Investments in Affiliates

6 Months Ended

Jun. 30, 2011

Investments in Affiliates

Investments in Affiliates

8. Investments in Affiliates

The Company, via its affiliate MLP KB Partner LLC, has a 51% ownership interest in Bay Holdings, which is the sole member of Kapalua Bay. The other members of Bay Holdings through their wholly owned affiliates are Marriott International Inc., 34%, and Exclusive Resorts LLC, 15%. A 63% shareholder and director of the Company, through related companies is the majority owner of ER. 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 influence over operating and financial policies, it does not control Bay Holdings through a majority voting interest or other means. 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 development on land that it owns at the site of the former Kapalua Bay Hotel. Through June 30, 2011, the sale of 26 (84 total) whole-ownership units and 167 (744 total) fractional units have closed.

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 does not expect to recover any amounts from its investment in Bay Holdings. The Company will not recognize any additional equity in the earnings (losses) of Bay Holdings until the Company’s income attributable to Bay Holdings exceeds its accumulated losses.  The Company had made cash contributions to Bay Holdings of $53.2 million.

Kapalua Bay has a construction loan agreement with Lehman Brothers Holdings Inc. and other lenders under which $279.8 million was outstanding at June 30, 2011, and that matures on August 1, 2011.  Kapalua Bay is currently working with its lenders to restructure the terms of the loan agreement to extend the maturity and to provide available funding for continued operations.  The loan is collateralized by the project assets including the land that is owned by Kapalua Bay that underlies the project. The Company and the other members of Bay Holdings have guaranteed to the lenders completion of the project and recourse with regard to certain acts, but have not guaranteed repayment of the loan. The Company has recorded $4.1 million in other accrued liabilities in the condensed consolidated Balance Sheet as its estimated share of the completion and recourse guarantees. The Company has no other funding commitments to Bay Holdings.

Summarized operating information for Bay Holdings for the three and six months ended June 30, 2011 and 2010 is as follows:

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2011			2010			2011			2010
	(in thousands)						(in thousands)
Revenues	$	2,237		$	(2,227	)	$	5,862		$	7,268
Expenses	10,409			6,954			18,999			20,317
Net Loss	$	(8,172	)	$	(9,181	)	$	(13,137	)	$	(13,049	)