<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: May 11, 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
---------
Skyline Chili, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-0717287
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 registrant's no par value common
stock outstanding as of June 20, 1997.
<PAGE> 2
SKYLINE CHILI, INC.
-------------------
INDEX
Form 10-Q
May 11, 1997
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 4. Submission of Matters to a Vote of Security Holders......9
Item 6. Exhibits and Reports on Form 8-K.........................9
SIGNATURES................................................................10
</TABLE>
2
<PAGE> 3
ITEM 1
SKYLINE CHILI, INC.
-------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF MAY 11, 1997 & OCTOBER 27, 1996
-------------------------------------
<TABLE>
<CAPTION>
1997 1996
(UNAUDITED) (AUDITED)
----------- -----------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
CASH AND CASH EQUIVALENTS $2,241,000 $1,140,000
ACCOUNTS RECEIVABLE 1,121,000 1,692,000
INVENTORIES 1,796,000 1,804,000
PREPAID EXPENSES 87,000 129,000
DEFERRED INCOME TAXES 253,000 253,000
----------- -----------
TOTAL CURRENT ASSETS 5,498,000 5,018,000
PROPERTY AND EQUIPMENT, AT COST:
LAND 1,051,000 1,046,000
BUILDINGS AND IMPROVEMENTS 14,055,000 13,859,000
EQUIPMENT AND FIXTURES 9,185,000 8,702,000
----------- -----------
24,291,000 23,607,000
LESS ACCUMULATED DEPRECIATION 9,112,000 8,067,000
----------- -----------
NET PROPERTY AND EQUIPMENT 15,179,000 15,540,000
INTANGIBLE ASSETS - NET 424,000 455,000
OTHER ASSETS 185,000 149,000
----------- -----------
$21,286,000 $21,162,000
=========== ===========
<CAPTION>
1997 1996
(UNAUDITED) (AUDITED)
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
ACCOUNTS PAYABLE $1,707,000 $1,787,000
INCOME TAXES 27,000 146,000
ACCRUED LIABILITIES:
SALARIES AND WAGES 940,000 1,020,000
INTEREST 42,000 88,000
OTHER 520,000 423,000
LONG-TERM DEBT DUE WITHIN ONE YEAR 398,000 385,000
----------- -----------
TOTAL CURRENT LIABILITIES 3,634,000 3,849,000
DEFERRED COMPENSATION 152,000 117,000
DEFERRED INCOME TAXES 689,000 689,000
LONG-TERM DEBT DUE AFTER ONE YEAR 5,510,000 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 5,381,000
ADDITIONAL PAID-IN CAPITAL 19,000 19,000
RETAINED EARNINGS 5,893,000 5,392,000
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 11,301,000 10,792,000
----------- -----------
$21,286,000 $21,162,000
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE> 4
SKYLINE CHILI, INC.
-------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-EIGHT WEEKS ENDED
-----------------------------------------------------------------
May 11, May 12, May 11, May 12,
1997 1996 1997 1996
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
SALES:
COMMISSARY $2,635,000 $2,632,000 $6,796,000 $6,202,000
RESTAURANT 3,948,000 3,502,000 9,081,000 7,768,000
FRANCHISE FEES AND ROYALTIES 289,000 288,000 732,000 661,000
----------- ------------ ------------ ------------
6,872,000 6,422,000 16,609,000 14,631,000
COSTS AND EXPENSES:
COST OF SALES - COMMISSARY 1,876,000 1,841,000 4,739,000 4,482,000
RESTAURANT OPERATING COSTS:
COST OF FOOD AND PAPER PRODUCTS 1,070,000 976,000 2,476,000 2,185,000
PAYROLL COSTS 1,077,000 1,065,000 2,665,000 2,358,000
OCCUPANCY AND OTHER EXPENSES 865,000 747,000 2,000,000 1,704,000
SELLING, GENERAL AND ADMINISTRATIVE 1,529,000 1,429,000 3,641,000 3,028,000
----------- ------------ ------------ ------------
6,417,000 6,058,000 15,521,000 13,757,000
----------- ------------ ------------ ------------
INCOME FROM OPERATIONS 455,000 364,000 1,088,000 874,000
OTHER INCOME (EXPENSE):
INTEREST INCOME 18,000 16,000 32,000 45,000
INTEREST EXPENSE (83,000) (88,000) (194,000) (206,000)
OTHER INCOME (EXPENSE) 1,000 (1,000) 1,000 (4,000)
----------- ------------ ------------ ------------
(64,000) (73,000) (161,000) (165,000)
----------- ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 391,000 291,000 927,000 709,000
PROVISION FOR INCOME TAXES 150,000 109,000 360,000 265,000
----------- ------------ ------------ ------------
NET INCOME $241,000 $182,000 $567,000 $444,000
=========== ============ ============ ============
EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE $0.07 $0.05 $0.16 $0.13
=========== ============ ============ ============
WEIGHTED AVERAGE COMMON & COMMON
EQUIVALENT SHARES 3,643,000 3,386,000 3,616,000 3,450,000
=========== ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE> 5
SKYLINE CHILI, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED
----------------------------
May 11, May 12,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $568,000 $444,000
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 1,074,000 891,000
DECREASE (INCREASE) IN:
ACCOUNTS RECEIVABLE 571,000 (144,000)
INVENTORIES 8,000 4,000
PREPAID EXPENSES 42,000 39,000
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE (80,000) (222,000)
INCOME TAXES PAYABLE (119,000)
ACCRUED LIABILITIES (29,000) 154,000
OTHER - NET (7,000) (9,000)
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,028,000 1,157,000
INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (677,000) (2,173,000)
PROCEEDS FROM SALE OF PROPERTY
AND EQUIPMENT 2,000 200,000
ADDITIONS TO INTANGIBLE ASSETS 4,000 (4,000)
----------- -----------
NET CASH USED BY
INVESTING ACTIVITIES ($671,000) ($1,977,000)
<CAPTION>
TWENTY-EIGHT WEEKS ENDED
----------------------------
May 11, May 12,
1997 1996
----------- -----------
<S> <C> <C>
FINANCING ACTIVITIES:
PAYMENTS OF LONG-TERM DEBT (193,000) (180,000)
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 5,000 100,000
CASH DIVIDENDS PAID (68,000)
----------- -----------
NET CASH USED BY
FINANCING ACTIVITIES (256,000) (80,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,101,000 (900,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,140,000 1,910,000
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $2,241,000 $1,010,000
=========== ===========
CASH PAID FOR:
INTEREST $146,000 $157,000
INCOME TAXES $375,000 $383,000
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE> 6
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 May 11, 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
<PAGE> 7
SKYLINE CHILI, INC.
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Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of
----------------------------------
Operations
----------
Results of Operations
---------------------
Revenues
- --------
Total revenues for the second quarter ended May 11, 1997 of $6.9 million
increased 7% over the same period last year. Total year-to-date revenues of
$16.6 million increased 14% over the first half of last year. These increases
were principally due to increased same-store sales by Company-owned restaurants,
additional revenues from new locations and relocations of strip center units to
free-standing sites, and increased sales of food products to the Company's
franchisees.
Commissary revenues for the second quarter were even with the same period last
year but year-to-date revenues were 10% over the first half of last year. Sales
of chili and related food products to franchised Skyline Chili restaurants were
13% and 19% above the second quarter and first half of last year, respectively.
These increases were offset by a decrease in shipments of the Company's frozen
grocery products for the second quarter versus the prior year's second quarter
which contained an additional promotion by one of the Company's larger
customers.
Same-store sales in Company-owned restaurants increased 6% and 5% for the
second quarter and year-to-date periods, respectively, compared to the same
periods last year. In total, year-to-date Company-owned restaurant revenues
increased 17% 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 the relocation last year of two strip
center locations into free-standing buildings.
There were 34 Company-owned units at the end of the second quarter, unchanged
from the end of the first quarter, and an increase of one unit compared to the
end of fiscal 1996. The number of franchised units (61) also remain unchanged
from the first quarter. Two new franchised units opened in the first quarter.
Franchise fees and royalties for the second quarter were even with the same
period last year. For the first half, franchise fees and royalties increased 10%
over last year. This increase was principally due to increased shipments of
chili to franchisees which includes royalties as part of the selling price.
Cost of Sales - Commissary
- --------------------------
Cost of sales for the second quarter was 71% of the corresponding commissary
revenue figure compared to 70% in fiscal 1996. The increased rate was
principally due to higher average beef prices this quarter versus the same
period last year. The year-to-date cost of sales rate was 70% of the
corresponding revenue figure compared to 72% for fiscal 1996. This improved rate
was principally due to higher production levels resulting from increased
shipments of grocery products and restaurant chili, a mix shift to higher margin
products, and lower average beef prices on a year-to-date basis. 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 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 second quarter and first half were 27% and
29%, respectively, of restaurant revenues compared to 30% for the same periods
in fiscal 1996 principally due to the increased sales levels and good controls.
Occupancy and other expenses for the second 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
<PAGE> 8
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the second quarter and first
half increased 7% and 20%, respectively, over the same period last year due to
increased spending on training and development, franchise relations, and legal
and professional fees, and increased bonus levels.
Other Income (Expense)
- ----------------------
Interest expense for the second quarter and first half 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 $1.1 million over fiscal 1996 year end levels to $2.2
million. Working capital was $1.9 million at the end of the second quarter
compared to $1.2 million at the end of fiscal 1996.
During the first half of fiscal 1997, the Company spent approximately $495,000
on equipment replacements, remodels of existing locations and other ongoing
maintenance throughout the system. The Company also spent $90,000 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. During the
second quarter, the Company spent approximately $40,000 toward the construction
of a free-standing unit in Columbus, Ohio expected to be completed during
fiscal 1997. The Company also placed a $5,000 deposit on a parcel of land in
Dayton, Ohio to be purchased for development of a free-standing unit in fiscal
1998. All of these activities were funded by existing cash and cash from
operations. During the second half of fiscal 1997, the Company intends to spend
an additional $520,000 to complete the construction of the free-standing unit in
Columbus, and approximately $1 million to purchase the land and construct
the free-standing unit in Dayton to begin operations early in fiscal 1998. 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
<PAGE> 9
SKYLINE CHILI, INC.
-------------------
Form 10-Q
---------
May 11, 1997
------------
PART II. OTHER INFORMATION
--------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------
(a) The 1997 Annual Meeting of the Shareholders of
Skyline Chili, Inc. (the "Meeting") was held on March
11, 1997. The holders of 2,915,365 shares of the
Company's outstanding common stock (approximately
86%) 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 1998 Annual Meeting
and until their successors are elected and qualified.
The number of votes cast for and withheld with
respect to each nominee for office are indicated
below.
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Lambert N. Lambrinides 2,912,862 2,503
Christie N. Lambrinides 2,913,062 2,303
William N. Lambrinides 2,913,062 2,303
Lawrence R. Burtschy 2,914,215 1,150
David A. Kohnen 2,913,365 2,000
Joseph E. Madigan 2,914,165 1,200
Kevin R. McDonnell 2,914,665 700
</TABLE>
(c) At such Meeting, a proposal to ratify the appointment
of Ernst & Young LLP as the Company's independent
auditors for fiscal 1997 was approved. The number of
votes cast for, against and to abstain on the
proposal and broker non-votes are indicated below.
Broker
Votes For Votes Against Abstentions Non-Votes
-----------------------------------------------------
2,912,100 1,635 1,630 0
<TABLE>
<CAPTION>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------
<S> <C> <C> <C>
(a) Exhibits filed with this Report: Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K: None
</TABLE>
9
<PAGE> 10
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: June 23, 1997
10
<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 OF
AND FOR THE TWENTY-EIGHT WEEKS ENDED MAY 11, 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> 6-MOS
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-START> OCT-28-1996
<PERIOD-END> MAY-11-1997
<CASH> 2,241
<SECURITIES> 0
<RECEIVABLES> 1,121
<ALLOWANCES> 0
<INVENTORY> 1,796
<CURRENT-ASSETS> 5,498
<PP&E> 24,291
<DEPRECIATION> 9,112
<TOTAL-ASSETS> 21,286
<CURRENT-LIABILITIES> 3,634
<BONDS> 5,510
<COMMON> 5,389
0
0
<OTHER-SE> 5,912
<TOTAL-LIABILITY-AND-EQUITY> 21,286
<SALES> 15,877
<TOTAL-REVENUES> 16,609
<CGS> 4,739
<TOTAL-COSTS> 15,521
<OTHER-EXPENSES> 161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 194
<INCOME-PRETAX> 927
<INCOME-TAX> 360
<INCOME-CONTINUING> 567
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 567
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0
</TABLE>
