Jewett-Cameron Trading Company Ltd. — FY2013 Form 10-K
Reporting period: Fiscal year ended August 31, 2013; the filing also reports fourth-quarter results. Amounts are U.S. dollars unless stated otherwise. The company wholesales and distributes wood, lawn and garden, pet, seed-processing, and industrial tool products through four operating segments. Financial statements received an unqualified audit opinion.
Financial performance
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Revenue | $49.29 million | $45.95 million | +7% |
| Gross profit / margin | $9.83 million / 19.9% | $8.64 million / 18.8% | Margin +1.1 percentage points |
| Operating income | $4.67 million | $3.56 million | +31% |
| Income before tax | $5.06 million | $5.02 million | +1% |
| Net income / diluted EPS | $3.13 million / $1.00 | $3.06 million / $0.89 | Net income +2%; EPS reflects fewer weighted-average shares |
| Operating cash flow | $1.08 million | $3.94 million | Down $2.86 million |
Net margin was approximately 6.4% in FY2013, compared with 6.7% in FY2012. FY2013 fourth-quarter revenue was $10.71 million, gross profit $2.37 million, and net income $841,000, versus $10.84 million, $2.28 million, and $771,000, respectively, in the prior-year quarter. Quarterly EPS was $0.28 versus $0.23. Share and per-share amounts reflect the May 2013 two-for-one stock split.
Segments and material comparisons
- Lawn, garden, pet and other (JCLC): Revenue rose 16% to $34.65 million, the main driver of consolidated growth. Management cited stronger sales to existing customers and demand for home, backyard, and pet projects.
- Industrial wood products (Greenwood): Revenue was essentially flat at $7.86 million. Weak marine-sector demand persisted; segment income improved from a loss to approximately $12,000.
- Seed processing and sales: Revenue fell 18% to $4.71 million. Management attributed the decline to the departure of its lead salesperson, fewer grass-seed acres, and growers consolidating cleaning in-house.
- Industrial tools and clamps (MSI): Revenue fell 18% to approximately $2.06 million as the company wound down certain lower-margin sales programs.
Operating expenses increased slightly to $5.16 million. Reported FY2013 pretax income included a $353,852 gain on a land sale; FY2012 included $1.44 million of litigation-reserve reversal income. These unusual items complicate year-over-year comparisons.
Cash, liquidity and debt
- Cash increased to $8.31 million from $7.31 million. Working capital was $18.04 million, up $3.11 million; the current ratio was 6.99.
- Operating cash flow declined as working capital absorbed cash, including a $1.44 million increase in inventory. Inventory was $8.52 million, up from $7.09 million; inventory turnover lengthened to 72 days from 63. Receivables collection period remained 25 days.
- Capital expenditures were approximately $482,000, including a JCLC warehouse addition. Investing cash outflow was $72,000 after $410,000 of land-sale proceeds.
- No borrowings were outstanding under the $5 million U.S. Bank credit line at year-end; the full amount was available. The facility is secured by receivables and inventory, bears interest at one-month LIBOR plus 200 basis points, and has financial covenants, which the company reported meeting.
- Total liabilities were $3.06 million and stockholders’ equity was $20.60 million. The filing reports no current contractual obligations or commercial commitments.
Outlook, risks and unusual items
Management said existing working capital, retained earnings, and the available credit line should meet needs for the coming fiscal year. The filing provides no numerical revenue or earnings guidance. Management described the marine market as weak, with boat manufacturers still reducing excess inventory, and said the timing of an industry recovery was uncertain.
- Customer concentration is significant: the top ten customers generated 66% of FY2013 sales, and the largest customer accounted for 23%. Two customers represented a combined 51% of year-end receivables.
- Two suppliers each accounted for more than 10% of purchases; their combined purchases were $16.69 million. The company also cited competition, economic and demand changes, vendor-delivery delays, and possible financing needs as risks.
- A long-running dispute involving Greenwood Forest Products remained reflected in a $144,103 litigation reserve. The filing describes further court consideration after a favorable 2012 state supreme court decision; investors should verify subsequent case status.
- The Oregon Department of Transportation land sale generated $410,000 cash proceeds and the $353,852 gain. The FY2012 litigation-reserve reversal was a one-time gain, not recurring operating performance.
- Management reported effective disclosure controls and internal control over financial reporting, with no material weaknesses identified. The auditor did not provide an internal-control attestation.
- The company repurchased and cancelled 1,006 shares for $7,188 during FY2013 and did not declare dividends. Trading liquidity may be limited; average daily NASDAQ volume was approximately 14,159 shares.
Investor verification priorities
- Assess whether JCLC’s sales growth and improved gross margin are sustainable, and whether weakness in seed and industrial tools persists.
- Reconcile operating cash generation with earnings and monitor inventory growth, turnover, and seasonal working-capital needs.
- Verify the status and potential exposure of the Greenwood Forest Products litigation and any changes to the recorded reserve.
- Evaluate dependence on the largest customer and concentrated suppliers, including any changes in receivable collections.
- Check subsequent filings for credit-line availability, covenant compliance, guidance, and developments in the marine market.