Francis Morgan’s attempt to sell off parcels of Hamakua Sugar Company’s land likely to be attractive to resort developers is one part of a larger financial strategy involving debt reduction as well as streamlined operations. That strategy is set forth by Hamakua Sugar Company in a document, called the “Long Range Strategic Plan,” given to the Hawai’i County Council as it was considering the company’s development proposals in the Kukuihaele area.
The plan lists projects that will be undertaken when the debt is retired. First there is the need for “a good off-season” – the period in the year when mill operations shut down to allow for regular maintenance and repair. As the plan notes, Hamakua Sugar has put off much needed work. To accomplish the long-delayed repairs, at least $6 million will be needed in 1992, the plan states. Next, the plan anticipates increasing the efficiency of mill operations. This will cost $500,000, it says, but will yield returns of $1.8 million a year. Improvements are then identified in the mill’s power generation plant. No dollar amount is provided for this project, which is to be phased in over three years. Finally, the plan anticipates an ambitious research and development program to find new uses for sugar by-products.
Quite a different picture of Hamakua’s financial viability emerges in the 1989 report of the Environmental Protection Agency. The EPA analyzed Morgan’s operations using a model developed by the economist E. I. Altman to determine the relatively likelihood of a company going bankrupt. Altman’s method is based on a number of different financial rations, which are used to arrive at what Altman calls a Z-score.
Companies whose Z-score falls below 1.23 are considered likely to go bankrupt. Those whose score is between 1.23 and 2.90 are “indeterminate.” Those scoring above 2.90 are deemed to be unlikely to enter bankruptcy.
According to the EPA, Hamakua Sugar Company’s Z-score “was minus 0.2, indication ‘likely’ bankruptcy.”
Volume 2, Number 11 May 1992