<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 March 31, 1999
-------------------------
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, 1999, Registrant had 7,500,000 Class A Units issued and
outstanding.
1
<PAGE>
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 8-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
2
<PAGE>
ML MACADAMIA ORCHARDS, L.P.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------------- ------------
1999 1998 1998
---------------- ------------
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 5,898 $ 5,086 $ 4,317
Accounts receivable, primarily from
related parties 3,503 3,455 5,435
Annualized cost adjustment - 116 -
Other current assets 55 185 -
-------- -------- -----------
Total current assets 9,456 8,842 9,752
Land, orchards and equipment, net 54,689 56,292 55,090
Capitalized acquisition costs - 678 -
-------- -------- -----------
Total assets $ 64,145 $ 65,812 $ 64,842
-------- -------- -----------
-------- -------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable to related parties $ 2,147 $ 2,613 $ 3,021
Cash distributions payable 758 568 568
Annualized cost adjustment liability 96 - -
Other current liabilities 486 333 378
-------- -------- -----------
Total current liabilities 3,487 3,514 3,967
Deferred income tax liability 1,220 1,232 1,220
-------- -------- -----------
Total liabilities 4,707 4,746 5,187
-------- -------- -----------
Commitments and contingencies
Partners' capital
General partners 594 611 597
Class A limited partners, no par or
assigned value, 7,500 units issued
and outstanding 58,844 60,455 59,058
-------- -------- -----------
Total partners' capital 59,438 61,066 59,655
-------- -------- -----------
Total liabilities and partners' capital $ 64,145 $ 65,812 $ 64,842
-------- -------- -----------
-------- -------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
ML MACADAMIA ORCHARDS, L.P.
INCOME STATEMENTS (UNAUDITED)
(in thousands, except per unit data)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
MARCH 31,
--------------------------
1999 1998
---------- ---------
<S> <C> <C>
Macadamia nut sales to related party $ 3,447 $ 3,455
Cost of goods sold
Costs expensed under farming contracts
with related parties 2,041 2,072
Depreciation and amortization 435 330
Other 103 95
---------- ---------
Total cost of goods sold 2,579 2,497
---------- ---------
Gross income 868 958
---------- ---------
General and administrative expenses
Costs expensed under management contract
with related party 164 124
Other 198 195
---------- ---------
Total general and administrative expenses 362 319
---------- ---------
Operating income 506 639
Interest income 65 64
---------- ---------
Income before tax 571 703
Income tax expense 30 34
---------- ---------
Net income $ 541 $ 669
---------- ---------
---------- ---------
- ------------------------------------------------------------------------------
Net cash flow (as defined in the Partnership
Agreement $ 976 $ 999
---------- ---------
---------- ---------
- ------------------------------------------------------------------------------
Net income per Class A Unit $ 0.07 $ 0.09
---------- ---------
---------- ---------
Net cash flow per Class A Unit $ 0.13 $ 0.13
---------- ---------
---------- ---------
Cash distributions per Class A Unit $ 0.10 $ 0.075
---------- ---------
---------- ---------
Class A Units outstanding 7,500 7,500
---------- ---------
---------- ---------
</TABLE>
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
<TABLE>
<CAPTION>
ML MACADAMIA ORCHARDS, L.P.
STATEMENTS OF PARTNERS' CAPITAL (UNAUDITED)
(in thousands)
FOR THE QUARTERS ENDED
MARCH 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
Partners' capital at beginning of period:
General partners $ 597 $ 610
Class A limited partners 59,058 60,355
---------- ----------
59,655 60,965
---------- ----------
Allocation of net income:
General partners 5 6
Class A limited partners 536 663
---------- ----------
541 669
---------- ----------
Cash distributions:
General partners 8 5
Class A limited partners 750 563
---------- ----------
758 568
---------- ----------
Partners' capital at end of period:
General partners 594 611
Class A limited partners 58,844 60,455
---------- ----------
$ 59,438 $ 61,066
---------- ----------
---------- ----------
</TABLE>
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
ML MACADAMIA ORCHARDS, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
MARCH 31,
------------------------
1999 1998
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received primarily from macadamia nut sales $ 5,384 $ 6,809
Cash paid under farming and management contracts (3,026) (3,000)
Cash paid to other suppliers (274) (729)
Interest received 65 46
---------- ---------
Net cash provided by operating activities 2,149 3,126
---------- ---------
Cash flows from investing activities:
Capitalized acquisition costs - (386)
---------- ---------
Net cash used in investing activities - (386)
---------- ---------
Cash flows from financing activities:
Cash distributions paid (568) (568)
---------- ---------
Net cash used in financing activities (568) (568)
---------- ---------
Net increase in cash 1,581 2,172
Cash at beginning of period 4,317 2,914
---------- ---------
Cash at end of period $ 5,898 $ 5,086
---------- ---------
---------- ---------
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 541 $ 669
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 435 330
Decrease in accounts receivable primarily from
related party 1,932 3,354
Increase in annualized cost adjustment - (46)
Increase in other current assets (55) (165)
Decrease in accounts payable (874) (1,068)
Increase in annualized cost adjustment 62 -
Increase in other current liabilities 108 52
---------- ---------
Total adjustments 1,608 2,457
---------- ---------
Net cash provided by operating activities $ 2,149 $ 3,126
---------- ---------
---------- ---------
</TABLE>
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
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, 1999, March 31, 1998
and December 31, 1998 and the results of operations, changes in partners'
capital and cash flows for the periods ended March 31, 1999 and 1998. The
results of operations for the period ended March 31, 1999 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 1998 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 5, 1999, the first quarter cash distribution was declared in the
amount of ten cents ($0.10) per Class A Unit, payable on May 14, 1999 to
unitholders of record as of the close of business on March 31, 1999.
7
<PAGE>
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, 1999 AND 1998
First quarter 1999 macadamia nut production was 5.4 million pounds
(wet-in-shell at a 25% moisture equivalent), compared to 5.6 million pounds
harvested for the first quarter 1998. The first quarter 1999 harvest is the
second largest first quarter harvest in the Partnership's history, with the
first quarter 1998 being the largest.
<TABLE>
<CAPTION>
March 31, Change
---------------------- ------
1999 1998
-------- --------
<S> <C> <C> <C>
Nuts harvested (000's pounds WIS) 5,403 5,649 - 4%
Average nut price (per pound) $ 0.6378 $ 0.6119 + 4%
-------- --------
Net nut sales ($000's) 3,447 3,455 -
-------- --------
-------- --------
</TABLE>
The Keaau orchards (44% or the Partnership's total acreage) produced 2.9
million pounds in the first quarter 1999 compared to 500,000 pounds in the same
period last year. This exceptionally high production is credited to the lack of
moisture during the flowering months of January to March 1998, which allowed
maximum pollination and nut growth. The Mauna Kea orchards also increased
production with a harvest of 600,000 pounds compared to 100,000 pounds for the
first quarter last year. In Ka'u (48% of the Partnership's orchards) production
fell from 5.0 million pounds in the first quarter 1998 to 1.9 million pounds
this year due to the effects of the 1998 year-long drought in this region.
The average nut price received in the first quarter 1999 for macadamia nut
production was $0.6378 compared to the average nut price of $0.6119 in the first
quarter 1998. Nut prices used for interim reporting reflect the estimated full
year processing and marketing performance of Mauna Loa Macadamia Nut Corporation
("Mauna Loa"), which purchases all of the Partnership's nut production. Nut
prices are subject to subsequent adjustment based on Mauna Loa's actual full
year performance. For the full year 1998, the actual average nut price received
was $0.6375.
Farming expenses for the first quarter 1999 were lower by $31,000, due to
slightly lower production. However, depreciation expense was higher by
$105,000. Since interim production costs, which include depreciation expense,
are based on annualized standard unit costs, the estimated costs per pound in
the first quarter 1999 are higher than in 1998 due to increased production in
the Partnership's highest cost orchards.
General and administrative costs were higher by $43,000 for first
quarter 1999 as compared to the same period in 1998. Until the second
quarter of 1998, the general partner and Partnership offices were located in
the corporate offices of C. Brewer and Company, Limited ("CBCL"), and the
costs of office rent, telephone and postage were absorbed by CBCL. CBCL
moved their headquarters to Hilo, Hawaii, in early 1998, and these occupancy
costs are now being incurred by the Partnership.
8
<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 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 $5.9 million at March 31, 1999, 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.
LEGAL PROCEEDINGS
On November 6, 1997, the Partnership announced a proposed merger with Hawaii
Land & Farming (formerly C. Brewer Homes, Inc.). Waterside Partners, 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
9
<PAGE>
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 $79,277. 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. A hearing was held on the Motion for attorney's fees and
expenses on January 29, 1999, and the court has ruled that the Plaintiff is not
entitled to any attorney fees or expenses. On April 6, 1999, the Plaintiff
filed an appeal to the Supreme Court of the State of Delaware.
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 first quarter of 1999.
10
<PAGE>
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: April 30, 1999 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
Number Description of Exhibits Page No.
------ ----------------------- --------
11.1 Statement re Computation of Net Income
per Class A Unit
27 Financial Data Schedule (filed only
electronically with the SEC) --
11
<PAGE>
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>
FOR THE QUARTERS ENDED
MARCH 31,
------------------------
1999 1998
----------- ----------
<S> <C> <C>
Net income $ 541 $ 669
Class A Unitholders (ownership percentage) x 99% x 99%
----------- ----------
Net income allocable to Class A Unitholders $ 536 $ 662
----------- ----------
----------- ----------
Class A Units outstanding 7,500 7,500
----------- ----------
----------- ----------
Net income per Class A Unit $ 0.07 $ 0.09
----------- ----------
----------- ----------
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,898
<SECURITIES> 0
<RECEIVABLES> 3,503
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,456
<PP&E> 73,214
<DEPRECIATION> 18,525
<TOTAL-ASSETS> 64,145
<CURRENT-LIABILITIES> 3,487
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 59,438
<TOTAL-LIABILITY-AND-EQUITY> 64,145
<SALES> 3,512
<TOTAL-REVENUES> 3,512
<CGS> 2,579
<TOTAL-COSTS> 2,579
<OTHER-EXPENSES> 362
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 571
<INCOME-TAX> 30
<INCOME-CONTINUING> 541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 541
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
