<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTER ENDED MARCH 31, 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 (I.R.S. employer
of incorporation or organization) identification number)
5010 EUCALYPTUS AVENUE, CHINO, CALIFORNIA 91710
- ----------------------------------------- ---------------------------------
(Address of principal executive (ZIP Code)
offices)
(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 business of the period covered by this report was:
COMMON STOCK 2,749,289
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PROVENA FOODS INC.
1996 Form 10-Q First Quarter Report
Table of Contents
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<CAPTION>
Item Page
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<C> <S> <C>
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 Sausage Co. Meat Division............... 4
Royal-Angelus Macaroni Company Pasta Division.......... 5
The Company............................................ 5
Liquidity and Capital Resources........................ 5
PART II. OTHER INFORMATION
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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 Dividends 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
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ITEM I. FINANCIAL STATEMENTS
PROVENA FOODS INC.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1996 1995
<S> <C> <C>
Net sales $5,873,681 5,838,384
Cost of sales 5,465,371 5,231,190
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Gross profit 408,310 607,194
Operating expenses:
Distribution 196,142 210,406
General and administrative 314,623 282,032
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Operating profit (loss) (102,455) 114,756
Interest income (expense), net (19,792) 1,822
Other income, net 30,286 20,194
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Earnings before income taxes (91,961) 136,772
Income tax expense (benefit) (31,200) 54,500
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Net earnings (loss) $ (60,761) 82,272
========== =========
Earnings (loss) per share $ (.02) .03
========== =========
Weighted average number of shares outstanding 2,745,416 2,697,550
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</TABLE>
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PROVENA FOODS INC.
Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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(Unaudited)
<S> <C> <C>
Assets
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Current assets:
Cash and marketable securities $ 23,265 350,843
Accounts receivable, less allowance for doubtful
accounts of $71,700 in 1996 and $54,700 in 1995 1,925,878 2,199,671
Inventories 2,832,408 2,297,322
Prepaid expenses 118,563 67,053
Income taxes receivable 33,542 2,342
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Total current assets 4,933,656 4,917,231
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Property and equipment (net) 5,104,619 5,082,899
Other assets 91,250 49,384
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$10,129,525 10,049,514
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Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current portion of long term debt $ 8,460 8,460
Note payable to bank 39,686 --
Accounts payable 1,183,836 793,755
Accrued expenses 1,052,255 1,283,026
----------- ----------
Total current liabilities 2,284,237 2,085,241
----------- ----------
Deferred income 65,658 89,004
Long-term debt, net of current portion 957,375 960,195
Shareholders' equity:
Capital stock, no par value, authorized 10,000,000
shares; issued and outstanding 2,749,289 in 1996
and 2,738,631 in 1995 4,139,303 4,104,173
Retained earnings 2,684,598 2,814,169
Note receivable from shareholder (1,646) (3,268)
----------- ----------
Total shareholders' equity 6,822,255 6,915,074
----------- ----------
$10,129,525 10,049,514
=========== ==========
</TABLE>
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PROVENA FOODS INC.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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<S> <C> <C>
1996 1995
Cash flows from operating activities:
Net earnings (loss) $ (60,761) 82,272
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 145,067 129,721
Provision for bad debts 17,000 10,500
Decrease (increase) in accounts receivable 256,793 (223,020)
Increase in inventories (535,086) (105,765)
Increase in prepaid expenses (51,510) (91,762)
Decrease (increase) in income taxes receivable (31,200) 62,569
Increase in other assets (41,866) (4,367)
Increase in accounts payable 390,081 313,494
Decrease in accrued expenses (230,771) (311,347)
Decrease in deferred income (23,346) (1,393)
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Net cash used in operating activities (165,599) (139,098)
--------- --------
Cash flows from investing activities:
Additions to property and equipment (166,787) (24,525)
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Net cash used in investing activities (166,787) (24,525)
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Cash flows from financing activities:
Net borrowings on bank credit line 39,686 526,113
Payments on note payable to bank (2,820) --
Repurchase of capital stock -- (45,725)
Proceeds from sale of capital stock 35,130 35,801
Payments received on note from shareholder 1,622 1,617
Cash dividends paid (68,810) (121,441)
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Net cash provided by financing activities 4,808 396,365
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Net increase (decrease) in cash and cash equivalents (327,578) 232,742
Cash and cash equivalents at beginning of period 350,843 56,593
--------- --------
Cash and cash equivalents at end of period $ 23,265 289,335
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 20,903 44
</TABLE>
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PROVENA FOODS INC.
Notes to Condensed Financial Statements
March 31, 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 ended
March 31, 1996 are not necessarily indicative of results to be expected for the
full year.
(2) Inventories
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Inventories at March 31, 1996 (unaudited) and December 31, 1995 consist of:
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Raw materials $1,013,839 797,990
Work-in-process 554,167 575,957
Finished goods 1,264,402 923,375
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$2,832,408 2,297,322
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</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Results of Operations Three Months Ended
- --------------------- March 31,
--------------------
(Unaudited) 1996 1995
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(amounts in thousands)
<S> <C> <C>
Net sales by division:
SWISS AMERICAN $3,563 $3,354
ROYAL-ANGELUS 2,311 2,484
------ ------
Total $5,874 $5,838
====== ======
Sales in thousands of
pounds by division:
SWISS AMERICAN 2,521 2,405
ROYAL-ANGELUS 4,360 4,686
</TABLE>
Swiss American Sausage Co. Meat Division
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Sales by the processed meat division increased about 6% in dollars and 5% in
pounds in the 1st three months of 1996 over the same period in 1995. Swiss's
operating loss for the 1st quarter of 1996 was greater than its loss for the 1st
quarter of 1995 because of higher administrative expense, primarily uninsured
health claims, and slightly lower margins from higher meat costs. Swiss has
suffered a long term decline in sales which has resulted in continued losses.
If
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Swiss's losses are not reduced, Swiss may have to write down as not fully
recoverable its $1,000,000 of operating assets, under an accounting standard to
be adopted by the Company in 1996. Management has engaged a consultant to seek
a merger partner for Swiss to result in a more diverse product line and a higher
utilization of plant capacity.
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 decreased about 9% in both dollars and pounds in
1996's 1st quarter compared to the 1st quarter of 1995. The main factor in the
decline was the absence in the 1st quarter of 1996 of the high volume of low
margin military sales made in the 1st quarter of 1995. Sales were also down
compared to the 4th quarter of 1995 but up compared to the 3rd quarter due to
general fluctuations in sales levels.
Royal's profits for the 1st quarter of 1996 were substantially less than its
profits for the 1st quarter of 1995, reflecting higher flour costs not offset by
higher prices and higher health care costs, resulting in lower margins. For the
past 2 years prices of semolina flour have been at a level about 50% higher than
they were in early 1993, resulting in an increasing difficulty of making
favorable flour purchases.
The Company
- -----------
Company sales were up 1% but the Company realized a net loss of $60,761 in the
1st quarter of 1996 compared to net earnings of $82,272 for the 1st quarter of
1995 because of lower profits at Royal and an increased loss at Swiss. Margins
in the 1st quarter of 1996 were 7% compared to 10.4% a year ago, with margins at
both divisions down.
Administrative expense was up about $33,000 for the 1st quarter of 1996 compared
to the same period in 1995, primarily due to increases in health claims,
consulting fees and bad debt expense. The consulting fees were for a consultant
to seek a merger partner for Swiss. The increase in bad debt expense resulted
from the accrual of an increased reserve against bad debts. Distribution
expense was down over $14,000 because customers bore the freight on a higher
proportion of sales at Royal. Net interest changed from income to an expense
because of interest on the term loan used to purchase the 2nd Royal building.
Other income increased because of rent from the 2nd Royal building.
Liquidity and Capital Resources
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The Company has generally satisfied its normal working capital requirements with
funds derived from operations and borrowings under its bank line of credit. At
March 31, 1996, the Company had $39,686 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 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
$6,980,000, a maximum debt to tangible net worth ratio of 0.75, a minimum debt
coverage ratio of 1.75, a minimum current
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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 during
the 3rd quarter of 1995. The Company's loss for the 1st quarter of 1996 caused
the Company to be in default of the net worth and cumulative profit requirements
and the bank has agreed to waive the defaults for the quarter.
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 $965,835 balance at March 31,
1996, including the $8,460 current portion. The pasta division occupies 40% of
the building and 60% is leased to a tenant.
Cash decreased $327,578 in the 1st quarter of 1996 compared to an increase of
$232,742 in the 1st quarter of 1995, but the major factor in the difference is
only $39,686 of net borrowings in 1996 compared to $526,113 in 1995. Cash used
in operations increased only about $27,000 despite a $143,000 unfavorable
difference in earnings and a $429,000 greater increase in inventories, primarily
because of a $480,000 favorable difference in receivables. Cash used in
investing increased about $142,000 because of the purchase of a new packaging
machine at Royal and the construction of a demising wall in the 2nd Royal
building.
Inventories increased $535,000 as a result of increased flour purchases at Royal
to mitigate increased flour costs and a build-up of inventories at Swiss in
anticipation of specific orders, but are still less than half of 1st quarter
sales and are slightly lower than a year ago when sales were higher.
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 $965,835 secured by the 2nd Royal
building. All of its other assets are unincumbered 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 three months of 1996 the Company did not purchase any shares of
its common stock under its stock repurchase program.
During the 1st three months of 1996 the Company sold 10,658 newly issued shares
of its
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common stock under its 1988 Employee Stock Purchase Plan, at an average
selling price of $3.30 per share. From inception of the Plan through March 31,
1996, employees have purchased a total of 362,369 shares.
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 $0.025 per share was paid March 31, 1996.
Management Stock Transactions
- -----------------------------
No purchases or sales of the Company's common stock by officers or directors
were reported during the 1st quarter of 1996, except 19 shares by John M.
Boukather, director, under a broker's dividend reinvestment program.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are filed with this report, except the EDGAR Financial Data
Schedule as Exhibit 27, 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 March 31,
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: April 25, 1996 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,941
<SECURITIES> 20,324
<RECEIVABLES> 1,997,578
<ALLOWANCES> 71,700
<INVENTORY> 2,832,408
<CURRENT-ASSETS> 4,933,656
<PP&E> 9,255,626
<DEPRECIATION> 4,151,007
<TOTAL-ASSETS> 10,129,525
<CURRENT-LIABILITIES> 2,284,237
<BONDS> 957,375
0
0
<COMMON> 4,139,303
<OTHER-SE> 2,682,952
<TOTAL-LIABILITY-AND-EQUITY> 10,129,525
<SALES> 5,873,681
<TOTAL-REVENUES> 5,903,967
<CGS> 5,465,371
<TOTAL-COSTS> 510,765
<OTHER-EXPENSES> 2,877
<LOSS-PROVISION> 17,000
<INTEREST-EXPENSE> 21,888
<INCOME-PRETAX> (91,961)
<INCOME-TAX> (31,200)
<INCOME-CONTINUING> (60,761)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (60,761)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
