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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 SEPTEMBER 30, 1997
Commission File Number 1-10741
PROVENA FOODS INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
CALIFORNIA 95-2782215
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(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number)
5010 EUCALYPTUS AVENUE, CHINO, CALIFORNIA 91710
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(Address of principal executive offices) (ZIP Code)
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(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 2,850,411
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PROVENA FOODS INC.
1997 FORM 10-Q THIRD QUARTER REPORT
TABLE OF CONTENTS
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Item Page
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PART I. FINANCIAL INFORMATION
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1. Financial Statements......................................................................... 1
Condensed Statements of Earnings........................................................... 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
(3) Earnings per Share Information.................................................... 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................................................... 5
Royal-Angelus Macaroni Company Pasta Division.............................................. 5
The Company................................................................................ 5
Liquidity and Capital Resources............................................................ 6
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 of 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
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PART I. FINANCIAL INFORMATION
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ITEM I. FINANCIAL STATEMENTS
PROVENA FOODS INC.
Condensed Statements of Earnings
(Unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
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1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $8,126,492 8,075,967 21,198,493 21,392,963
Cost of sales 6,980,219 7,247,216 18,878,445 19,380,883
--------- --------- ---------- ----------
Gross profit 1,146,273 828,751 2,320,048 2,012,080
Operating expenses:
Distribution 239,028 245,922 683,646 663,573
General and administrative 247,791 282,760 800,702 913,691
--------- --------- ---------- ----------
Operating income 659,454 300,069 835,700 434,816
Interest expense, net (11,795) (17,789) (50,363) (59,817)
Other income, net 149,461 28,770 253,607 86,844
--------- --------- ---------- ----------
Earnings before
income taxes 797,120 311,050 1,038,944 461,843
Income tax expense 317,800 132,000 413,000 191,000
--------- --------- ---------- ----------
Net earnings $ 479,320 179,050 625,944 270,843
========= ========= ========== ==========
Earnings per share $ .17 .06 .22 .10
========= ========= ========== ==========
Weighted average number
of shares outstanding 2,845,379 2,772,109 2,828,509 2,758,558
--------- --------- ---------- ----------
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PROVENA FOODS INC.
Condensed Balance Sheets
September 30, December 31,
1997 1996
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Assets (Unaudited)
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Current assets:
Cash and cash equivalents $ 7,564 245,205
Marketable securities 20,324 20,324
Accounts receivable, less allowance for doubtful
accounts of $36,000 at 1997 and $0 at 1996 3,667,426 2,408,297
Inventories 2,791,796 2,928,678
Prepaid expenses 87,312 57,159
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Total current assets 6,574,422 5,659,663
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Property and equipment (net) 4,438,912 4,704,602
Other assets 46,510 49,581
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$ 11,059,844 $ 10,413,846
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Liabilities and Shareholders' Equity
------------------------------------
Current Liabilities:
Current portion of long-term debt $ 8,460 8,460
Accounts payable 1,142,580 670,594
Accrued expenses 1,247,784 1,384,925
Income taxes payable 48,605 24,460
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Total current liabilities 2,447,429 2,088,439
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Deferred income 10,078 17,057
Long-term debt, less current portion 745,390 951,735
Shareholders' equity:
Capital stock, no par value, authorized 10,000,000
shares; issued and outstanding 2,850,411 at 1997
and 2,798,021 at 1996 4,387,218 4,257,760
Retained earnings 3,469,729 3,098,855
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Total shareholders' equity 7,856,947 7,356,615
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$ 11,059,844 10,413,846
============= ============
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PROVENA FOODS INC.
Condensed Statements of Cash Flows
(Unaudited)
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Nine Months Ended
September 30,
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1997 1996
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Cash flows from operating activities:
Net earnings $625,944 270,843
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 431,273 435,268
Provision for bad debts 36,000 49,797
Increase in accounts receivable (1,295,129) (395,219)
Decrease (increase) in inventories 136,882 (459,305)
Increase in prepaid expenses (30,153) (28,193)
Decrease (increase) in other assets 3,071 (59,634)
Increase in accounts payable 471,986 411,933
Decrease in accrued expenses (137,141) (188,672)
Increase in income taxes payable 24,145 33,399
Decrease in deferred income (6,979) (69,621)
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Net cash provided by operating activities 259,899 596
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Cash flows from investing activities:
Addition to property and equipment (165,583) (142,796)
Net cash used in investing activities (165,583) (142,796)
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Cash flows from financing activities:
Payments on note payable to bank (206,345) (6,345)
Proceeds from sale of capital stock 129,458 105,323
Payments received on note from shareholder -- 3,268
Cash dividends paid (255,070) (207,302)
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Net cash used in financing activities (331,957) (105,056)
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Net decrease in cash and cash equivalents (237,641) (247,256)
Cash and cash equivalents at beginning of period 245,205 330,519
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Cash and cash equivalents at end of period $ 7,564 83,263
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 58,623 61,485
Income taxes $388,855 157,600
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PROVENA FOODS INC.
Notes to Condensed Financial Statements
September 30, 1997 and 1996
(1) Basis of Presentation
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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,
1996. 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, 1997 are not necessarily indicative of results to be
expected for the full year.
(2) Inventories
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Inventories at September 30, 1997 (unaudited) and December 31, 1996 consist of:
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<CAPTION>
1997 1996
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Raw materials $ 922,675 935,835
Work-in-process 1,144,880 689,650
Finished goods 724,241 1,303,193
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$2,791,796 2,928,678
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(3) Earnings per Share Information
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In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which
changes the methods of calculating and presenting earnings per share. SFAS No.
128 will be adopted by the Company effective the 4th quarter of 1997.
Thereafter, financial statements and historical information included therein
will be presented in conformity with SFAS No. 128, which, in the opinion of
management, will not have a material effect on the information presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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<CAPTION>
Results of Operations Three Months Ended Nine Months Ended
- --------------------- September 30, September 30,
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(Unaudited) 1997 1996 1997 1996
(amounts in thousands)
<S> <C> <C> <C> <C>
Net sales by division:
Swiss American $5,852 $5,719 $14,829 $14,361
Royal-Angelus 2,274 2,357 6,369 7,032
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Total $8,126 $8,076 $21,198 $21,393
====== ====== ======= =======
Sales in thousands of
pounds by division:
Swiss American 3,784 3,886 9,602 9,978
Royal-Angelus 5,314 4,733 13,944 13,693
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Swiss American Sausage Co. Meat Division
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Sales by the processed meat division for the 1st nine months of 1997 increased
about 3% in dollars but decreased about 4% in pounds, and for the 3rd quarter of
1997 increased 2% in dollars but decreased 3% in pounds, compared to the same
periods of 1996. Notwithstanding the decreases, Swiss's longer term trend is
increasing sales because Swiss's sales in pounds were up 33% in the 1st nine
months 1997 and 51% in the 3rd quarter of 1997 compared to the same periods of
1995. The decreases in sales in pounds did not cause decreases in sales in
dollars because of higher selling prices reflecting higher meat prices. Swiss
had substantial operating profits for the 1st nine months and for the 3rd
quarter of 1997 which greatly exceeded its operating profits for the same
periods of 1996.
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
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The pasta division's sales in the 1st nine months of 1997 decreased about 9% in
dollars but increased 2% in pounds, and in the 3rd quarter of 1997 decreased 4%
in dollars but increased 12% in pounds, compared to the same periods of 1996.
Sales in pounds increased slightly in spite of price competition resulting from
increasing industry capacity. Sales in dollars decreased even though sales in
pounds increased because of lower average selling prices caused by price
competition and a higher proportion of high-volume sales. Royal's operating
profits for the 1st nine months and for the 3rd quarter of 1997 were higher
than for the same periods of 1996 despite lower sales and lower average selling
prices, because of lower officer payroll and higher margins.
The Company
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Company sales for the 1st nine months of 1997 were down 1%, but for the 3rd
quarter of 1997 were up 0.6%, compared to the same periods of 1996. Net
earnings for the 1st nine months of 1997 were $625,944 compared to $270,843 last
year, and net earnings for the 3rd quarter were $479,320 compared to $179,050 a
year ago. Margins increased to 10.9% from 9.4% for the 1st nine months and
increased to 14.1% from 10.3% for the 3rd quarter, comparing the same periods
this year to last. Margins at both divisions were up for both periods, at Swiss
because of favorable meat purchases and a higher margin product mix, and at
Royal because of increased production labor efficiency and plant utilization.
Administrative expense was down about $113,000 for the 1st nine months of 1997
compared to the same period in 1996, primarily due to a decrease in officer
payroll at Royal as well as lower bad debt expense, consulting fees relating to
Swiss and other outside services. Distribution expense was up $20,000 for the
nine months because Swiss's salesmen payroll increased and Royal bore the
freight on a higher proportion of its sales. Net interest expense decreased for
the nine months because of lower borrowing under the bank line of credit. Other
income increased principally because of a $164,502 state reimbursement of the
cost of the 1991 removal of a gasoline storage tank at the former distribution
division warehouse, $45,024 of which was received in the 2nd quarter and
$119,478 in the 3rd quarter of 1997.
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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
September 30, 1997, 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 June
1997 to expire June 1, 1998, 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
$7,150,000, 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 June 1997. The Company is not in
violation of any financial covenants.
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 $753,850 balance at September 30,
1997, including the $8,460 current portion. The pasta division occupies 40% of
the building and 60% is leased to a tenant.
Cash decreased $237,641 during the 1st nine months of 1997 compared to a
$247,256 decrease a year ago, the $10,000 improvement resulting from $260,000
more cash provided by operations offset by $23,000 more cash used in investing
activities and $227,000 more cash used in financing activities. Operations
produced more cash because of higher earnings and because inventories decreased
instead of increasing, offset by a greater increase in accounts receivable.
Inventories are slightly lower than a year ago with sales at about the same
level. Accounts receivable increased because sales at both divisions increased
over the prior quarters and because accounts receivable payments of almost
$1,000,000 were received just after the end of the period. More cash was used
in investing for capital expenditures, including a retail packaging machine at
Swiss. Financing used more cash primarily because of a $200,000 voluntary
prepayment of the term loan on the 2nd Royal building.
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, subject to the need to finance a new meat plant.
The Company has no long-term debt except $753,850 secured by 2nd Royal building.
All of its other assets are 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 None.
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ITEM 5. OTHER INFORMATION
Common Stock Repurchase and Sale
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The Company did not purchase any of its shares during the 1st nine months of
1997 under its stock repurchase program.
During the 1st nine months of 1997 the Company sold 41,990 newly issued shares
of its common stock under its 1998 Employee Stock Purchase Plan, at an average
selling price of $2.52 per share. From inception of the Plan through September
30, 1997, employees have purchased a total of 380,958 shares. In addition,
during the 1st nine months of 1997, Incentive Stock Options were exercised to
purchase 10,400 newly issued shares of common stock at the exercise price of
$2.25 per share.
American Stock Exchange Listing
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The Company's stock trades on the American Stock Exchange under the ticker
symbol "PZA".
Cash Dividend Paid
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A cash dividend of $0.03 per share was paid September 30, 1997 to shareholders
of record September 10, 1997.
Management Stock Transactions
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No purchase or sales of the Company's common stock by officers or directors were
reported during the 3rd quarter of 1997, except 20 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 September
30, 1997.
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 27, 1997 PROVENA FOODS INC.
By /s/ Thomas J. Mulroney
----------------------
Thomas J. Mulroney
Vice President and
Chief Financial Officer
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,564
<SECURITIES> 20,324
<RECEIVABLES> 3,703,426
<ALLOWANCES> 36,000
<INVENTORY> 2,791,796
<CURRENT-ASSETS> 6,574,422
<PP&E> 9,437,761
<DEPRECIATION> 4,998,849
<TOTAL-ASSETS> 11,059,844
<CURRENT-LIABILITIES> 2,447,429
<BONDS> 745,390
0
0
<COMMON> 4,387,218
<OTHER-SE> 3,469,729
<TOTAL-LIABILITY-AND-EQUITY> 11,059,844
<SALES> 21,198,493
<TOTAL-REVENUES> 21,452,100
<CGS> 18,878,445
<TOTAL-COSTS> 1,484,348
<OTHER-EXPENSES> 10,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,009
<INCOME-PRETAX> 1,038,444
<INCOME-TAX> 413,000
<INCOME-CONTINUING> 625,944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 625,944
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
