-----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, NlAW7ZOXhamrUajv9BIuUyHiatp47EZbsOrGpcvZYn3RCMC10u4IJ/3LsyPPm/ru Iy+Mjysrs5EuclY9svLXCw== 0000898430-96-005292.txt : 19961115 0000898430-96-005292.hdr.sgml : 19961115 ACCESSION NUMBER: 0000898430-96-005292 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWAIIAN ELECTRIC INDUSTRIES INC CENTRAL INDEX KEY: 0000354707 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 990208097 STATE OF INCORPORATION: HI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08503 FILM NUMBER: 96662301 BUSINESS ADDRESS: STREET 1: 900 RICHARDS ST CITY: HONOLULU STATE: HI ZIP: 96813 BUSINESS PHONE: 8085435662 MAIL ADDRESS: STREET 1: 900 RICHARDS STREET CITY: HONOLULU STATE: HI ZIP: 96813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWAIIAN ELECTRIC CO INC CENTRAL INDEX KEY: 0000046207 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 990040500 STATE OF INCORPORATION: HI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04955 FILM NUMBER: 96662302 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 November 1, 1996 - --------------------------------------------------------------------------------------------------- Hawaiian Electric Industries, Inc. (Without Par Value)... 30,663,953 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 September 30, 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) - September 30, 1996 and December 31, 1995.................... 1 Consolidated statements of income (unaudited) - three and nine months ended September 30, 1996 and 1995............... 2 Consolidated statements of retained earnings (unaudited) - three and nine months ended September 30, 1996 and 1995..... 2 Consolidated statements of cash flows (unaudited) - nine months ended September 30, 1996 and 1995.................... 3 Notes to consolidated financial statements (unaudited)....... 4 Hawaiian Electric Company, Inc. and subsidiaries ------------------------------------------------ Consolidated balance sheets (unaudited) - September 30, 1996 and December 31, 1995.................... 9 Consolidated statements of income (unaudited) - three and nine months ended September 30, 1996 and 1995............... 10 Consolidated statements of retained earnings (unaudited) - three and nine months ended September 30, 1996 and 1995..... 10 Consolidated statements of cash flows (unaudited) - nine months ended September 30, 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............................................ 27 Item 5. Other information............................................ 27 Item 6. Exhibits and reports on Form 8-K............................. 28 Signatures............................................................. 29
i Hawaiian Electric Industries, Inc. and subsidiaries Hawaiian Electric Company, Inc. and subsidiaries Form 10-Q--Quarter ended September 30, 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 American Savings Mortgage Co., 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. and HEI Power Corp. and its subsidiaries 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 EMF Electric and magnetic fields EPA Federal Environmental Protection Agency 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., and the parent company of several subsidiaries 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 IRP Integrated resource plan 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 PGV Puna Geothermal Venture 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)
September 30, December 31, (in thousands) 1996 1995 - ------------------------------------------------------------------------------------------------ ASSETS Cash and equivalents............................................. $ 94,266 $ 130,833 Accounts receivable and unbilled revenues, net................... 147,628 142,505 Inventories, at average cost..................................... 48,001 35,258 Real estate developments......................................... 34,554 35,023 Marketable securities............................................ 1,424,929 1,479,552 Other investments................................................ 74,142 74,325 Loans receivable, net............................................ 1,977,432 1,687,801 Property, plant and equipment, net of accumulated depreciation of $874,415 and $815,547......................... 1,896,301 1,808,195 Regulatory assets................................................ 99,867 99,693 Other............................................................ 67,934 69,315 Goodwill and other intangibles................................... 38,088 41,245 ---------- ---------- $5,903,142 $5,603,745 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Accounts payable................................................. $ 110,709 $ 94,806 Deposit liabilities.............................................. 2,176,216 2,223,755 Short-term borrowings............................................ 170,174 181,825 Securities sold under agreements to repurchase................... 479,976 412,521 Advances from Federal Home Loan Bank............................. 668,274 501,274 Long-term debt................................................... 822,514 758,463 Deferred income taxes............................................ 186,425 182,101 Unamortized tax credits.......................................... 48,159 46,965 Contributions in aid of construction............................. 194,153 191,854 Other............................................................ 197,047 190,535 ---------- ---------- 5,053,647 4,784,099 ---------- ---------- PREFERRED STOCK OF ELECTRIC UTILITY SUBSIDIARIES Subject to mandatory redemption.................................. 39,255 41,750 Not subject to mandatory redemption.............................. 48,293 48,293 ---------- ---------- 87,548 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: 30,618 shares and 29,773 shares.............. 614,383 585,387 Retained earnings................................................ 147,564 144,216 ---------- ---------- 761,947 729,603 ---------- ---------- $5,903,142 $5,603,745 ========== ==========
See accompanying notes to consolidated financial statements. 1 Hawaiian Electric Industries, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Nine months ended (in thousands, except per share amounts and September 30, September 30, --------------------- --------------------- ratio of earnings to fixed charges) 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------------- REVENUES Electric utility.............................................. $284,417 $261,886 $ 797,241 $738,913 Savings bank.................................................. 68,281 63,151 200,351 185,473 Other......................................................... 15,460 11,844 43,978 38,666 -------- -------- ---------- -------- 368,158 336,881 1,041,570 963,052 -------- -------- ---------- -------- EXPENSES Electric utility.............................................. 234,285 211,215 664,995 614,530 Savings bank.................................................. 58,461 53,462 170,373 155,716 FDIC special assessment.................................. 13,835 -- 13,835 -- Other......................................................... 16,834 15,529 49,477 45,752 -------- -------- ---------- -------- 323,415 280,206 898,680 815,998 -------- -------- ---------- -------- OPERATING INCOME (LOSS) Electric utility.............................................. 50,132 50,671 132,246 124,383 Savings bank.................................................. (4,015) 9,689 16,143 29,757 Other......................................................... (1,374) (3,685) (5,499) (7,086) -------- -------- ---------- -------- 44,743 56,675 142,890 147,054 -------- -------- ---------- -------- Interest expense--electric utility and other.................. (16,060) (15,931) (48,309) (46,398) Allowance for borrowed funds used during construction................................................. 1,098 1,327 3,602 3,832 Preferred stock dividends of electric utility subsidiaries................................................. (1,667) (1,726) (5,008) (5,183) Allowance for equity funds used during construction................................................. 2,399 2,590 7,197 7,575 -------- -------- ---------- -------- INCOME BEFORE INCOME TAXES.................................... 30,513 42,935 100,372 106,880 Income taxes.................................................. 13,141 17,784 42,768 45,002 -------- -------- ---------- -------- NET INCOME.................................................... $ 17,372 $ 25,151 $ 57,604 $ 61,878 ======== ======== ========== ======== Earnings per common share..................................... $0.57 $0.86 $1.91 $2.13 ======== ======== ========== ======== Dividends per common share.................................... $0.60 $0.59 $1.80 $1.77 ======== ======== ========== ======== Weighted average number of common shares outstanding......................................... 30,465 29,331 30,178 29,058 ======== ======== ========== ======== Ratio of earnings to fixed charges (SEC method) Excluding interest on ASB deposits......................... 1.90 2.03 ========== ======== Including interest on ASB deposits......................... 1.54 1.62 ========== ========
Hawaiian Electric Industries, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three months ended Nine months ended September 30, September 30, -------------------- ----------------------- (in thousands) 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS, BEGINNING OF PERIOD........................ $148,450 $138,462 $ 144,216 $135,835 Net income.................................................... 17,372 25,151 57,604 61,878 Common stock dividends........................................ (18,258) (17,293) (54,256) (51,393) -------- -------- ---------- -------- RETAINED EARNINGS, END OF PERIOD.............................. $147,564 $146,320 $ 147,564 $146,320 ======== ======== ========== ========
See accompanying notes to consolidated financial statements. 2 Hawaiian Electric Industries, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30, ---------------------- (in thousands) 1996 1995 - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................................. $ 57,604 $ 61,878 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization of property, plant and equipment........... 61,553 57,662 Other amortization....................................................... 9,584 2,275 Deferred income taxes and tax credits, net............................... 6,955 8,005 Allowance for equity funds used during construction...................... (7,197) (7,575) Changes in assets and liabilities Increase in accounts receivable and unbilled revenues, net............ (5,123) (9,614) Decrease (increase) in inventories.................................... (12,743) 3,727 Decrease (increase) in real estate developments....................... 469 (1,125) Decrease (increase) in regulatory assets.............................. 24 (3,708) Increase (decrease) in accounts payable............................... 15,903 (4,464) Changes in other assets and liabilities............................... (5,605) (6,939) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................................. 121,424 100,122 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Loans receivable originated and purchased.................................. (420,981) (263,846) Principal repayments on loans receivable................................... 130,745 104,392 Proceeds from sale of loans receivable..................................... 2,314 6,254 Held-to-maturity mortgage-backed securities purchased...................... (199,999) (146,029) Principal repayments on held-to-maturity mortgage-backed securities........ 252,511 119,430 Capital expenditures....................................................... (146,346) (146,244) Contributions in aid of construction....................................... 7,979 8,482 Other...................................................................... 3,382 (7,600) --------- --------- NET CASH USED IN INVESTING ACTIVITIES...................................... (370,395) (325,161) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposit liabilities............................. (47,539) 47,777 Net increase (decrease) in short-term borrowings with original maturities of three months or less................................................... (10,640) 44,946 Proceeds from other short-term borrowings.................................. 1,064 745 Repayment of other short-term borrowings................................... (2,075) (2,162) Proceeds from securities sold under agreements to repurchase............... 470,100 424,000 Repurchase of securities sold under agreements to repurchase............... (402,000) (220,339) Proceeds from advances from Federal Home Loan Bank......................... 643,700 355,200 Principal payments on advances from Federal Home Loan Bank................. (476,700) (431,700) Proceeds from issuance of long-term debt................................... 81,360 48,444 Repayment of long-term debt................................................ (17,400) (13,400) Redemption of electric utility subsidiaries' preferred stock............... (2,495) (1,744) Net proceeds from issuance of common stock................................. 14,849 13,497 Common stock dividends..................................................... (40,155) (36,840) Other...................................................................... 335 (5,747) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES.................................. 212,404 222,677 --------- --------- Net decrease in cash and equivalents....................................... (36,567) (2,362) Cash and equivalents, beginning of period.................................. 130,833 87,623 --------- --------- CASH AND EQUIVALENTS, END OF PERIOD........................................ $ 94,266 $ 85,261 ========= =========
See accompanying notes to consolidated financial statements. 3 Hawaiian Electric Industries, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- (1) BASIS OF PRESENTATION - -------------------------- The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Securities and Exchange Commission (SEC) 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. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto incorporated by reference in HEI's Annual Report on SEC Form 10-K for the year ended December 31, 1995 (as amended) and the consolidated financial statements and the notes thereto in HEI's Quarterly Report on SEC Form 10-Q for the quarters ended March 31 and June 30, 1996. In the opinion of HEI's management, the accompanying unaudited consolidated financial statements contain all material adjustments required by GAAP to present fairly the Company's financial position as of September 30, 1996 and December 31, 1995, and the results of its operations for the three months and nine months ended September 30, 1996 and 1995, and its cash flows for the nine months ended September 30, 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 Nine months ended September 30, September 30, --------------------- -------------------- (in thousands) 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------ Interest income.................................................. $ 64,519 $ 59,533 $188,973 $175,094 Interest expense................................................. 39,701 36,577 114,966 104,551 -------- -------- -------- -------- NET INTEREST INCOME.............................................. 24,818 22,956 74,007 70,543 Provision for losses............................................. (521) (242) (1,412) (867) Operating, administrative and general expenses................... (18,239) (16,643) (53,995) (50,298) FDIC special assessment........................................ (13,835) -- (13,835) -- Other income..................................................... 3,762 3,618 11,378 10,379 -------- -------- -------- -------- OPERATING INCOME (LOSS).......................................... (4,015) 9,689 16,143 29,757 Income taxes..................................................... (1,381) 4,047 7,041 12,462 -------- -------- -------- -------- NET INCOME (LOSS)................................................ $ (2,634) $ 5,642 $ 9,102 $ 17,295 ======== ======== ======== ========
4
American Savings Bank, F.S.B. and subsidiaries Balance sheet data September 30, December 31, (in thousands) 1996 1995 - --------------------------------------------------------------------------------- ASSETS Cash and equivalents.................................. $ 92,168 $ 129,678 Held-to-maturity investment securities................ 36,778 34,720 Held-to-maturity mortgage-backed securities........... 1,388,151 1,444,832 Loans receivable, net................................. 1,977,432 1,687,801 Other................................................. 75,673 75,150 Goodwill and other intangibles........................ 38,088 41,245 ---------- ---------- $3,608,290 $3,413,426 ========== ========== LIABILITIES AND EQUITY Deposit liabilities................................... $2,176,216 $2,223,755 Securities sold under agreements to repurchase........ 479,976 412,521 Advances from Federal Home Loan Bank.................. 668,274 501,274 Other................................................. 67,879 57,973 ---------- ---------- 3,392,345 3,195,523 Common stock equity................................... 215,945 217,903 ---------- ---------- $3,608,290 $3,413,426 ========== ==========
DEPOSIT-INSURANCE PREMIUMS AND REGULATORY DEVELOPMENTS 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, 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. On September 30, 1996, President Clinton signed into law the Deposit Insurance Funds Act of 1996 (Funds Act), which requires the FDIC to impose a one-time special assessment on SAIF members in an amount sufficient to increase the SAIF reserve ratio to 1.25% as of October 1, 1996. In addition, effective January 1, 1997, the Funds Act provides that the assessment base for raising funds to pay interest on obligations issued by the Financing Corporation (FICO) is to be expanded to include the deposits of banks as well as thrifts. The provisions of the Funds Act should enable SAIF institutions to achieve, over time, parity with BIF institutions in the schedules of the premiums to be paid for deposit insurance coverage and to fund FICO interest obligations. In October, 1996, the FDIC set the one-time special assessment for SAIF deposits at 65.7 cents per $100 of deposits, to be applied against insured deposits held by SAIF institutions as of March 31, 1995, subject to such adjustments as the FDIC finds necessary to achieve the 1.25% SAIF reserve ratio as of October 1, 1996. ASB's special assessment was estimated to be $8.3 million after-tax, and was accrued in September 1996. In October, 1996, the FDIC also proposed a risk-based assessment schedule for SAIF institutions, effective January 1, 1997, that would be identical to the existing base rate schedule for BIF institutions: 0 to 27 cents per $100 of deposits. Added to this base rate schedule through 1999 will be the assessment to fund the FICO's interest obligations, estimated at 6.45 cents per $100 of deposits for SAIF institutions and at 1.3 cents per $100 of deposits for BIF institutions. From 2000 through 2017, the FICO interest obligation burden for both thrifts and banks should be identical, at an estimated level of 2.4 cents per $100 of deposits. ASB believes that, as a well-capitalized thrift, its base deposit insurance premium effective January 1, 1997 under the FDIC's proposal should be 0 and its assessment for funding FICO interest payments should be 6.45 cents per $100 of deposits, compared to its payments through the third quarter of 1996 calculated at 23 cents per $100 of deposits. At this level of base premiums and FICO assessments, and assuming that ASB maintains its well-capitalized status, management expects that ASB's annual after-tax savings will amount to approximately $2 million per year for the years 1997 through 1999 (based on deposit liabilities as of September 30, 1996). Further savings are expected to result for the years 2000 through 2017 if the assessment to fund FICO interest payments is reduced as proposed. The Funds Act provides that the SAIF and BIF will be merged into the Deposit Insurance Fund by January 1, 1999, but only if no insured depository institution is a thrift on that date. The Funds Act leaves to subsequent legislation, however, the manner in which thrift charters might be eliminated in favor of a bank or some other form of charter. If thrift charters are eliminated and ASB obtains a bank charter, HEI and its subsidiaries might become subject to the restrictions on the permissible activities of a bank holding company. While certain of the 5 proposals that have been advanced would grandfather the activities of existing savings and loan holding companies such as HEI, management cannot predict whether or in what form any of these proposals might ultimately be adopted or the extent to which the business of HEI or ASB might be affected. (4) REAL ESTATE SUBSIDIARY - --------------------------- MPC and its subsidiaries' total real estate project inventory, equity investment in real estate joint ventures and loans and advances to unconsolidated joint ventures or joint venture partners amounted to $49 million and $50 million at September 30, 1996 and December 31, 1995, respectively. 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 September 30, 1996, MPC or its subsidiaries had issued (i) guaranties under which they were jointly and severally contingently liable with their joint venture partners for $2.2 million of outstanding loans and (ii) payment guaranties under which MPC or its subsidiaries were severally contingently liable for $5.4 million of outstanding loans and $3.6 million of additional undrawn loan facilities. All such loans are collateralized by real property. At September 30, 1996, HEI had agreed with the lenders of construction loans and loan facilities, of which approximately $9.1 million was outstanding and $4.2 million was undrawn, that it will maintain ownership of 100% of the stock of MPC and that it intends, subject to good and prudent business practices, to keep MPC financially sound and responsible to meet its obligations as guarantor. (5) CASH FLOWS - --------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest (net of capitalized amounts) and income taxes was as follows:
Nine months ended September 30, -------------------- (in thousands) 1996 1995 - ---------------------------------------------------------------------------------------------- Interest (including interest paid by savings bank, but excluding interest paid on nonrecourse debt from leveraged leases)............ $154,843 $139,404 ======== ======== Interest on nonrecourse debt from leveraged leases...................... $ 4,315 $ 4,764 ======== ======== Income taxes............................................................ $ 36,117 $ 31,981 ======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES In the nine months ended September 30, 1995, ASB received $223 million in mortgage-backed securities in exchange for loans. Common stock dividends reinvested by shareholders in HEI common stock in noncash transactions amounted to $14.1 million and $14.6 million for the nine months ended September 30, 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 $7.2 million and $7.6 million for the nine months ended September 30, 1996 and 1995, respectively. (6) ACCOUNTING CHANGES - ----------------------- 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. 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 6 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 AND TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES 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 securities 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. In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which provides accounting and reporting standards based on the consistent application of a financial-components approach that focuses on control. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. SFAS No. 125 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No. 125 amends or supersedes various statements, including superseding SFAS No. 122. SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and is to be applied prospectively. The Company will adopt the provisions of SFAS No. 125 on January 1, 1997 and has not yet determined the impact of the adoption. 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) were 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 (Takayama Complaint). The Takayama 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 7 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. In June 1996, the District Court held a hearing on numerous cross-motions for summary judgment with respect to the remaining issues in the case and, on October 26, 1996, the judge ruled on these motions. Some parts of the decision are favorable to HEI and HEIDI, and others are unfavorable. Among other things, the District Court ruled that at least one claim in the Takayama Complaint fell within the "Professional Services" exclusion in the policy, but also ruled that coverage for other claims in the Takayama Complaint was not excluded by the Professional Services exclusion. The District Court further ruled that the policy does not afford coverage for the "piercing the corporate veil" and "assessment" claims that had been asserted in the Takayama Complaint because they represented claims against HEI and HEIDI, and not claims against the directors and officers covered under the policy. The District Court also concluded that a trial would be necessary to determine whether any portion of the settlement was attributable to claims of misrepresentation and deceptive trade practices for which only the companies and not the directors and officers would have been liable. Finally, the District Court concluded that, in view of its other rulings, a trial would be necessary to determine the appropriate allocation of the settlement between covered and uncovered parties and claims, and that HEI would have the burden of proof with respect to allocation. HEI is considering whether to seek an interlocutory appeal with respect to certain of the District Court's rulings which it believes to be in error, or to proceed to trial. No trial date has been set. Recoveries from HEI's insurance carriers, if any, will be recognized when realized. (8) CONTINGENCIES - ------------------ ENVIRONMENTAL REGULATION -- HAZARDOUS WASTE AND TOXIC SUBSTANCES CONTROL By letters in January and February 1995, the Department of Health of the State of Hawaii (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. The DOH letters to HTB and YB requested the same information regarding Pier 21 and Piers 24-29 in Honolulu Harbor. HECO, 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 was 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. A Technical Workgroup (comprised of certain of the parties identified in the December 18, 1995 DOH letter, including HECO) held a meeting on August 19, 1996. Representatives of the Department of Transportation of the State of Hawaii (DOT) Harbors Division also attended the meeting and conditionally committed to join the Workgroup. The Workgroup decided to conduct its own "voluntary" investigations and to hire a consultant to conduct Phase 1 activities (i.e., data assimilation and reporting). Costs for the proposed Phase 1 work will be shared, with the anticipated cost to each company not to exceed $10,000. HECO agreed to participate in the Phase 1 portion of the project. The Workgroup prepared and, on September 16, 1996, submitted a letter to the DOH proposing to conduct a voluntary data assimilation investigation. The letter was signed by BHP Petroleum Americas Refining Inc. and GASCO, Inc.; Chevron U.S.A. Inc.; Shell Oil Products Company; Union Oil Company of California, dba UNOCAL; DOT and HECO. HTB and YB declined to participate in the Phase I portion of the project. 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 further site analysis or future remediation and cleanup requirements, nor can it estimate when such costs would be incurred. Certain of the costs incurred may be claimed and covered under insurance policies, but such coverage is not determinable at this time. 8 Hawaiian Electric Company, Inc. and subsidiaries CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, (in thousands, except par value) 1996 1995 - --------------------------------------------------------------------------------------------- ASSETS Utility plant, at cost Property, plant and equipment.............................. $2,396,221 $2,291,545 Construction in progress................................... 222,400 191,460 Less--accumulated depreciation............................. (815,412) (762,770) ---------- ---------- NET UTILITY PLANT.................................... 1,803,209 1,720,235 ---------- ---------- Current assets Cash and equivalents....................................... 972 20 Customer accounts receivable, net.......................... 74,851 67,698 Accrued unbilled revenues, net............................. 41,663 43,695 Other accounts receivable, net............................. 3,552 5,355 Fuel oil stock, at average cost............................ 25,889 13,469 Materials and supplies, at average cost.................... 20,640 20,538 Prepayments and other...................................... 2,109 2,297 ---------- ---------- TOTAL CURRENT ASSETS................................. 169,676 153,072 ---------- ---------- Other assets Regulatory assets.......................................... 97,404 97,114 Other...................................................... 43,519 45,862 ---------- ---------- TOTAL OTHER ASSETS................................... 140,923 142,976 ---------- ---------- $2,113,808 $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................................... 271,496 271,449 Retained earnings.......................................... 365,567 343,425 ---------- ---------- COMMON STOCK EQUITY.................................. 719,094 696,905 Cumulative preferred stock Not subject to mandatory redemption..................... 48,293 48,293 Subject to mandatory redemption......................... 37,460 39,955 Long-term debt, net........................................ 545,660 487,306 ---------- ---------- TOTAL CAPITALIZATION................................. 1,350,507 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...................... 137,906 131,753 Short-term borrowings - affiliate.......................... -- 7,000 Accounts payable........................................... 59,295 48,691 Interest and preferred dividends payable................... 14,434 9,954 Taxes accrued.............................................. 46,285 42,968 Other...................................................... 20,473 37,573 ---------- ---------- TOTAL CURRENT LIABILITIES............................ 323,188 309,637 ---------- ---------- Deferred credits and other liabilities Deferred income taxes...................................... 119,339 116,963 Unamortized tax credits.................................... 47,152 45,935 Other...................................................... 79,469 79,435 ---------- ---------- TOTAL DEFERRED CREDITS AND OTHER LIABILITIES......... 245,960 242,333 ---------- ---------- Contributions in aid of construction.......................... 194,153 191,854 ---------- ---------- $2,113,808 $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 Nine months ended September 30, September 30, (in thousands, except for ratio of earnings --------------------------------------------- to fixed charges) 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------- OPERATING REVENUES.............................................. $282,395 $260,123 $791,146 $733,945 -------- -------- -------- -------- OPERATING EXPENSES Fuel oil........................................................ 66,452 57,365 181,739 154,658 Purchased power................................................. 75,069 70,250 212,674 204,993 Other operation................................................. 35,770 30,429 105,339 98,824 Maintenance..................................................... 11,729 11,349 35,122 34,982 Depreciation and amortization................................... 18,417 16,977 55,098 50,987 Taxes, other than income taxes.................................. 26,682 24,729 74,702 69,496 Income taxes.................................................... 16,474 16,760 42,367 40,030 -------- -------- -------- -------- 250,593 227,859 707,041 653,970 -------- -------- -------- -------- OPERATING INCOME................................................ 31,802 32,264 84,105 79,975 -------- -------- -------- -------- OTHER INCOME Allowance for equity funds used during construction.......................................... 2,399 2,590 7,197 7,575 Other, net...................................................... 1,920 1,704 5,936 4,651 -------- -------- -------- -------- 4,319 4,294 13,133 12,226 -------- -------- -------- -------- INCOME BEFORE INTEREST AND OTHER CHARGES........................ 36,121 36,558 97,238 92,201 -------- -------- -------- -------- INTEREST AND OTHER CHARGES Interest on long-term debt...................................... 9,708 8,730 26,971 25,395 Amortization of net bond premium and expense.................... 333 319 968 953 Other interest charges.......................................... 1,672 2,291 6,627 6,343 Allowance for borrowed funds used during construction.......................................... (1,098) (1,327) (3,602) (3,832) Preferred stock dividends of subsidiaries....................... 703 691 2,107 2,075 -------- -------- -------- -------- 11,318 10,704 33,071 30,934 -------- -------- -------- -------- INCOME BEFORE PREFERRED STOCK DIVIDENDS OF HECO...................................................... 24,803 25,854 64,167 61,267 Preferred stock dividends of HECO............................... 964 1,035 2,901 3,108 -------- -------- -------- -------- NET INCOME FOR COMMON STOCK..................................... $ 23,839 $ 24,819 $ 61,266 $ 58,159 ======== ======== ======== ======== Ratio of earnings to fixed charges (SEC method)................................................. 3.67 3.66 ======== ========
Hawaiian Electric Company, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three months ended Nine months ended September 30, September 30, --------------------------------------------------- (in thousands) 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS, BEGINNING OF PERIOD.. $356,644 $325,048 $343,425 $308,535 Net income for common stock............. 23,839 24,819 61,266 58,159 Common stock dividends.................. (14,916) (8,770) (39,124) (25,597) -------- -------- -------- -------- RETAINED EARNINGS, END OF PERIOD........ $365,567 $341,097 $365,567 $341,097 ======== ======== ======== ========
HEI owns all the common stock of HECO. Therefore, per share data with respect to shares of common stock of HECO are not meaningful. See accompanying notes to HECO's consolidated financial statements. 10 Hawaiian Electric Company, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30, ------------------------ (in thousands) 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Income before preferred stock dividends of HECO......................................................... $ 64,167 $ 61,267 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.................................... 55,098 50,987 Other amortization................................................................................ 6,590 4,099 Deferred income taxes............................................................................. 2,367 4,040 Tax credits, net.................................................................................. 2,449 2,976 Allowance for equity funds used during construction............................................... (7,197) (7,575) Changes in assets and liabilities Increase in accounts receivable................................................................ (5,350) (2,087) Decrease (increase) in accrued unbilled revenues............................................... 2,032 (3,643) Decrease (increase) in fuel oil stock.......................................................... (12,420) 4,459 Increase in materials and supplies............................................................. (102) (518) Decrease (increase) in regulatory assets....................................................... 24 (3,708) Increase (decrease) in accounts payable........................................................ 10,604 (8,855) Increase in interest and preferred dividends payable........................................... 4,480 4,070 Changes in other assets and liabilities........................................................ (15,865) (14,469) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES............................................................... 106,877 91,043 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures.................................................................................... (134,579) (138,089) Contributions in aid of construction.................................................................... 7,979 8,482 Decrease (increase) in notes receivable................................................................. 602 (7,995) --------- --------- NET CASH USED IN INVESTING ACTIVITIES................................................................... (125,998) (137,602) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Common stock dividends.................................................................................. (39,124) (25,597) Preferred stock dividends............................................................................... (2,901) (3,108) Proceeds from issuance of long-term debt................................................................ 71,360 48,444 Repayment of long-term debt............................................................................. -- (11,000) Redemption of preferred stock........................................................................... (2,495) (1,744) Net increase (decrease) in short-term borrowings from nonaffiliates and affiliate with original maturities of three months or less..................................................................... (847) 33,145 Other................................................................................................... (5,920) (3,990) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES............................................................... 20,073 36,150 --------- --------- Net increase (decrease) in cash and equivalents......................................................... 952 (10,409) Cash and equivalents, beginning of period............................................................... 20 10,694 --------- --------- CASH AND EQUIVALENTS, END OF PERIOD..................................................................... $ 972 $ 285 ========= =========
See accompanying notes to HECO's consolidated financial statements. 11 Hawaiian Electric Company, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - ------------------------------------------------------------------------------- (1) BASIS OF PRESENTATION - -------------------------- The accompanying unaudited consolidated financial statements have been prepared in conformity with GAAP for interim financial information and with the instructions to SEC 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. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. 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 December31, 1995 (as amended) and the consolidated financial statements and the notes thereto in HECO's Quarterly Report on SEC Form 10-Q for the quarters ended March 31 and June30, 1996. In the opinion of HECO's management, the accompanying unaudited consolidated financial statements contain all material adjustments required by GAAP to present fairly the financial position of HECO and its subsidiaries as of September 30, 1996 and December 31, 1995, and the results of their operations for the three months and nine months ended September 30, 1996 and 1995, and their cash flows for the nine months ended September 30, 1996 and 1995. All such adjustments are of a normal recurring nature, unless otherwise disclosed in this Form10-Q or other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year. (2) CASH FLOWS - --------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest (net of capitalized amounts) and income taxes was as follows:
Nine months ended September 30, ------------------ (in thousands) 1996 1995 - ------------------------------------------------------------- Interest................................ $26,417 $23,890 ======= ======= Income taxes............................ $34,337 $31,879 ======= =======
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 $7.2 million and $7.6 million for the nine months ended September30, 1996 and 1995, respectively. (3) COMMITMENTS AND CONTINGENCIES - ---------------------------------- HELCO POWER SITUATION BACKGROUND. In 1991, HELCO identified the need beginning in 1994 for additional - ---------- generation 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. Also in 1991, 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 12 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. Despite HELCO's best efforts to install the necessary additional generation, the schedule for the installation of HELCO's phased combined-cycle unit at the Keahole power plant site has been revised due to delays in obtaining approval of the Conservation District Use Permit amendment (CDUP) and the air quality Prevention of Significant Deterioration/Covered Source Permit (PSD) for the Keahole power plant site. HELCO is filing regular periodic reports with the PUC concerning the status of efforts to obtain these permits. CDUP delays. 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 that HELCO'S CDUP application was denied. On May 10, 1996 the BLNR issued an amended order which no longer stated that the application was denied, but rather that it would not issue a permit based on that vote. HELCO's position is that denial of the CDUP application requires the favorable vote of at least 4 members of the BLNR, and that the failure of the BLNR to take effective action results in HELCO being entitled to its CDUP by operation of law. HELCO has filed in the Circuit Court for the Third Circuit of Hawaii both a complaint for declaratory judgment (basically asking that HELCO be allowed to put its land to the use requested and asking that BLNR and others act consistently with that purpose) and a protective appeal of the original BLNR order. Other parties have been allowed to intervene or cross-appeal, respectively, in those actions. On July 25, 1996, the Third Circuit Court consolidated HELCO's cases and set an expedited schedule which resulted in oral arguments on September 30, 1996. The parties submitted their proposed findings and form of order on October 15, 1996 and a decision should be forthcoming. These proceedings may further delay, if not prevent, HELCO's project. PSD permit delays. The Department of Health of the State of Hawaii (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, 1996, the EPA restated its determinations and indicated that further documentation is required from HELCO in order for the EPA to consider HELCO's positions. By letter dated June 5, 1996 to the DOH, the EPA stated that it had reviewed HELCO's letter to the DOH dated April 3, 1996 in which HELCO proposed to reduce net nitrogen oxide emission increases at Keahole by retiring and/or reducing output of certain existing diesel units, that it found the netting approach procedurally and substantially acceptable, and that if emission increases were kept below significance levels it would not require the use of any particular emission control technology. In addition, the EPA has requested that the DOH reconsider the use of low sulfur naphtha fuel as the best available control technology for sulfur dioxide missions. HELCO has submitted information showing that the use of such fuel in the Keahole unit is not economically feasible. The DOH is still reviewing this issue. 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 may further delay, if not prevent, HELCO's project. IPP complaints. 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 KCP docket. In the order, the PUC determined various issues affecting HELCO's avoided cost calculations (several of which were contrary to HELCO's recommendations and others of which adopted 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. 13 In September 1995, the PUC allowed HELCO to continue to pursue construction of and commit expenditures for the second combustion turbine (CT-5) and the steam recovery generator (ST-7) 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 and file a list of unresolved issues requiring PUC guidance. On March 20, 1996, the PUC ordered that HELCO and Enserch file status reports with the PUC. Status reports were filed by Enserch and HELCO and a hearing was held on April 25, 1996. Additional written submissions were made to the PUC by the parties in the Enserch docket on June 14 and July 11, 1996. On October 4, 1996, the PUC issued its order in the Enserch docket. In the order, the PUC determined a number of issues affecting the allocation of transmission interconnection costs and the calculation of HELCO's avoided costs (several of which were contrary to HELCO's recommendations and others of which adopted HELCO's recommendations). The order requires the parties to continue to negotiate on an expeditious basis and, within 75 days, to submit to the PUC either a finalized power purchase agreement or reports on matters that are preventing the finalization of an agreement. Enserch filed a motion for "clarification" of the order on October 14, 1996, HELCO filed a memorandum in opposition to the motion on October 23, 1996, Enserch filed a memorandum in reply to HELCO's memorandum in opposition to the motion on November 4, 1996, and HELCO plans to file a supplemental memorandum in opposition. Costs incurred. If it becomes probable that HELCO's combined-cycle unit will - -------------- not be installed (which may occur if the CDUP is denied or if HELCO's negotiations with the IPPs result in a power purchase agreement), HELCO may be required to write off a portion of the costs incurred in its efforts to put into service its combined-cycle unit ($47.7 million as of September 30, 1996) if such costs ultimately are not recoverable from customers or others. The $47.7 million includes approximately $26.7 million for equipment and material purchases, approximately $10.1 million for planning, engineering, permitting, site development and other costs and approximately $10.9 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. Contingency planning. 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 and deferred generation unit retirements. These measures have helped HELCO maintain its reserve margin and reduce the risk of capacity shortages. In January 1996, the PUC issued an order opening 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, and filed a further update on October 10, 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 September 30, 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 ------------------------------ ---------------------------- September 30, December 31, September 30, December 31, (in thousands) 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------- Current assets............................ $ 25,667 $ 23,485 $ 28,216 $ 27,161 Noncurrent assets......................... 382,167 368,785 348,685 306,191 -------- -------- -------- -------- $407,834 $392,270 $376,901 $333,352 ======== ======== ======== ======== Common stock equity....................... $138,186 $136,930 $130,026 $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 5,960 6,055 Current liabilities....................... 68,536 64,233 76,941 57,551 Noncurrent liabilities.................... 183,612 173,607 155,974 135,288 -------- -------- -------- -------- $407,834 $392,270 $376,901 $333,352 ======== ======== ======== ========
INCOME STATEMENT DATA
HELCO MECO ------------------------------------- ------------------------------------- Three months Nine months Three months Nine months ended ended ended ended September 30, September 30, September 30, September 30, ----------------- ----------------- ----------------- ------------------ (in thousands) 1996 1995 1996 1995 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Operating revenues........................... $40,139 $34,937 $112,809 $101,183 $38,732 $34,029 $106,943 $95,270 Operating income............................. 4,512 4,613 11,969 11,969 4,950 4,406 12,575 12,296 Net income for common stock....................... 2,563 3,983 7,725 9,642 4,531 3,310 10,803 8,409
(6) RECONCILIATION OF ELECTRIC UTILITY OPERATING INCOME PER HEI AND HECO -------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME ---------------------------------
Three months ended Nine months ended September 30, September 30, --------------------- -------------------- (in thousands) 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------------------------------- Operating income from regulated and nonregulated activities before income taxes (per HEI consolidated statements of income) $ 50,132 $ 50,671 $132,246 $124,383 Deduct: Income taxes on regulated activities.......................... (16,474) (16,760) (42,367) (40,030) Revenues from nonregulated activities......................... (2,022) (1,763) (6,095) (4,968) Add: Expenses from nonregulated activities......................... 166 116 321 590 -------- -------- -------- -------- Operating income from regulated activities after income taxes (per HECO consolidated statements of income).............. $ 31,802 $ 32,264 $ 84,105 $ 79,975 ======== ======== ======== ========
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. Except for historical information contained herein, the matters set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties include, but are not limited to, such factors as the effect of economic conditions, product demand and market acceptance risks, the impact of competitive products and pricing, capacity and supply constraints or difficulties, new technological developments, governmental and regulatory actions, actual purchases under agreements, the results of financing efforts and the timing and extent of changes in interest rates. Investors are also directed to consider other risks and uncertainties discussed in other periodic reports filed by HEI and/or HECO with the Securities and Exchange Commission. RESULTS OF OPERATIONS CONSOLIDATED - ------------
Three months ended September 30, (in thousands, except per ------------------- % Primary reason(s) for share amounts) 1996 1995 change significant change* - ------------------------------------------------------------------------------------------------------ Revenues........................ $368,158 $336,881 9 Increase for all segments Operating income................ 44,743 56,675 (21) Decrease for the electric utility and savings bank segments (see "as adjusted" amounts below) Net income...................... 17,372 25,151 (31) Lower operating income, higher interest expense due to higher average borrowings and lower AFUDC (see "as adjusted" amounts below) Earnings per common share....... 0.57 0.86 (34) See explanation for "net income" As adjusted ** Operating income............... 58,578 54,235 8 Increase for all segments Net income..................... 25,705 23,661 9 Higher operating income, partly offset by higher interest expense due to higher average borrowings and lower AFUDC Earnings per common share...... 0.84 0.81 4 See explanation for "net income" Weighted average number of common shares outstanding...... 30,465 29,331 4 Issuances under the Dividend Reinvestment and Stock Purchase Plan and other plans
16
Nine months ended September 30, (in thousands, except per --------------------- % Primary reason(s) for share amounts) 1996 1995 change significant change* - ------------------------------------------------------------------------------------------------------ Revenues........................ $1,041,570 $963,052 8 Increase for all segments Operating income................ 142,890 147,054 (3) Decrease for the savings bank segment (see "as adjusted" amounts below) Net income...................... 57,604 61,878 (7) Lower operating income, higher interest expense due to higher average borrowings and lower AFUDC (see "as adjusted" amounts below) Earnings per common share....... 1.91 2.13 (10) See explanation for "net income" As adjusted ** Operating income........... 156,725 140,454 12 Increase for all segments Net income................. 65,937 57,847 14 Higher operating income, partly offset by higher interest expense due to higher average borrowings and lower AFUDC Earnings per common share...... 2.18 1.99 10 See explanation for "net income" Weighted average number of common shares outstanding...... 30,178 29,058 4 Issuances under the Dividend Reinvestment and Stock Purchase Plan and other plans
* Also see segment discussions which follow. ** On September 30, 1996, President Clinton signed into law the Deposit Insurance Funds Act of 1996, which authorizes a one-time deposit-insurance premium assessment by the Federal Deposit Insurance Corporation (FDIC) of 65.7 cents per $100 of deposits insured by the Savings Association Insurance Fund (SAIF) and held as of March 31, 1995. ASB's assessment was estimated to be $8.3 million after-tax and was accrued in September 1996. In December 1995, a rate order by the Public Utilities Commission of the State of Hawaii (PUC) reduced the allowed return on equity for HECO to 11.4% and required a refund to customers retroactive to January 1, 1995. The 1996 "as adjusted" amounts exclude the effect of the special FDIC assessment, and the 1995 "as adjusted" amounts reflect the PUC's December 1995 rate order as if the adjusted rates had been in effect at the beginning of 1995. Shareholder dividends are declared and paid by HEI at the discretion of HEI's Board of Directors. On October 15, 1996, HEI's Board of Directors increased the quarterly cash dividend by 1 cent to $0.61 per share for the fourth quarter of 1996. At the indicated annual dividend rate of $2.44 and the closing share price on October 15, 1996, of $33.88, HEI's dividend yield is 7.2%. HEI and its predecessor company, HECO, have paid dividends continuously since 1901. Dividends per share have increased each year since 1964. Major factors considered in authorizing the dividend increase included the state's continued gradual economic recovery, improvements in the visitor industry, kilowatthour sales growth and productivity gains at the electric utility subsidiaries and steady performance by the savings bank subsidiary. The current payout ratio of 94% for the nine months ended September 30, 1996 is, however, higher than the Board of Directors would prefer, and HEI's goal is to increase earnings faster than dividends in order to reduce the company's payout ratio to below 80%. Whether HEI will be able to achieve this goal will depend on the actual performance of each of its business segments and is subject to all of the risks inherent in their operations. Although the HEI Board of Directors has traditionally 17 determined whether to increase the dividend in the fourth quarter, the Board has decided that the next time it will consider whether to increase the dividend will be the first quarter of 1998, so that it will have a full year of operating results before taking action. Following is a general discussion of revenues, expenses and operating income by business segment. ELECTRIC UTILITY - ----------------
Three months ended September 30, (in thousands, except per --------------------- % Primary reason(s) for barrel amounts) 1996 1995 change significant change - ------------------------------------------------------------------------------------------------------ Revenues........................ $ 284,417 $261,886 9 3.3% increase in KWH sales ($9 million), higher rates ($1 million), higher fuel oil prices ($11 million) which are recovered through rates, and recovery through rates of integrated resource plan costs ($2 million), including demand-side management program costs and net lost revenues Expenses Fuel oil....................... 66,452 57,365 16 Higher fuel oil prices and more KWHs generated Purchased power................ 75,069 70,250 7 More KWHs purchased and higher fuel oil prices Other.......................... 92,764 83,600 11 Higher other operation and maintenance expense (partly due to higher employee benefits expenses and integrated resource plan related costs), depreciation expense and taxes, other than income taxes Operating income................ 50,132 50,671 (1) Higher revenues, offset by higher expenses (see "as adjusted" amounts below) Net income...................... 23,839 24,819 (4) Lower operating income, higher interest expense due to higher average borrowings and lower AFUDC (see "as adjusted" amounts below) As adjusted * Operating income.............. 50,132 48,231 4 Higher revenues, including higher rates ($4 million), partly offset by higher expenses Net income.................... 23,839 23,329 2 Higher operating income, partly offset by higher interest expense due to higher average borrowings and lower AFUDC Fuel oil price per barrel....... 24.31 21.26
18
Nine months ended September 30, (in thousands, except per --------------------- % Primary reason(s) for barrel amounts) 1996 1995 change significant change - ------------------------------------------------------------------------------------------------------ Revenues........................ $ 797,241 $738,913 8 3.5% increase in KWH sales ($25 million), higher rates ($4 million), higher fuel oil prices ($25 million) which are recovered through rates, and recovery through rates of integrated resource plan costs ($2 million), including demand-side management program costs and net lost revenues Expenses Fuel oil....................... 181,739 154,658 18 Higher fuel oil prices and more KWHs generated Purchased power................. 212,674 204,993 4 More KWHs purchased and higher fuel oil prices Other........................... 270,582 254,879 6 Higher other operation and maintenance expense (partly due to higher employee benefits expenses and integrated resource plan related costs), depreciation expense and taxes, other than income taxes Operating income................ 132,246 124,383 6 Higher revenues, partly offset by higher expenses (see "as adjusted" amounts below) Net income...................... 61,266 58,159 5 Higher operating income, partly offset by higher interest expense due to higher average borrowings and lower AFUDC (see "as adjusted" amounts below) As adjusted * Operating income.............. 132,246 117,783 12 Higher revenues, including higher rates ($11 million), partly offset by higher expenses Net income.................... 61,266 54,128 13 Higher operating income, partly offset by higher interest expense due to higher average borrowings and lower AFUDC Fuel oil price per barrel....... 23.35 20.57
* In December 1995, a rate order by the PUC reduced the allowed return on equity for HECO to 11.4% and required a refund to customers retroactive to January 1, 1995. The 1995 "as adjusted" amounts reflect the PUC's December 1995 rate order as if the adjusted rates had been in effect at the beginning of 1995. Had the lower rates in the PUC's December 1995 rate order for HECO been in effect from January 1, 1995, consolidated HECO's 1996 third quarter net income would have exceeded net income for the third quarter of 1995 by approximately 2%, and consolidated HECO's net income for the nine months ended September 30, 1996 would have exceeded net income for the first nine months of 1995 by approximately 13%. Kilowatthour sales in the third quarter and first nine months of 1996 increased 3.3% and 3.5%, respectively, from the same periods in 1995, partly due to the state's gradually improving economy and an increase in the number of customers. 19 REGULATION OF ELECTRIC UTILITY RATES The PUC has broad discretion in its regulation of the rates charged by HEI's electric utility subsidiaries and in other matters. Any adverse decision & order (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% return on average common equity (ROACE). In December 1995, HECO received a final D&O authorizing a 1.3%, or $9.1 million, increase in annual 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 had been effective January 1, 1995 and had been 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, was returned to customers in the first half of 1996. The D&O also did not provide revenue to cover costs relating to post retirement executive life insurance. HECO and its subsidiaries wrote off a regulatory asset relating to such costs, resulting in a fourth quarter 1995 after-tax charge of $1.1 million. Hawaii Electric Light Company, Inc. - ----------------------------------- . 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. . It is now unlikely that HELCO will file a request to increase rates based on a 1997 test year. Maui Electric Company, Limited - ------------------------------ . 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. . In May 1996, MECO filed a request to increase rates based on a 1997 test year, primarily to recover the costs related to generating unit M17. MECO requested an increase of 13%, or $18.9 million in annual revenues over rates in effect at the time of filing, based on a 12.9% ROACE. On November 7, 1996, MECO filed a motion with the PUC to approve an agreement between MECO and the Consumer Advocate which would close the MECO 1997 rate case and would provide MECO with an increase in annual revenues of $1.5 million over revenues at currently effective rates, effective January 1, 1997, based on an 11.65% ROACE. The $1.5 million increase, but not the resulting rate level, is subject to adjustment if the rates approved in the final D&O for the 1996 rate case differ from the interim rates currently in effect. The primary reason for the agreement was a delay in the expected in-service date for MECO's generating unit M17, from the second half of 1997 to the first half of 1998, which resulted from delays in obtaining the necessary PSD permit from the DOH/EPA. MECO anticipates that it will obtain the PSD permit necessary to place M17 in service in 1998, in which event it is likely that MECO will file a request to increase rates based on a 1998 test year. 20 SAVINGS BANK - ------------
Three months ended September 30, --------------------- % Primary reason(s) for (in thousands) 1996 1995 change significant change - ------------------------------------------------------------------------------------------------------ Revenues........................ $ 68,281 $ 63,151 8 Higher interest income as a result of higher average loans receivable and mortgage-backed securities balances, partly offset by lower yields Operating income (loss)......... (4,015) 9,689 NM Accrual of $13.8 million deposit-insurance premium special assessment by the FDIC (see "as adjusted" amounts below) Net income (loss)............... (2,634) 5,642 NM $8.3 million (after-tax) deposit-insurance premium special assessment by the FDIC (see "as adjusted" amounts below) As adjusted * Operating income............... 9,820 9,689 1 Higher net interest income, partly offset by higher compensation expense and an increase in allowance for loan losses Net income..................... 5,699 5,642 1 Higher operating income Interest rate spread............ 2.76% 2.84% 13 basis points decrease in the weighted average yield on interest-earning assets, partly offset by 5 basis points decrease in the weighted average rate on interest-bearing liabilities
NM Not meaningful. 21
Nine months ended September 30, --------------------- % Primary reason(s) for (in thousands) 1996 1995 change significant change - ------------------------------------------------------------------------------------------------------ Revenues........................ $ 200,351 $185,473 8 Higher interest income as a result of higher average mortgage-backed securities and loans receivable balances, partly offset by lower yields Operating income................ 16,143 29,757 (46) Accrual of $13.8 million deposit-insurance premium special assessment by the FDIC (see "as adjusted" amounts below) Net income...................... 9,102 17,295 (47) $8.3 million (after-tax) deposit-insurance premium special assessment by the FDIC (see "as adjusted" amounts below) As adjusted * Operating income............... 29,978 29,757 1 Higher net interest income, partly offset by higher compensation expense and an increase in allowance for loan losses Net income..................... 17,435 17,295 1 Higher operating income Interest rate spread............ 2.80% 2.93% 11 basis points decrease in the weighted average yield on interest-earning assets and 2 basis points increase in the weighted average rate on interest-bearing liabilities
* On September 30, 1996, President Clinton signed into law the Deposit Insurance Funds Act of 1996, which authorizes a one-time deposit-insurance premium assessment by the FDIC of 65.7 cents per $100 of deposits insured by the SAIF and held as of March 31, 1995. ASB's assessment was estimated to be $8.3 million after-tax and was accrued in September 1996. The 1996 "as adjusted" amounts exclude the effect of the special FDIC assessment. In anticipation of the assessment, HEI infused $9 million of additional equity capital into ASB in September 1996. As of September 30, 1996, ASB was well-capitalized -- the highest of five categories established by regulators. The assessment will bring the SAIF to its statutory reserve level and should result in a reduction of ASB's deposit-insurance premiums (including assessments to pay interest on the FICO bond) from 23 cents to an estimated 6.45 cents per $100 of deposits, effective January 1, 1997. With the reduction in deposit-insurance premiums, management expects that ASB's annual after-tax savings will amount to approximately $2 million, beginning January 1, 1997 (based on deposit liabilities as of September 30, 1996). See note (3) in HEI's "Notes to consolidated financial statements" for additional information. Several factors contributed to the decrease in ASB's 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 flattening of the yield curve beginning in 1995. Comparing third quarter 1996 to the same period in 1995, the weighted average rates on interest- bearing liabilities and interest-earning assets decreased. Comparing the first nine months of 1996 to the same period in 1995, the weighted average rate on interest-bearing liabilities remained relatively constant, while the weighted average rate on interest-earning assets decreased. 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. 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. Deposits 22 decreased by $83 million and $48 million in the three and nine months ended September 30, 1996, respectively. Deposits increased by $14 million and $48 million in the three and nine months ended September 30, 1995. Using sources of funds with a higher cost than deposits, such as advances from the FHLB, puts downward pressure on ASB's net interest income. 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 loans receivable rates, increased from 5.5% to 6.0% and declined to 5.5% by yearend. In the first nine months of 1996, the federal funds rate decreased 25 basis points to 5.25%. OTHER - -----
Three months ended September 30, --------------------- % Primary reason(s) for (in thousands) 1996 1995 change significant change - ------------------------------------------------------------------------------------------------------ Revenues........................ $ 15,460 $ 11,844 31 1995 HEIIC pretax loss on disposition of a leveraged lease investment ($2 million) Operating loss.................. (1,374) (3,685) 63 1995 HEIIC pretax loss on disposition of a leveraged lease investment ($2 million)
Nine months ended September 30, --------------------- % Primary reason(s) for (in thousands) 1996 1995 change significant change - ------------------------------------------------------------------------------------------------------ Revenues........................ $ 43,978 $ 38,666 14 MPC sale of land in downtown Honolulu to a developer for a residential condominium ($2 million) and 1995 HEIIC pretax loss on disposition of a leveraged lease investment ($2 million) Operating loss.................. (5,499) (7,086) 22 MPC sale of land in downtown Honolulu to a developer for a residential condominium ($1 million) and 1995 HEIIC pretax loss on disposition of a leveraged lease investment ($2 million), partly offset by higher startup costs at HEIPC
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; HEIPC and its subsidiaries, which are companies formed 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 $1.1 million and $2.0 million in the third quarter and first nine months of 1996, respectively, compared with $0.9 million and $2.4 million in the same periods of 1995. The increase in operating income for the quarter is due to higher general freight and interstate revenue. However, the freight transportation subsidiaries continue to be negatively impacted by the slow economic activity on the neighbor islands and the slow construction industry. In June 1996, YB filed a request with the PUC for a general rate increase based on a 1996 test year. YB requested an increase of 9.9%, or $3.5 million in annual revenues, based on a 15.15% ROACE. In September 1996, YB and the Consumer Advocate filed a stipulated agreement with the PUC which would allow YB to increase its rates by $1.4 million annually, or 3.9%. This agreement is subject to PUC approval. 23 REAL ESTATE The real estate subsidiaries recorded an operating loss of $0.3 million and operating income of $37,000 in the third quarter and first nine months of 1996, respectively, compared with operating losses of $0.3 million and $0.9 million in the same periods of 1995. In April 1996, MPC sold land in downtown Honolulu to a developer for a pretax gain of $1.1 million. MPC's other real estate development activities continue to be negatively impacted by the slow real estate market in Hawaii. It is not expected that there will be 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 was formed in March 1995 and its subsidiaries have been and will be formed from time to time to pursue independent power projects and energy services projects in Asia and the Pacific. HEIPC's consolidated operating loss (i.e., startup costs) for the first nine months of 1996 was $1.6 million, compared with $1.0 million for the same period in 1995. In September 1996, HEIPC's subsidiary, HEI Power Corp. Guam (HPG), entered into an energy conversion agreement with the Guam Power Authority, pursuant to which HPG will rehabilitate, operate and maintain for approximately 20 years two oil- fired 26.5-megawatt (MW) units at Tanguisson, Guam. On October 30, 1996, HEI filed with the SEC a "Notification of Foreign Utility Company Status" on Form U- 57, stating that HPG will assume operational control of the Tanguisson facility by November 24, 1996. HPG's total cost to rehabilitate the two units will be approximately $12 million, approximately $8 million of which HPG is seeking to fund through nonrecourse financing. HEIPC continues to pursue the development of a 22-MW hydroelectric plant in the Philippines. The project is in a preliminary stage for HEIPC. The success of any project undertaken by HEIPC in foreign countries will be dependent on many factors, including the economic, political, technological, regulatory and logistical circumstances surrounding each project and the location of the project. Due to political or regulatory actions or other circumstances, projects may be delayed or even prohibited. There is no assurance that any project undertaken by HEIPC will be successfully completed or that HEIPC's investment in any such project will not be lost, in whole or in part. 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 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. 122, "Accounting for Mortgage Servicing Rights"; SFAS No. 123, "Accounting for Stock-Based Compensation"; and SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," see note (6) in HEI's "Notes to consolidated financial statements." FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company and HECO and its subsidiaries 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. 24 The consolidated capital structure of HEI was as follows:
(in millions) September 30,1996 December 31, 1995 - --------------------------------------------------------------------------- Short-term borrowings.............. $ 170 9% $ 182 10% Long-term debt..................... 823 45 758 43 Preferred stock of electric utility subsidiaries.............. 87 5 90 5 Common stock equity................ 762 41 730 42 ------ ---- ------ ---- $1,842 100% $1,760 100% ====== ==== ====== ====
ASB's deposit liabilities, securities sold under agreements to repurchase and advances from FHLB of Seattle are not included in the table above. For the first nine months of 1996, net cash provided by operating activities was $121 million. Net cash used in investing activities was $370 million, largely due to ASB's loan originations, net of repayments, and consolidated HECO's capital expenditures. Net cash provided by financing activities was $212 million as a result of several factors, including net increases in long-term debt, advances from FHLB of Seattle and securities sold under agreements to repurchase, partly offset by decreases in deposit liabilities and short-term borrowings and by common stock dividends. Total HEI consolidated financing requirements for 1997 through 2001 (excluding any financing requirements HEIPC may have), including net capital expenditures (which excludes the allowance for funds used during construction and capital expenditures funded by third-party cash contributions in aid of construction), debt retirements (excluding repayments of advances from FHLB of Seattle and securities sold under agreements to repurchase) and sinking fund requirements, are currently estimated to total $1.0 billion. Of this amount, approximately $0.8 billion are for net capital expenditures (mostly relating to the electric utilities' net capital expenditures described below). HEI's consolidated internal sources, after the payment of HEI dividends, are expected to provide approximately 68% of the consolidated financing requirements, with debt and equity financing providing the remaining requirements. Over the five-year period 1997 through 2001, HEI estimates that it will require approximately $158 million in new common equity, in addition to retained earnings, which is expected to be provided principally by HEI's Dividend Reinvestment and Stock Purchase Plan and the Hawaiian Electric Industries Retirement Savings Plan. The additional equity will be used primarily to reduce HEI's overall borrowing level and to fund the electric utilities' common equity requirements related to their capital expenditure programs. Additional common equity in excess of the $158 million described above, and additional debt financing, may be required for the development of independent power projects and energy services projects by HEIPC in Asia and the Pacific. Following is a discussion of the liquidity and capital resources of HEI's largest segments. ELECTRIC UTILITY - ---------------- HECO's consolidated capital structure was as follows:
(in millions) September 30,1996 December 31, 1995 - -------------------------------------------------------------------------------- Short-term borrowings from nonaffiliates and affiliate $ 138 9% $ 139 10% Long-term debt............... 589 38 517 36 Preferred stock.............. 87 6 90 6 Common stock equity.......... 719 47 697 48 ------ ---- ------ ---- $1,533 100% $1,443 100% ====== ==== ====== ====
Operating activities provided $107Emillion in net cash during the first nine months of 1996. Investing activities used cash of $126 million primarily for capital expenditures, net of contributions in aid of construction. Financing activities provided cash of $20 million through an increase in long-term debt resulting from the drawdown of proceeds from the sale of special purpose revenue bonds, partly offset by a net decrease in short-term borrowings, payment of common and preferred dividends and the sinking fund redemption of preferred stock. During May 1996, the Department of Budget and Finance of the State of Hawaii issued $75 million of special purpose revenue bonds on behalf of HECO, HELCO and MECO at a discount, resulting in a yield of 6.375%. As of September 30, 1996, an additional $95 million of revenue bonds had been 25 authorized by the Hawaii Legislature for issuance prior to the end of 1997 and an additional $150 million was authorized for issuance prior to the end of 1999. The electric utilities' consolidated financing requirements for 1997 through 2001, including net capital expenditures, debt retirements and sinking fund requirements, are estimated to total $763 million. HECO's consolidated internal sources, after the payment of common and preferred stock dividends, are currently expected to provide approximately 76% of the total $763 million in requirements, with debt and equity financing providing the remaining requirements. HECO currently estimates that it will require approximately $36 million in new common equity, in addition to retained earnings, over the five-year period 1997 through 2001. The PUC must approve issuances of long-term debt and equity by HECO, HELCO and MECO. Capital expenditures include the costs of projects which are required to meet expected load growth, to improve reliability and to replace and upgrade existing equipment. Net capital expenditures for the five-year period 1997 through 2001 are currently estimated to total $711 million. Approximately 65% of gross capital expenditures, including the allowance for funds used during construction and capital expenditures funded by third-party cash contributions in aid of construction, is for transmission and distribution projects, with the remaining 35% primarily for generation projects. Capital expenditure estimates and the timing of construction projects are reviewed periodically by management and may change significantly as a result of many considerations, including changes in economic conditions, changes in forecasts of KWH sales and peak load, the availability of purchased power, the availability of generating sites and transmission and distribution corridors, the ability to obtain adequate and timely rate relief, escalation in construction costs, demand-side management programs and requirements of environmental and other regulatory and permitting authorities. SAVINGS BANK - ------------
September 30, December 31, % (in millions) 1996 1995 change - --------------------------------------------------------------------------------------------------- Assets................................................ $3,608 $3,413 6 Mortgage-backed securities............................ 1,388 1,445 (4) Loans receivable, net................................. 1,977 1,688 17 Deposit liabilities................................... 2,176 2,224 (2) Securities sold under agreements to repurchase........ 480 413 16 Advances from Federal Home Loan Bank.................. 668 501 33
At June 30, 1996, ASB was the fourth largest financial institution in the state based on total assets of $3.5 billion and the third largest financial institution based on deposits of $2.3 billion. The 17% increase in loans receivable noted above was partly due to the fact that ASB's refinancings of other institutions' loans were high in the first nine months of 1996. This trend, however, is not expected to continue in the last quarter of 1996. For the first nine months of 1996, cash used in ASB's investing activities was $237 million, due largely to the origination of loans receivable, partly offset by principal repayments. Cash provided by financing activities was $176 million as a result of a net increase of $167 million in advances from the FHLB of Seattle and $68 million in securities sold under agreements to repurchase, partly offset by a decrease of $48 million in deposit liabilities and common stock dividends of $10 million. 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 September 30, 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 September 30, 1996, ASB was in compliance with the OTS minimum capital requirements (noted in parenthesis) with a tangible capital ratio of 5.0% (1.5%), a core capital ratio of 5.1% (3.0%) and a risk-based capital ratio of 11.8% (8.0%). The OTS has adopted a rule adding an interest rate risk (IRR) component to the existing risk-based capital requirement. 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 September 30, 1996, 26 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. FDIC regulations restrict the ability of financial institutions that are not well-capitalized to offer interest rates on deposits that are significantly higher than the rates offered by competing institutions. As of September 30, 1996, ASB was well-capitalized (ratio requirements noted in parenthesis) with a leverage ratio of 5.1% (5.0%), a Tier-1 risk-based ratio of 11.1% (6.0%) and a total risk-based ratio of 11.8% (10.0%). Significant interstate banking legislation has been enacted at both the federal and state levels. Under the federal Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, a bank holding company may acquire control of a bank in any state, subject to certain restrictions. Under Hawaii law which takes effect on June 1, 1997, a bank chartered under Hawaii law may merge with an out-of- state bank and convert all branches of both banks into branches of a single bank, subject to certain restrictions. Although the federal and Hawaii laws apply only to banks, such legislation may nonetheless affect the competitive balance among banks, thrifts and other financial institutions and the level of competition among financial institutions doing business in Hawaii. PART II - OTHER INFORMATION - ------------------------------------------------------------------------------- ITEM 1. LEGAL PROCEEDINGS - -------------------------- There are no significant developments except as set forth in HEI's and HECO's "Notes to consolidated financial statements," management's discussion and analysis of financial condition and results of operations and Item 5, "Other information." ITEM 5. OTHER INFORMATION - -------------------------- A. MECO Maalaea Unit 14 Following a unit overhaul, emission compliance tests conducted for MECO's Maalaea Unit 14 in October 1995 and documented in November 1995 indicated that particulate emissions were in excess of Prevention of Significant Deterioration/Covered Source Permit (PSD) limits. Corrective actions included fine tuning of the combustion turbine's fuel nozzles in December 1995, and a retest in February 1996 confirmed that the unit returned to compliance with PSD limits. All test reports were submitted to the Department of Health of the State of Hawaii (DOH). By letter dated July 15, 1996, the DOH indicated that a Notice of Violation will be issued for the past violations. Management does not believe that the issuance or final resolution of the Notice of Violation will have a material adverse effect on consolidated HECO's financial condition or results of operations. 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 ---------
Years ended December 31, Nine months ended -------------------------------------------------- September 30, 1996 1995 1994 1993 1992 1991 ------------------ ---- ---- ---- ---- ---- 1.90 1.94 2.22 2.25 2.08 1.99 ==== ==== ==== ==== ==== ====
RATIO OF EARNINGS TO FIXED CHARGES INCLUDING INTEREST ON ASB DEPOSITS ---------
Years ended December 31, Nine months ended -------------------------------------------------- September 30, 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 27 expensed, incurred by HEI and its subsidiaries plus their proportionate share of interest on debt to outsiders incurred by fifty-percent-owned persons, but excluding interest on nonrecourse debt from leveraged leases which is not included in interest expense in HEI's consolidated statements of income, (ii) amortization of debt expense and discount or premium related to any indebtedness, whether capitalized or expensed, (iii) the interest factor in rental expense and (iv) the preferred stock dividend requirements of HEI's subsidiaries, increased to an amount representing the pretax earnings required to cover such dividend requirements. The following table sets forth the ratio of earnings to fixed charges for HECO and its subsidiaries for the periods indicated: RATIO OF EARNINGS TO FIXED CHARGES
Nine months ended September 30, 1996 Years ended December 31, ------------------ ------------------------------------------------ 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- 3.67 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.
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, nine months ended September 30, 1996 and 1995 and years ended December 31, 1995, 1994, 1993, 1992 and 1991 HECO Hawaiian Electric Company, Inc. and subsidiaries Exhibit 12.2 Computation of ratio of earnings to fixed charges, nine months ended September 30, 1996 and 1995 and years ended December 31, 1995, 1994, 1993, 1992 and 1991 HEI Hawaiian Electric Industries, Inc. and subsidiaries Exhibit 27.1 Financial Data Schedule September 30, 1996 and nine months ended September 30, 1996 HECO Hawaiian Electric Company, Inc. and subsidiaries Exhibit 27.2 Financial Data Schedule September 30, 1996 and nine months ended September 30, 1996 (b) REPORTS ON FORM 8-K
During the quarter, no Current Report, Form 8-K, was filed with the SEC. 28 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 each registrant shall be deemed to relate only to matters having reference to that registrant and any subsidiaries thereof. HAWAIIAN ELECTRIC INDUSTRIES, INC. HAWAIIAN ELECTRIC COMPANY, INC. (Registrant) (Registrant) By /s/ Robert F. Mougeot By /s/ Paul Oyer ---------------------- ---------------------------- Robert F. Mougeot Paul A. Oyer Financial Vice President and Financial Vice President and Chief Financial Officer Treasurer (Principal Financial Officer of HEI) (Principal Financial Officer of HECO) Date: November 12, 1996 Date: November 12, 1996 29 EX-12.1 2 HEI - COMPUTATION OF RATIO HEI Exhibit 12.1 (page 1 of 3) ----------------
Hawaiian Electric Industries, Inc. and subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (unaudited) Nine months ended September 30, ----------------------------------------------- (dollars in thousands) 1996 (1) 1996 (2) 1995 (1) 1995 (2) - ------------------------------------------------------------------------------------------------- FIXED CHARGES Total interest charges The Company (3).............................. $ 93,927 $164,243 $ 86,017 $151,858 Proportionate share of fifty-percent-owned persons................. 538 538 705 705 Interest component of rentals................... 2,866 2,866 2,913 2,913 Pretax preferred stock dividend requirements of subsidiaries................... 8,429 8,429 8,661 8,661 -------- -------- -------- -------- TOTAL FIXED CHARGES............................. $105,760 $176,076 $ 98,296 $164,137 ======== ======== ======== ======== EARNINGS Pretax income................................... $100,372 $100,372 $106,880 $106,880 Fixed charges, as shown......................... 105,760 176,076 98,296 164,137 Interest capitalized The Company.................................. (4,570) (4,570) (4,741) (4,741) Proportionate share of fifty-percent-owned persons................. (538) (538) (705) (705) -------- -------- -------- -------- EARNINGS AVAILABLE FOR FIXED CHARGES............ $201,024 $271,340 $199,730 $265,571 ======== ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES.............. 1.90 1.54 2.03 1.62 ======== ======== ======== ========
(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 statements of income. HEI Exhibit 12.1 (page 2 of 3) ---------------- Hawaiian Electric Industries, Inc. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, ----------------------------------------------------------------------- (dollars in thousands) 1995 (1) 1995 (2) 1994 (1) 1994 (2) 1993 (1) 1993 (2) - --------------------------------------------------------------------------------------------------------------- FIXED CHARGES Total interest charges The Company (3)....................... $117,494 $206,790 $ 82,306 $158,815 $ 68,254 $145,905 Proportionate share of fifty-percent-owned persons......... 867 867 539 539 564 564 Interest component of rentals........... 3,857 3,857 3,819 3,819 3,944 3,944 Pretax preferred stock dividend requirements of subsidiaries........... 11,433 11,433 11,899 11,899 11,018 11,018 -------- -------- --------- --------- -------- -------- TOTAL FIXED CHARGES..................... $133,651 $222,947 $ 98,563 $175,072 $ 83,780 $161,431 ======== ======== ======== ======== ======== ======== EARNINGS Pretax income from continuing operations............................. $133,233 $133,233 $126,049 $126,049 $108,770 $108,770 Fixed charges, as shown................. 133,651 222,947 98,563 175,072 83,780 161,431 Interest capitalized The Company........................... (6,337) (6,337) (4,924) (4,924) (3,881) (3,881) Proportionate share of fifty-percent-owned persons......... (867) (867) (539) (539) (408) (408) -------- -------- -------- -------- -------- -------- EARNINGS AVAILABLE FOR FIXED CHARGES.... $259,680 $348,976 $219,149 $295,658 $188,261 $265,912 ======== ======== ======== ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES...... 1.94 1.57 2.22 1.69 2.25 1.65 ======== ======== ======== ======= ======== ========
(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 statements of income. HEI Exhibit 12.1 (page 3 of 3) ---------------- Hawaiian Electric Industries, Inc. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, ----------------------------------------------- (dollars in thousands) 1992 (1) 1992 (2) 1991 (1) 1991 (2) - --------------------------------------------------------------------------------------- FIXED CHARGES Total interest charges The Company (3)....................... $ 67,559 $161,756 $ 69,957 $168,691 Proportionate share of fifty-percent-owned persons......... 1,051 1,051 1,875 1,875 Interest component of rentals........... 3,254 3,254 2,231 2,231 Pretax preferred stock dividend requirements of subsidiaries........... 9,606 9,606 10,449 10,449 -------- -------- -------- -------- TOTAL FIXED CHARGES..................... $ 81,470 $175,667 $ 84,512 $183,246 ======== ======== ======== ======== EARNINGS Pretax income from continuing operations............................. $ 91,244 $ 91,244 $ 87,953 $ 87,953 Undistributed earnings from less than fifty-percent-owned persons............ (244) (244) (278) (278) Fixed charges, as shown................. 81,470 175,667 84,512 183,246 Interest capitalized The Company........................... (2,104) (2,104) (1,945) (1,945) Proportionate share of fifty-percent-owned persons......... (803) (803) (1,875) (1,875) -------- ------- -------- -------- EARNINGS AVAILABLE FOR FIXED CHARGES.... $169,563 $263,760 $168,367 $267,101 ======== ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES...... 2.08 1.50 1.99 1.46 ======== ======== ======= ========
(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 statements of income. EX-12.2 3 HECO - COMPUTATION OF RATIO HECO Exhibit 12.2 (page 1 of 2) ----------------- Hawaiian Electric Company, Inc. and subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (unaudited)
Nine months ended September 30, ----------------- (dollars in thousands) 1996 1995 - ---------------------------------------------------------------- FIXED CHARGES Total interest charges.................. $ 34,566 $ 32,691 Interest component of rentals........... 521 508 Pretax preferred stock dividend requirements of subsidiaries........... 3,448 3,377 -------- -------- TOTAL FIXED CHARGES..................... $ 38,535 $ 36,576 ======== ======== EARNINGS Income before preferred stock dividends of HECO................................ $ 64,167 $ 61,267 Income taxes (see note below)........... 42,205 39,757 Fixed charges, as shown................. 38,535 36,576 AFUDC for borrowed funds................ (3,602) (3,832) -------- -------- EARNINGS AVAILABLE FOR FIXED CHARGES.... $141,305 $133,768 ======== ======== RATIO OF EARNINGS TO FIXED CHARGES...... 3.67 3.66 ======== ======== Note: Income taxes are comprised of the following: Expense relating to operating income for regulated purposes................. $ 42,367 $ 40,030 Benefit relating to nonoperating loss... (162) (273) -------- -------- $ 42,205 $ 39,757 ======== ========
HECO Exhibit 12.2 (page 2 of 2) ----------------- Hawaiian Electric Company, Inc. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, ----------------------------------------------------------- (dollars in thousands) 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------- FIXED CHARGES Total interest charges.................. $ 44,377 $ 37,340 $ 35,287 $ 33,011 $ 33,248 Interest component of rentals........... 672 808 970 1,070 1,130 Pretax preferred stock dividend requirements of subsidiaries........... 4,494 4,651 3,425 3,117 3,409 --------- ------- ------- -------- -------- TOTAL FIXED CHARGES..................... $ 49,543 $ 42,799 $ 39,682 $ 37,198 $ 37,787 ======== ======== ======== ======== ======== EARNINGS Income before preferred stock dividends of HECO................................ $ 77,023 $ 65,961 $ 56,126 $ 53,678 $ 46,210 Income taxes (see note below)........... 50,198 43,588 36,897 23,843 23,816 Fixed charges, as shown................. 49,543 42,799 39,682 37,198 37,787 AFUDC for borrowed funds................ (5,112) (4,043) (3,869) (2,095) (1,307) -------- ------- -------- -------- -------- EARNINGS AVAILABLE FOR FIXED CHARGES.... $171,652 $148,305 $128,836 $112,624 $106,506 ======== ======== ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES...... 3.46 3.47 3.25 3.03 2.82 ======= ======= ======== ======== ======== Note: Income taxes are comprised of the following: Expense relating to operating income for regulatory purposes................ $ 50,719 $ 43,820 $ 37,007 $ 26,254 $ 24,137 Benefit relating to nonoperating loss... (521) (232) (110) (2,411) (321) -------- -------- -------- -------- -------- $ 50,198 $ 43,588 $ 36,897 $ 23,843 $ 23,816 ======== ======== ======== ======== ========
EX-27.1 4 HEI - FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HAWAIIAN ELECTRIC INDUSTRIES, INC. AND SUBSIDIARIES' CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000354707 HEI 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 94,266 1,424,929 147,628 0 48,001 0 2,770,716 874,415 5,903,142 0 822,514 39,255 48,293 614,383 147,564 5,903,142 0 1,041,570 0 898,680 (5,791) 0 48,309 100,372 42,768 57,604 0 0 0 57,604 1.91 1.91
EX-27.2 5 HECO - FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES' CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000046207 HECO 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 PER-BOOK 1,803,209 0 169,676 11,742 129,181 2,113,808 82,031 271,496 365,567 719,094 37,460 48,293 545,660 0 0 137,906 43,000 1,795 0 0 580,600 2,113,808 791,146 42,367 664,674 707,041 84,105 13,133 97,238 33,071 64,167 2,901 61,266 39,124 40,153 106,877 0 0
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