UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-9145
ML MACADAMIA ORCHARDS, L.P.
---------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 99-0248088
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
828 FORT STREET, HONOLULU, HAWAII 96813
---------------------------------------- ----------
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 808-532-4130
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of March 31, 2000, Registrant had 7,500,000 Class A Units issued and
outstanding.
1
ML MACADAMIA ORCHARDS, L.P.
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
2
ML MACADAMIA ORCHARDS, L.P.
BALANCE SHEETS
(in thousands)
MARCH 31,
----------------- DECEMBER 31,
2000 1999 1999
----------------- --------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 1,470 5,898 $ 5,325
Accounts receivable, primarily from related parties 9,293 3,503 7,687
Annualized cost adjustment 936 -- --
Other current assets 83 55 3
------- ------- -------
Total current assets 11,782 9,456 13,015
Land, orchards and equipment, net 53,088 54,689 53,488
------- ------- -------
Total assets $64,870 $64,145 $66,503
======= ======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable to related parties $ 1,821 $ 2,147 $ 2,819
Cash distributions payable 947 758 758
Annualized cost adjustment liability -- 96 --
Other current liabilities 465 486 407
------- ------- -------
Total current liabilities 3,233 3,487 3,984
Deferred income tax liability 1,249 1,220 1,249
------- ------- -------
Total liabilities 4,482 4,707 5,233
------- ------- -------
Commitments and contingencies
Partners' capital
General partners 604 594 613
Class A limited partners, no par or assigned value,
7,500 units issued and outstanding 59,784 58,844 60,657
------- ------- -------
Total partners' capital 60,388 59,438 61,270
------- ------- -------
Total liabilities and partners' capital $64,870 $64,145 $66,503
======= ======= =======
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
ML MACADAMIA ORCHARDS, L.P.
INCOME STATEMENTS (UNAUDITED)
(in thousands, except per unit data)
FOR THE QUARTERS ENDED
MARCH 31,
----------------------
2000 1999
------- ------
Macadamia nut sales to related party $ 1,492 $3,447
Cost of goods sold
Costs expensed under farming contracts
with related parties 999 2,041
Depreciation and amortization 181 435
Other 48 103
------- ------
Total cost of goods sold 1,228 2,579
------- ------
Gross income 264 868
------- ------
General and administrative expenses
Costs expensed under management contract
with related party 142 164
Other 196 198
------- ------
Total general and administrative expenses 338 362
------- ------
Operating income (loss) (74) 506
Interest income 148 65
------- ------
Income before tax 74 571
Income tax expense 9 30
------- ------
Net income $ 65 $ 541
======= ======
- ---------------------------------------------------------------------------
Net cash flow (as defined in the Partnership Agreement) $ 246 $ 976
======= ======
- ---------------------------------------------------------------------------
Net income per Class A Unit $ 0.01 $ 0.07
======= ======
Net cash flow per Class A Unit $ 0.03 $ 0.13
======= ======
Cash distributions per Class A Unit $ 0.125 $ 0.10
======= ======
Class A Units outstanding 7,500 7,500
======= ======
- ---------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
ML MACADAMIA ORCHARDS, L.P.
STATEMENTS OF PARTNERS' CAPITAL (UNAUDITED)
(in thousands)
FOR THE QUARTERS ENDED
MARCH 31,
----------------------
2000 1999
------- -------
Partners' capital at beginning of period:
General partners $ 613 $ 597
Class A limited partners 60,657 59,058
------- -------
61,270 59,655
------- -------
Allocation of net income:
General partners -- 5
Class A limited partners 65 536
------- -------
65 541
------- -------
Cash distributions:
General partners 9 8
Class A limited partners 938 750
------- -------
947 758
------- -------
Partners' capital at end of period:
General partners 604 594
Class A limited partners 59,784 58,844
------- -------
$60,388 $59,438
======= =======
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
ML MACADAMIA ORCHARDS, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
FOR THE QUARTERS ENDED
MARCH 31,
------------------
2000 1999
------- -------
Cash flows from operating activities:
Cash received primarily from macadamia nut sales $ -- $ 5,384
Cash paid under farming and management contracts (2,820) (3,026)
Cash paid to other suppliers (314) (274)
Interest received 37 65
------- -------
Net cash provided by (used in) operating activities (3,097) 2,149
------- -------
Cash flows from financing activities:
Cash distributions paid (758) (568)
------- -------
Net cash used in financing activities (758) (568)
------- -------
Net increase (decrease) in cash (3,855) 1,581
Cash at beginning of period 5,325 4,317
------- -------
Cash at end of period $ 1,470 $ 5,898
======= =======
Reconciliation of net income to net cash provided by (used in) operating
activities:
Net income $ 65 $ 541
Adjustments to reconcile net income to cash provided by (used in)operating
activities:
Depreciation and amortization 181 435
Decrease (increase) in accounts receivable
from related parties (1,606) 1,932
Increase in annualized cost adjustment (717) --
Increase in other current assets (80) (55)
Decrease in accounts payable (998) (874)
Increase in annualized cost adjustment liability -- 62
Increase in other current liabilities 58 108
------- -------
Total adjustments (3,162) 1,608
------- -------
Net cash provided by (used in) operating activities $(3,097) $ 2,149
======= =======
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
ML MACADAMIA ORCHARDS, L.P.
NOTES TO FINANCIAL STATEMENTS
(1) In the opinion of management, the accompanying unaudited financial
statements of ML Macadamia Orchards, L.P. ("the Partnership") include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly its financial position as of March 31, 2000, March 31, 1999
and December 31, 1999 and the results of operations, changes in partners'
capital and cash flows for the periods ended March 31, 2000 and 1999. The
results of operations for the period ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year or
for any future period.
(2) These interim financial statements should be read in conjunction with the
Financial Statements and the Notes to Financial Statements filed with the
Securities and Exchange Commission in the Partnership's 1999 Annual Report
on Form 10-K.
(3) All production costs are annualized for interim reporting purposes, with
the difference between costs incurred to date and costs expensed to date
being reported on the balance sheet as an annualized cost adjustment.
(4) All capital allocations reflect the general partners' 1% equity interest
and the limited partners' 99% percent equity interest. Net income per Class
A Unit is calculated by dividing 99% of Partnership net income by the
average number of Class A Units outstanding for the period.
(5) On March 10, 2000, the first quarter cash distribution was declared in the
amount of twelve and one-half cents ($0.125) per Class A Unit, payable on
May 15, 2000 to unitholders of record as of the close of business on March
31, 2000.
(6) On May 1, 2000, the Partnership purchased 142 acres of mature macadamia
trees and substantially all of the assets used in the macadamia farming
business from Ka'u Agribusiness Company, Inc., Ka'u Sugar, Inc., Mauna Kea
Macadamia Orchards, Inc., and Mauna Kea Agribusiness Company, Inc. The
farming assets consist of the farming equipment, vehicles, a husking plant,
an irrigation well, leasehold improvements, office furniture and equipment
and inventories related to macadamia farming. The purchase price was $9
million dollars and was paid using $5 million in cash and a loan from
Pacific Coast Farm Credit services, ACA of $4 million.
7
ML MACADAMIA ORCHARDS, L.P.
Management's Discussion and Analysis of
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS -- FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
First quarter 2000 macadamia nut production was 2.6 million pounds
(wet-in-shell at a 25% moisture equivalent), compared to 5.4 million pounds
harvested for the first quarter 1999. The first quarter 1999 harvest was
unusually heavy compared with a more normal harvest in the first quarter 2000.
March 31, Change
------------------------- -------------
2000 1999
-------- --------
Nuts harvested (000's pounds WIS) 2,558 5,403 - 53%
Average nut price (per pound) $ 0.5831 $ 0.6378 - 9%
-------- --------
Net nut sales ($000's) 1,492 3,447 - 57%
======== ========
The average nut price received in the first quarter 2000 for macadamia
nut production was $0.5831 compared to the average nut price of $0.6378 in the
first quarter 1999. The price that the Partnership receives for its nuts is
based 50% on the current year processing and marketing results of Mauna Loa
Macadamia Nut Corporation ("Mauna Loa"), its exclusive purchaser, and 50% on
USDA-reported macadamia nut prices for the two preceding years. The USDA portion
for the current year is lower by 7% while the Mauna Loa portion is estimated to
be lower by 6%. Nut prices are subject to subsequent adjustment based on Mauna
Loa's actual full year performance. For the full year 1999, the actual average
nut price received was $0.6238.
Farming expenses for the first quarter 2000 were lower by $1.0 million,
due to the lower production. Interim production costs, which including
depreciation expense, are based on annualized standard unit costs. The
difference between costs incurred to date and costs expensed to date is reported
on the balance sheet as an annulaized cost adjustment. If costs incurred are
higher than costs expensed, it appears as a current asset. If costs expensed are
higher than costs incurred, then it appears as a current liability. Total cost
of goods sold for both periods were $0.48 per pound.
General and administrative costs were lower by $24,000 for the first
quarter 2000 as compared to the same period in 1999. Interest income was higher
for the first quarter 2000 by $83,000, due to higher cash balances and
interest-bearing trade receivables and higher interest rates.
ACQUISITION OF MACADAMIA FARMING BUSINESS
On March 14, 2000, the Partnership announced that it agreed to purchase
142 acres of mature macadamia trees and substantially all of the assets used in
the macadamia farming business from Ka'u Agribusiness Company, Inc., Ka'u Sugar,
Inc., Mauna Kea Macadamia Orchards, Inc., and Mauna Kea Agribusiness Company,
Inc., all Hawaii corporations (collectively referred to herein as "Seller").
8
The acquired assets consist primarily of farming equipment, vehicles, a
husking plant, a well, office buildings, garages and warehouses, office
furniture and equipment and inventories related to macadamia farming. In
addition, the Seller will assign to the Partnership its interest in
approximately 16 farm service contracts to farm macadamia orchards owned by
other growers. The Partnership will also be purchasing from Seller approximately
142 tree acres of mature macadamia orchards, which consist of an ownership
interest in the trees and a leasehold interest in the underlying land. The
orchards are all located in the Ka'u region on the island of Hawaii.
The purchase price for all the assets to be acquired is $9 million in
cash. The Partnership used $5 million of its working capital for the purchase
and borrowed the balance of $4 million from Pacific Coast Farm Credit Services,
ACA.
The entities comprising the Seller are subsidiaries or affiliates of C.
Brewer and Company, Ltd. ("CBCL"), a Hawaii company. The Partnership's general
partner, ML Resources, Inc. ("MLR" or "Managing Partner"), a Hawaii company, is
also a subsidiary of CBCL.
The agreement to purchase the assets of Seller was negotiated by the
Conflicts Committee, independent of the MLR's Board of Directors. The Conflicts
Committee is composed of two persons who are independent of CBCL and its
affiliates. Those directors of the Managing Partner with conflicts of interest
also recused themselves from involvement in negotiations for the Seller.
Prior to the acquisition, the Seller was in the business of farming
macadamia orchards primarily for other orchard owners and partly for themselves.
The Seller farmed approximately 7,195 acres of macadamia orchards, including
4,027 acres owned by the Partnership. The Partnership will use all the assets
involved in the purchase for farming the same macadamia orchards.
In connection with the acquisition, the Partnership and Seller entered
into various contracts to provide specific services to the other. The
Partnership will provide macadamia farming services to Seller for approximately
700 acres at cost plus 15%. The Partnership will also provide accounting
services to certain subsidiaries and affiliates of Seller for cost plus 15%.
Seller will provide certain management services for Partnership, such as
executive management, legal, land management, human relations and insurance
services for approximately $100,000 per year.
LIQUIDITY AND CAPITAL RESOURCES
Macadamia nut farming is seasonal, with production peaking late in the
fall. However, farming operations continue year round. As a result, additional
working capital is required for much of the year. The Partnership meets its
working capital needs with cash on hand, and when necessary, through short-term
borrowings under a $4 million revolving line of credit. The Partnership had a
cash balance of $1.5 million at March 31, 2000, and there were no line of credit
drawings outstanding.
On May 1, 2000 the Partnership completed the purchase of the macadamia
farming business discussed above by paying $5 million in cash with the balance
of $4 million provided by a new Credit Agreement. The Credit Agreement consists
of long-term debt of $4 million and a $5 million line of credit for short-term
working capital needs, replacing the previous line of credit.
The Credit Agreement permits additional borrowings of up to 10% of the
Partnership's net worth and contains certain covenants that affect the
Partnership. Generally, the Credit Agreement
9
(a) limits outstanding indebtedness of the Partnership, (b) requires the
Partnership to maintain a minimum net worth and minimum working capital, and (c)
limits cumulative cash distributions to cumulative cash flow plus $3 million.
It is the opinion of management that the Partnership has adequate cash
on hand combined with the line of credit to meet anticipated working capital
needs.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Exhibit Page
Number Description Number
------ ----------- ------
11.1 Statement re Computation of Net Income
per Class A Unit 12
27 Financial Data Schedule (filed only
electronically with the SEC) --
(b) Reports on Form 8-K:
On March 22, 2000 the Partnership filed a report on Form 8-K announcing
that the Partnership agreed to purchase 142 acres of macadamia orchards
and substantially all of the assets used in the macadamia farming business
from Ka'u Agribusiness, Inc, Ka'u Sugar, Inc., Mauna Kea Macadamia
Orchards, Inc., and Mauna Kea Agribusiness Company, Inc.
10
ML MACADAMIA ORCHARDS, L.P.
---------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ML MACADAMIA ORCHARDS, L.P.
(Registrant)
By ML RESOURCES, INC.
Managing General Partner
Date: May 10, 2000 By /s/ Gregory A. Sprecher
--------------------------
GREGORY A. SPRECHER
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
EXHIBIT INDEX
Exhibit Page
Number Description Number
------ ----------- ------
11.1 Statement re Computation of Net Income
per Class A Unit 12
27 Financial Data Schedule (filed only
electronically with the SEC) --