hill country
9-913-517
OCTOBER 22, 2012
W. CARL KESTER
CRAIG STEPHENSON
Hill Country Snack Foods Co.
The Chief Executive Officer of Hill Country Snack Foods had never enjoyed analyst conference calls, but in late January of 2012, Howard Keener was yet again asked about the company’s cash balances, capital structure, and performance measures. One analyst complained that Hill Country’s growing cash position, absence of debt finance, and large equity balance made it difficult for a company in a mature industry to earn a high rate of return on equity, and recommended a more aggressive capital structure. “Maybe I don’t fully understand capital structure theory and practice,” replied Keener, “but I have observed that companies don’t get into trouble because they have too much cash; they get into trouble because they have too much debt.” Hill Country had seen its sales and profits grow at a steady rate during Keener’s tenure as CEO, and at the end of 2011 the company had zero debt and cash balances equal to 18% of total assets and 13% of market capitalization.
Having just celebrated his 62nd birthday, Keener was approaching retirement, creating speculation by investors and analysts that the company might change to a more aggressive capital structure in the near future.
Company Background
Hill Country Snack Foods, located in Austin, Texas, manufactured, marketed, and distributed a variety of snacks, including churros, tortilla chips, salsa, pretzels, popcorn, crackers, pita chips, and frozen treats. Although many of its products had a Southwestern flair, it also offered more traditional snack foods, which were purchased by end consumers thousands of times every day in supermarkets, wholesale clubs, convenience stores, and other distribution outlets. The company’s growth and success was driven by its efficient operations; quality products; strong position in a region that was experiencing both population and economic growth; and its ability to expand its
OCTOBER 22, 2012
W. CARL KESTER
CRAIG STEPHENSON
Hill Country Snack Foods Co.
The Chief Executive Officer of Hill Country Snack Foods had never enjoyed analyst conference calls, but in late January of 2012, Howard Keener was yet again asked about the company’s cash balances, capital structure, and performance measures. One analyst complained that Hill Country’s growing cash position, absence of debt finance, and large equity balance made it difficult for a company in a mature industry to earn a high rate of return on equity, and recommended a more aggressive capital structure. “Maybe I don’t fully understand capital structure theory and practice,” replied Keener, “but I have observed that companies don’t get into trouble because they have too much cash; they get into trouble because they have too much debt.” Hill Country had seen its sales and profits grow at a steady rate during Keener’s tenure as CEO, and at the end of 2011 the company had zero debt and cash balances equal to 18% of total assets and 13% of market capitalization.
Having just celebrated his 62nd birthday, Keener was approaching retirement, creating speculation by investors and analysts that the company might change to a more aggressive capital structure in the near future.
Company Background
Hill Country Snack Foods, located in Austin, Texas, manufactured, marketed, and distributed a variety of snacks, including churros, tortilla chips, salsa, pretzels, popcorn, crackers, pita chips, and frozen treats. Although many of its products had a Southwestern flair, it also offered more traditional snack foods, which were purchased by end consumers thousands of times every day in supermarkets, wholesale clubs, convenience stores, and other distribution outlets. The company’s growth and success was driven by its efficient operations; quality products; strong position in a region that was experiencing both population and economic growth; and its ability to expand its