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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
OR
[ ] 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
828 FORT STREET, HONOLULU, HAWAII 96813
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (808) 532-4130
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class 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
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this 10-K or any amendment to this
10-K. [ ]
As of March 1, 2001, 7,500,000 shares of the registrant's Class A Units were
outstanding, and the aggregate market value of such Units held by non-affiliates
was $30,375,000 (based on the closing price on that date of $4.05 per Unit).
1
PART I
ITEM 1. BUSINESS OF THE PARTNERSHIP
(a) GENERAL DESCRIPTION OF THE BUSINESS
ML Macadamia Orchards, L.P. (the "Partnership") is a publicly-traded
partnership, organized under the laws of the State of Delaware, and engaged in
the business of growing and farming macadamia nuts in Hawaii. It believes that
it is one of the world's largest growers of macadamia nuts. The Partnership owns
or leases approximately 4,169 tree acres of macadamia nut orchards in three
locations within a 50-mile radius on the island of Hawaii. ("Tree acres" are
acres of the Partnership's owned or leased lands utilized for macadamia nut
orchards. "Gross acres" includes areas not utilized for orchards.) The
Partnership sells all of its macadamia nut production to Mauna Loa Macadamia Nut
Corporation ("Mauna Loa") under long-term nut purchases contracts. The
Partnership farms its own orchards and approximately 3,000 additional acres of
macadamia orchards for other orchard owners. The Partnership is managed by its
general partner, ML Resources, Inc. ("MLR" or the "Managing Partner"). The
Managing Partner is a wholly owned subsidiary of C. Brewer and Company, Limited
("CBCL"), which in turn is wholly owned by Buyco, Inc. ("Buyco").
Ownership of Class A Units confers no direct or indirect interest in Buyco,
CBCL, or any of their affiliated corporations, or in Mauna Loa.
The Partnership commenced operations in June 1986, following its acquisition of
interests in approximately 2,423 tree acres of macadamia nut orchards from
subsidiaries of CBCL. In December 1986 and October 1989, respectively, the
Partnership acquired from subsidiaries of CBCL interests in approximately 266
and 1,260 additional tree acres of macadamia orchards. In September 1991 the
Partnership acquired approximately 78 tree acres of producing macadamia
orchards.
On May 1, 2000, the Partnership purchased 142 acres of macadamia orchards and
the macadamia farming operations from subsidiaries of CBCL. The farming
operations consist of farming contracts, farming equipment, vehicles, a husking
plant, irrigation well, office buildings, garages and warehouses, office
furniture and equipment and material inventories related to macadamia farming.
All the assets and operations are located on the island of Hawaii.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The response to this section of Item 1 is incorporated by reference to Note 4 of
the Notes to the Consolidated Financial Statements.
(c) NARRATIVE DESCRIPTION OF THE BUSINESS
OWNED-ORCHARD SEGMENT
The Partnership sells all of the macadamia nuts from its orchards to Mauna Loa
under long-term nut purchase contracts. Mauna Loa processes and markets the nuts
under the MAUNA LOA(R) brand name and is believed to be the largest processor
and marketer of macadamia nuts in the world. The Partnership is Mauna Loa's
largest single supplier of macadamia nuts. Mauna Loa was a subsidiary of CBCL
until its sale in September 2000 to The Shansby Group. On May 1, 2000, the
Partnership began farming its own macadamia orchards. Prior to that date,
subsidiaries of CBCL performed the farming activities for the Partnership under
long-term farming contracts.
NUT PURCHASE CONTRACTS. The Partnership is a party to five nut purchase
contracts with Mauna Loa. They cover all nuts produced by the orchards acquired
in June 1986, December 1986, October 1989, September 1991 and May 2000,
respectively. The 1986 contracts expire in 2006, while the 1989 contract expires
in 2019 and also provides for the exclusion of unusable nuts from those
purchased by Mauna Loa.
2
The first three contracts are identical in all other material respects. The
fourth contract was acquired by assignment with the orchard purchase in
September 1991 and expires in 2003. The fourth contract is similar to the 1986
contracts, but the nut price is calculated on a crop year (July 1 through June
30) rather than a calendar year basis, which results in a slightly different nut
price. All four contracts use a pricing formula based 50% on a two-year trailing
average of the macadamia nut price published annually by the United States
Department of Agriculture and 50% on Mauna Loa's "netback component." The
netback component is calculated by subtracting Mauna Loa's processing and
marketing costs per pound and a "capital charge" of 20% from its nut revenues
per pound. The fifth contract expires in 2006. Its pricing formula is based 100%
on the two-year trailing average of USDA reported prices. The first three nut
purchase contracts may be terminated by Mauna Loa upon thirty days' notice if
the Managing Partner is involuntarily removed as the managing general partner
and replaced by a person or entity not affiliated with Mauna Loa. The fourth nut
purchase contract may be terminated at any time by mutual agreement in writing,
or it may be terminated by the Partnership as of the end of any calendar year by
giving Mauna Loa at least twelve months advance notice of its intention to
terminate. The fifth contract may be terminated at any time by mutual agreement
in writing.
COMPETITION. Because the Partnership's revenues from nut sales are tied to a
formula dependent in large part upon Mauna Loa's market performance, the
Partnership bears certain risks associated with Mauna Loa's marketing of the
nuts, including the likelihood of increased future competition.
Mauna Loa considers its primary competition to be other premium nut products,
except in Hawaii where its products compete with those of other macadamia nut
producers and other food and non-food tourist items. As a premium nut, macadamia
nuts compete with cashews, almonds and pistachios.
Mauna Loa sells macadamia nuts as "retail" nuts and "commercial" nuts and
produces and sells various macadamia nut products. These include pristine salted
and unsalted roasted macadamia nuts, packages of diced macadamia nuts and
macadamia oil (for cooking and baking), value-added products such as
candy-glazed macadamia nuts, chocolate-covered macadamia nuts, chocolate
macadamia nut candy bars, honey-roasted macadamia nuts and macadamia nut
brittle.
Macadamia nuts comprised less than 5% of the sales of branded premium nuts sold
through mass merchandisers, drug and grocery stores on the U.S. mainland.
Cashews and mixed nuts represent the bulk of the dollar sales in this segment,
followed by pistachios. Macadamia nuts are the highest priced of all premium
nuts, and, therefore, they may be sensitive to price competition from other
nuts.
Approximately 44 percent of sales of the MAUNA LOA(R) brand are made in the U.S.
mainland, where Mauna Loa sells its products through brokers to food stores,
club stores, drug store chains, mass merchandisers and commercial customers.
Approximately 32 percent of sales of the MAUNA LOA(R) brand are made in Hawaii
where Mauna Loa sells through its own direct sales force primarily to retailers.
Substantial portions of the macadamia nut products sold are purchased by
visitors for gifts and souvenirs. Mauna Loa believes that it is the largest
seller of macadamia products in the State of Hawaii.
Outside the United States, Mauna Loa's other major market is Japan and the Far
East. Approximately 13 percent of sales of the MAUNA LOA(R) brand are made in
Japan and the Far East.
The remaining sales are comprised of ingredient nuts, visitor center sales, and
mail order sales.
In addition to the State of Hawaii, mature macadamia nut orchards are located in
Australia, Africa, and Central America. For the 2000 crop, Hawaii was expected
to supply 30% of the world crop, and Australia, the world's largest producer,
was expected to supply 42%.
3
A general decline in nut prices would adversely affect the prices which Mauna
Loa could charge for its macadamia nut products and could have a negative effect
on its profitability. Since the purchase price for the Partnership's nuts under
all of its nut purchase contracts is based in part on nut prices reported by the
industry and in part on the marketing success of Mauna Loa, a general decline in
macadamia nut prices could also adversely affect the Partnership's revenues.
MACADAMIA FARMING SEGMENT
Since the May 2000 purchase of the macadamia farming operations, the Partnership
farms its own 4,169 acres of macadamia orchards and approximately 3,000
additional acres of macadamia orchards owned by other growers. Prior to May
2000, the Partnership's orchards were farmed by two subsidiaries of CBCL under
four long-term farming contracts.
All the orchards are located in three separate regions on the island of Hawaii
("Keaau", "Ka'u" and "Mauna Kea"). Because each region has different terrain and
weather conditions, farming methods vary somewhat among the three locations.
FARMING CONTRACTS. The Partnership was a party to four farming contracts with
two affiliates of CBCL, Ka'u Agribusiness Company, Inc. ("KACI") and Mauna Kea
Agribusiness Company, Inc. ("MKACI"). Services under these contracts included
cultivation, weed and pest control, fertilization, pruning and hedging,
replanting, harvesting, husking and related services for the Partnership's
orchards. In return, the Partnership reimbursed KACI and MKACI for direct and
indirect costs incurred in providing such services, including an equipment
utilization charge and an annual farming fee. The contracts were terminated May
1, 2000 when the Partnership acquired all the farming assets from KACI and
MKACI.
KACI and MKACI were also a party to approximately twenty additional farming
contracts, which have been assigned to the Partnership with the May 2000
acquisition. Services provided and reimbursements for costs under these
contracts are identical to those listed above. These contracts also provide a
management fee to the Partnership, which is based either a fixed fee per acre
farmed, or as a percent of reimbursed costs, ranging from 5% to 20%.
ORCHARD MAINTENANCE. Maintenance of an orchard is essential to macadamia nut
farming. Pruning and hedging of trees is necessary to allow space for mechanical
harvesting and cultivating equipment to operate safely and efficiently and to
remove dead branches. Where mechanical equipment is used, the orchard floor must
be maintained in a condition that will permit its operation. Soil and gravel are
used to repair mud holes and other surface irregularities caused by soil erosion
from heavy rain and by farming equipment. Pruning and surface maintenance are
usually performed after the harvest season.
Orchard management also requires the proper selection and application of
fertilizers, pesticides (to control rodents, insects and fungi) and herbicides
(to control weeds). Insects, rodents and fungi, as well as wild pigs, if not
controlled, can cause losses to nut production.
HARVESTING. The harvest period begins in the late summer and runs through the
following spring. Mature nuts fall from the trees and are harvested using
mechanized harvest equipment when the orchard floor is level enough to permit
its use. Nuts are harvested by hand when the orchard floor is too uneven to
permit mechanical harvesting, when the nut drop is very light and when nuts
remain after harvesting. At Keaau, Ka'u and Mauna Kea, seasonal labor for hand
harvesting and other operations is generally available from nearby Hilo and
adjacent communities.
Mechanical harvesting is less costly than hand harvesting, but mechanical
harvesting is possible only where the orchard floor is relatively flat.
Approximately 70% of the orchards in Ka'u, 59% in Keaau and 94% in Mauna Kea are
currently mechanically harvested. The remaining acres are too uneven for
mechanical harvesting and must be harvested by hand.
4
During the harvest season, the nuts are collected every six to ten weeks. Nuts
suffer loss in quality if they remain on the ground too long. The harvested nuts
are then transported to the husking facilities, which are located in Ka'u and
Keaau. The Keaau husking facility is owned by Mauna Loa, and the Ka'u husking
facility is owned by the Partnership. Nuts harvested in the Mauna Kea region are
transported to the husking facility in Keaau. At the husking facility, the outer
husk is removed and the nuts, still in their shell, are weighed and sampled to
determine moisture content and kernel quality. Title to the nuts husked in Keaau
passes to Mauna Loa after weighing. Title to the nuts husked at Ka'u pass to
Mauna Loa after delivery to the Mauna Loa processing plant in Keaau. The nuts
are then moved to a drying facility.
PROCESSING. The nuts purchased by Mauna Loa from the Partnership and from the
other orchards farmed by the Partnership are primarily processed at Mauna Loa's
processing plant located adjacent to the orchards located in the Keaau area. The
plant was built in 1966 and is presently capable of handling approximately
210,000 pounds of dry-in-shell (commonly abbreviated "DIS") nuts per day.
Processing at the plant includes drying, cracking, roasting, inspecting and
packaging. The plant also includes separate warehouses, a machine shop, storage
facilities, husking facilities, nut drying facilities, a generator and a 10,000
square foot chocolate processing plant. None of these processing facilities are
owned by the Partnership.
At Mauna Loa's plant in Keaau, the harvested nuts pass by conveyors over metal
screens, blowers and rock separators that remove everything but the in-husk
nuts. The husks are then split and removed by pressing the nuts between steel
roller bars and a rubber pad. At this stage, the nut kernels are still encased
in their hard round shells and roughly 20% of their weight is attributable to
moisture content. At this point, the nuts are referred to as wet-in-shell
(commonly abbreviated "WIS"). The WIS weight of the nuts is used to determine
payments to be made by Mauna Loa under the Nut Purchase Contracts. Approximately
20% of the WIS weight of the nuts will become dry salable kernels when all
further processing is completed.
After the nuts are weighed, the moisture content of the nuts is reduced by
blowing warm air over them, producing DIS nuts. The nuts are then cracked by
metal rollers to remove the shell. Mechanical and optical equipment, as well as
hand sorting, are used to separate the nut kernels from pieces of broken shell.
The dry nut kernels are roasted and then sorted into retail and commercial
grades. At this stage, less than half of the nuts are bulk-packed and sent to
four co-packers on the U.S. mainland for packaging. At Mauna Loa's plant in
Keaau the nuts may be salted, or covered with chocolate or one of several candy
glazes, and finally packaged, labeled and readied for shipment.
STABILIZATION PAYMENTS
In December 1986, the Partnership acquired a 266-acre orchard that was several
years younger than other orchards of the Partnership. Because of the relative
immaturity of the newer orchard, its productivity (and therefore its cash flow)
was expected to be correspondingly lower for the first several years than for
the other older orchards.
Accordingly, the seller of this orchard (KACI) agreed to make cash stabilization
payments to the Partnership for each year through 1993 in which the cash flow
(as defined) from this orchard fell short of the target cash flow level, which
equaled $507,000. Stabilization payments for any given year were limited to the
lesser of the amount of the shortfall or a maximum payment amount. For the years
from 1987 through 1993, inclusive, the Partnership received a total of
$1,628,000 (including a 4% Hawaii general excise tax) in stabilization payments
under this agreement.
The Partnership accounted for stabilization payments (net of the 4% Hawaii
general excise tax) as a reduction in the cost basis of the orchard. As such,
these payments are being reflected in the Partnership's net income ratably
through 2019 as a reduction to the depreciation expense reported for this
orchard.
5
In return, the Partnership is obligated to pay the seller 100% of any year's
cash flow from this orchard in excess of the target cash flow as additional
percentage rent until the aggregate amount of the additional percentage rent
paid equals 150% of the total amount of stabilization payments previously
received. Thereafter, the Partnership is obligated to pay the seller 50% of this
orchard's cash flow in excess of the target cash flow as additional incentive
rent. No additional rent was due in 1998, 1999 or 2000.
RISKS INVOLVED IN OPERATING MACADAMIA ORCHARDS
Macadamia nut trees are subject to damage or destruction from diseases, pests,
floods, droughts, windstorms, hurricanes, volcanic activity and other natural
causes. Partnership tree replacements for all orchards from all causes were 0.9%
in 1998, 0.7% in 1999 and 0.9% in 2000.
DISEASES AND PESTS. The Partnership's Keaau orchards have experienced tree
replacements of 1.9% in 1998, 1.5% in 1999 and 2.0% in 2000. Other macadamia
growers in the vicinity have also experienced higher than normal tree losses due
to a problem known as "Macadamia Quick Decline" ("MQD"). Based upon research by
the University of Hawaii and other experts, it is believed that the situation is
due to fungi associated with high moisture conditions. It is also believed that
a particular variety of macadamia nut tree (variety 333) is most susceptible to
MQD. Another tree variety (variety 344) has also been identified as being more
susceptible to MQD than other varieties. Approximately 9% of the Partnership's
orchards are variety 333 and 45% are variety 344. Both the Keaau and Mauna Kea
orchards are areas with high moisture conditions, and may be more susceptible to
the MQD problem. MQD is present in the Ka'u orchards, but tree losses to date
have been less than 1% in the Ka'u area.
There are also two types of fungal diseases, which can affect nut production but
are not fatal to the trees themselves. One of these is Phytophthora, which
affects the macadamia flowers and nutlets, and the other is Botrytis cinerea.
These types of fungal disease were generally controllable with fungicides, but
many of these fungicides are no longer available. Historically, these fungi have
attacked the orchards located in Keaau every three to four years. There was a
Phytophthora occurrence in the Keaau and Mauna Kea orchards from February to
mid-March in 1999, which slightly affected the 1999-2000 crop year production
for these orchards. A moderate infestation of Phytophthora occurred in January
2000, and a light infestation has occurred in late January-early February 2001.
RAINSTORMS AND FLOODS. The Partnership's orchards are located in areas on the
island of Hawaii that are susceptible to heavy rainstorms. On November 2, 2000,
over 30 inches of rain fell in twenty-four hours in East Hawaii. The orchards in
the Ka'u region were in the middle of fall/winter harvesting and an estimated
2.5 million pounds of nuts were washed away. Orchard roads, bridges, and
irrigation systems were damaged throughout the area, as well as the state
highway. The Partnership sustained damage to approximately 81 acres of orchards.
Cleanup and irrigation repair is estimated to cost $200,000. Fortunately, only
six macadamia trees were washed away. Some of the orchards owned by others and
farmed by the Partnership were more heavily damaged. Approximately 300 acres of
other owners' orchards were affected by rocks, debris and washouts, including
3,500 trees that were washed away.
WINDSTORMS. The Partnership's orchards are located in areas on the island of
Hawaii that are susceptible to windstorms. Twenty-four major windstorms have
occurred on the island of Hawaii since 1961, and four of those caused material
losses to Partnership orchards. Several of the Partnership's orchards are
surrounded by windbreak trees, which provide limited protection. Younger trees
that have not developed extensive root systems are particularly vulnerable to
windstorms.
INSURANCE. The Partnership secures tree insurance each year under a federally
subsidized program. The tree insurance for 2001 provides coverage up to a
maximum of approximately $34 million against loss of trees due to wind, fire or
volcanic activity. Crop insurance was purchased for the 2001-2002 crop year and
provides coverage up to a maximum of approximately $7.5 million against loss of
nuts due to wind, fire, volcanic activity, earthquake, adverse weather, wildlife
damage and failure of irrigation water supplies.
6
VOLCANOES. The orchards are located on the island of Hawaii, where there are two
active volcanoes. To date, no lava flows from either volcano have affected or
threatened the orchards.
RAINFALL. The productivity of orchards depends in large part on moisture
conditions. Inadequate rainfall can reduce nut yields significantly, while
excessive rain without adequate drainage can foster disease and hamper
harvesting operations. While rainfall at the orchards located in the Keaau and
Mauna Kea areas has generally been adequate, the orchards located in the Ka'u
area generally receive less rainfall and, as a result, a portion of the Ka'u
orchards is presently irrigated. Irrigation can mitigate the effects of a
drought, but it cannot completely protect a macadamia nut crop from the effect
of a drought. Recorded rainfall at each of the three locations of the
Partnership's orchards for the past five years is shown below:
YEAR KA'U KEAAU MAUNA KEA
---- ------ ------- ---------
1996 69.3" 125.2" 146.6"
1997 54.9" 142.3" 157.5"
1998 8.8" 115.5" 153.7"
1999 30.5" 132.3" 130.0"
2000 47.1" 147.9" 158.0"
In, 1998, an El Nino related drought affected all of Hawaii for the first three
months and continued to affect Ka'u for the full year. The Ka'u region recorded
the lowest rainfall in the Partnership's history, with less than nine inches of
rain. The 1998-99 Ka'u crop year was reduced by over 30% due to the lack of
rainfall. The Keaau and Mauna Kea regions, which normally receive substantial
rainfall, benefited from the lack of rainfall during the first three months of
the year. During this period, flowering and pollination were highly successful
in these orchards, resulting in the largest macadamia crops ever produced in
these two regions.
The drought continued in Ka'u until the fall of 1999. However, twelve inches of
rain fell in the beginning of 1999, which allowed the Ka'u orchards to flower
and produce a crop that was just less than normal.
Drought continued for the third year in Ka'u in 2000, with only 10 inches of
rain falling from January to July. After the November rainstorm, when the Ka'u
region received over 30 inches of rainfall in twenty-four hours, essentially no
rain was received again until February 2001, when 13 inches was recorded.
WATER SUPPLY FOR IRRIGATION
With the May 2000 acquisition, the Partnership acquired an irrigation well (the
"Sisal Well"), which supplies water to the Partnership's orchards in Ka'u which
were purchased in June 1986 and 1989. The Sisal Well is situated on land owned
by MKACI. On May 1, 2000 the Partnership entered into a license agreement with
MKACI, which allows the Partnership necessary access to maintain and operate the
Sisal Well, as well as the use of roads to access, maintain and operate the
Partnership's macadamia orchards. Annual rent for the license agreement is one
dollar. The license agreement terminates on the earlier of June 30, 2045, or at
the termination of the May 1, 2000 lease between Partnership and KACI.
Prior to the May 2000 acquisition, the Partnership and KACI were parties to a
water agreement to which KACI agreed to supply water to those portions of the
June 1986 Orchards and October 1986 Orchards located at Ka'u and which had been
irrigated historically.
If the amount of water provided by the Sisal Well becomes insufficient to
irrigate the above named orchards, the Partnership may consider increasing the
capacity of the Sisal Well, drilling an alternative well into the historical
source which provides water to the Sisal Well or obtaining water from other
sources.
On a historical basis, the quantity of water available from the Sisal Well has
been generally sufficient to irrigate these orchards in accordance with prudent
farming practices. The irrigated portion of the Ka'u II
7
Orchards is expected to need greater quantities of water as the orchards mature.
The Managing Partner anticipates that the amount of water available from the
Sisal well will be generally sufficient, assuming average levels of rainfall, to
irrigate the Irrigated Orchards in accordance with prudent farming practices for
the next several years. If no irrigation water is available to the Irrigated
Orchards, then, based on historical average rainfall levels, diminished yields
of macadamia nut production can be expected.
EMPLOYEES
On May 1, 2000 the Partnership hired all the employees necessary for macadamia
farming from KACI and MKACI. As of December 31, 2000, the Partnership employed
359 people, of which 147 were seasonal workers. Of the total, 24 are in farming
supervision and management, 320 in production, maintenance and agricultural
operations, and 15 in accounting and administration.
With the May 2000 acquisition, the Partnership agreed to the assumption of three
bargaining agreements with the ILWU Local 142. These agreements cover all
production, maintenance and agricultural employees of the Ka'u Orchard Division,
of the Keaau Orchard Division and of the Mauna Kea Orchard Division. All three
labor contracts became effective May 1, 1997 and were to expire April 30, 2001.
The parties have recently agreed to a one-year extension of all terms and
conditions of these contracts. The Partnership believes that relations with its
employees are very good.
Prior to May 1, 2000 acquisition, the Partnership had no employees. Instead, the
employees, officers and directors of the Managing Partner performed all
management functions for the Partnership. On May 1, 2000, the three employees of
the Managing Partner were transferred to the Partnership.
ITEM 2. PROPERTIES.
LOCATION. The Partnership owns or leases approximately 4,169 tree acres of
macadamia orchards on the island of Hawaii. The orchards are located in three
areas: Ka'u, Keaau and Mauna Kea. The Ka'u area is located in the south part of
the island about fifty miles from Hilo. The Keaau area is located six miles
south of Hilo on the east side of the island, and the Mauna Kea area is located
three miles north of Hilo on the east side of the island.
The majority of macadamia nut trees grown in the State of Hawaii are grown on
the island of Hawaii in volcanic soil that permits drainage during heavy
rainfall. While the orchards are located approximately within a 50-mile radius,
the climate and other conditions which affect the growing of macadamia nuts are
different. These differences are the result of prevailing wind patterns and
island topography which produce a variety of microclimates throughout the
island.
AGE AND DENSITY. The productivity of macadamia nut orchards depends on several
factors including, among others, the age of the trees, the number of trees
planted per acre, soil condition, climate, rainfall and/or irrigation. The most
significant characteristic affecting yields is maturity. The trees in a
macadamia nut orchard generally begin to produce nuts at a commercially
acceptable level at around nine years of age. Thereafter, nut yields increase
gradually until the trees reach maturity, after which the nut yield remains
relatively constant except for variances produced by rainfall, cultivation
practices, pest infestation and disease.
Macadamia orchards normally reach peak production after fifteen to eighteen
years of age. Of the 4,169 tree acres of macadamia orchards owned or leased by
the Partnership, 2,907 tree acres are over eighteen years of age and roughly
1,262 tree acres are under eighteen years of age. Around 2% of trees are lost to
various causes each year and are replaced.
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[MAP OF STATE OF HAWAII]
KA'U
Acreage: 2,078
KEAAU
Acreage: 1,765
MAUNA KEA
Acreage: 326
RAINFALL. Macadamia trees grow best in climates with substantial and evenly
distributed rainfall (or equivalent irrigation) and in soil that provides good
drainage. Inadequate rainfall can significantly reduce nut yields, while
excessive rain without adequate drainage can impede healthy tree growth, promote
the growth of harmful fungal diseases and produce mud holes that require repair
of the orchard floor.
At Keaau, normal rainfall is adequate without irrigation, and the volcanic soil
provides good drainage. However, short droughts and occasional flooding have
occurred. At Mauna Kea, normal rainfall is adequate without irrigation and the
volcanic soil provides adequate drainage. In the event of a very long drought,
production at Keaau and Mauna Kea might be affected. At Ka'u, located on the
drier side of the island, the rainfall averages are substantially less than at
Keaau, particularly at the lower elevations. Approximately 652 acres at the
lower elevations of Ka'u are irrigated to provide for additional water when
required. Under extremely dry conditions at Ka'u, such as a prolonged drought,
irrigation is not sufficient, and production will be adversely affected.
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ORCHARDS. The following table lists each of the orchards, the year acquired,
tree acres, tenure, and lease rents:
TREE LEASE MIN. RENT
ORCHARD ACQUIRED ACRES TENURE EXPIRATION PER ANNUM
- -------------------------- --------------- ------------- --------------------- --------------- --------------
Keaau I June 1986 1467 Fee simple
Ka'u I June 1986 456 Fee simple
" June 1986 500 Leasehold (1) 2019 $ 25,000
Ka'u Green Shoe I Dec. 1986 266 Leasehold (1) 2019 $ 5,586
Keaau II Oct. 1989 220 Fee simple
Ka'u II Oct. 1989 327 Leasehold (2) 2034 $ 23,544
" Oct. 1989 175 Leasehold (1) 2028 $ 17,314
" Oct. 1989 26 Leasehold (3) 2029 $ 2,041
" Oct. 1989 186 Leasehold (1) 2031 $ 18,585
Mauna Kea Oct. 1989 326 Leasehold (2) 2034 $ 23,508
Keaau Lot 10 Sept. 1991 78 Fee simple
Ka'u O May 2000 142 Leasehold (1) 2045 $ 10,224
------
Total acres 4169
(1) Lease of land only; trees may be removed at termination of lease.
(2) Lease of land only; lessor may purchase trees from lessee at any time after
June 30, 2019.
(3) Lease of land; trees revert to lessor upon termination of lease.
For certain additional information concerning farming leases, see Item 13, page
43.
In addition to the minimum annual lease payment amount, all the leases require
the Partnership to pay various expenses with respect to the leased premises as
well as an additional rental payment based on the market price per pound of
macadamia nuts sold in Hawaii.
With respect to the Ka'u Green Shoe I Orchard, the lease requires the
Partnership to pay KACI, the seller and lessor, additional rent equal to 100% of
any year's cash flow generated by such orchard in excess of a target level of
$507,000 until the aggregate amount paid equals 150% of the aggregate amount of
the stabilization payments previously received by the Partnership. Thereafter,
the Partnership is required, with respect to any year prior to the expiration of
the lease, to pay as additional rent, 50% of the cash flow generated by such
orchard for such year in excess of a target level of $507,000 of cash flow. For
additional information, see "Stabilization Payments" on page 5.
ITEM 3. LEGAL PROCEEDINGS.
MAUNA LOA. The Partnership is a party to five macadamia nut purchase contracts
with Mauna Loa. Three of these contracts, one written in 1983 and two in 1986,
require Mauna Loa to pay for all nuts delivered. Since the inception of these
three contracts, Mauna Loa has always paid for all nuts delivered. The other two
nut purchase contracts were written in 1989 and 1999 and allow for the deduction
of unusable nuts in calculating payment due.
On October 31, 2000, Mauna Loa made payment to the Partnership for nuts
delivered during the third quarter 2000, but deducted from its payment all
unusable nuts delivered by the Partnership from January 1 to September 30, 2000
on the 1983 and 1986 nut purchase contracts. This deduction amounted to
$609,000. On January 31, 2001 Mauna Loa made its payment to the Partnership for
fourth quarter nut
10
deliveries. Mauna Loa again deducted for unusable nuts on the 1983 and 1986
contracts. The cumulative amount of disputed income and interest as of December
31, 2000 is $931,000.
The Partnership's legal counsel advised that Mauna Loa was required to pay for
all nuts delivered. A demand letter was sent, along with a detailed historical
background on the events pertaining to these contracts. Mauna Loa's attorneys
responded by saying they were advising Mauna Loa not to pay. The Partnership
filed suit for collection on December 26, 2000, and filed a motion for summary
judgment.
The court heard the motion for summary judgment on February 15, 2001. The
Partnership's motion was neither granted nor declined, but rather, the court
allowed a 90-day discovery period before making its decision. The motion for
summary judgment is now scheduled for May 18, 2001.
WATERSIDE PARTNERS. On July 13, 1998, Waterside Partners, a limited partner,
filed a suit asking that it be awarded its costs and expenses for prosecution of
a lawsuit and a proxy contest related to a proposed merger involving the
Partnership. A hearing was held on the Motion for attorney's fees and expenses
on January 29, 1999, and the court ruled that the Plaintiff was not entitled to
any attorney fees or expenses. The Plaintiff appealed to the Supreme Court of
Delaware, which decided on November 1, 1999 to uphold the lower court ruling.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S CLASS A UNITS AND RELATED UNITHOLDER MATTERS.
The Partnership's Class A Depositary Units are listed for trading on the New
York Stock Exchange (symbol = NUT). There were 1,528 registered holders of Class
A Depositary Units on December 31, 2000.
Distributions declared and high and low sales prices of the Class A Depositary
Units, based on New York Stock Exchange daily composite transactions, are shown
in the table below:
- ---------------------------------------------------------------------------------------
DISTRIBUTION HIGH LOW
- ---------------------------------------------------------------------------------------
2000: 4th Quarter $0.09 5 3 3/4
3rd Quarter 0.125 5 4 5/8
2nd Quarter 0.125 5 3/16 4 5/8
1st Quarter 0.125 5 1/4 3 3/4
1999: 4th Quarter $0.10 3 15/16 3 1/2
3rd Quarter 0.10 3 7/8 3 5/8
2nd Quarter 0.10 3 15/16 3 5/16
1st Quarter 0.10 3 15/16 3
RESTRICTIONS ON CASH DISTRIBUTIONS
On May 2, 2000, the Partnership entered into a new Credit Agreement with Pacific
Coast Farm Credit Services, ACA, under which it borrowed $4 million on a
ten-year promissory note and will have available a $5 million revolving line of
credit facility through May 1, 2004.
In connection with the Credit Agreement certain restrictions are placed on the
Partnership in regard to indebtedness, sales of assets and maintenance of
certain financial minimums. The Partnership's cash distributions will be
restricted unless all requirements of these covenants are met and the effects of
any cash distributions do not breach any of the financial covenants. The
restrictive covenants consist of the following:
1. Minimum working capital of $2.5 million.
2. Minimum current ratio of 1.5 to 1.
3. Cumulative cash distributions beginning January 1, 2000 cannot exceed
the total of cumulative net cash flow beginning January 1, 2000 plus a
base amount of $3 million.
4. Minimum tangible net worth of $57.5 million (reduced by the amount of
allowed cash distributions over net income).
5. Maximum ratio of funded debt to capitalization of 20%.
6. Minimum debt coverage ratio of 2.5 to 1.
On December 31, 2000 the Partnership's working capital was $1.6 million and its
current ratio was 1.48 to 1. The Credit Agreement requires a minimum working
capital of $2.5 million and a minimum current ratio of 1.50 to 1. Since the
financial results of the year 2000 were partially the result of the dispute with
Mauna Loa, an event that was not controllable by the Partnership, the
Partnership requested an amendment to its Credit Agreement to cure these
violations. Pacific Coast Farm Credit Services agreed to amend the Credit
Agreement to allow the amount of the Mauna Loa disputed revenue to be added to
12
current assets for the purpose of these two financial calculations. The
amendment is temporary and will be rescinded at the earlier of a favorable
outcome of the Mauna Loa dispute or on March 31, 2002.
ITEM 6. SELECTED FINANCIAL DATA.
(In thousands, except per pound and per unit data)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Financial:
Total revenue $ 13,758 $ 15,950 $ 12,408 $ 12,128 $ 13,216
Net cash provided by
operating activities (1) 2,507 3,849 3,675 4,613 2,062
Income (loss) before taxes (360) 4,847 1,039 1,831 3,033
Net income (loss) (398) 4,645 963 15,581 3,033
Distributions declared 3,523 3,030 2,273 2,273 1,515
Total working capital 1,599 9,031 5,785 5,213 4,342
Total assets 65,625 66,503 64,842 66,727 65,953
Long-term debt 3,716 -- -- -- --
Total partners' capital 57,349 61,270 59,655 60,965 47,656
Class A limited partners' capital 56,775 60,657 59,058 60,355 47,179
Net cash flow (2) 1,824 6,247 2,566 3,435 4,635
Operations:
Acres harvested 4,169 4,027 4,027 4,027 4,027
Macadamia nuts harvested (lbs.) (3) (6) 19,255 25,569 19,463 20,315 22,110
Net price $/lb. (3)(4) $ 0.5125 $ 0.6238 $ 0.6375 $ 0.5970 $ 0.5977
Per Class A Unit (5):
Income (loss) before taxes $ (0.05) $ 0.64 $ 0.14 $ 0.24 $ 0.40
Net income (loss) (0.05) 0.61 0.13 2.06 0.40
Net cash flow (2) 0.24 0.82 0.34 0.45 0.61
Distributions 0.465 0.40 0.30 0.30 0.20
Partners' capital 7.57 8.09 7.87 8.05 6.29
(1) See "Statement of Cash Flows" in the financial statements for method of
calculation.
(2) See Footnote 6 in the notes to financial statements for method of
calculation.
(3) Wet-in-shell at 25% moisture.
(4) Weighted average for all orchards.
(5) 7,500,000 Class A Units were issued and outstanding for all periods
presented.
(6) Excludes 2000 nut deliveries to Mauna Loa where payment has been disputed.
13
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the financial statements and
the related notes included elsewhere in this report.
On May 1, 2000, the Partnership completed the purchase of the macadamia farming
operations from four subsidiaries of C. Brewer and Company, Ltd. The acquired
assets consisted of 142 acres of macadamia orchards, farming contracts, farming
equipment, vehicles, a husking plant, irrigation well, office buildings, garages
and warehouses, office furniture and equipment and material inventories related
to macadamia farming. All the assets and operations are located on the island of
Hawaii. Effective with the acquisition, the Partnership began performing all the
farming operations for its own 4,169 acres and for approximately 3,000
additional acres owned by other growers.
RESULTS OF OPERATIONS - 2000, 1999, 1998
OWNED-ORCHARD SEGMENT - PRODUCTION AND YIELDS
Production and yield data for the eight orchards are summarized below (expressed
in wet-in-shell pounds at 25% moisture):
2000 Average Yield per Acre
-----------------------------------
Orchard Acquired Acreage Production 2000 1999 1998
- ------------------------- ------------- ----------- --------------- ---------- ----------- -----------
Keaau I June 1986 1,467 8,095,788 5,519 7,192 4,855
Keaau II Oct. 1989 220 733,422 3,334 5,159 3,336
Keaau Lot 10 Sept.1991 78 278,726 3,573 5,943 3,661
Ka'u I June 1986 956 5,920,571 6,193 7,293 7,189
Ka'u Green Shoe I Dec. 1986 266 1,000,546 3,761 4,745 3,249
Ka'u II Oct. 1989 714 2,745,617 3,845 4,537 3,811
Ka'u O May 2000 142 555,499 3,912 - -
Mauna Kea Oct. 1989 326 1,703,705 5,226 5,968 2,645
----------- ---------------
Totals (except yields
which are averages) 4,169 21,033,874 5,045 6,349 4,833
=========== ===============
Production for the orchards purchased in 1999 and 2000 is net of unusable nuts,
as stated in their respective nut purchase agreements. Production for the
orchards purchased in 1986 and 1991 includes all nuts delivered. The nut
purchase contracts for the 1986 and 1991 orchards require the purchaser, Mauna
Loa Macadamia Nut Corporation ("Mauna Loa"), to purchase all of the nuts
delivered from these orchards, which has been the case in all previous years. In
October 2000, after Mauna Loa was sold to new owners, Mauna Loa did not pay for
1.8 million pounds of unusable nuts from these orchards. The Partnership has
filed a lawsuit to collect payment for these nuts. The production numbers in the
table above include the unusable nuts from the 1986 and 1991 orchards.
Production in 2000 was lower for all orchards compared to 1999 due to the
following reasons:
1. The Ka'u region was affected by a rainstorm and flood in November which
caused an estimated loss of 2.4 million pounds of nuts. After the heavy
rains, the trees prematurely dropped large quantities of nuts that would
normally have been dropped and harvested in the first and second quarters
of 2001. The net loss of nuts is estimated at 700,000 pounds for the year
2000. An estimated shortage of production of 1.7 million pounds is expected
in 2001.
14
2. Production in the Ka'u region was hindered by a third consecutive year of
drought before the November rainstorm. Rainfall through October was only 22
inches compared to the region's ten-year average of 38 inches of rain.
3. Production in Keaau and Mauna Kea in 1999 was exceptionally high due to the
timing of nut drop and harvesting. The main harvesting is normally from
fall to early spring. The 1999 calendar year benefited from a late harvest
in the 1998/1999 season and an early harvest in the fall 1999/spring 2000
season. Subsequently, the 2000 calendar year received a small harvest in
the beginning of its year.
For 1999, overall nut production increased by 31% over the previous year. The
combined Keaau orchards increased 49% over 1998, and the Mauna Kea orchards were
up 126%. As mentioned above, both regions benefited form harvest timing. The
Ka'u region showed some signs of a rebound after two years of drought, with an
increase in production of 10% over 1998.
The Ka'u Green Shoe I orchard and the Mauna Kea orchard are not yet fully
mature. As a result, the yields from these orchards are expected to be lower on
average over the next few years than for the Partnership's mature orchards. At
full maturity under favorable growing conditions, a macadamia orchard can
produce between 5,500 and 7,500 WIS pounds of macadamia nuts per acre each year
at Ka'u and between 4,000 and 6,000 WIS pounds of macadamia nuts per acre each
year at Keaau. No trees have reached full maturity in the Mauna Kea area, but it
is expected that production at maturity at the Mauna Kea orchard will
approximate Keaau levels.
OWNED-ORCHARD SEGMENT - NUT REVENUE
Macadamia nut revenues depend on the number of producing acres, yields per acre
and the nut purchase price. The impact of these factors is summarized in the
following table:
2000 1999
over over
2000 1999 1998 1999 1998
------------- ------------ ------------ ---------- ----------
Trees acres harvested 4,169 4,027 4,027 + 4% -
Average yield (WIS lbs./acre) 4,611 6,349 4,833 - 27% + 31%
------------- ------------ ------------
Nuts harvested (000's WIS lbs.) 19,225 25,569 19,463 - 25% + 31%
Nut price ($/WIS lbs. @ 25%) 0.5126 0.6238 0.6375 - 18% - 2%
------------- ------------ ------------
Gross nut sales ($000's) 9,854 15,950 12,408 - 38% + 29%
============= ============ ============
In the table above, "Nuts harvested" does not include the 1.8 million pounds of
unusable nuts from the 1986 and 1991 orchards. Under the nut purchase contracts
with Mauna Loa, the price for nuts delivered is based 50% on the two-year
trailing average of USDA published macadamia nut prices and 50% on a "netback
component". The netback component is determined by subtracting from Mauna Loa's
gross revenues from the sale of macadamia products (i) allocable processing,
packaging, marketing, selling and advertising costs and (ii) a 20% capital
charge on the difference between those aggregate gross revenues and aggregate
allocable costs.
15
The following table sets forth the manner in which the nut purchase price per
pound was determined for 2000, 1999 and 1998 ($/lb.):
2000 1999 1998
------------- -------------- --------------
USDA price - two years prior (a) 0.6996 0.7125 0.6886
USDA price - one year prior (a) 0.6155 0.6996 0.7125
------------- -------------- --------------
USDA price - two year trailing average 0.6576 0.7061 0.7006
============= ============== ==============
Gross revenues 2.0165 2.1695 2.2741
Less allocable processing, packaging,
marketing, sales and advertising costs 1.5732 1.5023 1.5654
Less 20% capital charge 0.0887 0.1334 0.1417
------------- -------------- --------------
Net-back component 0.3546 0.5338 0.5670
============= ============== ==============
USDA price - two year trailing average 0.6576 0.7061 0.7006
Net-back component 0.3546 0.5338 0.5670
------------- -------------- --------------
Average of USDA two year trailing
average price and net-back component 0.5061 0.6199 0.6338
Plus Hawaii general excise tax (0.5%) 0.0025 0.0031 0.0032
------------- -------------- --------------
Net purchase price (b) (c) (d) 0.5086 0.6230 0.6369
============= ============== ==============
(a) Mauna Loa's own purchases comprise a substantial portion of nut purchases
reported to the USDA. Therefore, the USDA price component of the purchase
price is, to a substantial degree, the average price that Mauna Loa has
paid to purchase macadamia nuts from the Partnership and from third parties
during the previous two years.
(b) The nut purchase price for the 1986 and 1989 orchards was the same for 1999
and all previous years. With the change of ownership of Mauna Loa in 2000,
a quality conversion factor in the nut purchase contracts was initiated.
The effect was to cause a slightly different price of $0.5078 for the 1989
orchards.
(c) The nut purchase contract covering nut production from the 78 acre Keaau
Lot 10 orchard acquired in September 1991 defines the "two-year trailing
average" provision slightly differently from the 1986 and 1989 nut purchase
contracts, and thus, results in a different nut price. The nut price for
this orchard was $0.5339 in 2000, $0.6671 in 1999 and $0.6796. This orchard
accounts for less than 2% of the Partnership's macadamia nut production.
(d) The nut purchase contract for the Ka'u O orchards purchased in May 2000
uses only the two-year trailing USDA average to determine its nut price,
which was $0.6602 in 2000.
The 2000 average nut price from all orchards declined 18% from 1999. The USDA
portion fell 7%, representing a general decline in worldwide macadamia prices
caused by increased production, primarily in Australia. The netback component
fell 34% in 2000 compared to 1999. Mauna Loa sold an unusually large amount of
its nuts as lower valued ingredient nuts, which reduced their average revenue
per pound.
The 1999 average nut price declined 2% from the average price in 1998. The
netback component of the 1999 nut price declined due to decreased nut revenues
per pound at Mauna Loa, but this was partially offset by a reduction of Mauna
Loa's processing and marketing costs.
16
The USDA published price for the 1999-2000 crop year was $0.6227 per pound (WIS
at 25% moisture), which is 1% higher than the 1998-99 price of $0.6155 and 11%
lower than the 1997-98 price of $0.6996. The USDA two-year trailing average
which affects the Partnership's 2001 nut price will be $0.6191, a 6% decrease
over the 2000 two-year average.
OWNED-ORCHARD SEGMENT - COST OF GOODS SOLD
Agricultural unit costs depend on the operating expenses required to maintain
the orchards and to harvest the crop as well as on the quantity of nuts actually
harvested.
The Partnership's unit costs (expressed in dollars per wet-in-shell pound at 25%
moisture) are calculated by dividing all agricultural costs for each orchard
(including lease rent, property tax and tree insurance) by the number of pounds
of macadamia nuts produced by that orchard and are summarized below ($/lb.):
Cost per pound
-------------------------------------------
Orchard Acquired 2000 1999 1998
- ------------------------- ----------------------- ------------- ------------- -------------
Keaau I June 1986 0.3995 0.3504 0.4557
Keaau II Oct. 1989 0.5243 0.4039 0.5640
Keaau Lot 10 Sept.1991 0.2819 0.1938 0.3297
Ka'u I June 1986 0.4116 0.4211 0.4270
Ka'u Green Shoe I Dec. 1986 0.3583 0.3955 0.4669
Ka'u II Oct. 1989 0.4793 0.4618 0.5387
Ka'u O May 2000 0.3514 - -
Mauna Kea Oct. 1989 0.4385 0.4221 0.8802
All Orchards 0.4160 0.3910 0.4787
As a result of the farming operations acquisition, the Partnership now farms its
own orchards, and some costs previously charged as farming expenses by KACI and
MKACI were eliminated. These are the Hawaii general excise tax, capital recovery
costs and the farming fee. The Partnership saved approximately $113,000 in
Hawaii general excise taxes for the last eight months of 2000. Hawaii general
excise taxes were $128,000 in 1999 and $115,000 in 1998. The capital recovery
savings in 2000 were $18,000. Capital recovery costs were $61,000 in 1999 and
$74,000 in 1998. The elimination of the farming fee in 2000 saved the
Partnership approximately $69,000. The farming fee was $195,000 in 1999 and
$121,000 in 1998. In addition, the general and administrative expenses incurred
in the farming operation, which were previously billed and expensed as farming
costs, have been classified for the May to December 2000 period as general and
administration expenses. This amounted to $335,000 in 2000.
Cost of goods sold was $1.2 million less in 2000 than in 1999, but the cost per
pound was 6.4% higher in 2000. The lower production costs in 2000 were due to
the savings mentioned above and to a much smaller harvest in 2000.
Cost of goods sold in 1999 was $754,000 higher than in 1998, but 18% lower on a
per pound basis compared to 1998. This was the lowest cost-per-pound ever
achieved by the Partnership and is the result of the large nut production, which
spread the indirect and overhead farming costs over more pounds.
FARMING SEGMENT - FARMING SERVICE REVENUE
In connection with the acquisition, the Partnership acquired approximately 20
farming contracts to farm macadamia orchards owned by other growers. These
contracts cover macadamia orchards in the same
17
three locations on the island of Hawaii where the Partnership owns orchards. The
farming contracts provide the Partnership to be reimbursed for all direct
farming costs (cultivation, irrigation and harvesting), collect a pro-rata share
of indirect costs and overheads, and charge a management fee. The management fee
is based on the number of acres farmed or on a percentage of total costs billed.
Revenues from farming services for May to December 2000 were $3.7 million. This
total was less than expected by the Partnership due to the November rainstorm
and flood, which prohibited harvesting in some of the orchards under contract in
the Ka'u region due to damage and debris in the orchards.
FARMING SEGMENT - COST OF SERVICES SOLD
The cost of services sold relating to the farming contracts was $3.5 million for
the May to December period of 2000. These costs were all reimbursed to the
Partnership.
GENERAL AND ADMINISTRATIVE COSTS
General and administrative expenses are comprised of accounting and reporting
costs, reimbursements to the Managing Partner for directors' fees, office
expenses and liability insurance, and the management fee. In addition, general
and administrative costs are also incurred in connection with the farming
operations. Previous to the May 2000 acquisition, general and administration
costs relating to the Partnership's orchards were included in the Partnership's
farming expenses.
Total general and administrative costs for 2000 were $305,000 higher than in
1999. All of this increase was due to costs that were previously charged as
farming expenses. With the acquisition, the Partnership also assumed providing
certain accounting services to subsidiaries of CBCL. These services generated
income of $130,000 in 2000. Tthe Partnership does not expect to provide any
accounting services after 2000.
In 1999, general and administrative costs were $121,000 higher than in 1998. Of
this amount, $80,000 was due to the higher management fee earned by the general
partner, which is based on Partnership cash flow. The balance of this increase
was due to legal costs incurred in litigation concerning a proxy contest in the
1998 merger attempt.
A management fee based on Partnership cash flow is payable annually to the
Managing Partner. The amount paid was $32,000 for 2000, $137,000 for 1999, and
$57,000 for 1998.
INTEREST INCOME AND EXPENSE
The Partnership recorded interest expense of $325,000 in 2000. This was due to
(1) the long-term loan used to acquire the farming operations, (2) the
assumption of several capitalized equipment leases, and (3) interest expense on
a new revolving line of credit. There was no interest expense in 1999 or 1998.
The Partnership funds its working capital needs through funds on hand and, when
needed, from short-term borrowings, generating interest expense in the process.
Net interest income or expense, therefore, is partly a function of any balance
carried over from the prior year, the amount and timing of cash generated and
distributions paid to investors in the current year, as well as the current
level of interest rates. Throughout 1999 the Partnership had cash on hand,
earned $266,000 in interest income (net of line of credit fees), and incurred no
interest expense. Interest income was $244,000 in 1998.
Other income of $104,000 was recorded in 2000 due to a claim received on a crop
insurance policy for the 1999-2000 crop. Production in some fields in the Ka'u
region were lower than their ten-year average by more than a 25% deductible due
to the drought in that region.
18
MERGER TRANSACTION COSTS
The Partnership incurred special charges of $1.1 million in the second quarter
of 1998 resulting from the write off of costs related to the cancelled merger of
the Partnership with Hawaii Land and Farming (formerly C. Brewer Homes, Inc.).
INFLATION AND TAXES
In general, prices paid to macadamia nut farmers fluctuate independently of
inflation. Macadamia nut prices are influenced strongly by prices for finished
macadamia products, which depend on competition and consumer acceptance. Farming
costs, particularly labor and materials, and general and administrative costs do
generally reflect inflationary trends.
The Partnership is subject to a gross income tax as a result of its election to
continue to be taxed as a partnership rather than to be taxed as a corporation,
as allowed by the Taxpayer Relief Act of 1997. This tax is calculated at 3.5% on
partnership gross income (net revenues less cost of goods sold) beginning in
1998. The gross income tax was $38,000 in 2000, $202,000 in 1999 and $76,000 in
1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $2.5 million in 2000 compared with $3.8
million in 1999 and $3.7 million in 1998. The decrease in year 2000 is primarily
due to the reductions in net income and accounts payable. In 1999 and 1998
farming services were paid to KACI and MKACI 30 days after the end of each
quarter. With the acquisition of the farming operations, these expenses, mostly
payroll and benefits, are now paid within 30 days.
On December 31, 2000 the Partnership's working capital was $1.6 million and its
current ratio was 1.48 to 1, down from $9.0 million and 3.27 to 1 in 1999. The
lower working capital for 2000 is due to the $9 million expenditure on orchards
and farming operations and to lower nut revenues. The Partnership's Credit
Agreement requires a working capital minimum of $2.5 million and a minimum
current ratio of 1.50 to 1. Since the financial results of the year 2000 were
partially the result of the dispute with Mauna Loa, an event that was not
controllable by the Partnership, the Partnership requested an amendment to its
Credit Agreement to cure these violations. Pacific Coast Farm Credit Services
agreed to amend the Credit Agreement to allow the amount of the Mauna Loa
disputed revenue to be added to current assets for the purpose of these two
financial calculations. The amendment is temporary and will be rescinded at the
earlier of a favorable outcome of the Mauna Loa dispute or on March 31, 2002.
Capital expenditures in 2000 were $8.9 million, all due to the orchards and
farming operations acquisition. There were no capital expenditures in 1999 or
1998. Capital expenditures planned for 2001 are less than $500,000 and are
expected to be financed by way of new equipment 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 $5.0 million revolving line of credit. The line of credit was
obtained on May 2, 2000 and expires May 1, 2004. At December 31, 2000 the
Partnership had a cash balance of $174,000 and line of credit drawings
outstanding of $900,000. The cash balance was $5.3 million at the end of 1999,
and there were no line of credit drawings during 1999.
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. However, with the September 2000 sale of
Mauna Loa, the managing partner no longer has control over the timing of nut
payments to the Partnership. The nut purchase contracts require Mauna Loa to
make nut payments 30 days after the end of each quarter. During certain parts of
the year, if payments are not received as the contracts require, available cash
resources could be depleted.
19
LEGAL PROCEEDINGS
MAUNA LOA
The Partnership is a party to five macadamia nut purchase contracts with Mauna
Loa. Three of these contracts, one written in 1983 and two in 1986, require
Mauna Loa to pay for all nuts delivered. Since the inception of these three
contracts, Mauna Loa has always paid for all nuts delivered. The other two nut
purchase contracts were written in 1989 and 1999 and allow for the deduction of
unusable nuts in calculating payment due.
On October 31, 2000, Mauna Loa made payment to the Partnership for nuts
delivered during the third quarter 2000, but deducted from its payment all
unusable nuts delivered by the Partnership from January 1 to September 30, 2000
on the 1983 and 1986 nut purchase contracts. This deduction amounted to
$609,000. On January 31, 2001 Mauna Loa made its payment to the Partnership for
fourth quarter nut deliveries. Mauna Loa again deducted for unusable nuts on the
1983 and 1986 contracts. The cumulative amount of disputed income and interest
as of December 31, 2000 is $931,000.
The Partnership's legal counsel advised that Mauna Loa was required to pay for
all nuts delivered. A demand letter was sent, along with a detailed historical
background on the events pertaining to these contracts. Mauna Loa's attorneys
responded by saying they were advising Mauna Loa not to pay. The Partnership
filed suit for collection on December 26, 2000, and filed a motion for summary
judgment.
The court heard the motion for summary judgment on February 15, 2001. The
Partnership's motion was neither granted nor declined, but rather, the court
allowed a 90-day discovery period before making its decision. The motion for
summary judgment is now scheduled for May 18, 2001.
WATERSIDE PARTNERS
On July 13, 1998, Waterside Partners, a limited partner, filed a suit asking
that it be awarded its costs and expenses for prosecution of a lawsuit and a
proxy contest related to a proposed merger involving the Partnership. A hearing
was held on the Motion for attorney's fees and expenses on January 29, 1999, and
the court ruled that the Plaintiff was not entitled to any attorney fees or
expenses. The Plaintiff appealed to the Supreme Court of Delaware, which decided
on November 1, 1999 to uphold the lower court ruling.
ITEM 7A. 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, 2000, a one percent increase or decrease in the applicable rate under the
Credit agreement will result in an interest expense fluctuation of approximately
$40,000.
20
ITEM 8. FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND SCHEDULES.
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
------
Report of Independent Accountants 22
Balance Sheets, December 31, 2000 and 1999 23
Income Statements, for the Years Ended December 31, 2000, 1999, and 1998 24
Statements of Partners' Capital, for the Years Ended December 31, 2000,
1999 and 1998 25
Statements of Cash Flows for the Years Ended December 31, 2000,
1999 and 1998 26
Notes to Financial Statements, Including Supplementary Data 27
21
REPORT OF INDEPENDENT ACCOUNTANTS
Limited Partners
ML Macadamia Orchards, L.P.
In our opinion, the accompanying balance sheets and the related income
statements, statements of partners' capital and statements of cash flows present
fairly, in all material respects, the financial position of ML Macadamia
Orchards, L.P. at December 31, 2000 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance
with auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Honolulu, Hawaii
March 30, 2001
22
ML MACADAMIA ORCHARDS, L.P.
BALANCE SHEETS
(in thousands)
DECEMBER 31,
------------------------------------
2000 1999
--------------- ---------------
ASSETS
Current assets
Cash and cash equivalents $ 174 $ 5,325
Accounts receivable 4,594 7,687
Inventory of farming supplies 168 -
Other current assets
24 3
--------------- ---------------
Total current assets 4,960 13,015
Land, orchards and equipment, net 60,638 53,488
Intangible assets, net
27 -
--------------- ---------------
Total assets $ 65,625 $ 66,503
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current portion of long-term debt $ 459 $ -
Short-term borrowings 900 -
Accounts payable 232 2,819
Cash distributions payable 682 758
Accrued payroll and benefits 894 -
Other current liabilities 194 407
--------------- ---------------
Total current liabilities 3,361 3,984
Long-term debt 3,716 -
Deferred income tax liability 1,199 1,249
--------------- ---------------
Total liabilities 8,276 5,233
--------------- ---------------
Commitments and contingencies
Partners' capital
General partner 574 613
Class A limited partners, no par or assigned value,
7,500 units issued and outstanding 56,775 60,657
--------------- ---------------
Total partners' capital 57,349 61,270
--------------- ---------------
Total liabilities and partners' capital $ 65,625 $ 66,503
=============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
ML MACADAMIA ORCHARDS, L.P.
INCOME STATEMENTS
(in thousands, except per unit data)
2000 1999 1998
------------ ------------ ------------
Macadamia nut sales $ 9,854 $ 15,950 $ 12,408
Contract farming revenue 3,774 - -
Administrative services revenue 130 - -
------------ ------------ ------------
Total revenues 13,758 15,950 12,408
------------ ------------ ------------
Cost of goods and services sold
Costs expensed for farming and services 10,229 8,217 7,466
Depreciation and amortization 2,250 1,602 1,603
Other 180 373 369
------------ ------------ ------------
Total cost of goods sold 12,659 10,192 9,438
------------ ------------ ------------
Gross income 1,099 5,758 2,970
General and administrative expenses
Costs expensed under management contract
with related party 352 662 584
Other 1,130 515 472
------------ ------------ ------------
Total general and administrative expenses 1,482 1,177 1,056
------------ ------------ ------------
Operating income (loss) (383) 4,581 1,914
Merger transaction costs - - (1,119)
Interest expense (325) - -
Interest income 244 266 244
Other income 104 - -
------------ ------------ ------------
Income (loss) before tax (360) 4,847 1,039
Income tax expense (38) (202) (76)
------------ ------------ ------------
Net income (loss) $ (398) $ 4,645 $ 963
============ ============ ============
- -----------------------------------------------------------------------------------------------------------------
Net cash flow (as defined in the
Partnership Agreement) $ 1,824 $ 6,247 $ 2,566
============ ============ ============
- -----------------------------------------------------------------------------------------------------------------
Net income (loss) per Class A Unit $ (0.05) $ 0.61 $ 0.13
============ ============ ============
Net cash flow per Class A Unit $ 0.24 $ 0.82 $ 0.34
============ ============ ============
Cash distributions per Class A Unit $ 0.465 $ 0.40 $ 0.30
============ ============ ============
Class A Units outstanding 7,500 7,500 7,500
============ ============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
ML MACADAMIA ORCHARDS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
(in thousands)
2000 1999 1998
------------- ------------- -------------
Partners' capital at beginning of period:
General partners $ 613 $ 597 $ 610
Class A limited partners 60,657 59,058 60,355
------------- ------------- -------------
61,270 59,655 60,965
------------- ------------- -------------
Allocation of net income (loss):
General partners (4) 46 10
Class A limited partners (394) 4,599 953
------------- ------------- -------------
(398) 4,645 963
------------- ------------- -------------
Cash distributions:
General partners 35 30 23
Class A limited partners 3,488 3,000 2,250
------------- ------------- -------------
3,523 3,030 2,273
------------- ------------- -------------
Partners' capital at end of period:
General partners 574 613 597
Class A limited partners 56,775 60,657 59,058
------------- ------------- -------------
$ 57,349 $ 61,270 $ 59,655
============= ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
ML MACADAMIA ORCHARDS, L.P.
STATEMENT OF CASH FLOWS
(in thousands)
2000 1999 1998
------------- ------------ -------------
Cash flows from operating activities:
Cash received from goods and services $ 16,813 $ 13,698 $ 13,837
Cash paid to suppliers and employees (14,214) (10,130) (10,406)
Interest received 233 281 244
Interest paid (325) - 0
------------- ------------
Net cash provided by operating activities 2,507 3,849 3,675
------------- ------------ -------------
Cash flows from investing activities:
Acquisition of orchards and farming business (8,928) - -
------------- ------------ -------------
Net cash used in investing activities (8,928) - -
------------- ------------ -------------
Cash flows from financing activities:
Proceeds from drawings on line of credit 3,700 - -
Proceeds from long term debt 4,000 - -
Repayment of line of credit (2,800) - -
Capital lease payments (31) - -
Cash distributions paid (3,599) (2,841) (2,272)
------------- ------------ -------------
Net cash provided by (used in) financing activities 1,270 (2,841) (2,272)
------------- ------------ -------------
Net increase (decrease) in cash (5,151) 1,008 1,403
Cash at beginning of period 5,325 4,317 2,914
------------- ------------ -------------
Cash at end of period $ 174 $ 5,325 $ 4,317
============= ============ =============
Reconciliation of net income (loss) to net cash provided
by operating activities:
Net income (loss) $ (398) $ 4,645 $ 963
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 2,249 1,602 1,602
(Increase) decrease in accounts receivable 3,093 (2,252) 1,374
Decrease in inventories 11 - -
Increase in other current assets (169) (3) -
Increase in other assets (44) - -
Decrease in accounts payable (2,587) (202) (660)
Increase in current liabilities 402 29 408
Deferred income tax expense (credit) (50) 30 (12)
------------- ------------ -------------
Total adjustments 2,905 (796) 2,712
------------- ------------ -------------
Net cash provided by operating activities $ 2,507 $ 3,849 $ 3,675
============= ============ =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
ML MACADAMIA ORCHARDS, L.P.
NOTES TO FINANCIAL STATEMENTS
(1) OPERATIONS AND OWNERSHIP
ML Macadamia Orchards, L.P. (the "Partnership") owns and farms 4,169 tree acres
of macadamia orchards on the island of Hawaii. Once the nuts are harvested, the
Partnership sells them to another entity, which processes and markets the
finished products. The Partnership farms approximately 3,000 additional acres of
macadamia orchards on Hawaii for other orchard owners.
The Partnership is owned 99% by limited partners and 1% by the managing general
partner, ML Resources, Inc. ("MLR"). MLR is a subsidiary of C. Brewer and
Company, Limited ("CBCL"), whose parent company is Buyco, Inc. ("Buyco").
Limited partner interests are represented by Class A Units, which are evidenced
by depositary receipts that trade publicly and are listed on the New York Stock
Exchange. Mauna Loa Orchards, L.P., an affiliate of the general partner, held
30,000 Class A Units at December 31, 2000 and 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS. Cash and cash equivalents include unrestricted
demand deposits with banks and all highly liquid deposits with an original
maturity of less than three months. The cash equivalents are not protected
by federal deposit insurance.
(b) FINANCIAL INSTRUMENTS. The fair value of all financial instruments
approximates the carrying value, as the majority of the financial
instruments have fairly short durations until maturity, or the market and
risk factors associated with the instruments have not changed.
(c) FARMING COSTS. In accordance with industry practice in Hawaii, orchard
maintenance and harvesting costs for commercially producing macadamia
orchards are charged against earnings in the year that the costs are
incurred.
(d) LAND, ORCHARDS AND EQUIPMENT. Land, orchards and equipment are reported at
cost, net of accumulated depreciation and amortization. Net farming costs
for any "developing" orchards are capitalized on the balance sheet until
revenues from that orchard exceed expenses for that orchard (or nine years
after planting, if earlier).
Depreciation of orchards and other equipment is reported on a
straight-line basis over the estimated useful lives of the assets (40
years for orchards and between 5 and 12 years for other equipment). A 5%
residual value is assumed for orchards. The macadamia orchards acquired in
1986 situated on leased land are being amortized on a straight-line basis
over the terms of the leases (approximately 33 years from the inception of
the Partnership) with no residual value assumed. The macadamia orchards
acquired in 1989 situated on leased land are being amortized on a
straight-line basis over a 40 year period (the terms of these leases
exceed 40 years) with no residual value assumed. For income tax reporting,
depreciation is calculated under the straight line method over Alternative
Depreciation System recovery periods.
(e) INCOME TAXES. The accompanying statements of operations do not include a
provision for corporate income taxes, as the income of the Partnership is
not taxed directly; rather, the Partnership's tax attributes are included
in the individual tax returns of its partners. Neither the Partnership's
financial reporting income nor the cash distributions to unitholders can
be used as a substitute for the detailed tax calculations which the
Partnership must perform annually for its partners.
The Partnership is subject to a gross income tax as a result of its
election to continue to be taxed as a partnership rather than to be taxed
as a corporation, as allowed by the Taxpayer Relief Act of 1997.
27
This tax is calculated at 3.5% on partnership gross income (net revenues
less cost of goods sold) beginning in 1998.
Deferred tax liabilities are recognized for the future tax consequences
attributable to differences between the projected financial reporting and
tax reporting basis of assets and liabilities.
(f) REVENUE. Macadamia nut sales are recognized when nuts are harvested and
delivered to the buyer. Contract farming revenue and administrative
services revenues are recognized in the period that such services are
provided.
(g) PENSION BENEFIT COSTS. The actuarial method used for financial accounting
purposes is the projected unit credit method.
(h) ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(i) NET INCOME PER CLASS A UNIT. 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.
(3) ACQUISITION
On May 1, 2000, the Partnership purchased 142 acres of mature macadamia trees
and substantially all of the assets used in the macadamia farming business from
Ka'u Agribusiness Company, Inc., Ka'u Sugar, Inc., Mauna Kea Macadamia Orchards,
Inc., and Mauna Kea Agribusiness Company, Inc., all related entities. The
farming assets consist of the farming equipment, vehicles, a husking plant,
irrigation well, leasehold improvements, office furniture and equipment and
inventories related to macadamia farming. The purchase price was $8.9 million
dollars and was paid using $4.9 million in cash and a loan from Pacific Coast
Farm Credit of $4 million.
The initial purchase price has been allocated to assets acquired based on
estimated fair value. The allocated fair value of assets acquired is summarized
as follows (000's):
Inventory $ 127
Nursery 52
Property, plant and equipment 9,176
Current liabilities -427
-------------
Total $ 8,928
=============
Pro forma results of operations for the Partnership, assuming the acquisition of
the assets had occurred at the beginning of the periods indicated below, are as
follows:
Twelve months ended
December 31,
-----------------------------------------
2000 1999
----------------- -----------------
(in thousands, except per Unit data;
unaudited)
Revenue $ 15,396 $ 23,166
Net income (loss) $ (122) $ 5,221
Net income (loss) per Class A Unit $ (0.02) $ 0.69
28
The unaudited pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which actually
would have resulted had the acquisition been in effect at the beginning of each
period presented, or of future results of operations of the entities.
(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. The farming segment derives its
revenues from the farming of macadamia orchards owned by other growers. It also
farms those orchards owned 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 Partnership's 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 calculated nut price per pound and pounds produced.
The farming segment's 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 following is a summary of each reportable segment's operating income and the
segment's assets as of and for the period ended December 31, 2000. The contract
farming segment results of operations include the period May 1, 2000 (date of
acquisition) through December 31, 2000.
Segment Reporting for the Twelve Months ended December 31, 2000
(in thousands)
Owned Contract Intersegment
Orchards Farming elimination Total
-------------- -------------- ---------------- -------------
Revenues $9,854 $8,722 $ (4,818) $13,758
Composition of
intersegment revenues - 4,818 - 4,818
Operating income (loss) (476) 93 - (383)
Depreciation expense 1,644 605 - 2,249
Segment assets 58,419 7,206 - 65,625
Expenditures for property
and equipment 2,533 6,865 - 9,398
(5) RELATED PARTY TRANSACTIONS
(a) NUT PURCHASE CONTRACTS. The Partnership is a party to five nut purchase
contracts with Mauna Loa Macadamia Nut Corporation ("Mauna Loa"). Mauna Loa was
a wholly-owned subsidiary of C. Brewer and Company, Ltd. ("CBCL") until its sale
on September 29, 2000 to an unrelated party. CBCL is the
29
sole owner of ML Resources, Inc, the Partnership's general partner. The
five nut purchase contracts cover all nuts produced by the orchards acquired in
June 1986, December 1986, October 1989, September 1991, and May 2000
respectively. The first two contracts run for 20 years, while the third contract
runs for 30 years and also provides for the exclusion of unusable nuts from
those purchased by Mauna Loa. The first three contracts are identical in all
other material respects. The fourth contract was acquired by assignment with the
purchase of the September 1991 orchard and expires in 2003. The fourth contract
is similar to the first three contracts, but the nut price is calculated on a
crop year (July 1 through June 30) rather than calendar year basis, which
results in a slightly different nut price. The fifth contract was acquired by
assignment with the purchase of the May 2000 orchards and expires in 2006. The
fifth contract is similar to the first three contracts and also provides for the
exclusion of unusable nuts. The first four contracts use a pricing formula based
50% on a two-year trailing average of the macadamia nut price published annually
by the U.S. Department of Agriculture ("USDA") and 50% on Mauna Loa's "netback
component". The netback component is calculated by subtracting Mauna Loa's
processing and marketing costs per pound and a "capital charge" of 20% from its
nut revenues per pound. The fifth contract uses only the USDA two-year trailing
average to determine its nut price. The nut price paid to the Partnership under
the first two contracts was $0.6369 for 1998, $0.6230 for 1999 and $0.5086 for
2000. The average nut price paid to the Partnership under the third contract was
$0.6369 for 1998, $0.6230 for 1999 and $0.5078 for 2000. The average nut price
paid to the Partnership under the fourth nut price contract was $0.6796 for
1998, $0.6682 for 1999 and $0.5339 for 2000. The nut price paid to the
Partnership under the fifth contract was $0.6609 for 2000.
(b) FARMING CONTRACTS. Prior to the Partnership's acquisition of the macadamia
farming operations on May 1, 2000, the Partnership was a party to four farming
contracts with Ka'u Agribusiness Company, Inc. ("KACI") and Mauna Kea
Agribusiness Company, Inc. ("MKACI"), that together covered all farming,
harvesting and husking activities for the orchards acquired in June 1986,
December 1986, October 1989 and September 1991, respectively. On May 1, 2000,
the Partnership acquired the macadamia farming operations from KACI and MKACI.
The contracts provided KACI and MKACI with reimbursement of their direct and
indirect costs incurred under these contracts. The reimbursements paid to the
two farm managers were $6.9 million for 1998, $7.4 million for 1999 and $2.1
million for the first four months of 2000. Husking activities for the Keaau and
Mauna Kea orchards are performed at Mauna Loa's Keaau facility. Reimbursements
made to Mauna Loa were $489,000 in 1998, $595,000 in 1999 and $453,000 in 2000.
Each of the farming contracts provided a farming fee equal to two and one-half
percent of the Partnership's gross profits from farming operations. The
Partnership paid the two farm managers, KACI and MKACI, total farming fees of
$121,000 in 1998 and $195,000 in 1999. Due to the acquisition, no farming fee
was paid for 2000.
(c) MANAGEMENT COSTS AND FEE. The Partnership Agreement provides the managing
general partner reimbursement of administrative costs (which consist primarily
of compensation costs prior to May 2000, board of directors fees, insurance
costs and office expenses) incurred under the agreement as well as a management
fee equal to two percent of the Partnership's operating cash flow (as defined).
Those reimbursable costs totaled $528,000 in 1998, $525,000 in 1999 and $320,000
in 2000. The managing general partner earned a management fee of $57,000 in
1998, $137,000 in 1999 and $32,000 in 2000.
In addition to a management fee, the managing general partner is entitled, under
the existing Partnership Agreement, to receive an annual incentive fee equal to
0.5% of the aggregate fair market value (as defined) of the Class A Units for
the preceding calendar year provided that net cash flow (as defined) for the
preceding calendar year exceeds specified levels. No incentive fee was earned in
1998, 1999 or 2000.
(d) STABILIZATION PAYMENTS. In December 1986, the Partnership acquired a
266-acre orchard that was several years younger than its other orchards. Because
of the relative immaturity of the newer orchard, its
30
productivity (and therefore its cash flow) was expected to be correspondingly
lower for the first several years than for the other older orchards.
Accordingly, the seller of this orchard (KACI) agreed to make cash stabilization
payments to the Partnership for each year through 1993 in which the cash flow
(as defined) from this orchard fell short of a target cash flow level of
$507,000. Stabilization payments for a given year were limited to the lesser of
the amount of the shortfall or a maximum payment amount.
The Partnership accounted for stabilization payments (net of general excise tax)
as a reduction in the cost basis of this orchard. As a result, the payments will
be reflected in the Partnership's net income ratably through 2019 as a reduction
to depreciation for this orchard.
In return, the Partnership is obligated to pay KACI 100% of any year's cash flow
from this orchard in excess of the target cash flow as additional percentage
rent until the aggregate amount of additional percentage rent equals 150% of the
total amount of stabilization payments previously received. Thereafter, the
Partnership is obligated to pay KACI 50% of this orchard's cash flow in excess
of the target cash flow as additional incentive rent. No additional rent was due
in 1998, 1999 or 2000.
(e) CASH FLOW WARRANTY PAYMENTS. In October 1989, the Partnership acquired 1,040
acres of orchards that were several years younger on average than the
Partnership's other orchards. Their productivity (and therefore their cash flow)
was expected to be lower for the first several years than for the Partnership's
older orchards.
Accordingly, the sellers of these orchards (affiliates of Mauna Loa) agreed to
make cash flow warranty payments to the Partnership for each year through 1994
in which the cash flow (as defined) from these orchards fell short of a cash
flow target level. Warranty payments for any year were limited to the lesser of
the amount of the shortfall or a maximum payment amount.
The Partnership accounted for cash flow warranty payments as reductions in the
cost basis of the orchards. As a result, these payments will be reflected in the
Partnership's net income ratably through 2030 as reductions to depreciation for
these orchards.
(f) ACQUISITION OF KA'U ORCHARDS AND MACADAMIA FARMING BUSINESS. On May 1, 2000,
the Partnership purchased 142 acres of mature macadamia trees and substantially
all of the assets used in the macadamia farming business from KACI, MKACI, Mauna
Kea Macadamia Orchards, Inc. and Ka'u Sugar, Inc., all affiliates of CBCL The
farming assets consist of the farming equipment, vehicles, a husking plant,
irrigation well, leasehold improvements, office furniture and equipment and
inventories related to macadamia farming. The purchase price was $8.9 million.
As the sellers and the general partner of the Partnership are each a direct
wholly-owned subsidiary of CBCL, this acquisition involved the general partner
in a conflict of interest. The Conflicts Committee negotiated the proposed terms
of this acquisition, reached the conclusion that this acquisition would be in
the best interest of the Partnership and the holders of the Class A Units,
approved this acquisition and reported to the Board of the Directors of the
general partner its recommendation that this acquisition should be approved by
that Board. The Board of Directors of the general partner unanimously approved
such acquisition.
(g) MANAGEMENT SERVICES CONTRACT. The Partnership entered into a management
services contract with CBCL effective May 2000, wherein CBCL provides insurance
and risk management, labor agreement advice, workers' compensation case
assistance, consultation with CBCL executive staff and other areas of management
to the Partnership. This contract replaced previous contracts between CBCL and
the Managing Partner and CBCL and KACI and MKACI. The contract provides for a
fee payable to CBCL of $100,000 per year. CBCL was paid a fee of $67,000 in
2000.
31
(6) CASH FLOW PERFORMANCE
Cash flow performance (based on definitions used in the Partnership Agreement)
for the past three years is shown below (000's):
2000 1999 1998
------------ ------------ ------------
Gross revenues $ 14,106 $ 16,217 $ 12,652
Less:
Farming costs 10,409 8,396 7,714
Administrative costs 1,485 1,242 2,194
Payments of principal and interest 356 - -
------------ ------------ ------------
Operating cash flow 1,856 6,579 2,744
Less:
Farming fee - 195 121
Management fee 32 137 57
------------ ------------ ------------
Net cash flow $ 1,824 $ 6,247 $ 2,566
============ ============ ============
(7) LAND, ORCHARDS AND EQUIPMENT
Land, orchards and equipment, stated at cost, consisted of the following at
December 31, 2000 and 1999 (000's):
2000 1999
-------- ---------
Land $ 8,168 $ 8,168
Improvements 1,074 -
Machinery and equipment 4,741 -
Irrigation well and equipment 1,156 312
Producing orchards 67,267 64,734
Capital leases 207 -
--------- ---------
Land, orchards and equipment (gross) 82,613 73,214
Less accumulated depreciation
and amortization 21,975 19,726
-------- -------
Land, orchards and equipment (net) $ 60,638 $ 53,488
======= =======
(8) SHORT-TERM AND LONG-TERM CREDIT
At December 31, 2000, the Partnership's long-term debt comprises (000's):
Term debt $ 4,000
Other 175
------------
4,175
Current portion 459
------------
$ 3,716
============
REVOLVING CREDIT LOAN. On May 2, 2000 the Partnership entered into a new credit
agreement with Pacific Coast Farm Credit Services under which it has available a
$5 million revolving credit facility through May 1, 2004. Borrowings under this
credit facility were $900,000 as of December 31, 2000 at an interest rate of
9.5%. The Partnership had a $4.0 million revolving line of credit at December
31, 1999 for working capital purposes. There were no drawings in 1999.
32
Borrowings under this agreement bear interest at the prime lending rate. From
and after the first anniversary date, the Partnership is required to pay a
facility fee of 0.175% to 0.25% per annum, depending on certain financial
ratios, on the daily unused portion of the credit. The Partnership, at its
option, may make prepayments without penalty.
TERM DEBT. As of December 31, 2000, the Partnership had a $4 million promissory
note outstanding, which was issued on May 2, 2000. The note is scheduled to
mature in 2010 and bears interest at rates from 8.53 percent to 9.16 percent.
Principal payments are due annually on May 2 in the amount of $400,000.
Both the revolving credit loan and the term debt are collateralized by all
personal property assets of the Partnership. The agreement also provides for the
maintenance of certain financial indexes including a minimum current ratio and
net worth.
Maturities of long-term debt are as follows (000's):
Year ending December 31,
2002 $ 453
2003 443
2004 420
2005 400
Thereafter 2,000
-----
$ 3,716
=====
(9) INCOME TAXES
The components of income tax expense for the years ended December 31, 2000, 1999
and 1998 were as follows (000's):
2000 1999 1998
---- ---- ----
Currently payable $ 88 $ 172 $ 88
Deferred -50 30 -12
------------ ------------ -------------
$ 38 $ 202 $ 76
============ ============ =============
The provision for income taxes equates to the 3.5% federal tax rate applied to
gross income for the years ended December 31, 2000, 1999 and 1998:
The components of the net deferred tax liability reported on the balance sheet
as of December 31, 2000 and 1999 are as follows (000's):
2000 1999
------------- --------------
Deferred tax liabilities:
Financial statement bases of land, orchards,
inventory and equipment is greater than tax bases $ 679 $ 686
Financial statement bases of capitalized leases, long-
term debt on capitalized leases and interest expense
on capitalized leases is greater than tax bases 3 -
Financial statement bases of receivable
is less than tax bases (33) -
Excess of tax depreciation over
financial statement depreciation 550 563
------------- --------------
$ 1,199 $ 1,249
============= ==============
33
(10) LEASES
The Partnership leases the land underlying 1,948 acres of its orchards under
long-term operating leases. Future minimum lease payments under non-cancelable
leases (exclusive of renewal options) as of December 31, 2000 were as follows
(000's):
2001 $ 195
2002 160
2003 149
2004 128
2005 126
Later Years 3,026
------------
$ 3,784
============
Each of the above leases (other than equipment leases) also provides for
additional lease payments based on USDA-reported macadamia nut price levels.
Those contingent lease payments totaled $55,000 in 1998, $39,000 in 1999 and
$17,000 in 2000. Total lease rent for all operating leases was $171,000 in 1998,
$152,000 in 1999 and $146,000 in 2000.
(11) PENSION PLAN
The Company established a pension plan in conjunction with the acquisition of
farming operations on May 1, 2000. The plan covers employees that are members of
a union bargaining unit and the projected benefit obligation was assumed from
the previous employer.
The Company's 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.
The components of net pension cost for the year ended December 31, 2000 were as
follows (000's):
Service cost $ 23
Interest cost 5
Amortization of unrecognized prior service cost 4
------------
$ 32
============
The reconciliation of the beginning and ending balances of the benefit
obligation and fair value of plan assets and the funding status of the plan is
as follows as of and for the year ended December 31, 2000 (000's):
Change in benefit obligation:
Projected benefit obligation at beginning of year $ 99
Service cost 23
Interest cost 5
Actuarial loss 25
Benefits paid -
-----------
Projected benefit obligation at end of year 152
-----------
34
Change in plan assets:
Fair value of plan assets at beginning of year -
Actual return on plan assets -
Employer contribution 30
Benefits paid -
------------
Fair value of plan assets at end of year 30
-----------
Funded status (122)
Unrecognized prior service cost 95
Unrecognized net loss 25
-----------
Net amount recognized $ (2)
===========
Amounts recognized in the balance sheet at December 31, 2000 are as follows
(000's):
Accrued pension liability $ (7)
Intangible asset 5
------------
$ (2)
============
Actuarial assumptions used to determine costs and benefit obligations for the
pension plan are as follows:
Discount rate 7.25%
Compensation increases 2.00%
Return on assets for the year 8.00%
Experience gains and losses are amortized over the average future service period
of employees.
(12) MERGER PROPOSAL
In December 1997, the Partnership entered into a merger agreement with C. Brewer
Homes, Inc. ("Homes"). The Partnership filed with the Securities and Exchange
Commission on February 13, 1998, a registration statement in connection with
this merger. On June 26, 1998, a special meeting of the Partnership's
unitholders was held for the purpose of voting on the Merger Proposal. The
Merger Proposal was not approved, and all costs related to the merger were
expensed in the quarter ending June 30, 1998.
35
(13) QUARTERLY OPERATING RESULTS (UNAUDITED)
The following chart summarizes unaudited quarterly operating results for the
years ended December 31, 2000 and 1999 (000's, except per unit data):
Net Gross Income Net Income Net Income (Loss)
Sales (Loss) (Loss) per Class A Unit
------------- -------------------- --------------- -----------------------
2000
1st Quarter $ 1,492 $ 264 $ 65 $ 0.01
2nd Quarter 1,234 199 62 0.01
3rd Quarter 5,961 1,456 929 0.12
4th Quarter 5,071 (820) (1,454) (0.19)
1999
1st Quarter $ 3,447 $ 868 $ 541 $ 0.07
2nd Quarter 614 140 16 -
3rd Quarter 4,253 634 467 0.06
4th Quarter 7,637 4,116 3,621 0.48
36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The Partnership presently has no officers or directors. Instead, the officers
and directors of the Managing Partner perform all management functions for the
Partnership. Each director of the Managing Partner is elected for a term of one
year and until his successor is duly elected and qualified. Each officer of the
Managing Partner is elected by the Board of Directors of the Managing Partner
and is subject to removal by that board at any time.
A. IDENTIFICATION OF DIRECTORS
JAMES S. ANDRASICK. 57 years old; director of Managing Partner since 1986 and
member of the Audit and Conflicts Committee since 2000; senior vice president
and chief financial officer and treasurer of Alexander and Baldwin, Inc. since
June 2000; president of CBCL from September 1992 to March 2000.
JOHN W.A. BUYERS. 72 years old; Chairman since 1989 and Director of Managing
Partner since 1986; Chairman and Chief Executive Officer of C. Brewer and
Company, Limited; Chairman and Chief Executive Officer of Buyco.
JAMES H. CASE. 80 years old; director and member of Audit and Conflicts
Committee of Managing Partner since 1986; senior partner of the law firm of
Carlsmith Ball; not an employee, officer, or director of any CBCL affiliate
other than the Managing Partner.
RALPH C. HOOK, JR. 77 years old; director and member of Audit and Conflicts
Committee of Managing Partner since 1986; not an employee, officer, or director
of any CBCL affiliate other than the Managing Partner.
J. ALAN KUGLE. 62 years old; director since September 2000 and from 1986 to
1995; executive vice president, general counsel and secretary of CBCL; president
of Managing Partner from 1987 to 1990.
KENT T. LUCIEN. 47 years old; president and director of Managing Partner since
September 1995; executive vice president and chief financial officer of CBCL.
DAVID MCCLAIN. 54 years old; director and member of the Audit and Conflicts
Committee of Managing Partner since September 2000; not an employee, officer, or
director of any CBCL affiliate other than the Managing Partner.
B. IDENTIFICATION OF EXECUTIVE OFFICERS OF THE MANAGING PARTNER
JOHN W. A. BUYERS. 72 years old; chairman and chief executive officer of
Managing Partner since 1989.
RANDOLPH H. CABRAL. 48 years old; senior vice president and orchard manager of
Managing Partner since May 2000; not otherwise an employee, officer, or director
of any CBCL affiliate. Formerly senior vice president and orchard manager of
KACI.
KENT T. LUCIEN. 47 years old; president of Managing Partner since September
1995.
GREGORY A. SPRECHER. 53 years old; senior vice president and chief financial
officer of Managing Partner since June 1997; not otherwise an employee, officer,
or director of any CBCL affiliate.
C. IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES
Not applicable
D. FAMILY RELATIONSHIPS
Not applicable
37
E. BUSINESS EXPERIENCE OF CURRENT DIRECTORS AND EXECUTIVE OFFICERS
CURRENT DIRECTORS OF THE MANAGING PARTNER.
JAMES S. ANDRASICK. Mr. Andrasick has been senior vice president, chief
financial officer and treasurer of Alexander and Baldwin, Inc. (ALEX), a
publicly-traded diversified ocean transportation, real estate and agribusiness
company, since June 2000. He previously served as president and chief operating
officer of CBCL from September 1992 to March 2000, and was one of its directors
during that period. From 1989 until September 1992, he was executive vice
president in charge of the sugar, distribution and Central America operations.
From 1983 to 1988 he served as executive vice president, finance and
administration and chief financial officer with responsibilities for finance and
administration as well as spice and guava operations. He joined CBCL in 1978 as
vice president of planning and controller after serving three years on the IU
International Corporation corporate development staff. Mr. Andrasick received
his bachelor's degree with honors from the U.S. Coast Guard Academy and his
master's degree from the Massachusetts Institute of Technology. Mr. Andrasick is
a trustee of the U.S. Coast Guard Foundation, a director and former chairman of
the American Red Cross, Hawaii State Chapter, a director of the Hawaii Opera
Theater, and past chairman of the board of governors of the University of Hawaii
Foundation and the Hawaii Employers Council. He resides in Honolulu, Hawaii.
JOHN W.A. BUYERS. Mr. Buyers was elected Chairman of Managing Partner in 1988
and has been Chairman of ML Resources since July 1992. He has been Chairman of
the Board, President and Chief Executive Officer of C. Brewer and Company,
Limited since 1982. After service in the U.S. Marine Corps, Mr. Buyers attended
Princeton University where he graduated CUM LAUDE in 1952. He latter received an
M.A. in Industrial Management from the Massachusetts Institute of Technology as
a Sloan Fellow. He is a director of First Hawaiian Bank, BancWest, Inc., and
Outrigger Enterprises, Inc. He is also a director of John B. Sanfilippo & Sons,
Inc., a nut and marketing company located in Elk Grove Village, Illinois and the
Hawaii Island Economic Development Board. He is a member of the U.S. Chamber of
Commerce Committee on Food and Agriculture in Washington, D.C. He resides in
Hakalau, Hawaii.
JAMES H. CASE. Mr. Case is senior partner in the Hawaii law firm of Carlsmith
Ball. Mr. Case graduated with an A.B. from Williams College and received a J.D.
from Harvard Law School. He became associated with the Carlsmith law firm in
1951 and became a partner in 1959. He has served on the boards of directors of
Hamakua Sugar Company, Inc., Paauilo, Hawaii, InterIsland Resorts, Ltd.,
Honolulu, Hawaii, Pacific Club, Honolulu, Hawaii, Central Union Church,
Honolulu, Hawaii, Hanahauoli School, Honolulu, Hawaii, and Arcadia Retirement
Residence, Honolulu, Hawaii. He resides in Honolulu, Hawaii.
RALPH C. HOOK, JR. Dr. Hook is co-director of the Family Business Center of
Hawaii, which is part of the College of Business Administration at the
University of Hawaii. He joined the faculty of the University of Hawaii in 1968
as Dean of the College of Business Administration. In 1974, he returned to
teaching as Professor of Marketing in the College of Business Administration. He
became a Professor Emeritus of Marketing in June 1995. Dr. Hook received a
bachelor's and master's degrees from the University of Missouri at Columbia and
a Ph.D. in Marketing from the University of Texas at Austin. He has been a
member of the board of Hook Brothers Corporation since 1983, and a director of
Market City, Ltd. since December 2000. He resides in Honolulu, Hawaii.
J. ALAN KUGLE. Mr. Kugle is the executive vice president, secretary and general
counsel for CBCL since 1980. He was chairman of Mauna Loa from 1983 to 1992. He
began his CBCL career in 1976 as vice president and general counsel and became
senior vice president and general counsel in 1978. Mr. Kugle graduated with an
A.B. Degree from Franklin and Marshall College and a J.D. Degree from the New
York University School of Law. Mr. Kugle is also a director of Olokele Sugar
Company, Ltd. (a CBCL subsidiary), Honolulu, Hawaii, Maui Tropical Plantations
(an investee of CBCL), Wailuku, Hawaii,
38
Wailuku Agribusiness Company, Inc., (a CBCL subsidiary), Wailuku, Hawaii and
other CBCL subsidiaries. He resides in Honolulu, Hawaii.
KENT T. LUCIEN. Mr. Lucien currently serves as president of the Managing Partner
and has been executive vice president and the chief financial officer of CBCL
since 1991. Previously he served as a vice president and as an executive vice
president of the Managing Partner. He joined CBCL as a senior analyst in 1980.
Mr. Lucien is an honors graduate of Occidental College and received an M.B.A.
from Stanford University. He resides in Honolulu, Hawaii.
DAVID MCCLAIN. Dr. McClain is the Dean of the College of Business Administration
at the University of Hawaii at Manoa since 2000. He is the First Hawaiian Bank
Distinguished Professor of Leadership and Management since 2000. Dr. McClain
joined the University of Hawaii at Manoa in 1991 as the Henry A. Walker, Jr.
Distinguished Professor of Business Enterprise and Professor of Financial
Economics and Institutions. Dr. McClain serves on the Board of Directors of
Babson-United, Watertown, MA (since 1997) (privately held); Chair, Family
Literacy Fund, Hawaii Community Foundation; Chair, Hawaii Council on Economic
Education; Co-Chair, University Connections Advisory Board; and serves as a
member of a number of nonprofit boards in Hawaii. Dr. McClain earned a Ph.D. in
Economics from the Massachusetts Institute of Technology in 1974 and a BA in
Economics and Mathematics from the University of Kansas in 1968. He has taught
at Massachusetts Institute of Technology's Sloan School of Management and at
Boston University, where he chaired the Department of Finance and Economics. He
also served as Senior Staff Economist, Council of Economic Advisors to President
Jimmy Carter. He resides in Honolulu, Hawaii.
EXECUTIVE OFFICERS WHO DO NOT SERVE AS DIRECTORS.
RANDOLPH H. CABRAL. Mr. Cabral has served as senior vice president and orchard
manager of the Managing Partner since May 2000. Mr. Cabral was previously
employed at Ka'u Agribusiness Company, Inc., from 1989 until the Partnership's
acquisition of Ka'u Agribusiness' macadamia business in 2000. He served as
senior vice president from 1998 to 2000, as vice president from 1996 to 1998,
and as orchard manager from 1989. From 1983 to 1989, Mr. Cabral served as
orchard manager with Mauna Loa Macadamia Nut Corporation. Mr. Cabral has an AS
in General Agriculture from the University of Hawaii. He resides in Hilo,
Hawaii.
GREGORY A. SPRECHER. Mr. Sprecher has served as senior vice president and chief
financial officer of the Managing Partner since June 1997. From 1974 to 1990 Mr.
Sprecher served as treasurer and controller for Young Laundry & Dry Cleaning, in
Honolulu. He served as Young's chief financial officer and treasurer from 1990
to 1994. In 1994, the company was sold to American Linen, and Mr. Sprecher
served there as project manager until 1995. Mr. Sprecher has a B.S. in Finance
from California State College at Long Beach. He resides in Honolulu, Hawaii.
F. SECTION 16 DISCLOSURE
Under Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), each director and certain officers of ML Resources, Inc., the
managing general partner of Registrant (a "Reporting Person"), are required to
report their ownership and changes in ownership of Class A Depositary Units to
the Securities and Exchange commission, the New York Stock Exchange and
Registrant. Based on reporting forms submitted to Registrant, no Reporting
Person has failed to file on a timely basis reports required by Section 16(a) of
the Exchange Act during 2000, except that Randolph Cabral, who became senior
vice president on May 1, 2000, and who owns 100 Class A Units, did not file a
Form 3 until October 4, 2000.
39
ITEM 11. EXECUTIVE COMPENSATION
A. SUMMARY COMPENSATION TABLE
The Partnership is managed by the Managing Partner. Compensation paid by the
Managing Partner to its chief executive officer and other executive officers is
reimbursed by the Partnership, as provided in Section 4.5 of the Partnership
Agreement. The following table reflects the aggregate compensation for services
in all capacities paid by the Managing Partner to its executive officers for the
years ended December 31, 2000, 1999 and, 1998. There were no long- term
compensation awards or payouts during those years.
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION
--------------------------- ---------------------
YEAR SALARY BONUS OTHER
------ -------- ------- -------
John W. A. Buyers, 2000 $ - $ - $15,000
chief executive officer 1999 - - 15,000
1998 - - 11,700
Gregory A. Sprecher 2000 100,000 32,000 -
senior vice president 1999 100,000 15,000 -
and chief financial officer 1998 100,000 16,500 -
Randolph H. Cabral 2000 46,000 - -
senior vice president
B. NO OPTION, SAR, LONG-TERM INCENTIVE OR PENSION PLANS.
Neither the Managing Partner nor the Partnership presently have option plans,
SAR plans, or long-term incentive plans. The chief executive officer and the
president of the Managing Partner are included in the pension plan and other
benefit plans of its parent company, CBCL. The two senior vice presidents of the
Managing Partner are employees of the Partnership, which does not have a defined
benefit plan for non-bargaining employees. As such, neither the Managing Partner
nor the Partnership are responsible for making any payments on the retirement of
any of its present executive officers.
C. NO EMPLOYMENT CONTRACTS OR TERMINATION AGREEMENTS
The Managing Partner does not have any employment or severance agreements with
any of its present executive officers.
D. COMPENSATION OF EXECUTIVE OFFICERS
The Managing Partner does not have a compensation committee since the chief
executive officer of the Managing Partner is not compensated for serving in that
position. The only executive officers of the Managing Partner (employed by the
Partnership) are Mr. Sprecher, who has served as its chief financial officer
since June 1997, and Mr. Cabral, who has served as senior vice president and
orchard manager since May 2000. These officer's salary and guideline bonus
percentage are administered under the salary policies of CBCL. Any bonus
payments are approved by the Managing Partner's Board of Directors annually,
based on the overall performance of the Partnership as evidenced by its net
income and cash flow for the year. Performance in both categories is measured
relative to the original Partnership operating budget approved by the Managing
Partner's Board of Directors at the beginning of each year.
E. DIRECTOR COMPENSATION
Directors of the Managing Partner presently receive a quarterly retainer of
$3,000 and a meeting fee of $750 per meeting. Members of the Managing Partner's
audit and conflicts committee receive a meeting
40
fee of $750 per meeting. There are no other agreements or arrangements between
the Managing Partner and its directors.
F. STOCK PERFORMANCE CHART
The following chart compares the Partnership's total return to (i) the Russell
2000 (a small business index) and (ii) a peer group index composed of publicly
traded limited partnerships with either similar capitalization or in commodity
based markets (other than gas and oil) or both.
CUMULATIVE TOTAL RETURN
BASED UPON AN INITIAL INVESTMENT OF $100 ON DECEMBER 31, 1995
WITH DIVIDENDS REINVESTED
Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00
MI Macadamia Orchards Lp $100 $145 $168 $169 $209 $243
Russell 2000 Index $100 $116 $143 $139 $168 $163
Custom Composite Index (7 Stocks) $100 $106 $132 $118 $100 $104
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 2000, and subsequent to that date to the date of this report,
(i) no person (including any "group" as that term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934) is known by the Partnership or the Managing
Partner to be the beneficial owner of more than 5% of the Class A Units; (ii)
the Managing Partner did not own any Class A Units; and (iii) no director or
executive officer of the Managing Partner owned more than 1% of the Class A
Units.
The table below sets forth certain information as to the Class A Units
beneficially owned by the directors of the Managing Partner, and all directors
and executive officers of the Managing Partner as a group, as of December 31,
2000.
Percent
Class A of
Name of Units Class A
Beneficial Owner Owned Units
---------------------- ----- -----------
James S. Andrasick - *
John W. A. Buyers 4,176 *
Randolph H. Cabral 100 *
41
James H. Case (1) 8,000 *
Ralph C. Hook (2) 4,000 *
J. Alan Kugle 1,200 *
Kent T. Lucien 7,500 *
David McClain - *
Gregory A. Sprecher 5,000 *
All directors and executive officers 29,976 0.4%
as a group (9 persons)
*Less than 1%
(1) Beneficially owned by James H. Case pursuant to a self-directed
retirement plan sponsored by Carlsmith Ball, a law firm in which Mr. Case
is a partner, and administered by Pacific Century Trust.
(2) Beneficially owned by Ralph C. Hook pursuant to the Ralph C. Hook
Revocable Living Trust dated March 1, 1993.
In addition, Mauna Loa Orchards L.P. ("MLO"), a limited partnership whose
partners are CBCL and certain direct or indirect wholly-owned subsidiaries of
CBCL, owns 30,000 Class A Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
1. GENERAL
The Managing Partner makes all decisions relating to the management of the
Partnership. The Managing Partner, as such, has the duty to act in good faith
and to manage the Partnership in a manner that is fair and reasonable to all
unitholders. CBCL owns all of the capital stock of the Managing Partner. Certain
officers and directors of CBCL and/or its affiliates also act as officers and
directors of the Managing Partner and certain directors of the Managing Partner
are substantial shareholders of Buyco, Inc., the parent company of CBCL.
Disputes that might otherwise develop between the Managing Partner and CBCL or
its affiliates may not develop because the parties representing the entities are
identical. As a result of these relationships, certain conflicts of interest
could arise with respect to the administration of and allocation of costs under
the Partnership Agreement and in situations described below, among others.
A committee of the Managing Partner's Board of Directors composed of four
persons who are independent of CBCL and its affiliates (the "Audit and Conflicts
Committee") reviews, on an annual basis, or more frequently as such committee
may deem appropriate, the Managing Partner's management of the Partnership and
any conflicts of interest that may have arisen or may arise as a result of the
relationships among CBCL and its affiliates, the Managing Partner and the
Partnership. The Partnership Agreement states that, except for one initial
member of the Conflicts Committee, no member of the Conflicts Committee may be
an officer, director, employee or shareholder of the Managing Partner or any of
their affiliates. The Audit and Conflicts Committee presently consists of three
individuals who are not affiliated with CBCL, and one director who is no longer
an officer of CBCL, but is not considered independent pursuant to a three-year
restriction period and remains a shareholder of CBCL. However, under exceptional
and limited circumstances, the company's board of directors determined in its
business judgment that membership on the committee by the individual is required
by the best interests of the Partnership and it shareholders.
42
2. FARMING LEASES.
At the time of the Partnership's acquisition of the interests in the October
1989 Orchards, MLO assigned to the Partnership all of MLO's rights and
obligations under three 45-year farming leases relating to 327 tree acres of the
Ka'u II Orchards and all of the Mauna Kea Orchards. The farming leases permit
the Partnership to conduct macadamia nut farming operations on such macadamia
orchard properties. The farming leases provide for fixed minimum annual lease
payments to be paid to either KACI or MKACI (collectively, the "Agribusiness
Companies"), as the case may be. Such annual rental payments are subject to
increase after ten years, twenty years and thirty years based on then current
fair market lease rates. The then current fair market lease rate will be
determined by mutual agreement between the Partnership, on the one hand, and
either KACI or MKACI, as the case may be, on the other hand. If mutual agreement
cannot be reached, the then current fair market lease rate will be determined by
appraisal. Whether determined by mutual agreement or by appraisal, the then
current fair market lease rate will be determined as a fair market lease rate
for use of such premises as macadamia orchards.
The Partnership acquired its interests in the trees situated on such leased
macadamia orchard properties subject to repurchase options retained by the
Agribusiness Companies. The repurchase options grant the Agribusiness Companies
the continuing right to repurchase all or any portion of such trees after June
30, 2019 at a price equal to the then current fair market value of the trees,
according to their value as producing macadamia nut trees, as determined by
mutual agreement between the Partnership, on the one hand, and either KACI or
MKACI, as the case may be, on the other hand. If mutual agreement cannot be
reached, the then current fair market value will be determined by appraisal.
Whether determined by mutual agreement or by appraisal, the fair market value of
such trees will be determined according to their value as producing macadamia
nut trees, assuming that the owner thereof has rights to farm and harvest such
trees and has ongoing arrangements with respect to land leases, farming and nut
purchases of the same type as the Partnership has immediately prior to such
time.
At the end of the 45-year lease terms of such leases, the Agribusiness Companies
will be required to repurchase such trees at their then current fair market
value as orchards if such entities do not offer to extend such farming leases at
the then current fair market lease rates. The then current fair market lease
rate and the then current market value of the trees for such purposes will be
determined through mutual agreement between the Partnership, on the one hand,
and either KACI or MKACI, as the case may be, on the other hand or, if mutual
agreement cannot be obtained, by appraisal, in each case in the manner described
above. Such repurchase obligations will apply with respect to the expiration of
each extension of the lease terms of such leases until such leases have been in
effect for a total of 99 years, at which time the leases will expire and the
ownership interests in such trees will revert back to the Agribusiness
Companies.
In the event that the Partnership decides not to accept an offer to extend the
leases at the then current fair lease rates upon the expiration of the leases or
any extension thereof (or does not assign the leases to a third party who elects
to accept such offer), the leases will expire, the Agribusiness Companies will
not be required to repurchase the trees covered thereby and ownership of such
trees will revert back to the Agribusiness Companies (and in any event ownership
of such trees will revert back to the Agribusiness Companies after 99 years). As
the Managing Partner and the Agribusiness Companies are each direct wholly owned
subsidiaries of CBCL, a decision to renew the farming leases will involve the
Managing Partner in a conflict of interest.
As described above, the farming leases provide for determinations of the fair
market lease rate to be paid by the Partnership under the farming leases and the
fair market value of the Partnership's trees situated on property covered by
such leases by mutual agreement between the Partnership, on the one hand, and
with KACI or MKACI, as the case may be, on the other hand, or, if mutual
agreement cannot be reached, by appraisal. As any determination by the
Partnership with respect to any such mutual agreement will be
43
made by the Managing Partner and as the Managing Partner and the Agribusiness
Companies are each direct wholly owned subsidiaries of CBCL, such determination
on behalf of the Partnership will involve the Managing Partner in a conflict of
interest. Accordingly, the Conflicts Committee of the Board of Directors of the
Managing Partner will review any such determinations made by mutual agreement.
3. NUT PURCHASE CONTRACTS.
The Partnership is a party to five nut purchase contracts with Mauna Loa
Macadamia Nut Corporation ("Mauna Loa"). Mauna Loa was a wholly-owned subsidiary
of CBCL until its sale on September 29, 2000 to an unrelated party. CBCL is the
sole owner of ML Resources, Inc, the Partnership's general partner. The five nut
purchase contracts cover all nuts produced by the orchards acquired in June
1986, December 1986, October 1989, September 1991, and May 2000 respectively.
The first two contracts run for 20 years, while the third contract runs for 30
years and also provides for the exclusion of unusable nuts from those purchased
by Mauna Loa. The first three contracts are identical in all other material
respects. The fourth contract was acquired by assignment with the purchase of
the September 1991 orchard and expires in 2003. The fourth contract is similar
to the first three contracts, but the nut price is calculated on a crop year
(July 1 through June 30) rather than calendar year basis, which results in a
slightly different nut price. The fifth contract was acquired by assignment with
the purchase of the May 2000 orchards and expires in 2006. The fifth contract is
similar to the first three contracts and also provides for the exclusion of
unusable nuts. The first four contracts use a pricing formula based 50% on a
two-year trailing average of the macadamia nut price published annually by the
U.S. Department of Agriculture ("USDA") and 50% on Mauna Loa's "netback
component". The netback component is calculated by subtracting Mauna Loa's
processing and marketing costs per pound and a "capital charge" of 20% from its
nut revenues per pound. The fifth contract uses only the USDA two-year trailing
average to determine its nut price. The nut price paid to the Partnership under
the first two contracts was $0.6369 for 1998, $0.6230 for 1999 and $0.5086 for
2000. The average nut price paid to the Partnership under the third contract was
$0.6369 for 1998, $0.6230 for 1999 and $0.5078 for 2000. The average nut price
paid to the Partnership under the fourth nut price contract was $0.6796 for
1998, $0.6682 for 1999 and $0.5339 for 2000. The nut price paid to the
Partnership under the fifth contract was $0.6609 for 2000.
4. FARMING CONTRACTS.
Prior to the Partnership's acquisition of the macadamia farming operations on
May 1, 2000, the Partnership was a party to four farming contracts with the
Agribusiness Companies, that together covered all farming, harvesting and
husking activities for the orchards acquired in June 1986, December 1986,
October 1989 and September 1991, respectively. On May 1, 2000, the Partnership
acquired the macadamia farming operations from the Agribusiness Companies.
The contracts provided the Agribusiness Companies with reimbursement of their
direct and indirect costs incurred under these contracts. The reimbursements
paid to the two farm managers were $6.9 million for 1998, $7.4 million for 1999
and $2.1 million for the first four months of 2000. Husking activities for the
Keaau and Mauna Kea orchards are performed at Mauna Loa's Keaau facility.
Reimbursements made to Mauna Loa were $489,000 in 1998, $595,000 in 1999 and
$453,000 in 2000.
Each of the farming contracts provided a farming fee equal to two and one-half
percent of the Partnership's gross profits from farming operations. The
Partnership paid the Agribusiness Companies total farming fees of $121,000 in
1998 and $195,000 in 1999. Due to the acquisition, no farming fee was paid for
2000.
5. MANAGEMENT FEE.
Under the terms of the Partnership Agreement, the Partnership reimburses the
Managing Partner for all expenses incurred by it in the conduct of Partnership
business, including any expenses reasonably allocated to the Managing Partner or
to the Partnership as well as a management fee equal to 2% of the Partnership's
operating cash flow (as defined in the Partnership Agreement). Certain conflicts
may arise
44
in connection with the allocation of such expenses among the Managing Partner,
the Partnership, CBCL and its affiliates. Management cost reimbursements under
the Partnership Agreement were $528,000 in 1998, $525,000 in 1999 and $320,000
in 2000. The management fee was $57,000 in 1998, $137,000 in 1999 and $32,000 in
2000.
6. RELATIONSHIPS WITH CBCL.
Since the Partnership began operations in June 1986, the Partnership has
purchased substantially all of its fertilizer and certain transportation
services from subsidiaries of CBCL. Transportation services purchased consist of
transportation of raw nuts from the orchards in the Mauna Kea and Ka'u areas to
the processing plant. For 2000, 1999 and 1998, fertilizer, herbicide, pesticide
and transportation services purchased by the Partnership from CBCL subsidiaries
totaled $0.9 million, $0.4 million and $0.6 million, respectively. It is
expected that the Partnership will continue to purchase its fertilizer and
transportation needs from CBCL subsidiaries as long as, and to the extent that,
such purchases can be made on a basis at least as favorable as that available
from third parties. The Partnership Agreement requires that the price and terms
of any such transactions be no less favorable than those available in comparable
transactions between unrelated parties.
7. ACQUISITION OF KA'U ORCHARDS AND MACADAMIA FARMING BUSINESS
On May 1, 2000, the Partnership purchased 142 acres of mature macadamia trees
and substantially all of the assets used in the macadamia farming business from
KACI, MKACI, Mauna Kea Macadamia Orchards, Inc. and Ka'u Sugar, Inc., all
affiliates of CBCL. The farming assets consist of the farming equipment,
vehicles, a husking plant, irrigation well, leasehold improvements, office
furniture and equipment and inventories related to macadamia farming. The
purchase price was $8.9 million. As the sellers and the general partner of the
Partnership are each a direct wholly-owned subsidiary of CBCL, this acquisition
involved the general partner in a conflict of interest. The Conflicts Committee
negotiated the proposed terms of this acquisition, reached the conclusion that
this acquisition would be in the best interest of the Partnership and the
holders of the Class A Units, approved this acquisition and reported to the
Board of the Directors of the general partner its recommendation that this
acquisition should be approved by that Board. The Board of Directors of the
general partner unanimously approved such acquisition.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
A. LIST OF DOCUMENTS FILED AS A PART OF THIS REPORT.
1. FINANCIAL STATEMENTS. See Index to Financial Statements at page 21
of this Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES. None required.
3. EXHIBITS. See Exhibit Index at page 47 of this Form 10-K.
B. REPORTS ON FORM 8-K.
On October 20, 2000, the Partnership filed a report on Form 8-K announcing that
on September 29, 2000, CBCL had sold all its stock in Mauna Loa Macadamia Nut
Corporation to The Shansby Group, a San Francisco based equity partnership.
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ J. W. A. Buyers
---------------------------------
J. W. A. Buyers
Chairman of the Board and
Principal Executive Officer
Dated : March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the date set forth above.
ML RESOURCES, INC.
SIGNATURE TITLE
--------- -----
/s/ J. W. A. Buyers Chairman of the Board and Principal Executive Officer
- ----------------------------------------- Director
J. W. A. Buyers
/s/ Kent T. Lucien President, Director
- -----------------------------------------
Kent T. Lucien
/s/ Gregory A. Sprecher Senior Vice President
- ----------------------------------------- (Principal Financial Officer
Gregory A. Sprecher and Principal Accounting Officer)
/s/ James S. Andrasick Director
- -----------------------------------------
James S. Andrasick
/s/ James H. Case Director
- -----------------------------------------
James H. Case
/s/ Dr. Ralph C. Hook, Jr. Director
- -----------------------------------------
Dr. Ralph C. Hook, Jr.
/s/ J. Alan Kugle Director
- -----------------------------------------
J. Alan Kugle
/s/ Dr. David McClain Director
- -----------------------------------------
Dr. David McClain
46
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1 Amended and Restated Agreement and Plan of Merger, effective as of December 18, 1997, between
Registrant and C. Brewer Homes, Inc. (a)
2.2 Asset Purchase Agreement including Exhibits dated March 14, 2000 (g)
3.2 Form of Class A Certificate of Limited Partnership as filed with the Secretary of State of
Delaware. (c)
3.3 Certificate of Limited Partnership of Registrant as filed with the Secretary of State of
4.1 Depositary Agreement between Registrant, Manufacturers Hanover Trust Company as Depositary
and Mauna Loa Resources Inc. as attorney-in-fact of the limited partners of Registrant. (c)
4.2 Form of Depositary Receipt. (c)
Legal Opinion of Counsel dated May 1, 2000 (g)
5.1
10.2 Macadamia Nut Purchase Contract between Mauna Loa and Registrant dated December 22, 1986. (b)
10.3 Macadamia Nut Purchase Contract between Mauna Loa and Registrant dated as of October 1, 1989.
(b)
10.4 Contribution Agreement among Mauna Loa Orchards, L.P. ("MLO"), Ka'u Agribusiness Co., Inc.
("KACI"), Mauna Kea Agribusiness Co., Inc. ("MKACI"), Mauna Kea Macadamia Orchards, Inc.
("MKMO") and Mauna Loa dated as of July 1, 1989. (b)
10.5 Lease between the Trustees of the Estate of Bernice Pauahi Bishop ("Trustees of the Bishop
Estate") and Mauna Loa. (c)
10.6 Lease between KACI and Registrant. (d)
10.7 MLO/MLMO Conveyance Agreement between MLO and Registrant dated as of October 1, 1989. (b)
10.8 Butcher/MLMO Contribution Agreement between Howard Butcher III ("Butcher") and Registrant
dated as of October 1, 1989. (b)
10.9 Farming Lease between KACI and MLO dated as of July 1, 1989. (b)
10.10 Farming Lease between MKACI and MKMO dated as of July 1, 1989. (b)
10.11 Farming Lease between MKACI and MLO dated as of July 1, 1989. (b)
10.12 Water Agreement, as amended, between KACI and Registrant dated as of October 1, 1989. (b)
47
EXHIBIT
NUMBER DESCRIPTION
10.13 Cash Flow Warranty Agreement among KACI, MKACI and Registrant dated as of July 1, 1989. (b)
10.14 Guarantee Agreement between Mauna Loa and Registrant dated as of October 1, 1989. (b)
10.15 Agreement of Indemnification between CBCL and each director of the Managing Partner. (b)
10.16 Indemnification Agreement (Title) among Mauna Loa, KACI and MKACI in favor of Registrant. (b)
10.17 Indemnification Agreement (Subdivision) among Mauna Loa, KACI and MKACI in favor of
Registrant. (b)
10.18 Deed between MLO and Registrant relating to 14% undivided interest in 220 tree acres of
macadamia orchard properties located in the Keaau area of the island of Hawaii ("Keaau II
Orchards"). (b)
10.19 Bill of Sale between MLO and Registrant relating to 14% undivided interest in Keaau II
Orchards. (b)
10.20 Deed between Butcher and Registrant relating to 86% undivided interest in Keaau II Orchards.
(b)
10.21 Bill of Sale between Butcher and Registrant relating to 86% undivided interest in Keaau II
Orchards. (b)
10.22 Assignment of Partial Interest in Lease No. 15,020 and consent from MLO to Registrant. (b)
10.23 Assignment of Partial Interest in Lease No. 16,859 and consent from MLO to Registrant. (b)
10.24 Assignment of Partial Interest in Lease No. 20,397 and consent from MLO to Registrant. (b)
10.25 Assignment of Lease from MLO to Registrant relating to Lease from the Trustees of the Bishop
Estate. (b)
10.26 Assignment from MLO to Registrant relating to certain orchards. (b)
10.27 Lease from the Trustees of the Bishop Estate to MLO. (b)
10.28 Lease No. 15,020 from the Trustees of the Bishop Estate to MLO. (b)
10.29 Form of Amendments to Lease No. 15,020 from the Trustees of the Bishop Estate. (b)
10.30 Lease No. 16,859 from the Trustees of the Bishop Estate to the Hawaiian Agricultural Company
(a predecessor of KACI). (b)
48
EXHIBIT
NUMBER DESCRIPTION
10.31 Form of Amendments to Lease No. 16,859 from the Trustees of the Bishop Estate. (b)
10.32 Lease No. 20,397 from the Trustees of the Bishop Estate to CBCL. (b)
10.33 Form of Amendments to Lease No. 20,397 from the Trustees of the Bishop Estate to CBCL. (b)
10.34 Lease from Richard L. Hughes to Mauna Loa. (b)
10.35 Lease from the Trustees of the Bishop Estate to Mauna Loa. (b)
10.36 Co-ownership and Partition Agreement between KACI and MLO. (b)
10.37 Co-ownership and Partition Agreement among Mauna Loa, KACI and MLO.(b)
10.38 Co-ownership and Partition Agreement between KACI and MLO relating to Lease Nos. 15,020 and
16,859. (b)
10.39 Co-ownership and Partition Agreement between MKACI and MLO. (b)
10.40 Macadamia Nut Purchase Contract between Mauna Loa and Keaau Macadamia X Corporation ("Keaau
Lot 10") dated September 15, 1983. (e)
10.41 Assignment of Owner's Interest in Macadamia Nut Purchase Contract and Farming Contract
between Keaau Lot 10 and Registrant. (e)
10.42 Warranty Deed between Keaau Lot 10 and Registrant. (e)
10.43 Amended and Restated June 1986 Farming Contract, effective January 1, 1998, between
Registrant and KACI. (f)
10.44 Amended and Restated December 1986 Farming Contract, effective January 1, 1998, between
Registrant and KACI. (f)
10.45 Amended and Restated 1989 Farming Contract, effective January 1, 1998, among Registrant, KACI
and MKACI. (f)
10.46 Amended and Restated Farming Contract for the Keaau Lot 10 Orchard, effective January 1,
1998, between Registrant and KACI. (f)
10.47 Restated Kaiwiki Orchards Farming lease between Registrant and MKACI dated February 26, 1997.
(f)
10.48 Credit Agreement between Registrant and Pacific Coast Farm Credit Services, PCA dated May 1,
2000 (g)
10.49 Security Agreement between Registrant and Pacific Coast Farm Credit Services, PCA dated May
1, 2000 (g)
10.50 Orchards Farming Lease between Registrant and Ka'u Agribusiness Co., Inc. (g)
11.1 Statement re: Computation of Net Income per Class A Unit.
49
(a) Incorporated by reference to Appendix A of Registrant's Registration
Statement under the Securities Act on Form S-4, Registration Statement No.
333-46271, filed February 13, 1998.
(b) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement under the Securities Act
on Form S-1, Registration Statement No. 33-30659, filed October 20, 1989.
(c) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement under the Securities Act
on Form S-1, Registration Statement No. 33-4903, filed June 5, 1986.
(d) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Annual Report on Form 10-K, Commission filed No.
1-9145, for the year ended December 31, 1986, filed March 27, 1987.
(e) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Annual Report on Form 10-K, Commission filed No.
1-9145, for the year ended December 31, 1991, filed March 27, 1992.
(f) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement under the Securities Act
on Form S-4, Registration Statement No. 333-46271, filed February 13, 1998.
(g) Incorporated by reference to the corresponding Exhibit previously filed
as an Exhibit to Registrant's Form 8-K, Commission filed No. 001-09145,
filed May 8, 2000.
50