
and restated Senior Note Agreement and Private Shelf Facility (the "Senior
Note
Agreement") allows for borrowing of up to $75,000 until September 30, 2008.
We
had outstanding borrowings under our Senior Note Agreement of $18,143 at
an
average fixed rate of 6.1% as of September 26, 2007, and $5,572 at an average
fixed rate of 7.6% at September 27, 2006. Interest rates are fixed based
upon
market rates at the time of borrowing. Amounts maturing in fiscal years 2008
through 2012 are as follows: $1,714, $714, $5,714, $5,000 and
$5,000, respectively. We plan to request an extension to the term
of the $75,000 borrowing capacity.
Other Debt
We
assumed
four mortgages on properties in connection with the KRI acquisition,
three of which were paid off during fiscal 2005. The amount outstanding
under the remaining mortgage as of September 26, 2007 and September 27, 2006
is
$659 and $742, respectively, and bears interest at a fixed rate of
5%. The principal payments due in 2008 are $70, with the remaining
principal balance of $589 due at maturity in August 2008. Additionally, we
have
one note in the amount of $109 outstanding as of September 26, 2007 on a
property in Jonesboro, Arkansas. Regular principal payments during fiscal
years
2008 through 2012 are as follows: $16, $19, $20, $22 and $24, respectively.
$8
is due beyond 2012.
The
Revolving
Credit Agreement and Senior Note Agreement are unsecured and contain
restrictions, which among other things, require us to maintain certain financial
ratios. We were in compliance with all restrictive covenants under these
borrowing agreements at September 26, 2007. The carrying amounts for debt
reported in the Statement of Financial Position do not differ materially
from
their fair market values at September 26, 2007. Subsequent to year-end, we
amended our Senior Note Agreement to lessen the restrictions on
our covenants through the next fiscal year.
Interest
capitalized in connection with financing additions to property and equipment
amounted to $660, $2,057 and $906 in 2007, 2006 and 2005 respectively. Interest
paid on debt amounted to $2,418 in 2007, $1,276 in 2006 and $1,887 in
2005. Interest paid on obligations under leases was $11,962,
$11,980 and $11,600 in 2007, 2006 and 2005, respectively.
13. Related
Party Transactions
Sale
of Restaurants to Related Party
On
September
21, 2005, our wholly owned subsidiary, Steak n Shake Operations, Inc., entered
into a Multiple Uniform Franchise Agreement (the "Agreement") and a Personal
Property Sales Agreement with Reinwald Enterprises Emory, LLC, and Reinwald
Enterprises Wild Geese, LLC (collectively "Franchisee"). Gary T. Reinwald,
Executive Vice President of the Company, is a member of both limited
liability companies and holds the majority of the equity in the
Franchisee. The aggregate consideration paid by the Franchisee for the
Agreements was $1,800 for the purchase of two Company-owned restaurants in
the
Knoxville, Tennessee market. We did not participate in any of the
financing related to this transaction. Under the Agreement, the Franchisee
will operate these two existing restaurants. We have transferred our
ownership and leasehold rights in the restaurants, as well as all personal
property located in the restaurants to the Franchisee. We recorded
revenues from the Franchisee totaling $121 in fiscal 2007 and $118 in fiscal
2006. The balance in accounts receivable from the Franchisee was $41 as of
September 26, 2007 and $132 as of September 27, 2006.
Acquisition
of Kelley Restaurants, Inc.
We
acquired
KRI on December 29, 2004. The President of KRI is a member of our Board of
Directors. See Note 14 for further discussion. Prior to the
acquisition, we collected initial franchise fees, royalty fees and
advertising fees from KRI. We recorded revenues from KRI totaling $390
in fiscal 2005.
14.
Acquisitions
Creative
Restaurants, Inc.
We
acquired
CRI on July 6, 2006 for $9,598, after adjustments. At the acquisition
date, CRI operated eight Steak n Shake restaurants in Louisville,
Kentucky. This acquisition will allow us to further develop the
Louisville market, which is consistent with our long term growth
plans.
The
transaction is being accounted for using the purchase method of accounting
as
required by Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS 141"). The purchase price has been allocated to
tangible and identifiable intangible assets acquired and liabilities assumed
based on their estimated fair values at the date of the acquisition. The
excess of the purchase price over the fair value of net assets acquired was
recorded as goodwill. See Note 6 for further discussion of "Goodwill
and Other Intangibles." The allocation of the purchase price to specific
assets and liabilities is based, in part, upon third party appraisals
and internal estimates of assets and liabilities. Based on the final
purchase price allocation, the following table summarizes the fair value
of the
assets acquired and liabilities assumed at the acquisition date.
|
(amounts
in $000s)
|
||||
|
Current
assets
|
$ |
169
|
||
|
Property
and equipment
|
2,648
|
|||
|
Goodwill
(tax deductible)
|
6,700
|
|||
|
Intangible
assets
|
260
|
|||
|
Total
assets acquired
|
9,777
|
|||
|
Current
liabilities
|
106
|
|||
|
Long-term
debt
|
73
|
|||
|
Total
liabilities assumed
|
179
|
|||
|
Net
assets acquired
|
$ |
9,598
|
||
Pro
forma
disclosures have been omitted as the acquisition was not
significant.
Kelley
Restaurants,
Inc.
We
acquired
KRI on December 29, 2004 for approximately $16,082 after adjustments. This
acquisition included 17 Steak n Shake restaurants in Atlanta, Georgia, and
Charlotte, North Carolina. The President of KRI is a member of our
Board of Directors.
The
transaction was accounted for using the purchase method of accounting as
required by SFAS 141. The purchase price has been allocated to tangible and
identifiable intangible assets acquired and liabilities assumed based on
their
estimated fair values at the date of the acquisition. The excess of the
purchase price over the fair value of net assets acquired was recorded as
goodwill. See Note 6 for further discussion of "Goodwill and Other
Intangibles." The allocation of the purchase price to specific assets and
liabilities is based, in part, upon third party appraisals and internal
estimates of assets and liabilities. Based on the final purchase price
allocation, the following table summarizes the fair value of the assets acquired
and liabilities assumed at the acquisition date.
|
(amounts
in $000s)
|
||||
|
Current
assets
|
$ |
617
|
||
|
Property
and equipment
|
21,660
|
|||
|
Goodwill
(not deductible for tax purposes)
|
7,803
|
|||
|
Intangible
assets
|
1,051
|
|||
|
Other
assets
|
46
|
|||
|
Total
assets acquired
|
31,177
|
|||
|
Current
liabilities
|
3,723
|
|||
|
Deferred
income taxes
|
925
|
|||
|
Obligations
under lease
|
6,486
|
|||
|
Long-term
debt
|
3,961
|
|||
|
Total
liabilities assumed
|
15,095
|
|||
|
Net
assets acquired
|
$ |
16,082
|
||
Pro
forma
disclosures have been omitted as the acquisition was not
significant.
15. Common
Stock Plans
We
maintain
stock-based compensation plans which allow for the issuance of incentive
stock
options, non-qualified stock options and restricted stock to officers, other
key
employees and members of the Board of Directors. We also maintain an Employee
Stock Purchase Plan (the "ESPP") that allows all eligible employees to
purchase shares of stock at a discounted price. We generally use
treasury shares to satisfy the issuance of shares under these stock-based
compensation plans. Prior to fiscal year 2006, we accounted for the
plans under the recognition and measurement provisions of APB Opinion No.
25,
"Accounting for Stock Issued to Employees", and related Interpretations ("APB
25"). Accordingly, because all stock options granted had an exercise price
equal
to the market value of the underlying common stock on the date of the grant,
no
expense related to employee stock options was recognized. Also, as the ESPP
was
considered noncompensatory, no expense related to this plan was recognized.
However, expense related to the grant of restricted stock had been recognized
in
the income statement under APB 25. As discussed in Note 1, effective September
29, 2005, we adopted the fair value recognition provisions of SFAS 123(R).
This
statement applies to all awards granted after the effective date and to
modifications, repurchases or cancellations of existing awards. Additionally,
under the modified prospective method of adoption, we recognize compensation
expense for the portion of awards outstanding on the adoption date for which
the
requisite service period has not yet been rendered based on the grant-date
fair
value of those awards calculated under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," and Statement
of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123," for pro forma disclosures. Compensation expense in
fiscal year 2005 related to stock options and the employee stock purchase
plan
continues to be disclosed on a pro forma basis only. In accordance with the
modified prospective transition method, we also eliminated the balance of
Unamortized Value of Restricted Shares, which represented unrecognized
compensation cost for non-vested stock awards. Financial statements for prior
periods have not been restated.
SFAS
123(R)
requires that forfeitures be estimated over the vesting period of an award,
rather than being recognized as a reduction of compensation expense when
the
forfeiture actually occurs. The cumulative effect of the use of the estimated
forfeiture method for prior periods upon adoption of SFAS 123(R) was not
material.
Certain
of
our stock-based compensation plans allow early vesting when an employee reaches
retirement age and ceases continuous service. Under SFAS 123(R), awards granted
after September 28, 2005 require acceleration of compensation expense through
an
employee's retirement age, whether or not the employee is expected to cease
continuous service on that date. For awards granted on or before September
28,
2005, we accelerate compensation expense only in cases where a retirement
eligible employee is expected to cease continuous service prior to an award's
vesting date. If the new provisions of SFAS 123(R) had been in effect for
awards
granted prior to September 29, 2005, compensation expense would not have
been
materially affected during the year ended September 28,
2005.
The
following
table illustrates the effect on net earnings and earnings per share if we
had
applied the fair value recognition provisions to stock-based employee
compensation in fiscal year 2005.
| (amounts in $000s, except per share data) |
September
28, 2005
|
|||
|
Net
earnings as reported
|
$ |
30,222
|
||
|
Less
pro forma compensation expense, net of tax
|
(2,172 | ) | ||
|
Pro
forma net earnings
|
$ |
28,050
|
||
|
Basic
earnings per share as reported
|
$ |
1.10
|
||
|
Pro
forma basic earnings per share
|
$ |
1.02
|
||
|
Diluted
earnings per share as reported
|
$ |
1.08
|
||
|
Pro
forma diluted earnings per share
|
$ |
1.00
|
||
The
weighted average
fair value of shares granted during the years ended September 26, 2007,
September 27, 2006 and September 28, 2005 was $6.12, $6.05 and $6.19,
respectively. We estimate the fair value of each grant using the
Black-Scholes option pricing model. Expected volatilities are generally
based on historical volatility of our stock. We use historical data to
estimate the expected life, and groups of employees that have similar historical
behaviors are considered separately for valuation purposes. The risk-free
rate for periods within the expected life of the option is based on the U.S.
Treasury yield curve in effect at the time of grant. The Black-Scholes option
pricing 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 pricing models require the input of highly subjective
assumptions including the expected stock price volatility. Because our 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 our
stock options. The fair value estimates are based on the following weighted
average assumptions:
|
2007
|
2006
|
2005
|
|||
|
Risk-free
interest rate
|
5.3%
|
4.5%
|
3.7%
|
||
|
Dividend
yield
|
0.0%
|
0.0%
|
0.0%
|
||
|
Expected
volatility
|
28.1%
|
28.0%
|
31.0%
|
||
|
Expected
life in years
|
5.3
years
|
5.4
years
|
5
years
|
Capital
Appreciation Plans
The
1997
Capital Appreciation Plan provides for tandem awards of Common Stock (restricted
shares) and book units of up to 1,067,187 shares and related units. These
awards
are restricted for a period of three years and are forfeited to us if the
grantee is not employed by us at the end of the period (except for reasons
of
retirement, permanent disability or death). 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 of the common stock and 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 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
299,750 at September 26, 2007 and 374,500 at September 27, 2006. At
September 26, 2007, 238,372 shares were reserved for future grants. The
total fair value of shares vested during the years ended September 26,
2007, September 27, 2006 and September 28, 2005 was $1,739, $362
and $54, respectively. The average remaining period for which
restrictions have not lapsed at September 26, 2007 was 1.47 years.
The
2007
Non-Employee Director Restricted Stock Plan provides for tandem awards of
Common
Stock (restricted shares) and book units of up to 20,000 shares and related
units. These awards are restricted for a period of three years and are
returnable to us if the grantee is not serving as a Director of the Company
at
the end of the period (except for reasons of retirement, permanent disability
or
death). 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 of the common stock and 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 amortized to compensation expense ratably over the three-year
period. The total number of shares and book units granted under the 2007
Plan for which restrictions have not lapsed was 3,000 at September 26,
2007. At September 26, 2007, 17,000 shares were reserved for future
grants. No shares have vested under this Plan to date. The average
remaining period for which restrictions have not lapsed at September 26,
2007
was 2.43 years.
The
amount
charged to expense under the Plans was $779 (net of tax, $483) in fiscal
2007,
$2,044 (net of tax, $1,330) in fiscal 2006 and $1,634 (net of tax, $1,062)
in fiscal 2005. Total unrecognized compensation cost at September 26, 2007
was $2,509. Compensation expense was lower in fiscal 2007 due to
significant forfeitures of restricted shares resulting from several senior
leaders leaving the Company during the fourth quarter. These forfeitures
caused
a $1,495 (net of tax, $927) reversal in the related previously recognized
compensation expense and had not been contemplated in our estimated forfeiture
rate.
The
following
table summarizes the activity under the Capital Appreciation Plans, as
amended:
|
Number
of Shares
|
Weighted
Average Grant Date Fair Value
|
|||||||
|
Nonvested
shares at September 27, 2006
|
374,500
|
$ |
17.05
|
|||||
|
Granted
|
178,050
|
16.98
|
||||||
|
Forfeitures
|
(138,300 | ) |
17.72
|
|||||
|
Vested
|
(111,500 | ) |
15.60
|
|||||
|
Nonvested
shares at September 26, 2007
|
302,750
|
$ |
17.24
|
|||||
Employee
Stock Option Plans
On
February
8, 2006, our shareholders approved the 2006 Employee Stock Option Plan (the
"2006 Plan"). The 2006 Plan provides for the granting of up to 750,000
shares of common stock plus the number of shares that are subject to awards
granted thereunder that terminate or expire or are cancelled, forfeited,
exchanged or surrendered during the term of the 2006 Plan without being
exercised or fully vested. Options granted under the 2006 Plan are
exercisable as to 25% on each anniversary of the date of grants until fully
exercisable. The options expire ten years from the date of the grant and
are issued with an exercise price equal to the fair market value of a
share of common stock on the date of grant. Options are granted under the
2006 Plan to officers and key employees selected by the Compensation
Committee of the Board of Directors. As of September 26, 2007, 505,950
options have been granted under the 2006 Plan, and 244,050 shares are available
for future issuance.
The
1997
Employee Stock Option Plan as amended (the "1997 Plan") provides for the
granting of up to 1,745,313 stock options. Options granted under
the 1997 Plan through 2005 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 either five or ten years from the date of
grant
and are issued with an exercise price equal to the fair market value of the
underlying stock on the date of grant. Options are granted under the 1997
Plan
to officers and key employees selected by the Compensation Committee of the
Board of Directors. As of September 26, 2007, 1,272,440 options have been
granted under the 1997 Plan, and 472,873 shares are available for
future issuance.
Non-Employee
Director Stock Option Plans
Our
Non-Employee Director Stock Option Plans provide for the grant of non-qualified
stock options at a price equal to the fair market value of the common stock
on
the date of grant. Options outstanding under each plan through fiscal 2005
are
exercisable as to 20% on the date of grant and 20% on each anniversary of
the
date of grant thereafter until fully exercisable. Options outstanding that
were
issued in fiscal 2006 or later are exercisable as to 25% on each anniversary
of
the date of grant until fully exercisable. The options expire five
years from the date of grant. At September 26, 2007, 247,000 options have
been granted under the Non-Employee Director Stock Option Plans, and 27,000
shares are available for future issuance.
The
following
table summarizes the options activity under all of our Stock Option
Plans:
|
Shares
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life
|
Aggregate
Intrinsic Value
|
||||||||||
|
Outstanding
at September 27, 2006
|
1,551,802
|
$ |
16.79
|
||||||||||
|
Granted
|
515,538
|
17.17
|
|||||||||||
|
Exercised
|
(205,355 | ) |
13.38
|
||||||||||
|
Canceled
or forfeited
|
(507,123 | ) |
16.90
|
||||||||||
|
Outstanding
at September 26, 2007
|
1,354,862
|
$ |
17.31
|
4.78
years
|
$ |
232
|
|||||||
|
Vested
or expected to vest at September 26, 2007
|
1,292,604
|
17.29
|
4.64
years
|
229
|
|||||||||
|
Exercisable
at September 26, 2007
|
704,154
|
$ |
17.04
|
2.48
years
|
$ |
200
|
|||||||
During
fiscal
2007 and fiscal 2006, $1,735 ($1,076, net of tax) and $1,791 ($1,589, net
of
tax), respectively, was charged to expense related to the stock option
plans. The total intrinsic value of options exercised during the years
ended September 26, 2007, September 27, 2006 and September 28, 2005 was $771,
$978 and $2,372, respectively. Total unrecognized stock option compensation
cost
at September 26, 2007 was $2,502 and is expected to be recognized
over a weighted average period of 2.87 years. Prior to the adoption of
SFAS 123(R), we did not record any compensation expense for stock
options.
Employee
Stock Purchase Plan
Under
the
ESPP, a maximum of 1,852,545 shares of Common Stock are available for issuance
to all eligible employees as determined by the Board of Directors subject
to a
limitation of 150,000 shares per year. Unissued shares in any given calendar
year are available to increase the annual maximum number of shares issuable
in
subsequent years. Employees may purchase shares of Common Stock through payroll
deductions ranging from 2% to 10% of compensation up to a maximum fair market
value of $10 or a maximum purchase of 1,000 shares per year, whichever is
less,
within the limitations of the offering. Shares are purchased at a 15%
discount on the lesser of the share price on the first or last day of the
calendar year. Shares purchased under the plan were 86,773 in fiscal 2007,
93,309 in fiscal 2006 and 102,830 in fiscal 2005. During fiscal years
2007 and 2006, $441 and $395 were charged to expense related to the Plan,
respectively. Total unrecognized compensation cost at September 26, 2007
was $110 and is expected to be recognized over a weighted average period
of 0.25
years. Prior to the adoption of SFAS 123(R), we were not required to record
compensation expense for the ESPP.
16. Restructuring
During
the
current fiscal year, same store sales declined while certain restaurant
operating costs, such as food costs and labor rates, increased. As a result,
management undertook a review of its current operations that led to a
comprehensive cost reduction plan. This plan includes group market and district
consolidations, as well as general and administrative cost reductions. The
majority of planned cost reductions will be achieved by
lowering headcount in the field and at the corporate offices. Also
included in these amounts are costs related to the resignation of our former
Chief Executive Officer. In order to execute the comprehensive plan, we incurred
approximately $2,221 in severance, relocation costs and outplacement services.
We also reversed $1,495 of previously recognized compensation expense related
to
the Capital Appreciation Plan and Employee Stock Option Plan for stock awards
that will not vest in the future. During fiscal 2007, we recorded $2,040
of
severance costs, $80 of relocation costs and $101 of outplacement services
in
General and administrative expense on the Statement of Earnings. Of the amount
recorded, $46 of the severance, relocation costs and outplacement services
was
paid in the fourth quarter of fiscal 2007. The remaining $2,175 is expected
to
be paid in fiscal 2008.
17. Commitments
and Contingencies
We
are
involved in various legal proceedings and have certain unresolved claims
pending. We believe, based on examination of these matters and experiences
to date, that the ultimate liability, if any, in excess of amounts already
provided in our consolidated financial statements is not likely to have a
material effect on our financial position, results of operations or cash
flows.
18. Supplemental
Disclosures of Cash Flow Information
During
fiscal
2007, we issued 178,050 shares of restricted stock totaling $3,023, had
lease retirements of $1,282 and had $1,585 of capital expenditures in accounts
payable at year-end. During fiscal 2006, we issued 135,500 shares of
restricted stock totaling $2,381, entered into capital leases of $275, had
retirements of $190 and had $3,000 of capital expenditures in accounts payable
at year-end. During 2005 we issued 139,700 shares valued at $2,478 and had
$1,081 of capital expenditures in accounts payable at
year-end.
19. Stock
Repurchase
During
fiscal
2006, we repurchased a total of 20,400 shares of our common stock for
a total of $312. The share repurchase program previously authorized by the
Board of Directors was announced on November 16, 2005. The program allowed
for
the repurchase of up to three million shares for a period of two years. As
of September 26, 2007, there were 2,979,600 shares that could still be purchased
under the share repurchase program. However, there were no repurchases made
subsequent to year-end through the expiration of the program on November
16,
2007.
20. Quarterly
Financial Data (Unaudited)
|
(amounts
in $000s except per share data)
|
First
Quarter
|
Second
Quarter
|
Third
Quarter(3)
|
Fourth
Quarter(4)
|
|||||||||
|
For
the year ended September 26, 2007 (52 weeks) (1)
|
|||||||||||||
|
Total
Revenues
|
$ |
147,266
|
$ |
202,151
|
$ |
153,586
|
$ |
151,139
|
|||||
|
Gross
Profit (2)
|
37,920
|
53,084
|
37,500
|
34,671
|
|||||||||
|
Costs
and Expenses
|
142,389
|
193,138
|
154,433
|
149,311
|
|||||||||
|
Earnings
(Loss) Before Income Taxes
|
4,877
|
9,013
|
(847 | ) |
1,828
|
||||||||
|
Net
Earnings
|
4,165
|
5,992
|
124
|
1,527
|
|||||||||
|
Diluted
Earnings per Common and Common Equivalent Share
|
$ |
0.15
|
$ |
0.21
|
$ |
0.00
|
$ |
0.05
|
|||||
|
For
the year ended September 27, 2006 (52 weeks) (1)
|
|||||||||||||
|
Total
Revenues
|
$ |
138,741
|
$ |
197,657
|
$ |
150,400
|
$ |
152,024
|
|||||
|
Gross
Profit (2)
|
36,541
|
53,636
|
42,138
|
40,196
|
|||||||||
|
Costs
and Expenses
|
131,876
|
184,471
|
139,330
|
140,853
|
|||||||||
|
Earnings
Before Income Taxes
|
6,865
|
13,186
|
11,069
|
11,172
|
|||||||||
|
Net
Earnings
|
4,659
|
8,531
|
7,315
|
7,496
|
|||||||||
|
Diluted
Earnings per Common and Common Equivalent Share
|
$ |
0.17
|
$ |
0.30
|
$ |
0.26
|
$ |
0.27
|
|||||
|
(1)
Our fiscal year includes quarters consisting of 12, 16, 12 and
12
weeks, respectively.
|
|||||||||||||
|
(2) We
define gross profit as net sales less cost of sales and restaurant
operating costs, which excludes depreciation
and amortization.
|
|||||||||||||
|
(3)
In the third quarter of fiscal 2007, we recognized a $5,369 pre-tax
impairment charge ($3,329, net of tax), which had an impact of
$0.12 per
diluted share.
|
|||||||||||||
|
(4)
In the fourth quarter of fiscal 2007, we recognized $1,100 of
severance
and restructuring expenses ($682, net of tax), which had an impact
of
$0.02 per diluted share.
|
|||||||||||||
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not
Applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Based
on an
evaluation of our disclosure controls and procedures (as defined in Exchange
Act
Rules 13a-15(e) and 15d-15(c)), our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures were
effective as of September 26, 2007.
There
have
been no changes in our internal control over financial reporting that occurred
during the current quarter ended September 26, 2007 that have materially
affected, or that are reasonably likely to materially affect, our internal
control over financial reporting.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Shareholders of
The
Steak
n Shake Company
Indianapolis,
Indiana
We
have
audited the internal control over financial reporting of The Steak n Shake
Company and subsidiaries (the "Company") as of September 26, 2007, based
on
criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company's internal control
over
financial reporting based on our audit.
We
conducted
our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company's
internal control over financial reporting is a process designed by, or under
the
supervision of, the company's principal executive and principal financial
officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary
to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or
timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of
the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls,
material misstatements due to error or fraud may not be prevented or detected
on
a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future
periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies
or
procedures may deteriorate.
In
our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of September 26, 2007, based on the criteria
established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
We
have also
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as
of and
for the year ended September 26, 2007 of the Company and our report dated
December 7, 2007 expressed an unqualified opinion on those financial statements
and included an explanatory paragraph regarding the adoption of Statement
of
Financial Accounting Standards No. 123(R), Share-Based Payment on September
29, 2005.
/s/ Deloitte & Touche LLP
Indianapolis,
IN
December
7, 2007
Management’s
Report on Internal Control Over Financial Reporting
The
management of The Steak n Shake Company is responsible for establishing and
maintaining adequate internal control over financial reporting as defined
in
Rule 13a-15(f) under the Securities Exchange Act of 1934. Pursuant to the
rules
and regulations of the Securities and Exchange Commission, internal control
over
financial reporting is a process designed by, or under the supervision of,
the
Company’s board of directors, principal executive and principal financial
officers, and effected by management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and
the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America
and
includes those policies and procedures that:
|
•
|
Pertain
to the maintenance of
records that in reasonable detail accurately and fairly reflect
the
transactions and dispositions of assets of the
company;
|
|
•
|
Provide
reasonable assurance that
transactions are recorded as necessary to permit preparation of
the
financial statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company;
and
|
|
•
|
Provide
reasonable assurance
regarding prevention or timely detection of unauthorized acquisition,
use
or disposition of the company’s assets that could have a material impact
on the financial statements.
|
|
•
|
Ensure
that material information
relating to the company, including its consolidated subsidiaries,
is made
known to management by others within those entities, particularly
during
the period which this report is being
prepared.
|
Because
of
inherent limitations, a system of internal control over financial reporting
may
not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
has evaluated the effectiveness of its internal control over financial reporting
as of September 26, 2007 based on the criteria set forth in a report entitled
Internal Control - Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on this
evaluation, we have concluded that, as of September 26, 2007, our internal
control over financial reporting is effective based on those
criteria.
The
Company’s
independent registered public accounting firm, Deloitte & Touche LLP, has
issued an audit report on the Company’s internal control over financial
reporting and their report is included herein.
/s/
Alan B.
Gilman /s/ Jeffrey A. Blade
Alan
B. Gilman Jeffrey
A.
Blade
Interim
President
and Executive
Vice
President,
Chief
Executive
Officer Chief
Financial and Administrative Officer
ITEM
9B. OTHER INFORMATION
|
I.
|
Amendment
of By-Laws
|
On
December 7, 2007, our Board of Directors amended Article V of our
Restated By-Laws with respect to the number of directors. A copy of the
Restated By-Laws, as amended, is included as Exhibit 3.02 to this
Report.
|
II.
|
Comparison
of Five-Year Cumulative Total
Return
|
PART
III.
In
accordance
with General Instruction G(3) of Form 10-K, we have omitted certain information
required by Part III from this Form 10-K. We will file an amendment to this
Form
10-K on Form 10-K/A containing such information not later than 120 days after
the end of the fiscal year covered by this Report, as permitted by General
Instruction G(3) of Form 10-K. As permitted by instruction G(3), certain
information on executive officers called for by Part III, Item 10 is included
in
Part I, Item 1 of this Annual Report on Form 10-K under the caption “Executive
Officers of the Registrant.”
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
Plan
Category
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants
and Rights
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and Rights
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected in First
Column)
|
|||||||
|
Equity
compensation plans approved by shareholders(1)
|
1,660,612
|
$ |
14.12
|
1,526,680 | (2) | |||||
|
Equity
compensation plans not approved by shareholders(3)
|
—
|
—
|
—
|
|||||||
|
Total
|
1,660,612
|
$ |
14.12
|
1,526,680 | (2) | |||||
|
(1)
Consists of
1997 and 2006 employee stock option Plans, 2003, 2004 and 2005
Director
Stock Option Plans, 1997 Capital Appreciation Plan, as amended
and
restated, 2007 Non-Employee Director Capital Appreciation Plan
and the
1992 and 2006 Employee Stock Purchase Plans.
|
||||||||||
|
(2) The
Capital Appreciation Plan provides for tandem awards of restricted
stock
and book units. As of September 26, 2007, 238,372 shares remained
available for issuance pursuant to awards under that plan and
17,000
remained available for issuance under the Non-Employee Director
Capital
Appreciation Plan.
|
||||||||||
PART
IV.
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(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 26, 2007 and September 27,
2006
For
the years
ended September 26, 2007, September 27, 2006, and September 28,
2005:
Consolidated
Statements of Earnings
Consolidated
Statements of Cash Flows
Consolidated
Statements of Shareholders' Equity
Notes
to
Consolidated Financial Statements
Reports
of Independent Registered Public Accounting Firm
Management's
Reports on Internal Control over Financial Reporting
2.
Financial Statement Schedules.
All
schedules
for the years ended September 26, 2007, September 27, 2006 and September
28,
2005 have been omitted for the reason that they are not required, 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.*
Indicates management contract or compensatory plans or arrangements required
to
be filed as an Exhibit.
|
3.01
|
Amended
and Restated Articles of Incorporation of The Steak n Shake Company,
filed
March 27, 2002. (Incorporated by reference to the Registrant's
definitive
Proxy Statement dated December 19, 2001, related to the 2002
Annual
Meeting of Shareholders).
|
|
|
3.02
|
Restated
By-Laws of The Steak n Shake Company, as amended on December
7,
2007.
|
|
|
4.01
|
Specimen
certificate representing Common Stock of The Steak n Shake Company.
(Incorporated by reference to Exhibit 4.01 to the Registrant's
Quarterly
Report on Form 10-Q 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 the $75,000,000 senior
note
agreement and private shelf facility. (Incorporated by reference
to
Exhibit 4.02 to the Registrant's Annual Report on Form 10-K for
the 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 $75,000,000 senior
note
agreement and private shelf facility. (Incorporated by reference
to
Exhibit 4.03 to the Registrant's Annual Report on Form 10-K for
the year
ended September 25, 2002).
|
|
|
4.05
|
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 Annual Report on Form 10-K for the year ended
September
26, 2001).
|
|
|
4.06
|
First
Amendment to Credit Agreement by and Between The Steak n Shake
Company and
Fifth Third Bank, Indiana (Central) dated October 17, 2002 relating
to a
$30,000,000 revolving line of credit. (Incorporated by reference
to
Exhibit 10.15 to the Registrant's Annual Report on Form 10-K
for the year
ended September 25, 2002).
|
|
|
4.07
|
Second
Amendment to Credit Agreement by and Between The Steak n Shake
Company and
Fifth Third Bank, Indiana (Central) dated December 18, 2002 relating
to a
$30,000,000 revolving line of credit. (Incorporated by reference
to
Exhibit 10.16 to the Registrant's Annual Report on Form 10-K
for the year
ended September 25, 2002).
|
|
|
4.08 |
Amendment No. 2 dated May 21, 2003 to the Amended and Restated Note Purchase and Private Shelf Agreement dated September 20, 2002. (Incorporated by reference to Exhibit 10.16 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended April 9, 2003). | |
|
4.09 |
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. (Incorporated by reference to Exhibit 10.17 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 9, 2003). |
|
4.10
|
Amendment
No. 3 dated September 17, 2003 to the Amended and Restated Note
Purchase
and Private Shelf Agreement dated September 20, 2002. (Incorporated
by
reference to Exhibit 4.10 to the Registrant's Annual Report on
Form 10-K
for the year ended September 29, 2004 filed on December 16,
2004).
|
|
|
4.11
|
Fourth
Amendment to Credit Agreement by and between The Steak n Shake
Company and
Fifth Third Bank, Indiana (Central) dated December 29, 2004 related
to a
$30,000,000 revolving line of credit. (Incorporated by reference
to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated January
26, 2005.
|
|
|
4.12
|
Fifth
Amendment to Credit Agreement by and between The Steak n Shake
Company and
Fifth Third Bank, Indiana (Central) dated December 29, 2004 related
to a
$50,000,000 revolving line of credit. (Incorporated by reference
to
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated January
26, 2005.
|
|
|
4.13
|
Amendment
No. 4 to the Amended and Restated Note Purchase and Private Shelf
Agreement dated October 27, 2006. (Incorporated by reference
to Exhibits
to the Registrant's Current Report on Form 8-K, dated November
2,
2006).
|
|
|
4.14
|
Sixth
Amendment to Credit Agreement by and between The Steak n Shake
Company and
Fifth Third Bank, Indiana (Central) dated September 11, 2006.
(Incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K dated September 15, 2006.
|
|
|
4.15
|
Amendment
to Note Purchase and Private Shelf Agreement to extend maturity
date to
September 30, 2008 (Incorporated by reference to Exhibit 10.1
to the
Registrant's Current report on Form 8-K filed November 17,
2005).
|
|
|
4.16
|
Senior
Note Agreement with Prudential Insurance Company of America dated
October
27, 2006. (Incorporated by reference to Exhibits to the
Registrant's Current Report on Form 8-K, dated November 2,
2006).
|
|
|
4.17
|
Senior
Note Agreement with Pruco Life Insurance Company dated October
27, 2006.
(Incorporated by reference to Exhibits to the Registrant's Current
Report
on Form 8-K, dated November 2, 2006).
|
|
|
4.18
|
Senior
Note Agreement with United Omaha Life Insurance Company dated
October 27,
2006. (Incorporated by reference to Exhibits to the
Registrant's Current Report on Form 8-K, dated November 2,
2006).
|
|
|
4.19
|
Amendment
No. 5 to the Amended and Restated Note Purchase and Private Shelf
Agreement dated October 30, 2007.
|
|
|
4.20
|
Amendment
No. 6 to the Amended and Restated Note Purchase and Private Shelf
Agreement dated December 5, 2007.
|
|
|
4.21
|
Seventh
Amendment to Credit Agreement by and between The Steak n Shake
Company and
Fifth Third Bank, Indiana (Central) dated December 5,
2007.
|
|
|
10.01*
|
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.
|
|
|
10.02*
|
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
Annual Report on Form 10-K for the year ended September 26,
2001).
|
|
|
10.04*
|
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).
|
|
|
10.05*
|
Amendment
No. 1 to The Steak n Shake Company's (formerly Consolidated Products,
Inc.) 1997 Employee Stock Option Plan. (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).
|
|
|
10.06*
|
Form
of option agreement related to 2000 Non-employee Director Stock
Option
Program and schedule relating thereto. (Incorporated by reference
to
Exhibit 10.22 to the Registrant's Quarterly Report on Form 10-Q
for the
fiscal quarter ended July 5, 2000).
|
|
|
10.07*
|
Form
of option agreement related to 2002 Non-employee Director Stock
Option
Program and schedule relating thereto. (Incorporated by reference
to
Exhibit 10.22 to the Registrant's Quarterly Report on Form 10-Q
for the
fiscal quarter ended December 19, 2001).
|
|
|
10.09*
|
The
Steak n Shake Company’s 2003 Director Stock Option Plan. (Incorporated by
reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K
for the year ended September 24, 2003).
|
|
|
10.10* |
The terms of severance arrangements with Peter M. Dunn are set forth in and incorporated by reference to the Registrant's Current Report on Form 8-K, dated August 22, 2007. | |
|
10.11* |
The Steak n Shake Company Amended and Restated 1997 Capital Appreciation Plan. (Incorporated by reference to the Appendix to the Registrant’s definitive Proxy Statement dated December 19, 2003 related to the 2004 Annual Meeting of Shareholders). |
|
10.12*
|
The
Steak n Shake Company 2004 Director Stock Option Plan. (Incorporated
by
reference to the Appendix to the Registrant’s definitive Proxy Statement
dated December 19, 2003 related to the 2004 Annual Meeting of
Shareholders).
|
|
|
10.13*
|
Form
of The Steak n Shake Company Capital Appreciation Agreement.
(Incorporated
by reference to Exhibit 10.13 to the Registrant's Annual Report
on Form
10-K for the year ended September 29, 2004 filed on December
16,
2004).
|
|
|
10.14*
|
Form
of The Steak n Shake Company Stock Option Agreement. (Incorporated
by
reference to Exhibit 10.14 to the Registrant's Annual Report
on Form 10-K
for the year ended September 29, 2004 filed on December 16,
2004).
|
|
|
10.16*
|
The
Steak n Shake Non Qualified Savings Plan (Incorporated by reference
to
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q
for the
fiscal quarter ended December 22, 2004.)
|
|
|
10.17
|
Multiple
Unit Franchise Agreement (Incorporated by reference to Exhibit
10.1 to the
Registrant's Current Report on Form 8-K filed September 27,
2005.)
|
|
|
10.18
|
Contract
for Purchase and Sale of Real Estate (Incorporated by reference
to Exhibit
10.2 to the Registrant's Current Report on Form 8-K filed September
27,
2005).
|
|
|
10.19
|
Personal
Property Sales Agreement (Incorporated by reference to Exhibit
10.3 to the
Registrant's Current Report on Form 8-K filed September 27,
2005.)
|
|
|
10.20
|
Assignment
and Assumption Agreement (Incorporated by reference to Exhibit
10.4 to the
Registrant's Current Report on Form 8-K filed September 27,
2005).
|
|
|
10.21*
|
The
Steak n Shake 2005 Director Stock Option Plan (Incorporated by
reference
to Appendix B to 2004 Proxy Statement dated December 20, 2004
related to
the 2005 Annual Meeting of Shareholders).
|
|
|
10.22*
|
Employment
Agreement for Wayne Kelley (Incorporated by reference to Exhibit
10.1 to
the Registrant's Current Report on Form 8-K filed December 29,
2004).
|
|
|
10.24*
|
2006
Employee Stock Option Plan (Incorporated herein by reference
to Exhibit
10.1 to the Registrant's Current Report on Form 8-K dated February
8,
2006).
|
|
|
10.25*
|
2006
Incentive Bonus Plan (Incorporated herein by reference to Exhibit
10.2 to
the Registrant's Current Report on Form 8-K dated February 8,
2006).
|
|
|
10.26*
|
Form
of Incentive Stock Option Agreement (Incorporated herein by reference
to
Exhibit 10.3 to the Registrant's Current Report on Form 8-K dated
February
8, 2006).
|
|
|
10.27*
|
Amendment
to Employment Agreement between Wayne Kelley and Steak n Shake
Operations,
Inc. (Incorporated herein by reference to Exhibit 10.4 to the
Registrant's
Current Report on Form 8-K dated March 24, 2006).
|
|
|
10.31*
|
Form
of Change in Control Benefits Agreement dated November 7, 2007
with
Jeffrey A. Blade.
|
|
|
10.32*
|
Severance
and General Release Agreement dated September 17, 2007 with Gary
Walker.
|
|
|
10.33*
|
Change
in Control Agreement dated November 7, 2007 with Gary T.
Reinwald.
|
|
|
10.34*
|
Amendment
to 1997 Capital Appreciation Plan, as Revised in 2002 and
2007.
|
|
|
10.35*
|
Form
of Indemnity Agreement entered into on October 9, 2007 with the
following
Officers and Directors of the Company: Jeffrey A. Blade, Duane
E. Geiger,
Alan B. Gilman, Omar Janjua, David C. Milne, Thomas Murrill,
Gary T.
Reinwald, Steven M. Schiller, J. Michael Vance, Geoff Ballotti,
Wayne
Kelley, Charles Lanham, Ruth Person, John W. Ryan, J. Fred Risk,
Steven M.
Schmidt, Edward Wilhelm, and James Williamson, Jr.
|
|
|
14.01
|
Code
of Business Conduct and Ethics. (Incorporated by reference to
Exhibit
10.01 to the Registrant’s Current Report on Form 8-K dated March 24,
2006).
|
|
|
21.01
|
Subsidiaries
of the Registrant.
|
|
|
23.01
|
Consent
of Independent Registered Public Accounting Firm.
|
|
|
31.01
|
Rule
13(a)-14(a)/15d-14(a) Certification of Chief Executive
Officer.
|
|
|
31.02
|
Rule
13(a)-14(a)/15d-14(a) Certification of Chief Financial
Officer.
|
|
|
32.01
|
Section
1350 Certifications.
|
|
|
*
Indicates management contract or compensatory plans or arrangements
required to be filed as an
Exhibit.
|
||
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 7, 2007.
THE
STEAK
N SHAKE COMPANY
By: /s/
Jeffrey A.
Blade
Jeffrey
A. Blade
Executive
Vice President,
Chief
Financial and Administrative Officer
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 7, 2007.
|
/s/
Jeffrey A. Blade
|
Executive
Vice President, Chief Financial and Administrative
Officer
|
|
Jeffrey
A. Blade
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|
/s/
Alan B. Gilman
|
Interim
Chief Executive Officer and President, Chairman and
Director
|
|
Alan
B. Gilman
|
(Principal
Executive Officer)
|
|
|
|
|
/s/
Geoffrey Ballotti
|
Director
|
|
Geoffrey
Ballotti
|
|
|
/s/
Wayne L. Kelley
|
Director
|
|
Wayne
L. Kelley
|
|
|
|
|
|
/s/
Dr. Ruth J. Person
|
Director
|
|
Dr.
Ruth J. Person
|
|
|
|
|
|
/s/
J. Fred Risk
|
Director
|
|
J.
Fred Risk
|
|
|
|
|
|
/s/
Dr. John W. Ryan
|
Director
|
|
Dr.
John W. Ryan
|
|
|
|
|
|
/s/
Stephen M. Schmidt
|
Director
|
|
Stephen
M. Schmidt
|
|
|
|
|
|
/s/
Edward W. Wilhelm
|
Director
|
|
Edward
W. Wilhelm
|
|
|
|
|
|
/s/
James Williamson, Jr.
|
Director
|
|
James
Williamson, Jr.
|
|
THE
STEAK N SHAKE COMPANY AND SUBSIDIARIES
|
Exhibit
Number
|
Description
|
|
|
3.01
|
Amended
and Restated Articles of Incorporation of The Steak n Shake Company,
filed
March 27, 2002. (Incorporated by reference to the Registrant's
definitive
Proxy Statement dated December 19, 2001, related to the 2002
Annual
Meeting of Shareholders).
|
|
|
3.02
|
Restated
By-Laws of The Steak n Shake Company, as amended on December
7,
2007.
|
|
|
4.01
|
Specimen
certificate representing Common Stock of The Steak n Shake Company.
(Incorporated by reference to Exhibit 4.01 to the Registrant's
Quarterly
Report on Form 10-Q 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 the $75,000,000 senior
note
agreement and private shelf facility. (Incorporated by reference
to
Exhibit 4.02 to the Registrant's Annual Report on Form 10-K for
the 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 $75,000,000 senior
note
agreement and private shelf facility. (Incorporated by reference
to
Exhibit 4.03 to the Registrant's Annual Report on Form 10-K for
the year
ended September 25, 2002).
|
|
|
4.05
|
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 Annual Report on Form 10-K for the year ended
September
26, 2001).
|
|
|
4.06
|
First
Amendment to Credit Agreement by and Between The Steak n Shake
Company and
Fifth Third Bank, Indiana (Central) dated October 17, 2002 relating
to a
$30,000,000 revolving line of credit. (Incorporated by reference
to
Exhibit 10.15 to the Registrant's Annual Report on Form 10-K
for the year
ended September 25, 2002).
|
|
|
4.07
|
Second
Amendment to Credit Agreement by and Between The Steak n Shake
Company and
Fifth Third Bank, Indiana (Central) dated December 18, 2002 relating
to a
$30,000,000 revolving line of credit. (Incorporated by reference
to
Exhibit 10.16 to the Registrant's Annual Report on Form 10-K
for the year
ended September 25, 2002).
|
|
|
4.08
|
Amendment
No. 2 dated May 21, 2003 to the Amended and Restated Note Purchase
and
Private Shelf Agreement dated September 20, 2002. (Incorporated
by
reference to Exhibit 10.16 to the Registrant's Quarterly Report
on Form
10-Q for the fiscal quarter ended April 9, 2003).
|
|
|
4.09
|
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. (Incorporated by reference
to
Exhibit 10.17 to the Registrant’s Quarterly Report on Form 10-Q for the
fiscal quarter ended April 9, 2003).
|
|
|
4.10
|
Amendment
No. 3 dated September 17, 2003 to the Amended and Restated Note
Purchase
and Private Shelf Agreement dated September 20, 2002. (Incorporated
by
reference to Exhibit 4.10 to the Registrant's Annual Report on
Form 10-K
for the year ended September 29, 2004 filed on December 16,
2004).
|
|
|
4.11
|
Fourth
Amendment to Credit Agreement by and between The Steak n Shake
Company and
Fifth Third Bank, Indiana (Central) dated December 29, 2004 related
to a
$30,000,000 revolving line of credit. (Incorporated by reference
to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated January
26, 2005.
|
|
|
4.12
|
Fifth
Amendment to Credit Agreement by and between The Steak n Shake
Company and
Fifth Third Bank, Indiana (Central) dated December 29, 2004 related
to a
$50,000,000 revolving line of credit. (Incorporated by reference
to
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated January
26, 2005.
|
|
|
4.13
|
Amendment
No. 4 to the Amended and Restated Note Purchase and Private Shelf
Agreement dated October 27, 2006. (Incorporated by reference
to Exhibits
to the Registrant's Current Report on Form 8-K, dated November
2,
2006).
|
|
|
4.14
|
Sixth
Amendment to Credit Agreement by and between The Steak n Shake
Company and
Fifth Third Bank, Indiana (Central) dated September 11, 2006.
(Incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K dated September 15,
2006.
|
|
4.15
|
Amendment
to Note Purchase and Private Shelf Agreement to extend maturity
date to
September 30, 2008 (Incorporated by reference to Exhibit 10.1
to the
Registrant's Current report on Form 8-K filed November 17,
2005).
|
|
|
4.16
|
Senior
Note Agreement with Prudential Insurance Company of America dated
October
27, 2006. (Incorporated by reference to Exhibits to the
Registrant's Current Report on Form 8-K, dated November 2,
2006).
|
|
|
4.17
|
Senior
Note Agreement with Pruco Life Insurance Company dated October
27, 2006.
(Incorporated by reference to Exhibits to the Registrant's Current
Report
on Form 8-K, dated November 2, 2006).
|
|
|
4.18
|
Senior
Note Agreement with United Omaha Life Insurance Company dated
October 27,
2006. (Incorporated by reference to Exhibits to the
Registrant's Current Report on Form 8-K, dated November 2,
2006).
|
|
|
4.19
|
Amendment
No. 5 to the Amended and Restated Note Purchase and Private Shelf
Agreement dated October 30, 2007.
|
|
|
4.20
|
Amendment
No. 6 to the Amended and Restated Note Purchase and Private Shelf
Agreement dated December 5, 2007.
|
|
|
4.21
|
Seventh
Amendment to Credit Agreement by and between The Steak n Shake
Company and
Fifth Third Bank, Indiana (Central) dated December 5,
2007.
|
|
|
10.01*
|
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.
|
|
|
10.02*
|
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
Annual Report on Form 10-K for the year ended September 26,
2001).
|
|
|
10.04*
|
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).
|
|
|
10.05*
|
Amendment
No. 1 to The Steak n Shake Company's (formerly Consolidated Products,
Inc.) 1997 Employee Stock Option Plan. (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).
|
|
|
10.06*
|
Form
of option agreement related to 2000 Non-employee Director Stock
Option
Program and schedule relating thereto. (Incorporated by reference
to
Exhibit 10.22 to the Registrant's Quarterly Report on Form 10-Q
for the
fiscal quarter ended July 5, 2000).
|
|
|
10.07*
|
Form
of option agreement related to 2002 Non-employee Director Stock
Option
Program and schedule relating thereto. (Incorporated by reference
to
Exhibit 10.22 to the Registrant's Quarterly Report on Form 10-Q
for the
fiscal quarter ended December 19, 2001).
|
|
|
10.09*
|
The
Steak n Shake Company’s 2003 Director Stock Option Plan. (Incorporated by
reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K
for the year ended September 24, 2003).
|
|
|
10.10*
|
The
terms of severance arrangements with Peter M. Dunn are set forth
in and
incorporated by reference to the Registrant's Current Report
on Form 8-K,
dated August 22, 2007.
|
|
|
10.11*
|
The
Steak n Shake Company Amended and Restated 1997 Capital Appreciation
Plan.
(Incorporated by reference to the Appendix to the Registrant’s definitive
Proxy Statement dated December 19, 2003 related to the 2004 Annual
Meeting
of Shareholders).
|
|
|
10.12*
|
The
Steak n Shake Company 2004 Director Stock Option Plan. (Incorporated
by
reference to the Appendix to the Registrant’s definitive Proxy Statement
dated December 19, 2003 related to the 2004 Annual Meeting of
Shareholders).
|
|
|
10.13*
|
Form
of The Steak n Shake Company Capital Appreciation Agreement.
(Incorporated
by reference to Exhibit 10.13 to the Registrant's Annual Report
on Form
10-K for the year ended September 29, 2004 filed on December
16,
2004).
|
|
|
10.14*
|
Form
of The Steak n Shake Company Stock Option Agreement. (Incorporated
by
reference to Exhibit 10.14 to the Registrant's Annual Report
on Form 10-K
for the year ended September 29, 2004 filed on December 16,
2004).
|
|
|
10.16*
|
The
Steak n Shake Non Qualified Savings Plan (Incorporated by reference
to
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q
for the
fiscal quarter ended December 22,
2004.)
|
|
10.17
|
Multiple
Unit Franchise Agreement (Incorporated by reference to Exhibit
10.1 to the
Registrant's Current Report on Form 8-K filed September 27,
2005.)
|
|
|
10.18
|
Contract
for Purchase and Sale of Real Estate (Incorporated by reference
to Exhibit
10.2 to the Registrant's Current Report on Form 8-K filed September
27,
2005).
|
|
|
10.19
|
Personal
Property Sales Agreement (Incorporated by reference to Exhibit
10.3 to the
Registrant's Current Report on Form 8-K filed September 27,
2005.)
|
|
|
10.20
|
Assignment
and Assumption Agreement (Incorporated by reference to Exhibit
10.4 to the
Registrant's Current Report on Form 8-K filed September 27,
2005).
|
|
|
10.21*
|
The
Steak n Shake 2005 Director Stock Option Plan (Incorporated by
reference
to Appendix B to 2004 Proxy Statement dated December 20, 2004
related to
the 2005 Annual Meeting of Shareholders).
|
|
|
10.22*
|
Employment
Agreement for Wayne Kelley (Incorporated by reference to Exhibit
10.1 to
the Registrant's Current Report on Form 8-K filed December 29,
2004).
|
|
|
10.24*
|
2006
Employee Stock Option Plan (Incorporated herein by reference
to Exhibit
10.1 to the Registrant's Current Report on Form 8-K dated February
8,
2006).
|
|
|
10.25*
|
2006
Incentive Bonus Plan (Incorporated herein by reference to Exhibit
10.2 to
the Registrant's Current Report on Form 8-K dated February 8,
2006).
|
|
|
10.26*
|
Form
of Incentive Stock Option Agreement (Incorporated herein by reference
to
Exhibit 10.3 to the Registrant's Current Report on Form 8-K dated
February
8, 2006).
|
|
|
10.27*
|
Amendment
to Employment Agreement between Wayne Kelley and Steak n Shake
Operations,
Inc. (Incorporated herein by reference to Exhibit 10.4 to the
Registrant's
Current Report on Form 8-K dated March 24, 2006).
|
|
|
10.31*
|
Form
of Change in Control Benefits Agreement dated November 7, 2007
with
Jeffrey A. Blade.
|
|
|
10.32*
|
Severance
and General Release Agreement dated September 17, 2007 with Gary
Walker.
|
|
|
10.33*
|
Change
in Control Agreement dated November 7, 2007 with Gary T.
Reinwald.
|
|
|
10.34*
|
Amendment
to 1997 Capital Appreciation Plan, as Revised in 2002 and
2007.
|
|
|
10.35*
|
Form
of Indemnity Agreement entered into on October 9, 2007 with the
following
Officers and Directors of the Company: Jeffrey A. Blade, Duane
E. Geiger,
Alan B. Gilman, Omar Janjua, David C. Milne, Thomas Murrill,
Gary T.
Reinwald, Steven M. Schiller, J. Michael Vance, Geoff Ballotti,
Wayne
Kelley, Charles Lanham, Ruth Person, John W. Ryan, J. Fred Risk,
Steven M.
Schmidt, Edward Wilhelm, and James Williamson, Jr.
|
|
|
14.01
|
Code
of Business Conduct and Ethics. (Incorporated by reference to
Exhibit
10.01 to the Registrant’s Current Report on Form 8-K dated March 24,
2006).
|
|
|
21.01
|
Subsidiaries
of the Registrant.
|
|
|
23.01
|
Consent
of Independent Registered Public Accounting Firm.
|
|
|
31.01
|
Rule
13(a)-14(a)/15d-14(a) Certification of Chief Executive
Officer.
|
|
|
31.02
|
Rule
13(a)-14(a)/15d-14(a) Certification of Chief Financial
Officer.
|
|
|
32.01
|
Section
1350 Certifications.
|
|
|
*
Indicates management contract or compensatory plans or arrangements
required to be filed as an
Exhibit.
|
||
54