Posted: November 17th, 2014

Country Snack Foods Co.

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 62″d 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
presence beyond the aisle into sporting events, movie theaters, and other leisure venues where
consumers were more likely to purchase snack foods. Many of Hill Country’s products were also
sold through school systems, which required the company to reduce the fat and sugar content of its
products. This was just one example of the company’s continual work to solicit, collect, analyze, and
internally distribute customer feedback so the company could quickly react to customer requirements
or preferences, and reinvent and expand its products as required to succeed in the rapidly changing
marketplace.

HBS Professor W. Carl Kester and Babson College Professor Craig Stephenson prepared this case solely as a basis for class discussion and not as
an endorsement, a source of primary data, or an illustration of effective or ineffective management. Although based on real events and despite
occasional references to actual companies, this case is fictitious and any resemblance to actual persons or entities is coincidental.

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