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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: February 16, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from: to .
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Commission file number: 001-12315
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Skyline Chili, Inc.
(Exact name of registrant as specified in its charter)
Ohio 31-0717287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4180 Thunderbird Lane, Fairfield, Ohio 45014
(Address of principal executive offices) (Zip Code)
(513) 874-1188
(Registrant's telephone number, including area code)
(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.
[X] YES [ ] NO
There were 3,391,773 shares of the issuer's no par value common stock
outstanding as of March 31, 1997.
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SKYLINE CHILI, INC.
INDEX
Form 10-Q
February 16, 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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ITEM 1
SKYLINE CHILI, INC.
CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 16, 1997 & OCTOBER 27, 1996
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1997 1996
(UNAUDITED) (AUDITED)
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ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $1,279,000 $1,140,000
ACCOUNTS RECEIVABLE 1,233,000 1,692,000
INVENTORIES 1,913,000 1,804,000
PREPAID EXPENSES 119,000 129,000
DEFERRED INCOME TAXES 253,000 253,000
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TOTAL CURRENT ASSETS 4,797,000 5,018,000
PROPERTY AND EQUIPMENT, AT COST:
LAND 1,046,000 1,046,000
BUILDINGS AND IMPROVEMENTS 13,920,000 13,859,000
EQUIPMENT AND FIXTURES 8,844,000 8,702,000
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23,810,000 23,607,000
LESS ACCUMULATED DEPRECIATION 8,665,000 8,067,000
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NET PROPERTY AND EQUIPMENT 15,145,000 15,540,000
INTANGIBLE ASSETS - NET 439,000 455,000
OTHER ASSETS 149,000 149,000
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$20,530,000 $21,162,000
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</TABLE>
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<CAPTION>
1997 1996
(UNAUDITED) (AUDITED)
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $1,345,000 $1,787,000
INCOME TAXES 111,000 146,000
ACCRUED LIABILITIES:
SALARIES AND WAGES 641,000 1,020,000
INTEREST 73,000 53,000
OTHER 489,000 458,000
LONG-TERM DEBT DUE WITHIN ONE YEAR 391,000 385,000
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TOTAL CURRENT LIABILITIES 3,050,000 3,849,000
DEFERRED INCOME TAXES 689,000 689,000
DEFERRED COMPENSATION 117,000 117,000
LONG-TERM DEBT DUE AFTER ONE YEAR 5,613,000 5,715,000
SHAREHOLDERS' EQUITY:
COMMON STOCK, NO PAR VALUE;
5,400,000 SHARES AUTHORIZED;
3,392,000 SHARES ISSUED AND OUTSTANDING
(3,389,000 IN 1996; 3,345,000 IN 1995) 5,389,000 5,380,000
ADDITIONAL PAID-IN CAPITAL 19,000 19,000
RETAINED EARNINGS 5,653,000 5,393,000
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TOTAL SHAREHOLDERS' EQUITY 11,061,000 10,792,000
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$20,530,000 $21,162,000
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SEE ACCOMPANYING NOTES
3
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SKYLINE CHILI, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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SIXTEEN WEEKS ENDED
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February 16, February 18,
1997 1996
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REVENUES:
SALES:
COMMISSARY $4,161,000 $3,571,000
RESTAURANT 5,133,000 4,266,000
FRANCHISE FEES AND ROYALTIES 443,000 373,000
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9,737,000 8,210,000
COSTS AND EXPENSES:
COST OF SALES - COMMISSARY 2,861,000 2,641,000
RESTAURANT OPERATING COSTS:
COST OF FOOD AND PAPER PRODUCTS 1,405,000 1,209,000
PAYROLL COSTS 1,588,000 1,293,000
OCCUPANCY AND OTHER EXPENSES 1,135,000 958,000
SELLING, GENERAL AND ADMINISTRATIVE 2,112,000 1,599,000
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9,101,000 7,700,000
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INCOME FROM OPERATIONS 636,000 510,000
OTHER INCOME (EXPENSE):
INTEREST INCOME 14,000 29,000
INTEREST EXPENSE (111,000) (117,000)
OTHER INCOME (EXPENSE) (4,000)
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(97,000) (92,000)
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INCOME BEFORE INCOME TAXES 539,000 418,000
PROVISION FOR INCOME TAXES 210,000 156,000
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NET INCOME $329,000 $262,000
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EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE $0.09 $0.08
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WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES 3,592,000 3,442,000
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</TABLE>
SEE ACCOMPANYING NOTES
4
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SKYLINE CHILI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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SIXTEEN WEEKS ENDED
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February 16, February 18,
1997 1996
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OPERATING ACTIVITIES:
NET INCOME $329,000 $262,000
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 614,000 497,000
DECREASE (INCREASE) IN:
ACCOUNTS RECEIVABLE 459,000 221,000
INVENTORIES (109,000) 12,000
PREPAID EXPENSES 10,000 36,000
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE (442,000) (642,000)
INCOME TAXES PAYABLE (35,000) (14,000)
ACCRUED LIABILITIES (328,000) (322,000)
OTHER - NET 1,000 35,000
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 499,000 85,000
INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (202,000) (1,305,000)
PROCEEDS FROM SALE OF PROPERTY
AND EQUIPMENT 1,000 196,000
ADDITIONS TO INTANGIBLE ASSETS (2,000)
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NET CASH USED BY
INVESTING ACTIVITIES ($201,000) ($1,111,000)
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SIXTEEN WEEKS ENDED
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February 16, February 18,
1997 1996
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FINANCING ACTIVITIES:
PAYMENTS OF LONG-TERM DEBT (96,000) (180,000)
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 5,000 100,000
CASH DIVIDENDS PAID (68,000)
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NET CASH USED BY
FINANCING ACTIVITIES (159,000) (80,000)
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 139,000 (1,106,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,140,000 1,910,000
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $1,279,000 $804,000
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CASH PAID FOR:
INTEREST $146,000 $157,000
INCOME TAXES $195,000 $228,000
</TABLE>
SEE ACCOMPANYING NOTES
5
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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-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 sixteen week period ended February 16, 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-KSB 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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ITEM 2-
SKYLINE CHILI, INC.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Results of Operations
Revenues
Total revenues for the first quarter ended February 16, 1997 of $9.7 million
increased 19% over the same period last year. This increase was principally due
to higher sales of chili and related food products to franchised Skyline Chili
restaurants and additional revenues from new locations and relocations of strip
center units to free-standing sites.
Commissary revenues for the first quarter increased 17% over the same period
last year. Sales of chili and related food products to franchised Skyline Chili
restaurants were 21% above the first quarter last year. Shipments of the
Company's grocery products for the quarter were 4% over the prior year's first
quarter.
Same-store sales in Company-owned restaurants for the first quarter were 4%
over the same period last year. In total, first quarter Company-owned
restaurant revenues increased 20% over the same period last year due to this
same-store sales increase, three new Company-owned units (two in 1996 and one
in the first quarter of 1997), and higher unit revenues from the relocation
last year of two strip center locations into free-standing buildings.
There were 34 Company-owned units at the end of the first quarter, an increase
of one unit compared to the end of fiscal 1996. The number of franchised units
increased to 61 due to the opening of two new franchised units during the first
quarter in the Cincinnati, Ohio area.
Franchise fees and royalties increased 19% in the first quarter over the same
period last year due to increased shipments of chili to the franchisees which
includes royalties as part of the selling price, and the initial franchise fees
from opening two new franchised locations in the first quarter, compared to one
in the same period last year.
Cost of Sales - Commissary
Cost of sales for the first quarter was 69% of the corresponding commissary
revenue figure compared to 74% in fiscal 1996. This improved rate is
principally due to increased production levels resulting from higher grocery
product and restaurant chili shipments, a mix shift to higher margin products,
and 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 first quarter was 27% of the
corresponding restaurant revenue figure compared to 28% for the same period in
fiscal 1996 due to lower average beef prices. Labor costs for the quarter were
31% of restaurant revenues compared to 30% for the first quarter of fiscal
1996. The limited labor pool continues to impact costs as the Company adjusts
hourly wage rates and increases training and development spending to attract
and retain employees. Occupancy and other expenses were 22% of restaurant
revenues for the first quarter of fiscal 1997 and last year.
7
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Selling, General and Administrative Expenses
Selling, general and administrative expenses for the first quarter increased
32% over the same period last year due to increased spending on training and
development, franchise relations and increased bonus levels.
Other Income (Expense)
Interest expense for the quarter was lower than the same period 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 from fiscal 1996 year end levels to $1.3 million. Working
capital was $1.7 million at the end of the first quarter compared to $1.2
million at the end of fiscal 1996.
During the first quarter of fiscal 1997, the Company spent approximately
$180,000 on equipment replacements and other ongoing maintenance throughout the
system. The Company also spent $20,000 of the $350,000 expected to be spent in
fiscal 1997 towards completing the installation of new point-of-sale equipment
in all Company-owned restaurants. All of these activities were funded by
existing cash and cash from operations. During fiscal 1997, the Company intends
to spend approximately $860,000 to construct two locations in Columbus, Ohio,
one free-standing unit and one in a strip center location, and $625,000 to
purchase two parcels of land in Dayton, Ohio, for development in fiscal 1998.
The Company also intends to spend approximately $285,000 in fiscal 1997 to
remodel existing Company-owned restaurants. 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.
Form 10-Q
February 16, 1997
PART II. OTHER INFORMATION
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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
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SIGNATURES
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.
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, Corporate Vice
President - Finance, Chief Financial
Officer and Treasurer
(Principal Financial and Chief
Accounting Officer)
Date: April 1, 1997
10
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<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 SIXTEEN WEEKS ENDED FEBRUARY 16, 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> 3-MOS
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-START> OCT-28-1996
<PERIOD-END> FEB-16-1997
<CASH> 1,279
<SECURITIES> 0
<RECEIVABLES> 1,233
<ALLOWANCES> 0
<INVENTORY> 1,913
<CURRENT-ASSETS> 4,797
<PP&E> 23,810
<DEPRECIATION> 8,665
<TOTAL-ASSETS> 20,530
<CURRENT-LIABILITIES> 3,050
<BONDS> 5,613
0
0
<COMMON> 5,389
<OTHER-SE> 5,672
<TOTAL-LIABILITY-AND-EQUITY> 20,530
<SALES> 9,294
<TOTAL-REVENUES> 9,737
<CGS> 2,861
<TOTAL-COSTS> 9,101
<OTHER-EXPENSES> 97
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111
<INCOME-PRETAX> 539
<INCOME-TAX> 210
<INCOME-CONTINUING> 329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 329
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
