CONCENTRATION RISKS

12 Months Ended

Dec. 31, 2012

CONCENTRATION RISKS

CONCENTRATION RISKS

(14) CONCENTRATION RISKS

Market and customers.  In 2013, one customer will purchase a significant portion of the Partnership’s production. If the Partnership’s customer is unable to perform under the contracts or if the Partnership and the customer do not agree upon terms under which they will renew nut purchase contracts as they expire, the Partnership would be required to find alternative purchasers for its nuts.

Nut Purchase Agreements. In 2012, the Partnership had three nut purchase contracts, two lease agreements and one license agreement in 2012 with Mauna Loa. The nut purchase contracts are fixed price contracts effective January 1, 2012 with contract terms of one, two and three years, respectively and its payment terms are in accordance with Hershey’s standard payment terms. The two lease agreements and license agreement acquired in August 2010 contain market determined prices. The two lease agreements have a ninety-nine year term with sixty-six and sixty-eight years remaining. The license agreement has a term of fifty years with seventeen years remaining. The payment terms of the lease and license agreements are 30 days after the end of month delivery. The Partnership relies upon the financial ability of the buyer of the Partnership’s nuts to abide by the payment terms of the nut purchase agreements. If the buyer was unable to pay for the macadamia nuts delivered by the Partnership to them it could result in the Partnership’s available cash resources being depleted. If the buyer was late in payment the Partnership would need to negotiate a nut purchase agreement with another buyer which might not be at the same terms or price. It is also possible that the Partnership might not be able to find a buyer for the nuts.

The three contracts effective January 1, 2012 of which one contract expired on December 31, 2012 have a fixed nut price. Fixed price contracts can be disadvantageous because the Partnership may not be able to pass on unexpected cost increases as they arise.

Employees. As of December 31, 2012, the Partnership employed 284 people, of which 203 were seasonal employees. Of the total, 23 are in farming supervision and management, 249 in production, maintenance and agricultural operations, and 12 in accounting and administration.

With the May 2000 acquisition, the Partnership agreed to the assumption of two bargaining agreements with the ILWU Local 142. These agreements cover all production, maintenance and agricultural employees of the Ka’u Orchard Division, the Keaau Orchard Division and the Mauna Kea Orchard Division. On June 1, 2011 the Partnership and the ILWU Local 142 agreed to a two-year contract, which is effective June 1, 2011 through May 31, 2013. Although, the Partnership believes that relations with its employees and the ILWU are good, there is uncertainty with respect to the ultimate outcome of the bargaining unit negotiations when the current agreement expires.