<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, 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 September 30, 1999, 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
----
<S>
PART I - FINANCIAL INFORMATION
<C>
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
<PAGE>
ML MACADAMIA ORCHARDS, L.P.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------------------
1999 1998 1998
------------------------------- -----------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 5,009 $ 3,546 $ 4,317
Accounts receivable, primarily from related parties 4,304 3,568 5,435
Annualized cost adjustment 534 652 -
Other current assets 88 83 -
-------------- -------------- -----------------
Total current assets 9,935 7,849 9,752
Land, orchards and equipment, net 53,888 55,490 55,090
-------------- -------------- -----------------
Total assets $ 63,823 $ 63,339 $ 64,842
-------------- -------------- -----------------
-------------- -------------- -----------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable to related parties $ 3,144 $ 2,175 $ 3,021
Cash distributions payable 757 568 568
Other current liabilities 296 332 378
-------------- -------------- -----------------
Total current liabilities 4,197 3,075 3,967
Deferred income tax liability 1,220 1,232 1,220
-------------- -------------- -----------------
Total liabilities 5,417 4,307 5,187
-------------- -------------- -----------------
Commitments and contingencies
Partners' capital
General partners 584 590 597
Class A limited partners, no par or assigned value,
7,500 units issued and outstanding 57,822 58,442 59,058
-------------- -------------- -----------------
Total partners' capital 58,406 59,032 59,655
-------------- -------------- -----------------
Total liabilities and partners' capital $ 63,823 $ 63,339 $ 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>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Macadamia nut sales to related party $ 4,253 $ 3,480 $ 8,314 $ 7,029
Cost of goods sold
Costs expensed under farming contracts
with related parties 2,867 2,212 5,284 4,366
Depreciation and amortization 610 547 1,122 909
Other 142 176 266 282
------------ ------------ ------------ ------------
Total cost of goods sold 3,619 2,935 6,672 5,557
------------ ------------ ------------ ------------
Gross income 634 545 1,642 1,472
------------ ------------ ------------ ------------
General and administrative expenses
Costs expensed under management contract
with related party 149 186 448 413
Other 62 67 322 309
------------ ------------ ------------ ------------
Total general and administrative expenses 211 253 770 722
------------ ------------ ------------ ------------
Operating income 423 292 872 750
Merger transaction costs - - - (1,119)
Interest income 66 56 210 192
------------ ------------ ------------ ------------
Income (loss) before gross income tax 489 348 1,082 (177)
Gross income tax 22 19 58 52
------------ ------------ ------------ ------------
Net income (loss) $ 467 $ 329 $ 1,024 $ (229)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
- -------------------------------------------------------------------------------
Net cash flow
(as defined in the Partnership Agreement) $ 1,077 $ 876 $ 2,146 $ 680
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) per Class A Unit $ 0.06 $ 0.04 $ 0.14 $ (0.03)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net cash flow per Class A Unit $ 0.14 $ 0.12 $ 0.28 $ 0.09
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Cash distributions per Class A Unit $ 0.10 $ 0.075 $ 0.30 $ 0.225
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Class A Units outstanding 7,500 7,500 7,500 7,500
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
ML MACADAMIA ORCHARDS, L.P.
STATEMENTS OF PARTNERS' CAPITAL (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------- ------------------------------
1999 1998 1999 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Partners' capital at beginning of period:
General partners $ 587 $ 593 $ 597 $ 610
Class A limited partners 58,110 58,678 59,058 60,355
-------------- ------------- ------------- -------------
58,697 59,271 59,655 60,965
-------------- ------------- ------------- -------------
Allocation of net income (loss):
General partners 5 3 10 (3)
Class A limited partners 462 326 1,014 (226)
-------------- ------------- ------------- -------------
467 329 1,024 (229)
-------------- ------------- ------------- -------------
Cash distributions:
General partners 8 6 23 17
Class A limited partners 750 562 2,250 1,687
-------------- ------------- ------------- -------------
758 568 2,273 1,704
-------------- ------------- ------------- -------------
Partners' capital at end of period:
General partners 584 590 584 590
Class A limited partners 57,822 58,442 57,822 58,442
-------------- ------------- ------------- -------------
$ 58,406 $ 59,032 $ 58,406 $ 59,032
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
ML MACADAMIA ORCHARDS, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received primarily from macadamia nut sales $ 4,060 $ 93 $ 9,444 $ 10,357
Cash paid under farming and management contracts (1,122) (782) (6,053) (6,336)
Cash paid to other suppliers (344) (533) (836) (1,878)
Interest received 110 56 221 193
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities 2,704 (1,166) 2,776 2,336
------------ ------------ ------------ ------------
Cash flows from financing activities:
Cash distributions paid (758) (568) (2,084) (1,704)
------------ ------------ ------------ ------------
Net cash used in financing activities (758) (568) (2,084) (1,704)
------------ ------------ ------------ ------------
Net increase (decrease) in cash 1,946 (1,734) 692 632
Cash at beginning of period 3,063 5,280 4,317 2,914
------------ ------------ ------------ ------------
Cash at end of period $ 5,009 $ 3,546 $ 5,009 $ 3,546
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities:
Net income (loss) $ 467 $ 329 $ 1,024 $ (229)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities:
Depreciation and amortization 610 547 1,122 909
Decrease (increase) in accounts receivable
from related parties (151) (3,475) 1,131 3,241
Decrease (increase) in annualized cost
adjustment (other than from depreciation) 5 365 (454) (358)
Decrease (increase) in other current assets (65) 45 (88) (63)
Increase (decrease) in accounts payable 1,950 1,337 123 (1,506)
Decrease in prepaid merger costs - - - 292
Increase (decrease) in other current liabilities (112) (314) (82) 50
------------ ------------ ------------ ------------
Total adjustments 2,237 (1,495) 1,752 2,565
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities $ 2,704 $ (1,166) $ 2,776 $ 2,336
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
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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 September 30, 1999, September
30, 1998 and December 31, 1998 and the results of operations, changes in
partners' capital and cash flows for the periods ended September 30, 1999
and 1998. The results of operations for the period ended September 30, 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 partner's 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 September 10, 1999, the third quarter cash distribution was declared in
the amount of ten cents ($0.10) per Class A Unit, payable on November 15,
1999 to unitholders of record as of the close of business on September 30,
1999.
(6) On September 8, 1999, Mauna Loa Macadamia Nut Corporation ("Mauna Loa")
transferred all 1000 shares of the common stock of its wholly-owned
subsidiary, ML Resources, Inc, to C. Brewer and Company, Limited ("CBCL").
Mauna Loa is a wholly-owned subsidiary of CBCL, and no consideration was
given or received in the transaction. ML Resources, Inc. is the general
partner of ML Macadamia Orchards, L.P.
7
<PAGE>
ML MACADAMIA ORCHARDS, L.P.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
OPERATING RESULTS -- FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
For the three months and the nine months ending September 30, 1999 and
1998, nut production, nut prices and revenues are summarized below:
<TABLE>
<CAPTION>
For the Three Months
Ended September 30, Change
------------------------------ ----------
1999 1998
-------------- -------------
<S> <C> <C> <C>
Nut harvested (000's pounds WIS) 7,967 5,685 + 40%
Nut price (per pound) $ 0.5338 $ 0.6121 - 13%
-------------- -------------
Net nut sales ($000's) 4,253 3,480 + 22%
-------------- -------------
-------------- -------------
For the Nine Months
Ended September 30, Change
------------------------------ ----------
1999 1998
-------------- -------------
Nut harvested (000's pounds WIS) 14,334 11,486 + 25%
Nut price (per pound) $ 0.5800 $ 0.6120 - 5%
-------------- -------------
Net nut sales ($000's) 8,314 7,029 + 18%
-------------- -------------
-------------- -------------
</TABLE>
The harvest for the three months ending September 30, 1999 was 8.0
million pounds, 40% higher than the 5.7 million pounds recorded for the same
period in 1998. This was due to harvesting beginning in July this year for all
regions, rather than in August in the prior year. Production for the nine-month
period in 1999 was 14.3 million pounds compared to 11.5 million pounds for the
nine months of 1998. Most of this increase is also due to the earlier fall
harvesting in 1999.
Worldwide macadamia prices have been falling due to increased
production, primarily in Australia. The price received for harvested macadamia
nuts declined to $0.58 per pound, 5% less than the third quarter last year and
9% less than the final price of $0.64 received in 1998. The Partnership's nut
price is determined by a formula based 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"), the
Partnership's exclusive purchaser.
The final price to be paid for the entire year's production is not
known until year-end, when Mauna Loa's books have been closed and audited. For
interim payment and reporting purposes, 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 and records an adjustment in that quarter to apply the
revised price estimate to all nuts sold earlier in that year as well. Third
quarter revenues for 1999 reflect such an update with a revenue adjustment of
$349,000.
Total production costs were higher for both the three-month and nine-
month periods in 1999 compared to the same periods in 1998 due to the larger
harvests in the 1999 periods.
8
<PAGE>
OTHER DEVELOPMENTS
The Ka'u region (where 48% of the Partnership's orchards are located)
continues to suffer from drought conditions for the second straight year. Ka'u
has received only 5.5 inches of rainfall since March 1999. While one-third of
the acres in Ka'u have irrigation, production and quality are below normal, and
a continuing drought will adversely affect the region's production for the
remaining 1999-2000 crop year.
Meanwhile, the orchards at Keaau and Mauna Kea are producing higher
than their historical averages for calendar year 1999 due to excellent
production in the first half of the year.
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 $5.0 million at September 30, 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. 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 nearly complete. 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 readiness or 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>
PART II - OTHER INFORMATION
ITEM 1. 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 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 fees, 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. All parties have completed briefing and are awaiting a date for
oral argument.
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>
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 1999.
10
<PAGE>
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: October 27, 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
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBITS PAGE NO.
------ ----------------------- --------
<S> <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>
<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>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------------- ---------------------------------
1999 1998 1999 1998
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) $ 467 $ 329 $ 1,024 $ (229)
Class A Unitholders
(ownership percentage) x 99% x 99% x 99% x 99%
-------------- -------------- --------------- --------------
Net income (loss) allocable
to Class A Unitholders $ 462 $ 326 $ 1,014 $ (226)
-------------- -------------- --------------- --------------
-------------- -------------- --------------- --------------
Class A Units outstanding 7,500 7,500 7,500 7,500
-------------- -------------- --------------- --------------
-------------- -------------- --------------- --------------
Net income (loss)
per Class A Unit $ 0.06 $ 0.04 $ 0.14 $ (0.03)
-------------- -------------- --------------- --------------
-------------- -------------- --------------- --------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,009
<SECURITIES> 0
<RECEIVABLES> 4,304
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,935
<PP&E> 73,214
<DEPRECIATION> 19,326
<TOTAL-ASSETS> 63,823
<CURRENT-LIABILITIES> 4,197
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 58,406
<TOTAL-LIABILITY-AND-EQUITY> 63,823
<SALES> 4,253
<TOTAL-REVENUES> 4,253
<CGS> 3,619
<TOTAL-COSTS> 3,619
<OTHER-EXPENSES> 211
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 489
<INCOME-TAX> 22
<INCOME-CONTINUING> 467
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 467
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
