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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TWELVE WEEKS ENDED JUNE 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-8445
THE STEAK N SHAKE COMPANY
(Exact name of registrant as specified in its charter)
INDIANA 37-0684070
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
36 S. Pennsylvania Street, Suite 500
Indianapolis, Indiana 46204
(317) 633-4100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act rule 12b-2). Yes X No
--
Number of shares of Common Stock outstanding at July 30, 2004: 27,482,279
THE STEAK N SHAKE COMPANY
INDEX
PART I. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . Page No.
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Financial Position as of June 30, 2004
(Unaudited) and September 24, 2003 3
Condensed Consolidated Statements of Earnings (Unaudited) for the Twelve
and Forty Weeks Ended June 30, 2004 and July 2, 2003 5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Forty
Weeks Ended June 30, 2004 and July 2, 2003 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
ITEM 4. CONTROLS AND PROCEDURES 15
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE STEAK N SHAKE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
JUNE 30, SEPTEMBER 24,
2004 2003
-------------- ---------------
(UNAUDITED)
ASSETS:
CURRENT ASSETS
Cash, including cash equivalents of $38,445,000 in 2004 and $22,975,000 in 2003. $ 40,490,510 $ 24,794,540
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621,000 949,000
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,750,634 3,470,976
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,267,310 5,757,275
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,870,000 2,470,000
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,142,090 -
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,347,208 1,814,206
-------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,488,752 39,255,997
PROPERTY AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,787,271 134,779,311
Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,808,067 129,370,353
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,198,813 91,793,031
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,927,417 142,194,528
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,825,036 8,274,263
-------------- --------------
527,546,604 506,411,486
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . (158,829,927) (145,532,776)
-------------- --------------
Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368,716,677 360,878,710
NET PROPERTY LEASED TO THIRD PARTIES . . . . . . . . . . . . . . . . . . . . . . . 3,690,258 3,721,063
OTHER ASSETS
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5,001,280
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,687,495 4,463,999
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,222,608 1,314,534
-------------- --------------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,910,103 10,779,813
-------------- --------------
$437,805,790 $414,635,583
============== ==============
See accompanying notes
JUNE 30, SEPTEMBER 24,
2004 2003
------------- ---------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable. . . . . . . . . . . . . . . . . . . $ 22,785,727 $ 17,460,997
Accrued expenses. . . . . . . . . . . . . . . . . . . 33,375,943 32,718,439
Current portion of senior note. . . . . . . . . . . . 6,036,270 8,215,397
Current portion of obligations under leases . . . . . 3,553,909 3,400,847
------------- --------------
Total current liabilities. . . . . . . . . . . . . . . . 65,751,849 61,795,680
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . 2,387,000 2,876,000
DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . . 17,135 21,887
OBLIGATIONS UNDER LEASES . . . . . . . . . . . . . . . . 143,025,993 145,124,559
SENIOR NOTE. . . . . . . . . . . . . . . . . . . . . . . 15,203,175 16,203,175
SHAREHOLDERS' EQUITY
Common stock -- $.50 stated value,
50,000,000 shares authorized --
shares issued: 30,332,839 in 2004 and 2003. . . 15,166,420 15,166,420
Additional paid-in capital . . . . . . . . . . . . . 123,388,452 123,179,523
Retained earnings. . . . . . . . . . . . . . . . . . 108,127,834 88,113,794
Less: Unamortized value of restricted shares. . . . (1,558,852) (195,173)
Treasury stock -- at cost
2,856,154 shares in 2004 and 3,264,165 in 2003. (33,703,216) (37,650,282)
------------- --------------
Total shareholders' equity . . . . . . . . . . . . . . . 211,420,638 188,614,282
------------- --------------
$437,805,790 $414,635,583
============= ==============
See accompanying notes
THE STEAK N SHAKE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
TWELVE WEEKS ENDED FORTY WEEKS ENDED
-------------------- -------------------
JUNE 30, JULY 2, JUNE 30, JULY 2,
2004 2003 2004 2003
-----------------------------------------------------------------------
REVENUES
Net sales. . . . . . . . . . . . . . . . . . $ 129,554,552 $ 120,348,440 $405,554,148 $370,168,267
Franchise fees . . . . . . . . . . . . . . . 1,072,392 920,086 3,335,778 2,827,188
-----------------------------------------------------------------------
Total revenues . . . . . . . . . . . . . . . . 130,626,944 121,268,526 408,889,926 372,995,455
COSTS AND EXPENSES
Cost of sales. . . . . . . . . . . . . . . . 31,078,420 27,535,883 95,022,327 84,116,836
Restaurant operating costs . . . . . . . . . 63,097,306 58,454,340 199,530,025 183,472,715
General and administrative . . . . . . . . . 9,401,563 9,250,148 32,022,576 29,280,217
Depreciation and amortization. . . . . . . . 5,686,004 5,689,377 18,632,401 18,370,086
Marketing. . . . . . . . . . . . . . . . . . 5,365,982 4,270,375 16,766,903 14,135,871
Interest . . . . . . . . . . . . . . . . . . 2,942,780 3,127,195 9,925,948 10,351,655
Rent . . . . . . . . . . . . . . . . . . . . 2,152,591 1,936,308 6,686,627 6,307,498
Pre-opening costs. . . . . . . . . . . . . . 345,035 375,196 1,323,956 1,462,376
Provision for restaurant closings. . . . . . (394,369) - (394,369) -
Other income, net. . . . . . . . . . . . . . (390,687) (429,662) (1,415,508) (1,505,893)
-----------------------------------------------------------------------
Total costs and expenses . . . . . . . . . . . 119,284,625 110,209,160 378,100,886 345,991,361
-----------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES . . . . . . . . . 11,342,319 11,059,366 30,789,040 27,004,094
INCOME TAXES . . . . . . . . . . . . . . . . . 3,925,000 3,970,000 10,775,000 9,674,000
-----------------------------------------------------------------------
NET EARNINGS . . . . . . . . . . . . . . . . . $ 7,417,319 $ 7,089,366 $ 20,014,040 $ 17,330,094
=======================================================================
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Basic. . . . . . . . . . . . . . . . . . . . $ .27 $ .26 $ .73 $ .64
Diluted. . . . . . . . . . . . . . . . . . . $ .27 $ .26 $ .72 $ .64
WEIGHTED AVERAGE SHARES AND EQUIVALENTS:
Basic. . . . . . . . . . . . . . . . . . . . 27,462,379 27,030,336 27,356,558 26,997,199
Diluted. . . . . . . . . . . . . . . . . . . 27,778,480 27,178,997 27,704,779 27,059,148
See accompanying notes
THE STEAK N SHAKE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FORTY WEEKS ENDED
-----------------
JUNE 30, JULY 2,
2004 2003
------------- -------------
OPERATING ACTIVITIES
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . $ 20,014,040 $ 17,330,094
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 18,632,401 18,340,713
Provision for deferred income tax . . . . . . . . . . . 111,000 (42,000)
Loss on disposals of property and equipment . . . . . . 434,427 508,711
Provision for restaurant closings . . . . . . . . . . . (394,369) -
Changes in receivables and inventories. . . . . . . . . (789,693) (1,106,561)
Changes in other assets . . . . . . . . . . . . . . . . (2,913,245) (1,850,260)
Changes in accounts payable and accrued expenses. . . . 6,749,892 2,059,205
----------------------------
Net cash provided by operating activities . . . . . . . . . 41,844,453 35,239,902
INVESTING ACTIVITIES
Additions of property and equipment . . . . . . . . . . . . (29,043,953) (23,944,266)
Proceeds from long-term investments called. . . . . . . . . - 5,000,000
Proceeds from sale of long-term investments . . . . . . . . 5,095,313 -
Proceeds from sale of short-term investments. . . . . . . . 949,000 171,092
Purchase of short-term investments. . . . . . . . . . . . . (621,000) -
Net proceeds from disposals of property and equipment . . . 1,428,860 745,749
----------------------------
Net cash used in investing activities . . . . . . . . . . . (22,191,780) (18,027,425)
FINANCING ACTIVITIES
Principal payments on long-term debt and lease obligations (6,576,609) (5,184,064)
Proceeds from equipment and property leases. . . . . . . . 600,000 -
Proceeds from employee stock purchase plan . . . . . . . . 1,266,772 1,254,634
Proceeds from exercise of stock options. . . . . . . . . . 753,134 85,419
Treasury stock repurchases . . . . . . . . . . . . . . . . - (988,439)
----------------------------
Net cash used in financing activities. . . . . . . . . . . (3,956,703) (4,832,450)
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . 15,695,970 12,380,027
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . . . . . . 24,794,540 5,286,311
----------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . . . . $ 40,490,510 $ 17,666,338
============================
See accompanying notes
16
THE STEAK N SHAKE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and notes required by generally accepted
accounting principles for complete financial statements.
In the Company's opinion, all adjustments considered necessary to present
fairly the consolidated financial position as of June 30, 2004, and the
consolidated statements of earnings for the twelve and forty weeks ended June
30, 2004 and July 2, 2003, and cash flows for the forty weeks ended June 30,
2004 and July 2, 2003, have been included.
The consolidated statements of earnings for the twelve and forty weeks
ended June 30, 2004 and July 2, 2003 are not necessarily indicative of the
consolidated statements of earnings for the entire year. For further
information, refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
September 24, 2003.
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year presentation.
SEASONAL ASPECTS
The Company has substantial fixed costs which do not decline as a result of
a decline in sales. The Company's first and second fiscal quarters, which
include the winter months, usually reflect lower average weekly unit volumes,
and can be adversely affected by severe winter weather.
STOCK-BASED COMPENSATION
The Company accounts for its Stock Option and Employee Stock Purchase Plans
under the recognition and measurement principles of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees. No stock-based
employee compensation is reflected in net earnings, as all options granted under
those plans have an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effect
on net earnings and earnings per share if the Company had applied the fair value
recognition provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.
TWELVE WEEKS ENDED FORTY WEEKS ENDED
------------------ -----------------
JUNE 30, JULY 2, JUNE 30, JULY 2,
2004 2003 2004 2003
----------- ----------- ------------ ------------
Net earnings as reported . . . . . . . $7,417,319 $7,089,366 $20,014,040 $17,330,094
Less pro forma compensation expense,
net of tax. . . . . . . . . . . . . . (279,692) (257,264) (1,023,729) (766,186)
----------------------------------------------------
Proforma net earnings. . . . . . . . . $7,137,627 $6,832,102 $18,990,311 $16,563,908
====================================================
Basic earnings per share as reported . $ .27 $ .26 $ .73 $ .64
Pro forma basic earnings per share . . $ .26 $ .25 $ .69 $ .61
Diluted earnings per share as reported $ .27 $ .26 $ .72 $ .64
Pro forma diluted earnings per share . $ .26 $ .25 $ .69 $ .61
FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents and short-term investments
approximate their carrying value due to their short-term maturities. During the
twelve and forty week periods ended June 30, 2004, the Company sold a
held-to-maturity investment for $5,095,313, and recorded a gain of $95,313 on
the sale.
EARNINGS PER SHARE
Earnings per share of common stock is based on the weighted average number
of shares outstanding during the year. The following table presents a
reconciliation of the basic and diluted weighted average common shares as
required by SFAS No. 128, Earnings Per Share:
TWELVE WEEKS ENDED FORTY WEEKS ENDED
------------------ -----------------
JUNE 30, JULY 2, JUNE 30, JULY 2,
2004 2003 2004 2003
------------ ----------- ---------- ------------
Basic earnings per share:
Weighted average common shares 27,462,379 27,030,336 27,356,558 26,997,199
============ =========== =========== ============
Diluted earnings per share:
Weighted average common shares 27,462,379 27,030,336 27,356,558 26,997,199
Dilutive effect of stock options 316,101 148,661 348,221 61,949
----------- ---------- ---------- -----------
Weighted average common and
incremental shares 27,778,480 27,178,997 27,704,779 27,059,148
=========== ========== ========== ===========
Number of stock options excluded
from the calculation of earnings
per share as the options' exercise
prices were greater than the market
price of the Company's common stock 43,907 767,446 37,064 1,053,363
=========== ========== ========== ==========
SHAREHOLDERS' EQUITY
During the twelve and forty weeks ended June 30, 2004, the Company issued
5,000 and 123,000 shares, respectively, of restricted common stock under its
Capital Appreciation Plan to certain employees. The shares are restricted for a
period of three years. The total value of the restricted stock grants (based
upon market value at the date of grant) of $96,250 and $1,910,495, respectively,
is recorded to unamortized value of restricted shares and is amortized to
compensation expense ratably over the three-year period.
INTANGIBLE ASSETS
Intangible assets subject to amortization pursuant to SFAS No. 142,
Goodwill and Other Intangible Assets, consists of "a right to operate" and is
JUNE 30, SEPTEMBER 24,
2004 2003
----------- ---------------
Gross intangible assets. . . . $1,480,000 $ 1,480,000
Less: accumulated amortization (257,392) (165,466)
----------- ---------------
Net intangible assets. . . . . $1,222,608 $ 1,314,534
=========== ===============
summarized below:
Amortization expense for the twelve and forty week periods ended June 30,
2004 was $27,578 and $91,926, respectively. Annual amortization expense for
each of the next five fiscal years is estimated to be approximately $119,500.
PROVISION FOR RESTAURANT CLOSINGS
During the fourth quarter of fiscal year 2003, the Company identified nine
under-performing restaurants for disposal. In connection with the decision to
dispose of these restaurants, the Company recorded a charge of $5,200,000 to
cover the costs of property and equipment write-downs, lease termination costs,
and closing costs. During the forty-week period ended June 30, 2004, the
Company disposed of three restaurants. Proceeds received from these disposed
restaurants exceeded previous estimates by $394,369, resulting in an adjustment
to the reserve during the period. This adjustment was recorded under the
provision for restaurant closings in the accompanying statements of earnings.
The Company is currently seeking buyers for the remaining six properties and
anticipates completing the disposal of these properties within the next nine
months.
Activity related to the provision for restaurant closings is as follows:
NON-CASH ADJUSTMENTS
CHARGES CASH CHARGES TO ESTIMATES
DURING TWELVE DURING TWELVE DURING TWELVE
BALANCE AT WEEKS ENDED WEEKS ENDED WEEKS ENDED BALANCE AT
APRIL 7, 2004 JUNE 30, 2004 JUNE 30, 2004 JUNE 30, 2004 JUNE 30, 2004
--------------------------------------------------------------------------------------
Asset write-downs . . . $4,380,934 $(389,406) $3,991,528
Lease termination costs - -
Closing costs . . . . . 69,777 $(17,167) (4,963) 47,647
--------------------------------------------------------------------------------------
Total . . . . . . . . $4,450,711 $(17,167) $(394,369) $4,039,175
======================================================================================
NON-CASH ADJUSTMENTS
CHARGES CASH CHARGES TO ESTIMATES
BALANCE AT DURING FORTY DURING FORTY DURING FORTY
SEPTEMBER WEEKS ENDED WEEKS ENDED WEEKS ENDED BALANCE AT
24, 2003 JUNE 30, 2004 JUNE 30, 2004 JUNE 30, 2004 JUNE 30, 2004
--------------------------------------------------------------------------------------
Asset write-downs . . . $4,860,000 $(479,066) $(389,406) $3,991,528
Lease termination costs 225,000 $(225,000) -
Closing costs . . . . . 69,777 $(62,390) (4,963) 47,647
--------------------------------------------------------------------------------------
Total . . . . . . . . $4,450,711 $(479,066) $(287,390) $(394,369) $4,039,175
======================================================================================
ASSETS HELD FOR SALE
Assets held for sale consists of property and equipment related to the
under-performing restaurants identified for disposal in 2003, and is comprised
of the following: Land and Buildings - $2,486,000; Leasehold Improvements -
$368,840; and Equipment - $287,250.
SUPPLEMENTAL CASH FLOW INFORMATION
During the forty-week period ended June 30, 2004, the Company financed the
purchase of property and equipment of $820,000 through the incurrence of capital
lease obligations, and issued 123,000 shares of restricted common stock under
its Capital Appreciation Plan with a market value of $1,910,495.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In the following discussion, the term "same store sales" refers to the
sales of only those units open eighteen months as of the beginning of the
current fiscal period being discussed and which remained open through the end of
the fiscal period.
OVERVIEW
The Steak n Shake Company reported higher revenues, net income and diluted
earnings per share in the twelve weeks ended June 30, 2004. The Company's
revenues increased 7.7% to $130.6 million compared to $121.3 million for the
same period last year. Net earnings increased 4.6% to $7.4 million from $7.1
million in the prior year, while diluted earnings per share increased to $0.27
from $0.26.
The key to the Company's revenue growth was a 6.3% increase in same store
sales. The same store sales growth is primarily attributable to increasing
guest counts by 3.0% and menu price increases of 3.1%, which helped offset
higher food costs in beef and dairy products.
Management continues to focus on five key operating strategies that are
linked in a "virtuous cycle" which include: developing effective field leaders;
improving associate satisfaction and training; growing guest counts; improving
margins; and expanding the brand. Management believes that these efforts, are
the key factors driving six consecutive quarters of positive same store sales.
However, the Company faced significant increases in food commodity costs, which
offset some of the sales gains. To help offset the food commodity increases,
the Company implemented a 1.2% weighted average menu price increase on August 1,
2004.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to use its judgment to make estimates and assumptions that can have a
material impact on the results of operations and reported amounts of assets and
liabilities. The Company evaluates its assumptions and estimates on an ongoing
basis based on historical experience and various other factors that are believed
to be relevant under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions.
The Company believes that, of its significant accounting policies, the
following policies involve a higher degree of risk, judgment and/or complexity.
Property and Equipment
Property and equipment are recorded at cost with depreciation and
amortization being recognized on the straight-line method over the estimated
useful lives of the assets (15 to 25 years for building and land improvements, 3
to 10 years for equipment, and the shorter of the estimated useful life or the
lease term for leasehold improvements). The Company reviews each restaurant for
impairment on a restaurant-by-restaurant basis when events or circumstances
indicate it might be impaired. The Company tests for impairment by comparing
the carrying value of the asset to the future cash flows expected to be
generated by the asset. If the total future cash flows are less than the
carrying amount of the asset, the carrying amount is written down to the
estimated fair value, and a loss is recognized in earnings. 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 sold, and
other financial and economic assumptions. Accordingly, management believes that
accounting estimates related to property and equipment are critical.
Insurance Reserves
The Company self-insures a significant portion of expected losses under its
workers' compensation, general liability, and auto liability insurance programs.
The Company purchases reinsurance for individual and aggregate claims that
exceed predetermined limits. The Company records a liability for all unresolved
claims and its estimate of incurred but not reported ("IBNR") claims at the
anticipated cost to the Company. 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.
Income Taxes
The Company records deferred tax assets or liabilities based on differences
between financial reporting and tax bases of assets and liabilities using
currently enacted rates and laws that will be in effect when the differences are
expected to reverse. Management records deferred tax assets to the extent it
believes 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, management 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. Management 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,
management believes estimates related to income taxes are critical.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of items included in the Company's
consolidated statements of earnings for the periods indicated:
TWELVE WEEKS ENDED FORTY WEEKS ENDED
------------------- ------------------
JUNE 30, JULY 2, JUNE 30, JULY 2,
2004 2003 2004 2003
----------------------------------------------------
REVENUES
Net sales . . . . . . . . . . . . 99.2% 99.2% 99.2% 99.2%
Franchise fees. . . . . . . . . . .8 .8 .8 .8
----------------------------------------------------
100.0 100.0 100.0 100.0
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . 24.0 (1) 22.9 (1) 23.4 (1) 22.7 (1)
Restaurant operating costs. . . . 48.7 (1) 48.6 (1) 49.2 (1) 49.6 (1)
General and administrative. . . . 7.2 7.6 7.8 7.9
Depreciation and amortization . . 4.4 4.7 4.6 4.9
Marketing . . . . . . . . . . . . 4.1 3.5 4.1 3.8
Interest. . . . . . . . . . . . . 2.3 2.6 2.4 2.8
Rent. . . . . . . . . . . . . . . 1.6 1.6 1.6 1.7
Pre-opening costs . . . . . . . . .3 .3 .3 .4
Provision for restaurant closings (.3) - (.1) -
Other income, net . . . . . . . . (.3) (.4) (.3) (.4)
----------------------------------------------------
91.3 90.9 92.5 92.8
----------------------------------------------------
EARNINGS BEFORE INCOME TAXES . . . . . 8.7 9.1 7.5 7.2
INCOME TAXES . . . . . . . . . . . . . 3.0 3.3 2.6 2.6
---------------------------------------------------
NET EARNINGS . . . . . . . . . . . . . 5.7% 5.8% 4.9% 4.6%
===================================================
(1) Cost of sales and restaurant operating costs are expressed as a percentage of net sales.
COMPARISON OF TWELVE WEEKS ENDED JUNE 30, 2004 TO TWELVE WEEKS ENDED JULY 2,
2003
Revenues
Net sales increased $9,206,000 (7.6%) to $129,555,000 primarily due to a
6.3% increase in same store sales. The increase in same store sales is
significant given an 8.0% increase in the same period in the prior year. This
sales improvement is attributable to new product introductions including
Side-by-SideTM milk shakes, and increased television advertising primarily in
the Dallas, West Palm, and Toledo markets, which helped drive increased trial.
The 6.3% same store sales increase consists of a 3.0% increase in guest counts
and a 3.3% increase in check average. The increase in check average results
primarily from a 3.1% weighted average menu price increase compared to the same
period in the prior year.
Costs and Expenses
Cost of sales increased $3,543,000 (12.9%) to $31,078,000 primarily due to
increased net sales and higher food costs. Cost of sales as a percentage of net
sales increased to 24.0% from 22.9%, as a result of 13% - 30% increases in beef
and dairy costs, somewhat offset by menu price increases.
Restaurant operating costs increased $4,643,000 (7.9%) to $63,097,000 and
as a percentage of net sales increased to 48.7% from 48.6%. The increase is due
to net sales gains and investments in training and labor for the new
Side-by-SideTM milk shakes rollout. Additional investments were made in field
management bonuses as a result of strong same store sales gains.
General and administrative expenses increased $151,000 (1.6%) to
$9,402,000, but decreased to 7.2% as a percentage of revenue, compared to 7.6%
in the same period in the prior year. The decrease in general and
administrative expenses as a percentage of revenues is attributable to cost
containment to offset increased commodity prices and reduced management
incentive compensation of $700,000.
Depreciation and amortization expense was relatively flat compared to the
prior year, as net property balances are comparable to the prior year period.
As a percentage of total revenues, depreciation and amortization expense
decreased to 4.4% from 4.7% in the prior year.
Marketing expense increased $1,096,000 (25.7%) to $5,366,000, and as a
percentage of revenue increased to 4.1% from 3.5% in the same period in the
prior year. Of the increase, $606,000 is attributable to the introduction of
television advertising in new markets, primarily Dallas, Toledo, and several
Florida markets. Additionally, the prior year period included a marketing
rebate of $500,000 that did not occur in the current year period.
Interest expense decreased $184,000 (5.9%) to $2,943,000 due to decreased
net borrowings under the Company's Senior Note Agreement, combined with lower
lease obligation balances than the same period in the prior year.
Rent expense increased $216,000 (11.2%) to $2,153,000 as a result of
increased percentage rents over the prior year as net sales increased
significantly over the same period in the prior year.
Pre-opening costs decreased $30,000 (8.0%) to $345,000 as the Company
opened one new restaurant and re-opened two remodeled restaurants during the
current period, compared with opening three restaurants in the same period in
the prior year.
The Company recorded a reduction in its provision for restaurant closings
of $394,000 during the current year period as proceeds from the disposal of
restaurants exceeded previous estimates.
Other income, net decreased $39,000 (9.1%) to $391,000 due to lower
interest income from reduced investment balances.
Income Taxes
The Company's effective income tax rate decreased to 34.6% from 35.9% in
the same period in the prior year, primarily due to lower state income taxes and
increased FICA tax credits.
COMPARISON OF FORTY WEEKS ENDED JUNE 30, 2004 TO FORTY WEEKS ENDED JULY 2, 2003
Revenues
Net sales increased $35,386,000 (9.6%) to $405,554,000, mainly due to an
8.7% increase in same store sales. The net sales improvement is a result of
increased television advertising in both new and existing markets which is
driving increased trial, and new product introductions such as adding a shot of
hot fudge to any milk shake and the new Side-by-SideTM milk shakes. Sales were
also impacted by a 3.9% increase in check average, including a 3.1% weighted
average menu price increase, and a 4.8% increase in guest counts.
Costs and Expenses
Cost of sales increased $10,905,000 (13.0%) to $95,022,000 as a result of
increased sales and higher food costs. As a percentage of net sales, cost of
sales increased to 23.4% from 22.7% in the prior year period. Increased beef
and dairy costs primarily drove the higher cost of sales as a percentage of net
sales.
Restaurant operating costs increased $16,057,000 (8.8%) to $199,530,000,
primarily due to increased net sales. Restaurant operating costs as a
percentage of net sales decreased to 49.2% from 49.6% in the prior year mainly
from improved labor utilization and leverage on fixed operating costs. Labor as
a percentage of net sales improved by 30 basis points, but was somewhat offset
by an increase in field management bonuses due to strong same store sales gains.
General and administrative expenses increased $2,742,000 (9.4%) to
$32,023,000, but decreased to 7.8% as a percentage of revenues, from 7.9% in the
prior year. The general and administrative expense increase is due primarily to
increased investments in consumer research, new product development, and mystery
shopping of $664,000, leadership training and consulting of $535,000, and legal
and professional fees of $573,000.
Depreciation and amortization expense increased $262,000 (1.4%) to
$18,632,000 principally from property and equipment additions from opening new
restaurants.
Marketing expenses increased $2,631,000 (18.6%) to $16,767,000, and as a
percentage of revenues increased to 4.1% from 3.8% in the prior year. Of the
increased expense, $1,101,000 is attributable to the introduction of television
advertising in several Florida markets, Dallas, Lansing, and Toledo, combined
with increased television advertising in existing markets of $464,000.
Promotional marketing for Side-by-SideTM and seasonal milk shake flavors, gift
cards, and market research also contributed $561,000 to the increased marketing
expenses.
Interest expense decreased $426,000 (4.1%) to $9,926,000 due to lower net
borrowings and lease obligation balances than in the prior year.
Rent expense increased $379,000 (6.0%) to $6,687,000 as a result of
increased percentage rents over the prior year due to increased net sales.
Pre-opening costs decreased $138,000 (9.5%) to $1,324,000 as the Company
opened eight new restaurants and re-opened two remodeled restaurant during the
current year period, compared to opening twelve new restaurants in the prior
year period.
The Company recorded a reduction in its provision for restaurant closings
of $394,000 during the current year period as proceeds from the disposal of two
restaurants exceeded previous estimates.
Other income, net decreased $90,000 (6.0%) to $1,416,000 due to lower
interest income from reduced investment balances.
Income Taxes
The Company's effective income tax rate decreased to 35.0% from 35.8% in
the prior year period, primarily due to lower state income taxes and increased
FICA tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Eight Company-owned Steak n Shake restaurants, two franchised restaurants,
and two remodeled restaurants were opened, and the previously announced
underperforming restaurants were closed during the forty weeks ended June 30,
2004. As of June 30, 2004, there are 357 Company-owned and 59 franchised
restaurants. For the forty weeks ended June 30, 2004, capital expenditures
totaled $29,044,000, as compared to $23,944,000 for the same period in the prior
year.
The Company anticipates opening 7 to 9 new Steak n Shake restaurants during
the fourth quarter of fiscal year 2004. For fiscal year 2005, the Company
anticipates opening 18 to 24 new Company-owned restaurants and also rebuilding
or replacing several existing restaurants. The new store openings will allow
the Company to continue its expansion in newer markets such as Texas, while also
further penetrating existing markets in the Midwest and Florida. The average
cost of a new Company-operated Steak n Shake restaurant, including land, site
improvements, building and equipment is approximately $1.75 million. Total
capital expenditures for fiscal year 2005 are estimated to be $45 to $55
million. The Company intends to fund future capital expenditures and meet its
working capital needs by using existing cash and investments and anticipated
cash flows from operations.
During the forty weeks ended June 30, 2004, cash provided by operations
totaled $41,844,000, compared to $35,240,000 in the same period in the prior
year. This increase in cash provided by operations is primarily attributable to
increased net earnings and the timing of invoice payments and accruals. Net
cash used in investing activities for the forty weeks ended June 30, 2004,
totaled $22,192,000 compared to $18,027,000 in the comparable prior period
primarily due to increased capital expenditures in the current year.
As of June 30, 2004, the Company had outstanding borrowings of $21,239,000
under its Senior Note Agreement and Private Shelf Facility ("Senior Note
Agreement") and $75,000,000 of additional borrowing capacity available.
Borrowings under the Senior Note Agreement bear interest at an average fixed
rate of 7.6%. At July 2, 2003, the Company had outstanding borrowings of
$26,561,000.
The Company also maintains a $30,000,000 Revolving Credit Agreement
("Revolving Credit Agreement") that bears interest based on LIBOR plus 75 basis
points, or the prime rate, at the election of the Company, and matures in
January 2005. There were no borrowings under the Revolving Credit Agreement at
June 30, 2004. The Company's debt agreements contain restrictions which, among
other things, require the Company to maintain certain financial ratios. The
Company was in compliance with all restrictive covenants under these borrowing
agreements at June 30, 2004.
EFFECTS OF GOVERNMENTAL REGULATIONS AND INFLATION
Most of the Company's employees are paid hourly rates related to federal and
state minimum wage laws. Any increase in the legal minimum wage would directly
increase the Company's operating costs. The Company is 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 their operating costs.
In addition, the Company is subject to franchise registration requirements and
certain related federal and state laws regarding franchise operations. Any
changes in these laws could affect the Company's ability to attract and retain
franchisees.
Inflation in food, labor, fringe benefits, and other operating costs directly
affects the Company's operations. Historically, the Company's results of
operations have not been significantly affected by inflation.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
Certain statements in this report contain forward-looking information. 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", "will", and other similar terminology.
These statements speak only as of the date they were made and involve a number
of risks and uncertainties that could cause actual results to differ materially
from those expressed in forward-looking statements. Several factors, many
beyond our control, could cause actual results to differ significantly from our
expectations, such as the following: effectiveness of operating initiatives;
changes in economic conditions; effectiveness of advertising and marketing
initiatives; harsh weather conditions, primarily in the first and second
quarters; availability and cost of qualified restaurant personnel; changes in
consumer tastes; changes in consumer behavior based on publicity or concerns
relating to food safety or food-borne illnesses; effectiveness of our expansion
plans; changes in minimum wage rates; changes in food commodity prices; and
changes in applicable accounting policies and practices. The foregoing list of
important factors is not intended to be all-inclusive as other general market,
industry, economic, and political factors may also impact our operations.
Readers are cautioned not to place undue reliance on our forward-looking
statements, as we assume no obligation to update forward-looking statements.
For further information, refer to the Company's Annual Report on Form 10-K for
the year ended September 24, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure with regard to financial
instruments is to changes in interest rates. Pursuant to the terms of the
Senior Note Agreement, the Company may from time to time issue notes in
increments of at least $5,000,000. The interest rate on the notes is based upon
market rates at the time of the borrowing. Once the interest rate is
established at the time of the initial borrowing, the interest rate remains
fixed over the term of the underlying note. The Revolving Credit Agreement
bears interest at a rate based upon LIBOR plus 75 basis points or the prime
rate, at the election of the Company. Historically, the Company has not used
derivative financial instruments to manage exposure to interest rate changes.
At June 30, 2004, a hypothetical 100 basis point increase in short-term interest
rates would have an immaterial impact on the Company's earnings.
ITEM 4. CONTROLS AND PROCEDURES
Based on an evaluation of the Company's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(c)), the Company's Chief
Executive Officer and Chief Financial Officer have concluded that the Company's
disclosure controls and procedures were effective as of June 30, 2004, in timely
alerting the Company's management to material information required to be
included in this Form 10-Q and other Exchange Act filings. There have been no
changes in the Company's internal controls over financial reporting that
occurred during the quarter ended June 30, 2004 that have materially affected,
or are reasonably likely to materially affect, the Company's internal control
over financial reporting.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
(a) Non-audit Services
During the period covered by the Quarterly Report on Form 10-Q, the Audit
Committee of the Board of Directors approved the engagement of Deloitte &
Touche, LLP, the Company's independent auditors, to perform the following
non-audit services: review of income tax returns. This disclosure is made
pursuant to Section 10A(i)(2) of the Securities Exchange Act of 1934, as added
by Section 202 of the Sarbanes-Oxley Act of 2002.
(b) Shareholder Nominations for Director
The Board of Directors has recently established a Nominating and Corporate
Governance Committee for the purpose, among other things, to identify
individuals qualified to become members of the Company's Board and to recommend
to the Board the director nominees for each annual meeting of shareholders. The
Committee identifies nominees for director from various sources, including,
without limitation, its members, other directors, senior management,
shareholders and third-party consultants. Candidates are evaluated based on
their credentials and the needs of the Board and the Company at the time. Of
particular importance are the candidate's experience, judgment, integrity,
ability to make independent inquiries, understanding of the Company's business
environment and willingness and ability to devote adequate time to Board
activities. The Committee will identify nominees who meet specific objectives
in terms of the composition of the Board, such as financial expertise, and may
take into account such factors as geographic, occupational, gender, race and age
diversity.
In July 2004, the Board of Directors amended the Company's By-Laws to provide
certain procedures by which shareholders may recommend nominees to the
Nominating and Corporate Governance Committee. Shareholders who wish to
recommend to the Committee a candidate for election to the Board of Directors at
the annual meeting should send their inquiries to:
Attn: Nominating and Corporate Governance Committee
c/o Dave Milne, Corporate Secretary
36 S. Pennsylvania Street, Suite 500
Indianapolis, Indiana 46204
The Corporate Secretary will promptly forward all such letters to the members of
the Committee. In order for director nominations to be properly brought before
an annual meeting by a shareholder, timely notice must be given by the
shareholder to the Corporate Secretary. To be timely, the notice must be
delivered at the above address not less than 120 days prior to the date the
Company mailed proxy materials for the preceding year's annual meeting. With
respect to the 2005 Annual Meeting of Shareholders, notice shall be timely if it
is delivered by August 21, 2004.
Nominations must include the following information (i) a statement of the
qualifications of the nominee; (ii) all information required to be disclosed in
solicitation of proxies for elections of directors pursuant to Regulation 14A of
the Securities Exchange Act of 1934; (iii) the name and address of the
shareholder giving notice; (iv) the class and number of shares of stock of the
Company owned by such shareholder; (v) a description of all arrangements or
understandings among the shareholder and the nominee; and (vi) the written
consent of the nominee to serve as a director if so elected.
Other than the submission requirements set forth above, there are no differences
in the manner in which the Committee evaluates a nominee for director
recommended by a shareholder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
- --- --------
3.01 Amendment to the Corporation's Restated By-Laws.
31.1 Rule 13a - 14(a) / 15d - 14(a) Certification of Chief Executive
Officer.
31.2 Rule 13a - 14(a) / 15d - 14(a) Certification of Chief Financial
Officer.
32 Section 1350 Certifications.
(b) Reports on Form 8-K.
-----------------------
A report on Form 8-K was furnished on May 4, 2004 announcing second quarter
results.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 13, 2004.
THE STEAK N SHAKE COMPANY
(Registrant)
By /s/ Jeffrey A. Blade
-------------------------
Jeffrey A. Blade
Senior Vice President
and Chief Financial Officer
EXHIBIT 3.01
WRITTEN RESOLUTION REGARDING AMENDMENT TO BY-LAWS
RESOLVED, that the Board of Directors hereby approves an amendment to the
Corporation's Restated By-Laws to change the advance notice provisions related
to shareholder proposals, namely that Article IV, Section 9 of the Corporation's
Restated By-Laws be amended so that, as amended, such Article IV, Section 9
shall read in its entirety as follows:
"SECTION 9. SHAREHOLDER PROPOSALS AND NOMINATIONS. For any shareholder
proposal to be presented in connection with an annual meeting of shareholders of
the Company, including any proposal relating to the nomination of a director to
be elected to the Board of Directors of the Company, the shareholder must have
given timely notice thereof in writing to the Secretary of the Company (the
"Notice") and must have been a shareholder of record entitled to vote at the
meeting at the time of giving such notice. To be timely, a Notice must be
delivered to or, if mailed, received at the principal executive offices of the
Company not less than one hundred twenty (120) calendar days in advance of the
date the Company's proxy statement was released to shareholders in connection
with the annual meeting of shareholders; provided, however, that in the event
that no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than thirty (30) days from the date of the
previous year's meeting, to be timely, Notice must be received by the Company's
Secretary at the principal office of the Company not later than the close of
business on the later of one hundred twenty (120) calendar days in advance of
such annual meeting or ten (10) calendar days following the date on which public
announcement of the date of the meeting is first made. Such shareholder's
notice shall set forth (a) as to each person whom the shareholder proposes to
nominate for election or reelection as a director, (i) a statement of the
qualifications of such person, (ii) all information relating to such person that
is required to be disclosed in solicitation of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(iii) a description of all arrangements or understandings among the shareholder
and such person as (iv) the written consent of such person to being named in the
proxy statement as a nominee and to serving as a director if elected; (b) as to
any other business that the shareholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reason for conducting such business at the meeting and any material interest in
such business of such shareholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the shareholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is
made, (i) the name and address of such shareholder, as they appear on the
Company's books, and of such beneficial owner and (ii) the class and number of
shares of stock of the Company which are owned beneficially and of record by
such shareholders and such beneficial owner. Notwithstanding the foregoing, in
order to include information with respect to a shareholder proposal in the proxy
statement and form of proxy for a shareholder's meeting, shareholder must
provide notice as required by the regulations promulgated under the Exchange
Act."
Ratified this 16th day of July 2004.
/s/ Alan B. Gilman
- ---------------------
Alan B. Gilman
/s/ Peter M. Dunn
- --------------------
Peter M. Dunn
/s/ Stephen Goldsmith
- -----------------------
Stephen Goldsmith
/s/ Wayne L. Kelley
- ----------------------
Wayne L. Kelley
/s/ Charles E. Lanham
- ------------------------
Charles E. Lanham
/s/ Dr. Ruth J. Person
- --------------------------
Dr. Ruth J. Person
/s/ J. Fred Risk
- -------------------
J. Fred Risk
/s/ Dr. John Ryan
- --------------------
Dr. John Ryan
/s/ James Williamson, Jr.
- ----------------------------
James Willilamson, Jr.
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, Peter M. Dunn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Steak n Shake
Company;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: August 13, 2004
/s/ Peter M. Dunn
--------------------
Peter M. Dunn
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, Jeffrey A. Blade, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Steak n Shake
Company;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: August 13, 2004
/s/ Jeffrey A. Blade
-----------------------
Jeffrey A. Blade
Senior Vice President and Chief Financial Officer
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Steak n Shake Company (the
"Company") on Form 10-Q for the period ending June 30, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), each of
the undersigned certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Peter M. Dunn
- --------------------
Peter M. Dunn, President and
Chief Executive Officer
August 13, 2004
/s/ Jeffrey A. Blade
- -----------------------
Jeffrey A. Blade, Senior Vice President and
Chief Financial Officer
August 13, 2004