<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, 1997
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,
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Chino, California 91710
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(Address of principal (ZIP Code)
executive offices)
(909) 627-1082
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(Registrant's telephone number, including area code)
Indicate by checkmark 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 2,820,764
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PROVENA FOODS INC.
1997 Form 10-Q First Quarter Report
Table of Contents
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Item Page
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PART 1. 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
--------------------------
1. Legal Proceedings........................................................................................6
2. Changes in Securities....................................................................................6
3. Defaults Upon Senior Securities..........................................................................6
4. Submissions 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
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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,
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1997 1996
<S> <C> <C>
Net sales $6,554,377 5,873,681
Cost of sales 5,961,824 5,465,371
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Gross profit 592,553 408,310
Operating expenses:
Distribution 217,179 196,142
General and administrative 278,519 314,623
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Operating profit (loss) 96,855 (102,455)
Interest expense, net (17,732) (19,792)
Other income, net 27,424 30,286
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Earnings (loss) before income taxes 106,547 (91,961)
Income tax expense (benefit) 42,000 (31,200)
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Net earnings (loss) $ 64,547 (60,761)
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Earnings (loss) per share $ .02 (.02)
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Weighted average number of shares outstanding 2,809,488 2,745,416
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PROVENA FOODS INC.
Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1997 1996
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(Unaudited)
<S> <C> <C>
Current assets:
Cash and marketable securities $ 82,555 265,529
Accounts receivable, less allowance for doubtful
accounts of $12,000 at 1997 and $0 at 1996 2,180,474 2,408,297
Inventories 3,162,016 2,928,678
Prepaid expenses 120,086 57,159
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Total current assets 5,545,131 5,659,663
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Property and equipment, net 4,665,718 4,704,602
Other assets 53,452 49,581
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$10,264,301 10,413,846
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Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current portion of long term debt $ 8,460 8,460
Note payable to bank 54,226 --
Accounts payable 984,172 670,594
Accrued expenses 843,375 1,384,925
Income taxes payable 16,605 24,460
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Total current liabilities 1,906,838 2,088,439
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Deferred income 14,730 17,057
Long-term debt, net of current portion 949,620 951,735
Shareholders' equity:
Capital stock, no par value; authorized
10,000,000 shares; issued and outstanding
2,820,764 at 1997 and 2,798,021 at 1996 4,314,202 4,257,760
Retained earnings 3,078,911 3,098,855
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Total shareholders' equity 7,393,113 7,356,615
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$10,264,301 10,413,846
=========== ==========
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</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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1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 64,547 (60,761)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 154,263 145,067
Provision for bad debts 12,000 17,000
Decrease in accounts receivable 215,823 256,793
Increase in inventories (233,338) (535,086)
Increase in prepaid expenses (62,927) (51,510)
Increase in income taxes receivable -- (31,200)
Increase in other assets (3,871) (41,866)
Increase in accounts payable 313,578 390,081
Decrease in accrued expenses (541,550) (230,771)
Decrease in income taxes payable (7,855) --
Decrease in deferred income (2,327) (23,346)
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Net cash used in operating activities (91,657) (165,599)
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Cash flows from investing activities:
Additions to property and equipment (115,379) (166,787)
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Net cash used in investing activities (115,379) (166,787)
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Cash flows from financing activities:
Net borrowings on note payable to bank 54,226 39,686
Payments on long term debt (2,115) (2,820)
Proceeds from sale of capital stock 56,442 35,130
Payments received on note from shareholder -- 1,622
Cash dividends paid (84,491) (68,810)
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Net cash provided by
financing activities 24,062 4,808
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Net decrease in cash and cash equivalents (182,974) (327,578)
Cash and cash equivalents at beginning of period 265,529 350,843
Cash and cash equivalents at end of period $ 82,555 23,265
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 20,133 20,903
Income taxes $ 49,855 --
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</TABLE>
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PROVENA FOODS INC.
Notes to Condensed Financial Statements
March 31, 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 ended
March 31, 1997 are not necessarily indicative of results to be expected for the
full year.
(2) Inventories
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Inventories at March 31, 1997 (unaudited) and December 31, 1996 consist of:
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Raw materials $1,084,402 935,835
Work-in-process 645,811 689,650
Finished goods 1,431,803 1,303,193
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$3,162,016 2,928,678
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
Results of Operations March 31,
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(Unaudited) 1997 1996
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(amounts in thousands)
<S> <C> <C>
Net sales by division:
Swiss American $4,469 $3,563
Royal-Angelus 2,085 2,311
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Total $6,554 $5,874
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Sales in thousands of
pounds by division:
Swiss American 2,909 2,521
Royal-Angelus 4,178 4,360
</TABLE>
Swiss American Sausage Co. Meat Division
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Sales by the processed meat division increased about 25% in dollars and 15% in
pounds in the 1st three months of 1997 over the same period in 1996. Sales in
dollars increased proportionately more than in pounds because of higher selling
prices reflecting higher meat costs. Swiss had a significant operating profit
for the 1st quarter of 1997, whereas it had an operating loss for the 1st
quarter of 1996 which exceeded its operating loss for the 1st quarter
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of 1995. Although Swiss's sales for the 1st quarter of 1997 were lower than its
unusually high sales in each of the last 3 quarters of 1996, its increase in
sales and profitability over the lst quarter of 1996 appears to confirm a
reversal of a long term erosion in sales and profitability which began in 1991.
The reversal is primarily from increased sales to existing customers.
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 decreased about 10% in dollars and 4% in pounds in
1997's lst quarter compared to the lst quarter of 1996. The percent decrease
was higher in dollars than in pounds because of lower average selling prices in
response to price competition. Royal's sales for the lst quarter were also
lower than its sales for each of the last 3 quarters of 1996. The decline in
sales reflects increased price competition resulting from increasing industry
capacity. Nonetheless, Royal's operating profit for the lst quarter of 1997 was
higher than for the 1st quarter of 1996.
The adverse effect of price competition on margins was mitigated by a decline in
flour costs. The price of semolina flour, Royal's primary ingredient, increased
about 50% in 1993 and remained up. The price began easing in 1996 and continues
to ease, but remains above pre-1993 levels.
The Company
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Company sales were up about 12% and the Company realized a net profit of
$64,547 to the 1st quarter of 1997 compared to a net loss of $60,761 for the lst
quarter of 1996. Margins in the lst quarter of 1997 were 9% compared to 7% a
year ago. Margins at both divisions improved. Royal's margins improved, in
spite of lower average selling prices, because of lower flour costs. Swiss's
margins improved because Swiss's production costs increased less than
proportionate to its increased sales. The improved profitability of the Company
was produced by higher margins on higher sales. The improvement in sales
resulted from the increased sales at Swiss, partially offset by the decreased
sales at Royal.
Administrative expense was down about $36,000 for the lst quarter of 1997
compared to the same period in 1996, primarily due to a decrease in officer
payroll at Royal. Distribution expense was up about $21,000, or about 11% as
compared to a 12% increase in sales. Distribution expense at Swiss was
unchanged, but distribution expense at Royal increased because Royal bore the
freight on a higher proportion of its sales. Net interest decreased slightly
because of lower borrowing under the bank line of credit. Other income
decreased slightly because Royal began occupying 40% of the 2nd Royal building
and received less rent.
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, 1997, the Company had $54,226 of 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
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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.
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 $958,080 balance at March 31,
1997, including the $8,460 current portion. The pasta division occupies 40% of
the building and 60% is leased to a tenant.
Cash decreased $182,974 in the 1st quarter of 1997 compared to a decrease of
$327,578 in the 1st quarter of 1996, the $145,000 improvement resulting from
$75,000 less cash used in operations, $51,000 less used in investing and $19,000
more provided by financing. Operations used less cash primarily because of the
$125,000 swing from a loss to a profit, reduced by a lower decrease in
receivables and a lower increase in payables, with a lower increase in
inventories offset by a higher decrease in accrued expenses. Inventories were
higher than last year, but were about the same percent of 1st quarter sales,
under 50%. Less cash was used in investing for capital expenditures. Financing
produced more cash because of more borrowing under the bank line and the
exercise of stock options, offset by higher dividends.
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 the $958,080 secured by the 2nd Royal
building. All of its other assets are uncumbered 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 OR SECURITY HOLDERS None.
ITEM 5. OTHER INFORMATION
Common Stock Repurchase and Sale
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During the 1st three months of 1997 the Company did not purchase any shares of
its common
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stock under its stock repurchase program.
During the lst three months of 1997 the Company sold 12,343 newly issued shares
of its common stock under its 1988 Employee Stock Purchase Plan, at an average
selling price of $2.67 per share. From inception of the Plan through March 31,
1997, employees have purchased a total of 351,311 shares.
In addition, during the 1st three months of 1997, Incentive Stock Options were
exercised to purchase 10,400 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 Dividends Paid
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A cash dividend of $0.03 per share was paid March 31, 1997 to shareholders of
record March 10, 1997.
Management Stock Transactions
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No purchases or sales of the Company's common stock by officers or directors
were reported during the 1st quarter of 1997, except 16 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 March 31,
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: April 26, 1997 P R O V E N A F O O D S I N C.
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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 62,231
<SECURITIES> 20,324
<RECEIVABLES> 2,192,474
<ALLOWANCES> 12,000
<INVENTORY> 3,162,016
<CURRENT-ASSETS> 5,545,131
<PP&E> 9,398,361
<DEPRECIATION> 4,732,643
<TOTAL-ASSETS> 10,264,301
<CURRENT-LIABILITIES> 1,906,838
<BONDS> 949,620
0
0
<COMMON> 4,314,202
<OTHER-SE> 3,078,910
<TOTAL-LIABILITY-AND-EQUITY> 10,264,,301
<SALES> 6,554,377
<TOTAL-REVENUES> 6,581,801
<CGS> 5,961,824
<TOTAL-COSTS> 495,699
<OTHER-EXPENSES> 1,687
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,502
<INCOME-PRETAX> 106,547
<INCOME-TAX> 42,000
<INCOME-CONTINUING> 64,547
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,547
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
