<PAGE> 1
FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: August 3, 1997
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from: ________________ to ________________.
Commission file number: 001-12315
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Skyline Chili, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C>
Ohio 31-0717287
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
4180 Thunderbird Lane, Fairfield, Ohio 45014
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(Address of principal executive offices) (Zip Code)
(513) 874-1188
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(Registrant's telephone number, including area code)
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(Former name former address and former
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
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.
[X] YES [ ] NO
There were 3,396,773 shares of the registrant's no par value common stock
outstanding as of September 12, 1997.
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Skyline Chili, Inc.
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INDEX
Form 10 - Q
August 3, 1997
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PAGE
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PART I. FINANCIAL INFORMATION
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 6. Exhibits and Reports on Form 8-K ........................................9
SIGNATURES ...............................................................................10
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2
<PAGE> 3
ITEM 1
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<CAPTION>
SKYLINE CHILI, INC.
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CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF AUGUST 3, 1997 & OCTOBER 27, 1996
---------------------------------------
1997 1996
(UNAUDITED) (AUDITED)
----------------- ------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
CASH AND CASH EQUIVALENTS $2,081,000 $1,140,000
ACCOUNTS RECEIVABLE 1,251,000 1,692,000
INVENTORIES 1,969,000 1,804,000
PREPAID EXPENSES 235,000 129,000
DEFERRED INCOME TAXES 253,000 253,000
----------------- ------------------
TOTAL CURRENT ASSETS 5,789,000 5,018,000
PROPERTY AND EQUIPMENT, AT COST:
LAND 1,051,000 1,046,000
BUILDINGS AND IMPROVEMENTS 14,338,000 13,859,000
EQUIPMENT AND FIXTURES 9,443,000 8,702,000
----------------- ------------------
24,832,000 23,607,000
LESS ACCUMULATED DEPRECIATION 9,534,000 8,067,000
----------------- ------------------
NET PROPERTY AND EQUIPMENT 15,298,000 15,540,000
INTANGIBLE ASSETS - NET 409,000 455,000
OTHER ASSETS 174,000 149,000
----------------- ------------------
$21,670,000 $21,162,000
================= ==================
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<TABLE>
<CAPTION>
1997 1996
(UNAUDITED) (AUDITED)
----------------- -----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $1,635,000 $1,787,000
INCOME TAXES 146,000
ACCRUED LIABILITIES:
SALARIES AND WAGES 1,183,000 1,020,000
INTEREST 79,000 88,000
OTHER 457,000 423,000
LONG-TERM DEBT DUE WITHIN ONE YEAR 404,000 385,000
----------------- -----------------
TOTAL CURRENT LIABILITIES 3,758,000 3,849,000
DEFERRED COMPENSATION 144,000 117,000
DEFERRED INCOME TAXES 689,000 689,000
LONG-TERM DEBT DUE AFTER ONE YEAR 5,408,000 5,715,000
SHAREHOLDERS' EQUITY:
COMMON STOCK, NO PAR VALUE;
5,400,000 SHARES AUTHORIZED;
3,397,000 SHARES ISSUED AND OUTSTANDING
(3,389,000 IN 1996; 3,345,000 IN 1995) 5,411,000 5,381,000
ADDITIONAL PAID-IN CAPITAL 19,000 19,000
RETAINED EARNINGS 6,241,000 5,392,000
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 11,671,000 10,792,000
----------------- -----------------
$21,670,000 $21,162,000
================= =================
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SEE ACCOMPANYING NOTES
3
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SKYLINE CHILI, INC.
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CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED)
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<CAPTION>
TWELVE WEEKS ENDED FORTY WEEKS ENDED
--------------------------- ---------------------------
August 3, August 4, August 3, August 4,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
SALES:
COMMISSARY $ 3,118,000 $ 2,613,000 $ 9,914,000 $ 8,816,000
RESTAURANT 4,062,000 3,716,000 13,143,000 11,484,000
FRANCHISE FEES AND ROYALTIES 367,000 348,000 1,099,000 1,009,000
------------ ------------ ------------ ------------
7,547,000 6,677,000 24,156,000 21,309,000
COSTS AND EXPENSES:
COST OF SALES - COMMISSARY 1,992,000 1,956,000 6,734,000 6,438,000
RESTAURANT OPERATING COSTS:
COST OF FOOD AND PAPER PRODUCTS 1,093,000 1,045,000 3,568,000 3,230,000
PAYROLL COSTS 1,269,000 1,129,000 3,932,000 3,487,000
OCCUPANCY AND OTHER EXPENSES 897,000 799,000 2,897,000 2,504,000
SELLING, GENERAL AND ADMINISTRATIVE 1,656,000 1,258,000 5,297,000 4,286,000
------------ ------------ ------------ ------------
6,907,000 6,187,000 22,428,000 19,945,000
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 640,000 490,000 1,728,000 1,364,000
OTHER INCOME (EXPENSE):
INTEREST INCOME 27,000 16,000 59,000 61,000
INTEREST EXPENSE (83,000) (88,000) (277,000) (294,000)
OTHER INCOME (EXPENSE) (9,000) (1,000) (9,000) (5,000)
------------ ------------ ------------ ------------
(65,000) (73,000) (227,000) (238,000)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 575,000 417,000 1,501,000 1,126,000
PROVISION FOR INCOME TAXES 225,000 155,000 585,000 420,000
------------ ------------ ------------ ------------
NET INCOME $ 350,000 $ 262,000 $ 916,000 $ 706,000
============ ============ ============ ============
EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE $ 0.10 $ 0.08 $ 0.25 $ 0.20
============ ============ ============ ============
WEIGHTED AVERAGE COMMON & COMMON
EQUIVALENT SHARES 3,601,000 3,477,000 3,610,000 3,458,000
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES
4
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SKYLINE CHILI, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(UNAUDITED)
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<CAPTION>
FORTY WEEKS ENDED
----------------------------------
August 3, August 4,
1997 1996
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 916,000 $ 706,000
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 1,549,000 1,311,000
DECREASE (INCREASE) IN:
ACCOUNTS RECEIVABLE 441,000 (222,000)
INVENTORIES (165,000) 41,000
PREPAID EXPENSES (106,000) 7,000
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE (152,000) (296,000)
INCOME TAXES PAYABLE (146,000)
ACCRUED LIABILITIES 188,000 144,000
OTHER - NET 14,000 19,000
--------------- ---------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,539,000 1,710,000
INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (1,280,000) (2,806,000)
PROCEEDS FROM SALE OF PROPERTY
AND EQUIPMENT 2,000 206,000
ADDITIONS TO INTANGIBLE ASSETS 7,000 (16,000)
--------------- ---------------
NET CASH USED BY
INVESTING ACTIVITIES ($ 1,271,000) ($ 2,616,000)
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<TABLE>
<CAPTION>
FORTY WEEKS ENDED
-----------------------------------
August 3, August 4,
1997 1996
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<S> <C> <C>
FINANCING ACTIVITIES:
PAYMENTS OF LONG-TERM DEBT (289,000) (270,000)
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 30,000 100,000
CASH DIVIDENDS PAID (68,000)
--------------- ---------------
NET CASH USED BY
FINANCING ACTIVITIES (327,000) (170,000)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 941,000 (1,076,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,140,000 1,910,000
--------------- ---------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,081,000 $ 834,000
=============== ===============
CASH PAID FOR:
INTEREST $ 222,000 $ 234,000
INCOME TAXES $ 625,000 $ 527,000
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SEE ACCOMPANYING NOTES
5
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SKYLINE CHILI, INC.
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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-Q. 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 twenty-eight week period ended August 3, 1997 are not necessarily
indicative of the results that may be expected for the year ended October 26,
1997. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended October 27, 1996.
RECLASSIFICATIONS
Certain fiscal 1996 amounts have been reclassified to conform to the fiscal 1997
presentation.
6
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SKYLINE CHILI, INC.
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Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of
----------------------------------
Operations
----------
Results of Operations
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Revenues
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Total revenues for the third quarter ended August 3, 1997 of $7.5 million
increased 13% over the same period last year. Total year-to-date revenues of
$24.2 million increased 13% over the first three quarters of last year. These
increases were principally due to increased sales of food products to the
Company's franchisees, increased same-store sales by Company-owned restaurants,
and additional revenues from new locations and relocations of strip center units
to free-standing sites.
Commissary revenues for the third quarter were 19% higher than the third quarter
last year and year-to-date commissary revenues were 12% over the same period
last year. These increases were principally due to increases in sales of chili
and related food products to franchised Skyline Chili restaurants of 16% and 17%
for the third quarter and year-to-date, respectively over last year. In
addition, shipments of the Company's frozen and canned grocery products for the
quarter were 8% higher than the same period last year. However, year-to-date
these shipments were 2% below the same period last year due to lower volume
promotions by the Company's larger customers.
Same-store sales in Company-owned restaurants increased 2% and 4% for the third
quarter and year-to-date periods, respectively, compared to the same periods
last year. In total, year-to-date Company-owned restaurant revenues increased
14% over the same period last year due to same-store sales increases, three new
Company-owned units (two in 1996 and one in the first quarter of 1997), and
higher unit revenues from last year's relocation of two strip center locations
into free-standing buildings.
There were 34 Company-owned units at the end of the third quarter, an increase
of one compared to the end of fiscal 1996. The number of franchised units
increased by three over the second quarter, bringing the total of franchised
units to 64, an increase of five units compared to the end of fiscal 1996.
Franchise fees and royalties for the third quarter were 6% higher than the same
period last year. Year-to-date, franchise fees and royalties increased 9% over
last year. These increases were principally due to increased shipments of chili
to franchisees which includes royalties as part of the selling price, and the
additional franchise fees from five units opened this year compared to three
units opened in the prior year .
Cost of Sales - Commissary
- --------------------------
Cost of sales for the third quarter was 64% of the corresponding commissary
revenue compared to 75% in fiscal 1996. The year-to-date cost of sales rate was
68% of the corresponding commissary revenue figure compared to 73% for fiscal
1996. These improved rates were principally due to higher production levels
resulting from increased shipments of restaurant chili, lower average beef
prices, and an inventory build up to capitalize on the lower beef prices. 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 third quarter and year-to-date was
27% of restaurant revenues compared to 28% for the same periods in fiscal 1996
due to lower cheese prices and improved cost controls by the Company's store
level management. Labor costs for the third quarter and year-to-date were 31%
and 30%, respectively, of restaurant revenues compared to 30% for the same
periods in fiscal 1996. Occupancy and other expenses for the third quarter and
fiscal year-to-date periods were higher than last year due to the addition of
two new Company-owned units opened last year and the one unit opened this year.
7
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Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the third quarter and
year-to-date periods increased 32% and 24%, respectively, over the same periods
last year due to increased spending on training and development, franchise
relations, legal and professional fees, and increased bonus levels.
Other Income (Expense)
- ----------------------
Interest expense for the third quarter and year-to-date was lower than the same
periods last year because of lower debt levels resulting from scheduled
principal payments on the City of Fairfield, Ohio Adjustable Rate Demand
Industrial Development Revenue Bonds.
Liquidity and Capital Resources
-------------------------------
Cash levels increased $1 million over fiscal 1996 year end levels to $2.1
million. Working capital was $2 million at the end of the third quarter compared
to $1.2 million at the end of fiscal 1996.
During the first three quarters of fiscal 1997, the Company spent approximately
$760,000 on equipment replacements, remodels of existing locations and other
ongoing maintenance throughout the system. The Company also spent $230,000 of
the $300,000 expected to be spent in fiscal 1997 towards completing the
installation of new point-of-sale equipment in all Company-owned restaurants.
The Company spent approximately $210,000 toward the construction of a
free-standing unit in Columbus, Ohio expected to be completed during the fourth
quarter. The Company also spent $20,000 towards development of a free-standing
unit in Dayton, Ohio, which is expected to open in the first quarter of fiscal
1998. All of these activities were funded by existing cash and cash provided by
operations. During the fourth quarter of fiscal 1997, the Company intends to
spend an additional $390,000 to complete the construction of the free-standing
unit in Columbus and approximately $950,000 to purchase the land and construct
the free-standing unit in Dayton. The Company believes that cash provided by
operations and its $4 million unsecured bank line of credit will be adequate to
fund planned expansion, remodels 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 new commissary, warehouse and office facility. There are no legal
restrictions on the use of those compensating balance funds.
8
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Skyline Chili, Inc.
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FORM 10 - Q
August 3, 1997
PART II. OTHER INFORMATION
--------------------------
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
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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.
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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 Chief Accounting Officer)
</TABLE>
Date: September 15, 1997
10
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AS OF
AND FOR THE FORTY WEEKS ENDED AUGUST 3, 1997 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> 9-MOS
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-START> OCT-28-1996
<PERIOD-END> AUG-03-1997
<CASH> 2,081
<SECURITIES> 0
<RECEIVABLES> 1,251
<ALLOWANCES> 0
<INVENTORY> 1,969
<CURRENT-ASSETS> 5,789
<PP&E> 24,832
<DEPRECIATION> 9,534
<TOTAL-ASSETS> 21,670
<CURRENT-LIABILITIES> 3,758
<BONDS> 5,408
<COMMON> 5,411
0
0
<OTHER-SE> 6,260
<TOTAL-LIABILITY-AND-EQUITY> 21,670
<SALES> 23,057
<TOTAL-REVENUES> 24,156
<CGS> 6,734
<TOTAL-COSTS> 22,428
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218
<INCOME-PRETAX> 1,501
<INCOME-TAX> 585
<INCOME-CONTINUING> 916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 916
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0
</TABLE>
