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 24, 2008
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
|
THE
STEAK N SHAKE COMPANY
(Exact
name of registrant as specified in its
charter)
|
|
INDIANA
|
37-0684070
|
|
(State
or other jurisdiction
|
(I.R.S.
Employer
|
|
of
incorporation or organization)
|
Identification
No.)
|
|
36
S. Pennsylvania Street, Suite 500
|
|
|
Indianapolis,
IN
|
46204
|
|
(Address
of principal executive
offices)
|
(Zip
code)
|
(317)
633-4100
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Sec. 12(b) of the Act:
|
Title
of each class
|
Name
of each exchange on which registered
|
|
Common
Stock, stated value $.50 per share
|
New
York Stock
Exchange
|
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. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer,
a
non-accelerated filer,
or a smaller reporting company. See
the
definitions
of
“large
accelerated
filer,”
“accelerated filer,”and
“smaller
reporting company” in Rule
12b-2 of the Exchange Act. (Check
one):
|
Large
accelerated
filer
|
Accelerated
filer X
|
|
Non-accelerated
filer
(Do
not check if smaller reporting company)
|
Smaller
reporting company
|
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 9, 2008 was approximately $184,670,513 based on the closing stock price of $7.39 per share on that day.
The
number of shares of
Common Stock outstanding at December 3,
2008 was 28,663,619.
DOCUMENTS
INCORPORATED
BY REFERENCE
Portions
of the Registrant’s definitive Proxy Statement to be filed for its 2009 Annual
Meeting of Shareholders are incorporated by reference into Part III of this
Form
10-K.
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Form
10-K
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Year
ended
September 24, 2008
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Table
of
Contents
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Page
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Part
I
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3
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9
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13
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14
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15
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15
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Part
II
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16
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18
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19
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30
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31
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58
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58
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58
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Part
III
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59
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59
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59
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59
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59
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Part
IV
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60
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65
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66
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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. As of
December 3, 2008, we had 415 Company-owned restaurants and 75 franchised
restaurants located in 21 states. Most Steak n Shake restaurants
are open 24 hours a day, seven days a week. Lunch and dinner sales
account for approximately 38% and 45% 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 2008, 2007,
and 2006 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).
Information
related to
our reportable segments may be found in Part II, Item 8 of this Form
10-K.
The
Steak n Shake
Concept
Steak
n Shake is a
classic American brand serving premium burgers and milk
shakes. Founded in 1934 in Normal, Illinois, the Company occupies 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. Our menu features core items such as STEAKBURGER™
sandwiches, thin and crispy fries and hand-dipped milk shakes. Our
prices are generally less than those in most casual dining and family-style
concepts, with an average check of approximately $7.37 per
person. During the peak lunch and dinner hours the average check,
respectively, is approximately $7.28 and $7.67.
Fiscal
Year 2008
Developments
New
Leadership
There
were several changes to our management team throughout the fiscal
year. During the fourth fiscal quarter, the Board of Directors
appointed a new Chief Executive Officer. Concurrent with this change
in leadership, we began to implement a change in strategic direction,
under
which we are operating in a manner focused on generating cash. As a
result of this shift, we decided to forego certain planned initiatives,
including software projects and a new restaurant opening. In
addition, several personnel changes resulted in severance
expense.
Turnaround
Plan
Under
the direction of
the new leadership the following goals were set:
|
●
|
To
form a strong
management
team,
|
|
●
|
To
achieve a low
cost structure,
|
|
●
|
To
maintain a
sound balance sheet,
|
|
●
|
To
establish a
focused strategy, and
|
| ● | To execute the plan decisively. |
Maximizing
Intrinsic Value Per Share
Our
long-term objective
is to maximize intrinsic business value per share of the
Company. (Intrinsic value is computed by taking all future cash flows
into and out of the business and then discounting the resultant number at an
appropriate interest rate.) Thus, our financial goal is to maximize
free cash flow and return on invested capital. We regard capital
allocation as immensely important to creating shareholder
value.
Strategy
Steak
n Shake is a
classic American brand, and we intend to lead and dominate the premium burger
and milk shake segment of the restaurant industry. We have chosen a
focused strategy, namely, emphasizing our core — burgers, fries, milk shakes,
and chili — which make up nearly 80% of our sales. We aspire to be
best-in-class in cleanliness, product, service, value, promotion, and
menu. It is critical that our food be distinctive, savory, and priced to
attract higher frequency of return. We are working on a new menu — to
reduce it to clear and appealing choices and thus simplify. We currently
are working through several test markets to determine the most appetizing menu
selections by simultaneously improving variety while discarding slow moving
items. We will add items to span the prices in the menu; a three-tiered
pricing strategy bridging low, medium, and higher priced items is intended
to
boost customer traffic and profit.
Steak
n
Shake will celebrate its 75th
anniversary in 2009, an ideal opportunity to capitalize on the heritage of
the
brand and reconnect with our fans. Our marketing plan for calendar 2009
will stress our celebration of this memorable occasion. As we reconnect
generations of customers to our brand, we aspire for our restaurant décor to be
clean, up-to-date, casual, and exciting, suitable for everyday enjoyment.
We will incorporate music into the stores, update color schemes, improve
lighting, and stylize uniforms — all to spur excitement in our associates and
customers.
Low
Cost
Structure
During
fiscal year
2008, we reduced General and administrative expense by a net $7.1
million and believe that we can achieve additional savings in fiscal year
2009. Moreover, we plan to reduce restaurant operating costs; because
cost arrangements on outside services along with outmoded insurance programs
have burdened the stores with noncompetitive
overhead.
Balance
Sheet
We
recently amended our debt facilities. The amendments include an
extension of our Revolving Credit Facility to January 30, 2010, revised
financial covenants, and obtained an extension on the requirement to provide
collateral under our Senior Note Agreement.
We
own
the land and buildings of 164 properties and 20 parcels of
land. Included in the 164 owned properties are 146 Company-owned and
operating restaurants, 14 improved properties, two restaurants that have been
leased to franchisees, a division office, and a warehouse
facility. At the end of fiscal year 2008, we have $25.4 million in
assets held for sale which includes the 14 improved properties and 20 parcels
of
land which were previously purchased for development.
Geographic
Concentration and Restaurant Locations
During
fiscal year
2008, approximately 43.1% of our net sales were derived from five defined market
areas: St. Louis, Missouri (11.9%); Indianapolis, Indiana (11.6%); Orlando,
Florida (7.1%); Chicago, Illinois (6.5%); and Atlanta, Georgia
(6.0%).
The
following table
lists the locations of the 490 Steak n Shake restaurants, including 75
franchised units, as of December 3, 2008:
|
Company-Owned
|
Franchised
|
Total
|
|||
|
Alabama
|
2
|
3
|
5
|
||
|
Arkansas
|
–
|
2
|
2
|
||
|
Florida
|
81
|
1
|
82
|
||
|
Georgia
|
23
|
7
|
30
|
||
|
Illinois
|
63
|
6
|
69
|
||
|
Indiana
|
68
|
2
|
70
|
||
|
Iowa
|
3
|
–
|
3
|
||
|
Kansas
|
–
|
4
|
4
|
||
|
Kentucky
|
14
|
1
|
15
|
||
|
Michigan
|
19
|
–
|
19
|
||
|
Mississippi
|
–
|
1
|
1
|
||
|
Missouri
|
39
|
21
|
60
|
||
|
North
Carolina
|
6
|
6
|
12
|
||
|
Ohio
|
63
|
–
|
63
|
||
|
Oklahoma
|
–
|
4
|
4
|
||
|
Pennsylvania
|
6
|
2
|
8
|
||
|
South
Carolina
|
1
|
2
|
3
|
||
|
Tennessee
|
9
|
9
|
18
|
||
|
Texas
|
18
|
1
|
19
|
||
|
West
Virginia
|
–
|
1
|
1
|
||
|
Wisconsin
|
–
|
2
|
2
|
||
|
Total
|
415
|
75
|
490
|
Restaurant
Operations
To
provide an enjoyable
dine-in, carry-out, or drive-thru experience, we must have competent and
skilled restaurant management at each location. A typical Steak n
Shake restaurant’s management team consists of a general manager, a
restaurant manager and from one to two 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, cleanliness, 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.
As
part of our
commitment to improving our standards of execution, we emphasize strengthening
each manager’s skills and capabilities through 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
We
monitor guest
satisfaction at Company-owned units primarily through formal inspections by
management and training personnel. Franchised restaurants are
monitored through periodic inspections by franchise field operations personnel,
guest satisfaction surveys, and a mystery shopper program, in addition to
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 109
Company-owned and 11 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 strategy
for 2008 was driven by a focus on our core menu items, including STEAKBURGER™
sandwiches, fries and milk shakes. Our goal is to build brand loyalty
and increase purchase frequency. We principally advertise through
television, radio, outdoor billboards, and coupon
inserts.
Franchising
Our
franchising program
extends our brand name recognition to areas in which 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. We also take advantage of opportunities to refranchise
certain Company-owned restaurants that are typically located in tertiary
markets. During fiscal year 2008, we refranchised a total of eight
Company-owned restaurants to three new franchisees, and subsequent to year-end
we refranchised an additional seven restaurants to one existing
franchisee.
Franchisees
undergo a selection process supervised by the Vice President, Development,
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 fee based on adjusted 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 countless national, regional and
local establishments. In all of our 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, demographic factors, 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 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 also may be negatively
affected by adverse weather during the first and fourth quarters as hurricanes
and tropical storms may impact the Southeastern portion of the United
States,
where we have a significant number of restaurants.
Employees
Currently,
we employ
approximately 20,000 associates, of which approximately two-thirds are 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®”,
“Takhomacard®”, “Banawberry®”, “Banocolate®”, “Strawnilla®”, “Vanocha®”,
“Sippable Sundaes®”, “Side-by-Side®”, “Bits ‘n Pieces®”, “Exactly The Way You
Want It®”, and the Company’s “storefront design”® are among the federally
registered trademarks and service marks we own. “Original Double
Steakburger®”, “Takhomameal™”, and “Takhomaparty™” 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.
Information
Available
on our Web Site
We
make available
through a link on 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 are 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:
|
Name
|
Age
|
Position
with Company
|
Since
|
|
Sardar
Biglari(1)
|
31
|
Chief
Executive Officer-
|
|
|
The
Steak n Shake Company
|
2008
|
||
|
Steak
n Shake Enterprises, Inc.
|
2008
|
||
|
Executive
Chairman -
|
|||
|
The
Steak n Shake Company
|
2008
|
||
|
Steak
n Shake Operations, Inc.
|
2008
|
||
|
Steak
n Shake Enterprises, Inc
|
2008
|
||
|
Duane
E. Geiger
|
46
|
Interim
Chief Financial Officer-
|
|
|
The
Steak n Shake Company
|
2008
|
||
|
Steak
n Shake Enterprises, Inc.
|
2008
|
||
|
Controller
-
|
|||
|
The
Steak n Shake Company
|
2004
|
||
|
Steak
n Shake Enterprises, Inc.
|
2006
|
||
|
Vice
President -
|
|||
|
The
Steak n Shake Company
|
1995
|
||
| Steak n Shake Enterprises, Inc. |
2006
|
||
|
Omar
Janjua
|
50
|
Executive
Vice President, Operations -
|
|
|
The
Steak n Shake Company
|
2007
|
||
|
Steak
n Shake Operations, Inc.
|
2007
|
||
|
David
C. Milne
|
41
|
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
|
||
|
Dennis
Roberts
|
59
|
Senior
Vice President, Operations Excellence -
|
|
|
The
Steak n Shake Company
|
2008
|
||
|
Steak
n Shake Operations, Inc.
|
2008
|
||
|
Michael
Williams
|
46
|
Senior
Vice President, Chief Marketing Officer -
|
|
|
The
Steak n Shake Company
|
2008
|
||
|
Steak
n Shake Enterprises, Inc.
|
2008
|
(1)
Member of the Board of Directors of the Company
Mr.
Biglari
was elected Executive Chairman of the Board in
June 2008 and
appointed Chief Executive Officer in August
2008
following his election to the Board of Directors at the 2008 Annual Meeting
of
Shareholders. In
addition, Mr.
Biglari serves as
the Chairman and Chief Executive Officer of Biglari Capital, the general
partner
of the Lion Fund L.P., a private investment fund, since its inception in
2000. He has also serves as the Chairman of the Board of Western Sizzlin
Corp., since 2006 and as its Chief Executive Officer since
2007.
Mr.
Geiger was named
Interim Chief Financial Officer in July
2008.
He
has also
served as Vice
President,
Controller since
2004. Prior
thereto, Mr.
Geiger was Vice President, Information Systems, Financial Planning and
Treasurer,
and
he
served
in
other various capacities within the Company since
1993.
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.
Roberts joined us
as Senior Vice President, Operations Excellence in
September
2008. Prior
to joining Steak
n Shake, Mr. Roberts served
as a
Senior
Business Advisor at
Results
Oriented
Individuals from
2006 to
2008,
as
President
of DJR Health & Fitness Solutions, Inc. from
2004 to 2006,
and
as
Executive
Vice
President, Chief Operating Officer of
Dollar Financial
Group,
Inc.from
2001 to
2004. Mr.
Roberts also
has
over
20
years
of experience in the restaurant industry, serving in
executive roles at
Unos
Restaurant Corporation and Friendly Ice Cream
Corporation.
Mr.
Williams joined
us as Senior Vice President, Chief Marketing Officer in
October 2008.
Prior
to
joining Steak n Shake, Mr. Williams served as Senior Vice President, Marketing
for Direct General Corporation, Inc.,
from 2007 to 2008,
and
as
Vice
President of Marketing for The
Krystal
Company
from
2000
to 2007.
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
or
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
operating results
may continue to decline if our plans to increase store traffic on a profitable
basis are not successful.
We
have experienced
ongoing declines in our guest count and same store sales for several years,
a
decrease which negatively impacts our operating results and cash
flows. The Company is addressing declines in store traffic under the
direction of new leadership. If our plans are not successful,
we may face continuing deterioration in our operating
results.
We
face continually
increasing competition in the restaurant industry for guests, staff,
locations,
and new
products, which may prevent us from reversing our
deteriorating
operating performance.
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, 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.
If
our
strategy does not improve same store sales, our operating results and business
will be adversely affected.
The
recent disruptions
in the
overall economy and the financial markets may adversely impact our
business.
The
restaurant industry
has been affected by current economic factors, including the deterioration
of
national, regional and local economic conditions, declines in employment
levels,
and shifts in consumer spending patterns. The recent disruptions in the
overall economy and volatility in the financial markets have reduced, and
may
continue to reduce, consumer confidence in the economy,
negatively affecting
consumer restaurant spending, which could be harmful to our financial position
and results of operations.
As a
result,
decreased cash flow generated from our business may adversely affect our
financial position and our ability to fund our operations. In
addition,
macro
economic disruptions, as
well as the
restructuring of various commercial and investment banking organizations,
could
adversely affect our ability to access the credit markets. The disruption
in the credit markets may also adversely affect the availability of financing
for our franchisees’ expansions and operations, and could impact our vendors’
ability to meet supply requirements. There can be no assurance that
government responses to the disruptions in the financial markets will restore
consumer confidence, stabilize the markets, or increase liquidity and the
availability of credit.
Our
cash flows and
financial position could be negatively impacted if we are unable to comply
with
the restrictions and covenants to our debt
agreements.
We
currently maintain
debt instruments which include restrictions and covenants that require
quarterly
compliance. If we fail to meet those restrictions and covenants our
operations and business may be negatively impacted.
The
continued
significant
decline in
the market price of our common stock could adversely affect our goodwill
impairment
analysis.
Goodwill
of the Company is tested for impairment
annually,
or
when there are
indicators
for
impairment,
in
accordance with
Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets” (“SFAS 142”).
We are
still in the process of completing our analysis for fiscal
2008. However, based on our analysis performed to date, we do not
believe a material impairment is probable based on the estimated fair value
determined at the annual assessment date.
As
a
result of the significant decline in the market price of the Company’s common
stock subsequent to the end of fiscal year 2008, the Company’s market
capitalization is below the carrying value of the Company’s assets,
and may require us to perform additional impairment analyses. If it
is determined that an impairment loss should be recognized on goodwill,
the
Company’s reported results could be adversely affected.
We
may be required to
recognize additional impairment charges on our long-lived assets, which
would
adversely affect our results of operations and financial
position.
Long-lived
assets, including restaurant sites, leasehold improvements, other fixed
assets
and amortized intangible assets are reviewed when indicators of impairment
are
present. Expected cash flows associated with an asset are the key factor
in determining the recoverability of the asset. Identifiable cash flows
are generally measured at the restaurant level. The estimate of cash flows
is based upon, among other things, certain assumptions about expected future
operating performance. Management’s estimates of undiscounted cash flows
may differ from actual cash flows due to, among other things, changes in
economic conditions, changes to our business model or changes in operating
performance. If the sum of the undiscounted cash flows is less than the
carrying value of the asset, we recognize an impairment loss, measured
as the
amount by which the carrying value exceeds the fair value of the
asset.
Judgments
made by management related to the expected useful lives of long-lived assets
and
our ability to realize undiscounted cash flows in excess of the carrying
amounts
of such assets are affected by factors such as the ongoing maintenance
and
improvements of the assets, changes in economic conditions and changes
in
operating performance. As the ongoing expected cash flows and carrying
amounts of long-lived assets are assessed, these factors could cause us
to
realize a material impairment charge.
Fluctuations
in
commodity and energy prices and the availability of commodities, including
beef,
fried
products, poultry,
and
dairy,
could
affect our business.
A
significant component
of our costs is related to food commodities, including beef, fried
products,
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, our results
of
operations
may
be
negatively affected. In
addition, we are
dependent upon
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, or
otherwise harm our
business.
The
inability of our
franchisees
to operate profitable
restaurants may negatively impact our financial
performance.
We
operate a franchise
program and collect royalties, and 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 and
geographic
concentration,
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 and
less geographically
diverse 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.
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.
The
inability
to attract qualified associates,
an
increase in labor
costs,
or
labor shortages 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. 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. Additionally,
competition for qualified employees could require us to pay higher wages
or
provide greater benefits, which could result in higher labor
costs.
Adverse
weather
conditions or losses due to casualties could negatively impact our operating
performance.
Although
we maintain,
and require our franchisees to maintain, property and casualty insurance
to
protect against property damage caused by casualties and natural disasters,
instances of inclement weather, flooding, hurricanes, fire, and other acts
of
God can adversely impact our sales in several ways. 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 experience
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 due
to physical damage
or a shortage of employees resulting from unsafe road conditions or an
evacuation of the general population. 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, given
our geographic
concentration, unfavorable
publicity
relating to just one of our restaurants could adversely affect public perception
of the entire brand,
which
could immediately
and severely damage
sales,
and
accordingly,
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.
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 our
leases
expire, we may
fail to negotiate renewals, either on commercially acceptable terms or
at all,
which could cause us to close stores in desirable
locations.
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
and
regulations affecting
our
business. Restaurant
operations
are also subject to licensing and regulation by state and local departments
setting
standards for health,
food
preparation, sanitation,
and
safety;
federal
and state labor
laws (including applicable minimum wage requirements, overtime, working and
safety conditions, child
labor, tip
credits, 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.
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.
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.
Office,
Warehouse,
and
Distribution Facilities:
.
|
Use
|
Location
|
Own/Lease
|
|
Division
Office
|
Orlando,
FL
|
Lease
|
|
Division
Office
|
Atlanta,
GA
|
Lease
|
|
Division
Office
|
Chicago,
IL
|
Lease
|
|
Distribution
Center / Division Office
|
Bloomington,
IL
|
Lease
|
|
Warehouse
|
Bloomington,
IL
|
Own
|
|
Executive
Office
/ Division Office
|
Indianapolis,
IN
|
Lease
|
|
Division
Office
|
St.
Louis,
MO
|
Own
|
|
Division
Office
|
Cincinnati,
OH
|
Lease
|
|
Division
Office
|
Columbus,
OH
|
Lease
|
Restaurant
Properties:
As
of December
3,
2008, we operated
269
leased
and 146
owned
restaurants
located
primarily in the Midwest and Southeast portions of the United
States.
We
assist
qualified
franchisees with financing by purchasing or leasing land, constructing
the
restaurant,
and
then leasing or
subleasing the land and building to the franchisee. We
lease the land
and building for these properties as the primary lessee.
As
of December
3,
2008,
we
had
the following
interests in properties that are being operated by franchisees pursuant
to lease
or sublease agreements:
|
Franchised
Location
|
Own/Lease
|
|
Columbus,
GA
|
Lease
|
|
Macon,
GA
|
Lease
|
|
Macon,
GA
|
Own
|
|
Warner
Robins,
GA
|
Lease
|
|
Lawrence,
KS
|
Lease
|
|
Olathe,
KS
|
Own
|
|
Overland
Park,
KS
|
Lease
|
|
Topeka,
KS
|
Lease
|
|
Columbia,
MO
|
Lease
|
|
Kansas
City,
MO
|
Lease
|
|
Lee's
Summit,
MO
|
Lease
|
|
Chattanooga,
TN
|
Lease
|
|
Houston,
TX
|
Ground
Lease
|
Additionally,
we
own
a Jeffersontown,
Kentucky
property
no longer in
operation that we lease to a third party. We have land
and building
lease
obligations on former restaurants
in
Rolling
Meadows,
Illinois
and Columbus,
Ohio
that
are subleased
to
third
parties.
We
also
have one
ground
lease for a
property in Bloomington,
Indiana
that
is subleased to a
third party.
Sublease
rentals cover
substantially all of our obligations under the primary leases.
We
believe that our
properties are suitable, adequate, well-maintained,
and
sufficient for the
operations contemplated. See “Geographic
Concentration and Restaurant Locations” in Item I for
additional
information regarding
our
restaurant
properties.
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 results of operations, financial position,
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. 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:
|
2008
|
2007
|
||||||||||
|
High
|
Low
|
High
|
Low
|
||||||||
|
First
Quarter
|
$
|
15.98
|
$
|
10.43
|
$
|
19.25
|
$
|
16.53
|
|||
|
Second
Quarter
|
$
|
11.24
|
$
|
7.39
|
$
|
18.08
|
$
|
16.43
|
|||
|
Third
Quarter
|
$
|
8.12
|
$
|
6.05
|
$
|
17.13
|
$
|
14.78
|
|||
|
Fourth
Quarter
|
$
|
8.53
|
$
|
5.58
|
$
|
17.22
|
$
|
13.46
|
|||
We
did not pay cash
dividends on our common stock during the last two fiscal years. Our
credit
agreements prohibit us from paying cash dividends, and we do not anticipate
the
payment of cash dividends in the near future. As
of December
3,
2008,
there were
approximately 8,000
record holders
of our common stock.
Comparison
of Five-Year Cumulative Total Return
The
preceding
stock price performance graph and related information shall not be deemed
“soliciting material” or to be “filed” with the SEC, nor shall such information
be incorporated
by reference
into any future filings under the Securities Exchange Act of 1934, as amended,
or the Securities Act of 1933, as amended, except to the extent that we
specifically incorporate it by
reference
into such
filings.
The
“Equity
Compensation Plan Information” required by Item 201(d) of Regulation S-K will be
contained in our definitive Proxy Statement for the 2009 Annual Meeting
of
Shareholders, to be filed on or before January 22, 2009, and such information
is
incorporated herein by reference.
ITEM
6. SELECTED FINANCIAL DATA
|
SELECTED
FINANCIAL AND OPERATING DATA
|
||||||||||||||||||||
|
The
Steak n Shake
Company
|
||||||||||||||||||||
|
(Amounts
in 000s,
except per share data)
|
||||||||||||||||||||
|
September
24,
2008
|
September
26,
2007
|
September
27,
2006
|
September
28,
2005
|
September
29,
2004
|
||||||||||||||||
|
Statement
of
Operations Data:
|
||||||||||||||||||||
|
Total
revenues
|
$ | 610,061 | $ | 654,142 | $ | 638,822 | $ | 606,912 | $ | 553,692 | ||||||||||
|
Net
(loss)
earnings
|
$ | (22,979 | ) | $ | 11,808 | $ | 28,001 | $ | 30,222 | $ | 27,591 | |||||||||
|
Per
share
data:
|
||||||||||||||||||||
|
Basic
(loss)
earnings per common and
common
equivalent share
|
$ | (0.81 | ) | $ | 0.42 | $ | 1.01 | $ | 1.10 | $ | 1.01 | |||||||||
|
Diluted
(loss)
earnings per common and
common
equivalent
share
|
$ | (0.81 | ) | $ | 0.42 | $ | 1.00 | $ | 1.08 | $ | 1.00 | |||||||||
|
Basic
weighted
average shares (in
thousands)
|
28,254 | 28,018 | 27,723 | 27,500 | 27,385 | |||||||||||||||
|
Diluted
weighted
average shares and
share
equivalents
(in thousands)
|
28,254 | 28,216 | 28,039 | 28,059 | 27,711 | |||||||||||||||
|
Statement
of
Financial Position Data:
|
||||||||||||||||||||
|
Total
assets
|
$ | 520,136 | $ | 565,214 | $ | 542,521 | $ | 474,657 | $ | 435,853 | ||||||||||
|
Long-term
debt
|
||||||||||||||||||||
|
Obligations
under
leases
|
134,809 | 139,493 | 143,996 | 147,615 | 144,647 | |||||||||||||||
|
Other
long-term
debt
|
15,783 | 16,522 | 18,802 | 6,315 | 9,429 | |||||||||||||||
|
Shareholders'
equity
|
$ | 283,579 | $ | 303,864 | $ | 287,035 | $ | 252,975 | $ | 218,932 | ||||||||||
|
SELECTED
FINANCIAL AND OPERATING DATA
|
||||||||||
|
The
Steak n
Shake Company
|
||||||||||
|
September
24,
2008
|
September
26,
2007
|
September
27,
2006
|
September
28,
2005
|
September
29,
2004
|
||||||
|
Other
data:
|
||||||||||
|
Number
of
restaurants:
|
||||||||||
|
Company-owned
|
423
|
435
|
429
|
399
|
365
|
|||||
|
Franchised
|
68
|
57
|
48
|
49
|
60
|
|||||
|
491
|
492
|
477
|
448
|
425
|
||||||
|
Approximate number
of employees
|
20,000
|
22,000
|
23,000
|
21,500
|
20,000
|
|||||
|
Approximate number
of shareholders
|
8,000
|
8,000
|
12,000
|
13,500
|
13,500
|
|||||
ITEM
7.
MANAGEMENT'S
DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The
Steak n Shake
Company
(Years
ended
September
24, 2008, September
26, 2007,
and
September
27, 2006)
(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 18
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
2008,
2007,
and 2006,
which ended on
September
24, 2008, September
26, 2007,
and
September
27, 2006, 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.
Fiscal
Year
2008
In
fiscal year
2008,
total revenues
decreased 6.7% to $610,061 as compared to $654,142 in fiscal year
2007. The
decrease in
revenues resulted from a same-store sales decline of 7.1% during fiscal
year
2008. The
net loss for fiscal
year
2008
was
$22,979, or $0.81 per diluted share, compared to net earnings of $11,808,
or
$0.42 per diluted share in the prior fiscal
year.
The
fiscal
year
2008
results included $14,858 ($9,212, or $0.33 per diluted share, net of tax)
of
non-cash impairment charges and store closing costs, including charges
related
to a group of stores that we closed in the fourth quarter of fiscal year
2008
and restaurants
that were impaired because the carrying values of their underlying assets
exceeded their expected future undiscounted
cash
flows. Also
included is a
store closure charge of $514 arising from early termination of a lease
on a
property. In
comparison, fiscal
year
2007
included an impairment charge of $5,369 ($3,329, or $0.12 per diluted share,
net
of tax), which was offset by a $193 gain on the sale of two restaurants
closed
during a prior year.
During
fiscal
year
2008,
we
opened nine new
Company-owned restaurants, closed 13 underperforming restaurants, and
refranchised
eight
restaurants to franchisees, which brought the total Company-owned units
to 423
as of September 24, 2008. Also
during fiscal
year
2008,
our
franchisees opened five new restaurants and closed two restaurants, bringing
the
total number of franchised units to 68 on September 24, 2008. Subsequent
to year-end,
we closed one Company-owned restaurant and
refranchised
seven
Company-owned
restaurants
to
franchisees.
In
fiscal year
2008,
we analyzed the
impact of modifying the operating hours of certain restaurants that were
not
profitable during the overnight hours. Our
analysis led us to
reduce the number of restaurants that operate on a 24-hour, seven-day-a-week
platform. Currently, approximately 75% of our restaurants continue to
operate 24 hours a day, seven days a week. The
remaining 25% of
restaurants have varying hours that best suit the demographics and customer
demands in the areas in which they operate.
New
management,
during the fourth
quarter of fiscal year 2008, enacted
a change in
strategic direction under which we began to operate in a manner designed
to
generate
cash. As
a result of this
shift, we decided to forego
certain planned
initiatives, including software projects and
construction of
a
new
restaurant.
In
addition to the
foregoing, several
personnel
changes resulted in severance expense. The
non-cash
write-offs,
severance expense,
and
other
expenditures resulting from these strategic changes during
fiscal year 2008
was
$4,074, net of tax. Refer
to Part I,
Item I of this Form 10-K for information regarding new management’s strategy and
turnaround plan.
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.
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
value
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,
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 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
24, 2008 and
September
26, 2007 were $6,374
and $7,037,
respectively. The
decrease
reflects
a
reduction in the size and number of open workers’ compensation
claims.
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
2008
results,
a
change of 1% in the annual effective tax rate would have an impact of
$348
on
net
loss.
We
adopted the
provisions of Financial
Accounting
Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”),
on
September 27, 2007,
the beginning of
fiscal year 2008. FIN 48 addresses the determination of how
tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. Under FIN 48, we must recognize
the tax benefit from an uncertain tax position only if it is more likely
than
not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position are
measured based on the largest benefit that has a greater than 50% likelihood
of
being realized upon ultimate resolution. As a result
of the
implementation of FIN 48, we recognized an increase of $614 in the liability
for
unrecognized tax benefits, which was accounted for as a reduction of $312
to
retained earnings and $302 to deferred taxes as of the adoption
date. Our estimates of the tax benefit from uncertain tax
positions may change in the future due to new developments in each
matter.
For
additional information regarding the adoption of FIN 48, see Note 10 of
Notes to
Consolidated Financial Statements in Part II, Item 8 of this Form
10-K.
Goodwill
and Other
Intangible Assets
Under
SFAS No. 142, “Goodwill and Other Intangible Assets,” we are required to
assess goodwill and any indefinite-lived intangible assets for impairment
annually, or more frequently if circumstances indicate impairment may have
occurred. The analysis of potential impairment of goodwill requires a
two-step approach. The first step is the estimation of fair value of
each reporting unit. If step one indicates that impairment
potentially exists, the second step is performed to measure the amount
of
impairment, if any. Goodwill impairment exists when the estimated fair
value of goodwill is less than its carrying value. We use both market
and income approaches to derive fair value. The valuation methodology and
underlying financial information included in our determination of fair
value
require significant judgments to be made by management. The
judgments in these two approaches include, but are not limited
to, comparable market multiples, long-term projections of future
financial performance, and the selection of appropriate discount rates
used to
determine the present value of future cash flows. Changes in such
estimates or the application of alternative assumptions could produce
significantly different results. Accordingly,
we believe
that accounting estimates related to goodwill and other intangible assets
are
critical.
Our
calculation of the fair value of the reporting units considers current
market
conditions existing at the assessment date. Due to the significant decline
in the market price of our common stock subsequent to the end of our fiscal
year
2008, it is probable that we will need to update our impairment analysis
during
our first quarter of fiscal year 2009. We can provide no assurance that a
material impairment charge will not occur in future periods as a result of
these analyses.
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 build out. As
the assumptions
inherent in determining lease commencement and
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 Operations for the periods indicated:
|
2008
|
2007
|
2006
|
||||||
|
Revenues:
|
||||||||
|
Net
sales
|
99.3
|
%
|
99.4
|
%
|
99.4
|
%
|
||
|
Franchise
fees
|
0.7
|
0.6
|
0.6
|
|||||
|
Total
revenues
|
100
|
100
|
100
|
|||||
|
Costs
and
expenses:
|
||||||||
|
Cost
of
sales (1)
|
24.9
|
23.1
|
22.6
|
|||||
|
Restaurant
operating costs (1)
|
55.7
|
51.8
|
50.3
|
|||||
|
General
and
administrative
|
8.3
|
8.8
|
8.3
|
|||||
|
Depreciation
and
amortization
|
5.5
|
4.9
|
4.5
|
|||||
|
Marketing
|
4.7
|
4.4
|
4.3
|
|||||
|
Interest
|
2.3
|
2.1
|
1.8
|
|||||
|
Rent
|
2.4
|
2.1
|
1.9
|
|||||
|
Pre-opening
costs
|
0.2
|
0.4
|
0.6
|
|||||
|
Asset
impairments
and provision for restaurant closings
|
2.4
|
0.8
|
–
|
|||||
|
Other
income,
net
|
(0.3)
|
(0.3)
|
(0.4)
|
|||||
|
(Loss)
earnings
before income taxes
|
(5.7)
|
2.3
|
6.6
|
|||||
|
Income
taxes
|
(1.9)
|
0.5
|
2.2
|
|||||
|
Net
(loss)
earnings
|
(3.8)
|
%
|
1.8
|
%
|
4.4
|
%
|
||
|
(1)
Cost of sales
and restaurant operating costs are expressed as a percentage of
net
sales.
|
||||||||
(Amounts in $000s)
Fiscal
Year
2008
compared with
Fiscal Year
2007
Net
(Loss)
Earnings
We
recorded a net loss
of ($22,979), or ($0.81) per diluted share for the current fiscal year,
as
compared with net earnings of $11,808, or $0.42 per diluted share in fiscal
year
2007. The
decrease was
primarily driven by the decline in same store
sales, increases in
cost of sales and restaurant operating costs, and $14,858
($9,212, net of
tax) of non-cash impairment and store closing costs, which had an impact
of
$0.33 per diluted share. Comparatively, fiscal year 2007 earnings
included $5,176
($3,209,
net of tax)
of
net
non-cash
impairment,
which
had an impact of
$0.11
per
diluted share.
Net
Sales
In
fiscal year
2008,
net
sales decreased
6.8%
from $650,416
to
$606,076
primarily due
to the decline in same store sales. Same store sales decreased 7.1%
due to a decline in guest traffic of 10.0%, which was partially offset
by a 2.9%
increase in
average guest
expenditure. The
increase in average
guest expenditure results primarily from menu price increases of 3.3%,
which are
made up of the annualization of fiscal year 2007 price increases in addition
to
a 2.1% increase in the first quarter of fiscal year 2008. These price
increases were implemented to offset minimum wage and commodity cost
pressures.
Franchise
fees
increased 7.0% during fiscal year 2008. The increase is primarily the
result of growth in the number of franchised units from 57 at the end of
fiscal
year 2007 to 68 at the end of fiscal year 2008. The increase in
franchise fees was offset by a decrease in franchisee same store sales
of 7.3%,
which resulted in lower royalty fees accrued.
Cost
and
Expenses
Cost
of sales
was $151,188
or 24.9% of
net sales, compared with $150,286 or 23.1% of net sales in fiscal year
2007.
The
increase as a
percentage of net sales reflected
higher
commodity costs (primarily dairy, beef, and fried products), new
menu items with
higher percentage food cost (including
improved
entrée
salads, chicken
sandwiches,
and
the
introduction of
fruit sides), and
operational
inefficiencies from implementing the new product mix.
Restaurant
operating
costs were $337,786
or 55.7% of
net sales compared to $336,955
or 51.8% of
net sales in
fiscal year
2007.
Higher
utility costs
and repairs and maintenance caused an increase of $2,510 over the prior
fiscal
year, which included $355 of incremental repairs and maintenance related
to
strategic changes executed in the fourth fiscal quarter. Outside
services increased $1,060 in fiscal year 2008 due to the addition of a
new
contractor and more frequent snow removal services attributable to unfavorable
weather conditions during the second fiscal quarter. These increases
were offset by a decline in labor and fringes of $2,640 during fiscal year
2008.
General
and administrative expenses
decreased
$7,100 (12.3%) to $50,425 for
fiscal
2008. Specifically,
$5,360 of the decrease resulted from lower salaries, wages, and fringes
due to
reductions in staffing that occurred during the fourth quarter of fiscal
year
2007 and during fiscal year 2008. Planned cutbacks in outside
consulting services and bonuses and stock compensation contributed an additional
$3,450 of cost savings, and travel and relocation expenses declined
$1,270. These reductions were partially offset by a $2,540 increase
in the loss on disposal and abandonment of assets and a $1,780 increase
in legal
and professional services. In fiscal year 2008, General and
administrative expense included severance costs of approximately $2,400,
$500 in
proxy-related fees, and $435 in consulting fees for a fixed asset tax
study.
Fiscal year 2007
General and administrative expense included $1,900 of
restructuring and
severance expenses.
Depreciation
and
amortization expense was $33,659
or 5.5% of
total revenues, versus $32,185
or 4.9% of total
revenues in
fiscal
year
2007.
The
increase was
primarily due to the addition of nine new restaurants, the new POS system
put in
service during fiscal year
2008,
restaurant
equipment, and 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.
Pre-opening
expense
decreased
52.7% to $1,272 due
to opening fewer
new restaurants in fiscal year 2008 compared to fiscal year 2007.
We
opened nine new
restaurants during fiscal year 2008 compared to 16
in fiscal
year
2007. The
decrease is also
due to variances in the timing of when
pre-opening costs
are incurred in
relation
to
when
the stores are opened. All
the
Company-owned restaurant openings for fiscal year 2008 were completed in
the
first and second quarters, and there are no planned Company-owned restaurant
openings for fiscal year 2009.
Asset
impairments and
provision for restaurant closings for fiscal year
2008
was $14,858 or
2.4% of total revenues, versus $5,176 or 0.8% of total revenues in fiscal
year
2007. The
fiscal year
2008
charge includes
$8,858
related
to restaurants
for which current operating performance is significantly below our
expectations,
and
the carrying values
of these properties exceed the expected future undiscounted
cash
flows
to be generated by the underlying assets; $5,009
related
to stores we
closed during the fourth fiscal quarter; $514 related to a fee for early
termination of a lease for a store that was closed subsequent to year-end;
and
$477 related to stores involved in a sale-leaseback transaction whose net
book
values exceeded their fair values. The
fiscal
year
2007
asset
impairment and provision for restaurant closings of $5,176 related to
the planned closure or sale of 14 restaurant properties and was offset
by the
impact of net gains on properties sold in excess of previously recorded
impairments.
Our
fiscal year 2008
effective income tax rate increased to 33.9% from
20.6%
in the prior
fiscal
year.
The prior
fiscal
year’s
effective
tax rate was
lower primarily due to the proportionate effect of increased federal income
tax
credits when compared to annual pre-tax (loss)
earnings.
For
the
current fiscal year, we
elected
to forego
claiming any
federal income tax
credits in order to maximize the cash refund generated from the net operating
loss carryback of the fiscal 2008 taxable loss. This
resulted in
recording substantially less income tax benefit in fiscal
2008
versus
fiscal
year 2007. The
current
fiscal
year
decrease in income tax benefit for electing to forego claiming any federal
income tax credits is approximately $3,000 when compared to the prior
year.
Fiscal
2007
compared with Fiscal 2006
Net
Earnings
Net
earnings decreased
in fiscal
year 2007 by
57.8% to
$11,808, or $0.42 per diluted share,
compared
with
$28,001,
or
$1.00
per diluted share, for fiscal year
2006. The
decrease was
primarily driven by the decline in same store sales noted below, $5,176
($3,209,
net of tax)
of
net
non-cash
impairment,
which
had an impact of
$0.11
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
fiscal
year
2007,
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. Fiscal
year
2007
net sales also
benefited from a full year of sales relating to the acquisition of eight
franchised restaurants from Creative
Restaurants,
Inc. (“CRI”)
in
the fourth quarter
of fiscal year
2006. CRI
sales during
fiscal
years 2007
and 2006 were $15,842 and $3,990, respectively.
Franchise
fees
decreased slightly during fiscal year 2007 primarily due to a decrease
in
franchisee same store sales of 3.0%, which resulted in lower royalty fees
accrued.
Cost
and
Expenses
In
fiscal
year
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 year
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 in
fiscal year 2007,
compared
to $319,070 or 50.3% of net sales in fiscal
year
2006.
The
largest portion of
the increase related to labor and fringes, which increased $10,144 or
0.7% as a percent of net sales over fiscal
year
2006. 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.
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
year
2007
were $57,525 or 8.8% of total revenues,
compared to $52,949 or
8.3% of total revenues in fiscal year
2006.
The
increase as a
percentage
of revenues was
attributable to $1,900 of restructuring and severance expenses not incurred
in
fiscal year
2006
and to
approximately $1,600 of compensation and $1,400 of incremental consulting
expenses,
including “Guest
Winning
Promise”
research.
Depreciation
and
amortization expense for fiscal year
2007
was $32,185 or
4.9% of total revenues, versus $28,967 or 4.5% of total revenues in the
prior
fiscal
year.
The
increase was
primarily due to the addition of units, including the eight restaurants
acquired from CRI in the fourth quarter of fiscal year
2006,
to software
placed in service during fiscal year
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 year
2007
was $14,015
or 2.1% of total revenues, versus $11,373 or 1.8% of total revenues in
the prior fiscal
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.
Pre-opening
expense was
$2,689 or 0.4% of total revenues in
fiscal year
2007,
versus $3,579 or 0.6% of total revenues in fiscal
year
2006. The
reduction was
driven by a decrease in new units from 26 in
fiscal year 2006
to
16 in
fiscal year
2007. Pre-opening
costs per
restaurant increased slightly due to differences in the timing of when
pre-opening costs are incurred compared to when the stores are
opened.
In
fiscal year
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
year
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.
Income
tax expense was
recorded at an effective tax rate of 20.6%in
fiscal
2007,
versus 33.8% in
fiscal year
2006.
The
decrease in the tax
rate in fiscal
year 2007
was
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.
Restaurant
Closings
We
permanently closed thirteen and eight Company-owned restaurants in fiscal
years
2008 and 2007, respectively. Ten of the restaurants closed in fiscal
year 2008 and six of the restaurants closed in fiscal year 2007 were located
near other Company-owned stores that continue to operate, and we expect
significant sales to transfer to the other existing
locations. Therefore, the results of operations of these restaurants
are not presented as discontinued operations and continue to be included
in
continuing operations in the Consolidated Statement of
Operations.
The
assets of
three
restaurants closed in fiscal year 2008 and two
restaurants
closed
in
fiscal year 2007 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
SFAS 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 combined
total of
five
restaurants was
approximately
$845,
$751,
and $375
for fiscal years
2008,
2007,
and 2006,
respectively.
The after-tax
losses
in fiscal years
2008 and
2007
include $583
and $515
of
asset
impairment
charges,
net of tax, respectively.
Seven
of
the thirteen restaurants that closed during fiscal year
2008
were owned
properties, and the net book value of the assets of these properties was
transferred to Assets held for sale in the Statement of Financial Position
during the quarter ended September 24, 2008.
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.
Liquidity
and Capital Resources
We
generated
$24,430,
$43,431,
and $69,578
in
cash
flows from operations during fiscal years
2008,
2007,
and 2006,
respectively, based
upon timing of receipts and payment of disbursements related to operating
activities.
Net
cash used in
investing activities of $16,592
during
fiscal
year
2008
resulted
primarily from
capital expenditures of $31,443.
We
opened nine new
restaurants during fiscal year 2008 and transferred eight restaurants to
franchisees. In
addition, in fiscal
year
2008,
we
received proceeds of $14,851 from the sale of one
restaurant and 11
parcels
of
land classified as held for sale, and from the transfer of three Company-owned
buildings
and various equipment to franchisees.
Net
cash used in
financing activities of $2,480 during fiscal year 2008 included payments
on the
Revolving Credit Facility (“Facility”) of $13,005. During
fiscal
year
2008,
we
also
sold
11 restaurants to a third party and simultaneously entered into a lease
for each
property. In conjunction with this sale-leaseback transaction, we
received net proceeds
of
$15,993.
Net
cash used in
investing activities of $60,110
during
fiscal
year
2007
resulted
primarily from
capital expenditures of $68,643. During
fiscal year
2007, we
opened 16 new Company-owned
restaurants,
rebuilt three
restaurants,
replaced
two
restaurants,
and transferred two
restaurants to franchisees. We
received proceeds of
$8,533 from the sale of eight
properties
during
fiscal year
2007. Net
cash provided
by financing activities of $13,356 during fiscal year 2007 resulted primarily
from $15,000 of borrowings under the Senior Note
Agreement.
Net
cash used in
investing activities of $87,314 during fiscal
year
2006
resulted primarily from capital expenditures of $80,840 and the acquisition
of
CRI, a franchisee, for $9,598. During fiscal
year
2006,
we
opened 26 new Company-owned restaurants, acquired eight restaurants from
CRI,
and rebuilt two
restaurants. We also received proceeds of
$3,124 from the sale
of property and equipment during fiscal year 2006. Net cash provided
by financing activities of $19,493 during fiscal year 2006 resulted primarily
from $25,065 of proceeds from the Facility.
We
do not anticipate
opening any Company-owned units during fiscal year 2009. Capital
expenditures in
fiscal year 2009 will be limited principally to capitalized repair and
maintenance costs. We
intend to meet our
working capital needs by using anticipated cash flows from operations,
net
operating loss carryback tax refunds, existing
credit
facilities,
the sale of excess
properties, and potential sale-leaseback transactions.
We
continually review
available financing alternatives. In addition, we may consider, on an
opportunistic basis, strategic decisions to create value and improve operating
performance.
Revolving
Credit Facility
As
of September 24,
2008, our Facility allowed
us to borrow up to
$30,000,
bore
interest based on
LIBOR plus 250 basis points,
and was
scheduled to expire
January 30, 2009.
Effective
with
an
amendment executed on November
21,
2008,
the borrowing capacity under the Facility was reduced to $25,000, the
interest rate
was
increased to
LIBOR plus 350 basis
points,
and the
maturity date was
extended to
January
30,
2010. At
September 24,
2008,
outstanding borrowings
under
the
Facility were
$14,180
at
an
interest rate of 5.2%. At
September
26,
2007,
outstanding borrowings under the Facility were $27,185
at an interest
rate of 5.4%. We
had $848
and $3,327 in
standby letters of credit outstanding as of September 24, 2008 and September
26,
2007, respectively.
The
Facility
contains
restrictions
and covenants customary for credit agreements of these types which, among
other things, require us to maintain
certain
financial ratios. The most recent amendment waived certain
financial covenant violations as of September 24, 2008. Giving effect
to this amendment, we were not in default under the Facility as of September
24,
2008. The
amendment also includes revised financial covenants, and we anticipate
compliance
in future periods based on expected financial results
and
debt repayment
terms.
Senior
Note Agreement
As
of September 24,
2008, our
total
borrowing capacity under the Senior
Note Agreement
was
$75,000,
and
our
ability to borrow additional funds expired September 29, 2008.
We
had outstanding
borrowings
under the Senior Note Agreement of $16,429 at
a weighted
average fixed
rate of
8.4%
as
of September 24,
2008,
and
$18,143 at a weighted average fixed rate of 6.1% as of September 26,
2007. Interest
rates are
fixed based upon market rates at the time of borrowing. Amounts
maturing in
fiscal years 2009 through 2012 are as follows: $714, $5,715, $5,000, and
$5,000, respectively.
Effective
with an amendment executed on November 21, 2008, we must make equal prepayments
under the Senior Note Agreement and the Facility once the balance of our
Facility reaches $10,000. The amendment also increased the interest
rates under the Senior Note Agreement effective November 21,
2008.
The
Senior Note
Agreement contains restrictions and covenants customary for credit agreements
of
these types which, among other things, require us to maintain certain
financial ratios which
are identical to
those required under the Facility.
On
November 21, 2008, the lender waived certain financial covenant violations
as of
September 24, 2008. Giving effect to this amendment, we were not in
default under the Senior Note Agreement as of September 24, 2008. The
amendment also includes revised financial covenants, and we anticipate
compliance
in future periods based on expected financial results
and
debt repayment
terms.
After
giving consideration to the issues noted above and reference to the applicable
accounting guidance in EITF No. 86-30, “Classification of Obligations When a
Violation is Waived by the Creditor,” and SFAS No. 78, “Classification of
Obligations That Are Callable by the Creditor,” we do not believe it is probable
that we will not comply with the amended covenants at measurement dates
within
the next twelve months. Accordingly, we have classified the
borrowings under the Senior Note Agreement which are scheduled to be paid
beyond
twelve months as non-current at September 24, 2008.
The
Senior Note
Agreement and
the Facility
are
secured with the deposit accounts, accounts receivable, inventory, equipment,
general intangibles, fixtures,
and
all other personal
property. The
Senior
Note Agreement and Facility also prohibit us from making cash dividends
or
repurchasing our common stock. As of November 21, 2008, the Senior
Note Agreement also requires us to secure the borrowings with certain real
estate assets if the principal balance under the Senior Note Agreement
is
greater than $5,000 on March 31, 2010.
The
carrying amounts for debt reported in the Consolidated Statement of Financial
Position do not differ materially from their fair market values at September
24,
2008.
Contractual
Obligations
Our
significant
contractual obligations and commitments as of September 24, 2008 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)(2)
|
$ | 15,881 | $ | 11,706 | $ | 5,052 | $ | – | $ | 32,639 | ||||||||||
|
Capital
leases
and finance obligations(1)
|
16,097 | 30,958 | 29,141 | 55,592 | 131,788 | |||||||||||||||
|
Operating
leases(3)
|
12,977 | 24,281 | 22,130 | 91,253 | 150,641 | |||||||||||||||
|
Purchase
commitments(4)
|
4,546 | 910 | – | – | 5,456 | |||||||||||||||
|
Other
Long-term
liabilities(5)
|
– | – | – | 1,809 | 1,809 | |||||||||||||||
|
Total
|
$ | 49,501 | $ | 67,855 | $ | 56,323 | $ | 148,654 | $ | 322,333 | ||||||||||
(1)
Includes
principal
and interest.
(2)
Includes
outstanding borrowings under the Facility and
the Senior Note
Agreement as of September 24, 2008.
(3)
Excludes
amounts
to be paid for
contingent rents.
(4)
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.
(5)
Includes
liabilities for Non-Qualified Deferred
Compensation Plan. Excludes
our FIN 48 liabilities of $953 as of September 24, 2008 because we cannot
make a
reliable estimate of the timing of cash payments.
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
On
September 27, 2007,
we adopted
the
provisions of FIN
48. FIN
48 clarifies
the
accounting for and reporting of uncertainties in income tax
law. It
prescribes a
comprehensive model
for the financial
statement recognition, measurement, presentation,
and
disclosure of
uncertain tax positions
taken or
expected to be taken in income tax returns. For
additional information regarding the impact of adoption of FIN 48, see
Note 10
of Notes to Consolidated Financial Statements in Part II, Item 8 of this
Form
10-K.
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. In
February 2008, the
FASB issued FSP 157-2, “Effective Date of FASB Statement No. 157,” which permits
a one-year deferral for the implementation of SFAS 157 with regard to
non-financial assets and liabilities that are not recognized or disclosed
at
fair value in the financial statements on a recurring basis (at least
annually). Thus, SFAS 157 as it relates to financial assets and
liabilities is effective
beginning in
our
fiscal
year
2009
in
accordance with the original Statement; however, SFAS 157’s applicability to
non-financial assets and liabilities will be deferred until our fiscal
year
2010.
We
do not anticipate
that the adoption of SFAS 157 with regard to financial assets and liabilities
will materially impact our financial statements. We are in the
process of determining the effect, if any, that the adoption of SFAS 157
with
regard to non-financial assets and liabilities 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 year
2009.
We
have
determined not to elect the fair value measurement option under SFAS
159.
In
December
2007,
the FASB issued
SFAS No. 141(R),
“Business
Combinations” (“SFAS 141(R)”),
which replaces SFAS
141. SFAS
141(R)
requires
that the fair
value of the purchase price of an acquisition including the issuance of
equity
securities be determined on the acquisition date; requires that all assets,
liabilities, noncontrolling interests, contingent consideration, contingencies,
and in-process research and development costs of an acquired business be
recorded at fair value at the acquisition date; requires that acquisition
costs
generally be expensed as incurred; requires that restructuring costs generally
be expensed in periods subsequent to the acquisition date; and requires
that
changes in deferred tax asset valuation allowances and acquired income
tax
uncertainties after the measurement period impact income tax expense.
SFAS
141(R) also
broadens the definition of a business combination and expands disclosures
related to business combinations. SFAS
141(R)
applies
prospectively
to business combinations for which the acquisition date is on or after
the
beginning of the first annual reporting period beginning on or after December
15, 2008,
our fiscal year
2010,
except
that business
combinations consummated prior to the effective date must apply SFAS
141(R) income tax
requirements immediately upon adoption. We
are in the process
of determining the effect, if any, that the adoption of SFAS
141(R) will
have on our
financial statements.
In
December
2007,
the FASB issued
SFAS No. 160,
“Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No.
51”
(“SFAS 160”).
SFAS
160
clarifies the
accounting for noncontrolling interests and establishes accounting and
reporting
standards for the noncontrolling interest in a subsidiary, including
classification as a component of equity. SFAS
160
is
effective for fiscal
years beginning after December 15,
2008,
our fiscal
year
2010. We
are in the process
of determining the effect, if any, that the adoption of SFAS 160
will
have on our
financial statements.
In
April 2008, the FASB
issued FASB Staff Position No. 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that
should be considered in developing renewal or extension assumptions that
are
used to determine the useful life of a recognized intangible asset under
SFAS
No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), and requires
enhanced related disclosures. FSP 142-3 must be applied prospectively
to all intangible assets acquired as of and subsequent to fiscal years
beginning
after December 15, 2008, our fiscal year 2010. We are in the process
of determining the effect, if any, that the
adoption of
FSP
142-3
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.
At
September 24, 2008
the
Revolving Credit Facility
bore
interest
at a rate
based upon LIBOR plus 250 basis points. Effective
November 21,
2008, the interest rate was
increased to
LIBOR
plus
350 basis points. Historically,
we have
not used derivative financial instruments to manage exposure to interest
rate
changes. At
September 24,
2008,
a
hypothetical 100 basis point increase in short-term interest rates would
have
an impact of approximately
$88 on
our net
loss.
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
24, 2008
and September 26, 2007, and the related consolidated statements of operations,
shareholders’ equity, and cash flows for the years ended September 24, 2008,
September 26, 2007, and September 27, 2006. 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 24, 2008 and September 26, 2007, and the results of their
operations and their cash flows for the years ended September 24, 2008,
September 26, 2007, and September 27, 2006, in conformity with accounting
principles generally accepted in the United States of
America.
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 24, 2008, 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
8, 2008
expressed an unqualified opinion on the Company's internal control over
financial reporting.
As
discussed in Note 1 to the consolidated financial statements, effective
September 27, 2007, the Company adopted Financial Accounting Standards
Board
Interpretation No. 48, Accounting
for
Uncertainty in Income Taxes.
/s/
Deloitte & Touche LLP
Indianapolis,
Indiana
December
8, 2008
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 24, 2008, 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 24, 2008, 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 24, 2008 of the Company and our report dated
December 8, 2008 expressed an unqualified opinion on those financial statements
and included an explanatory paragraph regarding the adoption of Financial
Accounting Standards Board Interpretation No. 48, Accounting
for
Uncertainty in Income Taxes.
/s/
Deloitte & Touche LLP
Indianapolis,
Indiana
December
8, 2008
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;
|
|
●
|
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;
and
|
|
●
|
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 24,
2008
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 24,
2008,
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/ Sardar Biglari | /s/ Duane E. Geiger |
| Sardar Biglari | Duane E. Geiger |
| Executive Chairman and | Interim Chief Financial Officer, |
| Chief Executive Officer | Vice President and Controller |
|
Consolidated
Statements of Operations
|
||||||||||||
|
The
Steak n Shake Company
|
||||||||||||
|
(Years
ended September 24, 2008, September 26, 2007, and September 27,
2006)
|
||||||||||||
|
(Amounts
in $000s except share and per share data)
|
||||||||||||
|
2008
(52
Weeks)
|
2007
(52
Weeks)
|
2006
(52
Weeks)
|
||||||||||
|
Revenues:
|
||||||||||||
|
Net
sales
|
$ | 606,076 | $ | 650,416 | $ | 634,941 | ||||||
|
Franchise
fees
|
3,985 | 3,726 | 3,881 | |||||||||
|
Total
revenues
|
610,061 | 654,142 | 638,822 | |||||||||
|
Costs
and expenses:
|
||||||||||||
|
Cost
of sales
|
151,188 | 150,286 | 143,360 | |||||||||
|
Restaurant
operating costs
|
337,786 | 336,955 | 319,070 | |||||||||
|
General
and administrative
|
50,425 | 57,525 | 52,949 | |||||||||
|
Depreciation
and amortization
|
33,659 | 32,185 | 28,967 | |||||||||
|
Marketing
|
28,700 | 28,644 | 27,473 | |||||||||
|
Interest
|
14,011 | 14,015 | 11,373 | |||||||||
|
Rent
|
14,717 | 13,961 | 12,233 | |||||||||
|
Pre-opening
costs
|
1,272 | 2,689 | 3,579 | |||||||||
|
Asset
impairments and provision for restaurant closings
|
14,858 | 5,176 | (103 | ) | ||||||||
|
Other
income, net
|
(1,771 | ) | (2,165 | ) | (2,371 | ) | ||||||
|
Total
costs and expenses
|
644,845 | 639,271 | 596,530 | |||||||||
|
(Loss)
earnings before income taxes
|
(34,784 | ) | 14,871 | 42,292 | ||||||||
|
Income
taxes
|
(11,805 | ) | 3,063 | 14,291 | ||||||||
|
Net
(loss) earnings
|
$ | (22,979 | ) | $ | 11,808 | $ | 28,001 | |||||
|
Basic
(loss) earnings per common and
common
equivalent share
|
$ | (0.81 | ) | $ | 0.42 | $ | 1.01 | |||||
|
Diluted
(loss) earnings per common and
common
equivalent share
|
$ | (0.81 | ) | $ | 0.42 | $ | 1.00 | |||||
|
Weighted
average shares and equivalents:
|
||||||||||||
|
Basic
|
28,254,129 | 28,018,014 | 27,723,282 | |||||||||
|
Diluted
|
28,254,129 | 28,215,647 | 28,038,545 | |||||||||
|
See
accompanying notes.
|
||||||||||||
|
Consolidated
Statements of Financial Position
|
||||||||
|
The
Steak n Shake Company
|
||||||||
|
(Amounts
in $000s except share and per share data)
|
||||||||
|
September
24,
|
September
26,
|
|||||||
|
2008
|
2007
|
|||||||
|
Assets:
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 6,855 | $ | 1,497 | ||||
|
Receivables,
net
|
15,622 | 6,289 | ||||||
|
Inventories
|
6,795 | 7,226 | ||||||
|
Deferred
income taxes
|
3,260 | 3,616 | ||||||
|
Assets
held for sale
|
25,395 | 18,571 | ||||||
|
Other
current assets
|
3,009 | 10,998 | ||||||
|
Total
current assets
|
60,936 | 48,197 | ||||||
|
Net
property and equipment
|
432,690 | 492,610 | ||||||
|
Goodwill
|
14,503 | 14,503 | ||||||
|
Other
intangible assets, net
|
1,765 | 1,959 | ||||||
|
Other
assets
|
10,242 | 7,945 | ||||||
|
Total
assets
|
$ | 520,136 | $ | 565,214 | ||||
|
Liabilities
and shareholders' equity:
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable
|
$ | 25,302 | $ | 28,195 | ||||
|
Accrued
expenses
|
31,685 | 32,624 | ||||||
|
Current
portion of long-term debt
|
733 | 2,390 | ||||||
|
Line
of credit
|
14,180 | 27,185 | ||||||
|
Current
portion of obligations under leases
|
4,417 | 4,180 | ||||||
|
Total
current liabilities
|
76,317 | 94,574 | ||||||
|
Deferred
income taxes
|
2,209 | 5,060 | ||||||
|
Other
long-term liabilities
|
7,439 | 5,701 | ||||||
|
Obligations
under leases
|
134,809 | 139,493 | ||||||
|
Long-term
debt
|
15,783 | 16,522 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Shareholders'
equity:
|
||||||||
|
Common
stock - $0.50 stated value, 50,000,000 shares authorized
-
shares
issued: 30,332,839
|
15,166 | 15,166 | ||||||
|
Additional
paid-in capital
|
128,526 | 126,415 | ||||||
|
Retained
earnings
|
161,733 | 185,024 | ||||||
|
Treasury
stock - at cost: 1,760,531 shares in 2008;
1,959,931
shares in 2007
|
(21,846 | ) | (22,741 | ) | ||||
|
Total
shareholders' equity
|
283,579 | 303,864 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 520,136 | $ | 565,214 | ||||
|
See
accompanying notes.
|
||||||||
|
Consolidated
Statements of Cash Flows
|
||||||||||||
|
The
Steak n Shake
Company
|
||||||||||||
|
(Years
ended
September 24, 2008, September 26, 2007, and September 27,
2006)
|
||||||||||||
|
(Amounts
in
$000s)
|
||||||||||||
|
2008
(52
Weeks)
|
2007
(52
Weeks)
|
2006
(52
Weeks)
|
||||||||||
|
Operating
Activities:
|
||||||||||||
|
Net
(loss)
earnings
|
$ | (22,979 | ) | $ | 11,808 | $ | 28,001 | |||||
|
Adjustments
to
reconcile net (loss) earnings
to
net cash provided by operating activities:
|
||||||||||||
|
Depreciation
and
amortization
|
33,659 | 32,185 | 28,967 | |||||||||
|
Provision
for
deferred income taxes
|
(2,193 | ) | (483 | ) | (956 | ) | ||||||
|
Asset
impairments
and provision for restaurant closings
|
14,858 | 5,176 | (103 | ) | ||||||||
|
Non-cash
expense
for stock-based compensation
and
deferred rent
|
2,656 | 3,322 | 4,560 | |||||||||
|
Loss
on
disposal or abandonment of property
|
3,138 | 601 | 911 | |||||||||
|
Changes
in
receivables and inventories
|
(7,688 | ) | (639 | ) | (3,773 | ) | ||||||
|
Changes
in other
assets
|
6,844 | (265 | ) | (259 | ) | |||||||
|
Changes
in
accounts payable and accrued expenses
|
(3,865 | ) | (8,274 | ) | 12,230 | |||||||
|
Net
cash provided
by operating activities
|
24,430 | 43,431 | 69,578 | |||||||||
|
Investing
Activities:
|
||||||||||||
|
Additions
of
property and equipment
|
(31,443 | ) | (68,643 | ) | (80,840 | ) | ||||||
|
Purchase
of
franchisees
|
– | – | (9,598 | ) | ||||||||
|
Proceeds
from
property and equipment disposals
|
14,851 | 8,533 | 3,124 | |||||||||
|
Net
cash used in
investing activities
|
(16,592 | ) | (60,110 | ) | (87,314 | ) | ||||||
|
Financing
Activities:
|
||||||||||||
|
Net
(payments on)
proceeds from line of credit facility
|
(13,005 | ) | 2,120 | 25,065 | ||||||||
|
Proceeds
from
issuance of long-term debt
|
– | 15,000 | – | |||||||||
|
Principal
payments on long-term debt
|
(2,396 | ) | (2,511 | ) | (3,941 | ) | ||||||
|
Proceeds
from
equipment and property sale-leasebacks
|
15,993 | 800 | 700 | |||||||||
|
Principal
payments on direct financing lease obligations
|
(4,213 | ) | (4,149 | ) | (4,082 | ) | ||||||
|
Proceeds
from
exercise of stock options
|
138 | 660 | 646 | |||||||||
|
Stock
repurchases
|
– | – | (312 | ) | ||||||||
|
Excess
tax
benefits from stock-based awards
|
10 | 202 | 72 | |||||||||
|
Repurchase
of
employee shares for tax withholding
|
(11 | ) | – | – | ||||||||
|
Proceeds
from
employee stock purchase plan
|
1,004 | 1,234 | 1,345 | |||||||||
|
Net
cash (used
in) provided by financing activities
|
(2,480 | ) | 13,356 | 19,493 | ||||||||
|
Increase
(decrease) in cash and cash equivalents
|
5,358 | (3,323 | ) | 1,757 | ||||||||
|
Cash
and cash
equivalents at beginning of year
|
1,497 | 4,820 | 3,063 | |||||||||
|
Cash
and cash
equivalents at end of year
|
$ | 6,855 | $ | 1,497 | $ | 4,820 | ||||||
|
See
accompanying
notes.
|
||||||||||||
|
Consolidated
Statements of Shareholders'
Equity
|
||||||||||||||||||||||||
|
The
Steak n Shake Company
|
||||||||||||||||||||||||
|
(Years
ended September 24, 2008, September 26,
2007, and
September 27, 2006)
|
||||||||||||||||||||||||
|
(Amounts
in $000s except
share data)
|
||||||||||||||||||||||||
|
Unamortized
|
||||||||||||||||||||||||
|
Additional
|
Value
of
|
|||||||||||||||||||||||
|
Common
|
Paid-In
|
Retained
|
Restricted
|
Treasury
Stock
|
||||||||||||||||||||
|
Stock
|
Capital
|
Earnings
|
Shares
|
Shares
|
Amount
|
|||||||||||||||||||
|
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 | ) | ||||||||||||
|
Net
loss
|
(22,979 | ) | ||||||||||||||||||||||
|
Compensation
expense for share-based
payments
|
|
|
1,986 | |||||||||||||||||||||
|
Shares
exchanged to exercise stock options
and
to satisfy minimum statutory tax
withholding
|
|
|
|
|
10,319 | (155 | ) | |||||||||||||||||
|
Shares
reissued to exercise stock options
|
(24,500 | ) | 282 | |||||||||||||||||||||
|
Shares
granted under Capital Appreciation
Plan
|
(1,785 | ) | (238,500 | ) | 1,785 | |||||||||||||||||||
|
Shares
forfeited under Capital Appreciation
Plan
|
2,021 | 161,648 | (2,021 | ) | ||||||||||||||||||||
|
Tax
effect relating to stock awards
|
(111 | ) | ||||||||||||||||||||||
|
Adjustment
related to adoption of FIN 48
|
(312 | ) | ||||||||||||||||||||||
|
Shares
issued for Employee Stock
Purchase Plan
|
|
|
(108,367 | ) | 1,004 | |||||||||||||||||||
|
Balance
at September 24, 2008
|
$ | 15,166 | $ | 128,526 | $ | 161,733 | $ | – | 1,760,531 | $ | (21,846 | ) | ||||||||||||
|
See
accompanying
notes.
|
||||||||||||||||||||||||
Notes
to Consolidated Financial Statements
The
Steak n Shake
Company
(Years
ended September 24, 2008, September 26, 2007, and September 27,
2006)
(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
24,
2008,
we operated 491
Steak
n Shake
restaurants,
including
68
franchised
restaurants.
Fiscal
Year
Our
fiscal year ends on
the last Wednesday in September. Fiscal
years 2008,
2007, and 2006 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 original
maturities
of three
months or less. Cash
equivalents are
carried at cost, which approximates market value due to their short
maturities.
Receivables
Our
accounts receivable
balance consists primarily of franchisee,
tax, and
other
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 $341 at September 24, 2008 and $68 at September 26,
2007.
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 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 on 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 on the straight-line method over the shorter of the estimated
useful lives of the improvements or the term 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 whenever events or changes in circumstances indicate
that
their
carrying
amounts
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. Refer
to Note 2 for
information regarding asset impairments.
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 value. When
an impairment is
identified, we reduce the carrying value
of
the asset to its
estimated fair value. No
impairments were
recorded on goodwill or intangible assets during fiscal years
2008,
2007, or 2006.
Refer
to Note 6 for
information regarding our goodwill impairment
analysis.
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 seven
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
Consolidated
Statement
of Financial Position.
Operating
Leases
We
lease certain
property leases
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 build out.
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 Consolidated
Statement
of Operations.
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 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
Consolidated
Statement
of Financial Position.
(Loss)
Earnings
Per
Share
(Loss)
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.”
|
2008
|
2007
|
2006
|
|||
|
Basic
(loss)
earnings per share:
|
|||||
|
Weighted
average
common shares
|
28,254,129
|
28,018,014
|
27,723,282
|
||
|
Diluted
(loss)
earnings per share:
|
|||||
|
Weighted
average
common shares
|
28,254,129
|
28,018,014
|
27,723,282
|
||
|
Dilutive
effect
of stock awards
|
–
|
197,633
|
315,263
|
||
|
Weighted
average
common and incremental shares
|
28,254,129
|
28,215,647
|
28,038,545
|
||
|
Number
of
share-based awards excluded from the calculation of
(loss)
earnings
per share as the awards' exercise prices were greater
than
the
average market price of the Company's common stock, or
because
they
were anti-dilutive due to the Company's net loss for fiscal year
2008
|
1,371,551
|
1,030,051
|
792,193
|
Stock-Based
Compensation
We
adopted Statement of
Financial Accounting Standards No. 123 (Revised 2004), “Share Based Payment”
(“SFAS
123(R)”)
on September 29,
2005,
the
beginning of fiscal year 2006.
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 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. There were no discretionary profit sharing contributions in
2008,
2007,
or
2006.
Through
fiscal year
2008, we
matched
50%
of the
participants’
first
6% of eligible
compensation deferred. Matching
contributions
paid in fiscal years
2008,
2007,
and
2006
were
$1,099,
$1,231,
and
$1,266,
respectively. Early
in fiscal
year 2009, we suspended 401(k) matching contributions until profitability
improves.
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 allows highly compensated employees to defer amounts
from
their salaries
for retirement savings and includes
a
discretionary employer
match generally
equal
to the amount of the match the employee would have received as a participant
in our 401(k) plan. 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 Consolidated Statement of Financial Position at current fair
value. A
liability of the same
amount is recorded on the Consolidated 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.”
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
On
September 27, 2007,
we adopted
the
provisions of FASB
Interpretation No.
48, “Accounting
for Uncertainty
in Income
Taxes,an
Interpretation of
FASB Statement No. 109”
(“FIN
48”). FIN
48 clarifies
the
accounting for and reporting of uncertainties in income tax law.
It
prescribes a comprehensive model
for the financial
statement recognition, measurement, presentation,
and
disclosure of
uncertain tax positions
taken or
expected to be taken in income tax returns. For additional
information regarding the impact of adoption of FIN 48, see Note
10.
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. In
February 2008, the
FASB issued FSP 157-2, “Effective Date of FASB Statement No. 157,” which permits
a one-year deferral for the implementation of SFAS 157 with regard to
non-financial assets and liabilities that are not recognized or disclosed
at
fair value in the financial statements on a recurring basis (at least
annually). Thus, SFAS 157 as it relates to financial assets and
liabilities is effective
beginning in
our
fiscal
year
2009
in
accordance with the original Statement; however, SFAS 157’s applicability to
non-financial assets and liabilities will be deferred until our fiscal
year
2010. We
do not anticipate
that the adoption of SFAS 157 with regard to financial assets and liabilities
will materially impact our financial statements. We are in the
process of determining the effect, if any, that the adoption of SFAS 157
with
regard to non-financial assets and liabilities 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 year
2009.
We have
determined not to elect the fair value measurement option under SFAS
159.
In
December
2007,
the
FASB issued SFAS No. 141(R),
“Business
Combinations” (“SFAS 141(R)”),
which replaces SFAS
141. SFAS
141(R)
requires
that the fair
value of the purchase price of an acquisition including the issuance of
equity
securities be determined on the acquisition date; requires that all assets,
liabilities, noncontrolling interests, contingent consideration, contingencies,
and in-process research and development costs of an acquired business be
recorded at fair value at the acquisition date; requires that acquisition
costs
generally be expensed as incurred; requires that restructuring costs generally
be expensed in periods subsequent to the acquisition date; and requires
that
changes in deferred tax asset valuation allowances and acquired income
tax
uncertainties after the measurement period impact income tax expense.
SFAS
141(R) also
broadens the definition of a business combination and expands disclosures
related to business combinations. SFAS
141(R)
applies
prospectively
to business combinations for which the acquisition date is on or after
the
beginning of the first annual reporting period beginning on or after December
15, 2008,
our fiscal year
2010,
except
that business
combinations consummated prior to the effective date must apply SFAS
141(R) income tax
requirements immediately upon adoption.
We
are in the process
of determining the effect, if any, that the adoption of SFAS
141(R) will
have on our
financial statements.
In
December
2007,
the FASB issued
SFAS No. 160,
“Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No.
51”
(“SFAS 160”). SFAS
160
clarifies the
accounting for noncontrolling interests and establishes accounting and
reporting
standards for the noncontrolling interest in a subsidiary, including
classification as a component of equity. SFAS
160
is
effective for fiscal
years beginning after December 15,
2008,
our fiscal
year
2010.
We
are in the process
of determining the effect, if any, that the adoption of SFAS 160
will
have on our
financial statements.
In
April 2008, the FASB
issued FASB Staff Position No. 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that
should be considered in developing renewal or extension assumptions that
are
used to determine the useful life of a recognized intangible asset under
SFAS
No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), and requires
enhanced related disclosures. FSP 142-3 must be applied prospectively
to all intangible assets acquired as of and subsequent to fiscal years
beginning
after December 15, 2008, our fiscal year 2010. We are in the process
of determining the effect, if any, that the
adoption of
FSP
142-3
will
have
on our financial statements.
2.
Impairment
and
Restaurant
Closings
During
fiscal
year
2008,
we
recorded pre-tax asset impairment and provision
for restaurant closings of
$14,858. This
total
includes:
|
(amounts
in
$000s)
|
||||
|
Assets
held and
used
|
$ | 8,858 | ||
|
Assets
transferred to held for sale
|
5,009 | |||
|
Fee
for early
termination of a lease
|
514 | |||
|
Assets
sold
pursuant to a sale-leaseback
|
477 | |||
|
Total
|
$ | 14,858 | ||
The
charge for assets
held and used related
to restaurants
for which current operating performance is significantly below our
expectations. As
the
carrying values of these properties exceeded
the
expected
undiscounted
future
cash flows to be generated by the underlying assets,
we recorded an
impairment charge.
The
charge for assets
transferred to held for sale represents an adjustment to record the related
assets for units management closed during fiscal year 2008 at the lower
of their
carrying values or fair values less cost to sell.
See
further discussion
regarding the impairment charge for the sale-leaseback transaction in Note
11.
During
fiscal
year
2007,
we
recorded a pre-tax, non-cash impairment of $5,369, which was offset by
a $193
gain on the sale of two restaurants
that
had
been closed during a prior year. No
impairments were
recorded during fiscal year
2006.
We
permanently closed thirteen and eight Company-owned restaurants in fiscal
years
2008 and 2007, respectively. Ten of the restaurants closed in fiscal
year 2008 and six of the restaurants closed in fiscal 2007 were located
near
other Company-owned stores that continue to operate, and we expect significant
sales to transfer to the other existing locations. Therefore, the
results of operations of these restaurants are not presented as discontinued
operations and continue to be included in continuing operations in the
Consolidated Statement of Operations.
The
assets of
three
restaurants closed in fiscal year 2008 and two
restaurants
closed
in
fiscal year 2007 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
SFAS 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 combined
total of the
five
restaurants was
approximately
$845,
$751,
and $375
for fiscal years
2008,
2007,
and 2006,
respectively.
The after-tax
losses
in fiscal years
2008 and
2007
include $583 and $515
of
asset
impairment
charges,
net of tax, respectively.
Seven
of the thirteen
restaurants that closed during fiscal year
2008
were owned
properties, and the net book value of the assets of these properties was
transferred to Assets held for sale in the Statement of Financial Position
during the quarter ended September 24, 2008.
3.
Other
Current
Assets
Other
current assets is
comprised of the following:
|
(amounts
in
$000s)
|
2008
|
2007
|
||||||
|
Prepaid
rent
|
$ | 256 | $ | 2,265 | ||||
|
Prepaid
taxes
|
603 | 5,977 | ||||||
|
Prepaid
contractual obligations
|
1,196 | 1,169 | ||||||
|
Other
|
954 | 1,587 | ||||||
|
Total
other
current assets
|
$ | 3,009 | $ | 10,998 | ||||
4.
Assets Held for Sale
Assets
held for sale is
comprised of the following:
|
(amounts
in
$000s)
|
2008
|
2007
|
||||||
|
Land
and
buildings
|
$ | 21,726 | $ | 17,494 | ||||
|
Land
and
leasehold improvements
|
3,388 | 592 | ||||||
|
Equipment
|
281 | 485 | ||||||
|
Total
assets held
for sale
|
$ | 25,395 | $ | 18,571 | ||||
The
fiscal
year
2008
balances
include
assets
related to seven restaurants
closed
during the
fourth quarter of fiscal
year
2008,
seven
restaurants
closed
during prior years,
and 20
parcels
of land.
We
expect
to sell these properties within the next 12 months. During
fiscal year
2008, we sold one restaurant and 11 parcels of land that were held for
sale as
of September 26, 2007.
The
fiscal
year
2007
balances include the
eight
restaurants
closed during fiscal year
2007,
two additional
restaurants
closed
during a prior year, and 19 parcels of land.
5.
Property
and
Equipment
Property
and equipment
is comprised of the following:
|
(amounts
in
$000s)
|
2008
|
2007
|
||||||
|
Land
|
$ | 151,006 | $ | 171,631 | ||||
|
Buildings
|
156,695 | 166,982 | ||||||
|
Land
and
leasehold improvements
|
157,738 | 156,687 | ||||||
|
Equipment
|
204,116 | 200,775 | ||||||
|
Construction
in
progress
|
2,423 | 16,555 | ||||||
| 671,978 | 712,630 | |||||||
|
Less
accumulated
depreciation and amortization
|
(239,288 | ) | (220,020 | ) | ||||
|
Net
property and
equipment
|
$ | 432,690 | $ | 492,610 | ||||
Depreciation
and amortization expense for property and equipment for fiscal 2008,
2007,
and
2006 was $31,633,
$30,000,
and
$27,491,
respectively.
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. The
related goodwill is currently allocated to our Cincinnati and Atlanta
group
markets, respectively (each a “reporting unit”).
Under
SFAS No. 142, “Goodwill and Other Intangible Assets,” (“SFAS 142”) we are
required to assess goodwill and any indefinite-lived intangible assets
for
impairment annually, or more frequently if circumstances indicate impairment
may
have occurred. The analysis of potential impairment of goodwill requires a
two-step approach. The first step is the estimation of fair value of
each reporting unit. If step one indicates that impairment
potentially exists, the second step is performed to measure the amount
of
impairment, if any. Goodwill impairment exists when the estimated fair
value of goodwill is less than its carrying value.
During
the quarter ended September 24, 2008, we performed our annual assessment
of the
recoverability of our goodwill in accordance with SFAS 142. The valuation
methodology and underlying financial information included in our determination
of fair value require significant judgments to be made by management. We
use both market and income approaches to derive fair value. The
judgments in these two approaches include, but are not limited
to, comparable market multiples, long-term projections of future
financial performance, and the selection of appropriate discount rates
used to
determine the present value of future cash flows. Changes in such
estimates or the application of alternative assumptions could produce
significantly different results.
No
potential impairment was identified for our Cincinnati reporting unit.
However, the results indicated that impairment may potentially exist
for
goodwill allocated to the Atlanta group market. We therefore began the
second step of the analysis for this reporting unit. Due to the complexity
of estimating the fair value of tangible property and identifiable intangible
assets in the step two analysis, we were not able to complete the analysis
as of
the date of this report. However, based on our analysis performed to date,
we do not believe a material impairment is probable based on the estimated
fair
value of the reporting unit determined at the annual assessment date.
Should an impairment be required for this reporting unit upon completion
of the
step two analysis, the maximum amount of non-cash impairment that could
be
recorded is approximately $7,800.
Our
calculation of the fair value of the reporting units considers current
market
conditions existing at the assessment date. Due to the significant
declines in the market price of our common stock subsequent to the end
of our
fiscal year end, it is probable that we will need to update our impairment
analysis during our first quarter of fiscal year 2009. We can provide no
assurance that a material impairment charge will not occur in future
periods as a result of these analyses.
Other
Intangibles
Other
intangibles
are comprised of the following:
|
(amounts
in
$000s)
|
2008
|
2007
|
||||||
|
Gross
value of
intangible assets subject to amortization
|
$ | 2,291 | $ | 2,291 | ||||
|
Accumulated
Amortization
|
(1,026 | ) | (832 | ) | ||||
|
Intangible
assets
subject to amortization, net
|
1,265 | 1,459 | ||||||
|
Intangible
assets
with indefinite lives
|
500 | 500 | ||||||
|
Total
intangible
assets
|
$ | 1,765 | $ | 1,959 | ||||
Intangible
assets
subject to amortization consist of a right to operate and favorable leases
acquired in connection with prior acquisitions and are being amortized
over
their estimated weighted average useful lives of twelve and eight years,
respectively. Amortization
expense
for 2008, 2007, and 2006 was $194,
$193, and $187,
respectively. Total
annual
amortization expense for each of the next five years is approximately
$190.
Intangible
assets with
indefinite lives consist of reacquired franchise rights acquired 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
the
following:
|
(amounts
in
$000s)
|
2008
|
2007
|
||||||
|
Capitalized
software
|
$ | 7,681 | $ | 4,575 | ||||
|
Non-qualified
plan investments
|
1,819 | 2,651 | ||||||
|
Other
|
742 | 719 | ||||||
|
Total
other
assets
|
$ | 10,242 | $ | 7,945 | ||||
Capitalized
software
costs are amortized on
a straight-line
basis over
the estimated useful lives, which
range from three
to seven years. Related
amortization is
included in depreciation and amortization expense. Depreciation
and
amortization expense of capitalized software in 2008, 2007, and 2006
was
$1,832,
$1,992, and $1,289,
respectively.
8. Accrued
Expenses
Accrued
expenses
include
the
following:
|
(amounts
in
$000s)
|
2008
|
2007
|
||||||
|
Salaries,
wages,
vacation, and severance
|
$ | 9,990 | $ | 12,276 | ||||
|
Taxes
payable
|
12,393 | 11,875 | ||||||
|
Insurance
accruals
|
6,374 | 7,037 | ||||||
|
Other
|
2,928 | 1,436 | ||||||
|
Total
accrued
expenses
|
$ | 31,685 | $ | 32,624 | ||||
Included
in accrued
expenses at September 24, 2008 is a $1,129 payroll tax refund received
from
the
Internal Revenue Service and
deposited. Currently, there is uncertainty regarding whether we are
entitled to the refund;
therefore, we have
not recognized the refund as income.
9. Other
Long-term Liabilities
Other
long-term
liabilities include the
following:
|
(amounts
in
$000s)
|
2008
|
2007
|
||||||
|
Deferred
rent
expense
|
$ | 3,099 | $ | 2,428 | ||||
|
Non-qualified
plan liability
|
1,809 | 2,660 | ||||||
|
Deferred
gain on
sale-leaseback transactions
|
1,029 | 8 | ||||||
|
FIN
48
liability
|
953 | – | ||||||
|
Deferred
compensation
|
549 | 605 | ||||||
|
Total
other
long-term liabilities
|
$ | 7,439 | $ | 5,701 | ||||
10. Income
Taxes
Our
fiscal year 2008
effective income tax rate increased to 33.9% from
20.6%
in the prior
fiscal
year.
The prior
fiscal
year’s
effective
tax rate was
lower primarily due to the proportionate effect of increased federal income
tax
credits when compared to annual pre-tax (loss)
earnings.
For
the
current fiscal year, we
elected
to forego
claiming any
federal income tax
credits in order to maximize the cash refund generated from the net operating
loss carryback of the fiscal 2008 taxable loss. This
resulted in
recording substantially less income tax benefit in fiscal
year 2008
versus
fiscal
year 2007. The
current
fiscal
year
decrease in income tax benefit for electing to forego claiming any federal
income tax credits is approximately $3,000 when compared to the
prior
year.
The
components of the
(benefit)
provision
for income taxes consist of the following:
|
(amounts
in
$000s)
|
2008
|
2007
|
2006
|
|||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | (9,109 | ) | $ | 2,036 | $ | 13,433 | |||||
|
State
|
(503 | ) | 1,510 | 1,814 | ||||||||
|
Deferred
|
(2,193 | ) | (483 | ) | (956 | ) | ||||||
|
Total
income
taxes
|
$ | (11,805 | ) | $ | 3,063 | $ | 14,291 | |||||
|
The
reconciliation of effective income tax is:
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Tax
at U.S.
statutory rates
|
$ | (12,175 | ) | $ | 5,205 | $ | 14,802 | |||||
|
State
income
taxes, net of federal benefit
|
(436 | ) | 967 | 1,135 | ||||||||
|
Federal
income
tax credits
|
705 | (3,734 | ) | (2,048 | ) | |||||||
|
Share-based
payments
|
351 | 608 | 563 | |||||||||
|
Other
|
(250 | ) | 17 | (161 | ) | |||||||
|
Total
income
taxes
|
$ | (11,805 | ) | $ | 3,063 | $ | 14,291 | |||||
Income
taxes paid
totaled $576
in
fiscal
year
2008,
$11,686 in fiscal
year
2007,
and
$14,796 in fiscal
year
2006.
On
September 27, 2007,
we adopted the provisions of FIN 48. As
a result of the
implementation of FIN 48, we recognized an increase of $614 in the liability
for
unrecognized tax benefits, which was accounted for as a reduction of $312
to
retained earnings and an increase of $302 to deferred taxes as of the adoption
date.
As
of September 24,
2008, we had approximately $953 of unrecognized tax benefits, including
approximately $180 of interest and penalties, which are included in Other
long-term liabilities in the Consolidated Statement of Financial Position.
During
fiscal year 2008, we recognized approximately $125 in potential interest
and
penalties associated with uncertain tax positions. Our
continuing practice
is to recognize interest expense and penalties related to income tax matters
in
income tax expense. Of
the $953 of
unrecognized tax benefits, $825 would impact the effective income tax rate
if
recognized.
The
following table
summarizes the Company's
unrecognized tax
benefits, excluding
interest and
penalties:
|
(amounts
in
$000s)
|
||||
|
September
27,
2007
|
$ | 1,048 | ||
|
Gross
increases -
current period tax positions
|
5 | |||
|
Lapse
of statute
of limitations
|
(280 | ) | ||
|
September
24,
2008
|
$ | 773 | ||
We
file income tax
returns which are periodically audited by various federal, state, and local
jurisdictions. With
few exceptions, we
are no longer subject to federal, state, and local tax examinations for
fiscal
years prior to 2004. We
believe we have
certain state income tax exposures related to fiscal years 2004 and
2005. Due
to the expiration
of the various state statutes of limitations for these fiscal years, it
is
possible that the total amount of unrecognized tax benefits will decrease
by
approximately $60
within
12
months.
Deferred
tax assets and
liabilities are determined based on differences between financial reporting
and
tax basis of assets and liabilities and are measured using the currently
enacted
tax rates and laws that will be in effect when the differences are expected
to
reverse. Our
net deferred tax
asset
(liability)
consists
of the
following:
|
(amounts
in
$000s)
|
2008
|
2007
|
||||||
|
Deferred
tax
assets:
|
||||||||
|
Insurance
reserves
|
$ | 1,284 | $ | 1,739 | ||||
|
Share-based
payments
|
935 | 1,786 | ||||||
|
Compensation
accruals
|
862 | 1,431 | ||||||
|
Gift
card
accrual
|
408 | 283 | ||||||
|
State
net
operating loss credit carryforward
|
525 | – | ||||||
|
Other
|
909 | 198 | ||||||
|
Total
deferred
tax assets
|
4,923 | 5,437 | ||||||
|
Deferred
tax
liabilities:
|
||||||||
|
Fixed
asset basis
difference
|
3,491 | 6,668 | ||||||
|
Other
|
381 | 213 | ||||||
|
Total
deferred
tax liabilities
|
3,872 | 6,881 | ||||||
|
Net
deferred tax
asset (liability)
|
1,051 | (1,444 | ) | |||||
|
Less
current
portion
|
3,260 | 3,616 | ||||||
|
Long-term
liability
|
$ | (2,209 | ) | $ | (5,060 | ) | ||
Included
in
Receivables
at
September 24, 2008
is
$11,351
in
income taxes receivable. This
amount represents
the expected federal and state income tax refunds to be received in
cash as
the result of net
operating
loss carryback claims. We will
carryback the
current year’s
taxable
loss to fiscal
year 2006 in order to generate cash refunds from income tax previously
paid.
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 $1,268
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 24,
2008,
is as follows:
$78,078
buildings,
$63,147
land,
$30,304
land
and
leasehold improvements, $604
equipment
and
$49,890
accumulated
depreciation. At
September
24,
2008,
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
|
||||||||||||||||||||
|
2009
|
$ | 16,033 | $ | 64 | $ | 16,097 | $ | 12,977 | $ | 144 | ||||||||||
|
2010
|
15,640 | 64 | 15,704 | 12,491 | 149 | |||||||||||||||
|
2011
|
15,240 | 14 | 15,254 | 11,790 | 149 | |||||||||||||||
|
2012
|
14,834 | – | 14,834 | 11,302 | 103 | |||||||||||||||
|
2013
|
14,307 | – | 14,307 | 10,828 | 87 | |||||||||||||||
|
After
2013
|
55,592 | – | 55,592 | 91,253 | 122 | |||||||||||||||
|
Total
minimum
future rental payments
|
131,646 | 142 | 131,788 | $ | 150,641 | $ | 754 | |||||||||||||
|
Less
amount
representing interest
|
79,526 | 9 | 79,535 | |||||||||||||||||
|
Total
principal
obligations under leases
|
52,120 | 133 | 52,253 | |||||||||||||||||
|
Less
current
portion
|
4,359 | 58 | 4,417 | |||||||||||||||||
|
Non-current
principal obligations under leases
|
47,761 | 75 | 47,836 | |||||||||||||||||
|
Residual
value at
end of lease term
|
86,973 | – | 86,973 | |||||||||||||||||
|
Obligations
under
leases
|
$ | 134,734 | $ | 75 | $ | 134,809 | ||||||||||||||
During
fiscal
year
2008,
we
sold
11
restaurants to a third party and simultaneously entered into a lease
for each
property. In conjunction with this sale-leaseback transaction, we received
net proceeds
of
$15,993.
The
total
net book value of the assets sold was $14,895, inclusive of an impairment
charge
of $477 relating to three of the properties whose net book values exceeded
their
fair values. This transaction resulted in a gain of $1,101, which
will be deferred and amortized over the life of the leases in accordance
with
SFAS No. 98, “Accounting for Leases: Sale-Leaseback Transactions Involving Real
Estate, Sales-Type Leases of Real Estate, Definition of the Lease Term,
and
Initial Direct Costs of Direct Financing Leases, an amendment of FASB
Statements
No. 13, 66, and 91 and a rescission of FASB Statement No. 26 and Technical
Bulletin No. 79-11.”
The
leases have been
classified as operating leases in accordance with SFAS No. 13, “Accounting for
Leases.” The total of future minimum lease payments to be made under
the terms of the sale-leaseback agreement is $27,255. Minimum lease
payments due for fiscal years 2009, 2010, 2011, 2012, 2013, and thereafter
are
$1,323, $1,346, $1,369, $1,393, $1,418, and $20,406,
respectively.
In
fiscal years
2007
and 2006, we
received net proceeds from sale-leaseback
transactions
aggregating $800 and $700, 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 $625
in fiscal year
2008, $900
in fiscal
year 2007,
and
$927
in
fiscal
year 2006
is recorded in Rent expense in the accompanying Consolidated
Statement
of
Operations.
Revolving
Credit Facility
As
of September 24,
2008, our Revolving Credit Facility (“Facility”) allowed
us to borrow up to
$30,000,
bore
interest based on
LIBOR plus 250 basis points,
and was
scheduled to expire
January 30, 2009.
Effective
with
an
amendment executed on November
21,
2008,
the borrowing capacity under the Facility was reduced to $25,000, the
interest rate
was
increased to
LIBOR plus 350 basis
points,
and the
maturity date was
extended
to
January
30, 2010. At
September 24,
2008,
outstanding borrowings
under
the
Facility were
$14,180
at
an
interest rate of 5.2%. At
September
26,
2007,
outstanding borrowings under the Facility were $27,185
at an interest
rate of 5.4%. We
had $848
and $3,327 in
standby letters of credit outstanding as of September 24, 2008 and September
26,
2007, respectively.
The
Facility
contains
restrictions
and covenants customary for credit agreements of these types which, among
other things, require us to maintain
certain
financial ratios. The most recent amendment waived certain
financial covenant violations as of September 24, 2008. Giving effect
to this amendment, we were not in default under the Facility as of September
24,
2008. The
amendment also includes revised financial covenants on a prospective
basis.
Senior
Note Agreement
As
of September 24,
2008, our
total borrowing capacity under the amended
and
restated Senior
Note Agreement
and Private Shelf Facility (the “Senior
Note
Agreement”)
was
$75,000,
and
our ability to
borrow additional funds expired September 29, 2008. We
had outstanding
borrowings
under the Senior Note Agreement of $16,429 at
a weighted
average fixed
rate of
8.4%
as
of September 24,
2008,
and
$18,143 at a weighted average fixed rate of 6.1% as of September 26,
2007.
Interest
rates are
fixed based upon market rates at the time of borrowing. Amounts
maturing in
fiscal years 2009 through 2012 are as follows: $714, $5,715, $5,000, and
$5,000, respectively.
Effective
with an amendment executed on November 21, 2008, we must make equal prepayments
under the Senior Note Agreement and the Facility once the balance of
our
Facility reaches $10,000. The amendment also increased the interest
rates under the Senior Note Agreement effective November 21,
2008.
The
Senior Note
Agreement contains restrictions and covenants customary for credit agreements
of
these types which, among other things, require us to maintain certain
financial ratios which
are identical to
those required under the Facility.
On
November 21, 2008, the lender waived certain financial covenant violations
as of
September 24, 2008. Giving effect to this amendment, we were not in
default under the Senior Note Agreement as of September 24, 2008. The
amendment also includes revised financial covenants on a prospective
basis.
After
giving consideration to the issues noted above and reference to the applicable
accounting guidance in EITF No. 86-30, “Classification of Obligations When a
Violation is Waived by the Creditor,” and SFAS No. 78, “Classification of
Obligations That Are Callable by the Creditor,” we do not believe it is probable
that we will not comply with the amended covenants at measurement dates
within
the next twelve months. Accordingly, we have classified the
borrowings under the Senior Note Agreement which are scheduled to be
paid beyond
twelve months as non-current at September 24, 2008.
The
Senior Note
Agreement and
the Facility
are
secured with the deposit accounts, accounts receivable, inventory, equipment,
general intangibles, fixtures,
and
all other personal
property. The
Senior
Note Agreement and Facility also prohibit us from making cash dividends
or
repurchasing our common stock. As of November 21, 2008, the Senior
Note Agreement also requires us to secure the borrowings with certain
real
estate assets if the principal balance under the Senior Note Agreement
is
greater than $5,000 on March 31, 2010.
Other Debt
We
have one note in the
amount of $87 outstanding on a property in Jonesboro,
Arkansas
as of September 24,
2008. Regular
principal
payments during fiscal years 2009 through 2013 are as follows: $17, $20,
$22,
$24, and $4, respectively.
The
carrying amounts for debt reported in the Consolidated Statement of Financial
Position do not differ materially from their fair market values at September
24,
2008.
Interest
Interest
capitalized in
connection with financing additions to property and equipment amounted
to $231,
$660,
and
$2,057
in 2008, 2007, and 2006, respectively. Interest
paid on debt
amounted to $2,676 in 2008, $2,418
in 2007, and $1,276
in 2006. Interest
paid on
obligations under leases was $11,460, $11,962,
and
$11,980 in
2008, 2007, and 2006, respectively.
13. Related
Party Transactions
On
August 6, 2008, our
Board of Directors agreed to reimburse Western Sizzlin Corp (“Western Sizzlin”)
and the Lion Fund L.P. (“Lion Fund”) for $500 in expenses related to their
successful 2008 proxy contest. Sardar
Biglari,
our Executive Chairman and Chief Executive Officer, serves as the Chairman
and Chief Executive Officer of both Western Sizzlin and the Lion
Fund.
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.
The
transaction was
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 was
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 | ||
Proforma
disclosures
have been omitted as the acquisition was not
significant.
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 to 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. 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 outstanding awards 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 SFAS No. 123 and SFAS
No. 148,
“Accounting
for
Stock-Based Compensation—Transition and Disclosure—an amendment of FASB
Statement No. 123”
for
pro forma
disclosures.
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.
The
weighted average
fair value of shares granted during the years ended September
24, 2008,
September
26, 2007, and
September
27, 2006 was
$4.18,
$6.12,
and
$6.05,
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:
|
2008
|
2007
|
2006
|
|||
|
Risk-free
interest rate
|
4.3%
|
5.3%
|
4.5%
|
||
|
Dividend
yield
|
0.0%
|
0.0%
|
0.0%
|
||
|
Expected
volatility
|
54.6%
|
28.1%
|
28.0%
|
||
|
Expected
life in
years
|
6.0
years
|
5.3
years
|
5.4
years
|
Restricted
Stock
Plans
On
March 7, 2008, our
shareholders approved the 2008 Equity Incentive Plan (the “2008
Plan”). The 2008 Plan provides for grants of stock-based
awards for up to 900,000 shares of common stock with a maximum of 700,000
shares
which may be issued as restricted stock. These restricted stock
awards are restricted for a period (typically three years) and are forfeited
to
us if the grantee is not employed (except for reasons of retirement,
permanent
disability or death) at the end of the vesting period. Awards of
restricted stock are valued at 100% of market value at the date of
grant. The total value of the stock grant (based upon the market
value at the date of the grant) is amortized to compensation expense
ratably
over the vesting period. The
total number of
shares of
restricted stock
granted under the
2008
Plan for which
restrictions have not lapsed was 163,800
at September
24,
2008. At
September
24,
2008,
395,120
shares were reserved
for future grants. No
shares have vested
under the
2008
Plan
to date. The
average remaining
period for which restrictions had not lapsed at September 24,
2008
was 2.55
years.
The
2007 Non-Employee
Director Restricted Stock Plan(the
“2007
Plan”)
provided
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 (except for reasons of retirement, permanent disability or
death) at
the end of the period. The stock is valued at 100% of market value at
the date of grant, and the book units, which are granted in an equal
number to
the shares of stock provide for a cash payment at the end of the three-year
period equal to the sum of the net change in book value per share 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 24,
2008.
Since
the 2007 Plan was replaced by the 2008 Plan, no shares are reserved for
future
grants under the 2007 Plan. No shares
have vested
under this Plan to date. The average remaining period for which
restrictions had not lapsed at September 24,
2008
was 1.44
years.
The
1997 Capital
Appreciation Plan (the
“1997
Plan”)
provided
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 (except for reasons of retirement, permanent
disability
or death) at the end of the period. The
stock is valued at
100% of market value at the date of grant, and the book units, which
are granted
in an equal number to the shares of stock, provide for a cash payment
at the end
of the three-year period equal to the sum of the net change in book value
per
share 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 108,750
at September 24,
2008. Since
the
1997 Plan was replaced by the 2008 Plan, no shares are reserved for future
grants under the 1997 Plan. The total
fair value of
shares vested during the years ended September
24, 2008,
September
26, 2007, and
September
27, 2006 was
$1,832,
$1,739,
and
$362,
respectively. The average remaining period for which restrictions had not
lapsed at September 24,
2008
was 1.11
years.
The
amount charged to
expense under these plans
was $522
($324, net
of tax) in
2008,
$779
($483,
net of
tax) in
2007,
and
$2,044
($1,330, net
of tax) in
2006.
Total
unrecognized compensation cost at September 24,
2008
was $1,752.
Significant
forfeitures of restricted shares resulting from the departure of several
senior
leaders caused reversals of previously recognized compensation expense
of $404
($250, net of tax,) and $1,495 ($927, net of tax) in fiscal years 2008
and 2007,
respectively. These forfeitures had not been contemplated in our
estimated forfeiture rate.
The
following table
summarizes the restricted
stock
activity
under the plans:
|
Number
of
Shares
|
Weighted
Average
Grant Date Fair Value
|
|||||||
|
Nonvested
shares
at September 26, 2007
|
302,750 | $ | 17.24 | |||||
|
Granted
|
238,500 | 7.49 | ||||||
|
Forfeitures
|
(161,648 | ) | 12.50 | |||||
|
Vested
|
(104,052 | ) | 17.61 | |||||
|
Nonvested
shares
at September 24, 2008
|
275,550 | $ | 11.43 | |||||
Employee
Stock Option
Plans
The
2008
Plan also provides for awards in the form of options to purchase shares
of
common stock. Options granted under the 2008 Plan are exercisable as to
25% on each anniversary of the date of grant 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
2008 Plan to officers and key employees selected by the Compensation
Committee
of the Board of Directors.
As
of September
24,
2008, 341,080
options have been
granted under the 2008
Plan and
395,120 shares
are available for
future issuance. These
are
the same shares available for future issuance referenced in the Restricted
Stock
Plan disclosure.
The
2006 Employee Stock
Option Plan (the “2006
Plan”)
provided
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
24,
2008, 291,050
options have
been
granted under the 2006 Plan.
The 2006 Plan was
replaced by the 2008 Plan and as a result, no shares are reserved for
future
grants under the 1997 Plan.
The
1997 Employee Stock
Option Plan as amended (the “1997
Plan”)
provided
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
24,
2008,
1,272,440 options
have been granted under the 1997 Plan. The
1997
Plan was replaced by the 2008 Plan and as a result, no shares are reserved
for
future grants under the 1997 Plan.
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 the
grant. Options
outstanding
under each plan through fiscal year
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 year 2006 or later are exercisable as to 25% on each anniversary
of
the date until fully exercisable. The options expire five years from the
date of grant. At September 24,
2008,
237,000
options have been
granted under the Non-employee Director Stock Option Plans. The
Non-Employee Director Stock Option Plans were replaced by the 2008 Plan
and as a
result, no shares are reserved for future grants under the Non-Employee
Director
Stock Option Plans.
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 26, 2007
|
1,354,862
|
$
|
17.31
|
||||||
|
Granted
|
496,902
|
7.61
|
|||||||
|
Exercised
|
(24,500)
|
11.54
|
|||||||
|
Canceled
or forfeited
|
(731,263)
|
15.07
|
|||||||
|
Outstanding
at
September 24, 2008
|
1,096,001
|
14.56
|
5.72
years
|
$
|
347
|
||||
|
Vested
or
expected to vest at September 24, 2008
|
1,021,337
|
14.73
|
5.56
years
|
314
|
|||||
|
Exercisable
at
September 24, 2008
|
496,701
|
$
|
17.80
|
2.60
years
|
$
|
–
|
|||
During
fiscal years 2008,
2007,
and
2006, $976
($915, net of
tax), $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
24, 2008,
September
26, 2007, and
September
27, 2006 was
$78,
$771,
and
$978,
respectively. Total
unrecognized
stock option compensation cost at September 24,
2008 was
$2,282
and
is expected to
be recognized over a weighted average period of 2.83
years.
Employee
Stock Purchase Plan
Under
the
Employee
Stock Purchase Plan (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 from the lesser of the share price on the first or last
day of
the year. Shares
purchased under
the ESPP
were
108,367
in
2008, 86,773
in 2007,
and
93,309
in 2006. During
fiscal years
2008,
2007,
and
2006, $488,
$441,
and
$395 were charged
to expense related to the ESPP,
respectively. Total
unrecognized compensation cost at September 24,
2008
was
$96
and
is expected to be
recognized over a weighted average period of 0.25
years.
16. Restructuring
During
fiscal year 2008, 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 current operations and approved a comprehensive
cost reduction plan. The majority of planned cost reductions were
achieved through headcount reductions in the field and at the corporate
offices. In order to execute the comprehensive plan, during fiscal
year 2008, we incurred restructuring expenses of $790 related to corporate
headcount reductions, which were recorded in General and administrative
expense
in the Consolidated Statement of Operations. Of the $790 accrual,
$431 has been paid, while the remaining $359 will be paid in fiscal year
2009.
Similarly,
during fiscal year 2007 we incurred approximately $2,221 in restructuring
expenses. We also reversed $1,495 of previously recognized
compensation expense related to stock awards that will not vest in the
future. Of the total accrued, $46 was paid in the fourth quarter of
fiscal year 2007 and $2,162 was paid in fiscal year 2008. The
remaining $13 is expected to be paid in the first quarter of fiscal year
2009.
The
following table summarizes all restructuring-related severance accruals
and
payments during fiscal years 2007 and 2008:
|
(amounts
in $000s)
|
||||
|
Initial
fiscal 2007 accrual
|
$ | 2,221 | ||
|
4th
quarter 2007 payments
|
$ | (46 | ) | |
|
September
26, 2007 accrual balance
|
$ | 2,175 | ||
|
Fiscal
2008 accruals
|
$ | 790 | ||
|
Fiscal
2008 payments
|
$ | (2,593 | ) | |
|
September
24, 2008 accrual balance
|
$ | 372 | ||
In
addition to severance related to restructuring, during fiscal year 2008
we also
recorded severance accruals of $1,599 related to the departure of former
executives. The severance is being paid out according to the terms of
the executives’ agreements. Of the total $1,599 severance accrual
for
executives, $1,125 was paid in fiscal
year
2008, and the remaining $474 will be paid in fiscal year
2009.
Other
restructuring
charges resulted from the change in strategic direction our
new management
enacted during the fourth quarter of fiscal year
2008. We
recognized $3,626 of
pre-tax, non-cash
write-offs
related
to
the decision to
forego
certain planned
initiatives, including software projects anda
new restaurant
opening.
We
also incurred, on a
pre-tax basis, $355 of incremental repairs and maintenance expense, $500
in
proxy-related fees, and $435 in consulting fees for a fixed asset tax
study.
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
results of operations, financial position or cash
flows.
18. Supplemental
Disclosures of Cash Flow Information
During
fiscal
year
2008,
we
issued 238,500
shares
of restricted
stock totaling $1,785,
had lease retirements
of $317,
and had $1,293
of
capital expenditures
in accounts payable at year-end.
At
September
24, 2008, we also had a receivable of $1,119 recorded relating to the sale
of equipment. During
fiscal
year
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 year
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.
19. Stock
Repurchase
During
fiscal
year
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.
No
further
repurchases
were
made
before
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 24, 2008 (52 weeks) (1)
|
||||||||||||||||
|
Total
Revenues
|
$ | 136,396 | $ | 190,487 | $ | 144,293 | $ | 138,885 | ||||||||
|
Gross
Profit (2)
|
27,002 | 37,786 | 28,535 | 23,779 | ||||||||||||
|
Costs
and Expenses
|
138,811 | 195,599 | 160,472 | 149,963 | ||||||||||||
|
Loss
Before Income Taxes
|
(2,415 | ) | (5,112 | ) | (16,179 | ) | (11,078 | ) | ||||||||
|
Net
Loss
|
(1,187 | ) | (2,810 | ) | (9,797 | ) | (9,185 | ) | ||||||||
|
Diluted
Loss per Common and Common Equivalent Share
|
$ | (0.04 | ) | $ | (0.10 | ) | $ | (0.35 | ) | $ | (0.32 | ) | ||||
|
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 | ||||||||
|
(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 year 2008, we recognized a $14,089
pre-tax
impairment charge ($8,735, net of tax), which had an impact
of $0.31 per
diluted share. In the third quarter of fiscal year 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 year 2008, we recognized $6,366
($4,074, net
of tax, or $0.14 per diluted share) of non-cash charges and
other
expenses. Of the pre-tax total, $3,626 related to the write-off of
certain initiatives, including software projects and a new
restaurant
opening. The remaining $2,740 related to other expenses, including
additional General and administrative expenses related to
severance, proxy
fees, and consulting fees for a tax study. In comparison, in the
fourth quarter of fiscal year 2007, we recognized $1,100
of severance and
restructuring expenses ($682, net of tax), which had an impact
of $0.02
per diluted share.
|
||||||||||||||||
21. Subsequent
Events
Effective
November
21,
2008, we amended
the
Facility and the
Senior Note Agreement. Our Facility
was
extended
to
January
30, 2010. Our borrowing capacity was reduced to $25,000 and is
scheduled to remain at that level through maturity. As amended,
the Facility will bear
interest at a rate based on LIBOR plus 350 basis points. The
amendment also waived certain financial covenant violations as of September
24,
2008 and includes revised financial covenants on a prospective
basis. Giving effect to this amendment, we were not in default under
the Facility as of September 24, 2008.
The
Senior
Note Agreement
was
amended to
reduce and extend the collateral obligations.
As
amended, the Senior Note Agreement requires us to secure the borrowings
with
certain real estate assets if the principal balance under the Senior
Note
Agreement is greater than $5,000 on March 31, 2010.
As with
the
Facility, the
amendment
waived
certain financial
covenant violations as of September 24, 2008
and includes revised
financial covenants on a prospective basis.
Giving
effect
to this amendment, we were not in default under the Senior Note Agreement
as of
September 24, 2008. Subsequent
to
year-end,
we made a
principal payment of $4,471
on the Senior Note
Agreement.
On
November 26, 2008,
we refranchised seven restaurants to an existing franchisee. We
received proceeds of $2,660 in conjunction with this
transaction.
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 Interim Chief
Financial Officer have concluded that our disclosure controls and procedures
were effective as of September
24,
2008.
There
have been no
changes in our internal control over financial reporting that occurred
during
the quarter ended September
24,
2008
that have materially affected, or that are reasonably likely to materially
affect, our internal control over financial
reporting.
ITEM
9B. OTHER
INFORMATION.
None.
PART
III.
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE.
Certain
information required by this Item with respect to our executive officers
is set
forth in Part I, Item 1 of this Annual Report on Form 10-K under the
caption,
“Executive Officers of the Registrant.” Other information required by
this Item will be contained in our definitive Proxy Statement for the
2009
Annual Meeting of Shareholders, to be filed on or before January 22,
2009, and
such information is incorporated herein by reference.
ITEM
11. EXECUTIVE
COMPENSATION.
The
information required by this Item will be contained in our definitive
Proxy
Statement for the 2009 Annual Meeting of Shareholders, to be filed on
or before
January 22, 2009, and such information is incorporated herein by
reference.
ITEM
12. SECURITY
OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The
information required by this Item will be contained in our definitive
Proxy
Statement for the 2009 Annual Meeting of Shareholders, to be filed on
or before
January 22, 2009, and such information is incorporated herein by
reference.
The
information required by this Item will be contained in our definitive
Proxy
Statement for the 2009 Annual Meeting of Shareholders, to be filed on
or before
January 22, 2009, and such information is incorporated herein by
reference.
The
information required by this Item will be contained in our definitive
Proxy
Statement for the 2009 Annual Meeting of Shareholders, to be filed on
or before
January 22, 2009, and such information is incorporated herein by
reference.
PART
IV.
ITEM
15. EXHIBITS,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
24, 2008 and
September
26, 2007
For
the years ended
September
24, 2008, September
26, 2007,
and
September
27, 2006:
Consolidated
Statements
of Operations
Consolidated
Statements
of Cash Flows
Consolidated
Statements
of Shareholders’Equity
Notes
to Consolidated
Financial Statements
Reports
of Independent
Registered Public Accounting Firm
Management’s
Report on Internal
Control over Financial Reporting
2.
Financial
Statement Schedules.
All
schedules for the
years ended September
24, 2008, September
26,
2007,and
September
27, 2006 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.
|
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 June 19, 2008.
(Incorporated
by reference to Exhibit 3.1 to the Registrant's Current Report
on Form 8-K
dated June 19, 2008).
|
|
|
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. (Incorporated by reference to Exhibit
4.19 to the Registrant's Annual Report on Form 10-K for the
year ended
September 26, 2007 filed on December 10,
2007).
|
|
4.20
|
Amendment
No. 6
to the Amended and Restated Note Purchase and Private Shelf
Agreement
dated December 5, 2007. (Incorporated by reference to Exhibit
4.20 to the
Registrant's Annual Report on Form 10-K for the year ended
September 26,
2007 filed on December 10,
2007).
|
|
4.21
|
Seventh
Amendment
to Credit Agreement by and between The Steak n Shake Company
and Fifth
Third Bank, Indiana (Central) dated December 7,
2007. (Incorporated by reference to Exhibit 4.21 to the
Registrant's Annual Report on Form 10-K for the year ended
September 26,
2007 filed on December 10, 2007).
|
|
|
4.22
|
Amendment
No. 7
to the Amended and Restated Note Purchase and Private Shelf
Agreement
dated May 16, 2008. (Incorporated by reference to Exhibit 4.01
to the
Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended
April 9, 2008).
|
|
|
4.23
|
Eighth
Amendment
to Credit Agreement by and between The Steak n Shake Company
and Fifth
Third Bank, Indiana (Central) dated May 16, 2008. (Incorporated
by
reference to Exhibit 4.02 to the Registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended April 9,
2008).
|
|
|
4.24
|
Amendment
No. 8
to the Amended and Restated Note Purchase and Private Shelf
Agreement
dated August 11, 2008. (Incorporated by reference to Exhibit
4.02 to the
Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended
July 2, 2008).
|
|
|
4.25
|
Ninth
Amendment
to Credit Agreement by and between The Steak n Shake Company
and Fifth
Third Bank, Indiana (Central) dated August 6, 2008. (Incorporated
by
reference to Exhibit 4.01 to the Registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended July 2,
2008).
|
|
|
4.26
|
Amendment
No. 9
to the Amended and Restated Note Purchase and Private Shelf
Agreement
dated November 21, 2008. (Incorporated by reference to Exhibit
99.2 to the
Registrant’s Current Report on Form 8-K dated November 21,
2008).
|
|
|
4.27
|
Tenth
Amendment
to Credit Agreement by and between The Steak n Shake Company
and Fifth
Third Bank, Indiana (Central) dated November 21, 2008. (Incorporated
by
reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K
dated November 21, 2008).
|
|
|
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,
Duane E. Geiger, Alan B. Gilman, Omar Janjua, David C. Milne,
Thomas
Murrill, Steven M. Schiller and J. Michael
Vance.
|
|
|
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.
|
|
10.36*
|
Form
of First
Amendment to Change in Control Agreement dated November 7,
2007 entered
into on April 22, 2008 with Gary T. Reinwald. (Incorporated
by reference
to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated May
5, 2008).
|
|
|
10.37*
|
Form
of Employee
Stock Option Agreement. (Incorporated by reference to Exhibit
10.01 to the
Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended
April 9, 2008).
|
|
|
10.38*
|
Form
of 2008
Equity Incentive Plan Restricted Stock Agreement. (Incorporated
by
reference to Exhibit 10.02 to the Registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended April 9,
2008).
|
|
|
10.39*
|
First
Amendment
dated April 22, 2008 to Change in Control Benefits Agreement
dated
November 7, 2007 entered into with Duane Geiger. (Incorporated
by
reference to Exhibit 10.04 to the Registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended April 9,
2008).
|
|
|
10.40*
|
Resignation
Agreement and Complete General Release between The Steak n
Shake Company
and Jeffrey A. Blade dated July 11, 2008. (Incorporated by
reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 11,
2008).
|
|
|
10.41*
|
Resignation
Agreement and Complete General Release between The Steak n
Shake Company
and Steven C. Schiller dated July 23, 2008. (Incorporated by
reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 23,
2008).
|
|
|
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 8, 2008.
THE
STEAK N SHAKE
COMPANY
By:
/s/
Duane
E. Geiger
Duane
E.
Geiger
Interim
Chief
Financial
Officer,
Vice President and Controller
Pursuant
to the
requirements of the Securities Exchange Act of 1934, this report has
been signed
below by the following persons on behalf of the registrant and in the
capacities
indicated, on December 8, 2008.
|
/s/
Duane
E.
Geiger
|
Interim
Chief
Financial
Officer,
Vice President
and Controller
|
|
Duane
E.
Geiger
|
(Principal
Financial Officer and Principal Accounting
Officer)
|
|
/s/
Sardar
Biglari
|
Chief
Executive
Officer and
Chairman
of
the Board
|
|
Sardar
Biglari
|
(Principal
Executive Officer)
|
|
|
|
|
/s/
Phillip
Cooley
|
Director
|
|
Phillip
Cooley
|
|
|
/s/
Wayne L.
Kelley
|
Director
|
|
Wayne
L.
Kelley
|
|
|
|
|
|
/s/
William
J. Regan, Jr.
|
Director
|
|
William
J. Regan,
Jr.
|
|
|
|
|
|
/s/
Dr. Ruth J.
Person
|
Director
|
|
Dr.
Ruth J.
Person
|
|
|
|
|
|
/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
|
|
EXHIBIT
INDEX
|
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 June 19, 2008.
(Incorporated
by reference to Exhibit 3.1 to the Registrant's Current Report
on Form 8-K
dated June 19, 2008).
|
|
|
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. (Incorporated by reference to Exhibit
4.19 to the Registrant's Annual Report on Form 10-K for the
year ended
September 26, 2007 filed on December 10,
2007).
|
|
|
4.20
|
Amendment
No. 6
to the Amended and Restated Note Purchase and Private Shelf
Agreement
dated December 5, 2007. (Incorporated by reference to Exhibit
4.20 to the
Registrant's Annual Report on Form 10-K for the year ended
September 26,
2007 filed on December 10, 2007).
|
|
|
4.21
|
Seventh
Amendment
to Credit Agreement by and between The Steak n Shake Company
and Fifth
Third Bank, Indiana (Central) dated December 7,
2007. (Incorporated by reference to Exhibit 4.21 to the
Registrant's Annual Report on Form 10-K for the year ended
September 26,
2007 filed on December 10, 2007).
|
|
|
4.22
|
Amendment
No. 7
to the Amended and Restated Note Purchase and Private Shelf
Agreement
dated May 16, 2008. (Incorporated by reference to Exhibit
4.01 to the
Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended
April 9, 2008).
|
|
|
4.23
|
Eighth
Amendment
to Credit Agreement by and between The Steak n Shake Company
and Fifth
Third Bank, Indiana (Central) dated May 16, 2008. (Incorporated
by
reference to Exhibit 4.02 to the Registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended April 9,
2008).
|
|
|
4.24
|
Amendment
No. 8
to the Amended and Restated Note Purchase and Private Shelf
Agreement
dated August 11, 2008. (Incorporated by reference to Exhibit
4.02 to the
Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended
July 2, 2008).
|
|
|
4.25
|
Ninth
Amendment
to Credit Agreement by and between The Steak n Shake Company
and Fifth
Third Bank, Indiana (Central) dated August 6, 2008. (Incorporated
by
reference to Exhibit 4.01 to the Registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended July 2,
2008).
|
|
4.26
|
Amendment
No. 9
to the Amended and Restated Note Purchase and Private Shelf
Agreement
dated November 21, 2008. (Incorporated by reference to Exhibit
99.2 to the
Registrant’s Current Report on Form 8-K dated November 21,
2008).
|
|
|
4.27
|
Tenth
Amendment
to Credit Agreement by and between The Steak n Shake Company
and Fifth
Third Bank, Indiana (Central) dated November 21, 2008. (Incorporated
by
reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K
dated November 21,
2008).
|
|
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,
Duane E. Geiger, Alan B. Gilman, Omar Janjua, David C. Milne,
Thomas
Murrill, Steven M. Schiller and J. Michael
Vance.
|
|
|
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.
|
|
|
10.36*
|
Form
of First
Amendment to Change in Control Agreement dated November 7,
2007 entered
into on April 22, 2008 with Gary T. Reinwald. (Incorporated
by reference
to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated May
5, 2008).
|
|
10.37*
|
Form
of Employee
Stock Option Agreement. (Incorporated by reference to Exhibit
10.01 to the
Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended
April 9, 2008).
|
|
|
10.38*
|
Form
of 2008
Equity Incentive Plan Restricted Stock Agreement. (Incorporated
by
reference to Exhibit 10.02 to the Registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended April 9,
2008).
|
|
10.39*
|
First
Amendment
dated April 22, 2008 to Change in Control Benefits Agreement
dated
November 7, 2007 entered into with Duane Geiger. (Incorporated
by
reference to Exhibit 10.04 to the Registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended April 9,
2008).
|
|
10.40*
|
Resignation
Agreement and Complete General Release between The Steak
n Shake Company
and Jeffrey A. Blade dated July 11, 2008. (Incorporated by
reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 11,
2008).
|
|
|
10.41*
|
Resignation
Agreement and Complete General Release between The Steak
n Shake Company
and Steven C. Schiller dated July 23, 2008. (Incorporated
by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 23,
2008).
|
|
|
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.
|
||
70