<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: May 12, 1996
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from:_______________ to __________.
Commission file number: 0-16368
-------
Skyline Chili, Inc.
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Ohio 31-0717287
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
4180 Thunderbird Lane, Fairfield, Ohio 45014
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(513) 874-1188
- -------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
[X] YES [ ] NO
There were 3,386,023 shares of the issuer's no par value common stock
outstanding as of June 24, 1996.
Transitional Small Business Disclosure Format (check one):
[ ] YES [X] NO
<PAGE> 2
Skyline Chili, Inc.
-------------------
INDEX
Form 10-QSB
May 12, 1996
<TABLE>
PAGE
----
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets .......................3
Consolidated Statements of Income .................4
Consolidated Statements of Cash Flows .............5
Notes to Condensed Consolidated
Financial Statements ..............................6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations .........................7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders................................9
Item 6. Exhibits and Reports on
Form 8-K ..........................................9
SIGNATURES ...................................................................10
</TABLE>
<PAGE> 3
<TABLE>
Item 1
SKYLINE CHILI, INC.
-------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF MAY 12, 1996 & OCTOBER 29, 1995
-------------------------------------
<CAPTION>
1996 1995 1996 1995
(UNAUDITED) (AUDITED) (UNAUDITED) (AUDITED)
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT ASSETS: CURRENT LIABILITIES:
CASH AND CASH EQUIVALENTS $1,010,000 $ 1,910,000 ACCOUNTS PAYABLE $1,283,000 $1,505,000
ACCOUNTS RECEIVABLE 1,218,000 1,074,000 INCOME TAXES 56,000 101,000
INVENTORIES 1,220,000 1,224,000 ACCRUED LIABILITIES:
PREPAID EXPENSES 82,000 121,000 SALARIES AND WAGES 719,000 664,000
DEFERRED INCOME TAXES 206,000 206,000 INTEREST 78,000 65,000
----------- ----------- OTHER 571,000 485,000
TOTAL CURRENT ASSETS 3,736,000 4,535,000 LONG-TERM DEBT DUE WITHIN ONE YEAR 373,000 360,000
----------- -----------
TOTAL CURRENT LIABILITIES 3,080,000 3,180,000
PROPERTY AND EQUIPMENT, AT COST:
LAND 1,826,000 1,469,000
BUILDINGS AND IMPROVEMENTS 12,257,000 11,451,000
EQUIPMENT AND FIXTURES 8,101,000 7,409,000 DEFERRED INCOME TAXES 469,000 469,000
CONSTRUCTION IN PROGRESS 164,000 61,000 LONG-TERM DEBT DUE AFTER ONE YEAR 5,907,000 6,100,000
----------- -----------
22,348,000 20,390,000
LESS ACCUMULATED DEPRECIATION 7,424,000 6,565,000
----------- -----------
NET PROPERTY AND EQUIPMENT 14,924,000 13,825,000 SHAREHOLDERS' EQUITY:
COMMON STOCK, NO PAR VALUE;
INTANGIBLE ASSETS 759,000 755,000 5,400,000 SHARES AUTHORIZED;
ACCUMULATED AMORTIZATION 290,000 254,000 3,386,000 SHARES ISSUED AND
----------- ----------- OUTSTANDING (3,345,000 IN 1995) 5,367,000 5,267,000
469,000 501,000 ADDITIONAL PAID-IN CAPITAL 19,000 19,000
RETAINED EARNINGS 4,422,000 3,978,000
----------- -----------
OTHER ASSETS 135,000 152,000 TOTAL SHAREHOLDERS' EQUITY 9,808,000 9,264,000
----------- -----------
----------- -----------
$19,264,000 $19,013,000 $19,264,000 $19,013,000
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE> 4
<TABLE>
SKYLINE CHILI, INC.
-------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED)
-----------
<CAPTION>
TWELVE WEEKS ENDED TWENTY-EIGHT WEEKS ENDED
---------------------------- -----------------------------
May 12, May 14, May 12, May 14,
1996 1995 1996 1995
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES:
SALES:
COMMISSARY $2,632,000 $2,245,000 $6,202,000 $5,512,000
RESTAURANT 3,502,000 3,192,000 7,768,000 7,245,000
FRANCHISE FEES AND ROYALTIES 288,000 284,000 661,000 649,000
---------- ----------- ---------- -----------
6,422,000 5,721,000 14,631,000 13,406,000
COSTS AND EXPENSES:
COST OF SALES - COMMISSARY 1,841,000 1,653,000 4,482,000 4,013,000
RESTAURANT OPERATING COSTS:
COST OF FOOD AND PAPER PRODUCTS 976,000 892,000 2,185,000 2,037,000
PAYROLL COSTS 1,065,000 966,000 2,358,000 2,232,000
OCCUPANCY AND OTHER EXPENSES 747,000 741,000 1,704,000 1,691,000
SELLING, GENERAL AND ADMINISTRATIVE 1,429,000 1,159,000 3,028,000 2,661,000
---------- ----------- ---------- -----------
6,058,000 5,411,000 13,757,000 12,634,000
---------- ----------- ---------- -----------
INCOME FROM OPERATIONS 364,000 310,000 874,000 772,000
OTHER INCOME (EXPENSE):
INTEREST INCOME 16,000 21,000 45,000 47,000
INTEREST EXPENSE (88,000) (129,000) (206,000) (305,000)
OTHER INCOME (EXPENSE) (1,000) (6,000) (4,000) (6,000)
---------- ----------- ---------- -----------
(73,000) (114,000) (165,000) (264,000)
---------- ----------- ---------- -----------
INCOME BEFORE INCOME TAXES 291,000 196,000 709,000 508,000
PROVISION FOR INCOME TAXES 109,000 72,000 265,000 183,000
---------- ----------- ---------- -----------
NET INCOME $182,000 $124,000 $444,000 $325,000
========== =========== ========== ===========
EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE $0.05 $0.04 $0.13 $0.10
========== =========== ========== ===========
WEIGHTED AVERAGE COMMON & COMMON
EQUIVALENT SHARES 3,386,023 3,430,000 3,449,697 3,412,000
========== =========== ========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE> 5
<TABLE>
SKYLINE CHILI, INC.
-------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
UNAUDITED
---------
<CAPTION>
TWENTY-EIGHT WEEKS ENDED TWENTY-EIGHT WEEKS ENDED
------------------------ ------------------------
May 12, May 14, May 12, May 14,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES: FINANCING ACTIVITIES:
NET INCOME $444,000 $325,000 PAYMENTS OF LONG-TERM DEBT (180,000) (169,000)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET PROCEEDS FROM EXERCISE OF 100,000
CASH PROVIDED (USED) BY OPERATING ACTIVITIES: STOCK OPTIONS ---------- ----------
DEPRECIATION AND AMORTIZATION 891,000 804,000
DECREASE (INCREASE) IN: NET CASH USED BY
ACCOUNTS RECEIVABLE (144,000) (266,000) FINANCING ACTIVITIES (80,000) (169,000)
INVENTORIES 4,000 (31,000)
PREPAID EXPENSES 39,000 134,000 ---------- ----------
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE (222,000) (357,000) NET DECREASE IN CASH AND
ACCRUED LIABILITIES 154,000 (572,000) CASH EQUIVALENTS (900,000) (1,021,000)
OTHER - NET (9,000) 26,000
---------- --------- CASH AND CASH EQUIVALENTS AT
NET CASH PROVIDED (USED) BY BEGINNING OF PERIOD 1,910,000 2,709,000
OPERATING ACTIVITIES 1,157,000 63,000 ---------- ----------
INVESTING ACTIVITIES: CASH AND CASH EQUIVALENTS AT
CAPITAL EXPENDITURES (2,173,000) (897,000) END OF PERIOD $1,010,000 $1,688,000
PROCEEDS FROM SALE OF PROPERTY ========== ==========
AND EQUIPMENT 200,000
ADDITIONS TO INTANGIBLE ASSETS (4,000) (18,000)
---------- ---------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES ($1,977,000) ($915,000)
CASH PAID FOR:
INTEREST $ 157,000 $ 282,000
INCOME TAXES $ 383,000 $ 104,000
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE> 6
SKYLINE CHILI, INC.
-------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included. Operating results
for the twelve and twenty-eight week periods ended May 12, 1996 are not
necessarily indicative of the results that may be expected for the year ended
October 27, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended October 29, 1995.
RECLASSIFICATIONS
Certain fiscal 1995 amounts have been reclassified to conform to the fiscal
1996 presentation.
<PAGE> 7
SKYLINE CHILI, INC.
-------------------
Item 2.
- -------
Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of
----------------------------------
Operations
----------
Results of Operations
---------------------
Revenues
- --------
Total revenues for the second quarter ended May 12, 1996 of $6.4 million
increased 12% over the same period last year. First half total revenues of $14.6
million for fiscal 1996 were 9% higher than the first half of last year. These
increases were principally due to the strength of the Company's frozen grocery
product business.
Total commissary revenues increased 17% and 13% for the second quarter and first
half of fiscal 1996, respectively, compared to the same periods last year.
Shipments of the Company's frozen grocery products for the first half increased
15% over the same period last year thanks mostly to two additional promotions by
one of the Company's larger customers. Second quarter and first half revenues
from the sale of chili and related food products to the franchised Skyline Chili
restaurants were 7% and 8%, respectively, above the same periods in fiscal 1995.
Same-store sales for Company-owned restaurants for the second quarter and first
half of fiscal 1996 increased 4% and 5%, respectively. These same-store
increases, along with additional sales from one new location in Columbus, Ohio
and a relocation of an in-line unit to a free-standing building in Cincinnati
accounted for the 7% increase in first half Company-owned restaurant revenues
over the same period last year.
The Company opened one new restaurant in the second quarter bringing the total
number of Company-owned units to 32, an increase of one over the end of fiscal
year 1995. The Company franchised one new unit in Cincinnati bringing the total
number of franchised units to 54, two units higher than at the end of fiscal
1995.
Franchise fees and royalties increased 2% for the second quarter and the first
half of fiscal 1996 over the same periods last year.
Cost of Sales - Commissary
- --------------------------
Cost of sales for the second quarter was 70% of the corresponding revenue
figures compared to 74% for the same period last year. Cost of sales for the
first half of fiscal 1996 was 72% of the corresponding revenue figures compared
to 73% for the first half of fiscal 1995. A lower average beef price was the
principal reason for the improved cost of sales rate. The Company's cost of
sales rate is heavily influenced by beef prices which can fluctuate
significantly.
Restaurant Operating Expenses
- -----------------------------
The cost of food and paper products for the second quarter and first half of
fiscal 1996 were each 28% of the corresponding revenue figures. These rates
remain unchanged from the rates for the same periods in fiscal 1995. Labor costs
of 30% for the second quarter and first half remained unchanged compared to the
rate for the fiscal 1995 second quarter and represented an improvement over last
year's first half rate of 31%. The Company has continued to experience increases
in hourly wage rates and increased restaurant crew turnover as a result of a
tightening labor market. Occupancy and other expenses for the second quarter and
first half have increased over the same periods last year due to two full
quarters of operations for a unit opened last year and one new unit opened this
year.
7
<PAGE> 8
General and Administrative Expenses
- -----------------------------------
General and administrative expenses for fiscal 1996 increased 23% and 14% over
the second quarter and first half of fiscal 1995, respectively. These increases
were principally due to additional training and related expenses connected with
the opening of a new restaurant in Columbus, increases in administrative bonuses
related to improved operating results, and increases in promotional spending.
Income from Operations
- ----------------------
Income from operations for the fiscal 1996 second quarter and first half periods
was 17% and 13% higher than the same periods last year. This improvement can be
attributed to higher total revenues and lower beef prices.
Other Income (Expense)
- ----------------------
Interest expense for the second quarter and the first half was lower than the
same periods last year because of lower debt levels resulting from scheduled
principal payments and a reduction in the interest rate occurring late in fiscal
1995 on the City of Fairfield, Ohio Adjustable Rate Demand Industrial
Development Revenue Bonds.
Liquidity and Capital Resources
-------------------------------
Cash levels dropped from their fiscal 1995 year end level by $900,000 because of
capital spending and decreased accounts payable and accrued liability levels.
Working capital as of May 12, 1996 of $656,000 was approximately $699,000 below
the prior fiscal year end level due to increased levels of capital spending.
During the first half of fiscal year 1996, the Company spent $1.3 million to
complete construction of two free-standing restaurant locations in Cincinnati
and Columbus. The Columbus restaurant is in a new trade area and the Cincinnati
restaurant is a relocation of an existing strip-center location. Both of these
restaurants began operations early in the second quarter. The Company has spent
approximately $350,000 towards the construction of two free-standing restaurants
in Cincinnati, one in a new trade area and the other a relocation of an existing
strip center location. The Company expects to spend approximately $450,000 to
complete these units and to begin operations in the third quarter. The Company
spent approximately $500,000 in the first half of fiscal 1996 on equipment
replacements and other ongoing maintenance throughout its Company-owned
restaurants and commissary. All of these activities were funded by existing cash
and cash from operations. The Company intends to spend approximately $600,000
towards the construction of one free-standing restaurant in Columbus. This new
location will be in a new trade area and is expected to be completed and begin
operations around the end of the current fiscal year. The Company believes that
cash provided by operations and its $4 million unsecured bank line of credit
will be adequate to fund planned expansion and new equipment purchases.
The Company maintains a compensating balance of $400,000 with the bank that has
issued a letter of credit guaranteeing payment of the principal and related
interest on the City of Fairfield, Ohio Adjustable Rate Demand Industrial
Development Revenue Bonds issued in 1990 to fund in part the construction of the
Company's current commissary, warehouse and office facility. There are no legal
restrictions on the use of those compensating balance funds.
8
<PAGE> 9
Skyline Chili, Inc.
-------------------
FORM 10-QSB
May 12, 1996
PART II. OTHER INFORMATION
--------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------
(a) The 1996 Annual Meeting of the Shareholders of Skyline
Chili, Inc. (the "Meeting") was held on March 13, 1996.
The holders of 3,055,795 shares of the Company's
outstanding common stock (approximately 90%) were
present at the Meeting in person or by proxy.
(b) At such Meeting, the following seven individuals were duly
nominated and properly elected as directors of the Company to
serve until the 1997 Annual Meeting and until their
successors are elected and qualified. The number of votes
cast for and against each nominee for office are indicated
below.
<TABLE>
<CAPTION>
Votes For Votes Against
--------- -------------
<S> <C> <C>
Lambert N. Lambrinides 3,046,280 9,515
Christie N. Lambrinides 3,046,780 9,015
William N. Lambrinides 3,046,780 9,015
Lawrence R. Burtschy 3,047,430 8,365
David A Kohnen 3,046,058 9,737
Joseph E. Madigan 3,047,280 8,515
Kevin R. McDonnell 3,046,880 8,915
</TABLE>
(c) At such Meeting, a proposal to ratify the appointment of
Ernst & Young LLP as the Company's independent auditors for
fiscal 1996 was approved. The number of votes cast for,
against and to abstain on the proposal and broker non-votes
are indicated below.
<TABLE>
<CAPTION>
Broker
Votes For Votes Against Abstentions Non-Votes
------------------------------------------ ---------
<S> <C> <C> <C>
3,046,103 4,210 5,482 0
</TABLE>
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
- ------
(a) Exhibits filed with this Report
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
9
<PAGE> 10
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Skyline Chili, Inc.
-------------------
Registrant
by: /s/ Kevin R. McDonnell
------------------------------------------------------
Kevin R. McDonnell
President and Chief Executive
Officer (Duly Authorized Officer)
by: /s/ Jeffry W. Shelton
------------------------------------------------------
Jeffry W. Shelton, Vice President - Finance,
Chief Financial Officer and Treasurer
(Principal Financial and Principal Accounting Officer)
Date: June 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AS AND
FOR THE SIX MONTHS (TWENTY-EIGHT WEEKS) ENDED MAY 12, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000803497
<NAME> SKYLINE CHILI, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-27-1996
<PERIOD-START> OCT-30-1995
<PERIOD-END> MAY-12-1996
<CASH> 1,010
<SECURITIES> 0
<RECEIVABLES> 1,218
<ALLOWANCES> 0
<INVENTORY> 1,220
<CURRENT-ASSETS> 3,736
<PP&E> 22,348
<DEPRECIATION> 7,424
<TOTAL-ASSETS> 19,264
<CURRENT-LIABILITIES> 3,080
<BONDS> 5,907
<COMMON> 5,367
0
0
<OTHER-SE> 4,441
<TOTAL-LIABILITY-AND-EQUITY> 19,264
<SALES> 13,970
<TOTAL-REVENUES> 14,631
<CGS> 4,482
<TOTAL-COSTS> 13,757
<OTHER-EXPENSES> 165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206
<INCOME-PRETAX> 709
<INCOME-TAX> 265
<INCOME-CONTINUING> 444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 444
<EPS-PRIMARY> .13
<EPS-DILUTED> 0
</TABLE>
