|
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
e
xecutive
o
fficers:
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
E
xecutive
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
e
xecutive
o
fficers
are
appoint
ed
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
indicator
s
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
operation
s
may
be
negatively affected.
In
addition, we are
dependent
up
on
frequent deliveries
of perishable food products that meet certain specifications.
Shortages
or
interruptions in the supply of perishable food products caused by unanticipated
demand, problems in production or distribution, disease or food-borne illnesses,
inclement weather
,
or
other conditions
could adversely affect the availability, quality
,
and
cost of
ingredients, which would likely lower revenues, damage our
reputation
,
or
otherwise harm our
business.
The
inability of our
franchise
e
s
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 franchis
e
es.
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 franchise
d
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
,
a
n
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
liabilit
ies
for
environmental
conditions.
We
generally cannot
cancel
our
leases.
If
we
decide to close an
underperforming
existing
st
or
e,
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
2
69
leased
and 1
46
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
Dec
ember
3
,
200
8
,
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,
w
e
own
a
Jeffersontown
,
Kentucky
property
no longer in
operation that we lease to a third party. We
ha
ve
land
and building
lease
obligations on former restaurant
s
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
.
S
ublease
rentals cover
substantially all of our obligations under the primary lease
s
.
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
r
eport.
PART
I
I
.
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
,
200
8
,
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 inco
rporated
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 b
y
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
|
|
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.
N
ew
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
generat
e
cash.
As
a result of this
shift, we decided to for
e
go
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
200
8
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 whe
n
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
200
8
compared with
Fiscal
Year
200
7
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 sto
re
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,
20
9,
net of tax)
of
net
non-cash
imp
airment,
which
had an impact of
$0.1
1
per
diluted share
.
Net
Sales
In
fiscal year
2008
,
net
sales
de
creased
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
C
ost
of sales
w
as
$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
200
8. 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 ou
r
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 a
ny
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,
20
9,
net of tax)
of
net
non-cash
imp
airment,
which
had an impact of
$0.1
1
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.
F
iscal
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 w
as
$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
percent
age
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
percent
age
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 ac
quisition
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
200
8
,
200
7,
and 200
6
,
respectively.
The after-tax
loss
es
in fiscal
years
2008 and
2007
include
$5
83
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
200
8,
200
7,
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
200
8
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. Du
ring
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
proceed
s
of
$15,993.
Net
cash used in
investing activities of $
60,110
during
fiscal
year
200
7
resulted
primarily from
capital expenditures of $
68
,
643.
During
fiscal year
2007, w
e
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
a
llowed
us to borrow up to
$30,000
,
b
ore
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
wa
s
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, o
ur
to
tal
borrowing capacity under the
Senior
Note Agreement
was
$75,000
,
and
our
ability to borrow additional funds expired September 29, 2008.
W
e
had
outstanding
borrowings
under the Senior Note Agreement of $16,429
at
a
weighted
average fixed
rate
of
8.
4
%
a
s
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)
E
xclude
s
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. 1
41(R),
“Business
Combinations” (“SFAS
1
41(R)
”)
,
which replaces SFAS
141.
SFAS
1
41(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.
S
FAS
141(R) also
broadens the definition of a business combination and expands disclosures
related to business combinations.
SFAS
1
41(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
20
10,
except
that business
combinations consummated prior to the effective date must apply
S
FAS
141(R) income tax
requirements immediately upon adoption.
We
are in the process
of determining the effect, if any, that the adoption of
S
FAS
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
Dec
ember 15,
200
8
,
our fiscal
year
20
10
.
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
t
he
Revolving Credit
Facility
b
ore
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
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 2
4
,
200
8
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 2
4
,
200
8
,
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 49
1
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 franchis
e
e,
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
the
ir
carrying
amount
s
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
a
ssets
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 whe
n
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 serv
ices
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
e
xpenses
in the
Consolidated
Statement
of Financial Position.
(Loss)
Earnings
Per
Share
(Loss)
e
arnings
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, w
e
match
ed
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
include
s
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. 1
41(R),
“Business
Combinations” (“SFAS
1
41(R)
”)
,
which replaces SFAS
141.
SFAS
1
41(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.
S
FAS
141(R) also
broadens the definition of a business combination and expands disclosures
related to business combinations.
SFAS
1
41(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
20
10,
except
that business
combinations consummated prior to the effective date must apply
S
FAS
141(R) income tax
requirements immediately upon adoption.
We
are in the process
of determining the effect, if any, that the adoption of
S
FAS
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
Dec
ember 15,
200
8
,
our fiscal
year
20
10
.
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 ou
r
expectations
. As
the
carrying values of these properties exceed
ed
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
200
8
,
200
7,
and 200
6
,
respectively.
The after-tax
loss
es
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
Ot
her
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
|
|