<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, 1998
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 September 30, 1998, Registrant had 7,500,000 Class A Units issued and
outstanding.
1
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ML MACADAMIA ORCHARDS, L.P.
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
</TABLE>
2
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ML MACADAMIA ORCHARDS, L.P.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- DECEMBER 31,
1998 1997 1997
--------------------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,546 $ 2,798 $ 2,914
Accounts receivable, primarily from related parties 3,568 3,081 6,809
Annualized cost adjustment 652 1,475 -
Other current assets 83 153 20
--------- --------- ---------
Total current assets 7,849 7,507 9,743
Land, orchards and equipment, net 55,490 57,093 56,692
Capitalized acquisition costs - - 292
--------- --------- ---------
Total assets $ 63,339 $ 64,600 $ 66,727
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable to related parties $ 2,175 $ 2,203 $ 3,681
Cash distributions payable 568 568 568
Other current liabilities 332 278 281
--------- --------- ---------
Total current liabilities 3,075 3,049 4,530
Deferred income tax expense 1,232 1,232 1,232
--------- --------- ---------
Total liabilities 4,307 4,281 5,762
--------- --------- ---------
Commitments and contingencies
Partners' capital
General partners 590 603 610
Class A limited partners, no par or assigned value,
7,500 units issued and outstanding 58,442 59,716 60,355
--------- --------- ---------
Total partners' capital 59,032 60,319 60,965
--------- --------- ---------
Total liabilities and partners' capital $ 63,339 $ 64,600 $ 66,727
--------- --------- ---------
--------- --------- ---------
- -----------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
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ML MACADAMIA ORCHARDS, L.P.
INCOME STATEMENTS (UNAUDITED)
(in thousands, except per unit data)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- --------------------
1998 1997 1998 1997
------ ------- ------ ------
<S> <C> <C> <C> <C>
Macadamia nut sales to related party $ 3,480 $ 3,081 $ 7,029 $ 5,320
Cost of goods sold
Costs expensed under farming contracts
with related parties 2,212 1,987 4,366 3,264
Depreciation and amortization 547 477 909 701
Other 176 111 282 173
-------- -------- -------- --------
Total cost of goods sold 2,935 2,575 5,557 4,138
-------- -------- -------- --------
Gross income 545 506 1,472 1,182
-------- -------- -------- --------
General and administrative expenses
Costs expensed under management contract
contract with related party 186 133 413 372
Other 67 66 309 322
-------- -------- -------- --------
Total general and administrative expenses 253 199 722 694
-------- -------- -------- --------
Operating income 292 307 750 488
Merger transaction costs - - (1,119) -
Interest income 56 42 192 129
-------- -------- -------- --------
Income (loss) before tax 348 349 (177) 617
Deferred tax credit - 13,750 - 13,750
Gross income tax 19 - 52 -
-------- -------- -------- --------
Net income (loss) $ 329 $ 14,099 $ (229) $ 14,367
-------- -------- -------- --------
-------- -------- -------- --------
- --------------------------------------------------------------------------------------------------------------
Net cash flow
(as defined in the Partnership Agreement and
reduced by the merger transaction costs) $ 876 $ 826 $ 680 $ 1,318
-------- -------- -------- --------
-------- -------- -------- --------
- --------------------------------------------------------------------------------------------------------------
Net income (loss) per Class A Unit $ 0.04 $ 1.86 $ (0.03) $ 1.90
-------- -------- -------- --------
-------- -------- -------- --------
Net cash flow per Class A Unit $ 0.12 $ 0.11 $ 0.09 $ 0.17
-------- -------- -------- --------
-------- -------- -------- --------
Cash distributions per Class A Unit $ 0.075 $ 0.075 $ 0.225 $ 0.225
-------- -------- -------- --------
-------- -------- -------- --------
Class A Units outstanding 7,500 7,500 7,500 7,500
-------- -------- -------- --------
-------- -------- -------- --------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
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ML MACADAMIA ORCHARDS, L.P.
STATEMENTS OF PARTNERS' CAPITAL (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
1998 1997 1998 1997
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Partners' capital at beginning of period:
General partners $ 593 $ 468 $ 610 $ 476
Class A limited partners 58,678 46,320 60,355 47,180
--------- --------- --------- ---------
59,271 46,788 60,965 47,656
--------- --------- --------- ---------
Allocation of net income (loss):
General partners 3 141 (3) 144
Class A limited partners 326 13,958 (226) 14,223
--------- --------- --------- ---------
329 14,099 (229) 14,367
--------- --------- --------- ---------
Cash distributions:
General partners 6 6 17 17
Class A limited partners 562 562 1,687 1,687
--------- --------- --------- ---------
568 568 1,704 1,704
--------- --------- --------- ---------
Partners' capital at end of period:
General partners 590 603 590 603
Class A limited partners 58,442 59,716 58,442 59,716
--------- --------- --------- ---------
$ 59,032 $ 60,319 $ 59,032 $ 60,319
--------- --------- --------- ---------
--------- --------- --------- ---------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
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ML MACADAMIA ORCHARDS, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPT. 30, ENDED SEPT. 30,
----------------------- ------------------------
1998 1997 1998 1997
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from macadamia nut sales $ 93 $ 476 $ 10,357 $ 9,138
Cash paid under farming and
management contracts (782) (1,054) (6,336) (4,969)
Cash paid to other suppliers (533) (168) (1,878) (662)
Interest received 56 42 193 130
-------- --------- --------- ---------
Net cash provided by (used in) operating activities (1,166) (704) 2,336 3,637
-------- --------- --------- ---------
Cash flows from financing activities:
Cash distributions paid (568) (568) (1,704) (1,515)
-------- --------- --------- ---------
Net cash used in financing activities (568) (568) (1,704) (1,515)
-------- --------- --------- ---------
Net increase (decrease) in cash (1,734) (1,272) 632 2,122
Cash at beginning of period 5,280 4,070 2,914 676
-------- --------- --------- ---------
Cash at end of period $ 3,546 $ 2,798 $ 3,546 $ 2,798
-------- --------- --------- ---------
-------- --------- --------- ---------
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities:
Net income (loss) $ 329 $ 14,099 $ (229) $ 14,367
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating activities:
Depreciation and amortization 547 477 909 701
Decrease (increase) in account receivable (3,475) (2,605) 3,241 3,818
Decrease (increase) in other current assets 45 (22) (63) (72)
Decrease (increase) in annualized cost adjustment
(other than from depreciation) 365 41 (358) (973)
Decrease in prepaid merger costs - - 292 -
Increase (decrease) in accounts payable 1,337 1,069 (1,506) (419)
Increase (decrease) in other current liabilities (314) (13) 50 (35)
Decrease in deferred tax liability - (13,750) - (13,750)
-------- --------- --------- ---------
Total adjustments (1,495) (14,803) 2,565 (10,730)
-------- --------- --------- ---------
Net cash provided by (used in) operating activities $(1,166) $ (704) $ 2,336 $ 3,637
-------- --------- --------- ---------
-------- --------- --------- ---------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
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ML MACADAMIA ORCHARDS, L.P.
Notes to Financial Statements
-----------------------------
(1) On September 10, 1998 the Board of Directors of Mauna Loa Resources Inc.,
the managing general partner, approved changing the name of the Partnership
from Mauna Loa Macadamia Partners, L.P. to ML Macadamia Orchards, L.P.
Trading of the Partnership's units on the New York Stock Exchange under the
new name began on October 5, 1998. The trading symbol, "NUT", remains
unchanged.
(2) In the opinion of management, the accompanying unaudited financial
statements of ML Macadamia Orchards, L.P. ("the Partnership") include all
adjustments, consisting only of normally recurring adjustments, necessary
to present fairly its financial position as of September 30, 1998,
September 30, 1997 and December 31, 1997 and the results of operations,
changes in partners' capital and cash flows for the periods ended September
30, 1998 and 1997. The results of operations for the period ended
September 30, 1998 are not necessarily indicative of the results to be
expected for the full year or for any future period.
(3) 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 1997 Annual Report
on Form 10-K.
(4) 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.
(5) 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.
(6) On September 10, 1998, the third quarter cash distribution was declared in
the amount of seven and one-half cents (7.5 CENTS) per Class A Unit,
payable on November 13, 1998 to unitholders of record as of the close of
business on September 30, 1998.
(7) On June 26, 1998, a special meeting of the Partnership's unitholders was
held for the purpose of voting on a Merger Proposal by and between the
Partnership and C. Brewer Homes, Inc., Approval of Amendment Proposals,
and Approval of Option Plan Proposal. The Merger Proposal was not
approved, and all costs related to the merger were expensed in the quarter
ending June 30, 1998.
(8) In December 1997, the Partnership elected to continue to be taxed as a
partnership rather than to be taxed as a corporation, as allowed by the
Taxpayer Relief Act of 1997. This election was subject to the Partnership
paying a 3.5% tax on gross income beginning January 1, 1998.
7
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ML MACADAMIA ORCHARDS, L.P.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
OPERATING RESULTS -- FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997
For the first three months and first nine months of 1998, nut production,
nut price and revenues are summarized below:
<TABLE>
<CAPTION>
For the Three Months
Ended September 30, Change
--------------------- -------------
1998 1997
-------- --------
<S> <C> <C> <C> <C>
Nuts harvested (000's pounds WIS) 5,685 5,035 + 13%
Average nut price (per pound) $0.6122 $0.6119 -
------- -------
Net nut sales ($000's) 3,480 3,081 + 13%
------- -------
------- -------
<CAPTION>
For the Nine Months
Ended September 30, Change
--------------------- -------------
1998 1997
-------- --------
<S> <C> <C> <C> <C>
Nuts harvested (000's pounds WIS) 11,486 8,696 + 32%
Average nut price (per pound) $0.6119 $0.6118 -
------- -------
Net nut sales ($000's) 7,029 5,320 + 32%
------- -------
------- -------
</TABLE>
Nut production in the third quarter 1998 was 13% higher than the third
quarter 1997. This is due to earlier harvesting in Keaau and Mauna Kea, where
production has not been hindered by the drought (see below). Production for the
first nine months of 1998 surpassed the previous year by 32% due to the very
large first quarter harvest, which is a result of harvest timing differences in
the previous fall/winter crop
Production costs are based on annualized standard unit costs. Total
production costs were 14% higher for the third quarter 1998 and 34% higher for
the first nine months of 1998 compared to the respective periods in the prior
year. These higher costs are due to the larger harvest for these periods. On a
per pound basis, the production costs are 1% and 2% higher for the three and
nine month periods in 1998 due to the additional costs of irrigation.
General and administrative costs are higher by 27% and 4% for the
three-month and nine-month periods in 1998 as compared to the respective periods
in 1997. Until 1998, the general partner and Partnership offices were located
in the corporate offices of C. Brewer Company, Limited ("CBCL"), and the costs
of office rent, telephone and postage were absorbed by CBCL. CBCL moved their
headquarters to Hilo, Hawaii, this year, and these occupancy costs are being
incurred for the first time by the Partnership. The Partnership generated more
interest income in 1998 as a result of having more cash on hand.
The Partnership incurred special charges of $1.1 million in the second
quarter 1998 resulting from the write off of costs related to the cancelled
merger of the Partnership with C. Brewer Homes,
8
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Inc. A majority vote of the limited partners, which was necessary to approve
the merger, was not received at a Special Meeting of the Limited Partners on
June 26, 1998, and the merger plans were voided.
DROUGHT
The Ka'u region of the island of Hawaii, where 48% of the Partnership's
orchards are located, continues to suffer from drought conditions caused by
the weather pattern known as El Nino. Ka'u has received only 5.5 inches of
rainfall so far this year compared to last year's rainfall through September
1997 of 39 inches. While approximately one-third of the acres in Ka'u have
irrigation, production will be negatively impacted for the remainder of 1998
and most likely into 1999.
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
meets its working capital needs with cash on hand, and when necessary,
through short-term borrowings under a $4.0 million revolving line of credit.
The Partnership had a cash balance of $3.5 million at September 30, 1998, and
there were no line of credit drawings outstanding. It is the opinion of
management that the Partnership has adequate cash on hand to meet anticipated
working capital needs.
ASSESSMENT OF YEAR 2000
The issue of Year 2000 concerns the situation that many computer systems
may not be able to distinguish the year 2000 from the year 1900 unless
modifications are made. Many experts fear that this programming flaw could
debilitate computer systems worldwide.
The Partnership is in the process of assessing the issue of Year 2000 to
determine its state of readiness and if adverse consequences will have a
material effect on business, results of operations, or financial condition.
The Partnership has determined that it has no internal information
technology ("IT") or non-IT systems that could have adverse consequences if
not modified. There are, however, numerous third parties having a material
relationship with the Partnership, and the assessment of the Year 2000
readiness of these third parties is still in process. The key third parties
to be assessed are the managing partner, the contract farmers, the exclusive
customer, the CPA firm doing tax accounting and tax returns, the stock
exchange, stockbrokers and their agents, and our transfer agent. Most of
these third parties have announced their schedules of Year 2000 testing and
dates of modification for IT systems applicable to the Partnership.
The cost to the Partnership to address Year 2000 issues is not
anticipated to be material. If some third party suppliers have not become
Year 2000 compliant, the reporting of buy and sell transactions from
stockbrokers or reporting agencies could be inaccurate or incomplete. Any
delay in the completion of this task could delay the completion of our Year
2000 tax return and related K-1 schedules to unitholders.
9
<PAGE>
LEGAL PROCEEDINGS
On November 6, 1997, the Partnership announced a proposed merger with C.
Brewer Homes, Inc. Waterside Partners, which alleged that it was a limited
partner who owned 1,000 units at the time, filed a derivative complaint in
the Delaware Chancery Court on January 5, 1998, asking for (1) an injunction
enjoining the proposed merger; (2) a rescission of the merger if it was
consummated; (3) an accounting to the Partnership for any damages sustained
by the Partnership; and (4) an award to plaintiff for its attorney's fees and
costs. The Plaintiff did not obtain an injunction, but commenced a letter
and telephone campaign for the purpose of persuading unitholders to vote
against the proposed merger at the unitholders' meeting. The meeting took
place as scheduled on June 26, 1998, and the proposed merger failed to secure
the necessary favorable vote of a majority of the unitholders. The lawsuit
was dismissed on July 14, 1998. The plaintiff filed a motion on July 13,
1998 asking that it be awarded its costs and expenses, for prosecution of the
lawsuit and the proxy contest. Plaintiff claimed $450,000 in attorney's fee,
representing approximately triple the amount of its claimed attorney's time
of $146,905, plus expenses of $79,276.95. Exhibits to the Plaintiff's motion
indicate that the great majority of the time spent by attorneys and more than
90% of the costs related to the proxy contest rather than the litigation.
The Partnership believes that the motion is entirely without merit and plans
to defend it vigorously.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
-------- ----------- ------
<S> <C> <C>
11.1 Statement re Computation of Net Income
per Class A Unit 12
27 Financial Data Schedule (filed only
electronically with the SEC) --
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the third quarter of 1998.
10
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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 MAUNA LOA RESOURCES INC.
Managing General Partner
Date: October 28, 1998 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
<TABLE>
<CAPTION>
Number Description of Exhibits Page No.
------ ----------------------- ---------
<S> <C> <C>
11.1 Statement re Computation of Net Income 12
per Class A Unit
27 Financial Data Schedule (filed only
electronically with the SEC) --
</TABLE>
11
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Exhibit 11.1
ML MACADAMIA ORCHARDS, L.P.
COMPUTATION OF NET INCOME PER CLASS A UNIT (UNAUDITED)
(in thousands, except per unit data)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ 329 $ 14,099 $ (229) $ 14,367
Class A Unitholders
(ownership percentage) x 99% x 99% x 99% x 99%
-------- -------- --------- ---------
Net income (loss) allocable
to Class A Unitholders $ 326 $ 13,958 $ (226) $ 14,223
-------- -------- --------- ---------
-------- -------- --------- ---------
Class A Units outstanding 7,500 7,500 7,500 7,500
-------- -------- --------- ---------
-------- -------- --------- ---------
Net income (loss)
per Class A Unit $ 0.04 $ 1.86 $ (0.03) $ 1.90
-------- -------- --------- ---------
-------- -------- --------- ---------
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,546
<SECURITIES> 0
<RECEIVABLES> 3,568
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,849
<PP&E> 73,214
<DEPRECIATION> 17,724
<TOTAL-ASSETS> 63,339
<CURRENT-LIABILITIES> 3,075
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 59,032
<TOTAL-LIABILITY-AND-EQUITY> 63,339
<SALES> 3,480
<TOTAL-REVENUES> 3,480
<CGS> 2,935
<TOTAL-COSTS> 2,935
<OTHER-EXPENSES> 253
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 348
<INCOME-TAX> 19
<INCOME-CONTINUING> 329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 329
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
