-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MIAtnrXAq+vmIcMl49QV7al4GwTT2VbYeF/oXgEnd9KE73zNKgAdlomLbt49sVXS 0+a5c1V5u3T/7ICDNIpfbA== 0000898430-95-002297.txt : 19951119 0000898430-95-002297.hdr.sgml : 19951119 ACCESSION NUMBER: 0000898430-95-002297 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWAIIAN ELECTRIC INDUSTRIES INC CENTRAL INDEX KEY: 0000354707 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 990208097 STATE OF INCORPORATION: HI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08503 FILM NUMBER: 95590614 BUSINESS ADDRESS: STREET 1: 900 RICHARDS ST CITY: HONOLULU STATE: HI ZIP: 96813 BUSINESS PHONE: 8085435662 MAIL ADDRESS: STREET 1: 900 RICHARDS STREET CITY: HONOLULU STATE: HI ZIP: 96813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWAIIAN ELECTRIC CO INC CENTRAL INDEX KEY: 0000046207 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 990040500 STATE OF INCORPORATION: HI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04955 FILM NUMBER: 95590615 BUSINESS ADDRESS: STREET 1: 900 RICHARDS ST CITY: HONOLULU STATE: HI ZIP: 96813 BUSINESS PHONE: 8085437771 MAIL ADDRESS: STREET 1: 900 RICHARDS STREET CITY: HONOLULU STATE: HI ZIP: 96813 FORMER COMPANY: FORMER CONFORMED NAME: HAWAIIAN ELECTRIC CO LTD DATE OF NAME CHANGE: 19670212 10-Q 1 FORM 10-Q FOR PERIOD ENDED SEPT. 30, 1995 ============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Exact Name of Registrant as Commission I.R.S. Employer Specified in Its Charter File Number Identification No. - ------------------------------------ ----------- ------------------ HAWAIIAN ELECTRIC INDUSTRIES, INC. 1-8503 99-0208097 and Principal Subsidiary HAWAIIAN ELECTRIC COMPANY, INC. 1-4955 99-0040500
STATE OF HAWAII - ------------------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) 900 RICHARDS STREET, HONOLULU, HAWAII 96813 - ------------------------------------------------------------------------------- (Address of principal executive offices and zip code) HAWAIIAN ELECTRIC INDUSTRIES, INC. ----- (808) 543-5662 HAWAIIAN ELECTRIC COMPANY, INC. ------- (808) 543-7771 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NONE - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) =============================================================================== Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class of Common Stock Outstanding November 3, 1995 - -------------------------------------------------------------------------------- Hawaiian Electric Industries, Inc. (Without Par Value).........29,513,130 Shares Hawaiian Electric Company, Inc. ($6 2/3 Par Value)......................11,813,147 Shares (not publicly traded)
================================================================================ Hawaiian Electric Industries, Inc. and subsidiaries Hawaiian Electric Company, Inc. and subsidiaries Form 10-Q--Quarter ended September 30, 1995 INDEX PAGE NO. Glossary of terms......................................................... ii PART I. FINANCIAL INFORMATION Item 1. Financial statements Hawaiian Electric Industries, Inc. and subsidiaries Consolidated balance sheets (unaudited) - September 30, 1995 and December 31, 1994........................................... 1 Consolidated statements of income (unaudited) - three and nine months ended September 30, 1995 and 1994........................ 2 Consolidated statements of retained earnings (unaudited) - three and nine months ended September 30, 1995 and 1994............... 2 Consolidated statements of cash flows (unaudited) - nine months ended September 30, 1995 and 1994............................... 3 Notes to consolidated financial statements (unaudited)............ 4 Hawaiian Electric Company, Inc. and subsidiaries Consolidated balance sheets (unaudited) - September 30, 1995 and December 31, 1994........................................... 9 Consolidated statements of income (unaudited) - three and nine months ended September 30, 1995 and 1994........................ 10 Consolidated statements of retained earnings (unaudited) - three and nine months ended September 30, 1995 and 1994............... 10 Consolidated statements of cash flows (unaudited) - nine months ended September 30, 1995 and 1994............................... 11 Notes to consolidated financial statements (unaudited)............ 12 Item 2. Management's discussion and analysis of financial condition and results of operations....................................... 15 PART II. OTHER INFORMATION Item 1. Legal proceedings................................................. 23 Item 5. Other information................................................. 23 Item 6. Exhibits and reports on Form 8-K.................................. 24 Signatures................................................................ 25 i Hawaiian Electric Industries, Inc. and subsidiaries Hawaiian Electric Company, Inc. and subsidiaries Form 10-Q -- Quarter ended September 30, 1995 GLOSSARY OF TERMS
TERMS DEFINITIONS - ----- ----------- AFUDC Allowance for funds used during construction ASB American Savings Bank, F.S.B., a wholly owned subsidiary of HEI Diversified, Inc. and parent company of American Savings Investment Services Corp., ASB Service Corporation, AdCommunications, Inc. and Associated Mortgage, Inc. BIF Bank Insurance Fund COMPANY Hawaiian Electric Industries, Inc. and its direct and indirect subsidiaries, including, without limitation, Hawaiian Electric Company, Inc., Maui Electric Company, Limited, Hawaii Electric Light Company, Inc., HEI Investment Corp., Malama Pacific Corp. and its subsidiaries, Hawaiian Tug & Barge Corp., Young Brothers, Limited, HEI Diversified, Inc., American Savings Bank, F.S.B. and its subsidiaries, Lalamilo Ventures, Inc., Pacific Energy Conservation Services, Inc. and HEI Power Corp. (since its formation in March 1995) CONSUMER Division of Consumer Advocacy, Department of ADVOCATE Commerce and Consumer Affairs of the State of Hawaii FASB Financial Accounting Standards Board FDIC Federal Deposit Insurance Corporation HCPC Hilo Coast Processing Company HECO Hawaiian Electric Company, Inc., a wholly owned electric utility subsidiary of Hawaiian Electric Industries, Inc. and parent company of Maui Electric Company, Limited and Hawaii Electric Light Company, Inc. HEI Hawaiian Electric Industries, Inc., parent company of Hawaiian Electric Company, Inc., HEI Investment Corp., Malama Pacific Corp., Hawaiian Tug & Barge Corp., Lalamilo Ventures, Inc., HEI Diversified, Inc., Pacific Energy Conservation Services, Inc. and HEI Power Corp. (since its formation in March 1995) HEIDI HEI Diversified, Inc., a wholly owned subsidiary of Hawaiian Electric Industries, Inc. and the parent company of American Savings Bank, F.S.B. HEIIC HEI Investment Corp., a wholly owned subsidiary of Hawaiian Electric Industries, Inc. HEIPC HEI Power Corp., a wholly owned subsidiary of Hawaiian Electric Industries, Inc.
ii GLOSSARY OF TERMS, CONTINUED
TERMS DEFINITIONS - ----- ----------- HELCO Hawaii Electric Light Company, Inc., a wholly owned electric utility subsidiary of Hawaiian Electric Company, Inc. HIG The Hawaiian Insurance & Guaranty Company, Limited, an insurance company which was placed in state rehabilitation proceedings. HEI Diversified, Inc. was the holder of record of HIG's common stock prior to August 16, 1994 HTB Hawaiian Tug & Barge Corp., a wholly owned subsidiary of Hawaiian Electric Industries, Inc. and parent company of Young Brothers, Limited KWH Kilowatthour MECO Maui Electric Company, Limited, a wholly owned electric utility subsidiary of Hawaiian Electric Company, Inc. MPC Malama Pacific Corp., a wholly owned subsidiary of Hawaiian Electric Industries, Inc. and parent company of several real estate subsidiaries MW Megawatt OTS Office of Thrift Supervision, Department of Treasury PBOP Postretirement benefits other than pensions PGV Puna Geothermal Venture PUC Public Utilities Commission of the State of Hawaii SAIF Savings Association Insurance Fund SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards YB Young Brothers, Limited, a wholly owned subsidiary of Hawaiian Tug & Barge Corp.
iii PART I - FINANCIAL INFORMATION - -------------------------------------------------------------------------------- ITEM 1. FINANCIAL STATEMENTS - ----------------------------- Hawaiian Electric Industries, Inc. and subsidiaries CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, (in thousands) 1995 1994 - -------------------------------------------------------------------------------- ASSETS Cash and equivalents....................... $ 85,261 $ 87,623 Accounts receivable and unbilled revenues, net............................. 140,376 130,762 Inventories, at average cost............... 39,399 43,126 Real estate developments................... 37,068 33,956 Loans receivable, net...................... 1,756,308 1,824,055 Marketable securities...................... 1,352,397 1,099,810 Other investments.......................... 73,780 77,297 Property, plant and equipment, net of accumulated depreciation of $802,984 and $747,503.................. 1,767,864 1,677,822 Regulatory assets.......................... 102,411 95,257 Other...................................... 72,013 59,301 Goodwill and other intangibles............. 42,298 45,455 ---------- ---------- $5,469,175 $5,174,464 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable........................... $ 92,746 $ 97,210 Deposit liabilities........................ 2,177,087 2,129,310 Short-term borrowings...................... 180,284 136,755 Securities sold under agreements to repurchase................................ 329,392 123,301 Advances from Federal Home Loan Bank....... 539,874 616,374 Long-term debt............................. 753,338 718,240 Deferred income taxes...................... 177,081 172,930 Unamortized tax credits.................... 47,568 45,954 Contributions in aid of construction....... 181,330 178,635 Other...................................... 178,370 180,529 ---------- ---------- 4,657,070 4,399,238 ---------- ---------- PREFERRED STOCK OF ELECTRIC UTILITY SUBSIDIARIES Subject to mandatory redemption............ 43,100 44,844 Not subject to mandatory redemption........ 48,293 48,293 ---------- ---------- 91,393 93,137 ---------- ---------- STOCKHOLDERS' EQUITY Preferred stock, no par value, authorized 10,000 shares; issued: none.............................. -- -- Common stock, no par value, authorized 100,000 shares; issued and outstanding: 29,477 shares and 28,655 shares.................................... 574,392 546,254 Retained earnings.......................... 146,320 135,835 ---------- ---------- 720,712 682,089 ---------- ---------- $5,469,175 $5,174,464 ========== ==========
See accompanying notes to consolidated financial statements. 1 Hawaiian Electric Industries, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Nine months ended September 30, September 30, (in thousands, except per share amounts and ---------------------- ---------------------- ratio of earnings to fixed charges) 1995 1994 1995 1994 - ---------------------------------------------------------------------------------------------------------- REVENUES Electric utility....................................... $261,886 $249,664 $738,913 $670,381 Savings bank........................................... 63,151 54,389 185,473 156,784 Other.................................................. 11,844 15,103 38,666 41,589 -------- -------- -------- -------- 336,881 319,156 963,052 868,754 -------- -------- -------- -------- EXPENSES Electric utility....................................... 211,215 209,015 614,530 571,591 Savings bank........................................... 53,462 43,187 155,716 124,287 Other.................................................. 15,529 15,404 45,752 44,967 -------- -------- -------- -------- 280,206 267,606 815,998 740,845 -------- -------- -------- -------- OPERATING INCOME (LOSS) Electric utility....................................... 50,671 40,649 124,383 98,790 Savings bank........................................... 9,689 11,202 29,757 32,497 Other.................................................. (3,685) (301) (7,086) (3,378) -------- -------- -------- -------- 56,675 51,550 147,054 127,909 -------- -------- -------- -------- Interest expense--electric utility and other........... (15,931) (13,916) (46,398) (40,126) Allowance for borrowed funds used during construction.......................................... 1,327 1,070 3,832 2,886 Preferred stock dividends of electric utility subsidiaries.......................................... (1,726) (1,790) (5,183) (5,386) Allowance for equity funds used during construction.......................................... 2,590 2,381 7,575 6,427 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES............................. 42,935 39,295 106,880 91,710 Income taxes........................................... 17,784 16,604 45,002 39,599 -------- -------- -------- -------- NET INCOME............................................. $ 25,151 $ 22,691 $ 61,878 $ 52,111 ======== ======== ======== ======== Earnings per common share............................. $0.86 $0.80 $2.13 $1.86 ======== ======== ======== ======== Dividends per common share............................ $0.59 $0.58 $1.77 $1.74 ======== ======== ======== ======== Weighted average number of common shares outstanding................................... 29,331 28,255 29,058 28,014 ======== ======== ======== ======== Ratio of earnings to fixed charges (SEC method) Excluding interest on ASB deposits................. 2.03 2.23 ======== ======== Including interest on ASB deposits................. 1.62 1.69 ======== ======== Hawaiian Electric Industries, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three months ended Nine months ended September 30, September 30, ---------------------- ---------------------- (in thousands) 1995 1994 1995 1994 - ---------------------------------------------------------------------------------------------------------- RETAINED EARNINGS, BEGINNING OF PERIOD................ $138,462 $125,406 $135,835 $128,318 Net income............................................ 25,151 22,691 61,878 52,111 Common stock dividends................................ (17,293) (16,376) (51,393) (48,708) -------- -------- -------- -------- RETAINED EARNINGS, END OF PERIOD...................... $146,320 $131,721 $146,320 $131,721 ======== ======== ======== ======== See accompanying notes to consolidated financial statements.
2 Hawaiian Electric Industries, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30, ----------------------- (in thousands) 1995 1994 - --------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations........ $ 61,878 $ 52,111 Adjustments to reconcile income from continuing operations to net cash provided by operating activities Depreciation and amortization of property, plant and equipment..... 57,662 54,353 Other amortization................. 2,275 247 Deferred income taxes and tax credits, net...................... 8,005 9,652 Changes in assets and liabilities, net of effects from disposal of businesses Increase in accounts receivable and unbilled revenues, net............... (9,614) (12,784) Decrease (increase) in inventories................. 3,727 (1,321) Increase in real estate developments................ (1,125) (1,351) Decrease in securities held for trading................. -- 29,873 Increase in regulatory assets...................... (3,708) (8,397) Increase (decrease) in accounts payable............ (4,464) 5,342 Changes in other assets and liabilities................. (14,514) (20,504) --------- --------- 100,122 107,221 Cash used by discontinued operations..... -- (32,469) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES.............................. 100,122 74,752 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Loans receivable originated and purchased............................... (263,846) (412,704) Principal repayments on loans receivable. 104,392 185,408 Proceeds from sale of loans receivable... 6,254 1,888 "Held-to-maturity" mortgage-backed securities purchased.................... (146,029) (274,430) Principal repayments on "held-to-maturity" mortgage-backed securities.............................. 119,430 162,031 Capital expenditures..................... (146,244) (143,035) Contributions in aid of construction..... 8,482 9,114 Other.................................... (7,600) (2,733) --------- --------- NET CASH USED IN INVESTING ACTIVITIES.... (325,161) (474,461) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposit liabilities...... 47,777 61,932 Net increase in short-term borrowings with original maturities of three months or less.................. 44,946 80,119 Proceeds from other short-term borrowings.............................. 745 851 Repayment of other short-term borrowings. (2,162) (4,526) Proceeds from securities sold under agreements to repurchase................ 424,000 23,330 Repurchase of securities sold under agreements to repurchase................ (220,339) -- Proceeds from advances from Federal Home Loan Bank.......................... 355,200 584,200 Principal payments on advances from Federal Home Loan Bank.................. (431,700) (352,000) Proceeds from issuance of long-term debt. 48,444 83,274 Repayment of long-term debt.............. (13,400) (75,427) Redemption of electric utility subsidiaries' preferred stock........... (1,744) (591) Net proceeds from issuance of common stock................................... 13,497 10,564 Common stock dividends................... (36,840) (35,484) Other.................................... (5,747) (8,596) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES.............................. 222,677 367,646 --------- --------- Net decrease in cash and equivalents..... (2,362) (32,063) Cash and equivalents, beginning of period.................................. 87,623 116,260 --------- --------- CASH AND EQUIVALENTS, END OF PERIOD...... $ 85,261 $ 84,197 ========= ========= See accompanying notes to consolidated financial statements.
3 Hawaiian Electric Industries, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 and 1994 (Unaudited) - ------------------------------------------------------------------------------- (1) BASIS OF PRESENTATION - -------------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto incorporated by reference in HEI's Annual Report on SEC Form 10-K for the year ended December 31, 1994 and the consolidated financial statements and the notes thereto in HEI's Quarterly Report on SEC Form 10-Q for the quarters ended March 31 and June 30, 1995. In the opinion of HEI's management, the accompanying unaudited consolidated financial statements contain all material adjustments required by generally accepted accounting principles to present fairly the Company's financial position as of September 30, 1995 and December 31, 1994, the results of its operations for the three months and nine months ended September 30, 1995 and 1994, and its cash flows for the nine months ended September 30, 1995 and 1994. All such adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q or other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year. (2) ELECTRIC UTILITY SUBSIDIARY - -------------------------------- For Hawaiian Electric Company, Inc.'s consolidated financial information, including its commitments and contingencies, see pages 9 through 15. (3) SAVINGS BANK SUBSIDIARY - ---------------------------- SELECTED CONSOLIDATED FINANCIAL INFORMATION American Savings Bank, F.S.B. and subsidiaries Income statement data
Three months ended Nine months ended September 30, September 30, ------------------- --------------------- (in thousands) 1995 1994 1995 1994 - ------------------------------------------------------------------------------------- Interest income......................... $ 59,533 $ 51,833 $ 175,094 $ 150,361 Interest expense........................ 36,577 26,789 104,551 74,704 --------- --------- --------- --------- NET INTEREST INCOME..................... 22,956 25,044 70,543 75,657 Provision for losses.................... (242) (248) (867) (732) Other income............................ 3,618 2,556 10,379 6,423 Operating, administrative and general expenses............................... (16,643) (16,150) (50,298) (48,851) --------- --------- --------- --------- OPERATING INCOME........................ 9,689 11,202 29,757 32,497 Income taxes............................ 4,047 4,669 12,462 13,538 --------- --------- --------- --------- NET INCOME.............................. $ 5,642 $ 6,533 $ 17,295 $ 18,959 ========= ========= ========= =========
4 American Savings Bank, F.S.B. and subsidiaries Balance sheet data September 30, December 31, (in thousands) 1995 1994 - ----------------------------------------------------------------------------- ASSETS Cash and equivalents............................ $ 83,063 $ 76,502 Investment securities........................... 34,097 32,523 Mortgage-backed securities...................... 1,318,300 1,067,287 Loans receivable, net........................... 1,756,308 1,824,055 Other........................................... 73,095 69,829 Goodwill and other intangibles.................. 42,298 45,455 ---------- ---------- $3,307,161 $3,115,651 ========== ========== LIABILITIES AND EQUITY Deposit liabilities............................. $2,177,087 $2,129,310 Securities sold under agreements to repurchase.. 329,392 123,301 Advances from Federal Home Loan Bank............ 539,874 616,374 Other........................................... 56,946 51,078 ---------- ---------- 3,103,299 2,920,063 Common stock equity............................. 203,862 195,588 ---------- ---------- $3,307,161 $3,115,651 ========== ========== PROPOSED LEGISLATION AFFECTING FINANCIAL INSTITUTIONS The deposit accounts of ASB and other thrifts are insured by the Savings Association Insurance Fund (SAIF) administered by the Federal Deposit Insurance Corporation (FDIC). The deposit accounts of commercial banks are insured by the Bank Insurance Fund (BIF) administered by the FDIC. In order to capitalize these funds, thrifts and banks have been paying costs of insurance ranging from 23 cents to 31 cents per $100 of deposits. However, under existing law these assessment rates are to drop when the SAIF and BIF individually reach a required 1.25% reserve ratio. The BIF has reached the required reserve level, but the SAIF is unlikely to do so at present insurance rates for several years. Accordingly, in August 1995, the FDIC reduced the deposit insurance assessment rate that most commercial banks will be paying to between 4 cents-5 cents per $100 of deposits, whereas ASB and other thrifts will continue to pay at the rate of 23 cents or more per $100 of deposits, depending on their risk classification. This disparity places ASB at a disadvantage in competing with commercial banks. There have been a number of legislative proposals to address this situation, including making a one-time or phased-in assessment of thrifts to permit capitalization of SAIF up to required levels, followed by a merger of the two funds; eliminating or reducing the disparity in the assessment rates paid by banks or thrifts if the SAIF is recapitalized through the assessment; and merging bank and thrift charters. Certain of these proposals, if adopted, could have a material adverse effect on the Company. For example, if a one-time assessment of 85 cents for every $100 of deposits is imposed, it is estimated that ASB would be assessed approximately $18 million on a pre-tax basis ($11 million after tax), based on ASB's deposit liabilities as of March 31, 1995. If thrift and bank charters are merged, HEI and its other subsidiaries might become subject to the restrictions on the permissible activities of a bank holding company. While certain of the proposals under consideration would grandfather the activities of existing savings and loan holding companies, management cannot predict whether or in what form any of these proposals might ultimately be adopted or the extent to which the business of the Company might be affected. (4) REAL ESTATE SUBSIDIARY - --------------------------- MPC and its subsidiaries' total real estate project inventory, equity investment in real estate joint ventures and loans and advances to unconsolidated joint ventures or joint venture partners amounted to $51 million at September 30, 1995 and December 31, 1994. MPC's present focus is to reduce its current investment in real estate development assets and increase cash flow by continuing the development and sales of its existing projects. There are currently no plans to invest in new projects. 5 At September 30, 1995, MPC or its subsidiaries had issued (i) guaranties under which they were jointly and severally contingently liable with their joint venture partners for $1.9 million of outstanding loans and (ii) payment guaranties under which MPC or its subsidiaries were severally contingently liable for $6.2 million of outstanding loans and $4.9 million of additional undrawn loan facilities. All such loans are collateralized by real property. At September 30, 1995, HEI had agreed with the lenders of construction loans and loan facilities, of which approximately $11.0 million was outstanding and $6.1 million was undrawn, that it will maintain ownership of 100% of the stock of MPC and that it intends, subject to good and prudent business practices, to keep MPC financially sound and responsible to meet its obligations as guarantor. (5) CASH FLOWS - --------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest (net of capitalized amounts) and income taxes was as follows: Nine months ended September 30, ------------------ (in thousands) 1995 1994 - ------------------------------------------------------------------------------ Interest (including interest paid by savings bank, but excluding interest paid on nonrecourse debt from leveraged leases)....................................... $139,404 $108,688 ======== ======== Interest on nonrecourse debt from leveraged leases........ $ 4,764 $ 5,001 ======== ======== Income taxes.............................................. $ 31,981 $ 31,618 ======== ======== SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES In the nine months ended September 30, 1995, ASB received $223 million in mortgage-backed securities in exchange for loans. Common stock dividends reinvested by shareholders in HEI common stock in noncash transactions amounted to $14.6 million and $13.2 million for the nine months ended September 30, 1995 and 1994, respectively. The allowance for equity funds used during construction, which was capitalized primarily as part of the cost of electric utility plant, amounted to $7.6 million and $6.4 million for the nine months ended September 30, 1995 and 1994, respectively. In March 1994, Malama Development Corp.'s Baldwin*Malama partnership closed on an option to purchase approximately 147 acres of land on the island of Maui from Baldwin Pacific Properties, Inc. Of the total land purchase price of $9.9 million, Baldwin*Malama issued mortgage notes payable of $8.0 million in noncash consideration. (6) ACCOUNTING CHANGES - ----------------------- LONG-LIVED ASSETS In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future cash flows derived from an asset is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of that loss is based on the fair value of the asset. Generally, SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. SFAS No. 121 also requires that a rate-regulated enterprise recognize an impairment loss for the amount of costs excluded by a regulator from the enterprise's rate base. 6 The Company will adopt the provisions of SFAS No. 121 on January 1, 1996. The Company does not believe that the impact of the adoption of SFAS No. 121 on its consolidated financial condition or results of operations will be material. MORTGAGE SERVICING RIGHTS In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights." SFAS No. 122 requires that a mortgage banking enterprise (as defined) that acquires mortgage servicing rights through either the purchase or origination of mortgage loans and sells or securitizes those loans with servicing rights retained should allocate the total cost of the mortgage loans to the mortgage servicing rights and the loans based on their relative fair values if it is practicable to estimate those fair values. The provisions of SFAS No. 122 will be adopted by ASB on January 1, 1996. If SFAS No. 122 had been adopted on January 1, 1995, it would not have had a material effect on the Company's consolidated financial condition or results of operations. STOCK-BASED COMPENSATION In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 establishes a new, fair value based method of accounting for stock-based compensation, but does not require an entity to adopt the new method for purposes of preparing its basic financial statements. For entities not adopting the new method, SFAS No. 123 requires that they disclose in their footnotes pro forma net income and earnings per share information as if the fair value based method had been adopted. The disclosure requirements of SFAS No. 123 are effective for financial statements for fiscal years beginning after December 15, 1995. The Company plans to comply with the disclosure requirements of SFAS No. 123 in its financial statements for 1996. (7) DISCONTINUED OPERATIONS - ---------------------------- THE HAWAIIAN INSURANCE & GUARANTY CO., LIMITED HIG and its subsidiaries (collectively, the HIG Group) are property and casualty insurance companies. HEIDI was the holder of record of all the common stock of HIG until August 16, 1994. In December 1992, due to a significant increase in the estimate of policyholder claims from Hurricane Iniki, the HEI Board of Directors concluded it would not contribute additional capital to HIG and the remaining investment in the HIG Group was written off. On December 24, 1992, a formal rehabilitation order vested full control over the HIG Group in the Insurance Commissioner (the Rehabilitator) and her deputies. On April 12, 1993, the Rehabilitator, the HIG Group and others filed a complaint against HEI, HEIDI and others. The complaint, which was subsequently amended, set forth several separate counts, including claims that directors and officers of HEI, HEIDI and the HIG Group were responsible for the losses suffered by the HIG Group and claims that HEI and/or HEIDI should be held liable for HIG's obligations. The lawsuit was settled in 1994 and in August 1994, $32 million was disbursed to the Rehabilitator. In exchange, all the plaintiffs released their claims against HEI, its affiliates and their past and present officers and directors. The $32 million settlement amount, less income tax benefits and certain amounts recognized in previously established reserves, resulted in a $15 million after- tax charge to discontinued operations in 1993. HEI and HEIDI are seeking reimbursement for the settlement and defense costs from their insurance carriers. One of the insurance carriers has filed a declaratory relief action seeking resolution of insurance coverage and other policy issues, and HEI and HEIDI have filed counterclaims. The trial date has been postponed pending a judge's ruling on several motions. Recoveries from HEI's insurance carriers, if any, will be recognized when realized. In December 1994, five insurance agencies, which had served as insurance agents for the HIG Group, filed a complaint against HEI, HEIDI and others. The complaint set forth several causes of action, including breach of contract and piercing the corporate veil. The plaintiffs ask for relief from the defendants, including compensatory damages for lost commissions, lost business and lost profits in an amount to be proven at trial and punitive damages. In August 1995, the court granted defendants' motion for summary judgment. However, the order dismissing the case has not been filed and plaintiffs have indicated their intention to pursue an appeal. In the opinion of management, losses, if any, resulting from the ultimate outcome of the lawsuit will not have a material adverse effect on the Company's financial condition or results of operations. 7 (8) LEVERAGED LEASES - --------------------- HEIIC owns commercial real estate which is subject to several leveraged lease agreements entered into in 1987. HEIIC plans to sell a portion of the commercial real estate to a lessee pursuant to the provisions of the leveraged lease agreement. As a result of this planned sale, HEIIC recorded a net loss of $1.3 million in the third quarter of 1995. (9) REGULATORY ASSETS - ---------------------- Regulatory assets at September 30, 1995 and December 31, 1994 included the following deferred costs:
September 30, December 31, (in thousands) 1995 1994 - ------------------------------------------------------------------------------- Postretirement benefits other than pensions..... $ 35,141 $36,670 Income taxes.................................... 29,493 23,522 Integrated resource planning costs.............. 8,790 7,189 Unamortized debt expense on retired issuances... 7,023 7,513 Computer system development costs............... 6,829 6,090 Vacation earned, but not yet taken.............. 6,582 5,972 Preliminary plant costs on suspended project.... 5,759 5,768 Other........................................... 2,794 2,533 ----------------------------- $102,411 $95,257 =============================
In the first quarter of 1995, the Company applied to the PUC for recovery of the preliminary plant costs on suspended project. 8 Hawaiian Electric Company, Inc. and subsidiaries CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, December 31, (in thousands, except par value) 1995 1994 - ------------------------------------------------------------------------------ ASSETS Utility plant, at cost Property, plant and equipment................. $2,261,390 $2,129,274 Construction in progress...................... 170,394 164,247 Less--accumulated depreciation................ (752,508) (702,945) ---------- ---------- NET UTILITY PLANT....................... 1,679,276 1,590,576 ---------- ---------- Current assets Cash and equivalents.......................... 285 10,694 Customer accounts receivable, net............. 63,139 60,406 Accrued unbilled revenues, net................ 42,078 38,435 Other accounts receivable, net................ 9,656 10,302 Fuel oil stock, at average cost............... 17,507 21,966 Materials and supplies, at average cost....... 20,626 20,108 Prepayments and other......................... 2,909 2,028 ---------- ---------- TOTAL CURRENT ASSETS.................... 156,200 163,939 ---------- ---------- Other assets Regulatory assets............................. 99,794 92,524 Other......................................... 48,798 42,081 ---------- ---------- TOTAL OTHER ASSETS...................... 148,592 134,605 ---------- ---------- $1,984,068 $1,889,120 ========== ========== CAPITALIZATION AND LIABILITIES Capitalization Common stock, $6 2/3 par value, authorized 50,000 shares; outstanding 11,813 shares..... $ 78,766 $ 78,766 Premium on capital stock...................... 246,689 246,600 Retained earnings............................. 341,097 308,535 ---------- ---------- COMMON STOCK EQUITY..................... 666,552 633,901 Cumulative preferred stock Not subject to mandatory redemption........ 48,293 48,293 Subject to mandatory redemption............ 40,880 42,470 Long-term debt, net........................... 517,182 468,653 ---------- ---------- TOTAL CAPITALIZATION.................... 1,272,907 1,193,317 ---------- ---------- Current liabilities Long-term debt due within one year............ 9,902 20,933 Preferred stock sinking fund requirements..... 2,220 2,374 Short-term borrowings - nonaffiliates......... 134,011 117,866 Short-term borrowings - affiliate............. 17,000 -- Accounts payable.............................. 45,807 54,662 Interest and preferred dividends payable...... 12,645 8,575 Income taxes payable.......................... 5,210 3,300 Other taxes accrued........................... 39,967 39,666 Other......................................... 20,789 30,111 ---------- ---------- TOTAL CURRENT LIABILITIES............... 287,551 277,487 ---------- ---------- Deferred credits and other liabilities Deferred income taxes......................... 111,472 108,362 Unamortized tax credits....................... 46,631 44,939 Other......................................... 84,177 86,380 ---------- ---------- TOTAL DEFERRED CREDITS AND OTHER LIABILITIES............................ 242,280 239,681 ---------- ---------- Contributions in aid of construction............. 181,330 178,635 ---------- ---------- $1,984,068 $1,889,120 ========== ========== See accompanying notes to HECO's consolidated financial statements. 9 Hawaiian Electric Company, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Nine months ended September 30, September 30, ------------------------------------------------------- (in thousands, except for ratio of earnings to fixed charges) 1995 1994 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUES............................................... $260,123 $247,844 $733,945 $665,826 -------- -------- -------- -------- OPERATING EXPENSES Fuel oil......................................................... 57,365 53,329 154,658 133,409 Purchased power.................................................. 70,250 73,514 204,993 205,794 Other operation.................................................. 30,429 31,205 98,824 89,299 Maintenance...................................................... 11,349 11,654 34,982 32,933 Depreciation..................................................... 16,977 16,017 50,987 48,110 Taxes, other than income taxes................................... 24,729 23,031 69,496 61,590 Income taxes..................................................... 16,760 13,386 40,030 31,216 -------- -------- -------- -------- 227,859 222,136 653,970 602,351 -------- -------- -------- -------- OPERATING INCOME................................................. 32,264 25,708 79,975 63,475 -------- -------- -------- -------- OTHER INCOME Allowance for equity funds used during construction........................................... 2,590 2,381 7,575 6,427 Other, net....................................................... 1,704 1,559 4,651 4,160 -------- -------- -------- -------- 4,294 3,940 12,226 10,587 -------- -------- -------- -------- INCOME BEFORE INTEREST AND OTHER CHARGES......................... 36,558 29,648 92,201 74,062 -------- -------- -------- -------- INTEREST AND OTHER CHARGES Interest on long-term debt....................................... 8,730 7,838 25,395 23,368 Amortization of net bond premium and expense..................... 319 294 953 831 Other interest charges........................................... 2,291 1,468 6,343 3,571 Allowance for borrowed funds used during construction............ (1,327) (1,070) (3,832) (2,886) Preferred stock dividends of subsidiaries........................ 691 707 2,075 2,137 -------- -------- -------- -------- 10,704 9,237 30,934 27,021 -------- -------- -------- -------- INCOME BEFORE PREFERRED STOCK DIVIDENDS OF HECO.................. 25,854 20,411 61,267 47,041 Preferred stock dividends of HECO................................ 1,035 1,083 3,108 3,249 -------- -------- -------- -------- NET INCOME FOR COMMON STOCK...................................... $ 24,819 $ 19,328 $ 58,159 $ 43,792 ======== ======== ======== ======== Ratio of earnings to fixed charges (SEC method).................. 3.66 3.36 ======== ======== Hawaiian Electric Company, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three months ended Nine months ended September 30, September 30, ------------------------------------------------------- (in thousands) 1995 1994 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS, BEGINNING OF PERIOD........................... $325,048 $288,612 $308,535 $275,401 Net income for common stock...................................... 24,819 19,328 58,159 43,792 Common stock dividends........................................... (8,770) (7,594) (25,597) (18,847) -------- -------- -------- -------- RETAINED EARNINGS, END OF PERIOD................................. $341,097 $300,346 $341,097 $300,346 ======== ======== ======= ======== HEI owns all the common stock of HECO. Therefore, per share data with respect to shares of common stock of HECO are not meaningful. See accompanying notes to HECO's consolidated financial statements. 10
Hawaiian Electric Company, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30, --------------------- (in thousands) 1995 1994 - --------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Income before preferred stock dividends of HECO..................................$ 61,267 $ 47,041 Adjustments to reconcile income before preferred stock dividends of HECO to net cash provided by operating activities Depreciation and amortization of property, plant and equipment...... 50,987 48,110 Other amortization.................. 4,099 4,784 Deferred income taxes............... 4,040 1,962 Tax credits, net.................... 2,976 2,393 Allowance for equity funds used during construction................ (7,575) (6,427) Changes in assets and liabilities Increase in accounts receivable...................... (2,087) (4,917) Increase in accrued unbilled revenues........................ (3,643) (6,484) Decrease (increase) in fuel oil stock....................... 4,459 (2,171) Decrease (increase) in materials and supplies.......... (518) 1,053 Increase in regulatory assets.... (3,708) (8,397) Increase (decrease) in accounts payable................ (8,855) 7,034 Increase in interest and preferred dividends payable..... 4,070 2,556 Changes in other assets and liabilities..................... (14,469) (10,555) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES............................... 91,043 75,982 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures...................... (138,089) (131,225) Contributions in aid of construction...... 8,482 9,114 Other..................................... (7,995) -- --------- --------- NET CASH USED IN INVESTING ACTIVITIES..... (137,602) (122,111) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Common stock dividends.................... (25,597) (18,847) Preferred stock dividends................. (3,108) (3,249) Proceeds from issuance of long-term debt.. 48,444 48,274 Repayment of long-term debt............... (11,000) (48,027) Redemption of preferred stock............. (1,744) (591) Net increase in short-term borrowings from nonaffiliates and affiliate with original maturities of three months or less..................................... 33,145 71,919 Other..................................... (3,990) (4,392) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES............................... 36,150 45,087 --------- --------- Net decrease in cash and equivalents...... (10,409) (1,042) Cash and equivalents, beginning of period................................... 10,694 1,922 --------- --------- CASH AND EQUIVALENTS, END OF PERIOD.......$ 285 $ 880 ========= ========= See accompanying notes to HECO's consolidated financial statements.
11 Hawaiian Electric Company, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 and 1994 (Unaudited) - -------------------------------------------------------------------------------- (1) BASIS OF PRESENTATION - -------------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto incorporated by reference in HECO's Annual Report on SEC Form 10-K for the year ended December 31, 1994 and the consolidated financial statements and the notes thereto in HECO's Quarterly Report on SEC Form 10-Q for the quarters ended March 31 and June 30, 1995. In the opinion of HECO's management, the accompanying unaudited consolidated financial statements contain all material adjustments required by generally accepted accounting principles to present fairly the financial position of HECO and its subsidiaries as of September 30, 1995 and December 31, 1994, and the results of their operations for the three months and nine months ended September 30, 1995 and 1994, and their cash flows for the nine months ended September 30, 1995 and 1994. All such adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q or other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year. (2) CASH FLOWS - --------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest (net of capitalized amounts) and income taxes was as follows:
Nine months ended September 30, ---------------- (in thousands) 1995 1994 - ---------------------------------------------------------- Interest............................... $23,890 $22,556 ================ Income taxes........................... $30,479 $26,005 ================ SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
The allowance for equity funds used during construction, which was capitalized primarily as part of the cost of electric utility plant, amounted to $7.6 million and $6.4 million for the nine months ended September 30, 1995 and 1994, respectively. (3) COMMITMENTS AND CONTINGENCIES - ---------------------------------- HELCO POWER SITUATION HELCO is the electric utility subsidiary of HECO, serving the island of Hawaii. As of December 31, 1994, HELCO's generating and firm purchased capability was 197 MW, 9% of HECO consolidated generating and firm purchased capability of 2,102 MW. HELCO has a power purchase agreement with Hilo Coast Processing Company (HCPC), currently for 22 MW of firm capacity. In December 1994, at a time when the HCPC contract was for delivery of 18 MW, HCPC filed a Chapter 11 bankruptcy petition. In July 1995, the bankruptcy court approved an amended and restated HELCO and HCPC power purchase agreement for 22 MW of firm capacity and the dismissal of HCPC from bankruptcy, subject to a condition that was satisfied. 12 HELCO has a power purchase agreement with PGV for 25 MW of firm capacity. HELCO is currently negotiating with PGV for an additional 5 MW of firm capacity, which is projected to be available in 1996 if negotiations are successful. HELCO concluded some time ago that by this time there would be an unsatisfactory margin between its forecasted load and its generating and firm purchase power capability. In view of its need for additional power, HELCO has been proceeding with plans to install two 20-MW combustion turbines, followed by an 18-MW heat steam recovery generator, at which time these units would be converted to a 56-MW (net) combined-cycle unit. In January 1994, the PUC had approved expenditures for the first combustion turbine, which HELCO had planned to install in late 1994. However, installation has been delayed because HELCO has encountered procedural and other difficulties in obtaining the necessary air permit and Conservation District Use Permit (CDUP) that would allow the 56-MW unit to be constructed. The Hawaii Department of Health, in September 1995, sent the air permit to the EPA for its approval, and a contested case hearing with respect to the CDUP is scheduled for November 1995. Because of the delays that have occurred, the earliest that the combustion turbines could now be installed is the third quarter of 1996. During the period of delay, two independent power producers (IPPs) filed separate complaints against HELCO with the PUC, alleging that they are entitled to a power purchase contract to provide HELCO with additional capacity, which under HELCO's current estimates of generating capacity requirements would be in place of the planned 56-MW addition by HELCO. In July 1995, the PUC issued a decision and order in a docket involving one of the IPPs, Kawaihae Cogeneration Partners. In the order, the PUC stated its position on various issues affecting HELCO's avoided cost calculations (several of which were contrary to HELCO's recommendations). In September 1995, the PUC allowed HELCO to continue to pursue construction of and commit expenditures for the second combustion turbine and the steam recovery generator for its planned combined-cycle unit, stating in its order that "no part of the project may be included in HELCO's rate base unless and until the project is in fact installed, and is used and useful for utility purposes." In view of permitting delays and the need for power, the PUC also ordered HELCO to continue negotiating with the IPPs and directed that the facility to be built should be the one that can be most expeditiously put into service at "allowable cost". In September 1995, HELCO provided proposals to the two IPPs seeking to provide HELCO with additional capacity, and further negotiations have been undertaken. HELCO and the two IPPs have submitted reports to the PUC on the status of these negotiations. Management cannot determine at this time whether the negotiations with the IPPs will result in a power purchase agreement. If the negotiations result in a power purchase agreement, HELCO will need to evaluate alternatives for the costs ($41 million as of September 30, 1995) already incurred to put into service its own 56-MW combined-cycle unit. HELCO might be required to write off a portion of the incurred costs if such costs ultimately are not recoverable from customers or others. In June 1995, HELCO filed with the PUC its generation resource contingency plan detailing alternatives and mitigation measures to address possible further delays in obtaining the permits necessary to construct its combined-cycle unit. HELCO is actively working to implement viable, timely and cost-effective alternatives, including demand-side management measures, dispersed generation additions and the delay of unit retirements. HELCO filed an application with the PUC in October 1995 seeking approval of expenditures for dispersed generation diesel units (at an estimated cost of $7 million) that could provide power by late 1996. Until the margin between the forecasted load and capacity reaches an acceptable level, management believes that there is a risk of capacity shortages on the island of Hawaii that could result in rolling blackouts within the next year. HECO POWER OUTAGE On April 9, 1991, HECO experienced a power outage that affected all customers on the island of Oahu. The PUC initiated an investigation of the outage, which was consolidated with a pending investigation of an outage that occurred in 1988. Management cannot predict the timing and outcome of any PUC decision and order, if any, with respect to the outages. As a result of the April 9, 1991 outage, HECO received 3,063 customer claims, which totaled approximately $7.8 million, within the time limit to file claims. 1,530 of these claims were for property damage and most have been settled, with no admission of liability, or closed. None of the other 1,533 claims, which generally involve personal injury or economic loss, such as lost profits, has been settled. HECO's PUC-approved tariff states that HECO is not liable for interruptions or insufficiency of supply when the cause was beyond HECO's control through the exercise of reasonable diligence and care. 13 Seven direct or indirect business customers filed a lawsuit against HECO on behalf of themselves and an alleged class, claiming $75 million in compensatory damages and additional unspecified amounts for punitive damages because of the April 9, 1991 outage. HECO filed an answer which denies the principal allegations in the complaint. In August 1995, the circuit court ruled that it would not certify the case as a class action. Trial has been set for January 1996. In 1991, HECO recorded a liability of $1 million for the total amount of expected defense costs and settlements with respect to the outage. In the opinion of management, losses, if any, in excess of the amount for which provision has been made, net of estimated insurance recoveries, resulting from the ultimate outcome of the lawsuit and claims related to the April 1991 outage will not have a material adverse effect on the financial condition or results of operations of HECO and its subsidiaries. (4) ACCOUNTING CHANGE - ---------------------- See note (6), "Accounting changes--Long-lived assets," in HEI's "Notes to consolidated financial statements." (5) SUMMARIZED FINANCIAL INFORMATION - ------------------------------------- Summarized financial information for HECO's consolidated subsidiaries, HELCO and MECO, is as follows:
BALANCE SHEET DATA HELCO MECO ----------------------------- ----------------------------- September 30, December 31, September 30, December 31, (in thousands) 1995 1994 1995 1994 - ---------------------------------------------------------------------------------------------------------- Current assets............................. $ 26,944 $ 25,151 $ 25,533 $ 29,204 Noncurrent assets.......................... 363,068 335,725 294,620 272,019 -------- -------- -------- -------- $390,012 $360,876 $320,153 $301,223 ======== ======== ======== ======== Common stock equity........................ $126,451 $120,908 $112,716 $108,313 Cumulative preferred stock Not subject to mandatory redemption...... 10,000 10,000 8,000 8,000 Subject to mandatory redemption.......... 7,800 7,800 6,355 6,545 Current liabilities........................ 73,767 59,787 46,881 34,197 Noncurrent liabilities..................... 171,994 162,381 146,201 144,168 -------- -------- -------- -------- $390,012 $360,876 $320,153 $301,223 ======== ======== ======== ========
INCOME STATEMENT DATA HELCO MECO -------------------------------------- -------------------------------------- Three months ended Nine months ended Three months ended Nine months ended September 30, September 30, September 30, September 30, ------------------ ----------------- ------------------ ----------------- (in thousands) 1995 1994 1995 1994 1995 1994 1995 1994 - ---------------------------------------------------------------------------------------------------------- Operating revenues........ $34,937 $34,383 $101,183 $94,001 $34,029 $31,955 $95,270 $88,614 Operating income.......... 4,613 3,227 11,969 8,551 4,406 4,228 12,296 11,905 Net income for common stock.................. 3,983 2,327 9,642 5,862 3,310 2,798 8,409 7,242
14 (6) RECONCILIATION OF ELECTRIC UTILITY OPERATING INCOME PER HEI AND HECO - ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME ---------------------------------
Three months ended Nine months ended September 30, September 30, -------------------- -------------------- (in thousands) 1995 1994 1995 1994 - -------------------------------------------------------------------------------------------------------------------- OPERATING INCOME FROM REGULATED AND NONREGULATED ACTIVITIES BEFORE INCOME TAXES (PER HEI CONSOLIDATED STATEMENTS OF INCOME) .. $ 50,671 $ 40,649 $124,383 $ 98,790 Deduct: Income taxes on regulated activities ........................... (16,760) (13,386) (40,030) (31,216) Revenues from nonregulated activities .......................... (1,763) (1,820) (4,968) (4,555) Add: Expenses from nonregulated activities .......................... 116 265 590 456 -------- -------- -------- -------- OPERATING INCOME FROM REGULATED ACTIVITIES AFTER INCOME TAXES (PER HECO CONSOLIDATED STATEMENTS OF INCOME) ..................... $ 32,264 $ 25,708 $ 79,975 $ 63,475 ======== ======== ======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS --------------------- The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes. RESULTS OF OPERATIONS
CONSOLIDATED - ------------ Three months ended September 30, (in thousands, except -------------------- per share amounts) 1995 1994 % change Primary reason(s) for significant change* - ---------------------------------------------------------------------------------------------------------------- Revenues ...................... $336,881 $319,156 6 Increase for the electric utility and savings bank segments Operating income .............. 56,675 51,550 10 Increase for the electric utility segment Net income .................... 25,151 22,691 11 Higher operating income and lower effective tax rate, partly offset by higher interest expense due to higher average borrowings Earnings per common share ..... 0.86 0.80 8 See explanation for "net income," partly offset by an increase in shares outstanding Weighted average number of common shares outstanding ... 29,331 28,255 4 Issuances under the Dividend Reinvestment and Stock Purchase Plan and other plans
* Also see segment discussions which follow. 15
Nine months ended September 30, (in thousands, except -------------------- per share amounts) 1995 1994 % change Primary reason(s) for significant change* - ---------------------------------------------------------------------------------------------------------------- Revenues ...................... $963,052 $868,754 11 Increase for the electric utility and savings bank segments Operating income .............. 147,054 127,909 15 Increase for the electric utility segment Net income .................... 61,878 52,111 19 Higher operating income and lower effective tax rate, partly offset by higher interest expense due to higher average borrowings Earnings per common share ..... 2.13 1.86 15 See explanation for "net income," partly offset by an increase in shares outstanding Weighted average number of common shares outstanding .... 29,058 28,014 4 Issuances under the Dividend Reinvestment and Stock Purchase Plan and other plans
* Also see segment discussions which follow. Following is a general discussion of the results of operations by business segment.
ELECTRIC UTILITY - ---------------- Three months ended September 30, (in thousands, except -------------------- per share amounts) 1995 1994 % change Primary reason(s) for significant change - ---------------------------------------------------------------------------------------------------------------- Revenues ...................... $261,886 $249,664 5 Higher rates ($11 million), higher fuel oil prices ($3 million) which are passed on to customers and a 0.9% increase in KWH sales ($2 million), partly offset by lower revenues due to change in KWH sales mix Expenses Fuel oil ..................... 57,365 53,329 8 Higher fuel oil prices and more KWHs generated Purchased power .............. 70,250 73,514 (4) Lower costs associated with a power purchase agreement due in part to prior year nonrecurring expenses, partly offset by more KWHs purchased Other ........................ 83,600 82,172 2 Higher taxes, other than income taxes, and depreciation expense, partly offset by lower other operation and maintenance expense Operating income .............. 50,671 40,649 25 Higher rates and a 0.9% increase in KWH sales, partly offset by higher expenses Net income .................... 24,819 19,328 28 Higher operating income and higher AFUDC, partly offset by higher interest expense Fuel oil price per barrel ..... 21.26 20.10 6
16
Nine months ended September 30, (in thousands, except -------------------- per share amounts) 1995 1994 % change Primary reason(s) for significant change - ---------------------------------------------------------------------------------------------------------------- Revenues ...................... $738,913 $670,381 10 Higher rates ($40 million), higher fuel oil prices ($23 million) which are passed on to customers and a 1.7% increase in KWH sales ($11 million) due primarily to an increase in load partly from warmer weather Expenses Fuel oil ..................... 154,658 133,409 16 Higher fuel oil prices and more KWHs generated Purchased power .............. 204,993 205,794 0 Lower costs associated with a power purchase agreement due in part to prior year nonrecurring expenses, partly offset by more KWHs purchased Other ........................ 254,879 232,388 10 Higher other operation and maintenance expense including the increase in PBOP expense, depreciation expense and taxes, other than income taxes Operating income .............. 124,383 98,790 26 Higher rates and a 1.7% increase in KWH sales, partly offset by higher expenses Net income .................... 58,159 43,792 33 Higher operating income and higher AFUDC, partly offset by higher interest expense Fuel oil price per barrel ..... 20.57 18.07 14
There have been a number of rate changes for HECO and its subsidiaries in 1994 and 1995. Among the most significant changes were HECO's interim rate increases and the rate increase for PBOP for HECO and its subsidiaries. HECO received interim rate relief in April, May and November 1994 for test year 1994. HECO's first quarter 1994 results did not include interim rate relief. For test year 1995, HECO received interim rate relief on January 1, 1995 and in May, August and November 1995. The PUC's decision allowing recovery of PBOP costs was also effective on January 1, 1995. Thus, consolidated revenues for the first nine months of 1995 included approximately $40 million from rate increases that became effective after the first nine months of 1994. MAJOR CUSTOMERS For 1994, approximately 10% of consolidated operating revenues of HECO and its subsidiaries was from the sale of electricity to various federal government agencies. One of HECO's large customers, the Naval Base at Barbers Point, Oahu, is expected to be closed within the next few years. However, HECO anticipates that the base closure will result in little, if any, loss in aggregate KWH sales, as the Navy will continue to occupy portions of Barbers Point and much of the surplus facilities and land currently not utilized by the Navy will probably be occupied by state agencies. The Navy is currently conducting preliminary self-/co-generation feasibility studies for the Pearl Harbor Naval Base and the Marine Corps Base Hawaii. The studies were initiated to investigate cost reduction opportunities. HECO is working with the Navy to develop a long-term service arrangement that is beneficial to both parties. 17 On March 8, 1994, President Clinton signed an Executive Order which mandates that each federal agency develop and implement a program with the intent of reducing energy consumption by 30% by the year 2005. The 30% reduction will be measured relative to the agency's 1985 energy use. HECO is working with various federal government agencies such as the Department of Defense to implement demand-side management programs which will help them achieve their energy reduction objectives. Some Department of Defense installations may sign a Basic Ordering Agreement with HECO under which HECO would finance and install energy conservation projects for them. Neither HEI nor HECO management can predict with certainty the impact of President Clinton's Executive Order on the future results of operations of the Company or of HECO and its subsidiaries. REGULATION OF ELECTRIC UTILITY RATES The PUC has broad discretion in its regulation of the rates charged by HEI's electric utility subsidiaries and in other matters. Any adverse decision by the PUC concerning the level or method of determining electric utility rates, the authorized returns on equity or other matters, or any prolonged delay in rendering a decision in a rate or other proceeding, could have a material adverse effect on the Company's financial condition and results of operations. Upon a showing of probable entitlement, the PUC is required to issue an interim decision in a rate case within 10 months from the date of filing a completed application if the evidentiary hearing is completed (subject to extension for 30 days if the evidentiary hearing is not completed). There is no time limit for rendering a final decision. Interim rate increases are subject to refund with interest, pending the final outcome of the case. Pending rate requests - --------------------- . In December 1993, HECO applied to the PUC for permission to increase electric rates, based on a 1995 test year. The requested increase, as subsequently revised, represents an increase of approximately $28.2 million in annual revenues over revenues from permanent rates in effect at the time of the revised filing, and was based on a 13.25% return on average common equity. The revised requested increase was needed to cover rising operating costs and costs of new capital projects to maintain and improve service reliability. In December 1994, HECO received an interim decision and order authorizing an increase of $13.5 million, or 1.9%, in annual revenues, based on a 12.6% return on average common equity. Approximately $10.6 million, $1.5 million and $1.4 million of the interim increase took effect on January 1, May 1, and November 1, 1995, respectively. HECO received another interim decision and order authorizing an increase of $5.4 million, or 0.8%, in annual revenues, effective August 31, 1995, to cover the carrying cost of two transmission lines in western Oahu. . In February 1995, MECO applied to the PUC for permission to increase electric rates to provide $23 million in annual revenues, which represents a 17.4% increase over current rates, based on a 1996 test year and a 13.5% return on average common equity. A hearing on the application is scheduled for January 1996. . In March 1995, HELCO applied to the PUC for permission to increase electric rates to provide $27 million in additional annual revenues (excluding the effect of the potential imposition on HELCO of real property taxes), which represents an 18.7% increase over current rates, based on a 1996 test year and a 13.5% return on average common equity. A hearing on the application is scheduled for January 1996. Management cannot predict with certainty when decisions in pending or future rate cases will be rendered or the amount of any interim or final rate increase that will be granted. Self-Insured Property Damage Reserve - ------------------------------------ In March 1995, the PUC opened a generic docket to investigate whether the public utilities in the State of Hawaii should be allowed to establish self-insured property damage reserves to cover the cost of damage to their facilities and equipment caused by catastrophic disasters. HECO's overhead transmission and distribution system is susceptible to wind and earthquake damage, and its underground system is susceptible to earthquake and flood damage. The overhead and underground transmission and distribution systems have a replacement value roughly estimated at about $2 billion and are uninsured because the amount of transmission and distribution system insurance available is limited and the premiums are extremely high. Hearings on this docket are scheduled for August 1996. 18
SAVINGS BANK - ------------ Three months ended September 30, ------------------ % (in thousands) 1995 1994 change Primary reason(s) for significant change - ----------------------------------------------------------------------------------------------------------------------------------- Revenues................ $ 63,151 $ 54,389 16 Higher interest income as a result of higher average mortgage-backed securities balance and yield, partly offset by lower average loans receivable balance Operating income........ 9,689 11,202 (14) Lower net interest income due to lower interest rate spread Net income.............. 5,642 6,533 (14) Lower operating income Interest rate spread.... 2.84% 3.51% 18 basis points increase in the weighted average yield on interest- earning assets, offset by 85 basis points increase in the weighted average rate on interest-bearing liabilities Nine months ended September 30, ------------------ % (in thousands) 1995 1994 change Primary reason(s) for significant change - ----------------------------------------------------------------------------------------------------------------------------------- Revenues................ $185,473 $156,784 18 Higher interest income as a result of higher average mortgage-backed securities balance and yield, partly offset by lower average loans receivable balance Operating income........ 29,757 32,497 (8) Lower net interest income due to lower interest rate spread and higher compensation and employee benefits expenses Net income.............. 17,295 18,959 (9) Lower operating income Interest rate spread.... 2.93% 3.67% 10 basis points increase in the weighted average yield on interest- earning assets, offset by 84 basis points increase in the weighted average rate on interest-bearing liabilities In 1994, the federal funds rate, which is the rate charged by banks for overnight loans to each other and which has a significant influence on deposit and loan rates, increased 250 basis points to 5.5%. In the first nine months of 1995, the federal funds rate increased a net 25 basis points to 5.75%. The demand for mortgage loans has decreased due to the slow real estate market in Hawaii. Another trend has been the outflow of deposits partly due to competition from money market funds. In the first nine months of 1995, there was a savings outflow of $10 million, offset by interest credited to deposit accounts of $58 million. In 1994, for funding loans and purchasing mortgage-backed securities, ASB turned to higher cost advances from the Federal Home Loan Bank and securities sold under agreements to repurchase. In the first nine months of 1995, securities sold under agreements to repurchase became a more significant source of funds for ASB as they were generally a less costly source of funds than advances from the Federal Home Loan Bank. Securities sold under agreements to
19 repurchase and advances, rather than deposits, are increasingly more important sources of funds for ASB and this puts downward pressure on ASB's interest rate spread. The decrease in interest rate spread can also be attributed to the changing interest rate environment. During 1994 and the first nine months of 1995, generally rising interest rates caused the cost of interest-bearing liabilities to increase. However, the average yield on interest-earning assets for 1994 decreased 48 basis points compared to 1993 due in part to 1993's refinancings and the lag in the repricing of adjustable loans and mortgage-backed securities. The average yield for the first nine months of 1995 increased only 10 basis points over the first nine months of 1994 as the repricing of interest-earning assets lagged the repricing of interest-bearing liabilities. Further, the flattening of the yield curve also contributed to the decrease in ASB's interest rate spread. In the future, ASB's cost of interest-bearing liabilities may further increase, which may result in a decreased interest rate spread and lower net interest income. If interest rates stabilize and the yield curve widens, however, ASB's spread is expected to improve.
OTHER - ----- Three months ended September 30, ------------------ (in thousands) 1995 1994 % change Primary reason(s) for significant change - ------------------------------------------------------------------------------------------------------------- Revenues ...................... $11,844 $15,103 (22) HEIIC pre-tax loss on disposition of a leveraged lease investment ($2 million), MPC's Baldwin* Malama lower unit sales and freight transportation subsidiaries' lower contract tows and harbor assists Operating loss ................ (3,685) (301) NM HEIIC pre-tax loss on disposition of a leveraged lease investment, freight transportation subsidiaries' lower contract tows and harbor assists and higher maintenance expense and startup costs of HEIPC Nine months ended September 30, ------------------ (in thousands) 1995 1994 % change Primary reason(s) for significant change - ------------------------------------------------------------------------------------------------------------- Revenues ...................... $38,666 $41,589 (7) MPC deferral of agreement of sales revenues and reduced margins from joint venture sales and HEIIC's loss on disposition of a leveraged lease investment, partly offset by YB's higher general freight and interstate revenues Operating loss ................ (7,086) (3,378) NM HEIIC loss on disposition of a leveraged lease investment, startup costs of HEIPC and real estate activity losses
NM Not meaningful The "Other" business segment includes results of operations from HTB and its subsidiary, YB, which are maritime freight transportation companies; HEIIC, which is a company primarily holding investments in leveraged leases; MPC and its subsidiaries, which are real estate investment and development companies; PECS, which is an inactive energy service company; HEIPC, which is a company formed in March 1995 to pursue independent power projects in Asia and the Pacific and which will pursue energy conservation projects in place of PECS; HEI and HEIDI, which are holding companies; and eliminations of intercompany transactions. 20 REAL ESTATE In 1994 and the first nine months of 1995, MPC's real estate development activities were adversely impacted by economic conditions. The real estate market continued to experience slowdowns due to the weakness in Hawaii's economy. It is not expected that there will be significant growth in Hawaii's economy or a rebound in Hawaii's real estate market in the near term, although the recent decline in mortgage interest rates enhances the relative affordability of Hawaii real estate. MPC's present focus is to reduce its current investment in real estate development assets and increase cash flow by continuing the development and sales of its existing projects. There are currently no plans to invest in new projects. For further information on MPC, see note (4) in HEI's "Notes to consolidated financial statements." OTHER In 1995, HEIPC and its joint venture partners submitted bids on two foreign independent power projects. To date, the bids have not been awarded. It is anticipated that future independent power projects will be financed largely with project debt. DISCONTINUED OPERATIONS - ----------------------- See note (7) in HEI's "Notes to consolidated financial statements" for information on the discontinued operations of HIG. ACCOUNTING CHANGES - ------------------ For discussions of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," see note (6) in HEI's "Notes to consolidated financial statements" and note (4) in HECO's "Notes to consolidated financial statements." For a discussion of SFAS No. 122, "Accounting for Mortgage Servicing Rights" and SFAS No. 123, "Accounting for Stock-Based Compensation," see note (6) in HEI's "Notes to consolidated financial statements." FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company and consolidated HECO believe that their ability to generate cash, both internally from operations and externally from debt and equity issues, is adequate to maintain sufficient liquidity to fund their construction programs and to cover debt retirements and other cash requirements in the foreseeable future. The consolidated capital structure of HEI was as follows:
(in millions) September 30, 1995 December 31, 1994 - ---------------------------------------------------------------------------------------- Short-term borrowings................... $ 180 11% $ 137 8% Long-term debt.......................... 754 43 718 44 Preferred stock of electric utility subsidiaries........................... 91 5 93 6 Common stock equity..................... 721 41 682 42 ------ --- ------ --- $1,746 100% $1,630 100% ====== === ====== ===
ASB's deposit liabilities, securities sold under agreements to repurchase and advances from the Federal Home Loan Bank are not included in the table above. In May 1995, Standard & Poor's (S&P) raised HECO's unsecured notes rating to "BBB+" from the previous rating of "BBB." S&P announced that it had redefined its criteria for distinguishing senior and junior issues of a corporate borrower and changed the ratings of about 50 entities. S&P said the rating changes in no way reflect any reassessment of the issuers' fundamental credit quality. In June 1995, S&P revised its rating outlook on HEI's and HECO's ratings to "positive" from "stable." In a press release, S&P said "[t]he outlook change reflects several positive trends, including diminishing construction expenditures in nearby years, continuing regulatory support, improved reliability, higher sales volumes, and signs of a modest recovery in Hawaii's economy, as well as expectations for gradual financial improvement." 21 Neither HEI nor HECO management can predict with certainty future rating agency actions or their effects on the future cost of capital to HEI or HECO. For the first nine months of 1995, net cash provided by operating activities was $100 million. Net cash used in investing activities was $325 million, largely due to ASB's loan originations and consolidated HECO's capital expenditures. Net cash provided by financing activities was $223 million, due primarily to a net increase in securities sold under agreements to repurchase, long-term debt, deposit liabilities and short-term borrowings, partly offset by a net decrease in advances from Federal Home Loan Bank and by common stock dividends. Following is a discussion of the liquidity and capital resources of HEI's largest segments. ELECTRIC UTILITY - ---------------- HECO's consolidated capital structure was as follows:
(in millions) September 30, 1995 December 31, 1994 - ------------------------------------------------------------------------------------- Short-term borrowings from nonaffiliates and affiliate.............. $ 151 11% $ 118 9% Long-term debt, net....................... 527 37 489 37 Preferred stock........................... 91 6 93 7 Common stock equity....................... 667 46 634 47 ------ --- ------ --- $1,436 100% $1,334 100% ====== === ====== ===
Operating activities provided $91 million in net cash during the first nine months of 1995. Investing activities used cash of $138 million primarily for capital expenditures net of contributions in aid of construction. Financing activities provided cash of $36 million primarily from net increases in long- term debt (i.e., the drawdown of revenue bond proceeds, net of the repayments of long-term debt) and short-term borrowings, offset by common and preferred dividends. In January 1995, the Department of Budget and Finance of the State of Hawaii issued tax-exempt special purpose revenue bonds in the principal amount of $47 million, with a maturity of 30 years and a fixed coupon interest rate of 6.60%, and loaned the proceeds from the sale to HECO, HELCO and MECO. The bonds were issued at a discount, resulting in a yield of approximately 6.75%. As of September 30, 1995, an additional $170 million of revenue bonds had been authorized by the Hawaii Legislature for issuance prior to the end of 1997. SAVINGS BANK - ------------
(in millions) September 30, 1995 December 31, 1994 % - ------------------------------------------------------------------------------------------------- Assets........................................... $3,307 $3,116 6% Mortgage-backed securities....................... 1,318 1,067 24 Loans receivable, net............................ 1,756 1,824 (4) Deposit liabilities.............................. 2,177 2,129 2 Securities sold under agreements to repurchase...................................... 329 123 167 Advances from Federal Home Loan Bank............. 540 616 (12)
At June 30, 1995, ASB was the fourth largest financial institution in the state based on total assets of $3.2 billion and the third largest financial institution based on deposits of $2.2 billion. The 24% increase in mortgage- backed securities in the first nine months of 1995 was primarily due to the securitization of $223 million of loans receivable. Under OTS rules, these securitized loans (i.e., Federal National Mortgage Association mortgage-backed securities) require less capital than loans receivable. Thus, ASB has securitized loans to support its recent growth. For the first nine months of 1995, cash used in ASB's investing activities was $183 million, due largely to the origination of loans receivable and purchase of mortgage-backed securities, partly offset by principal repayments. Cash provided by financing activities was $165 million as a result of a net increase of $204 million in securities sold under agreements to repurchase and a $48 million increase in deposit liabilities, partly offset by a net decrease of $77 million in advances from the Federal Home Loan Bank of Seattle and by common stock dividends of $10 million. 22 As of September 30, 1995, ASB was in full compliance with the OTS minimum capital requirements (noted in parenthesis) with a tangible capital ratio of 5.0% (1.5%), a core capital ratio of 5.1% (3.0%) and a risk-based capital ratio of 11.8% (8.0%). The OTS has adopted a rule adding an interest rate risk (IRR) component to the existing risk-based capital requirement effective January 1, 1994. The OTS, however, announced its intention to delay implementation of the IRR capital deduction until it can finalize an appeals process for institutions subject to such deductions. Institutions with an "above normal" level of IRR exposure will be required to deduct an amount from total capital and may be required to hold additional capital. As of September 30, 1995, ASB would not have been required to deduct an amount from total capital or to hold additional capital if the rule adding the IRR component had been implemented. Federal Deposit Insurance Corporation regulations restrict the ability of financial institutions that are not "well-capitalized" to offer interest rates on deposits that are significantly higher than the rates offered by competing institutions. As of September 30, 1995, ASB was "well-capitalized" (ratio requirements noted in parenthesis) with a leverage ratio of 5.1% (5.0%), a Tier- 1 risk-based ratio of 11.3% (6.0%) and a total risk-based ratio of 11.8% (10%). For a discussion of proposed legislation affecting financial institutions, see note (3) in HEI's "Notes to consolidated financial statements." PART II - OTHER INFORMATION - -------------------------------------------------------------------------------- ITEM 1. LEGAL PROCEEDINGS - -------------------------- There are no significant developments except as set forth in HEI's and HECO's "Notes to consolidated financial statements," management's discussion and analysis of financial condition and results of operations and Item 5, "Other information." ITEM 5. OTHER INFORMATION - -------------------------- A. HECO's President and Chief Executive Officer's retirement On September 1, 1995, Harwood. D. Williamson, 63 years old, retired from the positions of HEI Senior Vice President and HECO President and Chief Executive Officer. T. Michael May, 48 years old and former HECO Senior Vice President, succeeded Mr. Williamson in these positions. B. Ratio of earnings to fixed charges The following tables set forth the ratio of earnings to fixed charges for HEI and its subsidiaries for the periods indicated: RATIO OF EARNINGS TO FIXED CHARGES EXCLUDING INTEREST ON ASB DEPOSITS Nine months Years Ended December 31, ended -------------------------------------------- September 30, 1995 1994 1993 1992 1991 1990 ------------------ ---- ---- ---- ---- ---- 2.03 2.22 2.25 2.08 1.99 1.76 ==== ==== ==== ==== ==== ==== RATIO OF EARNINGS TO FIXED CHARGES INCLUDING INTEREST ON ASB DEPOSITS Nine months Years Ended December 31, ended -------------------------------------------- September 30, 1995 1994 1993 1992 1991 1990 ------------------ ---- ---- ---- ---- ---- 1.62 1.69 1.65 1.50 1.46 1.39 ==== ==== ==== ==== ==== ==== 23 For purposes of calculating the ratio of earnings to fixed charges, "earnings" represent the sum of (i) pretax income from continuing operations (excluding undistributed net income or net loss from less than fifty-percent-owned persons) and (ii) fixed charges (as hereinafter defined, but excluding capitalized interest). "Fixed charges" are calculated both excluding and including interest on ASB's deposits during the applicable periods and represent the sum of (i) interest, whether capitalized or expensed, incurred by HEI and its subsidiaries plus their proportionate share of interest on debt to outsiders incurred by fifty-percent-owned persons, but excluding interest on nonrecourse debt from leveraged leases which is not included in interest expense in HEI's consolidated statements of income, (ii) amortization of debt expense and discount or premium related to any indebtedness, whether capitalized or expensed, (iii) the interest factor in rental expense and (iv) the preferred stock dividend requirements of HEI's subsidiaries, increased to an amount representing the pretax earnings required to cover such dividend requirements. The following table sets forth the ratio of earnings to fixed charges for HECO and its subsidiaries for the periods indicated: RATIO OF EARNINGS TO FIXED CHARGES
Nine months Years Ended December 31, ended ------------------------------------------------ September 30, 1995 1994 1993 1992 1991 1990 - -------------------- ---- ---- ---- ---- ---- 3.66 3.47 3.25 3.03 2.82 2.99 ==== ==== ==== ==== ==== ====
For purposes of calculating the ratio of earnings to fixed charges, "earnings" represent the sum of (i) pretax income before preferred stock dividends of HECO and (ii) fixed charges (as hereinafter defined, but excluding the allowance for borrowed funds used during construction). "Fixed charges" represent the sum of (i) interest, whether capitalized or expensed, incurred by HECO and its subsidiaries, (ii) amortization of debt expense and discount or premium related to any indebtedness, whether capitalized or expensed, (iii) the interest factor in rental expense and (iv) the preferred stock dividend requirements of HELCO and MECO, increased to an amount representing the pretax earnings required to cover such dividend requirements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (a) EXHIBITS HEI Hawaiian Electric Industries, Inc. and subsidiaries Exhibit 12(a) Computation of ratio of earnings to fixed charges, nine months ended September 30, 1995 and 1994 HECO Hawaiian Electric Company, Inc. and subsidiaries Exhibit 12(b) Computation of ratio of earnings to fixed charges, nine months ended September 30, 1995 and 1994 HEI Hawaiian Electric Industries, Inc. and subsidiaries Exhibit 27(a) Financial data schedule, September 30, 1995 and nine months ended September 30, 1995 HECO Hawaiian Electric Company, Inc. and subsidiaries Exhibit 27(b) Financial data schedule, September 30, 1995 and nine months ended September 30, 1995 (b) REPORTS ON FORM 8-K
During the quarter, no Current Report, Form 8-K, was filed with the SEC. 24 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) By /s/ Robert F. Mougeot By /s/ Paul Oyer ---------------------------- ------------------------------- Robert F. Mougeot Paul A. Oyer Financial Vice President and Financial Vice President and Chief Financial Officer Treasurer (Principal Financial Officer (Principal Financial Officer of of HEI) HECO) Date: November 7, 1995 Date: November 7, 1995 25 EX-12.(A) 2 COMP./RATIO OF EARNINGS TO FIXED CHARGES FOR HEI HEI Exhibit 12(a) -----------------
Hawaiian Electric Industries, Inc. and subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (unaudited) Nine months ended September 30, ------------------------------------------ (dollars in thousands) 1995 (1) 1995 (2) 1994 (1) 1994 (2) - ------------------------------------------------------------------------------------ FIXED CHARGES Total interest charges The Company (3)........................ $ 86,017 $151,858 $ 58,970 $115,432 Proportionate share of fifty- percent-owned persons................. 705 705 302 302 Interest component of rentals............. 2,913 2,913 2,824 2,824 Pretax preferred stock dividend requirements of subsidiaries............. 8,661 8,661 9,095 9,095 -------- -------- -------- -------- TOTAL FIXED CHARGES....................... $ 98,296 $164,137 $ 71,191 $127,653 ======== ======== ======== ======== EARNINGS Pretax income from continuing operations.. $106,880 $106,880 $ 91,710 $ 91,710 Fixed charges, as shown................... 98,296 164,137 71,191 127,653 Interest capitalized The Company............................ (4,741) (4,741) (3,488) (3,488) Proportionate share of fifty- percent-owned persons................. (705) (705) (302) (302) -------- -------- -------- -------- EARNINGS AVAILABLE FOR FIXED CHARGES...... $199,730 $265,571 $159,111 $215,573 ======== ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES........ 2.03 1.62 2.23 1.69 ======== ======== ======== ========
(1) Excluding interest on ASB deposits. (2) Including interest on ASB deposits. (3) Total interest charges exclude interest on nonrecourse debt issued in connection with leveraged leases which is not included in interest expense in HEI's consolidated statements of income. EX-12.(B) 3 COMP./RATIO OF EARNINGS FO FIXED CHARGES FOR HECO HECO Exhibit 12(b) ------------------ Hawaiian Electric Company, Inc. and subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (unaudited)
Nine months ended September 30, ------------------- (dollars in thousands) 1995 1994 - ------------------------------------------------------------- FIXED CHARGES Total interest charges................. $ 32,691 $ 27,770 Interest component of rentals.......... 508 622 Pretax preferred stock dividend requirements of subsidiaries......... 3,377 3,491 -------- -------- TOTAL FIXED CHARGES.................... $ 36,576 $ 31,883 ======== ======== EARNINGS Income before preferred stock dividends of HECO............................... $ 61,267 $ 47,041 Income taxes (see note below).......... 39,757 31,155 Fixed charges, as shown................ 36,576 31,883 AFUDC for borrowed funds............... (3,832) (2,886) -------- -------- EARNINGS AVAILABLE FOR FIXED CHARGES... $133,768 $107,193 ======== ======== RATIO OF EARNINGS TO FIXED CHARGES..... 3.66 3.36 ======== ======== Note: Income taxes is comprised of the following: Expense relating to operating income from regulated activities........... $ 40,030 $ 31,216 Benefit relating to loss from nonregulated activities............. (273) (61) -------- -------- $ 39,757 $ 31,155 ======== ========
EX-27.(A) 4 ARTICLE 5 FDS FOR HEI
5 This schedule contains summary financial information extracted from Hawaiian Electric Industries, Inc. and subsidiaries' consolidated balance sheet as of September 30, 1995 and consolidated statement of income for the nine months ended September 30, 1995 and is qualified in its entirety by reference to such financial statements. 0000354707 Hawaiian Electric Industries, Inc. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 85,261 1,352,397 140,376 0 39,399 0 2,570,848 802,984 5,469,175 0 753,338 574,392 43,100 48,293 146,320 5,469,175 0 963,052 0 815,998 (6,224) 0 46,398 106,880 45,002 61,878 0 0 0 61,878 2.13 2.13
EX-27.(B) 5 ARTICLE UT FDS FOR HECO
UT This schedule contains summary financial information extracted from Hawaiian Electric Company, Inc. and subsidiaries' consolidated balance sheet as of September 30, 1995 and consolidated statement of income and consolidated statement of cash flows for the nine months ended September 30, 1995 and is qualified in its entirety by reference to such financial statements. 0000046207 Hawaiian Electric Co., Inc. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 PER-BOOK 1,679,276 0 156,200 10,185 138,407 1,984,068 78,766 246,689 341,097 666,552 40,880 48,293 517,182 17,000 0 134,011 9,902 2,220 0 0 548,028 1,984,068 733,945 40,030 613,940 653,970 79,975 12,226 92,201 30,934 61,267 3,108 58,159 25,597 35,997 91,043 0 0
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