**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

### **FORM 10-K**

### ** **

| ý | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES  EXCHANGE ACT OF 1934**     |
|--------|---------------------------------------------------------------------------------------------------|
|   |                                                                                              |
|   | **For  the Fiscal Year Ended December 31, 2002**                                                  |
|   |                                                                                              |
|   | **OR**                                                                                            |
|   |                                                                                              |
| o      | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES  EXCHANGE ACT OF 1934** |

 

**CommissionFile Number    1-9145**

 

**ML MACADAMIA ORCHARDS, L.P.**

 (Exact Name of registrant as specified in itscharter)

 

 

| **DELAWARE**                                                             |                                                      | **99-0248088**                                |
|--------------------------------------------------------------------------|-----------------------------------------------------------|-----------------------------------------------|
| (State or other  jurisdiction of incorporation or organization)          |                                                      | (I.R.S. Employer  Identification No.)         |
|                                                                     |                                                      |                                          |
| **26-238  Hawaii Belt Drive HILO, HAWAII**                               |                                                      | **96720**                                     |
| (Address of  principal executive offices)                                |                                                      | (Zip Code)                                    |
|                                                                     |                                                      |                                          |
|                                                                     | Registrant’s telephone  number, including area code: | **(808)  969-8057**                           |
|                                                                     | Registrant’s website:                                | **www.mlmacadamia.com**                       |
|                                                                     |                                                      |                                          |
| SECURITIES  REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:             |
|                                                                     |                                                      |                                          |
| **Title of Each Class**                                                  |                                                      | **Name of Each Exchange on Which Registered** |
| Depositary Units  Representing  Class A Limited Partners’ Interests |                                                      | New York Stock  Exchange                      |
|                                                                     |                                                      |                                          |
| SECURITIES  REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: **NONE**    |
|                                                                          |                                                           |                                               |  |  |

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the precedingtwelve months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements forthe past 90 days.   Yes  ý    No o

 

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this 10-K or any amendment to this 10-K.  o

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Act).  Yes o  No ý

 

As of March 20,2003, 7,500,000 shares of the registrant’s Class A Units were outstanding, andthe aggregate market value of such Units held by non-affiliates was $24,300,000(based on the closing price on that date of $3.24 per Unit).

 

 

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**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 thelaws of the State of Delaware, and engaged in the business of growing andfarming macadamia nuts in Hawaii.  Itbelieves that it is the world’s largest growers of macadamia nuts.  The Partnership owns or leases approximately4,169 tree acres of macadamia nut orchards in three locations within a 50-mileradius on the island of Hawaii.  (“Treeacres” are acres of the Partnership’s owned or leased lands utilized formacadamia nut orchards.  “Gross acres”includes areas not utilized for orchards.) The Partnership sells all of its macadamia nut production to Mauna LoaMacadamia Nut Corporation (“Mauna Loa”) under long-term nut purchasescontracts.  The Partnership farms itsown orchards and approximately 2,645 additional acres of macadamia orchards forother orchard owners.  The Partnershipis managed by its general partner, ML Resources, Inc. (“MLR” or the “ManagingPartner”).  Until July 31, 2001, theManaging Partner was a wholly owned subsidiary of C. Brewer and Company,Limited (“CBCL”), which in turn is wholly owned by Buyco, Inc. (“Buyco”).  On August 1, 2001, all of the stock of theManaging Partner was purchased by D. Buyers Enterprises, LLC (“DBE”).  J.W.A. Buyers is the sole owner and Memberof DBE and the Chairman of the Board of CBCL.

 

Ownership of ClassA Units confers no direct or indirect interest in Buyco, CBCL, DBE or any oftheir affiliated entities, or in Mauna Loa.

 

The Partnership commencedoperations in June 1986, following its acquisition of interests in approximately2,423 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 inapproximately 266 and 1,260 additional tree acres of macadamia orchards.  In September 1991 the Partnership acquiredapproximately 78 tree acres of producing macadamia orchards.

 

On May 1, 2000, thePartnership purchased 142 acres of macadamia orchards and the macadamia farmingoperations from subsidiaries of CBCL. The farming operations consist of farming contracts, farming equipment,vehicles, a husking plant, irrigation well, office buildings, garages andwarehouses, office furniture and equipment and material inventories related tomacadamia farming.  All the assets and operationsare located on the island of Hawaii.

 

**(b) Financial Information aboutIndustry Segments**

 

The response to thissection of Item 1 incorporates by reference Note 4 of the Notes to theConsolidated Financial Statements.

 

**(c) Narrative Description of theBusiness**

 

**Owned-orchardSegment**

** **

The Partnershipcurrently sells all of the macadamia nuts from its orchards to Mauna Loa underlong-term nut purchase contracts.  MaunaLoa processes and markets the nuts under the **Mauna Loa****â**brand name and is believed to be the largest processor and marketer ofmacadamia nuts in the world.  ThePartnership is Mauna Loa’s largest single supplier of macadamia nuts.  Mauna Loa was a subsidiary of CBCL until itssale in September 2000 to The Shansby Group. On May 1, 2000, the Partnership began farming its own macadamiaorchards.  Prior to that date,subsidiaries of CBCL performed the farming activities for the Partnership underlong-term farming contracts.

 

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# ***Nut Purchase Contracts.***  The Partnershipis a party to five nut purchase contracts with Mauna Loa.  They cover all nuts produced by the orchardsacquired in June 1986, December 1986, October 1989, September 1991 and May2000, respectively.  The 1986 contractsexpire in 2006, while the 1989 contract expires in 2019 and also provides forthe exclusion of unusable nuts from those purchased by Mauna Loa.  The first three contracts are identical inall other material respects.  The fourthcontract was acquired by assignment with the orchard purchase in September 1991and expires on June 30, 2003.  Thefourth contract is similar to the 1986 contracts, but the nut price iscalculated on a crop year (July 1 through June 30) rather than a calendar yearbasis, which results in a slightly different nut price.  All four contracts use a pricing formulabased 50% on a two-year trailing average of the macadamia nut price publishedannually by the United States Department of Agriculture and 50% on Mauna Loa’s“netback component.”  The netbackcomponent is calculated by subtracting Mauna Loa’s processing and marketingcosts per pound and a “capital charge” of 20% from its nut revenues perpound.  The fifth contract expires in2006.  Its pricing formula is based 100%on the two-year trailing average of USDA reported prices.  The first three nut purchase contracts maybe terminated by Mauna Loa upon thirty days’ notice if the Managing Partner isinvoluntarily removed as the managing general partner and replaced by a personor entity not affiliated with Mauna Loa. The fourth nut purchase contract is scheduled to terminate June 30,2003.  The fifth contract may beterminated at any time by mutual agreement in writing.

# *** ***

#### ***Competition. ***Because thePartnership’s revenues from nut sales are tied to a formula dependent in largepart upon Mauna Loa’s market performance, the Partnership bears certain risksassociated with Mauna Loa’s marketing of the nuts, including the likelihood ofincreased future competition. Subsequent to the sale of Mauna Loa to TheShansby Group in September 2000, the Partnership no longer has access to theoperational and marketing strategies and financial results of Mauna Loa, as itis no longer a related entity.

 

Mauna Loaconsiders its primary competition to be other premium nut products, except inHawaii where its products compete with those of other macadamia nut producersand other food and non-food tourist items. As a premium nut, macadamia nuts compete with cashews, almonds and pistachios.

 

Mauna Loa sellsmacadamia nuts as “retail” nuts and “commercial” nuts and produces and sellsvarious macadamia nut products. These include pristine salted and unsaltedroasted macadamia nuts, packages of diced macadamia nuts and macadamia oil (forcooking 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 nutscomprised less than 5% of the sales of branded premium nuts sold through massmerchandisers, drug and grocery stores on the U.S. mainland.  Cashews and mixed nuts represent the bulk ofthe dollar sales in this segment, followed by pistachios.  Macadamia nuts are the highest priced of allpremium nuts, and, therefore, they may be sensitive to price competition fromother nuts.

 

The primary marketfor the **MaunaLoa****â** brand is the U.S. mainland, where Mauna Loasells its products through brokers to food stores, club stores, drug storechains, mass merchandisers and commercial customers.

 

A strong secondarymarket for the**Mauna Loa****â** brand is the state of Hawaii, where MaunaLoa sells through its own direct sales force primarily to retailers.  Substantial portions of the macadamia nutproducts sold are purchased by visitors for gifts and souvenirs. Mauna Loabelieves that it is the largest seller of macadamia products in the State ofHawaii.

 

Outside the UnitedStates, Mauna Loa’s other major market for branded products is Japan and theFar East with some limited distribution in other regions.

 

The remainingsales are comprised of ingredient nuts, visitor center sales, and mail ordersales.

 

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In addition to the Stateof Hawaii, mature macadamia nut orchards are located in Australia, Africa, andCentral America.  For the 2003 crop,Hawaii was expected to supply 26% of the world crop, and Australia, the world’slargest producer, was expected to supply 40%.

 

A general declinein nut prices would adversely affect the prices which Mauna Loa could chargefor its macadamia nut products and could have a negative effect on itsprofitability.  Since the purchase pricefor the Partnership’s nuts under all of its nut purchase contracts is based inpart on nut prices reported by the industry and in part on the marketingsuccess of Mauna Loa, a general decline in macadamia nut prices could alsoadversely affect the Partnership’s revenues.

 

# ***MacadamiaFarming Segment***

 

Since the May 2000purchase of the macadamia farming operations, the Partnership farms its own4,169 acres of macadamia orchards and approximately 2,645 additional acres ofmacadamia orchards owned by other growers. Prior to May 2000, the Partnership’s orchards were farmed by twosubsidiaries of CBCL under four long-term farming contracts.

 

All the orchardsare located in three separate regions on the island of Hawaii (“Keaau”, “Ka’u”and “Mauna Kea”).  Because each regionhas different terrain and weather conditions, farming methods vary somewhatamong the three locations.

 

***Farming Contracts. ***ThePartnership 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 thesecontracts included cultivation, weed and pest control, fertilization, pruningand hedging, replanting, harvesting, husking and related services for thePartnership’s orchards.  In return, thePartnership reimbursed KACI and MKACI for direct and indirect costs incurred inproviding such services, including an equipment utilization charge and anannual farming fee.  The contracts wereterminated May 1, 2000 when the Partnership acquired all the farming assetsfrom KACI and MKACI.

 

KACI and MKACIwere also a party to approximately twenty additional farming contracts, whichhave been assigned to the Partnership with the May 2000 acquisition.  Services provided and reimbursements forcosts under these contracts are identical to those listed above.  These contracts also provide a managementfee to the Partnership, which is based as 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 tomacadamia nut farming.  Pruning andhedging of trees is necessary to allow space for mechanical harvesting andcultivating equipment to operate safely and efficiently and to remove deadbranches.  Where mechanical equipment isused, the orchard floor must be maintained in a condition that will permit itsoperation.  Soil and gravel are used torepair mud holes and other surface irregularities caused by soil erosion fromheavy rain and by farming equipment. Pruning and surface maintenance are usually performed after the harvestseason.

 

Orchard managementalso 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 wildpigs, if not controlled, can cause losses to nut production.

 

***Harvesting*.**  The harvest period begins in the late summer and runs through thefollowing spring.  Mature nuts fall fromthe trees and are harvested using mechanized harvest equipment when the orchardfloor is level enough to permit its use. Nuts are harvested by hand when the orchard floor is too uneven topermit mechanical harvesting, when the nut drop is very light and when nutsremain after harvesting.  At Keaau, Ka’uand Mauna Kea, seasonal labor for hand harvesting and other operations isgenerally available from nearby Hilo and adjacent communities.

 

Mechanicalharvesting is less costly than hand harvesting, but mechanical harvesting ispossible only where the orchard floor is relatively flat.  Approximately 70% of the orchards in Ka’u,59% in Keaau and 

 

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94% in Mauna Keaare currently mechanically harvested. The remaining acres are too uneven for mechanical harvesting and must beharvested by hand.

 

During the harvestseason, the nuts are collected every six to ten weeks.  Nuts suffer loss in quality if they remainon the ground too long.  The harvestednuts are then transported to the husking facilities, which are located in Ka’uand Keaau.  The Keaau husking facilityis owned by Mauna Loa, and the Ka’u husking facility is owned by thePartnership.  Nuts harvested in theMauna Kea region are transported to the husking facility in Keaau.  At the husking facility, the outer husk isremoved and the nuts, still in their shell, are weighed and sampled todetermine moisture content and kernel quality. Title to the nuts husked in Keaau passes to Mauna Loa afterweighing.  Title to the nuts husked atKa’u pass to Mauna Loa after delivery to the Mauna Loa processing plant inKeaau.  The nuts are then moved to adrying facility.

 

***Processing*.**  The nuts purchased by Mauna Loa from the Partnership and from theother orchards farmed by the Partnership are primarily processed at Mauna Loa’sprocessing plant located adjacent to the orchards located in the Keaauarea.  The plant was built in 1966 andis 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, inspectingand limited packaging.  The plant alsoincludes separate warehouses, a machine shop, storage facilities, huskingfacilities, nut drying facilities, a generator and a 10,000 square footchocolate processing plant.  None ofthese processing facilities are owned by the Partnership.

 

At Mauna Loa’splant in Keaau, the harvested nuts pass by conveyors over metal screens,blowers and rock separators that remove extraneous material from the in-husknuts. The husks are then split and removed by pressing the nuts between steelroller bars and a rubber pad.  At thisstage, the nut kernels are still encased in their hard round shells and roughly20% of their weight is attributable to moisture content.  At this point, the nuts are referred to aswet-in-shell (commonly abbreviated “WIS”). The WIS weight of the nuts is used to determine payments to be made byMauna Loa under the Nut Purchase Contracts. Approximately 20% of the WIS weight of the nuts will become dry salablekernels when all further processing is completed.

 

After the nuts areweighed, the moisture content of the nuts is reduced by blowing warm air overthem, which produces DIS nuts. Metal rollers are used to crack the nuts andremove most of the shell.  Mechanicaland optical equipment, as well as hand sorting, are used to separate thesalable kernels from unusable nuts and pieces of broken shell.

 

The dry nutkernels are roasted and then sorted into retail and commercial grades.  At this stage, some of the nuts arebulk-packed and sent to various co-packers on the U.S. mainland for packaging.  At Mauna Loa’s plant in Keaau the nuts maybe salted, or covered with chocolate or one of several coatings, and finallypackaged, labeled and readied for shipment.

 

#### ***StabilizationPayments***

#### *** ***

In December 1986, thePartnership acquired a 266-acre orchard that was several years younger thanother orchards of the Partnership. Because of the relative immaturity of the newer orchard, itsproductivity (and therefore its cash flow) was expected to be correspondinglylower for the first several years than for the other older orchards.

 

Accordingly, theseller of this orchard (KACI) agreed to make cash stabilization payments to thePartnership for each year through 1993 in which the cash flow (as defined) fromthis orchard fell short of the target cash flow level, which equaled $507,000.  Stabilization payments for any given yearwere limited to the lesser of the amount of the shortfall or a maximum paymentamount.  For the years from 1987 through1993, inclusive, the Partnership received a total of $1,628,000 (including a 4%Hawaii general excise tax) in stabilization payments under this agreement.

 

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The Partnershipaccounted 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’snet income ratably through 2019 as a reduction to the depreciation expensereported for this orchard.

 

In return, thePartnership is obligated to pay the seller 100% of any year’s cash flow fromthis orchard in excess of the target cash flow as additional percentage rentuntil 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 flowin excess of the target cash flow as additional incentive rent.  No additional rent was due in 2000, 2001, or2002.

 

#### ***RisksInvolved in Operating Macadamia Orchards***

#### *** ***

Macadamia nuttrees 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 2000,  0.8% in 2001, and 0.9% in 2002. Both crop and tree insurance arein place to protect the Partnership against material losses.

 

***Diseases and Pests***.  The Partnership’s Keaau orchards experiencedtree replacements of 2.0% in 2000, 2.0% in 2001, and 1.5% in 2002.  Other macadamia growers in the vicinity havealso 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 isbelieved that the situation is due to fungi associated with high moistureconditions.  It is also believed that aparticular variety of macadamia nut tree (variety 333) is most susceptible toMQD.  Another tree variety (variety 344)has also been identified as being more susceptible to MQD than other varieties.  Approximately 9% of the Partnership’sorchards are variety 333 and 45% are variety 344.  Both the Keaau and Mauna Kea orchards are areas with highmoisture conditions, and may be more susceptible to the MQD problem.  MQD is present in the Ka’u orchards, buttree losses to date have been less than 1% in the Ka’u area.

 

There are also twotypes of fungal diseases, which can affect nut production but are not fatal tothe trees themselves.  One of these isPhytophthora, which affects the macadamia flowers and nutlets, and the other isBotrytis cinerea.  These types of fungaldisease were generally controllable with fungicides, but many of thesefungicides are no longer available. Historically, these fungi have attacked the orchards located in Keaauevery three to four years.  There was aPhytophthora occurrence in the Keaau and Mauna Kea orchards from February tomid-March in 1999, which slightly affected the 1999-2000 crop year productionfor these orchards.  A moderateinfestation of Phytophthora occurred in January 2000, and a light infestationoccurred in late January-early February 2001.

 

***Rainstorms and Floods. ***The Partnership’s orchards are located in areas onthe island of Hawaii that are susceptible to heavy rainstorms.  On November 2, 2000, over 30 inches of rainfell in twenty-four hours in East Hawaii. The orchards in the Ka’u region were in the middle of fall/winterharvesting and an estimated 2.5 million pounds of nuts were washed away.Orchard roads, bridges, and irrigation systems were damaged throughout thearea, as well as the state highway.  ThePartnership sustained damage to approximately 81 acres of orchards.  Cleanup and irrigation repair cost wasapproximately $200,000.  Fortunately,only six macadamia trees were washed away. Some of the orchards owned by others and farmed by the Partnership weremore heavily damaged.  Approximately 300acres 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 ofHawaii that are susceptible to windstorms. Twenty-four major windstorms have occurred on the island of Hawaii since1961, and four of those caused material losses to Partnership orchards.  Several of the Partnership’s orchards aresurrounded by windbreak trees, which provide limited protection.  Younger trees that have not developedextensive root systems are particularly vulnerable to windstorms.

 

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***Insurance. ***ThePartnership secures tree insurance each year under a federally subsidizedprogram.  The tree insurance for 2002provides coverage up to a maximum of approximately $22 million against loss oftrees due to wind, fire or volcanic activity. Crop insurance was purchased forthe 2002-2003 crop year and provides coverage up to a maximum of approximately$9.1 million against loss of nuts due to wind, fire, volcanic activity,earthquake, adverse weather, wildlife damage and failure of irrigation water supplies.

 

***Volcanoes*.**  The orchards are located on the island of Hawaii, where there aretwo active volcanoes.  To date, no lavaflows from either volcano have affected or threatened the orchards.

 

***Rainfall*.**  The productivity of orchards depends in large part on moistureconditions.  Inadequate rainfall canreduce nut yields significantly, while excessive rain without adequate drainagecan foster disease and hamper harvesting operations.  While rainfall at the orchards located in the Keaau and Mauna Keaareas has generally been adequate, the orchards located in the Ka’u areagenerally receive less rainfall and, as a result, a portion of the Ka’uorchards is presently irrigated. Irrigation can mitigate the effects of a drought, but it cannotcompletely protect a macadamia nut crop from the effect of a drought.  Recorded rainfall at each of the threelocations of the Partnership’s orchards for the past five years is shown below:

 
| **Year** |   | **Ka’u** |   | **Keaau** |   | **Mauna Kea** |   |
|----------|--------|---------------|--------|-----------|--------|---------------|--------|
| 1998     |   | 8.8           | ” | 115.5     | ” | 153.7         | ” |
| 1999     |   | 30.5          | ” | 132.3     | ” | 130.0         | ” |
| 2000     |   | 47.1          | ” | 147.9     | ” | 158.0         | ” |
| 2001     |   | 46.0          | ” | 124.0     | ” | 133.4         | ” |
| 2002     |   | 58.5          | ” | 139.4     | ” | 156.1         | ” |

 

Above average rainfall inKa’u occurred during the first five months of 2002, followed by seven months ofdrought.  A total of 51.50 inches ofrain was recorded from January 2002 to May 2002, followed by 7.60 inches ofrain for the period July 2002 through December 2002.

 

#### ***WaterSupply for Irrigation***

#### *** ***

With the May 2000acquisition, the Partnership acquired an irrigation well (the “Sisal Well”),which supplies water to the Partnership’s orchards in Ka’u which were purchasedin June 1986 and 1989.  The Sisal Wellis situated on land owned by MKACI.  OnMay 1, 2000 the Partnership entered into a license agreement with MKACI, whichallows 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’smacadamia orchards.  Annual rent for thelicense agreement is one dollar.  Thelicense agreement terminates on the earlier of June 30, 2045, or at thetermination of the May 1, 2000 lease between Partnership and KACI.

 

Prior to the May 2000acquisition, the Partnership and KACI were parties to a water agreement towhich KACI agreed to supply water to those portions of the June 1986 Orchardsand October 1986 Orchards located at Ka’u and which had been irrigatedhistorically.

 

If the amount of waterprovided by the Sisal Well becomes insufficient to irrigate the above namedorchards, the Partnership may consider increasing the capacity of the SisalWell, drilling an alternative well into the historical source which provideswater to the Sisal Well or obtaining water from other sources.

 

On a historicalbasis, the quantity of water available from the Sisal Well has been generallysufficient to irrigate these orchards in accordance with prudent farmingpractices.  The irrigated portion of theKa’u II Orchards is expected to need greater quantities of water as theorchards mature.  The Managing Partneranticipates that the amount of water available from the Sisal well will begenerally sufficient, assuming average levels of rainfall, to irrigate theIrrigated Orchards in accordance with prudent farming practices

 

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for the next severalyears.  If no irrigation water isavailable to the Irrigated Orchards, then, based on historical average rainfalllevels, diminished yields of macadamia nut production can be expected.

 

# ***Employees***

 

As of December 31, 2002,the Partnership employed 318 people, of which 223 were seasonal employees.  Of the total, 22 are in farming supervisionand management, 283 in production, maintenance and agricultural operations, and13 in accounting and administration.

 

With the May 2000acquisition, the Partnership agreed to the assumption of three bargainingagreements with the ILWU Local 142. These agreements cover all production, maintenance and agriculturalemployees of the Ka’u Orchard Division, of the Keaau Orchard Division and ofthe Mauna Kea Orchard Division.  Theselabor contracts became effective May 1, 1997 and expired on April 30,2002.  The parties have recently agreedto a new three-year contract, which will expire on April 30, 2005. ThePartnership believes that relations with its employees are very good.

 

**ITEM 2.  PROPERTIES**

 

***Location.***  The Partnership owns or leases approximately 4,169 tree acres ofmacadamia 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 partof the island about fifty miles from Hilo. The Keaau area is located six miles south of Hilo on the east side ofthe island, and the Mauna Kea area is located three miles north of Hilo on theeast side of the island.

 

The majority ofmacadamia nut trees grown in the State of Hawaii are grown on the island ofHawaii in volcanic soil that permits drainage during heavy rainfall.  While the orchards are located approximatelywithin a 50-mile radius, the climate and other conditions that affect thegrowing of macadamia nuts are different. These differences are the result of prevailing wind patterns and islandtopography, which produce a variety of microclimates throughout the island.

 

***Age and Density*.**  The productivity of macadamia nut orchardsdepends on several factors including, among others, the age of the trees, thenumber of trees planted per acre, soil condition, climate, rainfall and/orirrigation.  The most significantcharacteristic affecting yields is maturity. The trees in a macadamia nut orchard generally begin to produce nuts ata commercially acceptable level at around nine years of age.  Thereafter, nut yields increase graduallyuntil the trees reach maturity, after which the nut yield remains relativelyconstant except for variances produced by rainfall, cultivation practices, pestinfestation and disease.

 

Macadamia orchardsnormally reach peak production after fifteen to eighteen years of age.  Of the 4,169 tree acres of macadamiaorchards owned or leased by the Partnership, 3,270 tree acres are over eighteenyears of age and roughly 899 tree acres are under eighteen years of age.  Around 2% of trees are lost to variouscauses each year and are replaced.

 

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***Rainfall*.**  Macadamia trees grow best in climates with substantial and evenlydistributed rainfall (or equivalent irrigation) and in soil that provides gooddrainage.  Inadequate rainfall cansignificantly reduce nut yields, while excessive rain without adequate drainagecan impede healthy tree growth, promote the growth of harmful fungal diseasesand produce mud holes that require repair of the orchard floor.

 

At Keaau, normalrainfall is adequate without irrigation, and the volcanic soil provides gooddrainage.  However, short droughts andoccasional flooding have occurred.  AtMauna Kea, normal rainfall is adequate without irrigation and the volcanic soilprovides adequate drainage.  In theevent of a very long drought, production at Keaau and Mauna Kea might beaffected.  At Ka’u, located on the drierside 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 toprovide 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. ***Thefollowing table lists each of the orchards, the year acquired, tree acres,tenure, and lease rents:

 
| **Orchard**            |   | **Acquired** | ** ** | **Tree  Acres** | ** ** | **Tenure**       | ** ** | **Lease  Expiration** | ** ** | **Min. Rent  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),(4) |       | 2019                  |       | $                        | 5,586      |   |
| Keaau II               |   | Oct. 1989    |       | 220             |       | Fee simple       |       |                  |       |                     |       |
| Ka’u II           |   | Oct. 1989    |       | 327             |       | Leasehold(2),(4) |       | 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),(4) |       | 2034                  |       | $                        | 23,508     |   |
| Keaau Lot 10           |   | Sept. 1991   |       | 78              |       | Fee simple       |       |                  |       |                     |       |
| Ka’u O            |   | May 2000     |       | 142             |       | Leasehold(1),(4) |       | 2045                  |       | $                        | 10,224     |   |
| Total acres            |   |         |       | 4169            |       |             |       |                  |       |                     |       |

 

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(1)                                  Leaseof land only; trees may be removed at termination of lease.

(2)                                  Leaseof land only; lessor may purchase trees from lessee at any time after June 30,2019.

(3)                                  Leaseof land; trees revert to lessor upon termination of lease.

(4)                                  ThePartnership is currently negotiating with the lessor to purchase the feeinterest in these lands for approximately $1.1 million.

 

For certain additional information concerning farming leases, see Item13, page 43.

 

In addition to the minimum annual lease payment amount, all the leasesrequire the Partnership to pay various expenses with respect to the leasedpremises as well as an additional rental payment based on the market price perpound of macadamia nuts sold in Hawaii.

 

With respect to the Ka’uGreen Shoe I Orchard, the lease requires the Partnership to pay KACI, theseller and lessor, additional rent equal to 100% of any year’s cash flowgenerated by such orchard in excess of a target level of $507,000 until theaggregate amount paid equals 150% of the aggregate amount of the stabilizationpayments previously received by the Partnership.  Thereafter, the Partnership is required, with respect to any yearprior to the expiration of the lease, to pay as additional rent, 50% of thecash flow generated by such orchard for such year in excess of a target levelof $507,000 of cash flow.  Foradditional information, see “Stabilization Payments” on page 5.

 

**ITEM 3.  LEGAL PROCEEDINGS AND SETTLEMENT**

 

**ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

No matters weresubmitted during the fourth quarter of the fiscal year covered by this reportto a vote of security holders.

 

10

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**PART II**

### ** **

**ITEM 5.  MARKET FOR REGISTRANT’S CLASS A UNITS AND****RELATEDUNITHOLDER MATTERS**

 

The Partnership’sClass A Depositary Units are listed for trading on the New York Stock Exchange(symbol = NUT).  There were 1,368registered holders of Class A Depositary Units on December 31, 2002.

 

Distributionsdeclared and high and low sales prices of the Class A Depositary Units, basedon New York Stock Exchange daily composite transactions, are shown in the tablebelow:

 

 
|      |   |         |   | **Distribution** |   | **High** |   | **Low** |   |
|-----------|--------|--------------|--------|------------------|--------|----------|--------|---------|--------|
| **2002**: |   | 4th Quarter  |   | $                | 0.050  |     | 3.50   |    | 3.21   |   |
|      |   | 3rd  Quarter |   | 0.050            |   | 3.70     |   | 3.26    |   |
|      |   | 2nd  Quarter |   | 0.050            |   | 3.85     |   | 3.58    |   |
|      |   | 1st  Quarter |   | 0.050            |   | 3.83     |   | 3.18    |   |
|      |   |         |   |             |   |     |   |    |   |
| **2001**: |   | 4th Quarter  |   | $                | 0.050  |     | 3.29   |    | 3.11   |   |
|      |   | 3rd  Quarter |   | 0.050            |   | 3.40     |   | 3.08    |   |
|      |   | 2nd  Quarter |   | 0.050            |   | 4.00     |   | 3.05    |   |
|      |   | 1st  Quarter |   | 0.050            |   | 4.80     |   | 3.15    |   |

 

**Restrictions on Cash Distributions**

 

On May 2, 2000, thePartnership entered into a Credit Agreement with Pacific Coast Farm CreditServices, ACA, under which it borrowed $4 million on a ten-year promissory noteand will have available a $5 million revolving line of credit facility throughMay 1, 2004.

 

In connection with theCredit Agreement certain restrictions are placed on the Partnership in regardto indebtedness, sales of assets and maintenance of certain financialminimums.  The Partnership’s cashdistributions will be restricted unless all requirements of these covenants aremet and the effects of any cash distributions do not breach any of thefinancial covenants.  The restrictivecovenants consist of the following:

 

1.               Minimumworking capital of $2.5 million.

2.               Minimumcurrent ratio of 1.5 to 1.

3.               Cumulativecash distributions beginning January 1, 2000 cannot exceed the total ofcumulative net cash flow beginning January 1, 2000 plus a base amount of $3million.

4.               Minimumtangible net worth of $57.5 million (reduced by the amount of allowed cashdistributions over net income).

5.               Maximumratio of funded debt to capitalization of 20%.

6.               Minimumdebt coverage ratio of 2.5 to 1.

 

On December 31, 2002 thePartnership’s working capital was $3.2 million and its current ratio was 2.14to 1.  The Partnership is in compliancewith all covenants of the Credit Agreement at December 31, 2002.

 

11

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**ITEM 6.        SELECTED FINANCIAL DATA**

(In thousands,except per pound and per unit data)

 
|                                         |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
|----------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
| Financial:                                   |   |     |   |     |   |     |   |     |   |     |   |
| Total revenue                                |   | $        | 14,556 |     | $      | 16,893   |   | $        | 13,758 |     | $      | 15,950 |   | $ | 12,408 |   |
| Net cash provided by operating activities(1) |   | 2,166    |   | 2,237    |   | 2,507    |   | 3,849    |   | 3,675    |   |
| Income (loss) before taxes                   |   | (447     | )      | 1,112    |   | (360     | )      | 4,847    |   | 1,039    |   |
| Net income (loss)                            |   | (480     | )      | 1,010    |   | (398     | )      | 4,645    |   | 963      |   |
| Distributions declared                       |   | 1,515    |   | 1,515    |   | 3,523    |   | 3,030    |   | 2,273    |   |
| Total working capital                        |   | 3,220    |   | 3,183    |   | 1,599    |   | 9,031    |   | 5,785    |   |
| Total assets                                 |   | 61,803   |   | 65,329   |   | 65,625   |   | 66,503   |   | 64,842   |   |
| Long-term debt                               |   | 2,920    |   | 3,402    |   | 3,716    |   | —   |   | —   |   |
| Total partners’ capital                 |   | 54,849   |   | 56,844   |   | 57,349   |   | 61,270   |   | 59,655   |   |
| Class A limited partners’ capital       |   | 54,300   |   | 56,275   |   | 56,775   |   | 60,657   |   | 59,058   |   |
| Net cash flow(2)                             |   | 1,592    |   | 3,093    |   | 1,824    |   | 6,247    |   | 2,566    |   |
|                                         |   |     |   |     |   |     |   |     |   |     |   |
| Operations:                                  |   |     |   |     |   |     |   |     |   |     |   |
| Acres harvested                              |   | 4,169    |   | 4,169    |   | 4,169    |   | 4,027    |   | 4,027    |   |
| Macadamia nuts harvested (lbs.)(3)           |   | 21,404   |   | 23,013   |   | 19,255   |   | 25,569   |   | 19,463   |   |
| Net price $/lb.(3)(4)                        |   | $        | 0.4748 |     | $      | 0.4830   |   | $        | 0.5125 |     | $      | 0.6238 |   | $ | 0.6375 |   |
|                                         |   |     |   |     |   |     |   |     |   |     |   |
| Per Class A Unit(5):                         |   |     |   |     |   |     |   |     |   |     |   |
| Income (loss) before taxes                   |   | $        | (0.06  | )        | $      | 0.15     |   | $        | (0.05  | )        | $      | 0.64 |   | $ | 0.14 |   |
| Net income (loss)                            |   | (0.06    | )      | 0.13     |   | (0.05    | )      | 0.61     |   | 0.13     |   |
| Net cash flow(2)                             |   | 0.21     |   | 0.41     |   | 0.24     |   | 0.82     |   | 0.34     |   |
| Distributions                                |   | 0.20     |   | 0.20     |   | 0.465    |   | 0.40     |   | 0.30     |   |
| Partners’ capital                       |   | 7.24     |   | 7.50     |   | 7.57     |   | 8.09     |   | 7.87     |   |

 

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(1)   See“Statement of Cash Flows” in the financial statements for method ofcalculation.

(2)   SeeFootnote 6 in the notes to financial statements for method of calculation.

(3)   Wet-in-shellat 25% moisture.

(4)   Weightedaverage for all orchards.

(5)   7,500,000Class A Units were issued and outstanding for all periods presented.

 

12

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**ITEM 7.****                        MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

This discussion should beread in conjunction with the financial statements and the related notesincluded elsewhere in this report.

 

On May 1, 2000, thePartnership completed the purchase of the macadamia farming operations fromfour 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, irrigationwell, office buildings, garages and warehouses, office furniture and equipmentand material inventories related to macadamia farming.  All the assets and operations are located onthe island of Hawaii.  Effective withthe acquisition, the Partnership began performing all the farming operationsfor its own 4,169 acres and for approximately 2,645 additional acres owned byother growers.

 

# ***Resultsof operations – 2002, 2001, 2000***

## ** **

## ***Owned-Orchard Segment - Production and Yields***

 

Production and yield datafor the eight orchards are summarized below (expressed in wet-in-shell poundsat 25% moisture):

 
|                                      |   |         |   |        |   | **2002**       |   | **Average Yield per Acre** |   |
|-------------------------------------------|--------|--------------|--------|-------------|--------|----------------|--------|----------------------------|--------|
| **Orchard**                               |   | **Acquired** |   | **Acreage** |   | **Production** |   | **2002**                   |   | **2001** |   | **2000** |   |
| Keaau I                                   |   | June 1986    |   | 1,467       |   | 6,267,558      |   | 4,272                      |   | 5,186 |   | 5,519 |   |
| Keaau II                                  |   | Oct. 1989    |   | 220         |   | 652,418        |   | 2,966                      |   | 3,177 |   | 3,334 |   |
| Keaau Lot 10                              |   | Sept. 1991   |   | 78          |   | 300,265        |   | 3,850                      |   | 3,198 |   | 3,573 |   |
| Ka’u I                               |   | June 1986    |   | 956         |   | 6,628,263      |   | 6,933                      |   | 6,997 |   | 6,193 |   |
| Ka’u Green Shoe I                    |   | Dec. 1986    |   | 266         |   | 1,771,227      |   | 6,659                      |   | 6,354 |   | 3,761 |   |
| Ka’u II                              |   | Oct. 1989    |   | 714         |   | 3,722,888      |   | 5,214                      |   | 5,354 |   | 3,845 |   |
| Ka’u O                               |   | May 2000     |   | 142         |   | 834,977        |   | 5,880                      |   | 4,934 |   | 3,912 |   |
| Mauna Kea                                 |   | Oct. 1989    |   | 326         |   | 1,226,314      |   | 3,762                      |   | 4,765 |   | 5,226 |   |
| Totals (except yields which are averages) |   |         |   | 4,169       |   | 21,403,910     |   | 5,134                      |   | 5,520 |   | 5,045 |   |

 

Production for theorchards purchased in 1989 and 2000 is net of unusable nuts, as stated in theirrespective nut purchase agreements. Production for the orchards purchased in 1986 and 1991 includes all nutsdelivered.  The nut purchase contractsfor the 1986 and 1991 orchards require the purchaser, Mauna Loa Macadamia NutCorporation (“Mauna Loa”), to purchase all of the nuts delivered from theseorchards. The Partnership reports on a calendar year basis, though the naturalcrop year generally begins in August and runs through April.

 

Production in 2002 was7.0% lower than 2001 and 1.8% higher than 2000. Production in 2001 was 9.4%higher than 2000, but 10% lower than the record harvest in 1999. Significantfactors affecting the crop were as follows:

 

1.  The drought in the Ka’u orchards from Junethrough December 2002 negated the increase in nut set which had resulted fromthe rainfall during the first five months of the year.

 

2.  The above average rainfall in the Keaau andMauna Kea orchards negatively impacted the pollination and nut set for the fallharvest 2002.

 

13

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3.  The Ka’u region was affected by a rainstormand flood in November of 2000 that resulted in a net loss of approximately700,000 WIS pounds. Rainfall from the storm replenished the soil moisture andimproved the yields in this region for 2001.

 

4.  Production in the Ka’u region in 2000 washindered by a third consecutive year of drought before the Novemberrainstorm.  Rainfall through October wasonly 22 inches compared to the region’s ten-year average of 38 inches of rain.Modest improvements in rainfall occurred throughout 2001.

 

5.  The record crop in 1999 was mainly theresult of an exceptionally strong Spring crop from the 1998-1999 crop year anda heavy Fall harvest from the 1999-2000 crop in all regions.

 

The Ka’u GreenShoe I orchard and the Mauna Kea orchard are not yet fully mature.  As a result, the yields from these orchardsare expected to be lower on average over the next few years than for thePartnership’s mature orchards.  At fullmaturity under favorable growing conditions, a macadamia orchard can producebetween 5,500 and 7,500 WIS pounds of macadamia nuts per acre each year at Ka’uand between 4,000 and 6,000 WIS pounds of macadamia nuts per acre each year atKeaau.  No trees have reached fullmaturity in the Mauna Kea area, but it is expected that production at maturityat the Mauna Kea orchard will approximate Keaau levels.

 

## ***Owned-Orchard Segment - Nut Revenue***

 

Macadamia nut revenuesdepend on the number of producing acres, yields per acre and the nut purchaseprice.  The impact of these factors issummarized in the following table:

 
|                                 |   | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** | **2002  Over  2001** | ** ** | **2001  Over  2000** | ** ** |
|--------------------------------------|--------|----------|------------|----------|------------|----------|------------|----------------------|------------|----------------------|------------|
| Trees acres harvested                |   | 4,169    |       | 4,169    |       | 4,169    |       | —               |       | —               |       |
| Average yield (WIS lbs./acre)        |   | 5,134    |       | 5,520    |       | 5,045    |       | - 7                  | %          | +  9            | %          |
| Nuts harvested (000’s WIS lbs.) |   | 21,404   |       | 23,013   |       | 21,034   |       | - 7                  | %          | +  9            | %          |
| Nut price ($/WIS lbs. @ 25%)         |   | 0.4748   |       | 0.4830   |       | 0.5126   |       | - 2                  | %          | - 6                  | %          |
| Gross nut sales ($000s)              |   | 10,162   |       | 11,115   |       | 10,762   |       | - 9                  | %          | +  3            | %          |
| Litigation Adjustment                |   | —   |       | 908      |       | (908     | )          |                 |       |                 |       |
| 2001 nut price settlement            |   | 174      |       | —   |       | —   |       |                 |       |                 |       |
| Recorded nut sales ($000s)           |   | 10,336   |       | 12,023   |       | 9,854    |       |                 |       |                 |       |

 

Under four of the nutpurchase contracts with Mauna Loa, the price for nuts delivered is based 50% onthe two-year trailing average of USDA published macadamia nut prices and 50% ona “netback component”.  The netbackcomponent is determined by subtracting from Mauna Loa’s gross revenues from thesale of macadamia products (i) allocable processing, packaging, marketing,selling and advertising costs and (ii) a 20% capital charge on the differencebetween those aggregate gross revenues and aggregate allocable costs.

 

14

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The following table setsforth the manner in which the nut purchase price per pound was determined for2002, 2001 and 2000 ($/lb.):

 
|                                                                          |   | **2002** |   | **2001** |   | **2000** |   |
|-------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| USDA price - two years prior(a)                                               |   | 0.6227   |   | 0.6155   |   | 0.6996   |   |
| USDA price - one year prior(a)                                                |   | 0.5601   |   | 0.6227   |   | 0.6155   |   |
| USDA price - two year trailing average                                        |   | 0.5914   |   | 0.6191   |   | 0.6576   |   |
|                                                                          |   |     |   |     |   |     |   |
| Gross revenues                                                                |   | 1.5049   |   | 1.5024   |   | 2.0165   |   |
| Less allocable processing, packaging, marketing, sales  and advertising costs |   | 1.0868   |   | 1.0834   |   | 1.5732   |   |
| Less 20% capital charge                                                       |   | 0.0828   |   | 0.0838   |   | 0.0887   |   |
| Net-back component                                                            |   | 0.3353   |   | 0.3352   |   | 0.3546   |   |
|                                                                          |   |     |   |     |   |     |   |
| USDA price - two year trailing average                                        |   | 0.5914   |   | 0.6191   |   | 0.6576   |   |
| Net-back component                                                            |   | 0.3353   |   | 0.3352   |   | 0.3546   |   |
| Average of USDA two year trailing average price and  net-back component       |   | 0.4634   |   | 0.4771   |   | 0.5061   |   |
| Plus Hawaii general excise tax (0.5%)                                         |   | 0.0019   |   | 0.0024   |   | 0.0025   |   |
| Net purchase price (b) (c) (d) (e)                                            |   | 0.4653   |   | 0.4795   |   | 0.5086   |   |

 

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(a)          MaunaLoa’s own purchases comprise a substantial portion of nut purchases reported tothe USDA.  Therefore, the USDA pricecomponent of the purchase price is, to a substantial degree, the average pricethat Mauna Loa has paid to purchase macadamia nuts from the Partnership andfrom third parties during the previous two years.

 

(b)         Thenut purchase price for the 1986 and 1989 orchards was the same for 1999 and allprevious years.  With the change ofownership of Mauna Loa in 2000, a quality conversion factor in the nut purchasecontracts was initiated.  The effect wasto cause a slightly different price of $0.5078 for the 1989 orchards in 2000,$0.4750 in 2001 and $0.4644 in 2002.

 

(c)          Thenut purchase contract covering nut production from the 78 acre Keaau Lot 10orchard 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$0.4920 in 2002, $0.5119 in 2001, and $0.5339 in 2000.  This orchard accounts for less than 2% ofthe Partnership’s macadamia nut production.

 

(d)         Thenut purchase contract for the Ka’u O orchards purchased in May 2000 uses onlythe two-year trailing USDA average to determine its nut price, which was$0.5940 in 2002, $0.6222 in 2001 and $0.6602 in 2000.

 

(e)          MaunaLoa has recently provided the final 2002 audited nut price to the Partnership,which was not materially different from the estimate used in our financialstatements. The calculations have not yet been reviewed by the Partnership.

 

The 2002 average nutprice from all orchards declined 2% from 2001. The 2001 average nut price from all orchards declined 9% from 2000.  The USDA portion fell 4% in 2002 and 6% in2001, representing the lower prices paid by Mauna Loa after the sale of thecompany to the Shansby Group. The netback was

 

15

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flat in 2002 compared to2001 and declined 5% in 2001 compared to 2000. The current netback price is thelowest in the history of the Partnership and reflects the operating performanceof Mauna Loa.

 

The USDA published pricefor the 2001-02 crop year was $0.5666 per pound (WIS at 25% moisture), which is1% higher than the 2000-2001 price of $0.5601 and 9% lower than the 1999-2000price of $0.6227.  The USDA two-yeartrailing average, which affects the Partnership’s 2003 nut price, will be$0.5364, a 5% decrease over the 2002 two-year average.

 

## ***Owned-Orchard Segment - Cost of Goods Sold***

## ** **

Agricultural unitcosts depend on the operating expenses required to maintain the orchards and toharvest the crop as well as on the quantity of nuts actually harvested.

 

The Partnership’s unitcosts (expressed in dollars per wet-in-shell pound at 25% moisture) arecalculated by dividing all agricultural costs for each orchard (including leaserent, property tax, tree insurance and depreciation) by the number of pounds ofmacadamia nuts produced by that orchard and are summarized below ($/lb.):

 
|                   |   |         |       | **Cost per pound** |       |
|------------------------|--------|--------------|------------|--------------------|------------|
| **Orchard**            |   | **Acquired** | ** ** | **2002**           | ** ** | **2001** | ** ** | **2000** | ** ** |
| Keaau I                |   | June 1986    |       | 0.5097             |       | 0.4442 |   | 0.2986 |   |
| Keaau II               |   | Oct. 1989    |       | 0.5601             |       | 0.4380 |   | 0.3431 |   |
| Keaau Lot 10           |   | Sept. 1991   |       | 0.3745             |       | 0.3132 |   | 0.2744 |   |
| Ka’u I            |   | June 1986    |       | 0.4397             |       | 0.4466 |   | 0.4259 |   |
| Ka’u Green Shoe I |   | Dec. 1986    |       | 0.2817             |       | 0.2582 |   | 0.3068 |   |
| Ka’u II           |   | Oct. 1989    |       | 0.3915             |       | 0.2683 |   | 0.4005 |   |
| Ka’u O            |   | May 2000     |       | 0.3344             |       | 0.3077 |   | 0.2780 |   |
| Mauna Kea              |   | Oct. 1989    |       | 0.7601             |       | 0.6050 |   | 0.3646 |   |
|                   |   |         |       |               |       |   |   |   |   |
| All Orchards           |   |         |       | 0.4559             |       | 0.4071 |   | 0.3533 |   |

 

As a result of thefarming operations acquisition, the Partnership now farms its own orchards, andsome costs previously charged as farming expenses by KACI and MKACI wereeliminated. These are the Hawaii general excise tax, capital recovery costs andthe farming fee. The Partnership saved approximately $155,000 in Hawaii generalexcise taxes for 2002, $170,000 in 2001 and $113,000 for the last eight monthsof 2000.  The capital recovery savingsin 2002 were $26,000, in 2001 were $24,000 and in 2000 were $18,000.  The elimination of the farming fee in 2000saved the Partnership $116,000 in 2002, $128,000 in 2001 and  $69,000 in 2000.  The general and administrative expense in 2002 was $1,030,000 andin 2001 was $1,348,000.  In addition,the general and administrative expenses incurred in the farming operation,which were previously billed and expensed as farming costs, have beenclassified for the May to December 2000 period as general and administrationexpenses. This amounted to $400,000 in 2002, $408,000 in 2001 and $335,000 in2000.

 

Cost of goods sold was$374,000 lower in 2002 than in 2001, and $404,000 higher in 2001 than in 2000,but the cost per pound was12.0% higher in 2002 than 2001 and 4.6% less in 2001than 2000.  The lower production costsin 2002 were the result of lower production, but the increase in the cost perpound was a result of increases in service costs such as insurance, andbenefits.  The higher costs in 2001 werea result

 

16

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of the largerharvest.  Lower production costs in 2000were due to the savings mentioned above and to a much smaller harvest in 2000.

 

### ***FarmingSegment - Farming Service Revenue***

### ** **

In connection with theacquisition, the Partnership acquired approximately 20 farming contracts tofarm macadamia orchards owned by other growers. These contracts cover macadamiaorchards in the same three locations on the island of Hawaii where the Partnershipowns orchards.  The farming contractsprovide the Partnership to be reimbursed for all direct farming costs(cultivation, irrigation and harvesting), collect a pro-rata share of indirectcosts and overheads, and charge a management fee.  The management fee is based on the number of acres farmed or on apercentage of total costs billed. Revenues from farming services were $4.2 million in 2002, $4.9 millionfor 2001 and for May to December 2000 were $3.7 million.  The 2002 farming service revenues were lessthan anticipated in part as a result of a controversy surrounding the sale byC. Brewer & Co., Ltd. (CBCL) of approximately 155 tree acres to thirdparties.  CBCL reported to thePartnership that the buyers of the orchards did not wish to assume the farmingcontracts, therefore, CBCL was terminating the contracts.  The Partnership believes the contracts arenot terminable at will and is currently negotiating a settlement with CBCL.  Also, in 2002 one of the major farmingcontracts requested longer harvest intervals for their orchards.  The 2001 farming services revenue was lessthan anticipated due to the abandonment of 200 acres by one of the growers andless repairs required.  The total in2000 was less than expected by the Partnership due to the November rainstormand flood, which prohibited harvesting in some of the orchards under contractin the Ka’u region due to damage and debris in the orchards.

 

***Farming Segment - Cost of Services Sold***

 

The cost of services soldrelating to the farming contracts was $3.8 million in 2002, $4.4 million for2001 and $3.5 million for the May to December period of 2000.  These costs were all reimbursed to thePartnership.

## ** **

## ***General and Administrative Costs***

## ** **

General andadministrative expenses are comprised of accounting and reporting costs,reimbursements to the Managing Partner for directors’ fees, office expenses andliability insurance, and the management fee. In addition, general and administrative costs are also incurred inconnection with the farming operations. Previous to the May 2000 acquisition, general and administration costsrelating to the Partnership’s orchards were included in the Partnership’sfarming expenses.

 

Total general andadministrative costs for 2002 were $409,000 less than 2001, which is attributedto lower legal costs and higher service costs. General and administrative costs for 2001 were $174,000 higher than in2000.  All of the 2001 increase was dueto $408,000 in legal costs associated with the dispute related to the nutpurchase contract with Mauna Loa.

 

With theacquisition, the Partnership also provided certain accounting services tosubsidiaries of CBCL.  These servicesgenerated income of $130,000 in 2000. The Partnership did not expect to provide any accounting services after2000.

 

A management feebased on Partnership cash flow is payable annually to the ManagingPartner.  The amount paid was $32,000 in2002, $65,000 for 2001, and $32,000 for 2000.

 

## ***Interest Income and Expense***

## ** **

The Partnership recordedinterest expense of $307,000 in 2002, $433,000 in 2001 and $325,000 in2000.  This was due to (1) the long-termloan used to acquire the farming operations, (2) the assumption of severalcapitalized equipment leases, and (3) interest expense on a revolving line ofcredit.

 

17

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The Partnership funds itsworking capital needs through funds on hand and, when needed, from short-termborrowings, 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, theamount and timing of cash generated and distributions paid to investors in thecurrent year, as well as the current level of interest rates.  Interest was earned in the amount of $46,000in 2002 and $80,000 in 2001 primarily from charges to Mauna Loa for latepayment in 2002 and the settlement in 2001. During 2000 interest income was earned in the amount of $244,000.

 

Other income of $109,000was recorded in 2002 primarily from the early termination of a land and garagelease with CBCL.  Other income of  $207,000 was recorded in 2001 due mainly tothe settlement agreement with Mauna Loa. $104,000 was recorded in 2000 due to a claim received on a cropinsurance policy for the 1999-2000 crop.  Production in some fields in the Ka’u region were lower than theirten-year average by more than a 25% deductible in 2000 due to the drought inthat region.

 

***Inflation and Taxes***

 

In general, prices paidto macadamia nut farmers fluctuate independently of inflation.  Macadamia nut prices are influenced stronglyby prices for finished macadamia products, which depend on competition andconsumer acceptance.  Farming costs, particularlylabor and materials, and general and administrative costs do generally reflectinflationary trends.

 

The Partnership issubject to a gross income tax as a result of its election to continue to betaxed as a partnership rather than to be taxed as a corporation, as allowed bythe Taxpayer Relief Act of 1997.  Thistax is calculated at 3.5% on partnership gross income (net revenues less costof goods sold) beginning in 1998.  Thegross income tax was $33,000 in 2002, $102,000 in 2001, and $38,000 in 2000.

 

# ***Liquidity and CapitalResources***

# *** ***

Net cash providedby operations was $2.2 million in 2002, which was the same as 2001.  Net cash provided by operations was $2.2million in 2001 compared with $2.5 million in 2000.

 

On December 31,2002 the Partnership’s working capital was $3.2 million and its current ratiowas 2.14 to 1, compared to $3.2 million and 1.82 to 1 in 2001and was $1.6million and 1.48 to 1 in 2000.  In 2002payment by Mauna Loa resulted in liabilities being paid without incurring shortterm debt.  The higher working capitalfor 2001 compared to 2000 is due to the settlement with Mauna Loa and costcontrols.  The Partnership is incompliance with the Credit Agreement covenants.

 

Capitalexpenditures in 2002 were $93,000 and in 2001 were $75,000.  In 2000 capital expenditures were $8.9million, all due to the orchards and farming operations acquisition.  Capital expenditures planned for 2003 areless than $500,000 and are expected to be financed by way of new equipmentleases.

 

Macadamia nut farming isseasonal, 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 Partnershipmeets its working capital needs with cash on hand, and when necessary, throughshort-term borrowings under a $5.0 million revolving line of credit. The lineof credit was obtained on May 2, 2000 and expires May 1, 2004.  At December 31, 2002 the Partnership had acash balance of $31,000 and line of credit drawings outstanding of $800,000.  At December 31, 2001 the Partnership had acash balance of $357,000 and line of credit drawings outstanding of$1,200,000.  The cash balance was$174,000 at the end of 2000, and the line of credit drawings were $900,000 atDecember 31, 2000.

 

The Partnership hasreached agreement in principle to purchase approximately 1,774 acres of landcurrently under long-term leases from CBCL for $1.1 million.  A definite purchase agreement has not yetbeen signed and neither party is currently under a legal obligation to closethe transaction.  If the transaction closesit will probably close in the second quarter of 2003.  The Partnership has received a tentative commitment to financethe acquisition under a new credit facility.

 

18

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It is the opinionof management that the Partnership has adequate cash on hand and borrowingcapacity available to meet anticipated working capital needs for operations aspresently conducted.  However, with theSeptember 2000 sale of Mauna Loa, the managing partner no longer has controlover the timing of nut payments to the Partnership. The nut purchase contractsrequire Mauna Loa to make nut payments 30 days after the end of eachquarter.  During certain parts of theyear, if payments are not received, as the contracts require, available cashresources could be depleted.

 

***Critical Accounting Policies and Estimates***

 

Management hasidentified the following critical accounting policies that affect thePartnership’s more significant judgments and estimates used in the preparationof the Partnership’s financial statements. The preparation of the Partnership’s financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires the Partnership’s management to make estimates and judgments thataffect the reported amounts of assets and liabilities, revenues and expenses,and related disclosures of contingent assets and liabilities.  On an on-going basis, management evaluatesthose estimates, including those related to asset impairment, accruals forself-insurance, compensation and related benefits, revenue recognition,allowance for doubtful accounts, contingencies and litigation.  The Partnership states these accountingpolicies in the notes to the financial statements and in relevant sections inthis discussion and analysis.  Theseestimates are based on the information that is currently available to thePartnership and on various other assumptions that management believes to bereasonable under the circumstances. Actual results could vary from those estimates.

 

The Partnershipbelieves that the following critical accounting policies affect significantjudgments and estimates used in the preparation of it financial statements:

 

The Partnershipmaintains an allowance for doubtful accounts for estimated losses resultingfrom the failure of its customers to make required payments, which results inbad debt expense.  Management determinesthe adequacy of this allowance by continually evaluating individual customerreceivables, considering the customer’s financial condition, credit history andcurrent economic conditions.  If thefinancial condition of customers were to deteriorate, or if a customer refusesto pay or disputes any such payment, additional allowances may be required.

 

The Partnership maintainsaccruals for workers compensation self-insurance, which are classified in otheraccrued liabilities in the balance sheet. Management determines the adequacy of these accruals by periodicallyevaluating the historical experience and projected trends related to thisaccrual.  If such information indicatesthat the accrual is over or understated, the Partnership will adjust theassumptions utilized in the methodologies and reduce or provide for additionalaccrual as appropriate.

 

RetirementBenefits:  The Partnership sponsors anon-contributory defined benefit pension plan for union employees.  Several statistical and other factors whichattempt to anticipate future events are used in calculating the expense andliabilities related to this plan.  Thesefactors include assumptions about the discount rate, expected return on planassets, withdrawal and mortality rates and the rate of increase in compensationlevels.  The actuarial assumptions usedby the Partnership may differ materially from actual results due to changingmarket and economic conditions, higher or lower withdrawal rates or longer orshorter mortality of participants. These differences may impact the amount of retirement benefit expenserecorded by the Partnership in future periods.

 

The Partnershipreviews long-lived assets held and used, or held for sale for impairmentannually or whenever events or circumstances indicate that the carrying amountof an asset may not be recoverable.  Ifan evaluation is required, the estimated undiscounted future cash flowsassociated with the asset are compared to the asset’s carrying amount todetermine if an impairment charge is required. All long-lived

 

19

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assets for whichmanagement has committed to a plan of disposal are reported at the lower ofcarrying amount or fair value.  Changesin projected cash flows generated by an asset based on new events orcircumstances may indicate a change in fair value and require a new evaluationof recoverability of the asset.

 

***Legal Proceedings***

 

***Mauna Loa. ***ThePartnership 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 MaunaLoa to pay for all nuts delivered. Since the inception of these three contracts, Mauna Loa has always paidfor all nuts delivered. The other two nut purchase contracts were written in1989 and 1999 and allow for the deduction of unusable nuts in calculatingpayment due.

 

On October 31, 2000, adispute arose with Mauna Loa regarding the payment for nuts delivered by thePartnership during the year. In violation of the nut purchase contracts andpast practice, Mauna Loa deducted $908,000 for certain substandard nuts relatedto the 1983 and 1986 contracts. A demand letter was sent, litigation ensued anda motion for summary judgment was entered in May 2001 against Mauna Loa,awarding principal, and interest and attorneys fees to the Partnership.

 

Settlement discussionsfollowed the judgment in order to avoid an appeal and further litigation. ThePartnership agreed to accept principal, interest and a portion of its legalfees along with a complete release by both parties.

 

**ITEM 7A.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The Partnership is exposedto market risks resulting from changes in interest rates.  The Partnership has market risk exposure onits Credit Agreement due to its variable rate pricing that is based on ratesbased on LIBOR, the Farm Credit Discount Note Rate and the Farm Credit MediumTerm Note Rate.  As of December 31,2002, a one percent increase or decrease in the applicable rate under theCredit agreement will result in an interest expense fluctuation ofapproximately $28,000.

 

**ITEM 7B.  CONTROLS AND PROCEDURES**

 

(a)  Under the supervision and with theparticipation of management, including our principal executive officer andprincipal financial officer, we conducted an evaluation of our disclosurecontrols and procedures, as such term is defined under Rule 13a-14(c) promulgatedunder the Securities Exchange Act of 1934, as amended (the “Exchange Act”),within 90 days of the filing date of this report.  Based on their evaluation, our principal executive officer andprincipal financial officer concluded that the Partnership’s disclosureprocedures are effective.

 

(b)  There have been no significant changes(including corrective actions with regard to significant deficiencies ormaterial weaknesses) in our internal controls or in other factors that couldsignificantly affect these controls subsequent to the date of the evaluationreferenced in paragraph (a) above.

 

20

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**ITEM 8.  FINANCIALSTATEMENTS, SUPPLEMENTARY DATA AND SCHEDULES**

 

**Index to FinancialStatements**

 
|                                                                                        | Page  Number |
|---------------------------------------------------------------------------------------------|--------------|
| Report of Independent  Accountants                                                          | 22           |
|                                                                                        |         |
| Balance Sheets, December 31, 2002 and  2001                                                 | 23           |
|                                                                                        |         |
| Income  Statements, for the Years Ended December 31, 2002, 2001, and 2000                   | 24           |
|                                                                                        |         |
| Statements of Partners’  Capital, for the Years Ended December 31, 2002, 2001 and 2000 | 25           |
|                                                                                        |         |
| Statements  of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000              | 26           |
|                                                                                        |         |
| Notes to Financial  Statements, Including Supplementary Data                                | 27           |

 

21

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**REPORT OF INDEPENDENT ACCOUNTANTS**

 

Limited Partners

ML Macadamia Orchards,L.P.

 

In our opinion, theaccompanying balance sheets and the related income statements, statements ofpartners’ capital and statements of cash flows present fairly, in all materialrespects, the financial position of ML Macadamia Orchards, L.P. at December 31,2002 and 2001, and the results of its operations and its cash flows for each ofthe three years in the period ended December 31, 2002, in conformity withaccounting principles generally accepted in the United States of America.  These financial statements are theresponsibility of the Partnership’s management; our responsibility is toexpress an opinion on these financial statements based on our audits.  We conducted our audits in accordance withauditing standards generally accepted in the United States of America whichrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether 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 bymanagement, as well as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 
| **PricewaterhouseCoopers LLP** |
|--------------------------------|
|                           |
| Honolulu, Hawaii               |
| March 07, 2003                 |

 

22

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**ML Macadamia Orchards, L.P.**

**Balance Sheets**

(in thousands)

 
|                                                                                    |   | **December 31,** |       |
|-----------------------------------------------------------------------------------------|--------|------------------|------------|
|                                                                                    |   | **2002**         | ** ** | **2001** | ** ** |
| **Assets**                                                                              |   |             |       |   |   |
| Current assets                                                                          |   |             |       |   |   |
| Cash and cash equivalents                                                               |   | $                | 31         |   | $ | 357 |   |
| Accounts receivable                                                                     |   | 5,656            |       | 6,486 |   |
| Inventory of farming supplies                                                           |   | 158              |       | 157 |   |
| Other current assets                                                                    |   | 191              |       | 46 |   |
| Total current assets                                                                    |   | 6,036            |       | 7,046 |   |
| Land, orchards and equipment, net                                                       |   | 55,746           |       | 58,259 |   |
| Intangible assets, net                                                                  |   | 21               |       | 24 |   |
| Total assets                                                                            |   | $                | 61,803     |   | $ | 65,329 |   |
|                                                                                    |   |             |       |   |   |
| **Liabilities and partners’ capital**                                              |   |             |       |   |   |
| Current liabilities                                                                     |   |             |       |   |   |
| Current portion of long-term debt                                                       |   | $                | 473        |   | $ | 475 |   |
| Short-term borrowings                                                                   |   | 800              |       | 1,200 |   |
| Accounts payable                                                                        |   | 400              |       | 466 |   |
| Cash distributions payable                                                              |   | 379              |       | 379 |   |
| Accrued payroll and benefits                                                            |   | 742              |       | 859 |   |
| Other current liabilities                                                               |   | 22               |       | 484 |   |
| Total current liabilities                                                               |   | 2,816            |       | 3,863 |   |
| Long-term debt                                                                          |   | 2,920            |       | 3,402 |   |
| Deferred income tax liability                                                           |   | 1,218            |       | 1,220 |   |
| Total liabilities                                                                       |   | 6,954            |       | 8,485 |   |
| Commitments and contingencies                                                           |   |             |       |   |   |
| Partners’ capital                                                                  |   |             |       |   |   |
| General partner                                                                         |   | 549              |       | 569 |   |
| Class A limited partners, no par or assigned value,  7,500 units issued and outstanding |   | 54,300           |       | 56,275 |   |
| Total partners’ capital                                                            |   | 54,849           |       | 56,844 |   |
| Total liabilities and partners’ capital                                            |   | $                | 61,803     |   | $ | 65,329 |   |

 

***See accompanying notes to financialstatements.***

 

23

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**ML Macadamia Orchards, L.P.**

**IncomeStatements**

(in thousands, except per unit data)

 
|                                                         |   | **2002** |   | **2001** |   | **2000** |   |
|--------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Macadamia nut sales                                          |   | $        | 10,336 |     | $      | 12,023   |   | $ | 9,854 |   |
| Contract farming revenue                                     |   | 4,220    |   | 4,870    |   | 3,774    |   |
| Administrative services revenue                              |   | —   |   | —   |   | 130      |   |
| Total revenues                                               |   | 14,556   |   | 16,893   |   | 13,758   |   |
| Cost of goods and services sold                              |   |     |   |     |   |     |   |
| Costs expensed for farming and services                      |   | 11,048   |   | 11,427   |   | 10,229   |   |
| Depreciation and amortization                                |   | 2,556    |   | 2,547    |   | 2,250    |   |
| Other                                                        |   | —   |   | 5        |   | 180      |   |
| Total cost of goods and services sold                        |   | 13,604   |   | 13,979   |   | 12,659   |   |
| Gross income                                                 |   | 952      |   | 2,914    |   | 1,099    |   |
| General and administrative expenses                          |   |     |   |     |   |     |   |
| Costs expensed under management contract with related  party |   | 217      |   | 308      |   | 352      |   |
| Other                                                        |   | 1,030    |   | 1,348    |   | 1,130    |   |
| Total general and administrative expenses                    |   | 1,247    |   | 1,656    |   | 1,482    |   |
| Operating income (loss)                                      |   | (295     | )      | 1,258    |   | (383     | )      |
| Interest expense                                             |   | (307     | )      | (433     | )      | (325     | )      |
| Interest income                                              |   | 46       |   | 80       |   | 244      |   |
| Other income                                                 |   | 109      |   | 207      |   | 104      |   |
| Income (loss) before tax                                     |   | (447     | )      | 1,112    |   | (360     | )      |
| Income tax expense                                           |   | (33      | )      | (102     | )      | (38      | )      |
| Net income (loss)                                            |   | $        | (480   | )        | $      | 1,010    |   | $ | (398 | ) |
|                                                         |   |     |   |     |   |     |   |
| Net cash flow (as defined in the Partnership  Agreement)     |   | $        | 1,592  |     | $      | 3,093    |   | $ | 1,824 |   |
|                                                         |   |     |   |     |   |     |   |
| Net income (loss) per Class A Unit                           |   | $        | (0.06  | )        | $      | 0.13     |   | $ | (0.05 | ) |
|                                                         |   |     |   |     |   |     |   |
| Net cash flow per Class A Unit                               |   | $        | 0.21   |     | $      | 0.41     |   | $ | 0.24 |   |
|                                                         |   |     |   |     |   |     |   |
| Cash distributions per Class A Unit                          |   | $        | 0.20   |     | $      | 0.20     |   | $ | 0.465 |   |
|                                                         |   |     |   |     |   |     |   |
| Class A Units outstanding                                    |   | 7,500    |   | 7,500    |   | 7,500    |   |

 

***See accompanying notes to financialstatements.***

 

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**ML Macadamia Orchards, L.P.**

**Statements ofPartners’ Capital**

(in thousands)

 
|                                           |   | **2002** |       | **2001** |       | **2000** |       |
|------------------------------------------------|--------|----------|------------|----------|------------|----------|------------|
|                                           |   |     | ** ** |     | ** ** |     | ** ** |
| Partners’ capital at beginning of period: |   |     |       |     |       |     |       |
| General partners                               |   | $        | 569        |     | $          | 574      |       | $ | 613 |   |
| Class A limited partners                       |   | 56,275   |       | 56,775   |       | 60,657   |       |
|                                           |   | 56,844   |       | 57,349   |       | 61,270   |       |
|                                           |   |     |       |     |       |     |       |
| Allocation of net income (loss):               |   |     |       |     |       |     |       |
| General partners                               |   | (5       | )          | 10       |       | (4       | )          |
| Class A limited partners                       |   | (475     | )          | 1,000    |       | (394     | )          |
|                                           |   | (480     | )          | 1,010    |       | (398     | )          |
|                                           |   |     |       |     |       |     |       |
| Cash distributions:                            |   |     |       |     |       |     |       |
| General partners                               |   | 15       |       | 15       |       | 35       |       |
| Class A limited partners                       |   | 1,500    |       | 1,500    |       | 3,488    |       |
|                                           |   | 1,515    |       | 1,515    |       | 3,523    |       |
|                                           |   |     |       |     |       |     |       |
| Partners’ capital at end of period:       |   |     |       |     |       |     |       |
| General partners                               |   | 549      |       | 569      |       | 574      |       |
| Class A limited partners                       |   | 54,300   |       | 56,275   |       | 56,775   |       |
|                                           |   | $        | 54,849     |     | $          | 56,844   |       | $ | 57,349 |   |

 

***See accompanying notes to financialstatements.***

 

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**ML Macadamia Orchards, L.P.**

**Statement ofCash Flows**

(in thousands)

 
|                                                                                  |   | **2002** |   | **2001** |   | **2000** |   |
|---------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Cash flows from operating activities:                                                 |   |     |   |     |   |     |   |
| Cash received from goods and services                                                 |   | $        | 15,236 |     | $      | 15,535   |   | $ | 16,813 |   |
| Cash paid to suppliers and employees                                                  |   | (12,809  | )      | (12,945  | )      | (14,214  | )      |
| Interest received                                                                     |   | 46       |   | 80       |   | 233      |   |
| Interest paid                                                                         |   | (307     | )      | (433     | )      | (325     | )      |
| Net cash provided by operating activities                                             |   | 2,166    |   | 2,237    |   | 2,507    |   |
|                                                                                  |   |     |   |     |   |     |   |
| Cash flows from investing activities:                                                 |   |     |   |     |   |     |   |
| Capital expenditures                                                                  |   | (93      | )      | (75      | )      | (8,928   | )      |
| Net cash used in investing activities                                                 |   | (93      | )      | (75      | )      | (8,928   | )      |
|                                                                                  |   |     |   |     |   |     |   |
| Cash flows from financing activities:                                                 |   |     |   |     |   |     |   |
| Proceeds from drawings on line of credit                                              |   | 8,200    |   | 6,700    |   | 3,700    |   |
| Proceeds from long term debt                                                          |   | —   |   | —   |   | 4,000    |   |
| Repayment of long term debt                                                           |   | (400     | )      | (400     | )      | —   |   |
| Repayment of line of credit                                                           |   | (8,600   | )      | (6,400   | )      | (2,800   | )      |
| Capital lease payments                                                                |   | (84      | )      | (61      | )      | (31      | )      |
| Cash distributions paid                                                               |   | (1,515   | )      | (1,818   | )      | (3,599   | )      |
| Net cash provided by (used in) financing activities                                   |   | (2,399   | )      | (1,979   | )      | 1,270    |   |
|                                                                                  |   |     |   |     |   |     |   |
| Net increase (decrease) in cash                                                       |   | (326     | )      | 183      |   | (5,151   | )      |
| Cash at beginning of period                                                           |   | 357      |   | 174      |   | 5,325    |   |
| Cash at end of period                                                                 |   | $        | 31     |     | $      | 357      |   | $ | 174 |   |
|                                                                                  |   |     |   |     |   |     |   |
| Reconciliation of net income (loss) to net cash  provided by operating activities:    |   |     |   |     |   |     |   |
| Net income (loss)                                                                     |   | $        | (480   | )        | $      | 1,010    |   | $ | (398 | ) |
| Adjustments to reconcile net income (loss) to cash  provided by operating activities: |   |     |   |     |   |     |   |
| Depreciation and amortization                                                         |   | 2,556    |   | 2,547    |   | 2,249    |   |
| (Increase) decrease in accounts receivable                                            |   | 830      |   | (1,892   | )      | 3,093    |   |
| Decrease in inventories                                                               |   | —   |   | 11       |   | 11       |   |
| Increase in other current assets                                                      |   | (142     | )      | (21      | )      | (169     | )      |
| (Increase) decrease in other assets                                                   |   | 48       |   | 70       |   | (44      | )      |
| Increase (decrease) in accounts payable                                               |   | (66      | )      | 235      |   | (3,481   | )      |
| Increase (decrease) in accrued payroll                                                |   | (117     | )      | (35      | )      | 894      |   |
| Increase (decrease) in current liabilities                                            |   | (465     | )      | 292      |   | 402      |   |
| Deferred income tax expense (credit)                                                  |   | 2        |   | 20       |   | (50      | )      |
| Total adjustments                                                                     |   | 2,646    |   | 1,227    |   | 2,905    |   |
| Net cash provided by operating activities                                             |   | $        | 2,166  |     | $      | 2,237    |   | $ | 2,507 |   |

 

***See accompanying notes to financialstatements.***

 

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**ML Macadamia Orchards, L.P.**

# ***Notesto Financial Statements***

 

**(1) OPERATIONS AND OWNERSHIP**

 

ML Macadamia Orchards,L.P. (the “Partnership”) owns and farms 4,169 tree acres of macadamia orchardson the island of Hawaii. Once the nuts are harvested, the Partnership sellsthem to another entity, which processes and markets the finished products.  The Partnership farms approximately 2,645additional acres of macadamia orchards on Hawaii for other orchard owners.

 

The Partnership is owned99% by limited partners and 1% by the managing general partner, ML Resources,Inc. (“MLR”).  Until July 31, 2001, MLRwas a wholly-owned subsidiary of C. Brewer and Company, Limited (“CBCL”), whoseparent company is Buyco, Inc. (“Buyco”). On August 1, 2001, all of the stock ofMLR was sold to D. Buyers Enterprises, LLC (“DBE”), an entity solely owned byJ.W.A. Buyers, who also serves as the chairman of the board of CBCL and Buyco.

 

Limited partner interestsare represented by Class A Units, which are evidenced by depositary receiptsthat trade publicly and are listed on the New York Stock Exchange.  Mauna Loa Orchards, L.P., an affiliate ofthe general partner until August of 2001, held 30,000 Class A Units at December31, 2001 and sold these units in May and June of 2002.

 

**(2) SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

 

**(a)****                 Cashand Cash Equivalents. **Cash and cashequivalents include unrestricted demand deposits with banks and all highlyliquid deposits with an original maturity of less than three months.  The cash equivalents are not protected byfederal deposit insurance.

 

**(b)****                 FinancialInstruments. **The fair value of allfinancial instruments approximates the carrying value, as the majority of thefinancial instruments have fairly short durations until maturity, or the marketand risk factors associated with the instruments have not changed.

 

**(c)****                 FarmingCosts.** In accordance with industry practice in Hawaii, orchard maintenanceand harvesting costs for commercially producing macadamia orchards are chargedagainst 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 depreciationand amortization.  Net farming costs forany “developing” orchards are capitalized on the balance sheet until revenuesfrom that orchard exceed expenses for that orchard (or nine years afterplanting, if earlier).

 

Depreciationof orchards and other equipment is reported on a straight-line basis over theestimated useful lives of the assets (40 years for orchards and between 5 and12 years for other equipment).  A 5%residual value is assumed for orchards. The macadamia orchards acquired in 1986 situated on leased land arebeing amortized on a straight-line basis over the terms of the leases(approximately 33 years from the inception of the Partnership) with no residualvalue assumed.  The macadamia orchardsacquired in 1989 situated on leased land are being amortized on a straight-linebasis over a 40 year period (the terms of these leases exceed 40 years) with noresidual value assumed.  For income taxreporting, depreciation is calculated under the straight line method overAlternative Depreciation System recovery periods.

 

**(e)****                 IncomeTaxes.**  The accompanying statementsof operations do not include a provision for corporate income taxes, as theincome of the Partnership is not taxed directly; rather, the Partnership’s taxattributes are included in the individual tax returns of its partners.  Neither the Partnership’s financialreporting income nor the cash distributions to unitholders can be used as asubstitute for the detailed tax calculations which the Partnership must performannually for its partners.

 

27

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The Partnership issubject to a gross income tax as a result of its election to continue to betaxed as a partnership rather than to be taxed as a corporation, as allowed bythe Taxpayer Relief Act of 1997.  Thistax is calculated at 3.5% on partnership gross income (net revenues less costof goods sold) beginning in 1998.

 

Deferred taxliabilities are recognized for the future tax consequences attributable todifferences between the projected financial reporting and tax reporting basisof assets and liabilities.

 

**(f)    Revenue. **Macadamia nut sales are recognized when nuts areharvested and delivered to the buyer. Contract farming revenue and administrative services revenues arerecognized in the period that such services are provided.

 

**(g)   Pension Benefit Costs.**  The actuarial method used for financialaccounting purposes is the projected unit credit method.

 

**(h)   Estimates. **The preparation of financial statements in conformitywith generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from those estimates.

 

**(i)    Net Income Per Class A Unit.**  Net income per Class A Unit is calculated bydividing 99% of Partnership net income by the average number of Class A Unitsoutstanding for the period.

 

**(3) ACQUISITION**

 

On May 1, 2000, thePartnership purchased 142 acres of mature macadamia trees and substantially allof the assets used in the macadamia farming business from Ka’u AgribusinessCompany, Inc., Ka’u Sugar, Inc., Mauna Kea Macadamia Orchards, Inc., and MaunaKea Agribusiness Company, Inc., all related entities.  The farming assets consist of the farming equipment, vehicles, ahusking plant, irrigation well, leasehold improvements, office furniture and equipmentand inventories related to macadamia farming. The purchase price was $8.9 million dollars and was paid using $4.9million in cash and a loan from Pacific Coast Farm Credit of $4 million.

 

The initial purchaseprice has been allocated to assets acquired based on estimated fair value.  The allocated fair value of assets acquiredis summarized as follows (000’s):

 
| Inventory                      |   | $     | 127    |   |
|--------------------------------|--------|-------|--------|--------|
| Nursery                        |   | 52    |   |
| Property,  plant and equipment |   | 9,176 |   |
| Current  liabilities           |   | (427  | )      |
| Total                          |   | $     | 8,928  |   |

 

**(4) SEGMENT INFORMATION**

 

The Partnership has tworeportable segments, the owned-orchard segment and the farming segment, whichare organized on the basis of revenues and assets.  The owned-orchard segment derives its revenues from the sale ofmacadamia nuts grown in orchards owned or leased by the Partnership.  The farming segment derives its revenues fromthe farming of macadamia orchards owned by other growers.  It also farms those orchards owned by thePartnership.

 

Managementevaluates the performance of each segment on the basis of operatingincome.  The Partnership accounts forintersegment sales and transfers at cost. Such intersegment sales and transfers are eliminated in consolidation.

 

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The Partnership’sreportable segments are distinct business enterprises that offer differentproducts or services.  Revenues from theowned-orchard segment are subject to long-term nut purchase contracts and tendto vary from year to year due to changes in the calculated nut price per poundand pounds produced.  The farmingsegment’s revenues are based on long-term farming contracts which generate afarming profit based on a percentage of farming cost or based on a fixed feeper acre and tend to be less variable than revenues from the owned-orchardsegment.

 

The following is asummary of each reportable segment’s operating income and the segment’s assetsas of and for the period ended December 31, 2002, 2001 and 2000.

 

Segment Reporting for the Year ended December 31, 2002

(in thousands)

 
|                                    |   | **Owned  Orchards** |       | **Contract  Farming** |       | **Intersegment  Elimination** |       | **Total** |       |
|-----------------------------------------|--------|---------------------|------------|-----------------------|------------|-------------------------------|------------|-----------|------------|
|                                    |   |                | ** ** |                  | ** ** |                          | ** ** |      | ** ** |
| Revenues                                |   | $                   | 10,336     |                  | $          | 9,948                         |       | $         | (5,728     | ) | $ | 14,556 |   |
| Composition of Inter-segment revenues   |   | —              |       | 5,728                 |       | —                        |       | 5,728     |       |
| Operating income (loss)                 |   | (254                | )          | (41                   | )          | —                        |       | (295      | )          |
| Depreciation expense                    |   | 1,644               |       | 912                   |       | —                        |       | 2,556     |       |
| Segment assets                          |   | 56,972              |       | 4,831                 |       | —                        |       | 61,803    |       |
| Expenditures for property and equipment |   | —              |       | 93                    |       | —                        |       | 93        |       |
|                                         |        |                     |            |                       |            |                               |            |           |            |  |  |  |  |

 

Segment Reporting for the Year ended December 31, 2001

(in thousands)

 
|                                    |   | **Owned  Orchards** |       | **Contract  Farming** |       | **Intersegment  Elimination** |       | **Total** |       |
|-----------------------------------------|--------|---------------------|------------|-----------------------|------------|-------------------------------|------------|-----------|------------|
|                                    |   |                | ** ** |                  | ** ** |                          | ** ** |      | ** ** |
| Revenues                                |   | $                   | 12,023     |                  | $          | 11,744                        |       | $         | (6,874     | ) | $ | 16,893 |   |
| Composition of Inter-segment revenues   |   | —              |       | 6,874                 |       | —                        |       | 6,874     |       |
| Operating income (loss)                 |   | 1,064               |       | 194                   |       | —                        |       | 1,258     |       |
| Depreciation expense                    |   | 1,644               |       | 903                   |       | —                        |       | 2,547     |       |
| Segment assets                          |   | 58,040              |       | 7,289                 |       | —                        |       | 65,329    |       |
| Expenditures for property and equipment |   | 75                  |       | —                |       | —                        |       | 75        |       |
|                                         |        |                     |            |                       |            |                               |            |           |            |  |  |  |  |

 

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Segment Reporting for the Year ended December 31, 2000

(in thousands)

 
|                                    |   | **Owned  Orchards** |       | **Contract  Farming** |       | **Intersegment  elimination** |       | **Total** |       |
|-----------------------------------------|--------|---------------------|------------|-----------------------|------------|-------------------------------|------------|-----------|------------|
|                                    |   |                | ** ** |                  | ** ** |                          | ** ** |      | ** ** |
| Revenues                                |   | $                   | 9,854      |                  | $          | 8,722                         |       | $         | (4,818     | ) | $ | 13,758 |   |
| Composition of intersegment revenues    |   | —              |       | 4,818                 |       | —                        |       | 4,818     |       |
| Operating income (loss)                 |   | (609                | )          | 226                   |       | —                        |       | (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 nutpurchase contracts with Mauna Loa Macadamia Nut Corporation (“Mauna Loa”).  Mauna Loa was a wholly-owned subsidiary ofC. Brewer and Company, Ltd. (“CBCL”) until its sale on September 29, 2000 tothe Shansby Group, an unrelated party. CBCL was the sole owner of ML Resources, Inc, the Partnership’s generalpartner until August 1, 2001. The five nut purchase contracts cover all nutsproduced 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 runsfor 30 years and also provides for the exclusion of unusable nuts from thosepurchased by Mauna Loa.  The first threecontracts are identical in all other material respects.  The fourth contract was acquired byassignment with the purchase of the September 1991 orchard and expires June 30,2003.  The fourth contract is similar tothe first three contracts, but the nut price is calculated on a crop year (July1 through June 30) rather than calendar year basis, which results in a slightlydifferent nut price.  The fifth contractwas acquired by assignment with the purchase of the May 2000 orchards andexpires in 2006.  The fifth contract issimilar to the first three contracts and also provides for the exclusion ofunusable nuts.  The first four contractsuse a pricing formula based 50% on a two-year trailing average of the macadamianut price published annually by the U.S. Department of Agriculture (“USDA”) and50% on Mauna Loa’s “netback component”. The netback component is calculated bysubtracting Mauna Loa’s processing and marketing costs per pound and a “capitalcharge” of 20% from its nut revenues per pound. The fifth contract uses onlythe USDA two-year trailing average to determine its nut price.  The nut price paid to the Partnership underthe first two contracts was $0.5086 for 2000, $0.4795 in 2001, and $0.4655 in2002.  The average nut price paid to thePartnership under the third contract was $0.5078 for 2000, $0.4750 in 2001, and$0.4610 in 2002. The average nut price paid to the Partnership under the fourthnut price contract was $0.5339 for 2000, $0.5119 for 2001, and $0.4920 in2002.  The nut price paid to thePartnership under the fifth contract was $0.6609 in 2000, $0.6222 for 2001, and$0.5940 in 2002.

 

**(b) Farming Contracts.**  Prior to the Partnership’s acquisition ofthe macadamia farming operations on May 1, 2000, the Partnership was a party tofour farming contracts with Ka’u Agribusiness Company, Inc. (“KACI”) and MaunaKea 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.

 

30

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The contracts providedKACI and MKACI with reimbursement of their direct and indirect costs incurredunder these contracts.  Thereimbursements paid to the two farm managers were $2.1 million for the firstfour months of 2000.  Husking activitiesfor the Keaau and Mauna Kea orchards are performed at Mauna Loa’s Keaaufacility.  Reimbursements made to MaunaLoa were $453,000 in 2000, $443,000 in 2001, and $531,000 in 2002.

 

The Partnership hasreached agreement to purchase approximately 1,774 acres of land currently underlong-term leases with CBCL for $1.1 million. No purchase contract has been signed and neither party is obligated tocomplete the transaction, which will be financed under a new credit facilityand is expected to close in the second quarter of 2003.

 

**(c) Management Costs and Fee.**  The Partnership Agreement provides themanaging general partner reimbursement of administrative costs (which consistprimarily of compensation costs prior to May 2000, board of directors fees,insurance costs and office expenses) incurred under the agreement as well as amanagement fee equal to two percent of the Partnership’s operating cash flow(as defined).   Those reimbursable coststotaled $320,000 in 2000, $247,000 in 2001, and $180,000 in 2002.  The managing general partner earned amanagement fee of $32,000 in 2000, $65,000 in 2001, and $32,000 in 2002.

 

In addition to amanagement fee, the managing general partner is entitled, under the existingPartnership Agreement, to receive an annual incentive fee equal to 0.5% of theaggregate fair market value (as defined) of the Class A Units for the precedingcalendar year provided that net cash flow (as defined) for the precedingcalendar year exceeds specified levels. No incentive fee was earned in 2000, 2001 or 2002.

 

**(d) Stabilization Payments.**  In December 1986, the Partnership acquired a266-acre orchard that was several years younger than its other orchards.  Because of the relative immaturity of thenewer orchard, its productivity (and therefore its cash flow) was expected tobe correspondingly lower for the first several years than for the other olderorchards.

 

Accordingly, the sellerof this orchard (KACI) agreed to make cash stabilization payments to thePartnership for each year through 1993 in which the cash flow (as defined) fromthis orchard fell short of a target cash flow level of $507,000.  Stabilization payments for a given year werelimited to the lesser of the amount of the shortfall or a maximum paymentamount.

 

The Partnership accountedfor stabilization payments (net of general excise tax) as a reduction in thecost basis of this orchard.  As aresult, the payments will be reflected in the Partnership’s net income ratablythrough 2019 as a reduction to depreciation for this orchard.

 

In return, thePartnership is obligated to pay KACI 100% of any year’s cash flow from thisorchard in excess of the target cash flow as additional percentage rent untilthe aggregate amount of additional percentage rent equals 150% of the totalamount of stabilization payments previously received.  Thereafter, the Partnership is obligated to pay KACI 50% of thisorchard’s cash flow in excess of the target cash flow as additional incentiverent.  No additional rent was due in2000, 2001, or 2002.

 

**(e) Cash Flow Warranty Payments**.  In October 1989, the Partnership acquired1,040 acres of orchards that were several years younger on average than thePartnership’s other orchards.  Theirproductivity (and therefore their cash flow) was expected to be lower for thefirst several years than for the Partnership’s older orchards.

 

Accordingly, the sellersof these orchards (subsidiaries of CBCL) agreed to make cash flow warrantypayments to the Partnership for each year through 1994 in which the cash flow(as defined) from these

 

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orchards fell short of acash flow target level.  Warrantypayments for any year were limited to the lesser of the amount of the shortfallor a maximum payment amount.

 

The Partnership accountedfor cash flow warranty payments as reductions in the cost basis of theorchards.  As a result, these paymentswill be reflected in the Partnership’s net income ratably through 2030 as reductionsto depreciation for these orchards.

 

**(f)            Acquisitionof Ka’u Orchards and Macadamia Farming Business. **On May 1, 2000, the Partnership purchased 142acres of mature macadamia trees and substantially all of the assets used in themacadamia farming business from KACI, MKACI, Mauna Kea Macadamia Orchards, Inc.and Ka’u Sugar, Inc., all affiliates of CBCL. The farming assets consist of thefarming equipment, vehicles, a husking plant, an irrigation well, leaseholdimprovements, office furniture and equipment and inventories related tomacadamia farming.  The purchase pricewas $8.9 million.  As the sellers andthe general partner of the Partnership were each a direct wholly-owned subsidiaryof CBCL, this acquisition involved the general partner in a conflict of interest.  The Conflicts Committee negotiated theproposed terms of this acquisition, reached the conclusion that thisacquisition would be in the best interest of the Partnership and the holders ofthe Class A Units, approved this acquisition and reported to the Board of theDirectors of the general partner its recommendation that this acquisitionshould be approved by that Board.  TheBoard of Directors of the general partner unanimously approved suchacquisition.

 

**(g)           ManagementServices Contract. **ThePartnership entered into a management services contract with CBCL effective May2000, wherein CBCL provided insurance and risk management, labor agreementadvice, workers’ compensation case assistance, consultation with CBCL executivestaff and other areas of management to the Partnership.  This contract replaced previous contractsbetween CBCL and the Managing Partner and CBCL and KACI and MKACI.  The contract provided for a fee payable toCBCL of $100,000 per year.  CBCL waspaid a fee of $67,000 in 2000 and $75,000 in 2001.  The contract was terminated after the purchase of the stock ofMLR by DBE on August 1st, 2001.

 

**(6) CASH FLOW PERFORMANCE**

 

Cash flow performance(based on definitions used in the Partnership Agreement) for the past threeyears is shown below (000’s):

 
|                               |   | **2002** |   | **2001** |   | **2000** |   |
|------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Gross revenues                     |   | $        | 14,711 |     | $      | 17,180   |   | $ | 14,106 |   |
| Less:                              |   |     |   |     |   |     |   |
| Farming costs                      |   | 11,048   |   | 11,435   |   | 10,409   |   |
| Administrative costs               |   | 1,248    |   | 1,656    |   | 1,485    |   |
| Payments of principal and interest |   | 791      |   | 894      |   | 356      |   |
| Other                              |   | —   |   | 36       |   | —   |   |
| Operating cash flow                |   | 1,624    |   | 3,159    |   | 1,856    |   |
| Less:                              |   |     |   |     |   |     |   |
| Management fee                     |   | 32       |   | 66       |   | 32       |   |
| Net cash flow                      |   | $        | 1,592  |     | $      | 3,093    |   | $ | 1,824 |   |

 

32

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**(7) LAND, ORCHARDS AND EQUIPMENT**

 

Land, orchards andequipment, stated at cost, consisted of the following at December 31, 2002 and2001 (000’s):

 
|                                            |   | **2002** |   | **2001** |   |
|-------------------------------------------------|--------|----------|--------|----------|--------|
| Land                                            |   | $        | 8,168  |     | $      | 8,168 |   |
| Improvements                                    |   | 1,074    |   | 1,074    |   |
| Machinery  and equipment                        |   | 4,779    |   | 4,736    |   |
| Irrigation  well and equipment                  |   | 1,155    |   | 1,155    |   |
| Producing  orchards                             |   | 67,267   |   | 67,267   |   |
| Capital  leases                                 |   | 367      |   | 367      |   |
|                                            |   |     |   |     |   |
| Land,  orchards and equipment (gross)           |   | 82,810   |   | 82,767   |   |
|                                            |   |     |   |     |   |
| Less  accumulated depreciation and amortization |   | 27,064   |   | 24,508   |   |
|                                            |   |     |   |     |   |
| Land,  orchards and equipment (net)             |   | $        | 55,746 |     | $      | 58,259 |   |

 

The Partnership hasreached agreement in principle to purchase approximately 1,774 acres of landcurrently under long-term leases from CBCL for $1.1 million.  A definitive purchase agreement has not beensigned and neither party is currently under a legal obligation to close thetransaction.  If the transaction closesit will probably close in the second quarter of 2003.  The Partnership has received tentative commitment to finance theacquisition under a new credit facility.

 

**(8) SHORT-TERM AND LONG-TERM CREDIT**

 

At December 31, 2002 and2001, the Partnership’s long-term debt comprises (000’s):

 
|             |   | **2002** |   | **2001** |   |
|------------------|--------|----------|--------|----------|--------|
| Term  debt       |   | $        | 3,200  |     | $      | 3,600 |   |
| Other            |   | 193      |   | 277      |   |
|             |   |     |   |     |   |
|             |   | 3,393    |   | 3,877    |   |
|             |   |     |   |     |   |
| Current  portion |   | 473      |   | 475      |   |
|             |   | $        | 2,920  |     | $      | 3,402 |   |

 

**Revolving Credit Loan**.On May 2, 2000 the Partnership entered into a new credit agreement with PacificCoast Farm Credit Services under which it has available a $5 million revolvingcredit facility through May 1, 2004. Borrowings under this credit facility were $800,000 as of December 31,2002 at an interest rate of 4.25% and $1,200,000 as of December 31, 2001 at aninterest rate of 5.0%.

 

33

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Borrowings underthis 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 thecredit.  The Partnership, at its option,may make prepayments without penalty.

 

**Term Debt**.  As of December 31, 2002, the Partnership hada $4 million promissory note with a balance of $3.2 million outstanding, whichwas issued on May 2, 2000.  The note isscheduled to mature in 2010 and bears interest at rates from 3.5625 percent to7.77 percent.  Principal payments aredue annually on May 2 in the amount of $400,000.

 

Both the revolvingcredit loan and the term debt are collateralized by all personal propertyassets of the Partnership. The agreement also provides for the maintenance ofcertain financial indexes including a minimum current ratio and net worth.

 

Maturities oflong-term debt are as follows (000’s):

 
| Year  ending December 31, |   |   |   |
|---------------------------|--------|--------|--------|
| 2003                      |   | $      | 473    |   |
| 2004                      |   | 452    |   |
| 2005                      |   | 435    |   |
| 2006                      |   | 433    |   |
| Thereafter                |   | 1,600  |   |
|                      |   |   |   |
|                      |   | $      | 3,393  |   |

 

**(9) INCOME TAXES**

 

The components of incometax expense for the years ended December 31, 2002, 2001 and 2000 were asfollows (000’s):

 
|              |   | **2002** |   | **2001** |   | **2000** |   |
|-------------------|--------|----------|--------|----------|--------|----------|--------|
| Currently payable |   | $        | 35     |     | $      | 82       |   | $ | 88 |   |
| Deferred          |   | (2       | )      | 20       |   | (50      | )      |
|              |   | $        | 33     |     | $      | 102      |   | $ | 38 |   |

 

The provision for incometaxes equates to the 3.5% federal tax rate applied to gross income for theyears ended December 31, 2002, 2001 and 2000:

 

The components of the netdeferred tax liability reported on the balance sheet as of December 31, 2002and 2001 are as follows (000’s):

 
|                                                                                                                                                         |   | **2002** |   | **2001** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| Deferred tax liabilities:                                                                                                                                    |   |     |   |     |   |
| Financial statement bases of land, orchards, inventory  and equipment is greater than tax bases                                                              |   | $        | 677    |     | $      | 673 |   |
| Financial statement bases of capitalized leases,  long-term debt on capitalized leases and interest expense on capitalized  leases is greater than tax bases |   | 25       |   | 7        |   |
| Excess of tax depreciation over financial statement  depreciation                                                                                            |   | 516      |   | 540      |   |
|                                                                                                                                                         |   | $        | 1,218  |     | $      | 1,220 |   |

 

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**(10) LEASES**

 

The Partnershipleases the land underlying 1,948 acres of its orchards under long-termoperating leases.  Future minimum leasepayments under non-cancelable leases (exclusive of renewal options) as ofDecember 31, 2002 were as follows (000’s):

 
| 2003        |   | $     | 203    |   |
|-------------|--------|-------|--------|--------|
| 2004        |   | 182   |   |
| 2005        |   | 164   |   |
| 2006        |   | 164   |   |
| 2007        |   | 135   |   |
| Later Years |   | 2,880 |   |
|        |   | $     | 3,728  |   |

 

Each of the aboveleases (other than equipment leases) also provides for additional leasepayments based on USDA-reported macadamia nut price levels.  Those contingent lease payments totaled$17,000 in 2000, $11,000 in 2001, and $16,000 in 2002.  Total lease rent for all operating leaseswas $146,000 in 2000, $143,000 in 2001, and $142,000 in 2002.

 

**(11)****PENSIONPLAN**

 

The Companyestablished a pension plan in conjunction with the acquisition of farmingoperations on May 1, 2000.  The plancovers employees that are members of a union bargaining unit and the projectedbenefit obligation was assumed from the previous employer.

 

The Company’sfunding policy is to contribute an amount to the plan sufficient to meet theminimum funding requirements set forth in the Employee Retirement IncomeSecurity Act of 1974.

 

The components ofnet pension cost for the years ended December 31, 2002, 2001, and 2000 were asfollows (000’s):

 
|                                                    |   | **2002** |   | **2001** |   | **2000** |   |
|---------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Service  cost                                           |   | $        | 52     |     | $      | 50       |   | $ | 23 |   |
| Interest  cost                                          |   | 13       |   | 11       |   | 5        |   |
| Expected  return on assets                              |   | (6       | )      | (3       | )      | —   |   |
| Recognition  of net loss or (gain) from earlier periods |   | —   |   | 1        |   | —   |   |
| Amortization  of unrecognized prior service cost        |   | 7        |   | 7        |   | 4        |   |
|                                                    |   | $        | 66     |     | $      | 66       |   | $ | 32 |   |

 

The reconciliationof the beginning and ending balances of the benefit obligation and fair valueof plan assets and the funding status of the plan is as follows as of and forthe year ended December 31, 2002, 2001 and 2000 (000’s):

 
|                                               |   | **2002** |   | **2001** |   | **2000** |   |
|----------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Change  in benefit obligation:                     |   |     |   |     |   |     |   |
| Projected  benefit obligation at beginning of year |   | $        | 191    |     | $      | 153      |   | $ | 99 |   |
| Service  cost                                      |   | 52       |   | 50       |   | 23       |   |
| Interest  cost                                     |   | 14       |   | 11       |   | 5        |   |
| Actuarial  (gain) or loss                          |   | 27       |   | (20      | )      | 25       |   |
| Benefits  paid                                     |   | (7       | )      | (3       | )      | —   |   |
|                                               |   |     |   |     |   |     |   |
| Projected  benefit obligation at end of year       |   | 277      |   | 191      |   | 152      |   |
|                                               |   |     |   |     |   |     |   |
| Change  in plan assets:                            |   |     |   |     |   |     |   |
| Fair  value of plan assets at beginning of year    |   | 31       |   | 30       |   | —   |   |
| Actual  return on plan assets                      |   | 4        |   | 1        |   | —   |   |
| Employer  contribution                             |   | 94       |   | 3        |   | 30       |   |
| Benefits  paid                                     |   | (7       | )      | (3       | )      | —   |   |
|                                               |   |     |   |     |   |     |   |
| Fair  value of plan assets at end of year          |   | 122      |   | 31       |   | 30       |   |
|                                               |   |     |   |     |   |     |   |
| Funded  status                                     |   | (155     | )      | (160     | )      | (122     | )      |
| Unrecognized  prior service cost                   |   | 82       |   | 89       |   | 95       |   |
| Unrecognized  net loss                             |   | 34       |   | 5        |   | 25       |   |
|                                               |   |     |   |     |   |     |   |
| Net  amount recognized                             |   | $        | (39    | )        | $      | (66      | )      | $ | (2 | ) |

 

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Actuarialassumptions used to determine costs and benefit obligations for the pensionplan at December 31, 2002, 2001 and 2000 are as follows:

 
|                           |   | **2002** |   | **2001** |   | **2000** |   |
|--------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Discount  rate                 |   | 6.50     | %      | 7.25     | %      | 7.25     | %      |
| Compensation  increases        |   | 2.00     | %      | 2.00     | %      | 2.00     | %      |
| Return  on assets for the year |   | 9.00     | %      | 9.00     | %      | 8.00     | %      |

 

Experience gainsand losses are amortized over the average future service period of employees.

 

**(12) QUARTERLY OPERATING RESULTS(Unaudited)**

 

The followingchart summarizes unaudited quarterly operating results for the years endedDecember 31, 2002,  2001, and 2000(000’s, except per unit data):

 
|        |   | **Net  Sales** | ** ** | **Gross Income  (Loss)** |   | **Net Income  (Loss)** |   | **Net Income (Loss)  per Class A Unit** | ** ** |
|-------------|--------|----------------|------------|--------------------------|--------|------------------------|--------|-----------------------------------------|------------|
| 2002        |   |           |       |                     |   |                   |   |                                    |       |
| 1st Quarter |   | $              | 2,609      |                     | $      | 292                    |   | $                                       | (146       | ) | $ | (0.02 | ) |
| 2nd Quarter |   | 662            |       | 130                      |   | (241                   | )      | (0.03                                   | )          |
| 3rd Quarter |   | 5,089          |       | 542                      |   | 43                     |   | 0.01                                    |       |
| 4th Quarter |   | 6,196          |       | (13                      | )      | (136                   | )      | (0.02                                   | )          |
|        |   |           |       |                     |   |                   |   |                                    |       |
| 2001        |   |           |       |                     |   |                   |   |                                    |       |
| 1st Quarter |   | $              | 3,017      |                     | $      | 252                    |   | $                                       | (416       | ) | $ | (0.05 | ) |
| 2nd Quarter |   | 2,162          |       | 1,233                    |   | 702                    |   | 0.09                                    |       |
| 3rd Quarter |   | 4,767          |       | 504                      |   | 485                    |   | 0.06                                    |       |
| 4th Quarter |   | 6,947          |       | 924                      |   | 239                    |   | 0.03                                    |       |
|        |   |           |       |                     |   |                   |   |                                    |       |
| 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                                   | )          |

 

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**PARTIII**

 

**ITEM10.  DIRECTORS AND EXECUTIVE OFFICERS OFREGISTRANT**

 

The Partnershippresently has no officers or directors. Instead, the officers and directors ofthe Managing Partner perform all management functions for the Partnership.  Each director of the Managing Partner iselected for a term of one year and until his successor is duly elected andqualified.  Each officer of the ManagingPartner is elected by the Board of Directors of the Managing Partner and is subjectto removal by that board at any time.

 

## **A. Identification of Directors**

## ** **

*John W. A. Buyers.*  74 years old; owner of Managing Partnersince August 2001, chairman since 1989 and director of Managing Partner since1986; chairman of C. Brewer and Company, Limited; chairman of Buyco and ownerof D. Buyers Enterprises, LLC (“DBE”).

 

*James H. Case.*  82 years old; director and member of Auditand Conflicts Committee of Managing Partner since 1986; senior partner of thelaw firm of Carlsmith Ball; not an employee, officer, or director of any CBCLor DBE affiliate other than the Managing Partner.

 

*Ralph C. Hook, Jr.*  79 years old; director and member of Auditand Conflicts Committee of Managing Partner since 1986; not an employee,officer, or director of any CBCL or DBE affiliate other than the Managing Partner.

 

*J. Alan Kugle. *65 years old; directorsince September 2000 and from 1986 to 1995; Chief Executive Officer-RealEstate, general counsel and secretary of CBCL; president of Managing Partnerfrom 1987 to 1990; not an employee, officer, or director of any DBE affiliateother than the Managing Partner.

 

*David McClain.*  56 years old; director and member of theAudit and Conflicts Committee of Managing Partner since September 2000; not anemployee, officer, or director of any CBCL or DBE affiliate other than theManaging Partner.

 

*Dennis J. Simonis.* 46 years old; director of Managing Partnersince August 2002; President and Chief Operating Officer of Managing Partnersince August 2001 and Chief Financial Officer since June 2001. Executive VicePresident and Chief Financial Officer of DBE since August 2001.

 

**B. Identification of Executive Officers of the Managing Partner**

 

*John W. A. Buyers*.  74 years old; chairman and chief executiveofficer of Managing Partner since 1989.

 

*Dennis J. Simonis. *46 years old; president ofManaging Partner since August 2001; chief financial officer of D. BuyersEnterprises, LLC; not otherwise an employee, officer, or director of any CBCLaffiliate. Formerly executive vice president and chief operating officer ofMauna Loa.

 

*Randolph H. Cabral.  50* years old; senior vicepresident and orchard manager of Managing Partner since May 2000; not otherwisean employee, officer, or director of any CBCL affiliate. Formerly senior vicepresident and orchard manager of KACI.

 

*Wayne W. Roumagoux*.  55 years old; senior financial officer ofManaging Partner since August 2001; controller of DBE; not otherwise anemployee, officer, or director of any CBCL affiliate.

 

**C.    Identification of Certain SignificantEmployees**

 

Not applicable

 

** **

**D.    FamilyRelationships**

 

Not applicable

 

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**E.     Business Experience of Current Directorsand Executive Officers**

 

***Current Directors of the Managing Partner.***

 

*John W. A. Buyers.*****Mr. Buyers has beenchairman of ML Resources since July 1992. He has chairman of the board of CBCL since 1982.  He is the past president and chief executiveofficer of CBCL with services from 1982 to 2002.  After service in the U.S. Marine Corps, Mr. Buyers attendedPrinceton University where he graduated *cum laude* in 1952.  He latter received an M.A. in IndustrialManagement from the Massachusetts Institute of Technology as a SloanFellow.  He is a director of FirstHawaiian 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 ofCommerce 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 lawfirm of Carlsmith Ball.  Mr. Casegraduated with an A.B. from Williams College and received a J.D. from HarvardLaw School. He became associated with the Carlsmith law firm in 1951 and becamea partner in 1959.  He has served on theboards 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 joined the faculty of the Collegeof Business Administration at the University of Hawaii in 1968 as Dean of theCollege of Business Administration.  In1974, he returned to teaching as Professor of Marketing in the College ofBusiness Administration.  He became aProfessor Emeritus of Marketing in June 1995. Dr. Hook received a bachelor’s and master’s degrees from the Universityof Missouri at Columbia and a Ph.D. in Marketing from the University of Texasat Austin.  He has been a member of theboard of Hook Brothers Corporation since 1983, and a director of Market City,Ltd. since December 2000.  He resides inHonolulu, Hawaii.

 

*J. Alan Kugle.*Mr.Kugle is the chief executive officer – real estate for CBCL and has served asits secretary and general counsel since 1980. He was chairman of Mauna Loa from 1983 to 1992.  He began his CBCL career in 1976 as vicepresident and general counsel and became senior vice president and generalcounsel in 1978.  Mr. Kugle graduatedwith an A.B. Degree from Franklin and Marshall College and a J.D. Degree fromthe New York University School of Law. Mr. Kugle is also a director of Olokele Sugar Company, Ltd. (a CBCLsubsidiary), Honolulu, Hawaii, Maui Tropical Plantations (an investee of CBCL),Wailuku, Hawaii, Wailuku Agribusiness Company, Inc., (a CBCL subsidiary),Wailuku, Hawaii and other CBCL subsidiaries. He resides in Honolulu, Hawaii.

 

*David McClain.* Dr. McClain has served asthe Dean of the College of Business Administration at the University of Hawaiiat Manoa and the First Hawaiian Bank Distinguished Professor of Leadership andManagement since 2000.  Dr. McClainjoined the University of Hawaii at Manoa in 1991 as the Henry A. Walker, Jr.Distinguished Professor of Business Enterprise and Professor of FinancialEconomics and Institutions and was recently appointed Vice President forResearch for the University of Hawaii system, a position he holds in additionto his responsibilities as dean. Dr. McClain chairs the board of HawaiiLiteracy, and serves as a member of several nonprofit boards in Hawaii. Dr.McClain earned a Ph.D. in Economics from the Massachusetts Institute ofTechnology in 1974 and a BA in Economics and Mathematics from the University ofKansas in 1968.  He has taught atMassachusetts Institute of Technology’s Sloan School of Management and atBoston University, where he chaired the Department of Finance and Economics. Healso served as Senior Staff Economist, Council of Economic Advisors toPresident Jimmy Carter.  He resides inHonolulu, Hawaii.

 

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*Dennis J. Simonis*.  Mr. Simonis has served as a director sinceAugust 2002, president of the Managing Partner since August 2001 and wasformerly the executive vice president and chief financial officer. From 1993 to2001, Mr. Simonis served in various capacities at Mauna Loa, includingexecutive vice president and chief operating officer.  He serves as an officer of the Hawaii Macadamia Nut Associationand has served on several nonprofit boards in Hawaii. He served from 1985-1993as a vice president of Theo H. Davies & Co., Ltd. and worked as a seniorauditor for Price Waterhouse between 1979 and 1985. Mr. Simonis graduated magnacum laude with a B.S. in Accounting from Carroll College in Waukesha, Wisconsinand earned his C.P.A. certificate in 1983. He resides in Hilo, Hawaii.

 

***Executive Officers Who Do Not Serve as Directors.***

 

*Randolph H. Cabral. *Mr. Cabral has served assenior vice president and orchard manager of the Managing Partner since May2000.  Mr. Cabral was previouslyemployed at Ka’u Agribusiness Company, Inc., from 1989 until the Partnership’sacquisition of Ka’u Agribusiness’ macadamia business in 2000.  He served as senior vice president from 1998to 2000, as vice president from 1996 to 1998, and as orchard manager from 1989.  From 1983 to 1989, Mr. Cabral served asorchard manager with Mauna Loa Macadamia Nut Corporation.  Mr. Cabral has an AS in General Agriculturefrom the University of Hawaii.  Heresides in Hilo, Hawaii.

 

**F.     Section 16Disclosure**

 

Under Section 16of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), eachdirector and certain officers of ML Resources, Inc., the managing generalpartner of Registrant (a “Reporting Person”), are required to report theirownership and changes in ownership of Class A Depositary Units to theSecurities and Exchange commission, the New York Stock Exchange andRegistrant.  Based on reporting formssubmitted to Registrant, no Reporting Person has failed to file on a timelybasis reports required by Section 16(a) of the Exchange Act during 2000, exceptthat Randolph Cabral, who became senior vice president on May 1, 2000, and whoowns 100 Class A Units, did not file a Form 3 until October 4, 2000;  and Wayne Roumagoux, who became principalaccounting officer on August 1, 2001, and owns no shares, did not file a Form 3until February 4, 2002.

 

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**ITEM 11.  EXECUTIVE COMPENSATION**

 

**A.    Summary Compensation Table**

 

The Partnership ismanaged by the Managing Partner. Compensation paid by the Managing Partner to its chief executive officerand other executive officers is reimbursed by the Partnership, as provided inSection 4.5 of the Partnership Agreement. The following table reflects the aggregate compensation for services inall capacities paid by the Managing Partner to its executive officers for theyears ended December 31, 2002, 2001 and, 2000. There were no long- termcompensation awards or payouts during those years.

 
|                                  |   |     |   | **Annual Compensation** |   |      |   |
|---------------------------------------|--------|----------|--------|-------------------------|--------|-----------|--------|
| **Name and  Principal Position**      |   | **Year** |   | **Salary**              |   | **Bonus** |   | **Other** |   |
| John W. W. Buyers                     |   | 2002     |   | $                       | 27,500 |      | $      | — |   | $ | 15,000 |   |
| Chief executive officer               |   | 2001     |   | —                  |   | —    |   | 15,750 |   |
|                                  |   | 2000     |   | —                  |   | —    |   | 15,000 |   |
|                                  |   |     |   |                    |   |      |   |   |   |
| Dennis J. Simonis                     |   | 2002     |   | 158,600                 |   | —    |   | 7,500 |   |
| President and chief operating officer |   | 2001     |   | 92,700                  |   | 34,500    |   | — |   |
|                                  |   |     |   |                    |   |      |   |   |   |
| Randolph H. Cabral                    |   | 2002     |   | 97,000                  |   | —    |   | — |   |
| Senior vice president                 |   | 2001     |   | 97,000                  |   | 30,100    |   | — |   |
|                                  |   | 2000     |   | 46,000                  |   | —    |   | — |   |
|                                       |        |          |        |                         |        |           |        |  |  |  |  |  |

 

**B.    No Option, SAR, Long-term Incentive orPension Plans**

 

Neither the ManagingPartner nor the Partnership presently has option plans, SAR plans, or long-termincentive plans.  All salaried employeesparticipate in defined contribution plan and other benefit plans, which wereadministered by CBCL for part of the year and are now administered directly bythe Partnership.  The officers of theManaging Partner are employees of the Partnership, which does not have adefined benefit plan for non-bargaining employees. As such, neither theManaging Partner nor the Partnership are responsible for making any payments onthe retirement of any of its present executive officers.

 

**C.    NoEmployment Contracts or Termination Agreements**

** **

The Managing Partner doesnot have any employment or severance agreements with any of its presentexecutive officers. The president of the Partnership has an agreement, whichprovides for twelve months of severance pay in the event of termination withoutjust cause.

** **

**D.    Compensation of Executive Officers**

 

The Managing Partner doesnot have a compensation committee.  Theonly executive officers of the Managing Partner (employed by the Partnership)are Mr. Buyers, who has been compensated since June of 2002, Mr. Simonis, whohas served as its president since August 2001 and chief financial officer fromMay 2001 until August of 2001, Mr. Cabral, who has served as senior vice presidentand orchard manager since May 2000 and Mr. Roumagoux, who has served as chieffinancial officer since August of 2001. These officers’ salary and guideline bonus percentage are administeredunder the salary policies of DBE.  Anybonus payments are approved by the Managing Partner’s Board of Directorsannually, based on the overall performance of the Partnership as evidenced byits net income and cash flow for the year. Performance in both categories is measured relative to the originalPartnership operating budget approved by the Managing Partner’s Board ofDirectors at the beginning of each year.

 

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**E.     Director Compensation**

** **

Directors of the ManagingPartner presently receive a quarterly retainer of $3,000 and a meeting fee of$750 per meeting.  Members of theManaging Partner’s audit and conflicts committee receive a meeting fee of $750per meeting.  There are no other agreementsor arrangements between the Managing Partner and its directors.

 

**F.     Stock Performance Chart**

 

The following chartcompares the Partnership’s total return to (i) the Russell 2001 (a smallbusiness index) and (ii) a peer group index composed of publicly traded limitedpartnerships with either similar capitalization or in commodity based markets(other than gas and oil) or both.

 

 
|                                  |   | **Dec-97** |   | **Dec-98** |   | **Dec-99** |   | **Dec-00** |   | **Dec-01** |   | **Dec-02** |   |
|---------------------------------------|--------|------------|--------|------------|--------|------------|--------|------------|--------|------------|--------|------------|--------|
| **Ml Macadamia Orchards  -Lp**   |   | $          | 100    |       | $      | 96         |   | $          | 125    |       | $      | 145        |   | $ | 123 |   | $ | 137 |   |
| **Russell 2000 Index**                |   | $          | 100    |       | $      | 97         |   | $          | 118    |       | $      | 115        |   | $ | 117 |   | $ | 93 |   |
| **Custom Composite Index (7 Stocks)** |   | $          | 100    |       | $      | 90         |   | $          | 76     |       | $      | 79         |   | $ | 99 |   | $ | 91 |   |

 
| **The  7-Stock Custom Composite Index consists of:** | BCU    | Borden Chemicals & Plastics LP (through 2Q01) |
|------------------------------------------------------|--------|---------------------------------------------------|
|                                                 |   |                                              | BOS | Boston Celtics LP |   |
|                                                 |   |                                              | FUN | Cedar Fair |   |   |
|                                                 |   |                                              | PCL | Plum Creek Timber Co. |   |
|                                                 |   |                                              | POPEZ | Pope Resources LP |   |
|                                                 |   |                                              | TNH | Terra Nitrogen LP |   |
|                                                 |   |                                              | USV | US Restaraunt Properties |   |
|                                                 |   |                                              |   |   |   |   |

 

**ITEM12.  SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

 

As of December 31, 2002,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 theSecurities Exchange Act of 1934) is known by the Partnership or the ManagingPartner 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 orexecutive officer of the Managing Partner owned more than 1% of the Class AUnits.

 

The table below setsforth certain information as to the Class A Units beneficially owned by thedirectors of the Managing Partner, and all directors and executive officers ofthe Managing Partner as a group, as of December 31, 2002.

 
| **Name of  Beneficial Owner**                                |   | **Class A  Units  Owned** |   | **Percent  of  Class A  Units** |   |
|--------------------------------------------------------------|--------|---------------------------|--------|---------------------------------|--------|
|                                                         |   |                      |   |                            |   |
| John  W. A. Buyers                                           |   | 4,176                     |   |                            | *      |
| Randolph  H. Cabral                                          |   | 100                       |   |                            | *      |
| James  H. Case(1)                                            |   | 8,000                     |   |                            | *      |
| Ralph  C. Hook(2)                                            |   | 4,000                     |   |                            | *      |
| J.  Alan Kugle                                               |   | 1,200                     |   |                            | *      |
| David  McClain                                               |   | —                    |   |                            | *      |
| Dennis  J. Simonis                                           |   | —                    |   |                            | *      |
| All  directors and executive officers as a group (9 persons) |   | 17,476                    |   | 0.2                             | %      |

 

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*Less than 1%

 

(1)                    Beneficiallyowned by James H. Case pursuant to a self-directed retirement plansponsored by Carlsmith Ball, a law firm in which Mr. Case is a partner,and administered by Bank of Hawaii Trust.

 

(2)       Beneficially owned by Ralph C. Hookpursuant to the Ralph C. Hook Revocable Living Trust dated March 1,1993.

 

In addition, MaunaLoa Orchards L.P. (“MLO”), a limited partnership whose partners are CBCL andcertain direct or indirect wholly-owned subsidiaries of CBCL, owned 30,000Class A Units until May of 2002. The units were sold in May and June 2002 atmarket prices.

 

**ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

** **

**1*.  General***

 

The ManagingPartner makes all decisions relating to the management of the Partnership.  The Managing Partner, as such, has the dutyto act in good faith and to manage the Partnership in a manner that is fair andreasonable to all unitholders. CBCL owned all of the capital stock of theManaging Partner until August 1, 2001, at which point the stock was sold toJ.W.A. Buyers through D. Buyers Enterprises, LLC. Certain officers anddirectors of both CBCL and DBE and/or their affiliates also act as officers anddirectors of the Managing Partner and certain directors of the Managing Partnerare substantial shareholders of Buyco, Inc., the parent company of CBCL. As aresult of these relationships, certain conflicts of interest could arise withrespect to the administration of and allocation of costs under the PartnershipAgreement and in situations described below, among others.

 

A committee of theManaging Partner’s Board of Directors composed of three persons who areindependent of CBCL, DBE and their affiliates (the “Audit and ConflictsCommittee”) reviews, on an annual basis, or more frequently as such committeemay deem appropriate, the Managing Partner’s management of the Partnership andany conflicts of interest that may have arisen or may arise as a result of therelationships among CBCL or DBE and their affiliates, the Managing Partner andthe Partnership.  The PartnershipAgreement states that, except for one initial member of the ConflictsCommittee, no member of the Conflicts Committee may be an officer, director,employee or shareholder of the Managing Partner or any of their affiliates.

 

**2. *FarmingLeases***

 

At the time of thePartnership’s acquisition of the interests in the October 1989 Orchards, MLOassigned to the Partnership all of MLO’s rights and obligations under three45-year farming leases relating to 327 tree acres of the Ka’u II Orchards andall of the Mauna Kea Orchards.  Thefarming leases permit the Partnership to conduct macadamia nut farmingoperations on such macadamia orchard properties.  The farming leases provide for fixed minimum annual leasepayments to be paid to either KACI or MKACI (collectively, the “AgribusinessCompanies”), as the case may be.  Suchannual rental payments are subject to increase after ten years, twenty yearsand thirty years based on then current fair market lease rates.  The then current fair market lease rate willbe determined by mutual agreement between the

 

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Partnership, onthe 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 ratewill be determined by appraisal. Whether determined by mutual agreement or by appraisal, the then currentfair market lease rate will be determined as a fair market lease rate for useof such premises as macadamia orchards.

 

The Partnershipacquired its interests in the trees situated on such leased macadamia orchardproperties subject to repurchase options retained by the AgribusinessCompanies.  The repurchase options grantthe Agribusiness Companies the continuing right to repurchase all or anyportion of such trees after June 30, 2019 at a price equal to the then currentfair market value of the trees, according to their value as producing macadamianut trees, as determined by mutual agreement between the Partnership, on theone hand, and either KACI or MKACI, as the case may be, on the other hand.  If mutual agreement cannot be reached, thethen current fair market value will be determined by appraisal.  Whether determined by mutual agreement or byappraisal, the fair market value of such trees will be determined according totheir value as producing macadamia nut trees, assuming that the owner thereofhas rights to farm and harvest such trees and has ongoing arrangements withrespect to land leases, farming and nut purchases of the same type as thePartnership has immediately prior to such time.

 

At the end of the45-year lease terms of such leases, the Agribusiness Companies will be requiredto repurchase such trees at their then current fair market value as orchards ifsuch entities do not offer to extend such farming leases at the then currentfair market lease rates. The then current fair market lease rate and the thencurrent market value of the trees for such purposes will be determined throughmutual agreement between the Partnership, on the one hand, and either KACI orMKACI, as the case may be, on the other hand or, if mutual agreement cannot beobtained, by appraisal, in each case in the manner described above.  Such repurchase obligations will apply withrespect to the expiration of each extension of the lease terms of such leasesuntil such leases have been in effect for a total of 99 years, at which timethe leases will expire and the ownership interests in such trees will revertback to the Agribusiness Companies.

 

In the event thatthe Partnership decides not to accept an offer to extend the leases at the thencurrent fair lease rates upon the expiration of the leases or any extensionthereof (or does not assign the leases to a third party who elects to acceptsuch offer), the leases will expire, the Agribusiness Companies will not berequired to repurchase the trees covered thereby and ownership of such treeswill revert back to the Agribusiness Companies (and in any event ownership ofsuch trees will revert back to the Agribusiness Companies after 99 years).

 

As describedabove, the farming leases provide for determinations of the fair market leaserate to be paid by the Partnership under the farming leases and the fair marketvalue of the Partnership’s trees situated on property covered by such leases bymutual agreement between the Partnership, on the one hand, and with KACI orMKACI, as the case may be, on the other hand, or, if mutual agreement cannot bereached, by appraisal.

 

**3. *NutPurchase Contracts***

 

The Partnership is aparty to five nut purchase contracts with Mauna Loa Macadamia Nut Corporation(“Mauna Loa”).  Mauna Loa was awholly-owned subsidiary of CBCL until its sale on September 29, 2000 to anunrelated party.  CBCL was also the soleowner of ML Resources, Inc, the Partnership’s general partner until August 1,2001, at which point it was sold to DBE. The five nut purchase contracts cover all nuts produced by the orchardsacquired in June 1986, December 1986, October 1989, September 1991, and May2000 respectively.  The first twocontracts run for 20 years, while the third contract runs for 30 years and alsoprovides for the exclusion of unusable nuts from those purchased by Mauna Loa.  The first three contracts are identical inall other material respects.  The fourthcontract was acquired by assignment with the purchase of the September 1991orchard and expires in 2003.  The fourthcontract is similar to the first three contracts, but the nut price iscalculated on a crop year (July 1 through June 30)

 

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rather than calendar yearbasis, which results in a slightly different nut price.  The fifth contract was acquired byassignment with the purchase of the May 2000 orchards and expires in 2006.  The fifth contract is similar to the firstthree contracts and also provides for the exclusion of unusable nuts.  The first four contracts use a pricingformula based 50% on a two-year trailing average of the macadamia nut pricepublished annually by the U.S. Department of Agriculture (“USDA”) and 50% onMauna Loa’s “netback component”. The netback component is calculated bysubtracting Mauna Loa’s processing and marketing costs per pound and a “capitalcharge” of 20% from its nut revenues per pound. The fifth contract uses onlythe USDA two-year trailing average to determine its nut price.  The nut price paid to the Partnership underthe first two contracts was $0.5086 for 2000, $0.4795 for 2001, and $0.4655 in2002.  The average nut price paid to thePartnership under the third contract was $0.5078 for 2000, $0.4750 for 2001,and $0.4610 in 2002. The average nut price paid to the Partnership under thefourth nut price contract was $0.5339 for 2000, $0.5119 for 2001, and $0.4920in 2002.  The nut price paid to thePartnership under the fifth contract was $0.6609 for 2000, and $0.6222 for2001, and $0.5940 in 2002.

 

**4. *FarmingContracts***

 

Prior to thePartnership’s acquisition of the macadamia farming operations on May 1, 2000,the Partnership was a party to four farming contracts with the AgribusinessCompanies, that together covered all farming, harvesting and husking activitiesfor the orchards acquired in June 1986, December 1986, October 1989 andSeptember 1991, respectively. On May 1, 2000, the Partnership acquired themacadamia farming operations from the Agribusiness Companies.

 

The contracts providedthe Agribusiness Companies with reimbursement of their direct and indirectcosts incurred under these contracts. The reimbursements paid to the two farm managers were $2.1 million forthe first four months of 2000.  Huskingactivities for the Keaau and Mauna Kea orchards are performed at Mauna Loa’sKeaau facility.  Reimbursements made toMauna Loa were $453,000 in 2000, $443,000 in 2001, and $531,000 in 2002.

 

As discussed on Page 17,C. Brewer & Co., Ltd. (CBCL) has sold approximately 155 tree acres underfarming contracts to third parties and reported to the Partnership that thebuyers of the orchards did not wish to assume the farming contracts; therefore,CBCL was terminating the contracts.  ThePartnership believes the contracts are not terminable at will and is currentlynegotiating a settlement with CBCL.

 

**5. *ManagementFee***

 

Under the terms ofthe Partnership Agreement, the Partnership reimburses the Managing Partner forall expenses incurred by it in the conduct of Partnership business, includingany expenses reasonably allocated to the Managing Partner or to the Partnershipas well as a management fee equal to 2% of the Partnership’s operating cashflow (as defined in the Partnership Agreement).  Certain conflicts may arise in connection with the allocation ofsuch expenses among the Managing Partner, the Partnership, DBE and itsaffiliates.  Management costreimbursements under the Partnership Agreement were $320,000 in 2000, $247,000in 2001, and $180,000 in 2002.  Themanagement fee was $32,000 in 2000, $65,000 in 2001, and $32,000 in 2002.

** **

**6*. Relationships with CBCL and DBE***

 

Since thePartnership began operations in June 1986, the Partnership has purchasedsubstantially all of its fertilizer and certain transportation services fromsubsidiaries of CBCL. Transportation services purchased consist oftransportation of raw nuts from the orchards in the Mauna Kea and Ka’u areas tothe processing plant.  For 2001, 2000,and 1999, fertilizer, herbicide, pesticide and transportation servicespurchased by the Partnership from CBCL subsidiaries totaled $0.9 million, $0.9million, and $0.4 million, respectively. CBCL sold its fertilizer and transportation businesses to unrelatedthird parties. Since September 2001, the Partnership has leased approximately4,000 s.f. of office space in Hilo for it’s accounting staff through theGeneral Partner, which is owned by DBE. The Partnership Agreement requires thatthe price and terms of any such transactions be no less favorable than thoseavailable in comparable transactions between unrelated parties.  The Partnership provides administrativeservices to DBE for which it was compensated $94,000 in 2002.

 

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With respect tothe controversy outlined on Page 17, there are various relationships andconflicts between the Partnership and CBCL.

 

Mr. J. Alan Kugleis CEO - Real Estate of Buyco, Inc. (Buyco), sole stockholder of CBCL.  He is responsible for all land sales on theisland of Hawaii by CBCL and its subsidiaries. Mr. Kugle is also a director of ML Resources, Inc., general and managingpartner of the Partnership.

 

Mr. Kent T.Lucien, CEO - Operations of Buyco, was formerly the president and a director ofML Resources, Inc., but no longer holds any position with ML Resources, Inc. orthe Partnership.

 

Mr. Case performslegal work for Buyco, CBCL, and some of its subsidiaries.  He is also a director of ML Resources, Inc.and performs legal work for the Partnership.

 

Mr. Buyers,Chairman of the Board of Directors of Resources, an officer of the Partnership,and a director of ML Resources, Inc., is also Chairman of the Board and is thelargest stockholder of Buyco.

 

Mr. Simonis,President of ML Resources, Inc., an officer of the Partnership, and a directorof ML Resources, Inc., is a stockholder of Buyco.

 

As a result ofthese conflicts, the Board of Directors of ML Resources, Inc. appointed acommittee of outside directors, namely, David McLain and Ralph Hook, torepresent the Partnership in discussions with CBCL.  CBCL’s representative in the discussions is Mr. Kent T. Lucien.

 

**7. *Acquisitionof Ka’u Orchards and Macadamia Farming Business***

 

On May 1, 2000, the Partnershippurchased 142 acres of mature macadamia trees and substantially all of theassets used in the macadamia farming business from KACI, MKACI, Mauna KeaMacadamia Orchards, Inc. and Ka’u Sugar, Inc., all affiliates of CBCL.  The farming assets consist of the farmingequipment, vehicles, a husking plant, an irrigation well, leaseholdimprovements, office furniture and equipment and inventories related tomacadamia farming.  The purchase pricewas $8.9 million.  As the sellers andthe general partner of the Partnership were each a direct wholly-ownedsubsidiary of CBCL, this acquisition involved the general partner in a conflictof interest.  The Conflicts Committeenegotiated the proposed terms of this acquisition, reached the conclusion thatthis acquisition would be in the best interest of the Partnership and theholders of the Class A Units, approved this acquisition and reported to theBoard of the Directors of the general partner its recommendation that thisacquisition should be approved by that Board. The Board of Directors of the general partner unanimously approved suchacquisition.

 

### **PARTIV**

 

**ITEM 14.  EXHIBITS,FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K**

 

**A.    List of Documents Filed as a Part of thisReport**

** **

1.     *FinancialStatements. *See Index toFinancial Statements at page 20 of this Form 10-K.

 

2.     *FinancialStatement Schedules*.  Nonerequired

 

3.     *Exhibits*.  See Exhibit Index at page 50 of this Form10-K.

 

** **

**B.    Reports on Form 8-K**

 

On October 20,2000, the Partnership filed a report on Form 8-K announcing that on September29, 2000, CBCL had sold all its stock in Mauna Loa Macadamia Nut Corporation toThe Shansby Group, a San Francisco based equity partnership.

 

45

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, 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 17, 2003 |                             |
|                              |                                  |  |  |  |  |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities indicated and on the date set forth above.

 

**MLRESOURCES, INC.**

 
| **Signature** |                   | **Title** |
|---------------|------------------------|-----------|
|          |                   |      |
| /s/           | J. W. A. Buyers        |      | Chairman of the Board  and Principal Executive Officer |
|          | J. W. A. Buyers        |      | Director |
|          |                   |      |   |
| /s/           | Dennis J. Simonis      |      | President and Chief  Operating Officer |
|          | Dennis J. Simonis      |      | Director |
|          |                   |      |   |
| /s/           | Wayne W. Roumagoux     |      | Chief Financial Officer |
|          | Wayne W. Roumagoux     |      | (Principal Accounting  Officer) |
|          |                   |      |   |
| /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

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**CERTIFICATIONS**

 

I, John W.A. Buyers,certify that:

 

1. I have reviewed thisannual report on Form 10-Q of M. L. Macadamia Orchards, L.P.;

 

2. Based on my knowledge,this annual report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

 

3. Based on my knowledge,the financial statements, and other financial information included in thisannual report, fairly present in all material respects the financial condition,results of operations and cash flows of the registrant as of, and for, theperiods presented in this annual report;

 

4. The registrant’s othercertifying officers and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:

 

a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisannual report is being prepared;

 

b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this annual report (the“Evaluation Date”); and

 

c) presented in thisannual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5. The registrant’s othercertifying officers and I have disclosed, based on our most recent evaluation,to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b) any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6. The registrant’s othercertifying officers and I have indicated in this annual report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date: March 17, 2003                                    |
|---------------------------------------------------------|
|                                                    |   |
| /s/  John W. A. Buyers                             |   |   |
|                                                    |   |
| John W. A. Buyers  Chairman and Chief Executive Officer |   |
|                                                         |  |  |

 

47

----

 

I, Dennis J. Simonis,certify that:

 

1. I have reviewed thisannual report on Form 10-Q of M. L. Macadamia Orchards, L.P.;

 

2. Based on my knowledge,this annual report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

 

3. Based on my knowledge,the financial statements, and other financial information included in thisannual report, fairly present in all material respects the financial condition,results of operations and cash flows of the registrant as of, and for, theperiods presented in this annual report;

 

4. The registrant’s othercertifying officers and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:

 

a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisannual report is being prepared;

 

b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this annual report (the“Evaluation Date”); and

 

c) presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5. The registrant’s othercertifying officers and I have disclosed, based on our most recent evaluation,to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b) any fraud, whether ornot material, that involves management or other employees who have a significantrole in the registrant’s internal controls; and

 

6. The registrant’s othercertifying officers and I have indicated in this annual report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date: March 17, 2003                                      |
|-----------------------------------------------------------|
|                                                      |   |
| /s/  Dennis J. Simonis                               |   |   |
|                                                      |   |
| Dennis J. Simonis   President and Chief Operating Officer |   |
|                                                           |  |  |

 

48

----

 

I, Wayne W. Roumagoux,certify that:

 

1. I have reviewed thisannual report on Form 10-Q of M. L. Macadamia Orchards, L.P.;

 

2. Based on my knowledge,this annual report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

 

3. Based on my knowledge,the financial statements, and other financial information included in thisannual report, fairly present in all material respects the financial condition,results of operations and cash flows of the registrant as of, and for, theperiods presented in this annual report;

 

4. The registrant’s othercertifying officers and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:

 

a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisannual report is being prepared;

 

b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this annual report (the“Evaluation Date”); and

 

c) presented in thisannual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5. The registrant’s othercertifying officers and I have disclosed, based on our most recent evaluation,to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b) any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6. The registrant’s othercertifying officers and I have indicated in this annual report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date: March 17, 2003                        |
|---------------------------------------------|
|                                        |   |
| /s/  Wayne W. Roumagoux                |   |   |
|                                        |   |
| Wayne W. Roumagoux  Chief Financial Officer |   |
|                                             |  |  |

 

49

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**EXHIBITINDEX**

 
| **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  Delaware.(c)                                                                                                                                                                                      |
|                  |   |                                                                                                                                                                                                                                                                                         |
| 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)                                                                                                                                                                                                                                                              |
|                  |   |                                                                                                                                                                                                                                                                                         |
| 5.1                   |   | Legal Opinion of  Counsel dated May 1, 2000(g)                                                                                                                                                                                                                                               |
|                  |   |                                                                                                                                                                                                                                                                                         |
| 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)                                                                                                                                                                                                    |

 

50

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| 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)                                                                                    |

 

51

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| 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.                                                                                    |
|   |   |                                                                                                                                          |
| 99.1   |   | Certification pursuant  to 18 U.S.C. Section 1350 As adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                       |

 

52

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----

(a)   Incorporatedby reference to Appendix A of Registrant’s Registration Statement under theSecurities Act on Form S-4, Registration Statement No. 333-46271, filedFebruary 13, 1998.

 

(b)   Incorporatedby reference to the corresponding Exhibit previously filed as an Exhibit toRegistrant’s Registration Statement under the Securities Act on Form S-1,Registration Statement No. 33-30659, filed October 20, 1989.

 

(c)   Incorporatedby reference to the corresponding Exhibit previously filed as an Exhibit toRegistrant’s Registration Statement under the Securities Act on Form S-1,Registration Statement No. 33-4903, filed June 5, 1986.

 

(d)   Incorporatedby reference to the corresponding Exhibit previously filed as an Exhibit toRegistrant’s Annual Report on Form 10-K, Commission filed No. 1-9145, for theyear ended December 31, 1986, filed March 27, 1987.

 

(e)   Incorporatedby reference to the corresponding Exhibit previously filed as an Exhibit toRegistrant’s Annual Report on Form 10-K, Commission filed No. 1-9145, for theyear ended December 31, 1991, filed March 27, 1992.

 

(f)    Incorporatedby reference to the corresponding Exhibit previously filed as an Exhibit toRegistrant’s Registration Statement under the Securities Act on Form S-4,Registration Statement No. 333-46271, filed February 13, 1998.

 

(g)   Incorporatedby reference to the corresponding Exhibit previously filed as an Exhibit toRegistrant’s Form 8-K, Commission filed No. 001-09145, filed May 8, 2000.

 

53

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