<PAGE>
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 September 30, 1997
------------------------------
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
------
MAUNA LOA MACADAMIA PARTNERS, 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.)
827 FORT STREET, HONOLULU, HAWAII 96813
----------------------------------------- ----------
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 808-544-6112
------------
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 October 31, 1997, Registrant had 7,500,000 Class A Units issued and
outstanding.
1
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MAUNA LOA MACADAMIA PARTNERS, L.P.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
2
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MAUNA LOA MACADAMIA PARTNERS, L.P.
Balance Sheets (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
September 30,
------------------- December 31,
ASSETS 1997 1996 1996
------ -------- -------- ------------
<S> <C> <C> <C>
Current assets:
Cash and short term investments $ 2,798 9 676
Accounts receivable from related party 3,081 4,255 6,899
Annualized cost adjustment 1,475 1,089 -
Prepaid expenses and other assets 153 61 82
-------- -------- ------------
Total current assets 7,507 5,414 7,657
-------- -------- ------------
Land, orchards and equipment 73,214 73,214 73,214
Less accumulated depreciation
and amortization (16,121) (14,517) (14,918)
-------- -------- ------------
Land, orchards and equipment (net) 57,093 58,697 58,296
-------- -------- ------------
Deferred charges (net) - 6 -
-------- -------- ------------
Total assets $ 64,600 64,117 65,953
======== ======== ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Line of Credit payable $ - 430 -
Accounts payable to related parties 2,203 2,684 2,623
Distributions payable 568 379 379
Other current and accrued liabilities 278 287 313
-------- -------- ------------
Total current liabilities 3,049 3,780 3,315
-------- -------- ------------
Deferred tax expense 1,232 14,982 14,982
Partners' capital:
General partners 603 454 476
Class A limited partners 59,716 44,901 47,180
-------- -------- ------------
Total partners' capital 60,319 45,355 47,656
-------- -------- ------------
Total liabilities and partners' capital $ 64,600 64,117 65,953
======== ======== ============
=================================================================================
</TABLE>
See notes to financial statements.
3
<PAGE>
MAUNA LOA MACADAMIA PARTNERS, L.P.
Income Statements (Unaudited)
(In Thousands, Except Per Unit Data)
<TABLE>
<CAPTION>
Three months Nine months
ended Sept. 30, ended Sept. 30,
------------------ ------------------
1997 1996 1997 1996
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Macadamia nut sales to related party $ 3,081 4,255 5,320 6,316
Cost of goods sold:
Costs expensed under farming
contracts with related parties 1,987 2,888 3,264 4,286
Depreciation and amortization 477 557 701 843
Other 111 97 173 167
--------- ------- --------- -------
2,575 3,542 4,138 5,296
--------- ------- --------- -------
Gross profit margin 506 713 1,182 1,020
General and administrative expenses:
Costs expensed under management
contract with related party 133 115 372 345
Other 66 66 322 323
--------- ------- --------- -------
199 181 694 668
--------- ------- --------- -------
Operating income 307 532 488 352
Interest income (expense) 42 (5) 129 1
--------- ------- --------- -------
Income before deferred tax credit 349 527 617 353
Deferred tax credit 13,750 - 13,750 -
--------- ------- --------- -------
Net income $ 14,099 527 14,367 353
========= ======= ========= =======
=====================================================================================================
Net cash flow (as defined in the
Partnership Agreement) $ 826 1,080 1,318 1,194
========= ======= ========= =======
Net income per Class A Unit $ 1.86 0.07 1.90 0.05
========= ======= ========= =======
Net cash flow per Class A Unit $ 0.11 0.14 0.17 0.16
========= ======= ========= =======
Cash distributions per Class A Unit $ 0.075 0.05 0.225 0.15
========= ======= ========= =======
Class A Units outstanding 7,500 7,500 7,500 7,500
========= ======= ========= =======
=====================================================================================================
</TABLE>
See notes to financial statements.
4
<PAGE>
MAUNA LOA MACADAMIA PARTNERS, L.P.
Statements of Partners' Capital (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three months Nine months
ended Sept. 30, ended Sept. 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Partners' capital at beginning of period:
General partners $ 468 452 476 462
Class A Limited Partners 46,320 44,754 47,180 45,676
-------- -------- -------- --------
46,788 45,206 47,656 46,138
-------- -------- -------- --------
Allocation of net income (loss):
General partners 141 5 144 3
Class A Limited Partners 13,958 522 14,224 350
-------- -------- -------- --------
14,099 527 14,368 353
-------- -------- -------- --------
Cash distributions:
General partners 6 3 17 11
Class A Limited Partners 562 375 1,688 1,125
-------- -------- -------- --------
568 378 1,705 1,136
-------- -------- -------- --------
Partners' capital at end of period:
General partners 603 454 603 454
Class A Limited Partners 59,716 44,901 59,716 44,901
-------- -------- -------- --------
$ 60,319 45,355 60,319 45,355
======== ======== ======== ========
========================================================================================
</TABLE>
See notes to financial statements.
5
<PAGE>
MAUNA LOA MACADAMIA PARTNERS, L.P.
Statements of Cash Flows (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three months Nine Months
ended Sept. 30, ended Sept. 30,
------------------ ------------------
1997 1996 1997 1996
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from macadamia nut sales $ 476 519 9,138 6,156
Cash paid under farming
and management contracts (1,054) (1,178) (4,969) (5,091)
Cash paid to other suppliers (168) (118) (662) (500)
Interest received (paid) 42 (1) 130 7
--------- ------- --------- -------
Net cash provided by (used in) operating activities (704) (778) 3,637 572
--------- ------- --------- -------
Cash flows from financing activities:
Proceeds from line of credit - 430 - 430
Principal payments of mortgage note - - - (265)
Distributions paid (568) (379) (1,515) (1,141)
Other - - - (8)
--------- ------- --------- -------
Net cash provided by (used in) financing activities (568) 51 (1,515) (984)
--------- ------- --------- -------
Net increase (decrease) in cash (1,272) (727) 2,122 (412)
Cash at beginning of period 4,070 736 676 421
--------- ------- --------- -------
Cash at end of period $ 2,798 9 2,798 9
========= ======= ========= =======
Reconciliation of net income to net cash
provided by (used in) operating activities:
Net income $ 14,099 527 14,367 353
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 477 557 701 853
Decrease (increase) in accounts
receivable from related party (2,605) (3,737) 3,818 (161)
Decrease (increase) in prepaid
expenses and other assets (22) 4 (72) (7)
Increase in fixed assets (23) (23)
Increase (decrease) in accounts
payable to related party 1,069 1,441 (419) 229
Increase (decrease) in current and
other accrued liabilities (13) 22 (35) 55
Decrease (increase) in annualized cost
adjustment (other than from depreciation
and amortization) 41 431 (973) (727)
Decrease in deferred tax liability (13,750) - (13,750) -
--------- ------- --------- -------
Total adjustments (14,803) (1,305) (10,730) 219
--------- ------- --------- -------
Net cash provided by (used in) operating activities $ (704) (778) 3,637 572
========= ======= ========= =======
========================================================================================================
</TABLE>
See notes to financial statements.
6
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MAUNA LOA MACADAMIA PARTNERS, L.P.
Notes to Financial Statements
-----------------------------
(1) In the opinion of management, the accompanying unaudited Balance Sheets as
of September 30, 1997, September 30, 1996 and December 31, 1996 and the
related unaudited Statements of Income, Partners' Capital and Cash Flows
for the periods ended September 30, 1997 and 1996 contain all adjustments,
consisting only of normally recurring accruals, necessary to present fairly
the financial position as of September 30, 1997, September 30, 1996 and
December 31, 1996 and the results of operations, changes in partners'
capital and cash flows for the periods ended September 30, 1997 and 1996.
(2) These interim financial statements should be read in conjunction with the
Financial Statements and the Notes to Financial Statements filed with the
Commission in the Partnership's 1996 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.
(5) The Partnership has elected to continue to be taxed as a partnership rather
than to be taxed as a corporation, subject to a 3.5 percent tax on gross
profit. This election is allowed by the Tax Relief Act of 1997, which
modifies the Omnibus Budget Reconciliation Act of 1987 ("OBRA"). OBRA
provided that some publicly traded limited partnerships, including the
Partnership, were to be taxed as corporations beginning in 1998. The
Partnership applied generally accepted accounting practices and recorded a
deferred income tax liability on its balance sheets in 1993. With this
election, the deferred tax liability is reduced from $14,982,000 to
$1,232,000, creating a deferred tax credit of $13,750,000.
(6) On August 22,1997, the third quarter cash distribution was declared in the
amount of seven and one-half cents (7.5c) per Class A Unit, payable on
November 14, 1997 to unitholders of record as of the close of business on
September 30, 1997.
7
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(7) On November 6, 1997, the Partnership and C. Brewer Homes, Inc. jointly
announced that they have reached an agreement in principal to merge the two
companies. Under the terms of the agreement, shareholders of C. Brewer
Homes, Inc. would receive .667 shares of Mauna Loa Macadamia Partners, L.P.
for each share of C. Brewer Homes, Inc. The merger is expected to result
in the issuance of approximately 5.56 million limited partner shares. The
merger plan is subject to approval by the limited partners of the
Partnership and the shareholders of C. Brewer Homes. The combined Company
will be renamed "Hawaii Land and Farming Company. and will continue as a
master limited partnership, trading on the New York Stock Exchange.
On September 30, 1997, there were 7,500,000 Class A Units issued and outstanding
and 1,500,000 Class B Units issued and outstanding. No value has been assigned
to the Class B Units.
8
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MAUNA LOA MACADAMIA PARTNERS, L.P.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
OPERATING RESULTS -- FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
For the third quarter and the first nine months of 1997, nut production, nut
price and revenues are summarized below:
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
------------------------
1997 1996 Change
----- ------ -------
<S> <C> <C> <C>
Nuts harvested (000's Lbs. WIS) 5,035 7,649 - 34%
Average nut price ($/Lb.) .6119 .5564 + 10%
----- ------
Net nut revenues ($000's) 3,081 4,255 - 28%
===== ======
<CAPTION>
For the Nine Months
Ended September 30,
------------------------
1997 1996 Change
----- ------ -------
<S> <C> <C> <C>
Nuts harvested (000's Lbs. WIS) 8,696 11,356 - 23%
Average Nut price ($/Lb.) .6117 .5562 + 10%
----- ------
Net nut revenues ($000's) 5,320 6,316 - 16%
===== ======
</TABLE>
Although the 1997 third quarter and year-to-date production yields were below
last year's record breaking harvest, they totaled 89 percent and 91 percent,
respectively, of the last five years' average production. This smaller fall
crop is due in part to last February's windstorm, which resulted in the loss of
1.4% of our trees. Nevertheless, a 10 percent higher nut price for 1997
combined with comparable production costs per pound ($.48 in 1997 compared to
$.47 in 1996) resulted in a 16% higher gross profit for the 1997 nine month
period.
General and administrative expenses are up slightly compared to last year, and
the Partnership generated more interest income in 1997 as a result of having
cash on hand.
Income before deferred income tax credit for the third quarter 1997 was $349,000
compared to $527,000 for 1996. Income before deferred income tax credit
improved to $617,000 for the 1997 nine month period compared to $353,000 for the
1996 nine month period.
The Partnership's nut price is determined by a formula which is weighted 50% on
a two-year trailing average of USDA reported macadamia nut prices and 50% on
the current year processing and marketing results of Mauna Loa Macadamia Nut
Corporation ("Mauna Loa"), a separate privately owned company which purchases
all of the Partnership's nuts under long-term contracts.
9
<PAGE>
The final price to be paid for the entire year's production is not known until
early in the following year when Mauna Loa's books have been closed and audited.
For interim payment and reporting purposes, therefore, the Partnership and Mauna
Loa estimate this nut price based on Mauna Loa's current processing and
marketing plan. When Mauna Loa updates its plan, the Partnership revises its
current year nut price estimate accordingly (unless the effect would be minimal)
and records an adjustment in that quarter to apply the revised price estimate to
all nuts sold earlier in that year as well.
Production changes year-over-year result primarily from variations in weather
(especially rainfall levels and patterns) and tree maturation. Because the Ka'u
orchards are located in a drier part of the Island of Hawaii while the Keaau and
Mauna Kea orchards are located in a wetter part of the Island of Hawaii, periods
of very dry weather on the island tend to reduce production in the Ka'u orchards
(from insufficient moisture) while periods of very wet weather on the island
tend to reduce production in the Keaau and Mauna Kea orchards (from excessive
moisture). Nearly one-third of the Partnership's acreage has not yet reached
full maturity.
Weather scientists have announced that we are in the beginning stages of a
weather pattern known as El Nino. El Nino events occur irregularly and are not
normally predictable. Six such events have occurred in the past 25 years.
During their build-up, wet springs and summers are typical. These same seasons
have been drier than normal in the following year, usually resulting in drought
conditions. This change has had little affect in the Keeau and Mauna Kea
orchards, but it has reduced production in the Ka'u orchards by an average of 20
percent.
PROPOSED MERGER WITH C. BREWER HOMES
The proposed merger of Mauna Loa Macadamia Partners, L.P. and C. Brewer Homes,
Inc. was announced November 6, 1997. The merger plan is subject to the approval
by the limited partners of the Partnership and the shareholders of C. Brewer
Homes. A Proxy Statement containing detailed information on the proposed merger
will soon be furnished to all limited partners.
Taxes
Earlier this year Congress passed the Taxpayer Relief Act of 1997, which enables
Mauna Loa Macadamia Partners to permanently extend its partnership tax status,
subject to a 3.5 percent tax on gross income beginning in 1998. This new tax on
gross income will have a slight negative impact upon the Partnership's profit
and cash flow compared to current and past years, but will have a positive
impact compared to being taxed as a corporation. As a result of Mauna Loa
Macadamia Partner's decision to elect continued partnership tax status, the
Partnership eliminated most of its deferred tax liability account and recognized
a gain of $13.8 million in the third quarter.
10
<PAGE>
SEASONALITY, CAPITAL RESOURCES AND LIQUIDITY
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 has a $4.0 million revolving line of credit in place to fund
working capital needs. There were no line of credit drawings at September 30,
1996 and September 30, 1997. No borrowings were made from the line of credit
during the first nine months of 1997.
It is the opinion of management that the Partnership has adequate borrowing
capacity available to meet anticipated working capital needs.
INFLATION
In general, prices paid to macadamia nut farmers fluctuate independently of
inflation. Those prices are influenced strongly by worldwide macadamia nut
production and by prices for finished macadamia products which, in turn, depend
on competition and consumer acceptance.
Hawaii's macadamia nut crop for the 1996-97 crop year was a record 56.5 million
pounds net, wet-in-shell, 5.5 million pounds above the last crop year, according
to the Hawaii Agricultural Statistics Service. Average prices increased by 2.4
cents to 71.3 cents per pound on a 25% moisture equivalent basis.
Farming costs, particularly materials and labor, do generally reflect
inflationary trends as do general and administrative costs.
NEW ACCOUNTING STANDARDS
EARNINGS PER SHARE
In February 1997, The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) NO. 128, Earnings per Share,
the provisions of which are effective for fiscal periods ending after December
15, 1997. This Statement establishes standards for computing and presenting
earnings per share. The future adoption of this pronouncement is not expected
to have a material effect on the Partnership's presentation of earnings per unit
amounts.
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, the
provisions of which are effective for fiscal periods beginning after December
15, 1997. The Statement requires that all items that are required to be
recognized under
11
<PAGE>
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The future adoption of this pronouncement is not expected
to have a material effect on the Partnership's presentation of its results of
operations.
SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information,, the provisions of which are effective for
fiscal years beginning after December 15, 1997. This Statement establishes
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Partnership has not determined the impact that the adoption of
this new accounting standard will have on its financial statement disclosures.
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 15
(27) Financial Data Schedule (filed only
electronically with the SEC --
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the third quarter of 1997.
12
<PAGE>
MAUNA LOA MACADAMIA PARTNERS, L.P.
----------------------------------
SIGNATURES
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.
MAUNA LOA MACADAMIA PARTNERS, L.P.
(Registrant)
By MAUNA LOAN RESOURCES INC.
Managing General Partner
By /s/ Gregory A. Sprecher
------------------------------
Gregory A. Sprecher
Senior Vice President and
Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
Number Description of Exhibits Page No.
------ ----------------------- --------
11.1 Statement re Computation of Net Income
per Class A Unit 15
27 Financial Data Schedule (filed only
electronically with the SEC) --
14
<PAGE>
Exhibit 11.1
MAUNA LOA MACADAMIA PARTNERS, L.P.
Computation of Net Income per Class A Unit
(Unaudited)
(In Thousands, Except Per Unit Data)
<TABLE>
<CAPTION>
Three months Nine months
ended Sept. 30, ended Sept. 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income $ 14,099 527 14,367 353
Class A Unitholders
(ownership percentage) x 99% 99% 99% 99%
-------- -------- -------- --------
Net Income allocable
to Class A Unitholders $ 13,958 522 14,223 349
======== ======== ======== ========
Class A Units outstanding 7,500 7,500 7,500 7,500
======== ======== ======== ========
Net income per Class A Unit $ 1.86 0.07 1.90 0.05
======== ======== ======== ========
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,798
<SECURITIES> 0
<RECEIVABLES> 3,081
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,507
<PP&E> 73,214
<DEPRECIATION> 16,121
<TOTAL-ASSETS> 64,600
<CURRENT-LIABILITIES> 3,049
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 60,319
<SALES> 3,081
<TOTAL-REVENUES> 3,123
<CGS> 575
<TOTAL-COSTS> 2,575
<OTHER-EXPENSES> 199
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 349
<INCOME-TAX> (13,750)
<INCOME-CONTINUING> 14,099
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,099
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.86
</TABLE>
