<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, 1996
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 incorporation or (I.R.S. employer
organization) identification number)
5010 Eucalyptus Avenue, Chino, California 91710
- ------------------------------------------------- ----------------------------
(Address of principal executive offices) (ZIP Code)
(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 business covered by this report was:
COMMON STOCK 2,762,800
<PAGE>
[CAPTION]
<TABLE>
PROVENA FOODS INC.
1996 Form 10-Q Second Quarter Report
Table of Contents
-----------------
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
Resignation of James P. McClune.................................... 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>
<PAGE>
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,
------------------ ----------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $7,443,315 5,880,402 13,316,996 11,718,786
Cost of sales 6,668,296 5,309,734 12,133,667 10,540,924
---------- --------- ---------- ----------
Gross profit 775,019 570,668 1,183,329 1,177,862
Operating expenses:
Distribution 221,509 257,232 417,651 467,638
General and administrative 316,308 291,004 630,931 573,036
---------- --------- ---------- ----------
Operating income 237,202 22,432 134,747 137,188
Interest expense, net 22,236 28,383 42,028 26,561
Other income, net 27,788 61,673 58,074 81,867
---------- --------- ---------- ----------
Earnings before
income taxes 242,754 55,722 150,793 192,494
Income tax expense 90,200 22,500 59,000 77,000
---------- --------- ---------- ----------
Net earnings $ 152,554 33,222 91,793 115,494
========== ========= ========== ==========
Earnings per share $ .05 .01 .03 .04
========== ========= ========== ==========
Weighted average number
of shares outstanding 2,758,002 2,702,561 2,751,709 2,700,069
---------- --------- ---------- ----------
</TABLE>
-1-
<PAGE>
PROVENA FOODS INC.
Condensed Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Assets
------
Current assets:
Cash and marketable securities $ 235,012 350,843
Accounts receivable, less allowance for doubtful
accounts of $86,466 in 1996 and $54,700 in 1995 2,249,623 2,199,671
Inventories 2,286,299 2,297,322
Prepaid expenses 91,163 67,053
Income taxes receivable -- 2,342
---------- ----------
Total current assets 4,862,097 4,917,231
---------- ----------
Property and equipment (net) 4,924,882 5,082,899
Other assets 89,994 49,384
---------- ----------
$9,876,973 10,049,514
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $ 8,460 8,460
Accounts payable 1,086,660 793,755
Accrued expenses 818,351 1,283,026
Income taxes payable 29,057 --
---------- ----------
Total current liabilities 1,942,528 2,085,241
---------- ----------
Deferred income 35,264 89,004
Long-term debt, less current portion 955,965 960,195
Shareholders' equity:
Capital stock, no par value, authorized 10,000,000
shares; issued and outstanding 2,762,800 in 1996
and 2,738,631 in 1995 4,175,196 4,104,173
Retained earnings 2,768,083 2,814,169
Note receivable from shareholder (63) (3,268)
---------- ----------
Total shareholders' equity 6,943,216 6,915,074
---------- ----------
$9,876,973 10,049,514
========== ==========
</TABLE>
-2-
<PAGE>
PROVENA FOODS INC.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 91,793 115,494
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 290,181 265,001
Provision for bad debts 31,766 21,700
Decrease (increase) in accounts receivable (81,718) 22,587
Decrease in inventories 11,023 123,017
Decrease in income taxes receivable 2,342 --
Increase in prepaid expenses (24,110) (38,994)
Increase in other assets (40,610) (22,504)
Increase in accounts payable 292,905 241,016
Decrease in accrued expenses (464,675) (171,877)
Increase (decrease) in income taxes payable 29,057 (17,464)
Decrease in deferred income (53,740) (2,785)
-------- --------
Net cash provided by
operating activities 84,214 535,191
-------- --------
Cash flows from investing activities:
Addition to property and equipment (132,164) (351,921)
-------- --------
Net cash used in investing activities (132,164) (351,921)
-------- --------
Cash flows from financing activities:
Net borrowings of bank credit line -- 114,135
Payments on note payable to bank (4,230) (2,115)
Repurchase of capital stock -- (68,513)
Proceeds from sale of capital stock 71,023 84,704
Payments received on note from shareholder 3,205 3,234
Cash dividends paid (137,879) (243,306)
-------- --------
Net cash used by financing activities (67,881) (111,861)
-------- --------
Net increase (decrease) in cash and cash
equivalents (115,831) 71,409
Cash and cash equivalents at beginning of period 350,843 56,593
-------- --------
Cash and cash equivalents at end of period $235,012 128,002
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 44,157 26,979
Income taxes $ 27,600 95,630
</TABLE>
-3-
<PAGE>
PROVENA FOODS INC.
Notes to Condensed Financial Statements
June 30, 1996 and 1995
(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,
1995. 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, 1996 are not necessarily indicative of results to be
expected for the full year.
(2) Inventories
- ---------------
Inventories at June 30, 1996 (unaudited) and December 31, 1995 consist of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 721,893 797,990
Work-in process 733,888 575,957
Finished goods 830,518 923,375
---------- ---------
$2,286,299 2,297,322
========== =========
</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) 1996 1995 1996 1995
(amounts in thousands)
<S> <C> <C> <C> <C>
Net sales by division:
SWISS AMERICAN $5,079 $3,153 $ 8,642 $ 6,507
ROYAL-ANGELUS 2,364 2,727 4,675 5,212
------ ------ ------- -------
Total $7,443 $5,880 $13,317 $11,719
====== ====== ======= =======
Sales in thousands of
pounds by division:
SWISS AMERICAN 3,571 2,305 6,092 4,710
ROYAL-ANGELUS 4,600 5,352 8,960 10,038
</TABLE>
Swiss American Sausage Co. Meat Division
- ----------------------------------------
Sales by the processed meat division increased about 33% in dollars and 29% in
pounds in the 1st six months of 1996 and increased 61% in dollars and 55% in
pounds in the 2nd quarter of 1996, compared to the same periods of 1995. Sales
in dollars increased proportionately more than in pounds because of higher
selling prices reflecting increasing meat costs. Swiss's sales are higher
because of special pizza chain orders continuing into the 3rd quarter of 1996.
Swiss made a substantial profit for the 2nd quarter and a nominal profit for the
1st half of 1996.
-4-
<PAGE>
Plant employees are represented by United Food and Commercial Workers Union
Local 101, AFL-CIO, under a collective bargaining agreement 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 Macaroni Company Pasta Division
- ---------------------------------------------
The pasta division's sales this year decreased about 10% in dollars and 11% in
pounds in the 1st half and decreased 13% in dollars and 14% in pounds in the 2nd
quarter, compared to the same periods last year, primarily because of lower
military sales. The sales decreases in dollars were proportionately lower than
in pounds because of higher prices due to higher flour costs. Royal's sales in
the 1st half of last year were up more than 20% over the 1st half of 1994,
partly due to a high volume of military sales. Sales for the 1st half of 1996
are about 10% higher than the 1st half of 1994, and sales for the 2nd quarter of
1996 are up over the 1st quarter. Royal's profit for the 2nd quarter of 1996
improved over the 1st quarter of 1996, but for both the 2nd quarter and the 1st
half of 1996 were substantially below the same periods of 1995.
The Company
- -----------
Company sales were up 14% in the 1st half of 1996 compared to the 1st half of
1995 and were up 27% in the 2nd quarter of 1996 compared to the 2nd quarter of
1995. Net earnings for the 2nd quarter of 1996 were $152,554 compared to $33,222
a year ago, but as a result of the 1st quarter loss, earnings for the 1st half
of 1996 were only $91,793 compared to $115,494 last year. Margins for the 1st
half of 1996 were 9% compared to 10% a year ago, but margins of 10.4% for the
2nd quarter of 1996 improved over both 9.7% for the 2nd quarter of 1995 and 7%
for the 1st quarter of 1996. Both divisions contributed to the margin
improvement.
Administrative expense was up about $58,000 for the 1st half of 1996 compared to
the same period in 1995, primarily due to increased health claims, consulting
fees for seeking a merger partner for Swiss, accrual of an increased reserve
against bad debts and the cost of mandatory electronic filing of reports with
the SEC. Distribution expense was down $50,000 despite higher sales because
Swiss's salesmen payroll decreased and Royal's customers bore the freight on a
higher proportion of sales. Net interest expense increased due to interest on
the term loan used to purchase the 2nd Royal building. Other income decreased
because a lease of a vacant lot being sublet and a space sharing arrangement at
Swiss both ended.
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, 1996, the Company had no borrowings under its $2,000,000 unsecured
bank line of credit with Wells Fargo Bank, NA. The line was renewed in May 1996
to expire June 1, 1997, and bears interest at a variable rate of 3/8% over
prime. The line provides that if a financial covenant is violated, the Company
agrees to grant the bank a security interest in receivables, inventories and
equipment. The line 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
$6,790,000, a maximum debt to tangible net worth ratio of 0.75, a minimum debt
coverage ratio of 1.75, a minimum current ratio of 2, profitable operations on a
cumulative quarterly basis and a zero balance for 30 days during the term. The
last requirement was fulfilled in early July 1996. The Company is not in
violation of any financial covenants.
-5-
<PAGE>
In April 1995, Wells Fargo Bank, NA made a 5 year term loan of $975,000 to the
Company to purchase the 2nd Royal building, secured by the building, bearing
interest at 2% over the bank's "LIBOR," with a $964,425 balance at June 30,
1996, including the $8,460 current portion. The pasta division occupies 40% of
the building and 60% is leased to a tenant.
The Company's cash position of $235,012 at the end of the 1st half of 1996
improved over the $128,002 a year ago, with no net borrowings under the bank
line this year compared to $114,000 last year. Cash decreased $116,000 in the
1st half of 1996 compared to an increase of $71,000 in the 1st half of 1995
because operating cash flow declined $451,000 primarily on a larger decrease in
accrued expenses. Accrued expenses and cash were higher than usual at the end
of 1995 and are now at more normal levels. Operating cash flow was also reduced
by higher receivables and a smaller decrease in inventories, both resulting from
higher sales.
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 $964,425 secured by the 2nd Royal
building. All of its other assets are currently unencumbered.
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 23, 1996,
at 11:00 a.m. at the Company's principal office. Shareholders representing
1,794,772 or 65.3% of the 2,698,696 shares entitled to vote were present in
person or by proxy, with 97,785 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 1,780,490 -0- 14,272
Theodore L. Arena 1,776,790 3,700 14,272
Ronald A. Provera 1,779,890 600 14,272
Santo Zito 1,780,490 -0- 14,272
Thomas J. Mulroney 1,780,490 -0- 14,272
James P. McClune 1,492,260 288,230 14,272
Louis A. Arena 1,780,490 -0- 14,272
Joseph W. Wolbers 1,491,660 288,830 14,272
John M. Boukather 1,491,660 289,230 14,272
</TABLE>
-6-
<PAGE>
ITEM 5. OTHER INFORMATION
Resignation of James P. McClune
- -------------------------------
James P. McClune resigned on June 28, 1996 as officer and director and general
manager of the pasta division. His compensation will continue through the end
of the year. Mr. McClune saw the pasta division grow to a profitable division
and established the standards and procedures to produce a large variety of
quality pastas with minimum lead times and short production runs.
Common Stock Repurchase and Sale
- --------------------------------
During the 1st half of 1996 the Company sold 24,169 newly issued shares of its
common stock under its 1988 Employee Stock Purchase Plan, at an average selling
price of $2.94 per share. From inception of the Plan through June 30, 1996,
employees have purchased a total of 375,880 shares. The Company did not
purchase any of its shares during the 1st half of 1996 under its stock
repurchase program.
American Stock Exchange Listing
- -------------------------------
The Company's stock trades on the American Stock Exchange under the ticker
symbol "PZA".
Cash Dividends Paid
- -------------------
A cash dividend of $0.025 per share was paid June 30, 1996.
Management Stock Transactions
- -----------------------------
No purchases or sales of the Company's common stock by officers or directors
were reported during the 2nd quarter of 1996, except 13 shares purchased by John
M. Boukather, director, under a broker's dividend reinvestment program.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The only exhibit filed with this report is the EDGAR Financial Data Schedule
of Exhibit 27.
(b) No reports on Form 8-K were filed during the three months ended June 30,
1996.
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: July 30, 1996 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 214,688
<SECURITIES> 20,324
<RECEIVABLES> 2,336,089
<ALLOWANCES> 86,466
<INVENTORY> 2,286,299
<CURRENT-ASSETS> 4,862,097
<PP&E> 9,221,003
<DEPRECIATION> 4,296,121
<TOTAL-ASSETS> 9,876,973
<CURRENT-LIABILITIES> 1,942,528
<BONDS> 955,965
0
0
<COMMON> 4,175,196
<OTHER-SE> 2,768,020
<TOTAL-LIABILITY-AND-EQUITY> 9,876,973
<SALES> 13,316,996
<TOTAL-REVENUES> 13,375,070
<CGS> 12,133,667
<TOTAL-COSTS> 1,048,582
<OTHER-EXPENSES> 3,924
<LOSS-PROVISION> 34,000
<INTEREST-EXPENSE> 42,188
<INCOME-PRETAX> 150,793
<INCOME-TAX> 59,000
<INCOME-CONTINUING> 91,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91,793
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
