STEAK & SHAKE CO (Form: 10-Q, Received: 05/19/2008 17:16:59)

UNITED STATES

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 quarterly period ended April 9 , 200 8

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to _________

Commission file number 0-8445

THE STEAK N SHAKE COMPANY

(Exact name of registrant as specified in its charter)

INDIANA	37-0684070
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

36 S. Pennsylvania Street, Suite 500
Indianapolis , Indiana	46204
(Address of principal executive offices)	(Zip code)

(317) 633-4100

(Registrant’s telephone number, including area code)

N ot Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 a large accelerated filer, an accelerated filer , a non-accelerated filer or a smaller reporting company . See the definition s of “large accelerated filer ,” “ accelerated filer , ” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ___ Accelerated filer X

Non-accelerated filer ___ (Do not check if a smaller reporting company) Smaller reporting company ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X

As of May 14, 2008, 28,709,341 shares of the registrant’s Common Stock, $.50 par value, were outstanding.

THE STEAK N SHAKE COMPANY

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION			Page

	ITEM 1. FINANCIAL STATEMENTS
		Condensed Consolidated Statements of Financial Position (Unaudited) as of April 9, 2008 and September 26, 2007	3

		Condensed Consolidated Statements of Operations (Unaudited) for the Sixteen and Twenty-Eight Weeks Ended April 9, 2008 and April 11, 2007	4

		Condensed Consolidated Statements of Cash Flows (Unaudited) for the Twenty-Eight Weeks Ended April 9, 2008 and April 11, 2007	5

		Notes to Condensed Consolidated Financial Statements (Unaudited)	6

	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		13

	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		22

	ITEM 4. CONTROLS AND PROCEDURES		22


PART II. OTHER INFORMATION

	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		23

	ITEM 5. OTHER INFORMATION		24

	ITEM 6. EXHIBITS		24


SIGNATURES			25

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Statements of Financial Position
The Steak n Shake Company
(Amounts in $000s except share and per share data)
	April 9,			September 26,
	2008			2007
	( Unaudited )			( Unaudited )
Assets:
Current Assets
Cash and cash equivalents	$	1,580		$	1,497
Receivables, net		4,455			6,289
Inventories		7,510			7,226
Deferred income taxes		3,461			3,616
Assets held for sale		20,841			18,571
Other current assets		13,304			10,998
Total current assets		51,151			48,197
Net property and equipment		485,527			492,610
Goodwill		14,503			14,503
Other intangible assets, net		1,854			1,959
Other assets		7,434			7,945
Total assets	$	560,469		$	565,214

Liabilities and Shareholders' Equity:
Current Liabilities
Accounts payable	$	26,920		$	28,195
Accrued expenses		30,948			32,624
Current portion of long-term debt		1,351			2,390
Line of credit		29,540			27,185
Current portion of obligations under leases		3,921			4,180
Total current liabilities		92,680			94,574
Deferred income taxes		4,860			5,060
Other long-term liabilities		7,085			5,701
Obligations under leases		137,480			139,493
Long-term debt		16,506			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		127,920			126,415
Retained earnings		180,715			185,024
Treasury stock - at cost: 1,857,740 shares as of April 9, 2008; 1,959,931 shares as of September 26, 2007		(21,943	)		(22,741	)
Total shareholders' equity		301,858			303,864
Total liabilities and shareholders' equity	$	560,469		$	565,214

See accompanying notes.

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Condensed Consolidated Statements of Operations
The Steak n Shake Company
(Amounts in $000s except share and per share data)

	Sixteen Weeks Ended						Twenty-Eight Weeks Ended
	April 9,			April 11,			April 9,			April 11,
	2008			2007			2008			2007
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues:
Net sales	$	189,272		$	201,055		$	324,768		$	347,513
Franchise fees		1,215			1,096			2,115			1,904
Total revenues		190,487			202,151			326,883			349,417

Costs and Expenses:
Cost of sales		47,447			46,188			80,131			79,258
Restaurant operating costs		104,039			101,783			179,849			177,251
General and administrative		14,369			17,551			24,503			31,106
Depreciation and amortization		10,455			9,825			18,113			17,051
Marketing		10,376			9,148			16,377			15,574
Interest		4,240			4,242			7,553			7,375
Rent		4,520			4,255			7,728			7,303
Pre-opening costs		677			812			1,131			1,746
Asset impairments and provision for restaurant closings		—			(127	)		—			(193	)
Other income, net		(524	)		(539	)		(975	)		(944	)
Total costs and expenses		195,599			193,138			334,410			335,527

(Loss) Earnings Before Income Taxes		(5,112	)		9,013			(7,527	)		13,890

Income Taxes		(2,302	)		3,021			(3,530	)		3,733

Net (Loss) Earnings	$	(2,810	)	$	5,992		$	(3,997	)	$	10,157


Basic (Loss) Earnings Per Common and Common Equivalent Share	$	(0.10	)	$	0.21		$	(0.14	)	$	0.36

Diluted (Loss) Earnings Per Common and Common Equivalent Share	$	(0.10	)	$	0.21		$	(0.14	)	$	0.36

Weighted Average Shares and Equivalents:
Basic		28,269,538			28,025,019			28,221,692			27,974,493
Diluted		28,269,538			28,230,461			28,221,692			28,191,845

See accompanying notes.

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Condensed Consolidated Statements of Cash Flows
The Steak n Shake Company
(Amounts in $ 000s )
	Twenty-Eight Weeks Ended
	April 9,			April 11,
	2008			2007
	(Unaudited)			(Unaudited)
Operating Activities:
Net (loss) earnings	$	(3,997	)	$	10,157
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization		18,113			17,051
Provision for deferred income taxes		257			(5	)
Provision for restaurant closings		—			(193	)
Non-cash expense for stock-based compensation and deferred rent		1,584			2,206
Loss on disposal of property		13			291
Changes in receivables and inventories		1,515			168
Changes in other assets		(2,354	)		(4,769	)
Changes in accounts payable and accrued expenses		(1,244	)		(5,196	)
Net cash provided by operating activities		13,887			19,710

Investing Activities:
Additions of property and equipment		(23,858	)		(41,412	)
Proceeds from property and equipment disposals		9,872			5,638
Net cash used in investing activities		(13,986	)		(35,774	)

Financing Activities:
Net proceeds (payments) on line of credit facility		2,355			(1,470	)
Proceeds from issuance of long-term debt		—			15,000
Principal payments on long-term debt		(1,055	)		(1,041	)
Proceeds from equipment and property sale-leasebacks		—			800
Principal payments on lease obligations		(2,272	)		(1,690	)
Proceeds from exercise of stock options		140			660
Excess tax benefits from stock-based awards		10			62
Proceeds from employee stock purchase plan		1,004			1,234
Net cash provided by financing activities		182			13,555

Increase (decrease) in Cash and Cash Equivalents		83			(2,509	)
Cash and Cash Equivalents at Beginning of Period		1,497			4,820

Cash and Cash Equivalents at End of Period	$	1,580		$	2,311

See accompanying notes.

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Notes to Condensed Consolidated Financial Statements

The Steak n Shake Company

(Unaudited)

(Amounts in $000s, except share and per share data)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of The Steak n Shake Company (“we”, “us” , the “Company” or “Steak n Shake”) have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to 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 accounting principles generally accepted in the United States of America for complete financial statements.

In our opinion, all adjustments considered necessary to present fairly the condensed consolidated Statement of Financial Position as of April 9, 2008, the condensed consolidated Statements of Operations for the sixteen and twenty-eight weeks ended April 9, 2008 and April 11, 2007 , and the condensed consolidated Statements of Cash Flows for the twenty-eight weeks ended April 9, 2008 and April 11, 2007 , have been included.

The condensed consolidated Statements of Operations for the sixteen and twenty-eight weeks ended April 9, 2008 and April 11, 2007 are not necessarily indicative of the consolidated Statements of Operations for the entire fiscal years. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 26, 2007.

2. Seasonal Aspects

We have substantial fixed costs which do not decline as a result of a decline in sales. Our first and second fiscal quarters, which include the winter months, usually reflect lower average weekly unit volumes as compared to the third and fourth fiscal quarters. Additionally, sales in the first and second fiscal quarters can be adversely affected by severe winter weather. We may also be negatively affected by adverse weather during the first and fourth fiscal quarters as hurricanes and tropical storms may impact the Southeastern portion of the United States , where we have a significant number of restaurants.

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3. (Loss) Earnings Per Share

(Loss) earnings per share of common stock is based on the weighted average number of shares outstanding during the period. The following table presents a reconciliation of the basic and diluted weighted average common shares as required by Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS 128”).

	Sixteen Weeks Ended		Twenty-Eight Weeks Ended
	April 9,	April 11,	April 9,	April 11,
	2008	2007	2008	2007
Basic (loss) earnings per share:
Weighted average common shares	28,269,538	28,025,019	28,221,692	27,974,493

Diluted (loss) earnings per share:
Weighted average common shares	28,269,538	28,025,019	28,221,692	27,974,493
Dilutive effect of stock options	—	205,442	—	217,352
Weighted average common and incremental shares	28,269,538	28,230,461	28,221,692	28,191,845

Number of share-based awards excluded from the calculation of diluted (loss) earnings per share because the awards' exercise prices were greater than the average market price of the Company's common stock, or because they were antidilutive due to the Company's net loss for the sixteen and twenty-eight weeks ended April 9, 2008	1,443,593	1,116,845	1,445,749	821,295

4. Restaurant Closings

During the fourth quarter of fiscal 2007, we permanently closed eight Company-owned restaurants. The net book value of these assets was transferred to Assets Held for Sale in the Statement of Financial Position during the quarter ended September 26, 2007.

Six of the closed restaurants were located near other Company-owned stores that will continue to operate, and we expect significant sales to transfer to the other existing locations. Therefore, the results of operations of these six restaurants are not presented as discontinued operations and continue to be included in continuing operations in the condensed consolidated Statement of Operations for the sixteen and twenty-eight weeks ended April 11, 2007. The assets of the other two restaurants were not located near other Company-owned stores, and we do not expect to have significant continuing involvement in the operations after disposal. Although these restaurants meet the definition of “discontinued operations,” as defined in 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 two restaurants totaled approximately $20 and $38 for the sixteen and twenty-eight weeks ended April 11, 2007, respectively.

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5. Net Property and Equipment

Net property and equipment consists of the following:

	April 9,			September 26,
	2008			2007
Land	$	166,604		$	171,631
Buildings		167,076			166,982
Land and leasehold improvements		164,615			156,687
Equipment		206,205			200,775
Construction in progress		13,691			16,555
		718,191			712,630
Less accumulated depreciation and amortization		(232,664	)		(220,020	)
Net property and equipment	$	485,527		$	492,610

6. Assets Held for Sale

Assets held for sale is comprised of the following:

	April 9,		September 26,
	2008		2007
Land and buildings	$	19,798	$	17,494
Land and leasehold improvements		592		592
Equipment		451		485
Total assets held for sale	$	20,841	$	18,571

Assets held for sale consists of property and equipment related to closed restaurants and parcels of land that are currently being marketed for disposal. The April 9, 200 8 balances include nine restaurants closed during prior years and 21 parcels of land. We expect to sell these properties within the next 12 months. During the twenty-eight weeks ended April 9, 200 8 , we sold a total of six land banked properties that were held for sale as of September 26, 2007.

The September 26, 2007 balances include eight restaurants closed during fiscal 2007, two closed during a prior year, and 19 parcels of land. The September 26, 2007 balances also reflect the imp act of an impairment of $3,453.

7. Goodwill and Other Intangibles

Goodwill

Goodwill consists of the excess of the purchase price over the fair value of the net assets acquired in connection with the acquisitions of Creative Restaurants, Inc. (“CRI”) and Kelley Restaurants, Inc. (“KRI”) on July 6, 2006 and December 29, 2004, respectively.

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Other Intangibles

Other intangibles are comprised of the following:

	April 9,			September 26,
	2008			2007
Gross value of intangible assets subject to amortization	$	2,291		$	2,291
Accumulated amortization		(937	)		(832	)
Intangible assets subject to amortization, net		1,354			1,459
Intangible assets with indefinite lives		500			500
Total intangible assets	$	1,854		$	1,959

Intangible assets subject to amortization consist of a right to operate and favorable leases acquired in connection with prior acquisitions, and are being amortized over their estimated weighted average useful lives of 12 years and eight years, respectively. Amortization expense for the sixteen and twenty-eight weeks ended April 9, 2008 was $60 and $105, respectively. Amortization expense for the sixteen and twenty-eight weeks ended April 11, 2007 was $61 and $104, respectively. Total annual amortization for each of the next five years is $193 .

Intangible assets with indefinite lives consist of reacquired franchise rights a ssum ed in connection with the acquisitions of CRI and KRI and were recorded in accordance with the provisions of Emerging Issues Task Force Issue No. 04-1, “Accounting for Pre-existing Relationships between the Parties to a Business Combination” (“EITF 04-1”).

8. Borrowings

As of April 9, 200 8 , we had outstanding borrowings of $ 17,143 under our amended and restated Senior Note Agreement and Private Shelf Facility (“Senior Note Agreement”). P rincipal payments due under the Senior Note Agreement over the next year total $ 714, and the remaining principal payments of $ 16,429 are due beyond one year. Current borrowings bear interest at a weighted average fixed rate of 8.49 %. Our total borrowing capacity under the Senior Note Agreement at April 9, 2008 wa s $75,000 and our ability to borrow additional funds expires September 29, 2008. We are currently evaluating financing alternatives to replace this facility . On May 16 , 2008, we amended the Senior Note Agreement to revise certain financial covenants. The covenant revisions were effective April 9, 2008 to enable our compliance with these covenants on that date.

Effective May 16 , 2008, the borrowing capacity of our $50,000 Revolving Credit Facility (“Facility”) was adjusted to $45,000. Effective August 1, 2008, the Facility will be adjusted to $40,000 and will remain at that level through maturity on January 30, 2009. As in prior years, we intend to renew the Facility. The Facility currently bears interest based on LIBOR plus 250 basis points, or the prime rate, at our election. As of April 9, 2008, borrowings under the Facility were $29,540 bearing a current interest rate of 3.26%. On May 16 , 2008, we amended the Facility to revise certain financial covenants. The covenant revisions were effective April 9, 2008 to enable our compliance with these covenants on that date.

In addition, we have one mortgage which was assumed in the acquisition of KRI in fiscal 2005. The mortgage matures in August 2008, bears interest at a fixed rate of 5% and had an outstanding balance of $618 at April 9, 2008. We also have one note in the amount of $96 outstanding as of April 9, 2008 on a property in Jonesboro , Arkansas .

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Our debt agreements contain restrictions and covenants customary for credit agreements of these types which, among other things, require us to maintain certain financial ratios. We were in compliance with all covenants under the amended agreements at April 9, 2008 . Effective upon the most recent Senior Note Agreement and Facility amendments, our debt agreements are secured with the deposit accounts, accounts receivable, inventory, equipment, general intangibles, fixtures and all other personal property of the C ompany.

9. Income Taxes

Our effective income tax rate increased to 46.9 % from 26.9 % in the same year - to - date period in the prior year primarily due to the decrease in pre-tax (loss) earnings and the related proportionate increase of federal income tax credits when compared to total pre-tax (loss) earnings.

On September 27, 2007, we adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) . As a result of the implementation of FIN 48, we recognized an increase of $614 in the liability for unrecognized tax benefits, which was accounted for as a reduction of $312 to retained earnings and $302 to deferred taxes as of the adoption date.

We file income tax returns which are periodically audited by various federal, state and local jurisdictions. With few exceptions, we are no longer subject to federal, state and local tax examinations for fiscal years prior to 2003.

As of April 9, 200 8 , we have approximately $ 1,261 of unrecognized tax benefits, including approximately $ 213 of interest and penalties which are included in other long-term liabilities in t he condensed consolidated Statement of Financial Position. During the sixteen and twenty-eight weeks ended April 9, 200 8 , we recognized approximately $ 32 and $55, respectively, in potential interest and penalties associated with uncertain tax positions. Our continuing practice is to recognize interest expense and penalties related to income tax matters in income tax expense. Of the $ 1,261 of unrecognized tax benefits, $ 1,148 would impa ct the effective income tax rate if recognized.

We believe we have certain federal tax exposures related to fiscal 2004. Due to the expiration of the federal statute of limitations for fiscal 2004, it is possible that the total amount of unrecognized tax benefits will decrease by approximately $315 within 12 months.

10. Common Stock Plans

Employee Stock Option Plans - During the twenty-eight weeks ended April 9, 2008, we did not grant any options to employees or non-employee directors. Employees and non-employee directors exercised and forfeited 17,000 and 259,314 options, respectively. Pre-tax stock-based compensation expense recorded during the twenty-eight weeks ended April 9, 2008 for the stock option plans totaled $350.

Capital Appreciation Plans - During the twenty-eight weeks ended April 9, 2008, we granted 1,000 non-vested shares to a non-employee director at a weighted average grant date fair value per share of $8.07. During the same period, 22,800 shares were forfeited and 87,000 shares vested. Pre-tax stock-based compensation expense recorded during the twenty-eight weeks ended April 9, 2008 for the plan totaled $557.

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Employee Stock Purchase Plan - During the twenty-eight weeks ended April 9, 2008, we issued 108,367 shares to employees under our Employee Stock Purchase Plan. Pre-tax stock-based compensation expense recorded during the twenty-eight weeks ended April 9, 2008 for the Employee Stock Purchase Plan totaled $296.

11. Restructuring

During fiscal year 2007 , same-store sales declined while certain restaurant operating costs, such as food costs and labor rates, increased. As a result, management undertook a review of current operations and approved a comprehensive cost reduction plan. This plan includes group market and district consolidations as well as general and administrative cost reductions. The majority of planned cost reductions will be achieved through headcount reductions.

In order to execute the comprehensive plan, during fiscal 2007 we incurred approximately $2,221 in restructuring expenses, including $2,040 of severance costs, $80 of relocation costs and $101 of outplacement services recorded in General and a dministrative expense i n the Statement of Operation s. Also in fiscal 2007 w e reversed $1,495 of previously recognized compensation expense related to the Capital Appreciation Plan and Employee Stock Option Plan for stock awards that will not vest in the future.

During the sixteen and twenty-eight weeks ended April 9, 2008, we paid $585 and $1,570, respectively, of the total restructuring expenses accrued during fiscal 2007, as detailed in the table below. The remaining $ 605 of the accrued expenses is expected to be paid during the rest of fiscal 2008.

Initial accrual balance	$	2,221
4th quarter 2007 payments		(46	)
September 26, 2007 accrual balance	$	2,175
Year-to-date fiscal 2008 payments		(1,570	)
April 9, 2008 accrual balance	$	605

During the second quarter of fiscal 2008, we recorded a separate severance accrual of $375 upon the March 12, 2008 departure of the former Chairman, Interim President and Chief Executive Officer . According to the terms of a pre-existing agreement, the severance will paid over a period of nine months following his departure.

12. Supplemental Cash Flow Information

During the twenty-eight weeks ended April 9, 2008, we issued 1,000 shares of restricted stock under our Capital Appreciation Plan with a market value of $8, and we had $145 of capital expenditures in Accounts payable as of April 9, 2008. During the twenty-eight weeks ended April 11, 2007, we issued 123,300 shares of restricted stock under our Capital Appreciation Plan with a market value of $2,189, and we had $3,330 of capital expenditures in Accounts payable as of April 11, 2007.

13. Commitments and Contingencies

We are engaged in various legal proceedings in the ordinary course of our business 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 for in the condensed consolidated financial statements is not likely to have a material effect on our financial position, results of operations or cash flows.

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14. New Accounting Standards

In September 2006, the FASB issued SFAS 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 2009 in accordance with the original Statement, while SFAS 157’s applicability to non-financial assets and liabilities will be deferred until our fiscal 2010 . We are in the process of determining the effect, if any, that the adoption of SFAS 157 will have on our financial statements.

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies with an option to report selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007, our fiscal 2009. We are in the process of determining the effect, if any, that the adoption of SFAS 159 will have on our financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS 141. SFAS 141(R) requires assets and liabilities acquired in a business combination, contingent consideration and certain acquired contingenci es to be measured at their fair values as of the date of acquisition. SFAS 141(R) also requires that acquisition-related costs and restructuring costs be recognized separately from the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008 , our fiscal 2010, and will be effective for business combinations entered into after January 1, 2009. We are in the process of determining the effect, if any, that the adoption of SFAS 1 41(R) will have on our financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 clarifies the accounting for noncontrolling interests and establishes accounting and reporting standards for the noncontrolling interest in a subsidiary, including classification as a component of equity. SFAS 160 is effective for fiscal years beginning after December 15, 2008, our fiscal 2010. We are in the process of determining the effect, if any, that the adoption of SFAS 1 60 will have on our financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 amends and expands the disclosure requirements in SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, the second quarter of our fiscal 2009. We are in the process of determining the effect, if any, that the adoption of SFAS 1 61 will have on our financial statements.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Amounts in $000s, except share and per share data)

Overview

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 quarter and which remained open through the end of the fiscal quarter.

Selected r esults from the fiscal second quarter 2008 :

●	Total revenues decreased 5.8% to $190,487.

●	Diluted loss per share of ($0.10) , including $0.02 per share of incremental non-operating expenses .

During the second fiscal quarter, same-store sales declined 6.3% primarily as a result of a decline in guest counts of 8.8%. Our same store sales and guest counts were negatively impacted by multiple factors, including further deterioration in the consumer economic environment and increased promotional activity from competitors. The impact of these challenges was partially offset by the success ful execution of our “$2.99 Double Steakburge r TM and Fries” limited-time promotion .

Rising unemployment rates, steadily increasing gasoline prices, continuing housing related issues and declining levels of consumer confidence res ulted in decreased guest traffic for us and many of our peers in the restaurant sector. Aggressive promotional activity from competitors intensified during the second quarter , with many offering sharply increased levels of absolute discounts, “buy one , get one free ” offers and simple free food and drink offer s .

In the second quarter we launched our improved breakfast program featuring Seattle ’s Best TM coffee and new menu items . Since the reintroduction, breakfast sales have increased approximately 17%. Given that breakfast represents a small percentage of our total sales, the increase did not have a significant impact on same store sales .

Our net (loss) for the second quarter includes $1,000 ($620, net of tax) of incremental non-operating charges, which had an impact of $0.02 per diluted share. These charges related to legal and professional fees incurred in the strategic alternative process ; higher than normal proxy advisory, mailing and printing charges due to the proxy contest ; and a severance charge related to the departure of the former Chairman, Interim President and Chief Executive Officer .

As previously reported, our current efforts to reverse negative same store sales trends remain focused on simplifying initiatives, intensifying focus on store level execution and critically managing the Company’s cost structure. During the second quarter we further refined our operating plan to adopt the following strategies:

●	Deliver ing improved customer value proposition through price/value promotion and innovation.

●	Generat ing incremental cash flow and deliver ing cost savings.

●	Continu ing to significantly improve the customer service experience.

●	Critically review ing underperforming units/markets.

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We intend to increase guest traffic, boost same store sales , and enhance the “cut above” nature of our brand with the execution of promotional offers featuring our core menu items of steakburgers and milk shakes. Any potential product innovations will also focus on our core equities and will not increase complexity of store level execution. We plan to continue improving guest satisfaction scores (which are currently at the highest level since we began tracking them) by completing the implementation of our “Personalized Service” initiative, an intensive update of the dining room service process. In addition, we will maximize return on invested capital by r eviewing underperforming units/markets.

As previously announced, we are no longer actively seeking a strategic alternative, including a possible sale; instead, we are focused on implementing our plan to improve the performance of the Company . We also continue our search for a permanent Chief Executive Officer .

In the current quarter, we opened five new Company-owned restaurants in established markets and sold four restaurants to franchisees, bringing the total number of Company-owned units to 436 and the total number of franchised units to 66.

Critical Accounting Policies

Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America . The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosure of contingent assets and liabilities. Critical accounting policies are those we believe are most important to portraying our financial condition and results of operations and also require the most subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. On an ongoing basis, we evaluate our estimates and assumptions based on historical experience and other factors that are believed to be relevant under the circumstances. Except for income taxes, there have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 2 6 , 2007. The methodology applied to management’s estimate for income taxes has changed due to the implementation of a new accounting pronouncement as described below.

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”), which became effective for us at the beginning of our current fiscal year, September 27, 2007. 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 r etained 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 9 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

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Results of Operations

The following table sets forth the percentage relationship to total revenues, unless otherwise indicated, of items included in our condensed consolidated Statements of Operations for the periods indicated:

	Sixteen Weeks Ended						Twenty-Eight Weeks Ended
	April 9,			April 11,			April 9,			April 11,
	2008			2007			2008			2007
Revenues:
Net sales		99.4	%		99.5	%		99.4	%		99.5	%
Franchise fees		0.6			0.5			0.6			0.5
Total revenues		100.0			100.0			100.0			100.0

Costs and Expenses:
Cost of sales (1)		25.1			23.0			24.7			22.8
Restaurant operating costs (1)		55.0			50.6			55.4			51.0
General and administrative		7.5			8.7			7.5			8.9
Depreciation and amortization		5.5			4.9			5.5			4.9
Marketing		5.4			4.5			5.0			4.5
Interest		2.2			2.1			2.3			2.1
Rent		2.4			2.1			2.4			2.1
Pre-opening costs		0.4			0.4			0.3			0.5
Asset impairments and provision for restaurant closings		—			(0.1	)		—			(0.1	)
Other income, net		(0.3	)		(0.3	)		(0.3	)		(0.3	)

(Loss) Earnings Before Income Taxes		(2.7	)		4.5			(2.3	)		4.0

Income Taxes		(1.2	)		1.5			(1.1	)		1.1

Net (Loss) Earnings		(1.5	)%		3.0	%		(1.2	)%		2.9	%

(1) Cost of sales and restaurant operating costs are expressed as a percentage of net sales.

Comparison of Sixteen Weeks Ended April 9, 2008 to Sixteen Weeks Ended April 11, 2007

Net (Loss) Earnings

Net (loss) earnings for the current quarter decreased $8,802 to a net loss of ($2,810), or ($0.10) per diluted share, as compared with net earnings of $5,992 or $0.21 per diluted share for the second quarter of fiscal 2007. Th e decrease was primarily driven by the decline in same store sa les and increases in cost of sales and restaurant operating costs noted below. Net (loss) for the second quarter also includes $1,000 ($620, net of tax) of incremental non-operating charges, which had an impact of $0.02 per diluted share. These charges related to the strategic alternative process, the proxy contest and severance charges .

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Revenues

Net sales decreased 5.9% from $201,055 to $189,272 in the current quarter primarily due to the decline in same store sales. Same store sales decreased 6.3% due to a decline in guest traffic of 8.8%, which was partially offset by a 2.5% increase in average guest expenditure. As described above, guest traffic was negatively impacted by ongoing deterioration in the consumer economic environment and aggressive promotional activity from competitors. The increase in average guest expenditure results primarily from menu price increases of approximately 4.0%, which are made up of the annualization of fiscal 2007 price increases in addition to a 2.1% increase in the first quarter of fiscal 2008. The weighted average menu price increase for second quarter was offset by an impact of 1.5% from higher coupon redemption.

Costs and Expenses

Cost of sales was $ 47,447 or 25.1 % of net sales, compared with $ 46,188 or 23.0 % of net sales in the second quarter of fiscal 2007. The increase as a percentage of net sales includes 1.0% related to higher commodity costs, particularly for dairy and fried products . New menu items with higher percentage food cost ( including new entrée salads, chicken sandwiches and Fruit n Frozen yogurt shakes ) and operational inefficiencies from implementing the new product mix contributed a total of 0.7% of the increase.

Restaurant operating costs were $ 104,039 or 55. 0 % of net sales compared to $ 101,783 or 50.6 % of net sales in the second quarter of fiscal 2007 . Higher minimum wage rates, utility costs and repairs and maintenance caused $1,250 of the increase. Outside services increased $460 in the current quarter due to the addition of a new contractor and more frequent snow removal services attributable to unfavorable weather conditions. Incremental paper products needed for the re-launch of breakfast in the current quarter also increased the cost of supplies.

General and administrative expenses decreased $3,182 (18.1%) to $14,369 and decreased as a percentage of total revenues from 8.7% to 7.5%. Specifically, $2,100 of the decrease resulted from lower wages , payroll taxes and related benefits due to reductions in staffing that occurred during the fourth quarter of fiscal 2007 . Planned c utbacks in outside consulting services, bonuses and stock compensation contributed an additional $1,300 of cost savings. These reductions were partially offset by the impact of $1,000 ($620, net of tax) of incremental non-operating charges related to the strategic alternative process, the proxy contest and severance charges . We believe that we are on target to meet our goal of reducing general and administrative spending by a net $8,100 over the course of fiscal 2008.

Depreciation and amortization expense was $ 10,455 or 5. 5 % of total revenues, versus $ 9,825 or 4.9% of total revenues in the second quarter of fiscal 2007. The increase as a percentage of total revenues was due to the impact of negative same store sales on fixed costs.

Marketing expense increased $1,228 (13.4%) to $10,376 and increased as a percentage of total revenues from 4.5% to 5.4%. The increase is a result of a shift in the timing of television and coupon advertising, which was reallocated to the second quarter to support the limited-time “$2.99 Double Steakburge r TM and Fries” promotion. Due to this modification, television spending for the current quarter increased 17.7% over the second quarter of 2007. Coupon printing and distribution costs increased 13.1% over the prior year period.

Income Taxes

Our effective income tax rate for the current quarter increased to 45.0 % from 33.5 % in the same quarter of the prior year . Income taxes for the current quarter reflect the impact of the decrease in pre-tax (loss) earnings and the related proportionate increase of federal income tax credits when compared to total pre-tax (loss) earnings.

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Comparison of Twenty-Eight Weeks Ended April 9, 2008 to Twenty-Eight Weeks Ended April 11, 2007

Net (Loss) Earnings

Net (loss) earnings for the current year-to-date period decreased $14,154 to a net loss of ($3,997), or ($0.14) per diluted share, as compared with net earnings of $10,157 or $0.36 per diluted share, for the same period of fiscal 2007. The decrease was primarily driven by the decline in same store sa les and increases in cost of sales and restaurant operating costs noted below . Net (loss) for the year-to-date period also includes the impact of $1,000 ($620, net of tax) of incremental non-operating charges in the second quarter, which had an impact of $0.02 per diluted share. These charges related to the strategic alternative process, the proxy contest and severance charges.

Revenues

Net sales decreased 6.5% from $347,513 to $324,768 in the current year-to-date period primarily due to the decline in same store sales. Same store sales decreased 7.7% due to a decline in guest traffic of 10.7%, which was partially offset by a 3.0% increase in average guest expenditure. Year-to-date same store sales were negatively affected by the deteriorating consumer economic environment, aggressive promotional activity from competitors and ongoing challenges with store level executio n, as well as unfavorable weather and a prior year incremental coupon that was not repeated in the current year. The increase in average guest expenditure results primarily from menu price increases of 3.8%, which are made up of the annualization of fiscal 2007 price increases in addition to a 2.1% increase in the first quarter of fiscal 2008. These price increases were implemented to offset minimum wage and commodity cost pressures.

Costs and Expenses

Cost of sales was $ 80,131 or 24.7 % of net sales, compared with $ 79,258 or 22.8 % of net sales in the prior year-to-date period . The increase as a percentage of net sales relates to new menu items with higher percentage food cost ( including new entrée salads, chicken sandwiches and Fruit n Frozen yogurt shakes ) , operational inefficiencies from implementing the new product mix and higher commodity costs related to dairy, beef and fried products.

Restaurant operating costs were $ 179,849 or 55.4 % of net sales compared to $ 177,251 or 51.0 % of net sales in the prior year-to-date period . Higher minimum wage rates, utility costs and repairs and maintenance caused $ 2 , 40 0 of the increase. Outside services increased $ 78 0 in the current year-to-date period due to the addition of a new contractor and more frequent snow removal services attributable to unfavorable weather conditions. These increases were offset by a decline in incentive bonus expense of $1,100 for the current year-to-date period.

General and administrative expenses for the current year-to-date period decreased $6,603 (21.2%) to $24,503 and decreased as a percentage of total revenues from 8.9% to 7.5%. Specifically, $2, 9 00 of the decrease resulted from lower wages , payroll taxes and related benefits due to reductions in staffing that occurred during the fourth quarter of fiscal 2007 . Planned c utbacks in outside consulting services, bonuses and stock compensation contributed an additional $ 2 , 7 00 of cost savings. These reductions were partially offset by the impact of $1,000 ($620, net of tax) of incremental non-operating charges related to the strategic alternative process, the proxy contest and severance charges. We believe that we are on target to meet our goal of reducing general and administrative spending by a net $8,100 over the course of fiscal 2008.

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Depreciation and amortization expense was $ 18,113 or 5. 5 % of total revenues, versus $ 17,051 or 4.9% of total revenues in the prior year-to-date period . The increase as a percentage of total revenues was due to the impact of negative same store sales on fixed costs.

Marketing expense for the current year-to-date period was $ 16,377 or 5. 0 % of total revenues, versus $ 15,574 or 4. 5 % of total revenues in the same period of fiscal 2007. The increase is primarily a result of a shift in the timing of television advertising, which was reallocated to the second quarter to support the limited-time “$2.99 Double Steakburger TM and Fries” promotion. The increases in television production and airing expenses were offset by a 6.2% net decrease in coupon printing and distribution costs compared to the prior year-to-date period related to an incremental coupon from first quarter 2007 that was not repeated in the current year.

Rent expense increased slightly as a percentage of total revenues over the prior year-to-date period primarily due to the decline in same store sales, as well as increases in rental rates for new unit leases.

Pre-opening costs for the current year-to-date period decreased $615 (35.2%) to $1,131, due primarily to the lower number of units opened in the current year versus fiscal 2007. We opened nine restaurants during the current year-to-date period compared to 11 during the same period of the prior year. 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 planned Company-owned restaurant openings for fiscal 2008 were completed in the first and second quarters.

Income Taxes

Our effective income tax rate increased to 46.9 % from 26.9 % in the same year-to-date period of fiscal 2007. Year-to-date income taxes reflect the impact of the decrease in pre-tax (loss) earnings and the related proportionate increase of federal income tax credits when compared to total pre-tax (loss) earnings. Fiscal 2007 year-to-date income taxes also include a benefit of $650 related to the retroactive extension of the Work Opportunity and Welfare to Work tax credits.

Liquidity and Capital Resources

During the twenty-eight weeks ended April 9, 2008, we opened a total of nine Company-owned restaurants and sold a total of eight stores to franchisees. In addition, franchisees opened two new restaurants during the current year-to-date period. In the twenty-eight week period ended April 11, 2007, we opened 11 Company-owned restaurants and sold one store to a franchisee; franchisees opened two new restaurants. For the twenty-eight weeks ended April 9, 2008, capital expenditures totaled $23,858 as compared to $41,412 for the same period in the prior year. In addition, during the twenty-eight weeks ended April 9, 2008, we received proceeds of $9,872 from the sale of six land banked properties classified as held for sale, and from the transfer of three Company-owned buildings and various equipment to franchisees. Comparatively, proceeds of $5,638 from the sale of five properties were received during the same year-to-date period of fiscal 2007.

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We completed the opening of all nine planned new Company-owned restaurants during the twenty-eight weeks ended April 9, 2008 and do not anticipate opening additional Company-owned units during the remainder of fiscal year 2008. The average cost of each of the nine new Company-owned restaurants, including land, site improvements, building, equipment and pre-opening costs is approximately $2,000 to $2,500 . We will rebuild three older units this fiscal year. Capital spending for full fiscal year 2008 is estimated to be in the low end of the range of $37,000 to $45,000. We intend to fund future capital expenditures and meet our working capital needs by using anticipated cash flows from operations, sale-leaseback transactions and our existing borrowing facilities .

During the twenty-eight weeks ended April 9, 2008, cash provided by operations totaled $13,887, compared to $19,710 in the same period in the prior year. This decrease in cash provided by operations is attributable primarily to a decline in net earnings. Net cash provided by financing activities for the twenty-eight weeks ended April 9, 2008 totaled $182 compared to $13,555 in the comparable prior year period. This decrease is due to a reduction in net borrowings.

In addition, we have one mortgage which was assumed in the acquisition of Kelley Restaurants, Inc. (“KRI”) in fiscal 2005. The mortgage matures in August 2008, bears interest at a fixed rate of 5% and had an outstanding balance of $618 at April 9, 2008. We also have one note in the amount of $96 outstanding as of April 9, 2008 on a property in Jonesboro , Arkansas .

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New Accounting Standards

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 2009 in accordance with the original Statement, while SFAS 157’s applicability to non-financial assets and liabilities will be deferred until our fiscal 2010 . We are in the process of determining the effect, if any, that the adoption of SFAS 157 will have on our financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS 141. SFAS 141(R) requires assets and liabilities acquired in a business combination, contingent consideration, and certain acquired contingenci es to be measured at their fair values as of the date of acquisition. SFAS 141(R) also requires that acquisition-related costs and restructuring costs be recognized separately from the business combination. SFAS 141 (R) is effective for fiscal years beginning after December 15, 2008 , our fiscal 2010, and will be effective for business combinations entered into after January 1, 2009. We are in the process of determining the effect, if any, that the adoption of SFAS 1 41(R) will have on our financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 clarifies the accounting for noncontrolling interests and establishes accounting and reporting standards for the noncontrolling interest in a subsidiary, including classification as a component of equity. SFAS 160 is effective for fiscal years beginning after December 15, 2008, our fiscal 2010. The Company does not currently have any minority interests. We are in the process of determining the effect, if any, that the adoption of SFAS 160 will have on our financial statements.

Effects of Governmental Regulations and Inflation

Most of our employees are paid hourly rates related to federal and state minimum wage laws. Any increase in minimum wage levels directly increases 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 operating costs. Inflation in food, labor, fringe benefits, energy costs, transportation costs and other operating costs directly affects our operations. 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. During fiscal 2007, a number of states passed increases in minimum wages. We took active measures to maintain our profit margins through increases in menu prices.

Risks Associated with Forward-Looking Statements

Certain statements contained in this report represent 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, as well as 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 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 poor performance or closing of even a small number of restaurants;

●	our ability to attract and retain guests;

●	the ability of our franchisees to operate profitable restaurants;

●	changes in guest preferences, tastes and dietary habits;

●	changes in minimum wage rates;

●	the availability and cost of qualified personnel;

●	fluctuations in food commodity prices and the availability of food commodities;

●	harsh weather conditions;

●	unfavorable publicity relating to food safety or food borne illness;

●	our ability to comply with the restrictions and covenants to our debt agreements;

●	our ability to renegotiate our debt agreements and refinance our current debt at similar rates;

●	our ability to effectively negotiate sale-leaseback transactions;

●	our ability to comply with existing and future governmental regulations;

●	our ability to adequately protect our trademarks, service marks and other components of our brand; and

●	other risks identified in the periodic reports we file with the Securities and Exchange Commission.

Accordingly, such forward-looking statements do not purport to be predictions of future events or circumstances and may not be realized. Additional risks and uncertainties not currently known to us or that are currently deemed immaterial may also become important factors that may harm our business, financial condition, results of operations or cash flows. We assume no obligation to update forward-looking statements except as required in our periodic reports.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposure with regard to financial instruments is to changes in interest rates. We invest excess cash primarily in cash equivalents due to their relatively low credit risk. Interest rates on these securities are based upon market rates at the time of purchase and remain fixed until maturity.

Pursuant to the terms of our Senior Note Agreement, we may from time to time borrow in increments of at least $5,000. The interest rate on the notes is based upon market rates at the time of the borrowing. Once the interest rate is established at the time of the initial borrowing, the interest rate remains fixed over the term of the underlying note. Borrowings under t he Revolving Credit Agreement bear interest at a rate based on LIBOR plus 250 basis points, or the prime rate, at our election . Historically, we have not used derivative financial instruments to manage exposure to interest rate changes. At April 9 , 200 8 a hypothetical 100 basis point increase in short-term interest rates would have an impact of approximately $ 48 and $192 on our quarterly and year-to-date net loss , respectively .

We purchase certain food products which may be affected by volatility in commodity prices due to we ather 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 4. CONTROLS AND PROCEDURES

Based on an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(c)), our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of April 9 , 200 8 .

There have been no changes in our internal control over financial reporting that occurred during the current quarter ended April 9, 200 8 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Annual Meeting of The Steak n Shake Company held March 7, 2008, the following actions were undertaken:

1.	Nine directors from among eleven nominees were elected to serve until the next annual meeting and until their successors are duly elected and qualified. The nine nominees with the most votes cast “for” were elected. The results of the vote are as follows:

Name	Votes For	Votes Withheld
J. Fred Risk	17,943,588	4,737,912
Steven M. Schmidt	17,718,071	4,963,429
Edward W. Wilhelm	17,716,429	4,965,071
Geoff Ballotti	17,712,099	4,969,401
Wayne L. Kelley	17,641,427	5,040,073
Ruth J. Person	17,606,229	5,075,271
John W. Ryan	17,601,111	5,080,389
Sardar Biglari	15,645,868	42,360
Philip L. Cooley	15,645,574	42,654
James Williamson, Jr.	5,452,242	1,541,030
Alan B. Gilman	5,447,374	1,545,898

2.	The 2008 Equity Incentive Plan was approved as follows:

Votes For	Votes Against/Withheld	Abstentions/Brokers Non-Votes
13,766,344	8,813,976	101,179

3.	Deloitte & Touche, LLP, was ratified as the Company’s independent registered public accounting firm for the current fiscal year as follows:

Votes For	Votes Against/Withheld	Abstentions/Brokers Non-Votes
22,289,291	102,552	289,656

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ITEM 5 . OTHER INFORMATION

On May 16 , 2008, we entered into amendments to our Senior Note Agreement and Revolving Credit Facility (the “Facility”) that are effective for the quarter ended April 9, 2008. The primarily purpose of both of the amendments was to modify the loan covenants to enable our compliance at April 9, 2008 . Other changes to the agreements included adjustments to the interest rates and the collateralization of the deposit acco unts, accounts receivable, inventory, equipment, general intangibles, fixtures and all other personal property of the Company . In addition, effective May 16, 2008, the borrowing capacity of the Facility was changed from $50,000 to $45,000. On August 1, 2008, the Facility will be further modified to a capacity of $40,000.

Copies of the amendments are filed as exhibits to this report and are incorporated herein in further response to this item.

ITEM 6 . EXHIBITS

Exhibit Number		Description
4.01		Amendment No. 7 to the Amended and Restated Note Purchase and Private Shelf Agreement dated May 16, 2008

4.02		Eighth Amendment to Credit Agreement by and between The Steak n Shake Company and Fifth Third Bank, Indiana (Central) dated May 16, 2008

10.01		Form of Employee Incentive Stock Option Agreement

10.02		Form of Employee Incentive Restricted Stock Agreement

10.03		Form of Change in Control Benefits Agreement dated November 7, 2007 with Duane Geiger (Identical to and incorporated herein by reference to Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the year ended September 26, 2007)

10.04		First Amendment dated April 22, 2008 to Form of Change in Control Benefits Agreement dated November 7, 2007 with Duane Geiger

31.01		Rule 13(a)-14(a)/15d-14(a) Certification of Chief Executive Officer

31.02		Rule 13(a)-14(a)/15d-14(a) Certification of Chief Financial Officer

32.01		Section 1350 Certifications

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SIGNATURE S

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.

Date: May 19 , 2008

THE STEAK N SHAKE COMPANY

By: /s/ Jeffrey A. Blade

Jeffrey A. Blade

Interim President, Executive Vice President,

Chief Financial and Administrative Officer

Signature: /s/ Lisa Blythe

Printed: Lisa Blythe, Notary Public

My Commission Expires: 3/3/2015

My County of Residence: Johnson

Exhibit "E"

SECURITY AGREEMENT

THE STEAK N SHAKE COMPANY , an Indiana corporation (the “Company”), hereby grants to FIFTH THIRD BANK, a Michigan banking corporation, formerly known as Fifth Third Bank (Central Indiana), and Fifth Third Bank, Indiana (Central), in its capacity as Collateral Agent for itself as the Bank under the Credit Agreement and for the benefit of the Noteholders described herein (the “Collateral Agent”), a security interest in all of the Company’s Equipment, Inventory, Accounts Receivable, General Intangibles, Chattel Paper, Deposit Accounts, and Software, whether now owned or hereafter acquired, and in the proceeds thereof, to secure the payment and performance of all of the Obligations. Such security interest is granted on the terms stated in this Security Agreement (this “Security Agreement”).

l. DEFINITIONS . As used in this Security Agreement, the following terms have the meanings indicated when used with the initial letter capitalized:

(a) “Account Debtor” means a party who is obligated to the Company with respect to any Account Receivable, or General Intangible.

(b) “Accounts Receivable” or “Account” is used as defined in the Uniform Commercial Code.

(d) “Chattel Paper” is used as defined in the Uniform Commercial Code.

(e) “Collateral” means all property or rights in which a security interest is granted under this Security Agreement.

(f) “Collateral Account” is used as defined in Paragraph 10(a).

(g) “Collateral Agent Expenses” shall mean, without limitation, all costs and expenses incurred by the Collateral Agent in connection with the performance of its duties under this Security Agreement or the Intercreditor Agreement, including the realization upon or protection of the Collateral or enforcing or defending any lien upon or security interest in the Collateral or any other action taken in accordance with the provisions of this Agreement, expenses incurred for legal counsel in connection with the foregoing, and any other costs, expenses or liabilities incurred by the Collateral Agent for which the Collateral Agent is entitled to be reimbursed or indemnified by the Company pursuant to this Agreement or by the Senior Lenders pursuant to this Security Agreement or the Intercreditor Agreement.

(h) “Collateral Agent Obligations” shall mean all obligations of the Company to pay, reimburse or indemnify the Collateral Agent for any Collateral Agent Expenses.

(i) “Credit Agreement” means that certain Credit Agreement entered into by and between the Company and the Bank dated as of November 16, 2001, as amended from time to time.

(j) "Credit Facilities" means all loans, letters of credit, and any and all other credit facilities extended to or on behalf of the Company pursuant to the Credit Agreement or the Prudential Note Purchase Agreement.

(k) “Default” means an “Event of Default” as defined in the Credit Agreement or in the Prudential Note Purchase Agreement, as applicable.

(l) “Deposit Accounts” means all demand, time, savings, passbook, and similar accounts of the Company maintained with the Collateral Agent or any other bank.

(m) “Equipment” means all of the furniture, fixtures, machinery, equipment, and other Goods of the Company, other than Inventory, farm products, or consumer goods, together with all tools, accessories, parts and accessions now in, attached to or hereafter placed in or added to such property, and any replacements of any such property.

(n) “General Intangibles” is used as defined in the Uniform Commercial Code.

(o) “Goods” is used as defined in the Uniform Commercial Code.

(p) “Intercreditor Agreement” means that certain Intercreditor and Collateral Agency Agreement entered into by and among the Noteholders and the Bank, in its individual capacity and as Collateral Agent for itself and the Noteholders, dated as of even date herewith.

(q) “Inventory” means all Goods which are held for sale or lease to customers or which are furnished, have been furnished or are to be furnished under contracts of service, or which are raw materials, work in process or materials used or consumed in the Company’s business.

(r) “Letters of Credit” shall mean the letters of credit issued under Section 2(b) of the Credit Agreement.

(s) “Letter of Credit Collateral Obligations” shall mean all of the obligations of the Company under Section 9 of the Credit Agreement to deposit cash with the Collateral Agent with respect to Outstanding Letter of Credit Exposure.

(t) “Loan and Reimbursement Obligations” shall mean principal amount of the Revolving Loan and the reimbursement obligations due the Bank with respect to Letters of Credit.

(u) “Noteholders” means Prudential Investment Management, Inc., The Prudential Insurance Company of America, Pruco Life Insurance Company, and United of Omaha Life Insurance Company, and their respective successors and assigns, and any other party who becomes a noteholder pursuant to the Prudential Note Purchase Agreement.

(v) “Obligations” means the Collateral Agent Obligations, the Loan and Reimbursement Obligations, the Letter of Credit Collateral Obligations, the principal amount of the Senior Secured Notes, and all of the other present or future indebtedness, liabilities and obligations of the Company now or hereafter owed to any or all of the Collateral Agent, the Bank or the Noteholders, evidenced by or arising under, by virtue of or pursuant to this Security Agreement, the Credit Agreement, the Prudential Note Purchase Agreement, the Revolving Note or the Senior Secured Notes, whether such indebtedness, liabilities and obligations are direct or indirect, joint, several or joint and several, or now exist or hereafter arise, and all renewals and extensions thereof, including, without limitation, all interest on the Revolving Loan and the Senior Secured Notes and any Yield Maintenance Amounts. The term “Obligations” shall include all of the foregoing indebtedness, liabilities and obligations, whether or not allowed as a claim in any bankruptcy, insolvency, receivership or similar proceeding.

(w) “Outstanding Letter of Credit Exposure” at any time shall mean the undrawn face amount of all outstanding Letters of Credit at such time.

(x) “Prudential Note Purchase Agreement” means that certain Amended and Restated Note Purchase and Private Shelf Agreement dated as of September 20, 2002, entered into by and among the Company, The Prudential Insurance Company of America, Prudential Investment Management, Inc., and each Prudential Affiliate party thereto, as amended, and as it may hereafter be amended, modified, or restated from time to time.

(y) “Revolving Loan” is used as defined in the Credit Agreement.

(z) “Revolving Note” is used as defined in the Credit Agreement.

(aa) “Senior Lenders” means the Bank and the Noteholders, collectively.

(bb) “Senior Secured Notes” means the Company’s 8.29% Series G Senior Notes due August 23, 2010, the Company’s 5.66% Series I Senior Notes due 2011, and any and all other shelf notes issued from time to time pursuant to the Prudential Note Purchase Agreement.

(cc) “Software” is used as defined in the Uniform Commercial Code.

(dd) “Subsidiary” and “Subsidiaries” are used as defined in the Credit Agreement.

(ee) “Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in the State of Indiana, or in the state where the relevant collateral is located.

2. FINANCING STATEMENTS . The Company authorizes the Collateral Agent at the expense of the Company to file a financing statement or statements in those public offices deemed necessary by the Collateral Agent to perfect the security interest granted to it herein. The Company shall execute and deliver any document that the Collateral Agent may request to perfect or to further evidence or perfect the security interest created by this Security Agreement including, without limitation, any certificate or certificates of title to the Collateral with the security interest of the Collateral Agent noted thereon or executed applications for such certificates of title.

3. LOCATION, INSPECTION AND PROTECTION OF COLLATERAL . Unless the Company gives the Collateral Agent not less than ten (10) days prior written notice of additional locations at which Inventory and Equipment shall be kept, all Inventory and Equipment is kept and shall be kept at the following addresses:

See Schedule I attached hereto

Unless the Company gives the Collateral Agent written notice of the location of additional offices where records of the Company relative to Accounts Receivable, Chattel Paper, and General Intangibles are kept, all such records of the Company shall be kept at the following address:

36 South Pennsylvania Street, Suite 500

Indianapolis, Indiana 46204

which, the Company represents, is also the address of its principal office. The Company shall not change the location of its principal office or state of organization or its legal name under which it is organized as of the date hereof unless the Company gives the Collateral Agent not less than 30 days’ prior written notice of such event. The Company shall, at all reasonable times and in a reasonable manner, allow the officers, attorneys and accountants of the Collateral Agent to examine, inspect, photocopy and make abstracts from the Company’s books and records and to verify Equipment and Inventory, the latter both as to quantity and quality, and to arrange for verification of Accounts Receivable, under reasonable procedures, directly with the Account Debtors or by other methods. The Company shall also deliver to the Collateral Agent upon request any promissory notes or other papers evidencing any Account and any guaranty or collateral and all Chattel Paper together with appropriate endorsements and assignments and any information relating thereto and shall do anything else the Collateral Agent may reasonably require to further protect the Collateral Agent’s interest in the Collateral. If any of the Collateral consists of Equipment normally used in more than one state and the Company intends to use any of such Collateral in any jurisdiction other than a state in which the Company shall have previously advised the Collateral Agent such Collateral is to be used, the Company shall not commence use in such other jurisdiction except upon ten (10) days prior written notice to the Collateral Agent.

4. FIXTURES . None of the Collateral is attached to real estate so as to constitute a fixture. If any Collateral is hereafter so attached to any real estate, notice of the common address, legal description, and name of the owner of record of such real estate shall be furnished to the Collateral Agent at least ten (10) days prior to such attachment. If any Collateral is hereafter attached to real estate prior to the perfection of the security interest created by this Security Agreement in such Collateral, the Company shall, on demand, furnish the Collateral Agent with a disclaimer of interest in the Collateral executed by each person having an interest in such real estate.

5. THE COMPANY’S TITLE . The Company has full and clear title to all of the Collateral presently owned and shall have such title to all Collateral hereafter acquired except for the security interest granted by this Security Agreement and any other lien or security interest permitted under the terms of the Credit Agreement, and the Company shall keep the Collateral free at all times from any lien or encumbrance except those permitted by the Credit Agreement. No financing statements covering all or any portion of the Collateral is on file at any public office except as may be required or permitted by this Security Agreement and the Credit Agreement.

6. THE COMPANY’S DUTY TO MAINTAIN THE COLLATERAL . The Company shall keep all tangible Collateral in good order and repair and shall not waste or destroy any of the Collateral. The Company shall not use the Collateral in violation of any statute or ordinance or contrary to the provisions of any policy of insurance thereon.

7. INSURANCE . In addition to maintaining such insurance on the Collateral as is required by the Credit Agreement, the Company shall, upon the reasonable request of the Collateral Agent, keep the Collateral insured against such additional risks, in such amounts and under such policies as the Collateral Agent may reasonably require and with such companies as shall be reasonably acceptable to the Collateral Agent. All policies providing insurance on the Collateral shall provide that any loss thereunder shall be payable to the Collateral Agent under a standard form of secured lender’s loss payable endorsement. The Company authorizes the Collateral Agent to endorse on the Company’s behalf and to negotiate drafts reflecting proceeds of insurance on the Collateral, provided that the Collateral Agent shall remit to the Company such surplus, if any, as remains after the proceeds have been applied at the Collateral Agent’s option, (a) to the satisfaction of all of the Obligations or to the establishment of a cash collateral account for the Obligations, or (b) to the replacement or repair of the Collateral; provided, however, that so long as no Default exists, and provided further that the Company can demonstrate to the Collateral Agent’s satisfaction that any proposed replacement or repair of collateral is economically and physically feasible, such proceeds shall be applied, at the Company’s option and to the extent necessary, as provided in the foregoing clause (b). Certificates evidencing the existence of all of the insurance required under the Credit Agreement, the Prudential Note Purchase Agreement, or this Security Agreement shall be furnished to the Collateral Agent by the Company and the original policies providing such insurance shall be delivered to the Collateral Agent at its request.

8. ADVANCES TO PROTECT COLLATERAL . Upon failure of the Company to procure any required insurance or to remove any prohibited encumbrance upon the Collateral or if any policy providing any required insurance is canceled, the Collateral Agent may procure such insurance or remove any encumbrance on the Collateral and any amounts expended by the Collateral Agent for such purposes shall be immediately due and payable by the Company to the Collateral Agent and shall be added to and become a part of the Obligations secured hereby and shall bear interest at the Bank’s Prime Rate, as defined in the Credit Agreement, plus three percent (3%) per annum.

9. DEALING WITH COLLATERAL PRIOR TO DEFAULT . Prior to Default and thereafter until the Collateral Agent shall notify the Company of the revocation of such authority:

(a) the Company may, in the ordinary course of business, at its own expense, sell, lease or furnish under contracts of service, any of the Inventory normally held by the Company for such purposes, provided that a sale in the ordinary course of business shall not include a transfer in total or partial satisfaction of a debt, and the Company may use and consume, in the ordinary course of its business, any raw materials, work in process or materials normally held by it for such purposes;

(b) the Company shall, at its own expense, endeavor to collect, when due, all amounts due with respect to any Accounts or General Intangibles, and shall take such action with respect to collection as the Collateral Agent may reasonably request or, in the absence of such request, as the Company may deem advisable in accordance with sound business practice, and

(c) the Company may grant, in the ordinary course of business, to any Account Debtor, any rebate, refund or adjustment to which such Account Debtor may be entitled, and may accept, in connection therewith, the return of the goods, the sale or lease of which shall have given rise to the obligation of the Account Debtor.

10. DEALING WITH COLLATERAL AFTER DEFAULT . After Default and upon the request of the Collateral Agent:

(a) the Company, upon receipt of any checks, drafts, cash or other remittances in payment of Inventory sold or in payment of Accounts Receivable of the Company, shall deposit the same in a special collateral account (the “Collateral Account”) maintained with the Collateral Agent; such proceeds shall be deposited in the form received except for the indorsement of the Company when required, which indorsement the Collateral Agent is authorized to make on the Company’s behalf, and shall be held by the Collateral Agent as security for all Obligations;

(b) the Company shall deliver to the Collateral Agent all other instruments and Chattel Paper which constitute proceeds from the sale of Collateral, whether then held or thereafter acquired; and

(c) the Company shall keep segregated any such checks, drafts, cash, other instruments, Chattel Paper or other remittances from any of the Company’s other funds or property and shall hold such items in trust for the benefit of the Collateral Agent until delivery to the Collateral Agent or deposit in the Collateral Account and the Collateral Agent may apply all or any portion of the funds on deposit in the Collateral Account against any Obligations in the order of application provided for in the Credit Agreement or, absent such provision, at the discretion of the Collateral Agent.

After Default, the Collateral Agent may notify any Account Debtor to make payment directly to the Collateral Agent of any amounts due or to become due under any Account Receivable, General Intangible instrument or Chattel Paper and the Collateral Agent may enforce the collection of any Account Receivable, General Intangible, instrument or Chattel Paper in its name or in the name of the Company, by suit or otherwise, and may surrender, release or exchange all or any part thereof or compromise or extend or renew for any period, whether or not longer than the original period, any indebtedness thereunder or evidenced thereby, and any Account Debtor will be fully protected in relying upon the representation of the Collateral Agent that it has authority under the terms of this Security Agreement to deal with any Account Receivable, General Intangible, instrument or Chattel Paper and need not look beyond this Security Agreement and such representation of the Collateral Agent to establish the Collateral Agent’s authority in that regard.

11. SUBSTITUTION AND SALE OF EQUIPMENT . The Company may from time to time so long as no Default has occurred and is continuing, substitute items of Equipment so long as any new Equipment becomes subject to the security interest created by this Security Agreement and is subject to no prior liens or security interest other than those permitted by the Credit Agreement. So long as no Default has occurred and is continuing or would result therefrom, the Company may, in the ordinary course of its business, sell or otherwise dispose of any items of Equipment for which substitutes have been obtained or which are no longer useful to the Company in its operations, provided that at least 10 days prior written notice of any proposed disposition of any material amount of Equipment in a single or a planned series of transactions is given to the Collateral Agent. Upon the request of the Company, the Collateral Agent will deliver an appropriate release of its security interest in any item of Equipment disposed of by the Company pursuant to the provisions of this paragraph.

12. REMEDIES UPON DEFAULT . Upon the occurrence of any Default the Collateral Agent shall have with respect to the Collateral, in addition to all rights and remedies specified in the Credit Agreement, this Security Agreement or any other agreement between the Company and the Collateral Agent, the remedies of a secured party under the Uniform Commercial Code, regardless of whether the Code in such form has been enacted in the jurisdiction in which any such right or remedy is asserted. Any notice required by law, including but not limited to notice of the intended disposition of all or any portion of the Collateral, shall be deemed reasonably and properly given if given at least 10 days prior to such disposition in the manner prescribed for the giving of notices in the Credit Agreement. Any proceeds of the disposition of any of the Collateral shall be applied first to the payment of the expenses of the retaking, holding, repairing, preparing for sale and sale of the Collateral, including reasonable attorneys’ fees and legal expenses in connection therewith and any balance of such proceeds shall be applied by the Collateral Agent to the Obligations in such order as the Collateral Agent shall determine.

13. RELATION TO CREDIT AGREEMENT AND PRUDENTIAL NOTE PURCHASE AGREEMENT . This Security Agreement is given pursuant to the terms of the Credit Agreement and the Prudential Note Purchase Agreement, and shall be deemed a part thereof and subject to the terms and conditions thereof.

14. AUTHORITY . In order to induce the Collateral Agent to accept this Security Agreement and to make the Credit Facilities available to the Company, the Company represents and warrants to the Collateral Agent that: (i) the Company is a corporation organized, existing and in good standing under the laws of the State of Indiana; (ii) the execution and delivery of this Security Agreement are within the Company’s corporate powers, have been duly authorized by all necessary corporate action and do not contravene or conflict with any provision of law or of the Articles of Incorporation or ByLaws of the Company or of any agreement binding upon the Company or its properties; (iii) the principal office of the Company is located at 36 South Pennsylvania Street, Suite 500, Indianapolis, Indiana 46204; (iv) this Security Agreement is the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms; and (v) the exact legal name of the Company is as it appears on the signature line hereof.

15. NOTICES . Any notice required or otherwise given concerning this Security Agreement by either party to the other shall be given as notices are required to be given under the terms of the Credit Agreement.

16. RELATION TO INTERCREDITOR AGREEMENT. Notwithstanding anything to the contrary which may be contained herein, the terms of the Intercreditor Agreement are incorporated herein and made a part hereof, and in the event of a conflict between the terms of this Security Agreement and the Intercreditor Agreement, the terms of the Intercreditor Agreement shall control.

Dated as of May 16, 2008.

THE STEAK N SHAKE COMPANY , an Indiana corporation

By: /s/ David C. Milne

David C. Milne

Vice President, General Counsel and Corporate Secretary

STATE OF INDIANA

)

) SS:

COUNTY OF Marion

)

Before me, a Notary Public in and for said County and State, personally appeared David C. Milne , the Vice President, General Counsel and Corporate Secretary of THE STEAK N SHAKE COMPANY , an Indiana corporation, who as such authorized officer acknowledged execution of the foregoing Reaffirmation of Guaranty Agreement on behalf of said corporation this 16th day of May , 2008.

Signature: /s/ Lisa Blythe

Printed: Lisa Blythe, Notary Public

My Commission Expires: 3/3/2015

My County of Residence: Johnson

Name of Entity	State of Incorporation	EIN	Owner	Guarantor of Indebtedness
The Steak n Shake Company	IN	37-0684070	Public Company	YES
Steak n Shake Enterprises, Inc.	IN	20-3757648	Steak n Shake Operations, Inc.	YES
Steak n Shake Operations, Inc.	IN	35-1604308	The Steak n Shake Company	YES
SNS Investment Company, Inc.	IN	35-1853143	The Steak n Shake Company	YES
Consolidated Specialty Restaurants, Inc.	IN	35-1637905	The Steak n Shake Company	NO
Steak n Shake LLC	IN	30-0342951	Steak n Shake Operations, Inc.	NO

Name of Entity	State of Incorporation	EIN	Owner	Guarantor of Indebtedness
The Steak n Shake Company	IN	37-0684070	Public Company	YES
Steak n Shake Enterprises, Inc.	IN	20-3757648	Steak n Shake Operations, Inc.	YES
Steak n Shake Operations, Inc.	IN	35-1604308	The Steak n Shake Company	YES
SNS Investment Company, Inc.	IN	35-1853143	The Steak n Shake Company	YES
Consolidated Specialty Restaurants, Inc.	IN	35-1637905	The Steak n Shake Company	NO
Steak n Shake LLC	IN	30-0342951	Steak n Shake Operations, Inc.	NO

Ratio of Funded Debt to EBITDA	Applicable Spread
> 4.00	250 b.p.
> 3.00 but < 4.00	200 b.p.
> 2.00 but < 3.00	150 b.p.
< 2.00	100 b.p.

Period	Commitment
Commencing on the date of the Eighth Amendment and until and on 7/31/08	$45,000,000
On 8/1/08, and at all times thereafter until the Revolving Loan Maturity Date	$40,000,000

	Wayne L. Kelley, Interim Chief Executive Officer


	EXECUTIVE:

	/s/ Duane E. Geiger
	Duane E. Geiger, Vice President, Controller

i.	The Salary Benefit shall be paid on the Company’s normal and customary pay days;