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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
________________________________________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
________________________________________________________________________________
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
Commission File Number 1-10741
PROVENA FOODS INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2782215
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
5010 EUCALYPTUS AVENUE,
CHINO, CALIFORNIA 91710
- ------------------------------- ---------------------------------------
(Address of principal (ZIP Code)
executive offices)
(909) 627-1082
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
--- ---
The number of shares of Provena Foods Inc. Common Stock outstanding as of the
close of the period covered by this report was:
COMMON STOCK 2,708,311
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PROVENA FOODS INC.
1995 Form 10-Q Third Quarter Report
Table of Contents
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Item Page
- ---- ----
PART I. FINANCIAL INFORMATION
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1. Financial Statements.................................................................. 1
Condensed Statements of Operations................................................... 1
Condensed Balance Sheets............................................................. 2
Condensed Statements of Cash Flows................................................... 3
Notes to Condensed Financial Statements.............................................. 4
(1) Basis of Presentation.......................................................... 4
(2) Inventories.................................................................... 4
2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 4
Results of Operations................................................................ 4
Swiss American Division.............................................................. 4
Royal-Angelus Division............................................................... 5
The Company.......................................................................... 5
Liquidity and Capital Resources...................................................... 6
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PART II. OTHER INFORMATION
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<CAPTION>
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1. Legal Proceedings..................................................................... 6
2. Changes in Securities................................................................. 6
3. Defaults Upon Senior Securities....................................................... 6
4. Submission of Matters to a Vote of Security Holders................................... 6
5. Other Information..................................................................... 6
Common Stock Repurchase and Sale..................................................... 6
American Stock Exchange Listing...................................................... 7
Cash Dividend Paid................................................................... 7
Management Stock Transactions........................................................ 7
6. Exhibits and Reports on Form 8-K...................................................... 7
Signature............................................................................. 7
</TABLE>
ii
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
PROVENA FOODS INC.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $5,619,506 6,620,106 17,338,292 20,219,171
Cost of sales 5,244,627 5,972,434 15,785,551 18,418,020
---------- --------- ---------- ----------
Gross profit 374,879 647,672 1,552,741 1,801,151
Operating expenses:
Distribution 207,973 227,926 675,611 737,386
General and administrative 290,038 277,011 863,074 884,877
---------- --------- ---------- ----------
Operating income (loss) (123,132) 142,735 14,056 178,888
Interest expense, net (20,321) (3,493) (46,882) (9,773)
Other income, net 59,484 38,625 141,351 120,339
---------- --------- ---------- ----------
Earnings (loss) before
income taxes (83,969) 177,867 108,525 289,454
Income tax expense (benefit) (41,000) 67,806 36,000 110,800
---------- --------- ---------- ----------
Net earnings (loss) $ (42,969) 110,061 72,525 178,654
========== ========= ========== ==========
Earnings (loss) per share $(.02) .04 .03 .07
========== ========= ========== ==========
Weighted average number
of shares outstanding 2,706,928 2,671,431 2,702,381 2,663,439
---------- --------- ---------- ----------
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1
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PROVENA FOODS INC.
Condensed Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1995 1994
------ ------------- ------------
<S> <C> <C>
(Unaudited)
Current assets:
Cash and marketable securities $ 8,948 56,593
Accounts receivable, less allowance for doubtful
accounts of $64,500 in 1995 and $17,800 in 1994 2,231,672 2,021,095
Inventories 2,288,957 2,799,819
Prepaid expenses 91,088 58,347
Income taxes receivable 58,464 -
---------- -----------
Total current assets 4,679,129 4,935,854
---------- -----------
Property and equipment (net) 5,166,548 4,070,035
Other assets 42,365 30,412
---------- -----------
$9,888,042 9,036,301
========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Note payable to bank $ 57,357 -
Current portion of long-term debt 8,460 -
Accounts payable 875,858 669,725
Accrued retirement plans 413,411 507,556
Accrued expenses 564,690 522,178
Income taxes payable - 56,306
---------- -----------
Total current liabilities 1,919,776 1,755,765
---------- -----------
Long-term debt, less current portion 962,310 -
Deferred income 28,688 35,667
Shareholders' equity:
Capital stock, no par value, authorized 10,000,000
shares; issued and outstanding 2,708,311 in 1995
and 2,698,642 in 1994 4,062,491 4,041,695
Retained earnings 2,920,240 3,212,912
Note receivable from shareholder (5,463) (9,738)
---------- -----------
Total shareholders' equity 6,977,268 7,244,869
---------- -----------
$9,888,042 9,036,301
========== ===========
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2
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PROVENA FOODS INC.
Condensed Statements of Cash Flows
(Unaudited)
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<CAPTION>
Nine Months Ended
September 30,
----------------------
<S> <C> <C>
1995 1994
Cash flows from operating activities:
Net earnings $ 72,525 178,654
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 404,392 369,567
Increase in accounts receivable (210,577) (85,196)
Decrease (increase) in inventories 510,862 (377,820)
Increase in prepaid expenses (35,543) (27,489)
Decrease (increase) in other assets (11,953) 1,899
Increase in accounts payable 206,133 344,558
Decrease in accrued retirement plans (94,145) (69,344)
Increase in accrued expenses 42,512 84,432
Increase (decrease) in income taxes payable (114,770) 117,770
Decrease in deferred income, net of related
deferred taxes (4,177) (4,177)
----------- --------
Net cash provided by operating activities 765,259 532,854
----------- --------
Cash flows from investing activities:
Addition to property and equipment (1,500,904) (230,498)
----------- --------
Net cash used in investing activities (1,500,904) (230,498)
----------- --------
Cash flows from financing activities:
Increase in long-term debt 970,770 -
Net borrowings of bank credit line 57,357 100,000
Repurchase of capital stock (113,297) (60,686)
Proceeds from sale of capital stock 134,093 131,437
Payments received on note from shareholder 4,275 4,241
Cash dividends paid (365,198) (340,201)
----------- --------
Net cash provided by (used in) financing activities 688,000 (165,209)
----------- --------
Net increase (decrease) in cash and cash equivalents (47,645) 137,147
Cash and cash equivalents at beginning of period 56,593 107,333
----------- --------
Cash and cash equivalents at end of period $ 8,948 244,480
=========== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 47,226 9,773
Income taxes $ 150,087 800
</TABLE>
3
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PROVENA FOODS INC.
Notes to Condensed Financial Statements
September 30, 1995 and 1994
(1) Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with the requirements of Form 10-Q and, therefore, do not include all
information and footnotes which would be presented were such financial
statements prepared in accordance with generally accepted accounting principles.
These statements should be read in conjunction with the audited financial
statements presented in the Company's Form 10-K for the year ended December 31,
1994. In the opinion of management, the accompanying financial statements
reflect all adjustments which are necessary for a fair presentation of the
results for the interim periods presented. Such adjustments consisted only of
normal recurring items. The results of operations for the three months and nine
months ended September 30, 1995 are not necessarily indicative of results to be
expected for the full year.
(2) Inventories
Inventories at September 30, 1995 (unaudited) and December 31, 1994 consist of:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Raw materials $ 710,230 866,608
Work-in-process 509,770 507,127
Finished goods 1,068,957 1,426,084
---------- ---------
$2,288,957 2,799,819
========== =========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Results of Operations September 30, September 30,
------------------ -----------------
(Unaudited) 1995 1994 1995 1994
<S> <C> <C> <C> <C>
(amounts in thousands)
Net sales by division:
SWISS AMERICAN $3,376 $4,237 $ 9,883 $13,570
ROYAL-ANGELUS 2,243 2,383 7,455 6,649
------ ------ ------- -------
Total $5,619 $6,620 $17,338 $20,219
====== ====== ======= =======
Sales in thousands of
pounds by division:
SWISS AMERICAN 2,505 2,867 7,215 9,140
ROYAL-ANGELUS 4,217 4,906 14,255 13,793
</TABLE>
Swiss American Division
Sales by the Swiss American Sausage Co. processed meat division decreased about
27% in dollars and 21% in pounds in the 1st nine months of 1995 over the same
period in 1994. Sales in dollars decreased proportionately more than in pounds
because of lower selling prices reflecting lower meat costs. Although Swiss's
sales were down for both the 3rd quarter and 1st nine months of 1995 compared to
the same periods of 1994, Swiss's sales in both dollars and
4
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pounds were up slightly in the 3rd quarter of 1995 compared to the 2nd quarter
of 1995. Swiss's loss for the 3rd quarter of 1995 was slightly greater than its
loss for the 3rd quarter of 1994 and its loss for the 2nd quarter of 1995.
Swiss's declining sales and increasing losses are attributed to industry factors
which have caused many meat processing companies to cease business or go
bankrupt. Swiss is actively seeking to identify and combine Swiss with all or a
part of a meat processing business complementary to Swiss which would result in
a profitable meat processing business.
Plant employees are represented by United Food & Commercial Workers Union, Local
101, UFCWI, AFL-CIO-CLC, under a collective bargaining agreement which expired
March 31, 1995 and was renewed July 10, 1995 to expire March 31, 1998. There
has been no significant labor unrest at the division's plants and the Company
believes it has a satisfactory relationship with its employees.
Royal-Angelus Division
The Royal-Angelus Macaroni Company pasta division's sales increased about 12% in
dollars and 3% in pounds in the 1st nine months of 1995 compared to the same
period of 1994 but decreased 6% in dollars and 13% in pounds in the 3rd quarter
of 1995 versus the 3rd quarter of 1994. Sales in dollars increased more or
decreased less than in pounds because of a higher proportion of sales of
specialty rather than bulk products in the 3rd quarter of 1995.
Royal's operating profit for the 1st nine months of 1995 was slightly lower than
the 1st nine months of 1994 because of a substantial decline in operating profit
in the 3rd quarter of 1995 compared to the 3rd quarter of 1994. The decline in
the 3rd quarter was caused by lower margins resulting from higher semolina flour
prices and increased production overhead.
The Company
Company sales for the 1st nine months of 1995 were down 14% over the 1st nine
months of 1994 and were down about the same percentage in each of the three
quarters of 1995. Net earnings for the 1st nine months of 1995 were $72,525,
down from $178,654 for the 1st nine months of 1994. The declines in sales and
net earnings resulted primarily from declines at the meat division. The Company
operated at a $42,969 loss in the 3rd quarter of 1995, its 1st quarterly loss
after seven profitable quarters. Margins for the 1st nine months of 1995 were
9% compared to 8.9% last year. The slight increase in Company margins resulted
from an increased proportion of Company sales by Royal which has higher margins
than Swiss, and occurred even though margins at both divisions declined.
Administrative expense was down about $22,000 for the 1st nine months of 1995
compared to the same period in 1994, primarily due to reductions in officer and
clerical payroll and directors fees, offset by an increase in bad debt expense.
Administrative expense was up about $13,000 in the 3rd quarter of 1995 compared
to the 3rd quarter of 1994, primarily because of increases in health claims and
bad debt expense. Distribution expense was down about 9% compared to a 14%
decrease in sales in both the 1st nine months and the 3rd quarter of 1995
compared to last year. The decreases were less than proportionate mainly
because salesman payroll did not decrease and the Company bore the freight cost
on a higher proportion of sales at both divisions. Net interest expense
increased due to interest on the term loan used to purchase the building
adjacent to the pasta plant.
5
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Liquidity and Capital Resources
The Company has generally satisfied its normal working capital requirements with
funds derived from operations and borrowings under its bank line of credit. At
September 30, 1995, the Company had $57,357 of borrowings under its $2,000,000
unsecured bank line of credit with Wells Fargo Bank, NA. The line was renewed
in May 1995 to expire June 1, 1996, and bears interest at a variable rate of
3/8% over prime. The line as renewed prohibits mergers, acquisitions, lending,
borrowing, guaranteeing, annual capital expenditures over $500,000 and new
annual lease obligations over $100,000 and requires a minimum tangible net worth
of $6,890,000, a maximum debt to tangible net worth ratio of 0.75, a minimum
debt coverage ratio of 1.75, profitable operations on a cumulative quarterly
basis and a zero balance for 30 days during the term. The last requirement was
fulfilled during the 3rd quarter. In April 1995, Wells Fargo Bank, NA made a 5
year term loan of $975,000 to the Company to purchase the building adjacent to
the pasta plant, secured by the building, bearing interest at 2% over LIBOR,
with a $970,770 balance at September 30, 1995, including the $8,460 current
portion.
Cash decreased $47,645 in the 1st nine months of 1995 compared to an increase of
$137,147 in the 1st nine months of 1994. Operations provided $765,259 of cash
compared to $532,854 provided in the 1st nine months of 1994, the improvement
resulting primarily from a decrease in inventories. The improvement in cash
from operations was more than offset by the cash portion of the purchase price
of the building adjacent to the pasta plant.
The Company believes that its operations and bank line of credit will provide
adequate working capital to satisfy the normal needs of its operations for the
foreseeable future.
The Company has no long-term debt, except the $970,770 secured by the building
adjacent to the pasta plant. All of its other assets are unencumbered, and
could be borrowed against as a source of liquidity if an unforeseen need arises.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS No significant litigation.
ITEM 2. CHANGES IN SECURITIES None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None.
ITEM 5. OTHER INFORMATION
Common Stock Repurchase and Sale
During the 1st nine months of 1995 the Company purchased 40,243 shares of its
common stock under its stock repurchase program.
Also during the 1st nine months of 1995 the Company sold 44,732 newly issued
shares of its common stock under its 1988 Employee Stock Purchase Plan, at an
average selling price of
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$2.59 per share. From inception of the Plan through September 30, 1995,
employees have purchased a total of 279,499 shares.
In addition, during the 3rd quarter of 1995 under the Company's Incentive Stock
Option Plan, the Company sold 5,440 newly issued shares for $2.25 per share on
exercise of options and received 3,000 shares in payment of the exercise price
of options at the fair market value of $3.00 per share.
American Stock Exchange Listing
The Company's stock trades on the American Stock Exchange under the ticker
symbol "PZA".
Cash Dividend Paid
A cash dividend of $0.045 per share was paid September 30, 1995.
Management Stock Transactions
During the quarter ended September 30, 1995, James P. McClune, General Manager
of the pasta division and a vice president and director of the Company,
purchased 5,000 shares of the Company's common stock, including 4,000 by
exercise of stock options, and Thomas J. Mulroney, Chief Financial Officer, vice
president and director of the Company, purchased 1,440 shares by exercise of
stock options. No other purchases and no sales of the Company's common stock by
officers or directors during the 3rd quarter of 1995 were reported, except Mr.
McClune used 3,000 shares to pay the exercise price of stock options.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are filed with this report except Exhibit 27 - the EDGAR
Financial Data Schedule, which is not included in copies of this report
distributed by the Company.
(b) No reports on Form 8-K were filed during the three months ended September
30, 1995.
SIGNATURE
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: October 31, 1995 PROVENA FOODS INC.
By /s/ THOMAS J. MULRONEY
--------------------------
Thomas J. Mulroney
Vice President and
Chief Financial Officer
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> (11,376)
<SECURITIES> 20,324
<RECEIVABLES> 2,296,172
<ALLOWANCES> 64,500
<INVENTORY> 2,288,957
<CURRENT-ASSETS> 4,679,129
<PP&E> 9,037,083
<DEPRECIATION> 3,870,535
<TOTAL-ASSETS> 9,888,042
<CURRENT-LIABILITIES> 1,919,776
<BONDS> 962,310
<COMMON> 4,062,491
0
0
<OTHER-SE> 2,914,777
<TOTAL-LIABILITY-AND-EQUITY> 9,888,042
<SALES> 17,338,292
<TOTAL-REVENUES> 17,479,643
<CGS> 15,785,551
<TOTAL-COSTS> 1,538,865
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,882
<INCOME-PRETAX> 108,525
<INCOME-TAX> 36,000
<INCOME-CONTINUING> 72,525
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,525
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
