Note 3 - Segment Information

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

(3) SEGMENT INFORMATION

The Partnership’s two reportable segments, orchards and branded products, are distinct business enterprises that have different products and services, customers and regulatory environments. Both segments are organized on the basis of revenues and assets. The orchards segment derives its revenues from the sale of wet-in-shell (“WIS”) macadamia nuts, sale of dry-in-shell (“DIS”) macadamia nuts, sale of macadamia nut kernel to Royal, revenues from contract farming, and orchard lease income. The branded products segment derives its revenues from the sale of branded macadamia nut products and bulk macadamia nut kernel by Royal.

Management evaluates the performance of each segment on the basis of operating income and topline growth. The Partnership accounts for intersegment sales and transfers at a predetermined rate that includes cost plus a margin, and such transactions are eliminated in consolidation.

The following tables summarize each reportable segment’s revenues, operating income or loss, assets and other information as of and for the years ended December 31, 2015 and 2014. Due to the seasonality of crop patterns and the timing of nut purchase contract fulfillment, interim results are not necessarily indicative of annual performance.

	Year Ended December 31, 2015
	(in thousands)
	Orchards		Branded Products			Eliminations/ Reconciliation			Total
Revenues (1)
External customers	$	6,425	$	12,085	(2)	$	-		$	18,510
Intersegment revenue		13,952		-			(13,952	)		-
Total revenue	$	20,377	$	12,085		$	(13,952	)	$	18,510
Operating income (loss)	$	1,022	$	(1,538	)	$	(573	)	$	(1,089	)
Depreciation and amortization	$	2,576	$	82		$	-		$	2,658
Capital expenditures	$	11,582	$	42		$	-		$	11,624
Segment assets	$	78,271	$	13,679		$	(26,397	)	$	65,553

	Year Ended December 31, 2014
	(in thousands)
	Orchards			Branded Products			Eliminations/ Reconciliation			Total
Revenues (1)
External customers	$	10,579		$	5,439	(2)	$	-		$	16,018
Intersegment revenue		3,233			-			(3,233	)		-
Total revenue	$	13,812		$	5,439		$	(3,233	)	$	16,018
Operating (loss) income	$	(1,825	)	$	(2,518	)	$	507		$	(3,836	)
Depreciation and amortization	$	2,432		$	39		$	-		$	2,471
Capital expenditures	$	3,061		$	160		$	-		$	3,221
Segment assets	$	61,294		$	8,030		$	(18,737	)	$	50,587

(1)

     All revenues are from sources within the United States of America, Canada and Asia.

(2)

     Branded products revenue is reported net of slotting fees, trade discounts and promotional allowances.

Revenues – Orchards Segment

Revenues from the orchards segment are subject to long-term nut purchase contracts and tend to vary from year to year due to changes in the calculated nut price per pound and pounds produced. Revenue generated from farming orchards owned by other growers is subject to farming contracts that generally provide for a mark-up in excess of cost or is based on a fixed fee per acre and tends to vary less than does revenue generated from the sale of nuts.

Nut Purchase Contracts.

The Partnership had two lease agreements and one license agreement with Mauna Loa Macadamia Nut Corporation (“Mauna Loa”) in 2015 which require that all macadamia nuts produced from the acquired orchards be sold to and be purchased by Mauna Loa (representing approximately 19% of the Partnership’s production in 2015). The agreements expire in 2029, 2078 and 2080. Under these agreements, the Partnership is paid based on WIS pounds, adjusted for the Mauna Loa wholesale price of the highest year-to-date volume fancy and choice products sold in Hawaii, and adjusted for moisture annually based upon the U.S. Department of Agriculture (“USDA”) report. Under the two lease agreements, the price per pound is determined based on two elements: (1) 60% of the price is computed at 37% of Mauna Loa’s year-to-date (“YTD”) price of the highest YTD volume fancy and choice products, which wholesale price is adjusted to convert kernel price to a WIS basis; and (2) 40% of the price is computed at the actual price paid as quoted in Hawaii Macadamia Nuts Annual Summary published by the USDA for the most current crop year listed. When the USDA price for the crop year is released, Mauna Loa adjusts the payment for that crop year retrospectively. The price per pound under the license agreement is determined in a similar manner as in the lease agreements, with the exception of the percent of the two components so that 50% of the price is computed at 37% of Mauna Loa’s YTD price of the highest YTD volume fancy and choice products, and 50% of the price is computed at the USDA price. The final nut price published by the USDA for the crop years ended June 30, 2015 and 2014 was $0.87 per WIS pound. The average nut price received by the Partnership for nuts produced from the IASCO orchards in the crop years ended June 30, 2015 and 2014 were $0.85 and $0.82 per pound, respectively.

In addition, the Partnership had a nut purchase contract with Mauna Loa, entered into on January 31, 2011, which expired on December 31, 2014, pursuant to which the Partnership sold approximately one-third of its non-IASCO production at $0.77 per adjusted WIS pound. The Partnership entered into a Macadamia Nut Purchase Agreement (the “2014 Short-Term Agreement”) with Mauna Loa, effective July 1, 2014, through October 31, 2014, to sell a minimum of 4 million pounds of WIS nuts adjusted to 20% moisture and 30% kernel recovery of $1.00 per pound.

Revenues — Branded Product Segment

Royal began generating revenues from the branded product segment in the fourth quarter of 2012. In 2015, Royal’s sale of its savory macadamia nuts, nut and dried fruit clusters and bulk kernel resulted in $12.1 million of net revenues as compared to $5.4 million in 2014. Its cost of sales was $9.2 million in 2015 compared with $5.2 million in 2014. The branded products segment incurred an operating loss of $1.5 million and $2.5 million in 2015 and 2014, respectively.