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INVESTMENT IN AFFILIATES | 12 Months Ended
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Dec. 31, 2013
INVESTMENT IN AFFILIATES |
INVESTMENT IN AFFILIATES | 3. INVESTMENT IN AFFILIATES The Company has a 51% ownership interest in Kapalua Bay Holdings, LLC (Bay Holdings), which is the sole member of Kapalua Bay LLC (Kapalua Bay). The other members of Bay Holdings are MH Kapalua Venture, LLC, 34%, and ER Kapalua Investors Fund, LLC, 15%. Bay Holdings is not a variable interest entity, as defined in GAAP. The Company accounts for its investment in Bay Holdings using the equity method of accounting because, although it has the ability to exercise significant influence over operating and financial policies, it does not control Bay Holdings through a majority voting interest or other means. Under the LLC agreement, major decisions require the approval of either 75% or 100% of the membership interests. The Company has been designated as the managing member of Bay Holdings. Profits and losses of Bay Holdings were allocated in proportion to the members' ownership interests, which approximated the estimated cash distributions to the members. Kapalua Bay constructed a residential and timeshare development on land that it owned at the site of the former Kapalua Bay Hotel, and a spa on an adjacent parcel of land that was owned by the Company and leased to Kapalua Bay. As a result of the 2009 losses incurred by Bay Holdings, the Company's carrying value of its investment in Bay Holdings was written down to zero in 2009. The Company will not recover any amounts from its investment in Bay Holdings because all operations of Kapalua Bay have ceased. Therefore, the Company will not recognize any additional equity in the earnings (losses) of Bay Holdings. The Company had made cash contributions to Bay Holdings of $53.2 million and non-monetary contributions of land valued at $25 million. The Company had an agreement to purchase from Kapalua Bay certain amenities of the project, including the spa, a beach club and a sundry store, at the actual construction cost of approximately $35 million (the "Amenities Purchase and Sale Agreements"). Kapalua Bay had a construction loan agreement that matured on August 1, 2011. The loan was collateralized by the project assets including the land that is was owned by Kapalua Bay that underlies the project. The Company and the other members of Bay Holdings had guaranteed to the lenders completion of the project and recourse with regard to certain acts, but had not guaranteed repayment of the loan. On March 13, 2012, the lenders notified Kapalua Bay that the loan was in default and on June 13, 2012, the lenders filed for foreclosure against Kapalua Bay. The foreclosure was completed on June 13, 2013 and the loan collateral including the unsold inventory, leasehold spa improvements, and the Amenities Purchase and Sale Agreements between the Company and Kapalua Bay, were transferred to a firm affiliated with one of the two remaining lenders. Other than the transfer of the Purchase and Sale Agreements, the foreclosure proceeding does not directly impact the Company's operating results. Because the Company did not have sufficient liquidity to purchase the amenities at the actual construction cost of approximately $35 million, it had been actively negotiating with the lenders and new owners of the project to resolve its commitments under the Amenities purchase and sale agreements. Effective November 25, 2013, the Amenities purchase and sale agreements were terminated and the Company and other parties associated with the project, including the lenders, the new owners of the project, the other members of Bay Holdings, and the property's former management company, comprehensively resolved and settled the numerous issues and disputes surrounding the project (the "Settlement"). With respect to its portion of the Settlement, the Company paid $2.4 million toward deferred maintenance at the project, conveyed the three-acre leased parcel underlying the spa and the five-acre parking lot adjacent to the project valued at $0.8 million, and committed to pay $0.6 million over the next four years in exchange for termination of the Amenities purchase and sale agreements. In addition, the Company received full release from its construction loan guarantees and secured continued access to the spa and beach club for its Kapalua Club members at a monthly cost of $29,000. The Company previously recorded $4.1 million in accrued contract terminations as its best estimate of its exposure under these agreements. The total cost of the settlement was less than previously estimated and resulted in a $0.3 million reduction of accrued contract terminations and contract terminations expense in the accompanying consolidated financial statements. The eight acres of land transferred as part of the Settlement were accounted for at fair value in accordance with the accounting guidance for nonmonetary transactions. Accordingly, the Company derecognized the spa parcel and parking lot parcel and recognized a gain of $0.8 million equal to the difference between the carrying value and fair value of those assets. Summarized balance sheet and operating information for Bay Holdings as of December 31, 2013 and 2012 and for the years then ended are as follows:
|  | 2013 |  | 2012 |
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|  | (in thousands) |
Restricted cash |  | $ | 2,282 |  | $ | 3,241 |
Real estate inventories |  |  | — |  |  | 149,774 |
Other assets, net |  |  | 41 |  |  | 10,712 |
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Total Assets |  | $ | 2,323 |  | $ | 163,727 |
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Construction loan payable and other member loans |  | $ | — |  | $ | 375,441 |
Other liabilities |  |  | 8,362 |  |  | 46,408 |
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Total Liabilities |  | $ | 8,362 |  | $ | 421,849 |
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Members' Deficiency |  | $ | (6,039 | ) | $ | (258,122 | )
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|  | 2013 |  | 2012 |
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|  | (in thousands) |  | (in thousands) |
Revenues |  | $ | 14 |  | $ | (745 | )
Costs and Expenses |  |  | (252,056 | ) |  | 50,827 |
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Net Income (Loss) |  | $ | 252,070 |  | $ | (51,572 | )
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Costs and expenses for the year ended December 31, 2013 includes the recognition of Kapalua Bay's gain on foreclosure of approximately $262 million resulting from $328 million of debt forgiveness. As discussed above, the Company's carrying value of its investment in Bay Holdings was written down to zero in the past, and the Company will not recognize any additional equity in the earnings (losses) of Bay Holdings.

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- Definition The entire disclosure for the information summarizing investments in and advances to majority-owned subsidiaries, other controlled companies, and other affiliates. It reflects specified information about ownership, financial results from, and financial position in such entities. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 320 -Section S99 -Paragraph 6 -Subparagraph (SX 210.12-14) -URI http://asc.fasb.org/extlink&oid=6955306&loc=d3e611322-123010 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 14 -Article 12 + Details
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