-----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, Gh4ZGGP9QN7LdRCJ5CQXcxfmYIM3wZU63PlURV2DFkqMMDeIc5xDlgibahyqHjTC YObykQLO/ufJ0BmF172L9A== 0000898430-97-004840.txt : 19971117 0000898430-97-004840.hdr.sgml : 19971117 ACCESSION NUMBER: 0000898430-97-004840 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: SEC FILE NUMBER: 001-08503 FILM NUMBER: 97717584 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: SEC FILE NUMBER: 001-04955 FILM NUMBER: 97717585 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 DATED 9-30-97 ================================================================================ 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, 1997 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 10, 1997 - -------------------------------------------------------------------------------- Hawaiian Electric Industries, Inc. (Without Par Value)................... 31,734,028 Shares Hawaiian Electric Company, Inc. ($6 2/3 Par Value).................... 12,805,843 Shares (not publicly traded) ================================================================================ Hawaiian Electric Industries, Inc. and subsidiaries Hawaiian Electric Company, Inc. and subsidiaries Form 10-Q--Quarter ended September 30, 1997 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, 1997 and December 31, 1996..............................1 Consolidated statements of income (unaudited) - three and nine months ended September 30, 1997 and 1996...............2 Consolidated statements of retained earnings (unaudited) - three and nine months ended September 30, 1997 and 1996...............2 Consolidated statements of cash flows (unaudited) - nine months ended September 30, 1997 and 1996.........................3 Notes to consolidated financial statements (unaudited)..................4 Hawaiian Electric Company, Inc. and subsidiaries ------------------------------------------------ Consolidated balance sheets (unaudited) - September 30, 1997 and December 31, 1996.............................10 Consolidated statements of income (unaudited) - three and nine months ended September 30, 1997 and 1996..............11 Consolidated statements of retained earnings (unaudited) - three and nine months ended September 30, 1997 and 1996..............11 Consolidated statements of cash flows (unaudited) - nine months ended September 30, 1997 and 1996........................12 Notes to consolidated financial statements (unaudited).................13 Item 2. Management's discussion and analysis of financial condition and results of operations............................................20
PART II. OTHER INFORMATION
Item 1. Legal proceedings......................................................32 Item 2. Changes in securities..................................................32 Item 5. Other information......................................................32 Item 6. Exhibits and reports on Form 8-K.......................................37 Signatures...........................................................................37
i Hawaiian Electric Industries, Inc. and subsidiaries Hawaiian Electric Company, Inc. and subsidiaries Form 10-Q--Quarter ended September 30, 1997 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 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., HECO Capital Trust I, 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, Pacific Energy Conservation Services, Inc., HEI Power Corp. and its subsidiaries, Hycap Management, Inc., HEI Preferred Funding, LP and Hawaiian Electric Industries Capital Trust I CONSUMER Division of Consumer Advocacy, Department of Commerce and Consumer ADVOCATE Affairs of the State of Hawaii D&O Decision and order DOH Department of Health of the State of Hawaii ENSERCH Enserch Development Corporation EPA Environmental Protection Agency - federal FASB Financial Accounting Standards Board FDIC Federal Deposit Insurance Corporation FHLB Federal Home Loan Bank FICO Financing Corporation FUNDS ACT Deposit Insurance Funds Act of 1996 GAAP Generally accepted accounting principles HCPC Hilo Coast Processing Company ii GLOSSARY OF TERMS, CONTINUED TERMS DEFINITIONS - ----- ----------- HECO Hawaiian Electric Company, Inc., a wholly owned electric utility subsidiary of Hawaiian Electric Industries, Inc. and parent company of Maui Electric Company, Limited, Hawaii Electric Light Company, Inc. and HECO Capital Trust I HEI Hawaiian Electric Industries, Inc., parent company of Hawaiian Electric Company, Inc., HEI Investment Corp., Malama Pacific Corp., Hawaiian Tug & Barge Corp., HEI Diversified, Inc., Pacific Energy Conservation Services, Inc., HEI Power Corp., Hycap Management, Inc. and Hawaiian Electric Industries Capital Trust I 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 HPG HEI Power Corp. Guam, a wholly owned subsidiary of HEI Power Corp. 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 until 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 iii GLOSSARY OF TERMS, CONTINUED TERMS DEFINITIONS - ----- ----------- PSD PERMIT Prevention of Significant Deterioration/Covered Source permit PUC Public Utilities Commission of the State of Hawaii ROACE Return on average common equity ROR Simple average return on rate base SAIF Savings Association Insurance Fund SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards SOP Statement of Position YB Young Brothers, Limited, a wholly owned subsidiary of Hawaiian Tug & Barge Corp. FORWARD-LOOKING INFORMATION This report and other presentations made by HEI and its subsidiaries contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Except for historical information contained herein, the matters set forth 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 international, national and local economic conditions, including the condition of the Hawaii tourist and construction industries and the Hawaii housing market; product demand and market acceptance risks; increasing competition in the electric utility industry; capacity and supply constraints or difficulties; new technological developments; governmental and regulatory actions; the results of financing efforts; the timing and extent of changes in interest rates; the final purchase price and related adjustments made pursuant to the Purchase and Assumption Agreement pursuant to which ASB will acquire substantially all of the Hawaii deposits and certain of the Hawaii branches and other assets of Bank of America, FSB; and the results of integration of the Bank of America, FSB - Hawaii operations with the operations of ASB. Investors are also directed to consider other risks and uncertainties discussed in other periodic reports previously and subsequently filed by HEI and/or HECO with the SEC. iv PART I - FINANCIAL INFORMATION - ------------------------------------------------------------------------------- ITEM 1. FINANCIAL STATEMENTS - ----------------------------- Hawaiian Electric Industries, Inc. and subsidiaries CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, (in thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------------------- ASSETS - ------ Cash and equivalents................................................... $ 124,610 $ 97,417 Accounts receivable and unbilled revenues, net......................... 151,884 150,858 Inventories, at average cost........................................... 42,786 48,745 Real estate developments............................................... 31,407 33,210 Investment and mortgage-backed securities.............................. 1,482,388 1,377,591 Other investments...................................................... 72,212 72,609 Loans receivable, net.................................................. 2,113,929 2,002,028 Property, plant and equipment, net of accumulated depreciation and amortization of $956,336 and $890,055.............. 1,984,057 1,941,767 Regulatory assets...................................................... 104,684 100,804 Other.................................................................. 96,448 73,776 Goodwill and other intangibles......................................... 33,878 37,035 ------------ ----------- $6,238,283 $5,935,840 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ LIABILITIES Accounts payable....................................................... $ 99,847 $ 107,896 Deposit liabilities.................................................... 2,220,326 2,150,370 Short-term borrowings.................................................. 116,364 216,543 Securities sold under agreements to repurchase......................... 629,785 479,742 Advances from Federal Home Loan Bank................................... 706,774 684,274 Long-term debt......................................................... 803,672 810,080 Deferred income taxes.................................................. 189,997 185,609 Unamortized tax credits................................................ 49,732 48,857 Contributions in aid of construction................................... 196,353 197,805 Other.................................................................. 187,634 194,564 ------------ ----------- 5,200,484 5,075,740 ------------ ----------- HEI- and HECO-obligated preferred securities of trust subsidiaries directly or indirectly holding solely HEI and HEI-guaranteed and HECO and HECO-guaranteed subordinated debentures............................................ 150,000 -- Preferred stock of electric utility subsidiaries Subject to mandatory redemption.................................... 36,070 38,955 Not subject to mandatory redemption................................ 48,293 48,293 ------------ ----------- 234,363 87,248 ------------ ----------- 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: 31,694 shares and 30,853 shares................... 647,062 622,945 Retained earnings...................................................... 156,374 149,907 ------------ ----------- 803,436 772,852 ------------ ----------- $6,238,283 $5,935,840 ============ ===========
See accompanying notes to consolidated financial statements. 1 Hawaiian Electric Industries, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Nine months ended September 30, September 30, (in thousands, except per share amounts and --------------------------------- --------------------------------- ratio of earnings to fixed charges) 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- REVENUES Electric utility........................................ $282,234 $284,417 $ 831,314 $ 797,241 Savings bank............................................ 71,625 68,281 210,211 200,351 Other................................................... 13,262 15,460 45,042 43,978 ------------- ------------- -------------- -------------- 367,121 368,158 1,086,567 1,041,570 ------------- ------------- -------------- -------------- EXPENSES Electric utility........................................ 234,089 234,285 704,179 664,995 Savings bank............................................ 59,778 58,461 173,843 170,373 FDIC special assessment............................ -- 13,835 -- 13,835 Other................................................... 16,942 16,834 52,711 49,477 ------------- ------------- -------------- -------------- 310,809 323,415 930,733 898,680 ------------- ------------- -------------- -------------- OPERATING INCOME (LOSS) Electric utility........................................ 48,145 50,132 127,135 132,246 Savings bank............................................ 11,847 (4,015) 36,368 16,143 Other................................................... (3,680) (1,374) (7,669) (5,499) ------------- ------------- -------------- -------------- 56,312 44,743 155,834 142,890 ------------- ------------- -------------- -------------- Interest expense--electric utility and other............. (15,929) (16,060) (48,074) (48,309) Allowance for borrowed funds used during construction.................................. 1,522 1,098 4,658 3,602 Preferred stock dividends of electric utility subsidiaries................................. (1,563) (1,667) (4,697) (5,008) Preferred securities distributions of trust subsidiaries................................... (3,064) -- (7,503) -- Allowance for equity funds used during construction......................................... 2,654 2,399 8,079 7,197 ------------- ------------- -------------- -------------- INCOME BEFORE INCOME TAXES.............................. 39,932 30,513 108,297 100,372 Income taxes............................................ 15,794 13,141 44,701 42,768 ------------- ------------- -------------- -------------- NET INCOME.............................................. $ 24,138 $ 17,372 $ 63,596 $ 57,604 ============= ============= ============== ============== Earnings per common share............................... $ 0.77 $ 0.57 $ 2.04 $ 1.91 ============= ============= ============== ============== Dividends per common share.............................. $ 0.61 $ 0.60 $ 1.83 $ 1.80 ============= ============= ============== ============== Weighted average number of common shares outstanding................................... 31,528 30,465 31,244 30,178 ============= ============= ============== ============== Ratio of earnings to fixed charges (SEC method) Excluding interest on ASB deposits................... 1.86 1.90 ============== ============== Including interest on ASB deposits................... 1.57 1.54 ============== ==============
Hawaiian Electric Industries, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three months ended Nine months ended September 30, September 30, --------------------------------- --------------------------------- (in thousands) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------ RETAINED EARNINGS, BEGINNING OF PERIOD.................. $151,455 $148,450 $149,907 $144,216 Net income.............................................. 24,138 17,372 63,596 57,604 Common stock dividends.................................. (19,219) (18,258) (57,129) (54,256) ------------- ------------- ------------- ------------- RETAINED EARNINGS, END OF PERIOD........................ $156,374 $147,564 $156,374 $147,564 ============= ============= ============= =============
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) 1997 1996 - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................................... $ 63,596 $ 57,604 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization of property, plant and equipment.......... 68,539 61,553 Other amortization...................................................... 10,706 9,584 Deferred income taxes and tax credits, net.............................. 3,333 6,955 Allowance for equity funds used during construction..................... (8,079) (7,197) Changes in assets and liabilities Increase in accounts receivable and unbilled revenues, net........ (1,026) (5,123) Decrease (increase) in inventories................................ 5,959 (12,743) Decrease (increase) in regulatory assets.......................... (5,300) 24 Increase (decrease) in accounts payable........................... (8,049) 15,903 Changes in other assets and liabilities........................... (30,228) (5,136) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES..................................... 99,451 121,424 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Loans receivable originated and purchased..................................... (229,885) (420,981) Principal repayments on loans receivable...................................... 110,210 130,745 Proceeds from sale of loans receivable........................................ 2,906 2,314 Held-to-maturity mortgage-backed securities purchased......................... (297,170) (199,999) Principal repayments on held-to-maturity mortgage-backed securities........... 194,512 252,511 Capital expenditures.......................................................... (105,699) (146,346) Contributions in aid of construction.......................................... 4,402 7,979 Other......................................................................... 681 3,382 --------- --------- NET CASH USED IN INVESTING ACTIVITIES......................................... (320,043) (370,395) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposit liabilities................................ 69,956 (47,539) Net decrease in short-term borrowings with original maturities of three months or less............................................................... (99,914) (10,640) Proceeds from other short-term borrowings..................................... 1,828 1,064 Repayment of other short-term borrowings...................................... (2,093) (2,075) Proceeds from securities sold under agreements to repurchase.................. 958,500 470,100 Repurchase of securities sold under agreements to repurchase.................. (808,100) (402,000) Proceeds from advances from Federal Home Loan Bank............................ 578,500 643,700 Principal payments on advances from Federal Home Loan Bank.................... (556,000) (476,700) Proceeds from issuance of long-term debt...................................... 8,371 81,360 Repayment of long-term debt................................................... (14,900) (17,400) Proceeds from issuance of HEI- and HECO-obligated preferred securities of trust subsidiaries........................................................... 150,000 -- Redemption of electric utility subsidiaries' preferred stock.................. (2,885) (2,495) Net proceeds from issuance of common stock.................................... 18,906 14,849 Common stock dividends........................................................ (46,132) (40,155) Other......................................................................... (8,252) 335 --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES..................................... 247,785 212,404 --------- --------- Net increase (decrease) in cash and equivalents............................... 27,193 (36,567) Cash and equivalents, beginning of period..................................... 97,417 130,833 --------- --------- CASH AND EQUIVALENTS, END OF PERIOD........................................... $ 124,610 $ 94,266 ========= =========
See accompanying notes to consolidated financial statements. 3 Hawaiian Electric Industries, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 and 1996 (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, 1996 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, 1997. 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, 1997 and December 31, 1996, the results of its operations for the three months and nine months ended September 30, 1997 and 1996, and its cash flows for the nine months ended September 30, 1997 and 1996. 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 10 through 19. (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) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------ Interest income................................. $ 67,425 $ 64,519 $198,459 $188,973 Interest expense................................ 40,240 39,701 116,722 114,966 -------- -------- -------- -------- NET INTEREST INCOME............................. 27,185 24,818 81,737 74,007 Provision for losses............................ (2,068) (521) (4,860) (1,412) Other income.................................... 4,200 3,762 11,752 11,378 Operating, administrative and general expenses.. (17,470) (18,239) (52,261) (53,995) FDIC special assessment.................... -- (13,835) -- (13,835) -------- -------- -------- -------- OPERATING INCOME (LOSS)......................... 11,847 (4,015) 36,368 16,143 Income taxes (benefit).......................... 4,807 (1,381) 15,057 7,041 -------- -------- -------- -------- NET INCOME (LOSS)............................... $ 7,040 $ (2,634) $ 21,311 $ 9,102 ======== ======== ======== ========
4 American Savings Bank, F.S.B. and subsidiaries Balance sheet data
September 30, December 31, (in thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------------- ASSETS Cash and equivalents.............................................. $ 120,127 $ 93,905 Held-to-maturity investment securities............................ 39,687 37,518 Held-to-maturity mortgage-backed securities....................... 1,441,488 1,340,073 Loans receivable, net............................................. 2,113,929 2,002,028 Other............................................................. 97,502 80,128 Goodwill and other intangibles.................................... 33,878 37,035 ---------- ---------- $3,846,611 $3,590,687 ========== ========== LIABILITIES AND EQUITY Deposit liabilities............................................... $2,220,326 $2,150,370 Securities sold under agreements to repurchase.................... 629,785 479,742 Advances from Federal Home Loan Bank.............................. 706,774 684,274 Other............................................................. 55,639 54,251 ---------- ---------- 3,612,524 3,368,637 Common stock equity............................................... 234,087 222,050 ---------- ---------- $3,846,611 $3,590,687 ========== ==========
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). On September 30, 1996, President Clinton signed into law the Deposit Insurance Funds Act of 1996 (Funds Act), which required 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% of aggregate insured deposits as of October 1, 1996. In addition, effective January 1, 1997, the Funds Act provided 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 premium rates to be paid for deposit insurance coverage and to fund FICO interest obligations. 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. ASB's special assessment was $8.3 million after tax, and was accrued in September 1996. In December 1996, the FDIC adopted a risk-based assessment schedule for SAIF institutions, effective January 1, 1997, that was identical to the existing base rate schedule for BIF institutions: zero 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 initially set at 6.5 cents per $100 of deposits for SAIF institutions and 1.3 cents per $100 of deposits for BIF institutions (subject to quarterly adjustment). By law, the FICO rate on BIF-assessable deposits must be one-fifth the rate on SAIF-assessable deposits until the insurance funds are merged or until January 1, 2000, whichever occurs first, at which time the FICO interest obligation for both banks and thrifts should thereafter be identical, at a currently estimated rate of 2.4 cents per $100 of deposits. As a "well-capitalized" thrift, ASB's base deposit-insurance premium effective January 1, 1997 is zero and its assessment for funding FICO interest payments was initially 6.5 cents per $100 of deposits, compared to payments that would have been calculated at 23 cents per $100 of deposits under the premium schedule in effect during the first three quarters of 1996. This resulted in a reduction of approximately $2.8 million in aggregate deposit premiums paid during the first nine months of 1997 in comparison to what the premiums would have been if they had been calculated at 23 cents per $100 of deposits. 5 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. Certain of the legislative proposals advanced to address this issue, if adopted, could have a material adverse effect on the Company. For example, if thrift charters were 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 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. PURCHASE AND ASSUMPTION AGREEMENT WITH BANK OF AMERICA, FSB On May 26, 1997, ASB entered into a Purchase and Assumption Agreement with Bank of America, FSB (BoA), to assume substantially all of the Hawaii deposit liabilities of BoA and acquire most of its branches and certain of its Hawaii- based loans. Based on financial information as of February 28, 1997, management estimated that the transaction would increase ASB's assets by approximately $1.7 billion (representing the book value of assets after taking into account an estimated $160 million capital infusion into ASB to meet regulatory capital requirements related to ASB's increase in asset size) and increase ASB's deposit liabilities by approximately $1.6 billion. These estimates are subject to changes resulting from operations prior to closing and to numerous adjustments called for by the Agreement as of the closing date. HEI will fund the approximately $160 million capital infusion into ASB primarily through short- term borrowings that are expected to be repaid over time primarily out of a combination of earnings and proceeds from long-term debt. On October 29, 1997, the Office of Thrift Supervision approved the transaction, which is scheduled to close December 6, 1997, subject to review by the Department of Justice and satisfaction of all closing conditions. (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 $41 million and $46 million at September 30, 1997 and December 31, 1996, respectively. The amounts MPC will ultimately realize relative to these real estate investments could differ materially from the recorded amounts as of September 30, 1997. At September 30, 1997, MPC or its subsidiaries had issued (i) guarantees under which they were jointly and severally contingently liable with their joint venture partners for $1.7 million of outstanding loans and (ii) payment guarantees under which MPC or its subsidiaries were severally contingently liable for $4.0 million of outstanding loans and $2.3 million of additional undrawn loan facilities. All such loans are collateralized by real property. At September 30, 1997, HEI had agreed with the lenders of construction loans and loan facilities, of which approximately $6.8 million was outstanding and $2.9 million was undrawn, that it will maintain ownership of l00% of the stock of MPC and that it intends, subject to good and prudent business practices, to keep MPC financially sound and responsible to meet its obligations as guarantor. (5) HEI- AND HECO-OBLIGATED PREFERRED SECURITIES OF TRUST SUBSIDIARIES DIRECTLY - -------------------------------------------------------------------------------- OR INDIRECTLY HOLDING SOLELY HEI AND HEI-GUARANTEED AND HECO AND HECO-GUARANTEED - -------------------------------------------------------------------------------- SUBORDINATED DEBENTURES - ----------------------- In February 1997, Hawaiian Electric Industries Capital Trust I (the Trust), a grantor trust, issued and sold, in an underwritten registered public offering, 4 million of its 8.36% Company-obligated preferred securities (trust preferred securities), representing undivided preferred beneficial ownership interests in the assets of the Trust. HEI owns 100% of the common securities of the Trust. The Trust utilized the proceeds from the issuance of the trust preferred securities ($100 million) and the trust common securities ($3.2 million) to purchase all the limited partner interests in HEI Preferred Funding, LP (the Partnership). Hycap Management, Inc. (Hycap), a wholly owned subsidiary of HEI, is the sole general partner of the Partnership. Substantially all of the proceeds from the sale of the limited partner interests and the general partner interest were used by the Partnership to purchase 8.36% junior subordinated debentures of HEI and HEIDI due in 2017 in the aggregate principal amount of $120.1 million. The limited partner interests in the Partnership are the sole assets of the Trust. HEI and HEIDI's junior subordinated debentures represent substantially all of the assets of the Partnership. In connection with 6 these transactions, HEI issued subordinated guarantees relating to the performance of certain obligations by the Trust, the Partnership and HEIDI. The debentures issued by HEI and HEIDI to the Partnership, the interests in the Partnership, HEI's investment in Hycap and the common securities of the Trust owned by HEI have been eliminated in the Company's consolidated balance sheet as of September 30, 1997. In March 1997, HECO Capital Trust I, a grantor trust and wholly owned subsidiary of HECO, issued and sold, in an underwritten registered public offering, 2 million of its HECO-obligated 8.05% Cumulative Quarterly Income Preferred Securities, Series 1997, with an aggregate liquidation value of $50 million. See note (2) in HECO's "Notes to consolidated financial statements." (6) 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) 1997 1996 - --------------------------------------------------------------------------------------------------------- Interest (including interest paid by savings bank, but excluding interest paid on nonrecourse debt on leveraged leases)................ $153,374 $154,843 =============== ============== Interest paid on nonrecourse debt on leveraged leases.................. $ 3,959 $ 4,315 =============== ============== Income taxes........................................................... $ 45,251 $ 36,117 =============== ==============
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES Common stock dividends reinvested by shareholders in HEI common stock in noncash transactions amounted to $11.0 million and $14.1 million for the nine months ended September 30, 1997 and 1996, respectively. The allowance for equity funds used during construction, which was capitalized as part of the cost of electric utility plant, amounted to $8.1 million and $7.2 million for the nine months ended September 30, 1997 and 1996, respectively. (7) ACCOUNTING CHANGES - ----------------------- EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No. 128 requires the presentation of "Basic" earnings per share, representing income available to common shareholders divided by the weighted average number of common shares outstanding for the period, and "Diluted" earnings per share, which is similar to the current presentation of fully diluted earnings per share. SFAS No. 128 is effective for both interim and annual periods ending after December 15, 1997. The Company will adopt SFAS No. 128 in the fourth quarter of 1997. SFAS No. 128 requires restatement of all prior period earnings per share data presented. Management does not expect adoption of SFAS No. 128 will have a material effect on the Company's previously reported earnings per share. CAPITAL STRUCTURE In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure," which lists required disclosures about capital structure that had been included in a number of previously existing statements and opinions. SFAS No. 129 is effective for periods ending after December 15, 1997. The Company will adopt the provisions of SFAS No. 129 in the fourth quarter of 1997. Management does not expect adoption of SFAS No. 129 will have a material effect on the Company's financial condition, results of operations or liquidity. 7 COMPREHENSIVE INCOME In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. The Company will adopt the provisions of SFAS No. 130 on January 1, 1998. SFAS No. 130 requires reclassification of financial statements for earlier periods provided for comparative purposes. Management does not expect adoption of SFAS No. 130 will have a material effect on the Company's financial statements, financial condition, results of operations or liquidity. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. SFAS No. 131 is effective for periods beginning after December 15, 1997. The Company will adopt the provisions of SFAS No. 131 on January 1, 1998. SFAS No. 131 requires restatement of comparative information presented for earlier periods. Management does not expect adoption of SFAS No. 131 will have a material effect on the Company's reporting segments, financial condition, results of operations or liquidity. (8) Contingencies - ------------------ ENVIRONMENTAL REGULATION By letters in January and February 1995, the Department of Health of the State of Hawaii (DOH) advised HECO, HTB, YB and others that it 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 and requested information regarding past hazardous substances and oil spills that may have occurred. HECO, HTB and YB provided responses to the DOH letters. The DOH issued letters in December 1995, indicating that it had 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 in January 1996 to inform them of its findings and to establish the framework to determine remedial and cleanup requirements. A Technical Workgroup (comprised of certain of the parties identified in the December 1995 DOH letter, including HECO, Chevron U.S.A. Inc., Shell Oil Products Company, the State of Hawaii Department of Transportation and others) was formed to conduct independent voluntary investigations relative to this issue. The Technical Workgroup has been negotiating with the DOH a voluntary agreement and scope of work to determine the nature and extent of any contamination, the responsible parties, appropriate remedial action and incentives for the Technical Workgroup to participate in the investigation. Because the process for determining the nature and extent of any contamination, the responsible parties and the appropriate remedial and cleanup action, if any, is at an early stage, management cannot predict at this time the extent to which the costs of further site analysis or future remediation and cleanup requirements will be borne by HECO, HTB or YB, nor can it estimate when any such costs would be incurred. Certain of such costs if incurred by HECO, HTB or YB may be claimed and covered under insurance policies, but such coverage is not determinable at this time. 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. A lawsuit stemming from this situation was settled in 1994, with the Company making a settlement payment of $32 million to the Rehabilitator. HEI and HEIDI are seeking reimbursement for the settlement and defense costs from their insurance carriers. One of the insurance carriers filed a 8 declaratory relief action in the U.S. District Court for Hawaii seeking resolution of insurance coverage and other policy issues, and HEI and HEIDI filed counterclaims. The U.S. District Court has acted on several motions for partial summary judgment filed by HEI, HEIDI and the insurance carrier. More motions for partial summary judgment will be heard before trial. The remaining issues are scheduled for trial on July 28, 1998. Recoveries from HEI's insurance carriers, if any, will be recognized when realized. In December 1994, five insurance agencies, which had served as insurance agents for the HIG Group, filed a complaint against HEI, HEIDI and others. The complaint set forth several causes of action, including breach of contract and piercing the corporate veil. The plaintiffs asked for relief from the defendants, including compensatory damages for lost commissions, business and profits, and punitive damages. In 1995, the court granted defendants' motion for summary judgment dismissing all claims. Judgment has been entered, plaintiffs have appealed and all appellate briefs have been filed. In the opinion of management, losses, if any, resulting from the ultimate outcome of the lawsuit will not have a material adverse effect on the Company's financial condition, results of operations or liquidity. (9) STOCKHOLDER RIGHTS PLAN - ---------------------------- On October 28, 1997, the Board of Directors of HEI adopted a stockholder rights plan, under which rights will be distributed as a dividend at the rate of one right for each share of common stock of HEI held by stockholders of record at the close of business on November 10, 1997. The rights plan is designed to deter coercive or unfair takeover tactics, including the gradual accumulation of shares in the open market, partial or two- tiered tender offers, or private transactions through which an acquiror gains control of HEI without offering fair value to all of HEI's stockholders. The rights will expire on November 1, 2007. Each right initially will entitle HEI stockholders to buy one one-hundredth of a share of Series A Junior Participating Preferred Stock for $112. The rights generally will be exercisable only if a person or group acquires beneficial ownership of 15% or more of HEI's common stock or commences a tender or exchange offer upon consummation of which such person or group would beneficially own 15% or more of HEI's common stock. For a further description of the stockholders rights plan, see pages 34 and 35. 9 Hawaiian Electric Company, Inc. and subsidiaries CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, (in thousands, except par value) 1997 1996 - -------------------------------------------------------------------------------------------------------------------- ASSETS Utility plant, at cost Land............................................................ $ 30,264 $ 29,897 Plant and equipment............................................. 2,540,270 2,446,073 Less accumulated depreciation and amortization.................. (888,241) (828,917) Plant acquisition adjustment, net............................... 575 614 Construction in progress........................................ 193,784 197,835 ---------------------- ---------------------- NET UTILITY PLANT......................................... 1,876,652 1,845,502 ---------------------- ---------------------- Current assets Cash and equivalents............................................ 1,928 823 Customer accounts receivable, net............................... 75,079 76,578 Accrued unbilled revenues, net.................................. 42,716 43,726 Other accounts receivable, net.................................. 4,844 4,179 Fuel oil stock, at average cost................................. 22,465 28,490 Materials and supplies, at average cost......................... 18,847 18,942 Prepayments and other........................................... 5,171 3,676 ---------------------- ---------------------- TOTAL CURRENT ASSETS...................................... 171,050 176,414 ---------------------- ---------------------- Other assets Regulatory assets............................................... 102,350 98,380 Other........................................................... 50,962 45,250 ---------------------- ---------------------- TOTAL OTHER ASSETS........................................ 153,312 143,630 ---------------------- ---------------------- $2,201,014 $2,165,546 ====================== ====================== CAPITALIZATION AND LIABILITIES Capitalization Common stock, $6 2/3 par value, authorized 50,000 shares; outstanding 12,806 shares..................... $ 85,387 $ 85,387 Premium on capital stock........................................ 296,231 298,154 Retained earnings............................................... 384,003 367,770 ---------------------- ---------------------- COMMON STOCK EQUITY....................................... 765,621 751,311 Cumulative preferred stock Not subject to mandatory redemption.......................... 48,293 48,293 Subject to mandatory redemption.............................. 34,375 36,160 HECO-obligated mandatorily redeemable preferred securities of trust subsidiary holding solely HECO and HECO-guaranteed subordinated debentures...................................... 50,000 -- Long-term debt, net............................................. 597,718 589,226 ---------------------- ---------------------- TOTAL CAPITALIZATION...................................... 1,496,007 1,424,990 ---------------------- ---------------------- Current liabilities Long-term debt due within one year.............................. -- 13,000 Preferred stock sinking fund payments........................... 1,695 2,795 Short-term borrowings - nonaffiliates........................... 113,607 125,920 Short-term borrowings - affiliate............................... 2,900 -- Accounts payable................................................ 48,245 66,062 Interest and preferred dividends payable........................ 16,225 11,034 Taxes accrued................................................... 53,938 55,586 Other........................................................... 22,761 24,843 ---------------------- ---------------------- TOTAL CURRENT LIABILITIES................................. 259,371 299,240 ---------------------- ---------------------- Deferred credits and other liabilities Deferred income taxes........................................... 122,214 119,613 Unamortized tax credits......................................... 48,632 47,634 Other........................................................... 78,437 76,264 ---------------------- ---------------------- TOTAL DEFERRED CREDITS AND OTHER LIABILITIES.............. 249,283 243,511 ---------------------- ---------------------- Contributions in aid of construction............................... 196,353 197,805 ---------------------- ---------------------- $2,201,014 $2,165,546 ====================== ======================
See accompanying notes to HECO's consolidated financial statements. 10 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) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUES................................ $280,193 $282,395 $824,762 $791,146 ------------- ------------- ------------- ------------- OPERATING EXPENSES Fuel oil.......................................... 61,733 66,452 196,065 181,739 Purchased power................................... 75,238 75,069 218,462 212,674 Other operation................................... 37,774 35,770 111,221 105,339 Maintenance....................................... 12,273 11,729 38,687 35,122 Depreciation and amortization..................... 20,504 18,417 61,507 55,098 Taxes, other than income taxes.................... 26,360 26,682 77,815 74,702 Income taxes...................................... 15,071 16,474 38,848 42,367 ------------- ------------- ------------- ------------- 248,953 250,593 742,605 707,041 ------------- ------------- ------------- ------------- OPERATING INCOME.................................. 31,240 31,802 82,157 84,105 ------------- ------------- ------------- ------------- OTHER INCOME Allowance for equity funds used during construction............................ 2,654 2,399 8,079 7,197 Other, net........................................ 1,894 1,920 6,154 5,936 ------------- ------------- ------------- ------------- 4,548 4,319 14,233 13,133 ------------- ------------- ------------- ------------- INCOME BEFORE INTEREST AND OTHER CHARGES.......... 35,788 36,121 96,390 97,238 ------------- ------------- ------------- ------------- INTEREST AND OTHER CHARGES Interest on long-term debt........................ 9,944 9,708 29,654 26,971 Amortization of net bond premium and expense...... 328 333 976 968 Other interest charges............................ 2,026 1,672 5,921 6,627 Allowance for borrowed funds used during construction............................ (1,522) (1,098) (4,658) (3,602) Preferred stock dividends of subsidiaries......... 651 703 1,951 2,107 Preferred securities distributions of trust subsidiary............................... 974 -- 2,046 -- ------------- ------------- ------------- ------------- 12,401 11,318 35,890 33,071 ------------- ------------- ------------- ------------- INCOME BEFORE PREFERRED STOCK DIVIDENDS OF HECO........................................ 23,387 24,803 60,500 64,167 Preferred stock dividends of HECO................. 912 964 2,746 2,901 ------------- ------------- ------------- ------------- NET INCOME FOR COMMON STOCK....................... $ 22,475 $ 23,839 $ 57,754 $ 61,266 ============= ============= ============= ============= Ratio of earnings to fixed charges (SEC method)................................... 3.24 3.67 ============= =============
Hawaiian Electric Company, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three months ended Nine months ended September 30, September 30, ------------------------------ -------------------------------- (in thousands) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------ RETAINED EARNINGS, BEGINNING OF PERIOD............ $375,114 $356,644 $367,770 $343,425 Net income for common stock....................... 22,475 23,839 57,754 61,266 Common stock dividends............................ (13,586) (14,916) (41,521) (39,124) ------------- ------------- ------------- ------------- RETAINED EARNINGS, END OF PERIOD.................. $384,003 $365,567 $384,003 $365,567 ============= ============= ============= =============
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. 11 Hawaiian Electric Company, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30, ---------------------------------------- (in thousands) 1997 1996 - --------------------------------------------------------------------- ---------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Income before preferred stock dividends of HECO...................... $ 60,500 $ 64,167 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. 61,507 55,098 Other amortization............................................. 8,163 6,590 Deferred income taxes.......................................... 2,599 2,367 Tax credits, net............................................... 2,213 2,449 Allowance for equity funds used during construction............ (8,079) (7,197) Changes in assets and liabilities Decrease (increase) in accounts receivable................ 834 (5,350) Decrease in accrued unbilled revenues..................... 1,010 2,032 Decrease (increase) in fuel oil stock..................... 6,025 (12,420) Decrease (increase) in materials and supplies............. 95 (102) Decrease (increase) in regulatory assets.................. (5,300) 24 Increase (decrease) in accounts payable................... (17,817) 10,604 Increase in interest and preferred dividends payable...... 5,191 4,480 Changes in other assets and liabilities................... (21,320) (15,865) ---------------- ----------------- NET CASH PROVIDED BY OPERATING ACTIVITIES............................ 95,621 106,877 ---------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures................................................. (87,371) (134,579) Contributions in aid of construction................................. 4,402 7,979 Payments on notes receivable......................................... 1,920 602 ---------------- ----------------- NET CASH USED IN INVESTING ACTIVITIES................................ (81,049) (125,998) ---------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES Common stock dividends............................................... (41,521) (39,124) Preferred stock dividends............................................ (2,746) (2,901) Proceeds from issuance of HECO-obligated mandatorily redeemable preferred securities of trust subsidiary............................ 50,000 -- Proceeds from issuance of long-term debt............................. 8,371 71,360 Repayment of long-term debt.......................................... (13,000) -- Redemption of preferred stock........................................ (2,885) (2,495) Net decrease in short-term borrowings from nonaffiliates and affiliate with original maturities of three months or less........ (9,413) (847) Other................................................................ (2,273) (5,920) ---------------- ----------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.................. (13,467) 20,073 ---------------- ----------------- Net increase in cash and equivalents................................. 1,105 952 Cash and equivalents, beginning of period............................ 823 20 ---------------- ----------------- CASH AND EQUIVALENTS, END OF PERIOD.................................. $ 1,928 $ 972 ================ =================
See accompanying notes to HECO's consolidated financial statements. 12 Hawaiian Electric Company, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 and 1996 (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 December 31, 1996 and the consolidated financial statements and the notes thereto in HECO's Quarterly Report on SEC Form 10-Q for the quarters ended March 31 and June 30, 1997. 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, 1997 and December 31, 1996, the results of their operations for the three months and nine months ended September 30, 1997 and 1996, and their cash flows for the nine months ended September 30, 1997 and 1996. 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) HECO-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF TRUST - ------------------------------------------------------------------------ SUBSIDIARY HOLDING SOLELY HECO AND HECO-GUARANTEED SUBORDINATED DEBENTURES - -------------------------------------------------------------------------- In March 1997, HECO Capital Trust I, a grantor trust and a wholly owned subsidiary of HECO, issued and sold, in an underwritten registered public offering, 2 million of its HECO-Obligated 8.05% Cumulative Quarterly Income Preferred Securities, Series 1997, with an aggregate liquidation preference of $50 million. HECO Capital Trust I's sole assets are the 8.05% Junior Subordinated Deferrable Interest Debentures, Series 1997 (junior deferrable debentures) of HECO and its wholly owned subsidiaries, MECO and HELCO, and the subsidiary guarantees (pursuant to which the obligations of MECO and HELCO under their respective debentures are fully and unconditionally guaranteed by HECO). HECO Capital Trust I common securities are wholly owned by HECO and have an aggregate liquidation preference of approximately $1.55 million. Proceeds from the offering of the trust preferred securities and the issuance of the common securities were used by HECO Capital Trust I to purchase the junior deferrable debentures in the principal amount of $31.55 million for HECO, $10 million for MECO and $10 million for HELCO, each bearing interest at 8.05% and with a maturity date of March 27, 2027. The junior deferrable debentures and the common securities of HECO Capital Trust I owned by HECO have been eliminated in HECO's consolidated balance sheet as of September 30, 1997. 13 (3) 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) 1997 1996 - ------------------------------------------------------------------------------------------------------------ Interest............................................................. $26,130 $26,417 ======= ======= Income taxes......................................................... $33,912 $34,337 ======= =======
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 $8.1 million and $7.2 million for the nine months ended September 30, 1997 and 1996, respectively. (4) COMMITMENTS AND CONTINGENCIES - ---------------------------------- INTERIM RATE INCREASES Amounts recovered under interim rates in excess of final approved rates are subject to refund with interest. At September 30, 1997, there were no revenue amounts recognized under interim rate increases and subject to refund. HELCO POWER SITUATION BACKGROUND. In 1991, HELCO identified the need, beginning in 1994, for - ---------- additional generation to provide for forecast 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. Accordingly, HELCO proceeded with plans to install at its Keahole power plant site two 20-megawatt (MW) combustion turbines (CT-4 and CT-5), followed by an 18-MW heat steam recovery generator (ST-7), at which time these units would be converted to a 56-MW (net) combined- cycle unit. In January 1994, the Public Utilities Commission of the State of Hawaii (PUC) approved expenditures for CT-4, which HELCO had planned to install in late 1994. Despite HELCO's best efforts to install this 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 (a) obtaining approval from the Hawaii Board of Land and Natural Resources (BLNR) of a Conservation District Use Permit (CDUP) amendment and (b) obtaining from the DOH and the U.S. Environmental Protection Agency (EPA) an air quality Prevention of Significant Deterioration/Covered Source permit (PSD permit) for the Keahole power plant site. CDUP AMENDMENT. On July 10, 1997, the Third Circuit Court of the State of Hawaii - --------------- issued its Amended Findings of Fact, Conclusions of Law, Decision and Order on HELCO's appeal of an order of the BLNR, along with other civil cases relating to HELCO's application for a CDUP amendment. This decision allows HELCO to use its Keahole property as requested in its application. Various opposing parties filed motions for reconsideration and/or motions to alter or amend the Court's order. The Court issued an order on August 18, 1997, denying the motions to alter or amend the Court's July 10, 1997 order and issued a notice of entry of judgment on August 20, 1997. Opposing parties filed a notice of appeal to the Hawaii Supreme Court and also filed a motion for status conference and to determine the date for filing appeals, and HELCO filed an opposition to that motion. A hearing on the motion for status conference was held on October 27, 1997, at which time the Court ruled that no final judgment had yet been entered on the consolidated cases and directed that such a form of final judgment be drafted. The 30-day appeal period would commence upon entry of the final judgment. HELCO has been notified by the Department of Hawaiian Home Lands that, in light of there being no final judgment in place, it intends to withdraw its notice of appeal filed with the Hawaii Supreme Court on September 18, 1997 and will likely file a new appeal after the entry of final judgment. If an appeal is taken once a final 14 judgment is entered, management believes that HELCO will ultimately prevail and that the amended decision of the Third Circuit Court will be upheld. PSD PERMIT. In a November 1995 letter to the DOH, the EPA declined to sign - ---------- HELCO's PSD permit for the combined-cycle unit on the basis that a different emission control technology should be used. HELCO then proposed to reduce net nitrogen oxide emission increases resulting from the addition of the combined- cycle unit by retiring and/or reducing the use of certain existing Keahole diesel units. The EPA stated that it found the netting proposal procedurally and substantively acceptable, and that if emission increases were kept below significance levels, it would not require the use of any particular emission control technology. In December 1996, the DOH proposed a revised draft air permit which reflected HELCO's netting proposal and was acceptable to HELCO. A public hearing relating to the modifications in the revised draft permit was held in March 1997. In July 1997, HELCO submitted a revised netting proposal at the request of the DOH and EPA. In October 1997, the EPA approved the revised draft permit and the DOH issued the final PSD permit, subject to appeal by third parties. Based on the proceedings to date, management believes that if an appeal were to be taken, HELCO would ultimately prevail. DECLARATORY JUDGMENT ACTION. On February 5, 1997, the Keahole Defense Coalition - --------------------------- and three individuals filed a lawsuit in the Third Circuit Court of the State of Hawaii against HELCO, the director of the DOH, and the BLNR, seeking declaratory rulings that, with regard to the Keahole project, one or more of the defendants had violated, or could not allow the plant to operate without violating, the State Clean Air Act, the State Noise Pollution Act, conditions of HELCO's conditional use permit, covenants of HELCO's land patent and Hawaii administrative rules regarding standard conditions applicable to land permits. HELCO has filed its answer and intends to vigorously defend against the claims raised. Discovery has commenced and is ongoing. Plaintiffs have filed a motion for partial summary judgment and HELCO has filed a countermotion for partial summary judgment as to certain counts in the complaint. A hearing on these motions is scheduled for December 1, 1997. While management believes the allegations are without merit, the proceedings are at too early a stage to predict the outcome of this lawsuit. IPP COMPLAINTS. Two independent power producers (IPPs), Kawaihae Cogeneration - -------------- Partners (KCP) and Enserch Development Corporation (Enserch), filed separate complaints against HELCO with the PUC in 1993 and 1994, respectively, alleging that they are entitled to power purchase contracts to provide HELCO with additional capacity which they claim would be a substitute for HELCO's planned 56-MW combined-cycle unit at Keahole. 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 (i.e., either HELCO's or one of the IPPs') should be the one that can be most expeditiously put into service at "allowable cost." The Enserch complaint docket was recently resolved (see "Enserch complaint, below"). Under HELCO's current estimate of generating capacity requirements, there is a near-term need for capacity in addition to the capacity which might be provided by one of the proposed IPP units. KCP complaint. On January 26, 1996, the PUC ordered HELCO to continue in good - ------------- faith to negotiate a power purchase agreement with KCP. Status reports were filed with the PUC in March 1996. On December 12, 1996, KCP filed directly with the PUC a new proposal pursuant to which it would construct a facility and have HELCO operate and manage the facility. Although the new proposal had not been submitted to or negotiated with HELCO, KCP asked the PUC to compel HELCO to enter into the agreement. On December 19, 1996, HELCO filed a motion to dismiss or to extend the time for responding. On March 10, 1997, the PUC denied KCP's motion to compel HELCO to enter into KCP's proposed agreement, noting that KCP's proposal was in the nature of a lease of a generating facility, rather than a power purchase agreement within the purview of the Public Utility Regulatory Policies Act of 1978. The PUC Order also confirmed the importance of placing the next generating unit on line as quickly as possible to meet the recognized generation shortfall on the island of Hawaii, and directed KCP and HELCO to resume negotiations aimed at finalizing a power purchase agreement. The Order 15 directed HELCO and KCP to submit to the PUC, within 45 days of the Order, either a finalized power purchase agreement or a written report on the matters preventing an agreement, including specific positions on each disputed issue, as to which the parties may request a hearing or submit to the PUC for resolution. KCP and HELCO filed their written reports on April 24 and 25, 1997, respectively. On May 1, 1997, KCP filed a motion for unspecified "sanctions" against HELCO for allegedly failing to negotiate in good faith, and on June 23, 1997, KCP filed a motion for the calculation of allowable cost, asking the PUC to designate KCP's facility as the next generating unit on the HELCO system and to determine the "allowable cost," calculated as of April 28, 1997 (the date the Environmental Appeals Board dismissed the appeal filed with regard to KCP's air permit), which would be payable by HELCO to KCP. HELCO filed memoranda in opposition to KCP's motions on May 12, 1997 and June 30, 1997. An evidentiary hearing requested by KCP was held and arguments on the motions were heard on August 25-27, 1997. Briefs were filed by both parties in September 1997. Action by the PUC is pending. Enserch complaint. On June 2, 1997, HELCO filed a motion with the PUC for - ----------------- approval of a settlement agreement reached with Enserch regarding a power purchase agreement. The motion asked for: (1) approval of a settlement reached on avoided cost issues, and (2) a finding that it is prudent for HELCO to enter into the power purchase and interconnection agreements with Enserch, while continuing to pursue the installation of its own combustion turbines (CT-4 and CT-5) at Keahole. The parallel pursuit of both projects is intended to enable HELCO to maximize the opportunity to add generation as quickly as possible, to address the possibility of delays in either project, and to meet both HELCO's immediate need for additional generation and its further need in the 1999 time frame. On August 7, 1997, the PUC issued an Order in which it (a) approved the Settlement Agreement insofar as it settled issues concerning the terms and conditions of the power purchase and interconnection agreements (the "Agreements") between HELCO and Enserch, (b) directed HELCO and Enserch to submit for the PUC's review and approval executed copies of the Agreements, (c) stated that avoided costs will be determined in accordance with the Settlement Agreement and (d) denied HELCO's request for the PUC to determine in the Enserch docket that it is prudent for HELCO to enter into the Agreements while continuing to pursue installation of CT-4 and CT-5. On the last point, the PUC stated that it had not made, and was unable to make, a decision as to which generation unit should follow the next unit. Thus, although the PUC acknowledged that the Settlement Agreement was conditional on it determining that it was prudent for HELCO to pursue CT-4 and CT-5 in parallel with the Enserch agreement, the PUC stated its belief that this would unreasonably tie its hands and was outside the scope of the Enserch docket. The PUC thus concluded that it would require HELCO to execute the Agreements and submit them for PUC approval notwithstanding the PUC's refusal to make the prudency determination. HELCO and Enserch affiliates executed the Agreements on October 22, 1997. The application for PUC approval of the executed Agreements is expected to be submitted shortly. HCPC complaint. On April 1, 1997, Hilo Coast Processing Company (HCPC) filed a - -------------- complaint against HELCO with the PUC, requesting an immediate hearing on HCPC's offer for a new 20-year power purchase contract for its existing facility, which is proposed to be expanded from 22 MW to 32 MW. HCPC's existing power purchase agreement is scheduled to terminate at the end of 1999. On May 27, 1997, HELCO filed its response to HCPC's complaint. The PUC has converted the complaint to a purchased power contract negotiation proceeding. A stipulated pre-hearing order was approved by the PUC on June 23, 1997. Pursuant to the schedule therein, the parties filed direct testimonies and information requests in July 1997 and conducted further discovery through October 1997. At that time, the parties agreed to postpone the evidentiary hearing, originally scheduled for November 4, 1997, until January 27-28, 1998. Management cannot determine at this time whether the negotiations with KCP and HCPC and related PUC proceedings will result in the execution and/or PUC approval of a power purchase agreement or impact management's plans with regard to installation of HELCO's combined-cycle unit at the Keahole power plant site. COSTS INCURRED. As of September 30, 1997, HELCO's costs incurred in its efforts - -------------- to put into service its Keahole combined-cycle unit amounted to $53.0 million, including approximately $26.5 million for equipment and material purchases, approximately $11.0 million for planning, engineering, permitting, site development and other costs and approximately $15.5 million as an allowance for funds used during construction. 16 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 arranged for additional firm capacity to be provided by its existing firm power producers, obtained contracts shifting loads to off-peak hours, deferred generation unit retirements, began the implementation of its energy-efficiency demand-side management programs, refurbished CT-1 to increase its capacity back to its nameplate rating of 11.5 MW, installed a dispersed diesel unit and will install three more dispersed diesel units. These measures have helped HELCO maintain its reserve margin and reduce the risk of near-term capacity shortages. In January 1996, the PUC opened a proceeding to evaluate HELCO's contingency resource plan and HELCO's efforts to insure system reliability. HELCO filed reports in March and October 1996 and April 1997 to update the PUC on its contingency plan and its implementation, and expects to file another update in November 1997. ENVIRONMENTAL REGULATION See note (8), "Contingencies," in HEI's "Notes to consolidated financial statements." PUC SHOW CAUSE ORDER FOR HECO On March 10, 1997, the PUC issued a show cause order to HECO requesting information to assist the PUC in determining if it should reduce HECO's rates and require HECO to refund any excess earnings to its ratepayers. In the order, the PUC notes that HECO recorded for 1996 a return on average common equity (ROACE) of 11.93% and a simple average rate of return on rate base (ROR) of 9.70%, which exceeded the 11.40% ROACE and the 9.16% ROR determined to be reasonable by the PUC in the utility's last rate case. The PUC also compared HECO's 1994, 1995 and 1996 actual results of operations (for ratemaking purposes) with the projected results of operations that the PUC used in approving electric rates in HECO's last two rate cases. The PUC stated that those results appeared to indicate that it is unlikely that the ROR experienced by HECO in 1996 will decrease significantly in the future and that it is therefore appropriate to examine HECO's rate of return. The revenues recorded by HECO during 1996 were based on rates approved in a final PUC decision and order in HECO's 1995 test year rate case. The amount of 1996 net income represented by the difference between the actual ROR of 9.70% and the 9.16% determined reasonable in December 1995 by the PUC was less than $4.5 million. It would be highly unusual if this show cause order were to result in a refund to customers based on a retroactive calculation. By contrast, the refund of $10 million of revenues, which was ordered by the PUC in December 1995 and refunded in the first half of 1996, related to revenues that had been collected under interim rate orders in which the PUC clearly stated that revenues collected under the interim orders were subject to refund. On April 7, 1997, HECO filed its response to the PUC's order. HECO indicated the reported RORs for 1995 and 1996 were higher than the return used to determine the 1995 test year revenue requirements primarily due to the impact in 1995 of higher kilowatthour sales because of warmer than normal weather, and the impact in 1996 of higher kilowatthour sales because of normal expected sales growth, increased military sales and warmer than normal weather. In its April 7, 1997 response, HECO also reported that its pro forma results for 1997 project a ROR (for ratemaking purposes) of 9.39%. HECO indicated that the return it expects to earn in 1997 is within the "zone of reasonableness" and should not be deemed excessive. Among other things, HECO explained that the weighted average cost of capital in 1997 should be higher than the 9.16% found to be reasonable in HECO's 1995 test year rate case, because a higher ROACE is appropriate under 1997 market conditions. HECO also pointed out that it is not compensated in those years when its actual results fall below returns that were found to be reasonable in the most recent rate case. In August 1997, the Consumer Advocate filed its final Statement of Position. The Consumer Advocate recommended that the PUC state that it is not endorsing or approving HECO's 1997 forecasted ROR, and that it continue to monitor HECO's earnings during 1997 and require HECO to file pro forma results of operations for 1998. In a response to the Consumer Advocate, management stated that it now believes that HECO's ROR for 1997 will be below 9.39%. Management cannot predict what future PUC action may be taken in this proceeding. 17 (5) ACCOUNTING CHANGES - ----------------------- CAPITAL STRUCTURE In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure," which lists required disclosures about capital structure that had been included in a number of previously existing statements and opinions. SFAS No. 129 is effective for periods ending after December 15, 1997. HECO and its subsidiaries will adopt the provisions of SFAS No. 129 in the fourth quarter of 1997. Management does not expect adoption of SFAS No. 129 will have a material effect on HECO's consolidated financial condition, results of operations or liquidity. COMPREHENSIVE INCOME In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. HECO and its subsidiaries will adopt the provisions of SFAS No. 130 on January 1, 1998. SFAS No. 130 requires reclassification of financial statements for earlier periods provided for comparative purposes. Management does not expect adoption of SFAS No. 130 will have a material effect on HECO's consolidated financial statements, financial condition, results of operations or liquidity. (6) SUMMARIZED FINANCIAL INFORMATION - ------------------------------------- Summarized financial information for HECO's subsidiaries, HELCO and MECO, is as follows:
BALANCE SHEET DATA HELCO MECO ---------------------------------------------------------------------------------- September 30, December 31, September 30, December 31, (in thousands) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- Current assets......................... $ 26,762 $ 26,345 $ 28,940 $ 30,701 Noncurrent assets...................... 398,834 390,464 373,360 366,489 ------------------ ----------------- ------------------ ----------------- $425,596 $416,809 $402,300 $397,190 ================== ================= ================== ================= Common stock equity.................... $143,560 $143,212 $149,673 $147,573 Cumulative preferred stock Not subject to mandatory redemption 10,000 10,000 8,000 8,000 Subject to mandatory redemption.... 7,200 7,200 5,575 5,960 Current liabilities.................... 70,172 73,650 33,072 41,700 Noncurrent liabilities................. 194,664 182,747 205,980 193,957 ------------------ ----------------- ------------------ ----------------- $425,596 $416,809 $402,300 $397,190 ================== ================= ================== ================= 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) 1997 1996 1997 1996 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Operating revenues.......... $40,674 $40,139 $120,037 $112,809 $39,133 $38,732 $115,393 $106,943 Operating income............ 5,267 4,512 13,106 11,969 5,150 4,950 13,288 12,575 Net income for common stock...... 4,315 2,563 10,833 7,725 3,980 4,531 9,828 10,803
HECO has not provided separate financial statements and other disclosures concerning MECO and HELCO because management has concluded that such financial statements and other information are not material to holders of securities issued by MECO or HELCO which have been fully and unconditionally guaranteed by HECO. 18 (7) 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) 1997 1996 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- Operating income from regulated and nonregulated activities before income taxes (per HEI consolidated statements of income)................................. $ 48,145 $ 50,132 $127,135 $132,246 Deduct: Income taxes on regulated activities.................. (15,071) (16,474) (38,848) (42,367) Revenues from nonregulated activities................. (2,041) (2,022) (6,552) (6,095) Add: Expenses from nonregulated activities................. 207 166 422 321 -------- -------- -------- -------- Operating income from regulated activities after income taxes (per HECO consolidated statements of income)............................................... $ 31,240 $ 31,802 $ 82,157 $ 84,105 ======== ======== ======== ========
(8) SUBSEQUENT EVENT -- ISSUANCE OF TAX-EXEMPT SPECIAL PURPOSE REVENUE BONDS - --------------------------------------------------------------------------- In October 1997, the Department of Budget and Finance of the State of Hawaii issued tax-exempt special purpose revenue bonds in the principal amount of $100 million, with a maturity of 30 years and a fixed coupon interest rate of 5.65%, and loaned the proceeds from the sale to HECO, HELCO and MECO. As of October 31, 1997, $100 million of the proceeds from the sale of special purpose revenue bonds were available to be drawn. The long-term debt of HECO, HELCO and MECO will increase as these proceeds are drawn. 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS ------------- The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes. RESULTS OF OPERATIONS HEI CONSOLIDATED - ----------------
Three months ended September 30, % (in thousands, except ----------------------------- Primary reason(s) for per share amounts) 1997 1996 change significant change* - -------------------------- ----------------------------------------------------------------------------------- Revenues.................. $367,121 $368,158 0 Decreases for the electric utility and "other" segments, partly offset by increase for the savings bank segment Operating income.......... 56,312 44,743 26 Increase for the savings bank segment, partly offset by decreases for the electric utility and "other" segments Net income................ 24,138 17,372 39 Higher operating income and lower net interest expense, partly offset by higher preferred securities distributions (due to the issuance of HEI- and HECO-obligated preferred securities of trust subsidiaries) Earnings per common share.................... 0.77 0.57 35 Higher net income, partly offset by an increase in shares outstanding As adjusted (excluding FDIC special 56,312 58,578 (4) Decreases for the electric utility and assessment)** "other" segments, partly offset by Operating income....... increase for the savings bank segment Net income............. 24,138 25,705 (6) Lower operating income and higher preferred securities distributions Earnings per common share................ 0.77 0.84 (8) Lower net income and an increase in shares outstanding Weighted average number of common shares outstanding.............. 31,528 30,465 3 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 authorized 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 $8.3 million after tax and was accrued in September 1996. "As adjusted" items exclude the effect of this assessment. 20
Nine months ended September 30, (in thousands, except ------------------------------- % Primary reason(s) for per share amounts) 1997 1996 change significant change* - -------------------------------------------------------------------------------------------------------------- Revenues.................. $1,086,567 $1,041,570 4 Increases for all segments Operating income.......... 155,834 142,890 9 Increase for the savings bank segment, partly offset by decreases for the electric utility and "other" segments Net income................ 63,596 57,604 10 Higher operating income and lower net interest expense, partly offset by higher preferred securities distributions (due to the issuance of HEI- and HECO-obligated preferred securities of trust subsidiaries) Earnings per common share.................... 2.04 1.91 7 Higher net income, partly offset by an increase in shares outstanding As adjusted (excluding FDIC special assessment)** Operating income......... 155,834 156,725 (1) Decreases for the electric utility and "other" segments, partly offset by increase for the savings bank segment Net income............. 63,596 65,937 (4) Lower operating income and higher preferred securities distributions Earnings per common share................ 2.04 2.18 (6) Lower net income and an increase in shares outstanding Weighted average number of common shares outstanding.............. 31,244 30,178 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 authorized 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 $8.3 million after tax and was accrued in September 1996. "As adjusted" items exclude the effect of this assessment. 21 Following is a general discussion of the results of operations by business segment. ELECTRIC UTILITY - ----------------
Three months ended September 30, (in thousands, except ---------------------------- % Primary reason(s) for per barrel amounts) 1997 1996 change significant change - ------------------------------------------------------------------------------------------------------------- Revenues.................. $282,234 $284,417 (1) Lower fuel prices ($7 million) and a 0.3% decrease in KWH sales, partly offset by recovery through rates of IRP related amounts ($4 million, including demand-side management program costs, lost margins and shareholder incentives) Expenses Fuel oil................. 61,733 66,452 (7) Lower fuel oil prices and less KWHs generated Purchased power.......... 75,238 75,069 0 Higher IPP capacity and nonfuel charges and more KWHs purchased, partly offset by lower fuel prices Other.................... 97,118 92,764 5 Higher depreciation expense, other operation expense (due to higher IRP related costs) and maintenance expense Operating income.......... 48,145 50,132 (4) Lower revenues and higher operating expenses Net income................ 22,475 23,839 (6) Lower operating income, higher interest expense and preferred securities distributions, partly offset by higher AFUDC Fuel oil price per barrel. 22.88 24.31 (6)
22
Nine months ended (in thousands, except per September 30, --------------------------- % Primary reason(s) for barrel amounts) 1997 1996 change significant change - ------------------------------------------------------------------------------------------------------------- Revenues.................. $831,314 $797,241 4 Recovery through rates of higher fuel prices ($21 million) and IRP related amounts ($11 million, including demand-side management program costs, lost margins and shareholder incentives) and higher rates ($2 million), partly offset by a 0.5% decrease in KWH sales ($2 million) Expenses Fuel oil................. 196,065 181,739 8 Higher fuel oil prices, partly offset by less KWHs generated Purchased power.......... 218,462 212,674 3 Higher fuel prices, higher IPP capacity and nonfuel charges and more KWHs purchased Other.................... 289,652 270,582 7 Higher depreciation expense, other operation expense (due to higher IRP related costs), maintenance expense and revenue taxes Operating income.......... 127,135 132,246 (4) Higher revenues more than offset by higher operating expenses Net income................ 57,754 61,266 (6) Lower operating income, higher interest expense and preferred securities distributions, partly offset by higher AFUDC Fuel oil price per barrel. 25.54 23.35 9
Electric utility operating income decreased 4% during the third quarter and first nine months of 1997, compared to the same periods in 1996 as a result of lower kilowatthour (KWH) sales and higher operating expenses. KWH sales in the third quarter and first nine months of 1997 decreased 0.3% and 0.5%, respectively, from the same periods in 1996, partly due to Hawaii's slow economy and soft tourist industry, and generally cooler weather for the first nine months of 1997. Higher maintenance expense from higher plant overhaul costs and higher depreciation expense from plant additions also contributed to the decline in operating income. Electric utility net income decreased 6% during the third quarter and first nine months of 1997, compared to the same periods in 1996 as a result of lower operating income and higher interest expense and preferred securities distributions, partly offset by higher allowance for funds used during construction (AFUDC). REGULATION OF ELECTRIC UTILITY RATES The PUC has broad discretion in its regulation of the rates charged by HEIOs electric utility subsidiaries and in other matters. Any adverse decision and 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 23 predict with certainty when D&O's 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 - -------------------- HEI's electric utility subsidiaries initiate PUC proceedings from time to time to request electric rate increases to cover rising operating costs, the cost of purchased power and the cost of plant and equipment, including the cost of new capital projects to maintain and improve service reliability. Two of three previously reported rate proceedings were resolved by final D&O's issued in April 1997 and the third awaits PUC action on a stipulation that would close that proceeding. 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. In April 1997, HELCO received a final D&O which made permanent the $6.8 million interim increase. 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. The Consumer Advocate stipulated to the proposed 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 April 1997, MECO received a final D&O authorizing a 2.9%, or $3.9 million increase in annual revenues, based on a ROACE of 11.5%, or a $0.2 million increase in annual revenues over the $3.7 million increase allowed in the interim order. . In May 1996, MECO filed a request to increase rates based on a 1997 test year, primarily to recover the costs related to the anticipated 1997 addition of new 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 a stipulation 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 rates effective at that time, based on an 11.65% ROACE. The stipulation stated that the increase would be effective January 1, 1997, but it has not and will not become effective unless and until the PUC approves the stipulation. On May 23, 1997, the stipulated increase was revised to $1.3 million after considering the final decision in the 1996 test year case. The primary reason for the stipulation was a delay in the expected in-service date for MECO's generating unit M17, which resulted from delays in obtaining the necessary PSD permit from the DOH/EPA. MECO now anticipates that it will obtain the PSD permit necessary to place M17 in service in late 1998. MECO intends to file a request to increase rates based on a 1999 test year. CONTINGENCIES See note (4) in HECO's "Notes to consolidated financial statements" for a discussion of contingencies, including interim rate increases, HELCO power situation, environmental regulation and PUC show cause order for HECO. 24 SAVINGS BANK - ------------
Three months ended September 30, ----------------------------- % Primary reason(s) for (in thousands) 1997** 1996* change significant change - ---------------------------------------------------------------------------------------------------------------- Revenues.................. $71,625 $68,281 5 Higher interest income as a result of the higher average loans receivable balance, partly offset by lower yield Operating income (loss)... 11,847 (4,015) NM 1996 FDIC special assessment, higher net interest income and a reduction in deposit-insurance premiums, partly offset by an increase in the provision for loan losses Net income (loss)......... 7,040 (2,634) NM Higher operating income As adjusted (excluding FDIC special assessment) Operating income....... 11,847 9,820 21 Higher net interest income and a reduction in deposit-insurance premiums, partly offset by an increase in the provision for loan losses Net income (loss)...... 7,040 5,699 24 Higher operating income Interest rate spread...... 2.90% 2.76% 15 basis points decrease in the weighted average rate on interest-bearing liabilities, partly offset by a 1 basis point decrease in the weighted average yield on interest-earning assets
NM not meaningful. 25
Nine months ended September 30, ----------------------------- % Primary reason(s) for (in thousands) 1997** 1996* change significant change - -------------------------------------------------------------------------------------------------------------- Revenues.................. $210,211 $200,351 5 Higher interest income as a result of the higher average loans receivable balance, partly offset by the lower average mortgage-backed securities balance and lower weighted average yield on loans receivable Operating income.......... 36,368 16,143 125 1996 FDIC special assessment, higher net interest income and a reduction in deposit-insurance premiums, partly offset by an increase in the provision for loan losses Net income................ 21,311 9,102 134 Higher operating income As adjusted (excluding FDIC special assessment) Operating income....... 36,368 29,978 21 Higher net interest income and a reduction in deposit-insurance premiums, partly offset by an increase in the provision for loan losses Net income................ 21,311 17,435 22 Higher operating income Interest rate spread...... 2.96% 2.80% 17 basis points decrease in the weighted average rate on interest-bearing liabilities, partly offset by a 1 basis point decrease in the weighted average yield on interest-earning assets
* On September 30, 1996, President Clinton signed into law the Deposit Insurance Funds Act of 1996, which authorized a one-time deposit-insurance premium assessment by the FDIC. ASB's assessment was $13.8 million pretax ($8.3 million after tax) and was accrued in September 1996. ** After the one-time FDIC assessment, ASB's deposit-insurance premiums (including assessments to pay interest on the FICO bond) were initially reduced from 23 cents to 6.5 cents per $100 of deposits, effective January 1, 1997. As a result of the reduction in deposit-insurance premiums, ASB's pretax and after tax savings were approximately $1.0 million and $0.6 million, respectively, for the third quarter of 1997, and approximately $2.8 million and $1.7 million, respectively, for the first nine months of 1997. See note (3) in HEI's "Notes to consolidated financial statements" for additional information. Several factors contributed to the increase 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 decrease in rates paid on ASB's deposits commencing in September 1996. Comparing the third quarter and first nine months of 1997 to the same periods in 1996, the weighted average rates on interest-bearing liabilities decreased more than the decrease in weighted average yields on interest-earning assets. Deposits traditionally have been the principal source of ASB's funds for use in lending, meeting liquidity requirements and making investments. Deposits increased by $70 million in the first nine months of 1997, including $54 million of interest credited to accounts. ASB also derives funds from receipt of interest and principal on outstanding loans receivable and mortgage-backed securities, 26 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. Using sources of funds with a higher cost than deposits, such as securities sold under agreements to repurchase, puts downward pressure on ASB's net interest income. PURCHASE AND ASSUMPTION AGREEMENT WITH BANK OF AMERICA, FSB See note (3) in HEI's "Notes to consolidated financial statements" for a discussion of ASB's Purchase and Assumption Agreement with Bank of America, FSB. OTHER - -----
Three months ended September 30, ---------------------------- % Primary reason(s) for (in thousands) 1997 1996 change significant change - ----------------------------------------------------------------------------------------------------------------- Revenues.................. $13,262 $15,460 (14) Real estate subsidiary noncash charge on its investment in a real estate project ($4 million), partially offset by HEIIC's higher investment gains and HPG revenues Operating loss............ (3,680) (1,374) (168) See reasons above Nine months ended September 30, ------------------ % Primary reason(s) for (in thousands) 1997 1996 change significant change - ----------------------------------------------------------------------------------------------------------------- Revenues.................. $45,042 $43,978 2 HEIIC's higher investment gains, HPG revenues and freight transportation subsidiaries' higher interstate revenues, partly offset by real estate subsidiary noncash charge on its investment in a real estate project in 1997 and gain on sale of land in 1996 Operating loss............ (7,669) (5,499) (39) Real estate subsidiary noncash charge on its investment in a real estate project in 1997 and gain on sale of land in 1996, partly offset by HEIIC's higher investment gains
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 in Asia and the Pacific; Pacific Energy Conservation Services, Inc., a contract services company providing limited services to an affiliate; HEI and HEIDI, which are holding companies; and eliminations of intercompany transactions. FREIGHT TRANSPORTATION The freight transportation subsidiaries recorded operating income of $0.6 million and $1.4 million in the third quarter and first nine months of 1997, respectively, compared with $1.1 million and $2.0 million in the same periods of 1996. The freight transportation subsidiaries continue to be negatively impacted by the slow economic activity on Oahu's neighbor islands and the slow construction industry in Hawaii. In December 1996, the PUC approved a stipulated agreement between YB and the Consumer Advocate to increase rates by $1.4 million annually, or 3.9%, effective in that month. In March 1997, YB filed a request with the PUC for a general rate increase based on a 1997 test year. YB requested an increase of 8.2%, or $2.9 million in annual revenues, based on a 14.99% ROACE. On September 3, 1997, the PUC approved YB's request to change its sailing schedule which resulted in a reduction in YB's requested 27 rate increase from 8.2% to 5.7%. Subsequently, on October 10, 1997, YB received a final D&O authorizing a 4.7%, or $1.7 million increase in annual revenues, based on a ROACE of 14.1%. REAL ESTATE MPC recorded operating losses of $4.8 million and $5.4 million in the third quarter and first nine months of 1997, respectively, compared with an operating loss of $0.3 million and an operating income of $37,000 in the same periods of 1996. MPC's real estate development activities have been negatively impacted by the slow real estate market in Hawaii. In the third quarter of 1997, a 50% owned partnership of an MPC subsidiary recognized a noncash write off on its investment in a real estate development project, pursuant to SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." MPC's subsidiary's share of this noncash write off was $4.2 million. MPC's results in the first nine months of 1996 were favorably impacted by its sale in April 1996 of land in downtown Honolulu to a developer for a pretax gain of $1.1 million. It is expected that Hawaii's real estate market will not rebound 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 1995 and its subsidiaries have been and will be formed from time to time to pursue independent power projects in Asia and the Pacific. HEIPC's consolidated operating losses were $0.5 million and $1.6 million in the third quarter and first nine months of 1997, respectively, compared with $0.6 million and $1.6 million in the same periods of 1996. In September 1996, HEI Power Corp. Guam (HPG), entered into an energy conversion agreement for approximately 20 years with the Guam Power Authority, pursuant to which HPG is repairing, operating and maintaining two oil-fired 25-MW (net) units on Guam Power Authority property at Tanguisson, Guam. On November 11, 1996, HPG assumed operational control of the Tanguisson facility. HPG's total cost to repair the two units is expected to be approximately $14 million. Payments by the Guam Power Authority under the agreement commenced in January 1997. Repair of the facility was substantially completed in September 1997. While the Guam Power Authority project site is contaminated with oils from pre- existing spills, Guam Power Authority has agreed to indemnify and hold HPG harmless from any resulting liability. CONTINGENCIES - ------------- See note (8) in HEI's "Notes to consolidated financial statements" for a discussion of contingencies, including environmental regulation and The Hawaiian Insurance & Guaranty Company, Limited. FUTURE ENVIRONMENTAL REGULATION On July 16, 1997, the EPA adopted national ambient air quality standards (NAAQS) for certain particulate matter and the ozone. The new standards will not require local pollution controls until 2004 for the ozone and 2005 for particulate matter, with no compliance determinations until 2007 and 2008, respectively, and with possible extensions. The eventual impact of these new standards on the Company and consolidated HECO is not known at this time. YEAR 2000 COMPLIANCE HEI and its subsidiaries are aware of the issues associated with the practice of using two digit years in computer-based systems and the implications if these issues are not properly addressed in a timely manner prior to the year 2000. HECO and its subsidiaries and ASB and its subsidiaries are in the process of replacing substantially all of their business-critical applications (driven by business requirements recognized over three years ago and not simply year 2000 issues) with integrated application suites during 1998 and 1999. These application suites are expected to be year 2000 compliant. Management estimates that the incremental cost to become year 2000 compliant will not have a material effect on the Company's or consolidated HECO's financial condition, results of operations or liquidity. 28 ACCOUNTING CHANGES - ------------------ See note (7) in HEI's "Notes to consolidated financial statements" for a discussion of SOP 96-1, "Environmental Remediation Liabilities"; SFAS No. 128, "Earnings Per Share"; SFAS No. 129, "Disclosure of Information about Capital Structure"; SFAS No. 130, "Reporting Comprehensive Income"; and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company and consolidated HECO believe that their ability to generate cash, both internally from operations and externally from debt and equity issues, is adequate to maintain sufficient liquidity to fund their construction programs and to cover debt retirements and other cash requirements in the foreseeable future. The consolidated capital structure of HEI was as follows:
(in millions) September 30, 1997 December 31, 1996 - --------------------------------------------------------------------------------------------------------------------------- Short-term borrowings......................... $ 116 6% $ 217 11% Long-term debt................................ 804 41 810 43 HEI- and HECO-obligated preferred securities of trust subsidiaries........... 150 8 -- -- Preferred stock of electric utility subsidiaries................................. 84 4 87 5 Common stock equity........................... 804 41 773 41 -------------- ------------- -------------- ------------- $1,958 100% $1,887 100% ============== ============= ============== =============
ASB's deposit liabilities, securities sold under agreements to repurchase and advances from FHLB are not included in the table above. For the first nine months of 1997, net cash provided by operating activities was $99 million. Net cash used in investing activities was $320 million, largely due to ASB's loan originations, net of repayments, the net increase in ASB's mortgage-backed securities and consolidated HECO's capital expenditures. Net cash provided by financing activities was $248 million as a result of several factors, including the issuance of HEI- and HECO-obligated preferred securities of trust subsidiaries and net increases in deposit liabilities, securities sold under agreements to repurchase and advances from FHLB, partly offset by a net decrease in short-term borrowings and by common stock dividends. See note (5) in HEI's "Notes to consolidated financial statements" and note (2) in HECO's "Notes to consolidated financial statements" for a discussion of HEI- and HECO-obligated preferred securities of trust subsidiaries. Proceeds related to the issuance of these securities were used by HEI and HEIDI primarily to repay short-term borrowings and to make loans to affiliates, and proceeds to HECO, MECO and HELCO were used primarily to repay short-term borrowings incurred to finance capital expenditures. Total HEI consolidated financing requirements for 1997 through 2001 are estimated to total $1.2 billion and include net capital expenditures (which exclude AFUDC and capital expenditures funded by third-party cash contributions in aid of construction), long-term debt retirements (excluding repayments of advances from the FHLB of Seattle and securities sold under agreements to repurchase), sinking fund requirements and new capital (approximately $160 million) to be infused into ASB upon the acquisition of Bank of America, FSB's Hawaii operations. Of the $1.2 billion consolidated financing requirements, approximately $0.8 billion is 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 61% of the consolidated financing requirements, with debt and equity financing providing the remaining requirements. After the approximately $160 million capital infusion into ASB in 1997, management expects HECO and ASB to have decreased equity requirements in future years due to the electric utilities' moderating capital expenditures program and other factors. Over the five-year period 1997 through 2001, HEI estimates that, in addition to retained earnings and the proceeds from the sale of the HEI- and HECO-obligated preferred securities of trust subsidiaries, it will require not more than $30 million in additional equity, which is expected to be 29 provided principally by the HEI 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 common equity requirements of its subsidiaries. Additional equity in excess of the $30 million described above, and additional debt financing, may be required to fund activities not included in the 1997-2001 forecast, such as the development of additional independent power projects by HEIPC and its subsidiaries in Asia and the Pacific. Since 1992, HEI's Dividend Reinvestment and Stock Purchase Plan and other stock plans have provided the Company over $30 million in common equity annually. Management intends to sell new shares under these plans to meet any equity capital requirements of HEIPC. However, until those projects close and the equity capital is needed, HEI may purchase shares on the open market to satisfy the share requirements of those plans. Following is a discussion of the liquidity and capital resources of HEI's largest segments, including HECO and its subsidiaries. ELECTRIC UTILITY HECO's consolidated capital structure was as follows:
(in millions) September 30, 1997 December 31, 1996 - -------------------------------------------------------------------------------------------------------------------------- Short-term borrowings from nonaffiliates and affiliate............................ $ 116 7% $ 126 8% Long-term debt............................ 598 37 602 38 HECO-obligated preferred securities of trust subsidiary......................... 50 3 -- -- Preferred stock........................... 84 5 87 6 Common stock equity....................... 766 48 751 48 ----------------- -------------- ----------------- -------------- $1,614 100% $1,566 100% ================= ============== ================= ==============
Operating activities provided $96 million in net cash during the first nine months of 1997. Investing activities used net cash of $81 million primarily for capital expenditures. Financing activities used net cash of $13 million for payment of common and preferred dividends, net decreases in long-term debt, short-term borrowings and preferred stock, mostly offset by $50 million of proceeds from the sale of the HECO-obligated preferred securities of trust subsidiary. The electric utilities' consolidated financing requirements for 1997 through 2001, including net capital expenditures, long-term debt retirements and sinking fund requirements, are estimated to total $768 million. HECO's consolidated internal sources, after the payment of common and preferred stock dividends, are expected to provide approximately 75% of the consolidated financing requirements, with debt and equity financing providing the remaining requirements. In October 1997, the Department of Budget and Finance of the State of Hawaii issued tax-exempt special purpose revenue bonds in the principal amount of $100 million, with a maturity of 30 years and a fixed coupon interest rate of 5.65%, and loaned the proceeds from the sale to HECO, HELCO and MECO. An additional $88 million of revenue bonds is authorized by the Hawaii Legislature for issuance by the Department of Budget and Finance of the State of Hawaii on behalf of HECO and MECO prior to the end of 1999. HECO estimates that it will require approximately $23 million in new common equity, in addition to retained earnings and the proceeds received in March 1997 from the sale of the HECO- obligated preferred securities of trust subsidiary, over the five-year period 1997 through 2001. The PUC must approve issuances of long-term securities, including common stock, 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 AFUDC 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. For 1997, electric utility net capital expenditures are estimated to be $118 million. Gross capital expenditures are estimated to be $153 million, comprised of approximately $96 million for transmission and distribution projects, approximately $36 million for new generation projects and approximately 30 $21 million for general plant and existing generation projects. In addition to the proceeds from the issuance of the HECO-obligated preferred securities of trust subsidiary received in March 1997, drawdowns of proceeds from the sales of tax-exempt special purpose revenue bonds and funds from internal sources are expected to provide the cash needed to finance capital expenditures (including the repayment of short-term borrowings incurred for capital expenditures). 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 increases, 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) 1997 1996 change - -------------------------------------------------------------------------------------------------------------- Assets........................................... $3,847 $3,591 7% Mortgage-backed securities....................... 1,441 1,340 8 Loans receivable, net............................ 2,114 2,002 6 Deposit liabilities.............................. 2,220 2,150 3 Securities sold under agreements to repurchase... 630 480 31 Advances from Federal Home Loan Bank............. 707 684 3
As of June 30, 1997, ASB was the fourth largest financial institution in the state based on total assets of $3.6 billion and the third largest financial institution based on deposits of $2.2 billion. For the first nine months of 1997, net cash provided by ASB's operating activities was $14 million. Net cash used in ASB's investing activities was $221 million, due largely to the origination of loans receivable and the purchase of mortgage-backed securities, partly offset by principal repayments. Net cash provided by financing activities was $233 million as a result of net increases of $150 million in securities sold under agreements to repurchase, $70 million in deposit liabilities and $23 million in advances from the FHLB of Seattle, partly offset by common stock dividends of $10 million. Minimum liquidity levels are currently governed by the regulations adopted by the OTS. ASB was in compliance with OTS liquidity requirements as of September 30, 1997. 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, 1997, ASB was in compliance with the OTS minimum capital requirements (noted in parentheses) with a tangible capital ratio of 5.2% (1.5%), a core capital ratio of 5.3% (3.0%) and a risk-based capital ratio of 12.5% (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, 1997, ASB would not have been required 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, 1997, ASB was well-capitalized (ratio requirements noted in parentheses) with a leverage ratio of 5.3% (5.0%), a Tier-1 risk-based ratio of 11.6% (6.0%) and a total risk-based ratio of 12.5% (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, effective 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 31 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. With the enactment of federal legislation in 1996 to recapitalize the SAIF and to reallocate the repayment burden on bonds issued to recapitalize the SAIF's predecessor, it appears that legislation addressing the merger of the BIF and the SAIF, thrift rechartering and financial modernization will remain a priority for the U.S. Congress. Bills are now pending, or expected to be introduced in Congress, that will contain proposals for altering the structure, regulation and competitive relationships of the nation's financial institutions. Some of these bills would abolish the thrift charter, requiring savings associations to convert to banks, subject to certain grandfathering and transition provisions. For a discussion of the unfavorable disparity in the deposit insurance assessment rates and FICO assessment rates that ASB and other thrifts have paid in relation to the rates that most commercial banks have paid, and certain recent legislation that has and will be reducing this disparity, see note (3) in HEIOs "Notes to consolidated financial statements." PART II - OTHER INFORMATION - -------------------------------------------------------------------------------- ITEM 1. LEGAL PROCEEDINGS - -------------------------- There are no significant developments in pending legal proceedings 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 2. CHANGES IN SECURITIES - ------------------------------ See Item 5E for a description of the Stockholder Rights Plan adopted on October 28, 1997 by the Board of Directors of HEI and a description of preferred stock, including the Series A Junior Participating Preferred Stock authorized for issuance in connection with the Stockholder Rights Plan. ITEM 5. OTHER INFORMATION - -------------------------- A. Environmental matters Water quality control - --------------------- In April 1997, HECO, on behalf of HELCO, notified the DOH that it became aware that industrial oily wastewater was discharging into HELCO's Waimea facility's dry well system in noncompliance with the facility's Underground Injection Control permit. The discharge of oily wastewater was stopped and, in May 1997, a written incident report was submitted to the DOH. The DOH issued a notice of apparent violation. The well was cleaned and in July 1997 a response was submitted to a DOH request for information. The DOH performed a site inspection in September 1997 and is considering enforcement action to be taken. Management does not believe that the impact of such action will have a material effect on the Company's or consolidated HECO's financial condition, results of operations or liquidity. Air quality control - ------------------- The DOH has met with MECO representatives to review all outstanding air regulatory compliance issues which occurred at MECO during 1988 through 1996. The affected MECO facilities include Maalaea, Palaau, Lanai City and Miki Basin generation sites. MECO has reached an agreement in principle with the DOH regarding settlement of outstanding issues and the DOH has indicated that it will issue a consent decree. Management does not believe that the impact of such consent decree will have a material effect on the Company's or consolidated HECO's financial condition, results of operations or liquidity. B. "Reciprocal beneficiaries" lawsuit On July 8, 1997, the Reciprocal Beneficiaries Act was enacted into law creating the status of "reciprocal beneficiaries" for people who are ineligible to marry and citing examples of reciprocal beneficiaries as "a widowed mother and her unmarried son, or two individuals who are of the same gender." On July 11, 32 1997, seven Hawaii companies, including HEI, filed a lawsuit in federal court challenging the Reciprocal Beneficiaries Act. At the time the lawsuit was filed, the State of Hawaii interpreted Section 4 of the Reciprocal Beneficiaries Act to apply to all private employers and to require all private employers to provide medical insurance coverage to the reciprocal beneficiaries of their employees. Since then, the State of Hawaii has modified its interpretation of the Reciprocal Beneficiaries Act to apply only to private employers that have contracted with insurance companies for medical insurance coverage and, therefore, affects less than 1,800 individuals out of the 320,000 covered by prepaid health care plans in Hawaii. In September 1997, the seven companies who filed the lawsuit and the Attorney General of the State of Hawaii settled the lawsuit by reaching an agreement that the law no longer affects the seven companies or any private employer that has not contracted with insurance companies. Thus, the law does not affect HEI and its subsidiaries. C. YB labor negotiations YB was party to a collective bargaining agreement for the period from July 1, 1993 through June 30, 1996 with the International Longshoremen's and Warehousemen's Union, Hawaii Division, Local 142 (ILWU), which was extended while collective bargaining negotiations were ongoing. In August 1997, YB and the ILWU signed a new collective bargaining agreement for the period from July 1, 1996 through June 30, 1999. The agreement provides for a $3.00 per hour, or 12.88%, increase over the three-year period. The agreement covers all regularly scheduled employees including freight clerks, stevedores, maintenance personnel, documentation clerks and customer service representatives. The agreement excludes professional employees, supervisory employees, guards and other clerical personnel. D. 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, 1997 1996 1995 1994 1993 1992 - ----------------------- -------------- -------------- ------------- ------------- -------------- 1.86 1.87 1.94 2.22 2.25 2.08 ======================= ============== ============== ============= ============= ==============
RATIO OF EARNINGS TO FIXED CHARGES INCLUDING INTEREST ON ASB DEPOSITS
Years ended December 31, ---------------------------------------------------------------------------------------- Nine months ended September 30, 1997 1996 1995 1994 1993 1992 - ----------------------- -------------- -------------- ------------- ------------- -------------- 1.57 1.53 1.57 1.69 1.65 1.50 ======================= ============== ============== ============= ============= ==============
For purposes of calculating the ratio of earnings to fixed charges, "earnings" represent the sum of (i) pretax income from continuing operations (excluding undistributed net income or net loss from less than fifty-percent-owned persons) and (ii) fixed charges (as hereinafter defined, but excluding capitalized interest). "Fixed Charges" are calculated both excluding and including interest on ASB's deposits during the applicable periods and represent the sum of (i) interest, whether capitalized or expensed, incurred by HEI and its subsidiaries plus their proportionate share of interest on debt to outsiders incurred by fifty-percent-owned persons, but excluding interest on nonrecourse debt from leveraged leases which is not included in interest expense in HEI's consolidated statements of income, (ii) amortization of debt expense and discount or premium related to any indebtedness, whether capitalized or expensed, (iii) the interest factor in rental expense, (iv) the preferred stock dividend requirements of HEI's subsidiaries, increased to an amount representing the pretax earnings required to 33 cover such dividend requirements and (v) the preferred securities distribution requirements of the trust subsidiaries. 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
Years ended December 31, ---------------------------------------------------------------------------------------- Nine months ended September 30, 1997 1996 1995 1994 1993 1992 - ----------------------- -------------- -------------- ------------- ------------- -------------- 3.24 3.58 3.46 3.47 3.25 3.03 ======================= ============== ============== ============= ============= ==============
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, (iv) the preferred stock dividend requirements of HELCO and MECO, increased to an amount representing the pretax earnings required to cover such dividend requirements and (v) the preferred securities distribution requirements of the trust subsidiary. E. Description of Stockholder Rights Plan and Preferred Stock DESCRIPTION OF STOCKHOLDER RIGHTS PLAN On October 28, 1997, the Board of Directors of HEI adopted a Stockholder Rights Plan and declared a dividend of one Right for each share of Common Stock of HEI to stockholders of record on November 10, 1997 (the "Record Date"). A Right will also attach to each share of Common Stock issued between the Record Date and the Distribution Date (as such term is defined below). Each Right will entitle the registered holder to purchase from HEI a unit (a "Unit") consisting of one one- hundredth of a share of Series A Junior Participating Preferred Stock, no par value (the "Series A Preferred Stock"), at a purchase price of $112 per Unit (the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement (the "Rights Agreement"), dated as of October 28, 1997, between HEI and Continental Stock Transfer & Trust Company, as Rights Agent (the "Rights Agent"). As of the Record Date there were 31,734,028 shares of Common Stock outstanding. Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate Rights Certificate will be distributed. The Rights will separate from the Common Stock upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock other than as a result of repurchases of stock by HEI (the "Stock Acquisition Date") or (ii) 10 days following the commencement of a tender offer or exchange offer that would result in a person or group becoming an Acquiring Person (the earlier of (i) and (ii), the "Distribution Date"). Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new Common Stock certificates will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. The Rights are not exercisable until the Distribution Date and will expire at the close of business on November 1, 2007 unless earlier redeemed by HEI as described below. At no time will the Rights have any voting power. As soon as practicable after the Distribution Date, Rights Certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and, thereafter, the separate Rights Certificates alone will represent the Rights. Except as otherwise determined by the Board of Directors, only shares of Common Stock issued prior to the Distribution Date will have Rights attached. 34 In the event a person becomes an Acquiring Person, each holder of a Right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of HEI), having a value equal to two times the Exercise Price of the Right. Notwithstanding any of the foregoing, following the occurrence of the event set forth in this paragraph (the "Flip-in Event"), all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void. However, Rights are not exercisable following the occurrence of the Flip-in Event set forth above until such time as the Rights are no longer redeemable by HEI as set forth below. In the event that following the Stock Acquisition Date, (i) HEI engages in a merger or business combination transaction in which HEI is not the surviving corporation; (ii) HEI engages in a merger or business combination transaction in which HEI is the surviving corporation and the Common Stock of HEI is changed or exchanged; or (iii) 50% or more of HEIOs assets or earning power is sold or transferred (all deemed "Flip-Over Events"), each holder of a Right (except Rights which have previously been voided as set forth above) shall thereafter have the right to receive, upon exercise of the Right, Common Stock of the acquiring company having a value equal to two times the Exercise Price of the Right. The Purchase Price payable, and the number of Units of Series A Preferred Stock or other securities or property issuable upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Series A Preferred Stock, (ii) if holders of the Series A Preferred Stock are granted certain rights or warrants to subscribe for preferred stock or convertible securities at less than the current market price of the Series A Preferred Stock, or (iii) upon the distribution to holders of the Series A Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above). At any time until ten days following the Stock Acquisition Date, HEI may redeem the Rights in whole, but not in part, at a price of $0.01 per Right. Immediately upon the action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $0.01 redemption price. Until a Right is exercised, the holder thereof, as such, will have no rights as a preferred stockholder of HEI, including, without limitation, the right to vote or to receive dividends. Prior to the Distribution Date, HEI may supplement or amend any provision of the Rights Agreement. After the Distribution Date, the provisions of the Rights Agreement may be supplemented or amended by the Board in order to cure any ambiguity, to make changes which do not materially adversely affect the interests of holders of Rights (excluding the interest of any Acquiring Person), to correct or supplement any defective or inconsistent provision in the Rights Agreement, or to shorten or lengthen any time period under the Rights Agreement; provided, however, that from and after the Distribution Date, no amendment to - -------- ------- lengthen the time period governing redemption shall be made unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of, and/or the benefits to, the holders of Rights. The Rights Agreement may not be amended at a time when the Rights are not redeemable. DESCRIPTION OF PREFERRED STOCK AUTHORIZED PREFERRED STOCK Preferred Stock may be issued by the Board of Directors in one or more series, without action by stockholders and with such preferences, voting powers, restrictions and qualifications as may be fixed by resolution of the Board of Directors authorizing the issuance of such shares. Under current Hawaii law, the terms and provisions of all shares of Preferred Stock must be identical except with respect to dividend rates, redemption and redemption prices, amounts payable in liquidation, sinking fund provisions, conversion privileges, if any, and voting rights, if any. If and when authorized by the Board of Directors, any such Preferred Stock may be preferred as to dividends or in liquidation, or both, over the Common Stock. For example, the terms of the Preferred Stock, if and when authorized, could prohibit dividends on shares of Common Stock until all dividends and any mandatory redemptions have been paid with respect to shares of Preferred Stock. In addition, the Board of Directors may, without stockholder approval, issue Preferred Stock with voting and conversion rights which could adversely affect the voting power or economic rights of the holders of 35 Common Stock. Issuance of Preferred Stock by HEI could thus have the effect of delaying, deferring or preventing a change of control of HEI. The first and only series of Preferred Stock that has been authorized by the Board of Directors as of the date hereof is the Series A Junior Participating Preferred Stock. SERIES A JUNIOR PARTICIPATING PREFERRED STOCK On October 28, 1997, the Board of Directors of HEI authorized a series of 500,000 shares of Preferred Stock, designated the Series A Junior Participating Preferred Stock. The Series A Junior Participating Preferred Stock is without par value, and was created in conjunction with the Board's adoption of the Rights Agreement between HEI and Continental Stock Transfer & Trust Company, as Rights Agent. No shares of Series A Junior Participating Preferred Stock have been issued. The Series A Junior Participating Preferred Stock may be purchased under certain circumstances, as set forth in the Rights Agreement. The exercise price for one one-hundredth of a share of Series A Junior Participating Preferred Stock is $112, subject to adjustment. The Series A Junior Participating Preferred Stock ranks junior to all other series of Preferred Stock as to the payment of dividends and distribution of assets, unless the terms of any such series provide otherwise. If declared by the Board of Directors out of funds legally available therefor, the dividend rate for the Series A Junior Participating Preferred Stock is $61.00 per quarter, or 100 times the current quarterly dividend amount of $0.61 per common share (as adjusted from time to time to reflect stock dividends, subdivisions or combinations). Whenever quarterly dividends on the Series A Junior Participating Preferred Stock are in arrears, dividends or other distributions may not be made on the Common Stock or on any series of Preferred Stock ranking junior to the Series A Junior Participating Preferred Stock. Upon liquidation, no holders of shares ranking junior to the Series A Junior Participating Preferred Stock shall receive any distribution until all holders of the Series A Junior Participating Preferred Stock shall have received $100 per share, plus any unpaid dividends (the "Series A Liquidation Preference"). Following payment of the Series A Liquidation Preference, no additional distributions shall be made to the holders of Series A Junior Participating Preferred Stock unless holders of Common Stock receive an amount equal to the Series A Liquidation Preference divided by 100, as adjusted, and thereafter (and after taking into account any amounts that may then be due to holders of any other series of Preferred Stock) the holders of the Series A Junior Participating Preferred Stock shall be entitled to share in the remaining assets of HEI with the holders of the Common Stock, ratably on a per share basis. In the event that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series A Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. Each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to 100 votes, as may be adjusted from time to time, on all matters submitted to a vote of the stockholders of HEI, voting together with the Common Stock. If dividends on any Series A Junior Participating Preferred Stock are in arrears in an amount equal to six quarterly dividends, then until dividends for all previous quarters and for the current quarter have been declared and paid or set aside for payment, the holders of Series A Junior Participating Preferred Stock, voting as a class with holders of other series of Preferred Stock who are then entitled to vote thereon, shall also have the right to elect two directors to HEIOs Board of Directors. The shares of Series A Junior Participating Preferred Stock are not redeemable. 36 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (A) EXHIBITS
HEI Restated By-Laws of HEI Exhibit 3(ii) HEI Rights Agreement, dated as of October 28, 1997, between HEI and Continental Exhibit 4 Stock Transfer & Trust Company, as Rights Agent (with the form of the Rights Certificates included as Exhibit B) (Exhibit 1 to HEI's Form 8-A dated October 28, 1997, File No. 1-8503). HEI Hawaiian Electric Industries, Inc. and subsidiaries Exhibit 12.1 Computation of ratio of earnings to fixed charges, nine months ended September 30, 1997 and 1996 HECO Hawaiian Electric Company, Inc. and subsidiaries Exhibit 12.2 Computation of ratio of earnings to fixed charges, nine months ended September 30, 1997 and 1996 HEI Hawaiian Electric Industries, Inc. and subsidiaries Exhibit 27.1 Financial Data Schedule September 30, 1997 and nine months ended September 30, 1997 HECO Hawaiian Electric Company, Inc. and subsidiaries Exhibit 27.2 Financial Data Schedule September 30, 1997 and nine months ended September 30, 1997
(B) REPORTS ON FORM 8-K During the third quarter of 1997, no Current Report, Form 8-K, was filed with the SEC. On October 16, 1997, HEI and HECO filed a Form 8-K, dated October 16, 1997, under "Item 5. Other Events", which included HEI's October 16, 1997 news release reporting third quarter 1997 earnings. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. The signature of the undersigned companies shall be deemed to relate only to matters having reference to such companies and any subsidiaries thereof. HAWAIIAN ELECTRIC INDUSTRIES, INC. HAWAIIAN ELECTRIC COMPANY, INC. (Registrant) (Registrant) By /s/ Robert F. Mougeot By /s/ Paul Oyer ------------------------------------ ------------------------------- Robert F. Mougeot Paul A. Oyer Financial Vice President and Financial Vice President and Chief Financial Officer Treasurer (Principal Financial Officer of HEI) (Principal Financial Officer of HECO) Date: November 12, 1997 Date: November 12, 1997 37 EX-3.(II) 2 RESTATED BY-LAWS OF HEI HEI Exhibit 3(ii) ----------------- RESTATED BY-LAWS OF HAWAIIAN ELECTRIC INDUSTRIES, INC. October 28, 1997 ARTICLE I NAME AND SEAL Section 1. The name of the corporation shall be HAWAIIAN ELECTRIC INDUSTRIES, INC. Section 2. The seal of the corporation shall be in such form as the board of directors shall determine from time to time. ARTICLE II STOCKHOLDERS Section 1. Each meeting of the stockholders shall be held at the principal office of the corporation in Honolulu, Hawaii, unless some other place in said Honolulu is stated in the call. Section 2. The annual meeting of the stockholders shall be held on such date in the months of January, February, March or April as the chairman of the board of directors, or in the chairman's absence or disability, the president may designate in each year, and if the chairman of the board of directors, or the president, as the case may be, shall fail to designate such date before the 1st day of April in any year then the annual meeting for that year shall be held on the third Tuesday in April at 10 o'clock a.m. At the annual meeting the stockholders shall elect the directors and auditor to hold office until the next annual meeting and thereafter until their successors shall be duly elected and qualified, and may transact any general business as is properly brought before the meeting in accordance with these By-laws. No business may be transacted at the annual meeting of stockholders, other than business that is either (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors (or any duly authorized committee thereof), (ii) otherwise properly brought before the annual meeting by or at the direction of the board of directors (or any duly authorized committee thereof) or (iii) otherwise properly brought before the annual meeting by any stockholder of the corporation (a) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (b) who complies with the notice procedures set forth in this Section 2. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the secretary of the corporation, which notice is not withdrawn by such stockholder at or prior to such annual meeting. To be timely, a stockholder's notice to the secretary must be delivered to or mailed and received at the principal executive offices of the corporation not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class and number of shares of capital stock of the corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. 2 No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 2; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 2 shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of the board of directors, or the president, as the case may be, of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the chairman or president shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. Section 3. Special meetings of stockholders shall be called by the secretary at any time upon request of the chairman of the board of directors, the president, any two directors of the corporation or the holders of not less than fifty-one percent of the issued and outstanding common stock of the corporation. A request must contain a brief description of the business to be brought before the special meeting by the person making the request, the reasons for conducting such business at such meeting and any material interest of the person making the request in such business. At any special meeting such business shall be brought before the stockholders and may be transacted as is specified in the notice for such meeting, except as provided in Section 9 of Article III of these By-laws. Section 4. Notices of all stockholders' meetings shall specify the class or classes of stock entitled to vote at such meeting, the place, day and hour of the meeting, and whether annual or special. Notice of each meeting of stockholders shall be given by mailing the same at least ten or fifteen (as hereinafter prescribed) days before the date set for such meeting, postage prepaid, and addressed to each common stockholder at the stockholder's address as it appears upon the books of the corporation, in which case such mailing shall constitute sufficient notice to stockholders; provided, however, that whenever the holders of preferred stock have a right to vote at a stockholders' meeting the notice of such meeting shall be given by mailing the same at least ten or fifteen (as hereinafter prescribed) days before the date set for such meeting, postage prepaid, and addressed to each common and preferred stockholder at the stockholder's address as it appears upon the books of the corporation, in which case such mailing shall constitute sufficient notice to stockholders. All notices of stockholders' meetings mailed to stockholders whose addresses as they appear upon the books of the corporation are in said 3 Honolulu shall be mailed at least ten days before the date set for the related meeting. All notices of stockholders' meetings mailed to stockholders whose addresses as they appear upon the books of the corporation are not in said Honolulu shall be mailed at least ten days before the date set for the related meeting if the same are mailed air mail, postage prepaid, and at least fifteen days before the date set for the related meeting if the same are mailed ordinary first class mail, postage prepaid. Non-receipt of any mailed notice shall not invalidate any business done at any meeting at which a quorum shall be present. Section 5. The holders of a majority of the shares of capital stock of the corporation outstanding and entitled to vote, present in person or by proxy at any meeting of stockholders, shall constitute a quorum for the transaction of business, and any decision of a majority of such quorum so present shall be valid and binding upon the corporation, subject, however, to the provisions hereinbelow set forth. Each share of common stock shall be entitled to one vote, subject, however, to such limitation or loss of right as may be provided in resolutions which may be adopted from time to time creating issues of preferred stock or otherwise. Whenever shares of preferred stock shall be outstanding and the holders of such shares shall be entitled to vote, each share of preferred stock shall be entitled to one vote unless the resolution creating the issue of preferred stock shall otherwise provide. Where shares of preferred stock shall be outstanding and shall be entitled to vote and the holders of common stock likewise entitled to vote, each share of common stock outstanding shall count as one vote and each share of preferred stock outstanding shall count as one vote in determining the presence or absence at any meeting of a majority of outstanding shares and in determining whether the holders of a specific proportion of the capital stock outstanding have approved or disapproved of any action. If any class of stock of the corporation shall by the terms of its issuance be not entitled to vote or if any class of stock by virtue of any resolution authorizing the issuance of preferred stock loses its right to vote, then such stock shall not be counted as a part of the issued and outstanding stock of the corporation for the purpose of determining the presence or absence of a quorum at any meeting or whether or not the holders of a specified proportion of the capital stock outstanding have approved or disapproved of any action. 4 Whenever pursuant to the provisions of the resolutions authorizing the issuance of shares of preferred stock the holders of the preferred stock shall vote as a class and the holders of the common stock shall vote as a class, the holders of a majority of the shares of each class outstanding shall constitute a quorum with respect to the voting of such class and any decision of the holders of such majority of the outstanding shares of such class shall be valid and binding as the vote of the holders of the shares of such class. If there is no quorum at any meeting the stockholders present in person or by proxy at such meeting may adjourn from time to time to obtain the attendance of a quorum and no notice of any such adjournment need be given. The provisions of this Section 5 of Article II are subject to any provisions of law or of the Articles of Incorporation or any resolution authorizing the issuance of shares of preferred stock or of these By-laws requiring with respect to any matters the approval or consent of designated percentages of the outstanding shares of stock or of the outstanding shares of any class thereof, or limiting or restricting the right of any class or classes of stock to vote with respect to any matters. Section 6. Any stockholder may in writing authorize any person or corporation, one or more, to vote as the proxy or proxies of such stockholder at any meeting or meetings of the corporation, provided, however, that such authorization in writing must be filed with or presented to the corporation prior to or at any meeting or meetings at which such proxy or proxies may act pursuant thereto; provided, further, that, if two or more persons are named as proxies by or on behalf of the same stockholder, then at the sole discretion of the presiding officer of the meeting, the presiding officer may limit attendance at the meeting to one person so named. Any proxy authorization given pursuant to this section shall be valid and effective until written revocation thereof is filed with the corporation and the presence of a stockholder at any meeting with respect to which the stockholder has submitted a written proxy shall not of itself nullify such proxy. If any stockholder who has given a proxy is present at a meeting of stockholders, such proxy, unless the stockholder declares otherwise, shall be suspended during the time the stockholder is in attendance at the meeting. Before any person is entitled to vote, either as a stockholder or as the representative of a stockholder, any stock of the corporation, at the secretary's 5 discretion, the secretary may require such reasonable evidence as to the identity or the authority of such person to vote the stock of the corporation as the secretary may deem advisable. Section 7. An executor, administrator, guardian or trustee may vote in person or by proxy at any meeting of the corporation the stock of the corporation held by that person in such capacity, whether or not such stock shall have been transferred to that person's name on the books of the corporation. In case the stock shall not have been so transferred to that person's name on the books of the corporation that person shall, as a prerequisite to so voting, file with or present to the corporation a certified copy of that person's letters as such executor, administrator or guardian, or that person's appointment or authority as trustee. In case there are two or more executors, administrators, guardians or trustees, all or a majority of them may vote the stock in person or by proxy at any meeting of the corporation. Section 8. The duly authorized representative of another corporation owning stock in the corporation or having authority to vote stock of another stockholder of the corporation shall be entitled to vote the stock so owned or represented. Section 9. The stockholders having voting rights who shall be entitled to vote at any meeting of stockholders may be determined by Section 2 of Article XIV of these By-laws. Section 10. Whenever the corporation shall have a class of equity securities registered pursuant to the Securities Exchange Act of 1934 which are listed on a national securities exchange or traded over-the-counter on a national securities market of the National Association of Securities Dealers, Inc. Automated Quotation System, no holder of shares of any class of capital stock of the corporation shall be entitled to cumulate votes in the election of directors. ARTICLE III BOARD OF DIRECTORS Section 1. There shall be a board of directors to consist of not less than five (5) nor more than eighteen (18) members, who need not be stockholders, the exact number of directors to be determined from time to time by resolution adopted by the affirmative vote of a majority of the entire board. 6 The directors, other than directors elected by the holders of preferred stock or any series of preferred stock voting separately as a class, shall be divided into three classes, designated Class I, Class II and Class III. Each class of such directors shall consist, as nearly as may be possible, of one-third of the total number of such directors constituting the entire board. Each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting at which the director was elected; provided, however, that each initial director in Class I shall hold office until the annual meeting of stockholders in 1988; each initial director in Class II shall hold office until the annual meeting of stockholders in 1989; and each initial director in Class III shall hold office until the annual meeting of stockholders in 1990. Notwithstanding the foregoing, each director shall serve until his successor is duly elected and qualified, or until his retirement, death, resignation or removal. If the number of directors is changed, other than to change the number of directors to be elected by the holders of preferred stock or any series of preferred stock, voting separately as a class, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors of any class of directors shorten the term of any incumbent director of any class of directors. In the event holders of any preferred stock or any series of preferred stock are entitled to elect directors voting separately as a class, such holders shall be entitled to elect the number of directors provided for in the resolution authorizing the issuance of such stock subject to and upon the terms and conditions of such resolution, notwithstanding the number of directors fixed by the board of directors as provided for in this section of Article III. Section 2. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the corporation, except as may be otherwise provided in the corporation's Articles of Incorporation with respect to the rights of holders of preferred stock to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the board of directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, 7 (i) by or at the direction of the board of directors (or any duly authorized committee thereof) or (ii) by any stockholder of the corporation (a) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2 and on the record date for the determination of stockholders entitled to vote at such meeting and (b) who complies with the notice procedures set forth in this Section 2. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the secretary of the corporation, which notice is not withdrawn by such stockholder at or prior to the meeting of stockholders. To be timely, a stockholder's notice to the secretary must be delivered to or mailed and received at the principal executive offices of the corporation (a) in the case of the annual meeting, not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the secretary must set forth (i) as to each person whom the stockholder proposes to nominate for election as a director (a) the name, age, business address and residence address of the person, (b) the principal occupation or employment of the person, (c) the number of shares of capital stock of the corporation which are owned beneficially or of record by the person and (d) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange 8 Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (ii) as to the stockholder giving the notice (a) the name and record address of such stockholder, (b) the number of shares of Capital Stock of the corporation which are owned beneficially or of record by such stockholder, (c) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (d) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (e) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 2. If the chairman of the board of directors, or the president, as the case may be, of the annual meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman or president shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. Section 3. Each meeting of the board of directors shall be held at the principal office of the corporation in Honolulu, Hawaii, unless some other place is stated in the call. A meeting of the board of directors elected at an annual meeting of stockholders shall be held at the place of such annual meeting and immediately or as soon as practicable thereafter, and no notice thereof shall be necessary. Section 4. The board of directors may establish regular meetings which shall be held in such places and at such times as it may from time to time by vote determine, and when any such meeting or meetings shall be so determined no further notice thereof shall be required. Section 5. Special meetings of the board of directors may be called at any time by the chairman of the board of directors, or by the president or by any two directors. 9 Section 6. Except as otherwise expressly provided, notice of any meeting of the board of directors shall be given to each director by the secretary or by the person calling the meeting, by advising the director by telephone, by word of mouth or by leaving written notice of such meeting with the director or at the director's residence or usual place of business not later than the day before the meeting. Non-receipt of any such notice shall not invalidate any business done at any meeting at which a quorum is present. No notice of a meeting need be given to any director who is at the time absent from the State of Hawaii. The presence of any director at any meeting shall be the equivalent of a waiver of the requirement of the giving of notice of said meeting to such director. Section 7. A majority of the board of directors shall constitute a quorum for the transaction of business, except that a minority of the board may fill vacancies in the board as provided in Section 8 of this Article III. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. Section 8. In case of any vacancies due to death, incapacity, resignation or otherwise in the board of directors, including temporary vacancies caused by the illness of directors or the absence of directors from the Island of Oahu, the remaining members of the board of directors (although less than a majority thereof) may fill the same by the affirmative vote of a majority of such remaining members, subject, however, to the provisions of Section 9 of this Article III. In case of any temporary vacancy aforesaid, such temporary vacancy shall be filled only until the termination of such director's illness or the director's return to the Island of Oahu. Section 9. The stockholders of the corporation may at any special meeting of the stockholders remove from office any director or directors, for cause, and in the case of any such removal any vacancies on the board of directors arising from such removal which are not filled by the stockholders at such special meeting shall be filled by the remaining directors in accordance with the provisions of Section 8 of this Article III. In addition, the board of directors of the corporation, by the affirmative vote of a majority of the whole board, may remove from office any director or directors, for cause, and may fill the vacancies arising from such removal in accordance with the provisions of Section 8 of this Article III. Directors may not be removed except for cause as provided in this Section 9. "Cause" shall mean malfeasance in office, harassment of other directors or the officers or employees of the corporation, or 10 other conduct which, in the opinion of the stockholders or the majority of the whole board of directors, is inimical or prejudicial to the interest of the corporation. Section 10. The board of directors may create and appoint from its own membership such committees as it deems desirable, which shall have such functions and authority as the board of directors shall determine. Section 11. Members of the board of directors or of a committee of the board of directors may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participating in a meeting pursuant to this provision shall constitute presence in person at such meeting. Section 12. Unless otherwise provided by law, any action required or permitted to be taken at any meeting of the board of directors, or of a committee of the board of directors, may be taken without a meeting, if all of the directors or all of the members of the committee, as the case may be, sign a written consent or written consents setting forth the action taken or to be taken, at any time before or after the intended effective date of such action. Such consent or consents shall be filed with the minutes of directors' meetings or committee meetings, as the case may be, and shall have the same effect as a unanimous vote. ARTICLE IV Officers The officers of the corporation shall be a president, one or more vice presidents, a treasurer, a controller, and a secretary. There may also be a chairman of the board of directors appointed from time to time by the board of directors from its own members. Any two of the offices of vice president, treasurer, controller and secretary may be held by the same person. The officers shall be appointed annually by the board of directors at the first meeting thereof after the annual or special meeting of the stockholders at which the board of directors is elected, and shall hold office for one year and thereafter until their successors shall be duly appointed and qualified; provided, that the number of vice presidents may be changed from time to time by the board of directors at any meeting or meetings thereof and if increased at any time the additional vice president or vice presidents shall be appointed by the board of directors. There may also be such subordinate 11 officers as the board of directors shall appoint. No officer or subordinate officer need be a stockholder and no officer or subordinate officer other than the chairman of the board of directors need be a director of the corporation. ARTICLE V CHAIRMAN OF THE BOARD Whenever there shall be a chairman of the board of directors, the chairman shall be an officer of the corporation, the chairman shall preside at all meetings of the stockholders and of the board of directors, and shall have such powers and perform such duties as may be assigned to the chairman of the board from time to time by the board of directors. ARTICLE VI PRESIDENT If there shall be no chairman of the board of directors, or in the absence of the chairman of the board of directors, the president shall preside at meetings of the stockholders and of the board of directors. The president shall exercise general supervision and direction of the business and affairs of the corporation. The president shall, except as may otherwise be provided by resolution of the board of directors, have full authority to vote the shares of stock owned by the corporation at all meetings of other corporations in which the corporation may be a stockholder. The president shall have the powers and perform the duties customarily incidental to the office, and such other duties as may be given to the president elsewhere in these By-laws or as may be assigned to the president from time to time by the board of directors. ARTICLE VII VICE PRESIDENTS The vice presidents, in such order or according to such system as the board of directors shall determine or adopt, shall assume and perform the duties of the president when the office of president is vacant or whenever the president, for any reason, cannot discharge the duties of the office. The vice presidents of the corporation shall have such other powers and duties as may be given to them elsewhere in these By-laws or as may be assigned to them from time to time by the board of directors or by the president. 12 ARTICLE VIII TREASURER The treasurer shall have the powers and perform the duties customarily incidental to the office and such other powers and duties as may be given to the treasurer elsewhere in these By-laws or as may be assigned to the treasurer from time to time. In the absence or disability of the treasurer, or if that office is vacant, the treasurer's duties may be performed by the controller, the secretary or by an assistant treasurer. The directors may by resolution authorize the controller, the secretary or an assistant treasurer equally with the treasurer to have any or all of the powers and to perform any or all of the duties given to the treasurer in these By-laws. ARTICLE IX CONTROLLER The controller shall have the powers and perform the duties customarily incidental to the office and such other powers and duties as may be given to the controller elsewhere in these By-laws or as may be assigned to the controller from time to time. In the absence or disability of the controller, or if that office is vacant, the controller's duties may be performed by the treasurer, secretary or by an assistant controller. The directors may by resolution authorize the treasurer, the secretary or an assistant controller equally with the controller to have any or all of the powers and to perform any or all of the duties given to the controller in these By-laws. ARTICLE X SECRETARY The secretary shall have the powers and perform the duties customarily incidental to the office; the secretary shall give notice of all meetings of the stockholders whenever requested to do so by the person thereunto duly authorized, and shall have such other powers and duties as may be given elsewhere in these By-laws or as may be assigned to the secretary from time to time. In the absence or disability of the secretary, or if that office is vacant, the secretary's duties may be performed by the treasurer, the controller or by an assistant secretary. The directors may by resolution authorize the treasurer, the controller or an assistant secretary equally with the secretary to have any or all of the powers and to perform any or all of the duties given to the secretary in these By-laws. 13 ARTICLE XI SUBORDINATE OFFICERS, AGENTS AND EMPLOYEES Section 1. The board of directors may appoint assistant vice presidents, assistant treasurers, assistant controllers, and assistant secretaries and such other subordinate officers and such agents as may be deemed proper, who shall hold their positions at the pleasure of the board of directors and who shall have such powers and duties as may be determined by the board of directors. The authority to appoint or employ and to discharge subordinate officers and agents and to fix their powers and duties may be delegated by the board of directors to the president or any officer or officers of the corporation. The officer to whom the power to appoint subordinate officers is delegated by the board of directors shall report to the board the names and titles of all subordinate officers appointed by such officer. Any officer of the corporation may also be a subordinate officer, agent or employee. Section 2. The salaries and compensation of all officers, subordinate officers and agents shall be determined by the board of directors. The authority to fix the salaries and compensation of subordinate officers and agents may be delegated by the board of directors to the president. Section 3. The president shall have the control of all employees and shall determine the compensation of all employees other than that of the officers, subordinate officers and agents. ARTICLE XII REMOVALS AND VACANCIES Section 1. The board of directors of the corporation may at any time remove from office or discharge from employment any officer, or subordinate officer, appointed by it or by any person under authority delegated by it, except insofar as such removal would be contrary to law. Section 2. If the office of any officer, or subordinate officer, shall become vacant for any reason, the board of directors may appoint a successor to serve at its pleasure; provided, however, that if the board of directors shall have delegated to any officer the authority to employ or discharge such subordinate officer, then the officer to whom such authority shall have been delegated shall appoint a 14 successor to the office of such subordinate officer, which shall so have become vacant, to serve during the pleasure of such appointing officer. ARTICLE XIII CERTIFICATES OF CAPITAL STOCK Section 1. Certificates for shares of the stock of the corporation shall be of such form and device as the board of directors shall from time to time determine but each such certificate shall plainly show its number, the date of issuance, the name of the person to whom it is issued, the number and class of shares, the designation of the series, if any, which such certificate represents, and the par value of each share represented by such certificate, or a statement that the shares are without par value. Section 2. Each certificate of stock shall be sealed with the corporate seal and signed by the president or by a vice president and also by the secretary or an assistant secretary or by the treasurer or an assistant treasurer; provided, however, that the board of directors may provide that stock certificates which are signed by a transfer agent or by a registrar may be sealed with only the facsimile seal of the corporation and signed on behalf of the corporation with only the facsimile signatures of its officers and subordinate officers as above designated. In case any such officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if such officer had not ceased to be such at the date of its issue. ARTICLE XIV TRANSFER OF STOCK Section 1. Transfer of shares of stock may be made by endorsement and delivery of the certificate. No such transaction shall be valid, except between the parties thereto, until such new certificate shall have been obtained or the transfer shall have been recorded on the books of the corporation so as to show the date of the transfer, the names of the parties thereto, their addresses, and the number and description of the shares transferred. Upon such surrender of any certificate the same shall be cancelled. 15 Section 2. The books for the transfer of stock may be closed as the board of directors may from time to time determine for a period not exceeding twenty days before the annual or any special meeting of stockholders or before the day appointed for the payment of any dividend, or before any date on which rights of any kind in or in connection with the stock are to be determined or exercised; provided, however, that in lieu of closing the books for the transfer of stock the board of directors may fix in advance a day as the record date for the determination of stockholders to be entitled to have or exercise the right to receive notice, to vote, to receive dividends, or to receive or exercise any such rights. In the event that the books for the transfer of stock are to be closed the secretary may be directed by the board of directors to give such notice of such closing as the board of directors may deem advisable. Section 3. In case of the loss, mutilation or destruction of any certificate for any share or shares of stock of the corporation, a duplicate certificate may be issued upon such terms as the board of directors may prescribe. Section 4. The corporation shall be entitled to treat the holder of record of any share or shares of its capital stock as the holder in fact thereof for any purpose whatsoever and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other claimant thereto. Section 5. The board of directors shall have power and authority to make all such rules and regulations as they deem expedient, concerning the issue, transfer and registration of certificates for shares of the capital stock of the corporation. ARTICLE XV EXECUTION OF INSTRUMENTS All checks, dividend warrants and other orders for the payment of money, drafts, notes, bonds, acceptances, contracts, and all other instruments, except as otherwise provided in these By-laws, shall be signed by such person or persons as shall be provided by general or special resolution of the board of directors, and in the absence of any provision in these By-laws or any such general or special resolution applicable to any such instrument then such instrument shall be signed by any two of the following: the president, any vice president, the treasurer, the controller or the secretary. The board of directors may delegate to any officer or officers of the 16 corporation the power to designate the person or persons to execute any such instrument on behalf of the corporation. The board of directors may provide that any such instrument may be executed on behalf of the corporation by the facsimile signature or signatures of such person or persons as may be designated by the board of directors or by any officer or officers to whom such power of designation may have been delegated by the board of directors; and the board of directors may provide that any such instrument may be sealed with the facsimile seal of the corporation. ARTICLE XVI IMMUNITY AND INDEMNIFICATION Immunity of directors and officers of the corporation and indemnification by the corporation of directors and officers of the corporation from costs and expenses and liabilities shall be governed by the provisions relating thereto included in the Articles of Incorporation of the corporation. ARTICLE XVII FISCAL YEAR The fiscal year of the corporation shall be the calendar year. ARTICLE XVIII AMENDMENT TO BY-LAWS Section 1. These By-laws may be altered, amended or repealed or new By-laws enacted by the affirmative vote of a majority of the entire board of directors or at any regular meeting of the shareholders (or at any special meeting duly called for that purpose) by the affirmative vote of a majority of the shares represented and entitled to vote at such meeting (if notice of the proposed alteration or amendment or any new By-law provision or provisions is contained in the notice of such meeting). Section 2. Notwithstanding anything contained in Section 1 of this Article XVIII to the contrary, either (i) the affirmative vote of the holders of at least 80 percent of the votes entitled to be cast by the holders of all shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, or (ii) the affirmative vote of a majority of the entire board of directors 17 with the concurring vote of a majority of the continuing directors, voting separately and as a subclass of directors, shall be required to alter, amend or repeal, or adopt any provision inconsistent with (a) the second paragraph of Section 2 of Article II relating to business properly brought before an annual meeting, (b) Section 3 of Article II, (c) Section 10 of Article II, (d) Section 1 of Article III, (e) Section 9 of Article III and (f) this Article XVIII. For purposes of this Article XVIII, the term "continuing director" shall mean any member of the board of directors who was a member of the board of directors on April 21, 1987 or who is elected to the board of directors after April 21, 1987, upon the recommendation of a majority of the continuing directors, voting separately and as a subclass of directors on such recommendation. 18 EX-12.1 3 HEI - COMPUTATION OF RATIO OF EARNINGS HEI Exhibit 12.1 ---------------- Hawaiian Electric Industries, Inc. and subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (unaudited)
Nine months ended September 30, -------------------------------------------------------------------------- (dollars in thousands) 1997 (1) 1997 (2) 1996 (1) 1996 (2) - ----------------------------------------------------------------------------------------------------------------------- FIXED CHARGES Total interest charges The Company (3)........................... $102,431 $164,852 $ 93,927 $164,243 Proportionate share of fifty-percent- owned persons........................... 446 446 538 538 Interest component of rentals................ 2,227 2,227 2,866 2,866 Pretax preferred stock dividend requirements of subsidiaries............................. 7,771 7,771 8,429 8,429 Preferred securities distribution requirements of trust subsidiaries.......... 7,503 7,503 -- -- -------------- -------------- -------------- -------------- TOTAL FIXED CHARGES.......................... $120,378 $182,799 $105,760 $176,076 ============== ============== ============== ============== EARNINGS Pretax income................................ $108,297 $108,297 $100,372 $100,372 Fixed charges, as shown...................... 120,378 182,799 105,760 176,076 Interest capitalized The Company............................... (4,714) (4,714) (4,570) (4,570) Proportionate share of fifty-percent-owned persons.............. (111) (111) (538) (538) -------------- -------------- -------------- -------------- EARNINGS AVAILABLE FOR FIXED CHARGES......... $223,850 $286,271 $201,024 $271,340 ============== ============== ============== ============== RATIO OF EARNINGS TO FIXED CHARGES........... 1.86 1.57 1.90 1.54 ============== ============== ============== ==============
(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 4 HECO - COMPUTATION OF RATIO OF EARNINGS HECO Exhibit 12.2 ----------------- Hawaiian Electric Company, Inc. and subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (unaudited)
Nine months ended september 30, ---------------------------------------- (dollars in thousands) 1997 1996 - ------------------------------------------------------------------------------------------------------------ FIXED CHARGES Total interest charges.............................................. $ 36,551 $ 34,566 Interest component of rentals....................................... 577 521 Pretax preferred stock dividend requirements of subsidiaries........ 3,125 3,448 Preferred securities distribution requirements of trust subsidiary.. 2,046 -- ----------------- ----------------- TOTAL FIXED CHARGES................................................. $ 42,299 $ 38,535 ================= ================= EARNINGS Income before preferred stock dividends of HECO..................... $ 60,500 $ 64,167 Income taxes (see note below)....................................... 38,824 42,205 Fixed charges, as shown............................................. 42,299 38,535 AFUDC for borrowed funds............................................ (4,658) (3,602) ----------------- ----------------- EARNINGS AVAILABLE FOR FIXED CHARGES................................ $136,965 $141,305 ================= ================= RATIO OF EARNINGS TO FIXED CHARGES.................................. 3.24 3.67 ================= ================= Note: Income taxes are comprised of the following Expense relating to operating income from regulated activities..... $ 38,848 $ 42,367 Benefit relating to loss from nonregulated activities.............. (24) (162) ----------------- ----------------- $ 38,824 $ 42,205 ================= =================
EX-27.1 5 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, 1997 AND CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000354707 HAWAIIAN ELECTRIC INDUSTRIES, INC. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 124,610 1,482,388 151,884 0 42,786 0 2,940,393 956,336 6,238,283 0 803,672 86,070 148,293 647,062 156,374 6,238,283 0 1,086,567 0 930,733 (537) 0 48,074 108,297 44,701 63,596 0 0 0 63,596 2.04 2.04
EX-27.2 6 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, 1997 AND CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000046207 HAWAIIAN ELECTRIC COMPANY, INC. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 PER-BOOK 1,876,652 0 171,050 11,904 141,408 2,201,014 85,387 296,231 384,003 765,621 84,375 48,293 597,718 2,900 0 113,607 0 1,695 0 0 586,805 2,201,014 824,762 38,848 703,757 742,605 82,157 14,233 96,390 35,890 60,500 2,746 57,754 41,521 40,894 95,621 0 0
-----END PRIVACY-ENHANCED MESSAGE-----