ML Macadamia posts
smaller loss

Buying out a management contract
will end up saving fees

ML Macadamia Orchards LP, the state's largest nut grower, posted a narrower loss in the first quarter after taking a $326,000 charge for buying out its management contract.

The one-time item left the Big Island-based company with a loss of $27,000, or virtually nothing per Class A unit, compared with a loss of $95,000, or 1 cent a unit, a year earlier.

Revenue rose 48.9 percent to $3.1 million from $2.1 million.

ML Macadamia took full ownership of general partner ML Resources Inc. after paying Chairman JWA "Doc" Buyers $750,000 for the 75,757 shares of ML Macadamia stock he owned. Buyers previously owned all of the general partner's ML Macadamia shares. Buyers, who will turn 77 in July, will remain chairman of the board.

Dennis Simonis, president and chief executive of ML Macadamia, said eliminating the management contract will save ML Macadamia about $40,000 annually if it maintains its recent annual cash flow of about $2 million. He said if the company's cash flow were to reach $6 million, it could save more than $100,000 a year.

"The action was taken primarily to have control of the organization," Simonis said. "To have a publicly held company really controlled by one person, a general partner, is probably not the best corporate governance. It's better that the limited partners have more say in the running of the organization."

Simonis said paying the $750,000 accomplished three things. It allowed ML Macadamia to buy back 1 percent of its stock. It allowed the company to cancel the management contract so that it no longer will have to pay a management fee. And it allowed the limited partnership to control the company rather than the general partner.

ML Macadamia has been in a transitional period since mid-December when Hershey Foods Corp. -- since renamed Hershey Co. -- closed its deal to buy Mauna Loa Macadamia Nut Corp., which held the contractual rights to be the exclusive purchaser of all of ML Maca-damia's nuts.

Simonis, who had been unhappy with the below-market price ML Macadamia was receiving from Mauna Loa, earlier this year announced that ML Macadamia had signed a deal with Big Island processor Hamakua Macadamia Nut Co. to purchase 6 million pounds of ML Macadamia's nuts when the nuts become contractually available in 2007. He said ML Macadamia is negotiating with Hershey for the remaining 9 million pounds of nuts that will become available in 2007.

"I would call the talks preliminary but productive," Simonis said. "I certainly would expect them to pay us market prices."

Last year, ML Macadamia received an average price of 49.7 cents a pound for wet-in-shell nuts from Mauna Loa although the actual price is subject to adjustment based on Mauna Loa's actual full-year performance. Simonis said the Mauna Loa/Hershey portion, although uncertain, is estimated to be slightly better than the final 2004 estimate.

"We still have not received a final audit for 2004 prices," Simonis said. "This is the latest it's ever been. Usually, they do it in January. Now, it's the middle of May and Hershey is still working on it."

ML Macadamia has a complex pricing arrangement based half on the current year processing and marketing results of Hershey -- previously Mauna Loa -- and half on the two-year trailing average of U.S. Department of Agriculture macadamia nut prices.

Simonis said the USDA portion for 2005 will be 1 percent higher than last year. Hershey's estimate for the first quarter of 2005 is 53.6 cents a pound -- still way below the market price of between 90 and 95 pounds -- from 48.8 cents a year earlier.

"Hershey is saying there are a lot of integration costs in bringing the business into the Hershey family and that things will be better in the future," Simonis said.

Simonis said last quarter's crop was more plentiful than a year ago with the company producing 3.9 million pounds of nuts compared with 2.4 million pounds in the first quarter of 2004.

"Operationally, last quarter was good," said Simonis, noting that the third and fourth quarters contribute the most to the company's financial results.

Macadamia nut sales increased 87.5 percent last quarter to $2.2 million from $1.2 million a year earlier while contract farming revenue slipped 0.9 percent to $888,000 from $896,000.