Beset with financial losses, long-term debt, and losses from operations the past two years, bottled-water company Mountain Valley Spring Co. is planning an initial public offering in hope of infusing the 140-year-old firm with cash to improve operating efficiencies, and triple its sales force and sales support staff from 10 people to 30.
Mountain Valley lost a combined $11.3 million in 2009 and 2010, including losses of $7.1 million from operations, according to the registration statement it filed Dec. 2 with the U.S. Securities and Exchange Commission.
Through the first nine month of 2011, Mountain Valley did post net income of nearly $6.6 million, but that was mostly because of a non-cash $7.6 million gain on conversion of subordinated debt. The company currently has about $5.65 million in long-term indebtedness and $600,000 in short-term indebtedness outstanding that matures this month, the filing said.
“We hope to extend or refinance this indebtedness prior to maturity, however, we may be unable to extend or refinance the indebtedness on terms that are favorable to us, or at all,” the company said in its SEC filing. “If we are unable to extend or refinance the indebtedness, we intend to use proceeds from this offering to pay off our long-term and short-term indebtedness.”
Hot Springs, Ark.-based Mountain Valley has not been profitable in recent years, and may not become profitable in the future, according to the company. It is the oldest continuously operating bottled-water company in the United States.
“Our losses may continue as we incur additional costs and expenses related to becoming and operating as a public company, branding and marketing, expansion of operations, product development and development of relationships with strategic business partners,” the company wrote in the SEC filing. “If our operating expenses exceed our expectations, our financial performance will be adversely affected. If our sales do not grow to offset these increased expenses, we may not become profitable.”
Mountain Valley receives about 60 percent of its $24.2 million in annual revenues from sales of bottled water, and the rest from the manufacture of PET water bottles and preforms by its Veriplas division.
Its revenues from glass and PET bottled-water sales are split 50-50. That places its PET water bottle sales at approximately $7.25 million annually.
Mountain Valley has a 110,000-square-foot bottling plant in Hot Springs that has three production lines for its multigallon products; one fully automated glass-bottle production line with annual production capacity of 2.3 million to 4.6 million cases of bottles; and one fully automated PET production line with annual production capacity of 3.5 million to 7 million cases of PET bottles.
However, production from the latter two lines is limited because Mountain Valley only has one palletizer to stack finished product.
“Both of these production lines utilize a single palletizer, and an additional palletizer will have to be installed for us to optimize the production capacity of these lines,” said the company.
Mountain Valley said it hoped to use funds from the IPO to purchase a second palletizer, at an estimated cost of $375,000.
Its Veriplas division has two PET manufacturing plants totaling roughly 112,000 square feet, located in Hot Springs and nearby Little Rock, Ark.
But Mountain Valley said in the SEC filing that it plans to consolidate these Veriplas plants into a single operation, to improve efficiency and limit unutilized capacity. The Little Rock site will be merged into the Hot Springs plant.
Veriplas supplies Mountain Valley with all of its PET bottles, and also sells bottles and preforms to 30 independent beverage bottlers. But it recently suffered a significant loss of business when a single customer — which accounted for 22 percent of Veriplas' net sales in both 2009 and 2010 — cut back its purchases dramatically this year.
That customer “substantially decreased its purchases” during 2011 and “recently informed us that it intends to internally produce over 75 percent of its plastic bottle requirements beginning in 2012,” the SEC filing said. “The loss of additional major customers from our Veriplas division would adversely affect us.”
Mountain Valley competes in the premium end of the bottled market, which is estimated by consulting and research firm Beverage Marketing Corp. of Rockville, Md., to be $1 billion in sales of the entire bottled-water market of $10.6 billion.
“Our growth strategy predominantly focuses on growing the bottled-water portion of our business through increased sales, expanded product offerings and increased production capacity,” Mountain Valley said in the SEC filing.
Specifically, Mountain Valley said it aims to increase sales in the 31 states where its water bottles are currently marketed and sold, by tripling its sales and sales support staff. It said it would first concentrate its efforts to expand sales in Texas, California, Florida and New York — the four states that account for 50 percent of bottled-water sales, as well as the mid-South and Southeast, which are in proximity to its plants.
Mountain Valley has 107 full-time employees. In mid-2008, it became one of the first bottled-water companies to use recycled PET in its Mountain Valley-branded plastic bottled-water containers. It currently uses 50 percent recycled PET in its branded water bottles. Its glass packaging uses an average of 25 percent recycled material.
The company, in the SEC filing, said that MV Holdings LLC owns about 85 percent of its voting equity, and that MV Holdings LLC is beneficially owned by Johnelle Hunt. The filing said that Hunt also beneficially owns about 17.4 percent of the outstanding common stock of J.B. Hunt Transport Services Inc., a trucking and transportation firm to whom Mountain Valley outsources its logistics and delivery operations.