Table of Contents
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, 2008
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
26-238 Hawaii Belt Road, HILO, HAWAII
|
|
96720
|
(
Address of principal executive offices)
|
|
(Zip Code)
|
Registrants telephone
number, including area code:
(808)
969-8057
Registrants website:
www.mlmacadamia.com
SECURITIES REGISTERED PURSUANT TO
SECTION 12(b) OF THE ACT:
Title of
Each Class
|
|
Name of
Each Exchange on Which Registered
|
Depositary Units Representing Class A Limited
Partners Interests
|
|
New York Stock Exchange
|
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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
o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act.
Large accelerated filer
o
|
|
Accelerated filer
o
|
|
Non-accelerated filer
x
|
|
Smaller reporting company
o
|
|
|
|
|
(Do not check if a smaller
reporting company)
|
|
|
Indicate by check mark whether the Registrant is a shell company as
defined by Rule 12b-2 of the Securities Exchange Act of 1934. Yes
o
No
x
As of September 30, 2008, Registrant had 7,500,000 Class A
Units issued and outstanding.
Table
of Contents
ML Macadamia Orchards, L.P.
Consolidated
Balance Sheets
(in thousands)
|
|
(Unaudited)
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
735
|
|
$
|
120
|
|
$
|
283
|
|
Accounts receivable
|
|
3,305
|
|
2,020
|
|
2,275
|
|
Inventory of kernel
|
|
615
|
|
444
|
|
1,024
|
|
Inventory of nuts
|
|
|
|
|
|
946
|
|
Inventory of farming supplies
|
|
93
|
|
244
|
|
234
|
|
Deferred farming costs
|
|
1,249
|
|
3,763
|
|
|
|
Other current assets
|
|
248
|
|
287
|
|
172
|
|
Total current assets
|
|
6,245
|
|
6,878
|
|
4,934
|
|
Land, orchards and equipment,
net
|
|
44,181
|
|
45,985
|
|
45,540
|
|
Goodwill
|
|
306
|
|
306
|
|
306
|
|
Intangible assets, net
|
|
20
|
|
10
|
|
8
|
|
Total assets
|
|
$
|
50,752
|
|
$
|
53,179
|
|
$
|
50,788
|
|
|
|
|
|
|
|
|
|
Liabilities and partners
capital
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Current portion of long-term
debt
|
|
$
|
400
|
|
$
|
400
|
|
$
|
400
|
|
Short-term borrowing
|
|
3,700
|
|
1,900
|
|
3,000
|
|
Accounts payable
|
|
415
|
|
311
|
|
631
|
|
Cash distributions payable
|
|
|
|
375
|
|
225
|
|
Accrued payroll and benefits
|
|
667
|
|
711
|
|
804
|
|
Other current liabilities
|
|
91
|
|
16
|
|
73
|
|
Total current liabilities
|
|
5,273
|
|
3,713
|
|
5,133
|
|
Non-current accrued benefits
|
|
374
|
|
406
|
|
374
|
|
Long-term debt
|
|
400
|
|
800
|
|
800
|
|
Deferred income tax liability
|
|
1,169
|
|
1,208
|
|
1,169
|
|
Total liabilities
|
|
7,216
|
|
6,127
|
|
7,476
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
Partners capital
|
|
|
|
|
|
|
|
General partner
|
|
81
|
|
81
|
|
81
|
|
Class A limited partners,
no par or assigned value,
7,500 units issued and outstanding
|
|
43,521
|
|
47,041
|
|
43,297
|
|
Accumulated other comprehensive
loss
|
|
(66
|
)
|
(70
|
)
|
(66
|
)
|
Total partners capital
|
|
43,536
|
|
47,052
|
|
43,312
|
|
Total liabilities and partners
capital
|
|
$
|
50,752
|
|
$
|
53,179
|
|
$
|
50,788
|
|
See
accompanying notes to consolidated
financial statements.
3
Table of Contents
ML Macadamia Orchards, L.P.
Consolidated Income Statements
(unaudited)
(in thousands, except per unit data)
|
|
Three months
ended September 30,
|
|
Nine months
ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Macadamia nut sales
|
|
$
|
4,597
|
|
$
|
1,979
|
|
$
|
8,215
|
|
$
|
4,902
|
|
Contract farming revenue
|
|
1,164
|
|
797
|
|
2,793
|
|
2,464
|
|
Total revenues
|
|
5,761
|
|
2,776
|
|
11,008
|
|
7,366
|
|
Cost of goods and services
|
|
|
|
|
|
|
|
|
|
Cost of macadamia nut sales
|
|
4,101
|
|
1,546
|
|
7,538
|
|
3,720
|
|
Cost of contract farming
services
|
|
1,086
|
|
731
|
|
2,591
|
|
2,257
|
|
Total cost of goods sold
|
|
5,187
|
|
2,277
|
|
10,129
|
|
5,977
|
|
Gross income
|
|
574
|
|
499
|
|
879
|
|
1,389
|
|
General and administrative
expenses
|
|
|
|
|
|
|
|
|
|
Other
|
|
483
|
|
874
|
|
1,285
|
|
1,744
|
|
Total general and
administrative expenses
|
|
483
|
|
874
|
|
1,285
|
|
1,744
|
|
Operating income (loss)
|
|
91
|
|
(375
|
)
|
(406
|
)
|
(355
|
)
|
Other income (expense)
|
|
885
|
|
(1
|
)
|
897
|
|
12
|
|
Interest expense
|
|
(84
|
)
|
(44
|
)
|
(250
|
)
|
(105
|
)
|
Interest income
|
|
14
|
|
|
|
14
|
|
49
|
|
Income (loss) before tax
|
|
906
|
|
(420
|
)
|
255
|
|
(399
|
)
|
Income tax expense
|
|
20
|
|
16
|
|
31
|
|
47
|
|
Net income (loss)
|
|
$
|
886
|
|
$
|
(436
|
)
|
$
|
224
|
|
$
|
(446
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash flow (as defined in
the Partnership Agreement)
|
|
$
|
1,665
|
|
$
|
14
|
|
$
|
1,309
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
Class A Unit
|
|
$
|
.12
|
|
$
|
(0.06
|
)
|
$
|
.03
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash flow per Class A
Unit
|
|
$
|
.22
|
|
$
|
0.00
|
|
$
|
.17
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions per
Class A Unit
|
|
$
|
0.00
|
|
$
|
0.05
|
|
$
|
0.00
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
Class A Units outstanding
|
|
7,500
|
|
7,500
|
|
7,500
|
|
7,500
|
|
See accompanying
notes to consolidated financial statements.
4
Table of Contents
ML Macadamia Orchards, L.P.
Consolidated Statements of Partners Capital (unaudited)
(in thousands)
|
|
Three months
ended September 30,
|
|
Nine months
ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital at beginning
of period:
|
|
|
|
|
|
|
|
|
|
General partner
|
|
$
|
81
|
|
$
|
81
|
|
$
|
81
|
|
$
|
81
|
|
Class A limited partners
|
|
42,635
|
|
47,852
|
|
43,297
|
|
48,612
|
|
Accumulated other comprehensive
loss
|
|
(66
|
)
|
(70
|
)
|
(66
|
)
|
(70
|
)
|
|
|
42,650
|
|
47,863
|
|
43,312
|
|
48,623
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of net income (loss)
|
|
|
|
|
|
|
|
|
|
Class A limited partners
|
|
886
|
|
(436
|
)
|
224
|
|
(446
|
)
|
|
|
886
|
|
(436
|
)
|
224
|
|
(446
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash distributions:
|
|
|
|
|
|
|
|
|
|
Class A limited partners
|
|
|
|
375
|
|
|
|
1,125
|
|
|
|
|
|
375
|
|
|
|
1,125
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital at end of
period:
|
|
|
|
|
|
|
|
|
|
General partner
|
|
81
|
|
81
|
|
81
|
|
81
|
|
Class A limited partners
|
|
43,521
|
|
47,041
|
|
43,521
|
|
47,041
|
|
Accumulated other comprehensive
loss
|
|
(66
|
)
|
(70
|
)
|
(66
|
)
|
(70
|
)
|
|
|
$
|
43,536
|
|
$
|
47,052
|
|
$
|
43,536
|
|
$
|
47,052
|
|
See
accompanying notes to consolidated financial statements.
5
Table of Contents
ML Macadamia Orchards, L.P.
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
|
|
Three months
ended September 30,
|
|
Nine months
ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
Cash received from sale of
goods and services
|
|
$
|
4,998
|
|
$
|
1,841
|
|
$
|
10,718
|
|
$
|
8,282
|
|
Cash paid to suppliers and
employees
|
|
(3,628
|
)
|
(3,637
|
)
|
(9,990
|
)
|
(11,642
|
)
|
Interest paid
|
|
(152
|
)
|
(44
|
)
|
(250
|
)
|
(105
|
)
|
Interest received
|
|
14
|
|
|
|
14
|
|
49
|
|
Net cash provided by (used in)
operating activities
|
|
1,232
|
|
(1,840
|
)
|
492
|
|
(3,416
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
Acquisition of capital
equipment
|
|
(65
|
)
|
(60
|
)
|
(94
|
)
|
(190
|
)
|
Net cash used in investing
activities
|
|
(65
|
)
|
(60
|
)
|
(94
|
)
|
(190
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
Financing cost
|
|
(11
|
)
|
|
|
(21
|
)
|
|
|
Proceeds from line of credit
|
|
700
|
|
1,900
|
|
2,200
|
|
1,900
|
|
Payment on line of credit
|
|
(1,200
|
)
|
|
|
(1,500
|
)
|
|
|
Payments on long term
borrowings
|
|
|
|
|
|
(400
|
)
|
(400
|
)
|
Cash distributions paid
|
|
|
|
(375
|
)
|
(225
|
)
|
(1,125
|
)
|
Net cash provided by (used in)
financing activities
|
|
(511
|
)
|
1,525
|
|
54
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
656
|
|
(375
|
)
|
452
|
|
(3,231
|
)
|
Cash at beginning of period
|
|
79
|
|
495
|
|
283
|
|
3,351
|
|
Cash at end of period
|
|
$
|
735
|
|
$
|
120
|
|
$
|
735
|
|
$
|
120
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net income
(loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
886
|
|
$
|
(436
|
)
|
$
|
224
|
|
$
|
(446
|
)
|
Adjustments to reconcile net
income (loss) to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
779
|
|
452
|
|
1,085
|
|
920
|
|
Decrease (increase) in accounts
receivable
|
|
(1,484
|
)
|
(1,022
|
)
|
(1,031
|
)
|
669
|
|
Decrease (increase) in
inventories
|
|
265
|
|
(393
|
)
|
1,496
|
|
(416
|
)
|
Decrease (increase) in deferred
farming costs
|
|
980
|
|
(841
|
)
|
(874
|
)
|
(3,242
|
)
|
Decrease (increase) in other
current assets
|
|
10
|
|
19
|
|
(74
|
)
|
(189
|
)
|
Increase (decrease) in accounts
payable
|
|
(362
|
)
|
270
|
|
(216
|
)
|
(95
|
)
|
Increase (decrease) in accrued
payroll and benefits
|
|
175
|
|
150
|
|
(136
|
)
|
(146
|
)
|
Increase (decrease) in other
current liabilities
|
|
(17
|
)
|
(39
|
)
|
18
|
|
(471
|
)
|
Total adjustments
|
|
346
|
|
(1,404
|
)
|
268
|
|
(2,970
|
)
|
Net cash provided by (used in)
operating activities
|
|
$
|
1,232
|
|
$
|
(1,840
|
)
|
$
|
492
|
|
$
|
(3,416
|
)
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash
financing activities Distributions declared not paid
|
|
$
|
|
|
$
|
375
|
|
$
|
|
|
$
|
375
|
|
See accompanying notes to consolidated
financial statements.
6
Table of Contents
ML MACADAMIA ORCHARDS, L.P.
Notes to Consolidated Financial Statements
(1)
BASIS OF PRESENTATION
In the opinion of management, the
accompanying unaudited consolidated financial statements of ML Macadamia
Orchards, L.P. and its subsidiary (the Partnership) include all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
its financial position as of September 30, 2008, September 30, 2007
and December 31, 2007 and the results of operations, changes in partners
capital and cash flows for the three and nine-month periods ended September 30,
2008 and 2007. The results of operations
for the period ended September 30, 2008 are not necessarily indicative of
the results to be expected for the full year or for any future period.
The year-end condensed balance sheet data was
derived from audited financial statements, but does not include all disclosures
required by accounting principles generally accepted in the United States of
America. These interim consolidated
financial statements should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial Statements filed
with the Securities and Exchange Commission in the Partnerships 2007 Annual
Report on Form 10-K.
(2)
LIQUIDITY
At September 30, 2008 the Partnership
had a cash balance of $735,000 compared to $120,000 at September 30,
2007. For the nine-month period ended September 30,
2008 net cash provided by operating activities was $492,000 compared to net
cash used by operations of $3.4 million for the nine-month period ended September 30,
2007. Cash flows provided by operating
activities for the three-month period ended September 30, 2008 was $1.2
million and net cash used in operating activities for the three-month period
ended September 30, 2007 was $1.8 million.
The improvement in operating cash flows was attributable to increased
production of nuts and the sale of nuts and kernel inventory on hand at the end
of 2007.
At September 30, 2008 the Partnership
had a working capital of $971,000 and current ratio of 1.18 to 1, compared to
$3.2 million and 1.85 to 1 at September 30, 2007. The deterioration in working capital was
attributable to the $3.7 million in short-term borrowings outstanding at September 30,
2008 compared to $1.9 million in short-term borrowings outstanding at September 30,
2007.
Management believes that the Partnership has
adequate liquidity to sustain its operations and will generate positive
operating cash flows in the final quarter of 2008.
(3)
CONSOLIDATION
The consolidated financial statements include
the accounts of the Partnership and ML Resources, Inc. (MLR), its
General Partner. All significant
intercompany balances and transactions, including management fees and
distributions, have been eliminated.
(4)
SEGMENT INFORMATION
The Partnership has two reportable segments,
the owned-orchard segment and the farming segment, which are organized on the
basis of revenues and assets. The
owned-orchard segment derives its revenues from the sale of macadamia nuts
grown in orchards owned or leased by the Partnership.
7
Table of Contents
The farming segment derives its revenues from
the farming of macadamia orchards owned by other growers. It also farms those orchards owned or leased
by the Partnership.
Management evaluates the performance of each
segment on the basis of operating income.
The Partnership accounts for intersegment sales and transfers at
cost. Such intersegment sales and
transfers are eliminated in consolidation. The Partnerships reportable
segments are distinct business enterprises that offer different products or
services. Revenues from the
owned-orchard segment are subject to long-term nut purchase contracts and tend
to vary from year to year due to changes in the prices paid under its various
nut contracts. The farming segments
revenues are based on long-term farming contracts which generate a farming
profit based on a percentage of farming cost or based on a fixed fee per acre
and tend to be less variable than revenues from the owned-orchard segment.
The Partnership estimates the charge to the
farming operations for the administrative costs based upon prior years actual
costs. The analysis of the recovery for
the administrative costs from the farming operation determined that the expense
recovery rate was too high. Accordingly,
the Partnership recorded a $425,000 reduction to the recovery estimate in the
third quarter of 2008, which resulted in a $425,000 reduction in the owned
orchards cost of goods sold for the quarter.
This revision in the recovery rate also resulted in a corresponding
increase to deferred farming costs as of September 30, 2008.
The following tables summarize each
reportable segments operating income (loss) and assets as of and for the three
and nine-month periods ended September 30, 2008 and 2007 (000s). Due to seasonality of crop patterns, interim
results are not necessarily indicative of annual performance.
|
|
Three months
ended September 30,
|
|
Nine months
ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Owned orchards
|
|
$
|
4,597
|
|
$
|
1,979
|
|
$
|
8,215
|
|
$
|
4,902
|
|
Contract farming
|
|
4,248
|
|
1,424
|
|
8,589
|
|
6,547
|
|
Intersegment elimination (all contract
farming)
|
|
(3,084
|
)
|
(627
|
)
|
(5,796
|
)
|
(4,083
|
)
|
Total
|
|
$
|
5,761
|
|
$
|
2,776
|
|
$
|
11,008
|
|
$
|
7,366
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
Owned orchards
|
|
$
|
14
|
|
$
|
(441
|
)
|
$
|
(607
|
)
|
$
|
(562
|
)
|
Contract farming
|
|
77
|
|
66
|
|
201
|
|
207
|
|
Total
|
|
$
|
91
|
|
$
|
(375
|
)
|
$
|
(406
|
)
|
$
|
(355
|
)
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
Owned orchards
|
|
$
|
743
|
|
$
|
416
|
|
$
|
983
|
|
$
|
812
|
|
Contract farming
|
|
31
|
|
34
|
|
93
|
|
102
|
|
Total
|
|
$
|
774
|
|
$
|
450
|
|
$
|
1,076
|
|
$
|
914
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property and equipment:
|
|
|
|
|
|
|
|
|
|
Owned orchards
|
|
$
|
65
|
|
$
|
60
|
|
$
|
94
|
|
$
|
190
|
|
Contract farming
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
65
|
|
$
|
60
|
|
$
|
94
|
|
$
|
190
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
|
Owned orchards
|
|
|
|
|
|
$
|
43,187
|
|
$
|
46,030
|
|
Contract farming
|
|
|
|
|
|
7,455
|
|
7,112
|
|
Total
|
|
|
|
|
|
$
|
50,642
|
|
$
|
53,142
|
|
All revenues are from sources
within the United States of America.
8
Table of
Contents
(5) DEFERRED FARMING COSTS AND INVENTORY
Orchard costs (e.g. irrigation, fertilizer,
pruning, etc.) related to nuts sold under nut purchase contracts and services
provided under farming contracts are expensed to cost of goods sold and cost of
services provided based on annualized standard unit costs for interim reporting
purposes, with the difference between costs incurred-to-date and costs
expensed-to-date (based on projected annual cost per nut harvested) reported on
the balance sheet as deferred farming costs.
The standard unit costs of harvested nuts not sold under nut purchase
contracts and available for sale on the open market, are capitalized to
inventory. Additional costs to store and
process unsold nuts into kernel are also capitalized to inventory and expensed
to cost of goods sold upon sale.
Deferred farming cost amounted to $1.2 million
and $3.8 million at September 30, 2008 and 2007, respectively. The decrease in deferred farming cost is
primarily attributed to the increased production of nuts during 2008, and was
partially offset by a $425,000 reduction to the recovery estimate in the third
quarter of 2008.
Nut
inventory amounted to $615,000 at September 30, 2008 and $444,000 at September 30,
2007. There were no nut inventory
write-downs during the three and nine-month periods ended September 30,
2008.
Inventory of farming supplies amounted to
$93,000 at September 30, 2008 and $244,000 at September 30,
2007. The decrease in supplies inventory
was primarily attributable to the write off of grafted macadamia trees held in
the nursery which cannot be used or sold by the Partnership.
(6)
GENERAL EXCISE TAXES
The Partnership records Hawaii general excise
taxes when goods and services are sold on a gross basis as components of
revenues and expenses. For the three
months ended September 30, 2008 and 2007, Hawaii general excise taxes
charged or passed on to customers and reflected in revenues and expenses
amounted to $23,000 and $15,000, respectively.
For the nine months ended September 30, 2008 and 2007, Hawaii
general excise taxes charged or passed on to customers and reflected in
revenues and expenses amounted to $53,000 and $47,000, respectively.
(7)
CREDIT FACILITIES - DEBT
The Partnership has a $6 million revolving
credit facility with American AgCredit, PCA, which expires on June 30,
2009. Amounts drawn on the line accrue
interest at the prime lending rate.
There was $3.7 million in drawings at September 30, 2008 and $1.9
million in drawings at September 30, 2007.
It is managements intent to renegotiate the terms or the revolving
credit agreement or find alternative financing prior to its maturity.
In addition to the revolving credit facility
the Partnership has a $4 million promissory note payable to American AgCredit,
PCA, which is scheduled to mature on May 1, 2010. Amounts outstanding under the promissory note
agreement bear interest at rates ranging from 5.1435 percent to 6.87 percent. At September 30, 2008 and 2007, the
outstanding balance under the promissory note agreement amounted to $800,000
and $1.2 million, respectively.
The credit agreements with American AgCredit,
PCA, contain various financial covenants.
The Partnership was in compliance with all debt covenants at September 30,
2008 and 2007.
9
Table
of Contents
(8)
PARTNERS CAPITAL
Net income (loss) per Class A Unit is
calculated by dividing 100% of Partnership net income (loss) by the average
number of Class A Units outstanding for the period.
(9)
CASH DISTRIBUTIONS
The credit agreements with American AgCredit,
PCA prohibit the declaration and payment of cash distributions through July 10,
2009.
(10)
PENSION PLAN
The Partnership sponsors a defined benefit
pension plan covering employees that are members of a union bargaining
unit. The Partnerships funding policy
is to contribute an amount to the plan sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974.
COMPONENTS OF NET PERIODIC BENEFIT COST
|
|
Pension Benefits
|
|
Pension Benefits
|
|
|
|
3 months ended
|
|
9 months ended
|
|
|
|
9/30/08
|
|
9/30/07
|
|
9/30/08
|
|
9/30/07
|
|
Service Cost
|
|
$
|
14,128
|
|
$
|
15,002
|
|
$
|
42,383
|
|
$
|
45,008
|
|
Interest Cost
|
|
7,792
|
|
7,116
|
|
23,375
|
|
21,348
|
|
Expected Return on Assets
|
|
(11,582
|
)
|
(9,880
|
)
|
(34,746
|
)
|
(29,640
|
)
|
Amortization of Unrecognized Prior Service Costs
|
|
1,660
|
|
1,661
|
|
4,982
|
|
4,983
|
|
Net Periodic Pension Cost
|
|
$
|
11,998
|
|
$
|
13,899
|
|
$
|
35,994
|
|
$
|
41,699
|
|
(11)
INTERMITTENT SEVERANCE PLAN
The
Partnership sponsors a defined intermittent severance benefit plan covering
employees that are members of a union bargaining unit and not covered by the
defined benefit pension plan. Payment of
the severance benefits is made when covered employees cease employment with the
Partnership under certain terms and conditions as defined in the union
bargaining agreement.
COMPONENTS OF NET PERIODIC BENEFIT COST
|
|
Intermittent Severance Benefits
|
|
|
|
3 months ended
|
|
9 months ended
|
|
|
|
9/30/08
|
|
9/30/07
|
|
9/30/08
|
|
9/30/07
|
|
Service Cost
|
|
$
|
3,887
|
|
$
|
4,624
|
|
$
|
11,661
|
|
$
|
13,872
|
|
Interest Cost
|
|
4,679
|
|
4,740
|
|
14,035
|
|
14,219
|
|
Net Periodic Intermittent Severance Cost
|
|
$
|
8,566
|
|
$
|
9,364
|
|
$
|
25,696
|
|
$
|
28,091
|
|
(12)
EMPLOYEES
The Partnership has two bargaining agreements
with the ILWU Local 142. These
agreements cover all production, maintenance, and agricultural employees of the
Kau Orchard Division and the Keaau and Mauna Kea Orchard Division. These labor contracts expired on May 1,
2008 and were extended for a 60-day period.
On June 30, 2008 the parties agreed to a one-year contract, which
will expire on June 30, 2009. Although the Partnership believes that
relations with its employees and the ILWU are generally very good, there is
uncertainty with respect to the ultimate outcome of the bargaining unit
negotiations.
10
Table of Contents
(13)
LEGAL PROCEEDINGS
The Partnerships lawsuit against Hamakua Macadamia Nut Company is
continuing but no change in the status has occurred as of the date of this
report. There is no change in the status
of the lawsuit brought by the EEOC.
11
Table of
Contents
ML MACADAMIA ORCHARDS, L.P.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Significant
Accounting Policies and Estimates
The Partnership prepares its consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America. Certain of our accounting policies, including the
estimated lives assigned to our assets, determination of bad debt, inventory
valuation, deferred farming costs, asset impairment, goodwill and goodwill
impairment, self-insurance reserves, assumptions used to determine employee
benefit obligations and the calculation of our income tax liabilities, require
that we apply significant judgment in defining the appropriate assumptions for
calculating financial estimates. By their nature, these judgments are subject
to an inherent degree of uncertainty. Our judgments are based on our historical
experience, terms of existing contracts, our observance of trends in the
industry and crop, information provided by our customers and information
available from outside sources, as appropriate. There can be no assurance that
the actual results will not differ from our estimates. To provide an
understanding of the methodology we apply, our significant accounting policies
are discussed where appropriate in this discussion and analysis and in the
notes to consolidated financial statements in the 2007 Form 10-K.
Results
of Operations
The Partnerships financial results are principally driven by nut
production, which is seasonal and highly contingent upon Hawaiis climactic
conditions and nut prices which are either fixed or market based. Traditionally, nut production is highest
during the third and fourth quarters, with very low production in the first and
second quarters.
For the nine-month period ended September 30, 2008, the
Partnership had a net income of $224,000 ($0.03 per Class A Unit) compared
to a net loss of $446,000 (negative $0.06 per Class A Unit) for the
nine-month period ended September 30, 2007. The Partnership generated a net income of
$886,000 for the three-month period ended September 30, 2008 from revenues
of $5.8 million. Net loss for the
three-month period ended September 30, 2007 was $436,000 from revenues of
$2.8 million. The increase in net income
for the three-month period ended September 30, 2008 and the nine-month
period ended September 30, 2008 is the result of crop insurance claim in
the amount of $886,000 representing a nut production loss of 1.2 million pounds
in the crop year ended June 30, 2008.
The insurance claim is reflected as an increase in accounts receivable
in the statement of cash flows. Once
received, the Partnership intends to use the crop insurance proceeds to service
its line of credit.
Net cash flow per Class A Unit for the nine-month periods ended September 30,
2008 and 2007, as defined in the Partnership Agreement, amounted to $0.17 and
$0.01, respectively. Net income per Class A
Unit for the third quarter of 2008 amounted to $0.12 compared to net loss per Class A
Unit of ($0.06) for the third quarter of 2007.
Net cash flow per Class A Unit for the third quarters of 2008 and
2007, as defined in the Partnership Agreement, was $0.22 and $0.00,
respectively.
12
Table of
Contents
Owned-orchard Segment
For the three and nine-month periods ended September 30,
2008 and 2007, nut production, nut prices and nut revenues based upon contract
terms with moisture at 20% (WIS @ 20%) and recovery at 30% (SK/DIS @ 30%)
were as follows:
|
|
For the Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
Change
|
|
Nuts harvested (000s pounds @
|
|
|
|
|
|
|
|
WIS 20% and SK/DIS @ 30%)
|
|
6,763
|
|
4,124
|
|
64
|
%
|
Processed as kernel and held in inventory
|
|
|
|
(694
|
)
|
|
|
Net pounds of nuts harvested and sold
|
|
6,763
|
|
3,430
|
|
97
|
%
|
Nut price (per pound)
|
|
0.6584
|
|
0.5771
|
|
14
|
%
|
Net nut sales ($000s)
|
|
4,453
|
|
1,979
|
|
125
|
%
|
Kernel sales
|
|
144
|
|
|
|
|
|
Total nut sales ($000s)
|
|
4,597
|
|
1,979
|
|
132
|
%
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
Change
|
|
Nuts harvested (000s pounds @
|
|
|
|
|
|
|
|
WIS 20% and SK/DIS @ 30%)
|
|
9,670
|
|
8,194
|
|
18
|
%
|
Processed and sold as kernel
|
|
|
|
(629
|
)
|
|
|
Processed as kernel and held in inventory
|
|
|
|
(694
|
)
|
|
|
Net pounds of nuts harvested and sold
|
|
9,670
|
|
6,871
|
|
41
|
%
|
Nut-in-shell sold from inventory
|
|
941
|
|
|
|
|
|
Total pounds of nuts sold
|
|
10,611
|
|
6,871
|
|
54
|
%
|
Nut price (per pound)
|
|
0.6450
|
|
0.6401
|
|
1
|
%
|
Net nut sales ($000s)
|
|
6,844
|
|
4,398
|
|
56
|
%
|
Kernel sales
|
|
1,371
|
|
504
|
|
172
|
%
|
Total nut sales ($000s)
|
|
8,215
|
|
4,902
|
|
68
|
%
|
Production for the third
quarter of 2008 was 64% higher than the third quarter of 2007. For the nine-month period ended September 30,
2008 production was 18% higher than the same period in 2007. The increase in production was attributable
to the timing of nuts falling from the trees.
In the third quarter of 2008, all of the pounds produced were sold to
customers under nut purchase contracts, compared to 2007 when 83% of pounds
produced were sold under nut purchase contracts and 17% was processed as kernel
and held in inventory. For the
nine-month period ended September 30, 2008 contract pounds sold was 54%
more than 2007.
13
Table of Contents
The average nut price
received during the three and nine-month periods ended September 30, 2008
were 14% and 1% higher than the same periods in 2007. The increase in the third quarter 2008 was
primarily attributable to the effect of the market-based pricing of the
Partnerships nut purchase contract with MacFarms of Hawaii, LLC, which is tied
to the Hawaii and Australia market prices, and the contract addendum with Mauna
Loa Macadamia Nut Corporation.
Cost of goods sold,
exclusive of additional inventory processing costs, for the three and
nine-month periods ended September 30, 2008 amounted to $.58 and $0.63 per
pound. Cost of goods sold for the three and
nine-month periods ended September 30, 2007 amounted to $0.45 and $0.50,
respectively. The increase during 2008
compared to 2007 was attributable to a revision in managements full year cost
forecast, resulting in an decrease in standard unit cost per pound harvested
and recognized as expense. Management
anticipates higher costs for the remainder of 2008 related to labor and
materials, as well as an increase in harvesting activity during the fourth
quarter of 2008 to improve nut quality.
The spring nut production quality is historically lower than the annual
average because of the seasonality of the nut drop and longer related harvest
intervals. As a greater quantity of nuts
fall, the harvest intervals are shortened, improving the quality of the nuts
harvested.
During the three and
nine-month periods ended September 30, 2008, sales of kernel separate from
nut purchase contracts amounted to $144,000 and $1.4 million,
respectively. There were no kernel sales
in the three-month period ended September 30, 2007 and kernel sales for
the nine-month period ended September 30, 2007 was $504,000. Cost of kernels sold, inclusive of inventory
processing costs, for the three and nine-month periods ended September 30,
2008 amounted to $162,000 and $1.4 million, respectively. There was no cost of goods sold for the
three-month period ended September 30, 2007 and cost of goods sold for the
nine-month period ended September 30, 2007 was $476,000.
Farming Segment
Service revenue generated
from the farming of macadamia orchards owned by other growers for the three and
nine-month periods ended September 30, 2008 were 46% and 13% higher than
2007, respectively. Costs of services
provided for the three and nine-month periods ended September 30, 2008
were 49% higher and 15% higher than 2007, respectively. The fluctuation in revenues was attributable
to the timing of services rendered and fluctuating production levels. The fluctuation in expense was attributable
to a revision in standard costs resulting in a 2% improvement of gross margin
in 2008 compared to 2007.
General and Administrative Expense
General and administrative
expense for the three and nine-month periods ended September 30, 2008
decreased by 45% and 26%, respectively, compared to 2007. In 2007, the Partnership incurred significant
costs related to the attempted acquisition of Mac Farms of Hawaii, LLC, which
was abandoned in late 2007. The absence
of such costs in 2008 has been offset by increased legal fees associated with
the Partnerships lawsuit against Hamakua Macadamia Nut Company and certain
complaints filed against the Partnership by the EEOC.
Other Income and Expenses
Interest expense for the
three and nine-month periods ended September 30, 2008 was $84,000 and
$250,000, respectively, compared to $44,000 and $104,000 in 2007. The increase was attributable to the
Partnership maintaining a higher outstanding balance on the revolving line of
credit in 2008.
14
Table of Contents
Interest income for the
three and nine-month periods ended September 30, 2008 was $14,000 and
reflects the interest charged on a customers accounts receivable balance. Due to cash constraints, the Partnership has
less interest income during 2008 compared to $49,000 earned in the nine-month
period ended September 30, 2007.
Other income for the third
quarter of 2008 was primarily attributable to the accrual of crop insurance
claims in the amount $886,000. Crop
insurance claims result from an insurance policy that provides coverage if the
production in designated blocks is less than 75% of a ten year moving average.
Other income for the
nine-month period ended September 30, 2008 was $897,000 and includes cash
distribution received from American AgCredit, PCA in the amount of
$12,000. Other income for the nine-month
period ended September 30, 2007 was primarily attributable to a cash
distribution from American AgCredit, PCA in the amount of $14,000.
Liquidity
and Capital Resources
Macadamia nut farming is seasonal, with production normally peaking in
the fall and winter, however, farming operations continue year round. In
general, a significant amount of working capital is required for much of the
harvesting season.
The Partnership has a master Credit Agreement with American AgCredit,
PCA comprised of a $6 million revolving line of credit and a 10-year, $4
million term loan. The Credit Agreement
contains certain restrictions which are discussed in Part II Item 2,
below.
At September 30, 2008, the Partnership had a cash balance of
$735,000 compared to $120,000 at September 30, 2007. Cash flows provided by operating activities
for the nine-month periods ended September 30, 2008 was $492,000 compared
to $3.4 million used in operations for the nine-month period ended September 30,
2007. Cash flows provided by operating
activities for the three-month period ended September 30, 2008 was $1.2
million compared to $1.8 million used in operations for the same period in
2007. The improvement in operating cash
flows was attributable to cash received on the increased nut production in
2008. The improvement in operating cash
flows was attributable to the implementation of cost-cutting measures and the
sale of nut inventory on hand at the end of 2007. However, due to net cash outflows from
operations during the first half of 2008 and 2007, the Partnership has had to
deplete its cash reserves and draw on its revolving credit facility to make
distributions to unit holders, acquire capital assets, and make debt service
payments on the term loan.
At September 30, 2008 the Partnership had working capital of
$971,000 and a current ratio of 1.18 to 1 compared to a working capital of $3.2
million and a current ratio of 1.85 to 1 at September 30, 2007. The deterioration in working capital was
primarily attributable to the $3.7 million in short-term borrowings outstanding
at September 30, 2008 compared to $1.9 million in short-term borrowings
outstanding at September 30, 2007.
At September 30, 2008, the Partnership had $4.5 million in
outstanding debt, comprised of $800,000 under the 10-year term loan and $3.7
million in drawings on the revolving line of credit.
Management anticipates additional draws on the revolving line of credit
as necessary to fund working capital needs arising from the normal seasonal
requirements of macadamia nut farming, however believes that the amended credit
facility with American AgCredit, PCA will provide the Partnership with adequate
borrowing capacity to meet anticipated working capital needs for
15
Table of Contents
operations as presently conducted and the addendum to the nut purchase
contract with Mauna Loa Macadamia Nut Corporation will positively impact the
Partnerships cash flow from operations.
However, the Partnerships nut purchase contracts require all purchasers
to make nut payments 30 days after the date of delivery. During certain parts of the year, if payments
are not received as the contracts require, available cash resources could be
depleted.
Item 3. Quantitative
and Qualitative Disclosures About Market Risk
The Partnership is exposed to market risks
resulting from changes in interest rates.
The Partnership has market risk exposure on its Credit Agreement due to
its variable rate pricing that is based on rates based on LIBOR, the Farm
Credit Discount Note Rate and the Farm Credit Medium Term Note Rate. As of September 30, 2008, a one percent
increase or decrease in the applicable rate under the Credit agreement will
result in an annual interest expense fluctuation of approximately $8,000. Details of the Partnerships credit
facilities are summarized in Note (7) on page 9.
The Partnership is exposed to market risks
resulting from changes in the market price of macadamia kernel. Pricing for two of its nut purchase contracts
is adjusted every six months based upon the prevailing market price of macadamia
kernel from Australia and Hawaii. During the first half of 2008 global
macadamia prices have remained stable. A
$0.25 increase or decrease in the kernel price would affect the price received
by the Partnership by $0.038 per pound at 20% WIS and 30% SK/DIS.
The Partnership has two bargaining agreements
with the ILWU Local 142. Both agreements
have been negotiated for a one-year period effective June 30, 2008.
Item
4. Controls and Procedures
(a)
As of the end of the period
covered by this Quarterly Report (the Evaluation Date) on Form 10-Q, the
Partnership carried out an evaluation, under the supervision and with the
participation of management, including the Chief Executive Officer and the
Chief Financial Officer, of the effectiveness of the design and operation of
the Partnerships disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, the Partnerships disclosure controls and procedures were
effective. The Partnerships disclosure
controls and procedures are designed to ensure that information required to be
disclosed by the Partnership in the reports that it files or submits under the
Exchange Act is (i) recorded, processed, summarized and reported within
the time periods specified in the applicable SECs rules and forms, and (ii) accumulated
and communicated to the Partnerships management, including the Chief Executive
Officer and Chief Financial Officer to allow timely decisions regarding
required disclosure.
(b) There have been no
significant changes to internal control over financial reporting during the
third quarter of 2008 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
16
Table of Contents
Part II - Other Information
Item
1. Legal Proceedings
The Partnerships lawsuit against
Hamakua Macadamia Nut Company is continuing but no change in the status has
occurred as of the date of this report.
There is no change
in the status of the lawsuit brought by the EEOC.
Item
2. Changes in Securities
In connection with the Amended Credit
Agreement with American AgCredit, PCA, certain restrictions are placed on the
Partnership in regard to indebtedness, sales of assets and maintenance of
certain financial minimums. The
restrictive covenants consist of the following:
1.
No restricted payments shall be declared or
made through June 30, 2009.
2.
Minimum tangible net worth as of December 31,
2008 shall not be below $41.0 million.
3.
The minimum quarterly
consolidated EBITDA amount shall not be less
than
the amount set forth as follows:
Fiscal quarter ended March 31, 2008
|
|
$
|
(55,000
|
)
|
Fiscal quarter ended June 30, 2008
|
|
$
|
(300,000
|
)
|
Fiscal quarter ended September 30,
2008
|
|
$
|
600,000
|
|
Fiscal quarter ended December 31, 2008
|
|
$
|
1,150,000
|
|
4
.
The Addendum to Nut Purchase
Agreement shall not be terminated prior to June 30, 2009 without prior
written consent of Lender.
The Partnership was in compliance with all
debt covenants at September 30, 2008 and 2007.
Item 5. Other Information
The Partnership is required to maintain
market capitalization of at least $25 million on a 30-trading day average to
meet the continued listing criteria of the NYSE. At this time, the market capitalization of
the Partnership is less than that amount and the Partnership expects to receive
formal notice of a decision to delist the Partnerships Depository Receipts
(representing Class A Units of limited partners interests) from the
NYSE. While the NYSE decision to delist
the Depository Receipts is subject to appeal, the Partnership believes that it
would be in the best interest of its unit holders not to contest this
action. Therefore, the Partnership is
pursuing alternatives for repositioning itself on another exchange. In the interim, management is making
arrangements for the securities to continue to be traded through the Over The
Counter Bulletin Board (OTCBB).
17
Table
of Contents
Item
6. Exhibits and Reports on Form 8-K
(a) The
following documents are filed as part of this report:
Exhibit
Number
|
|
Description
|
|
|
|
11.1
|
|
Statement re Computation of Net Income (loss) per Class A Unit
|
|
|
|
31.1
|
|
Form of Rule 13a-14(a) [Section 302]
Certifications
|
|
|
|
31.2
|
|
Form of Rule 13a-14(a) [Section 302]
Certifications
|
|
|
|
32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350 As adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.2
|
|
Certification pursuant to 18 U.S.C. Section 1350 As adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
(b) Reports on Form 8-K:
On July 7, 2008, the Partnership filed a
Regulation FD Disclosure on Form 8-K, related to the maturity date of
the American AgCredit revolving loan.
On July 14, 2008, the Partnership filed
a Regulation FD Disclosure on Form 8-K, which included a copy of a press
release issued by the Partnership setting forth the amended credit agreement
with American AgCredit, PCA and the addendum to the nut purchase agreement with
Mauna Loa Macadamia Nut Corp.
On August 13, 2008, the Partnership
filed a Regulation FD Disclosure on Form 8-K, which included a copy of a
press release issued by the Partnership setting forth the results of operations
for the quarter ended June 30, 2008.
18
Table
of Contents
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: November 10, 2008
|
|
By
|
/s/ Dennis J. Simonis
|
|
|
|
Dennis J. Simonis
|
|
|
|
President and
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
By
|
/s/ Wayne W. Roumagoux
|
|
|
|
Wayne W. Roumagoux
|
|
|
|
Principal Accounting Officer
|
|
|
|
|
|
|
|
|
19
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