This excerpt taken from the NUT 10-Q filed May 8, 2009.
Liquidity and Capital Resources
Macadamia nut farming is seasonal, with production and harvesting activities peaking in the fall and winter. However, farming operations and cultivation activities 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 $6.0 million revolving line of credit which matures on June 30, 2009 and a 10-year, $4.0 million term loan which matures on May 1, 2010. At March 31, 2009, the Partnership had a balance of $800,000 outstanding on its term loan and no drawings under the revolving credit facility. At March 31, 2009, $6.0 million was available under the revolving credit facility. At March 31, 2008, the Partnership had a balance of $1.2 million on its term loan and $3.8 million outstanding on its revolving credit facility.
At March 31, 2009 the Partnership had a cash balance of $563,000 compared to $601,000 at March 31, 2008. Cash flows provided by operating activities were $1.3 million for the three months ended March 31, 2009 compared to $233,000 cash flows used in operations for the three months ended March 31, 2008. The improvement in operating cash flows was attributable to cash received on the increased nut sales in December 2008, compared to less cash received in the first quarter 2008 due to lower nut sales December 2007. The $330,000 legal claims settlement from Hamakua also contributed to the improved operating cash flows in the first quarter 2009. Cash paid for operating expense and interest was also less in the first quarter of 2009 compared with the same period in 2008.
At March 31, 2009 the Partnership had working capital of $2 million and a current ratio of 2.56 to 1 compared to a working capital of $1,000 and a current ratio of 1.00 to 1 at March 31, 2008. The increase in working capital was primarily due to no short-term borrowings outstanding at March 31, 2009 compared to $3.8 million in short-term borrowings outstanding at March 31, 2008.
Management anticipates draws on the revolving line of credit as necessary to fund working capital needs arising from the normal seasonal requirements of macadamia nut farming, and management also believes that the credit facility with American AgCredit, PCA when it is renewed will provide the Partnership with adequate borrowing capacity to meet anticipated working capital needs during 2009 for 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 in 2009. The Partnerships nut purchase contracts require all purchasers to make nut payments 30 days after the date of delivery. The addendum to the Mauna Loa nut purchase contract requires payment within normal Mauna Loa terms. During certain parts of the year, if payments are not received as the contracts require, available cash resources could be depleted.
These excerpts taken from the NUT 10-K filed Mar 30, 2009.
Liquidity and Capital Resources
The Partnership recorded net income of $68,000 and had cash flows from operations of $2.8 million during 2008 and had working capital of $1.1 million at December 31, 2008. Net cash provided by operations was $2.8 million in 2008 compared to $3.9 million net cash used in 2007. The significant increase of $6.5 million is a result of more pounds of nuts sold, a higher selling price per pound for the nuts sold, fewer pounds of nuts processed into kernel from WIS nuts, sales of the nut-in-shell inventory and sales of a majority of the kernel inventory. The Partnership incurred a net loss of $4.0 million and had negative cash flows from operations of $3.9 million during 2007 and had a working capital deficit of approximately $199,000 at December 31, 2007. Net cash used by operations was $3.9 million in 2007 compared to net cash provided by operations of $8.2 million in 2006. The significant decrease of $12.1 million is a result of the fewer pounds of nuts sold, a lower selling price per pound for the nuts sold, processing related to the production of kernel from WIS nuts, increase in inventory of kernel and nut-in-shell and associated costs, the change in payment term under the Mauna Loa contracts from quarterly to monthly, and costs for the attempted acquisition of Mac Farms.
At December 31, 2008 the Partnerships working capital was $1.1 million and its current ratio was 1.44 to 1, compared to working capital of a negative $199,000 and a current ratio of 0.96 to 1 at December 31, 2007 and working capital of $3.9 million and a current ratio was 2.54 to 1 at December 31, 2006, compared to $3.4 million and 1.59 to 1 in 2005.
In 2008 the increase in working capital compared to 2007 was the result of higher revenue, lower general and administrative costs, and higher other income offset by higher costs of goods sold, higher interest cost and higher income tax. In 2007 the decrease in working capital compared to 2006 was the result of higher costs of goods, lower revenue, higher general and administrative costs, and lower other income offset by higher interest income, and lower income tax. The Partnership was in compliance with the terms and conditions of the Credit Agreement at December 31, 2006 except for minimum tangible net worth. On July 5, 2007, the lender provided a waiver to the loan covenant for the year ended December 31, 2006 and retroactively amended the minimum tangible net worth covenant. The Partnership was in compliance with the terms and conditions of the Credit Agreement at December 31, 2007 except for the restricted payment covenant, minimum tangible net worth covenant, and the debt coverage ratio covenant. On March 14, 2008, the lender provided a waiver and amendment to the loan covenants for the year ended December 2007. Effective March 14, 2008 the amended agreement reduced the maximum borrowing on the revolving line of credit from $5.0 million to $4.5 million, established a quarterly covenant based upon EBITDA, prohibited declaration and payment of further restricted payments in 2008, establishes a minimum tangible net worth of $41.0 million effective December 31, 2008 and required the Partnership to provide additional security in the form of a mortgage or deed of trust on real property. On July 8, 2008 the Partnership executed a Second Amended and Restated Credit Agreement with American AgCredit Capital Markets. The Second Amended and Restated Credit Agreement increased the maximum borrowing on the revolving line of credit from $4.5 million to $6.0 million, and allowed no payments of distributions to partners through June 30, 2009. On March 25, 2009 American AgCredit Capital Markets provided the Partnership with a commitment to amend the current credit agreement, which would extend the revolving line of credit for an additional year. The commitment would reduce the revolving line of credit from $6.0 million to $5.0 million, increase the interest rate by 25 basis points per annum, increase the fixed rate by 50 basis points per annum and maintain all other terms and conditions. For further information see Description of Business Loan Agreement.
Capital expenditures in 2008, 2007 and 2006 were $125,000, $226,000, and $509,000, respectively. The decrease in 2008 was attributed to the acquisition of less farming equipment, vehicles and computers than 2007. The decrease in 2007 was attributed to the increase in farming equipment, computers and roofs offset by no land purchase in 2007. The increase in 2006 was attributed to the purchase of 21 tree acres of macadamia orchards for $440,000, computers, a vehicle and upgrades to operating machinery. Capital expenditures planned for 2009 are about $800,000 for normal replacement of farming equipment, and are expected to be financed by way of new equipment leases, either capital or operating leases.
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 $6.0 million revolving line of credit. The line of credit was obtained on May 2, 2000 and expires June 30, 2009. At December 31, 2008 the Partnership had a cash balance of $102,000 and line of credit drawings outstanding of $900,000 and $5.1 million available on the line of credit. At December 31, 2007 the Partnership had a cash balance of $283,000 and line of credit drawings outstanding of $3.0 million. In 2007 the Partnership had inventory of kernel and nuts of $2.0 million which were funded by borrowing from the line of credit.
As a Limited Partnership, we expect to pay regular cash distributions to the Partnerships unit holders if the cash flow from operations, as defined in the Management Agreement, exceeds the operating and capital resource needs of the Partnership, as determined by management and the terms of our borrowing agreements permit us to do so. Cash distributions would be paid from operating cash flow and / or other resources. In December 2007, the Partnership declared a distribution of $0.03 per Class A unit (a total of $225,000), which was paid February 15, 2008 to the unit holders of record as of December 31, 2007. No subsequent distributions have been made because of borrowing agreement restrictions.
It is the opinion of management that the Partnership has adequate cash on hand and borrowing capacity available to meet anticipated working capital needs for operations as presently conducted. The nut purchase contracts require the buyers to make nut payments 30 days after the delivery of the nuts to 15 days after the end of the month in which the nuts were delivered. During certain parts of the year, if payments are not received, as the contracts require, available cash resources could be depleted.
Liquidity and Capital
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