Form 10-Q
Table of Contents
 
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 SEPTEMBER 30, 2002
 
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 organization)
  
(I.R.S. employer
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 the period covered by this report was:
 
Common Stock        3,131,646
 
 

Table of Contents
PROVENA FOODS INC.
 
FORM 10-Q REPORT
 
For the Third Quarter Ended September 30, 2002
 
Table of Contents
 
         
Page
PART I—FINANCIAL INFORMATION
     
Item 1.
      
1
       
1
       
2
       
3
       
4
Item 2.
      
5
       
5
       
5
       
5
       
6
       
6
       
8
Item 3.
      
9
Item 4.
      
9
PART II—OTHER INFORMATION
     
Item 1.
      
9
Item 2.
      
9
Item 3.
      
9
Item 4.
      
9
Item 5.
      
9
       
9
       
10
       
10
       
10
Item 6.
      
10
  
10
  
10
  
12

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Table of Contents
 
PART I.    FINANCIAL INFORMATION
 
ITEM I.
   
FINANCIAL STATEMENTS
 
PROVENA FOODS INC.
 
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 
    
Three Months Ended
September 30,
     
Nine Months Ended
September 30,
  
    
2002
     
2001
     
2002
     
2001
  
Net sales
   
$
9,725,909
 
   
9,757,489
 
   
28,401,176
 
   
25,401,665
 
Cost of sales
   
 
8,372,080
 
   
9,335,728
 
   
25,113,962
 
   
23,397,872
 
    
  
  
  
Gross profit
   
 
1,353,829
 
   
421,761
 
   
3,287,214
 
   
2,003,793
 
Operating expenses:
                              
Distribution
   
 
309,689
 
   
295,615
 
   
917,424
 
   
909,977
 
General and administrative
   
 
569,373
 
   
410,822
 
   
1,507,367
 
   
1,241,057
 
    
  
  
  
Operating income (loss)
   
 
474,767
 
   
(284,676
)
   
862,423
 
   
(147,241
)
Interest expense, net
   
 
(157,705
)
   
(174,755
)
   
(419,419
)
   
(543,520
)
Other income, net
   
 
61,604
 
   
69,127
 
   
177,993
 
   
172,489
 
    
  
  
  
Earnings (loss) before income taxes
   
 
378,666
 
   
(390,304
)
   
620,997
 
   
(518,272
)
Income tax expense (benefit)
   
 
150,000
 
   
(151,800
)
   
243,857
 
   
(191,000
)
    
  
  
  
Net earnings (loss)
  
$
228,666
 
   
(238,504
)
   
377,140
 
   
(327,272
)
    
  
  
  
Earnings (loss) per share:
                              
Basic
   
$
.07
 
   
(.08
)
   
.12
 
   
(.11
)
    
  
  
  
Diluted
   
$
.07
 
   
(.08
)
   
.12
 
   
(.11
)
    
  
  
  
Shares used in computing earnings (loss) per share:
                              
Basic
   
 
3,126,630
 
   
3,070,451
 
   
3,113,173
 
   
3,057,167
 
    
  
  
  
Diluted
   
 
3,126,630
 
   
3,070,451
 
   
3,113,173
 
   
3,057,167
 
    
  
  
  
 
See accompanying Notes to Condensed Financial Statements.

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Table of Contents
PROVENA FOODS INC.
 
CONDENSED BALANCE SHEETS
(Unaudited)
 
ASSETS
   
September 30, 2002
   
December 31,
2001
Current assets:
            
Cash and cash equivalents
   
$
66,926
   
206,777
Accounts receivable, less allowance for doubtful accounts of $91,225 at 2002 and $0 at 2001
   
 
3,616,185
   
3,238,935
Inventories
   
 
3,270,815
   
3,190,660
Prepaid expenses
   
 
73,985
   
12,443
Prepaid tax
   
 
15,000
   
—  
Deferred tax assets
   
 
106,203
   
106,203
    
  
Total current assets
   
 
7,149,114
   
6,755,018
    
  
Property and equipment, net
   
 
15,611,070
   
16,128,662
Other assets
   
 
237,714
   
181,268
Deferred tax assets, net of current
   
 
142,057
   
328,884
    
  
    
$
23,139,955
   
23,393,832
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
            
Current liabilities:
            
Line of credit
   
$
3,259,195
   
4,000,000
Current portion of long-term debt
   
 
495,285
   
495,285
Current portion of capital lease obligation
   
 
113,200
   
113,200
Accounts payable
   
 
1,561,271
   
1,362,058
Accrued liabilities
   
 
1,530,318
   
1,229,273
Deferred tax liability
   
 
46,394
   
46,394
    
  
Total current liabilities
   
 
7,005,663
   
7,246,210
    
  
Long-term debt, net of current portion
   
 
6,006,779
   
6,395,906
Capital lease obligation, net of current portion
   
 
394,446
   
453,628
Deferred tax liability, net of current
   
 
416,802
   
416,802
Shareholders’ equity:
            
Capital stock, no par value; authorized 10,000,000 shares; issued and outstanding 3,131,646 at 2002 and 3,089,516 at 2001
   
 
5,041,178
   
4,983,339
Retained earnings
   
 
4,275,087
   
3,897,947
    
  
Total shareholders’ equity
   
 
9,316,265
   
8,881,286
    
  
    
$
23,139,955
   
23,393,832
    
  
 
See accompanying Notes to Condensed Financial Statements.
 

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Table of Contents
PROVENA FOODS INC.
 
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 
    
Nine Months Ended
September 30,
  
    
2002
     
2001
  
Cash flows from operating activities:
                
Net earnings (loss)
   
$
377,140
 
   
(327,272
)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
                
Depreciation and amortization
   
 
603,365
 
   
547,838
 
Change in allowance for doubtful accounts
   
 
91,225
 
   
(39,000
)
Increase in accounts receivable
   
 
(468,475
)
   
(990,256
)
Increase in inventories
   
 
(80,155
)
   
(759,135
)
Increase in prepaid expenses
   
 
(61,542
)
   
(1,436
)
Increase in prepaid tax
   
 
(15,000
)
   
—  
 
Decrease in income taxes receivable
   
 
—  
 
   
185,597
 
Increase (decrease) in other assets
   
 
(56,446
)
   
4,279
 
Increase in accounts payable
   
 
199,213
 
   
501,972
 
Increase in accrued liabilities
   
 
301,045
 
   
366,726
 
Decrease in deferred tax assets
   
 
186,827
 
   
—  
 
    
  
Net cash provided by (used in) operating activities
   
 
1,077,197
 
   
(510,687
)
    
  
Cash flows from investing activities:
                
Additions to property and equipment
   
 
(85,773
)
   
(344,525
)
    
  
Net cash used in investing activities
   
 
(85,773
)
   
(344,525
)
    
  
Cash flows from financing activities:
                
Payments on long-term debt
   
 
(389,128
)
   
(334,087
)
Payments on capital lease obligation
   
 
(59,181
)
   
—  
 
Proceeds from (repayments of) line of credit
   
 
(740,805
)
   
1,261,226
 
Proceeds from sale of capital stock
   
 
57,839
 
   
73,710
 
Cash dividends paid
   
 
—  
 
   
(183,304
)
    
  
Net cash provided by (used in) financing activities
   
 
(1,131,275
)
   
817,545
 
    
  
Net decrease in cash and cash equivalents
   
 
(139,851
)
   
(37,667
)
Cash and cash equivalents at beginning of period
   
 
206,777
 
   
88,585
 
    
  
Cash and cash equivalents at end of period
   
$
66,926
 
   
50,918
 
    
  
Supplemental disclosures of cash flow information:
                
Cash paid (received) during the period for:
                
Interest
   
$
414,069
 
   
544,102
 
Income taxes
   
$
72,030
 
   
(376,597
)
 
See accompanying Notes to Condensed Financial Statements.

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Table of Contents
PROVENA FOODS INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
September 30, 2002 and 2001
 
(1)  Basis of Presentation
 
The accompanying unaudited condensed 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 in the United States of America for annual financial statement purposes. 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, 2001. 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, 2002 are not necessarily indicative of results to be expected for the full year.
 
(2)  Inventories
 
Inventories at September 30, 2002 and December 31, 2001 consist of:
 
    
2002
   
2001
Raw materials
   
$
1,135,826
   
1,393,975
Work-in-process
   
 
702,345
   
842,577
Finished goods
   
 
1,432,644
   
954,108
    
  
    
$
3,270,815
   
3,190,660
    
  
 
(3)  Segment Data
 
Business segment sales and operating income (loss) for the three months and nine months ended September 30, 2002 and 2001 and assets at September 30, 2002 and December 31, 2001 are as follows:
 
    
Three Months Ended
September 30,
     
Nine Months Ended
September 30,
  
    
2002
     
2001
     
2002
     
2001
  
Net sales to unaffiliated customers:
                              
Swiss American Sausage division
   
$
8,377,048
 
   
8,331,471
 
   
24,135,594
 
   
21,476,361
 
Royal-Angelus Macaroni division
   
 
1,348,861
 
   
1,426,018
 
   
4,265,582
 
   
3,925,304
 
    
  
  
  
Total sales
   
$
9,725,909
 
   
9,757,489
 
   
28,401,176
 
   
25,401,665
 
    
  
  
  
Operating income (loss):
                              
Swiss American Sausage division
   
$
646,299
 
   
(176,155
)
   
1,187,268
 
   
309,544
 
Royal-Angelus Macaroni division
   
 
(181,148
)
   
(100,938
)
   
(434,633
)
   
(450,556
)
Corporate
   
 
9,616
 
   
(7,583
)
   
109,788
 
   
(6,229
)
    
  
  
  
Operating income (loss)
  
$
474,767
 
   
(284,676
)
   
862,423
 
   
(147,241
)
    
  
  
  
    
September 30,
2002
     
December 31,
2001
                
Identifiable assets:
                              
Swiss American Sausage division
   
$
18,770,772
 
   
18,428,801
 
              
Royal-Angelus Macaroni division
   
 
3,982,921
 
   
4,328,435
 
              
Corporate
   
 
386,262
 
   
636,596
 
              
    
  
             
Total assets
   
$
23,139,955
 
   
23,393,832
 
              
    
  
             
 
(4)  Earnings (Loss) per Share
 
Basic earnings (loss) per share are net earnings (loss) divided by the weighted average number of common shares outstanding during the period, and diluted earnings (loss) per share are net earnings (loss) divided by the sum of the weighted average plus an incremental number of shares attributable to outstanding options. Options for 107,111 shares were not used in the calculations for the following periods because their effect would be antidilutive.
 
    
Three Months Ended
September 30,
     
Nine Months Ended
September 30,
  
    
2002
   
2001
     
2002
   
2001
  
Net earnings (loss)
  
$
228,666
   
(238,504
)
   
377,140
   
(327,272
)
    
  
  
  
Weighted average number of shares
   
 
3,126,630
   
3,070,451
 
   
3,113,173
   
3,057,167
 
Incremental shares for options
   
 
—  
   
—  
 
   
—  
   
—  
 
    
  
  
  
Weighted average plus incremental shares
   
 
3,126,630
   
3,070,451
 
   
3,113,173
   
3,057,167
 
    
  
  
  
Basic earnings (loss) per share
   
$
.07
   
(.08
)
   
.12
   
(.11
)
    
  
  
  
Diluted earnings (loss) per share
   
$
.07
   
(.08
)
   
.12
   
(.11
)
    
  
  
  

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Table of Contents
ITEM 2.
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Results of Operations
 
    
Three Months
Ended
September 30
   
Nine Months
Ended
September 30
    
2002
   
2001
   
2002
   
2001
    
(Unaudited)
    
(amounts in thousands)
Net sales by division:
                            
Swiss American
   
$
8,377
   
$
8,331
   
$
24,135
   
$
21,476
Royal Angelus
   
 
1,349
   
 
1,426
   
 
4,266
   
 
3,926
    
  
  
  
Total
   
$
9,726
   
$
9,757
   
$
28,401
   
$
25,402
    
  
  
  
Sales in thousands of pounds by division:
                            
Swiss American
   
 
5,985
   
 
5,279
   
 
16,506
   
 
14,220
Royal Angelus
   
 
2,577
   
 
2,969
   
 
7,910
   
 
8,056
 
Forward-Looking Statements
 
The following discussion may contain “forward-looking statements” that express or imply expectations of future performance, developments or occurrences. Actual events may differ materially from these expectations due to uncertainties relating to the economy, competition, demand, commodities, credit markets, energy supplies and other factors.
 
Swiss American Sausage Co. Meat Division
 
Sales by the processed meat division increased 12% in dollars and 16% in pounds in the 1st nine months of 2002 and were essentially the same in dollars but increased 13% in pounds in the 3rd quarter of 2002, compared to the same periods of 2001. Sales in pounds increased proportionately more than in dollars because of lower selling prices reflecting lower meat costs. Swiss operated at a $1,187,268 profit for the 1st nine months of 2002 compared to a $309,544 profit for the 1st nine months of 2001, and at a $646,299 profit for the 3rd quarter of 2002 compared to a $176,155 loss for the 3rd quarter of 2001. The profit improvements resulted from a combination of increased sales and favorable meat cost fluctuations. Meat costs were predominately lower and decreasing during 2002 as opposed to higher and increasing during the 1st nine months of 2001.
 
Royal-Angelus Macaroni Company Pasta Division
 
The pasta division’s sales increased about 9% in dollars but decreased 2% in pounds in the 1st nine months of 2002 and decreased 5% in dollars and 13% in pounds in the 3rd quarter of 2002, compared to the same periods of 2001. Sales in pounds decreased without commensurate decreases in dollars because of higher selling prices reflecting higher flour costs. Royal operated at a $434,633 loss for the 1st nine months of 2002 compared to a $450,556 loss for the 1st nine months of 2001 and a $181,148 loss for the 3rd quarter of 2002 compared to a $100,938 loss for the 3rd quarter of 2001. The increased loss in the 3rd quarter of 2002 resulted from a combination of lower sales and lower gross margins compared to the same period of 2001. Royal continues to struggle as sales and operating results are adversely affected by competition resulting from increased industry capacity, and is intensifying its efforts to seek personnel experienced in pasta sales and production, to aggressively pursue sales opportunities and to improve margins.

5

Table of Contents
 
The Company
 
Company sales were up 12% in the 1st nine months of 2002 compared to the 1st nine months of 2001 and were essentially the same in the 3rd quarter of 2002 compared to the 3rd quarter of 2001. The Company realized net earnings of $377,140 for the 1st nine months of 2001 compared to a net loss of $327,272 a year ago and net earnings of $228,666 for the 3rd quarter of 2002 compared to a net loss of $238,504 a year ago. Swiss accounted for substantially all of the increased sales and earnings. The Company’s gross margins for the 1st nine months and 3rd quarter of 2002 were 11.6% and 13.9%, respectively, compared to 7.9% and 4.3% a year ago. Swiss’s gross margins were higher for both periods, whereas Royal’s were higher for the nine months but lower for the 3rd quarter, all comparing periods in 2002 to the same periods in 2001. Swiss’s margins were higher because of increased sales and favorable meat cost fluctuations. Royal’s margins were higher for the 1st nine months because of higher average selling prices, but were lower for the 3rd quarter because of lower plant utilization on lower sales and higher flour costs.
 
General and administrative expense was up about $266,000 for the 1st nine months of 2002 and up about $159,000 in the 3rd quarter of 2002, compared to the same periods in 2001, due in part to increases in bad debt expense, health benefit costs, outside services and bank charges. Distribution expense was up about $7,000 for the 1st nine months and $14,000 for the 3rd quarter because of increased freight on increased sales and increased liability insurance expense, offset by lower salesman expense and advertising. Net interest expense decreased about $124,000 for the 1st nine months and $17,000 for the 3rd quarter of 2002 because of lower interest rates and lower borrowings. Other income increased for the 1st nine months in part because of increased rental income at Royal, but decreased for the 3rd quarter primarily because of reduced waste product sales at Swiss.
 
Meat plant employees are represented by United Food and Commercial Workers Union, Local 588, AFL_CIO, CLC under a collective bargaining agreement which expires April 2, 2006. Pasta plant employees are represented by United Food and Commercial Workers Union, Local 1428, AFL_CIO, CLC under a collective bargaining agreement which expired September 29, 2002 and for which a four year extension has been negotiated, subject to ratification. There has been no significant labor unrest at the Company’s plants and the Company believes it has a satisfactory relationship with its employees.
 
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, which is part of a credit facility with Comerica Bank-California. The line of credit is payable on demand, is subject to annual review, and bears interest at a variable annual rate which is 0.75% over the bank’s “Base Rate” if working capital exceeds $50,000 and tangible net worth exceeds $8,750,000 and 1.75% over the Base Rate otherwise. The variable rate decreased from 1.75% to 0.75% over the Base Rate on September 1, 2002. The maximum amount of the line of credit is the lesser of $4,000,000, or 30% of inventories plus 80% of eligible receivables, with a limit of $1,000,000 for inventories, determined monthly. At September 30, 2002 the Base Rate was 4.75% per annum,

6

Table of Contents
30% of inventories was $981,245 and 80% of eligible receivables was $2,851,148 for a total maximum of $3,823,393 and the Company had $3,259,195 of borrowings outstanding under the bank line of credit.
 
As part of the credit facility, Comerica Bank-California issued a $4,060,000 letter of credit to support $4,000,000 of industrial development bonds issued in 1998 for costs relating to the construction of the Company’s meat plant. The bonds bear a variable rate of interest payable monthly and set weekly at a market rate—1.7% per annum at September 30, 2002. The Company pays a 1.5% per annum fee on the amount of the letter of credit and fees of the bond trustee estimated at 0.5% of the bond principal per year. Monthly payments of bond principal into a sinking fund began May 1, 2000, totaled $76,700 the first year and increase about 5.6% each year until May 1, 2022, when $813,500 of remaining principal is payable in 18 equal monthly payments.
 
Also as part of the credit facility, the bank made four loans to the Company for the meat plant, a $1,280,000 real estate loan and three equipment loans totalling $2,614,788. The real estate loan was made in December 1999, bears a fixed rate of interest of 9.1% per annum and is payable in equal monthly payments of principal and interest over its 25 year term. Each equipment loan bears a variable rate of interest and is payable in equal monthly payments of principal plus interest over its term, with issue date, initial amount, term and rate as follows: July 1999, $1,000,000, 7 year, bank’s “Base Rate”; September 1999, $1,200,000, 7 year, bank’s “Base Rate” plus 0.25%; and December 1999, $414,788, 5 year, bank’s “Base Rate” plus 0.75%.
 
All parts of the credit facility are secured by substantially all of the Company’s assets, including accounts receivable, inventory, equipment and fixtures, the Company’s two pasta buildings and the meat plant, none of which is otherwise encumbered. The credit facility prohibits mergers, acquisitions, purchase or disposal of assets, borrowing, granting security interests, and changes of management and requires a tangible net worth greater than $8,900,000, increasing by $200,000 each quarter after June 30, 2002; working capital not less than negative $425,000 increasing by $200,000 each quarter after June 30, 2002; debt service coverage not less than 1.3; and quarterly dividends not exceeding the net income of the prior quarter. The Company was in compliance with the covenants at September 30, 2002 and expects to be in compliance with all covenants at December 31, 2002.
 
Cash decreased $139,851 in the 1st nine months of 2002 compared to a $37,667 decrease in the 1st nine months of 2001. Operating activities provided $1,077,197 of cash primarily from net earnings, depreciation and amortization, increases in accounts payable, accrued liabilities and income taxes payable and a decrease in deferred tax assets, partially offset by an increase in accounts receivable and smaller increases in inventories, prepaid expenses, prepaid taxes and other assets. Accounts receivable and inventories increased as a result of increased sales. Investing activities used $85,773 of cash for modest additions to property and equipment, and financing activities used $1,131,275 of cash for payments on long term debt and the capital lease obligation and repayments of the bank line of credit.

7

Table of Contents
 
Commitments and Contingencies
 
The following table shows the long-term debt principal and capital lease obligation payments due in the specified periods. The lease payments are estimates because they are proportional to pounds of a product sold.
 
    
Three Months Ending
December 31,
   
Year Ending December 31,
   
Thereafter
    
Totals
   
2002
   
2003
   
2004
   
2005
   
2006
   
    
(amounts in thousands)
Long-Term Debt
   
$
6,605
   
106
   
504
   
504
   
435
   
341
   
4,612
Capital Lease Obligation
   
 
516
   
34
   
113
   
113
   
113
   
115
   
-0-
    
  
  
  
  
  
  
Totals
   
$
7,121
   
140
   
617
   
617
   
548
   
456
   
4,612
 
The Company expects 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, including cash flow to service its debt.
 
The Company believes that it has a good relationship with Comerica Bank-California, as evidenced by the bank’s previous over-advances under the line of credit, waivers in prior years of defaults under the financial covenants and modifications of the financial covenants. That relationship is crucial to the Company, because the line of credit is payable on demand, the Company could not make an immediate repayment of the line of credit, and a failure to repay the line after demand would render the entire credit facility in default. As a result, neither a default under a financial covenant nor the bank’s waiver of such a default affects the bank’s power to cause the credit facility to be in default and require that it be restructured or refinanced. The Company was in compliance with the financial covenants at September 30, 2002.
 
Critical Accounting Policies
 
In December 2001, the Securities and Exchange Commission requested that all registrants list their most “critical accounting policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and indicated that a “critical accounting policy” is one which is both important to the portrayal of the registrant’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Critical for the Company is determining the allowance for doubtful accounts because of the risk of failing to foresee a major credit loss, and inventory valuation when inventory cost may exceed fair value less cost to sell because of the difficulty of determining the latter.
 
New Accounting Standards
 
The Financial Accounting Standards Board in June 2001 issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” applicable to business combinations initiated after June 30, 2001, SFAS No. 142, “Goodwill and Other Intangible Assets” effective January 1, 2002 and SFAS No. 143, “Accounting for Asset Retirement Obligations” effective January 1, 2003; in August 2001 issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” effective January 1, 2002; in April 2002 issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of

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FASB Statement No. 13, and Technical Corrections” effective May 15, 2002; and in July 2002 issued SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities” effective December 31, 2002. These standards are adopted by the Company as they become effective and, in the opinion of management, have not had and will not have a material effect on the Company’s financial position, results of operations or liquidity.
 
ITEM 3.
   
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
The industrial development bonds, the bank line of credit, and the equipment loans bear variable rates of interest (see Liquidity and Capital Resources under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations) which tend to follow market interest rates and change the Company’s interest expense in the same direction as changes in interest rates. A 1% per annum change in the rate borne by the industrial development bonds would change annual interest expense by almost $40,000. Assuming an average bank line of credit balance of $3,200,000 plus $1,400,000 average principal balance of equipment loans, a 1% per annum change in the rate borne by those borrowings would change annual interest expense by $46,000.
 
ITEM 4.
   
DISCLOSURE CONTROLS AND PROCEDURES
 
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures within 90 days prior to the filing of this report and have concluded that: there are no significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data; there are no material weaknesses in internal controls; and, there is no fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls. There have not been any changes in internal controls or in other factors that could significantly affect internal controls subsequent to the most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
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
 
The Company did not purchase any of its shares during the 1st nine months of 2002 under its stock repurchase program.

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During the 1st nine months of 2002 the Company sold 42,130 newly issued shares of its common stock under its 1988 Employee Stock Purchase Plan, at an average selling price of $1.37 per share. From inception of the Plan through September 30, 2002, employees have purchased a total of 653,192 shares.
 
American Stock Exchange Listing
 
The Company’s stock trades on the American Stock Exchange under the ticker symbol “PZA”.
 
Cash Dividends
 
No cash dividends were paid in the 1st nine months of 2002.
 
Management Stock Transactions
 
No purchases or sales of the Company’s common stock by officers or directors were reported during the 3rd quarter of 2002.
 
ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K
 
(a)  The only exhibit filed with this report is Exhibit 99.1 — Section 906 Certification.
 
(b)  No reports on Form 8-K were filed during the three months ended September 30, 2002.
 
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 26, 2002
      
PROVENA FOODS INC.
 
           
By
  
LOGO
Thomas J. Mulroney
               
Vice President and Chief Financial Officer
 
SECTION 302 CERTIFICATIONS
 
I, Theodore L. Arena, certify that:
 
1.    I have reviewed this quarterly report on Form 10-Q of Provena Foods Inc. (the “Company”);
 
2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report;

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4.  The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and l5d-14) for the Company and we have:
 
a)  designed such disclosure controls and procedures to ensure that material information relating to the Company, including any subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
b)  evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
5.    The Company’s other certifying officers and I have disclosed, based on our most recent evaluation, to the Company’s auditors and the audit committee of Company’s Board of Directors (or persons performing the equivalent function):
 
a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s auditors any material weaknesses in internal controls; and
 
b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls; and
 
6.    The Company’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
Date:    October 26, 2002
LOGO
Theodore L. Arena, Chief Executive Officer
 
I, Thomas J. Mulroney, certify that:
 
1.    I have reviewed this quarterly report on Form 10-Q of Provena Foods Inc. (the “Company”);
 
2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report;
 
4.    The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
 
a)  designed such disclosure controls and procedures to ensure that material information relating to the Company, including any subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
b)  evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

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c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
5.    The Company’s other certifying officers and I have disclosed, based on our most recent evaluation, to the Company’s auditors and the audit committee of Company’s Board of Directors (or persons performing the equivalent function):
 
a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s auditors any material weaknesses in internal controls; and
 
b)  any fraud. whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls; and
 
6.    The Company’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
Date:    October 26, 2002
LOGO
Thomas J. Mulroney, Chief Financial Officer
 
EXHIBIT 99.1 — SECTION 906 CERTIFICATIONS
 
Each of the undersigned hereby certifies, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Provena Foods Inc. (the “Company”), that, to his knowledge, the Quarterly Report of the Company on Form 10-Q for the period September 30, 2002, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.
 
Date:    October 26, 2002
LOGO
Theodore L. Arena, Chief Executive Officer
 
LOGO
Thomas J. Mulroney, Chief Financial Officer

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