Note 3 - Contract Terminations

12 Months Ended

Dec. 31, 2014

Accrued Contract Termination Disclosure [Abstract]

Accrued Contract Termination Disclosure [Text Block]

3. CONTRACT TERMINATIONS

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). Kapalua Bay constructed The Residences at Kapalua Bay, 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. 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. 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 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 that was collateralized by the project assets, including the land that 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 the 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 Amenities Purchase and Sale Agreements, the foreclosure proceeding did not directly impact the Company’s operating results.

On November 25, 2013, the Company and the other parties involved in The Residences at Kapalua Bay development project reached a comprehensive settlement with respect to numerous issues and disputes surrounding the project. As part of 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 for the annual dues of the 133 releasing fractional owners, of which $0.5 million and $0.6 million remained outstanding as of December 31, 2014 and 2013, respectively, 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 2013. 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. These amounts are reflected within gain from settlement of contract termination in the accompanying 2013 consolidated statement of operations.

Stephen M. Case, who is a director and a 64% shareholder of the Company as of February 2015, is the Chairman, Chief Executive Officer, and indirect beneficial owner of Revolution LLC, which is the indirect majority owner of ER Kapalua Investors Fund, LLC, and thus Mr. Case has a beneficial interest in Bay Holdings.