8-K 1 d8k.htm FORM 8-K FORM 8-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report: January 30, 2006

 

Exact Name of Registrant

as Specified in Its Charter

 

Commission

File Number

 

I.R.S. Employer

Identification No.

Hawaiian Electric Industries, Inc.   1-8503   99-0208097
Hawaiian Electric Company, Inc.   1-4955   99-0040500

 

State of Hawaii

(State or other jurisdiction of incorporation)

 

900 Richards Street, Honolulu, Hawaii 96813

(Address of principal executive offices and zip code)

 

Registrant’s telephone number, including area code:

(808) 543-5662 - Hawaiian Electric Industries, Inc. (HEI)

(808) 543-7771 - Hawaiian Electric Company, Inc. (HECO)

 

None

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 



Item 2.02 Results of Operations and Financial Condition.

 

The news release dated January 30, 2006 filed under Item 8.01 “Other Events” herein is also furnished pursuant to Item 2.02, “Results of Operations and Financial Condition.”

 

Item 8.01 Other Events.

 

A. Pension and Other Postretirement Benefits

 

For 2005, the retirement benefit plan assets generated a total return (net of investment management fees) of 7.2% for realized and unrealized net gains of approximately $65 million. As of December 31, 2005, the market value of the retirement benefit plan assets was $931 million.

 

Based on various assumptions (e.g., discount rate and expected return on plan assets, which are noted below) and assuming no further changes in retirement benefit plan provisions, consolidated HEI’s, consolidated HECO’s and ASB’s accumulated other comprehensive income/(loss) (AOCI) balance, net of tax benefits, related to the minimum pension liability at December 31, 2005 and 2004 and retirement benefits expense, net of income taxes, for 2006 (estimated) will be, and 2005 and 2004 were, as follows:

 

Years ended December 31


  

(Estimated)

2006


    2005

    2004

 
($ in millions)                   

Consolidated HEI

                        

AOCI balance, net of tax benefits, December 31

     NA     $ (1.3 )   $ (1.1 )

Retirement benefits expense, net of income tax benefits

   $ 17.8       11.3 1     7.0 1

Consolidated HECO

                        

AOCI balance, net of tax benefits, December 31

     NA       —         —    

Retirement benefits expense, net of income tax benefits

     13.7       7.8 1     4.0 1

ASB

                        

AOCI balance, net of tax benefits, December 31

     NA       (0.3 )     (0.2 )

Retirement benefits expense, net of income tax benefits

     2.8       2.4 1     2.0 1

Assumptions

                        

Discount rate, January 1

     5.75 %     6.00 %     6.25 %

Expected return on plan assets

     9.00 %     9.00 %     9.00 %

 

1 Does not include impact of the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

 

NA Not available.

 

Contributions to the retirement benefits plans totaled $25 million in 2005. Contributions to the retirement benefits plans are expected to be $14 million in 2006.

 

The 2006 estimated retirement benefits expenses, net of income taxes, are forward-looking statements subject to risks and uncertainties, including the impact of plan changes during the year, if any, and the impact of actual information when received (e.g., actual participant demographics as of January 1, 2006).

 

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B. News Release

 

On January 30, 2006, HEI issued the following news release:

 

HAWAIIAN ELECTRIC INDUSTRIES, INC. REPORTS FOURTH QUARTER 2005 EARNINGS

 

HONOLULU — Hawaiian Electric Industries, Inc. (NYSE - HE) today reported 2005 income from continuing operations of $127.4 million, or $1.58 per share, compared with $107.7 million, or $1.36 per share in 2004. Comparative results were affected by the recognition in 2004 of a cumulative $20.3 million after-tax charge ($0.25 per share) for a state franchise tax dispute involving its bank’s real estate investment trust (REIT) subsidiary which was settled in December 2004.

 

“We were able to hold results relatively constant with 2004, while successfully meeting significant operating challenges in 2005,” said Robert F. Clarke, HEI chairman, president and chief executive officer. “Our utility continued providing customers with reliable service even as continued strength in the Hawaii tourism and housing markets kept overall electricity demand hovering near last year’s high levels. And, our bank was able to increase net interest margin despite a flattening yield curve.”

 

Electric utility net income was $72.8 million in 2005 versus $81.2 million in 2004. “Kilowatthour sales remained even with 2004. At the same time, costs to maintain the utilities’ systems increased significantly in 2005 as generating units worked harder to meet demand, resulting in more frequent and extensive maintenance and repairs,” said Clarke. “Higher retirement benefits expenses also factored into increased operation costs.”

 

Although the total number of customers increased, this was offset by the impact of cooler and less humid weather year-over-year, keeping kilowatthour sales even with 2004. Interim rate relief for our Oahu utility, granted by the Hawaii Public Utilities Commission in late September 2005, increased electric utility operating revenues by $10 million.

 

Other operation expenses increased $15.8 million year-over-year. The significant components of the increase related to: 1) $6.4 million higher retirement benefits expense due primarily to a decrease in the discount rate assumption used to calculate the benefit obligation; 2) $2.8 million higher expenses for production operation (including higher environmental expenses due to an emission fee waiver in 2004, which was not repeated in 2005); and 3) $2.5 million higher transmission and distribution operation expenses. The remaining increase in other operation expenses is due to increased staffing and other costs to support customer service and energy efficiency programs.

 

Maintenance expenses increased $4.9 million year-over-year due to $4.0 million higher production maintenance expense (primarily due to generating plant maintenance and generating unit overhauls) and higher transmission and distribution maintenance expense.

 

Depreciation expense in 2005 was $8.0 million higher, largely due to 2004 plant additions, including the Keahole CT-4 and CT-5 generating units on the island of Hawaii, and a new underground fuel pipeline on Oahu.

 

Bank net income for 2005 was $64.9 million compared with $41.1 million for 2004. Bank results for 2004 included the $20.3 million after-tax charge related to the state franchise tax dispute covering multiple tax years mentioned above. Excluding the impact of this charge, 2005 bank net income increased $3.5 million or 6% over 2004.

 

Bank net interest income increased by $15.2 million in 2005. “Strong loan and deposit growth and the bank’s ability to control deposit costs more than offset margin compression pressure from the flat yield curve,” said Clarke. Yields on assets grew as the bank continued diversifying its assets into

 

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shorter-maturity, higher-yielding loans. Overall, funding costs were held down as the bank continued to replace higher-costing wholesale borrowings with low-cost deposits. The bank’s net interest margin increased to 3.29% compared to 3.15% in 2004.

 

“Asset quality showed continued strength in 2005, with delinquencies remaining at all-time low levels,” said Clarke. Strong asset quality allowed the bank to record a $3.1 million reversal of the allowance for loan losses despite the additional loan growth during the year. However, the reversal was less than the $8.4 million reversal recorded in 2004, when high repayments and business liquidity kept loan portfolio balances from growing.

 

Noninterest expense increased by $9.8 million year-over-year, mainly due to 1) $4.0 million higher compensation and employee benefits expenses related to strategic initiatives, increased pension costs and Sarbanes-Oxley Act compliance costs; and 2) $4.5 million higher other expense due mainly to a charge for the prepayment of a high-cost Federal Home Loan Bank (FHLB) advance, which will lower funding cost in future periods.

 

In December 2004, the bank’s preferred stock of $75 million held by HEI was converted to common equity. Accordingly, preferred stock dividends payable to HEI were lower by $5.4 million in 2005 compared with 2004.

 

The holding and other companies’ results from continuing operations were ($10.2) million in 2005 versus ($14.5) million in 2004. 2005 results include an unrealized gain on held-for-sale investment securities of $2.9 million, net of taxes, and a realized gain on sale of an interest in a coal-fired electric generating plant in Georgia of $9.0 million, net of taxes, compared with a $3.6 million net-of-tax realized gain on sale of investments in 2004. In addition, interest expense was lower in 2005 by $1.0 million, net of taxes, than in 2004, due primarily to the redemption of 8.36% trust preferred securities in April 2004. Further, 2005 results were impacted by the $5.4 million reduction of preferred dividends from the bank described above.

 

Consolidated net income for the fourth quarter was $37.5 million, or $0.46 per share, compared with $24.8 million, or $0.31 per share, for the fourth quarter of 2004.

 

“We had a good fourth quarter. Results were up for all segments—the utilities, bank and holding and other companies,” said Clarke.

 

Electric utility net income for the fourth quarter was $18.2 million compared with $13.2 million for the same quarter of 2004. Although the number of customers increased quarter-over-quarter, kilowatthour sales were flat as compared to the fourth quarter of 2004 due to lower usage per customer and cooler and less humid weather. Interim rate relief for our Oahu utility, granted by the Hawaii Public Utilities Commission in late September 2005, increased electric utility operating revenues in the quarter by $10 million compared with the same quarter of 2004.

 

Other operation and maintenance expenses were $2.9 million lower than in the fourth quarter of 2004. Although retirement benefits expense was $1.5 million higher in the fourth quarter of 2005 compared with the same quarter of 2004, substation and generation station maintenance expenses were lower. In addition, the quarter-over-quarter comparison was impacted by the rescheduling of some maintenance into the fourth quarter of 2004.

 

Bank net income for the fourth quarter of 2005 was $17.7 million compared with $16.7 million for the fourth quarter of 2004.

 

Bank net interest income for the three months ended December 31, 2005, increased to $54.2 million compared with $50.5 million in the same period last year. The increase in net interest income was driven

 

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by higher balances of loans and deposits and an increase in the net interest margin. The bank’s net interest margin increased to 3.41% in the fourth quarter of 2005, compared with 3.10% in the fourth quarter of 2004, as the yields on loans and mortgage-related securities increased more than the overall cost of the bank’s liabilities.

 

The increase in net interest income was offset by higher noninterest expense including a charge for prepayment of a high-cost borrowing with the FHLB and the lower reversal of interest on income taxes.

 

In December 2004, the bank’s preferred stock of $75 million held by HEI was converted to common equity. Accordingly, preferred stock dividends payable to HEI were lower by $1.4 million in the fourth quarter of 2005 compared with the same quarter of 2004.

 

The holding and other companies’ results from continuing operations were $1.7 million in the fourth quarter of 2005 versus $(5.1) million for the same quarter of 2004. The quarter-over-quarter increase was primarily due to a realized gain on sale of an interest in a coal-fired electric generating plant in Georgia, net of taxes, of $9.0 million, partially offset by an unrealized net-of-tax loss of $1.3 million on held-for-sale investment securities. Similar investment transactions did not occur in the fourth quarter of 2004.

 

HEI supplies power to over 400,000 customers or 93% of the Hawaii market through its electric utilities, Hawaiian Electric Company, Hawaii Electric Light Company and Maui Electric Company and provides a wide array of banking and other financial services to consumers and businesses through American Savings Bank, the state’s third largest financial institution based on asset size.

 

Forward-Looking Statements

 

This release may contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as expects, anticipates, intends, plans, believes, predicts, estimates or similar expressions. In addition, any statements concerning future financial performance (including future revenues, expenses, earnings or losses or growth rates), ongoing business strategies or prospects and possible future actions, which may be provided by management, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and assumptions about HEI and its subsidiaries, the performance of the industries in which they do business and economic and market factors, among other things. These forward-looking statements are not guarantees of future performance.

 

Forward-looking statements in this release should be read in conjunction with the “Cautionary Statements and Risk Factors that May Affect Future Results” discussion (which is incorporated by reference herein) set forth on page iv of HEI’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and in HEI’s future periodic reports that discuss important factors that could cause HEI’s results to differ materially from those anticipated in such statements. Forward-looking statements speak only as of the date of this release.

 

4


Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three months ended
December 31,


    Years ended
December 31,


 

(in thousands, except per share amounts)


   2005

    2004

    2005

    2004

 

Revenues

                                

Electric utility

   $ 510,540     $ 423,376     $ 1,806,384     $ 1,550,671  

Bank

     101,309       94,748       387,910       364,284  

Other

     12,910       266       21,270       9,102  
    


 


 


 


       624,759       518,390       2,215,564       1,924,057  
    


 


 


 


Expenses

                                

Electric utility

     470,623       392,240       1,644,681       1,376,768  

Bank

     73,501       65,424       283,009       259,310  

Other

     4,572       6,235       16,452       17,019  
    


 


 


 


       548,696       463,899       1,944,142       1,653,097  
    


 


 


 


Operating income (loss)

                                

Electric utility

     39,917       31,136       161,703       173,903  

Bank

     27,808       29,324       104,901       104,974  

Other

     8,338       (5,969 )     4,818       (7,917 )
    


 


 


 


       76,063       54,491       271,422       270,960  
    


 


 


 


Interest expense–other than bank

     (18,354 )     (18,247 )     (75,309 )     (77,176 )

Allowance for borrowed funds used during construction

     560       306       2,020       2,542  

Preferred stock dividends of subsidiaries

     (473 )     (476 )     (1,894 )     (1,901 )

Allowance for equity funds used during construction

     1,430       738       5,105       5,794  
    


 


 


 


Income from continuing operations before income taxes

     59,226       36,812       201,344       200,219  

Income taxes

     21,702       12,002       73,900       92,480  
    


 


 


 


Income from continuing operations

     37,524       24,810       127,444       107,739  

Discontinued operations - gain (loss) on disposal, net of income taxes

     —         —         (755 )     1,913  
    


 


 


 


Net income

   $ 37,524     $ 24,810     $ 126,689     $ 109,652  
    


 


 


 


Per common share

                                

Basic earnings (loss) - Continuing operations

   $ 0.46     $ 0.31     $ 1.58     $ 1.36  

      - Discontinued operations

     —         —         (0.01 )     0.02  
    


 


 


 


     $ 0.46     $ 0.31     $ 1.57     $ 1.38  
    


 


 


 


Diluted earnings (loss) - Continuing operations

   $ 0.46     $ 0.31     $ 1.57     $ 1.36  

        - Discontinued operations

     —         —         (0.01 )     0.02  
    


 


 


 


     $ 0.46     $ 0.31     $ 1.56     $ 1.38  
    


 


 


 


Dividends

   $ 0.31     $ 0.31     $ 1.24     $ 1.24  
    


 


 


 


Weighted-average number of common shares outstanding

     80,925       80,630       80,828       79,562  
    


 


 


 


Adjusted weighted-average shares

     81,338       80,981       81,200       79,719  
    


 


 


 


Income (loss) from continuing operations by segment

                                

Electric utility

   $ 18,186     $ 13,244     $ 72,802     $ 81,177  

Bank

     17,659       16,706       64,883       41,062  

Other

     1,679       (5,140 )     (10,241 )     (14,500 )
    


 


 


 


Income from continuing operations

   $ 37,524     $ 24,810     $ 127,444     $ 107,739  
    


 


 


 


 

This information should be read in conjunction with HEI’s consolidated financial statements and the notes thereto for the years ended December 31, 2004 and 2005 (when filed with the Securities and Exchange Commission) and the consolidated financial statements and the notes thereto in HEI’s Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005. In April 2004, the HEI Board of Directors approved a 2-for-1 stock split in the form of a 100% stock dividend with a distribution date of June 10, 2004. All share and per share information above reflects the stock split.

 

In June 2004, ASB recorded a cumulative after-tax charge to net income of $24 million for an unfavorable tax ruling involving its real estate investment trust subsidiary, which was settled in December 2004. As a result of the settlement, ASB recognized $3 million in additional net income in the fourth quarter of 2004.

 

5


Hawaiian Electric Company, Inc. (HECO) and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three months ended
December 31,


    Years ended
December 31,


 

(in thousands)    


   2005

    2004

    2005

    2004

 

Operating revenues

   $ 509,336     $ 422,772     $ 1,801,710     $ 1,546,875  
    


 


 


 


Operating expenses

                                

Fuel oil

     192,586       143,257       639,650       483,423  

Purchased power

     128,449       106,345       458,120       398,836  

Other operation

     47,878       46,901       172,962       157,198  

Maintenance

     23,326       27,188       82,242       77,313  

Depreciation

     30,573       28,846       122,870       114,920  

Taxes, other than income taxes

     47,041       39,164       167,295       143,834  

Income taxes

     11,244       6,605       45,029       50,059  
    


 


 


 


       481,097       398,306       1,688,168       1,425,583  
    


 


 


 


Operating income

     28,239       24,466       113,542       121,292  
    


 


 


 


Other income

                                

Allowance for equity funds used during construction

     1,430       738       5,105       5,794  

Other, net

     727       246       3,538       3,132  
    


 


 


 


       2,157       984       8,643       8,926  
    


 


 


 


Income before interest and other charges

     30,396       25,450       122,185       130,218  
    


 


 


 


Interest and other charges

                                

Interest on long-term debt

     10,767       10,827       43,063       42,543  

Amortization of net bond premium and expense

     554       565       2,212       2,289  

Other interest charges

     950       621       4,133       4,756  

Allowance for borrowed funds used during construction

     (560 )     (306 )     (2,020 )     (2,542 )

Preferred stock dividends of subsidiaries

     229       229       915       915  
    


 


 


 


       11,940       11,936       48,303       47,961  
    


 


 


 


Income before preferred stock dividends of HECO

     18,456       13,514       73,882       82,257  

Preferred stock dividends of HECO

     270       270       1,080       1,080  
    


 


 


 


Net income for common stock

   $ 18,186     $ 13,244     $ 72,802     $ 81,177  
    


 


 


 


OTHER ELECTRIC UTILITY INFORMATION

                                

Kilowatthour sales (millions)

     2,552       2,547       10,090       10,063  

Cooling degree days (Oahu)

     1,071       1,224       4,971       5,107  

Average fuel cost per barrel

   $ 67.78     $ 49.33     $ 56.61     $ 42.67  

 

This information should be read in conjunction with HECO’s consolidated financial statements and the notes thereto for the years ended December 31, 2004 and 2005 (when filed with the Securities and Exchange Commission) and the consolidated financial statements and the notes thereto in HECO’s Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005.

 

6


American Savings Bank, F.S.B. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

    

Three months ended

December 31,


  

Years ended

December 31,


 

(in thousands)


   2005

   2004

   2005

    2004

 

Interest and dividend income

                              

Interest and fees on loans

   $ 53,265    $ 47,028    $ 205,084     $ 184,773  

Interest on mortgage-related securities

     31,672      32,227      121,847       116,471  

Interest and dividends on investment securities

     977      844      4,077       5,876  
    

  

  


 


       85,914      80,099      331,008       307,120  
    

  

  


 


Interest expense

                              

Interest on deposit liabilities

     14,232      11,850      52,064       47,184  

Interest on Federal Home Loan Bank advances

     11,190      11,314      44,699       43,301  

Interest on securities sold under agreements to repurchase

     6,253      6,480      24,663       22,302  
    

  

  


 


       31,675      29,644      121,426       112,787  
    

  

  


 


Net interest income

     54,239      50,455      209,582       194,333  

Reversal of allowance for loan losses

     —        —        (3,100 )     (8,400 )
    

  

  


 


Net interest income after reversal of allowance for loan losses

     54,239      50,455      212,682       202,733  
    

  

  


 


Noninterest income

                              

Fees from other financial services

     7,082      5,838      25,790       23,560  

Fee income on deposit liabilities

     4,415      4,544      16,989       17,820  

Fee income on other financial products

     2,278      2,234      9,058       10,184  

Gain (loss) on sale of securities

     —        —        175       (70 )

Other income

     1,620      2,033      4,890       5,670  
    

  

  


 


       15,395      14,649      56,902       57,164  
    

  

  


 


Noninterest expense

                              

Compensation and employee benefits

     17,739      17,549      69,082       65,052  

Occupancy

     4,593      4,266      17,055       16,996  

Equipment

     3,608      3,392      13,722       13,756  

Services

     3,872      3,850      15,466       12,863  

Data processing

     2,559      3,245      10,598       11,794  

Marketing

     1,165      1,398      3,816       3,987  

Other expense

     8,290      2,080      34,944       30,475  
    

  

  


 


       41,826      35,780      164,683       154,923  
    

  

  


 


Income before minority interests and income taxes

     27,808      29,324      104,901       104,974  

Minority interests

     —        24      45       97  

Income taxes

     10,149      11,241      39,969       58,404  
    

  

  


 


Income before preferred stock dividends

     17,659      18,059      64,887       46,473  

Preferred stock dividends

     —        1,353      4       5,411  
    

  

  


 


Net income for common stock

   $ 17,659    $ 16,706    $ 64,883     $ 41,062  
    

  

  


 


Net interest margin (%)

     3.41      3.10      3.29       3.15  

 

This information should be read in conjunction with HEI's consolidated financial statements and the notes thereto for the years ended December 31, 2004 and 2005 (when filed with the Securities and Exchange Commission) and the consolidated financial statements and the notes thereto in HEI's Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005.

 

In June 2004, ASB recorded a cumulative after-tax charge to net income of $24 million for an unfavorable tax ruling involving its real estate investment trust subsidiary, which was settled in December 2004. As a result of the settlement, ASB recognized $3 million in additional net income in the fourth quarter of 2004.

 

###

 

7


SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. The signature of the undersigned companies shall be deemed to relate only to matters having reference to such companies and any subsidiaries thereof.

 

HAWAIIAN ELECTRIC INDUSTRIES, INC.       HAWAIIAN ELECTRIC COMPANY, INC.
(Registrant)                               (Registrant)                            

/s/ Eric K. Yeaman

     

/s/ Tayne S. Y. Sekimura

Eric K. Yeaman

     

Tayne S. Y. Sekimura

Financial Vice President, Treasurer
and Chief Financial Officer

     

Financial Vice President

(Principal Financial Officer of HECO)

(Principal Financial Officer of HEI)

      Date: January 30, 2006
Date: January 30, 2006        

 

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