Jewett-Cameron Trading Company Ltd. — FY2014 Form 10-K
Reporting period: Fiscal year ended August 31, 2014; comparisons are with fiscal 2013. The company distributes and processes specialty wood products, lawn and garden/pet products, agricultural seed, and industrial tools and clamps. Financial statements are in U.S. dollars.
Financial performance and liquidity
| Metric | FY2014 | FY2013 | Change |
|---|---|---|---|
| Revenue | $42.34 million | $49.29 million | Down 14% |
| Gross profit / margin | $8.38 million / 19.8% | $9.83 million / 19.9% | Gross profit down 15% |
| Operating income | $3.08 million | $4.67 million | Down 34% |
| Income before taxes | $3.12 million | $5.06 million | Down 39% |
| Net income / diluted EPS | $1.86 million / $0.63 | $3.13 million / $1.00 | Net income down 41% |
| Cash from operations | $382,388 | $1.08 million | Down 65% |
Fiscal Q4 revenue was $9.27 million and net income was $352,000, or $0.12 per basic and diluted share. The filing reports no bank borrowings at year-end. Cash was $4.33 million, down from $8.31 million; working capital was $15.82 million, down from $18.04 million, and the current ratio was 12.0. The $1 million credit line was fully available, with the company in covenant compliance. It had reduced the facility from $5 million in March 2014. No long-term debt is reported.
Operating cash generation was modest amid working-capital movements, including lower payables and higher inventory. The company spent $4.26 million repurchasing and cancelling 430,306 shares and $110,325 on property and equipment. Year-end shares outstanding were 2,704,630. The board had not declared dividends and said it did not anticipate doing so in the foreseeable future.
Material changes and segment results
- Sales declined in all four segments. Lawn, garden, pet and other revenue fell 6% to $32.72 million; segment income before tax was $2.32 million versus $3.93 million.
- Industrial wood products revenue fell 31% to $5.46 million amid weak marine demand; the segment recorded a $35,986 operating loss. The company sold excess marine-related inventory in February 2014 and did not expect a significant near-term industry recovery.
- Seed processing and sales revenue fell 47% to $2.49 million. Management cited the departure of a lead salesperson, lower seed-cleaning demand, and reduced grass-seed acreage; the segment recorded a $55,005 loss before tax.
- Industrial tools and clamps revenue fell 19% to $1.67 million. Management narrowed the product range toward specialty products with higher inventory turnover and expected effects to begin in fiscal 2015.
- Operating expenses rose to $5.29 million from $5.16 million, mainly because selling, general and administrative expense increased. Fiscal 2013 results also included a $353,852 gain on sale of land; fiscal 2014 recorded only $3,546 in property-sale gains.
Outlook, risks and unusual items
Management stated that current working capital, retained earnings, and the available credit line were adequate for the coming fiscal year; the filing gives no quantified revenue or earnings guidance. Home-improvement sales are seasonal, with higher activity generally from February through August.
- Litigation: A long-running dispute returned to the Oregon Court of Appeals in July 2014, which ruled for a new trial and reversed the company-favorable judgment. The company petitioned the Oregon Supreme Court for review. The filing states potential exposure of approximately $1.8 million; the recorded litigation reserve was $117,387. This contingency is material relative to annual earnings.
- Customer concentration: The top ten customers accounted for 73% of sales, and the largest customer accounted for 30%, up from 66% and 23%, respectively, in fiscal 2013. One customer represented 40% of year-end receivables.
- Supplier and market exposure: Two suppliers each represented more than 10% of purchases. The company cited competition, weaker product demand, supplier-delivery delays, rising raw-material costs, and sensitivity to economic conditions. Foreign currency exposure is described as limited, though exchange rates can affect contract-manufacturing costs.
- Other: The company reported no material accounting-policy changes, no contractual obligations or commercial commitments, and no material weaknesses in internal controls. Independent auditors issued an unqualified opinion on the financial statements; their report did not attest to management’s internal-control assessment.
Key facts for investors to verify
- Current status and potential financial outcome of the $1.8 million litigation exposure, including whether the reserve remains adequate.
- Whether customer concentration—especially the largest customer’s 30% share of sales and 40% share of receivables—has changed.
- Whether operating cash flow improves and inventory turnover reverses its increase to 95 days from 72 days.
- Whether the narrower MSI product strategy delivers the expected results in fiscal 2015 and whether the seed and marine-related businesses stabilize.
- Subsequent share repurchases: the company reported an additional 132,923 shares repurchased for $1.36 million through October 29, 2014, after fiscal year-end.