<PAGE>
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 JUNE 30, 1995
Commission File Number 1-10741
PROVENA FOODS INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2782215
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
5010 EUCALYPTUS AVENUE, CHINO, CALIFORNIA 91710
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(Address of principal executive offices) (ZIP Code)
(909) 627-1082
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(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 2,705,593
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PROVENA FOODS INC.
1995 Form 10-Q Second Quarter Report
Table of Contents
-----------------
<TABLE>
<CAPTION>
Item Page
- ---- ----
PART I. FINANCIAL INFORMATION
-----------------------------
<S> <C>
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...................................................... 5
PART II. OTHER INFORMATION
--------------------------
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.................................................................... 7
Common Stock Repurchase and Sale................................................... 7
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>
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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 Six Months Ended
June 30, June 30,
------------------------- --------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $5,880,402 6,819,377 11,718,786 13,599,065
Cost of sales 5,309,734 6,234,607 10,540,924 12,445,586
---------- --------- ---------- ----------
Gross profit 570,668 584,770 1,177,862 1,153,479
Operating expenses:
Distribution 257,232 254,829 467,638 509,460
General and administrative 291,004 314,230 573,036 607,866
---------- --------- ---------- ---------
Operating income 22,432 15,711 137,188 36,153
Interest expense, net 28,383 5,007 26,561 6,280
Other income, net 61,673 41,331 81,867 81,714
---------- --------- ---------- ---------
Earnings before
income taxes 55,722 52,035 192,494 111,587
Income tax expense 22,500 19,294 77,000 42,994
---------- --------- ---------- ---------
Net earnings $ 33,222 32,741 115,494 68,593
========== ========= ========== =========
Earnings per share $ .01 .01 .04 .03
========== ========= ========== =========
Weighted average number
of shares outstanding 2,702,561 2,662,270 2,700,069 2,659,377
---------- --------- ---------- ---------
</TABLE>
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<PAGE>
PROVENA FOODS INC.
Condensed Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1995 1994
------ --------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and marketable securities $ 128,002 56,593
Accounts receivable, less allowance for doubtful
accounts of $39,500 in 1995 and $17,800 in 1994 1,976,808 2,021,095
Inventories 2,676,802 2,799,819
Prepaid expenses 95,475 58,347
Income taxes receivable 17,464 --
----------- ---------
Total current assets 4,894,551 4,935,854
----------- ---------
Property and equipment (net) 5,131,955 4,070,035
Other assets 52,916 30,412
----------- ---------
$10,079,422 9,036,301
=========== =========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Note payable to bank $ 114,135 --
Current portion of long-term debt 8,460 --
Accounts payable 910,741 669,725
Accrued retirement plans 276,836 507,556
Accrued expenses 637,327 578,484
----------- ---------
Total current liabilities 1,947,499 1,755,765
----------- ---------
Long-term debt, less current portion 964,425 --
Deferred income 31,014 35,667
Shareholders' equity:
Capital stock, no par value, authorized 10,000,000
shares; issued and outstanding 2,705,593 in 1995
and 2,698,642 in 1994 4,057,887 4,041,695
Retained earnings 3,085,101 3,212,912
Note receivable from shareholder (6,504) (9,738)
----------- ---------
Total shareholders' equity 7,136,484 7,244,869
----------- ---------
$10,079,422 9,036,301
=========== =========
</TABLE>
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<PAGE>
PROVENA FOODS INC.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 115,494 68,593
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 265,001 244,469
Decrease in accounts receivable 44,287 15,245
Decrease (increase) in inventories 123,017 (606,500)
Increase in prepaid expenses (38,994) (57,355)
Decrease (increase) in other assets (22,504) 6,266
Increase in accounts payable 241,016 142,863
Decrease in accrued retirement plans (230,720) (201,712)
Increase in accrued expenses 58,843 22,198
Increase (decrease) in income taxes payable (17,464) 49,964
Decrease in deferred income, net of related
deferred taxes (2,785) (2,785)
--------- ---------
Net cash provided by (used in)
operating activities 535,191 (318,754)
--------- ---------
Cash flows from investing activities:
Addition to property and equipment (1,326,921) (149,181)
---------- ---------
Net cash used in investing activities (1,326,921) (149,181)
---------- ---------
Cash flows from financing activities:
Increase in long-term debt 972,885 --
Net borrowings of bank credit line 114,135 565,423
Repurchase of capital stock (68,513) (35,167)
Proceeds from sale of capital stock 84,704 73,316
Payments received on note from shareholder 3,234 2,828
Cash dividends paid (243,306) (226,296)
---------- ---------
Net cash provided by financing activities 863,139 380,104
---------- ---------
Net increase (decrease) in cash and cash equivalents 71,409 (87,831)
Cash and cash equivalents at beginning of period 56,593 107,333
---------- ---------
Cash and cash equivalents at end of period $ 128,002 19,502
========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 26,979 7,957
Income taxes $ 95,630 800
</TABLE>
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<PAGE>
PROVENA FOODS INC.
Notes to Condensed Financial Statements
June 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 six
months ended June 30, 1995 are not necessarily indicative of results to be
expected for the full year.
(2) Inventories
- ---------------
Inventories at June 30, 1995 (unaudited) and December 31, 1994 consist of:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Raw materials $ 943,940 866,608
Work-in-process 441,561 507,127
Finished goods 1,291,301 1,426,084
---------- ---------
$2,676,802 2,799,819
========== =========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
<TABLE>
<CAPTION>
Results of Operations Three Months Ended Six Months Ended
- ---------------------- June 30, June 30,
------------------ ------------------
(Unaudited) 1995 1994 1995 1994
(amounts in thousands)
<S> <C> <C> <C> <C>
Net sales by division:
Swiss American $3,153 $4,501 $ 6,507 $ 9,333
Royal-Angelus 2,727 2,318 5,212 4,266
------ ------ ------- -------
Total $5,880 $6,819 $11,719 $13,599
====== ====== ======= =======
Sales in thousands of
pounds by division:
Swiss American 2,305 3,015 4,710 6,273
Royal-Angelus 5,352 4,333 10,038 8,038
</TABLE>
Swiss American Division
- -----------------------
Sales by the processed meat division decreased about 30% in dollars and 25% in
pounds in the 1st six 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. Swiss's sales decrease reflects an
underlying long-term erosion in sales at Swiss attributed to industry factors.
Swiss has attracted and retained new business but not enough to reverse the
underlying erosion.
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Swiss's loss for the 2nd quarter of 1995 exceeded its loss for the 2nd quarter
of 1994 and its loss for the 1st quarter of 1995.
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 pasta division's sales increased about 22% in dollars and 25% in pounds in
1995's 1st half compared to the 1st half of 1994. The sales increase in dollars
was proportionately lower than in pounds because of a higher proportion of sales
of bulk rather than specialty products in the 2nd quarter of 1995. Royal's
profit for the 2nd quarter of 1995 exceeded its profit for the 2nd quarter of
1994 and for the 1st quarter of 1995.
The Company
- -----------
Company sales were down 14% in the 1st half of 1995 compared to the 1st half of
1994 and were down the same percentage in each of the 1st and 2nd quarters of
1995 compared to the same quarters of 1994. Earnings for the 1st half were up
significantly but most of the increase was attributable to the 1st quarter of
1995 since earnings for the 2nd quarter increased only slightly because of
decreased sales and margins at Swiss caused by competitive pressure. Sales at
Royal increased but were more than offset by declines at Swiss. Losses at Swiss
continued but were offset by profits at Royal. Margins for the 1st half of 1995
were 10% compared to 8.5% a year ago, but were 9.7% for the 2nd quarter compared
to 8.6% last year. The main cause of the increase in Company margins over a year
ago is an increased proportion of Company sales by Royal which has higher
margins than Swiss. The decline in margins from the 1st quarter to the 2nd
quarter of 1995 was caused by a decline in margins at Swiss.
Administrative expense was down about $35,000 for the 1st half of 1995 compared
to the same period in 1994, primarily due to reductions in officer payroll,
health claims and outside services, offset by an increase in bad debt expense.
The increase in bad debt expense resulted from accrual of a reserve based on
prior years' experience. Distribution expense was down over $40,000 or 8%
compared to a 14% decrease in sales. The decrease was less than proportionate
because of an increase in sales at a delivered price at both divisions in the
2nd quarter of 1995. Net interest expense increased due to interest on the term
loan used to purchase the building adjacent to the pasta plant.
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
June 30, 1995, the Company had $114,135 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, 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 and prohibits mergers, acquisitions, lending, borrowing,
guaranteeing, annual capital expenditures over $500,000 and new annual lease
obligations over $100,000.
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<PAGE>
On April 7, 1995, the Company purchased the building adjacent to the pasta plant
for $1,270,500, borrowing $975,000 from Wells Fargo Bank, NA under a 5 year term
loan secured by the building, bearing interest at 2% over 90 day LIBOR. At June
30, 1995 the balance of the term loan was $972,885, including the $8,460 current
portion.
Cash increased $71,000 in the 1st half of 1995 compared to a decrease of $88,000
in the 1st half of 1994, a $159,000 improvement. Operations provided $535,000 of
cash compared to $319,000 used in operations last year, an $854,000 improvement
resulting primarily from differences in earnings, inventories and payables. The
improvement in cash from operations was reduced by the net effect of the
increase in investing and financing activities resulting from the purchase 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 $972,885 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
The Company held its annual meeting of shareholders on Tuesday, April 25, 1995,
at 11:00 a.m. at the Company's principal office. Shareholders representing
2,554,500 or 94.7% of the 2,698,696 shares entitled to vote were present in
person or by proxy, with 27,327 broker non-votes. The following persons were
nominated and elected directors, with votes for, withheld from specified
nominees, or without authority to vote for directors, as indicated:
<TABLE>
<CAPTION>
Without
Nominee For Withheld Authority
------- --- -------- ---------
<S> <C> <C> <C>
John D. Determan 2,547,792 -0- 6,708
Theodore L. Arena 2,547,792 -0- 6,708
Ronald A. Provera 2,547,192 600 6,708
Santo Zito 2,547,792 -0- 6,708
Thomas J. Mulroney 2,547,792 -0- 6,708
James P. McClune 2,546,492 1,300 6,708
Louis A. Arena 2,545,692 100 6,708
Joseph W. Wolbers 2,547,792 -0- 6,708
John M. Boukather 2,547,792 -0- 6,708
</TABLE>
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<PAGE>
ITEM 5. OTHER INFORMATION
Common Stock Repurchase and Sale
- --------------------------------
During the 1st six months of 1995 the Company purchased 26,600 shares of its
common stock under its stock repurchase program.
Also during the 1st six months of 1995 the Company sold 30,811 newly issued
shares of its common stock under its 1988 Employee Stock Purchase Plan, at an
average selling price of $2.55 per share. From inception of the Plan through
June 30, 1995, employees have purchased a total of 260,566 shares. In addition,
the Company sold 2,740 newly issued shares during the 2nd quarter of 1995 for
$2.25 per share pursuant to the exercise of incentive stock options.
American Stock Exchange Listing
- -------------------------------
The Company's common stock trades on the American Stock Exchange under the
ticker symbol "PZA".
Cash Dividends Paid
- -------------------
A cash dividend of $0.045 per share was paid June 30, 1995.
Management Stock Transactions
- -----------------------------
During the quarter ended June 30, 1995, Santo Zito, a vice president and
director of the Company, purchased 4,600 shares of the Company's common stock
and Thomas J. Mulroney, Chief Financial Officer and director, purchased 2,740
shares by exercise of incentive stock options. No other purchases and no sales
of the Company's common stock by officers or directors during the 2nd quarter of
1995 were reported.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months ended June 30,
1995, except a Form 8-K in April for the April 7, 1995 purchase of the building
adjacent to the pasta plant.
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: August 2, 1995 PROVENA FOODS INC.
By /s/ Thomas J. Mulroney
--------------------------------
Thomas J. Mulroney
Vice President and
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 107,678
<SECURITIES> 20,324
<RECEIVABLES> 1,976,808
<ALLOWANCES> 0
<INVENTORY> 2,676,802
<CURRENT-ASSETS> 4,894,551
<PP&E> 8,863,100
<DEPRECIATION> 3,731,145
<TOTAL-ASSETS> 10,079,422
<CURRENT-LIABILITIES> 1,944,679
<BONDS> 0
<COMMON> 4,057,887
0
0
<OTHER-SE> 3,078,597
<TOTAL-LIABILITY-AND-EQUITY> 10,079,422
<SALES> 11,718,786
<TOTAL-REVENUES> 11,800,653
<CGS> 10,540,924
<TOTAL-COSTS> 1,040,674
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,561
<INCOME-PRETAX> 192,494
<INCOME-TAX> 77,000
<INCOME-CONTINUING> 115,494
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,494
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
