-----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, C6qUDzoGpPd3MArChVUrtgrHs46opBaK9n+ACXdA4DarUZlT+yZUaOL6bmOUUvwb jf9cLsn7tq0cfzwAWEluIg== 0000898430-96-001915.txt : 19960517 0000898430-96-001915.hdr.sgml : 19960517 ACCESSION NUMBER: 0000898430-96-001915 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE 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: 96564963 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 THE QUARTER ENDED 03/31/96 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 March 31, 1996 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 May 1, 1996 - ------------------------------------------------------------------------------- Hawaiian Electric Industries, Inc. (Without Par Value)........... 30,136,062 Shares Hawaiian Electric Company, Inc. ($6 2/3 Par Value). ............... 12,302,657 Shares (not publicly traded) =============================================================================== Hawaiian Electric Industries, Inc. and subsidiaries Hawaiian Electric Company, Inc. and subsidiaries Form 10-Q--Quarter ended March 31, 1996 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) - March 31, 1996 and December 31, 1995............................................ 1 Consolidated statements of income (unaudited) - three months ended March 31, 1996 and 1995.................................... 2 Consolidated statements of retained earnings (unaudited) - three months ended March 31, 1996 and 1995............................. 2 Consolidated statements of cash flows (unaudited) - three months ended March 31, 1996 and 1995.................................... 3 Notes to consolidated financial statements (unaudited)............ 4 Hawaiian Electric Company, Inc. and subsidiaries ------------------------------------------------ Consolidated balance sheets (unaudited) - March 31, 1996 and December 31, 1995............................................ 9 Consolidated statements of income (unaudited) - three months ended March 31, 1996 and 1995.................................... 10 Consolidated statements of retained earnings (unaudited) - three months ended March 31, 1996 and 1995....................... 10 Consolidated statements of cash flows (unaudited) - three months ended March 31, 1996 and 1995.................................... 11 Notes to consolidated financial statements (unaudited)............ 12 Item 2. Management's discussion and analysis of financial condition and results of operations........................................ 16 PART II. OTHER INFORMATION Item 1. Legal proceedings................................................. 22 Item 4. Submission of matters to a vote of security holders............... 22 Item 5. Other information................................................. 23 Item 6. Exhibits and reports on Form 8-K.................................. 25 Signatures.................................................................. 25
i Hawaiian Electric Industries, Inc. and subsidiaries Hawaiian Electric Company, Inc. and subsidiaries Form 10-Q--Quarter ended March 31, 1996 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 BLNR Board of Land and Natural Resources of the State of Hawaii CDUP Conservation District Use Permit amendment 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. CONSUMER ADVOCATE Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii D&O Decision and Order DOH Department of Health of the State of Hawaii DSM Demand-side management EPA Environmental Protection Agency - federal FASB Financial Accounting Standards Board FDIC Federal Deposit Insurance Corporation FHLB Federal Home Loan Bank 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. ii GLOSSARY OF TERMS, CONTINUED
TERMS DEFINITIONS - ----- ----------- 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. 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 IPP Independent power producer IRR Interest rate risk KCP Kawaihae Cogeneration Partners 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 PSD Prevention of Significant Deterioration/Covered Source Permit PUC Public Utilities Commission of the State of Hawaii ROACE Return on average common equity 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)
March 31, December 31, (in thousands) 1996 1995 - ---------------------------------------------------------------------------- ASSETS Cash and equivalents.................... $ 88,059 $ 130,833 Accounts receivable and unbilled revenues, net.......................... 123,765 142,505 Inventories, at average cost............ 38,533 35,258 Real estate developments................ 35,758 35,023 Marketable securities................... 1,457,756 1,479,552 Other investments....................... 74,208 74,325 Loans receivable, net................... 1,753,366 1,687,801 Property, plant and equipment, net of accumulated depreciation of $835,162 and $815,547.................. 1,829,795 1,808,195 Regulatory assets....................... 102,520 99,693 Other................................... 69,603 69,315 Goodwill and other intangibles.......... 40,192 41,245 ---------- ---------- $5,613,555 $5,603,745 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable........................ $ 92,997 $ 94,806 Deposit liabilities..................... 2,257,011 2,223,755 Short-term borrowings................... 206,573 181,825 Securities sold under agreements to repurchase............................. 455,337 412,521 Advances from Federal Home Loan Bank.... 424,274 501,274 Long-term debt.......................... 753,497 758,463 Deferred income taxes................... 183,660 182,101 Unamortized tax credits................. 47,473 46,965 Contributions in aid of construction.... 192,438 191,854 Other................................... 171,830 190,535 ---------- ---------- 4,785,090 4,784,099 ---------- ---------- PREFERRED STOCK OF ELECTRIC UTILITY SUBSIDIARIES Subject to mandatory redemption......... 39,350 41,750 Not subject to mandatory redemption..... 48,293 48,293 ---------- ---------- 87,643 90,043 ---------- ---------- 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 30,053 shares and 29,773 shares........ 595,650 585,387 Retained earnings....................... 145,172 144,216 ---------- ---------- 740,822 729,603 ---------- ---------- $5,613,555 $5,603,745 ========== ==========
See accompanying notes to consolidated financial statements. 1 Hawaiian Electric Industries, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts Three months ended March 31, and ratio of earnings to fixed charges) ---------------------------------- 1996 1995 - ----------------------------------------------------------------------------- REVENUES Electric utility........................ $247,837 $232,521 Savings bank............................ 65,792 60,717 Other................................... 12,540 13,036 -------- -------- 326,169 306,274 -------- -------- EXPENSES Electric utility........................ 209,098 197,108 Savings bank............................ 55,836 50,492 Other................................... 14,500 14,365 -------- -------- 279,434 261,965 -------- -------- OPERATING INCOME (LOSS) Electric utility........................ 38,739 35,413 Savings bank............................ 9,956 10,225 Other................................... (1,960) (1,329) -------- -------- 46,735 44,309 -------- -------- Interest expense--electric utility and other.................................. (16,159) (14,952) Allowance for borrowed funds used during construction.................... 1,350 1,167 Preferred stock dividends of electric utility subsidiaries................... (1,675) (1,731) Allowance for equity funds used during construction........................... 2,651 2,367 -------- -------- INCOME BEFORE INCOME TAXES.............. 32,902 31,160 Income taxes............................ 14,033 13,313 -------- -------- NET INCOME.............................. $ 18,869 $ 17,847 ======== ======== Earnings per common share............... $0.63 $0.62 ======== ======== Dividends per common share.............. $0.60 $0.59 ======== ======== Weighted average number of common shares outstanding..................... 29,884 28,772 ======== ======== Ratio of earnings to fixed charges (SEC method) Excluding interest on ASB deposits.... 1.91 1.93 ======== ======== Including interest on ASB deposits.... 1.54 1.56 ======== ========
Hawaiian Electric Industries, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three months ended March 31, ---------------------------------- (in thousands) 1996 1995 - ---------------------------------------- ---------------------------------- RETAINED EARNINGS, BEGINNING OF PERIOD.. $144,216 $135,835 Net income.............................. 18,869 17,847 Common stock dividends.................. (17,913) (16,970) -------- -------- RETAINED EARNINGS, END OF PERIOD........ $145,172 $136,712 ======== ========
See accompanying notes to consolidated financial statements. 2 Hawaiian Electric Industries, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended March 31, -------------------------- (in thousands) 1996 1995 - --------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.............................. $ 18,869 $ 17,847 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization of property, plant and equipment...... 20,579 19,177 Other amortization................... 2,155 (487) Deferred income taxes and tax credits, net....................... 2,657 3,208 Allowance for equity funds used during construction................ (2,651) (2,367) Changes in assets and liabilities Decrease in accounts receivable and unbilled revenues, net..... 18,740 6,817 Decrease (increase) in inventories.................... (3,275) 7,169 Increase in regulatory assets.... (858) (1,303) Decrease in accounts payable..... (1,809) (7,756) Changes in other assets and liabilities.................... (18,617) (4,691) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES............................. 35,790 37,614 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Loans receivable originated and purchased............................. (107,907) (84,121) Principal repayments on loans receivable 41,754 30,096 Proceeds from sale of loans receivable.. 675 2,413 Held-to-maturity mortgage-backed securities purchased.................. (65,112) (9,793) Principal repayments on held-to-maturity mortgage-backed securities............................ 87,104 30,032 Capital expenditures.................... (40,920) (51,157) Contributions in aid of construction.... 2,460 2,173 Other................................... 21 140 --------- --------- NET CASH USED IN INVESTING ACTIVITIES... (81,925) (80,217) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposit liabilities........................... 33,256 (20,497) Net increase (decrease) in short-term borrowings with original maturities of three months or less.................. 25,063 (5,259) Proceeds from other short-term borrowings............................ 76 252 Repayment of other short-term borrowings (391) (521) Proceeds from securities sold under agreements to repurchase.............. 95,100 98,000 Repurchase of securities sold under agreements to repurchase.............. (53,500) (23,636) Proceeds from advances from Federal Home Loan Bank........................ -- 185,500 Principal payments on advances from Federal Home Loan Bank................ (77,000) (183,500) Proceeds from issuance of long-term debt 10,009 36,815 Repayment of long-term debt............. (15,000) (12,400) Redemption of electric utility subsidiaries' preferred stock......... (2,400) (1,404) Net proceeds from issuance of common stock................................. 4,712 5,009 Common stock dividends.................. (12,380) (12,236) Other................................... (4,184) (3,720) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES............................. 3,361 62,403 --------- --------- Net increase (decrease) in cash and equivalents........................... (42,774) 19,800 Cash and equivalents, beginning of period................................ 130,833 87,623 --------- --------- CASH AND EQUIVALENTS, END OF PERIOD..... $ 88,059 $ 107,423 ========= =========
See accompanying notes to consolidated financial statements. 3 Hawaiian Electric Industries, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 and 1995 (Unaudited) - ------------------------------------------------------------------------------- (1) ACCOUNTING STATEMENT - ------------------------- 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 HEIs Annual Report on SEC Form 10-K for the year ended December 31, 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 March 31, 1996 and December 31, 1995, and the results of its operations and its cash flows for the three months ended March 31, 1996 and 1995. 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 March 31, ----------------------- (in thousands) 1996 1995 - --------------------------------------------------------------- Interest income......................... $ 62,080 $ 57,633 Interest expense........................ 37,538 32,975 -------- -------- NET INTEREST INCOME..................... 24,542 24,658 Provision for loan losses............... (420) (385) Other income............................ 3,712 3,084 Operating, administrative and general expenses............................... (17,878) (17,132) -------- -------- OPERATING INCOME........................ 9,956 10,225 Income taxes............................ 4,166 4,276 -------- -------- NET INCOME.............................. $ 5,790 $ 5,949 ======== ========
4 American Savings Bank, F.S.B. and subsidiaries Balance sheet data
March 31, December 31, (in thousands) 1996 1995 - ----------------------------------------------------------------------------- ASSETS Cash and equivalents.................... $ 84,576 $ 129,678 Held-to-maturity investment securities.. 35,367 34,720 Held-to-maturity mortgage-backed securities............................. 1,422,389 1,444,832 Loans receivable, net................... 1,753,366 1,687,801 Other................................... 75,098 75,150 Goodwill and other intangibles.......... 40,192 41,245 ---------- ---------- $3,410,988 $3,413,426 ========== ========== LIABILITIES AND EQUITY Deposit liabilities..................... $2,257,011 $2,223,755 Securities sold under agreements to repurchase............................. 455,337 412,521 Advances from Federal Home Loan Bank.... 424,274 501,274 Other................................... 53,723 57,973 ---------- ---------- 3,190,345 3,195,523 Common stock equity..................... 220,643 217,903 ---------- ---------- $3,410,988 $3,413,426 ========== ==========
PROPOSED LEGISLATION AFFECTING FINANCIAL INSTITUTIONS The deposit accounts of ASB and other thrifts are insured by the Savings Association Insurance Fund (SAIF). The deposit accounts of commercial banks are insured by the Bank Insurance Fund (BIF). The SAIF and BIF are administered by the Federal Deposit Insurance Corporation (FDIC). In order to capitalize these funds, thrifts and banks have in the past paid costs of insurance ranging from 23 cents to 31 cents per $100 of deposits. However, under existing law, the FDIC may reduce these assessment rates when the SAIF and BIF individually reach a designated 1.25% reserve ratio. The BIF reached the designated reserve ratio in 1995, but the SAIF is unlikely to do so at present insurance rates for several years. Effective in January 1996, well-capitalized banks pay only the legally required annual minimum of $2,000 for BIF insurance. For all other BIF institutions, the FDIC deposit insurance assessment rates range from 3 to 27 cents per $100 of deposits. While the FDIC reduced the deposit assessments paid by banks, it maintained the 23 to 31 cents per $100 of deposits assessment for thrifts, depending on their risk classification. This disparity places ASB and other thrifts 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 the 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 pretax 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 or ASB might be affected. 5 (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 $50 million at March 31, 1996 and December 31, 1995. 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. At March 31, 1996, MPC or its subsidiaries had issued (i) guaranties under which they were jointly and severally contingently liable with their joint venture partners for $2.3 million of outstanding loans and $0.1 million of additional undrawn loan facilities and (ii) payment guaranties under which MPC or its subsidiaries were severally contingently liable for $5.5 million of outstanding loans and $4.3 million of additional undrawn loan facilities. All such loans are collateralized by real property. At March 31, 1996, HEI had agreed with the lenders of construction loans and loan facilities, of which approximately $10.0 million was outstanding and $5.5 million was undrawn, that it will maintain ownership of l00% 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 (received) for interest (net of capitalized amounts) and income taxes was as follows:
Three months ended March 31, -------------------- (in thousands) 1996 1995 - ------------------------------------------------------------------------------ Interest (including interest paid by savings bank, but excluding interest paid on nonrecourse debt on leveraged leases)...................... $49,203 $39,546 ======= ======= Interest on nonrecourse debt from leveraged leases.......... $ 182 $ 239 ======= ======= Income taxes................................................ $ 860 $ (681) ======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES In the three months ended March 31, 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 $5.5 million and $4.7 million for the three months ended March 31, 1996 and 1995, respectively. The allowance for equity funds used during construction, which was capitalized as part of the cost of electric utility plant, amounted to $2.7 million and $2.4 million for the three months ended March 31, 1996 and 1995, respectively. (6) ACCOUNTING CHANGES--1996 IMPLEMENTATION - -------------------------------------------- LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (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. 6 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. The Company adopted the provisions of SFAS No. 121 on January 1, 1996. The adoption of SFAS No. 121 did not have a material effect on the Company's financial condition or results of operations. 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. ASB adopted the provisions of SFAS No. 122 on January 1, 1996. The adoption of SFAS No. 122 did not have a material effect on the Company's 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 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 footnote disclosure of proforma 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 will comply with the disclosure requirements of SFAS No. 123 in its annual financial statements for 1996. (7) DISCONTINUED OPERATIONS - ---------------------------- THE HAWAIIAN INSURANCE & GUARANTY COMPANY, LIMITED The Hawaiian Insurance & Guaranty Company, 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 of the State of Hawaii (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 early 1994 and $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 filed a declaratory relief action in the U.S. District Court for Hawaii seeking resolution of insurance coverage and other policy issues, and HEI and HEIDI filed counterclaims. On December 15, 1995, the judge ruled on motions for partial summary judgment that had been argued in June 1995. The District Court found that HEI and HEIDI did not breach their insurance contract and that the settlement they entered into was reasonable. Among the issues left for consideration by the District Court include plaintiff's defense of allocation. A trial date has not yet been set. Recoveries from HEI's insurance carriers, if any, will be recognized when realized. 7 (8) CONTINGENCIES - ------------------ ENVIRONMENTAL REGULATION--HAZARDOUS WASTE AND TOXIC SUBSTANCES CONTROL By letters in January and February 1995, the DOH advised HECO, HTB, YB and others that the DOH was conducting an investigation to determine the nature and extent of actual or potential releases of hazardous substances, oil, pollutants or contaminants at or near Honolulu Harbor. The DOH letter to HECO requested information regarding past hazardous substances and oil spills that may have occurred at HECO's Honolulu power plant and nearby fuel storage and pipeline facilities, which are located near Honolulu Harbor. HECO submitted a response to the DOH on April 28, 1995. The DOH letters to HTB and YB requested information regarding past hazardous substances and oil spills that may have occurred at Pier 21 and Piers 24-29 in Honolulu Harbor. HTB and YB provided responses to the DOH letters. Based on a limited review of the responses received from HECO, HTB, YB and others, the DOH issued letters on December 18, 1995, indicating that the DOH has identified a number of parties, including HECO, HTB and YB, who appear to be either potentially responsible for the contamination and/or operate their facilities upon contaminated land. The DOH met with these identified parties on January 24, 1996 to inform them of its findings and to establish the framework to determine remedial and cleanup requirements. The DOH's goal is the formation of a voluntary response group comprised of these identified parties. The Honolulu Harbor area of investigation was divided into four units, with the highest priority area (Iwilei Area) to be addressed first. The DOH met again with the identified parties in March and May 1996. Because the process for determining appropriate remedial and cleanup action, if any, is at an early stage, management cannot predict at this time the costs of future site analysis, remediation and cleanup requirements, if any, nor can it estimate when such costs, if any, would be incurred. Certain of the costs incurred, if any, may be claimed and covered under existing insurance policies, but such coverage is not determinable at this time. 8 Hawaiian Electric Company, Inc. and subsidiaries CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, (in thousands, except par value) 1996 1995 - ------------------------------------------------------------------------------------------------ ASSETS Utility plant, at cost Property, plant and equipment............................ $2,318,132 $2,291,545 Construction in progress................................. 204,320 191,460 Less--accumulated depreciation........................... (780,222) (762,770) ---------- ---------- NET UTILITY PLANT.................................. 1,742,230 1,720,235 ---------- ---------- Current assets Cash and equivalents..................................... 1,693 20 Customer accounts receivable, net........................ 59,619 67,698 Accrued unbilled revenues, net........................... 34,143 43,695 Other accounts receivable, net........................... 3,831 5,355 Fuel oil stock, at average cost.......................... 16,262 13,469 Materials and supplies, at average cost.................. 20,881 20,538 Prepayments and other.................................... 2,586 2,297 ---------- ---------- TOTAL CURRENT ASSETS............................... 139,015 153,072 ---------- ---------- Other assets Regulatory assets........................................ 99,980 97,114 Other.................................................... 45,578 45,862 ---------- ---------- TOTAL OTHER ASSETS................................. 145,558 142,976 ---------- ---------- $2,026,803 $2,016,283 ========== ========== CAPITALIZATION AND LIABILITIES Capitalization Common stock, $6 2/3 par value, authorized 50,000 shares; outstanding 12,303 shares.............. $ 82,031 $ 82,031 Premium on capital stock................................. 271,466 271,449 Retained earnings........................................ 349,910 343,425 ---------- ---------- COMMON STOCK EQUITY................................ 703,407 696,905 Cumulative preferred stock Not subject to mandatory redemption................... 48,293 48,293 Subject to mandatory redemption....................... 37,555 39,955 Long-term debt, net...................................... 474,243 487,306 ---------- ---------- TOTAL CAPITALIZATION............................... 1,263,498 1,272,459 ---------- ---------- Current liabilities Long-term debt due within one year....................... 43,000 29,903 Preferred stock sinking fund requirements................ 1,795 1,795 Short-term borrowings - nonaffiliates.................... 151,010 131,753 Short-term borrowings - affiliate........................ 6,000 7,000 Accounts payable......................................... 50,345 48,691 Interest and preferred dividends payable................. 11,893 9,954 Taxes accrued............................................ 37,595 42,968 Other.................................................... 23,077 37,573 ---------- ---------- TOTAL CURRENT LIABILITIES.......................... 324,715 309,637 ---------- ---------- Deferred credits and other liabilities Deferred income taxes.................................... 117,826 116,963 Unamortized tax credits.................................. 46,440 45,935 Other.................................................... 81,886 79,435 ---------- ---------- TOTAL DEFERRED CREDITS AND OTHER LIABILITIES....... 246,152 242,333 ---------- ---------- Contributions in aid of construction........................ 192,438 191,854 ---------- ---------- $2,026,803 $2,016,283 ========== ==========
See accompanying notes to HECO's consolidated financial statements. 9 Hawaiian Electric Company, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended March 31, -------------------------- (in thousands, except for ratio of earnings to fixed charges) 1996 1995 - -------------------------------------------------------------------------------------------- OPERATING REVENUES............................................ $245,944 $231,176 -------- -------- OPERATING EXPENSES Fuel oil...................................................... 53,622 48,477 Purchased power............................................... 67,807 63,853 Other operation............................................... 33,591 34,183 Maintenance................................................... 11,945 11,222 Depreciation and amortization................................. 18,343 16,982 Taxes, other than income taxes................................ 23,708 22,079 Income taxes.................................................. 12,233 11,174 -------- -------- 221,249 207,970 -------- -------- OPERATING INCOME.............................................. 24,695 23,206 -------- -------- OTHER INCOME Allowance for equity funds used during construction................................................. 2,651 2,367 Other, net.................................................... 1,851 1,237 -------- -------- 4,502 3,604 -------- -------- INCOME BEFORE INTEREST AND OTHER CHARGES...................... 29,197 26,810 -------- -------- INTEREST AND OTHER CHARGES Interest on long-term debt.................................... 8,528 8,078 Amortization of net bond premium and expense...................................................... 315 314 Other interest charges........................................ 2,490 2,054 Allowance for borrowed funds used during construction.......................................... (1,350) (1,167) Preferred stock dividends of subsidiaries................................................. 702 692 -------- -------- 10,685 9,971 -------- -------- INCOME BEFORE PREFERRED STOCK DIVIDENDS OF HECO...................................................... 18,512 16,839 Preferred stock dividends of HECO............................. 973 1,039 -------- -------- NET INCOME FOR COMMON STOCK................................... $ 17,539 $ 15,800 ======== ======== Ratio of earnings to fixed charges (SEC method)...................................................... 3.32 3.27 ======== ========
Hawaiian Electric Company, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three months ended March 31, -------------------------- (in thousands) 1996 1995 - -------------------------------------------------------------------------------------------- RETAINED EARNINGS, BEGINNING OF PERIOD........................ $343,425 $308,535 Net income for common stock................................... 17,539 15,800 Common stock dividends........................................ (11,054) (8,927) -------- -------- RETAINED EARNINGS, END OF PERIOD.............................. $349,910 $315,408 ======== ========
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)
Three months ended March 31, ----------------------- (in thousands) 1996 1995 - ---------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Income before preferred stock dividends of HECO.................................................... $ 18,512 $ 16,839 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........................................... 18,343 16,982 Other amortization........................................ 1,219 750 Deferred income taxes..................................... 838 470 Tax credits, net.......................................... 920 1,076 Allowance for equity funds used during construction....... (2,651) (2,367) Changes in assets and liabilities Decrease in accounts receivable......................... 9,603 5,202 Decrease in accrued unbilled revenues................... 9,552 2,793 Decrease (increase) in fuel oil stock................... (2,793) 8,247 Increase in materials and supplies...................... (343) (1,079) Increase in regulatory assets........................... (858) (1,303) Increase (decrease) in accounts payable................. 1,654 (8,938) Increase in interest and preferred dividends payable.... 1,939 2,323 Changes in other assets and liabilities................. (17,201) (5,796) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES................................................. 38,734 35,199 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures........................................ (39,046) (47,319) Contributions in aid of construction........................ 2,460 2,173 Increase in notes receivable................................ (312) -- -------- -------- NET CASH USED IN INVESTING ACTIVITIES....................... (36,898) (45,146) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Common stock dividends...................................... (11,054) (8,927) Preferred stock dividends................................... (973) (1,039) Proceeds from issuance of long-term debt.................... 9 36,815 Repayment of long-term debt................................. -- (11,000) Redemption of preferred stock............................... (2,400) (1,404) Net increase (decrease) in short-term borrowings from nonaffiliates and affiliate with original maturities of three months or less.................................... 18,257 (11,599) Other....................................................... (4,002) (3,516) -------- -------- NET CASH USED IN FINANCING ACTIVITIES....................... (163) (670) -------- -------- Net increase (decrease) in cash and equivalents............. 1,673 (10,617) Cash and equivalents, beginning of period................... 20 10,694 -------- -------- CASH AND EQUIVALENTS, END OF PERIOD......................... $ 1,693 $ 77 ======== ========
See accompanying notes to HECO's consolidated financial statements. 11 Hawaiian Electric Company, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 and 1995 (Unaudited) - ------------------------------------------------------------------------------- (1) ACCOUNTING STATEMENT - ------------------------- 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, 1995. In the opinion of HECO's management, the accompanying unaudited consolidated financial statements contain all material adjustments to present fairly the financial position of HECO and its subsidiaries as of March 31, 1996 and December 31, 1995, and the results of their operations and their cash flows for the three months ended March 31, 1996 and 1995. 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:
Three months ended March 31, ------------------ (in thousands) 1996 1995 - -------------------------------------------------------------------- Interest....................................... $7,906 $6,038 ====== ====== Income taxes................................... $ 711 $ 582 ====== ======
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES The allowance for equity funds used during construction, which was capitalized as part of the cost of electric utility plant, amounted to $2.7 million and $2.4 million for the three months ended March 31, 1996 and 1995, respectively. (3) COMMITMENTS AND CONTINGENCIES - ---------------------------------- HELCO POWER SITUATION In 1991, HELCO identified the need for additional generation beginning in 1994 to provide for forecasted load growth while maintaining a satisfactory generation reserve margin, to address uncertainties about future deliveries of power from existing firm power producers and to permit the retirement of older generating units. In the same year, the Hawaii Public Utilities Commission (PUC) issued an order calling for an investigation of the reliability of HELCO's system following service interruptions and rolling blackouts instituted on the island of Hawaii. HELCO added firm capacity to its system in August 1992 (a 20- MW HELCO-owned unit) and in June 1993 (pursuant to a power purchase agreement for 25 MW of firm capacity). HELCO also proceeded with plans to install at its Keahole power plant site two 20-MW combustion turbines (CT-4 and CT-5), followed by an 18-MW heat steam recovery generator (ST-7), at which time these units would be converted to a 56-MW (net) combined-cycle unit. In January 1994, the PUC approved expenditures for CT-4, which HELCO had planned to install in late 1994, and in September 1995, the PUC conditionally approved expenditures for CT-5 and ST-7. 12 Despite HELCO's best efforts to install the necessary additional generation, the schedule for the installation of HELCO's phased combined-cycle unit at HELCO's Keahole power plant site was revised due to delays in obtaining approval of the air quality Prevention of Significant Deterioration/Covered Source Permit (PSD) and the Conservation District Use Permit amendment (CDUP) for the Keahole power plant site. In late 1995, a contested case hearing with respect to the CDUP was conducted and the hearing officer recommended denial of the CDUP application. On April 22, 1996, the Hawaii Board of Land and Natural Resources (BLNR) issued a written order in which it stated that it had voted 3 in favor and 2 against a motion to accept the hearing officer's recommendation and stating that HELCO's CDUP application was denied. The order stated that the BLNR does not intend to deliberate further or vote again on the matter. HELCO's position is that denial of the CDUP application requires the favorable vote of at least 4 members of the BLNR, that the BLNR's order of April 22, 1996 thus does not operate to deny the application and that the failure of the BLNR to take effective action results in HELCO being entitled to its CDUP by operation of law. HELCO currently intends to vindicate its position through judicial review of the BLNR's order or other appropriate proceedings. These proceedings may delay, if not prevent, installation of HELCO's project at the 15-acre Keahole site. The Hawaii Department of Health (DOH) forwarded HELCO's PSD permit to the Environmental Protection Agency (EPA) for its approval. In a November 1995 letter to the DOH, the EPA declined to sign HELCO's PSD permit. HELCO requested that the EPA reconsider this decision and the EPA agreed to reconsider based on additional information supplied by HELCO. In a second letter dated February 6, 1996, the EPA set forth information to be considered by HELCO, and HELCO responded to the EPA's positions by letter dated March 8, 1996. By letter dated April 8, the EPA restated its determinations and indicated that further documentation is required from HELCO in order for the EPA to consider HELCO's positions. Information exchange and discussions with the EPA and the DOH are ongoing. If the EPA does not sign a permit forwarded by the DOH, this would delay, if not prevent, HELCO's project. Two independent power producers (IPPs), Kawaihae Cogeneration Partners (KCP) and Enserch Development Corporation (Enserch), filed separate complaints against HELCO with the PUC, alleging that they are entitled to power purchase contracts to provide HELCO with additional capacity which, under HELCO's current estimates of generating capacity requirements, would be in place of HELCO's planned 56-MW combined-cycle unit at Keahole. In July 1995, the PUC issued a decision and order in the docket involving KCP. 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, HELCO provided proposals to the two IPPs, and further negotiations were undertaken. Status reports on the negotiations with the two IPPs were filed with the PUC at the end of September and October 1995. 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." On January 26, 1996, the PUC ordered that the KCP docket be reopened and that HELCO and KCP continue in good faith to negotiate a power purchase agreement, file a list of unresolved issues requiring PUC guidance and meet with the PUC on March 27, 1996. Status reports were filed during March and the meeting was held as scheduled. On March 20, 1996, the PUC ordered that HELCO and Enserch file status reports with the PUC and, if requested by either party on or before April 15, 1996, hold a hearing on April 25, 1996. Status reports were filed by Enserch and HELCO during April and the hearing was held as scheduled. Additional written submissions may be made to the PUC by the parties in the Enserch docket by May 21, 1996. The PUC may provide guidance to the IPPs and HELCO concerning certain issues as their negotiations continue. 13 If HELCO's negotiations with the IPPs result in a power purchase agreement and/or if HELCO's combined-cycle unit is not installed, HELCO may be required to write off a portion of the costs incurred in its efforts to put into service its combined-cycle unit ($44.7 million as of March 31, 1996) if such costs ultimately are not recoverable from customers or others. The $44.7 million includes approximately $26.7 million for equipment and material purchases, approximately $9.4 million for planning, engineering, permitting, site development and other costs and approximately $8.6 million as an allowance for funds used during construction. Management cannot determine at this time whether the negotiations with the IPPs will result in a power purchase agreement, or whether HELCO's combined cycle unit will be installed, or the amount of incurred costs, if any, that may not be 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 has arranged for additional firm capacity to be provided by its existing firm power producers, obtained contracts shifting loads to off-peak hours, begun implementing in January 1996 its energy-efficiency demand-side management programs based on interim PUC approval and deferred generation unit retirements. These measures have helped HELCO maintain its reserve margin and reduce the risk of capacity shortages. HELCO is also proposing installation of up to 6 MW of dispersed diesel generation units that could provide power by late 1996. In January 1996, the PUC opened a generic docket relating to HELCO's contingency plan. Pursuant to the PUC order, HELCO submitted updated information to the PUC on March 18, 1996. ENVIRONMENTAL REGULATION - HAZARDOUS WASTE AND TOXIC SUBSTANCES CONTROLS See note (8), "Contingencies," in HEI's "Notes to consolidated financial statements." INTERIM RATE INCREASES Amounts recovered under interim rates in excess of final approved rates are subject to refund with interest. At March 31, 1996, previously recorded revenue amounts recognized under interim rate increases and subject to refund were not significant. (4) ACCOUNTING CHANGE - ---------------------- See note (6), "Accounting changes--Long-lived assets," in HEI's "Notes to consolidated financial statements." 14 (5) SUMMARIZED FINANCIAL INFORMATION - ------------------------------------- Summarized financial information for HECO's consolidated subsidiaries, HELCO and MECO, is as follows: BALANCE SHEET DATA
HELCO MECO -------------------------------- ------------------------------- March 31, December 31, March 31, December 31, (in thousands) 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Current assets.......................... $ 25,356 $ 23,485 $ 26,832 $ 27,161 Noncurrent assets....................... 372,517 368,785 317,009 306,191 -------- -------- -------- -------- $397,873 $392,270 $343,841 $333,352 ======== ======== ======== ======== Common stock equity..................... $136,471 $136,930 $127,087 $126,458 Cumulative preferred stock Not subject to mandatory redemption... 10,000 10,000 8,000 8,000 Subject to mandatory redemption....... 7,500 7,500 6,055 6,055 Current liabilities..................... 69,535 64,233 66,778 57,551 Noncurrent liabilities.................. 174,367 173,607 135,921 135,288 -------- -------- -------- -------- $397,873 $392,270 $343,841 $333,352 ======== ======== ======== ========
INCOME STATEMENT DATA
HELCO MECO -------------------------------- ------------------------------- Three months ended Three months ended March 31, March 31, -------------------------------- ------------------------------- (in thousands) 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Operating revenues...................... $ 35,189 $ 32,695 $ 32,795 $ 29,793 Operating income........................ 2,689 3,423 3,930 3,743 Net income for common stock............. 2,139 2,548 3,167 2,289
(6) RECONCILIATION OF ELECTRIC UTILITY OPERATING INCOME PER HEI AND HECO - ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME ----------------------------------
Three months ended March 31, ------------------------------- (in thousands) 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Operating income from regulated and nonregulated activities before income taxes (per HEI consolidated statements of income)......................... $ 38,739 $ 35,413 Deduct: Income taxes on regulated activities.................................... (12,233) (11,174) Revenues from nonregulated activities................................... (1,893) (1,345) Add: Expenses from nonregulated activities................................... 82 312 -------- -------- Operating income from regulated activities after income taxes (per HECO consolidated statements of income)....................................... $ 24,695 $ 23,206 ======== ========
15 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 March 31, (in thousands, except per ---------------------- % Primary reason(s) for share amounts) 1996 1995 change significant change* - ------------------------------------------------------------------------------------------------- Revenues..................... $326,169 $306,274 6 Increases for the electric utility and savings bank segments Operating income............. 46,735 44,309 5 Increase for the electric utility segment Net income................... 18,869 17,847 6 Higher operating income, partly offset by higher interest expense due to higher average borrowings Earnings per common share.... $ 0.63 $ 0.62 2 See explanation for "net income," partly offset by an increase in shares outstanding Weighted average number of common shares outstanding... 29,884 28,772 4 Issuances under the Dividend Reinvestment and Stock Purchase Plan and other plans
* Also see segment discussions which follow. During the first quarter of 1996, electric rates at HEI's three electric utility subsidiaries were based on lower returns on average common equity (ROACEs) than during the first quarter of 1995. The Hawaii Public Utilities Commission (PUC) decisions and orders (D&Os) issued in December 1995 and the first quarter of 1996 set electric rates based on allowed ROACEs ranging from 11.40% to 11.65%, compared with ROACEs greater than 12% in effect in the first quarter of 1995. The PUC issued an order in December 1995 for HECO which lowered electric rates retroactive to January 1, 1995, and required a refund to customers. Had the lower rates actually been in effect from January 1, 1995, consolidated HEI's 1996 first quarter earnings per share would have exceeded earnings per share for the first quarter of 1995 by approximately 5 cents, or 9%. 16 Following is a general discussion of the results of operations by business segment. ELECTRIC UTILITY - ----------------
Three months ended March 31, (in thousands, except per ---------------------- % Primary reason(s) for barrel amounts) 1996 1995 change significant change - --------------------------------------------------------------------------------------- Revenues..................... $247,837 $232,521 7 Higher fuel oil prices ($7 million) which are passed on to customers and a 2.9% increase in KWH sales ($6 million) Expenses Fuel oil.................. 53,622 48,477 11 Higher fuel oil prices partly offset by less KWHs generated Purchased power........... 67,807 63,853 6 More KWHs purchased Other..................... 87,669 84,778 3 Higher taxes, other than income taxes, depreciation and maintenance expenses, partly offset by lower other operation expense Operating income............. 38,739 35,413 9 2.9% increase in KWH sales, partly offset by higher expenses Net income................... 17,539 15,800 11 Higher operating income and higher AFUDC, partly offset by higher interest expense Fuel oil price per barrel.... 22.50 19.82 14
Had the lower rates in the PUC's December 1995 D&O for HECO been in effect from January 1, 1995, consolidated HECO's 1996 first quarter net income would have exceeded net income for the first quarter of 1995 by approximately 20%. Kilowatthour sales in the first quarter of 1996 increased 2.9% from the same quarter in 1995, partly due to warmer weather and an increase in visitor arrivals. Also, the electric utilities' efforts to control operating expenses have been successful, as evidenced by a 2% reduction in other operation expenses (see page 9). 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 D&O 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 D&O 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 D&O 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 D&O. Interim rate increases are subject to refund with interest, pending the final outcome of the case. Management cannot predict with certainty when D&Os in pending or future rate cases will be rendered or the amount of any interim or final rate increase that will be granted. Recent rate requests - -------------------- Hawaiian Electric Company, Inc. - ------------------------------- . In December 1993, HECO filed a request to increase rates based on a 1995 test year. HECO requested a 4.1% increase (as revised), or $28.2 million in annual revenues, based on a 13.25% ROACE. In December 1995, HECO received a final D&O authorizing a 1.3%, or $9.1 million, increase in annual 17 revenues, based on an 11.4% ROACE. The D&O required a refund to customers because HECO had previously received four interim increases totaling $18.9 million on an annualized basis, or $9.8 million more than the amount that was finally approved. The reduced rate relief resulted primarily from the lower ROACE used by the PUC in the final D&O because of decreases in interest rates subsequent to the first interim increase, which was effective January 1, 1995 and was based on a 12.6% ROACE. The refund amount of $10.2 million (representing amounts received under interim rates in excess of final approved rates, with interest thereon), of which $10 million was accrued in December 1995, is being returned to customers in the first half of 1996. The D&O also did not provide revenue to cover costs relating to postretirement executive life insurance. HECO and its subsidiaries wrote off a regulatory asset relating to such costs, resulting in a 1995 after-tax charge of $1.1 million. Hawaii Electric Light Company, Inc. (HELCO) - ------------------------------------------- . In March 1995, HELCO filed a request to increase rates based on a 1996 test year. In February 1996, HELCO revised its requested increase to 6.2%, or $8.9 million in annual revenues, based on a 12.5% ROACE. In March 1996, HELCO received an interim D&O authorizing a 4.8%, or $6.8 million, increase in annual revenues, based on an 11.65% ROACE, effective March 4, 1996. . HELCO is considering filing a request to increase rates based on a 1997 test year. Maui Electric Company, Limited (MECO) - ------------------------------------- . In February 1995, MECO filed a request to increase rates based on a 1996 test year. MECO's final requested increase was 3.8%, or $5.0 million in annual revenues, based on an 11.5% ROACE. In January 1996, MECO received an interim D&O authorizing an increase of 2.8%, or $3.7 million in annual revenues, based on an 11.5% ROACE, effective February 1, 1996. . MECO plans to file a request to increase rates based on a 1997 test year. SAVINGS BANK - ------------
Three months ended March 31, ------------------------- % (in thousands) 1996 1995 change Primary reason(s) for significant change - ---------------------------------------------------------------------------------------------------------------------- Revenues..................... $65,792 $60,717 8 Higher interest income as a result of higher average mortgage-backed securities balance, partly offset by lower weighted average yield Operating income............. 9,956 10,225 (3) Lower interest rate spread (see below) and 4% increase in operating, administrative and general expenses due to higher labor and office occupancy costs Net income................... 5,790 5,949 (3) Lower operating income Interest rate spread......... 2.85% 3.10% 7 basis points decrease in the weighted average yield on interest-earning assets and 18 basis points increase in the weighted average rate on interest-bearing liabilities
Several factors contributed to the decrease in ASBs interest rate spread--the difference between the weighted average yield on interest-earning assets and the weighted average rate on interest-bearing liabilities. One of the primary factors was the increase in short-term interest rates during 1995, which resulted in a flat yield curve. Comparing first quarter 1996 to the same period in 1995, the average rate on interest-bearing liabilities increased, while the average rate on interest-earning assets remained relatively constant. The quarterly interest rate spread decreased during 1995 from 3.10% for the first quarter to 2.82% for the fourth quarter. The decline in short-term interest rates during the latter part of 18 1995 and the first quarter of 1996 resulted in a very modest improvement in the first quarter 1996 interest rate spread. Deposits traditionally have been the principal source of ASB's funds for use in lending, meeting liquidity requirements and making investments. ASB also derives funds from receipt of interest and principal on outstanding loans receivable and mortgage-backed securities, borrowings from the Federal Home Loan Bank (FHLB) of Seattle, securities sold under agreements to repurchase and other sources. Using sources of funds with a higher cost than deposits puts downward pressure on ASB's net interest income. In recent years, securities sold under agreements to repurchase and advances from the FHLB of Seattle have become more significant sources of funds as the demand for deposits decreased. However, deposits increased by $33 million in the first quarter of 1996, including $21 million of interest credited to accounts. In the first quarter of 1995, deposits decreased by $20 million. In 1995, 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 receivable rates, increased from 5.5% to 6.0% and declined to 5.5% by year end. In the first quarter of 1996, the federal funds rate decreased 25 basis points to 5.25%. OTHER - -----
Three months ended March 31, -------------------- % (in thousands) 1996 1995 change Primary reason(s) for significant change - ------------------------------------------------------------------------------------------------------------ Revenues..................... $12,540 $13,036 (4) Freight transportation subsidiaries' lower general freight revenue Operating loss............... (1,960) (1,329) NM Freight transportation subsidiaries' lower general freight revenue and startup costs of HEIPC
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 development and investment companies; PECS, which is an inactive energy service company; HEIPC, which is a company formed in March 1995 to pursue independent power projects and energy services projects in Asia and the Pacific; HEI and HEIDI, which are holding companies; and eliminations of intercompany transactions. FREIGHT TRANSPORTATION The freight transportation subsidiaries recorded operating income of $0.4 million in the first quarter of 1996 compared with $0.9 million in the first quarter of 1995. The decrease in operating income was a result of lower general freight revenues. The freight transportation subsidiaries have been negatively impacted by the slow Hawaii economy. YB plans to file a request to increase rates based on a 1996 test year. REAL ESTATE MPC's real estate development activities have been negatively impacted by the slow real estate market in Hawaii. 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. 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 HEIPC's operating loss for the first quarter of 1996 was $0.4 million. 19 In December 1995, HEIPC signed a "Memorandum of Understanding" with Agusan Power Corporation, Agusan Del Norte Electric Cooperative, Inc. and the provincial government of Agusan Del Norte for a 67% interest in a $28 million, 22-MW hydroelectric plant in the Philippines. In February 1996, HEIPC signed a "Memorandum of Understanding" with Beacon Hill Associates, Inc. for a 50% interest in a $74 million, 60-MW naphtha-fueled combined-cycle power plant in Phnom Penh, Cambodia. Both projects are in very preliminary stages for HEIPC. No assurances can be given as to whether either of these projects will be successfully completed. DISCONTINUED OPERATIONS - ----------------------- See note (7) in HEI's "Notes to consolidated financial statements" for information on the discontinued operations of HIG. ACCOUNTING CHANGES - ------------------ For a discussion of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed 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) March 31, 1996 December 31, 1995 - ------------------------------------------------------------------------------- Short-term borrowings.......... $ 207 12% $ 182 10% Long-term debt................. 753 42 758 43 Preferred stock of electric utility subsidiaries.......... 88 5 90 5 Common stock equity............ 741 41 730 42 ------ ---- ------ --- $1,789 100% $1,760 100% ====== === ====== ===
ASB's deposit liabilities, securities sold under agreements to repurchase and advances from FHLB are not included in the table above. For the first three months of 1996, net cash provided by operating activities was $36 million. Net cash used in investing activities was $82 million, largely due to ASB's loan originations and consolidated HECO's capital expenditures. Net cash provided by financing activities was only $3 million as a result of several factors, including net increases in securities sold under agreements to repurchase, deposit liabilities and short-term borrowings, partly offset by a decrease in advances from FHLB and by common stock dividends. Following is a discussion of the liquidity and capital resources of HEI's largest segments. 20 ELECTRIC UTILITY HECO's consolidated capital structure was as follows:
(in millions) March 31, 1996 December 31, 1995 - ------------------------------------------------------------------------------- Short-term borrowings from nonaffiliates and affiliate.... $ 157 11% $ 139 10% Long-term debt.................. 517 35 517 36 Preferred stock................. 88 6 90 6 Common stock equity............. 703 48 697 48 ------ --- ------ --- $1,465 100% $1,443 100% ====== === ====== ===
Operating activities provided $39 million in net cash during the first three months of 1996. Investing activities used cash of $37 million primarily for capital expenditures, net of contributions in aid of construction. Financing activities used cash of $0.2 million, partly comprised of the payment of common and preferred dividends and the sinking fund redemption of preferred stock, offset by a net increase in short-term borrowings. As of March 31, 1996, $170 million of revenue bonds had been authorized by the Hawaii Legislature for issuance by the Department of Budget and Finance of the State of Hawaii on behalf of HECO, HELCO and MECO prior to the end of 1997. The sale, pursuant to this authorization, of $75 million of revenue bonds is currently planned for May 1996. SAVINGS BANK
March 31, December 31, % (in millions) 1996 1995 change - -------------------------------------------------------------------------------------- Assets.................................. $3,411 $3,413 -- Mortgage-backed securities.............. 1,422 1,445 (2) Loans receivable, net................... 1,753 1,688 4 Deposit liabilities..................... 2,257 2,224 1 Securities sold under agreements to repurchase............................. 455 413 10 Advances from Federal Home Loan Bank.... 424 501 (15)
At December 31, 1995, ASB was the fourth largest financial institution in the state based on total assets of $3.4 billion and the third largest financial institution based on deposits of $2.2 billion. For the first three months of 1996, cash used in ASB's investing activities was $44 million, due largely to the origination of loans receivable and purchase of mortgage-backed securities, partly offset by principal repayments. Cash used in financing activities was $5 million as a result of a decrease of $77 million in advances from the FHLB of Seattle and by common stock dividends of $3 million, partly offset by a net increase of $42 million in securities sold under agreements to repurchase and a $33 million net increase in deposit liabilities. Minimum liquidity levels are currently governed by the regulations adopted by the Office of Thrift Supervision (OTS). ASB was in compliance with OTS liquidity requirements as of March 31, 1996. ASB believes that a satisfactory regulatory capital position provides a basis for public confidence, affords protection to depositors, helps to ensure continued access to capital markets on favorable terms and provides a foundation for growth. As of March 31, 1996, ASB was in compliance with the OTS minimum capital requirements (noted in parenthesis) with a tangible capital ratio of 5.4% (1.5%), a core capital ratio of 5.5% (3.0%) and a risk-based capital ratio of 13.0% (8.0%). The OTS has adopted a rule adding an interest rate risk (IRR) component to the existing risk-based capital requirement. 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. Although the rule became effective January 1, 1994, the OTS has provided a waiver of the IRR capital deduction until it can finalize an appeals process for institutions subject to such deductions. As of March 31, 1996, 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. 21 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 March 31, 1996, ASB was well-capitalized (ratio requirements noted in parenthesis) with a leverage ratio of 5.5% (5.0%), a Tier-1 risk-based ratio of 12.3% (6.0%) and a total risk-based ratio of 13.0% (10%). On September 29, 1994, the Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Interstate Banking Act) was signed into law. Beginning in September 1995, and subject to certain limits, adequately capitalized and adequately managed bank holding companies were permitted to acquire control of banks in any state, thereby creating a uniform system of interstate banking in the U.S. Also, subject to certain limitations, the Interstate Banking Act will permit interstate branching by U.S. banks, marking a major departure from previous law. Although the Interstate Banking Act applies only to banks, it could nonetheless affect the competitive balance among banks, thrifts and other financial institutions and the level of competition among financial institutions doing business in Hawaii. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ HEI The Annual Meeting of Stockholders of HEI was held on April 23, 1996. Proxies for the meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934. As of February 14, 1996, the record date for the Annual Meeting, there were 29,857,858 shares of common stock issued and outstanding and entitled to vote. There was no solicitation in opposition to the management nominees to the Board of Directors as listed in the proxy statement for the meeting and such nominees were elected to the Board of Directors. The results of the voting for the single Class II director-nominee, the Class III director-nominees, the independent auditor and the amendment of the 1987 Stock Option and Incentive Plan, as amended in 1992, are as follows:
Shares of Common stock -------------------------------------------------------- Broker For Withheld Against Abstain nonvotes -------------------------------------------------------- Election of Class II Director T. Michael May 24,957,833 900,181 -- Election of Class III Directors Don E. Carroll 24,924,141 933,873 -- Edwin L. Carter 24,906,402 951,612 -- Richard Henderson 24,897,998 960,016 -- Bill D. Mills 24,884,166 973,848 -- Oswald K. Stender 24,158,022 1,699,992 --
22
Shares of Common stock ------------------------------------------------------------- Broker For Withheld Against Abstain nonvotes ------------------------------------------------------------- Election of KPMG Peat Marwick LLP as independent auditor 25,399,358 175,718 282,938 -- Amendment of 1987 Stock Option and Incentive Plan, as amended in 1992 19,226,461 1,445,615 1,108,974 4,076,964
Class I Directors--Robert F. Clarke, John D. Field, A. Maurice Myers, Ruth M. Ono and James K. Scott --continue in office with terms ending at the 1997 Annual Meeting. Class II Directors--Victor Hao Li, Diane J. Plotts, Kelvin H. Taketa and Jeffrey N. Watanabe--continue in office with terms ending at the 1998 Annual Meeting. HECO The Annual Meeting of the Sole Stockholder of HECO was conducted by written consent effective April 23, 1996. The incumbent members of the Board of Directors of HECO were re-elected. The incumbent members continuing in office are Edwin L. Carter, Robert F. Clarke, Richard Henderson, Mildred D. Kosaki, T. Michael May, Paul A. Oyer, Diane J. Plotts and Paul C. Yuen. In addition, KPMG Peat Marwick LLP was elected independent auditor of HECO for the fiscal year 1996. ITEM 5. OTHER INFORMATION - -------------------------- A. HECO's integrated resource plan (IRP) The PUC issued its final D&O in HECO's IRP proceeding in March 1995. The PUC found that HECO's proposed 20-year IRP "is in the public interest, is consistent with the goals and objectives of integrated resource planning, and represents a reasonable course for meeting the energy needs of its customers" and that the IRP "identifies the resources or the mix of resources for meeting near and long term consumer energy needs in an efficient and reliable manner at the lowest reasonable cost." The supply-side programs proposed in the HECO plan include the addition of a "clean coal" technology unit in 2005, following the retirement of HECO's Honolulu power plant, the repowering of two existing units at its Waiau power plant, and the addition of two oil-fired combustion turbines at the end of the first decade in the new century. HECO's plan also includes proposals for five energy efficiency demand-side management (DSM) programs, which are designed to reduce the rate of increase in Oahu's energy use (allowing HECO to delay construction of power plants), to reduce the states dependence on oil and to achieve savings for its utility customers who take advantage of the programs, and two load management DSM programs beginning in the year 2000. The DSM programs include several proposed incentives to customers to install efficient lighting, refrigeration, water-heating and air-conditioning equipment and industrial motors. The PUC issued its final D&O in HECO's commercial and industrial (C&I) proceeding on April 22, 1996. The C&I proceeding consolidated three separate DSM programs targeting the C&I retrofit, new construction and custom market segments. The PUC approved HECO's C&I DSM programs "as reasonable means of meeting the energy needs of HECO's customers." The PUC also approved HECO's mechanism for the recovery of C&I DSM program expenditures, net lost revenues and shareholder incentives. HECO is scheduled to begin its C&I DSM program implementation by June 1996. HECO is still awaiting PUC approval of its residential retrofit and new construction water heating DSM programs. 23 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
Three months Years Ended December 31, ended -------------------------------- March 31, 1996 1995 1994 1993 1992 1991 -------------- ---- ---- ---- ---- ---- 1.91 1.94 2.22 2.25 2.08 1.99 ==== ==== ==== ==== ==== ==== RATIO OF EARNINGS TO FIXED CHARGES INCLUDING INTEREST ON ASB DEPOSITS Three months Years Ended December 31, ended -------------------------------- March 31, 1996 1995 1994 1993 1992 1991 -------------- ---- ---- ---- ---- ---- 1.54 1.57 1.69 1.65 1.50 1.46 ==== ==== ==== ==== ==== ====
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
Three months Years Ended December 31, ended -------------------------------- March 31, 1996 1995 1994 1993 1992 1991 -------------- ---- ---- ---- ---- ---- 3.32 3.46 3.47 3.25 3.03 2.82 ==== ==== ==== ==== ==== ====
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. 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (A) EXHIBITS HEI Hawaiian Electric Industries, Inc. and subsidiaries Exhibit 12.1 Computation of ratio of earnings to fixed charges, three months ended March 31, 1996 and 1995 HECO Hawaiian Electric Company, Inc. and subsidiaries Exhibit 12.2 Computation of ratio of earnings to fixed charges, three months ended March 31, 1996 and 1995 HEI Hawaiian Electric Industries, Inc. and subsidiaries Exhibit 27.1 Financial Data Schedule March 31, 1996 and three months ended March 31, 1996 HECO Hawaiian Electric Company, Inc. and subsidiaries Exhibit 27.2 Financial Data Schedule March 31, 1996 and three months ended March 31, 1996 (B) REPORTS ON FORM 8-K During the quarter, HEI filed a Current Report on Form 8-K dated February 21, 1996, containing HEI Exhibit 13 with pages 25 to 62 of HEI's 1995 Annual Report to Stockholders under "Item 7. Financial Statements and Exhibits." 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/ Curtis Y. Harada By /s/ Paul Oyer --------------------- ----------------- Curtis Y. Harada Paul A. Oyer Controller Financial Vice President and (Principal Accounting Officer of HEI) Treasurer (Principal Financial Officer of HECO) Date: May 8, 1996 Date: May 8, 1996 25 EX-12.1 2 HEI EARNINGS RATIO HEI Exhibit 12.1 ---------------- Hawaiian Electric Industries, Inc. and subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (unaudited)
Three months ended Three months ended March 31, March 31, ----------------------------------------------- (dollars in thousands) 1996 (1) 1996 (2) 1995 (1) 1995 (2) - --------------------------------------------------------------------------------------- FIXED CHARGES Total interest charges The Company (3)......................... $30,277 $54,010 $27,776 $48,215 Proportionate share of fifty-percent- owned persons......................... 174 174 191 191 Interest component of rentals............. 895 895 992 992 Pretax preferred stock dividend requirements of subsidiaries............ 2,819 2,819 2,908 2,908 ------- ------- ------- ------- TOTAL FIXED CHARGES....................... $34,165 $57,898 $31,867 $52,306 ======= ======= ======= ======= EARNINGS Pretax income............................. $32,902 $32,902 $31,160 $31,160 Fixed charges, as shown................... 34,165 57,898 31,867 52,306 Interest capitalized The Company............................. (1,663) (1,663) (1,455) (1,455) Proportionate share of fifty-percent- owned persons......................... (174) (174) (191) (191) ------- ------- ------- ------- EARNINGS AVAILABLE FOR FIXED CHARGES...... $65,230 $88,963 $61,381 $81,820 ======= ======= ======= ======= RATIO OF EARNINGS TO FIXED CHARGES........ 1.91 1.54 1.93 1.56 ======= ======= ======= =======
(1) Excluding interest on ASB deposits. (2) Including interest on ASB deposits. (3) Total interest charges exclude interest on nonrecourse debt from leveraged leases which is not included in interest expense in HEI's consolidated statement of income. EX-12.2 3 HECO EARNINGS RATIO HECO Exhibit 12.2 ----------------- Hawaiian Electric Company, Inc. and subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (unaudited)
Three months ended March 31, ------------------ (dollars in thousands) 1996 1995 - ------------------------------------------- ------------------ FIXED CHARGES Total interest charges....................................... $11,333 $10,446 Interest component of rentals................................ 179 175 Pretax preferred stock dividend requirements of subsidiaries............................................... 1,148 1,125 ------- -------- TOTAL FIXED CHARGES.......................................... $12,660 $11,746 ======= ======== EARNINGS Income before preferred stock dividends of HECO.............. $18,512 $16,839 Income taxes (see note below)................................ 12,193 10,970 Fixed charges, as shown...................................... 12,660 11,746 AFUDC for borrowed funds..................................... (1,350) (1,167) ------- -------- EARNINGS AVAILABLE FOR FIXED CHARGES......................... $42,015 $38,388 ======= ======== RATIO OF EARNINGS TO FIXED CHARGES........................... 3.32 3.27 ======= ======== Note: Income taxes is comprised of the following Expense relating to operating income from regulated activities............................................... $12,233 $11,174 Benefit relating to loss from nonregulated activities...... (40) (204) ------- -------- $12,193 $10,970 ======= ========
EX-27.1 4 HEI FINANCIAL DATA SCHEDULE
5 Hawaiian Electric Industries, Inc. and Subsidiaries FINANCIAL DATA SCHEDULE (unaudited) This schedule contains summary financial information extracted from Hawaiian Electric Industries, Inc. and subsidiaries' consolidated balance sheet as of March 31, 1996 and consolidated statement of income for the three months ended March 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 88,059 1,457,756 123,765 0 38,533 0 2,664,957 835,162 5,613,555 0 753,497 39,350 48,293 595,650 145,172 5,613,555 0 326,169 0 279,434 (2,326) 0 16,159 32,902 14,033 18,869 0 0 0 18,869 0.63 0.63
EX-27.2 5 HECO FINANCIAL DATA SCHEDULE
UT Hawaiian Electric Company, Inc. and subsidiaries FINANCIAL DATA SCHEDULE (unaudited) This schedule contains summary financial information extracted from Hawaiian Electric Company, Inc. and subsidiaries' consolidated balance sheet as of March 31, 1996 and consolidated statement of income and consolidated statement of cash flows for the three months ended March 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 PER-BOOK 1,742,230 0 139,015 9,948 135,610 2,026,803 82,031 271,466 349,910 703,407 37,555 48,293 474,243 6,000 0 151,010 43,000 1,795 0 0 561,500 2,026,803 245,944 12,233 209,016 221,249 24,695 4,502 29,197 10,685 18,512 973 17,539 11,054 35,499 38,734 0 0
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